Apogee: Harmon deal to save $30 million in annual leases

Selling the Harmon Auto Glass retail operation will help parent Apogee Enterprises say goodbye to lackluster profits and $30 million in annual leases without sacrificing revenue from making windshields for its joint-venture partner, PPG Auto Glass, company officials said Thursday.

Apogee announced plans to sell the Harmon AutoGlass service division late Wednesday after the market close.Russ Huffer, CEO of the Bloomington-based company, told analysts Thursday morning that the investment community has been suggesting this divestiture for some time, he said.

Investors appeared to welcome the news. Apogee shares closed Thursday at $11.79, up 49 cents.

To date, Apogee has invested $13 million to $14 million in the auto-glass unit, said CFO Mike Clauer. The auto-glass business formed the original basis for the company.

Harmon has struggled with price competition and suffered earnings drops of 50 to 60 percent for several quarters. With the sale, Apogee will take a $6 million to $10 million charge this year but gain in other ways, officials said.

"One thing to remember on the retail auto-glass business is that it appears to be a low-net investment, but we have an annual operating lease expenses in excess of $30 million," Clauer said. "So we will see some other significant changes in our financial position from the position that we will no longer have that high operating lease cost. . . . For the full year, we actually anticipate the transaction will be cash-positive to Apogee."

Apogee's 34 percent stake in windshield firm PPG Auto Glass will remain in place after the sale. Officials said they expect the sale of the Harmon retail unit to benefit the joint venture because a new owner probably will "enhance" the retail service chain, creating more sales outlets. Nearly all of the windshields Apogee makes are sold through PPG, Huffer said.

Huffer told analysts that Apogee is in talks with several potential buyers. Lazard Freres & Co. has been hired to find a buyer and complete the transaction by Feb. 28.

Huffer said the intention is for Apogee to shift its emphasis to the more profitable architectural, large-scale optical and picture-framing glass fabrication and services.

He added that the company has been heartened by the latest projections for the construction industry, which had suffered a slowdown as office-vacancy rates rose during the recession.

Apogee, which specializes in making thick laminated-glass windows for buildings, was helped by a post-9/11 surge in demand for blast-resistant glass.

"Market indicators are looking more positive than they have for some time" for commercial construction, Huffer said.

600450 Apogee: Harmon deal to save $30 million in annual leases glassonweb.com
Date: 15 September 2003
Source: Startribune.com

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