Exhibit 99
LITIGATION REFORM ACT OF 1995
CAUTIONARY STATEMENTS
---------------------
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 first quarter fiscal 2000 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 two segments, each serving different markets.
The Glass Technologies segment (GT) serves the high-performance
architectural glass, custom window and wall systems, computer, optical imaging
and picture framing glass industries, which are very competitive, highly
responsive to new products and price sensitive. Further, the products offered by
Viracon and Wausau are affected by changes in the commercial construction
industry and in general economic conditions. The companies of this segment have
been solidly profitable with growing revenues. There can be no assurance the
current growth experience by the segment will continue or that the introduction
of new products or competitors will not significantly change market conditions.
The Glass Services segment (GS) serves the repair and replacement auto
glass market which tends to be cyclical in nature and is influenced by a variety
of factors, including new car sales, speed limits, road conditions, the economy,
weather 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. As a result, margins have narrowed at the retail level and, to a
lesser extent, at wholesale and manufacturing levels. There can be no assurance
that the Company will be able to improve or maintain its margins or that it will
be selected by insurance companies as a provider of replacement and repair auto
glass on a regional or national basis.
Competitive Environment
The Company's business segments operate in industries that are highly
competitive and that, other than the industry in which GT's Viratec Thin Films
unit competes, are fairly mature. In addition, the barriers to entry for
several of these industries are not significant. Therefore, the Company expects
its markets to remain highly competitive. The Company faces competition from
other major contractors, subcontractors, manufacturers, fabricators,
wholesalers, retailers and installers in each of its markets, certain of which
may have greater financial or other resources than the Company.
The Glass Technologies segment competes 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 this segment are also characterized by frequent refinement and
enhancement, new product introductions and by declining average selling prices
over product life cycles.
1
The Company's Wausau 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 Glass Services 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.
Year 2000 Issue
The Company is reviewing the potential impact of the "Year 2000" date
change which involves the inability of certain software and hardware systems to
properly recognize and process date information relating to the Year 2000. The
Company has assigned a team to evaluate the nature and extent of the work
required to make the Company's systems, products and infrastructure Year 2000
compliant. A number of existing systems projects are either underway or under
review within the Company's various business units to incorporate Year 2000
compliance. The Company continues to evaluate efforts to ensure that such
systems, products and infrastructure are Year 2000 compliant. While these on-
going efforts will involve additional costs, the Company believes, based on
available information, that it is and will continue to effectively manage the
Year 2000 transition without any material adverse effect on the Company's
business, results of operations or financial condition. Notwithstanding the
foregoing, there can be no guarantee that the Company's efforts will completely
mitigate the Year 2000 issue.
In addition to issues relating to internal Year 2000 compliance, the
Company is dependent upon third party suppliers and large customers to remedy
their own Year 2000 problems. There can be no guarantee that the systems of
other companies on which the Company's systems rely will be timely converted, or
that failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company.
Planned Capital expenditures (GT Segment)
The GT's segment's continued growth depends to a significant degree on its
ability to expand its production facilities and to minimize the disruption
caused by this expansion. In response to continued strong demand for the GT
segment's high-performance architectural glass products, the Company in fiscal
1999 undertook a capital investment program, the primary purpose of which is to
increase production capacity and productivity of its GT segment. Pursuant to
this plan, the segment's Viracon unit completed construction of a new
architectural glass fabrication complex in Statesboro, Georgia, the Tru Vue unit
expected to move to a new facility in the spring of 1999, and Viratec's Optium
line moved in fiscal 1999 to a location closer to the flow of customers'
computer monitor supply chains. The Company believes that completion of these
expansion plans on time and within budget will be important in enabling the GT
segment to continue to satisfy the demand for its 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 will
produce the improved operating and financial results expected by the Company.
Consolidation of Auto Glass Installation Industry (GS Segment)
2
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. During fiscal 1998, the auto glass
installation industry's two largest companies merged, resulting in a company
with more than 20% of the U.S. auto glass installation market. While this merger
resulted in the Company's GS segment becoming the second largest repair and
replacement auto glass company, it created a stronger competitor for GS and may
precipitate further industry consolidation. If the Company's GS segment is
unable to grow quickly enough, whether internally or through acquisitions, it
may not be able to remain a viable competitor in this industry. Further, the
consolidation of this industry may change the scope of services traditionally
offered by auto glass providers. For example, this consolidation may result in
insurance companies requiring auto glass providers (1) to offer a broader array
of claims management services such as standardized reporting of replacement
claims or (2) to provide collision repair services and process collision claims
for types of automotive repairs traditionally served by autobody companies. The
failure by the GS 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.
Dependence on Certain Customers; Claims Management (GS Segment)
During fiscal 1998, the GS segment's five largest customers accounted for
approximately 20% of such segment's sales. No customer accounted for more than
10% of the GS segment's sales during fiscal 1998. The Company is highly
dependent on recurring revenues generated by the GS segment's insurance company
customers and could be adversely affected by changes in such insurance
companies' policies concerning coverage for auto glass repair and replacement
claims. Failure by insurance companies to cover auto glass repair and
replacement claims or the imposition of increased deductibles with respect to
coverage of such claims could significantly reduce the GS segment's sales
generated through its insurance company customers. Many of the GS segment's
arrangements and relationship with its insurance company customers are not
evidenced by written contracts and are therefore terminable at any time. A
significant decrease in business from the GS segment's insurance company
customers would have a material adverse effect on the GS segment's operations
and, therefore, could have a material adverse effect on the Company's business,
financial condition or results of operations.
Further, the repair and replacement auto glass industry'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.
As a result, the ability of auto glass service providers to handle insurance
company claims quickly and efficiently is becoming more and more important in
the auto glass business. If the GS segment is unable to provide competitive
claims management service to its insurance company customers, it could have a
material adverse effect on the GS segment's operations and, therefore, could
have a material adverse effect on the Company's business, financial condition or
results of operations.
Government Regulation (GS Segment)
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 GS segment does not enter into arrangements with insurance
companies pursuant to which such insurance companies require policyholders to
use the GS 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 (GS Segment)
The severity of weather has historically affected the GS 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 GS segment's results of operations.
3