Exhibit 99
LITIGATION REFORM ACT OF 1995
CAUTIONARY STATEMENTS
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The following discussion contains certain cautionary statements regarding
Apogee's business and results of operations, which should be considered by
investors and others. These statements discuss matters, which may in part be
discussed elsewhere in this Form 10-K, and which may have been discussed in
other documents prepared by the Company pursuant to federal securities laws.
This discussion is intended to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. The following factors
should be considered in conjunction with any discussion of operations or results
by the Company or its representatives, including any forward-looking discussion,
as well as comments contained in press releases, presentations to securities
analysts or investors, or other communications by the Company.
In making these statements, the Company is not undertaking to address or update
each factor in future filings or communications regarding the Company's business
or results, and is not undertaking to address how any of these factors may have
caused changes to discussions or information contained in previous filings or
communications. In addition, any of the matters discussed below may have
affected Apogee's past results and may affect future results, so that the
Company's actual results for fiscal 2002 and beyond may differ materially from
those expressed in prior communications. Though the Company has attempted to
list comprehensively these important cautionary factors, the Company wishes to
caution investors and others that other factors may in the future prove to be
important in affecting the Company's business or results of operations.
Industry Conditions
The Company is divided into three segments, each serving different markets.
The Architectural Products and Services (Architectural) segment's companies
design, engineer, fabricate and install the walls of glass and windows
comprising the outside skin of commercial and institutional buildings. The
markets that these businesses serve are very competitive, price sensitive and
affected by changes in the commercial construction industry as well as general,
economic conditions. The companies of this segment have been, in general,
profitable, with growing revenues. There can be no assurance the growth
experienced by the segment will continue or that competitors or the economic
environment will not significantly change market conditions.
The Large-Scale Optical Technologies (LSO) segment's companies develop and
produce high technology glass that enhances the visual performance of products
for display, imaging and picture framing industries. The markets that these
businesses serve are very competitive, highly responsive to new products and
price sensitive. The revenue growth of the companies in this segment have been,
in general, increasing steadily while profitability has not been consistent with
that growth. There can be no assurance the revenue growth experienced by the
segment will continue or that the profitability pattern will change.
Additionally, there can be no assurance that the introduction of new products or
competitors will not significantly change market conditions.
The Automotive Replacement Glass and Services (Auto Glass) segment's companies
fabricate, repair and replace automobile windshields and windows. The market
that these businesses serve tends to be cyclical in nature and is influenced by
a variety of factors, including weather, new car sales, speed limits, road
conditions, the economy and average annual number of miles driven. This market's
pricing structure has changed significantly in recent years as insurance
companies seek volume pricing at discounted rates from historical levels and
attempt to enter into preferred or exclusive provider arrangements with a
limited number of providers. Consequently, revenues have decreased and margins
have narrowed at the retail and manufacturing levels, in which the Auto Glass
segment operates. There can be no assurance that the Company will be able to
increase revenues or to improve or maintain its margins, whether through
improved pricing conditions or cost-savings, or that it will continue to be
selected by insurance companies as a provider of replacement and repair auto
glass on a regional or national basis on acceptable terms and conditions.
Competitive Environment
The Company's business segments operate in industries that are highly
competitive and, other than the industries in which the LSO's units compete, are
fairly mature. The barriers to entry are not significant for many of the markets
the Company serves, specifically in the Auto Glass segment and glass
installation business. Therefore, the Company expects its markets to remain
highly competitive. The Company faces competition from other major contractors,
subcontractors, manufacturers,
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fabricators, wholesalers, retailers and installers in each of its markets,
certain of which competitors have greater financial or other resources than the
Company.
The businesses in the Architectural and LSO segments compete with several large
integrated glass manufacturers and numerous smaller specialty fabricators.
Product pricing and service are the primary competitive factors in this market.
The markets for the products of the LSO segment are also characterized by
frequent refinement and enhancement, new product introductions and declining
average selling prices over product life cycles. These factors require the
Company to seek improvement in its manufacturing processes on a continuous
basis, as well as to innovate with respect to new or improved products. There
can be no assurance that the Company will be able to meet such requirements. In
addition, such requirements may generate a continual need for new investments,
as to which there can be no assurance the Company can obtain the necessary
investment resources and, if obtained, that such investment will produce
appropriate returns.
The Architectural segment's Wausau Window & Wall Systems unit competes against
several major aluminum window manufacturers. Wausau primarily serves the custom
portion of this market in which the primary competitive factors are product
quality, reliable service and the ability to provide technical engineering and
design services.
The Auto Glass segment competes with other auto glass shops, glass distributors,
car dealers, body shops and fabrication facilities on the basis of pricing,
national coverage and customer service. Its competition consists of national and
regional chains as well as significant local competition.
There can be no assurance that the Company will continue to be able to compete
effectively in its markets.
Discontinued International Curtainwall Operations
During fiscal 1998, the Company made the strategic decision to close or exit its
European and Asian international curtainwall operations in order to focus more
selectively on higher-margin domestic curtainwall business. As a result of such
restructuring, the Company recorded nonrecurring pre-tax charges of $26.0
million and $35.9 million in the third and fourth quarters of fiscal 1998,
respectively. While the Company believes these restructuring charges are
adequate to cover all expenses the Company has incurred or will incur in order
to close or exit such operations, there can be no assurance given that
additional charges will not be required to be made in future periods. The
Company faces related risks and uncertainties, including the inability to
effectively manage restructured business units and the inability to effectively
manage costs or difficulties related to the operation of the businesses or
execution of restructuring or exit activities. The occurrence of one or more of
such events may have a material adverse effect on the business, financial
condition or results of operations of the Company.
Capital Expenditures/Facility Utilization
The Architectural segment's continued growth depends, to a significant degree,
on its ability to increase capacity utilization at these facilities. In response
to continued strong demand for the segment's high-performance architectural
glass products, the Company, in fiscal 1999, undertook a capital investment
program, the primary purpose of which was to increase production capacity and
productivity of its Viracon business unit. Pursuant to this plan, the Viracon
unit completed construction in fiscal 2000 of a new architectural glass
fabrication complex in Statesboro, Georgia.
Additionally, the LSO segment's growth is also dependent on its ability to
expand its production facilities and fully utilize these expanded facilities.
LSO's unit, Tru Vue, completed construction of a new facility in the first
quarter of fiscal 2000 and in fiscal 2001, purchased two manufacturers to expand
its pre-framed art business. The segment's Viratec unit installed a new,
large-scale flat-glass coating line that went on line in late fiscal 2000.
During fiscal 1999, the Viratec unit moved its Optium line to San Diego, a
location closer to the flow of customers' computer monitor supply chains. During
fiscal 2001, the Company was notified that this facility's primary customer
planned to relocate its computer monitor facility, eliminating the need for the
Company's facility. The Company accrued expenses associated with the shut down
of this facility in fiscal 2001.
The Company believes, although these ramp-ups and acquisitions have been
completed, that the continued utilization of these facilities will be important
in enabling the Architectural and LSO segments to continue to satisfy the demand
for their products and services. Although the Company believes it has the
capital and managerial resources to execute these plans, there can be no
assurance that the planned expansions and acquisitions will produce the improved
operating and financial results expected by the Company. Additionally, there are
no assurances that the shut down of the Viratec San Diego facility will not
result in an additional charge to earnings.
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Consolidation of Auto Glass Installation Industry
The auto glass installation industry is consolidating in response to insurance
companies' growing preference to interact with only a few major providers that
are capable of offering efficient claims management services throughout a large
geographic region. Due to an industry merger in 1997, Auto Glass became the
second largest company in the auto glass repair and replacement industry. During
fiscal 2001, the Company and PPG combined their U.S. automotive replacement
businesses into a newly formed entity, PPG Auto Glass, LLC, of which the Company
maintains a 34% ownership interest. The Company expects further industry
consolidation in the auto glass retail and wholesales businesses. The Auto Glass
segment has also initiated several cost savings initiatives over the past three
fiscal years to lessen the impact of reduced margins on the operating results of
the Company.
There is no assurance PPG Auto Glass will achieve any anticipated efficiencies
or be able to improve or maintain margins. Additionally, if the Auto Glass
segment is unable to control costs while providing required services to the
insurance market, it may not be able to remain a viable competitor in this
industry. The failure by the Auto Glass segment to timely respond to such
changes could have a material adverse effect on its, and the Company's,
business, financial condition or results of operations.
Government Regulation
Many states have statutes or regulations prohibiting certain referral practices
by insurers. Approximately 30 states currently have statutes or regulations that
prohibit an insurance company from requiring a policyholder to use a particular
vendor. In addition, new laws or regulations relating to the referral practices
of insurance companies may be adopted in these or other states. The Auto Glass
segment does not enter into arrangements with insurance companies pursuant to
which such insurance companies require policyholders to use the Auto Glass
segment for auto glass replacement or repair services. Although the Company does
not believe that existing government regulation of insurance company referral
practices will have a material adverse effect on the Company, no assurance can
be given that future regulation of such referral practices will not have a
material adverse effect on its, and the Company's, business, financial condition
or results of operations.
Effect of Weather Conditions
The severity of weather has historically affected the Auto Glass segment's sales
and operating income, with severe weather generating increased sales and income
and mild weather resulting in lower sales and income. Accordingly, mild weather
conditions may adversely affect the Auto Glass segment's results of operations.
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