Significant Items Impact Apogee Third Quarter Earnings
Apogee Reaffirms Outlook For FY08 Full-Year, FY09 Growth
MINNEAPOLIS--(BUSINESS WIRE)--Dec. 19, 2007--Apogee Enterprises, Inc. (Nasdaq:APOG) today announced fiscal 2008 third quarter earnings. Apogee provides distinctive value-added glass solutions for the architectural and picture framing industries.
THIRD QUARTER HIGHLIGHTS
- Revenues of $211.0 million were up 3 percent versus the strong prior-year period.
- Operating income was $11.8 million, down 24 percent from the prior- year period.
- Operating margin was 5.6 percent, compared to 7.6 percent in the prior-year period.
- Write-down of $6.5 million on three architectural glass installation projects in one market impacted operating income.
- Excluding this adjustment, operating income would have increased 17 percent and operating margin would have been 8.7 percent.
- Earnings from continuing operations were $0.26 per share versus $0.36 per share a year earlier. Significant items impacting continuing operations were:
- Write-down of three installation projects reduced earnings by $0.14 per share.
- Apogee has agreed to sell its 34-percent interest in the non- strategic PPG Auto Glass LLC joint venture to PPG Industries, resulting in an impairment charge of $0.11 per share. Cash proceeds of approximately $25.5 million are expected when the sale closes.
- Net tax benefits added $0.08 per share with conclusion of analysis of research and development tax credits.
- Net earnings, including discontinued operations, were $0.38 per share versus $0.35 per share in the prior-year period.
- Conclusion of the sale of the non-strategic recreational vehicle and bus windshield business resulted in discontinued operations earnings of $0.13 per share.
- Architectural segment revenues grew 4 percent, and operating income, including the impact of installation write-downs, decreased 43 percent versus the prior-year period.
- Large-scale optical segment revenues were flat, and operating income increased 69 percent versus the prior-year period.
- As a result of significant third-quarter items, the outlook for fiscal year 2008 earnings from continuing operations is now $1.40 to $1.50 per share, reflecting the $0.03 per share difference between the PPG Auto Glass impairment charge and the research and development net tax benefit, two items not included in prior guidance. Strong fourth-quarter performances in other businesses are expected to make up the third-quarter shortfall in the installation business. Prior guidance was $1.43 to $1.53 per share.
Commentary
"The installation project write-downs masked excellent third-quarter performances in all our other businesses, as well as with our other installation projects," said Russell Huffer, Apogee chairman and chief executive officer. "Strong operating performance, primarily in our picture framing, architectural glass and window businesses, is expected to offset the impact of write-downs on the installation projects for the full year.
"I want to underscore that our architectural markets and backlog remain strong, and our businesses are generally operating well, giving us the ability to grow earnings 20 percent annually in fiscal years 2009 and 2010," he said.
"The installation job write-downs were significant and extremely disappointing," said Huffer. "Poor execution early in three projects in one market, Florida, has resulted in material cost increases required to complete the projects within customer requirements and deadlines.
"Turning to the large-scale optical segment, earnings again benefited from a higher than expected mix of our best value-added framing glass products," he said. "The market continues to convert to these great products.
"Finally, we are pleased to be completing the exit of the non-strategic auto replacement glass industry, a key step in our strategic repositioning to focus on opportunities in our more profitable architectural and picture framing businesses," said Huffer. "In the third quarter, we completed the sale of our recreational vehicle and bus windshield business. In addition, we have agreed to sell our 34-percent interest in the PPG Auto Glass joint venture to PPG Industries. Although this sale results in a charge to earnings, it represents Apogee's best option to complete our strategic exit from the auto glass industry and will be a significant positive cash event, allowing us to reinvest in our core businesses."
SEGMENT AND OPERATING HIGHLIGHTS
Architectural Products and Services
- Revenues of $189.1 million were up 4 percent over the prior-year period.
- Slower growth of third-quarter revenues had been expected due to a strong prior-year period. In addition, customer timing of job flow in the installation business impacted growth in the quarter.
- Operating income was $7.7 million, down 43 percent from a year ago, including the impact of installation project write-downs of $6.5 million.
- Operating margin was 4.1 percent, compared to 7.4 percent in the prior-year period.
- Excluding the installation charges, operating margin would have been 7.5 percent, largely consistent with expectations.
- Segment backlog grew to $456.7 million, from $389.5 million in the prior-year period and $405.4 million at the end of the second quarter.
- Backlog is strong for all architectural businesses.
- Approximately $160 million, or 35 percent, of the backlog is to be delivered in fiscal 2008; approximately $228 million, or 50 percent, in fiscal 2009; and approximately $69 million, or 15 percent, in fiscal 2010, providing good visibility into upcoming fiscal years.
Large-Scale Optical Technologies
- Revenues of $21.8 million were flat compared to the prior-year period.
- Operating income was $4.5 million, up 69 percent from the prior- year period, which had a less rich mix of higher value-added products.
- Operating margin was 20.8 percent, compared to 12.3 percent in the prior-year period.
- The mix of our best value-added framing glass products was greater than expected, exceeding 50 percent of product revenue for the first time.
Equity in Affiliates
- There was a loss of $4.0 million from the PPG Auto Glass LLC joint venture, including the write-down of $4.8 million due to the expected sale of Apogee's interest in the joint venture. This compares to earnings of $1.1 million in the prior-year period.
- Apogee has agreed to sell its 34-percent interest in the non- strategic PPG Auto Glass joint venture to PPG Industries. The sale is expected to be completed in the fourth quarter, subject to PPG Industries' pending sale of its automotive original equipment manufacturing and automotive replacement glass businesses.
- Cash proceeds from the sale are expected to be approximately $25.5 million, based on terms in the joint venture agreement governing PPG Auto Glass. Apogee's investment in PPG Auto Glass was $30.3 million, including $7.3 million in goodwill, resulting in a continuing operations impairment charge of $0.11 per share in the third quarter.
- In 2000, PPG Industries and Apogee combined their U.S. automotive replacement glass distribution businesses and established PPG Auto Glass. Ownership was determined by initial contribution.
Discontinued Operations
- Earnings were $3.4 million, net of tax, from discontinued operations, including the gain on the sale of the recreational vehicle and bus windshield business. This compares to a loss of $0.3 million in the prior-year period.
- Conclusion of the sale of the non-strategic recreational vehicle and bus windshield business resulted in a pre-tax gain of $6.0 million.
Financial Condition
- Long-term debt was $20.6 million, compared to $35.4 million at the end of fiscal 2007 and down from $24.3 million at the end of the second quarter. Earnings along with payments received from the sale of the recreational vehicle and bus business contributed to the decline in long-term debt.
- Long-term debt-to-total-capital ratio was 7.0 percent, down from 13.1 percent at fiscal 2007 year end.
- Non-cash working capital (current assets, excluding cash, less current liabilities) was $82.1 million, compared to $69.5 million at the end of the second quarter and $70.4 million at the end of fiscal 2007. The increase from the second quarter is the result of overall growth and significant tax payments made in the quarter.
- Depreciation and amortization were $17.0 million, up 16.5 percent from the prior year.
- Capital expenditures year to date were $39.0 million, compared to $25.7 million in the prior-year period. The current year includes spending on capacity expansions and productivity improvements in the architectural and large-scale optical segments.
- Current-quarter earnings from continuing operations include a $0.08 per share net tax benefit, resulting from conclusion of analysis of current and prior-year research and development tax credits included in Apogee's tax filings.
OUTLOOK
"The strength of our businesses and markets served allows us to remain optimistic that we are positioned to meet our longer-term objectives of 8 percent annual revenue growth and 20 percent average earnings growth through fiscal 2010," said Huffer. "Our markets, which are expected to remain at or near today's high levels, along with our strong backlog, commitments and bidding activity give us confidence in our ability to grow revenues and earnings.
"Our architectural businesses, with the exception of the one installation market, have been performing well this year. Including the execution setback in the third quarter, we expect to have an architectural segment operating margin ranging from 6.4 to 6.8 percent, slightly below our prior range of 6.7 to 7.1 percent," said Huffer.
"Our picture framing business continues strong, allowing us to raise operating margin guidance for the year to approximately 18 percent from prior guidance of 16 percent," he said. "The better product mix this year will be somewhat offset by higher fourth-quarter investments in sales and marketing as well as capacity expansions, bringing the expected full-year operating margin outlook below the year-to-date level.
"We are expecting that strong fourth-quarter performances in other businesses will allow us to make up the third-quarter shortfall in our installation business," he said. "As a result, we are adjusting our fiscal 2008 guidance to reflect the $0.03 per share difference between the PPG Auto Glass impairment charge and the research and development net tax benefit. We're now anticipating earnings from continuing operations of $1.40 to $1.50 per share." Previous guidance was $1.43 to $1.53 per share.
"We have great businesses, strong markets and backlogs and, with the exception of the one installation market, our businesses are executing well," said Huffer. "I'm feeling very good about the future prospects and potential for Apogee and its businesses."
The following statements are based on current expectations for fiscal 2008. These statements are forward-looking, and actual results may differ materially.
- Overall fiscal 2008 revenues for the year are expected to increase 11 to 13 percent.
- Architectural segment revenues are expected to increase 12.5 to 14.5 percent.
- Large-scale optical segment revenues are expected to be approximately flat.
- Annual gross margins are expected to be approximately 20 percent; increased pricing, operational improvements and cost reductions are expected to more than offset increases in wages, health care, energy, materials and freight, as well as costs related to the startup of the new architectural glass facility and reallocating coating equipment between the architectural glass and picture framing businesses.
- Selling, general and administrative expenses as a percent of annual sales are projected to be approximately 13.4 percent.
- Expected annual operating margins by segment are: architectural, 6.4 to 6.8 percent, including the negative full-year impact of approximately 0.8 percentage point for the installation project write-downs and 0.3 percentage point for the one-time startup costs for the new architectural glass facility (prior guidance was 6.7 to 7.1 percent); and large-scale optical, approximately 18 percent (prior guidance was 16 percent).
- Equity in affiliates, which reflects Apogee's portion of the results of the PPG Auto Glass joint venture, is expected to report a pre-tax, annual loss of approximately $2.5 million, including the impairment charge.
- Full-year capital expenditures are projected to be approximately $60 million, including capital for capacity expansions and productivity improvements in the architectural and large-scale optical segments.
- Depreciation and amortization are estimated at approximately $23 million for the year.
- Debt is expected to be $15 to $25 million at year end, not including the expected proceeds from the sale of Apogee's interest in PPG Auto Glass.
- The effective tax rate for the full year is anticipated to be slightly higher than 30.0 percent (prior guidance was 34.5 percent).
- Fiscal 2008 earnings per share from continuing operations are expected to range from $1.40 to $1.50; prior guidance was $1.43 to $1.53 per share.
The discussion above, including all statements in the Outlook section, contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect Apogee management's expectations or beliefs as of the date of this release. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements are qualified by factors that may affect the operating results of the company, including the following: operational risks within (A) the architectural segment: i) competitive, price-sensitive and changing market conditions, including unforeseen delays in project timing and work flow; ii) economic conditions and the cyclical nature of the North American commercial construction industry; iii) product performance, reliability, execution or quality problems that could delay payments, increase costs, impact orders or lead to litigation; iv) the segment's ability to fully utilize production capacity; and v) ramp up to full production of the third Viracon plant in a timely and cost-efficient manner; and (B) the large-scale optical segment: i) markets that are impacted by consumer confidence and trends; ii) dependence on a relatively small number of customers; iii) changing market conditions, including unfavorable shift in product mix; and iv) ability to utilize manufacturing facilities. Additional factors include: i) revenue and operating results that are volatile; ii) self-insurance risk related to a material product liability event and to health insurance programs; iii) performance of the PPG Auto Glass, LLC joint venture; iv) management of discontinued operations exiting activities; v) cost of compliance with governmental regulations relating to hazardous substances; and vi) foreign currency risk related to certain discontinued operations. The company cautions investors that actual future results could differ materially from those described in the forward-looking statements, and that other factors may in the future prove to be important in affecting the company's results of operations. New factors emerge from time to time and it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. For a more detailed explanation of the foregoing and other risks and uncertainties, see Item 1A of the company's Annual Report on Form 10-K for the fiscal year ended March 3, 2007.
TELECONFERENCE AND SIMULTANEOUS WEBCAST
Analysts, investors and media are invited to listen to Apogee's live teleconference or webcast at 10 a.m. Central Time tomorrow, December 20. To participate in the teleconference, call 1-866-700-6067 toll free or 617-213-8834 international, access code 71147822. The replay will be available from noon Central Time on Thursday, December 20, through midnight Central Time on Thursday, January 3, 2008 by calling 1-888-286-8010 toll free, access code 37172719. To listen to the live conference call over the internet, go to the Apogee web site at http://www.apog.com and click on "investor relations" and then the webcast link at the top of that page. The webcast also will be archived on the company's web site.
Apogee Enterprises, Inc., headquartered in Minneapolis, is a leader in technologies involving the design and development of value-added glass products and services. The company is organized in two segments:
- Architectural products and services companies design, engineer, fabricate, install, maintain and renovate the walls of glass and windows comprising the outside skin of commercial and institutional buildings. Businesses in this segment are: Viracon, the leading fabricator of coated, high-performance architectural glass for global markets; Harmon, Inc., one of the largest U.S. full-service building glass installation, maintenance and renovation companies; Wausau Window and Wall Systems, a manufacturer of custom aluminum window systems and curtainwall; and Linetec, a paint and anodizing finisher of window frames and PVC shutters.
- Large-scale optical segment consists of Tru Vue, a value-added glass and acrylic manufacturer for the custom picture framing market and a producer of optical thin film coatings for consumer electronics displays.
Apogee Enterprises, Inc. & Subsidiaries
Consolidated Condensed Statement of Income
(Unaudited)
Thirteen Thirteen
Weeks Ended Weeks Ended %
Dollar amounts in thousands,
except for per share amounts December 1, 2007 December 2, 2006 Change
---------------- ---------------- ------
Net sales $210,975 $203,885 3%
Cost of goods sold 170,761 163,233 5%
---------------- ----------------
Gross profit 40,214 40,652 -1%
Selling, general and
administrative expenses 28,437 25,060 13%
---------------- ----------------
Operating income 11,777 15,592 -24%
Interest income 263 221 19%
Interest expense 444 683 -35%
Other income (expense), net 92 14 557%
Equity in (loss) income of
affiliated companies (3,967) 1,080 N/M
---------------- ----------------
Earnings from continuing
operations before
income taxes 7,721 16,224 -52%
Income taxes 155 5,992 -97%
---------------- ----------------
Earnings from continuing
operations 7,566 10,232 -26%
Earnings (loss) from
discontinued operations 3,430 (329) N/M
---------------- ----------------
Net earnings $10,996 $9,903 11%
================ ================
Earnings per share - basic:
Earnings from continuing
operations $0.27 $0.37 -27%
Earnings (loss) from
discontinued operations $0.12 ($0.01) N/M
Net earnings $0.39 $0.36 8%
Average common shares
outstanding 28,472,436 27,651,561 3%
Earnings per share - diluted:
Earnings from continuing
operations $0.26 $0.36 -28%
Earnings (loss) from
discontinued operations $0.12 ($0.01) N/M
Net earnings $0.38 $0.35 9%
Average common and common
equivalent shares
outstanding 29,205,179 28,299,695 3%
Cash dividends per common
share $0.0740 $0.0675 10%
Thirty-nine Forty
Weeks Ended Weeks Ended %
Dollar amounts in thousands,
except for per share amounts December 1, 2007 December 2, 2006 Change
---------------- ---------------- ------
Net sales $638,533 $572,645 12%
Cost of goods sold 508,568 464,462 9%
---------------- ----------------
Gross profit 129,965 108,183 20%
Selling, general and
administrative expenses 85,957 74,014 16%
---------------- ----------------
Operating income 44,008 34,169 29%
Interest income 710 822 -14%
Interest expense 1,585 2,297 -31%
Other income (expense), net 80 (14) N/M
Equity in (loss) income of
affiliated companies (2,491) 2,363 N/M
---------------- ----------------
Earnings from continuing
operations before
income taxes 40,722 35,043 16%
Income taxes 11,645 12,629 -8%
---------------- ----------------
Earnings from continuing
operations 29,077 22,414 30%
Earnings (loss) from
discontinued operations 5,089 (436) N/M
---------------- ----------------
Net earnings $34,166 $21,978 55%
================ ================
Earnings per share - basic:
Earnings from continuing
operations $1.03 $0.81 27%
Earnings (loss) from
discontinued operations $0.18 ($0.01) N/M
Net earnings $1.21 $0.80 51%
Average common shares
outstanding 28,335,950 27,613,810 3%
Earnings per share - diluted:
Earnings from continuing
operations $1.00 $0.80 25%
Earnings (loss) from
discontinued operations $0.17 ($0.02) N/M
Net earnings $1.17 $0.78 50%
Average common and common
equivalent shares
outstanding 29,095,959 28,105,022 4%
Cash dividends per common
share $0.2090 $0.1975 6%
----------------------------------------------------------------------
Business Segments Information
(Unaudited)
Thirteen Thirteen
Weeks Ended Weeks Ended %
December 1, 2007 December 2, 2006 Change
---------------- ---------------- ------
Sales
Architectural $189,134 $182,071 4%
Large-Scale Optical 21,840 21,836 0%
Eliminations 1 (22) N/M
---------------- ----------------
Total $210,975 $203,885 3%
================ ================
Operating income (loss)
Architectural $7,718 $13,444 -43%
Large-Scale Optical 4,546 2,693 69%
Corporate and other (487) (545) 11%
---------------- ----------------
Total $11,777 $15,592 -24%
================ ================
Thirty-nine Forty
Weeks Ended Weeks Ended %
December 1, 2007 December 2, 2006 Change
---------------- ---------------- ------
Sales
Architectural $575,445 $510,576 13%
Large-Scale Optical 63,090 62,114 2%
Eliminations (2) (45) 96%
---------------- ----------------
Total $638,533 $572,645 12%
================ ================
Operating income (loss)
Architectural $33,695 $28,203 19%
Large-Scale Optical 12,078 7,719 56%
Corporate and other (1,765) (1,753) -1%
---------------- ----------------
Total $44,008 $34,169 29%
================ ================
----------------------------------------------------------------------
Consolidated Condensed Balance Sheets
(Unaudited)
December 1, March 3,
2007 2007
----------- -----------
Assets
Current assets $234,631 $222,484
Net property, plant and equipment 157,092 134,256
Other assets 90,292 92,421
----------- -----------
Total assets $482,015 $449,161
=========== ===========
Liabilities and shareholders' equity
Current liabilities $144,901 $145,859
Long-term debt 20,600 35,400
Other liabilities 40,774 32,234
Shareholders' equity 275,740 235,668
----------- -----------
Total liabilities and shareholders'
equity $482,015 $449,161
=========== ===========
N/M = Not meaningful
Apogee Enterprises, Inc. & Subsidiaries
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Thirty-nine Forty
Weeks Ended Weeks Ended
Dollar amounts in thousands December 1, 2007 December 2, 2006
---------------- ----------------
Net earnings $34,166 $21,978
Net (earnings) loss from
discontinued operations (5,089) 436
Depreciation and amortization 16,971 14,570
Stock-based compensation 5,615 4,168
Equity in loss (earnings) of
affiliated companies 2,491 (2,363)
Other, net (2,353) (2,508)
Changes in operating assets and
liabilities (2,709) (24,329)
---------------- ----------------
Net cash provided by operating
activities 49,092 11,952
---------------- ----------------
Capital expenditures and acquisition
of intangible assets (38,977) (25,719)
Proceeds on sale of property 236 1,636
Net purchases of marketable
securities (1,957) (366)
Other investing activities - 5,000
---------------- ----------------
Net cash used in investing
activities (40,698) (19,449)
---------------- ----------------
(Payments on) proceeds from long-
term debt and revolving credit
agreement (14,800) 11,000
Proceeds from issuance of common
stock, net of cancellations 3,286 2,685
Dividends paid (6,063) (7,383)
Other, net 2,215 1,423
---------------- ----------------
Net cash (used in) provided by
financing activities (15,362) 7,725
---------------- ----------------
Cash provided by (used in)
discontinued operations 8,417 (1,452)
---------------- ----------------
Increase (decrease) in cash and cash
equivalents 1,449 (1,224)
Cash and cash equivalents at
beginning of year 6,187 4,676
---------------- ----------------
Cash and cash equivalents at end of
period $7,636 $3,452
================ ================
CONTACT: Apogee Enterprises, Inc.
Investor Relations:
Mary Ann Jackson, 952-487-7538
mjackson@apog.com
SOURCE: Apogee Enterprises, Inc.