Apogee Enterprises, Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended March 2, 2013 (52 weeks); the comparable prior year ended March 3, 2012 and included 53 weeks. This is an annual report, not a standalone fourth-quarter filing. Amounts are in U.S. dollars.
Business context
Apogee supplies value-added glass, aluminum framing systems and installation services for commercial and institutional buildings, and coated glass and acrylic for custom picture framing. In FY2013 it recast reporting into four segments: Architectural Glass, Architectural Framing Systems, Architectural Services and Large-Scale Optical Technologies (LSO). Segment data below reflect the recast presentation.
Financial performance
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $700.2 million | $662.5 million |
| Gross profit / margin | $145.7 million / 20.8% | $117.1 million / 17.7% |
| Operating income / margin | $27.4 million / 3.9% | $3.8 million / 0.6% |
| Net earnings | $19.1 million | $4.6 million |
| Diluted earnings per share | $0.67 | $0.17 |
| Cash from continuing operations | $40.7 million | $28.0 million |
| Capital expenditures | $34.7 million | $9.7 million |
Revenue increased 5.7%, despite one fewer fiscal week. Management attributed growth mainly to domestic expansion and share gains in Architectural Services and Framing Systems, and improved Architectural Glass pricing. Gross-margin improvement reflected pricing, productivity, and stronger project execution. SG&A rose $5.0 million in dollars, but declined as a percentage of sales to 16.9% from 17.1%. The effective tax rate was 29.3%, compared with a prior-year tax benefit and negative effective rate.
Segments and material changes
- Architectural Glass: Sales fell 4.2% to $266.5 million; operating loss narrowed to $4.4 million from $19.6 million. Improved pricing, mix and cost management helped, while volume declined, partly reflecting a planned reduction in exports and currency effects in Brazil.
- Architectural Framing Systems: Sales rose 9.3% to $191.1 million; operating income increased to $14.6 million from $10.4 million, reflecting growth and operating improvement.
- Architectural Services: Sales rose 24.6% to $186.6 million, primarily from domestic footprint expansion; the operating loss narrowed to $1.0 million from $2.9 million. Management said newer, higher-margin work was beginning to contribute.
- LSO: Sales were nearly flat at $79.9 million; operating income rose 7.1% to $21.0 million, supported by product mix and manufacturing performance.
Backlog was $298.3 million at year-end, up 25% from $238.9 million; the company expected to recognize 85% of it as FY2014 revenue. Backlog is not a measure of eventual profitability.
Cash, debt and liquidity
- Year-end cash and cash equivalents were $37.8 million, down from $54.0 million. Cash from continuing operations was $40.7 million; investing activities used $57.1 million, including $34.7 million of capital spending and purchases of marketable securities.
- Total borrowings were $30.8 million, including $10.1 million current and $20.8 million long-term debt. No revolving-credit borrowings were outstanding. The company reported $63.8 million of cash and short-term marketable securities available for sale and $76.6 million of unused revolving-credit availability.
- The amended revolving facility totals $100 million and expires in October 2017. Apogee was in compliance with its covenants; its adjusted debt-to-EBITDA ratio was 0.11 against a maximum of 3.00.
- Dividends declared were $0.36 per share, versus $0.326 in FY2012. The company reported $87.9 million of purchase obligations and $32.6 million of future minimum operating-lease payments.
Outlook, risks and unusual items
Management’s FY2014 outlook was revenue growth in the high single digits, diluted EPS of $0.90–$1.00, and capital expenditures of $40–$45 million, including a new Architectural Glass coater. These are forward-looking estimates, not guarantees.
- Key risks include cyclical commercial construction demand and project timing, price competition and imports, raw-material costs and availability, and fixed-price installation contracts vulnerable to labor overruns, delays and estimation errors.
- Product quality, warranty and self-insurance exposures could result in significant rework or claims. The warranty accrual was $8.3 million at year-end, compared with $7.2 million a year earlier.
- Other disclosed risks include reliance on a relatively small number of LSO customers, Brazilian economic and foreign-exchange exposure, and environmental remediation. The environmental reserve was $2.0 million; unrecognized tax benefits were $6.8 million, of which about $1.0 million was expected to lapse in the next 12 months.
- FY2013 included $0.5 million of non-cash income from discontinued operations following expiration of warranty periods. After year-end, Apogee repaid $10.0 million of Utah facility bonds and recorded a $0.2 million write-off of deferred debt-issuance costs.
Management and Deloitte & Touche reported effective internal control over financial reporting, and the auditor gave an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether the forecast recovery in Architectural Glass and the shift toward higher-margin Architectural Services projects are being achieved.
- How much of the $298.3 million backlog converts to revenue and profit, given project timing and contract-cost risks.
- Whether FY2014 growth and EPS guidance is supported by demand, margins and the planned capital program.
- Potential cash demands from warranty claims, environmental remediation, tax matters and committed purchases.
- The filing reports debt-to-total-capital figures on different bases in different sections; verify the applicable calculation if comparing leverage across periods.