<PAGE>
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 May 29, 1999 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 June 30, 1999
- ---------------------------------- ----------------------------
Common Stock, $.33 1/3 Par Value 27,838,273
1
<PAGE>
APOGEE ENTERPRISES, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED MAY 29, 1999
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C>
PART I
- ------
Item 1. Financial Statements
Consolidated Balance Sheets as of May 29, 1999
and February 27, 1999 3
Consolidated Results of Operations for the
Quarters Ended May 29, 1999 and May 30, 1998 4
Consolidated Statements of Cash Flows for the
Quarters Ended May 29, 1999 and May 30, 1998 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11-12
PART II Other Information
- -------
Item 6. Exhibits and Reports on Form 8-K 13
Exhibits Index 15
Exhibit 27 Financial Data Schedule (EDGAR filing only)
</TABLE>
2
<PAGE>
Item 1. Financial Statements
- -----------------------------
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
May 29, 1999 February 27, 1999
------------ -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 5,775 $ 1,318
Receivables, net of allowance for doubtful accounts 111,841 118,216
Inventories 69,999 68,171
Deferred tax assets 11,650 11,622
Other current assets 5,467 6,018
-------- --------
Total current assets 204,732 205,345
-------- --------
Property, plant and equipment, net 198,127 180,428
Other assets
Marketable securities - available for sale 23,942 27,239
Investments 521 570
Intangible assets, at cost less accumulated
amortization of $10,030 and $9,446, respectively 55,116 55,077
Other 2,483 2,532
-------- --------
Total assets $484,921 $471,191
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 31,601 $ 43,166
Accrued expenses 47,572 51,738
Billings in excess of costs and earnings on uncompleted 11,714 11,622
contracts
Accrued income taxes 9,709 7,385
Current installments of long-term debt 1,035 1,300
-------- --------
Total current liabilities 101,631 115,211
-------- --------
Long-term debt, less current installments 187,086 165,097
Other long-term liabilities 29,639 27,845
Net liabilities of discontinued operations 32,793 32,374
Shareholders' equity
Common stock, $.33 1/3 par value; authorized 50,000,000
shares; issued and outstanding 27,761,000 and 27,623,000
shares, respectively 9,253 9,208
Additional paid-in capital 43,879 41,903
Retained earnings 82,128 80,194
Unearned compensation (1,450) (721)
Net unrealized (loss)/gain on marketable securities (38) 80
-------- --------
Total shareholders' equity 133,772 130,664
-------- --------
Total liabilities and shareholders' equity $484,921 $471,191
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
FOR THE QUARTERS ENDED MAY 29, 1999 AND MAY 30, 1998
(Thousands of Dollars Except Share and Per Share Amounts)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended
May 29, 1999 May 30, 1998
------------ ------------
<S> <C> <C>
Net sales $ 211,123 $ 190,377
Cost of sales 164,207 149,938
----------- -----------
Gross profit 46,916 40,439
Selling, general and administrative expenses 36,777 30,937
----------- -----------
Operating income 10,139 9,502
Interest expense, net 2,580 2,490
----------- -----------
Earnings from continuing operations before income taxes and
other items below 7,559 7,021
Income taxes 2,721 2,524
Equity in net loss of affiliated companies 440 300
Minority interest (117) --
----------- -----------
Earnings from continuing operations 4,515 4,188
Earnings (loss) from operations of discontinued businesses,
net of income taxes 55 (310)
----------- -----------
Net earnings $ 4,570 $ 3,878
=========== ===========
Earnings (loss) per share-basic
Continuing operations $ 0.16 $ 0.15
Discontinued operations -- (0.01)
----------- -----------
Net earnings $ 0.17 $ 0.14
=========== ===========
Earnings (loss) per share-diluted
Continuing operations $ 0.16 $ 0.15
Discontinued operations -- (0.01)
----------- -----------
Net earnings $ 0.16 $ 0.14
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MAY 29, 1999 AND MAY 30, 1998
(Thousands of Dollars)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
OPERATING ACTIVITIES
<S> <C> <C>
Net earnings $ 4,570 $ 3,878
Adjustments to reconcile net earnings to net cash provided by
continuing operating activities:
Net (earnings) loss from discontinued operations (55) 310
Depreciation and amortization 8,373 6,726
Provision for losses on accounts receivable 806 629
Deferred income tax expense (benefit) 634 (5,279)
Equity in net loss of affiliated companies 440 300
Minority interest (117) --
Other, net 49 (7)
----------- -----------
Cash flow before changes in operating assets and liabilities 14,700 6,557
Changes in operating assets and liabilities, net of
effect of acquisitions:
Receivables 6,185 (8,134)
Inventories (1,102) 444
Other current assets 551 2,616
Accounts payable and accrued expenses (15,730) 8,106
Billings in excess of costs and earnings on uncompleted
contracts 92 1,161
Refundable income taxes and accrued income taxes 2,324 16,533
Other long-term liabilities 581 (806)
----------- -----------
Net cash provided by continuing operating activities 7,601 26,477
----------- -----------
INVESTING ACTIVITIES
Capital expenditures (25,285) (8,745)
Acquisition of businesses, net of cash acquired (1,981) (4,701)
Increase (decrease) in marketable securities 3,116 (8,120)
Investments in and advances to affiliated companies (390) (200)
Proceeds from sale of property and equipment 42 68
Other, net (168) (43)
----------- -----------
Net cash used in investing activities (24,666) (21,741)
----------- -----------
FINANCING ACTIVITIES
Payments on long-term debt (376) (526)
Proceeds from issuance of long-term debt 22,100 1,997
Increase in deferred debt expense -- (2,837)
Proceeds from issuance of common stock 2,140 2,056
Repurchase and retirement of common stock (852) (115)
Dividends paid (1,457) (1,382)
----------- -----------
Net cash provided by (used in) financing activities 21,555 (807)
----------- -----------
NET CASH FLOW FROM DISCONTINUED OPERATIONS (33) (81)
----------- -----------
Increase in cash and cash equivalents 4,457 3,848
Cash and cash equivalents at beginning of year 1,318 7,853
----------- -----------
Cash and cash equivalents at end of period $ 5,775 $ 11,701
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 adjustments) necessary to present fairly the financial position
as of May 29, 1999 and May 30, 1998, and the results of operations and cash
flows for each of the thirteen week periods ended May 29, 1999 and May 30,
1998. Certain prior year amounts have been reclassified to conform to the
current period presentation.
The financial statements and notes are presented as permitted by Form 10-Q
and do not contain certain information included in the Company's annual
financial statements and notes. The 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 27, 1999. The results of operations for the
thirteen week periods ended May 29, 1999 and May 30, 1998 are not
necessarily indicative of the results to be expected for the full year.
The Company's fiscal year ends on the Saturday closest to February 28. Each
interim quarter ends on the Saturday closest to the end of the months of
May, August and November.
2. Earnings per share
------------------
The following table presents a reconciliation of the denominators used in
the computation of basic and diluted earnings per share.
<TABLE>
<CAPTION>
May 29, 1999 May 30, 1998
------------ ------------
<S> <C> <C>
Basic earnings per share -
Weighted common shares outstanding 27,635,067 27,536,441
Weighted common shares assumed upon
exercise of stock options 111,826 246,077
------------ ------------
Diluted earnings per share -
Weighted common shares and
potential common shares outstanding 27,746,893 27,782,518
============ ============
</TABLE>
3. Inventories
-----------
Inventories consist of the following:
<TABLE>
<CAPTION>
(Thousands of Dollars) May 29, 1999 February 27, 1999
------------ -----------------
<S> <C> <C>
Raw materials $ 17,582 $ 16,324
Work-in process 3,920 3,157
Finished 47,530 48,330
Cost and earnings in excess of billings on
uncompleted contracts 967 360
------------ -----------------
Total inventories $ 69,999 $ 68,171
============ =================
</TABLE>
6
<PAGE>
4. Discontinued Operations
-----------------------
On May 13, 1999, the Company completed the sale of 100% of the stock of its
large-scale domestic curtainwall business, Harmon Ltd., for consideration
including $2 million cash and a $10.2 million secured, subordinated note,
subject to closing adjustments relating to working capital balances. The
results of Harmon Ltd., as well as those of the Company's Detention &
Security unit, which was sold in November 1998, and the Company's
international curtainwall operations are reported as discontinued
operations. Earnings from operations of discontinued businesses for the
period were nominal. The Company does not expect to recognize a material
gain or loss on the sale of Harmon, Ltd.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
Sales and Earnings
- ------------------
Net sales for the first quarter ended May 29, 1999 were $211.1 million, an 11%
increase over the $190.4 million reported for the prior year quarter. First
quarter earnings from continuing operations increased 8% to $4.5 million, or 16
cents per share-diluted, from $4.2 million, or 15 cents per share-diluted, for
the prior year quarter. Last year's net sales have been restated to reflect the
divestiture of the Company's detention/security systems contracting and domestic
curtainwall businesses. Accordingly, the results of these businesses were
reported as discontinued operations.
The following table presents sales and operating income data for the Company's
two segments and on a consolidated basis for the first quarter, when compared to
the corresponding period a year ago. Operating results are discussed below.
<TABLE>
<CAPTION>
Quarter Ended
----------------------
May 29, May 30, Percentage
(Thousands Of Dollars) 1999 1998 Change
--------- --------- ----------
<S> <C> <C> <C>
Net Sales
Glass technologies $ 88,531 $ 77,388 14%
Glass services 122,706 113,205 8
Intersegment elimination (114) (216) 47
--------- ---------
Net sales $ 211,123 $ 190,377 11%
========= =========
Operating Income (Loss)
Glass technologies $ 4,019 $ 4,116 (2)%
Glass services 7,346 5,204 41
Corporate and other (1,226) 182 NM
--------- ---------
Operating income (loss) $ 10,139 $ 9,502 7%
========= =========
</TABLE>
Glass Technologies (GT)
- -----------------------
Net sales increased 14% over the prior period. First quarter operating income
decreased to $4.0 million compared to $4.1 million in the year-ago quarter. The
sales increase is due to primarily to continued strength at Wausau, the
segment's architectural windows unit, and improving volume at Viratec's
relocated Optium CRT coating operation in San Diego. Viracon's new Statesboro,
Georgia facility expansion was completed during the quarter, with production
volumes expected to ramp up throughout the remainder of the year. The 2% decline
in operating income was partly the result of higher fixed costs associated with
capacity expansions throughout the segment.
Viracon, the segment's largest operating unit, reported a 58% decline in
operating income despite a sales gain of 7% as compared to the prior year's
quarter. The ramping up of production at the Statesboro facility, including
significant incremental depreciation charges, and the inclusion of an unusually
high margin job in the prior year first quarter results all contributed to the
operating income decline.
7
<PAGE>
The segments' architectural products units, Wausau Window and Wall Systems and
Linetec, leveraged a combined sales gain of 24% into sharply higher operating
income, reflecting both the higher volume and improved productivity.
GT's Viratec unit reported a 24% increase in sales levels over the same period a
year ago. Although Viratec reported an expected net loss for the period,
operating income results improved by 47% over the prior year quarter, mainly as
a result of the improved volume at the relocated Optium CRT coating operation in
San Diego. Viratec continues to be adversely affected by lower demand for its
anti-glare filter and front-surface mirror products due to the economic slowdown
in Asia. The completion of Viratec's vertical coater, which will provide
enhanced capabilities to Viratec, this summer will conclude the previously
announced GT capital expansion projects.
Despite a seasonally soft first quarter, the segment's Tru Vue unit recorded a
62% operating income increase on an 8% sales increase compared to the prior
year's quarter. Increased demand for Tru Vue's value-added glass products was
the primary factor contributing to the profit increase. During the quarter, Tru
Vue completed construction of its new manufacturing facility in Chicago,
Illinois. The relocation of production equipment and inventories from its old
facility is expected to be completed in the second quarter.
Glass Services (GS)
- -------------------
Glass Services generated a net sales gain of 8% over the same period a year ago.
The segment's operating income increased 41%, from $5.2 million to $7.3 million
in the first quarter. The segment's sales growth was driven primarily by double-
digit growth at Harmon, Inc., the Company's full service building glass shops,
and higher sales at Curvlite, the company's windshield manufacturing operation.
Same-store unit retail sales rose by approximately 10% during the first quarter,
but industry-wide pricing pressures significantly reduced the profit impact of
this increase. Prior year results were depressed by investments in information
technology systems and costs related to an aggressive advertising campaign by
the segment's retail replacement autoglass business unit. Excluding last year's
added costs, the operating earnings increase was modest, driven mainly by
Harmon, Inc. and Curvlite.
At the close of the first quarter, GS had 341 Harmon retail stores and 79 Glass
Depot distribution centers.
Discontinued Operations
- ------------------------
On May 13, 1999, the Company completed the sale of 100% of the stock of its
large-scale domestic curtainwall business, Harmon Ltd., for consideration
including $2 million cash and a $10.2 million secured, subordinated note,
subject to closing adjustments relating to working capital balances. The results
of Harmon Ltd., as well as those of the Company's Detention & Security unit,
which was sold in November 1998, and the Company's international curtainwall
operations are reported as discontinued operations. Earnings from operations of
discontinued businesses for the period were nominal. The Company does not expect
to recognize a material gain or loss on the sale of Harmon, Ltd.
Backlog
- -------
At May 29, 1999, Apogee's consolidated backlog was $146 million, up slightly
from February 27, 1999. The backlogs of GT's operations represented over 75% of
Apogee's consolidated backlog.
8
<PAGE>
Consolidated
- ------------
The following table compares first quarter results with year-ago results, as a
percentage of sales, for each caption.
<TABLE>
<CAPTION>
Percentage of Net Sales
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net sales 100.0 100.0
Cost of sales 77.8 78.8
---------- -----------
Gross profit 22.2 21.2
Selling, general and administrative expenses 17.4 16.3
Operating income 4.8 5.0
Interest expense, net 1.2 1.3
---------- -----------
Earnings from continuing operations before
income and other items 3.6 3.7
Income taxes 1.3 1.3
Equity in net loss of affiliated companies 0.2 0.2
Minority interest (0.1) --
---------- -----------
Earnings from continuing operations 2.1 2.2
Earnings (loss) from discontinued operations 0.0 (0.2)
---------- -----------
Net earnings 2.2 2.0
========== ===========
Effective tax rate 36.0% 36.0 %
</TABLE>
On a consolidated basis, cost of sales, as a percentage of net sales, fell
slightly. Improved margins at Wausau, Viratec and Harmon, Inc., slightly offset
by lower margins at Viracon, combined to reflect an increase in consolidated
gross profit percentage over the prior year quarter. Selling, general and
administrative (SG&A) expenses rose by $5.9 million, or 19%. The rise included
increased personnel costs, as well as higher outside service expenditures,
compared to the prior year period. Interest expense rose nominally during the
quarter as slightly higher borrowing levels were mostly offset by lower
borrowing rates. The effective income tax rate of 36.0% was even with the tax
rate a year ago.
Liquidity And Capital Resources
- -------------------------------
Financial Condition
- -------------------
Net cash provided by operating activities
Operating activities produced $7.6 million in cash flow for the quarter. That
figure reflected the combination of net earnings and noncash charges, offset by
a $7.1 million increase in working capital, excluding cash. At quarter-end, the
Company's working capital stood at $103.1 million. The primary factors
underlying the increase in working capital were increased cash and decreased
payables and accruals, partly offset by decreased receivables, compared to the
prior year quarter-end.
Net cash provided by financing activities
Total borrowings stood at $188.1 million at May 29, 1999, up from the $166.4
million outstanding at February 27, 1999. The additional borrowings, along with
cash provided by operating activities, was sufficient to finance the period's
significant investing activities and cash dividend requirements. At May 29,
1999, long-term debt stood at 49% of total capitalization, compared to 56% at
fiscal year-end 1999.
The Company anticipates bank borrowings to decrease over the next three quarters
as capital spending returns to a normalized level after several quarters of
significant expenditures related to unprecedented capacity expansion in fiscal
1999.
9
<PAGE>
Net cash used in investing activities
Additions to property, plant and equipment during the quarter totaled
approximately $25.3 million. Major items included expenditures for the GT
capacity expansion activities noted above as well as expenditures on information
systems projects throughout the Company. The Glass Services segment completed
one acquisition of a wholesale distribution center for a total of $2.0 million
cash.
Cash increased $4.5 million for the quarter.
Shareholders' Equity
- --------------------
At May 29, 1999, Apogee's shareholders' equity stood at $133.8 million. Book
value per share was $4.82, up from $4.73 per share at February 27, 1999, with
outstanding common shares increasing nominally during the period. Net earnings
and proceeds from common stock issued in connection with our stock-based
compensation plans accounted for the increase, slightly offset by dividends
paid.
Impact of Year 2000.
- --------------------
Each of the Company's businesses has had project teams in place to evaluate its
Information Technology (IT) systems, non-IT systems, and third-party readiness
for compliance with Year 2000 requirements. For these purposes, the Company
defines its "IT systems" as those hardware and software systems which comprise
its central management information systems and its telephone systems. All other
systems, including those involved in local, on-site product design or
manufacturing, are considered "non-IT systems." "Third parties" include all the
Company's key suppliers and customers.
The inventory, assessment and remediation stages of the Company's IT systems is
substantially complete. The Company has several Enterprise Resource Planning
(ERP) system implementations designed to enable the businesses to operate more
efficiently, which will also address the Year 2000 issue. At the end of May
1999, the Company believes that these ERP system implementations are
approximately 50% complete, with planned completion by October 1999. Where
existing systems are expected to remain in place beyond 1999, the company has
identified Year 2000 issues and is completing the process of remediating,
replacing or establishing alternative procedures addressing non-Year 2000
compliant systems and hardware. The Company believes these systems will also be
complete by October 1999. Although the Company does not foresee a material
adverse effect on its business, results of operations related to Year 2000 and
the Company's IT systems, risk is not eliminated until the systems are fully
installed, tested, and all non-compliant code identified, and corrected.
The Company's businesses have largely completed assessment, remediation and
testing of embedded operating and applications software and hardware within its
non-IT systems. The Company expects this phase to be completed by September
1999. While the Company does not believe that it is likely to experience adverse
effects related to Year 2000 in the area of non-IT systems, failure to identify
all Year 2000 controls or equipment, or failure to remediate them in a timely
way, could result in the inability of a particular plant or facility to
manufacture products or provide services in the ordinary course of business.
Virtually none of the Company's products are date sensitive.
The Company's businesses have contacted key customers and suppliers to assess
Year 2000 compliance within their organizations to assure no material
interruption in these important third party relationships. This dialogue and
process will be ongoing throughout 1999. Non-compliant customers and suppliers
will be evaluated in terms of the degree of risk posed to the Company's
business. If there were significant non-compliance by key customers and
suppliers, the Company might experience a material adverse effect on the
businesses with those specific third-party relationships.
The Company's businesses are developing contingency plans based on their review
of IT systems, non-IT systems, and third party Year 2000 compliance progress.
The Company is developing third party contingency plans as it identifies
critical partners with evidence of non-compliance. The Company's contingency
plans may include plans, where necessary, to establish additional or alternative
sources of supply and channels of distribution.
10
<PAGE>
Based on the Company's assessments completed to date, the Company's total cost
of addressing Year 2000 issues is currently estimated to be in the range of $8
to $11 million, of which approximately $6 million has already been incurred.
Aside from costs to implement ERP projects for other business purposes, IT
related Year 2000 costs are estimated to be approximately $7 million.
The Company recognizes that issues related to Year 2000 constitute a material
known uncertainty. The Company believes it is taking reasonable steps to address
the Year 2000 problem. The failure to identify and remediate Year 2000 problems
or the failure of external third parties who do business with the Company to
effectively remediate their Year 2000 issues could cause system failures or
errors, business interruptions and, in a worst case scenario, the inability to
operate in the ordinary course of business for an unknown length of time. The
effect on the Company's results of operations, financial position, or liquidity
could be materially adverse. Additional information pertinent to assessing Year
2000 risk is found under the Company's statement entitled "Cautionary Statement"
which is contained at the end of this Management Discussion and Analysis of
Financial Condition and Operations.
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, 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.
Cautionary Statement
- --------------------
This report contains "forward-looking statements" with the meaning of the
Private Securities Litigation Reform Act of 1995. A number of factors should be
considered in conjunction with the 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 factors are set forth in the cautionary statements filed as Exhibit 99 to
the Company's Form 10-K for the fiscal year ended February 27, 1999 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, costs or difficulties
related to the operation of the businesses are greater than expected, the impact
of foreign currency markets, the integration of acquisitions, the realization of
expected economies gained through expansion and information systems technology
updates.
The Company wishes to caution investors and others to review the statements set
forth in Exhibit 99 and that other factors may prove to be important in
affecting the Company's business or results of operations. These cautionary
statements should be considered in connection with this Form 10-Q, including the
forward looking statements contained in the Management's Discussion and Analysis
of the Company's two business segments. These cautionary statements are intended
to take advantage of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The Company does not enter into market risk-sensitive instruments for trading
purposes. The Company's principal market risk is sensitivity to interest rates,
due to its significant debt to total capitalization ratio. 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.
11
<PAGE>
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 changes in interest
rates affecting the Company's financial instruments would result in
approximately a $2.0 million impact to net earnings, based upon the Company's
current debt obligations. All other things being equal, as interest rates
increase, net earnings decrease; as interest rates decrease, net earnings
increase.
The Company also routinely uses 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.
Given the Company's balanced foreign exchange position described above, an
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.
12
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
Exhibit (27). Financial Data Schedule (EDGAR filing only)
Exhibit (27.1). Restated Financial Data Schedule (EDGAR filing only)
(b) The Company filed a Current Report on Form 8-K, dated and filed April 22,
1999, providing information on the Change in the Registrant's Independent
Public Accountants.
The Company filed a Current Report on Form 8-K, dated April 9, 1999 and
filed April 23, 1999, announcing a purchase agreement between the Company
and CH Holdings, Inc. for the sale of the stock of the Company's Harmon,
Ltd. subsidiary.
The Company filed a Current Report on Form 8-K, dated May 13, 1999 and
filed May 27, 1999, announcing the completion of the sale of the stock of
the Company's Harmon, Ltd. subsidiary to CH Holdings, Inc.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APOGEE ENTERPRISES, INC.
Date: July 12, 1999 /s/ Russell Huffer
------------------ --------------
Russell Huffer
Chairman, Chief Executive Officer and
President
Date: July 12, 1999 /s/ Robert G. Barbieri
------------------ ------------------
Robert G. Barbieri
Vice President Finance and
Chief Financial Officer
14
<PAGE>
EXHIBITS INDEX
Exhibit
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Exhibit 27 Financial Data Schedule (EDGAR filing only)
Exhibit 27.1 Restated Financial Data Schedule (EDGAR filing only)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-26-2000
<PERIOD-START> FEB-28-1999
<PERIOD-END> MAY-29-1999
<CASH> 5,775
<SECURITIES> 23,942
<RECEIVABLES> 117,542
<ALLOWANCES> 5,701
<INVENTORY> 69,999
<CURRENT-ASSETS> 204,732
<PP&E> 347,044
<DEPRECIATION> 148,917
<TOTAL-ASSETS> 484,921
<CURRENT-LIABILITIES> 101,631
<BONDS> 0
0
0
<COMMON> 9,253
<OTHER-SE> 124,519
<TOTAL-LIABILITY-AND-EQUITY> 484,921
<SALES> 211,123
<TOTAL-REVENUES> 211,123
<CGS> 164,207
<TOTAL-COSTS> 35,971
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 806
<INTEREST-EXPENSE> 2,580
<INCOME-PRETAX> 7,559
<INCOME-TAX> 2,721
<INCOME-CONTINUING> 4,515
<DISCONTINUED> 55
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,570
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.16
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-30-1998
<CASH> 11,701
<SECURITIES> 26,738
<RECEIVABLES> 113,320
<ALLOWANCES> 5,348
<INVENTORY> 60,590
<CURRENT-ASSETS> 205,115
<PP&E> 259,965
<DEPRECIATION> 130,717
<TOTAL-ASSETS> 420,797
<CURRENT-LIABILITIES> 107,346
<BONDS> 0
0
0
<COMMON> 9,207
<OTHER-SE> 104,272
<TOTAL-LIABILITY-AND-EQUITY> 420,797
<SALES> 190,377
<TOTAL-REVENUES> 190,377
<CGS> 149,938
<TOTAL-COSTS> 30,308
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 629
<INTEREST-EXPENSE> 2,490
<INCOME-PRETAX> 7,021
<INCOME-TAX> 2,524
<INCOME-CONTINUING> 4,188
<DISCONTINUED> (310)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,878
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>
