CONFORMED COPY
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 1, 1996 Commission File Number 0-6365
---------------------- ------
APOGEE ENTERPRISES, INC.
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Minnesota 41-0919654
------------------------ ---------------------
(State of Incorporation) (IRS Employer ID No.)
7900 Xerxes Avenue South, Suite 1800, Minneapolis, Minnesota 55431
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(Address of Principal Executive Offices)
Registrant's Telephone Number (612) 835-1874
------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding at June 28, 1996
- -------------------------------- ----------------------------
Common Stock, $.33 1/3 Par Value 13,679,101
APOGEE ENTERPRISES, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED JUNE 1, 1996
Description Page
----------- ----
PART I
- ---------
Item 1. Financial Statements
Consolidated Balance Sheets as of June 1, 1996
and March 2, 1996 3
Consolidated Results of Operations for the
Quarters Ended June 1, 1996 and June 3, 1995 4
Consolidated Statements of Cash Flows for the
Quarters Ended June 1, 1996 and June 3, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
PART II Other Information
- ---------
Item 6. Exhibits 11
Exhibits Index 13
Exhibit 11 14
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
June 1, March 2,
1996 1996
-------- --------
ASSETS
Current assets
Cash and cash equivalents (including restricted funds of
$208 and $208, respectively) $ 14,652 $ 7,389
Receivables, net of allowance for doubtful accounts 168,866 158,368
Inventories 61,060 54,484
Costs and earnings in excess of billings on uncompleted contracts 22,420 26,276
Deferred tax assets 5,958 6,689
Other current assets 6,619 5,353
-------- --------
Total current assets 279,575 258,559
-------- --------
Property, plant and equipment, net 106,670 78,485
Marketable securities - insurance subsidiary 12,992 12,231
Investments in and advances to affiliated companies - 15,821
Investments 940 612
Intangible assets, at cost less accumulated amortization 16,548 10,332
Deferred tax assets 7,720 6,970
Other assets 2,638 3,126
-------- --------
Total assets $427,083 $386,136
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 56,880 $ 57,678
Accrued expenses 78,801 52,430
Billings in excess of costs and earnings on uncompleted contracts 25,341 19,470
Accrued income taxes 9,891 7,634
Current installments of long-term debt 5,265 5,265
-------- --------
Total current liabilities 176,178 142,477
-------- --------
Long-term debt 83,014 79,102
Other long-term liabilities 22,124 24,180
Minority interest 463 1,456
Shareholders' equity
Common stock, $.33 1/3 par value; authorized 50,000,000
shares; issued and outstanding 13,664,000 and 13,517,000
shares, respectively 4,551 4,506
Additional paid-in capital 22,896 20,445
Retained earnings 117,857 113,970
-------- --------
Total shareholders' equity 145,304 138,921
-------- --------
Total liabilities and shareholders' equity $427,083 $386,136
======== ========
See accompanying notes to consolidated financial statements.
3
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
FOR THE QUARTERS ENDED JUNE 1, 1996 AND JUNE 3, 1995
(Thousands of Dollars Except Share and Per Share Amounts)
Quarter Ended
----------------------------------
June 1, June 3,
1996 1995
------------ -------------
Net sales $ 228,608 $ 219,032
Cost of sales 192,221 187,107
----------- -----------
Gross profit 36,387 31,925
Selling, general and administrative expenses 26,030 24,127
----------- -----------
Operating income 10,357 7,798
---------- -----------
Interest expense, net 2,355 1,752
----------- -----------
Earnings before income taxes and other
items below 8,002 6,046
Income taxes 2,954 2,397
Equity in net loss (earnings) of affiliated companies 60 (77)
Minority interest 12 245
----------- -----------
Net earnings $ 4,976 $ 3,481
=========== ===========
Earnings per share: $.36 $.26
=========== ===========
Weighted average number of
common shares and common share
equivalents outstanding 13,831,000 13,623,000
=========== ===========
Cash dividends per common share $.085 $.080
=========== ===========
See accompanying notes to consolidated financial statements.
4
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED JUNE 1 1996 AND JUNE 3, 1995
(Thousands of Dollars)
1996 1995
-------- -------
OPERATING ACTIVITIES
Net earnings $ 4,976 $ 3,481
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 6,135 4,509
Provision for losses on accounts receivable 485 537
Deferred income tax expense 281 (400)
Minority interest 13 245
Equity in net earnings of affiliated companies 60 (77)
Other, net (403) (158)
Changes in operating assets and liabilities,
net of effect of acquisitions:
Receivables (6,090) 2,142
Inventories (4,039) (5,423)
Costs and earnings in excess of billings on
uncompleted contracts 3,856 658
Other current assets (860) 1,238
Accounts payable and accrued expenses (1) 19,173 (4,784)
Billings in excess of costs and earnings
on uncompleted contracts 5,871 1,661
Accrued income taxes 1,948 (3,115)
Other long-term liabilities (2,056) 877
-------- -------
Net cash provided by operating activities 29,350 1,391
-------- -------
INVESTING ACTIVITIES
Capital expenditures (6,743) (4,682)
Acquisition of businesses, net of cash acquired (1) (21,186) -
Increase in marketable securities (761) -
Investments in and advances to affiliated companies - (633)
Proceeds from sale of property and equipment 1,826 123
Other, net (483) (29)
-------- -------
Net cash used in investing activities (27,347) (5,221)
-------- -------
FINANCING ACTIVITIES
Increase in notes payable - 18,385
Payments on long-term debt (688) (1,048)
Proceeds from issuance of long-term debt 4,600 -
Proceeds from issuance of common stock 2,506 314
Dividends paid (1,158) (1,086)
-------- -------
Net cash provided by financing activities 5,260 16,565
-------- -------
Increase in cash 7,263 12,735
Cash at beginning of period 7,389 2,894
-------- -------
Cash at end of period $ 14,652 $15,629
======== =======
(1) The estimated cost of the Marcon and Viratec acquisition, subject to the
determination of the Court as described on page 8, included in investing
activities is offset by an increase in accrued expenses in operating
activities.
See accompanying notes to consolidated financial statements.
5
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as
of June 1, 1996 and March 2, 1996, and the results of operations and cash
flows for the thirteen weeks ended June 1, 1996 and the fourteen weeks
ended June 3, 1995 Certain prior year amounts have been reclassified to
conform to the current period presentation.
The financial statements and notes are presented as permitted by Form 10-Q
and do not contain certain information included in the Company's annual
financial statements and notes.
The results of operations for the thirteen-week and fourteen-week periods
ended June 1, 1996 and June 3, 1995, respectively, are not necessarily
indicative of the results to be expected for the full year.
Accounting period
The Company's fiscal year ends on the Saturday closest to February 28. Each
interim quarter ends on the Saturday closest to the end of the months of
May, August and November.
2. Inventories
-----------
Inventories consist of the following:
June 1, March 2,
1996 1996
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Raw materials and supplies $12,085 $10,402
In process 4,798 3,964
Finished goods 44,177 40,118
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$61,060 $54,484
======= =======
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SALES AND EARNINGS
- ------------------
First quarter earnings rose 43% to $5.0 million, or 38 cents per share, from
$3.5 million, or 26 cents per share, a year ago. Sales for the quarter were
$228.6 million, a 4% increase over last year's first quarter figure of $219.0
million. Sale comparisons were affected by a thirteen-week quarter compared with
last year's fourteen-week quarter, the absence of the Nanik Window Coverings
Group, which was sold last July, and the consolidation of Viratec Thin Films and
Marcon Coatings in the Company's financial statements. Adjusting for last year's
fourteen-week quarter, consolidated net sales would have been up approximately
12% from a year ago.
The following table presents sales and operating income data for the Company's
three segments and on a consolidated basis for the first quarter, when compared
to the corresponding period a year ago. Operating results are discussed below.
QUARTER ENDED
-----------------------
JUNE 1, JUNE 3, PERCENTAGE
1996 1995 CHANGE
======================= ==========
SALES
Building products & services $ 109,190 $ 111,159 (2)%
Glass technologies 44,269 38,897 14%
Auto glass 78,418 72,501 8%
Eliminations (3,269) (3,525) (7)%
----------------------- ---------
Total $ 228,608 $ 219,032 4%
======================= =========
OPERATING INCOME (LOSS)
Building products & services $ 561 $ (999) NM
Glass technologies 4,023 3,484 15%
Auto glass 6,205 5,573 11%
Corporate and other (432) (260) 66%
----------------------- ---------
Total $ 10,357 $ 7,798 33%
======================= =========
Building Products & Services (BPS)
- ----------------------------------
BPS's continuing efforts to focus on profitability produced another quarter of
improved results. Sales were slightly behind last year's first quarter figure,
but were up 5% when adjusting for the absence of the divested Nanik group. When
also adjusting for the additional week contained in last year's first quarter,
BPS's sales were up approximately 14%.
The segment made a nominal profit compared to a small loss for the same period a
year ago. The profit was primarily due to the Wausau Architectural Products
group. The segment's Harmon Contract curtainwall and full service glazing groups
made small operating profits for the period, while the detention and security
unit suffered a loss for the quarter. The benefits of cost reductions and
operating improvements, along with better project selection and management,
continue to be reflected in the segment's quarter-to-quarter earnings
comparisons, which again showed steady, if modest, improvement.
BPS anticipates reporting favorable earnings comparisons for the remainder of
the fiscal year as newer, higher-margin projects move out of backlog, replacing
lower-margin projects reaching completion.
7
Glass Technologies (GT)
- -----------------------
As a result of the litigation and court proceedings described in the next
paragraph, Marcon Coatings (Marcon) and Viratec Thin Films (Viratec) were
consolidated in Apogee's financial statements beginning with the first quarter
of fiscal 1997, and are reflected in the GT segment. Through fiscal 1996, Marcon
and Viratec were accounted by the equity method, with the 50% equity in Marcon's
and Viratec's net earnings included in "Equity in net earnings of affiliated
companies" in Apogee's Consolidated Results of Operations.
In November 1995, Apogee's 50% joint venture partner (JV Partner) in
Marcon/Viratec commenced litigation against Apogee, alleging claims for damages
and seeking to have the Court order Apogee to sell its 50% interest to the JV
Partner. Apogee filed counterclaims seeking to have the JV Partner's 50%
interest sold to Apogee. In March 1996, the Court ordered the JV partner to sell
shares representing its 50% interest in Marcon/Viratec to Apogee upon payment by
Apogee of fair value for those shares as determined by the Court. The JV
Partner's rights and status as shareholder and directors were terminated as of
the effective date of the order and the fair value for the shares is to be
determined by the Court after further proceedings. The Court has not yet
scheduled a trial or hearing to determine fair value. In April 1996, the court
ordered Apogee to post security of $50 million for the ultimate payment of the
purchase price for the JV Partner's shares. Accordingly, Apogee posted a letter
of credit in the amount of $50 million in May 1996. The amount of the letter of
credit is intended as security and is not intended to reflect the Court's view
on the fair value for the shares. The Court has taken under advisement certain
motions brought by the parties, including a motion by the JV Partner for
reconsideration of the March 4, 1996 order termination its rights and status as
a shareholder.
GT had another solid first quarter, reporting double-digit sales and earnings
growth when compared to the same period a year ago. After adjusting for first-
time inclusion of Marcon/Viratec and the additional week contained in last
year's first quarter, sales were up 7%.
Viracon, GT's architectural glass fabrication unit, experienced some shipping
delays during the quarter, but was still able to deliver improved results when
compared to last year. Viracon continues to add capacity as it works on various
manufacturing expansion projects. The unit believes the additional capacity will
allow it to penetrate the mid-performance architectural glass market.
Viratec Thin Films reported a slim operating profit as pricing pressures
continue to affect its flat glass business. Tru Vue, the segment's picture
framing products unit, produced a slightly lower operating profit than a year
ago on flat sales in a seasonally slow portion of its year.
GT anticipates continued strong demand for fabricated architectural glass
products and believes that additional fabrication capacity will allow it to
report earnings improvement in future quarters.
Auto Glass ( AG)
- ----------------
AG reported growth in both revenues and earnings for the first quarter of fiscal
1997. The gains were due to a combination of increased unit volume and a
moderate price increase. The segment believes its efforts to meet customer needs
through enhanced information systems and exemplary customer service has helped
to improve market share. The costs of long-term business initiatives, including
both marketing efforts and information systems development, dampened the benefit
of the sales gains.
The segment opened 2 retail stores, while closing 1 locations, bringing the
total number of retail stores to 265 in 36 states. AG also opened 3 new
wholesale depots for a total 63 wholesale depots and 8 Midas Muffler
franchises. Expansion opportunities continue to be explored.
Based on current industry trends, AG expects to produce a solid operating
results for the year. However, fluctuating demand for automotive replacement
glass and pricing pressures, along with
8
the added costs of its selling and administrative initiatives, may result in
quarter-to-quarter variations in earnings comparisons.
Backlog
- -------
On June 1, 1996, Apogee's consolidated backlog was $434.6 million, up 5% from
fiscal year end and slightly more than $430.3 million a year ago. For
comparative purposes, a year ago numbers have been adjusted to include Viratec
Thin Films backlog and also includes a correction to New Construction-
international backlog. Backlog growth came from Glass Technologies'
architectural glass manufacturer and BPS's New Construction-Europe units which
are both experiencing higher demand and growth.
Consolidated
- ------------
The following table compares quarterly results with year-ago results, as a
percentage of sales, for each caption.
Percentage of Sales
-------------------
1997 1996
---- ----
Net sales 100.0 100.0
Cost of sales 84.1 85.4
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Gross profit 15.9 14.6
Selling, general and
administrative expenses 11.4 11.0
----- -----
Operating income 4.5 3.6
Interest expense, net 1.0 0.8
----- -----
Earnings before taxes 3.5 2.8
Income taxes 1.3 1.1
Equity in net loss (earnings) of
affiliated companies - -
Minority interest - 0.1
----- -----
Net earnings 2.2 1.6
===== =====
Effective tax rate 36.9% 39.6%
On a consolidated basis, cost of sales, as a percentage of net sales, fell due
to better margins at BPS and AG's wholesale units. Selling, general and
administrative (SG&A) expenses increased as a percentage of sales. Expenses
relating to higher activity also rose -- commissions, marketing expenses,
bonuses and profit sharing expense. Net interest expense increased due to higher
interest rates and borrowing levels than experienced a year ago.
The effective income tax rate dropped as improved earnings and a shift towards
greater export sales and international operations activity helped the overall
rate fall slightly.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At quarter end, the Company's working capital decreased about $13 million from
the beginning of the quarter. The decrease was due to higher sales activity
reflecting increases in accounts receivable ($6 million), inventories ($4
million) and cash ($7 million). However, current bank debt decreased $4 million.
This substitution was caused primarily by higher overseas cash holdings.
Bank borrowings stood at $78.0 million at June 1, 1996, slightly more than a $17
million decrease in borrowings from a year ago. Apogee's long-term debt was 33%
of total capitalization.
In May 1996, a five-year multi-currency, committed credit facility was obtained
in the amount of $150 million, replacing the previous credit agreements. The
agreement requires Apogee to maintain minimum levels of net worth and certain
financial ratios.
9
Additions to property, plant and equipment totaled approximately $6.7 million.
Major items included expenditures for data management, information processing
and facility expansions throughout the Company. For information relating to the
purchase of Marcon and Viratec, please see the cash flow statement on page 5 and
related footnote.
CAUTIONARY STATEMENTS
A number of factors should be considered in conjunction with any discussion of
operations or results by the Company or its representatives and any forward-
looking discussion, as well as comments contained in press releases,
presentations to securities analysts or investors, or other communications by
the Company. These factors are set forth in the cautionary statements filed as
Exhibit 99 to the Company's Form 10-K and include, without limitation,
cautionary statements regarding (i) industry conditions, including that the
industries in which the business segments compete are cyclical in nature and
sensitive to changes in general economic conditions, (ii) the competitive
environment in which the Company's business segments operate, including that the
industries are highly competitive and fairly mature, and (iii) the Company's
international operations are subject to the general risks of doing business
abroad and of entering new markets. The Company wishes to caution investors and
other to review the statements set forth in Exhibit 99 and that other factors
may prove to be important in affecting the Company's business or results of
operations. These cautionary statements should be considered in connection with
this Form 10-Q, including the forward looking statements contained in the
Management's discussion and analysis of the Company's three business segments.
These cautionary statements are intended to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995.
10
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
Exhibit 11. Statement of Determination of Common Shares and
Common Share Equivalents.
Exhibit 27. Financial Data Schedule (EDGAR filing only)
(b) The Company did not file any reports on Form 8-K during the quarter for
which this report is filed.
11
CONFORMED COPY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APOGEE ENTERPRISES, INC.
Date: July 16, 1996 /s/ Donald W. Goldfus
------------------------ -------------------------------------
Donald W. Goldfus
Chairman of the Board,
Chief Executive Officer and President
Date: July 16, 1996 /s/ Terry L. Hall
------------------------- ------------------------------------
Terry L. Hall
Vice President Finance and
Chief Financial Officer
12
EXHIBITS INDEX
Exhibit Page
- ------- ----
Exhibit 11 Statement of Determination of Common Shares
and Common Share Equivalents 13
Exhibit 27 Financial Data Schedule (EDGAR filing only) 14
13
EXHIBIT 11
STATEMENT OF DETERMINATION OF COMMON SHARES AND COMMON SHARE EQUIVALENTS
------------------------------------------------------------------------
Average No. of Common Shares
& Common Share Equivalents
Assumed to be Outstanding
During the Quarter Ended:
----------------------------
June 1, June 3,
1996 1995
---------- ----------
Weighted average number of
common shares outstanding (a) 13,663,929 13,459,895
Common share equivalents
resulting from the assumed
exercise of stock options (b) 259,669 162,915
---------- ----------
Total primary common shares
and common share equivalents 13,831,179 13,622,810
========== ==========
(a) Beginning balance of common stock adjusted for changes in amount
outstanding, weighted by the elapsed portion of the period during
which the shares were outstanding.
(b) Common share equivalents computed by the "treasury" method. Share
amounts represent the dilutive effect of outstanding stock options
which have an option value below the average market value for the current
period.
14
5
1,000
3-MOS
MAR-01-1997
MAR-03-1996
JUN-01-1996
14,652
12,992
177,029
8,163
61,060
279,575
218,393
111,723
427,083
176,178
0
4,551
0
0
140,753
427,083
228,608
228,608
192,221
25,545
0
485
2,355
8,002
2,954
5,048
0
0
0
4,976
0.36
0.36
