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
For the quarterly period ended SeptemberDecember 2, 2000
OR
[_][ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________to___________ to ______________
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 (952) 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,December 31, 2000
- -------------------------------- -------------------------------------------------------------------
Common Stock, $.33-1/3 Par Value 27,821,091
1
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED SEPTEMBERDECEMBER 2, 2000
Description Page
----------- ----
PART I Financial Information
- ------
Item 1. Financial Statements
Consolidated Balance Sheets as of SeptemberDecember 2, 2000
and February 26, 2000 3
Consolidated Results of Operations for the
Three Months and SixNine Months Ended
SeptemberDecember 2, 2000 and August 28,November 27, 1999 4
Consolidated Statements of Cash Flows for
the SixNine Months Ended SeptemberDecember 2, 2000 and
August 28,November 27, 1999 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-118-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 1112-13
PART II Other Information
- -------
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 1413
Exhibit Index 16
Exhibit 27 Financial Data Schedule (EDGAR filing only)
Exhibit 27.1 Restated Financial Data Schedule (EDGAR filing only)15
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBERDECEMBER 2, 2000 AND FEBRUARY 26, 2000
(Thousands of Dollars)(Thousands)
SeptemberDecember 2, February 26,
2000 2000
------------------------ ------------
ASSETS (unaudited)
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 6,2604,654 $ 7,192
Receivables, net of allowance for doubtful accounts 140,416120,807 125,064
Inventories 32,48933,111 68,184
Deferred tax assets 9,2048,557 8,435
Other current assets 1,9261,809 5,547
-------- ------------------ -----------
Total current assets 190,295$168,938 214,422
-------- ------------------ -----------
Property, plant and equipment, net 175,734169,139 186,039
Other assets
Marketable securities - available for sale 25,75526,385 24,951
Investments in affiliates 30,84433,402 418
Intangible assets, at cost less accumulated amortization
of $12,872$12,897 and $11,668, respectively 50,62950,671 50,549
Other 4,5074,143 4,775
-------- ------------------ -----------
Total assets $477,764$452,678 $481,154
======== ================== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 61,15655,901 $ 57,989
Accrued expenses 61,93854,006 56,624
Current liabilities of discontinued operations, net 3,3163,121 2,907
Billings in excess of costs and earnings on uncompleted
contracts 13,63511,519 9,827
Accrued income taxes 5,1145,818 7,868
Current installments of long-term debt 12599 182
-------- ------------------ -----------
Total current liabilities 145,284130,464 135,397
-------- ------------------ -----------
Long-term debt, less current installments 146,281132,464 164,371
Other long-term liabilities 24,85524,785 25,248
Liabilities of discontinued operations, net 19,29021,093 18,366
Commitments and contingent liabilities (Note 6)
Shareholders' equity
Common stock, $.33/$.33 1/3 par value; authorized 50,000,000
shares; issued and outstanding 27,821,000 and 27,743,000
shares, respectively 9,274 9,248
Additional paid-in capital 45,93046,131 45,106
Retained earnings 87,66789,169 84,608
Unearned compensation (908)(838) (888)
Net unrealized (loss) gain (loss) on marketable securities 91136 (302)
-------- ------------------ -----------
Total shareholders' equity 142,054143,872 137,772
-------- ------------------ -----------
Total liabilities and shareholders' equity $477,764$452,678 $481,154
======== ================== ===========
See accompanying notes to consolidated financial statements.
3
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE MONTHS AND SIXNINE MONTHS ENDED
SEPTEMBERDECEMBER 2, 2000 AND AUGUST 28,NOVEMBER 27, 1999
(Thousands of Dollars Except Share and Per Share Amounts)
(unaudited)
Three Months Ended SixNine Months Ended
--------------------------------------- ---------------------------------------
September----------------------------- --------------------------------
December 2, August 28, SeptemberNovember 27, December 2, August 28,November 27,
2000 1999 2000 1999
-------------- ----------------- ----------------- --------------------------- ------------- ----------- -------------
Net sales $236,364 $216,962 $473,617 $426,624$197,291 $201,127 $670,908 $627,752
Cost of sales 189,308 171,469 378,647 334,070
-------------- ----------------- ----------------- -----------------155,969 170,518 534,616 504,587
---------- ------------- ----------- -------------
Gross profit 47,056 45,493 94,970 92,55441,322 30,609 136,292 123,165
Selling, general and administrative expenses 36,391 33,472 77,351 69,800
-------------- ----------------- ----------------- -----------------35,951 34,888 113,302 104,689
---------- ------------- ----------- -------------
Operating income 10,665 12,021 17,619 22,754(loss) 5,371 (4,279) 22,990 18,476
Interest expense, net 3,180 2,622 5,962 5,188
-------------- ----------------- ----------------- -----------------2,919 2,400 8,881 7,589
---------- ------------- ----------- -------------
Earnings (loss) from continuing operations
before income taxes and other items below 7,485 9,399 11,657 17,5662,452 (6,679) 14,109 10,887
Income taxes 2,620 3,209 4,080 6,149tax provision (benefit) 858 (2,338) 4,938 3,811
Equity in net (earnings) loss of affiliated
companies 665 881 1,356 1,321
-------------- ----------------- ----------------- -----------------(1,368) 641 (12) 1,962
---------- ------------- ----------- -------------
Earnings (loss) from continuing operations 4,200 5,309 6,221 10,0962,962 (4,982) 9,183 5,114
Earnings from discontinued operations, net
of income taxes - 8,732 - 8,515
-------------- ----------------- ----------------- -------------------- 2,004 --- 10,519
---------- ------------- ----------- -------------
Net earnings (loss) $ 4,2002,962 $ 14,041(2,978) $ 6,2219,183 $ 18,611
============== ================= ================= =================15,633
========== ============= =========== =============
Earnings (loss) per share - basicshare-Basic
Continuing operations $ 0.150.11 $ 0.19(0.18) $ 0.220.33 $ 0.360.18
Discontinued operations - 0.31 - 0.31
-------------- ----------------- ----------------- -------------------- 0.07 --- 0.38
---------- ------------- ----------- -------------
Net earnings (loss) $ 0.150.11 $ 0.51(0.11) $ 0.220.33 $ 0.67
============== ================= ================= =================0.56
========== ============= =========== =============
Earnings (loss) per share - dilutedshare-Diluted
Continuing operations $ 0.150.11 $ 0.19(0.18) $ 0.220.33 $ 0.360.18
Discontinued operations - 0.31 - 0.31
-------------- ----------------- ----------------- -------------------- 0.07 --- 0.38
---------- ------------- ----------- -------------
Net earnings (loss) $ 0.150.11 $ 0.50(0.11) $ 0.220.33 $ 0.67
============== ================= ================= =================0.56
========== ============= =========== =============
Weighted average basic shares outstanding 27,852 27,799 27,827 27,71727,842 27,794 27,832 27,743
Weighted average diluted shares outstanding 27,853 27,876 27,827 27,81127,924 27,794 27,859 27,809
See accompanying notes to consolidated financial statements.
4
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIXNINE MONTHS ENDED SEPTEMBERDECEMBER 2, 2000 AND AUGUST 28,NOVEMBER 27, 1999
(Thousands of Dollars)(Thousands)
(unaudited)
SeptemberDecember 2, August 28,November 27,
2000 1999
------------------------ ------------
OPERATING ACTIVITIES
Net earnings $ 6,2219,183 $ 18,61115,633
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Net earnings from discontinued operations - (8,515)--- (10,519)
Depreciation and amortization 19,027 16,59227,120 24,901
Provision for losses on accounts receivable 1,934 1,1702,182 1,555
Deferred income tax (benefit) expense (621) 2,648182 1,557
Equity in net (earnings) loss of affiliated companies 1,356 1,321(12) 1,962
Net cash flow (to) from discontinued operations (3,042) 5,537(1,434) 3,717
Other, net (101) 154
-------------(24) 224
----------- ------------
Cash flow before changes in operating assets and liabilities 24,774 37,51837,197 39,030
Changes in operating assets and liabilities, net of
effect of acquisitionsacquisitions:
Receivables (16,765) 5,7022,638 (122)
Inventories 7,530 (150)12,207 (2,216)
Other current assets 3,488 6353,626 1,104
Accounts payable and accrued expenses 8,639 (15,771)(5,805) (14,380)
Billings in excess of costs and earnings on
uncompleted contracts 3,808 1,5651,692 4,195
Accrued and refundable income taxes (2,352) 8,921(2,689) (2,655)
Other long-term liabilities (413) 510
-------------564
----------- ------------
Net cash provided by operating activities 28,709 38,930
-------------48,453 25,520
----------- ------------
INVESTING ACTIVITIES
Capital expenditures (9,714) (34,302)(10,759) (41,700)
Acquisition of businesses, net of cash acquired (1,383) (1,981)(3,545) (1,983)
Purchases of marketable securities (5,872) (8,411)(7,900) (12,185)
Sales/maturities of marketable securities 5,673 9,2557,140 12,535
Investments in and advances to affiliated companies (1,339) (1,205)(2,259) (1,821)
Net cash flow from discontinued operations 4,375 2,000
Other, net 1 (196)
-------------(675) 1,104
----------- ------------
Net cash used in investing activities (8,259) (34,840)
-------------(13,623) (42,050)
----------- ------------
FINANCING ACTIVITIES
Payments on long-term debt (18,147) (1,380)(32,674) (960)
Proceeds from issuance of long-term debt - 5,400--- 21,350
Increase in deferred debt expenses (521) (255)(330)
Proceeds from issuance of common stock 517 2,7632,781
Repurchase and retirement of common stock (319) (1,774)(317) (2,179)
Dividends paid (2,912) (2,917)
-------------(4,373) (4,376)
----------- ------------
Net cash (used for)in) provided by financing activities (21,382) 1,837
-------------(37,368) 16,286
----------- ------------
(Decrease) increaseDecrease in cash and cash equivalents (932) 5,927(2,538) (244)
Cash and cash equivalents at beginning of period 7,192 1,318
------------------------ ------------
Cash and cash equivalents at end of period $ 6,2604,654 $ 7,245
------------- ------------1,074
=========== ============
Supplemental schedule of non-cash investing activities:
Net assets contributed to PPG Auto Glass, LLC (see Note 4) $ 30,84430,507 -
------------- ------------=========== ============
See accompanying notes to consolidated financial statements.
5
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
------------------------------------------
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
SeptemberDecember 2, 2000 and August 28,November 27, 1999, the results of operations for the
three months and sixnine months ended SeptemberDecember 2, 2000 and August 28,November 27, 1999
and cash flows for the sixnine months ended SeptemberDecember 2, 2000 and August 28,November 27,
1999.
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 notes. The information included in
this Form 10-Q should be read in conjunction with Management's Discussion
and Analysis and financial statements and notes thereto included in the
Company's Form 10-K for the year ended February 26, 2000. The results of
operations for the three months and sixnine months ended SeptemberDecember 2, 2000 and
August 28,November 27, 1999 are not necessarily indicative of the results to be
expected for the full year. As explained in note 5, the Company's
curtainwall contracting and detention/security contracting businesses are
reported as discontinued operations, along with the Company's interest in
VIS'N Service Corporation. Accordingly, certain prior year amounts have
been reclassified to conform to the current period presentation.
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. Fiscal 2001 six monthnine-month figures contain twenty
sevenforty
weeks whereas fiscal 2000 six monthnine-month figures contain twenty sixthirty-nine weeks.
2. Earnings Per Share
------------------
The following table presents a reconciliation of the denominators used in
the computation of basic and diluted earnings per share.
Three Months Ended SixNine Months Ended
-----------------------------------------------------------------
September--------------------------------------------------------------
December 2, August 28, SeptemberNovember 27, December 2, August 28,
(In Thousands)November 27,
2000 1999 2000 1999
------------------------------- ----------------------------------------------------------- ------------------------------
(Thousands)
Basic earnings per
share-weighted common
shares outstanding 27,852 27,799 27,827 27,71727,842 27,794 27,832 27,743
Weighted common shareshares
assumed upon exercise
of stock options 1 77 - 94
--------------------------------- -------------------------------82 --- 27 66
---------------------------- ------------------------------
Diluted earnings per
share-weighted common
shares and common
shares equivalent
outstanding 27,853 27,876 27,827 27,811
================================= ===============================27,924 27,794 27,859 27,809
============================ ==============================
6
3. Inventories
-----------
September(Thousands) December 2, 2000 February 26, (Thousands of Dollars) 2000
2000
--------------- ----------------------------------- ---------------------
Raw materials $16,604$17,789 $18,966
Work-in process 4,3414,980 4,995
Finished (see note 4) 8,9439,567 43,439
Cost and earnings in excess of billings on
uncompleted contracts 2,601775 784
--------------- ---------------------- -------
Total inventories $32,489$33,111 $68,184
=============== ====================== =======
6
4. Investments in Affiliates
-------------------------Affiliated Companies
-----------------------------------
The Company's joint ventures are accounted for by the equity method. The
nature and extent of these investments change over time. On July 29, 2000,
the Company and PPG Industries (PPG) combined their U.S. automotive
replacement glass distribution businesses into a newly formed entity, PPG
Auto Glass, LLC (PPG Auto Glass) of which the Company has a 34 percent
interest. As of SeptemberDecember 2, 2000, the Company's investment in PPG Auto Glass
is $30.8
million, the majority of which is an inventory contribution by the Company
of $28.6$33.0 million. The Company's share of earnings will be recorded beginning
in PPG Auto Glass for the
third quarter.quarter, net of taxes and transaction costs, was $2.3 million. The Company's
investment in TerraSun LLC relates to a research and development venture.
No dividends from investments in affiliates were paid in the secondthird quarter.
Included in the carrying amount of PPG Auto Glass, LLC is $9.1 million,
representing the unamortized excess of the cost of the investment over the
value of the underlying net tangible assets of PPG Auto Glass, LLC when the
investment was acquired. This excess is being amortized over a weighted
average life of 20 years.
Provision has been made for taxes that will become payable when the accrued,
undistributed earnings of TerraSun, LLC and PPG Auto Glass, LLC are
remitted.
5. Discontinued Operations
-----------------------
In fiscal 2000, Apogee's Board of Directors authorized the exit from the
Company's interest in VIS'N Service Corporation (VIS'N), a non-auto glass
focused, third partythird-party administered claims processor. In October and November
2000, the Company completed the sale of substantially all of the assets of
VIS'N in two separate transactions. In fiscal 1999, Apogee's Board of
Directors authorized the divestiture of the detention/security and domestic
curtainwall operations. In December 1998, the Company executed the sale of
its detention/security business. In May 1999, the Company completed the
sale of 100% of the stock of its large-scale domestic curtainwall business,
Harmon, Ltd. The sale of Harmon, Ltd. and the Company's detention/security
business combined with the fiscal 1998 exit from international curtainwall
operations effectively removed the Company from the large-scale construction
business. Accordingly, these businesses are presented as discontinued
operations in the accompanying financial statements and notes. Prior
periods have been restated.
At SeptemberDecember 2, 2000, accruals totaling $22.6$24.2 million represented the
remaining estimated (net) future cash outflows associated with the exit from
discontinued operations compared with $21.3 million at February 26, 2000.
The majority of these cash expenditures areis expected to be made within the
next one to twofive years. The primary components of the accrualaccruals relate to the
completion of certain construction projects, as well as costs to exit the
VIS'N business, associated legal and advisory
fees and related costs. The increase from February 26, 2000 is due to
additional requirements for various international curtainwall operation
items, offset by the collection of previously reserved receivables.
6. Commitments and Contingent Liabilities
--------------------------------------
At SeptemberDecember 2, 2000, the Company had ongoing letters of credit related to
its risk management programs, construction contracts and certain industrial
development bonds. The total value of letters of credit under which the
Company is obligated as of SeptemberDecember 2, 2000 was approximately $5.2$4.2 million.
The Company has also entered into a number of noncompete agreements for the
benefit of the Company. As of SeptemberDecember 2, 2000, we were committed to make
future payments of $2.6$1.6 million under such agreements.
7
The Company has been party to various legal proceedings incidental to its
normal operating activities. In particular, the construction businesses
discontinued by the Company are involved in various disputes retained by
the Company arising out of construction projects, sometimes involving
significant monetary damages. Although it is impossible to predict the
outcome of such proceedings, the Company believes, based on facts currently
available to it, that none of such claims will result in losses that would
have a material adverse effect on its financial condition.
7
7. Comprehensive Earnings
----------------------
Three Months Ended SixNine Months Ended
-------------------------------------------------------------
(Thousands of Dollars) September---------------------------------------------------------------------------
(Thousands) December 2, August 28, SeptemberNovember 27, December 2, August 28,November 27,
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------------------------
Net earnings $4,200 $14,041 $6,221 $18,611$2,962 $(2,978) $9,183 $15,633
Change in unrealized gains (losses) on
marketable securities, net of $226,$25,
($109)26), $211$236 and ($173)199), tax expense
(benefit), 420 (203) 393 (321)
--------------------------------------------------------------
respectively 45 (48) 438 (369)
---------------------------------------------------------------------------
Comprehensive earnings $4,620 $13,838 $6,614 $18,290
--------------------------------------------------------------$3,007 $(3,026) $9,621 $15,264
---------------------------------------------------------------------------
8. New Accounting Standards
--------------------------------------------------
In June 1998, Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, was issued
and, as amended by SFAS No. 137 and 138, is effective for fiscal years
beginning after June 15, 2000, although earlier application is permitted.
SFAS No. 133 requires all derivatives to be measured at fair value and
recognized as assets or liabilities on the balance sheet. Changes in the
fair value of derivatives should be recognized in either net earnings or
other comprehensive earnings, depending on the designated purpose of the
derivative. The Company expects to adopt SFAS 133 in Fiscal 2002. SFAS No.
133 is not expected to have a material impact on the Company's financial
position or results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
of Operations
- -------------
The following selected financial data should be read in conjunction with the
Company's Form 10-K for the year ended February 26, 2000 and the consolidated
financial statements, including the notes to consolidated financial statements,
included therein.
Sales and Earnings
- ------------------
Net sales for the secondthird quarter ended SeptemberDecember 2, 2000 were $236.4$197.3 million, a 9% increase2%
decrease over the $217.0$201.1 million reported for the prior year secondthird quarter.
SecondRevenues for the third quarter rose 10% compared to last year, after being
adjusted for the formation of the PPG Auto Glass joint venture. Third quarter
earnings from continuing operations of $4.2$3.0 million, or 15 cents$.11 per share diluted,
were 21% lower$7.9 million higher than last year's $5.3loss of $5.0 million, or 19 cents$.18 per
share diluted. Auto glass distribution results are included for two months in
the currentPrior year second quarter compared to three months in the prior year
second quarter due to the formation of the joint venture with PPG Industries
(PPG). Also, prior year secondthird quarter net sales have been restated to reflect
the planned exit of the Company's interest in VIS'N Service Corporation (VIS'N).VIS'N. Accordingly, the results of this
business, along with the Company's detention/security and international and
domestic curtainwall operations, are reported as discontinued operations. The
results of the Auto Glass distribution unit are not included in current
quarterly results from continuing operations as they were in the prior year
third quarter due to the formation of the joint venture with PPG. The results
of the joint venture are included in equity in net earnings of affiliated
companies. EBITDA (earnings before interest, taxes, depreciation and
amortization) for continuing operations was $13.5 million for the third quarter,
a $9.5 million increase from $4.0 million reported for the prior year third
quarter.
Fiscal 2001 year-to-date figures include one extra week compared to the year-to-
date period a year ago. Fiscal 2001 year-to-date net sales increased 11%7%, to
$473.6$670.9 million, compared to $426.6$627.8 million a year ago. Revenues rose 14% over a
year ago, while earningsafter being adjusted for the PPG Auto Glass joint venture. Earnings
from continuing operations fell 39%rose 80% to $6.2$9.2 million, or 2233 cents per share
diluted, from $10.1$5.1 million, or 3618 cents per share diluted, in the prior year.
Year-to-
dateYear-to-date net earnings decreased 67%41% to $6.2$9.2 million, or 2233
8
cents per share diluted, from $18.6$15.6 million, or 6756 cents per share diluted, in
the prior year. EBITDA
(Earnings before interest, taxes, depreciation and amortization for continuing
operations) was $19.9 million foryear due to the second quarter, a 2% decrease from $20.3$10.5 million reported forgain from discontinued
operations reported in the prior year second quarter.
Secondperiod.
Third Quarter Fiscal 2001 Compared to SecondThird Quarter Fiscal 2000
- --------------------------------------------------------------------------------------------------------------------------------
The following table compares three and sixnine month results for the current year
with corresponding periods a year ago, as a percentage of sales, for each
caption. Fiscal 2000 results have been restated to reflect the effect of
discontinued operations.
8
Percentage of Net Sales
----------------------------------------------------------------
Three Months Ended SixNine Months Ended
----------------------------- -----------------------------
Sept.------------------------ ----------------------------
Dec. 2, Aug. 28, Sept.Nov. 27, Dec. 2, Aug. 28,Nov. 27,
2000 1999 2000 1999
------------------------------- ----------------------------------------------------- ----------------------------
Net sales 100.0 100.0 100.0 100.0
Cost of sales 80.1 79.0 79.9 78.3
----------------------------- -----------------------------79.1 84.8 79.7 80.4
------------------------ ----------------------------
Gross profit 19.9 21.0 20.1 21.720.9 15.2 20.3 19.6
Selling, general and administrative expenses 15.4 15.4 16.3 16.4
----------------------------- -----------------------------18.2 17.3 16.9 16.7
------------------------ ----------------------------
Operating income 4.5 5.5 3.7 5.3(loss) 2.7 (2.1) 3.4 2.9
Interest expense, net 1.31.5 1.2 1.3 1.2
----------------------------- ----------------------------------------------------- ----------------------------
Earnings (loss) from continuing operations
before income taxes and other items 3.2 4.3 2.5 4.1below 1.2 (3.3) 2.1 1.7
Income taxes 1.1 1.5 0.9 1.40.4 (1.2) 0.7 0.6
Equity in net earnings(earnings) loss of affiliated
companies (0.7) 0.3 0.4- 0.3
0.3
----------------------------- ----------------------------------------------------- ----------------------------
Earnings (loss) from continuing operations 1.8 2.4 1.3 2.41.5 (2.5) 1.4 0.8
Earnings from discontinued operations - 4.01.0 - 2.0
----------------------------- -----------------------------1.7
------------------------ ----------------------------
Net earnings 1.8 6.5 1.3 4.4
============================= =============================(loss) 1.5 (1.5) 1.4 2.5
======================== ============================
Effective tax rate 35.0% 36.0% 35.0% 36.0%35.0% 35.0%
SecondThird quarter consolidated gross profit, as a percentage of net sales was 19.9%20.9%,
downup from 21.0%15.2% in the prior year secondthird quarter due to a decrease atimproved performance in
both Glass Technologies and Glass Services resulting primarily from transitional changes in mix resulting
from the joint venture with PPGsegments. This improved performance
was attributable to improved manufacturing performance within Glass Technologies
and improved pricing and improved margins as well as cost reductions within
Glass Services. These improvements were offset by an improvement at Glass Technologies.
In addition, gross margin was affected by favorable underwriting activity in the
prior year second quarter at the Company'sadditional insurance subsidiary and additionalrelated
expenses in the current year quarter related to health insurance.
Secondyear.
Third quarter selling, general and administrative (SG&A) expenses rose by $2.9$1.1
million, or 9%3% over the prior year quarter, while SG&A as a percentpercentage of sales
remained unchanged.increased from 17.3% to 18.2%. The increase in expenses is primarily due to timing of
accruals related to bonuses, an
increase in depreciation incurred due mainly to information systems capitalized
in the prior year, offset by a decrease in
selling and marketing expenses.timing of accruals related to bonuses.
Net interest expense increased slightly during the quarter as lower borrowing
levels were offset by higher borrowing rates. The six-monthnine-month effective income
tax rate of 35.0% was down slightly from 36.0%consistent with a year ago.
9
The following table presents sales and operating income for the Company's two
segments and on a consolidated basis for three and sixnine months compared to the
corresponding periods a year ago.
Three Months Ended SixNine Months Ended
-------------------------------------------------------------------------------------
September---------------------------------------------------------------------------------------
December 2, August 28,November 27, % SeptemberDecember 2, August 28,November 27, %
(Dollars in thousands) 2000 1999 Chg 2000 1999 Chg
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net Sales
Glass Technologies $104,901$101,138 $ 88,345 19% $207,935 $176,876 18%87,361 16% $309,073 $264,237 17%
Glass Services 133,979 131,054 2 269,963 252,299 797,793 115,387 (15) 367,756 367,687 -
Intersegment elimination (2,516) (2,437) 3 (4,281) (2,551) 68
-------------------------------------------------------------------------------------(1,640) (1,621) 1 (5,921) (4,172) 42
---------------------------------------------------------------------------------------
Net sales $236,364 $216,962 9% $473,617 $426,624 11%
=====================================================================================$197,291 $201,127 (2)% $670,908 $627,752 7%
=======================================================================================
Operating Income
Glass Technologies $ 4,7676,328 $ 4,536 5%(937) N/M $ 7,49513,823 $ 8,555 (12)%7,618 81%
Glass Services 6,031 6,747 (11) 11,368 14,688 (23)(453) (3,107) 85% 10,915 11,582 (6)
Corporate and Other (133) 738 N/M (1,244) (489) N/M
-------------------------------------------------------------------------------------(504) (235) (114) (1,748) (724) (141)
---------------------------------------------------------------------------------------
Operating income $ 10,6655,371 $ 12,021 (11)%(4,279) N/M $ 17,61922,990 $ 22,754 (23)%
=====================================================================================18,476 24%
=======================================================================================
N/M=Not meaningful
9
Glass Technologies (GT)
- -----------------------
Net sales at Glass Technologies increased 19%16% to $104.9$101.1 million in the secondthird
quarter, while operating income increased 5%significantly to $4.8$6.3 million. The
increase in operating income is due to favorable results at Viracon, Viratec the Apogee Wausau Group
(AWG), and
Tru Vue, offset by a decrease in operating results at Viracon.the Apogee Wausau Group
(AWG).
Viracon, the segment's largest operating unit, reported a net sales increase of
13%, however,28% and a significant increase in operating income decreased for the quarter compared to
last year's secondthird quarter. Customer demand for Viracon's high-performance
architectural glass products remained strong and the Statesboro facilityunit has increased its
capacity utilization compared to the prior year quarter. Strong demand in
certain products, however, changed Viracon'sViracon successfully
addressed its product mix whichissue that contributed to decreased efficiencies as well as extended delivery times resulting in
the income decrease. In addition, the operating income decrease was also affected
by increases in labor costs, a prior year second quarter insurance adjustmentand which were expected to slow shipments the second half of
the year. These improvements were offset by increased labor and an increase in
depreciation expense due to prior year capital additions. Backlog at SeptemberDecember
2, 2000 remained at a near-record levelslevel of $45$41 million. The
product mix issues discussed above are expected to slow profitability growth in
the second half of fiscal 2001.
Viratec reported an increase in sales and operating income for the quarter
compared to last year's secondthird quarter due to improved operational efficiencies.
As the PC industry softens, the Company expects a significant decline in
revenues from computer CRT-related coatings at its San Diego facility in the
first quarter of next fiscal year. The Company is evaluating other potential
products and applications for this facility.
Tru Vue recorded a sales increase of 20%26% and ana solid operating income increase of 11%
for the quarter as compared to last year's secondthird quarter due to continued
increased operational efficiencies and demand for Tru Vue's higher margin,
value-added glass products. Also, in the secondthird quarter, Tru Vue completed the
acquisition of Balangier FineCorporate Art & Designs (Balangier)Services, Inc., (Corporate Art) the operating
results of which were not significant to the quarter. BalangierCorporate Art produces
high-end framed art for national retail customers, expanding Tru Vue's pre-framedpre-
framed art business.
The Apogee Wausau Group (AWG), which consists of Wausau Window & Wall Systems
and Linetec, reported a sales increasedecrease of 14%11% and ana significant operating income
increase
of 33%decrease for the quarter as compared to the same quarter a year ago due to
increased efficiencies and sales volume increases. However, due to product mix
issues,ago. Wausau
Window & Wall Systems has been unablecontinues to experience a slowdown in shipments, due to
its inability to fill its available short lead-time capacity incapacity. This trend is
expected to continue throughout the second half of fiscal 2001.fourth quarter.
10
Glass Services (GS)
- -------------------
Net sales of Glass Services increased 2%decreased 15% to $134.0$97.8 million in the secondthird quarter.
Operating income for the segment decreased 11% to $6.0 million from
the prior year quarter.
The auto glass business reported a 3% decrease inNet sales grew 5% compared to the priorthird quarter of last year, quarter, in addition to an operating income decrease due mainly to the
activity of the distribution unit discussed below. Net sales of the auto glass
retail unit decreased slightly compared with those of a year ago. Retail unit
volume also decreased offset by unit price increases. Operating resultsafter being adjusted
for the
auto glass retail unit increased due to an increase in gross margin and a
decrease in expenses. Net sales of the manufacturing unit increased slightly,
however, operating income was down. Net sales and operating income for the
distribution unit decreased compared to the prior year quarter. This decrease
is due mainly to distribution results of two months in the current year second
quarter versus three months in the prior year second quarter with the formation of thePPG Auto Glass joint venture, with PPG. The joint venturewhich combines the Company's
and PPG's U.S. automotive replacement glass distribution businesses into a newly
formed entity, PPG Auto Glass, LLC, with the Company having a 34% ownership
interest in the joint venture. InOperating income for the second halfsegment increased 85%
from the prior year quarter.
The auto glass business reported a 27% decrease in sales compared to the prior
year quarter. This decrease is due to distribution results not being included in
the current year third quarter with the formation of fiscal 2001,the joint venture with PPG,
as compared to three months' performance in the prior year third quarter.
Operating income for the auto glass business is expectingdecreased for the same reason. Net
sales of the auto glass retail unit decreased 3% compared with those of a slight improvementyear
ago due, in operatingpart, to soft demand for auto replacement glass services. The retail
unit volume decrease was offset by unit price increases. Operating results for
the auto glass retail unit increased due to continued
cost reductions.an increase in gross margin and a
decrease in total costs. During the quarter, 122 jobs were eliminated through
layoffs and position eliminations, year-to-date, 26 underperforming stores, or
8% of its retail locations have been closed and call center operations were
transitioned to APAC Customer Services, Inc. as part of the Company's initiative
to improve customer service and lower costs. Net sales of the manufacturing unit
decreased; however, operating income improved.
Harmon, Inc., the Company's full service building glass installation and repair
business, reported a 25%22% increase in net sales and 43%a significant increase in
operating income for the quarter as compared to the prior year quarter, mainly
due to increased volume and improved margins. 10
At December 2, 2000, backlog at
Harmon, Inc. was at a record level of $67.0 million.
Discontinued Operations
- -----------------------
In fiscal 2000, Apogee's Board of Directors authorized the exit from the
Company's interest in VIS'N Service Corporation (VIS'N), a non-auto glass
focused, third party administered claims processor. In October and November,
the Company completed the sale of substantially all of the assets of VIS'N in
two separate transactions. In fiscal 1999, Apogee's Board of Directors
authorized the divestiture of the detention/security and domestic curtainwall
operations. In December 1998, the segmentCompany executed the sale of its
detention/security business. In May 1999, the Company completed the sale of
100% of the stock of its large-scale domestic curtainwall business, Harmon, Ltd.
The sale of Harmon, Ltd. and the Company's detention/security business combined
with the fiscal 1998 exit from international curtainwall operations effectively
removed the Company from the large-scale construction business. Accordingly,
these businesses are presented as discontinued operations in the accompanying
financial statements and notes. Prior periods have been restated.
Backlog
- -------
On SeptemberDecember 2, 2000, the Company's consolidated backlog was $196.7$193.0 million, up
13%8% from the $174.8$178.4 million reported a year ago. The backlogs of GT's operations
represented 67%66% of the Company's consolidated backlog.
Liquidity and Capital Resources
- -------------------------------
Financial Condition
- -------------------
Net cash provided by operating activities
Cash provided by operating activities for the sixnine months ended SeptemberDecember 2, 2000
totaled $28.7$48.5 million compared to $38.9$25.5 million in the same prior year period.
The decrease is due to the change in accruals for discontinued operations, a
decrease in net earnings and increased depreciation expense. Also, changesChanges in operating assets and liabilities provided cash of $3.9$11.2 million,
compared to $1.4usage of $13.5 million in the same period last year, the increase
due mainly to an increase inreduced levels of accounts receivable and inventory and increased
levels of accounts payable and accrued expenses offset by an increase in receivables.liabilities. At quarter-end, working
capital was $45.0$38.5 million, down from $79.0 million at February 26, 2000. This
decrease is largely due to the $28.6 million inventory contribution to the joint
venture with PPG.
11
Net cash used in investing activities
Net cash used in investing activities for the sixnine months ended SeptemberDecember 2, 2000
was $8.3$13.6 million compared to $34.8$42.1 million in the same prior year period. The
decrease is due mainly to a decrease in capital expenditures. Prior year capital
expenditures consisted mainly of GT expansions and expenditures for information
systems projects throughout the Company. For fiscal 2001, the Company expects
to incur capital expenditures as necessary to maintain existing facilities and
information systems. Fiscal 2001 capital expenditures are expected to be
significantly less than those incurred in fiscal 2000.
Net cash provided by financing activities
Bank borrowings were $146.4$132.5 million at SeptemberDecember 2, 2000, down from the $164.6
million outstanding at February 26, 2000. Cash provided by operating activities
was sufficient to finance the period's investing activities and cash dividend
requirements. Dividends paid through December 2, 2000 are $4.4 million. At
SeptemberDecember 2, 2000, long-term debt was 51%44% of total capitalization, as compared to
54% at fiscal year-end 2000.
Effective June 1, 2000, the Company amended its revolving credit agreement in
conjunction with a pending joint venture with PPG that subsequently closed in
July 2000. The amendment resulted in a decrease in borrowing capacity from $253
million to $200 million.
The Company anticipates outstanding borrowings to continue to decline over the
course of the year. The Company believes that cash from operating activities
and the available credit facility will provide adequate liquidity for the
remainder of the fiscal year.
Shareholders' Equity
- --------------------
At SeptemberDecember 2, 2000, Apogee's shareholders' equity was $142.1$143.9 million. Book
value per share was $5.11,$5.17, up from $4.97 per share at February 26, 2000, with
outstanding common shares increasing
11
nominally during the period. Net earnings
and proceeds from common stock issued in connection with the Company's stock-basedstock-
based compensation plans accounted for the increase, slightly reduced by regular
quarterly dividends paid.paid of $.0525 per share.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The Company's principal market risk is sensitivity to interest rates, which is
the risk that changes in interest rates will reduce net earnings of the Company.
To manage the Company's direct risk from changes in market interest rates,
management actively monitors the interest sensitive components of the Company's
balance sheet, primarily debt obligations, as well as market interest rates in
order to minimize the impact of changes in interest rates on net earnings and
cash flow.
The primary measure of interest rate risk is the simulation of net income under
different interest rate environments. The approach used to quantify interest
rate risk is a sensitivity analysis. This approach calculates the impact on net
earnings, relative to a base case scenario, of rates increasing or decreasing
gradually over the next 12 months by 200 basis points. The aforementioned
changes in interest rates affecting the Company's financial instruments would
result in approximately a $1.4 million impact to net earnings. As interest
rates increase, net earnings decrease; as interest rates decrease, net earnings
increase.
The Company uses interest swaps to fix a portion of its variable rate borrowings
from fluctuations in interest rates. As of SeptemberDecember 2, 2000, the Company has
interest swaps covering $35 million of variable rate debt.
The Company has a policy of using forward exchange contracts to hedge its net
exposures, by currency, related to the foreign currency-denominated monetary
assets and liabilities, and future firm commitments of its operations. Forward
exchange contracts are also used from time to time to manage near-term foreign
currency cash requirements. The primary objective of these hedging activities
is to maintain an approximately balanced position in foreign currencies so that
exchange gains and losses resulting from exchange rate changes, net of related
tax effects, are minimized.
12
Given the Company's balanced foreign exchange position described above, a 10%
adverse change in foreign exchange rates upon which these contracts are based
would result in exchange losses from these contracts that would, in all material
respects, be fully offset by exchange gains on the underlying net monetary
exposures for which the contracts are designated as hedges. As of SeptemberDecember 2,
2000, the Company did not have any forward contracts outstanding as the Company
had no material foreign exchange exposure.
Cautionary Statements
- ---------------------
This report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements may include
forward-looking statements, which reflect the Company's current views with
respect to future events and financial performance. The words "believe,"
"expect," "anticipate," "intends," "estimate," "forecast," "project," "should"
and similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
forecasts and projections in this document are "forward-looking statements," and
are based on management's current expectations or beliefs of the Company's near-termnear-
term results, based on current information available pertaining to the Company,
including the risk factors noted below.
The Company wishes to caution investors that any forward-looking statements made
by or on behalf of the Company are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements.
These uncertainties and other risk factors include, but are not limited to:
whetherto those
noted below. There can be no assurances given that the ongoing reorganization
and realignment and cost savings programs
implemented at the replacement auto glass retail operationsof Harmon AutoGlass will lead to improvedsuccessful operating results
and whether the unfavorable industry conditions in
the replacement auto glass industry, including excess capacities and narrowing
margins, will continuenow or in the future. In addition,Also, there iscan be no assuranceassurances that the ongoing ramp-
ups of new plant capacity in the Glass Technologies businesses will lead to
successful operating results for those companies now or in the future. There
can be no assurances that the anticipated slowdown in business for Viratec San
Diego due to softness in the computer industry can be replaced with new
customers and products. There can be no assurances that PPG Auto Glass,
Apogee's automotive replacement glass distribution joint venture with PPG
Industries, will achieve favorable short-term or long-term operating results orresults.
In addition, in recent years, there has been excess capacity at the distribution
level of the automotive replacement glass industry and margins have narrowed.
There is no assurance PPG Auto Glass will achieve any anticipated efficiencies
or be able to improve or maintain margins. In
addition, there is no assurance that PPG Auto Glass, Apogee's automotive
replacement glass distribution joint venture with PPG, willa achieve favorable
short-term or long-term operating results or any anticipating efficiencies or be
able to improve or maintain margins, In addition,
12
there can be no assurances that operations of Apogee and its business units will
not be negatively affected by recent departures of senior management personnel
and its flat management structure, whether the production ramp-ups of new or
expanded plant capacity in the GT segment will proceed as anticipated and will
lead to successful operating results for those companies now or in the future,
whether demand for GT products and services will continue at present rates and
whether generally favorable economic conditions will continue.
A number of other factors should be considered in conjunction with this report's
forward-looking statements, 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 other factors are set
forth in the cautionary statement filed as Exhibit 99 to the Company's Annual
Report on Form 10-K, and include, without limitation, cautionary statements
regarding changes in economic and market conditions, factors related to
competitive pricing, commercial building market conditions, management of growth
of business units, greater than expected costs or difficulties related to the
operation of the businesses, the impact of foreign currency markets, the
integration of acquisitions, the realization of expected economies gained
through expansion and information systems technology updates. New factors
emerge from time to time and it is not possible for management to predict all
such factors, nor can it assess the impact of each such factor on the business
or the extent to which any factor, or a combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements.
13
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,
2000. The number of outstanding shares on the record date for the Annual
Meeting was 27,853,722. Eighty-nine percent of the outstanding shares were
represented in person or by proxy at the meeting.
The four candidates for election as Class II Directors listed in the proxy
statement were elected to serve three-year terms, expiring at the 2003 Annual
Meeting of Shareholders and the one candidate for election as a Class III
Director listed in the proxy statement was elected to serve a one-year term
expiring at the 2001 Annual Meeting of Shareholders. The proposal to ratify the
appointment of Arthur Andersen LLP as independent auditors for the Company for
the 2001 fiscal year was also approved. The results of these matters voted upon
by the shareholders are listed below.
Number of Shares
-----------------------------------------------------------------------
In Favor Withheld/Against Abstained/Unvoted
------------------- -------------------- -----------------------
Election of Class II Directors
Bernard P. Aldrich 24,453,858 478,251
Harry A. Hammerly 24,457,677 474,432
Russell Huffer 24,413,035 519,074
Laurence J. Niederhofer 24,447,366 484,743
Election of Class III Director
Ray C. Richelsen 23,362,525 1,569,584
Ratification of the appointment
of Arthur Andersen LLP
as independent auditors 24,778,773 73,634 79,702
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
---------
Exhibit (27).27. Financial Data Schedule (EDGAR filing only).
Exhibit (27.1)27.1 Restated Financial Data Schedule (EDGAR filing only).
Exhibit 27.2 Restated Financial Data Schedule (EDGAR filing only).
Exhibit 27.3 Restated Financial Data Schedule (EDGAR filing only).
(b) Reports on Form 8-K:
--------------------
The Company's Current Report on Form 8-K
dated July 29, 2000 related to the
formation of the joint venture with PPG.
14-------------------
None
13
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: October 13, 2000January 16, 2001 /s/Russell Huffer
--------------
Russell Huffer
Chairman, President and Chief Executive
Officer
Date: October 13, 2000January 16, 2001 /s/James S. Porter
---------------
James S. Porter
Controller
15Michael B. Clauer
-----------------
Michael B. Clauer
Executive Vice President and
Chief Financial Officer
14
EXHIBIT INDEX
Exhibit
- -------
Exhibit 2727. Financial Data Schedule (EDGAR filing only).
Exhibit 27.1 Restated Financial Data Schedule (EDGAR filing only).
16Exhibit 27.2 Restated Financial Data Schedule (EDGAR filing only).
Exhibit 27.3 Restated Financial Data Schedule (EDGAR filing only).
15