<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 November 27, 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 December 31, 1999
- -------------------------------- --------------------------------
Common Stock, $.33-1/3 Par Value 27,749,015
1
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APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED NOVEMBER 27, 1999
Description Page
----------- ----
PART I
Item 1. Financial Statements
Consolidated Balance Sheets as of November 27, 1999
and February 27, 1999 3
Consolidated Results of Operations for the
Three Months and Nine Months Ended
November 27, 1999 and November 28, 1998 4
Consolidated Statements of Cash Flows for
the Nine Months Ended November 27, 1999 and
November 28, 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II Other Information
Item 6. Exhibits 13
Exhibit Index 15
2
<PAGE>
Item 1. Financial Statements
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
<TABLE>
<CAPTION>
November 27, February 27,
1999 1999
----------------- ----------------
ASSETS (unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,074 $ 1,318
Receivables, net of allowance for doubtful accounts 117,604 118,216
Inventories 71,037 68,171
Deferred tax assets 10,292 11,622
Other current assets 4,854 6,018
----------------- ----------------
Total current assets $204,861 205,345
----------------- ----------------
Property, plant and equipment, net 198,184 180,428
Other assets
Marketable securities - available for sale 26,320 27,239
Investments 429 570
Intangible assets, at cost less accumulated amortization of
$11,222 and $9,446, respectively 54,387 55,077
Other 2,286 2,532
----------------- ----------------
Total assets $486,467 $471,191
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 31,691 $ 43,166
Accrued expenses 48,771 51,738
Billings in excess of costs and earnings on uncompleted contracts 15,817 11,622
Accrued income taxes 3,118 7,385
Current installments of long-term debt 462 1,300
----------------- ----------------
Total current liabilities 99,859 115,211
----------------- ----------------
Long-term debt, less current installments 186,325 165,097
Other long-term liabilities 28,722 27,845
Net liabilities of discontinued operations 29,837 32,374
Shareholders' equity
Common stock, $.331/3 par value; authorized 50,000,000
shares; issued and outstanding 27,759,000 and 27,623,000
shares, respectively 9,253 9,208
Additional paid-in capital 44,628 41,903
Retained earnings 89,137 80,194
Unearned compensation (1,005) (721)
Net unrealized (loss) gain on marketable securities (289) 80
----------------- ----------------
Total shareholders' equity 141,724 130,664
----------------- ----------------
Total liabilities and shareholders' equity $486,467 $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 NINE MONTHS ENDED
November 27, 1999 and November 28, 1998
(Thousands of Dollars Except Share and Per Share Amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ -------------------------------------
November 27, November 28, November 29, November 28,
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales $202,790 $192,665 $632,363 $591,209
Cost of sales 172,231 150,365 509,552 462,591
---------------- ---------------- ---------------- ----------------
Gross profit 30,559 42,300 122,811 128,618
Selling, general and administrative expenses 35,324 30,743 106,212 92,668
---------------- ---------------- ---------------- ----------------
Operating (loss) income (4,765) 11,557 16,599 35,950
Interest expense, net 2,438 2,289 7,664 7,143
---------------- ---------------- ---------------- ----------------
(Loss) earnings from continuing
operations (7,203) 9,268 8,935 28,807
before income taxes and other items below
Income tax (benefit) provision (2,522) 3,337 3,127 10,371
Equity in net loss of affiliated companies 641 316 1,962 1,064
Minority interest (34) (53) (311) (116)
---------------- ---------------- ---------------- ----------------
(Loss) earnings from continuing operations (5,288) 5,668 4,157 17,488
Earnings from discontinued operations,
net of income taxes 2,310 1,582 11,476 2,795
---------------- ---------------- ---------------- ----------------
Net (loss) earnings $ (2,978) $ 7,250 $ 15,633 $ 20,283
================ ================ ================ ================
(Loss) earnings per share-Basic
Continuing operations $ (0.19) $ 0.21 $ 0.15 $ 0.63
Discontinued operations 0.08 0.06 0.41 0.10
---------------- ---------------- ---------------- ----------------
Net (loss) earnings $ (0.11) $ 0.26 $ 0.56 $ 0.74
================ ================ ================ ================
(Loss) earnings per share-Diluted
Continuing operations $ (0.19) $ 0.20 $ 0.15 $ 0.63
Discontinued operations 0.08 0.06 0.41 0.10
---------------- ---------------- ---------------- ----------------
Net (loss) earnings $ (0.11) $ 0.26 $ 0.56 $ 0.74
================ ================ ================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
APOGEE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED NOVEMBER 27, 1999 AND NOVEMBER 28, 1998
(Thousands of Dollars)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $15,633 $20,283
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Net earnings from discontinued operations (11,476) (2,795)
Depreciation and amortization 25,083 19,532
Provision for losses on accounts receivable 1,555 1,364
Deferred income tax expense 1,557 4,549
Equity in net loss of affiliated companies 1,962 1,064
Minority interest (311) (116)
Net cash flow from (to) discontinued operations 4,498 (8,640)
Other, net 224 231
---------------- ----------------
Cash flow before changes in operating assets and liabilities 38,725 35,472
Changes in operating assets and liabilities, net of effect of
acquisitions
Receivables (327) (17,208)
Inventories (2,216) (5,797)
Other current assets 1,164 2,135
Accounts payable and accrued expenses (14,440) (2,684)
Billings in excess of costs and earnings on uncompleted
Contracts 4,195 7,266
Refundable income taxes and accrued income taxes (1,972) 18,154
Other long-term liabilities 875 472
---------------- ----------------
Net cash provided by operating activities 26,004 37,810
---------------- ----------------
INVESTING ACTIVITIES
Capital expenditures (42,184) (50,058)
Acquisition of businesses, net of cash acquired (1,983) (3,361)
Purchases of marketable securities (12,185) (14,605)
Sales/maturities of marketable securities 12,535 13,659
Investments in and advances to affiliated companies (1,821) (1,025)
Proceeds from sale of property and equipment 1,240 166
Net cash flow from discontinued operations 2,000 ---
Other, net (136) 126
---------------- ----------------
Net cash used in investing activities (42,534) (55,098)
---------------- ----------------
FINANCING ACTIVITIES
Payments on long-term debt (960) (1,145)
Proceeds from issuance of long-term debt 21,350 16,497
Increase in deferred debt expenses (330) (2,188)
Proceeds from issuance of common stock 2,781 2,961
Repurchase and retirement of common stock (2,179) (1,182)
Dividends paid (4,376) (4,214)
----------------- -----------------
Net cash provided by financing activities 16,286 10,729
----------------- -----------------
Decrease in cash and cash equivalents (244) (6,559)
Cash and cash equivalents at beginning of period 1,318 7,853
----------------- -----------------
Cash and cash equivalents at end of period $ 1,074 $ 1,294
================= =================
</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 November 27, 1999 and November 28, 1998, the results of operations for
the three months and nine months ended November 27, 1999 and November 28,
1998 and cash flows for the nine months ended November 27, 1999 and
November 28, 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 nine months ended November 27, 1999 and
November 28, 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 Nine Months Ended
-------------------------------------- -------------------------------------
November 27, November 28, November 27, November 28,
1999 1998 1999 1998
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Basic earnings per
share-weighted common
shares outstanding 27,794,374 27,635,881 27,742,665 27,588,981
Weighted common shares
assumed upon exercise
of stock options 127,828 66,709 197,152
----
----------------- ----------------- ---------------- ----------------
Diluted earnings per
share-weighted common
shares and common
shares equivalent
outstanding 27,794,374 27,763,709 27,809,374 27,786,133
================= ================= ================ ================
</TABLE>
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
November 27, 1999 February 27, 1999
---------------------- --------------------
<S> <C> <C>
Raw materials $18,572 $16,324
Work-in process 5,003 3,157
Finished 46,539 48,330
Cost and earnings in excess of billings on
uncompleted contracts 923 360
---------------------- --------------------
Total inventories $71,037 $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 three months and nine months ended November 27, 1999 were
$2.3 million and $11.5 million, respectively.
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 27, 1999 and the consolidated
financial statements, including the notes to consolidated financial statements,
included therein.
Sales and Earnings
- ------------------
Third quarter net sales were $202.8 million, up 5% from $192.7 million a year
ago. Net sales at Glass Technologies rose 10%, while net sales at Glass Services
increased 3%. Third quarter results reflected a net loss from continuing
operations of $5.3 million, or $0.19 per diluted share, compared with net
earnings of $5.7 million, or $0.20 per diluted shared, in the year-ago quarter.
This year's third quarter included $2.3 million after-tax, or $0.08 per diluted
share, in earnings from discontinued operations, which mainly reflected
recognition of tax benefits associated with the completion of the sale of the
Company's domestic curtainwall operations.
Net sales for the nine months ended November 27, 1999, increased 7%, to $632.4
million, compared to $591.2 million a year ago. Year-to-date net earnings from
continuing operations of $4.2 million fell 76% from the $17.5 million reported a
year ago. Year-to-date net earnings from discontinued operations were $11.5
million, or $0.41 per diluted share. These results reflect significant cash
collections related to the completion of certain projects from the Company's
discontinued Asian curtainwall operations as well as the tax benefit noted
above.
The following table presents the percentage change in net sales and operating
income for the Company's two segments and on a consolidated basis, for three and
nine months when compared to the corresponding periods a year ago.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------------- ----------------------------------------------
November 27, November 28, % November 27, November 28, %
(Dollars in thousands) 1999 1998 Chg 1999 1998 Chg
---------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales
Glass Technologies $ 87,361 $ 79,329 10% $ 264,237 $ 235,284 12%
Glass Services 117,050 113,520 3 372,298 356,482 4
Intersegment elimination (1,621) (184) 781 (4,172) (557) 649
---------------------------------------------- ----------------------------------------------
Net sales $ 202,790 $ 192,665 5% $ 632,363 $ 591,209 7%
============================================== ==============================================
Operating Income (Loss)
Glass Technologies $ (937) $ 5,878 NM $ 7,618 $ 14,905 (49)%
Glass Services (3,593) 5,937 NM 9,705 21,703 55
Corporate and Other (235) (258) (9)% (724) (658) 10
---------------------------------------------- ----------------------------------------------
Operating income (loss) $ (4,765) $ 11,557 NM $ 16,599 $ 35,950 (54)%
============================================== ==============================================
</TABLE>
7
<PAGE>
Glass Technologies (GT)
- -----------------------
Net sales at GT increased 10% to $87.4 million, led by strong growth at Tru Vue,
Viratec and Wausau. Due to low operating rates and additional costs incurred
during the quarter to improve production rates at Viracon and Viratec, the
segment reported an operating loss of $0.9 million compared with operating
income of $5.9 million in last year's third quarter. Ramp-up of production
volumes continued to progress at the Viracon and Viratec facilities in
Statesboro, GA and San Diego, CA, respectively, but was well below original
expectations.
Viracon, the segment's largest operating unit, reported net sales at prior year
levels. Viracon reported an operating loss for the quarter as compared to solid
earnings for the same period a year ago. The change in profitability was the
result of the Owatonna, MN plant reporting a small loss for the quarter, while
the new Statesboro, GA facility reported another operating loss. The Owatonna
loss was due to reduced operating rates and additional costs incurred to
position the facility for improved production velocity. These actions affected
the facility until late in the third quarter. Viracon's Statesboro, GA facility
reduced its operating loss, compared to the first two quarters of the fiscal
year, while again increasing its sales and production volumes. However, the
ramp-up is proceeding at a slower pace than originally planned. Backlog for
Viracon at November 27, 1999 was at an all-time high of $38.6 million.
Viratec reported a larger operating loss for the quarter as compared to the same
quarter a year ago despite a net sales increase of 48%. The decreased earnings
were a result primarily of a slower than anticipated ramp-up of its technology
change-over to accommodate a new product in its CRT coating operation in San
Diego as well as its new vertical coater in Faribault, MN.
Tru Vue recorded increases of 15% and 31% in net sales and operating income,
respectively, for the quarter as compared to the same period a year ago. These
improvements reflect the strong demand for Tru Vue's higher margin, value-added
picture framing glass products.
The Architectural Products Group, which consists of Wausau Window and Wall
Systems and Linetec, also reported sales growth of 15% for the quarter as well
as another solid quarter of operating income.
Despite strong backlog and strong demand for most of its products, GT expects to
report lower operating earnings for the fourth quarter and the year as compared
to the same periods in fiscal 1999. This primarily reflects the slower than
expected ramp-up of production capacity at its Viracon and Viratec locations.
Glass Services (GS)
- -------------------
As compared to the prior year quarter, GS sales for the quarter increased 3% to
$117.1 million. GS reported an operating loss of $3.6 million compared with
operating income of $5.9 million in last year's third quarter.
The auto glass business reported a 1% decrease in net sales as compared to the
third quarter of the prior year. A significant operating loss was recorded by
this business primarily as a result of continued pricing pressures in the retail
and wholesale business and soft retail demand. Same-store unit retail sales
remained virtually unchanged for the quarter, but same-store dollar sales fell
approximately 8% as a result of industry-wide pricing pressures. At the end of
the quarter, GS had 335 retail locations and 80 Glass Depot distribution
centers.
Harmon, Inc., the Company's full service building glass installation and repair
business, reported a 50% decrease in operating income, compared to last year's
extremely strong third quarter while reporting an 18% increase in net sales.
Last year's results included significant margin recognition on the unit's
construction contracts.
Auto glass industry conditions continue to be extraordinarily weak, particularly
in pricing at the distribution and retail channels. Although the Company is
working to reduce annualized operating costs, it anticipates another sizable
operating loss for GS in the fourth quarter, which is historically the seasonal
low point for
8
<PAGE>
the auto glass industry. The Company is actively considering strategic
alternatives for its auto glass business, which may require additional
investment or expense, or both.
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 three months and
nine months ended November 27, 1999 were $2.3 million and $11.5 million,
respectively.
Backlog
- -------
On November 27, 1999, Apogee's consolidated backlog stood at $178 million, up
15% from the $156 million reported a year ago. The backlog of GT's operations
represented 64% 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 Nine Months Ended
------------------------- ------------------------
Nov. 27, Nov. 28, Nov. 27, Nov. 28,
1999 1998 1999 1998
------------------------- ------------------------
<S> <C> <C> <C> <C>
Net sales 100.0 100.0 100.0 100.0
Cost of sales 84.9 78.0 80.6 78.2
------------------------- ------------------------
Gross profit 15.1 22.0 19.4 21.8
Selling, general and administrative expenses 17.4 16.0 16.8 15.7
------------------------- ------------------------
Operating (loss) income (2.3) 6.0 2.6 6.1
Interest expense, net 1.2 1.2 1.2 1.2
------------------------- ------------------------
(Loss) earnings from continuing operations
before income and other items (3.6) 4.8 1.4 4.9
Income taxes (1.2) 1.7 0.5 1.8
Equity in net earnings of affiliated companies 0.3 0.2 0.3 0.2
Minority interest 0.0 0.0 0.0 0.0
------------------------- ------------------------
(Loss) earnings from continuing operations (2.6) 2.9 0.7 3.0
Earnings from discontinued operations 1.1 0.8 1.8 0.5
------------------------- ------------------------
Net (loss) earnings (1.5) 3.8 2.5 3.4
========================= ========================
Effective tax rate 35.0% 36.0% 35.0% 36.0%
</TABLE>
On a consolidated basis for the three-month and nine-month periods, gross profit
fell significantly as a percentage of net sales. As compared to the prior year's
nine-month results, gross profit at Tru Vue, Architectural Products and Harmon,
Inc. increased due to solid demand and favorable sales mix for these operations,
but not enough to offset the gross profit declines reported by Viracon, Viratec
and the auto glass businesses, where margins fell for the reasons noted above.
Selling, general and administrative (SG&A) expenses rose by $4.6 million, or
15%, for the quarter, and by $13.5 million, or 15%, for nine months 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; quantification of such classifications is
not considered to be cost effective. Gross profit benefited as a result of these
classification variances. Interest expense rose 7% over last year for both the
three-month and nine-month periods, due to higher borrowing levels offset by
slightly lower interest rates. The nine-month effective income tax rate was
35.0% compared to a 36.0% tax rate in fiscal 1999.
9
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Financial Condition
- -------------------
Net cash provided by operating activities
Cash provided by operating activities for the nine months ended November 27,
1999 totaled $26.0 million. That figure primarily reflected the combination of
net earnings and noncash charges, such as depreciation and amortization. At
quarter end, the Company's working capital stood at $105.0 million, an increase
of $15.0 million over year-end fiscal 1999. This increase in working capital is
primarily due to increased inventories, decreased payables/accruals and
decreased income taxes payable, compared to year-end, fiscal 1999. Decreased
deferred tax assets and increased billings in excess of costs partly offset
these items. Increased bank borrowings reflect the excess of working capital,
capital expenditures and dividend requirements over the Company's cash provided
by operating activities.
Net cash provided by financing activities
Bank borrowings stood at $186.8 million at November 27, 1999; 12% higher than
the $166.4 million outstanding at February 27, 1999. At November 27, 1999,
long-term debt stood at 57% of total capitalization, as compared to 56% at
fiscal year-end 1999.
The Company anticipates bank borrowings to increase slightly over the remainder
of the fiscal year as working capital, capital expenditures and dividend
requirements are expected to exceed the Company's cash provided by operating
activities.
Net cash used in investing activities
Additions to property, plant and equipment during the nine months ended November
27, 1999 totaled approximately $42.2 million. Major items included expenditures
for the GT expansion activities as well as expenditures on information systems
projects throughout the Company. The Company expects to incur total expenditures
of approximately $50 million in fiscal 2000, approximately half of which were
expended in the first quarter.
Cash decreased $0.2 million for the nine months ended November 27, 1999.
Shareholders' Equity
- --------------------
At November 27, 1999, Apogee's shareholders' equity stood at $141.7 million.
Book value per share was $5.11, up from $4.73 per share at February 27, 1999,
with outstanding common shares decreasing 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 offset by
dividends paid.
Impact of Year 2000
- -------------------
Each of the Company's businesses 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.
Across the Company, remediation activities were completed prior to the calendar
year rollover. Each business organized planning, testing and support teams to
monitor systems, equipment and facilities before, during and after New Year's
weekend. As of January 5th, no material issues have surfaced in any business
operations, systems or third party relationships. While the Company does not
expect further Year 2000 issues to arise, project teams will continue to monitor
IT and non-IT systems through normal operational and support processes.
Virtually none of the Company's products are date-sensitive.
10
<PAGE>
Based on the Company's assessments completed through early January 2000, the
Company's total cost of addressing Year 2000 issues is currently estimated to be
in the range of $6-7 million. 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 90% of total Year 2000 expenditures.
The Company recognizes that issues related to Year 2000 constitute a material
known uncertainty. The Company believes it has been 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" 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 of the Company's near-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: whether
the cost savings programs implemented at the auto glass businesses will lead to
improved operating results, the continuation of unfavorable industry conditions
in the auto glass businesses, whether the strategic alternatives being
considered for the auto glass businesses will be available on terms favorable to
the Company, whether the production ramp-ups of new or expanded plant capacity
in the Glass Technologies 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 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.
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
11
<PAGE>
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.
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 $2.5 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 10.1 Waiver and Amendment No. 3 to Credit Agreement
Exhibit 27. Financial Data Schedule (EDGAR filing only).
Exhibit 27.1 Restated Financial Data Schedule (EDGAR filing only).
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: January 10, 2000 /s/Russell Huffer
-----------------
Russell Huffer
Chairman, Chief Executive Officer and
President
Date: January 10, 2000 /s/Robert G. Barbieri
---------------------
Robert G. Barbieri
Vice President Finance and
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
Exhibit 10.1 Waiver and Amendment No. 3 to Credit Agreement
Exhibit 27. Financial Data Schedule (EDGAR filing only).
Exhibit 27.1 Restated Financial Data Schedule (EDGAR filing only).
15
<PAGE>
Exhibit 10.1
WAIVER AND AMENDMENT NO. 3 TO CREDIT AGREEMENT
WAIVER AND AMENDMENT NO. 3, dated as of September 14, 1999 (this "Waiver
and Amendment"), to the CREDIT AGREEMENT, dated as of May 21, 1998 (the "Credit
Agreement"), among Apogee Enterprises, Inc., a Minnesota corporation (the
"Borrower"), each of the lenders from time to time parties thereto
(collectively, the "Lenders"), and The Bank of New York, as L/C Issuer,
Administrative Agent for the Lenders and Swing Line Lender, as such Credit
Agreement was amended by AMENDMENT NO. 1, dated July 22, 1998, and CONDITIONAL
WAIVER AND AMENDMENT NO. 2, dated November 10, 1998.
RECITALS
--------
A. The Borrower, in connection with the sale of certain of its
subsidiaries, Harmon, Ltd. to CH Holdings, Inc. and Norment Industries, Inc. and
Norshield Corporation to Compudyne Corporation, has purchased or will purchase
shares of its capital stock from its pension plans to facilitate the transfer of
the assets of such pension plans which relate to such subsidiaries to the
respective pension plans of Compudyne Corporation and CH Holdings, Inc.
B. The Credit Agreement places certain restrictions on the Borrower's
ability to purchase its capital stock.
C. The Lenders desire to waive these restrictions to the Credit Agreement
with respect the abovementioned stock purchases.
D. In addition, the parties desire to make certain amendments to the Credit
Agreement related to the purchase, redemption or other retirement by Borrower of
its capital stock in general.
NOW, THEREFORE, the parties hereto hereby agree as follows:
Section 1. Amendments.
(a) Pursuant to Section 11.05 of the Credit Agreement, Section 7.02(f)
of the Credit Agreement shall be amended to read in its entirety as follows:
"(f) Dividends and Purchase of Stock. (i) Declare any dividends (other
than dividends payable in capital stock of the Borrower) on any shares of
any class of its capital stock, or set apart any sum for the payment of any
dividends on, or make any other distribution by reduction of capital or
otherwise in respect of, any shares of any class of capital stock of the
Borrower, or permit any Subsidiary which is not a Wholly Owned Subsidiary
so to do, unless, immediately after giving effect to such action, (A) there
shall not have occurred any Default or Event of Default that is continuing
and (B) the aggregate amount of such distributions during any 12-month
period shall not have exceeded 110% of such aggregate amounts distributed
in the 12-month period preceding such 12-month period;
<PAGE>
(ii) Apply any of its property or assets to the purchase, redemption
or other retirement of, or set apart any sum for the purchase, redemption
or other retirement of, any shares of any class of capital stock of the
Borrower, or permit any Subsidiary which is not a Wholly Owned Subsidiary
so to do, or permit any Subsidiary to purchase or acquire any shares of any
class of capital stock of the Borrower, unless (A) immediately after giving
effect to such action, (1) there shall not have occurred any Default or
Event of Default that is continuing and (2) the aggregate amount of all
such payments since September 14, 1999 shall not have exceeded the lesser
of (x) $25,000,000 or (y) $23,804,000 plus, after the delivery by Borrower
to the Administrative Agent of an officer's certificate in the form set
forth in Exhibit A, an amount equal to the difference between $50,000,000
and the Borrower's actual Capital Expenditures in the 2000 fiscal year and
(B) any such actions occur before September 30, 2000; and
(iii) Permit any Subsidiary to (x) issue a Guaranty or (y) enter into
any agreement or instrument which by its terms restricts the ability of
such Subsidiary to (A) declare or pay dividends or make similar
distributions, (B) repay principal of, or pay any interest on, any
Indebtedness owed to the Borrower or any Subsidiary described in Section
7.02(d)(xi)(A), (C) make payments of royalties, licensing fees and similar
amounts to the Borrower or any other Subsidiary, (D) make loans or advances
to the Borrower or any other Subsidiary or (E) permit the Borrower to
engage in consolidated cash management consistent with its current
practices.
(b) Pursuant to Section 11.05 of the Credit Agreement, Sections
7.03(c) and (d) of the Credit Agreement shall be amended to read in their
entirety as follows:
"(c) Senior Debt/EBITDA Ratio. The Senior Debt/EBITDA Ratio to exceed
the ratio specified below: Date Ratio
Date Ratio
---- -----
Through September 13, 1999 3.75
After September 13, 1999 through March 3, 2001 3.25
After March 3, 2001 through March 2, 2002 2.75
After March 2, 2002 2.50;
<PAGE>
(d) Debt/EBITDA Ratio. The Debt/EBITDA Ratio to exceed the ratio
specified below:
Date Ratio
---- -----
Through September 13, 1999 4.25
After September 13, 1999 through March 3, 2001 3.50
After March 3, 2001 through March 2, 2002 3.00
After March 2, 2002 2.75."
Section 2. Waivers
(a) Pursuant to Section 11.05 of the Credit Agreement, the Required
Lenders hereby waive the restrictions of Section 7.02(f) of the Credit Agreement
(without giving effect to the amendment herein) with respect to:
(1) the purchase on June 30, 1999 by the Borrower of 37,088 shares of
its common stock from its 401(k) and retirement plans which
relate to the employees of Harmon, Ltd. (the "Harmon Pension
Plans") in connection with the transfer of the assets of the
Harmon Pension Plans to the 401(k) and retirement plans of CH
Holdings, Inc.; and
(2) the purchase by the Borrower of up to 22,500 shares of its common
stock from its 401(k) and retirement plans which relate to the
employees of Norment Industries, Inc. and Norshield Corporation
(the "Norment/Norshield Pension Plans") in connection with the
transfer of the assets of the Norment/Norshield Pension Plans to
the 401(k) and retirement plans of Compudyne Corporation.
(b) The purchases by the Borrower described in Section 2(a) shall not
apply to the $25,000,000 limitation set forth in the proviso to Section
7.02(f)(i), as amended by Section 1 of this Waiver and Amendment.
Section 3. Miscellaneous.
(a) All capitalized terms not otherwise defined in this Waiver and
Amendment shall have the meanings ascribed to them in the Credit Agreement.
(b) All provisions in Article XI of the Credit Agreement shall apply
to this Waiver and Amendment with equal force and effect as if restated
completely herein.
(c) Except as set forth in this Waiver and Amendment, the Credit
Agreement shall remain in full force and effect without amendment, modification
or waiver. Execution and delivery hereof by a Lender shall not preclude the
exercise by such Lender of any rights under the Credit Agreement (as amended by
Section 1 hereof).
<PAGE>
(d) This Waiver and Amendment shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such state.
(e) This Waiver and Amendment shall be effective on the first date as
of which a counterpart hereof has been executed and delivered to the
Administrative Agent under the Credit Agreement by the Borrower and the Required
Lenders under the Credit Agreement.
[THE NEXT PAGE IS THE SIGNATURE PAGE.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Waiver and
Amendment to be duly executed as of the date first above written.
APOGEE ENTERPRISES, INC.
By: /s/ Gary R. Johnson
-------------------
Name: GARY R. JOHNSON
Title: Assistant Secretary
Assistant Treasurer
THE BANK OF NEW YORK, as
Administrative Agent, L/C Issuer and Swing
Line Lender in the Credit Agreement
By: /s/ Richard Raffetto
---------------------
Name: Richard A. Raffetto
Title: Vice President
LENDERS (and other Agents)
--------------------------
THE BANK OF NEW YORK, as a Lender in
the Credit Agreement
By: /s/ Richard Raffetto
--------------------
Name: Richard A. Raffetto
Title: Vice President
U.S. BANK NATIONAL ASSOCIATION, as
Syndication Agent and a Lender in the Credit
Agreement
By: /s/ Matthew A. Ross
-------------------
Name: Matthew A. Ross
Title: Vice President
HARRIS TRUST AND SAVINGS BANK, as
Documentation Agent and a Lender in the
Credit Agreement
By: /s/ Andrew K. Peterson
----------------------
Name: Andrew K. Peterson
Title: Managing Director
<PAGE>
THE BANK OF NOVA SCOTIA, as Co-Agent
and a Lender in the Credit Agreement
By: /s/ F.C.H. Ashby
----------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
COMERICA BANK, as Co-Agent and a Lender
in the Credit Agreement
By: /s/ Timothy O'Rourke
--------------------
Name: Timothy O'Rourke
Title: Vice President
FIRSTAR BANK OF MINNESOTA, N.A., as a
Lender in the Credit Agreement
By: /s/ Dennis Ruggles
------------------
Name: Dennis Ruggles
Title: Vice President
THE SUMITOMO BANK, LIMITED, as a
Lender in the Credit Agreement
By: /s/ John H. Kemper
------------------
Name: John H. Kemper
Title: Senior Vice President
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as a Lender in
the Credit Agreement
By: /s/ Chad Kortgard
-----------------
Name: Chad Kortgard
Title: Corporate Banking Officer
<PAGE>
REGIONS BANK, as a Lender in the Credit
Agreement
By: /s/ Ronald L. Miller
--------------------
Name: Ronald L. Miller
Title: Vice President
<PAGE>
Exhibit A
APOGEE ENTERPRISES, INC.
Officer's Certificate
---------------------
I, Michael Bevilacqua, the Treasurer of Apogee Enterprises, Inc. (the
"Company"), in connection with the Credit Agreement, dated as of May 21, 1998
and as amended from time to time (the "Credit Agreement"), among the Company,
each of the lenders from time to time parties thereto, and The Bank of New York,
as L/C Issuer, Administrative Agent for the Lenders and Swing Line Lender,
hereby certify that:
(a) the Company's actual Capital Expenditures (as defined in the Credit
Agreement) in the 1999 fiscal year were $81,196,000.
(b) Annex 1 hereto contains a true and complete calculation of the
Company's actual Capital Expenditures in the 1999 fiscal year based on
the Borrower's audited financial statements for the fiscal year ended
February 27, 1999.
IN WITNESS WHEREOF, I have hereunto signed my name this 14th day of
September, 1999.
By: /s/ M Bevilacqua
----------------
Name: Michael Bevilacqua
Title: Treasurer
<TABLE> <S> <C>
<PAGE>
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> FEB-26-2000 FEB-26-2000
<PERIOD-START> AUG-29-1999 FEB-28-1999
<PERIOD-END> NOV-27-1999 NOV-27-1999
<CASH> 1,074 1,074
<SECURITIES> 26,320 26,320
<RECEIVABLES> 123,254 123,254
<ALLOWANCES> 5,650 5,650
<INVENTORY> 71,037 71,037
<CURRENT-ASSETS> 204,861 204,861
<PP&E> 357,770 357,770
<DEPRECIATION> 159,586 159,586
<TOTAL-ASSETS> 486,467 486,467
<CURRENT-LIABILITIES> 99,859 99,859
<BONDS> 0 0
0 0
0 0
<COMMON> 9,253 9,253
<OTHER-SE> 132,471 132,471
<TOTAL-LIABILITY-AND-EQUITY> 486,467 486,467
<SALES> 202,790 632,363
<TOTAL-REVENUES> 202,790 632,363
<CGS> 172,231 509,552
<TOTAL-COSTS> 34,939 104,657
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 385 1,555
<INTEREST-EXPENSE> 2,438 7,664
<INCOME-PRETAX> (7,203) 8,935
<INCOME-TAX> (2,522) 3,127
<INCOME-CONTINUING> (5,288) 4,157
<DISCONTINUED> 2,310 11,476
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,978) 15,633
<EPS-BASIC> (0.11) 0.56
<EPS-DILUTED> (0.11) 0.56
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> FEB-27-1999 FEB-27-1999
<PERIOD-START> AUG-30-1998 MAR-01-1998
<PERIOD-END> NOV-28-1998 NOV-28-1998
<CASH> 1,294 1,294
<SECURITIES> 19,698 19,698
<RECEIVABLES> 122,834 122,834
<ALLOWANCES> 5,877 5,877
<INVENTORY> 66,840 66,840
<CURRENT-ASSETS> 200,714 200,714
<PP&E> 297,315 297,315
<DEPRECIATION> 138,555 138,555
<TOTAL-ASSETS> 436,911 436,911
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0 0
0 0
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<OTHER-SE> 118,878 1118,878
<TOTAL-LIABILITY-AND-EQUITY> 436,911 436,911
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<LOSS-PROVISION> 309 1,364
<INTEREST-EXPENSE> 2,289 7,143
<INCOME-PRETAX> 9,268 28,807
<INCOME-TAX> 3,337 10,371
<INCOME-CONTINUING> 5,668 17,488
<DISCONTINUED> 1,582 2,795
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,250 20,283
<EPS-BASIC> 0.26 0.74
<EPS-DILUTED> 0.26 0.74
</TABLE>
