APOG

Apogee Enterprises, Inc. (APOG)

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Apogee Enterprises Inc. (APOG)

F3Q09 Earnings Call

December 18, 2008; 11:00 am ET

Executives

Russ Huffer - Chairman and Chief Executive Officer

Jim Porter - Chief Financial Officer

Mary Ann Jackson - Director of Investor Relations

Analysts

Tom Hayes - Piper Jaffray

Steve Denault - Northland Securities

Brent Thielman - D.A. Davidson

John Braatz - Kansas City Capital

Tyson Bauer - Wealth Monitors

Robert Kelly - Sidoti

Mike O’Martin - Small-Cap Report

Presentation

Operator

Good day ladies and gentlemen and welcome to the third quarter 2009 Apogee Enterprises Incorporated earnings conference call. My name is Francine and I will be your coordinator for today. At this time all participants are in a listen-only mode. We’ll be facilitating a question-and-answer session towards the end of today’s conference. (Operator Instructions)

I would now like to turn the presentation over to your host for today’s conference Ms. Mary Ann Jackson. Please proceed ma’am.

Mary Ann Jackson

Thanks, Francine. Good morning and welcome to the Apogee Enterprises fiscal 2009 third quarter conference call on Thursday, December 18, 2008. With us on the line today are Russ Huffer, Chairman and CEO and Jim Porter CFO. Their remarks will focus on our third quarter results and the outlook for fiscal 2009.

During the course of this conference call we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and the current economic environment and are of course, subject to risks and uncertainties which are beyond the control of management. These statements are not guarantees of future performance and actual results may differ materially.

Important risks and other important factors that could cause actual results to differ materially from those in the forward-looking statements and projections are described in the company’s Annual Report on Form 10-K for the fiscal year ended March 1, 2008 and in our earnings release issued last night and filed this morning on 8-K.

Russ will now give you a brief overview of the results and Jim will cover the financials. After they conclude, Russ and Jim will answer your questions. Russ.

Russ Huffer

Thanks, Mary Ann. Good morning and welcome to our conference call. We performed well in the third quarter delivering on a healthy backlog of architectural projects booked nine to 12 months ago when our markets were strong. The projects generally had good pricing in margins as is evident from our results.

Our large scale optical segment also had a high mix of its best value-added glass and acrylic framing products. This performance is indicative of what we can do when the economy and commercial construction are growing.

Although we expect future periods to be impacted way the commercial construction slowdown, we have entered the downturn with a very strong balance sheet. We are generating significant positive cash flow. Our long-term debt has declined to less than $30 million and we have a strong bank facility with available capacity.

Revenues were up 14% in the quarter and operating income increased 111% compared to the prior year. Earnings were $0.63 per share, up from $0.26 per share last year. We had several adjustments in the current quarter as well as in the prior year period. I will highlight some of them in my comments.

Architectural segment revenues grew 16%, with growth coming from our architectural glass, storefront and entrance and installation businesses. We acquired the storefront and the entrance business last December and continue to be pleased with their performance.

Architectural segment operating income was $19.6 million, compared to $7.7 million in the prior year period. The segment operating margin was 9%. This compares to 4.1% in the prior year period when we had write downs on three Florida glass installation projects. Excluding the prior year write downs, the operating margin would have been 7.5% in last year’s third quarter.

In the current quarter, as we had anticipated, overall installation project margins continue to increase as we saw continued solid execution by the team on work flowing through backlog. In addition, production in our architectural glass business improved to expected operating levels. The second quarter has been impacted by production challenges in this business which was successfully resolved midway through the third quarter.

Backlog declined to $373.2 million, compared to $456.7 million in the prior year period and $446.7 million at the end of the second quarter. Project delays and cancellations and slow bid-to-award timing which is extending beyond the normal nine to 12 months are impacting backlog levels, despite strong bidding activity and the green building trend which we believe is increasing demand for our energy efficient glass products.

Large scale optical segment operating earnings grew 43% on a 2% revenue decline. A higher mix of our best value added products, more than offset weak market conditions for picture framing.

Early in the quarter we concluded the sale of our 34% interest in the PPG Auto Glass LLC joint venture reported in equity and affiliates. Our strategic exit as the auto replacement glass industry yielded proceeds of $27.1 million in cash.

Our quarterly results also reflected long term executive compensation adjustments which added $0.06 per share. As the outlook for our markets and business near term has declined, we have projected lower payouts of stock based long term incentives.

Next I’ll cover our outlook. Our fiscal 2009 guidance for earnings from continuing operations remains at $1.65 to $1.82 per share. This outlook includes declines in revenues and earnings per share in the fourth quarter compared to the prior year, as we experienced the first full quarterly impact of the commercial construction slowdown. Despite the anticipated fourth quarter declines, we expect to complete fiscal 2009 with record revenues and earnings.

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