<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 August 28, 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 September 30, 1999
----- ---------------------------------
Common Stock, $.33-1/3 Par Value 27,795,739
<PAGE>
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED AUGUST 28, 1999
Description Page
----------- ----
PART I
Item 1. Financial Statements
Consolidated Balance Sheets as of August 28, 1999
and February 27, 1999 3
Consolidated Results of Operations for the
Three Months and Six Months Ended
August 28, 1999 and August 29, 1998 4
Consolidated Statements of Cash Flows for
the Six Months Ended August 28, 1999 and
August 29, 1998 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-12
PART II Other Information
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Exhibit Index 15
Exhibit 10 Form of First Amendment to Severance Agreement
between the Company and certain senior executive
officers of the Company.
Exhibit 27 Financial Data Schedule (EDGAR filing only)
Exhibit 27.1 Restated Financial Data Schedule (EDGAR filing
only)
Exhibit 27.2 Restated Financial Data Schedule (EDGAR filing
only)
2
<PAGE>
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
August 28, February 27,
1999 1999
----------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 7,245 $ 1,318
Receivables, net of allowance for doubtful accounts 111,987 118,216
Inventories 69,047 68,171
Deferred tax assets 9,264 11,622
Other current assets 5,340 6,018
----------------- ----------------
Total current assets 202,883 205,345
----------------- ----------------
Property, plant and equipment, net 199,801 180,428
Other assets
Marketable securities - available for sale 25,901 27,239
Investments 454 570
Intangible assets, at cost less accumulated
amortization of $10,616 and $9,446, respectively 54,867 55,077
Other 2,420 2,532
----------------- ----------------
Total assets $486,326 $471,191
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 32,712 $ 43,166
Accrued expenses 46,261 51,738
Billings in excess of costs and earnings on
uncompleted contracts 13,187 11,622
Accrued income taxes 11,420 7,385
Current installments of long-term debt 756 1,300
----------------- ----------------
Total current liabilities 104,336 115,211
----------------- ----------------
Long-term debt, less current installments 169,661 165,097
Other long-term liabilities 29,070 27,845
Net liabilities of discontinued operations 36,824 32,374
Shareholders' equity
Common stock, $.33 1/3 par value; authorized 50,000,000
shares; issued and outstanding 27,796,000 and 27,623,000
shares, respectively 9,265 9,208
Additional paid-in capital 44,822 41,903
Retained earnings 93,905 80,194
Unearned compensation (1,317) (721)
Net unrealized (loss) gain on marketable securities (240) 80
----------------- ----------------
Total shareholders' equity 146,435 130,664
----------------- ----------------
Total liabilities and shareholders' equity $486,326 $471,191
================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED
AUGUST 28, 1999 and AUGUST 29, 1998
(Thousands of Dollars Except Share and Per Share Amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------- ---------------------------------
August 28, August 29, August 28, August 29,
1999 1998 1999 1998
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $218,450 $208,167 $429,573 $398,544
Cost of sales 173,114 162,288 337,321 312,226
--------------- --------------- -------------- --------------
Gross profit 45,336 45,879 92,252 86,318
Selling, general and administrative expenses 34,111 30,988 70,888 61,925
--------------- --------------- -------------- --------------
Operating income 11,225 14,891 21,364 24,393
Interest expense, net 2,646 2,364 5,226 4,854
--------------- --------------- -------------- --------------
Earnings from continuing operations
before income taxes and other items below 8,579 12,527 16,138 19,539
Income taxes 2,928 4,510 5,649 7,034
Equity in net loss of affiliated companies 881 448 1,321 748
Minority interest (160) (63) (277) (63)
--------------- --------------- -------------- --------------
Earnings from continuing operations 4,930 7,632 9,445 11,820
Earnings from discontinued operations,
net of income taxes 9,111 1,523 9,166 1,213
--------------- --------------- -------------- --------------
Net earnings $ 14,041 $9,155 $18,611 $ 13,033
=============== =============== ============== ==============
Earnings per share - basic
Continuing operations $ 0.18 $ 0.28 $ 0.34 $ 0.43
Discontinued operations 0.33 0.06 0.33 0.04
--------------- --------------- -------------- --------------
Net earnings $ 0.51 $ 0.33 $ 0.67 $ 0.47
=============== =============== ============== ==============
Earnings per share - diluted
Continuing operations $ 0.18 $ 0.27 $ 0.34 $ 0.43
Discontinued operations 0.33 0.05 0.33 0.04
--------------- --------------- -------------- --------------
Net earnings $ 0.50 $ 0.33 $ 0.67 $ 0.47
=============== =============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 28, 1999 AND AUGUST 29, 1998
(Thousands of Dollars)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $18,611 $13,033
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Net earnings from discontinued operations (9,166) (1,213)
Depreciation and amortization 16,706 12,995
Provision for losses on accounts receivable 1,170 1,055
Deferred income tax expense 2,648 6,852
Equity in net loss of affiliated companies 1,321 748
Minority interest (277) (63)
Net cash flow from (to) discontinued operations 6,173 (4,477)
Other, net 154 133
---------------- ----------------
Cash flow before changes in operating assets and liabilities 37,340 29,063
Changes in operating assets and liabilities, net of effect
of acquisitions
Receivables 5,675 (19,619)
Inventories (150) (3,349)
Other current assets 678 1,826
Accounts payable and accrued expenses (15,929) 5,574
Billings in excess of costs and earnings on uncompleted
contracts 1,565 4,905
Refundable income taxes and accrued income taxes 9,421 12,186
Other long-term liabilities 788 265
---------------- ----------------
Net cash provided by operating activities 39,388 30,851
---------------- ----------------
INVESTING ACTIVITIES
Capital expenditures (34,759) (31,089)
Acquisition of businesses, net of cash acquired (1,981) (3,335)
Purchases of marketable securities (18,714) (10,242)
Sales/maturities of marketable securities 19,558 9,838
Investments in and advances to affiliated companies (1,205) (575)
Proceeds from sale of property and equipment 53 124
Net cash flow from discontinued operations 2,000 ----
Other, net (250) 32
---------------- ----------------
Net cash used in investing activities (35,298) (35,247)
---------------- ----------------
FINANCING ACTIVITIES
Payments on long-term debt (1,380) (840)
Proceeds from issuance of long-term debt 5,400 10,497
Increase in deferred debt expenses (255) (2,098)
Proceeds from issuance of common stock 2,763 2,332
Repurchase and retirement of common stock (1,774) (830)
Dividends paid (2,917) (2,763)
----------------- -----------------
Net cash provided by financing activities 1,837 6,298
----------------- -----------------
Increase in cash and cash equivalents 5,927 1,902
Cash and cash equivalents at beginning of period 1,318 7,853
----------------- -----------------
Cash and cash equivalents at end of period $7,245 $9,755
================= =================
</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
accruals) necessary to present fairly the financial position as of August 28,
1999 and August 29, 1998, the results of operations for the three months and six
months ended August 28, 1999 and August 29, 1998 and cash flows for the six
months ended August 28, 1999 and August 29, 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 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 27, 1999. The results of operations for the three months
and six months ended August 28, 1999 and August 29, 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>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
August 28, August 29, August 28, August 29,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic earnings per
share-weighted common
shares outstanding 27,798,554 27,594,620 27,716,810 27,565,531
Weighted common share
assumed upon exercise
of stock options 77,529 217,551 94,678 231,813
------------- ------------- ------------- -------------
Diluted earnings per
share-weighted common
shares and common
shares equivalent
outstanding 27,876,083 27,812,171 27,811,488 27,797,344
============= ============= ============= =============
3. Inventories
- --------------
Inventories consist of the following:
August 28, 1999 February 27, 1999
-------------------- --------------------
Raw materials $17,127 $16,324
Work-in process 4,334 3,157
Finished 46,364 48,330
Cost and earnings in excess of billings on
uncompleted contracts 1,222 360
-------------------- --------------------
Total inventories $69,047 $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 $5.3 million secured, subordinated note. 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, net of taxes, for the quarter were $9.1
million, and for the six months were $9.2 million.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
-------------
Sales and Earnings
- ------------------
Net sales for the second quarter ended August 28, 1999 were
$218.5 million, a 5% increase over the $208.2 million reported for the same
period a year ago. Glass Technologies reported a 12% increase in net sales,
while Glass Services reported only a nominal sales gain, primarily reflecting a
small sales decline from auto glass operations. Second quarter net earnings of
$14.0 million, or 50 cents per share diluted, were 53% higher than last year's
$9.2 million, or 33 cents per share diluted. However, primarily due to pricing
pressures and soft retail demand at auto glass operations, second quarter
earnings from continuing operations decreased 35% to $4.9 million, or 18 cents
per share-diluted, from $7.6 million, or 28 cents per share-diluted, for the
prior year quarter. Earnings from discontinued operations, $9.1 million
after-tax, increased from $1.5 million a year ago, the result of significant
cash collections related to the completion of certain projects from the
Company's discontinued Asian curtainwall operations. The Company announced its
exit from curtainwall operations in Asia in late 1997 and is in the closing
stages of its exit activities.
Net sales for the first six months increased 8%, to $429.6 million, compared to
$398.5 million a year ago. Year-to-date net earnings increased 43% to $18.6
million, or 67 cents per share diluted, from $13.0 million, or 47 cents per
share diluted, in the prior year. Earnings from continuing operations fell 20%
to $9.4 million, or 34 cents per share-diluted from the prior year.
The following table presents the percentage change in net sales and operating
income for the Company's three segments and on a consolidated basis, for three
and six months when compared to the corresponding periods a year ago.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------------------- -------------------------------------------
August 28, August 29, % August 28, August 29, %
(Dollars in thousands) 1999 1998 Chg 1999 1998 Chg
-------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales
Glass Technologies $ 88,345 $ 78,568 12% $ 176,876 $ 155,955 13%
Glass Services 132,542 129,757 2 255,248 242,962 5
Intersegment elimination (2,437) (158) (1442) (2,551) (373) (584)
-------------------------------------------- -------------------------------------------
Net sales $ 218,450 $ 208,167 5% $ 429,573 $ 398,544 8%
============================================ ===========================================
Operating Income (Loss)
Glass Technologies $ 4,536 $ 4,911 (8)% $ 8,555 $ 9,027 (5)%
Glass Services 5,952 10,562 (44) 13,298 15,766 (16)
Corporate and Other 737 (582) NM (489) (400) (22)
-------------------------------------------- -------------------------------------------
Operating income (loss) $ 11,225 $ 14,891 (25)% $ 21,364 $ 24,393 (12)%
============================================ ===========================================
</TABLE>
Glass Technologies (GT)
- -----------------------
Net sales at Glass Technologies increased 12% to $88.3 million in the second
quarter, while operating income fell 8% to $4.5 million from last year's $4.9
million. The sales increase was primarily due to 20+%
7
<PAGE>
growth at Viracon and Viratec as both businesses experienced increased volume at
their new facilities in Statesboro, GA and San Diego, CA, respectively. A major
factor underlying the operating income decline was incremental depreciation
expense of $1.9 million associated with the segment's capacity expansions.
Viracon, the segment's largest operating unit, reported a net sales increase of
21% and an operating income increase of 13% for the period compared to last
year's second quarter. Customer demand for Viracon's high-performance
architectural glass products remained strong. Backlog at August 28, 1999 was at
an all-time high of $38.0 million. Production at Viracon's new Statesboro,
Georgia facility continued to make progress, however, the ramp-up is proceeding
at a slower pace than originally planned. At the beginning of the third quarter,
Viracon reduced production at the Owatonna, MN plant in order to create
efficiencies that should improve production velocity. As a result of this
decision, this facility is not expected to be at full production until late in
the third quarter.
Viratec reported a larger operating loss for the quarter as compared to the same
quarter a year ago as a result of the combination of a technology change-over to
accommodate a new product in its CRT coating operation in San Diego and
fine-tuning the production of its new vertical coater in Faribault, MN to bring
it up to nameplate capacity. The CRT technology changeover is expected to be
completed in the third quarter, while the vertical coater is expected to resume
production by the end of the fiscal year.
Tru Vue experienced record sales and profits for the second quarter as demand
for Tru Vue's value-added glass products remained solid. Sales increased 6% and
operating income increased 36% for the quarter as compared to the same quarter a
year ago. The second quarter ended August 28, 1999 was the first full quarter of
operation for the new Tru Vue manufacturing facility in Chicago, Illinois.
The Architectural Products Group reported decreased sales and operating income
compared to the same period last year. This decrease in operating income was a
result of slightly lower sales and the corresponding reduction in gross profit.
Despite strong backlog and strong demand for most of its products, Glass
Technologies expects to report lower operating earnings for fiscal 2000, as
compared to fiscal 1999, as a result of slower than expected ramp-up of
production capacity at its Statesboro, GA, San Diego, CA and Faribault, MN
facilities. However, sales and operating income are expected to increase in the
second half of the year compared with the first six months of the year.
Glass Services (GS)
- -------------------
As compared to a year ago, net sales increased 2% to $132.5
million at Glass Services. Operating income for the segment decreased 44% to
$6.0 million from the same period a year ago despite a strong performance by
Harmon, Inc.
The auto glass business reported a 2% decrease in sales and a 70% decrease in
operating income as a result of continued distribution price pressures and soft
retail demand. Charges associated with realignment of its business activities
and management also contributed to lower operating income for the quarter.
Same-store unit retail sales rose by approximately 5% during the second quarter,
but industry-wide pricing pressures effectively offset the benefit of this
increase. At the close of the second quarter, GS had 343 Harmon retail locations
and 78 Glass Depot distribution centers.
Harmon Inc., the Company's full service building glass installation and repair
shops, reported a 25% increase in net sales and a 113% increase in operating
income for the quarter as compared to the same period a year ago, mainly due to
increased volume and improved margins.
The continuation of significant pricing pressures and soft retail demand in auto
glass operations make it likely that the segment will report significantly lower
operating earnings in the last half of the year compared to the same period a
year ago.
8
<PAGE>
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 $5.3 million secured, subordinated
note. 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, net of taxes, for the second quarter were
$9.1 million, and for the six months were $9.2 million.
Backlog
- -------
On August 28, 1999, the Company's consolidated backlog was $174.8 million, up 9%
from the $160.5 million reported a year ago. The backlogs of GT's operations
represented 66% of the Company's consolidated backlog.
Consolidated
- ------------
The following table compares quarterly results with year-ago results, as a
percentage of sales, for each caption.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- -------------------------
Aug. 28, Aug. 29, Aug. 28, Aug. 29,
1999 1998 1999 1998
------------------------- -------------------------
<S> <C> <C> <C> <C>
Net sales 100.0 100.0 100.0 100.0
Cost of sales 79.2 78.0 78.5 78.3
------------------------- -------------------------
Gross profit 20.8 22.0 21.5 21.7
Selling, general and administrative expenses 15.6 14.9 16.5 15.5
------------------------- -------------------------
Operating income 5.1 7.2 5.0 6.1
Interest expense, net 1.2 1.1 1.2 1.2
------------------------- -------------------------
Earnings from continuing operations before
income and other items 3.9 6.0 3.8 4.9
Income taxes 1.3 2.2 1.3 1.8
Equity in net earnings of affiliated companies 0.4 0.2 0.3 0.2
Minority interest (0.1) 0.0 (0.1) 0.0
------------------------- -------------------------
Earnings from continuing operations 2.3 3.7 2.2 3.0
Earnings from discontinued operations 4.2 0.7 2.1 0.3
------------------------- -------------------------
Net earnings 6.4 3.7 4.3 3.0
========================= =========================
Effective tax rate 34.0% 36.0% 35.0% 36.0%
</TABLE>
On a consolidated basis for the three-month and six-month periods, gross profit
fell as a percentage of net sales for the reasons noted above. Despite the gross
profit increase recognized by Harmon, Inc., it was not enough to offset the
decrease in gross profit reported by Viracon, Viratec, Wausau Architectural
Products and auto glass operations for the quarter as compared to the prior year
quarter. On a year-to-date basis, Viracon and auto glass operations reported a
decrease in gross profit as a percent of sales while Viratec and Harmon, Inc.
reported increases over last year. Selling, general and administrative (SG&A)
expenses rose by $9.0 million, or 14% over the prior year period, primarily due
to increased personnel and outside services costs. A portion of the increased
personnel costs represented classification variances associated with the
Company's many system conversions. Identification and quantification of such
amounts are expected to be completed in the third quarter with appropriate
reclassifications made to the prior year's figures. Interest expense increased
slightly during the quarter as higher borrowing levels were offset by slightly
lower borrowing rates. The six-month effective income tax rate of 35.0% was down
slightly from 36.0% a year ago.
9
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Financial Condition
- -------------------
Net cash provided by operating activities
Cash provided by operating activities for the six months ended August 28, 1999
totaled $39.4 million. That figure reflected the combination of net earnings and
noncash charges, such as depreciation and amortization. At quarter-end, the
Company's working capital stood at $98.5 million. The primary factors underlying
the increase in working capital were increased cash, decreased payables and
accruals and cash flow from discontinued operations, partly offset by decreased
receivables, increased billings in excess of costs and increased income taxes
payable.
Net cash provided by financing activities
Bank borrowings stood at $170.4 million at August 28, 1999, up 2% from the
$166.4 million outstanding at February 27, 1999. The borrowings, along with cash
provided by operating activities, were sufficient to finance the period's
significant investing activities and cash dividend requirements. At August 28,
1999, long-term debt stood at 57% of total capitalization, as compared to 56% at
fiscal year-end 1999.
The Company anticipates no increase in borrowing levels over the next two
quarters as capital spending levels return to a normalized level after several
quarters of significant expenditures related to significant capacity expansion
in fiscal 1999 and the first half of fiscal 2000.
Net cash used in investing activities
Additions to property, plant and equipment during the six months ended August
28, 1999 totaled approximately $34.8 million. Major items included expenditures
for the GT expansion activities noted above as well as expenditures on
information systems projects throughout the Company. The Company projects
full-year capital expenditures of approximately $50 million.
Cash increased $5.9 million for the six months ended August 28, 1999.
Shareholders' Equity
- --------------------
At August 28, 1999, Apogee's shareholders' equity stood at $146.4 million. Book
value per share was $5.27, 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 the Company's
stock-based compensation plans accounted for the increase, slightly reduced 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 the
Company's key suppliers and customers.
The inventory, assessment and remediation stages of the Company's IT systems are
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. As of the end of
September 1999, the Company believed that these ERP system implementations were
approximately 85% complete, with planned completion during 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 mission-critical systems
will be completed during October 1999. Although the Company does not foresee a
material adverse effect on its business, results of operations related to Year
2000 or the Company's IT systems, risk is not eliminated until the systems are
fully installed, tested, and all non-compliant code identified, and corrected.
10
<PAGE>
The Company's businesses have completed assessment, remediation and
implementation of embedded operating and applications software and hardware
within its mission-critical non-IT systems. Remaining systems will be completed
by late Fall 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 has been and will continue to 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.
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 $7-8
million, of which approximately $6 million has already been incurred. Aside from
costs to implement ERP projects for other business purposes, the IT related
portion of the total Year 2000 costs is estimated to be approximately $6-7
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.
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 Statements
- ---------------------
This report contains "forward-looking statements" with the meaning of the
Private Securities Litigation Reform Act of 1995. These statements reflect
management's current expectations or beliefs. There can be no assurances given
that the reorganization and realignment of the Company's auto glass businesses
and management team will lead to successful operating results for those
companies now or in the future or that the strategic alternatives proposed for
such businesses will be available on terms acceptable to the Company. Also,
there can be no assurances that the ramp-up of new plant capacity in the Glass
Technologies businesses will proceed as anticipated and will lead to successful
operating results for those companies now or in the future.
11
<PAGE>
A number of other 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 other 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, 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.
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
section of this Form 10-Q. 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.
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 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Apogee Enterprises, Inc. Annual Meeting of Shareholders was held on June 22,
1999. The number of outstanding shares on the record date for the Annual Meeting
was 27,759,555. Eighty-eight percent of the outstanding shares were represented
in person or by proxy at the meeting.
The candidates for election as Class I Directors listed in the proxy statement
were elected to serve three-year terms, expiring at the 2002 Annual Meeting of
Shareholders. The proposals to approve the Company's Deferred Compensation Plan
for Non-Employee Directors and to ratify the appointment of Arthur Andersen LLP
as independent auditors for the Company for the 2000 fiscal year were also
approved. The results of these matters voted upon by the shareholders are listed
below.
<TABLE>
<CAPTION>
Number of Shares
----------------------------------------------------------------
In Favor Withheld/Against Abstained/Unvoted
----------------- ------------------ ---------------------
<S> <C> <C> <C>
Election of Class I Directors
Barbara B. Grogan 23,398,919 1,043,830
J. Patrick Horner 23,464,018 978,731
Stephen C. Mitchell 23,462,688 980,061
Approval of the Company's
Deferred Compensation Plan
for Non-Employee Directors 22,775,607 1,558,571 108,571
Ratification of the appointment
of Arthur Andersen LLP
as independent auditors 24,196,498 208,714 37,537
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
Exhibit (10). Form of First Amendment to Severance Agreement between
the Company and certain senior executive officers of the
Company.
Exhibit (27). Financial Data Schedule (EDGAR filing only).
Exhibit (27.1). Restated Financial Data Schedule (EDGAR filing only).
Exhibit (27.2). Restated Financial Data Schedule (EDGAR filing only).
(b) The Company filed Amendment No. 1 to Current Report on Form 8-K/A, dated
June 8, 1999 and filed June 8, 1999, amending its Current Report on Form
8-K, dated April 9, 1999 and filed April 23, 1999.
13
<PAGE>
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 8, 1999 /s/Russell Huffer
-----------------
Russell Huffer
Chairman, Chief Executive Officer and
President
Date: October 8, 1999 /s/Robert G. Barbieri
---------------------
Robert G. Barbieri
Vice President Finance and
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
Exhibit 10 Form of First Amendment to Severance Agreement between
the Company and certain senior executive officers of the
Company.
Exhibit 27 Financial Data Schedule (EDGAR filing only)
Exhibit 27.1 Restated Financial Data Schedule (EDGAR filing only).
Exhibit 27.2 Restated Financial Data Schedule (EDGAR filing only).
15
<PAGE>
EXHIBIT 10
FIRST AMENDMENT
TO
SEVERANCE AGREEMENT
This First Amendment to Severance Agreement (this "First Amendment"), dated
as of this ___ day of ________, 1999, amends that certain Severance Agreement
dated as of , 1999, by and between Apogee Enterprises, Inc., a Minnesota
corporation (the "Company"), and _______________ (the "Executive"), a resident
of the State of Minnesota (the "Agreement").
WHEREAS, the Agreement specifies the financial arrangements that the
Company will provide to Executive upon Executive's separation from employment
with the Company under the circumstances described therein; and
WHEREAS, the parties desire to amend the Agreement in the manner set forth
herein in order to enhance the Company's ability to attract and retain highly
qualified people.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Section 4(i)(b)(II) of the Agreement is hereby deleted in its entirety
and the following is substituted therefor:
"(II) twenty-four (24) times the sum of (A) Executive's monthly base
salary (as in effect in the month preceding the month in which the
termination becomes effective or as in effect in the month preceding the
Change in Control, whichever is higher) and (B) one-twelfth (1/12) of the
Target Bonus;"
2. Section 4(iii) of the Agreement is hereby deleted in its entirety and
the following is substituted therefor:
"(iii) Upon the occurrence of a Change in Control, the Company shall
cause its independent auditors promptly to review, at the Company's sole
expense, the applicability of Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code") to the "Total Payments" (as defined in
Section 4(iv) below) to be received by Executive. If such auditors
determine that, after taking into account the provisions of Section 4(iv)
hereof, any of the Total Payments would be subject to the excise tax
imposed by Section 4999 of the Code, or any interest or penalties with
respect to such tax (such excise tax, together with interest and penalties,
are collectively referred to as the "Excise Tax"), then, in addition to any
amounts payable under foregoing provisions of this Section 4, the Company
shall pay an additional cash payment (a "Gross-Up Payment") within 30 days
of such determination equal to the Excise Tax imposed on the Total
<PAGE>
Payments, including any Excise Tax or any other income taxes that may be
imposed on such Gross-Up Payment. If no determination by the Company's
auditors is made prior to the time a tax return reflecting the Total
Payments is required to be filed by Executive, Executive will be entitled
to receive a Gross-Up Payment calculated on the basis of the Total Payments
reported by him in such tax return, within 30 days of the filing of such
tax return. In all events, if any tax authority determines that a greater
Excise Tax should be imposed on the Total Payments than is determined by
the Company's independent auditors or reflected in Executive's tax return
pursuant to this subparagraph (iii), Executive shall be entitled to receive
the full Gross-Up Payment calculated on the basis of the amount of Excise
Tax determined to be payable by such tax authority from the Company within
30 days of such determination."
3. Section 4(iv) of the Agreement is hereby deleted in its entirety and the
following is substituted therefor:
"(iv) As used herein, "Total Payments" shall mean, collectively, any
payment or benefit received or to be received by Executive in connection
with a Change in Control of the Company or termination of Executive's
employment (whether payable pursuant to the terms of this Agreement or any
other plan, contract, agreement or arrangement with the Company, with any
person whose actions result in a Change in Control of the Company or with
any person constituting a member of an "affiliated group" as defined in
Section 280G(d)(5) of the Code) with the Company or with any person whose
actions result in a Change in Control of the Company. For purposes of
calculating Total Payments, (a) no portion of the Total Payments the
receipt or enjoyment of which Executive shall have effectively waived in
writing prior to the date of payment of the Severance Payment shall be
taken into account; (b) no portion of the Total Payments shall be taken
into account which in the opinion of tax counsel selected by the Company
and acceptable to Executive does not constitute a "parachute payment"
within the meaning of Section 280G(b)(2) of the Code; (c) the value of any
benefit provided by Section 4(i)(f) of this Agreement shall not be taken
into account in computing Total Payments; and (d) the value of any other
non-cash benefit or of any deferred cash payment included in the Total
Payments shall be determined by the Company's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
In case of uncertainty as to whether all or some portion of a payment is or
is not payable to Executive under this Agreement, the Company shall
initially make the payment to Executive, and Executive agrees to refund to
the Company any amounts ultimately determined not to have been payable
under the terms hereof."
4. Any capitalized term used herein and not otherwise defined herein shall
have the meaning given to such term in the Agreement.
-2-
<PAGE>
5. This First Amendment constitutes an amendment of the Agreement in
conformity with and pursuant to the terms of Section 7 of the Agreement. Except
as expressly amended herein, all terms set forth in the Agreement shall continue
in full force and effect.
6. The operative terms of this First Amendment may be inserted into a First
Amended and Restated Agreement by the parties and shall have a date as of the
day and year first set forth herein.
7. The internal law, and not the law of conflicts, of the State of
Minnesota will govern all questions concerning the construction, validity and
interpretation of this First Amendment and the performance of the obligations
imposed by this First Amendment.
IN WITNESS WHEREOF, the parties have executed this First Amendment as of
the day and year first above written.
APOGEE ENTERPRISES, INC.
By___________________________
Its________________________
EXECUTIVE
_____________________________
-3-
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> FEB-26-2000 FEB-26-2000
<PERIOD-START> MAY-30-1999 FEB-28-1999
<PERIOD-END> AUG-28-1999 AUG-28-1999
<CASH> 7,245 7,245
<SECURITIES> 25,901 25,901
<RECEIVABLES> 117,758 117,758
<ALLOWANCES> 5,771 5,771
<INVENTORY> 69,047 69,047
<CURRENT-ASSETS> 202,883 202,883
<PP&E> 355,183 355,183
<DEPRECIATION> 155,382 155,382
<TOTAL-ASSETS> 486,326 486,326
<CURRENT-LIABILITIES> 104,336 104,336
<BONDS> 0 0
0 0
0 0
<COMMON> 9,265 9,265
<OTHER-SE> 137,170 137,170
<TOTAL-LIABILITY-AND-EQUITY> 486,326 486,326
<SALES> 218,450 429,573
<TOTAL-REVENUES> 218,450 429,573
<CGS> 173,114 337,321
<TOTAL-COSTS> 33,747 69,718
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 364 1,170
<INTEREST-EXPENSE> 2,646 5,226
<INCOME-PRETAX> 8,579 16,138
<INCOME-TAX> 2,928 5,649
<INCOME-CONTINUING> 4,930 9,445
<DISCONTINUED> 9,111 9,166
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,041 18,611
<EPS-BASIC> 0.51 0.67
<EPS-DILUTED> 0.50 0.67
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> FEB-27-1999 FEB-27-1999
<PERIOD-START> MAY-31-1998 MAR-01-1998
<PERIOD-END> AUG-29-1998 AUG-29-1998
<CASH> 9,755 9,755
<SECURITIES> 19,143 19,143
<RECEIVABLES> 125,047 125,047
<ALLOWANCES> 5,555 5,555
<INVENTORY> 64,391 64,391
<CURRENT-ASSETS> 216,678 216,678
<PP&E> 278,627 278,627
<DEPRECIATION> 132,666 132,666
<TOTAL-ASSETS> 439,798 439,798
<CURRENT-LIABILITIES> 109,150 109,150
<BONDS> 0 0
0 0
0 0
<COMMON> 9,203 9,203
<OTHER-SE> 112,629 112,629
<TOTAL-LIABILITY-AND-EQUITY> 439,798 439,798
<SALES> 208,167 398,544
<TOTAL-REVENUES> 208,167 398,544
<CGS> 162,288 312,226
<TOTAL-COSTS> 30,562 60,870
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 426 1,055
<INTEREST-EXPENSE> 2,364 4,854
<INCOME-PRETAX> 12,527 19,539
<INCOME-TAX> 4,510 7,034
<INCOME-CONTINUING> 7,632 11,820
<DISCONTINUED> 1,523 1,213
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9,155 13,033
<EPS-BASIC> 0.33 0.47
<EPS-DILUTED> 0.33 0.47
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<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> 7,012
<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>
