UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K/A

 

(Amendment No. 1)

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report: December 14, 2016

(Date of earliest event reported)

APOGEE ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

Commission File Number: 0-6365

 

 

 

		Minnesota				41-0919654
		(State or other jurisdiction of incorporation)				(IRS Employer Identification No.)

4400 West 78th Street – Suite 520

Minneapolis, Minnesota 55435

(Address of principal executive offices, including zip code)

(952) 835-1874

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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EXPLANATORY NOTE

On December 20, 2016, Apogee Enterprises, Inc. (the “Company”) filed with the Securities and Exchange Commission a Current Report on Form 8-K (the “Initial 8-K”) to report, among other things, the signing and simultaneous closing on December 14, 2016 of an asset purchase agreement (the “Purchase Agreement”) by and between the Company’s wholly owned subsidiary, WPP Acquisition Corporation, an Ontario corporation (“WPP”), Sotawall Inc., an Ontario corporation (“Sotawall”), and Juan A. Speck. Pursuant to the Purchase Agreement, WPP acquired the assets and business of Sotawall’s high-performance, modular, pre-glazed curtainwall systems design, manufacturing and installation business. The Initial 8-K omitted the financial statements of the business acquired and the pro forma combined financial information as permitted by Item 9.01(a)(4) and Item 9.01(b)(2) of Form 8-K. This amendment to the Initial 8-K is being filed to provide the financial statements and pro forma financial information required by Item 9.01 of Form 8-K. The Initial 8-K otherwise remains the same and the Items therein, including Item 9.01, are hereby incorporated by reference into this Current Report on Form 8-K/A.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statement of Business Acquired.

The financial statements of Sotawall required by Item 9.01(a) of Form 8-K are attached hereto as Exhibit 99.1 and incorporated herein by reference.

(b) Pro Forma Financial Information

The pro forma financial information required by Item 9.01 (b) of Form 8-K is attached hereto as Exhibit 99.2 and incorporated herein by reference.

(d) Exhibits.

 

23.1		Consent of BDO Canada LLP*
99.1		Audited financial statements of Sotawall Inc. as of and for the eleven months ended November 30, 2016 and unaudited financial statements of Sotawall Inc. as of and for the twelve months ended December 31, 2015.*
99.2		Unaudited pro forma condensed combined balance sheet as of November 26, 2016 and statement of operations for the nine months ended November 26, 2016 and the year ended February 27, 2016 of Apogee Enterprises, Inc.*

 

*	Filed herewith.

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SIGNATURE

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 hereunto duly authorized.

 

Date: February 28, 2017

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EXHIBIT INDEX

 

23.1		Consent of BDO Canada LLP.*
99.1		Audited financial statements of Sotawall Inc. as of and for the eleven months ended November 30, 2016 and unaudited financial statements of Sotawall Inc. as of and for the twelve months ended December 31, 2015.*
99.2		Unaudited pro forma condensed combined balance sheet as of November 26, 2016 and statement of operations for the nine months ended November 26, 2016 and the year ended February 27, 2016 of Apogee Enterprises, Inc.*

 

 

*	Filed herewith.

Exhibit 23.1

Consent of Independent Auditor

Apogee Enterprises, Inc.

Minneapolis, Minnesota

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 Nos. 333-58181, 333-95863, 333-137982, 333-160205, 333-169944, 333-175404, 333-190179, 333-197617, 333-197618, 333-207364, and 333-207369 of Apogee Enterprises, Inc. (“Apogee”) of our report dated February 23, 2017, relating to the financial statements of Sotawall Inc. as of and for the eleven month period ended November 30, 2016, which is included in this Current Report on Form 8-K/A filed on February 28, 2017.

/s/ BDO Canada LLP

BDO Canada LLP

February 28, 2017

Exhibit 99.1

 

SOTAWALL INC.

Financial Statements

Eleven Month Period Ended November 30, 2016

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SOTAWALL INC.

Index to Financial Statements

Eleven Month Period Ended November 30, 2016

 

 

 

 

 

		Page
INDEPENDENT AUDITOR’S REPORT		1
FINANCIAL STATEMENTS
Balance Sheet		2
Statement of Income and Retained Earnings		3
Cash Flow Statement		4
Notes to Financial Statements		5 - 12

---

 

Independent Auditor’s Report 

 

 

To the Shareholder of

Sotawall Inc.

We have audited the accompanying financial statements of Sotawall Inc., which comprise the balance sheet as of November 30, 2016 and the related statements of income and retained earnings and cash flows for the eleven month period then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for private enterprises; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sotawall Inc. as at November 30, 2016 and the results of its operations and cash flows for the eleven month period then ended in accordance with Canadian accounting standards for private enterprises.

 

/s/ BDO Canada LLP

Chartered Professional Accountants, Licensed Public Accountants

February 23, 2017

Toronto, Ontario

 

1

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SOTAWALL INC.

Balance Sheet

As at November 30, 2016

 

 

 

 

 

		November  30 2016				December 31 2015 Unaudited
ASSETS
Current
Cash and cash equivalents		$	24,752,303			$	13,814,169
Accounts receivable (Notes 2, 7)			29,128,421				18,016,576
Harmonized sales tax receivable			878,752				1,359,118
Inventories - raw materials			1,939,775				1,447,512
Revenue earned in excess of amounts billed			3,219,583				3,819,695
Prepaid expenses and deposits			1,044,338				1,475,243
Future income taxes			502,419				3,242,414
Holdbacks receivable			83,086				4,209,540
			61,548,677				47,384,267
PROPERTY, PLANT AND EQUIPMENT (Note 3)			9,205,152				7,661,113
FUTURE INCOME TAXES			98,120				191,320
		$	70,851,949			$	55,236,700
LIABILITIES
Current
Accounts payable and accrued liabilities (Note 7)		$	11,130,284			$	7,909,465
Income taxes payable			3,450,283				3,088,840
Amounts billed in excess of revenue earned			9,099,084				15,220,495
Warranty provision (Note 5)			98,020				191,220
Future income taxes			-				1,003,580
Fair value of derivative instruments			1,911,657				12,834,323
			25,689,328				40,247,923
WARRANTY PROVISION (Note 5)			392,078				764,879
FUTURE INCOME TAXES			1,569,178				994,338
			27,650,584				42,007,140
SHAREHOLDER’S EQUITY
Share capital (Note 6)			300				300
Retained earnings			43,201,065				13,229,260
			43,201,365				13,229,560
		$	70,851,949			$	55,236,700

COMMITMENTS, GUARANTEE, SUBSEQUENT EVENTS (Notes 9, 11, 12)

APPROVED BY THE SOLE DIRECTOR

 

/s/ Juan A. Speck		Director

 

See notes to financial statements

2

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SOTAWALL INC.

Statement of Income and Retained Earnings

Eleven Month Period Ended November 30, 2016

 

		November 30 2016				December 31 2015
						(12 Months) Unaudited
SALES (Note 7)		$	123,710,675			$	95,172,351
COST OF SALES (Note 7)			74,905,812				65,571,901
GROSS PROFIT			48,804,863				29,600,450
EXPENSES
Amortization			1,466,821				1,160,330
Foreign currency exchange losses (gains)			(3,944,961)				10,030,547
General and administrative (Note 7)			11,395,014				8,826,218
Interest (Note 8)			(45,478)				(66,685)
			8,871,396				19,950,410
INCOME BEFORE INCOME TAXES			39,933,467				9,650,040
INCOME TAXES
Current			7,557,207				4,883,239
Future			2,404,455				(2,468,589)
			9,961,662				2,414,650
NET INCOME			29,971,805				7,235,390
RETAINED EARNINGS - BEGINNING OF PERIOD			13,229,260				15,993,870
			43,201,065				23,229,260
DIVIDENDS PAID ON COMMON SHARES			-				(10,000,000)
RETAINED EARNINGS - END OF PERIOD		$	43,201,065			$	13,229,260

 

 

 

 

 

 

See notes to financial statements

3

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SOTAWALL INC.

Cash Flow Statement

Eleven Month Period Ended November 30, 2016

 

		November 30 2016				December 31 2015
						(12 Months) Unaudited
OPERATING ACTIVITIES
Net income		$	29,971,805			$	7,235,390
Items not affecting cash:
Amortization of property, plant and equipment			1,466,821				1,160,330
Loss on disposal of property, plant and equipment			13,407				44,894
Future income taxes			2,404,455				(2,468,589)
			33,856,488				5,972,025
Changes in non-cash operating accounts:
Accounts receivable			(11,111,845)				(169,071)
Inventories - raw materials			(492,263)				(452,056)
Revenue earned in excess of amounts billed			600,112				(2,690,523)
Accounts payable and accrued liabilities			3,220,818				(6,204,547)
Income taxes payable			361,443				4,287,573
Amounts billed in excess of revenue earned			(6,121,411)				7,834,390
Prepaid expenses and deposits			430,905				38,093
Harmonized sales taxes receivable			480,366				(1,359,118)
Holdbacks receivable			4,126,454				(876,063)
Warranty provision			(466,001)				46,009
			(8,971,422)				454,687
Cash flow from operating activities			24,885,066				6,426,712
INVESTING ACTIVITIES
Purchases of property, plant and equipment			(3,051,616)				(3,582,331)
Proceeds on disposal of property, plant and equipment			27,350				37,840
Net receipts (payments) to settle derivative instruments			(10,922,666)				9,578,892
Cash flow from (used by) investing activities			(13,946,932)				6,034,401
FINANCING ACTIVITY
Dividends paid			-				(10,000,000)
INCREASE IN CASH			10,938,134				2,461,113
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD			13,814,169				11,353,056
CASH AND CASH EQUIVALENTS - END OF PERIOD		$	24,752,303			$	13,814,169

 

 

 

 

See notes to financial statements

4

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SOTAWALL INC.

Notes to Financial Statements

Eleven Month Period Ended November 30, 2016

 

Sotawall Inc. (the “company”) is incorporated under the Business Corporations Act of Ontario. The company specializes in the design, engineering, fabrication, assembly, and installation of pre-glazed unitized curtainwall systems for industrial, commercial, institutional, residential, and mixed-use buildings. Sotawall Inc. supplies a full range of proprietary unitized curtainwall systems and develops, through technological innovation, custom curtainwall applications to meet specific project needs.

 

1.	SUMMARY OF ACCOUNTING POLICIES

These financial statements have been prepared in accordance with Canadian accounting standards for private enterprises.

Measurement uncertainty

Certain amounts in the financial statements are subject to measurement uncertainty and are based on the company’s best information and judgment. Actual results could differ from these estimates.

Examples of significant estimates include:

 

●

the determination of the contract revenues and costs of completing large fixed price contracts;

 

●

the useful lives of property, plant and equipment;

 

●

the allowance for doubtful accounts;

 

●

the allowance for inventory obsolescence;

 

●

the warranty provisions.

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and bank deposits, which are unrestricted as to withdrawal and use. The company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents.

Revenue recognition

The company records revenue from fixed price contracts using the percentage of completion method, on the basis of costs incurred. The stage of completion for recording revenue from each project is based on the total costs incurred divided by total estimated contract costs. Contract costs include all materials, labour and delivery costs directly relating to contract performance. Anticipated losses, if any, on contracts in progress are fully provided in the year in which they become evident. Revenue earned in excess of amounts billed represents the excess of costs incurred and profit earned over amounts billed on uncompleted projects. Amounts billed in excess of revenue earned represents the excess of amounts billed over costs incurred and profit earned on uncompleted projects.

Inventories - raw materials

Inventories are measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. Inventories include all costs to purchase, convert and bring the inventories to their present location and condition. Cost is determined on a first-in, first-out basis. The carrying value of the inventory is recognized as an expense and included in cost of sales when it is transferred to production. Inventory valuation reserves are maintained for inventories that are slow moving or obsolete.

(continues)

 

5

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SOTAWALL INC.

Notes to Financial Statements

Eleven Month Period Ended November 30, 2016

 

 

1.	SUMMARY OF ACCOUNTING POLICIES (continued)

 

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated amortization. Property, plant and equipment are amortized over their estimated useful lives at the following rates and methods:

 

Automotive equipment			30%			declining balance method
Computer hardware and software			30%			declining balance method
Leasehold improvements			20%			straight-line method
Manufacturing equipment			10%			straight-line method
Office equipment			20%			declining balance method

Impairment of long-lived assets

The company tests for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability is assessed by comparing the carrying amount to the projected future undiscounted net cash flows the long-lived assets are expected to generate through their direct use and eventual disposition. When a test for impairment indicates that the carrying amount of an asset is not recoverable, an impairment loss is recognized to the extent the carrying value exceeds its fair value.

Warranty provision

A provision for potential warranty claims is calculated and adjusted at the end of each reporting period based on warranty terms and costs incurred. A major assumption underlying the estimate is that failure rates will remain constant. The method used to establish the provision is based on average historical warranty claims experienced in the preceding five years. Occasionally, warranty claims falling outside the warranty period are honoured at the discretion of management. If warranty costs exceed the provision in any year, the excess is expensed.

Future income taxes

Income taxes are reported using the future income taxes method, as follows: current income tax expense is the estimated income taxes payable for the current period after any refunds or the use of losses incurred in previous years, and future income taxes reflect:

 

●

the temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the amounts used for tax purposes;

 

●

the benefit of unutilized tax losses that will more likely than not be realized and carried forward to future years to reduce income taxes.

Future income taxes are estimated using the rates enacted by tax law and those substantively enacted for the years in which future income tax assets are likely to be realized, or future income tax liabilities settled. The effect of a change in tax rates on future income tax assets and liabilities is included in net income in the year when the change is substantively enacted.

(continues)

 

6

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SOTAWALL INC.

Notes to Financial Statements

Eleven Month Period Ended November 30, 2016

 

 

1.	SUMMARY OF ACCOUNTING POLICIES (continued)

 

Foreign currency translation

Accounts in foreign currencies have been translated into Canadian dollars using the temporal method. Under this method, monetary assets and liabilities have been translated at the year end exchange rate. Non-monetary assets have been translated at the rate of exchange prevailing at the date of transaction. Revenues and expenses have been translated at the rates of exchange during the year, except for amortization, which has been translated at the same rate as the related assets.

Realized and unrealized foreign exchange gains and losses on monetary assets and liabilities are included in the determination of net income.

Financial instruments

Measurement

The company initially measures its financial assets and financial liabilities at fair value, except for certain related party transactions that are measured at the carrying amount or exchange amount, as appropriate.

Foreign currency derivatives are subsequently measured at fair value. All gains and losses resulting from changes in the fair value of these financial instruments are recognized in net income.

All other financial assets and financial liabilities are subsequently measured at amortized cost.

Financial assets measured at amortized cost include cash and cash equivalents, accounts receivable, harmonized sales tax receivable, revenue earned in excess of amounts billed and holdbacks receivable.

Financial liabilities measured at amortized cost include accounts payable and accrued liabilities.

Impairment

Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in net income.

Transaction Costs

The company recognizes its transaction costs in net income in the period incurred. However, financial instruments that will not be subsequently measured at fair value are adjusted by the transaction costs that are directly attributable to their origination, issuance or assumption.

 

2.	ACCOUNTS RECEIVABLE

		November 30 2016				December 31 2015
						Unaudited
Accounts receivable		$	29,161,421			$	18,090,162
Less: allowance for doubtful accounts			(33,000)				(73,586)
		$	29,128,421			$	18,016,576

 

7

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SOTAWALL INC.

Notes to Financial Statements

Eleven Month Period Ended November 30, 2016

 

 

3.	PROPERTY, PLANT AND EQUIPMENT

 

		Cost								Accumulated  amortization								November 30 2016 Net book value								December 31 2015 Net book value
																										Unaudited
Automotive equipment		$	409,189							$	322,152							$	87,037							$	120,719
Computer hardware and software			1,531,427								915,909								615,518								649,649
Leasehold improvements			801,126								256,033								545,093								661,662
Manufacturing equipment			14,413,171								7,202,737								7,210,434								5,461,668
Office equipment			1,433,589								686,519								747,070								767,415
		$	18,588,502							$	9,383,350							$	9,205,152							$	7,661,113

 

4.	BANK CREDIT FACILITIES

The company has various forms of bank credit facilities, including demand operating facilities of up to $8,000,000, capital asset term financing by way of purchase or lease of up to $1,000,000 each and foreign currency hedging instruments (forward contracts) of up to US $100,000,000 for contracts with maturity dates not to exceed 36 months. Interest payable on demand facilities is at the bank’s prime rate for both Canadian or US dollar denominated loans. Interest payable on term facilities is subject to pricing determined by the bank.

Security for these facilities includes a general assignment of book debts, a general security agreement forming a first ranking over all the company’s assets listed on the balance sheet, assignment of all risk insurance, assignment and postponement of claim by the parent company, priority agreements with bonding insurance providers, and an unlimited guarantee provided by a related party.

There were no loan balances payable as at November 30, 2016 or December 31, 2015.

 

5.	WARRANTY PROVISION

				November 30								December 31
				2016								2015
												Unaudited
Opening balance				$	956,099							$	910,090
Warranty costs incurred during the period					(62,855	)							(25,440)
Warranty provision adjustment					(403,146	)							71,449
					490,098								956,099
Less: current portion					(98,020	)							(191,220)
				$	392,078							$	764,879

 

8

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SOTAWALL INC.

Notes to Financial Statements

Eleven Month Period Ended November 30, 2016

 

 

6.	SHARE CAPITAL

				November 30      2016				December 31     2015
								Unaudited
Issued:
150        Class A common shares				$	150			$	150
150        Class B common shares					150				150
				$	300			$	300

 

7.	RELATED PARTY TRANSACTIONS

In the normal course of its operations, the company conducts business transactions with various related parties. These transactions are measured at the exchange amounts agreed to by the related parties, and are summarized as follows:

 

		November 30     2016				December 31      2015
						Unaudited
Transactions during the period
Sales to companies controlled by the shareholder		$	20,238			$	80,955
Purchases from companies controlled by the shareholder			6,622,411				7,752,192
Rent paid to a company owned 50% by a director			377,286				588,791
Rent paid to a company controlled by the shareholder			2,968,089				2,916,059
Balances at end of period
Rent deposits paid to a company controlled by the shareholder		$	313,622			$	180,000
Accounts payable to companies controlled by the shareholder			675,259				1,829,511

 

8.

INTEREST

Interest expense (income) is comprised of:

 

		November 30      2016				December 31      2015
						Unaudited
Interest paid		$	26,068			$	32,756
Interest earned			(71,546	)			(99,441)
		$	(45,478	)		$	(66,685)

 

9

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SOTAWALL INC.

Notes to Financial Statements

Eleven Month Period Ended November 30, 2016

 

 

9.	COMMITMENTS

The company is committed to arm’s length parties under the terms of four operating real property leases, including office facilities, to the following minimum rentals:

 

 

2017		$	686,069
2018			674,655
2019			667,614
2020			612,410
2021			246,838
		$	2,887,586

 

10.	SIGNIFICANT BUSINESS RELATIONSHIPS

Sotawall Inc., by the nature if its industry and the relative size of its contracts, works with several large contractors which account for a significant portion of its revenues. During the period, approximately 91% of the company’s sales were attributed to contracts with two contractors (2015 - 98%, with five contractors).

 

11.

GUARANTEE

The company has provided an unlimited guarantee relating to a demand non-revolving loan held by Vankirk7080 Inc., a company related by common control. At November 30, 2016, the loan payable by Vankirk7080 Inc. amounted to $5,506,250 (2015 - $6,218,750).

 

12.	SUBSEQUENT EVENTS

On December 14, 2016, the company sold all of its business assets, including equipment, working capital and goodwill, to Sotawall Limited, a corporation controlled by a US based public company. Under the terms of the sale agreement, the company received cash consideration in the amount of $180,000,000 less holdback of $12,600,000 in escrow, of which 25% ($3,150,000) is to be released 12 months after closing and the remaining 75% ($9,450,000) 24 months after closing.

As a condition of the sale agreement, all the unmatured foreign currency derivative instruments at the date of closing were cancelled at a cost of $1,138,589 which cost was reimbursed to the company by the purchaser.

 

10

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SOTAWALL INC.

Notes to Financial Statements

Eleven Month Period Ended November 30, 2016

 

 

13.	FINANCIAL INSTRUMENTS

The company is exposed to various risks through its financial instruments and has a comprehensive risk management framework to monitor, evaluate and manage these risks. The following analysis provides information about the company’s risk exposure and concentration as of November 30, 2016.

Credit risk

Credit risk arises from the potential that a counter party will fail to perform its obligations. The company has a significant amount of cash and cash equivalents held at one financial institution which exceeds the $100,000 Canadian Deposit Insurance Corporation coverage. Furthermore, the company is exposed to credit risk from customers. In order to reduce its credit risk, the company routinely conducts credit checks on new customers and maintains provisions for probable credit losses. The concentration of credit risk is limited as its customers tend to be large contractors servicing adequately funded projects over which the company may exercise lien rights. The extent of company’s exposure to credit risk did not change significantly from the prior year.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in the market interest rates. In the opinion of management, the company is not exposed to significant interest rate risk. The extent of the company’s exposure to interest rate risk did not change significantly from the prior year.

(continues)

 

11

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SOTAWALL INC.

Notes to Financial Statements

Eleven Month Period Ended November 30, 2016

 

 

13.	FINANCIAL INSTRUMENTS (continued)

 

Currency risk

Currency risk is the risk to the company’s earnings that arise from fluctuations of foreign exchange rates and the degree of volatility of these rates. As at November 30, 2016, the company is exposed to foreign currency exchange risk with respect to the following assets and liabilities denominated in US$:

 

		2016 US$				2016 CA$				2015 US$				2015 CA$
ASSETS
Cash		$	2,189,790			$	2,940,670			$	3,398,690			$	4,703,787
Accounts receivable			20,387,792				27,378,766				11,522,650				15,947,347
Revenue earned in excess of amounts billed			2,092,721				2,810,315				1,954,518				2,705,053
LIABILITIES
Accounts payable			(1,298,356	)			(1,743,562	)			(1,308,230	)			(1,810,590)
Fair value of derivative instruments			(1,423,529	)			(1,911,657	)			(9,272,825	)			(12,834,323)
Net asset position		$	21,948,418			$	29,474,532			$	6,294,803			$	8,711,274

Foreign Currency Derivatives

The company realizes a significant portion of its revenue in foreign currencies and routinely enters into foreign currency derivatives to manage its exposure to changes in exchange rates. The company has chosen to not apply hedge accounting, however, the company believes that these derivatives hedge the related foreign currency risk inherent in these transactions.

As at November 30, 2016, the company is subject to contractual obligations under foreign currency derivatives to sell a total of US$53,850,000 (December 31, 2015 sell US$92,375,000 and buy US$1,625,000) in exchange for CA$69,691,149 (December 31, 2015 CA$114,733,928 and CA$2,227,175 respectively) at an average exchange rate of 1.2992 (December 31, 2015 - 1.2443). The maturity dates of the derivatives range between December 2016 and November 2018, to coincide with the anticipated cash flows projected by management for the settlement of current and future trade receivables.

As mentioned in the accounting policy note, these foreign currency derivatives are recognized at fair value. The company’s derivative dealer established the foreign currency derivatives’ fair value which the company accepts as the fair value of these instruments. The aggregate carrying amount of these foreign currency derivatives is a net liability of CA$1,911,657 (December 31, 2015 unaudited - net liability of CA$12,834,323)

The maturity and face value of the foreign currency derivative financial instruments are summarized as follows:

 

		US$				CA$				Average rate
2016		$	4,300,000			$	5,430,620				1.2629
2017			30,850,000				40,173,849				1.3022
2018			18,700,000				24,356,680				1.3025
		$	53,850,000			$	69,961,149				1.2992

 

12

Exhibit 99.2

Unaudited Pro Forma Condensed Combined Financial Information

 

Apogee Enterprises, Inc. (we, our or the Company), through a wholly-owned subsidiary, acquired the assets of Sotawall, Inc. (Sotawall), a privately held company, for total cash consideration of approximately $138.1 million on December 14, 2016. Sotawall specializes in the design, engineering, fabrication, assembly and installation of unitized curtainwall systems for industrial, commercial, and institutional buildings. The acquisition was funded by a combination of cash and short-term investments of approximately $73.1 million and approximately $65.0 million from our committed revolving line of credit.

The following unaudited pro forma condensed combined financial statements are based on our historical consolidated financial statements and Sotawall’s historical financial statements adjusted to give effect to the Company’s acquisition of Sotawall and the related financing. The unaudited pro forma condensed combined statements of operations for the nine months ended November 26, 2016 and the 12 months ended February 27, 2016 give effect to these transactions as if they had occurred on March 1, 2015, the beginning of Apogee’s fiscal year 2016. The unaudited pro forma condensed combined balance sheet as of November 26, 2016 gives effect to these transactions as if they had occurred on November 26, 2016.

The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements are described in the accompanying notes, which should be read together with the pro forma condensed combined financial statements.

The unaudited pro forma condensed combined financial statements should be read together with the Company’s historical financial statements, which are included in the Company’s latest annual report on Form 10-K and quarterly report on 10-Q, and Sotawall’s historical information included herein.

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF NOVEMBER 26, 2016

 

In thousands		Apogee Enterprises, Inc.  Historical				Sotawall (Acquiree)  Historical (1)				Pro Forma  Adjustments				Notes				Pro Forma  Combined
Assets
Current assets
Cash and cash equivalents		$	51,599			$	18,297			$	(61,158)				a			$	8,738
Short-term available for sale securities			30,635				-				(30,260)				a				375
Restricted cash			14,884				-				-								14,884
Receivables, net of allowance for doubtful accounts			188,442				21,531				-								209,973
Inventories			73,161				3,814				-								76,975
Other current assets			6,770				1,854				(371)				f				8,253
Total current assets			365,491				45,496				(91,789)								319,198
Property, plant and equipment, net			229,556				6,804				903				c				237,263
Available for sale securities			10,962				-				-								10,962
Goodwill			74,308				-				31,276				d				105,584
Intangible assets			19,460				-				89,148				e				108,608
Other non-current assets			17,468				72				955				f				18,495
Total assets		$	717,245			$	52,373			$	30,492							$	800,110
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable		$	65,087			$	8,227			$	(3,701)				b			$	69,613
Accrued payroll and related benefits			42,132				-				-								42,132
Accrued self-insurance reserves			8,581				-				-								8,581
Other current liabilities			32,369				1,486				63,514				a, b				97,369
Billings in excess of costs and earnings on uncompleted contracts			36,786				6,726				-								43,512
Accrued income taxes			3,439				2,550				3,036				f				9,025
Total current liabilities			188,394				18,989				62,849								270,232
Long-term debt			20,400				-				-								20,400
Long-term self-insurance reserves			8,008				-				-								8,008
Deferred tax liabilities			-				1,160				(133)				f				1,027
Other non-current liabilities			48,266				290				(290)				b				48,266
Commitments and contingent liabilities
Shareholders’ equity
Common stock			9,549				-				-								9,549
Additional paid-in capital			148,379				-				-								148,379
Retained earnings			323,070				31,934				(31,934)				g				323,070
Common stock held in trust			(863)				-				-								(863)
Deferred compensation obligations			863				-				-								863
Accumulated other comprehensive loss			(28,821)				-				-								(28,821)
Total shareholders’ equity			452,177				31,934				(31,934)								452,177
Total liabilities and shareholders’ equity		$	717,245			$	52,373			$	30,492							$	800,110

See accompanying notes to the unaudited pro forma condensed combined financial information.    

(1) Sotawall balance sheet as of November 30, 2016.    

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UNAUDITED PRO FORMA CONDENSED COMBINED RESULTS OF OPERATIONS

NINE MONTHS ENDED NOVEMBER 26, 2016

 

In thousands, except per share information		Apogee Enterprises, Inc.   Historical				Sotawall (Acquiree)  Historical (1)				Pro Forma  Adjustments				Notes				Pro Forma  Combined
Net sales		$	800,407			$	94,627			$	-							$	895,034
Cost of sales			590,581				57,296				218				c				648,095
Gross profit			209,826				37,331				(218)								246,939
Selling, general and administrative expenses			117,269				9,838				2,813				e, h				129,920
Operating income			92,557				27,493				(3,031)								117,019
Other income (expense), net			654				3,052				(4,027)				i				(321)
Earnings before income taxes			93,211				30,545				(7,058)								116,698
Income tax expense			30,540				7,620				(1,764)				f				36,395
Net earnings		$	62,671			$	22,925			$	(5,293)							$	80,303
Earnings per share - basic		$	2.18				N/A											$	2.79
Earnings per share - diluted		$	2.17				N/A											$	2.78
Weighted-average basic shares outstanding			28,807				N/A												28,807
Weighted-average diluted shares outstanding			28,913				N/A												28,913

 

See accompanying notes to the unaudited pro forma condensed combined financial information.

(1) Sotawall results of operations for the eleven months ended November 30, 2016.

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UNAUDITED PRO FORMA CONDENSED COMBINED RESULTS OF OPERATIONS

YEAR ENDED FEBRUARY 27, 2016

 

In thousands, except per share information		Apogee Enterprises, Inc.   Historical				Sotawall (Acquiree)  Historical				Pro Forma  Adjustments				Notes				Pro Forma  Combined
Net sales		$	981,189			$	73,054			$	-							$	1,054,243
Cost of sales			737,619				50,333				113				c				788,065
Gross profit			243,570				22,721				(113)								266,178
Selling, general and administrative expenses			146,177				7,665				4,070				e				157,913
Operating income			97,393				15,056				(4,183)								108,265
Other (expense) income, net			(69)				(7,648)				6,348				i				(1,369)
Earnings before income taxes			97,324				7,407				2,165								106,896
Income tax expense			31,982				1,854				541				f				34,377
Net earnings		$	65,342			$	5,554			$	1,624							$	72,519
Earnings per share - basic		$	2.25				N/A											$	2.50
Earnings per share - diluted		$	2.22				N/A											$	2.47
Weighted-average basic shares outstanding			29,058				N/A												29,058
Weighted-average diluted shares outstanding			29,375				N/A												29,375

 

See accompanying notes to the unaudited pro forma condensed combined financial information.

(1) Sotawall results of operations for the twelve months ended December 31, 2015.

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Notes to Unaudited Pro Forma Condensed Combined Financial Information

Note 1: Basis of presentation

Our historical consolidated financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) expected to have a continuing impact on the combined results following the business combination.

The business combination was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company has allocated the total purchase price to Sotawall’s tangible and intangible assets acquired and liabilities assumed, based on their fair values at the date of the acquisition, and conformed the accounting policies of Sotawall to its own accounting policies.

The Company’s fiscal year ends on the Saturday closest to the last day of February, or as determined by the Board of Directors, and the Company’s third quarter interim period end was November 26, 2016. Sotawall’s historical year-end is December 31. The balance sheet for Sotawall included in the pro forma condensed combined balance sheet is as of November 30, 2016 and the results of operations for Sotawall included in the pro forma condensed combined results of operations are for the 11 months ended November 30, 2016 and the 12 months ended December 31, 2015.

The pro forma condensed combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

The Unaudited Pro Forma Condensed Combined Statements of Income do not reflect the costs of any integration activities or benefits that may result from realization of potential future synergies that may result from the acquisition.

Note 2: Preliminary purchase price allocation

We have performed a preliminary allocation of the purchase price for Sotawall to the acquired assets and assumed liabilities, as shown in the following table as of the acquisition date, using the exchange rate in effect on that date:

 

In thousands		December 14, 2016
Net working capital		$	10,846
Property, plant and equipment, net			8,303
Goodwill			27,137
Other intangible assets			91,813
Total purchase price		$	138,100

This preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma condensed combined financial information (refer to Note 4 regarding exchange rates used). The preliminary purchase price may change based on the final working capital valuations and necessary calculations. Thus, the preliminary measures of fair value reflected are subject to changes and such changes could be significant to the unaudited pro forma condensed combined financial information. The final allocation may include (1) changes in allocations to intangible assets and (2) changes to income tax related accounts, as well as changes to other assets and liabilities, which may impact pro forma adjustments to the unaudited pro forma condensed combined financial information.

Note 3: Pro forma adjustments

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:

 

(a)	Reflects the elimination of cash at Sotawall and the cash, short-term investments and line of credit at Apogee used to fund the acquisition.

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(b) Reflects the adjustment for liabilities not assumed as part of the acquisition.

(c) Represents the estimated adjustment to increase the basis in the acquired property, plant and equipment to estimated fair value and the change in depreciation due to changes in estimated carrying value and remaining useful lives. The estimated useful lives of assets acquired range from three to seven years.

(d) Reflects adjustment to record preliminary estimate of goodwill resulting from the acquisition.

(e) As part of the preliminary valuation analysis, the Company identified intangible assets, including technology, backlog, trade names, and customer relationships. The fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of the expected future cash flows. The following table summarizes the preliminary estimated fair values of Sotawall’s identifiable intangible assets and their estimated useful lives and estimated pro forma amortization expense using a straight-line method:

 

These preliminary estimates of fair value and estimated useful lives may differ from final amounts the Company will calculate after completing a detailed valuation analysis, and the difference could have a significant impact on the accompanying unaudited pro forma condensed combined financial statements. These amounts also may not be useful in predicting the future financial condition and results of operations of the combined company.

(f) Adjusts the deferred tax assets and liabilities and taxes payable resulting from the acquisition. Also reflects the income tax effect of pro forma adjustments based on the estimated statutory tax rate of Sotawall of 25 percent. The tax rate does not take into account any historical or possible future tax events that may impact the combined company.

(g) Represents the elimination of the historical equity of Sotawall.

(h) Includes the removal of transaction costs related to the acquisition of $0.2 million for the nine-months ended November 26, 2016 since they do not have a continuing impact.

(i) Represents the net increase to interest expense resulting from drawing on our committed revolving line of credit to partially finance the acquisition at a rate of approximately 2.0 percent. A change in interest rate of 0.125 percent would impact interest by less than $0.1 million. Also reflects the removal of foreign currency exchange gains and losses and related interest expense as foreign currency derivative contracts were cancelled prior to acquisition and represents removal of interest income as the associated cash and cash equivalent balances were not included in the acquisition.

Note 4: Foreign currency and US GAAP conversion adjustments

The historical financial information of Sotawall was prepared in accordance with Canadian accounting standards for private enterprises and presented in Canadian dollars (CAD). The historical financial information was translated from CAD to U.S. dollars (USD) using the following historical exchange rates:

 

		CAD to USD
Average exchange rate for year ended February 27, 2016 (results of operations):		$0.7676
Average exchange rate for nine-months ended November 26, 2016 (results of operations):		$0.7649
Period end exchange rate as of November 26, 2016 (balance sheet):		$0.7392

Significant adjustments to convert the Sotawall historical financial information from Canadian ASPE to accounting principles generally accepted in the United States (U.S. GAAP) were not required.