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 September 2, 1995 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 September 30, 1995
- - -------------------------------- ---------------------------------
Common Stock, $.33-1/3 Par Value 13,496,818
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED SEPTEMBER 2, 1995
Description Page
----------- ----
PART I
- - ------
Item 1. Financial Statements
Consolidated Balance Sheets as of September 2, 1995
and February 25, 1995 3
Consolidated Results of Operations for the
Three Months and Six Months Ended
September 2, 1995 and August 27, 1994 4
Consolidated Statements of Cash Flows for
the Six Months Ended September 2, 1995 and
August 27, 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
PART II Other Information
- - -------
Item 6. Exhibits 10
Exhibit Index 12
Exhibit II 13
-2-
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
September 2, February 25,
1995 1995
------------ ------------
ASSETS
Current assets
Cash and cash equivalents (including restricted funds of
$874 and $885, respectively) $ 14,686 $ 2,894
Receivables, net of allowance for doubtful accounts 164,341 165,099
Inventories 55,243 54,559
Costs and earnings in excess of billings on uncompleted
contracts 17,409 19,606
Deferred tax assets 10,984 10,384
Other current assets 2,174 4,278
-------- --------
Total current assets 264,837 256,820
-------- --------
Property, plant and equipment, net 72,349 75,028
Investments in and advances to
affiliated companies 16,042 15,016
Intangible assets, at cost less
accumulated amortization 8,515 8,383
Deferred tax assets 5,682 5,082
Other assets 2,121 1,599
-------- --------
Total assets $369,546 $361,928
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 51,208 $ 53,793
Accrued expenses 46,185 41,168
Billings in excess of costs and earnings
on uncompleted contracts 16,729 17,717
Accrued income taxes 10,024 10,454
Notes payable 7,600 7,065
Current installments of long-term debt 5,369 5,522
-------- --------
Total current liabilities 137,115 135,719
-------- --------
Long-term debt 79,689 80,566
Other long-term liabilities 20,382 21,014
Shareholders' equity
Common stock, $.33-1/3 par value;
authorized 50,000,000 shares; issued
and outstanding 13,488,000 and
13,443,000 shares, respectively 4,496 4,481
Additional paid-in capital 20,124 19,345
Retained earnings 107,740 100,803
-------- --------
Total shareholders' equity 132,360 124,629
-------- --------
Total liabilities and shareholders' equity $369,546 $361,928
======== ========
See accompanying notes to consolidated financial statements.
-3-
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED
SEPTEMBER 2, 1995 AND AUGUST 27, 1994
(Thousands of Dollars Except Share and Per Share Amounts)
Three Months Ended Six Months Ended
--------------------------- ------------------------------
September 2, August 27, September 2, August 27,
1995 1994 1995 1994
------------- ------------ ------------- ------------
Net sales $ 222,186 $ 185,971 $ 441,218 $ 364,898
Cost of sales 190,362 156,731 377,469 310,270
----------- ----------- ----------- -----------
Gross profit 31,824 29,240 63,749 54,628
Selling, general and
administrative expenses 21,126 21,765 45,253 42,435
----------- ----------- ----------- -----------
Operating income 10,698 7,475 18,496 12,193
Interest expense 1,711 821 3,463 1,383
Other income, net (161) - (161) -
----------- ----------- ----------- -----------
Earnings before income taxes
and other items below 9,148 6,654 15,194 10,810
Income taxes 3,301 2,779 5,698 4,512
Equity in net earnings of
affiliated companies 226 (294) 149 (471)
Minority interest (25) (125) 220 (125)
----------- ----------- ----------- -----------
Net earnings $ 5,646 $ 4,294 $ 9,127 $ 6,894
=========== =========== =========== ===========
Earnings per share: $ .41 $ .32 $ .67 $ .51
=========== =========== =========== ===========
Weighted average number of
common shares and common share
equivalents outstanding 13,637,000 13,447,000 13,630,000 13,412,000
=========== =========== ============ ===========
Cash dividends per common share $ .08 $ .075 $ .16 $ .15
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
-4-
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 2, 1995 AND AUGUST 27, 1994
(Thousands of Dollars)
1995 1994
-------- --------
OPERATING ACTIVITIES
Net earnings $ 9,127 $ 6,894
Adjustments to reconcile net earnings
to net cash used in operating
activities:
Depreciation and amortization 8,283 7,649
Provision for losses on accounts
receivable 632 1,037
Noncurrent deferred income taxes (1,200) (600)
Gain on sale of Nanik Window
Coverings Group (4,709) -
Equity in net earnings of affiliated
companies 149 (471)
Minority interest in net earnings 220 (125)
Other, net (343) 315
Changes in operating assets and
liabilities, net of effect of
acquisitions:
Receivables (3,892) 1,406
Inventories (5,280) (5,796)
Costs and earnings in excess of
billings on uncompleted contracts 2,197 (1,451)
Other current assets 1,959 480
Accounts payable and accrued expenses 1,671 (11,101)
Billings in excess of costs and
earnings on uncompleted contracts (988) 2,327
Accrued and current deferred
income taxes (430) 1,238
Other long-term liabilities 780 512
------- --------
Net cash provided by operating
activities 8,176 2,314
------- --------
INVESTING ACTIVITIES
Capital expenditures (9,536) (11,909)
Acquisition of businesses, net of
cash acquired (446) (272)
Investments in and advances to
affiliated companies (2,807) 613
Proceeds on sale of Nanik Window
Coverings Group 18,250 -
Other, net 231 (156)
------- --------
Net cash provided by (used in)
investing activities 5,692 (11,724)
------- --------
FINANCING ACTIVITIES
Increase/(decrease) in notes payable 535 (5,350)
Proceeds from issuance of long-term debt - 15,000
Payments on long-term debt (1,030) (423)
Proceeds from issuance of common stock 819 1,356
Purchase and retirement of common stock (240) -
Dividends paid (2,160) (2,005)
------- --------
Net cash (used in) provided by
financing activities (2,076) 8,578
------- --------
Increase/decrease in cash 11,792 (832)
Cash and cash equivalents at beginning
of period 2,894 10,824
------- --------
Cash and cash equivalents at end of
period $14,686 $ 9,992
======= ========
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
September 2, 1995 and February 25, 1995, and the results of operations for
the three months and six months ended September 2, 1995 and August 27, 1994
and cash flows for the six months ended September 2, 1995 and August 27,
1994.
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
consolidated financial statements and related notes.
The results of operations for the six-month period ended September 2, 1995
and August 27, 1994 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. The first quarter of fiscal 1996 consisted of 14
weeks while the first quarter of fiscal 1995 had 13 weeks. Consequently,
Fiscal 1996 is a fifty-three week year while 1995 is a fifty-two week year.
2. Inventories
Inventories consist of the following:
September 2, February 25,
1995 1995
------------ ------------
Raw materials and supplies $14,383 $14,802
In process 2,708 3,232
Finished goods 38,152 36,525
------- -------
$55,243 $54,559
======= =======
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SALES AND EARNINGS
- - ------------------
Second quarter net earnings of $5.6 million, or 41 cents per share, were 31%
greater than last year's $4.3 million, or 32 cents a share. Revenues rose 19%,
to $222 million, from $186 million a year ago. Year-to-date net earnings were
up 32% to $9.1 million, or 67 cents per share, from $6.9 million, or 51 cents
per share, a year ago. Revenues for the first six months jumped 21%, to $441
million, as both of the Company's segments reported double-digit increases in
each of the two quarters.
The following table presents the percentage change in sales and operating income
for the Company's two segments and on a consolidated basis, for three and six
months when compared to the corresponding periods a year ago.
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ -------------------------------
SEPT. 2, AUG. 27, % SEPT. 2, AUG. 27, %
1995 1994 CHANGE 1995 1994 CHANGE
============================== ===============================
SALES
Building products & Services $147,155 $117,633 25 $293,686 $231,878 27
Automotive glass 75,031 68,338 10 147,532 133,020 11
------------------------------ -------------------------------
Total $222,186 $185,971 19 $441,218 $364,898 21
============================== ===============================
OPERATING INCOME
Building products & Services $2,180 -$623 NM $4,665 -$22 NM
Automotive glass 8,090 8,199 -1 13,663 13,960 -2
Corporate and other 428 -101 NM 168 -1,745 NM
------------------------------ -------------------------------
Total $10,698 $7,475 43 $18,496 $12,193 52
============================== ===============================
Building Products & Services (BPS)
- - ----------------------------------
BPS reported 25% revenue growth and produced a small operating profit for the
quarter, versus a minor operating loss a year ago, building on similar results
experienced in the first quarter. The segment's revenue gains primarily
reflected strong activity levels at Harmon Contract and record sales of high-
performance architectural glass by the Viracon unit, which benefitted from
improving market conditions and the additional capacity placed in service last
year. The segment's operating income gain was due to Viracon's improved
profitability and modest margin improvements at Harmon Contract. Operating
margins remained historically low, however, as both Harmon and Wausau, the
segment's architectural metals group, continued to be hampered by sluggish
market recoveries and very thin-margin projects entered into before improvements
in project screening procedures were initiated last year.
On July 28, 1995, the Company sold selected assets and liabilities of the Nanik
Window Coverings group for $18.3 million cash, subject to post-closing audit
adjustments, if any, which are being finalized pursuant to the sale agreement.
The net gain on the sale was $4.7 million and is included under the caption,
"Other income" in the Consolidated Results of Operations.
On September 2, 1995, Apogee's consolidated backlog stood at $353 million,
slightly more than first quarter's backlog of $349 million, but down 10% from
the $394 million reported a year ago. Most of Harmon's and Wausau's low-margin
business referred to above is expected to be completed by fiscal year-end. With
better-margin projects coming on stream and strong order levels at Viracon, the
segment anticipates improved operating earnings during the second half of fiscal
1996.
-7-
Automotive Glass (AG)
- - ---------------------
AG increased sales by 10% for the quarter. Despite competitive pricing
conditions and lower industry demand, AG's Harmon Glass and Glass Depot groups
were able to improve same-location sales slightly. The National Call Center,
formerly the Harmon Glass Network, reported 16% unit growth for the quarter. The
segment's Curvlite windshield fabricating unit generated slightly higher
windshield sales, outpacing industry measures. Curvlite's sales also grew due to
a new program involving the redistribution of tempered automotive glass parts
fabricated by another manufacturer.
Despite the improved sales, AG had essentially flat operating income compared to
the year-ago period. Competitive pricing and rising costs associated with
ongoing information systems and marketing initiatives and programs offset the
benefit of the sales gains.
For the first six months, the segment has opened 3 wholesale depots and 16
retail stores, while closing 7 locations, bringing the quarter-end total to 265
retail units and 56 depots. Expansion opportunities, including both possible
acquisitions and start-up operations, continued to be investigated.
AG continues to anticipate a solid operating profit for the year. However, weak
demand for automotive replacement glass and softening prices, along with the
added costs of its selling and administrative initiatives, may cause the segment
to report lower operating earnings than a year ago.
Viratec Thin Films
- - ------------------
Viratec Thin Films (Viratec), a 50%-owned joint venture and leading supplier of
coated glass for computer anti-glare screens, reported stronger sales but lower
operating income than a year ago. Profitability was affected by a decline in
product pricing and higher research and development expenditures on future
products and process improvements. Viratec's order backlog almost doubled over a
year ago and stood at $20.6 million at quarter end.
Consolidated
- - ------------
The following table compares quarterly results with year-ago results, as a
percentage of sales, for each caption.
Three Months Ended Six Months Ended
----------------------- -----------------------
Sept. 2, Aug. 27, Sept. 2, Aug. 27,
1995 1994 1995 1994
---------------------- -----------------------
Net sales 100.0 100.0 100.0 100.0
Cost of sales 85.7 84.3 85.6 85.0
---- ---- ---- ----
Gross profit 14.3 15.7 14.4 15.0
Selling, general and
administrative expenses 9.5 11.7 10.3 11.6
---- ---- ---- ----
Operating income 4.8 4.0 4.2 3.3
Interest expense, net 0.8 0.4 0.8 0.4
Other income, net (0.1) - - -
---- ---- ---- ----
Earnings before income taxes
and other items below 4.1 3.6 3.4 3.0
Income taxes 1.5 1.5 1.3 1.2
Equity in net (earnings) of
affiliated companies 0.1 (0.2) - (0.1)
Minority interest - (0.1) - -
---- ---- ---- ----
Net earnings 2.5 2.3 2.1 1.9
==== ==== ==== ====
Income tax rate 36.1% 40.0% 37.5% 40.0%
-8-
On a consolidated basis for the three-month and six-month periods, gross profit,
as a percentage of net sales, declined as lower margins at AG and a shift in
revenues towards BPS, which has lower margins than AG, negatively affected gross
profits. Selling, general and administrative expenses (SG & A) decreased
slightly due to cost reduction programs, and the sale of the Nanik group. SG &A
fell significantly as a percent of sales primarily due to the increase in net
sales. Net interest expense rose with higher borrowing levels in the first five
months of the year. Other income consisted of the $4.7 million gain from the
sale of the Nanik Window Coverings Group, reduced by charges totaling $4.5
million. These charges related primarily to the write-down of a minority
investment in a start-up venture and an adjustment to the Company's insurance
reserves.
The effective income tax rate of 36.1% declined due to a change in the Company's
jurisdictional mix.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Cash balances were higher at quarter end due in large part to cash held by a
captive insurance subsidiary. Receivables and inventories increased reflecting
higher sales levels, though the Nanik sale offset the increases to reflect a net
reduction. Accrued expenses and accounts payable also grew with the increased
activity levels. Borrowing levels remained almost even with fiscal year end,
with a total debt balance of $92.7 million at September 2, 1995, which
represented 34% of invested capital.
Additions to property, plant and equipment totaled $9.5 million for the first
half of the fiscal year. Major components of these additions included
expenditures for information and communications systems throughout the company,
particularly at in the AG segment.
-9-
PART II
OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
- - ------------------------------------------------------------
Apogee Enterprises, Inc. Annual Meeting of Shareholders was held on June 20,
1995. The total number of outstanding shares on the record date for the Annual
Meeting was 13,463,137. Eighty-four percent of the total outstanding shares
were represented in person or by proxy at the meeting.
The candidates for election as Class III Directors listed in the proxy statement
were elected to serve three-year terms, expiring at the 1998 annual meeting.
The proposals to ratify the adoption of the proposed amendments to the 1987
Stock Option Plan and the appointment of KPMG Peat Marwick LLP as independent
auditors for the Company were also approved. The results of these matters voted
upon by shareholders are listed below.
Number of Shares
------------------
In Favor Withheld Abstained
-------- -------- ---------
Election of Class III Directors:
Paul B. Burke 11,335,961 16,743
Donald W. Goldfus 11,333,558 19,145
James L. Martineau 11,333,558 19,145
Ratification of the adoption of
the proposed amendment to the 1987
Stock Option Plan 10,567,745 106,928 60,416
Ratification of the appointment
of KPMG Peat Marwick LLP as
independent auditors 11,123,685 4 164,077
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) Registrant filed a Current Report on Form 8-K, dated July 26, 1995, in
respect of amendments to the Rights Agreement between the Registrant
and American Stock Transfer & Trust Company.
-10-
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: October 16, 1995 Donald W. Goldfus
------------------------ --------------------------------
Donald W. Goldfus
Chairman of the Board and
Chief Executive Officer
Date: October 16, 1995 Terry L. Hall
------------------------ --------------------------------
Terry L. Hall
Vice President of Finance and
Chief Financial Officer
-11-
EXHIBIT 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
EXHIBIT 11
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 Six Months Ended
------------------------ -------------------------
September 2, August 27, September 2, August 27,
1995 1994 1995 1994
------------ ---------- ------------ -----------
Weighted average number of
common shares outstanding (a) 13,482,119 13,364,988 13,450,941 13,339,016
Common share equivalents
resulting from the assumed
exercise of stock options (b) 154,499 82,408 158,707 72,551
---------- ---------- ---------- ----------
Total primary common shares
and common share equivalents 13,636,618 13,447,396 13,609,648 13,411,567
========== ========== ========== ==========
(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.
5
1,000
6-MOS
MAR-02-1996
FEB-26-1995
SEP-02-1995
14,686
0
172,195
7,854
55,243
264,837
163,070
90,721
369,546
137,115
0
4,496
0
0
127,864
369,546
441,218
441,218
377,469
63,749
0
632
3,463
15,194
5,698
0
0
0
0
9,127
0.67
0.67
