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 November 27, 1993 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
(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 December 31, 1993
Common Stock, $.33-1/3 Par Value 13,315,492
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED NOVEMBER 27, 1993
Description Page
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PART I
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Item 1. Financial Statements
Consolidated Balance Sheets as of November 27, 1993
and February 27, 1993 3
Consolidated Results of Operations for the
Three Months and Nine Months Ended
November 27, 1993 and November 28, 1992 4
Consolidated Statements of Cash Flows for
the Nine Months Ended November 27, 1993
and November 28, 1992 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
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APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
November 27, February 27,
1993 1993
------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 1,291 $ 8,908
Receivables, net 158,423 106,421
Inventories 45,780 40,189
Deferred income taxes 9,381 8,481
Other current assets 6,927 5,030
-------- --------
Total current assets 221,802 169,029
-------- --------
Property, plant and equipment, net 66,225 66,128
Intangible assets, at cost less
accumulated amortization 3,421 4,917
Investments in and advances to
affiliated companies 11,509 10,179
Other assets 1,270 1,203
-------- --------
Total assets $304,227 $251,456
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 46,979 $ 37,200
Accrued expenses 39,176 36,414
Billings in excess of costs and earnings
on uncompleted contracts 21,717 17,440
Accrued income taxes 4,468 4,556
Notes payable 22,800 -
Current installments of long-term debt 4,056 4,177
-------- --------
Total current liabilities 139,196 99,787
-------- --------
Long-term debt 35,809 28,419
Other long-term liabilities 12,436 10,915
Shareholders' equity
Common stock, $.33-1/3 par value;
authorized 50,000,000 shares; issued
and outstanding 13,215,000 and
13,177,000 shares, respectively 4,405 4,392
Additional paid-in capital 16,375 15,845
Retained earnings 96,006 92,098
-------- --------
Total shareholders' equity 116,786 112,335
-------- --------
Total liabilities and shareholders' equity $304,227 $251,456
======== ========
See accompanying notes to consolidated financial statements.
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APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED
NOVEMBER 27, 1993 AND NOVEMBER 28, 1992
(Thousands of Dollars Except Share and Per Share Amounts)
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
November 27, November 28, November 27, November 28,
1993 1992 1993 1992
------------ ------------ ------------ ------------
Net sales $ 184,529 $ 146,723 $ 508,849 $ 423,403
Cost of sales 160,612 126,864 442,892 363,453
----------- ----------- ----------- -----------
Gross profit 23,917 19,859 65,957 59,950
Selling, general and
administrative expenses 18,617 17,769 55,156 53,509
Equity in (earnings) of
affiliated companies (259) (1,086) (1,453) (1,337)
----------- ----------- ----------- -----------
Operating income 5,559 3,176 12,254 7,778
Interest expense, net 916 376 2,236 1,378
----------- ----------- ----------- -----------
Earnings before income taxes 4,643 2,800 10,018 6,400
Income taxes 1,741 780 3,757 2,112
----------- ----------- ----------- -----------
Net earnings before
cumulative effect of change
in accounting principle 2,902 2,020 6,261 4,288
Cumulative effect of change in
accounting principle - - 525 -
----------- ----------- ----------- -----------
Net earnings $ 2,902 $ 2,020 $ 6,786 $ 4,288
=========== =========== =========== ===========
Earnings per common and common
equivalent share:
Earnings per share before
cumulative effect of change
in accounting principle $ .22 $ .15 $ .47 $ .32
Cumulative effect of change in
accounting principle - - .04 -
----------- ----------- ----------- -----------
Earnings per share $ .22 $ .15 $ .51 $ .32
=========== =========== =========== ===========
Weighted average number of
common and common equivalent
shares outstanding 13,278,000 13,182,000 13,252,000 13,329,000
=========== =========== =========== ===========
Cash dividends per common share $ .075 $ .070 $ .215 $ .20
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
-4-
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED NOVEMBER 27, 1993 AND NOVEMBER 28, 1992
(Thousands of Dollars)
1993 1992
-------- ---------
OPERATING ACTIVITIES
Net earnings 6,786 4,288
Adjustments to reconcile net earnings to net
cash used in operating activities:
Cumulative effect of change in accounting principle (525) -
Depreciation and amortization 11,180 11,299
Provision for losses on accounts receivable 1,955 965
Noncurrent deferred income taxes (660) (56)
Equity in net earnings of affiliated
companies (1,453) (1,337)
Other, net 1 97
Changes in operating assets and liabilities,
net of effect of acquisitions:
Receivables (53,433) (9,695)
Inventories (3,305) 3,252
Other current assets (1,674) (558)
Accounts payable and accrued expenses 12,541 (5,951)
Billings in excess of costs and earnings
on uncompleted contracts 4,277 5,542
Accrued and current deferred income taxes (463) (2,009)
Other long-term liabilities 2,181 1,523
-------- --------
Net cash (used in) provided by operating
activities (22,592) 7,360
-------- --------
INVESTING ACTIVITIES
Capital expenditures (8,204) (7,182)
Acquisition of businesses, net of cash acquired (3,834) (289)
Investments in and advances to affiliated companies 98 (4,032)
Other, net (844) (35)
-------- --------
Net cash used in investing activities (12,784) (11,538)
-------- --------
FINANCING ACTIVITIES
Payments on long-term debt (6,831) (7,714)
Proceeds from issuance of long-term debt 14,100 8,300
Proceeds from issuance of notes payable 22,800 -
Proceeds from issuance of common stock 554 1,508
Repurchase and retirement of common stock (20) (3,882)
Dividends paid (2,844) (2,661)
-------- --------
Net cash provided by (used in) financing
activities 27,759 (4,449)
-------- --------
Decrease in cash (7,617) (8,627)
Cash and cash equivalents at beginning of period 8,908 18,742
-------- --------
Cash and cash equivalents at end of period $ 1,291 $ 10,115
======== ========
See accompanying notes to consolidated financial statements.
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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
November 27, 1993 and February 27, 1993, and the results of operations for
the three months and nine months ended November 27, 1993 and November 28,
1992 and cash flows for the nine months ended November 27, 1993 and November
28, 1992. 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 nine-month period ended November 27, 1993
and November 28, 1992 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:
November 27, February 27,
1993 1993
------------ ------------
Raw materials and supplies $10,727 $ 8,819
In process 4,566 2,315
Finished goods 26,136 23,148
Costs in excess of billings on
uncompleted contracts 4,351 5,907
------- -------
$45,780 $40,189
======= =======
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Sales and Earnings
- ------------------
Earnings for the third quarter rose 44 percent to $2.9 million, or 22 cents per
share, from $2.0 million, or 15 cents per share, a year earlier. Sales for the
same period climbed 26 percent to $184.5 million from $146.7 million. Year-to-
date earnings and sales climbed 46 percent and 20 percent, respectively, before
a gain of $525,000 recorded in the first quarter due to a change in accounting
principle.
Strong revenue growth in commercial construction, specifically the recently
acquired CFEM Facades, and glass fabrication accounted for most of the sales
gain, while sharply improved profitability in glass fabrication and steady gains
in auto glass and consumer glass markets combined to produce the higher earnings
in both the current quarter and year to date.
The following table presents the percentage change in sales and operating income
for the Company's four divisions and on a consolidated basis, for three and nine
months when compared to the corresponding periods a year ago. Divisional
results were mixed and are explained below.
Percentage Change
--------------------------------------
Three Months Ended Nine Months Ended
November 27, 1993 November 27, 1993
------------------ -----------------
Operating Operating
Division Sales Income Sales Income
-------- ----- --------- ----- ---------
Commercial Construction 41 Loss 29 Loss
Window Fabrication (8) Loss 4 Loss
Glass Fabrication 33 84 20 60
Installation and
Distribution 10 16 15 145
Consolidated 26 75 20 58
Commercial Construction
- -----------------------
As noted, the Commercial Construction Division's (CCD) revenues rose due largely
to the recently acquired CFEM Facades (CFEM). CFEM reported a profit for the
quarter while the remainder of the division continued to produce disappointing
results. Very tight margins, especially in U.S. construction markets, along with
high overseas operating costs, accounted for CCD's loss. Though the division
reported a loss, CCD has narrowed the loss through continued work on overhead
reduction and improved margins. Results in upcoming quarters, however, will
likely continue to reflect the competitive nature of CCD's markets.
CCD's backlog rose 14% from the end of the second quarter to $386 million. The
increase was principally due to the $80 million Kuala Lumpur job added to the
Asian segment of CCD. Without the Kuala Lumpur job, CCD's backlog fell nine
percent from the August ending
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balance. Overall the Company's consolidated backlog rose to $423.9 million at
the end of the third quarter, up 46% from a year ago and up 32% from the
beginning of the fiscal year.
Window Fabrication
- ------------------
The Window Fabrication Division registered a decline in sales and an operating
loss for the quarter. The architectural units experienced a number of
manufacturing difficulties resulting in delayed deliveries and higher
inventories. These factors, combined with low margins on current projects, led
to another quarterly loss. The group is reviewing all aspects of its production
systems to improve manufacturing efficiency and customer service. Earnings from
the window coverings units helped to partially offset the architectural results,
but a change in sales mix kept window coverings profit margin below historical
levels.
Glass Fabrication
- -----------------
Glass Fabrication Division's (GFD) units produced significant earnings and sales
growth in the third quarter. Strong demand for replacement auto glass supplied
by GFD's Curvlite unit led the improvement although signs of slowing demand
began to be felt. Viracon, the division's fabricator of architectural glass,
also showed sizable earnings growth. The unit was near capacity as demand for
its higher-value fabricated glass grew partly a result of competitor
withdrawals.
Tru Vue, GFD's picture framing glass unit, continued to record healthy sales and
earnings gains while proceeding with its integration of Miller Matboard, which
was acquired early in the year. Marcon Coatings (Marcon), a joint venture,
reported improved results for the quarter on higher volume. GFD expects further
improvements in coming quarters.
Installation and Distribution
- -----------------------------
The Installation and Distribution Division (IDD) once again achieved strong
results in both sales and earnings. High demand for replacement auto glass was
the leading factor for the continued showing, although the division, like GFD's
Curvlite unit, felt trailing off of demand near quarter end, some of which was
seasonal. Fourth quarter results will depend on sales levels as IDD moves into
its historically slowest quarter.
The division opened five distribution centers in the first nine months of the
fiscal year bringing its total to 45 distribution facilities and 238 stores.
Viratec Thin Films
- ------------------
Viratec Thin Films (Viratec), a 50%-owned optical-grade glass coating joint
venture, again reported solid gains for the period. Recently, some softness in
pricing of coated glass for computer monitors has been noted. Meanwhile, the
order backlog rose to a record level, and new product development efforts
continue.
-8-
Consolidated
- ------------
The following table compares quarterly results with year ago results, as a
percentage of sales, for each caption.
Three Months Ended Nine Months Ended
------------------- -------------------
Nov. 27, Nov. 28, Nov. 27, Nov. 28,
1993 1992 1993 1992
-------- -------- -------- --------
Net sales 100.0 100.0 100.0 100.0
Cost of sales 87.0 86.5 87.0 85.8
----- ----- ----- -----
Gross profit 13.0 13.5 13.0 14.2
Selling, general and
administrative expenses 10.1 12.1 10.8 12.7
Equity in earnings of
affiliated companies (0.1) (0.7) (0.3) (0.3)
----- ----- ----- -----
Operating income 3.0 2.2 2.4 1.8
Interest expense, net 0.5 0.3 0.4 0.3
----- ----- ----- -----
Earnings before income
taxes 2.5 1.9 2.0 1.5
Income taxes 0.9 0.5 0.7 0.5
----- ----- ----- -----
Net earnings before
cumulative effect of
change in accounting
principle 1.6 1.4 1.2 1.0
Cumulative effect of
change in accounting
principle 0.0 0.0 0.1 0.0
----- ----- ----- -----
Net earnings 1.6 1.4 1.3 1.0
===== ===== ===== =====
Income tax rate 37.5% 27.9% 37.5% 33.0%
On a consolidated basis for the three and nine months periods, cost of sales, as
a percentage of net sales, rose as very thin margins at CCD and WFD's
architectural units more than offset margin gains experienced within the auto
replacement glass and fabricated architectural glass businesses. Selling,
general and administrative (SG & A) expenses crept slightly higher but decreased
as a percentage of sales due to higher sales. For the quarter, equity in
earnings of affiliated companies decreased sharply, as earnings at the recently
expanded Marcon Coatings joint venture significantly trailed last year's strong
results. Also, the higher-than-expected earnings at the Viratec Thin Films
joint venture resulted in the recording of income tax expense for the affiliated
companies as their net operating loss carryforward will be fully utilized this
fiscal year.
Net interest expense jumped significantly as increased borrowings were required
to meet working capital needs. Income tax rates are slightly higher than a year
ago, principally due to the higher earnings than a year ago, when a greater
portion of profits reflected equity in earnings of affiliated companies, which
are nontaxable at the consolidated level.
-9-
Liquidity and Capital Resources
- -------------------------------
The November balance sheet and the statement of cash flows reflect the working
capital needs associated with the higher sales levels. Accounts receivable rose
by 49% from the beginning of the year compared to sales growth of 20%. This was
partially due to delayed collection on a major curtainwall project. Subsequent
to quarter end, the account was brought current. Inventory growth reflected
higher inventory levels at IDD due to its additional distribution facilities and
higher work-in-progress inventories at WFD due to manufacturing bottlenecks
discussed earlier.
During the quarter, the company raised its quarterly cash dividend 7% to 7.5
cents a share.
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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: January 7, 1994 Donald W. Goldfus
------------------------- ---------------------------------------
Donald W. Goldfus
Chairman of the Board and
Chief Executive Officer
Date: January 7, 1994 William G. Gardner
------------------------- ---------------------------------------
William G. Gardner
Treasurer, Chief Financial Officer
and Secretary
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EXHIBIT II
STATEMENT OF DETERMINATION OF COMMON SHARES AND COMMON SHARE EQUIVALENTS
------------------------------------------------------------------------
Average No. of Common Average No. of Common
Shares & Common Share Shares & Common Share
Equivalents Assumed to Equivalents Assumed to
be Outstanding During be Outstanding During
the Three Months Ended the Nine Months Ended
-------------------------- --------------------------
November 27, November 28, November 27, November 28,
1993 1992 1993 1992
------------ ------------ ------------ ------------
Weighted average number
of common shares
outstanding (a) 13,221,058 13,176,880 13,212,376 13,323,778
Common share equivalents
resulting from the
assumed exercise of
stock options (b) 56,819 4,710 40,052 4,999
---------- ---------- ---------- ---------
Total primary common
shares and common share
equivalents 13,277,877 13,181,590 13,252,428 13,328,777
========== ========== ========== ==========
(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.
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