UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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| | | | |
x☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 29, 2017March 25, 2022
|
| | | | |
o☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-37793
_________________________________________
Atkore International Group Inc.
(Exact name of registrant as specified in its charter)
_________________________________________ |
| | | | | | | |
Delaware | | 90-0631463 |
(State or other jurisdiction of incorporation or organization)
| | (IRS Employer Identification No.)
|
16100 South Lathrop Avenue, Harvey, Illinois 60426
(Address of principal executive offices) (Zip Code)
708-339-1610
(Registrant'sRegistrant’s telephone number, including area code)code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading symbol | Name of each exchange on which registered |
Common Stock, $.01 par value per share | ATKR | New York Stock Exchange |
_____________________
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. Yes x ☒ No o☐
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
| | | | | |
Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
| | | | | | |
Large accelerated filer | | x | | | Accelerated filer | o |
| | | | |
Non-accelerated filer | | o | (Do not check if a smaller reporting company) | | Smaller reporting company | o |
| | | | | | |
| | | | | Emerging growth company | o | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the Securities Act.☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o☐ No x☒
_____________________
As of
January 26, 2018,April 28, 2022, there were
63,607,04743,114,175 shares of the
registrant'sregistrant’s common stock, $0.01 par value per share, outstanding.
Table of ContentsTABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ATKORE INTERNATIONAL GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
| | | | | | | | | | |
| | | | Three months ended |
(in thousands, except per share data) | | Note | | December 29, 2017 | | December 30, 2016 As Adjusted* |
Net sales | | | | $ | 414,558 |
| | $ | 337,591 |
|
Cost of sales | | | | 317,691 |
| | 245,926 |
|
Gross profit | | | | 96,867 |
| | 91,665 |
|
Selling, general and administrative | | | | 51,595 |
| | 43,928 |
|
Intangible asset amortization | | 11 | | 8,687 |
| | 5,589 |
|
Operating income | | | | 36,585 |
| | 42,148 |
|
Interest expense, net | | | | 6,594 |
| | 9,830 |
|
Loss on extinguishment of debt | | | | — |
| | 9,805 |
|
Other expense (income), net | | 5 | | 286 |
| | (376 | ) |
Income before income taxes | | | | 29,705 |
| | 22,889 |
|
Income tax expense | | 6 | | 2,516 |
| | 5,507 |
|
Net income | | | | $ | 27,189 |
| | $ | 17,382 |
|
| | | | | | |
Weighted-Average Common Shares Outstanding | | | | | | |
Basic | | 7 | | 63,316 |
| | 62,642 |
|
Diluted | | 7 | | 65,989 |
| | 65,920 |
|
Net income per share | | | | | | |
Basic | | 7 | | $ | 0.43 |
| | $ | 0.28 |
|
Diluted | | 7 | | $ | 0.41 |
|
| $ | 0.26 |
|
* Adjusted due to the adoption of ASU 2017-07 Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 1, ''Basis of Presentation and Summary of Significant Accounting Policies'' for additional information. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three months ended | | Six months ended |
(in thousands, except per share data) | | Note | | March 25, 2022 | | March 26, 2021 | | March 25, 2022 | | March 26, 2021 |
Net sales | | | | $ | 982,573 | | | $ | 639,543 | | | $ | 1,823,374 | | | $ | 1,150,625 | |
Cost of sales | | | | 566,157 | | | 399,694 | | | 1,052,150 | | | 721,585 | |
Gross profit | | | | 416,416 | | | 239,849 | | | 771,224 | | | 429,040 | |
Selling, general and administrative | | | | 88,918 | | | 67,340 | | | 167,069 | | | 128,418 | |
Intangible asset amortization | | 11 | | 8,701 | | | 8,096 | | | 16,930 | | | 16,356 | |
Operating income | | | | 318,797 | | | 164,413 | | | 587,225 | | | 284,266 | |
Interest expense, net | | | | 7,514 | | | 8,416 | | | 14,432 | | | 16,670 | |
| | | | | | | | | | |
Other income, net | | 5 | | (807) | | | (7,240) | | | (1,115) | | | (7,671) | |
Income before income taxes | | | | 312,090 | | | 163,237 | | | 573,908 | | | 275,267 | |
Income tax expense | | 6 | | 78,613 | | | 38,304 | | | 135,588 | | | 65,268 | |
Net income | | | | $ | 233,477 | | | $ | 124,933 | | | $ | 438,320 | | | $ | 209,999 | |
| | | | | | | | | | |
Net income per share | | | | | | | | | | |
Basic | | 7 | | $ | 5.14 | | | $ | 2.62 | | | $ | 9.51 | | | $ | 4.39 | |
Diluted | | 7 | | $ | 5.08 | | | $ | 2.58 | | | $ | 9.39 | | | $ | 4.33 | |
| | | | | | | | | | |
See Notes to unaudited condensed consolidated financial statements.
ATKORE INTERNATIONAL GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | | Three months ended | | Three months ended | | Six months ended |
(in thousands) | | Note | | December 29, 2017 | | December 30, 2016 | (in thousands) | | Note | | March 25, 2022 | | March 26, 2021 | | March 25, 2022 | | March 26, 2021 |
Net income | | $ | 27,189 |
| | $ | 17,382 |
| Net income | | | | $ | 233,477 | | | $ | 124,933 | | | $ | 438,320 | | | $ | 209,999 | |
Other comprehensive income, net of tax: | | | | | |
Other comprehensive (loss) income, net of tax: | | Other comprehensive (loss) income, net of tax: | |
Change in foreign currency translation adjustment | | 331 |
| | (1,900 | ) | Change in foreign currency translation adjustment | | (2,554) | | | (818) | | | (4,012) | | | 6,233 | |
Change in unrecognized loss related to pension benefit plans | | 3 | | 65 |
| | 326 |
| Change in unrecognized loss related to pension benefit plans | | 4 | | 125 | | | 262 | | | 250 | | | 524 | |
Total other comprehensive income (loss) | | 8 | | 396 |
| | (1,574 | ) | |
Total other comprehensive (loss) income | | Total other comprehensive (loss) income | | 8 | | (2,429) | | | (556) | | | (3,762) | | | 6,757 | |
Comprehensive income | | $ | 27,585 |
| | $ | 15,808 |
| Comprehensive income | | $ | 231,048 | | | $ | 124,377 | | | $ | 434,558 | | | $ | 216,756 | |
See Notes to unaudited condensed consolidated financial statements.
ATKORE INC.
ATKORE INTERNATIONAL GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
(in thousands, except share and per share data) | | Note | | March 25, 2022 | | September 30, 2021 |
Assets | | | | | | |
Current Assets: | | | | | | |
Cash and cash equivalents | | | | $ | 390,399 | | | $ | 576,289 | |
Accounts receivable, less allowance for current and expected credit losses of $3,503 and $2,510, respectively | | | | 623,361 | | | 524,926 | |
Inventories, net | | 9 | | 411,356 | | | 285,989 | |
Prepaid expenses and other current assets | | | | 64,924 | | | 34,248 | |
Total current assets | | | | 1,490,040 | | | 1,421,452 | |
Property, plant and equipment, net | | 10 | | 285,936 | | | 275,622 | |
Intangible assets, net | | 11 | | 242,229 | | | 241,204 | |
Goodwill | | 11 | | 212,167 | | | 199,048 | |
Right-of-use assets, net | | | | 37,757 | | | 41,113 | |
Deferred tax assets | | 6 | | 33,970 | | | 29,693 | |
Other long-term assets | | | | 2,021 | | | 1,967 | |
Total Assets | | | | $ | 2,304,120 | | | $ | 2,210,099 | |
Liabilities and Equity | | | | | | |
Current Liabilities: | | | | | | |
| | | | | | |
Accounts payable | | | | 269,830 | | | 243,164 | |
Income tax payable | | | | 10,741 | | | 72,953 | |
Accrued compensation and employee benefits | | | | 37,061 | | | 57,437 | |
Customer liabilities | | | | 66,138 | | | 80,324 | |
Lease obligations | | | | 11,327 | | | 11,785 | |
Other current liabilities | | | | 63,179 | | | 59,273 | |
Total current liabilities | | | | 458,276 | | | 524,936 | |
Long-term debt | | 12 | | 759,461 | | | 758,386 | |
Long-term lease obligations | | | | 27,392 | | | 30,236 | |
Deferred tax liabilities | | 6 | | 18,566 | | | 16,746 | |
| | | | | | |
Pension liabilities | | | | 2,515 | | | 3,819 | |
Other long-term liabilities | | | | 14,636 | | | 11,240 | |
Total Liabilities | | | | 1,280,846 | | | 1,345,363 | |
Equity: | | | | | | |
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 43,879,446 and 45,997,159 shares issued and outstanding, respectively | | | | 440 | | | 461 | |
Treasury stock, held at cost, 290,600 and 290,600 shares, respectively | | | | (2,580) | | | (2,580) | |
Additional paid-in capital | | | | 492,070 | | | 506,921 | |
Retained earnings | | | | 565,832 | | | 388,660 | |
Accumulated other comprehensive loss | | 8 | | (32,488) | | | (28,726) | |
Total Equity | | | | 1,023,274 | | | 864,736 | |
Total Liabilities and Equity | | | | $ | 2,304,120 | | | $ | 2,210,099 | |
|
| | | | | | | | | | |
(in thousands, except share and per share data) | | Note | | December 29, 2017 | | September 30, 2017 |
Assets | | | | | | |
Current Assets: | | | | | | |
Cash and cash equivalents | | | | $ | 39,761 |
| | $ | 45,718 |
|
Accounts receivable, less allowance for doubtful accounts of $1,230 and $1,239, respectively | | | | 203,733 |
| | 224,427 |
|
Inventories, net | | 9 | | 203,841 |
| | 200,003 |
|
Prepaid expenses and other current assets | | | | 23,216 |
| | 35,611 |
|
Total current assets | | | | 470,551 |
| | 505,759 |
|
Property, plant and equipment, net | | 10 | | 207,487 |
| | 208,619 |
|
Intangible assets, net | | 11 | | 337,067 |
| | 344,289 |
|
Goodwill | | 11 | | 148,061 |
| | 147,716 |
|
Deferred income taxes | | 6 | | 1,881 |
| | 1,657 |
|
Non-trade receivables | | | | 7,004 |
| | 7,052 |
|
Total Assets | | | | $ | 1,172,051 |
| | $ | 1,215,092 |
|
Liabilities and Equity | | | | | | |
Current Liabilities: | | | | | | |
Short-term debt and current maturities of long-term debt | | 12 | | $ | 4,215 |
| | $ | 4,215 |
|
Accounts payable | | | | 116,747 |
| | 125,618 |
|
Income tax payable | | | | 2,218 |
| | 2,581 |
|
Accrued compensation and employee benefits | | | | 18,365 |
| | 26,387 |
|
Other current liabilities | | | | 50,554 |
| | 53,036 |
|
Total current liabilities | | | | 192,099 |
| | 211,837 |
|
Long-term debt | | 12 | | 527,802 |
| | 571,863 |
|
Deferred income taxes | | 6 | | 12,191 |
| | 17,464 |
|
Other long-term tax liabilities | | | | 6,771 |
| | 6,771 |
|
Pension liabilities | | | | 24,600 |
| | 25,239 |
|
Other long-term liabilities | | | | 19,920 |
| | 21,047 |
|
Total Liabilities | | | | 783,383 |
| | 854,221 |
|
Equity: | | | | | | |
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 63,519,172 and 63,305,434 shares issued and outstanding, respectively | | | | 636 |
| | 634 |
|
Treasury stock, held at cost, 260,900 and 260,900 shares, respectively | | | | (2,580 | ) | | (2,580 | ) |
Additional paid-in capital | | | | 430,118 |
| | 423,232 |
|
Accumulated deficit | | | | (21,920 | ) | | (42,433 | ) |
Accumulated other comprehensive loss | | 8 | | (17,586 | ) | | (17,982 | ) |
Total Equity | | | | 388,668 |
| | 360,871 |
|
Total Liabilities and Equity | | | | $ | 1,172,051 |
| | $ | 1,215,092 |
|
See Notes to unaudited condensed consolidated financial statements.
ATKORE INC.
ATKORE INTERNATIONAL GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | | | Six months ended |
(in thousands) | | Note | | March 25, 2022 | | March 26, 2021 |
Operating activities: | | | | | | |
Net income | | | | $ | 438,320 | | | $ | 209,999 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | | | 40,040 | | | 38,309 | |
Deferred income taxes | | 6 | | (4,270) | | | 4,692 | |
Stock-based compensation | | | | 9,555 | | | 10,390 | |
Amortization of right-of-use assets | | | | 6,489 | | | 7,025 | |
| | | | | | |
| | | | | | |
Other non-cash adjustments to net income | | | | 7,474 | | | 968 | |
Changes in operating assets and liabilities, net of effects from acquisitions | | | | | | |
Accounts receivable | | | | (95,016) | | | (124,261) | |
Inventories | | | | (127,790) | | | (31,424) | |
Prepaid expenses and other current assets | | | | (14,490) | | | 234 | |
Accounts payable | | | | 19,617 | | | 42,130 | |
Accrued and other liabilities | | | | (37,972) | | | (2,502) | |
Income taxes | | | | (80,415) | | | 429 | |
Other, net | | | | (383) | | | (2,743) | |
Net cash provided by operating activities | | | | 161,159 | | | 153,246 | |
Investing activities: | | | | | | |
Capital expenditures | | | | (25,343) | | | (20,374) | |
| | | | | | |
Proceeds from sale of properties and equipment | | | | 642 | | | 3,117 | |
Acquisition of businesses, net of cash acquired | | | | (36,098) | | | (43,699) | |
Other, net | | | | — | | | 21 | |
Net cash used in investing activities | | | | (60,799) | | | (60,935) | |
Financing activities: | | | | | | |
| | | | | | |
Repayments of long-term debt | | 12 | | — | | | (40,000) | |
| | | | | | |
| | | | | | |
| | | | | | |
Issuance of common stock, net of shares withheld for tax | | | | (24,399) | | | (356) | |
Repurchase of common stock | | | | (261,173) | | | (35,037) | |
Other, net | | | | — | | | (11) | |
Net cash used for financing activities | | | | (285,572) | | | (75,404) | |
Effects of foreign exchange rate changes on cash and cash equivalents | | | | (678) | | | 3,091 | |
Decrease in cash and cash equivalents | | | | (185,890) | | | 19,998 | |
Cash and cash equivalents at beginning of period | | | | 576,289 | | | 284,471 | |
Cash and cash equivalents at end of period | | | | $ | 390,399 | | | $ | 304,469 | |
Supplementary Cash Flow information | | | | | | |
Capital expenditures, not yet paid | | | | $ | 4,815 | | | $ | 1,023 | |
Operating lease right-of-use assets obtained in exchange for lease liabilities | | | | $ | 1,148 | | | $ | 2,379 | |
Acquisitions of businesses, not yet paid | | | | $ | 2,864 | | | $ | — | |
|
| | | | | | | | | | |
| | | | Three months ended |
(in thousands) | | Note | | December 29, 2017 | | December 30, 2016 |
Operating activities: | | | | | | |
Net income | | | | $ | 27,189 |
| | $ | 17,382 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | | | | 17,210 |
| | 13,628 |
|
Deferred income taxes | | 6 | | (5,334 | ) | | (357 | ) |
Loss on extinguishment of debt | | | | — |
| | 9,805 |
|
Stock-based compensation expense | | | | 3,564 |
| | 2,720 |
|
Other adjustments to net income | | | | 1,559 |
| | 1,831 |
|
Changes in operating assets and liabilities, net of effects from purchase price adjustments | | | | | | |
Accounts receivable | | | | 19,967 |
| | 31,957 |
|
Inventories | | 9 | | (5,396 | ) | | (18,615 | ) |
Other, net | | | | (9,819 | ) | | (26,182 | ) |
Net cash provided by operating activities | | | | 48,940 |
| | 32,169 |
|
Investing activities: | | | | | | |
Capital expenditures | | | | (8,235 | ) | | (3,964 | ) |
Proceeds from sale of assets held for sale | | | | — |
| | 3,024 |
|
Other, net | | | | 784 |
| | 14 |
|
Net cash used for investing activities | | | | (7,451 | ) | | (926 | ) |
Financing activities: | | | | | | |
Borrowings under credit facility | | 12 | | 204,000 |
| | — |
|
Repayments under credit facility | | 12 | | (247,000 | ) | | — |
|
Repayments of short-term debt | | 12 | | (1,250 | ) | | (4,200 | ) |
Repayments of long-term debt | | 12 | | — |
| | (637,350 | ) |
Issuance of long-term debt | | 12 | | — |
| | 498,750 |
|
Payment for debt financing costs and fees | |
| | — |
| | (4,294 | ) |
Issuance of common stock | | | | 3,314 |
| | 4,680 |
|
Repurchase of common stock | | | | (6,681 | ) | | — |
|
Other, net | | | | (48 | ) | | — |
|
Net cash used for financing activities | | | | (47,665 | ) | | (142,414 | ) |
Effects of foreign exchange rate changes on cash and cash equivalents | | | | 219 |
| | (1,135 | ) |
Decrease in cash and cash equivalents | | | | (5,957 | ) | | (112,306 | ) |
Cash and cash equivalents at beginning of period | | | | 45,718 |
| | 200,279 |
|
Cash and cash equivalents at end of period | | | | $ | 39,761 |
| | $ | 87,973 |
|
Supplementary Cash Flow information | | | | | | |
Capital expenditures, not yet paid | | | | $ | 615 |
| | $ | 173 |
|
See Notes to unaudited condensed consolidated financial statements.
ATKORE INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Equity |
(in thousands) | Shares | | Amount | | Amount | | | | |
Balance as of September 30, 2021 | 45,997 | | | $ | 461 | | | $ | (2,580) | | | $ | 506,921 | | | $ | 388,660 | | | $ | (28,726) | | | $ | 864,736 | |
Net income | — | | | — | | | — | | | — | | | 204,843 | | | — | | | 204,843 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (1,333) | | | (1,333) | |
| | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | — | | | 3,427 | | | — | | | — | | | 3,427 | |
Issuance of common stock, net of shares withheld for tax | 355 | | | 4 | | | — | | | (24,509) | | | — | | | — | | | (24,505) | |
Repurchase of common stock | (958) | | | (10) | | | — | | | | | (104,537) | | | — | | | (104,547) | |
Balance as of December 24, 2021 | 45,394 | | | $ | 455 | | | $ | (2,580) | | | $ | 485,839 | | | $ | 488,966 | | | $ | (30,059) | | | $ | 942,621 | |
| | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | 233,477 | | | — | | | 233,477 | |
Other comprehensive (loss) | — | | | — | | | — | | | — | | | — | | | (2,429) | | | (2,429) | |
Stock-based compensation | — | | | — | | | — | | | 6,128 | | | — | | | — | | | 6,128 | |
Issuance of common stock, net of shares withheld for tax | 24 | | | — | | | — | | | 103 | | | — | | | — | | | 103 | |
Repurchase of common stock | (1,539) | | | (15) | | | — | | | — | | | (156,611) | | | — | | | (156,626) | |
Balance as of March 25, 2022 | 43,879 | | | $ | 440 | | | $ | (2,580) | | | $ | 492,070 | | | $ | 565,832 | | | $ | (32,488) | | | $ | 1,023,274 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Equity |
(in thousands) | Shares | | Amount | | Amount | | | | |
Balance as of September 30, 2020 | 47,407 | | | $ | 475 | | | $ | (2,580) | | | $ | 487,223 | | | $ | (64,154) | | | $ | (42,554) | | | $ | 378,410 | |
Net income | — | | | — | | | — | | | — | | | 85,066 | | | — | | | 85,066 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 7,313 | | | 7,313 | |
| | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | — | | | 5,522 | | | — | | | — | | | 5,522 | |
Issuance of common stock, net of shares withheld for tax | 358 | | | 3 | | | — | | | (3,930) | | | — | | | — | | | (3,927) | |
Repurchase of common stock | (1,140) | | | (11) | | | — | | | — | | | (35,026) | | | — | | | (35,037) | |
Balance as of December 25, 2020 | 46,625 | | | $ | 467 | | | $ | (2,580) | | | $ | 488,815 | | | $ | (14,114) | | | $ | (35,241) | | | $ | 437,347 | |
| | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | 124,933 | | | — | | | 124,933 | |
Other comprehensive (loss) | — | | | — | | | — | | | — | | | — | | | (556) | | | (556) | |
Stock-based compensation | — | | | — | | | — | | | 4,868 | | | — | | | — | | | 4,868 | |
Issuance of common stock, net of shares withheld for tax | 358 | | | 4 | | | — | | | 3,566 | | | — | | | — | | | 3,570 | |
| | | | | | | | | | | | | |
Balance as of March 26, 2021 | 46,983 | | | $ | 471 | | | $ | (2,580) | | | $ | 497,249 | | | $ | 110,819 | | | $ | (35,797) | | | $ | 570,162 | |
| | | | | | | | | | | | | |
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| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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See Notes to unaudited condensed consolidated financial statements.
ATKORE INTERNATIONAL GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(dollars and shares in thousands, except per share data)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Organization and Ownership Structure — Atkore International Group Inc. (the "Company"“Company”, “Atkore” or "Atkore"“AI”) is a leading manufacturer of Electrical Raceway products primarily for the non-residential construction and renovation markets and Mechanical ProductsSafety & Solutions ("MP&S")Infrastructure solutions for the construction and industrial markets. Electrical Raceway products form the critical infrastructure that enables the deployment, isolation and protection of a structure's electrical circuitry from the original power source to the final outlet. MP&S frame, support and secure component parts in a broad range of structures, equipment and systems in electrical, industrial and construction applications.
Atkore was incorporated in the State of Delaware on November 4, 2010.2010 under the name Atkore International Group, Inc. Atkore is the sole stockholder of Atkore International Holdings Inc. ("AIH"(“AIH”), which in turn is the sole stockholder of Atkore International Inc. ("AII"(“AII”).
The Electrical segment manufactures high quality products used in the construction of electrical power systems including conduit, cable, and installation accessories. This segment serves contractors, in partnership with the electrical wholesale channel.
The Safety & Infrastructure segment designs and manufactures solutions including metal framing, mechanical pipe, perimeter security, and cable management for the protection and reliability of critical infrastructure. These solutions are marketed to contractors, original equipment manufacturers and end users.
Basis of Presentation — The accompanying unaudited condensed consolidated financial statements of the Company included herein have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"(“GAAP”). These unaudited condensed consolidated financial statements have been prepared in accordance with the Company'sCompany’s accounting policies and on the same basis as those financial statements included in the Company'sCompany’s latest Annual Report on Form 10-K for the year ended September 30, 20172021, filed with the U.S. Securities and Exchange Commission (the "SEC"“SEC”) on November 29, 2017,18, 2021, and should be read in conjunction with those consolidated financial statements and the notes thereto. Certain information and disclosures normally included in the Company'sCompany’s annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC.
The unaudited condensed consolidated financial statements include the assets and liabilities used in operating the Company'sCompany’s business. All intercompany balances and transactions have been eliminated in consolidation. The results of companies acquired or disposed of are included in the unaudited condensed consolidated financial statements from the effective date of acquisition or up to the date of disposal.
These statements include all adjustments (consisting of normal recurring adjustments) that the Company considered necessary to present a fair statement of its results of operations, financial position and cash flows. The results reported in these unaudited condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year.
Fiscal Periods — The Company has a fiscal year that ends on September 30. It is the Company's practice to establish quarterly closings using a 4-5-4 calendar. The Company'sCompany’s fiscal quarters typically end on the last Friday in December, March and June.June as it follows a 4-5-4 calendar.
Use of Estimates — The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclose contingent assets and liabilities at the date of the condensed consolidated financial statements and report the associated amounts of revenues and expenses. Actual results could differ materially from these estimates.
Summary of significant accounting policies
Fair Value Measurements — Authoritative guidance for fair value measurements establishes a three-level hierarchy that ranks the quality and reliability of information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. In cases where two or more levels of inputs are used to determine fair value, a financial instrument’s level is determined based on the lowest level input that is considered significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are summarized as follows:
Level 1-inputs are based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible as of the measurement date.
Level 2-inputs are based upon quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations for the asset or liability that are derived principally from or corroborated by market data for which the primary inputs are observable, including forward interest rates, yield curves, credit risk and exchange rates.
Level 3-inputs for the valuations are unobservable and are based on management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques such as option pricing models and discounted cash flow models.
See Note 13, ''Fair Value Measurements'' for further detail.
Recent Accounting Pronouncements
A summary of recently adopted accounting guidance areis as follows. Adoption dates are on the first day of the fiscal year indicated below, unless otherwise specified.
|
| | | | | | | | |
ASU | | Description of ASU | | Impact to Atkore | | Note | | Adoption Date |
2017-07 Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost | | The ASU requires an entity to report the service cost component of pension cost and postretirement benefit cost as compensation expense during the employee's service period. The other components of net periodic pension benefit costs will be presented outside a subtotal of income from operations.
| | Prior to the adoption of ASU 2017-07, pension costs were reported as cost of sales and selling, general and administrative expenses on the Company's condensed consolidated statements of income. As a result of the early adoption of ASU 2017-07, the Company reclassified $376 from operating income to other expense (income), net on the condensed consolidated statements of operations for the three months ended December 30, 2016. | | 3 | | 2018 |
2017-09 Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting | | The ASU does not require an entity to apply modification accounting if the fair value, vesting conditions and classification of the awards do not change.
| | No material impact on the consolidated financial statements. | | | | 2018 |
A summary of accounting guidance not yet adopted are as follows: |
| | | | | | | | | | | | | | | | | | | | |
ASU | | Description of ASU | | Impact to Atkore
| | Effective | Adoption Date |
2014-09 Revenue from Contracts with Customers2019-12 Simplifying the accounting for income taxes (Topic 740) | | The ASU provides guidance for revenue recognition. The update's core principle is that a company will recognize revenue when it transfers promised goods or serviceseliminates certain existing exceptions related to customersthe general approach in an amount that reflects the considerationASC 740 relating to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. Examples of the use of judgments and estimates may include identifying performance obligationsfranchise taxes, reducing complexity in the contract, estimatinginterim period accounting for year to date loss limitations and changes in tax laws and clarifying the amountaccounting for transactions outside of variable consideration to includea business combination that result in a step up in the transaction price and allocating the transaction price to each separate performance obligation. The update also requires more detailed disclosures to enable userstax basis of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The update provides for two transition methods to the new guidance: a full retrospective approach and a modified retrospective approach.goodwill. | | The Company is currently in the process of completing its initial analysis and performing detailed reviews of significant contracts to determine if any adjustments will be necessary to existing accounting policies, and to support an evaluation of the impact on its results of operations and financial condition. The Company expects to adopt the newadopted this standard using the modified retrospective approach, under which the cumulative effect of initially applying the guidance is recognized as an adjustment to the opening balance of retained earnings in the first quarter of 2019.2022. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements. | | 2019 | 2022 |
2. ACQUISITIONSREVENUE FROM CONTRACTS WITH CUSTOMERS
The Company’s revenue arrangements primarily consist of a single performance obligation to transfer promised goods which is satisfied at a point in time when title, risks and rewards of ownership, and subsequently control have transferred to the customer. This generally occurs when the product is shipped to the customer, with an immaterial amount of transactions in which control transfers upon delivery. The Company primarily offers assurance-type standard warranties that do not represent separate performance obligations.
The Company has certain arrangements that require it to estimate at the time of sale the amounts of variable consideration that should not be recorded as revenue as certain amounts are not expected to be collected from customers, as well as an estimate of the value of products to be returned. The Company principally relies on historical experience, specific customer agreements, and anticipated future trends to estimate these amounts at the time of sale and to reduce the transaction price. These arrangements include sales discounts and allowances, volume rebates, and returned goods.
The Company records amounts billed to customers for reimbursement of shipping and handling costs within revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Sales taxes and other usage-based taxes are excluded from revenue. The Company does not evaluate whether the selling price includes a financing interest component for contracts that are less than a year. The Company also expenses costs incurred to obtain a contract, primarily sales commissions, as all obligations will be settled in less than one year.
The Company typically receives payment 30 to 60 days from the point it has satisfied the related performance obligation. See Note 16, “Segment Information” for revenue disaggregated by geography and product categories.
3. ACQUISITIONS
From time to time, the Company enters into strategic acquisitions in an effort to better service existing customers and to attainobtain new customers.
TheFiscal 2022
On December 21, 2021, Atkore HDPE, LLC and Allied Tube and Conduit Corporation, wholly-owned subsidiaries of the Company acquired allthe assets of Four Star Industries LLC (“Four Star”), for a purchase price of $23,195. Four Star is a manufacturer of high density polyethylene (HDPE) conduit, primarily serving the telecommunications, utility, infrastructure and datacom markets. As a result of the outstanding stockacquisition, the Company preliminarily recognized $7,348 of Calpipe Industries, LLC ("Calpipe") on September 29, 2017goodwill, $11,840 of identifiable intangible assets and Flexicon Limited ("Flexicon") on September 1, 2017. $4,007 of working capital and other net tangible assets. As of March 25, 2022, the purchase
price allocation has not been finalized as the Company is finalizing working capital, intangible asset and fixed asset fair values.
On May 18, 2017, Unistrut, Ltd,December 20, 2021, Columbia-MBF Inc., a wholly-owned indirect subsidiary of the Company acquired all of the outstanding stock of Marco Cable Management ("Marco"Sasco Tubes & Roll Forming Inc. (“Sasco”)., for a purchase price of $15,767, of which $12,903 was paid at closing and additional purchase price payable of $2,864 was accrued. Sasco is a Canadian manufacturer of metal framing and related products serving the electrical, mechanical, construction and solar industries. As a result of the acquisition, the Company preliminarily recognized $6,398 of goodwill, $6,710 of identifiable intangible assets and $2,659 of working capital and other net tangible assets. As of March 25, 2022, the purchase price allocation has not been finalized as the Company is finalizing working capital, intangible asset and fixed asset fair values.
Fiscal 2021
On February 24, 2021, Atkore Southwest, LLC, a wholly-owned subsidiary of the Company acquired the assets of FRE Composites USA Inc. and separately the Company acquired all of the outstanding stock of FRE Composites Inc., collectively described as FRE Composites Group (“FRE Composites”), for a purchase price of $36,993, net of cash received. FRE Composites is a leading manufacturer of fiberglass conduit for the electrical and industrial market. The purchase price was allocated to tangible and intangible assets acquired and liabilities assumed, based on their estimatedfair values.
On October 22, 2020, Atkore Plastics Southeast, LLC, a wholly-owned subsidiary of the Company acquired the assets of Queen City Plastics, Inc. (“Queen City Plastics”), a leading manufacturer of PVC conduit, elbows and fittings for the electrical market. The purchase price was allocated to tangible assets acquired and liabilities assumed based on their fair values. The purchase price of $6,214 was deemed immaterial to the Company.
The following section provides purchase price allocation disclosures and other financial disclosures for significant acquisitions for the applicable fiscal years.
The purchase price for FRE Composites, which was finalized during the fourth quarter of fiscal 2021, was allocated to tangible and intangible assets acquired and liabilities assumed, based on their fair values. The following table summarizes the Level 3 fair values assigned to the net assets acquired and liabilities assumed as of the acquisition date:date for fiscal 2021:
| | | | | | | | |
(in thousands) | | FRE Composites |
Fair value of consideration transferred: | | |
Cash consideration | | $ | 36,993 | |
| | |
| | |
| | |
| | |
Fair value of assets acquired and liabilities assumed: | | |
Cash | | 437 | |
Accounts receivable | | 2,163 | |
Inventories | | 3,355 | |
Intangible assets | | 18,300 | |
Fixed assets | | 8,509 | |
Accounts payable | | (1,186) | |
| | |
Income taxes | | (4,293) | |
Other | | (240) | |
Net assets acquired | | 27,045 | |
Excess purchase price attributed to goodwill acquired | | $ | 9,948 | |
The Company estimates $1.6 million of the goodwill recognized on the FRE acquisition is deductible for tax purposes. Goodwill recognized from the acquisitions in fiscal 2021 and fiscal 2022 consists largely of the synergies and economies of scale from integrating this company with existing businesses.
|
| | | | | | | | | | | | |
(in thousands) | | Calpipe Industries, Inc. | | Other | | Total |
Fair value of consideration transferred: | | | | | | |
Cash consideration | | $ | 110,155 |
| | $ | 87,649 |
| | $ | 197,804 |
|
Purchase price payable | | 2,278 |
| | — |
| | 2,278 |
|
Settlement of pre-existing relationship | | (382 | ) | | — |
| | (382 | ) |
Total consideration transferred | | 112,051 |
| | 87,649 |
| | 199,700 |
|
Fair value of assets acquired and liabilities assumed: | | |
| | |
| | |
|
Cash | | 5,051 |
| | 8,830 |
| | 13,881 |
|
Accounts receivable | | 10,918 |
| | 7,588 |
| | 18,506 |
|
Inventories | | 20,319 |
| | 7,222 |
| | 27,541 |
|
Intangible assets | | 62,720 |
| | 48,476 |
| | 111,196 |
|
Fixed assets | | 3,665 |
| | 8,286 |
| | 11,951 |
|
Accounts payable | | (1,601 | ) | | (1,550 | ) | | (3,151 | ) |
Other | | (8,213 | ) | | (3,714 | ) | | (11,927 | ) |
Net assets acquired | | 92,859 |
| | 75,138 |
| | 167,997 |
|
Excess purchase price attributed to goodwill acquired | | $ | 19,192 |
| | $ | 12,511 |
| | $ | 31,703 |
|
The following table summarizes the fair value of intangible assets as of the acquisition dates:date:
| | | | | | | | | | | | FRE Composites |
| | Calpipe Industries, Inc. | | Other | |
($ in thousands) | | Fair Value | | Weighted Average Useful Life (Years) | | Fair Value | | Weighted Average Useful Life (Years) | |
(in thousands) | | (in thousands) | | Fair Value | | Weighted Average Useful Life (Years) |
Customer relationships | | $ | 56,124 |
| | 10 | | $ | 45,411 |
| | 10 | Customer relationships | | $ | 14,700 | | | 12 |
Other | | 6,596 |
| | 10 | | 3,065 |
| | 6 | Other | | 3,600 | | | 6 |
Total intangible assets | | $ | 62,720 |
| | 10 | | $ | 48,476 |
| | 10 | Total intangible assets | | $ | 18,300 | | |
The purchase price allocation, intangible asset valuesNet sales and related estimatesnet income of useful livesboth the above acquisitions are included in the condensed consolidated statement of operations for Calpipethe post-acquisition periods. Due to the immaterial nature of these acquisitions, both individually and Flexicon are preliminary, asin the aggregate, the Company is finalizing its fair value estimatesdid not include the full year pro forma results of intangible assets, fixed assets and working capital items.operations for the acquisition year or previous years.
3.4. POSTRETIREMENT BENEFITS
The Company provides pension benefits through a number aof noncontributory and contributory defined benefit retirement plans covering eligible U.S. employees. As of September 30, 2017, all defined pension benefit plans arewere frozen, whereby participants no longer accrue credited service. The net periodic benefit costcredit was as follows:
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| | | | Three months ended | | Six months ended |
(in thousands) | | Note | | March 25, 2022 | | March 26, 2021 | | March 25, 2022 | | March 26, 2021 |
Interest cost | | | | $ | 739 | | | $ | 682 | | | $ | 1,478 | | | $ | 1,364 | |
Expected return on plan assets | | | | (1,348) | | | (1,606) | | | (2,696) | | | (3,212) | |
Amortization of actuarial loss | | | | 158 | | | 333 | | | 316 | | | 666 | |
Net periodic benefit credit | | 5 | | $ | (451) | | | $ | (591) | | | $ | (902) | | | $ | (1,182) | |
|
| | | | | | | | | | |
| | | | Three months ended |
(in thousands) | | Note | | December 29, 2017 | | December 30, 2016 |
Service cost | | | | $ | — |
| | $ | 512 |
|
Interest cost | | 5 | | 1,024 |
| | 948 |
|
Expected return on plan assets | | 5 | | (1,604 | ) | | (1,650 | ) |
Amortization of actuarial loss | | 5 | | 86 |
| | 326 |
|
Net periodic benefit cost | | | | $ | (494 | ) | | $ | 136 |
|
During fiscal 2018, the Company adopted ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.The ASU requires all pension costs, with the exception of service costs, to be included as a component of non-operating income on the Company's condensed consolidated statements of operations. Prior to the adoption of ASU 2017-07, pension costs were reported as cost of sales and selling, general and administrative expenses on the Company's condensed consolidated statements of income. As a result of the early adoption of ASU 2017-07, the Company reclassified $376 from operating income to other expense (income), net on the condensed consolidated statements of operations for the three months ended December 30, 2016. Prior year amounts have been reclassified to conform to the current year presentation in our condensed consolidated financial statements.
4. RESTRUCTURING CHARGES
The liability for restructuring reserves is included within other current liabilities in the Company's condensed consolidated balance sheets as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Electrical Raceway | | MP&S | | Other/Corporate | | |
(in thousands) | Severance | | Other | | Severance | | Other | | Severance | | Other | | Total |
Balance as of September 30, 2016 | $ | 841 |
| | $ | — |
| | $ | — |
| | $ | 539 |
| | $ | — |
| | $ | — |
| | $ | 1,380 |
|
Charges | 527 |
| | 439 |
| | 422 |
| | 63 |
| | 71 |
| | — |
| | 1,522 |
|
Utilization | (917 | ) | | (209 | ) | | (166 | ) | | (556 | ) | | (71 | ) | | — |
| | (1,919 | ) |
Reversal | — |
| | (230 | ) | | — |
| | (36 | ) | | — |
| | — |
| | (266 | ) |
Exchange rate effects | (2 | ) | | — |
| | 22 |
| | — |
| | — |
| | — |
| | 20 |
|
Balance as of September 30, 2017 | 449 |
| | — |
| | 278 |
| | 10 |
| | — |
| | — |
| | 737 |
|
Charges | — |
| | 408 |
| | 27 |
| | — |
| | — |
| | — |
| | 435 |
|
Utilization | (71 | ) | | (168 | ) | | (126 | ) | | (10 | ) | | — |
| | — |
| | (375 | ) |
Reversal | — |
| | — |
| | (173 | ) | | — |
| | — |
| | — |
| | (173 | ) |
Exchange rate effects | 6 |
| | — |
| | (6 | ) | | — |
| | — |
| | — |
| | — |
|
Balance as of December 29, 2017 | $ | 384 |
| | $ | 240 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 624 |
|
The Company expects to utilize all restructuring accruals as of December 29, 2017 within the next twelve months. The net restructuring charges included as a component of selling, general and administrative expenses in the Company's condensed consolidated statements of operations were as follows:
|
| | | | | | | |
| Three months ended |
(in thousands) | December 29, 2017 | | December 30, 2016 |
Total restructuring charges, net | $ | 262 |
| | $ | 389 |
|
5. OTHER EXPENSE (INCOME),INCOME, NET
Other expense (income),income, net consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
(in thousands) | | March 25, 2022 | | March 26, 2021 | | March 25, 2022 | | March 26, 2021 |
Business interruption insurance recovery | | $ | — | | | $ | (6,000) | | | $ | — | | | $ | (6,000) | |
Undesignated foreign currency derivative instruments | | (634) | | | 793 | | | (810) | | | 3,410 | |
Foreign exchange loss (gain) on intercompany loans | | 278 | | | (711) | | | 597 | | | (3,168) | |
| | | | | | | | |
Pension-related benefits | | (451) | | | (591) | | | (902) | | | (1,182) | |
Gain on purchase of business | | — | | | (731) | | | — | | | (731) | |
| | | | | | | | |
Other income, net | | $ | (807) | | | $ | (7,240) | | | $ | (1,115) | | | $ | (7,671) | |
|
| | | | | | | | |
| | Three months ended |
(in thousands) | | December 29, 2017 | | December 30, 2016 As Adjusted* |
Undesignated foreign currency derivate instruments | | $ | 1,224 |
| | $ | — |
|
Foreign exchange gain on intercompany loans | | (444 | ) | | — |
|
Pension-related benefits | | (494 | ) | | (376 | ) |
Other expense (income), net | | $ | 286 |
| | $ | (376 | ) |
| | | | |
* Adjusted due to the adoption of ASU 2017-07. See Note 1, ''Basis of Presentation and Summary of Significant Accounting Policies'' for additional information.
6. INCOME TAXES
On December 22, 2017, "H.R.1," also known as the "Tax Cuts and Jobs Act," was signed into law. H.R.1 provides for significant changes to corporate taxation including, but not limited to, a reduction of the federal corporate tax rate from 35% to 21%, limitations on the deductibility of interest expense and executive compensation, full expensing of the costs of qualified property in the period of acquisition and the elimination of the domestic production activities deduction. The legislation also adopts a new quasi-territorial tax regime and imposes a one-time transition tax on deemed repatriated earnings of certain foreign subsidiaries.
The Company has estimated the impact of the new legislation on its financial position based on information currently available and will continue to assess the impact as the year progresses and additional guidance is received. As a fiscal year filer, the Company will have a blended federal statutory rate of 24.5% for fiscal year 2018, in accordance with rules described in Section 15 of the Internal Revenue Code, and a federal statutory rate of 21.0% for fiscal year 2019 and following years. The value of the Company’s net deferred tax liability on the balance sheet will decrease as a result of the newly enacted tax rates, creating a one-time tax benefit to the Company; the preliminary analysis of the impact, using December 29, 2017 values, is an estimated decrease to the net deferred tax liability of $4,758, which is recognized as a discrete item during the three months ended December 29, 2017. The Company has an accumulated earnings and profit deficit in the foreign jurisdictions in which it operates. As a result, it does not anticipate an income tax liability from the one-time transition tax on the deemed repatriation of its foreign earnings. The net tax expense is based on provisional amounts and the Company's current best estimates. Any adjustments recorded to the provisional amounts through the first quarter of fiscal 2019 will be included in income from operations as an adjustment to tax expense (benefit) on the Company's condensed consolidated statements of operations. The provisional amounts incorporate assumptions made based upon the Company's current interpretation of H.R.1 and may change as the Company receives additional clarification and implementation guidance.
For the three months ended December 29, 2017March 25, 2022 and December 30, 2016,March 26, 2021, the Company'sCompany’s effective tax rate attributable to income before income taxes was 8.5%25.2% and 24.1%23.5%, respectively. For the three months ended December 29, 2017March 25, 2022 and December 30, 2016,March 26, 2021, the Company'sCompany’s income tax expense was $2,516$78,613 and $5,507,$38,304 respectively. The increase in the current period effective tax rate was primarily driven by a decrease in the excess tax benefit associated with stock compensation.
For the six months ended March 25, 2022 and March 26, 2021, the Company’s effective tax rate attributable to income before income taxes was 23.6% and 23.7%, respectively. For the six months ended March 25, 2022 and March 26, 2021, the Company’s income tax expense was $135,588 and $65,268 respectively. The decrease in the current period effective tax rate was primarily due todriven by an increase in the one-timeexcess tax benefit ofassociated with stock compensation partially offset by the revaluation of the Company's deferred tax liabilities as a result of the enactment of H.R.1.increase in non-deductible executive compensation.
The Company has recorded aA valuation allowance has been recorded against certain net operating losses in certain foreign jurisdictions. A valuation allowance is recorded when it is determined to be more likely than not that deferred taxthese assets will not be fully realized in the foreseeable future. The realization of deferred tax assets is dependent upon whether the Company can generate future taxable income ofin the appropriate character in the relevantand jurisdiction to utilize the assets. The amount of the deferred tax assets considered realizable is subject to adjustment in future periods.
The Company recognizes the benefits of uncertain tax positions taken or expected to be taken in tax returns in the provision for income taxes only for those positions that it haswe have determined are more likely than not to be realized upon examination. The Company recordsWe record interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company is fully indemnifiedDuring the six months ended March 25, 2022, the balance of unrecognized tax benefits decreased by its former parent for uncertain$2,179 primarily due to the resolution of a state tax positions taken prior to December 22, 2010.matter.
For the threesix months ended December 29, 2017,March 25, 2022, the Company made no additional provision for U.S. or non-U.S. income taxes for unrecognized deferred tax liabilities for temporary differences related to basis differences in investments in subsidiaries, as the investments are essentially permanent in duration.
7. EARNINGS PER SHARE
The Company calculates basic and diluted earnings per common share using the two-class method. Under the two-class method, net earnings are allocated to each class of common stock and participating securities as if all of the net earnings for the period had been distributed. The Company’s participating securities consist of share-based payment awards that contain a non-forfeitable right to
receive dividends and therefore are considered to participate in undistributed earnings with common stockholders.
Basic earnings per common share excludes dilution and is computedcalculated by dividing the net income availableearnings allocated to common stockholdersstock by the weighted-average number of shares of common stock outstanding for the period.
Diluted earnings per common share is computedcalculated by dividing net income availableearnings allocated to common stockholdersstock by the weighted-average number of shares of common stock outstanding for the period, as adjusted to includefor the number of shares of common stock that would have been outstanding had potentially dilutive shares of common stock been issued. Thepotential dilutive effect of stock options, performance stock unitsnon-participating share-based awards.
The following table sets forth the computation of basic and restricted stock units ("RSU's") are reflected in diluted earnings per share by applying the treasury stock method. There are no other potentially dilutive instruments outstanding. Performance shares were excluded from the calculation of diluted shares since none of the performance or market conditions were met for the periods presented. Holders of certain stock-based compensation awards are eligible to receive dividends, requiring the Company to use the two-class method. Net income allocated to participating securities was not significant for the periods presented below.share:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
(in thousands, except per share data) | | March 25, 2022 | | March 26, 2021 | | March 25, 2022 | | March 26, 2021 |
Numerator: | | | | | | | | |
Net income | $ | 233,477 | | | $ | 124,933 | | | $ | 438,320 | | | $ | 209,999 | |
Less: Undistributed earnings allocated to participating securities | 3,577 | | | 2,435 | | | 7,256 | | | 4,091 | |
Net income available to common shareholders | $ | 229,900 | | | $ | 122,498 | | | $ | 431,064 | | | $ | 205,908 | |
| | | | | | | | |
Denominator: | | | | | | | | |
Basic weighted average common shares outstanding | 44,700 | | | 46,803 | | | 45,318 | | | 46,858 | |
Effect of dilutive securities: Non-participating employee stock options (1) | 580 | | | 744 | | | 588 | | | 728 | |
Diluted weighted average common shares outstanding | 45,280 | | | 47,547 | | | 45,906 | | | 47,586 | |
Basic earnings per share | $ | 5.14 | | | $ | 2.62 | | | $ | 9.51 | | | $ | 4.39 | |
Diluted earnings per share | $ | 5.08 | | | $ | 2.58 | | | $ | 9.39 | | | $ | 4.33 | |
| | | | | | | | |
| | | | | | | | |
(1) Stock options to purchase shares of common stock that would have been anti-dilutive are not included in the calculation. There were no anti-dilutive options outstanding during the three months ended March 25, 2022 and March 26, 2021. Additionally, there were no anti-dilutive options outstanding during the six months ended March 25, 2022 and March 26, 2021. |
|
| | | | | | | | |
| | Three months ended |
(in thousands, except per share data) | | December 29, 2017 | | December 30, 2016 |
Basic: | | | | |
Net income | $ | 27,189 |
| | $ | 17,382 |
|
Weighted-average shares outstanding | 63,316 |
| | 62,642 |
|
Basic earnings per share | $ | 0.43 |
| | $ | 0.28 |
|
| | | | |
Diluted: | | | | |
Net income | $ | 27,189 |
| | $ | 17,382 |
|
Weighted-average shares outstanding - basic | 63,316 |
| | 62,642 |
|
Effect of dilutive securities: Stock compensation plans(1) | 2,673 |
| | 3,278 |
|
Weighted-average shares outstanding - diluted | 65,989 |
| | 65,920 |
|
Diluted earnings per share | $ | 0.41 |
| | $ | 0.26 |
|
| | | | |
| | | | |
(1) Stock options to purchase approximately 0.4 million shares of common stock were outstanding during the three months ended December 29, 2017, but were not included in the calculation of diluted earnings per share as the impact of these options would have been anti-dilutive. |
Stock options to purchase approximately 3.3 million shares of common stock were outstanding during the three months ended December 30, 2016, but were not included in the calculation of diluted earnings per share as the impact of these options would have been anti-dilutive. |
8. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents the changes in accumulated other comprehensive loss by component net of tax:for the three months ended March 25, 2022 and March 26, 2021.
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Defined Benefit Pension Items | | Currency Translation Adjustments | | Total |
Balance as of December 24, 2021 | | $ | (19,193) | | | $ | (10,866) | | | $ | (30,059) | |
Other comprehensive loss before reclassifications | | — | | | (2,554) | | | (2,554) | |
Amounts reclassified from accumulated other comprehensive income, net of tax | | 125 | | | — | | | 125 | |
Net current period other comprehensive income (loss) | | 125 | | | (2,554) | | | (2,429) | |
| | | | | | |
Balance as of March 25, 2022 | | $ | (19,068) | | | $ | (13,420) | | | $ | (32,488) | |
| | | | | | |
|
|
| | | | | | | | | | | | |
(in thousands) | | Defined benefit pension items | | Currency translation adjustments | | Total |
Balance as of September 30, 2017 | | $ | (10,445 | ) | | $ | (7,537 | ) | | $ | (17,982 | ) |
Other comprehensive income before reclassifications | | — |
| | 331 |
| | 331 |
|
Amounts reclassified from accumulated other comprehensive loss | | 65 |
| | — |
| | 65 |
|
Net current period other comprehensive income | | 65 |
| | 331 |
| | 396 |
|
Balance as of December 29, 2017 | | $ | (10,380 | ) | | $ | (7,206 | ) | | $ | (17,586 | ) |
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Defined Benefit Pension Items | | Currency Translation Adjustments | | Total |
Balance as of December 25, 2020 | | $ | (30,499) | | | $ | (4,742) | | | $ | (35,241) | |
Other comprehensive loss before reclassifications | | — | | | (818) | | | (818) | |
Amounts reclassified from accumulated other comprehensive income, net of tax | | 262 | | | — | | | 262 | |
Net current period other comprehensive income (loss) | | 262 | | | (818) | | | (556) | |
| | | | | | |
Balance as of March 26, 2021 | | $ | (30,237) | | | $ | (5,560) | | | $ | (35,797) | |
| | | | | | |
|
The following table presents the changes in accumulated other comprehensive loss by component for the six months ended March 25, 2022 and March 26, 2021.
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Defined Benefit Pension Items | | Currency Translation Adjustments | | Total |
Balance as of September 30, 2021 | | $ | (19,318) | | | $ | (9,408) | | | $ | (28,726) | |
Other comprehensive loss before reclassifications | | — | | | (4,012) | | | (4,012) | |
Amounts reclassified from accumulated other comprehensive income, net of tax | | 250 | | | — | | | 250 | |
Net current period other comprehensive income (loss) | | 250 | | | (4,012) | | | (3,762) | |
| | | | | | |
Balance as of March 25, 2022 | | $ | (19,068) | | | $ | (13,420) | | | $ | (32,488) | |
| | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Defined Benefit Pension Items | | Currency Translation Adjustments | | Total |
Balance as of September 30, 2020 | | $ | (30,761) | | | $ | (11,793) | | | $ | (42,554) | |
Other comprehensive income before reclassifications | | — | | | 6,233 | | | 6,233 | |
Amounts reclassified from accumulated other comprehensive income, net of tax | | 524 | | | — | | | 524 | |
Net current period other comprehensive income | | 524 | | | 6,233 | | | 6,757 | |
| | | | | | |
Balance as of March 26, 2021 | | $ | (30,237) | | | $ | (5,560) | | | $ | (35,797) | |
| | | | | | |
|
9. INVENTORIES, NET
A majority of the Company'sCompany’s inventories are recorded at the lower of cost (primarily last in, first out, or "LIFO"“LIFO”) or market.market or net realizable value, as applicable. Approximately 77%85% and 75%81% of the Company'sCompany’s inventories were valued at the lower of LIFO cost or market at December 29, 2017March 25, 2022 and September 30, 2017,2021, respectively. Interim LIFO determinations, including those at December 29, 2017,March 25, 2022, are based on management'smanagement’s estimates of future inventory levels and costs for the remainder of the current fiscal year.
| | (in thousands) | December 29, 2017 | | September 30, 2017 | (in thousands) | | March 25, 2022 | | September 30, 2021 |
Purchased materials and manufactured parts, net | $ | 46,875 |
| | $ | 49,168 |
| Purchased materials and manufactured parts, net | | $ | 126,227 | | | $ | 105,460 | |
Work in process, net | 20,398 |
| | 17,598 |
| Work in process, net | | 61,589 | | | 35,043 | |
Finished goods, net | 136,568 |
| | 133,237 |
| Finished goods, net | | 223,540 | | | 145,486 | |
Inventories, net | $ | 203,841 |
| | $ | 200,003 |
| Inventories, net | | $ | 411,356 | | | $ | 285,989 | |
Total inventories would be $7,190$121,895 higher and $4,915$108,911 higher than reported as of December 29, 2017March 25, 2022 and September 30, 2017,2021, respectively, if the first-in, first-out method was used for all inventories. As of December 29, 2017March 25, 2022, and September 30, 2017,2021, the excess and obsolete inventory reserve was $8,512$18,650 and $8,432,$11,780, respectively.
10. PROPERTY, PLANT AND EQUIPMENT
As of December 29, 2017March 25, 2022, and September 30, 2017,2021, property, plant and equipment at cost and accumulated depreciation were as follows:
| | (in thousands) | December 29, 2017 | | September 30, 2017 | (in thousands) | | March 25, 2022 | | September 30, 2021 |
Land | $ | 13,295 |
| | $ | 13,296 |
| Land | | $ | 22,768 | | | $ | 23,043 | |
Buildings and related improvements | 105,290 |
| | 105,154 |
| Buildings and related improvements | | 137,401 | | | 136,680 | |
Machinery and equipment | 266,106 |
| | 263,575 |
| Machinery and equipment | | 386,350 | | | 372,503 | |
Leasehold improvements | 6,808 |
| | 6,744 |
| Leasehold improvements | | 10,168 | | | 9,720 | |
Software | | Software | | 27,988 | | | 28,288 | |
Construction in progress | 18,443 |
| | 16,160 |
| Construction in progress | | 60,259 | | | 43,055 | |
Property, plant and equipment | 409,942 |
| | 404,929 |
| |
Property, plant and equipment, at cost | | Property, plant and equipment, at cost | | 644,934 | | | 613,289 | |
Accumulated depreciation | (202,455 | ) | | (196,310 | ) | Accumulated depreciation | | (358,998) | | | (337,667) | |
Property, plant and equipment, net | $ | 207,487 |
| | $ | 208,619 |
| Property, plant and equipment, net | | $ | 285,936 | | | $ | 275,622 | |
Depreciation expense for the three months ended December 29, 2017March 25, 2022 and December 30, 2016March 26, 2021 totaled $8,523$11,293 and $8,039,$11,170 respectively. Depreciation expense for the six months ended March 25, 2022 and March 26, 2021 totaled $23,110 and $21,953 respectively.
11. GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying amount of goodwill are as follows:
|
| | | | | | | | | | | |
(in thousands) | Electrical Raceway | | Mechanical Products & Solutions | | Total |
Balance as of October 1, 2017 | $ | 108,528 |
| | $ | 39,188 |
| | $ | 147,716 |
|
Purchase price adjustments | 227 |
| | — |
| | 227 |
|
Exchange rate effects | 118 |
| | — |
| | 118 |
|
Balance as of December 29, 2017 | $ | 108,873 |
| | $ | 39,188 |
| | $ | 148,061 |
|
| | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Electrical | | Safety & Infrastructure | | Total |
Balance as of September 30, 2021 | | $ | 155,471 | | | $ | 43,577 | | | $ | 199,048 | |
Goodwill acquired during year | | 7,348 | | | 6,398 | | | 13,746 | |
Exchange rate effects | | (822) | | | 195 | | | (627) | |
Balance as of March 25, 2022 | | $ | 161,997 | | | $ | 50,170 | | | $ | 212,167 | |
Goodwill acquired from the Calpipe and Flexicon acquisitions is based on a preliminary purchase price allocations and is subject to final valuations of intangible assets, fixed assets and working capital items. See Note 2, ''Acquisitions'' to our unaudited condensed consolidated financial statements. Goodwill balances as of October 1, 2017September 30, 2021 and December 29, 2017March 25, 2022 include $3,924 and $43,000 of accumulated impairment losses within the Electrical Raceway and MP&SSafety & Infrastructure segments, respectively.
The Company assesses the recoverability of goodwill and indefinite-lived trade names on an annual basis in accordance with Accounting Standards Codification ("ASC")ASC 350, "Intangibles“Intangibles - Goodwill and Other."” The measurement date is the first day of the fourth fiscal quarter, or more frequently, if events or circumstances indicate that it is more likely than not that the fair value of a reporting unit or the respective indefinite-lived trade name is less than the carrying value. During the three months ended December 29, 2017, there were no such events or circumstances; therefore, the Company did not perform a test to assess the recoverability of goodwill or indefinite-lived trade names.
The following table provides the gross carrying value, accumulated amortization and net carrying value for each major class of intangible assets:asset:
| | | | | | | | | | | | | | | | | | | March 25, 2022 | | September 30, 2021 |
| | | December 29, 2017 | | September 30, 2017 | |
($ in thousands) | Weighted Average Useful Life (Years) | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | |
(in thousands) | | (in thousands) | Weighted Average Useful Life (Years) | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
Amortizable intangible assets: | | | | | | | | | | | | | Amortizable intangible assets: | | | | | | | | | | | | | |
Customer relationships | 12 | | $ | 352,829 |
| | $ | (126,062 | ) | | $ | 226,767 |
| | $ | 350,129 |
| | $ | (118,273 | ) | | $ | 231,856 |
| Customer relationships | 11 | | $ | 387,626 | | | $ | (251,093) | | | $ | 136,533 | | | $ | 371,048 | | | $ | (234,946) | | | $ | 136,102 | |
Other | 7 | | 26,604 |
| | (10,184 | ) | | 16,420 |
| | 27,819 |
| | (9,266 | ) | | 18,553 |
| Other | 7 | | 24,443 | | | (11,627) | | | 12,816 | | | 23,633 | | | (11,411) | | | 12,222 | |
Total | | 379,433 |
| | (136,246 | ) | | 243,187 |
| | 377,948 |
| | (127,539 | ) | | 250,409 |
| Total | | 412,069 | | | (262,720) | | | 149,349 | | | 394,681 | | | (246,357) | | | 148,324 | |
Indefinite-lived intangible assets: | | | | | | | | | | | | | Indefinite-lived intangible assets: | |
Trade names | | 93,880 |
| | — |
| | 93,880 |
| | 93,880 |
| | — |
| | 93,880 |
| Trade names | | 92,880 | | | — | | | 92,880 | | | 92,880 | | | — | | | 92,880 | |
Total | | $ | 473,313 |
| | $ | (136,246 | ) | | $ | 337,067 |
| | $ | 471,828 |
| | $ | (127,539 | ) | | $ | 344,289 |
| Total | | $ | 504,949 | | | $ | (262,720) | | | $ | 242,229 | | | $ | 487,561 | | | $ | (246,357) | | | $ | 241,204 | |
Other intangible assets consist of definite-lived trade names, technology, non-compete agreements and backlogs. Amortization expense for the three months ended December 29, 2017March 25, 2022 and December 30, 2016March 26, 2021 was $8,687$8,701 and $5,589,$8,096, respectively. Amortization expense for the six months ended March 25, 2022 and March 26, 2021 was $16,930 and $16,356, respectively. Expected amortization expense for intangible assets for the remainder of fiscal 20182022 and over the next five years and thereafter is as follows:
|
| | | | |
(in thousands) | | |
Remaining 2018 | | $ | 24,754 |
|
2019 | | 33,254 |
|
2020 | | 32,769 |
|
2021 | | 31,200 |
|
2022 | | 30,377 |
|
2023 | | 30,134 |
|
Thereafter | | 60,699 |
|
| | | | | | | | |
(in thousands) | | |
Remaining 2022 | | $ | 18,923 | |
2023 | | 34,656 | |
2024 | | 29,319 | |
2025 | | 17,310 | |
2026 | | 15,740 | |
2027 | | 14,813 | |
Thereafter | | 18,588 | |
Actual amounts of amortization may differ from estimated amounts due to additional intangible asset acquisitions, impairment of intangible assets and other events.
12. DEBT
Debt as of December 29, 2017March 25, 2022 and September 30, 20172021 was as follows:
|
| | | | | | | |
(in thousands) | December 29, 2017 | | September 30, 2017 |
First Lien Term Loan Facility due December 22, 2023 | $ | 493,928 |
| | $ | 495,134 |
|
ABL Credit Facility | 42,000 |
| | 85,000 |
|
Deferred financing costs | (4,299 | ) | | (4,496 | ) |
Other | 388 |
| | 440 |
|
Total debt | $ | 532,017 |
| | $ | 576,078 |
|
Less: Current portion | 4,215 |
| | 4,215 |
|
Long-term debt | $ | 527,802 |
| | $ | 571,863 |
|
| | | | | | | | | | | | | | |
(in thousands) | | March 25, 2022 | | September 30, 2021 |
| | | | |
| | | | |
Senior Secured Term Loan Facility due May 26, 2028 | | $ | 371,238 | | | $ | 371,095 | |
Senior Notes due June 2031 | | 400,000 | | | 400,000 | |
Deferred financing costs | | (11,777) | | | (12,709) | |
| | | | |
| | | | |
Long-term debt | | $ | 759,461 | | | $ | 758,386 | |
The asset basedasset-based credit facility ("(the “ABL Credit Facility"Facility”) has aggregate commitments of $325,000 and$325,000. AII is the borrower under the ABL Credit Facility which is guaranteed by AIHthe Company and all other subsidiaries of the U.S. operating companies owned by AII. AII'sCompany (other than AII) that are guarantors of the Senior Notes.AII’s availability under the ABL Credit Facility was $206,706$312,905 and $172,994$315,499 as of December 29, 2017March 25, 2022 and September 30, 2017, respectively.2021.
13. FAIR VALUE MEASUREMENTS
Certain assets and liabilities are required to be recorded at fair value on a recurring basis.
The Company uses forward currency contracts to hedge the effects of foreign exchange relating to certain of the Company’s intercompany receivablesbalances denominated in a foreign currency. These derivative instruments are not formally designated as hedges by the Company and the terms of these instruments range from sixtwo months to five years.six months. Short-term forward currency contracts are recorded in either other current assets or other current liabilities and long-term forward currency contracts are recorded in either other long-term assets or other long-term liabilities in the condensed consolidated balance sheet. The fair value gains and losses are included in other expense (income),income, net within the condensed consolidated statements of operations. See Note 5, ''Other Expense (Income), net''“Other Income, net” for further detail.
The total notional amountamounts of undesignated forward currency contracts were £50.8£36.7 million and £52.6£37.4 million as of December 29, 2017March 25, 2022 and September 30, 2017,2021, respectively. Cash flows associated with derivative financial instruments are recognized in the operating section of the condensed consolidated statements of cash flows. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles.
The following table presents the Company'sCompany’s assets and liabilities measured at fair value:
| | | | December 29, 2017 | | September 30, 2017 | | March 25, 2022 | | September 30, 2021 |
(in thousands) | | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 | (in thousands) | | Level 1 | | Level 2 | | Level 1 | | Level 2 |
Assets | | | | | | | | | | | | | Assets | | | | | | | | |
Cash equivalents | | $ | 47 |
| | $ | — |
| | $ | — |
| | $ | 571 |
| | $ | — |
| | $ | — |
| Cash equivalents | | $ | 250,206 | | | $ | — | | | $ | 489,987 | | | $ | — | |
Forward currency contracts | | Forward currency contracts | | — | | | 1,026 | | | — | | | 127 | |
Liabilities | | | | | | | | | | | | | Liabilities | |
Forward currency contracts | | — |
| | 4,160 |
| | — |
| | — |
| | 2,936 |
| | — |
| Forward currency contracts | | — | | | 221 | | | — | | | 183 | |
The Company'sCompany’s remaining financial instruments consist primarily of cash, accounts receivable and accounts payable whose carrying value approximate their fair value due to their short-term nature.
The estimated fair value of financial instruments not carried at fair value in the condensed consolidated balance sheets were as follows:
| | | | December 29, 2017 | | September 30, 2017 | | March 25, 2022 | | September 30, 2021 |
(in thousands) | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | (in thousands) | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
First Lien Term Loan Facility due December 22, 2023 | | $ | 495,000 |
| | $ | 497,673 |
| | $ | 496,250 |
| | $ | 498,979 |
| |
| Senior Secured Term Loan Facility due May 26, 2028 | | Senior Secured Term Loan Facility due May 26, 2028 | | $ | 373,000 | | | $ | 370,553 | | | $ | 373,000 | | | $ | 371,486 | |
Senior Notes due June 2031 | | Senior Notes due June 2031 | | 400,000 | | | 372,600 | | | 400,000 | | | 415,828 | |
Total Debt | | Total Debt | | $ | 773,000 | | | $ | 743,153 | | | $ | 773,000 | | | $ | 787,314 | |
|
In determining the approximate fair value of its long-term debt, the Company used the trading valuevalues among financial institutions, which were classifiedand these values fall within Level 2 of the fair value hierarchy. The carrying value of the ABL Credit Facility approximates fair value due to it being a market-linked variable rate debt.
14. COMMITMENTS AND CONTINGENCIES
The Company has obligations related to commitments to purchase certain goods. As of December 29, 2017,March 25, 2022, such obligations were $180,065$281,924 for the rest of fiscal year 2018, $1,8712022 and $10,789 for fiscal year 20192023 and $8 thereafter.beyond. These amounts represent open purchase orders for materials used in production.
Insurable Liabilities — The Company maintains policies with various insurance companies for its workers’ compensation, product, property, general, auto, and executive liability risks. The insurance policies that the Company maintains have various retention levels and excess coverage limits. The establishment and update of liabilities for unpaid claims, including claims incurred but not reported, is based on management's estimate as a result of the assessment by the Company's claim administrator of each claim and an independent actuarial valuation of the nature and severity of total claims. The Company utilizes a third-party claims administrator to pay claims, track and evaluate actual claims experience, and ensure consistency in the data used in the actuarial valuation.
Legal Contingencies — The Company is a defendant in Historically, a number of pending legal proceedings, some of which were inherited from its former parent, Tyco International Ltd., including certain product liability claims. Several lawsuits have been filed against the Company and the Company has also received other claim demand letters alleging that the Company's anti-microbial coated steel sprinkler pipe, which the Company has not manufactured or sold for several years, is incompatible with chlorinated polyvinyl chloride and caused stress cracking in such pipe manufactured by third parties when installed together in the same sprinkler system, which the Company refers to collectively as the "Special“Special Products Claims." After an analysis of claims experience,” Tyco International Ltd. (“Tyco”), now Johnson Controls, Inc. (“JCI”), has a contractual obligation to indemnify the Company reserved its best estimatein respect of all remaining and future claims of incompatibility between the probableCompany's antimicrobial coated steel sprinkler pipe and reasonably estimable losses related to these matters. The Company's total product liability reserves forCPVC pipe used in the same sprinkler system. When Special Products Claims arise, JCI has defended and other product liability matters were $4,973 and $5,872 as of December 29, 2017 and September 30, 2017, respectively. As of December 29, 2017,indemnified the Company believes that the range of probable losses for Special Products Claims and other product liabilities is between $3,000 and $10,000.as required.
At this time, the Company does not expect the outcome of the Special Products Claims proceedings, either individually or in the aggregate, to have a material adverse effect on its business, financial condition, results of operations or cash flows, and the Company believes that its reserves are adequate for all claims, includingremaining contingencies for Special Products Claims contingencies. However, it is possible that additional reserves could be required in the future that could have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. This additional loss or range of losses cannot be recorded at this time, as it is not reasonably estimable.Claims.
During fiscal 2017, the U.S. Department of Commerce ruled on a scope request in relation to an Antidumping Duty Order for Malleable Iron Pipe Fittings from China. The ruling subjects certain of the Company's imports of conduit fittings within the Atkore Steel Components Inc. business (acquired in November 2014) to antidumping duties, which are incremental to the duties previously paid upon importation. The Company is appealing the scope decision and established an accrual of $7,501 during second quarter of fiscal 2017 for the related contingent liability with the related expense recorded in selling, general and administrative in the Company's condensed consolidated statements of operations which covers the post-acquisition period through the date of the scope ruling.
In addition to the matters discussed above, from time to time, the Company is subject to a number of disputes, administrative proceedings and other claims arising out of the ordinary conduct of the Company'sCompany’s business. These matters generally relate to disputes arising out of the use or installation of the Company'sCompany’s products, product liability litigation, contract disputes, patent infringement accusations, employment matters, personal injury claims and similar matters. On the basis of information currently available to the Company, it does not believe that existing proceedings and claims will have a material adverse effect on its business, financial condition, results of operations or cash flows. However, litigation is unpredictable, and the Company could incur judgments or enter into settlements for current or future claims that could adversely affect its business, financial condition, results of operations or cash flows.
15. GUARANTEES
The Company hashad outstanding letters of credit totaling $8,560$12,095 supporting workers'workers’ compensation and general liability insurance policies as of December 29, 2017.March 25, 2022. The Company also hashad surety bonds primarily related to performance guarantees on supply agreements and construction contracts, and payment of duties and taxes totaling $33,200$19,157 as of December 29, 2017.March 25, 2022.
In disposing of assets or businesses, the Company often provides representations, warranties and indemnities to cover various risks including unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to periods prior to disposition. The Company does not have the ability to estimate the potential liability from such indemnities because they relate to unknown conditions. However, the Company has no reason to believe that these uncertainties would have a material adverse effect on the Company'sCompany’s business, financial condition, results of operations or cash flows.
In the normal course of business, the Company is liable for product performance and contract completion. In the opinion of management, such obligations will not have a material adverse effect on the Company'sCompany’s business, financial condition, results of operations or cash flows.
16. SEGMENT INFORMATION
The Company has two operating segments, which are also its reportable segments. The Company's operating segments are organized based upon primary market channelsElectrical segment manufactures high quality products used in the construction of electrical power systems including conduit, cable and installation accessories. This segment serves contractors in most instances, the end use of products.
Through its Electrical Raceway segment, the Company manufactures products that deploy, isolate and protect a structure's electrical circuitry from the original power source to the final outlet. These products, which include electrical conduit, armored cable, cable trays, mounting systems and fittings, are critical components ofpartnership with the electrical infrastructure for new constructionwholesale channel.
The Safety & Infrastructure segment designs and maintenance, repair and remodel markets. The vast majority of the Company's Electrical Raceway Net sales are made to electrical distributors, who then serve electrical contractors, and the Company considers both to be customers.
Through the MP&S segment, the Company provides products and services that frame, support and secure component parts in a broad range of structures, equipment and systems in electrical, industrial and construction applications. The Company's principal products in this segment aremanufactures solutions including metal framing, productsmechanical pipe, perimeter security and in-line galvanized mechanical tube. Through its metal framing business,cable management for the Company designs, manufacturesprotection and installs metal strutreliability of critical infrastructure. These solutions are marketed to contractors, original equipment manufacturers and fittings used to assemble mounting structures that support heavy equipment and electrical content in buildings and other structures.
end users.
Both segments use Adjusted EBITDA as the primary measure of profit and loss. Segment Adjusted EBITDA is the sum of income (loss) before income taxes, adjusted to exclude unallocated expenses, depreciation and amortization, interest expense, net, stock-based compensation, loss (gain) on extinguishment of debt, restructuring and impairments, stock-based compensation, consulting fees, multi-employer pension withdrawal, certain legal matters, transaction costs, gain on sale of joint venture and other items, such as inventory reserves and adjustments, loss on disposal of property, plant and equipment, insurance recovery related to damages of property, plant and equipment, release of indemnified uncertain tax positions, realized or unrealized gain (loss) on foreign currency transactions.impacts of intercompany loans and related forward currency derivatives, gain on purchase of business, restructuring costs and transaction costs.
Intersegment transactions primarily consist of product sales at designated transfer prices on an arms-lengtharm’s-length basis. Gross profit earned and reported within the segment is eliminated in the Company'sCompany’s consolidated results. Certain manufacturing and distribution expenses are allocated between the
segments on a pro rata basis due to the shared nature of activities. Recorded amounts represent a proportional amount of the quantity of product produced for each segment. Certain assets, such as machinery and equipment and facilities, are not allocated to each segment despite serving both segments. These shared assets are reported within the Safety & Infrastructure segment. The Company allocates certain corporate operating expenses that directly benefit our operating segments, such as insurance and information technology, on a basis that reasonably approximates an estimate of the use of these services.
| | | Three months ended | | Three months ended |
| December 29, 2017 | | December 30, 2016 | | March 25, 2022 | | March 26, 2021 |
(in thousands) | External Net Sales | | Intersegment Sales | | Adjusted EBITDA | | External Net Sales | | Intersegment Sales | | Adjusted EBITDA | (in thousands) | External Net Sales | | Intersegment Sales | | Adjusted EBITDA | | External Net Sales | | Intersegment Sales | | Adjusted EBITDA |
Electrical Raceway | $ | 316,005 |
| | $ | 518 |
| | $ | 56,160 |
| | $ | 241,939 |
| | $ | 446 |
| | $ | 42,117 |
| |
MP&S | 98,553 |
| | 21 |
| | $ | 10,809 |
| | 95,652 |
| | 29 |
| | $ | 15,781 |
| |
Electrical | | Electrical | $ | 758,347 | | | $ | 1,530 | | | $ | 330,970 | | | $ | 486,924 | | | $ | 576 | | | $ | 188,826 | |
Safety & Infrastructure | | Safety & Infrastructure | 224,226 | | | 59 | | | 28,917 | | | 152,619 | | | 81 | | | 16,193 | |
Eliminations | — |
| | (539 | ) | | | | — |
| | (475 | ) | | | Eliminations | — | | | (1,589) | | | — | | | (657) | | |
Consolidated operations | $ | 414,558 |
| | $ | — |
| | | | $ | 337,591 |
| | $ | — |
| | | Consolidated operations | $ | 982,573 | | | $ | — | | | $ | 639,543 | | | $ | — | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended |
| March 25, 2022 | | March 26, 2021 |
(in thousands) | External Net Sales | | Intersegment Sales | | Adjusted EBITDA | | External Net Sales | | Intersegment Sales | | Adjusted EBITDA |
Electrical | $ | 1,398,691 | | | $ | 2,869 | | | $ | 610,517 | | | $ | 873,244 | | | $ | 1,401 | | | $ | 322,099 | |
Safety & Infrastructure | 424,683 | | | 112 | | | 56,349 | | | 277,381 | | | 84 | | | 30,445 | |
Eliminations | — | | | (2,981) | | | | | — | | | (1,485) | | | |
Consolidated operations | $ | 1,823,374 | | | $ | — | | | | | $ | 1,150,625 | | | $ | — | | | |
Presented below is a reconciliation of operating segmentSegment Adjusted EBITDA to Income before income taxes:
|
| | | | | | | | | |
| | | Three months ended |
(in thousands) | | | December 29, 2017 |
| December 30, 2016 |
Operating segment Adjusted EBITDA | | | | | |
Electrical Raceway | | $ | 56,160 |
| | $ | 42,117 |
|
MP&S | | 10,809 |
| | 15,781 |
|
Total | | 66,969 |
|
| 57,898 |
|
Unallocated expenses (a) | | (8,482 | ) | | (8,007 | ) |
Interest expense, net | | (6,594 | ) | | (9,830 | ) |
Depreciation and amortization | | (17,210 | ) | | (13,628 | ) |
Loss on extinguishment of debt | | — |
| | (9,805 | ) |
Restructuring and impairments | | (262 | ) | | (389 | ) |
Stock-based compensation | | (3,564 | ) | | (2,720 | ) |
Transaction costs | | (645 | ) | | (1,560 | ) |
Other | | (507 | ) | | 10,930 |
|
Income before income taxes | | $ | 29,705 |
| | $ | 22,889 |
|
| | | | | |
(a) Represents unallocated selling, general and administrative activities and associated expenses including, in part, executive, legal, finance, human resources, information technology, business development and communications, as well as certain costs and earnings of employee-related benefits plans, such as stock-based compensation and a portion of self-insured medical costs.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
(in thousands) | | March 25, 2022 | | March 26, 2021 | | March 25, 2022 | | March 26, 2021 |
Operating segment Adjusted EBITDA | | | | | | | | |
Electrical | | $ | 330,970 | | | $ | 188,826 | | | $ | 610,517 | | | $ | 322,099 | |
Safety & Infrastructure | | 28,917 | | | 16,193 | | | 56,349 | | | 30,445 | |
Total | | $ | 359,887 | | | $ | 205,019 | | | $ | 666,866 | | | $ | 352,544 | |
Unallocated expenses (a) | | (13,721) | | | (11,654) | | | (27,690) | | | (22,189) | |
Depreciation and amortization | | (19,994) | | | (19,265) | | | (40,040) | | | (38,309) | |
Interest expense, net | | (7,514) | | | (8,416) | | | (14,432) | | | (16,670) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Stock-based compensation | | (6,128) | | | (4,868) | | | (9,555) | | | (10,390) | |
Other (b) | | (440) | | | 2,421 | | | (1,241) | | | 10,281 | |
Income before income taxes | | $ | 312,090 | | | $ | 163,237 | | | $ | 573,908 | | | $ | 275,267 | |
| | | | | | | | |
(a) Represents unallocated selling, general and administrative activities and associated expenses including, in part, executive, legal, finance, human resources, information technology, business development and communications, as well as certain costs and earnings of employee-related benefits plans, such as stock-based compensation and a portion of self-insured medical costs. |
(b) Represents other items, such as inventory reserves and adjustments, loss on disposal of property, plant and equipment, insurance recovery related to damages of property, plant and equipment, release of indemnified uncertain tax positions, realized or unrealized gain (loss) on foreign currency impacts of intercompany loans and related forward currency derivatives, gain on purchase of business, restructuring costs and transaction costs. |
The Company’s net sales by geography were as follows for the three months ended and six months ended March 25, 2022 and March 26, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
(in thousands) | | March 25, 2022 | | March 26, 2021 | | March 25, 2022 | | March 26, 2021 |
United States | | $ | 895,585 | | | $ | 572,427 | | | $ | 1,652,983 | | | $ | 1,027,191 | |
Other Americas | | 24,649 | | | 12,636 | | | 47,136 | | | 19,410 | |
Europe | | 52,709 | | | 43,546 | | | 103,162 | | | 82,899 | |
Asia-Pacific | | 9,630 | | | 10,934 | | | 20,093 | | | 21,125 | |
Total | | $ | 982,573 | | | $ | 639,543 | | | $ | 1,823,374 | | | $ | 1,150,625 | |
The table below shows the amount of net sales from external customers for each of the Company’s product categories which accounted for 10% or more of consolidated net sales in either period for the three months ended and six months ended March 25, 2022 and March 26, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
(in thousands) | | March 25, 2022 | | March 26, 2021 | | March 25, 2022 | | March 26, 2021 |
Metal Electrical Conduit and Fittings | | $ | 153,049 | | | $ | 148,405 | | | $ | 302,925 | | | $ | 273,234 | |
Electrical Cable & Flexible Conduit | | 137,244 | | | 85,440 | | | 252,939 | | | 158,952 | |
Plastic Pipe and Conduit | | 374,775 | | | 197,139 | | | 663,764 | | | 337,674 | |
| | | | | | | | |
Other Electrical products | | 93,279 | | | 55,940 | | | 179,063 | | | 103,384 | |
Electrical | | 758,347 | | | 486,924 | | | 1,398,691 | | | 873,244 | |
| | | | | | | | |
Mechanical Pipe | | 112,818 | | | 86,480 | | | 224,061 | | | 151,991 | |
Other Safety & Infrastructure products | | 111,408 | | | 66,139 | | | 200,622 | | | 125,390 | |
Safety & Infrastructure | | 224,226 | | | 152,619 | | | 424,683 | | | 277,381 | |
Net sales | | $ | 982,573 | | | $ | 639,543 | | | $ | 1,823,374 | | | $ | 1,150,625 | |
17. SUBSEQUENT EVENTS
On January 8, 2018,April 26, 2022, the Company acquiredboard of directors approved an amendment to the assets of Communications Integrators, Inc. ("Cii"), a manufacturer of modular, prefabricated power, voice and data distribution systems located in Tempe, Arizona.
On February 2, 2018, the Company completed a stockpreviously approved share repurchase transaction whereby the Company repurchased from CD&R Allied Holdings, L.P. (the "CD&R Investor"), a related party, approximately 17.2program to purchase $400 million shares of the Company's common stock, par value $0.01 per share, at a per share price equal to $21.77, which approximated fair value onCompany’s outstanding stock. The amendment increased the date of pricing for a total purchase price of approximately $375 million, subject to the terms and conditions set forth in the stock purchase agreement. As a resultrepurchase plan of the Company’s outstanding stock repurchase transaction, the CD&R Investor ownership decreased to approximately 29%.
On February 2, 2018, the Company borrowed an incremental $425 million under the First Lien Term Loan Facility at an interest rate of LIBOR plus 2.75%. Under this financing transaction, the interest rate on the pre-existing First Lien Term Loan Facility was also reduced to LIBOR plus 2.75%. The Company used proceeds from the incremental borrowing to i) repurchase common shares from the CD&R Investor, ii) repay all outstanding loans under the ABL Credit Facility and iii) pay related fees and expenses.
$800 million.
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this report. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward- looking statements. Factors that could cause or contribute to these differences include those factors discussed below and included or referenced elsewhere in this report, particularly in the sections entitled "Forward-Looking Statements" “Forward-Looking Statements” and "Risk Factors".“Risk Factors.”
Incremental Market Uncertainties Recent Events
On January 8, 2018, the Company acquired the assets of Communications Integrators, Inc. ("Cii"), a manufacturer of modular, prefabricated power, voice and data distribution systems located in Tempe, Arizona.
On February 2, 2018, the Company completed a stock repurchase transaction whereby the Company repurchased from CD&R Allied Holdings, L.P. (the "CD&R Investor"), a related party, approximately 17.2 million sharesThe outbreak of the Company's common stock, par value $0.01 per share, atnovel coronavirus (“COVID-19”) has continued to spread and is currently classified as a per share price equalpandemic which is contributing to $21.77, which approximated fair valuevolatility and uncertainty in markets and the global economy. This heightened volatility and uncertainty makes it difficult for us to predict the extent of COVID-19’s impact on the date of pricing for a total purchase price of approximately $375 million, subjectour operations going forward.
Factors that contribute to our ability to adjust to the termsoutbreak include benefiting from mostly localized supply chains and conditions set forthcontinuing to take actions within our control to minimize the disruptive impacts of the outbreak. However, there can be no assurance that we will not be materially and adversely impacted in the stock purchase agreement. As a resultfuture.
In addition to the uncertainties brought about by COVID-19, recent events, including central bank interest rate increases and the Russia-Ukraine conflict, are creating additional uncertainty in the global economy, generally, and in the markets we operate in. COVID-19, the Russia-Ukraine conflict and other factors have had and will continue to have adverse effects on global supply chains, which may impact some aspects of our business. Furthermore, as hurricane season approaches, we are mindful of the stock repurchase transaction, the CD&R Investor ownership decreased to approximately 29%.effects that adverse weather can have on our domestic supply chain.
On February 2, 2018, the Company borrowed an incremental $425 million under the First Lien Term Loan Facility at an interest rate of LIBOR plus 2.75%. Under this financing transaction, the interest rate on the pre-existing First Lien Term Loan Facility was also reduced to LIBOR plus 2.75%. The Company used proceeds from the incremental borrowing to i) repurchase common shares from the CD&R Investor, ii) repay all outstanding loans under the ABL Credit Facility and iii) pay related fees and expenses.
U.S. Federal Income Tax Reform
On December 22, 2017, Congress enacted H.R. 1, which reforms major aspects of the U.S. federal income tax law affecting the Company. See Note 6, ''Income Taxes'' to the Company's unaudited condensed consolidated financial statements and Item 1A. Risk Factors for additional information.
Use of Non-GAAP Measures
Adjusted EBITDA and Adjusted EBITDA MarginRESULTS OF OPERATIONS
We use Adjusted EBITDA and Adjusted EBITDA Margin in evaluating the performance of our business, and we use each in the preparation of our annual operating budgets and as indicators of business performance and profitability. We believe Adjusted EBITDA and Adjusted EBITDA Margin allow us to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance.
We define Adjusted EBITDA as net income (loss) before: depreciation and amortization, interest expense, net, loss (gain) on extinguishment of debt, income tax expense (benefit), restructuring and impairments, stock-based compensation, consulting fees, multi-employer pension withdrawal, certain legal matters, transaction costs, gain on sale of joint venture and other items, such as inventory reserves and adjustments and realized or unrealized gain (loss) on foreign currency transactions. We believe Adjusted EBITDA, when presented in conjunction with comparable accounting principles generally accepted in the United States of America ("GAAP") measures, is useful for investors because management uses Adjusted EBITDA as a profitability measure in evaluating the performance of our business.
We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of Net sales.
Adjusted EBITDA is not considered a measure of financial performance under GAAP and the items excluded therefrom are significant components in understanding and assessing our financial performance. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation or as an alternative to such GAAP measures as net income (loss), cash flows provided by or used in operating, investing or financing activities or other financial statement data presented in ourThe consolidated financial statements as an indicator of financial performance or liquidity. Some of these limitations are:
Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;
Adjusted EBITDA does not reflect interest expense, or the requirements necessary to service interest or principal payments on debt;
Adjusted EBITDA does not reflect income tax expense (benefit) or the cash requirements to pay taxes;
Adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and
although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.
Because Adjusted EBITDA is not a measure determined in accordance with GAAP and is susceptible to varying calculations, Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies.
The following table sets forth a reconciliation of net income to Adjusted EBITDA for the three months ended December 29, 2017 and December 30, 2016: |
| | | | | | | | |
| | Three months ended |
(in thousands) | | December 29, 2017 | | December 30, 2016 |
Net income | | $ | 27,189 |
| | $ | 17,382 |
|
Interest expense, net | | 6,594 |
| | 9,830 |
|
Income tax expense | | 2,516 |
| | 5,507 |
|
Depreciation and amortization | | 17,210 |
| | 13,628 |
|
Loss on extinguishment of debt | | — |
| | 9,805 |
|
Restructuring and impairments (a) | | 262 |
| | 389 |
|
Stock-based compensation (b) | | 3,564 |
| | 2,720 |
|
Transaction costs (c) | | 645 |
| | 1,560 |
|
Other (d) | | 507 |
| | (10,930 | ) |
Adjusted EBITDA | | $ | 58,487 |
| | $ | 49,891 |
|
| | | | |
(a) Restructuring amounts represent exit or disposal costs including termination benefits and facility closure costs. Impairment amounts represent write-downs of goodwill, intangible assets and/or long-lived assets. See Note 4, ''Restructuring Charges'' to our unaudited condensed consolidated financial statements for further detail.
(b) Represents stock-based compensation expenses related to stock option awards, performance stock awards and restricted stock awards.
(c) Represents expenses related to our acquisition and divestiture-related activities. See Note 2, ''Acquisitions'' to our unaudited condensed consolidated financial statements for further detail.
(d) Represents other items, such as inventory reserves and adjustments, realized or unrealized gain (loss) on foreign currency transactions and release of certain indemnified uncertain tax positions.
Results of Operations
The results of operations for the three months ended December 29, 2017March 25, 2022 and December 30, 2016March 26, 2021 were as follows: | | | | | | | | | | | | Three months ended |
| Three months ended | |
($ in thousands) | December 29, 2017 | | December 30, 2016 As Adjusted* | | Change | | % Change | |
(in thousands) | | (in thousands) | March 25, 2022 | | March 26, 2021 | | Change | | % Change |
Net sales | $ | 414,558 |
| | $ | 337,591 |
| | $ | 76,967 |
| | 22.8 | % | Net sales | $ | 982,573 | | | $ | 639,543 | | | $ | 343,030 | | | 53.6 | % |
Cost of sales | 317,691 |
| | 245,926 |
| | 71,765 |
| | 29.2 | % | Cost of sales | 566,157 | | | 399,694 | | | 166,463 | | | 41.6 | % |
Gross profit | 96,867 |
| | 91,665 |
| | 5,202 |
| | 5.7 | % | Gross profit | 416,416 | | | 239,849 | | | 176,567 | | | 73.6 | % |
Selling, general and administrative | 51,595 |
| | 43,928 |
| | 7,667 |
| | 17.5 | % | Selling, general and administrative | 88,918 | | | 67,340 | | | 21,578 | | | 32.0 | % |
Intangible asset amortization | 8,687 |
| | 5,589 |
| | 3,098 |
| | 55.4 | % | Intangible asset amortization | 8,701 | | | 8,096 | | | 605 | | | 7.5 | % |
Operating income | 36,585 |
| | 42,148 |
| | (5,563 | ) | | (13.2 | )% | Operating income | 318,797 | | | 164,413 | | | 154,384 | | | 93.9 | % |
Interest expense, net | 6,594 |
| | 9,830 |
| | (3,236 | ) | | (32.9 | )% | Interest expense, net | 7,514 | | | 8,416 | | | (902) | | | (10.7) | % |
Loss on extinguishment of debt | — |
| | 9,805 |
| | (9,805 | ) | | (100.0 | )% | |
Other expense (income), net | 286 |
| | (376 | ) | | 662 |
| | ** |
| |
| Other income, net | | Other income, net | (807) | | | (7,240) | | | 6,433 | | | (88.9) | % |
Income before income taxes | 29,705 |
| | 22,889 |
| | 6,816 |
| | 29.8 | % | Income before income taxes | 312,090 | | | 163,237 | | | 148,853 | | | 91.2 | % |
Income tax expense | 2,516 |
| | 5,507 |
| | (2,991 | ) | | (54.3 | )% | Income tax expense | 78,613 | | | 38,304 | | | 40,309 | | | 105.2 | % |
Net income | $ | 27,189 |
| | $ | 17,382 |
| | $ | 9,807 |
| | 56.4 | % | Net income | $ | 233,477 | | | $ | 124,933 | | | $ | 108,544 | | | 86.9 | % |
Non-GAAP financial data | | | | | | | | |
Adjusted EBITDA | $ | 58,487 |
| | $ | 49,891 |
| | $ | 8,596 |
| | 17.2 | % | |
Adjusted EBITDA Margin | 14.1 | % | | 14.8 | % | | | | | |
| | | | | | | | |
* Adjusted due to the adoption of ASU 2017-07. See Note 1, ''Basis of Presentation and Summary of Significant Accounting Policies'' for additional information. | |
** Not meaningful | | | | | | | | |
Net sales
|
| | | | | | | |
| | % Change (%) |
Volume | | 9.1(1.3) | % |
Average selling prices | | 5.652.9 | % |
Foreign exchange | | 0.5(0.4) | % |
Acquisitions | | 7.52.3 | % |
Other | | 0.1 | % |
Net sales | | 22.853.6 | % |
Net sales increased $77.0by $343.0 million, or 22.8%53.6%, to $414.6$982.6 million for the three months ended December 29, 2017March 25, 2022, compared to $337.6$639.5 million for the three months ended December 30, 2016. NetMarch 26, 2021. The increase in net sales increased $30.7 million partly dueis primarily attributed to higher volume of products sold for the metal electrical conduit and fittings, armored cable and fittings, mechanical pipe and metal framing and fittings product categories. Additionally, Net sales increased partly due to $25.2 million of higher sales from the acquisitions of Marco, Flexicon and Calpipe during the second half of fiscal 2017. Lastly, Net sales increased $19.0 million due to higher net average selling prices resultingacross the Company’s products of $338.7 million which were mostly driven by the plastic pipe and conduit product category within the Electrical segment and increased net sales of $14.6 million from companies acquired during fiscal 2021 and fiscal 2022. These increases are offset by decreased sales volume of $8.5 million across varying product categories within both the pass-throughElectrical and the Safety & Infrastructure segments. Pricing for PVC products, as well as other parts of higher input costs.the business, is expected to return to more normal historical levels over time, but that time is uncertain.
Cost of sales
|
| | | | | | | |
| | % Change (%) |
Volume | | 8.8(1.9) | % |
Average input costs | | 10.437.9 | % |
Foreign exchange | | 0.6(0.8) | % |
Acquisitions | | 6.82.5 | % |
Other | | 2.63.9 | % |
NetCost of sales | | 29.241.6 | % |
Cost of sales increased by $71.8$166.5 million, or 29.2%41.6%, to $317.7$566.2 million for the three months ended December 29, 2017March 25, 2022 compared to $245.9$399.7 million for the three months ended December 30, 2016.March 26, 2021. The increase was primarily due to higher input costs of steel, copper and copperPVC resin of $151.5 million and recent acquisitions during fiscal 2021 and fiscal 2022 of $10.1 million partially offset by lower sales volume of $7.7 million across varying product categories within both the Electrical and the Safety & Infrastructure segments.
Selling, general and administrative
Selling, general and administrative expenses increased by $21.6 million, or 32.0%, to $88.9 million for the three months ended March 25, 2022 compared to $67.3 million for the three months ended March 26, 2021. The increase was primarily due to higher sales commission expense of $8.1 million, increased general spending on business improvement initiatives of $5.8 million, higher variable compensation of $2.0 million and recent acquisitions in fiscal 2021 and 2022 of $1.6 million. The remaining increase of $4.1 million is spread across a variety of other spend categories.
Intangible asset amortization
Intangible asset amortization expense increased to $8.7 million for the three months ended March 25, 2022 compared to $8.1 million for the three months ended March 26, 2021. The increase in intangible asset amortization was driven by the acquisition of definite-lived intangible assets in fiscal 2022.
Interest expense, net
Interest expense, net decreased by $0.9 million, or 10.7% to $7.5 million for the three months ended March 25, 2022 compared to $8.4 million for the three months ended March 26, 2021. The decrease is primarily due to interest expense being derived from a lower average principal balance resulting from the Company’s fiscal 2021 debt restructuring transactions.
Other income, net
Other income, net decreased to $0.8 million for the three months ended March 25, 2022 compared to $7.2 million for the three months ended March 26, 2021. The decrease was primarily due to a $6.0 million business interruption insurance recovery in fiscal 2021 from a flood at one of the Company’s manufacturing facilities.
Income tax expense
The Company’s income tax rate increased to 25.2% for the three months ended March 25, 2022 compared to 23.5% for the three months ended March 26, 2021. The increase in the current period effective tax rate was primarily driven by a decrease in the excess tax benefit associated with stock compensation.
SEGMENT RESULTS
The Electrical segment manufactures high quality products used in the construction of electrical power systems including conduit, cable and installation accessories. This segment serves contractors in partnership with the electrical wholesale channel.
The Safety & Infrastructure segment designs and manufactures solutions including metal framing, mechanical pipe, perimeter security and cable management for the protection and reliability of critical infrastructure. These solutions are marketed to contractors, original equipment manufacturers and end users.
Both segments use Adjusted EBITDA as the primary measure of profit and loss. Segment Adjusted EBITDA is income (loss) before income taxes, adjusted to exclude unallocated expenses, depreciation and amortization, interest expense, net, stock-based compensation, loss on extinguishment of debt, certain legal matters, and other items, such as inventory reserves and adjustments, loss on disposal of property, plant and equipment, insurance recovery related to damages of property, plant and equipment, release of indemnified uncertain tax positions, realized or unrealized gain (loss) on foreign currency impacts of intercompany loans and related forward currency derivatives, gain on purchase of business, restructuring costs and transaction costs. We define segment Adjusted EBITDA margin as segment Adjusted EBITDA as a percentage of segment Net sales.
Electrical
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended |
(in thousands) | | March 25, 2022 | | March 26, 2021 | | Change | | % Change |
Net sales | | $ | 759,877 | | | $ | 487,500 | | | $ | 272,377 | | | 55.9 | % |
Adjusted EBITDA | | $ | 330,970 | | | $ | 188,826 | | | $ | 142,144 | | | 75.3 | % |
Adjusted EBITDA margin | | 43.6 | % | | 38.7 | % | | | | |
Net sales
| | | | | | | | |
| | % Change |
Volume | | 0.1 | % |
Average selling prices | | 54.1 | % |
Foreign exchange | | (0.6) | % |
Acquisitions | | 1.9 | % |
Other | | 0.4 | % |
Net sales | | 55.9 | % |
Net sales increased by $272.4 million, or 55.9%, to $759.9 million for the three months ended March 25, 2022 compared to $487.5 million for the three months ended March 26, 2021. The increase in net sales is primarily attributed to increased average selling prices of $263.4 million which were mostly driven by the plastic pipe and conduit product category and increased net sales of $9.2 million from companies acquired during fiscal 2021 and fiscal 2022. Pricing for PVC products, as well as other parts of the business, is expected to return to more normal historical levels over time, but that time is uncertain.
Adjusted EBITDA
Adjusted EBITDA for the three months ended March 25, 2022 increased by $142.1 million, or 75.3%, to $331.0 million from $188.8 million for the three months ended March 26, 2021. Adjusted EBITDA margins increased to 43.6% for the three months ended March 25, 2022 compared to 38.7% for the three months ended March 26, 2021. The increase in Adjusted EBITDA and Adjusted EBITDA margins was largely due to higher average selling prices over input costs.
Safety & Infrastructure
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended |
(in thousands) | | March 25, 2022 | | March 26, 2021 | | Change | | % Change |
Net sales | | $ | 224,285 | | | $ | 152,700 | | | $ | 71,585 | | | 46.9 | % |
Adjusted EBITDA | | $ | 28,917 | | | $ | 16,193 | | | $ | 12,724 | | | 78.6 | % |
Adjusted EBITDA margin | | 12.9 | % | | 10.6 | % | | | | |
Net sales
| | | | | | | | |
| | % Change |
Volume | | (5.9) | % |
Average selling prices | | 49.3 | % |
Acquisitions | | 3.5 | % |
Other | | — | % |
Net sales | | 46.9 | % |
Net sales increased by $71.6 million, or 46.9%, for the three months ended March 25, 2022 to $224.3 million compared to $152.7 million for the three months ended March 26, 2021. The increase is primarily attributed to increased average selling prices of $75.2 million driven by higher input costs of steel and increased net sales of $5.4 million from companies acquired during fiscal 2022 partially offset by lower volumes of $9.0 million primarily in the mechanical pipe product line.
Adjusted EBITDA
Adjusted EBITDA increased by $12.7 million, or 78.6%, to $28.9 million for the three months ended March 25, 2022 compared to $16.2 million for the three months ended March 26, 2021. Adjusted EBITDA margins increased to 12.9% for the three months ended March 25, 2022 compared to 10.6% for the three months ended March 26, 2021. The Adjusted EBITDA increase is primarily due to the price increases, partially offset by lower volume, discussed above.
The consolidated results of operations for the six months ended March 25, 2022 and March 26, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended |
(in thousands) | March 25, 2022 | | March 26, 2021 | | Change | | % Change |
Net sales | $ | 1,823,374 | | | $ | 1,150,625 | | | $ | 672,749 | | | 58.5 | % |
Cost of sales | 1,052,150 | | | 721,585 | | | 330,565 | | | 45.8 | % |
Gross profit | 771,224 | | | 429,040 | | | 342,184 | | | 79.8 | % |
Selling, general and administrative | 167,069 | | | 128,418 | | | 38,651 | | | 30.1 | % |
Intangible asset amortization | 16,930 | | | 16,356 | | | 574 | | | 3.5 | % |
Operating income | 587,225 | | | 284,266 | | | 302,959 | | | 106.6 | % |
Interest expense, net | 14,432 | | | 16,670 | | | (2,238) | | | (13.4) | % |
| | | | | | | |
Other income, net | (1,115) | | | (7,671) | | | 6,556 | | | (85.5) | % |
Income before income taxes | 573,908 | | | 275,267 | | | 298,641 | | | 108.5 | % |
Income tax expense | 135,588 | | | 65,268 | | | 70,320 | | | 107.7 | % |
Net income | $ | 438,320 | | | $ | 209,999 | | | $ | 228,321 | | | 108.7 | % |
| | | | | | | |
Net sales
| | | | | | | | |
| | % Change |
Volume | | (5.1) | % |
Average selling prices | | 61.5 | % |
Foreign exchange | | (0.1) | % |
Acquisitions | | 2.2 | % |
| | |
Net sales | | 58.5 | % |
Net sales increased by $672.7 million, or 58.5%, to $1,823.4 million for the six months ended March 25, 2022, compared to $1,150.6 million for the six months ended March 26, 2021. The increase in net sales is primarily attributed to increased average selling prices of $707.9 million which were mostly driven by the plastic pipe and conduit product category within the Electrical segment and increased net sales of $25.6 million $21.7from companies acquired during fiscal 2021 and fiscal 2022. These increases are offset by decreased sales volume of $59.2 million across varying product categories within both the Electrical and the Safety & Infrastructure segments. Pricing for PVC products, as well as other parts of the business, are expected to return to more normal historical levels over time, but that time is uncertain.
Cost of sales
| | | | | | | | |
| | % Change |
Volume | | (5.6) | % |
Average input costs | | 44.6 | % |
Foreign exchange | | (0.2) | % |
Acquisitions | | 2.2 | % |
Other | | 4.8 | % |
Cost of sales | | 45.8 | % |
Cost of sales increased by $330.6 million, or 45.8% to $1,052.2 million for the six months ended March 25, 2022 compared to $721.6 million for the six months ended March 26, 2021. The increase in cost of sales was primarily due to higher input costs for steel, copper and resin of $321.7 million and recent acquisitions in fiscal 2021 and fiscal 2022 of $15.9 million, partially offset by lower sales volume of products sold$40.3 million across varying product categories within both the Electrical and $16.6 million of additional costs related to acquisitions during the second half of fiscal 2017.Safety & Infrastructure segments.
Selling, general and administrative
Selling, general and administrative expenses increased $7.7by $38.7 million, or 17.5%30.1% to $51.6$167.1 million for the threesix months ended December 29, 2017March 25, 2022 compared to $43.9$128.4 million for the threesix months ended December 30, 2016.March 26, 2021. The increase was primarily due to $6.3 million of higher selling, general and administrative costs resulting from the acquisitions of Marco, Flexicon and Calpipe during the second half of fiscal 2017 and higher stock-based compensationsales commission expense of $0.8$16.0 million, resulting from an employee stockincreased general spending on business improvement initiatives of $9.4 million, higher variable compensation awards grantedof $4.2 million, recent acquisitions in the first quarterfiscal 2021 and 2022 of fiscal 2018, partially offset by lower$1.6 million and transaction costs of $0.9$1.1 million. The remaining increase of $6.4 million resulting from costs incurred for the secondary offering during the prior-year period.is spread across a variety of other spend categories.
Intangible asset amortization
Intangible asset amortization expense increased $3.1 million, or 55.4% to $8.7$16.9 million for the threesix months ended December 29, 2017March 25, 2022 compared to $5.6$16.4 million for the threesix months ended December 30, 2016 resulting fromMarch 26, 2021. The increase in intangible asset amortization was driven by the amortizationacquisition of definite-lived intangible assets acquired related to the acquisitions of Marco, Flexicon and Calpipe during the second half ofin fiscal 2017. See Note 2, ''Acquisitions'' to our unaudited condensed consolidated financial statements for further detail.2022.
Interest expense, net
Interest expense, net, decreased $3.2by $2.2 million, or 32.9%13.4% to $6.6$14.4 million for the threesix months ended December 29, 2017March 25, 2022 compared to $9.8$16.7 million for the threesix months ended December 30, 2016.March 26, 2021. The decrease is primarily due to our debt refinancing transactions on December 22, 2016the Company’s principal prepayments in fiscal 2020 and 2021, resulting in a lower principal balance in fiscal 2021 from which resulted in lower levels of debt and lower interest rates. The transactions resulted in lower interest expense by $3.5 million. The decrease in interest expense was partially offset by higher interest expense of $0.5 million relatedderived.
Other income, net
Other income, net decreased to our borrowings against the ABL credit facility. See Note 12, ''Debt'' to our unaudited condensed consolidated financial statements for further detail.
Loss on extinguishment of debt
The $9.8 million loss on extinguishment of debt in the three months ended December 30, 2016 related to the December 22, 2016 redemption of a portion of the Second Lien Term Loan Facility. There was no loss on extinguishment of debt during the three months ended December 29, 2017.
Other expense (income), net
Other expense (income), net increased $0.7 million to expense of $0.3$1.1 million for the threesix months ended December 29, 2017March 25, 2022 compared to income$7.7 million for the six months ended March 26, 2021. The decrease was primarily due to a $6.0 million business interruption insurance recovery in fiscal 2021 from a flood at one of $0.4 million resulting from the unrealized loss on forward currency contracts. See Note 5, ''Other Expense (Income), net'' to our unaudited condensed consolidated financial statements for further detail.Company’s manufacturing facilities.
Income tax expense
The Company'sCompany’s income tax rate decreased to 8.5%23.6% for the threesix months ended December 29, 2017March 25, 2022 compared to 24.1%23.7% for the threesix months ended December 30, 2016.March 26, 2021. The decrease in the six month period effective tax rate was primarily due to an increase in the one-timeexcess tax benefit of the revaluation of the Company's net deferred tax liabilities as a result of the enactment of new tax legislation, H.R.1. on December 22, 2017.
Net income
Net income increased by $9.8 million, or 56.4% to $27.2 million for the three months ended December 29, 2017 compared to $17.4 million for the three months ended December 30, 2016 primarily due to a loss on extinguishment of debt of $9.8 million during fiscal 2017, lower interest expense of $3.2 million and lower income tax expense of $3.0 million resulting from the enactment of H.R.1,associated with stock compensation partially offset by lower operating income of $5.6 million.the increase in non-deductible executive compensation.
Adjusted EBITDASEGMENT RESULTS
Adjusted EBITDA increased by $8.6 million, or 17.2% to $58.5 million for the three months ended December 29, 2017 compared to $49.9 million for the three months ended December 30, 2016. The increase was primarily due to higher volume of products sold and incremental Adjusted EBITDA from acquisitions during the second half of fiscal 2017.Electrical
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended |
(in thousands) | | March 25, 2022 | | March 26, 2021 | | Change | | % Change |
Net sales | | $ | 1,401,560 | | | $ | 874,645 | | | $ | 526,915 | | | 60.2 | % |
Adjusted EBITDA | | $ | 610,517 | | | $ | 322,099 | | | $ | 288,418 | | | 89.5 | % |
Adjusted EBITDA margin | | 43.6 | % | | 36.8 | % | | | | |
Segment results
Electrical Raceway
|
| | | | | | | | | | | | | | | |
| | Three months ended |
($ in thousands) | | December 29, 2017 | | December 30, 2016 | | Change | | % Change |
Net sales | | $ | 316,523 |
| | $ | 242,385 |
| | $ | 74,138 |
| | 30.6 | % |
Adjusted EBITDA | | $ | 56,160 |
| | $ | 42,117 |
| | $ | 14,043 |
| | 33.3 | % |
Adjusted EBITDA Margin | | 17.7 | % | | 17.4 | % | | | | |
Net sales
|
| | | | | | | |
| | % Change (%) |
Volume | | 10.4(2.6) | % |
Average selling prices | | 9.060.5 | % |
Foreign exchange | | 0.8(0.2) | % |
Acquisitions | | 10.42.3 | % |
Other | | 0.2 | % |
Net sales | | 30.660.2 | % |
Net sales increased $74.1by $526.9 million, or 30.6%60.2%, to $316.5$1,401.6 million for the threesix months ended December 29, 2017March 25, 2022 compared to $242.4$874.6 million for the threesix months ended December 30, 2016.March 26, 2021. The increase was duein net sales is primarily attributed to $25.3increased average selling prices of $529.6 million which were mostly driven by the plastic pipe and conduit product category and increased net sales of higher$20.2 million from companies acquired during fiscal 2021 and fiscal 2022. These increases were partially offset by decreased sales volume of $22.8 million. Pricing for PVC products, sold withinas well as other parts of the metal electrical conduit and fittings and armored cable and fittings product categories and $25.2 million of additional sales from the acquisitions of Marco, Flexicon and Calpipe during the second half of fiscal 2017. Additionally, Net sales increased $21.8 million resulting from the pass-through impact of higher input costs of copper and increased market prices within the PVC electrical conduit and fittings market.business, are expected to return to more normal historical levels over time, but that time is uncertain.
Adjusted EBITDA
Adjusted EBITDA for the threesix months ended December 29, 2017March 25, 2022 increased $14.0by $288.4 million, or 33.3%89.5%, to $56.2$610.5 million from $42.1$322.1 million for the threesix months ended December 30, 2016.March 26, 2021. Adjusted EBITDA margins increased to 43.6% for the six months ended March 25, 2022 compared to 36.8% for the six months ended March 26, 2021. The increase in Adjusted EBITDA and Adjusted EBITDA margins was largely due to higher volume of products soldaverage selling prices in relation to changes in input costs, and increased market prices within the PVC electrical conduit and fittings market. Additionally, Adjusted EBITDA increased $4.9 million due to acquisitions during the second half of fiscal 2017.contributions from acquisitions.
Safety & Infrastructure
Mechanical Products & Solutions | | | | | | | | | | | | Six months ended |
| | Three months ended | |
($ in thousands) | | December 29, 2017 | | December 30, 2016 | | Change | | % Change | |
(in thousands) | | (in thousands) | | March 25, 2022 | | March 26, 2021 | | Change | | % Change |
Net sales | | $ | 98,574 |
| | $ | 95,681 |
| | $ | 2,893 |
| | 3.0 | % | Net sales | | $ | 424,795 | | | $ | 277,465 | | | $ | 147,330 | | | 53.1 | % |
Adjusted EBITDA | | $ | 10,809 |
| | $ | 15,781 |
| | $ | (4,972 | ) | | (31.5 | )% | Adjusted EBITDA | | $ | 56,349 | | | $ | 30,445 | | | $ | 25,904 | | | 85.1 | % |
Adjusted EBITDA Margin | | 11.0 | % | | 16.5 | % | | | | | |
Adjusted EBITDA margin | | Adjusted EBITDA margin | | 13.3 | % | | 11.0 | % | |
Net sales
|
| | | | | | | |
| | Change (%) |
Volume | | 5.6(13.1) | % |
Average selling prices | | (2.964.3 | )% |
OtherAcquisitions | | 0.32.0 | % |
Other | | (0.1) | % |
Net sales | | 3.053.1 | % |
Net sales increased $2.9by $147.3 million, or 3.0%53.1%, for the threesix months ended December 29, 2017March 25, 2022 to $98.6$424.8 million compared to $95.7$277.5 million for the threesix months ended December 30, 2016.March 26, 2021. The increase wasis primarily dueattributed to increased average selling prices of $178.3 million primarily driven by higher input costs and increased net sales of $5.4 million of higher volume of products sold within the mechanical pipe and metal framing and fittings product categoriesfrom companies acquired during fiscal 2022 partially offset by lower net average selling prices due to changesvolumes of $36.4 million primarily in the mechanical pipe product mix.line.
Adjusted EBITDA
Adjusted EBITDA decreased $5.0increased $25.9 million, or 31.5%85.1%, to $10.8$56.3 million for the threesix months ended December 29, 2017March 25, 2022 compared to $15.8$30.4 million for the threesix months ended December 30, 2016.March 26, 2021. Adjusted EBITDA margins decreasedincreased to 13.3% for the six months ended March 25, 2022 compared to 11.0% for the threesix months ended December 29, 2017 compared to 16.5% for the three months ended December 30, 2016.March 26, 2021. The Adjusted EBITDA decreasedincrease is primarily due to higher steel and freight coststhe price increases, partially offset by a higherlower volume, of lower margin products sold.discussed above.
Liquidity and Capital Resources
LIQUIDITY AND CAPITAL RESOURCES
We believe we have sufficient liquidity to support our ongoing operations and to invest in future growth and create value for stockholders. Our cash and cash equivalents were $39.8$390.4 million as of December 29, 2017,March 25, 2022, of which $37.7$53.7 million was held at non-U.S. subsidiaries. Those cash balances at foreign subsidiaries may be subject to withholding or local country taxes if the Company’s intention to permanently reinvest such income were to repatriate suchchange and cash was repatriated to the United States. Our cash and cash equivalents decreased $6.0 million from September 30, 2017 primarily due to the repayment of the ABL Credit Facility, partially offset by cash inflow from continuing operations.
In general, we require cash to fund working capital investments, acquisitions, capital expenditures, debt repayment, interest payments, taxes and share repurchases. We have access to the ABL Credit Facility to fund operational needs. As of December 29, 2017,March 25, 2022, there were $42.0 million ofno outstanding borrowings under the ABL Credit Facility and $8.6$12.1 million of letters of credit issued under the ABL Credit Facility. The borrowing base was estimated to be $257.3$325.0 million and approximately $206.7$312.9 million was available under the ABL Credit Facility as of December 29, 2017.March 25, 2022. Outstanding letters of credit count as utilization of the commitments under the ABL Credit Facility and reduce the amount available for borrowings.
The agreements governing the First LienSenior Secured Term Loan Facility and the ABL Credit Facility (collectively, the "Credit Facilities") contain covenants that limit or restrict AII'sAII’s ability to incur additional indebtedness, repurchase debt, incur liens, sell assets, make certain payments (including dividends) and enter into transactions with affiliates. AII has been in compliance with the covenants under the agreements for all periods presented.
We may from time to time repurchase our debt or take other steps to reduce our debt. These actions may include open market repurchases, negotiated repurchases or opportunistic refinancing of debt. The amount of debt, if any, that may be repurchased or refinanced will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants and other considerations. Our affiliates may also purchase our debt from time to time, through open market purchases or other transactions.
Our use of cash may fluctuate during the year and from year to year due to differences in demand and changes in economic conditions primarily related to the prices of the commodities we purchase.
Capital expenditures have historically been necessary to expand and update the production capacity and improve the productivity of our manufacturing operations.
Our ongoing liquidity needs are expected to be funded by cash on hand, net cash provided by operating activities and, as required, borrowings under the ABL Credit Facilities.Facility. We expect that cash provided from operations and available capacity under the ABL Credit Facility will provide sufficient funds to operate our business, make expected capital expenditures and meet our liquidity requirements for at least the next twelve months, including paymentpayments of interest and principal on our debt.
There have been no material changes in our contractual obligations and commitments since the filing of our Annual Report on Form 10-K.
Limitations on Distributionsdistributions and Dividendsdividends by Subsidiariessubsidiaries
AtkoreAI, AII, and AIIAIH are each holding companies, and as such have no independent operations or material assets other than ownership of equity interests in their respective subsidiaries. Each company depends on its respective subsidiaries to distribute funds to themit so that theyit may pay obligations and expenses, including satisfying obligations with respect to indebtedness. The ability of our subsidiaries to make distributions and dividends to us depends on their operating results, cash requirements and financial and general business conditions, as well as restrictions under the laws of our subsidiaries' jurisdictions.
The agreements governing the Credit Facilities significantly restrict the ability of our subsidiaries, including AII, to pay dividends, make loans or otherwise transfer assets from AII and, in turn, to us. Further, AII's subsidiaries are permitted under the terms of the Credit Facilities to incur additional indebtedness that may restrict or prohibit the making of distributions, the payment of dividends or the making of loans by such subsidiaries to AII and, in turn, to us. The First LienSenior Secured Term Loan Facility requires AII to meet a certain consolidated coverage ratio on an incurrence basis in connection with additional indebtedness. The ABL Credit Facility contains limits on additional indebtedness based on various conditions for incurring the additional debt. AII has been in compliance with the covenants under the agreements for all periods presented.
The table below summarizes cash flow information derived from our statements of cash flows for the periods indicated:
| | | Three months ended | | Six months ended |
(in thousands) | December 29, 2017 | | December 30, 2016 | (in thousands) | | March 25, 2022 | | March 26, 2021 |
Cash flows provided by (used in): | | | | Cash flows provided by (used in): | | | | |
Operating activities | $ | 48,940 |
| | $ | 32,169 |
| Operating activities | | $ | 161,159 | | | $ | 153,246 | |
Investing activities | (7,451 | ) | | (926 | ) | Investing activities | | (60,799) | | | (60,935) | |
Financing activities | (47,665 | ) | | (142,414 | ) | Financing activities | | (285,572) | | | (75,404) | |
Operating activities
During the threesix months ended December 29, 2017, $48.9 millionMarch 25, 2022, the Company was provided $161.2 million by operating activities compared to $32.2$153.2 million during the threesix months ended December 30, 2016.March 26, 2021. The $16.8$7.9 million increase in cash provided was primarily due to lower working capital investments resultinghigher cash flows from fewer daysthe increase in operating income of inventory on hand$303.0 million. This increase in operating income was offset primarily by increased income tax impacts of $150.7 million and a lower payout of incentive-based compensation, partially offset by an increase in days sales outstanding in accounts receivable.
Investing activities
During the three months ended December 29, 2017, the Company used $7.5 million for investing activities compared to $0.9 million during the three months ended December 30, 2016. The $6.5$104.4 million increase in cash used for investing activities isin working capital primarily due to $4.3higher inventory build during the first two quarters of fiscal 2022,
Investing activities
During the six months ended March 25, 2022, the Company used $60.8 million in investing activities compared to $60.9 million during the six months ended March 26, 2021. Investing activities in both periods were primarily related to the acquisitions of increased capital expenditures representing our enhancements of our manufacturingSasco and distribution operationsFour Star in fiscal 2022 and Queen City and FRE Composites in fiscal 2021, as well as replacement and maintenanceconsistent levels of existing equipment and facilities and proceeds from sale of an investment during the three months ended December 30, 2016. There were no sales of investments during the three months ended December 29, 2017.capital expenditures in both periods.
Financing Activities
During the threesix months ended December 29, 2017,March 25, 2022, the Company used $47.7$285.6 million forin financing activities compared to $142.4$75.4 million providedused during the threesix months ended December 30, 2016.March 26, 2021. The use ofincrease in cash wasused in financing activities is primarily for the net repayments of $43.0due to $226.1 million on the ABL Credit Facility and $6.7 million of share repurchases, partially offset by the issuance of $3.3 million ofmore cash used to repurchase common stock net of taxes pursuant to equity compensation.
Duringduring the threesix months ended December 30, 2016,March 25, 2022 compared to the Company redeemed $649.9 million ofsame period in the first lien term loan facility and the second lien term loan facility, partially offset by cash provided from the net borrowing of $498.8 million under the New First Lien Term Loan Facility.prior year.
Contractual Obligations and CommitmentsCHANGES IN CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There were no material changes in our contractual obligations and commitments during the three months ended December 29, 2017.
Change in Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies and estimates since the filing of our Annual Report on Form 10-K.
Recent Accounting Standards
RECENT ACCOUNTING STANDARDS
See Note 1, ''Basis“Basis of Presentation and Summary of Significant Accounting Policies''Policies” to our unaudited condensed consolidated financial statements.
Forward-Looking StatementsFORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements and cautionary statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management'smanagement’s beliefs and assumptions and information currently available to management. Some of the forward-looking statements can be identified by the use of forward-looking terms such as "believes," "expects," "may," "will," "shall," "should," "would," "could," "seeks," "aims," "projects," "is“believes,” “expects,” “may,” “will,” “shall,” “should,” “would,” “could,” “seeks,” “aims,” “projects,” “is optimistic," "intends," "plans," "estimates," "anticipates"” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms. Forward-looking statements include, without limitation, all matters that are not historical facts. They appear in a number of places throughout this Quarterly Report on Form 10-Q and include, without limitation, statements regarding our intentions, beliefs, assumptions or current expectations concerning, among other things, financial position; results of operations; cash flows; prospects; growth strategies or expectations; customer retention; the outcome (by judgment or settlement) and costs of legal, administrative or regulatory proceedings, investigations or inspections, including, without limitation, collective, representative or class action litigation; and the impact of prevailing economic conditions.
Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes, including, without limitation, our actual results of operations, financial condition and liquidity, and the development of the market in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this quarterly report.Quarterly Report. In addition, even if our results of operations, financial condition and cash flows, and the development of the market in which we operate, are consistent with the forward-looking statements contained in this quarterly report,Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors, including, without limitation, the risks and uncertainties discussed or referenced under the caption "Risk Factors"captions “Risk Factors” and "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” in thisour Annual Reports on Form 10-K and Quarterly ReportReports on Form 10-Q, could cause actual results and outcomes to differ materially from those reflected in the forward-looking statements. Additional factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation:
•declines in, and uncertainty regarding, the general business and economic conditions in the United States and international markets in which we operate;
•weakness or another downturn in the United States non-residential construction industry;
•widespread outbreak of diseases, such as the novel coronavirus (COVID-19) pandemic;
•changes in prices of raw materials;
•pricing pressure, reduced profitability, or loss of market share due to intense competition;
•availability and cost of third-party freight carriers and energy;
•high levels of imports of products similar to those manufactured by us;
•changes in federal, state, local and international governmental regulations and trade policies;
•adverse weather conditions;
failure to generate sufficient cash flow from operations or to raise sufficient funds in the capital markets to satisfy existing obligations and support the development of our business;
•increased costs relating to future capital and operating expenditures to maintain compliance with environmental, health and safety laws;
•reduced spending by, deterioration in the financial condition of, or other adverse developments, including inability or unwillingness to pay our invoices on time, with respect to one or more of our top customers;
•increases in our working capital needs, which are substantial and fluctuate based on economic activity and the market prices for our main raw materials, including as a result of failure to collect, or delays in the collection of, cash from the sale of manufactured products;
•work stoppage or other interruptions of production at our facilities as a result of disputes under existing collective bargaining agreements with labor unions or in connection with negotiations of new collective bargaining agreements, as a result of supplier financial distress, or for other reasons;
challenges attracting and retaining key personnel or high-quality employees;
•changes in our financial obligations relating to pension plans that we maintain in the United States;
•reduced production or distribution capacity due to interruptions in the operations of our facilities or those of our key suppliers;
•loss of a substantial number of our third-party agents or distributors or a dramatic deviation from the amount of sales they generate;
•security threats, attacks, or other disruptions to our information systems, or failure to comply with complex network security, data privacy and other legal obligations or the failure to protect sensitive information;
•possible impairment of goodwill or other long-lived assets as a result of future triggering events, such as declines in our cash flow projections or customer demand;demand and changes in our business and valuation assumptions;
•safety and labor risks associated with the manufacture and in the testing of our products;
•product liability, construction defect and warranty claims and litigation relating to our various products, as well as government inquiries and investigations, and consumer, employment, tort and other legal proceedings;
•our ability to protect our intellectual property and other material proprietary rights;
•risks inherent in doing business internationally;
•changes in foreign laws and legal systems, including as a result of Brexit;
•our inability to introduce new products effectively or implement our innovation strategies;
the inability of our customers to pay off the credit lines extended to them by us in a timely manner and the negative impact on customer relations resulting from our collections efforts with respect to non-paying or slow-paying customers;
•our inability to continue importing raw materials, component parts and/or finished goods;
changes as a result of recently enacted tax reform;
•the incurrence of liabilities and the issuance of additional debt or equity in connection with acquisitions, joint ventures or divestitures and the failure of indemnification provisions in our acquisition agreements to fully protect us from unexpected liabilities;
•failure to manage acquisitions successfully, including identifying, evaluating, and valuing acquisition targets and integrating acquired companies, businesses or assets;
the incurrence of liabilities in connection with violations of the FCPA and similar foreign anti-corruption laws;
•the incurrence of additional expenses, increaseincreases in the complexity of our supply chain and potential damage to our reputation with customers resulting from regulations related to "conflict minerals"“conflict minerals”;
•disruptions or impediments to the receipt of sufficient raw materials resulting from various anti-terrorism security measures;
•restrictions contained in our debt agreements;
•failure to generate cash sufficient to pay the principal of, interest on, or other amounts due on our debt;
•challenges attracting and retaining key personnel or high-quality employees;
•future changes to tax legislation;
•failure to generate sufficient cash flow from operations or to raise sufficient funds in the significant influencecapital markets to satisfy existing obligations and support the CD&R Investor will have continued to have over corporate decisions;development of our business; and
•other risks and factors described in this reportQuarterly Report and from time to time in documents that we file with the SEC.
You should read this Quarterly Report on Form 10-Q completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements attributable to us or persons acting on our behalf that are made in this quarterly reportQuarterly Report are qualified in their entirety by these cautionary statements. These forward-looking statements are made only as of the date of this Quarterly Report, on Form 10-Q, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, and changes in future operating results over time or otherwise.
Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to the quantitative and qualitative disclosures about market risks previously disclosed in our Annual Report on Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”), as of the end of the period covered by this report.Quarterly Report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes to our internal control over financial reporting in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) under the Exchange Act during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of certain litigation involving the Company, see Note 14, ''Commitments“Commitments and Contingencies''Contingencies” to our unaudited condensed consolidated financial statements.
Item 1A. Risk Factors
Other than as set forth below, thereThere have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K.
Congress has enacted new tax legislation that that could materially impact our business.
On December 22, 2017, Congress enacted H.R. 1, which reforms major aspects of the U.S. federal income tax law affecting the Company. Some of the provisions of H.R.1 have the potential to affect the Company adversely, including but not limited to:
A limitation on the deductibility of U.S. interest expense, although the Company's preliminary analysis shows that interest expense of the Company would have to increase substantially, or the Company's earnings would have to decrease significantly, before the limitation would apply.
A change to the scope of the net income of the Company's foreign subsidiaries that may be required to be included currently in the Company's U.S. taxable income
A change to the manner in which foreign income taxes are credited by the Company.
A repeal of a deduction related to domestic production activities.
An expansion to the limitation on the deductibility of certain employee compensation.
A tax imposed on certain payments to related foreign persons.
The above list is not comprehensive and represents the Company's current views on the potential impacts of H.R.1., however these views are subject to change as additional guidance becomes available and further analysis is completed. To the extent that such changes, if any, have a negative effect on us or the industries we serve, including as a result of related uncertainty, these changes may materially and adversely affect our business, financial condition, results of operations and cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.Issuer Purchases of Equity Securities
On November 16, 2021, the board of directors approved a share repurchase program, under which the Company may repurchase up to $400.0 million of its outstanding common stock. As of March 25, 2022, there was $138.9 million of purchases remaining under the plan. On April 26, 2022, the board of directors approved an amendment to the aforementioned plan, extending it to a total repurchase of the Company’s outstanding common stock of $800.0 million. The share repurchase program will be funded from the Company’s available cash balances. This share repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be terminated at any time at the Company’s discretion.
The following table shows our purchases of our common stock under this plan during fiscal 2022 (in thousands, except per share data):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period (4-5-4 calendar) | | Total Number Of Shares Purchased | | Avg Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Maximum Value of Shares that May Yet Be Purchased Under the Program |
December 25, 2021 to January 21, 2022 | | 271 | | | $ | 107.27 | | | 271 | | | $ | 266,418 | |
January 22, 2022 to February 25, 2022 | | 729 | | | $ | 100.57 | | | 729 | | | $ | 193,103 | |
February 26, 2022 to March 25, 2022 | | 539 | | | $ | 100.49 | | | 539 | | | $ | 138,917 | |
Total | | 1,539 | | | | | 1,539 | | | |
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
None.
Item 6. Exhibits
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| | | | | | | | | | |
| 31.1# | | |
| 31.2# | | |
| 32.1# | | |
| 32.2# | | |
| 101.INS# | (formatted as inline XBRL) | |
| 101.SCH# | XBRL Taxonomy Schema Linkbase Document (formatted as inline XBRL) | |
| 101.CAL# | | |
| 101.DEF# | | |
| 101.LAB# | | |
| 101.PRE# | | |
| #104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | |
| # | Filed herewith | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | | ATKORE INC. |
| | | ATKORE INTERNATIONAL GROUP INC.(Registrant) |
Date: | May 3, 2022 | By: | (Registrant)/s/ David P. Johnson |
Date: | February 6, 2018 | By: | /s/ James A. Mallak |
| | | Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |