Apogee Enterprises releases fiscal 2003 figures compared to fiscal 2002

Consolidated net sales decreased 4 percent in fiscal 2003 to $771.8 million from $802.3 million in fiscal 2002. The net decrease is attributable to volume reductions and lower pricing due to competitive pressures in the Auto Glass segment and a slowdown in the commercial construction industry affecting the Architectural segment. These reductions were partially offset by revenue gains in the LSO segment from new product introductions and conversions of value-added picture-framing glass. On a consolidated basis, cost of sales, as a percentage of net sales, fell to 75.9 percent for fiscal 2003, improving from 76.6 percent in fiscal 2002. The primary factors for the increased margins were from efficiencies gained as a result of the higher levels of capacity utilization in our LSO segment as well as efficiency gains and sales of higher-margin products in the Architectural segment. The combined impact of these items increased margins by 1.7 percent. This improvement was offset by price declines for the entire Auto Glass segment and reduced operating performance in our auto glass retail business. Selling, general and administrative (SG&A) expenses, as a percentage of sales, increased to 18.7 percent from 17.9 percent, but the expenses remained essentially flat year-over-year at $144.4 million versus $143.6 million in fiscal 2002. Increases in marketing and advertising costs related to the Auto Glass segment windshield repair initiative and the Architectural segment renovation initiative were offset by reductions in salaries and related costs in the Architectural and Auto Glass segments as a result of reducing the overall cost structure. Decreased performance-based incentive expenses, lower training costs, gain on sale of assets and lower bad debt expenses also contributed to offset these higher expenses. Net interest expense decreased to $3.5 million for fiscal 2003 from $5.3 million in fiscal 2002, reflecting lower borrowing levels and a lower weighted-average interest rate under our revolving credit agreement. The effects of the lower borrowing levels and rate were offset by less interest collected from tax refunds received during the year in comparison to the prior year. Other income in fiscal 2003 reflects $1.0 million pretax benefit of realized gains on the sale of investments held for our self-insurance program as compared to $0.1 million in the prior year. The increased gains in the current year reflect a significant sale of marketable securities. As part of normal investment portfolio management, the Company’s wholly owned insurance subsidiary sold appreciated marketable debt securities, creating this gain. Our equity in loss from affiliated companies was $2.5 million in fiscal 2003 versus equity in loss of $1.0 million in the prior year. This additional loss is related to a decline in the performance of the PPG Auto Glass joint venture as a result of very competitive and reduced prices in the auto glass industry. Additionally, amendments made to supply agreements related to the PPG Auto Glass joint venture in the prior year second quarter led to lower earnings during the current year for PPG Auto Glass and increased Table of Contents earnings for the Auto Glass segment in the amount of $2.1 million. These declines were partially offset by elimination of funding for the TerraSun joint venture, which was shut down during the third quarter of fiscal 2002. Our effective income tax rate of 28.0 percent of pre-tax earnings from continuing operations decreased from the 31.0 percent of pre-tax earnings from continuing operations reported in fiscal 2002. This reduction was due to the donation of the TerraSun patented technology to the Illinois Institute of Technology (IIT) in the fourth quarter of fiscal 2003, which resulted in a significant deduction that reduced the current year rate in comparison to the prior year. Our fiscal 2003 earnings from continuing operations increased to $26.3 million or $0.93 diluted earnings per share. This compared to earnings from continuing operations of $26.1 million, or $0.91 diluted earnings per share, a year earlier. The increase in earnings is largely attributable to the revenue and productivity gains within our LSO segment, the elimination of goodwill amortization and reduced interest and taxes, offset by declines for our Architectural and Auto Glass segments and losses from our affiliated companies. Current year income from discontinued operations resulted from a reduction in our estimates of the ultimate liabilities for the discontinued European curtainwall operation. This caused our net income in the fourth quarter to increase by $3.6 million, or $0.13 diluted earnings per share. We did not recognize earnings from operations of discontinued businesses in fiscal 2002. Our fiscal 2003 net earnings were $29.9 million, or $1.06 diluted earnings per share. This compared to $26.1 million of net earnings, or $0.91 diluted earnings per share, a year ago. Architectural net sales for fiscal 2003 decreased 4 percent to $458.8 million from $479.4 million in fiscal 2002. The decrease is due to the effects of the slowed economy on the North American commercial construction industry, and to delays in construction project timing. The impact of these items resulted in lower sales for most of our Architectural business units. This segment’s revenue decline was partially offset by an increase in institutional projects and revenues earned on renovation projects. Operating income for the segment in fiscal 2003 decreased 7 percent to $32.1 million from $34.4 million in the prior year. Operating margin decreased to 7.0 percent for fiscal 2003 from 7.2 percent in fiscal 2002. The majority of the decline in operating income was due to excess capacity associated with the revenue decline. We took actions in the latter part of the fourth quarter and early part of the first quarter of fiscal 2004 to lower the cost structure to reflect the current market outlook. Additionally, the level of institutional projects, which have lower margins, increased in fiscal 2003, and we expect this project mix to continue in fiscal 2004. The margin decline was partially offset by manufacturing efficiencies in our glass and window fabricating business units. The segment’s depreciation and amortization is down slightly in comparison to the prior year as a result of our adoption of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, which eliminated amortization of goodwill for fiscal 2003. The fiscal 2002 amortization of goodwill at the Architectural segment was $0.5 million. Capital expenditures rose slightly year-over-year as the segment invested in more production equipment to increase capacity compared to the prior year. Total assets at the end of fiscal 2003 decreased compared to those at the end of fiscal 2002 as a result of reduced receivables and inventories. Automotive Replacement Glass and Services Auto Glass net sales decreased 9 percent to $233.4 million in fiscal 2003. The decrease was primarily due to lower prices as a result of competitive pricing pressures in our retail and manufacturing business units along with a change in the product mix of business in retail to a higher level of fleet sales. The average price in our retail business has declined by more than 5 percent for the current year in comparison to fiscal 2002. Our unit volume remained relatively consistent with the prior year, with declines in the first half of the year followed by improvements in year-over-year volumes in the second half. Market data indicates that unit demand for replacement auto glass in the U.S. decreased 5 percent during fiscal 2003. Auto Glass operating income decreased to $7.9 million in fiscal 2003 from operating income of $16.1 million in fiscal 2002 due to a combination of pricing declines in the retail and manufacturing businesses and operational inefficiencies within our retail business. These items were partially offset by cost reductions implemented late in fiscal 2003 in our retail business and operational improvements within our manufacturing business unit as well as gains from the sale of real estate. The segment continues to pursue opportunities to increase utilization and improve efficiencies to offset the tough industry conditions and pricing pressures. Depreciation and amortization decreased to $5.1 million for fiscal 2003 from $6.5 million for the prior year. This is the result of the elimination of goodwill amortization of $0.4 million and certain significant computer hardware and software applications becoming fully depreciated during fiscal 2002. Capital expenditures for fiscal year 2003 were $2.0 million compared to $3.1 million in fiscal 2002 as we focused on utilizing the assets already deployed. Total assets decreased to $72.2 million at the end of fiscal 2003 from $84.5 million at the end of fiscal 2002 as a result of selling certain non-core business assets in fiscal 2003. In addition, there were declines in working capital due to reductions of receivables in the retail business because of efforts to reduce our overall investment. Large-Scale Optical Technologies LSO net sales of $79.7 million increased 18 percent over fiscal 2002 and operating income improved from a loss of $4.4 million to income of $3.7 million in fiscal 2003. These increases were the result of several successful new product introductions, particularly in applying coatings to acrylic, and continued conversions and wider distribution of value-added picture-framing glass. Also contributing were improvements in key consumer electronics and retail framing markets. In addition, operational improvements from the company-wide six sigma effort improved operating margins for the segment. Depreciation and amortization decreased to $2.4 million for fiscal 2003 from $3.3 million for the prior year due to the implementation of SFAS No. 142 which eliminated goodwill amortization of $0.6 million. Capital expenditures for fiscal year 2003 were $0.8 million compared to $2.2 million in fiscal 2002 as we focused on utilizing the assets already deployed. Total assets decreased to $51.4 million at the end of fiscal 2003 from $53.8 million at the end of fiscal 2002 due to an overall reduction in working capital requirements. Full figures available at: [url]http://biz.yahoo.com/e/030509/apog10-k.html[/url]