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For the quarterly period ended June 3, 2017

For the transition period from             to             

Commission File Number: 0-6365

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(Exact name of registrant as specified in its charter)

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Registrant's telephone number, including area code: (952) 835-1874

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x   Yes     o   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      x   Yes     o   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     o   Yes     x   No

As of July 11, 2017, 28,848,271 shares of the registrant's common stock, par value $0.33 1/3 per share, were outstanding.

APOGEE ENTERPRISES, INC. AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS

(unaudited)

CONSOLIDATED RESULTS OF OPERATIONS

(unaudited)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(unaudited)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The consolidated financial statements of Apogee Enterprises, Inc. (we, us, our or the Company) have been prepared in accordance with accounting principles generally accepted in the United States. The information included in this Form 10-Q should be read in conjunction with the Company's Form 10-K for the year ended March 4, 2017 . We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature. The results of operations for the three -month period ended June 3, 2017 are not necessarily indicative of the results to be expected for the full year.

In connection with preparing the unaudited consolidated financial statements for the three months ended June 3, 2017 , we evaluated subsequent events for potential recognition and disclosure through the date of this filing. On June 12, 2017, we acquired 100 percent of the stock of EFCO Corporation, a privately-held U.S. manufacturer of architectural aluminum window, curtainwall, storefront and entrance systems for commercial construction projects for $192 million in cash, funded through an expansion of our existing committed revolving credit facility, also occurring after the close of the first fiscal quarter (see Note 9). Preliminary purchase accounting will be completed in the second quarter and the acquired company will be included within our Architectural Framing Systems segment. Results of operations for EFCO will be included in our consolidated financial statements from the date of acquisition.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers , which outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. Under the new standard, an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2017, our fiscal 2019. We are currently undertaking a process to quantify the impact that this standard will have on our consolidated financial statements and will provide further analysis and discussion as we progress in this quantification process. At this time:

In February 2016, the FASB issued ASU 2016-02,  Leases , which provides for comprehensive changes to lease accounting. The new standard requires that a lessee recognize a lease obligation liability and a right to use asset for virtually all leases of property, plant and equipment, subsequently amortized over the lease term. The new standard is effective for fiscal years beginning after December 15, 2018, our fiscal year 2020, with a modified retrospective transition. We are currently evaluating whether we will early adopt this standard in our fiscal year 2019 to align with the adoption of the new revenue recognition standard discussed above. The adoption of this standard will result in reflecting assets and liabilities for the value of our leased property and equipment on our consolidated balance sheet but we do not expect this guidance to have a significant impact on our consolidated results of operations

In August 2016, the FASB issued ASU 2016-15,  Statement of Cash Flows , and in November 2016, it issued 2016-18,  Restricted Cash . Both standards provide guidance for presentation of certain topics within the statement of cash flows, including presenting restricted cash within cash and cash equivalents, and are intended to improve consistency in presentation. The new classification guidance is effective for fiscal years beginning after December 15, 2017, our fiscal year 2019, and is to be applied retrospectively for comparability across all periods. These standards may be adopted early, and we are considering the timing of adoption, but we do not expect this guidance to have a significant impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04,  Simplifying the Test for Goodwill Impairment , which simplifies the accounting for goodwill impairment by requiring impairment charges to be based on the first step in the current two-step impairment test process. The new guidance eliminates the current requirement to calculate a goodwill impairment charge using step 2. The standard

is applicable to impairment tests performed in periods beginning after December 15, 2019, our fiscal 2021, with early adoption permitted. We are currently evaluating early adoption of this guidance for our future annual goodwill impairment review process.

Total share-based compensation expense included in the results of operations was $1.4 million in each of the three -month periods ended June 3, 2017 and May 28, 2016 .

Stock Options and SARs

There were no stock options or SARs issued in months of either period presented. Activity for the current period is summarized as follows:

Cash proceeds from the exercise of stock options were $0.8 million and $0.1 million for the three months ended June 3, 2017 and May 28, 2016 , respectively. The aggregate intrinsic value of securities exercised (the amount by which the stock price on the date of exercise exceeded the stock price of the award on the date of grant) was $4.8 million during the three months ended June 3, 2017 and $0.3 million during the prior-year period.

Nonvested Shares and Share Units

Nonvested share activity for the current period is summarized as follows:

At June 3, 2017 , there was $8.0 million of total unrecognized compensation cost related to nonvested share and nonvested share unit awards, which is expected to be recognized over a weighted average period of approximately 24 months. The total fair value of shares vested during the three months ended June 3, 2017 was $6.0 million .

The following table presents a reconciliation of the share amounts used in the computation of basic and diluted earnings per share:

There were no anti-dilutive stock options excluded from the calculation of earnings per share for any of the periods presented, as the average market price exceeded the exercise price of options outstanding.

Marketable securities are classified as available for sale:

We have a wholly-owned insurance subsidiary, Prism Assurance, Ltd. (Prism), which holds municipal bonds. Prism insures a portion of our general liability, workers' compensation and automobile liability risks using reinsurance agreements to meet statutory requirements. The reinsurance carrier requires Prism to maintain fixed-maturity investments, which are generally high-quality municipal bonds, for the purpose of providing collateral for Prism's obligations under the reinsurance agreement.

As of June 3, 2017 , marketable securities with a fair value of $1.2 million have been in a continuous unrealized loss position for more than 12 months with unrea lized losses of $0.1 million . We consider these unrealized losses to be temporary in nature. We intend to hold our investments until the full principal amount can be recovered, and we have the ability to do so based on other sources of liquidity. Gross realized gains and losses were not significant during the first three months of fiscal 2018 or fiscal 2017 .

The amortized cost and estimated fair values of municipal bonds at June 3, 2017 , by contractual maturity, are shown below. Expected maturities may differ from contractual maturities, as borrowers may have the right to call or prepay obligations with or without penalty.

Financial assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement: Level 1 (unadjusted quoted prices in active markets for identical assets or liabilities); Level 2 (observable market inputs, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data). We do not have any Level 3 assets or liabilities.

Cash equivalents

Fair value of money market funds was determined based on quoted prices for identical assets in active markets. Commercial paper was measured at fair value using inputs based on quoted prices for similar securities in active markets.

Short- and long-term securities

Municipal bonds were measured at fair value based on market prices from recent trades of similar securities and are classified as short-term or long-term based on maturity date.

On December 14, 2016, we acquired substantially all the assets of Sotawall, Inc. (now operating under the name Sotawall Limited or "Sotawall"). Sotawall specializes in the design, engineering, fabrication, assembly and installation of unitized curtainwall systems for industrial, commercial and institutional buildings, primarily serving the Canadian and northeastern U.S. geographic regions and is included within our Architectural Framing Systems segment. Sotawall's results of operations have been included in the consolidated financial statements and within the Architectural Framing Systems segment since the date of acquisition.

The assets and liabilities of Sotawall were recorded in the consolidated balance sheet as of the acquisition date, at their respective fair values. The purchase price allocation was completed in the current quarter reflecting subsequent working capital adjustments and final intangible asset values as follows:

No significant adjustments were made to our consolidated results of operations as a result of the completion of purchase accounting.

The following unaudited pro forma information provides the results of operations for the quarter ended May 28, 2016, as if the acquisition had been completed at the beginning of fiscal year 2017:

Unaudited pro forma information has been provided for comparative purposes only and the information does not necessarily reflect what the combined company's results of operations would have been had the acquisition occurred at the beginning of fiscal year 2017. The information does not reflect the effect of any synergies or integration costs that may result from the acquisition.

The carrying amount of goodwill attributable to each reporting segment was:

Purchase accounting related to the acquisition of Sotawall was finalized during the current quarter (see Note 8).

The gross carrying amount of other intangible assets and related accumulated amortization was:

Amortization expense on definite-lived intangible assets was $3.4 million and $0.4 million for the three -month periods ended June 3, 2017 and May 28, 2016 , respectively. The amortization expense associated with debt issue costs is included in interest expense while the remainder is in selling, general and administrative expenses in the consolidated results of operations. At June 3, 2017 , the estimated future amortization expense for definite-lived intangible assets was:

Debt, at June 3, 2017 , included $20.4 million of industrial revenue bonds that mature in fiscal years 2021 through 2043. The fair value of the industrial revenue bonds approximated carrying value at June 3, 2017 , due to the variable interest rates on these instruments. The bonds would be classified as Level 2 within the fair value hierarchy described in Note 7.

As of June 3, 2017, we maintained a $175.0 million committed revolving credit facility that matures in November 2021 . Outstanding borrowing was $51.0 million as of June 3, 2017 and $45.0 million as of March 4, 2017 . We have two financial covenants that require us to stay below a maximum debt-to-EBITDA ratio and maintain a minimum ratio of interest expense-to-EBITDA. Both ratios are computed quarterly, with EBITDA calculated on a rolling four-quarter basis. At June 3, 2017 , we were in compliance with both financial covenants. Additionally, at June 3, 2017 , we had a total of $23.5 million of ongoing letters of credit related to industrial revenue bonds and construction contracts that expire in fiscal 2018 and reduce availability of funds under our committed credit facility. Subsequent to the end of the quarter, and in connection with our subsequent acquisition of EFCO, on June 9, 2017, we expanded this committed revolving credit facility to $335.0 million . There were no significant changes to terms associated with this expansion.

We also maintain two Canadian revolving demand facilities totaling $ 12.0 million Canadian dollars. No borrowings were outstanding under these facilities as of June 3, 2017 or March 4, 2017 . Borrowings under these facilities are made available at the sole discretion of the lenders and are payable on demand.

Interest payments were $0.5 million and $0.1 million for the three months ended June 3, 2017 and May 28, 2016 , respectively.

The Company sponsors two frozen defined-benefit pension plans: an unfunded Officers' Supplemental Executive Retirement Plan and the Tubelite Inc. Hourly Employees' Pension Plan. Components of net periodic benefit cost were:

The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, Canada, Brazil and other international jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years prior to fiscal 2014, or U.S. state and local income tax examinations for years prior to fiscal 2011. The Company is not currently under U.S. federal examination for years subsequent to fiscal year 2013, and there is very limited audit activity of the Company's income tax returns in U.S. state jurisdictions or international jurisdictions.

The total liability for unrecognized tax benefits at June 3, 2017 and March 4, 2017 was approximately $4.8 million and $4.5 million , respectively. Penalties and interest related to unrecognized tax benefits are recorded in income tax expense. The total liability for unrecognized tax benefits is expected to decrease by approximately $0.5 million during the next 12 months due to lapsing of statutes.

14. Commitments and Contingent Liabilities

Operating lease commitments. As of June 3, 2017 , the Company was obligated under non-cancelable operating leases for buildings and equipment. Certain leases provide for increased rental payments based upon increases in real estate taxes or operating costs. Future minimum rental payments under non-cancelable operating leases are:

Bond commitments. In the ordinary course of business, predominantly in our Architectural Services and Architectural Framing Systems segments, we are required to provide surety or performance bonds that commit payments to our customers for any non-performance. At June 3, 2017 , $66.0 million of our backlog was bonded by performance bonds with a face value of $329.7 million . Performance bonds do not have stated expiration dates, as we are released from the bonds upon completion of the contract. We have never been required to make any payments related to these performance bonds with respect to any of our current portfolio of businesses.

Warranties. We reserve estimated exposures on known claims, as well as on a portion of anticipated claims for product warranty and rework costs based on historical product liability claims as a ratio of sales. Claim costs are deducted from the accrual when paid. Factors that could have an impact on the warranty accrual in any given period include the following: changes in manufacturing quality, shifts in product mix and any significant changes in sales volume. A warranty rollforward follows:

Letters of credit. At June 3, 2017 , we had ongoing letters of credit related to construction contracts and certain industrial revenue bonds. The total value of letters of credit under which we were obligated as of June 3, 2017 was approximately $23.5 million , all of which have been issued under our committed revolving credit facility. Availability under this credit facility is reduced by borrowings under the facility and also by letters of credit issued under the facility.

Purchase obligations. Purchase obligations for raw material commitments and capital expenditures totaled $115.5 million as of June 3, 2017 .

Litigation. We are a party to various legal proceedings incidental to our normal operating activities. In particular, like others in the construction supply and services industry, our businesses are routinely involved in various disputes and claims arising out of construction projects, sometimes involving significant monetary damages or product replacement. We are also subject to litigation arising out of general liability, employment practices, workers' compensation and automobile claims. Although it is very difficult to accurately predict the outcome of such proceedings, facts currently available indicate that no such claims will result in losses that would have a material adverse effect on our results of operations, cash flows or financial condition.

The Company has four reporting segments: Architectural Glass, Architectural Framing Systems, Architectural Services and Large-Scale Optical (LSO).

Due to the varying combinations and integration of individual window, storefront and curtainwall systems, it is impractical to report product revenues generated by class of product, beyond the segment revenues currently reported.

Forward-Looking Statements

This discussion contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect our 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 under Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended March 4, 2017 . From time to time, we may also provide oral and written forward-looking statements in other materials we release to the public, such as press releases, presentations to securities analysts or investors, or other communications by the Company. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results.

Accordingly, we wish 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, the risks and uncertainties set forth under Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended March 4, 2017 .

We wish to caution investors that other factors might in the future prove to be important in affecting the Company's results of operations. New factors emerge from time to time; it is not possible for management to predict all such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are a world leader in certain technologies involving the design and development of value-added glass products and services. Our four reporting segments are: Architectural Glass, Architectural Framing Systems, Architectural Services and Large-Scale Optical (LSO).

The following selected financial data should be read in conjunction with the Company's Form 10-K for the year ended March 4, 2017 and the consolidated financial statements, including the notes to consolidated financial statements, included therein.

Highlights of First Quarter of Fiscal 2018 Compared to First Quarter of Fiscal 2017

Net sales

Consolidated net sales increased 9.9 percent , or $ 24.4 million , for the first quarter ended June 3, 2017 , compared to the same period in the prior year. Sales growth was largely due to the additional sales from Sotawall within the Architectural Framing Systems segment. Sales also grew as a result of volume growth within two other businesses in the Architectural Framing Systems segment and volume growth with U.S. mid-size projects in the Architectural Glass segment. Foreign currency did not have a meaningful impact on sales results in the current-year period or the prior-year period.

The relationship between various components of operations, as a percentage of net sales, is illustrated below:

Gross profit

Gross profit as a percent of sales was 25.8 percent for the three -months ended June 3, 2017 , compared to 26.0 percent for the three-months ended May 28, 2016. Gross profit as a percent of sales declined by 20 basis points primarily due to a decline in sales and reduced volume leverage in the Architectural Services segment in the quarter.

Selling, general and administrative (SG&A) expenses

SG&A expenses for the first quarter of fiscal 2018 increased $8.0 million over the prior period, and were 17.0 percent of sales in the current three-month period, compared to 15.4 percent of sales in first quarter of last year. The increase in the current year was made up of approximately $4.6 million of additional expense as a result of the inclusion of Sotawall, $1.1 million of a receivable write off due to a customer bankruptcy, $0.7 million of aquisition-related costs and $1.6 million of other items.

Income tax expense

Our effective tax rate in the first quarter of fiscal 2017 was 32.9 percent , compared to 33.4 percent in the same period last year, as we have increased the portion of our earnings in international jurisdictions which have lower statutory tax rates than in the U.S.

Segment Analysis

Architectural Glass

Net sales increased $4.4 million , or 4.7 percent , for the quarter-ended June 3, 2017 over the same period in the prior year, due to success in gaining share of demand with mid-size projects in the United States. Foreign currency impact on sales was nominal in the current-year period compared to the prior-year period.

Operating margin declined 70 basis points for the three-month period this year compared to the prior year, primarily due to planned costs related to the startup of the oversize glass production line, which began operating during the period.

Given the short lead times in this segment, backlog is not considered a significant metric.

Architectural Framing Systems

Architectural Framing Systems net sales increased $29.4 million , or 36.2 percent , for the three -month period ended June 3, 2017 over the same period in the prior year, with the net sales of Sotawall, acquired in the fourth quarter of fiscal 2017, providing approximately 80 percent of the growth and two of the other framing systems businesses contributing the remaining growth.

Operating margin declined 180 basis points from the prior-year period. This reflected an impact of 190 basis points due to amortization of short-lived acquired intangible assets. Beyond these amortization costs, leverage on increased volume was largely offset by higher raw material and manufacturing costs in the quarter, as well as a receivable write off due to a customer bankruptcy.

Backlog in this segment as of June 3, 2017 is approximately $255 million compared to approximately $245 million at year-end.

Architectural Services

Architectural Services net sales decreased $12.7 million , or 20.2 percent , for the three -month period ended June 3, 2017 , over the same period in the prior year primarily due to year-on-year timing of project activity.

Operating margin declined 350 basis points due to lower volume leverage on fixed project management, engineering and manufacturing costs.

As of June 3, 2017, backlog in this segment is approximately $293 million compared to $255 million at year-end.

Large-Scale Optical (LSO)

LSO net sales declined $1.4 million , or 7.1 percent , for the three -month period ended June 3, 2017 , due to timing of customer orders and softer custom picture framing end-markets.

Operating margin declined 140 basis points due to lower volume leverage on operating costs. Given the short lead times in this segment, backlog is not considered a significant metric.

Liquidity and Capital Resources