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
statements", as well as comments contained in press releases, presentations to
securities analysts or investors, or other communications by the Company.
This discussion contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements reflect the
Company's current views with respect to future events and financial performance.
The words "believe," "expect," "anticipate," "intend," "estimate," "forecast,"
"project," "should" and similar expressions are intended to identify "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. All forecasts and projections in this document are "forward-
looking statements," and are based on management's current expectations or
beliefs of the Company's near-term results, based on current information
available pertaining to the Company, including the risk factors noted below. The
Company wishes to caution investors that any forward-looking statements made by
or on behalf of the Company are subject to uncertainties and other factors that
could cause actual results to differ materially from such statements. These
uncertainties and other risk factors include, but are not limited to, those
noted below.
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 2003 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.
Operational Risks
Architectural Products and Services (Architectural)
The Architectural companies design, engineer, fabricate, install, service and
renovate the walls of glass and windows comprising the outside skin of
commercial and institutional buildings. The companies of this segment have been,
in general, profitable, with modestly growing revenues. There can be no
assurance the growth experienced by the segment will continue or that the
segment will continue to be profitable.
Competitive Factors - The markets that these businesses serve are very
competitive, price sensitive, and are impacted by changes in the commercial
construction industry as well as general, economic conditions. These businesses
compete with several large integrated glass manufacturers and numerous
specialty, architectural glass fabricators. Competitors also include major
contractors, subcontractors, and manufacturers, many of which may have greater
financial or other resources than the Company. Product capabilities, pricing,
service and product lead-times are the primary competitive factors in this
market. Changes in our competitor's products, prices, or services could
negatively impact our ability to increase revenues, maintain our margins, and
increase our market share. Additionally, economic conditions and the cyclical
nature of the commercial construction industry could have a major impact on the
amount of profitability of these businesses. Given the recent slowdown in the
economy and the fact that there is traditionally a lag as it affects the
construction industry, there is a risk that the economic conditions will
adversely impact the construction market.
Quality Factors - We manufacture or install products based on specific
requirements of each of our customers. We believe that future orders of our
products or services will depend on our ability to maintain the performance,
reliability and quality standards required by our customers. If our products or
services have performance, reliability or quality problems, we may experience
delays in the collection of accounts receivables, higher manufacturing or
installation costs, additional warranty and service expenses, and reduced,
cancelled, or discontinued orders. Additionally, performance, reliability, or
quality claims from our customers, with or without merit, could result in costly
and time-consuming litigation that could require significant time and attention
of management and involve significant monetary damages.
Facility Utilization Factors - The Architectural segment's continued near-term
growth depends, to a significant degree, on its ability to increase capacity
utilization at its production facilities. The failure to have sufficient
capacity, to fully utilize capacity when needed or to successfully integrate and
manage additional capacity in the future could adversely affect our
relationships with customers and cause customers to buy similar products from
our competitors if we are unable to meet their needs.
Large-Scale Optical Technologies (LSO)
The LSO companies develop and produce applications that enhance the visual
performance of products for display, imaging, and picture framing industries.
The revenue and profitability of the companies in this segment has been
inconsistent from year to year. There can be no assurance this revenue and
profitability pattern experienced by the segment will change in the near future.
New Product Introduction Factors - The markets for the products of this segment
are characterized by frequent refinement and enhancement, new product
introductions, short product life cycles, price sensitivity, and declining
average selling prices over product life cycles. These factors require the
Company to seek improvement and modifications in its manufacturing processes on
a continuous basis to reduce costs, as well as to innovate with respect to new
or improved products for its proprietary coatings to replace lost CRT display
revenues. There can be no assurance that the Company will be able to meet such
requirements. Additionally, there can be no assurance that the introduction of
new products by third parties will not significantly change market conditions
and product requirements.
Competitive Factors - The market for each of our products is intensely
competitive and we expect competition to increase in the future. Competitors
vary in size and scope and in the breadth of the products they offer. We
compete both with companies using technology similar to ours and companies using
other technologies or developing improved or alternative technologies. Many of
our current and potential competitors have significantly greater financial,
technical, and marketing resources than we have. In addition, many of our
competitors have well-established relationships with our current and expected
future customers and are capable of creating products that compete with our
products.
Cyclical Factors - Our businesses in this segment depend, in part, on sales by
manufacturers of products that include CRT displays and the retail picture
framing market. These markets are highly cyclical and have experienced periods
of oversupply resulting in reduced demand for our products. These businesses
were significantly impacted by the economic slowdown in fiscal 2002, and we do
not expect revenues from coating CRT displays to return to past levels. If
these markets do not recover from the recent economic slowdown or experience
further slowdowns in the future, it could cause revenues and operating income to
decrease further.
Customer Dependency Factors - We have a high dependency on a relatively small
number of customers for our sales. We continue to expect to derive a
significant portion of our net sales from this small number of customers.
Accordingly, a loss of a large customer could materially reduce LSO revenues and
operating results in any one year. With the closure of the San Diego facility
in the first quarter of fiscal 2002, a large portion of LSO revenue was lost in
the current year.
Facility Utilization Factors - Additionally, the LSO segment's growth is also
dependent on its ability to utilize recently expanded facilities and to execute
its recent acquisition strategy. LSO's retail picture framing unit completed
construction of a new facility in the first quarter of fiscal 2000. In fiscal
2002 and fiscal 2001, this unit also purchased three 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. The segment was
unable to fully execute on either strategy during fiscal 2002 because of market-
driven volume reductions. There are no assurances that the volume will increase
or that the Company will be successful initiating its LSO strategies.
Automotive Replacement Glass and Services (Auto Glass)
These companies fabricate, repair, and replace automobile windshields and
windows.
Changes in Market Dynamics - 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 declined dramatically and margins have narrowed at
the retail, wholesale and manufacturing levels, in which the Auto Glass segment
operates. There can be no assurance that the Company will be able to increase
market share, 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.
Seasonality Factors - The market that these businesses serve tends to be
seasonal 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. Our revenues from this segment are historically highest
during the first and second quarters, with first and second quarter revenues at
26% and 29% of full year revenues, respectively, followed by third and fourth
quarter revenues at 23% and 22%, respectively. We expect this seasonality in the
demand for our products to continue into the future.
Competitive Factors - The Auto Glass segment operates in an industry that is
highly competitive, fairly mature, and where the barriers to entry are not
significant. 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. The
introduction of imported auto glass from China has increased the competitiveness
of the market by driving pricing down further. The Auto Glass segment has
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.
Due to the above items, we expect this market to remain highly competitive for
the foreseeable future and make no assurances that we will be able to grow
market share or improve profitability.
Joint Venture Factors - During fiscal 2001, the Company and PPG Industries, Inc.
(PPG) combined their U.S. automotive glass replacement distribution businesses
into a newly formed entity, PPG Auto Glass, LLC (PPG Auto Glass), of which the
Company maintains a 34% ownership interest. As a result of this transaction,
the Company's windshield manufacturing facility sells nearly all of its capacity
to PPG. Similarly, the Company's retail unit is committed to 75% of its
replacement windshields from PPG Auto Glass. The Company expects further
industry consolidation in the auto glass retail and wholesale businesses.
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.
Financial Risks
Our quarterly revenue and operating results are volatile and difficult to
predict. Our revenue and operating results may fall below expectations of
securities analysts or investors in future periods. Our quarterly revenue and
operating results may vary dependent on a number of factors, including, but not
limited to: fluctuating customer demand due to delay or timing of shipments,
changes in product mix, or market acceptance of new products; manufacturing or
operational difficulties that may arise due to quality control, capacity
utilization of our production equipment, or staffing requirements; competition,
including the introduction of new products by competitors, adoption of
competitive technologies by our customers, and competitive pressures on prices
of our product and services. Our failure to meet revenue and operating results
expectations would likely adversely affect the market price of our common stock.
Self-Insurance Risk
We obtain substantial amounts of commercial insurance for potential losses for
general liability, workers' compensation and automobile liability risk.
However, an amount of risk is retained on a self-insured basis through a wholly
owned insurance subsidiary. Effective for fiscal 2003, we experienced a
material increase in our risk retention for our third-party product liability
and general liability coverages. A material product liability event would have
a material adverse effect on our operating results.
Environmental Regulation Risks
We use hazardous chemicals in producing products at two facilities (one in our
Architectural segment and one in our LSO segment). As a result, we are subject
to a variety of local, state, and federal governmental regulations relating to
storage, discharge, handling, emission, generation, and disposal of toxic or
other hazardous substances used to manufacture our products, compliance of which
is expensive. Our failure to comply with current or future regulations could
result in the imposition of substantial fines on us, suspension of production,
alteration of our manufacturing processes, or increased costs.
Discontinued 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. During fiscal 1999,
the
Company decided to sell its domestic curtainwall operation and focus on
manufacturing rather than large-scale installations. The Company maintains risks
associated with closing the domestic and international operations from
performance bonds it established with its customers and remaining warranty
coverages that exist on completed projects. In addition, 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 Company also maintains foreign currency
risk, in that unknown international exposures that might become payable in
foreign currencies are not hedged. 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.