Apogee First Quarter Earnings Decline Due to Market Conditions; Quarterly Cash Flow Positive; Balance Sheet Remains Strong

Business Wire, June 23, 2009

MINNEAPOLIS -- Apogee Enterprises, Inc. (Nasdaq:APOG) today announced fiscal 2010 first quarter earnings. Apogee provides distinctive value-added glass solutions for the architectural and picture framing industries.

FY10 FIRST-QUARTER VS. PRIOR-YEAR PERIOD

• Revenues of $180.9 million were down 24 percent.
• Operating income was $11.7 million, down 30 percent. Operating margin was 6.5 percent, compared to 7.0 percent.
• Earnings were $0.27 per share versus $0.36 per share.
• Architectural segment revenues declined 24 percent, and operating income decreased 28 percent. Backlog remained relatively flat at $310.0 million, compared to $316.2 million at the end of fiscal 2009.
• Large-scale optical segment revenues declined 20 percent, and operating income decreased 39 percent.
• Cash and short-term investments totaled $30.8 million, compared to $27.1 million at the end of fiscal 2009 and $4.6 million in the prior-year period.

Commentary“Apogee’s first-quarter revenues and earnings per share declined as domestic market conditions worsened with continued tight commercial real estate credit, decreasing employment levels and soft retail markets,” said Russell Huffer, Apogee chairman and chief executive officer. “We are managing costs and productivity to achieve solid gross margins, and are generating cash in this tough environment. However, the inability to fully leverage fixed costs over lower volume impacted our architectural and large-scale optical segment operating margins.

“It is positive that we experienced a relatively flat architectural segment backlog compared to the previous quarter and minimal cancellations,” said Huffer. “In addition, we continue to convert customers to our value-added custom picture framing products.

“We have reduced costs more than $40 million on an annual basis since October and headcount continues to decrease,” he said. “Although future periods will be impacted by the domestic commercial construction slowdown, we entered the downturn with a very strong balance sheet and are generating positive cash flow. Apogee remains in a strong financial position.”

FY10 FIRST-QUARTER SEGMENT AND OPERATING HIGHLIGHTS VS. PRIOR-YEAR PERIOD

Architectural Products and Services

• Revenues of $166.7 million were down 24 percent. The revenue decline came primarily from the architectural glass and installation businesses due to project delays, the timing of project flow and cancellations experienced in the second half of last year.
• Operating income was $10.8 million, down 28 percent. Operating margin was 6.5 percent, compared to 6.7 percent. Solid execution by the installation and window businesses of projects bid in stronger markets, along with productivity improvements and ongoing cost cutting efforts were more than offset by the impact of lower volume. Backlog remained relatively flat at $310.0 million, compared to $316.2 million at the end of fiscal 2009; it was down from $491.0 million in the prior-year period. As work on existing backlog is completed, slower bid-to-award timing is impacting backlog levels, despite steady bidding activity. The institutional sector continues to be the largest portion of the backlog, followed by office projects, with condo and hotel/entertainment projects a much smaller portion of future work. Approximately $254 million, or 82 percent, of the backlog is expected to be delivered in fiscal 2010, and approximately $56 million, or 18 percent, in fiscal 2011.

Large-Scale Optical Technologies

• Revenues of $14.2 million declined 20 percent due to weak custom framing market conditions.
• Operating income was $2.0 million, down 39 percent. Operating margin was 14.0 percent, compared to 18.4 percent as a strong mix of our best value-added products was more than offset by the impact of lower volume.

Financial Condition

• Long-term debt was $8.4 million, equal to the fiscal 2009 year-end level and down from $73.4 million in the prior-year period. $8.4 million in low-interest industrial revenue bonds is reflected in each of these debt levels.
• Non-cash working capital (current assets, excluding cash and short-term investments, less current liabilities) was $53.1 million, compared to $44.3 million at the end of fiscal 2009 and $83.5 million in the prior-year period.
• Capital expenditures were $2.3 million, down 90 percent from the prior-year period.
• Depreciation and amortization were $7.3 million, up 10 percent from the prior-year period.