Atkore Inc 10-Q for FY2021 Q3
Atkore Inc. (ATKR)
10-Q
2021-08-03
For: 2021-06-25
View Original
Added on
April 08, 2026
About this 10-Q
Atkore Inc filed this 10-Q on August 3, 2021, covering the quarter ended June 25, 2021 (FY2021 Q3).
Headline figures
Quarter ended June 25, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $853.66M
- up 121.8% from $384.9M a year earlier
- Net income
- $175.3M
- up 628.0% from net income of $24.08M a year earlier
- Diluted EPS
- $3.64
- up 642.9% from $0.49 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________
FORM 10-Q
_________________________________________
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 25, 2021
OR
| 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
_________________________________________
(Exact name of registrant as specified in its charter)
_________________________________________
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||||||
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||||||
_____________________
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
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.
| ☒ | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
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 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 ☐ No ☒
_____________________
As of July 30, 2021, there were 46,102,716 shares of the registrant’s common stock, $0.01 par value per share, outstanding.
Table of Contents
| Page No. | |||||
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ATKORE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended | Nine months ended | |||||||||||||||||||||||||||||||
| (in thousands, except per share data) | Note | June 25, 2021 | June 26, 2020 | June 25, 2021 | June 26, 2020 | |||||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||||||||||
| Intangible asset amortization | 11 | |||||||||||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||||||||
| Interest expense, net | ||||||||||||||||||||||||||||||||
| Loss on extinguishment of debt | ||||||||||||||||||||||||||||||||
| Other income, net | 5 | ( | ( | ( | ( | |||||||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||||||||
| Income tax expense | 6 | |||||||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Net income per share | ||||||||||||||||||||||||||||||||
| Basic | 7 | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Diluted | 7 | $ | $ | $ | $ | |||||||||||||||||||||||||||
See Notes to unaudited condensed consolidated financial statements.
2
ATKORE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three months ended | Nine months ended | |||||||||||||||||||||||||||||||
| (in thousands) | Note | June 25, 2021 | June 26, 2020 | June 25, 2021 | June 26, 2020 | |||||||||||||||||||||||||||
| Net income | $ | $ | $ | |||||||||||||||||||||||||||||
| Other comprehensive income, net of tax: | ||||||||||||||||||||||||||||||||
| Change in foreign currency translation adjustment | ||||||||||||||||||||||||||||||||
| Change in unrecognized loss related to pension benefit plans | 4 | |||||||||||||||||||||||||||||||
| Total other comprehensive income | 8 | |||||||||||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||||||||||||||||||
See Notes to unaudited condensed consolidated financial statements.
3
ATKORE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (in thousands, except share and per share data) | Note | June 25, 2021 | September 30, 2020 | |||||||||||||||||
| Assets | ||||||||||||||||||||
| Current Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||||||||
Accounts receivable, less allowance for current and expected credit losses of $ | ||||||||||||||||||||
| Inventories, net | 9 | |||||||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||||||||
| Total current assets | ||||||||||||||||||||
| Property, plant and equipment, net | 10 | |||||||||||||||||||
| Intangible assets, net | 11 | |||||||||||||||||||
| Goodwill | 11 | |||||||||||||||||||
| Right-of-use assets, net | ||||||||||||||||||||
| Deferred tax assets | 6 | |||||||||||||||||||
| Other long-term assets | ||||||||||||||||||||
| Total Assets | $ | $ | ||||||||||||||||||
| Liabilities and Equity | ||||||||||||||||||||
| Current Liabilities: | ||||||||||||||||||||
| Short-term debt and current maturities of long-term debt | 12 | $ | $ | |||||||||||||||||
| Accounts payable | ||||||||||||||||||||
| Income tax payable | ||||||||||||||||||||
| Accrued compensation and employee benefits | ||||||||||||||||||||
| Customer liabilities | ||||||||||||||||||||
| Lease obligations | ||||||||||||||||||||
| Other current liabilities | ||||||||||||||||||||
| Total current liabilities | ||||||||||||||||||||
| Long-term debt | 12 | |||||||||||||||||||
| Long-term lease obligations | ||||||||||||||||||||
| Deferred tax liabilities | 6 | |||||||||||||||||||
| Other long-term tax liabilities | ||||||||||||||||||||
| Pension liabilities | ||||||||||||||||||||
| Other long-term liabilities | ||||||||||||||||||||
| Total Liabilities | ||||||||||||||||||||
| Equity: | ||||||||||||||||||||
Common stock, $ | ||||||||||||||||||||
Treasury stock, held at cost, | ( | ( | ||||||||||||||||||
| Additional paid-in capital | ||||||||||||||||||||
| Retained earnings | ( | |||||||||||||||||||
| Accumulated other comprehensive loss | 8 | ( | ( | |||||||||||||||||
| Total Equity | ||||||||||||||||||||
| Total Liabilities and Equity | $ | $ | ||||||||||||||||||
4
See Notes to unaudited condensed consolidated financial statements.
5
ATKORE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine months ended | ||||||||||||||||||||
| (in thousands) | Note | June 25, 2021 | June 26, 2020 | |||||||||||||||||
| Operating activities: | ||||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| Deferred income taxes | 6 | ( | ||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Amortization of right-of-use assets | ||||||||||||||||||||
| Loss on disposal of property, plant and equipment | ||||||||||||||||||||
| Loss on extinguishment of debt | ||||||||||||||||||||
| Other non-cash adjustments to net income | ( | |||||||||||||||||||
| Changes in operating assets and liabilities, net of effects from acquisitions | ||||||||||||||||||||
| Accounts receivable | ( | |||||||||||||||||||
| Inventories | ( | |||||||||||||||||||
| Accounts payable | ( | |||||||||||||||||||
| Other, net | ( | |||||||||||||||||||
| Net cash provided by operating activities | ||||||||||||||||||||
| Investing activities: | ||||||||||||||||||||
| Capital expenditures | ( | ( | ||||||||||||||||||
| Insurance proceeds for property, plant and equipment | ||||||||||||||||||||
| Acquisition of businesses, net of cash acquired | ( | |||||||||||||||||||
| Other, net | ||||||||||||||||||||
| Net cash used in investing activities | ( | ( | ||||||||||||||||||
| Financing activities: | ||||||||||||||||||||
| Repayments of long-term debt | 12 | ( | ||||||||||||||||||
| Proceeds from issuance of long-term debt | 12 | |||||||||||||||||||
| Payment for debt financing costs and fees | ( | |||||||||||||||||||
| Issuance of common stock, net of shares withheld for tax | ( | |||||||||||||||||||
| Repurchase of common stock | ( | ( | ||||||||||||||||||
| Other, net | ( | |||||||||||||||||||
| Net cash used for financing activities | ( | ( | ||||||||||||||||||
| Effects of foreign exchange rate changes on cash and cash equivalents | ( | |||||||||||||||||||
| Increase in cash and cash equivalents | ||||||||||||||||||||
| Cash and cash equivalents at beginning of period | ||||||||||||||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||||||||||||||
| Supplementary Cash Flow information | ||||||||||||||||||||
| Capital expenditures, not yet paid | $ | $ | ||||||||||||||||||
See Notes to unaudited condensed consolidated financial statements.
6
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, 2020 | $ | $ | ( | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net of shares withheld for tax | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Balance as of December 25, 2020 | $ | $ | ( | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net of shares withheld for tax | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Balance as of March 26, 2021 | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net of shares withheld for tax | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Balance as of June 25, 2021 | ( | ( | $ | ||||||||||||||||||||||||||||||||||||||
7
| 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, 2019 | $ | $ | ( | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net of shares withheld for tax | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Balance as of December 27, 2019 | $ | $ | ( | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net of shares withheld for tax | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Balance as of March 27, 2020 | $ | $ | ( | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||
| Net income | — | $ | — | $ | — | $ | — | $ | $ | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | $ | — | $ | — | $ | — | $ | — | $ | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | $ | — | $ | — | $ | $ | — | $ | — | |||||||||||||||||||||||||||||||
| Issuance of common stock | — | $ | $ | — | $ | $ | — | $ | — | ||||||||||||||||||||||||||||||||
| Balance as of June 26, 2020 | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
See Notes to unaudited condensed consolidated financial statements.
8
ATKORE 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 Inc. (the “Company”, “Atkore” or “AI”) is a leading manufacturer of Electrical products primarily for the non-residential construction and renovation markets and Safety & Infrastructure solutions for the construction and industrial markets. Atkore was incorporated in the State of Delaware on November 4, 2010 under the name Atkore International Group, Inc. Atkore is the sole stockholder of Atkore International Holdings Inc. (“AIH”), which in turn is the sole stockholder of Atkore International Inc. (“AII”).
Segment Redefinition — Effective in the first quarter of fiscal 2021, the Company renamed and redefined its reportable segments.
The Electrical Raceway segment was renamed as the Electrical segment. 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 Mechanical Products & Solutions segment was renamed as the Safety & Infrastructure segment. This 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.
Segment Realignment & Reclassifications — Effective in the first quarter of fiscal 2021, the Company implemented a realignment (the “Realignment”) of its segment financial reporting structure. The Company’s domestic cable management and prefabrication modular businesses had historically been reported in the Electrical Raceway segment. Due to transitions in the Company’s Executive Leadership Team, these businesses are now reported in the Safety & Infrastructure segment. The Realignment reflects how the Company’s Chief Operating Decision Maker now assesses the operating performance and allocates resources to the Safety & Infrastructure segment. Goodwill was also reallocated on a relative fair value basis between the applicable reporting units.
The Company reflected these changes to its segment information retrospectively to the earliest period presented which resulted in a transfer of external net sales, intersegment sales, total assets, and Adjusted EBITDA from the Electrical segment to the Safety & Infrastructure segment. These changes had no impact on the Company’s previously reported consolidated net sales, operating income, net income or earnings per share. See Note 16, “Segment Information” for additional details.
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”). These unaudited condensed consolidated financial statements have been prepared in accordance with the Company’s accounting policies and on the same basis as those financial statements included in the Company’s latest Annual Report on Form 10-K for the year ended September 30, 2020, filed with the U.S. Securities and Exchange Commission (the “SEC”) on November 19, 2020, and should be read in conjunction with those consolidated financial statements and the notes thereto. Certain information and disclosures normally included in the Company’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’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.
9
Recent Accounting Pronouncements
A summary of recently adopted accounting guidance is 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 | Adoption Date | ||||||||||||||||||||
| 2016-13 Financial Instruments - Credit Losses (Topic 326) | The ASU adds to GAAP an impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. | The Company adopted this standard in the first quarter of 2021. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements. | 2021 | ||||||||||||||||||||
A summary of accounting guidance not yet adopted is as follows. Effective dates are on the first day of the fiscal year indicated below, unless otherwise specified.
| ASU | Description of ASU | Impact to Atkore | Effective Date | |||||||||||||||||
| 2019-12, Simplifying the accounting for income taxes (Topic 740) | The ASU eliminates certain existing exceptions related to the general approach in ASC 740 relating to franchise taxes, reducing complexity in the interim period accounting for year to date loss limitations and changes in tax laws and clarifying the accounting for transactions outside of a business combination that result in a step up in the tax basis of goodwill. | The Company will adopt the new standard on October 1, 2021. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements. | 2022 | |||||||||||||||||
2. REVENUE 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 .
10
3. ACQUISITIONS
From time to time, the Company enters into strategic acquisitions in an effort to better service existing customers and to obtain new customers.
On October 22, 2020, the Company acquired 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 for which the purchase accounting has been finalized. The purchase price of $6.2 million was deemed immaterial to the Company.
On February 24, 2021, the Company acquired FRE Composites Group, 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 fair values. As of June 25, 2021, the purchase price allocation has not been finalized as the Company is refining its estimates for taxes. The preliminary purchase price was $37.0 million. The following table summarizes the Level 3 fair values assigned to the net assets acquired and liabilities assumed as of the acquisition date:
| (in thousands) | ||||||||||||||||||||
| Fair value of consideration transferred: | ||||||||||||||||||||
| Cash consideration | ||||||||||||||||||||
| Fair value of assets acquired and liabilities assumed: | ||||||||||||||||||||
| Cash | ||||||||||||||||||||
| Accounts receivable | ||||||||||||||||||||
| Inventories | ||||||||||||||||||||
| Intangible assets | ||||||||||||||||||||
| Fixed assets | ||||||||||||||||||||
| Accounts payable | ( | |||||||||||||||||||
| Income taxes | ( | |||||||||||||||||||
| Other | ( | |||||||||||||||||||
| Net assets acquired | ||||||||||||||||||||
| Excess purchase price attributed to goodwill acquired | $ | |||||||||||||||||||
The Company estimates $1.6 million of the goodwill is deductible for tax purposes. Goodwill recognized from this acquisition consists largely of the synergies and economies of scale from integrating this company with existing businesses.
The following table summarizes the fair value of intangible assets as of the acquisition date:
| FRE Composites Group | ||||||||||||||||||||||||||
| ($ in thousands) | Fair Value | Weighted Average Useful Life (Years) | ||||||||||||||||||||||||
| Customer relationships | $ | |||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total intangible assets | $ | |||||||||||||||||||||||||
11
4. POSTRETIREMENT BENEFITS
The Company provides pension benefits through a number of noncontributory and contributory defined benefit retirement plans covering eligible U.S. employees. As of September 30, 2017, all defined pension benefit plans were frozen, whereby participants no longer accrue credited service. The net periodic benefit credit was as follows:
| Three months ended | Nine months ended | |||||||||||||||||||||||||||||||
| (in thousands) | Note | June 25, 2021 | June 26, 2020 | June 25, 2021 | June 26, 2020 | |||||||||||||||||||||||||||
| Interest cost | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Amortization of actuarial loss | ||||||||||||||||||||||||||||||||
| Net periodic benefit credit | 5 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
12
5. OTHER INCOME, NET
Other income, net consisted of the following:
| Three months ended | Nine months ended | |||||||||||||||||||||||||
| (in thousands) | June 25, 2021 | June 26, 2020 | June 25, 2021 | June 26, 2020 | ||||||||||||||||||||||
| Business interruption insurance recovery | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Undesignated foreign currency derivative instruments | ( | ( | ||||||||||||||||||||||||
| Foreign exchange (gain) loss on intercompany loans | ( | ( | ( | |||||||||||||||||||||||
| Pension-related benefits | ( | ( | ( | ( | ||||||||||||||||||||||
| Gain on purchase of business | ( | |||||||||||||||||||||||||
| Other income, net | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
6. INCOME TAXES
For the three months ended June 25, 2021 and June 26, 2020, the Company’s effective tax rate attributable to income before income taxes was 26.0 % and 26.5 %, respectively. For the three months ended June 25, 2021 and June 26, 2020, the Company’s income tax expense was $61,654 and $8,672 respectively. The decrease in the current period effective tax rate was primarily driven by losses incurred by our foreign jurisdictions for which we are not able to realize the related tax benefit.
For the nine months ended June 25, 2021 and June 26, 2020, the Company’s effective tax rate attributable to income before income taxes was 24.8 % and 22.9 %, respectively. For the nine months ended June 25, 2021 and June 26, 2020, the Company’s tax expense was $126,922 and $29,112 , respectively. The increase in the nine month period effective tax rate was primarily due to a smaller impact in the net discrete tax benefit compared to the increase in earnings period over period.
A 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 these 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 in the appropriate character and 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 we have determined are more likely than not to be realized upon examination. We record interest and penalties related to unrecognized tax benefits as a component of income tax expense. During the nine months ended June 25, 2021, the balance of unrecognized tax benefits decreased by $127 primarily due to the lapse in the statute of limitations related to certain prior tax years.
For the nine months ended June 25, 2021, 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 calculated by dividing the net earnings allocated to common stock by the weighted-average number of common stock outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocated to common stock by the weighted-average number of shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards.
13
The following table sets forth the computation of basic and diluted earnings per share:
| Three months ended | Nine months ended | |||||||||||||||||||||||||
| (in thousands, except per share data) | June 25, 2021 | June 26, 2020 | June 25, 2021 | June 26, 2020 | ||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Less: Undistributed earnings allocated to participating securities | ||||||||||||||||||||||||||
| Net income available to common shareholders | $ | $ | $ | $ | ||||||||||||||||||||||
| Denominator: | ||||||||||||||||||||||||||
| Basic weighted average common shares outstanding | ||||||||||||||||||||||||||
Effect of dilutive securities: Non-participating employee stock options (1) | ||||||||||||||||||||||||||
| Diluted weighted average common shares outstanding | ||||||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||
(1) Stock options to purchase approximately | ||||||||||||||||||||||||||
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8. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents the changes in accumulated other comprehensive loss by component for the three months ended June 25, 2021 and June 26, 2020.
| (in thousands) | Defined benefit pension items | Currency translation adjustments | Total | |||||||||||||||||
| Balance as of March 26, 2021 | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Other comprehensive income before reclassifications | ||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss, net of tax | ||||||||||||||||||||
| Net current period other comprehensive income | ||||||||||||||||||||
| Balance as of June 25, 2021 | $ | ( | $ | ( | $ | ( | ||||||||||||||
| (in thousands) | Defined benefit pension items | Currency translation adjustments | Total | |||||||||||||||||
| Balance as of March 27, 2020 | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Other comprehensive income before reclassifications | ||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss, net of tax | ||||||||||||||||||||
| Net current period other comprehensive income | ||||||||||||||||||||
| Balance as of June 26, 2020 | $ | ( | $ | ( | $ | ( | ||||||||||||||
The following table presents the changes in accumulated other comprehensive loss by component for the nine months ended June 25, 2021 and June 26, 2020.
| (in thousands) | Defined benefit pension items | Currency translation adjustments | Total | |||||||||||||||||
| Balance as of September 30, 2020 | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Other comprehensive income before reclassifications | ||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss, net of tax | ||||||||||||||||||||
| Net current period other comprehensive income | ||||||||||||||||||||
| Balance as of June 25, 2021 | $ | ( | $ | ( | $ | ( | ||||||||||||||
| (in thousands) | Defined benefit pension items | Currency translation adjustments | Total | |||||||||||||||||
| Balance as of September 30, 2019 | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Other comprehensive income before reclassifications | ||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss, net of tax | ||||||||||||||||||||
| Net current period other comprehensive income | ||||||||||||||||||||
| Balance as of June 26, 2020 | $ | ( | $ | ( | $ | ( | ||||||||||||||
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9. INVENTORIES, NET
A majority of the Company’s inventories are recorded at the lower of cost (primarily last in, first out, or “LIFO”) or market or net realizable value, as applicable. Approximately 78 % and 73 % of the Company’s inventories were valued at the lower of LIFO cost or market at June 25, 2021 and September 30, 2020, respectively. Interim LIFO determinations, including those at June 25, 2021, are based on management’s estimates of future inventory levels and costs for the remainder of the current fiscal year.
| (in thousands) | June 25, 2021 | September 30, 2020 | |||||||||
| Purchased materials and manufactured parts, net | $ | $ | |||||||||
| Work in process, net | |||||||||||
| Finished goods, net | |||||||||||
| Inventories, net | $ | $ | |||||||||
10. PROPERTY, PLANT AND EQUIPMENT
As of June 25, 2021, and September 30, 2020, property, plant and equipment and accumulated depreciation were as follows:
| (in thousands) | June 25, 2021 | September 30, 2020 | |||||||||
| Land | $ | $ | |||||||||
| Buildings and related improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Leasehold improvements | |||||||||||
| Software | |||||||||||
| Construction in progress | |||||||||||
| Property, plant and equipment, at cost | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Property, plant and equipment, net | $ | $ | |||||||||
Depreciation expense for the three months ended June 25, 2021 and June 26, 2020 totaled $11,459 and $10,290 respectively. Depreciation expense for the nine months ended June 25, 2021 and June 26, 2020 totaled $33,412 and $31,314 , respectively.
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11. GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying amount of goodwill are as follows:
| (in thousands) | Electrical | Safety & Infrastructure | Total | ||||||||||||||
| Balance as of October 1, 2020 | $ | $ | $ | ||||||||||||||
| Goodwill acquired during year | |||||||||||||||||
| Exchange rate effects | |||||||||||||||||
| Balance as of June 25, 2021 | $ | $ | $ | ||||||||||||||
Goodwill balances as of October 1, 2020 and June 25, 2021 include $3,924 and $43,000 of accumulated impairment losses within the Electrical and Safety & Infrastructure segments, respectively.
The Company assesses the recoverability of goodwill and indefinite-lived trade names on an annual basis in accordance with ASC 350, “Intangibles - Goodwill and Other.” The measurement date is the first day of the fourth fiscal quarter, or more frequently, if events or circumstances indicate that it is more likely than not that the fair value of a reporting unit or the respective indefinite-lived trade name is less than the carrying value.
The following table provides the gross carrying value, accumulated amortization and net carrying value for each major class of intangible asset:
| June 25, 2021 | September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||
| ($ 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: | |||||||||||||||||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Total | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Indefinite-lived intangible assets: | |||||||||||||||||||||||||||||||||||||||||
| Trade names | — | — | |||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
Other intangible assets consist of definite-lived trade names, technology, non-compete agreements and backlogs. Amortization expense for the three months ended June 25, 2021 and June 26, 2020 was $8,707 and $8,026 , respectively. Amortization expense for the nine months ended June 25, 2021 and June 26, 2020 was $25,063 and $24,210 , respectively. Expected amortization expense for intangible assets for the remainder of fiscal 2021 and over the next five years and thereafter is as follows:
| (in thousands) | ||||||||
| Remaining 2021 | $ | |||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
Actual amounts of amortization may differ from estimated amounts due to additional intangible asset acquisitions, impairment of intangible assets and other events.
17
12. DEBT
Debt as of June 25, 2021 and September 30, 2020 was as follows:
| (in thousands) | June 25, 2021 | September 30, 2020 | |||||||||
| First Lien Term Loan Facility due December 22, 2023 | $ | $ | |||||||||
| New Senior Secured Term Loan Facility due May 26, 2028 | |||||||||||
| Senior Notes due June 2031 | |||||||||||
| Deferred financing costs | ( | ( | |||||||||
| Total debt | $ | $ | |||||||||
| Less: Current portion | |||||||||||
| Long-term debt | $ | $ | |||||||||
The asset-based credit facility (the “ABL Credit Facility”) has aggregate commitments of $325,000 . AII is the borrower under the ABL Credit Facility which is guaranteed by the Company and all other subsidiaries of the Company (other than AII) that are guarantors of the Senior Notes. AII’s availability under the ABL Credit Facility was $315,499 and $265,899 as of June 25, 2021 and September 30, 2020, respectively.
Senior Notes - On May 26, 2021, the Company completed the issuance and sale of the $400 million aggregate principal amount of 4.25 % Senior Notes due 2031 (the “Senior Notes”) in a previously announced private offering. The Senior Notes were sold only to qualified institutional buyers in compliance with Rule 144A of the Securities Act of 1933, as amended (the “Securities Act”), and to non-U.S. persons outside of the United States in compliance with Regulation S of the Securities Act.
New Senior Secured Term Loan Facility - On May 26, 2021, the Company entered into a new $400 million senior secured term loan facility (the “New Senior Secured Term Loan Facility”). The New Senior Secured Term Loan Facility will mature on May 26, 2028 and borrowings thereunder bear interest at the rate of either (x) LIBOR (with a floor of 0.50 %) plus 2.00 %, or (y) an alternate base rate (with a floor of 1.50 %) plus 1.00 %. The New Senior Secured Term Loan Facility has an annual amortization rate of 1.00 %. The New Senior Secured Term Loan Facility will be payable in consecutive quarterly installments in the amount of 0.25 % of the aggregate initial principal amount of $400 million with all unpaid aggregate principal amounts paid at maturity.
ABL Credit Facility - On May 26, 2021, the Company entered into an amendment to the ABL Credit Facility. The amendment (i) extends the maturity of the facility to the earlier of five years from entering into the amendment or 91 days prior to the maturity date of the New Senior Secured Term Loan Facility if at least $100 million of obligations remain outstanding under the New Senior Secured Term Loan Facility on such date (ii) decreases the interest rate margins applicable to loans under the facility to (a) in the case of United States dollar-denominated loans, either (x) LIBOR plus an applicable margin ranging from 1.25 % to 1.75 %, or (y) an alternate base rate plus an applicable margin ranging from 0.25 % to 0.75 % or (b) in the case of Canadian dollar-denominated loans, either (x) the bankers acceptance rate plus an applicable margin ranging from 1.25 % to 1.75 % or (y) a Canadian prime rate plus an applicable margin ranging from 0.25 % to 0.75 %. (iii) decreases the fee payable with respect to unutilized availability under the facility from 0.375 % to 0.25 % to 0.30 % depending on the remaining availability under the ABL Credit Facility and (iv) made certain other changes agreed with the lenders under the ABL Credit Facility.
The New Senior Secured Term Loan Facility and the ABL Credit Facility are secured by all of the assets of AII and the guarantors under such facilities. The New Senior Secured Term Loan Facility has priority over all real property, plant and equipment, intellectual property and capital stock of AII and any guarantor and any documents or instruments evidencing the foregoing assets. The ABL Credit Facility has second priority over the foregoing assets. The ABL Credit Facility has first priority over cash and cash equivalents, accounts receivable, inventory and other documents and instruments evidencing the foregoing assets. The New Senior Secured Term Loan Facility has second priority over the foregoing assets.
18
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 balances 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 six months to one year . 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 income, net within the condensed consolidated statements of operations. See Note 5, “Other Income, net” for further detail.
The total notional amounts of undesignated forward currency contracts were £36.1 and £43.3 million as of June 25, 2021 and September 30, 2020, 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’s assets and liabilities measured at fair value:
| June 25, 2021 | September 30, 2020 | |||||||||||||||||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
| Cash equivalents | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Forward currency contracts | ||||||||||||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||||
| Forward currency contracts | $ | |||||||||||||||||||||||||||||||||||||
The Company’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:
| June 25, 2021 | September 30, 2020 | |||||||||||||||||||||||||
| (in thousands) | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||
| First Lien Term Loan Facility due December 22, 2023 | $ | $ | $ | |||||||||||||||||||||||
| New Senior Secured Term Loan Facility due May 26, 2028 | $ | $ | $ | $ | ||||||||||||||||||||||
| Senior Notes due June 2031 | $ | $ | $ | $ | ||||||||||||||||||||||
In determining the approximate fair value of its long-term debt, the Company used the trading values among financial institutions, and these values fall within Level 2 of the fair value hierarchy. The carrying value of the ABL Credit Facility
19
14. COMMITMENTS AND CONTINGENCIES
The Company has obligations related to commitments to purchase certain goods. As of June 25, 2021, such obligations were $291,715 for the rest of fiscal year 2021 and $12,923 for fiscal year 2022 and beyond. These amounts represent open purchase orders for materials used in production.
Legal Contingencies —The Company is a defendant in a number of pending legal proceedings, some of which were inherited from its former parent, Tyco International Ltd. (“Tyco”), 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 Products Claims.” After an analysis of claims experience, the Company reserved its best estimate of the probable and reasonably estimable losses related to these matters. The Company’s total product liability reserves for Special Products Claims and other product liability matters were $729 and $597 as of June 25, 2021 and September 30, 2020, respectively. As of June 25, 2021, the Company believes that the range of aggregate reasonably possible losses for Special Products Claims and other product liabilities is between $1,000 and $8,000 .
During fiscal 2019, Tyco and the Company agreed with a plaintiff to settle one Special Products Claim that was to go to trial. The Company agreed to fund the total settlement in exchange for Tyco's agreement to cap the Company’s Special Products Claim deductible at $12,000 , as opposed to the $13,000 cap negotiated within the original indemnity agreement. In conjunction with the payment of that settlement, Tyco and the Company examined the Company’s total Special Products Claim payments and agreed that with that settlement payment and payment of a few other legal fee invoices, all of which have now been paid, the Company had met its $12,000 deductible obligation related to these Special Products Claims. Tyco, now Johnson Controls, Inc. (“JCI”), has a contractual obligation to indemnify the Company in respect of all remaining and future claims of incompatibility between the Company’s antimicrobial coated steel sprinkler pipe and CPVC pipe used in the same sprinkler system. Tyco has defended and indemnified the Company on Special Products Claims 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 remaining contingencies for Special Products Claims.
During the year ended September 30, 2020, one of the Company’s manufacturing facilities experienced a flood which resulted in damage to certain property, plant and equipment. This facility is covered under the Company’s property and casualty loss and business interruption insurance policies. The Company recorded an expense of $6,046 for losses related to fully written off property, plant and equipment, with a related insurance recovery of $5,046 within selling, general and administrative expenses in its consolidated statements of operations for the year ended September 30, 2020. The Company believes that, other than the $1,000 deductible expense under the related insurance claim, it will be reimbursed for substantially all other property, plant and equipment losses in connection with the event under its current insurance policies. During the three months ended March 26, 2021, the Company received $6,000 of business interruption insurance recovery proceeds related to this incident. The amount was recorded as other income within the condensed consolidated statements of operations for the nine months ended June 25, 2021.
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’s business. These matters generally relate to disputes arising out of the use or installation of the Company’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 had outstanding letters of credit totaling $9,501 supporting workers’ compensation and general liability insurance policies as of June 25, 2021. The Company also had surety bonds primarily related to performance guarantees on supply agreements and construction contracts, and payment of duties and taxes totaling $18,331 as of June 25, 2021.
20
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’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’s business, financial condition, results of operations or cash flows.
16. SEGMENT INFORMATION
Effective in the first quarter of fiscal 2021, the Company renamed and redefined its reportable segments.
The Electrical Raceway segment was renamed as the Electrical segment. 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 Mechanical Products & Solutions segment was renamed as the Safety & Infrastructure segment. This 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.
Effective in the first quarter of fiscal 2021, the Company also implemented the Realignment of its segment financial reporting structure such that its domestic cable management and prefabrication modular businesses are now reflected in its Safety & Infrastructure segment. These businesses were previously reflected within the Electrical segment. See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” for additional information. Prior year results have been revised for the impact of the Realignment for comparability.
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, restructuring charges, stock-based compensation, loss on extinguishment of debt, certain legal matters, transaction costs 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, and realized or unrealized gain (loss) on foreign currency impacts of intercompany loans and related forward currency derivatives.
Intersegment transactions primarily consist of product sales at designated transfer prices on an arm’s-length basis. Gross profit earned and reported within the segment is eliminated in the Company’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.
21
| Three months ended | ||||||||||||||||||||||||||||||||||||||
| June 25, 2021 | June 26, 2020 | |||||||||||||||||||||||||||||||||||||
| (in thousands) | External Net Sales | Intersegment Sales | Adjusted EBITDA | External Net Sales | Intersegment Sales | Adjusted EBITDA | ||||||||||||||||||||||||||||||||
| Electrical | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Safety & Infrastructure | ||||||||||||||||||||||||||||||||||||||
| Eliminations | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Consolidated operations | $ | $ | — | $ | $ | — | ||||||||||||||||||||||||||||||||
| Nine months ended | |||||||||||||||||||||||||||||||||||
| June 25, 2021 | June 26, 2020 | ||||||||||||||||||||||||||||||||||
| (in thousands) | External Net Sales | Intersegment Sales | Adjusted EBITDA | External Net Sales | Intersegment Sales | Adjusted EBITDA | |||||||||||||||||||||||||||||
| Electrical | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Safety & Infrastructure | |||||||||||||||||||||||||||||||||||
| Eliminations | — | ( | — | ( | |||||||||||||||||||||||||||||||
| Consolidated operations | $ | $ | — | $ | $ | — | |||||||||||||||||||||||||||||
Presented below is a reconciliation of operating Segment Adjusted EBITDA to Income before income taxes:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| (in thousands) | June 25, 2021 | June 26, 2020 | June 25, 2021 | June 26, 2020 | |||||||||||||||||||
| Operating segment Adjusted EBITDA | |||||||||||||||||||||||
| Electrical | $ | $ | $ | $ | |||||||||||||||||||
| Safety & Infrastructure | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Unallocated expenses (a) | ( | ( | ( | ( | |||||||||||||||||||
| Depreciation and amortization | ( | ( | ( | ( | |||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Loss on extinguishment of debt | ( | ( | |||||||||||||||||||||
| Stock-based compensation | ( | ( | ( | ( | |||||||||||||||||||
| Other (b) | ( | ( | ( | ||||||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | |||||||||||||||||||
| (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 nine months ended June 25, 2021 and June 26, 2020:
22
| Three months ended | Nine months ended | |||||||||||||||||||||||||
| (in thousands) | June 25, 2021 | June 26, 2020 | June 25, 2021 | June 26, 2020 | ||||||||||||||||||||||
| United States | $ | $ | $ | |||||||||||||||||||||||
| Other Americas | ||||||||||||||||||||||||||
| Europe | ||||||||||||||||||||||||||
| Asia-Pacific | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
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 nine months ended June 25, 2021 and June 26, 2020:
| Three months ended | Nine months ended | |||||||||||||||||||||||||
| (in thousands) | June 25, 2021 | June 26, 2020 | June 25, 2021 | June 26, 2020 | ||||||||||||||||||||||
| Metal Electrical Conduit and Fittings | $ | $ | $ | $ | ||||||||||||||||||||||
| Armored Cable and Fittings | ||||||||||||||||||||||||||
| PVC Electrical Conduit and Fittings | ||||||||||||||||||||||||||
| International Cable Management Products | ||||||||||||||||||||||||||
| Other Electrical products | ||||||||||||||||||||||||||
| Electrical | ||||||||||||||||||||||||||
| Mechanical Pipe | ||||||||||||||||||||||||||
| Other Safety & Infrastructure products | ||||||||||||||||||||||||||
| Safety & Infrastructure | ||||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||||||||||||
23
Item 2. Management’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”and “Risk Factors.”
Impacts of COVID-19
The outbreak of the novel coronavirus (“COVID-19”) has continued to spread and is currently classified as a pandemic which is contributing to significant volatility 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 our operations going forward.
As of the date of this filing, customers and end markets face some uncertainty and delays in the timing of work. In particular, some construction site closures or project delays have occurred, and job sites have had to adjust to increased physical distancing and health-related precautions. Given the continued volatility within the economic impacts of the pandemic it is too difficult to make any judgment on how significant COVID-19 effects could become.
Factors that contribute to our ability to adjust to the outbreak include currently being deemed an “essential business,” benefiting from mostly localized supply chains, and continuing 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 future. The extent to which COVID-19 will impact our business will depend on future developments and public health advancements, which are highly uncertain and cannot be predicted with confidence.
Currently, we have no COVID-19 related facility closures as we look to serve our current levels of demand. In response to COVID-19, we have implemented a variety of countermeasures to promote the health and safety of our employees during this pandemic, including health screening, physical distancing practices, enhanced cleaning, use of personal protective equipment, business travel restrictions, and remote work capabilities.
Results of Operations
The consolidated results of operations for the three months ended June 25, 2021 and June 26, 2020 were as follows:
| Three months ended | |||||||||||||||||||||||
| ($ in thousands) | June 25, 2021 | June 26, 2020 | Change | % Change | |||||||||||||||||||
| Net sales | $ | 853,658 | $ | 384,899 | $ | 468,759 | 121.8 | % | |||||||||||||||
| Cost of sales | 514,385 | 289,086 | 225,299 | 77.9 | % | ||||||||||||||||||
| Gross profit | 339,273 | 95,813 | 243,460 | 254.1 | % | ||||||||||||||||||
| Selling, general and administrative | 81,832 | 46,159 | 35,673 | 77.3 | % | ||||||||||||||||||
| Intangible asset amortization | 8,707 | 8,026 | 681 | 8.5 | % | ||||||||||||||||||
| Operating income | 248,734 | 41,628 | 207,106 | 497.5 | % | ||||||||||||||||||
| Interest expense, net | 8,090 | 9,421 | (1,331) | (14.1) | % | ||||||||||||||||||
| Loss on extinguishment of debt | 4,202 | — | 4,202 | 100.0 | % | ||||||||||||||||||
| Other income, net | (509) | (543) | 34 | (6.3) | % | ||||||||||||||||||
| Income before income taxes | 236,951 | 32,750 | 204,201 | 623.5 | % | ||||||||||||||||||
| Income tax expense | 61,654 | 8,672 | 52,982 | 611.0 | % | ||||||||||||||||||
| Net income | $ | 175,297 | $ | 24,078 | $ | 151,219 | 628.0 | % | |||||||||||||||
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Net sales
| % Change | ||||||||
| Volume | 23.6 | % | ||||||
| Average selling prices | 89.0 | % | ||||||
| Foreign exchange | 1.9 | % | ||||||
| Acquisitions | 6.9 | % | ||||||
| Other | 0.4 | % | ||||||
| Net sales | 121.8 | % | ||||||
Net sales increased by $468.8 million, or 121.8%, to $853.7 million for the three months ended June 25, 2021, compared to $384.9 million for the three months ended June 26, 2020. The increase in net sales is primarily attributed to increased average selling prices of $342.8 million which were mostly driven by the PVC electrical conduit and fittings product category within the Electrical segment and increased net sales of $26.7 million due to the acquisitions of Queen City Plastics and FRE Composites Group. 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. The increase in net sales was also driven by an increase in sales volume of $90.9 million across nearly all product categories within both the Electrical and the Safety & Infrastructure segments.
Cost of sales
| % Change | ||||||||
| Volume | 23.5 | % | ||||||
| Average input costs | 42.8 | % | ||||||
| Foreign exchange | 2.2 | % | ||||||
| Acquisitions | 3.7 | % | ||||||
| Other | 5.7 | % | ||||||
| Cost of sales | 77.9 | % | ||||||
Cost of sales increased by $225.3 million, or 77.9%, to $514.4 million for the three months ended June 25, 2021 compared to $289.1 million for the three months ended June 26, 2020. The increase was primarily due to higher input costs of steel, copper and PVC resin of $124.0 million, higher sales volume of $68.0 million and due to the acquisitions of Queen City Plastics and FRE Composites Group of $10.7 million.
Selling, general and administrative
Selling, general and administrative expenses increased by $35.7 million, or 77.3%, to $81.8 million for the three months ended June 25, 2021 compared to $46.2 million for the three months ended June 26, 2020. The increase was primarily due to higher sales commission expense of $9.1 million, higher variable compensation of $7.1 million, higher stock compensation expense of $2.5 million, higher acquisition related spend of $1.3 million driven by the acquisitions of Queen City Plastics and the FRE Composites Group, and the remainder primarily being driven by the tight controls on expenditures put into place in the prior year at the onset of the COVID-19 pandemic.
Intangible asset amortization
Intangible asset amortization expense increased to $8.7 million for the three months ended June 25, 2021 compared to $8.0 million for the three months ended June 26, 2020.
Interest expense, net
Interest expense, net decreased by $1.3 million, or 14.1% to $8.1 million for the three months ended June 25, 2021 compared to $9.4 million for the three months ended June 26, 2020. The decrease is primarily due to the Company’s principal prepayments in fiscal 2020 and 2021, resulting in a lower principal balance in fiscal 2021 from which interest expense was derived.
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Other income, net
Other income, net remained consistent at $0.5 million for the three months ended June 25, 2021 compared to $0.5 million for the three months ended June 26, 2020.
Income tax expense
The Company’s income tax rate decreased to 26.0% for the three months ended June 25, 2021 compared to 26.5% for the three months ended June 26, 2020. The decrease in the current period effective tax rate was primarily driven by losses incurred by our foreign jurisdictions for which we are not able to realize the related tax benefit.
Segment Results
Effective in the first quarter of fiscal 2021, the Company renamed and redefined its reportable segments.
The Electrical Raceway segment was renamed as the Electrical segment. 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 Mechanical Products & Solutions segment was renamed as the Safety & Infrastructure segment. This 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.
Effective in the first quarter of fiscal 2021, the Company implemented the Realignment of its segment financial reporting structure. The Company’s domestic cable management and prefabrication modular businesses had historically been reported in the Electrical Raceway segment. Due to transitions in the Company’s Executive Leadership Team, these businesses are now reported in the Safety & Infrastructure segment. The Realignment reflects how the Company’s Chief Operating Decision Maker now assesses the operating performance and allocates resources to the Safety & Infrastructure segment.
The Company reflected these changes to its segment information retrospectively to the earliest period presented which resulted in a transfer of external net sales, intersegment sales, total assets, and Adjusted EBITDA from the Electrical segment to the Safety & Infrastructure segment. These changes had no impact on the Company’s previously reported consolidated net sales, operating income, net income or earnings per share.
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, restructuring charges, stock-based compensation, loss on extinguishment of debt, certain legal matters, transaction costs 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, and realized or unrealized gain (loss) on foreign currency impacts of intercompany loans and related forward currency derivatives. We define segment Adjusted EBITDA margin as segment Adjusted EBITDA as a percentage of segment Net sales.
Electrical
| Three months ended | ||||||||||||||||||||||||||
| ($ in thousands) | June 25, 2021 | June 26, 2020 | Change | % Change | ||||||||||||||||||||||
| Net sales | $ | 661,163 | $ | 272,151 | $ | 389,012 | 142.9 | % | ||||||||||||||||||
| Adjusted EBITDA | $ | 267,824 | $ | 55,549 | $ | 212,275 | 382.1 | % | ||||||||||||||||||
| Adjusted EBITDA margin | 40.5 | % | 20.4 | % | ||||||||||||||||||||||
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Net sales
| % Change | ||||||||
| Volume | 23.6 | % | ||||||
| Average selling prices | 106.7 | % | ||||||
| Foreign exchange | 2.7 | % | ||||||
| Acquisitions | 9.7 | % | ||||||
| Other | 0.2 | % | ||||||
| Net sales | 142.9 | % | ||||||
Net sales increased by $389.0 million, or 142.9%, to $661.2 million for the three months ended June 25, 2021 compared to $272.2 million for the three months ended June 26, 2020. The increase in net sales is primarily attributed to increased average selling prices of $290.6 million which were mostly driven by the PVC electrical conduit and fittings category, the metal electrical conduit and fittings product categories and increased net sales of $26.5 million from the acquisitions of Queen City Plastics and FRE Composites Group. 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. Additionally, sales volume increased $64.1 million driven by increased volumes across all product categories.
Adjusted EBITDA
Adjusted EBITDA for the three months ended June 25, 2021 increased by $212.3 million, or 382.1%, to $267.8 million from $55.5 million for the three months ended June 26, 2020. Adjusted EBITDA margins increased to 40.5% for the three months ended June 25, 2021 compared to 20.4% for the three months ended June 26, 2020. The increase in Adjusted EBITDA and Adjusted EBITDA margins was largely due to higher average selling prices in relation to changes in input costs, operational efficiencies and contributions from the acquisitions of Queen City Plastics and FRE Composites Group.
Safety & Infrastructure
| Three months ended | ||||||||||||||||||||||||||
| ($ in thousands) | June 25, 2021 | June 26, 2020 | Change | % Change | ||||||||||||||||||||||
| Net sales | $ | 193,492 | $ | 113,380 | $ | 80,112 | 70.7 | % | ||||||||||||||||||
| Adjusted EBITDA | $ | 22,365 | $ | 14,150 | $ | 8,215 | 58.1 | % | ||||||||||||||||||
| Adjusted EBITDA margin | 11.6 | % | 12.5 | % | ||||||||||||||||||||||
Net sales
| % Change | ||||||||
| Volume | 23.6 | % | ||||||
| Average selling prices | 46.1 | % | ||||||
| Acquisitions | 0.1 | % | ||||||
| Other | 0.9 | % | ||||||
| Net sales | 70.7 | % | ||||||
Net sales increased by $80.1 million, or 70.7%, for the three months ended June 25, 2021 to $193.5 million compared to $113.4 million for the three months ended June 26, 2020. The increase is primarily attributed to increased average selling prices of $52.2 million driven by higher input costs of steel, and by higher volumes of $26.8 million primarily driven by increases across all product categories.
Adjusted EBITDA
Adjusted EBITDA increased by $8.2 million, or 58.1%, to $22.4 million for the three months ended June 25, 2021 compared to $14.2 million for the three months ended June 26, 2020. Adjusted EBITDA margins decreased to 11.6% for the
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three months ended June 25, 2021 compared to 12.5% for the three months ended June 26, 2020. The Adjusted EBITDA increase is primarily due to the price and volume increases discussed above.
The consolidated results of operations for the nine months ended June 25, 2021 and June 26, 2020 were as follows:
| Nine months ended | |||||||||||||||||||||||
| ($ in thousands) | June 25, 2021 | June 26, 2020 | Change | % Change | |||||||||||||||||||
| Net sales | $ | 2,004,283 | $ | 1,288,001 | $ | 716,282 | 55.6 | % | |||||||||||||||
| Cost of sales | 1,235,970 | 943,741 | 292,229 | 31.0 | % | ||||||||||||||||||
| Gross profit | 768,313 | 344,260 | 424,053 | 123.2 | % | ||||||||||||||||||
| Selling, general and administrative | 210,250 | 164,734 | 45,516 | 27.6 | % | ||||||||||||||||||
| Intangible asset amortization | 25,063 | 24,210 | 853 | 3.5 | % | ||||||||||||||||||
| Operating income | 533,000 | 155,316 | 377,684 | 243.2 | % | ||||||||||||||||||
| Interest expense, net | 24,760 | 30,605 | (5,845) | (19.1) | % | ||||||||||||||||||
| Loss on extinguishment of debt | 4,202 | — | 4,202 | 100.0 | % | ||||||||||||||||||
| Other income, net | (8,180) | (2,462) | (5,718) | 232.3 | % | ||||||||||||||||||
| Income before income taxes | 512,218 | 127,173 | 385,045 | 302.8 | % | ||||||||||||||||||
| Income tax expense | 126,922 | 29,112 | 97,810 | 336.0 | % | ||||||||||||||||||
| Net income | $ | 385,296 | $ | 98,061 | $ | 287,235 | 292.9 | % | |||||||||||||||
Net sales
| % Change | ||||||||
| Volume | 4.9 | % | ||||||
| Average selling prices | 45.5 | % | ||||||
| Foreign exchange | 1.1 | % | ||||||
| Acquisitions | 4.0 | % | ||||||
| Other | 0.1 | % | ||||||
| Net sales | 55.6 | % | ||||||
Net sales increased by $716.3 million, or 55.6%, to $2,004.3 million for the nine months ended June 25, 2021, compared to $1,288.0 million for the nine months ended June 26, 2020. The increase in net sales is primarily attributed to increased average selling prices of $586.6 million which were mostly driven by the PVC electrical conduit and fittings product category within the Electrical segment and increased net sales of $51.4 million from the acquisitions of Queen City Plastics and FRE Composites Group. 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. The increase in net sales was also driven by increases in sales volumes across the majority of product categories in both the Electrical and the Safety & Infrastructure segments.
Cost of sales
| % Change | ||||||||
| Volume | 5.0 | % | ||||||
| Average input costs | 21.5 | % | ||||||
| Foreign exchange | 1.2 | % | ||||||
| Acquisitions | 2.3 | % | ||||||
| Other | 1.0 | % | ||||||
| Cost of sales | 31.0 | % | ||||||
Cost of sales increased by $292.2 million, or 31.0% to $1,236.0 million for the nine months ended June 25, 2021 compared to $943.7 million for the nine months ended June 26, 2020. The increase was primarily due to higher sales volumes
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of $47.1 million, higher input costs for steel, copper and resin of $202.8 million and the acquisitions of Queen City Plastics and FRE Composites Group of $21.5 million.
Selling, general and administrative
Selling, general and administrative expenses increased by $45.5 million, or 27.6% to $210.3 million for the nine months ended June 25, 2021 compared to $164.7 million for the nine months ended June 26, 2020. The increase was primarily due to higher sales commission expense of $12.3 million, higher variable compensation of $13.6 million, higher stock compensation expense of $4.8 million and the acquisitions of Queen City Plastics and the FRE Composites Group of $3.0 million, partially offset by productivity efficiencies of $5.4 million. The majority of the remaining increase was primarily driven by the tight controls on expenditures put into place in the prior year at the onset of the COVID-19 pandemic.
Intangible asset amortization
Intangible asset amortization expense increased to $25.1 million for the nine months ended June 25, 2021 compared to $24.2 million for the nine months ended June 26, 2020.
Interest expense, net
Interest expense, net, decreased by $5.8 million, or 19.1% to $24.8 million for the nine months ended June 25, 2021 compared to $30.6 million for the nine months ended June 26, 2020. The decrease is primarily due to the Company’s principal prepayments in fiscal 2020 and 2021, resulting in a lower principal balance in fiscal 2021 from which interest expense was derived.
Other income, net
Other income, net increased by $5.7 million to $8.2 million for the nine months ended June 25, 2021 compared to $2.5 million for the nine months ended June 26, 2020. The increase was primarily due to a $6.0 million business interruption insurance recovery from a flood at one of the Company’s manufacturing facilities. See Note 14, “Commitments and Contingencies” to the accompanying condensed consolidated financial statements included elsewhere in this Quarterly Report.
Income tax expense
The Company’s income tax rate increased to 24.8% for the nine months ended June 25, 2021 compared to 22.9% for the nine months ended June 26, 2020. The increase in the nine month period effective tax rate was primarily due to a smaller impact in the net discrete tax benefit compared to the increase in earnings period over period.
Segment Results
Electrical
| Nine months ended | ||||||||||||||||||||||||||
| ($ in thousands) | June 25, 2021 | June 26, 2020 | Change | % Change | ||||||||||||||||||||||
| Net sales | $ | 1,535,808 | $ | 919,916 | $ | 615,892 | 67.0 | % | ||||||||||||||||||
| Adjusted EBITDA | $ | 589,923 | $ | 200,901 | $ | 389,022 | 193.6 | % | ||||||||||||||||||
| Adjusted EBITDA margin | 38.4 | % | 21.8 | % | ||||||||||||||||||||||
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Net sales
| % Change | ||||||||
| Volume | 4.0 | % | ||||||
| Average selling prices | 55.8 | % | ||||||
| Foreign exchange | 1.5 | % | ||||||
| Acquisitions | 5.6 | % | ||||||
| Other | 0.1 | % | ||||||
| Net sales | 67.0 | % | ||||||
Net sales increased by $615.9 million, or 67.0%, to $1,535.8 million for the nine months ended June 25, 2021 compared to $919.9 million for the nine months ended June 26, 2020. The increase in net sales is primarily attributed to increased average selling prices of $513.3 million which were mostly driven by the PVC electrical conduit and fittings and the metal electrical conduit and fittings product categories, increased sales volume across most product categories and increased net sales of $51.2 million from the acquisitions of Queen City Plastics and FRE Composites Group.
Adjusted EBITDA
Adjusted EBITDA for the nine months ended June 25, 2021 increased by $389.0 million, or 193.6%, to $589.9 million from $200.9 million for the nine months ended June 26, 2020. Adjusted EBITDA margins increased to 38.4% for the nine months ended June 25, 2021 compared to 21.8% for the nine months ended June 26, 2020. The increase in Adjusted EBITDA and Adjusted EBITDA margins was largely due to higher average selling prices in relation to changes in input costs, operational efficiencies and contributions from the acquisitions of Queen City Plastics and FRE Composites Group.
Safety & Infrastructure
| Nine months ended | ||||||||||||||||||||||||||
| ($ in thousands) | June 25, 2021 | June 26, 2020 | Change | % Change | ||||||||||||||||||||||
| Net sales | $ | 470,957 | $ | 370,018 | $ | 100,939 | 27.3 | % | ||||||||||||||||||
| Adjusted EBITDA | $ | 52,810 | $ | 50,765 | $ | 2,045 | 4.0 | % | ||||||||||||||||||
| Adjusted EBITDA margin | 11.2 | % | 13.7 | % | ||||||||||||||||||||||
Net sales
| Change (%) | ||||||||
| Volume | 7.2 | % | ||||||
| Average selling prices | 19.8 | % | ||||||
| Acquisitions | 0.1 | % | ||||||
| Other | 0.2 | % | ||||||
| Net sales | 27.3 | % | ||||||
Net sales increased by $100.9 million, or 27.3%, for the nine months ended June 25, 2021 to $471.0 million compared to $370.0 million for the nine months ended June 26, 2020. The increase is primarily attributed to increased average selling prices of $73.3 million primarily driven by higher input costs of steel as well as increases in sales volumes across most product categories.
Adjusted EBITDA
Adjusted EBITDA increased $2.0 million, or 4.0%, to $52.8 million for the nine months ended June 25, 2021 compared to $50.8 million for the nine months ended June 26, 2020. Adjusted EBITDA margins decreased to 11.2% for the nine months ended June 25, 2021 compared to 13.7% for the nine months ended June 26, 2020. The Adjusted EBITDA increase was primarily due to the increase in sales volume and average selling prices discussed above.
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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 $397.1 million as of June 25, 2021, of which $69.1 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 change and cash was repatriated to the United States.
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 June 25, 2021, there were no outstanding borrowings under the ABL Credit Facility and $9.5 million of letters of credit issued under the ABL Credit Facility. The borrowing base was estimated to be $325.0 million and approximately $315.5 million was available under the ABL Credit Facility as of June 25, 2021. 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 Lien Term Loan Facility and the ABL Credit Facility (collectively, the "Credit Facilities") contain covenants that limit or restrict AII’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 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 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 payments of interest and principal on our debt.
Limitations on distributions and dividends by subsidiaries
AI, AII, and AIH 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 it so that it 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 ABL Credit Facility 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 ABL Credit Facility 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 Lien 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.
The table below summarizes cash flow information derived from our statements of cash flows for the periods indicated:
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| Nine months ended | |||||||||||
| (in thousands) | June 25, 2021 | June 26, 2020 | |||||||||
| Cash flows provided by (used in): | |||||||||||
| Operating activities | $ | 318,621 | $ | 156,019 | |||||||
| Investing activities | (74,303) | (24,756) | |||||||||
| Financing activities | (135,412) | (16,917) | |||||||||
Operating activities
During the nine months ended June 25, 2021, the Company was provided $318.6 million by operating activities compared to $156.0 million during the nine months ended June 26, 2020. The $162.6 million increase in cash provided was primarily due to higher cash flows from the increase in operating income of $377.7 million. This was partially offset by a $202.0 million increase in cash used in working capital primarily driven by higher sales.
Investing activities
During the nine months ended June 25, 2021, the Company used $74.3 million in investing activities compared to $24.8 million during the nine months ended June 26, 2020. The increase in cash used in investing activities is primarily due to the acquisition of Queen City Plastics for $6.2 million and FRE Composites Group for $37.0 million, as well as increased capital expenditure of $8.7 million driven by investments in digital initiatives during the nine months ended June 25, 2021.
Financing Activities
During the nine months ended June 25, 2021, the Company used $135.4 million in financing activities compared to $16.9 million used during the nine months ended June 26, 2020. The increase in cash used in financing activities is primarily due to $110.1 million used to repurchase common stock during the nine months ended June 25, 2021.
Contractual Obligations and Commitments
The following table summarizes material changes to our contractual obligations reported as of September 30, 2020, resulting from the changes in our debt during the three months ended June 25, 2021. These changes resulted from the Company completing the issuance and sale of $400 million aggregate principal amount of the 4.25% Senior Notes due June 2031 and entering into the $400 million New Senior Secured Term Loan Facility which matures on May 26, 2028. Proceeds from the Senior Notes and New Senior Secured Term Loan Facility were used to repay outstanding loans under the previous First Lien Term Loan Facility. See Note 12, “Debt” in the notes to the condensed consolidated financial statements.
| ($ in thousands) | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | Total | |||||||||||||||||||||||||||
| Senior Notes due June 2031 | $ | — | $ | — | $ | — | $ | 400,000 | $ | 400,000 | ||||||||||||||||||||||
| New Senior Secured Term Loan Facility Due May 2028 | 4,000 | 8,000 | 8,000 | 380,000 | $ | 400,000 | ||||||||||||||||||||||||||
| Interest payments (a) | 28,870 | 60,112 | 66,131 | 117,821 | 272,934 | |||||||||||||||||||||||||||
| Total | $ | 32,870 | $ | 68,112 | $ | 74,131 | $ | 897,821 | $ | 1,072,934 | ||||||||||||||||||||||
| (a) Interest expense is estimated based on outstanding loan balances assuming principal payments are made according to the payment schedule and interest rates as of June 25, 2021 (4.25% for the Senior Notes, 2.5% for the New Senior Secured Term Loan Facility). | ||||||||||||||||||||||||||||||||
Changes 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.
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Recent Accounting Standards
See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” to our unaudited condensed consolidated financial statements.
Forward-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’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 optimistic,” “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. 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, 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 captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Reports on Form 10-K and Quarterly Reports 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;
•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;
•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 and changes in our business and valuation assumptions;
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•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;
•our inability to continue importing raw materials, component parts or finished goods;
•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 additional expenses, increases in the complexity of our supply chain and potential damage to our reputation with customers resulting from regulations related to “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 capital markets to satisfy existing obligations and support the development of our business; and
•other risks and factors described in this Quarterly Report and from time to time in documents that we file with the SEC.
You should read this Quarterly Report 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 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, 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”), as of the end of the period covered by this 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
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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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of certain litigation involving the Company, see Note 14, “Commitments and Contingencies” to our unaudited condensed consolidated financial statements.
Item 1A. Risk Factors
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On January 28, 2021, the board of directors approved a share repurchase program, under which the Company may repurchase up to $100.0 million of its outstanding common stock. The Company made no repurchases under this plan during the second quarter of the current fiscal year. As of June 25, 2021, there was $25 million of purchases remaining under the plan. 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 2021 (in thousands, except per share data):
| Period | Total Number Of Shares Purchased | Avg Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Program(1) | Maximum Value of Shares that May Yet Be Purchased Under the Program(1) | ||||||||||||||||||||||
| March 27, 2021 to April 23, 2021 | — | $ | — | — | $ | — | ||||||||||||||||||||
| April 24, 2021 to May 28, 2021 | 860 | $ | 81.99 | 860 | $ | 29,486 | ||||||||||||||||||||
| May 29, 2021 to June 25, 2021 | 58 | $ | 78.02 | 58 | $ | 24,974 | ||||||||||||||||||||
| Total | 918 | 918 | ||||||||||||||||||||||||
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| 4.1# | |||||||||||
| 10.1# | |||||||||||
| 10.2# | |||||||||||
| 31.1# | |||||||||||
| 31.2# | |||||||||||
| 32.1# | |||||||||||
| 32.2# | |||||||||||
| 101.INS# | XBRL Instance Document (formatted as inline XBRL) | ||||||||||
| 101.SCH# | XBRL Taxonomy Schema Linkbase Document (formatted as inline XBRL) | ||||||||||
| 101.CAL# | XBRL Taxonomy Calculation Linkbase Document | ||||||||||
| 101.DEF# | XBRL Taxonomy Definition Linkbase Document | ||||||||||
| 101.LAB# | XBRL Taxonomy Labels Linkbase Document | ||||||||||
| 101.PRE# | XBRL Taxonomy Presentation Linkbase Document | ||||||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | ||||||||||
| # | Filed herewith | ||||||||||
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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. | |||||||||||
| (Registrant) | |||||||||||
| Date: | August 3, 2021 | By: | /s/ David P. Johnson | ||||||||
| Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||||||||||
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