-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EUqmOZFUKSH4gFlPJUeolJn+cTiZEd1iJGkkFQ/V+k/jXn+UAzTv5pV9y8CUGLVw oY85Apzm/Ykl2lXJUDhf3w== 0001045969-00-000009.txt : 20000202 0001045969-00-000009.hdr.sgml : 20000202 ACCESSION NUMBER: 0001045969-00-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991127 FILED AS OF DATE: 20000111 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APOGEE ENTERPRISES INC CENTRAL INDEX KEY: 0000006845 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION SPECIAL TRADE CONTRACTORS [1700] IRS NUMBER: 410919654 STATE OF INCORPORATION: MN FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-06365 FILM NUMBER: 505092 BUSINESS ADDRESS: STREET 1: 7900 XERXES AVE S STREET 2: SUITE 1800 CITY: MINNEAPOLIS STATE: MN ZIP: 55431 BUSINESS PHONE: 6128351874 MAIL ADDRESS: STREET 1: 7900 XERXES AVE S STREET 2: SUITE 1800 CITY: MINNEAPOLIS STATE: MO ZIP: 55431 FORMER COMPANY: FORMER CONFORMED NAME: HARMON GLASS CO INC DATE OF NAME CHANGE: 19720623 10-Q 1 QUARTERLY REPORT 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 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 Item 1. Financial Statements APOGEE ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
November 27, February 27, 1999 1999 ----------------- ---------------- ASSETS (unaudited) 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 ================= ================
See accompanying notes to consolidated financial statements. 3 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)
Three Months Ended Nine Months Ended ------------------------------------ ------------------------------------- November 27, November 28, November 29, November 28, 1999 1998 1999 1998 ---------------- ---------------- ---------------- ---------------- 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 ================ ================ ================ ================
See accompanying notes to consolidated financial statements. 4 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)
1999 1998 ---------------- ---------------- 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 ================= =================
See accompanying notes to consolidated financial statements. 5 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.
Three Months Ended Nine Months Ended -------------------------------------- ------------------------------------- November 27, November 28, November 27, November 28, 1999 1998 1999 1998 ----------------- ----------------- ---------------- ---------------- 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 ================= ================= ================ ================
3. Inventories Inventories consist of the following:
November 27, 1999 February 27, 1999 ---------------------- -------------------- 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 ====================== ====================
6 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.
Three Months Ended Nine Months Ended ---------------------------------------------- ---------------------------------------------- November 27, November 28, % November 27, November 28, % (Dollars in thousands) 1999 1998 Chg 1999 1998 Chg ---------------------------------------------- ---------------------------------------------- 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)% ============================================== ==============================================
7 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 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.
Three Months Ended Nine Months Ended ------------------------- ------------------------ Nov. 27, Nov. 28, Nov. 27, Nov. 28, 1999 1998 1999 1998 ------------------------- ------------------------ 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%
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 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 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 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 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 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 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 EX-10.1 2 WAIVER & AMEND. NO. 3 TO CREDIT AGREEMENT 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; (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; (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). (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.] 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 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 REGIONS BANK, as a Lender in the Credit Agreement By: /s/ Ronald L. Miller -------------------- Name: Ronald L. Miller Title: Vice President 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 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 9-MOS FEB-26-2000 FEB-26-2000 AUG-29-1999 FEB-28-1999 NOV-27-1999 NOV-27-1999 1,074 1,074 26,320 26,320 123,254 123,254 5,650 5,650 71,037 71,037 204,861 204,861 357,770 357,770 159,586 159,586 486,467 486,467 99,859 99,859 0 0 0 0 0 0 9,253 9,253 132,471 132,471 486,467 486,467 202,790 632,363 202,790 632,363 172,231 509,552 34,939 104,657 0 0 385 1,555 2,438 7,664 (7,203) 8,935 (2,522) 3,127 (5,288) 4,157 2,310 11,476 0 0 0 0 (2,978) 15,633 (0.11) 0.56 (0.11) 0.56
EX-27.1 4 RESTATED FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 9-MOS FEB-27-1999 FEB-27-1999 AUG-30-1998 MAR-01-1998 NOV-28-1998 NOV-28-1998 1,294 1,294 19,698 19,698 122,834 122,834 5,877 5,877 66,840 66,840 200,714 200,714 297,315 297,315 138,555 138,555 436,911 436,911 103,509 103,509 0 0 0 0 0 0 9,214 9,214 118,878 1118,878 436,911 436,911 192,665 591,209 192,665 591,209 150,365 462,591 30,434 91,304 0 0 309 1,364 2,289 7,143 9,268 28,807 3,337 10,371 5,668 17,488 1,582 2,795 0 0 0 0 7,250 20,283 0.26 0.74 0.26 0.74
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