UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________
FORM 10-K
_________________________________________
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2018
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-37793
_________________________________________
Atkore International Group Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
90-0631463
(IRS Employer Identification No.)
16100 South Lathrop Avenue, Harvey, Illinois 60426
(Address of principal executive offices) (Zip Code)
708-339-1610
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Common stock, par value $0.01 per share
Securities registered pursuant to Section 12 (g) of the Act:
(Title of Each Class)
New York Stock Exchange
(Name of Each Exchange on which Registered)
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated
filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act . ☐
Smaller reporting company ☐
Emerging growth company ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity of Atkore International Group Inc. held by non-affiliates as of the close of business as of March 30, 2018 was $772.1
million .
The number of shares of the registrant's common stock outstanding as of November 18, 2018 was 47,079,645 shares of common stock, par value $0.01 per share.
Documents incorporated by reference:
Portions of the registrant's proxy statement to be filed with the United States Securities and Exchange Commission in connection with the registrant's 2019 annual meeting of stockholders (the
"Proxy Statement") are incorporated by reference into Part III hereof. Such Proxy Statement will be filed within 120 days of the registrant's fiscal year ended September 30, 2018 .
Table of Contents
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Item 6.
Item 7.
Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
Exhibit Index
Signatures
1
Page No.
2
8
25
25
25
26
27
30
33
53
54
94
94
98
98
98
98
98
99
99
100
104
Item 1. Business
PART I
The following discussion of our business contains "forward-looking statements," as discussed in Part II, Item 7, ''Management's Discussion and Analysis
of Financial Condition and Results of Operations'' below. Our business, operations and financial condition are subject to various risks as set forth in Part I, Item 1A,
''Risk Factors'' below. The following information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of
Operations , the Financial Statements and Supplementary Data and related notes and the Risk Factors included elsewhere in this Annual Report on Form 10-K .
Company Overview
Atkore International Group Inc. (collectively with all its subsidiaries referred to in this Annual Report on Form 10-K as "Atkore," the "Company," "we,"
"us" and "our") was incorporated in the State of Delaware on November 4, 2010. Atkore is the sole stockholder of Atkore International Holdings Inc. ("AIH"),
which in turn is the sole stockholder of Atkore International, Inc. ("AII").
We are a leading manufacturer of Electrical Raceway products primarily for the non-residential construction and renovation markets and Mechanical
Products and Solutions ("MP&S") for the construction and industrial markets. Electrical Raceway products form the critical infrastructure that enables the
deployment, isolation and protection of a structure's electrical circuitry from the original power source to the final outlet. MP&S frame, support and secure
component parts in a broad range of structures, equipment and systems in electrical, industrial and construction applications. We believe we hold #1 or #2 positions
in the United States by net sales in the vast majority of our products. The quality of our products, the strength of our brands and our scale and national presence
provide what we believe to be a unique set of competitive advantages that position us for profitable growth.
On June 9, 2016 , the Company's Registration Statement on Form S-1 relating to an initial public offering ("IPO") of our common stock was declared
effective by the SEC and on June 15, 2016, we completed the IPO at a price to the public of $16.00 per share. In connection with the IPO, CD&R Allied Holdings,
L.P. (the " CD&R Investor "), an affiliate of Clayton, Dubilier & Rice, LLC ("CD&R") sold an aggregate of 12,000,000 shares of our common stock. The CD&R
Investor received all of the net proceeds and bore all commissions and discounts from the sale of our common stock. We did not receive any proceeds from the
IPO.
In a series of secondary offerings of our common stock during fiscal 2017, the CD&R Investor reduced its remaining ownership in our company to
approximately 48% as of September 30, 2017. In August 2017, the Company announced that its board of directors had approved a share repurchase program for
the repurchase of up to an aggregate amount of $75 million of the Company’s common stock. In January 2018, the Company announced a stock repurchase
transaction whereby the Company agreed to repurchase from the CD&R Investor, a related party, approximately 17.2 million shares of the Company's common
stock, par value $0.01 per share, at a per share price equal to $21.77, for a total purchase price of $375 million, subject to the terms and conditions set forth in the
stock purchase agreement. Following the stock repurchase transaction in January 2018 and secondary offerings of the Company's common stock in February 2018
and May 2018, the CD&R Investor completed its exit from its investment in the Company, and, as of September 30, 2018, no longer owned any of the Company's
common stock. See Item 5, ''Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities'' for additional
information.
Our products
Our principal Electrical Raceway products include electrical conduit and fittings, armored cable and fittings, cable trays and mounting systems and
fittings, which are critical components of the electrical infrastructure for new construction and maintenance, repair and remodel (" MR&R ") markets. Our MP&S
principal products are metal framing and in-line galvanized mechanical tube. Our metal framing products are used in the installation of electrical systems and
various support structures. In total, we operate 30 manufacturing facilities and 28 distribution facilities that enable us to efficiently receive materials from our
suppliers and deliver products to our customers. In fiscal 2018 , 90% of our net sales were to customers located in the United States.
An overview of our product offerings is provided below:
2
Product
Category
Sample Products
Brands
Sample Product Images
Metal Electrical
Conduit and
Fittings
PVC Electrical
Conduit &
Fittings
Electrical
Raceway
Corrosion
Resistant Conduit
Flexible Electrical
Conduit and
Fittings
Metal Conduit:
• Electrical Metallic Tubing (EMT)
•
Intermediate Metal Conduit (IMC)
• Galvanized Rigid Conduit (GRC)
Metal Conduit Fittings:
• Elbows
• Couplings
• Nipples
• Conduit Bodies
PVC Conduit:
• Rigid Non-Metallic Conduit (RNC)
PVC Conduit Fittings:
• Elbows
• Couplings
•
Conduit Bodies
• Duct spacers
• Stainless conduit
• PVC coated conduit
• Aluminum conduit
Flexible Electrical Conduit:
• Flexible Metallic Conduit (FMC)
• Liquidtight Flexible Metal Conduit (LFMC)
• Liquidtight Flexible Non-Metallic Conduit
(LNFC)
• Flexible Metallic Tubing (FMT)
Flexible Electrical Conduit Fittings:
• Cord Connectors
• Angle Connectors
Armored Cable
and Fittings
Armored Cable:
• Metal Clad Cable (MC)
• Armor Clad Cable (AC)
• Healthcare Facility Cable (HFC)
Armored Cable Fittings:
• Connectors
• Service Entry Fittings
Cable Tray &
Cable Ladders
• Ladder Cable Tray
• Hat Cable Tray
• Channel Cable Tray
•
I Beam Cable Tray
• Wire Basket Cable Tray
3
Product Category
Sample Products
Brands
Sample Product Images
• Channel
Metal Framing &
Fittings
• Channel Fittings
• Pipe Clamps/Hangers
• Concrete Inserts
Construction
Services
• Design, Fabrication and Installation Services
• Modular support structures
• Fall protection
MP&S
•
In-line galvanized mechanical tube
Mechanical Pipe
• Non-galvanized tube
• Fabrication services
• Security Confinement
Barbed Tape
• Power Station
• Military/Border
• Law Enforcement
Marketing
Our products are primarily marketed by commissioned agents and sold directly to electrical and industrial distributors who resell our products under
recognized brand names, including Allied Tube & Conduit, AFC Cable Systems, Heritage Plastics, Unistrut, Power-Strut, Cope and Calpipe as well as certain other
sub-brands that are used regionally or in niche markets. Our commissioned agents are selected, trained and managed by our regional sales teams and supported by
product managers who ensure that agents are adequately knowledgeable and sufficiently trained to represent our brands to our distribution customers. We stimulate
end-user demand by promoting our products and solutions directly to architects, electrical engineers, electrical contractors and electrical code authorities across the
United States. We also work directly with electrical contractors, who install Electrical Raceway products on new construction or renovation projects to assist them
in selecting the most effective electrical raceway solution. In certain of the markets we serve, we market directly to electrical and industrial distributors, original
equipment manufacturers (" OEMs ") and governmental entities.
Distribution
We primarily sell and distribute our products through electrical, industrial and specialty distributors and OEMs . For many of the over 13,000 electrical-
distributor branches in the United States, our products are must-stock lines that form a staple of their business. We serve a diverse group of end markets, including
new construction, MR&R and infrastructure, diversified industrials, alternative power generation, healthcare, data centers and government. End-users, which are
typically electrical, industrial and mechanical contractors as well as OEMs , install our products during non-residential, residential and infrastructure construction
and renovation projects or in assembly and manufacturing processes.
Distribution-based sales accounted for approximately 86% of our net sales for fiscal 2018 . We distribute our products to electrical and industrial
distributors from our manufacturing and distribution facilities as well as from over 50 dedicated distribution facilities operated by our agents. Our products are also
stocked by electrical and industrial distributors who are located in major cities and towns across the United States. Some of our products are purchased by OEMs
and used as part of their products and solutions in applications such as utility solar framing, conveyor systems and fabric cover buildings. OEM sales accounted for
approximately 14% of our net sales for fiscal 2018 .
Our distribution footprint is concentrated in North America (the United States and Canada), with additional facilities in Australia, China, New Zealand
and the United Kingdom.
4
Products are generally delivered to the dedicated distribution centers from our facilities and then subsequently delivered to the customer. In some
instances, a product is delivered directly from our manufacturing facility to a customer or end-user. In many cases, our products are bundled and co-loaded when
shipped. We contract with a wide range of transport providers to deliver our products, primarily via semi-tractor trailer.
Customers
Our sales and marketing processes are primarily focused on serving our immediate customers, including electrical, industrial and specialty distributors and
OEMs . We believe customers view us as offering a strong value proposition based on our broad product offering, strong brands, short order cycle times, reliability
and consistent product quality. For each of fiscal 2018 , 2017 and 2016 , approximately 90% , 91% and 92% , respectively, of our net sales were sold to customers
located in the United States. Our net sales by geographic area were as follows:
(in millions)
United States
International
Total
Fiscal Year Ended
September 30, 2018
September 30, 2017
September 30, 2016
$
$
1,652 $
183
1,835 $
1,368 $
136
1,504 $
1,396
127
1,523
In fiscal 2018 , our top ten customers accounted for approximately 33% of net sales. No single customer, even after consolidating all branches of such
customer, which often make independent purchasing decisions, accounted for more than 10% of our net sales in fiscal 2018 , 2017 or 2016 . Our customers include
global electrical distributors (such as Consolidated Electrical Distributors, Inc., Graybar Electric Company, Rexel, Sonepar S.A. and Wesco International, Inc.),
independent electrical distributors including super-regional electrical distributors (such as U.S. Electrical Services Inc., Crescent Electric Supply Co. and United
Electric Supply Company, Inc.) and members of buying groups (such as Affiliated Distributors, Inc. and IMARK Group, Inc.) as well as industrial distributors and
big-box retailers (such as The Home Depot, Inc., Fastenal Company, HD Supply Holdings, Inc., McMaster-Carr Supply Co., Menard, Inc. and W.W. Grainger,
Inc.).
Suppliers and Raw Materials
We use a variety of raw materials in the manufacture of our products. Our primary raw materials are steel, copper and polyvinyl chloride ("PVC") resin.
We believe that sources for these raw materials are well-established, generally available on world markets and are in sufficient quantity that we may avoid
disruption to our business if we encountered an interruption from one of our existing suppliers. Our primary suppliers of steel are ArcelorMittal, AK Steel and
Nucor; our primary suppliers of copper are AmRod and Freeport McMoran; and our primary suppliers of PVC resin are Westlake, Formosa and Oxy Vinyls. We
strive to maintain strong relationships with our suppliers.
Seasonality
In a typical year, our operating results are impacted by seasonality . Weather can impact the ability to pursue non-residential construction projects at any
time of year in any geography, but historically, our slowest quarters have been the first and second fiscal quarters of each fiscal year when frozen ground and cold
temperatures in many parts of the country can impede the start and pursuit of construction projects. Sales of our products have historically been higher in the third
and fourth quarters of each fiscal year due to favorable weather and longer daylight conditions during these periods. Seasonal variations in operating results may
also be significantly impacted by inclement weather conditions, such as cold or wet weather, which can delay construction projects as well as by adverse economic
conditions.
Manufacturing
We currently manufacture products in 30 facilities and operate a total footprint of approximately 5 million square feet of manufacturing and distribution
space in six countries. Our headquarters are located in Harvey, Illinois, which is also the location of our largest manufacturing facility. Similar to our distribution
footprint, our manufacturing footprint is currently concentrated in the United States, with additional facilities in Australia, China, New Zealand and the United
Kingdom.
With respect to our tube and conduit products, we believe we are a technology leader in the in-line galvanizing manufacturing process and have developed
specialized equipment that enables us to produce a variety of low-cost high-quality galvanized tube products. Our subsidiary, Allied Tube & Conduit Corporation,
or "Allied Tube," developed an in-line galvanizing technique (Flo-Coat) in which zinc is applied in a continuous process when the tube and pipe are formed. The
Flo-
5
Coat galvanizing process provides superior zinc coverage of fabricated metal products for rust prevention and lower cost manufacturing than traditional hot-dip
galvanization.
Competition
The industries in which we operate are highly competitive. Our principal competitors range from national manufacturers to smaller regional
manufacturers and differ by each of our product lines. We also face competition from manufacturers in Canada, Mexico and several other international markets,
depending on the particular product. We believe our customers purchase from us because we provide value through the quality of our products and the timeliness
of our delivery. Competition is generally on the basis of product offering, product innovation, quality, service and price.
There are many competitors in each of our segments. The main competitors in each of these segments are listed below:
Electrical Raceway: ABB Ltd., Eaton Corporation plc, nVent Electric plc, Hubbell Incorporated, Zekelman Industries, Inc., Republic Conduit, Inc.,
Southwire Company, LLC, and Encore Wire Corporation plc
Mechanical Products & Solutions:
• Metal Framing: B-Line (part of Eaton Corporation plc), Thomas & Betts (part of ABB Ltd.) and Haydon Corporation
• Mechanical Tube: Zekelman Industries, Inc.
Intellectual Property
Patents and other proprietary rights can be important to our business. We also rely on trade secrets, manufacturing know-how, continuing technological
innovations, and licensing opportunities to maintain and improve our competitive position. We periodically review third-party proprietary rights, including patents
and patent applications, in an effort to avoid infringement of third-party proprietary rights, identify licensing opportunities and monitor the intellectual property
claims of others.
We own a portfolio of patents and trademarks. Other than licenses to commercially available third-party software, we do not believe that any of our
licenses to third-party intellectual property are material to our business taken as a whole. Patents for individual products extend for varying periods according to the
date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. We rely on both trademark registration and
common law protection for trademarks. Trademark rights may potentially extend indefinitely and are dependent upon national laws and use of the trademarks.
While we consider our patents and trademarks to be valued assets, we do not believe that our competitive position is dependent on patent or trademark
protection or that our operations are dependent upon any single patent or group of related patents. We nevertheless face intellectual property-related risks. For more
information on these risks, see Item 1A , " Risk Factors — Risks Related to Our Business —We may not be able to adequately protect our intellectual property
rights in foreign countries, and we may become involved in intellectual property disputes."
Management of Information Technology Systems
Historically, information technology has not been a significant differentiator for us in our markets, however, we believe that ease of doing business with
us will become increasingly important to our growth. Currently, we operate our business using widely commercially available hardware and software products with
well-developed support services. In addition to these widely available IT products, we developed a new application for our agents which we believe will improve
the overall order entry process. Additionally, during fiscal 2016, we invested more than $6.0 million and installed and implemented a new general ledger and
financial reporting system for the entire Company replacing a number of systems used in various parts of the Company. We have also chosen to migrate our email
service and various other information technology services to a cloud computing platform hosted by Microsoft. During fiscal 2017, we launched an 18-month
project that establishes an integrated system for order management, advanced warehouse management, finished goods inventory management and accounts
receivable. We invested more than $10.0 million to date for this project, which went live in the fourth quarter of fiscal 2018.
6
Employees
As of September 30, 2018 , we employed approximately 3,500 total full-time equivalent employees of whom approximately 13% are temporary or
contract workers. Our employees are primarily located in the United States, with about 14% employed at our international locations in Australia, Canada, China,
New Zealand and the United Kingdom.
As of September 30, 2018 , approximately 26% of our employees globally were represented by a union under a collective bargaining agreement. All
unions are either located in the United States or Canada with no unions or Worker's Councils at any of our other locations abroad.
From time to time our collective bargaining agreements expire and come up for re-negotiation. Our collective bargaining agreement for our New Bedford
Massachusetts facility expired in February 2018, and we successfully negotiated a new agreement which now expires in February 2023. Our Harvey, Illinois
Special Metal Processing Facility agreement with the United Steelworkers Union, involving a bargaining unit of 12 employees, expired on November 11, 2018. We
anticipate that the new collective bargaining agreement will be ratified by the union members within calendar 2018. Our Harvey Illinois collective bargaining
agreement with the United Steelworkers, involving nearly 400 represented employees, does not expire until April 2020. We believe our relationship with our
employees is good.
Regulatory Matters
Our facilities are subject to various federal, state, local and non-U.S. requirements relating to the protection of human health, safety and the environment.
Among other things, these laws govern the use, storage, treatment, transportation, disposal and management of hazardous substances and wastes; regulate
emissions or discharges of pollutants or other substances into the air, water, or otherwise into the environment; impose liability for the costs of investigating and
remediating, and damages resulting from, present and past releases of hazardous substances and protect the health and safety of our employees.
We have incurred, and expect to continue to incur, capital expenditures in addition to ordinary course costs to comply with applicable current and future
environmental, health and safety laws, such as those governing air emissions and wastewater discharges. In addition, government agencies could impose conditions
or other restrictions in our environmental permits which increase our costs. These laws are subject to change, which can be frequent and material. More stringent
federal, state or local environmental rules or regulations could increase our operating costs and expenses.
The cost of compliance with environmental, health and safety laws and capital expenditures required to meet regulatory requirements is not anticipated to
have a material effect on our financial condition, results of operations, cash flows or competitive position.
In October 2013, the State of Illinois filed a complaint against our subsidiary Allied Tube, alleging violations of the Illinois Environmental Protection Act
relating to discharges to a storm sewer system that terminates at Allied Tube's Harvey, Illinois manufacturing facility. The State sought an injunction ordering
Allied Tube to take immediate corrective action to abate the alleged violations and civil penalties as permitted by applicable law. Allied Tube has reviewed
management practices and made improvements to its diesel fuel storage and truck maintenance areas to resolve the State's claims. We entered into a consent order
that required Allied Tube to pay a nominal penalty, install base low-flow oil and water separation equipment and take certain additional remedial actions to resolve
the State's claims. We do not currently expect that any remaining obligations would have a material effect on our financial condition, results of operations or cash
flows.
In August 2014, we received from the Illinois Environmental Protection Agency, or the "IEPA," the terms of a proposed new stormwater discharge permit
for our Harvey, Illinois manufacturing facility. Because the facility did not meet the zinc limit set forth in the proposed permit, the Company was in negotiations
with the IEPA to agree upon mutually acceptable discharge limits. During these negotiations, the facility was operating under an extension of the terms of our
existing stormwater discharge permit. In October 2016, we received the final permit. A mutually agreed upon compliance plan is part of the permit and we expect
to achieve compliance in accordance with a four-year schedule. The compliance plan includes studies to reduce zinc emitted from galvanizing manufacturing
operations, implementation of more rigorous management practices, evaluation of the installation of passive/cost effective stormwater treatment and receiving
stream studies to determine if a less stringent permit limit will be as protective of the water system as the current permit limit. Given the scope and time frame of
the compliance plan, we do not expect that achieving compliance with either the stormwater discharge permit or the plan will have a material effect on our
financial condition, results of operations or cash flows.
7
We received from the City of Phoenix the terms of an industrial wastewater discharge permit renewal that contains more rigorous wastewater discharge
limits for our Phoenix, Arizona facility. We do not currently expect that any such obligations would have a material effect on our financial condition, results of
operations or cash flows.
We are continually investigating, remediating or addressing contamination at our current and former facilities. For example, we are currently monitoring
groundwater contamination at our Wayne, Michigan facility. Future remediation activities may be required to address contamination at or migrating from the
Wayne, Michigan site. Many of our current and former facilities have a history of industrial usage for which additional investigation and remediation obligations
could arise in the future and which could materially adversely affect our business, financial condition, results of operations or cash flows.
Available Information
We make available free of charge through our website, http://investors.atkore.com/sec-filings, our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, proxy statements, other reports filed under the Securities Exchange Act of 1934 (“Exchange Act”), and all amendments
to those reports simultaneously or as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Our reports are also
available free of charge on the SEC’s website, www.sec.gov.
Item 1A. Risk Factors
You should carefully consider the factors described below, in addition to the other information set forth in this Annual Report on Form 10-K . These risk
factors are important to understanding the contents of this Annual Report on Form 10-K and of other reports. Our reputation, business, financial position, results
of operations and cash flows are subject to various risks. The risks and uncertainties described below are not the only ones relevant to us. Additional risks and
uncertainties not currently known to us or that we currently believe are immaterial may also adversely impact our reputation, business, financial position, results
of operations and cash flows.
Risks Related to Our Business
Our business is affected by general business and economic conditions, which could materially and adversely affect our business, financial position,
results of operations or cash flows.
Demand for our products is affected by a number of general business and economic conditions. A decline in the United States and international markets in
which we operate could materially and adversely affect our business, financial position, results of operations or cash flows. Our profit margins, as well as overall
demand for our products, could decline as a result of a large number of factors beyond our control, including economic recessions, changes in end-user preferences,
consumer confidence, inflation, availability of credit, fluctuation in interest and currency exchange rates and changes in the fiscal or monetary policies of
governments in the regions in which we operate.
During the most recent United States economic recession, which began in the second half of 2007 and continued through June of 2009, demand for our
products declined significantly. Another economic downturn in any of the markets we serve may result in a reduction of sales and pricing for our products. If the
creditworthiness of our customers declines, we could face increased credit risk and some, or many, of our customers may not be able to pay us amounts when they
become due. While the United States recession that began in 2007 has ended and there has been growth in the United States construction markets that we serve,
there can be no assurance that any improvement will be sustained or continue.
We cannot predict the duration of current economic conditions, or the timing or strength of any future recovery of activities in our markets. Weakness in
the markets in which we operate could have a material adverse effect on our business, financial condition, results of operations or cash flows. We may have to
close underperforming facilities from time to time as warranted by general economic conditions and/or weakness in the markets in which we operate. In addition to
a reduction in demand for our products, these factors may also reduce the price we are able to charge for our products. This, combined with an increase in excess
capacity, could negatively impact our business, financial condition, results of operations or cash flows.
The non-residential construction industry accounts for a significant portion of our business, and the United States non-residential construction
industry in recent years experienced a significant downturn followed by a slow recovery. Another downturn could materially and adversely affect our business,
financial position, results of operations or cash flows.
8
Our business is largely dependent on the non-residential construction industry. Approximately 39% of our net sales in fiscal 2018 were directly related to
United States new non-residential construction. For new construction, we estimate that our product installation typically lags United States non-residential starts by
six to twelve months. The United States non-residential construction industry is cyclical, with product demand based on numerous factors such as availability of
credit, interest rates, general economic conditions, consumer confidence and other factors that are beyond our control. United States non-residential construction
starts, as reported by Dodge, reached a historic low of 680 million square feet in our fiscal 2010 and increased to 1,151 million square feet in our fiscal 2018 ,
which remains below historical levels. We expect to capitalize on any further recovery in non-residential construction activity over the coming years and
potentially drive higher margins by leveraging the scalability of our operations.
From time to time we have been adversely affected in various parts of the country by declines in non-residential building construction starts due to, among
other things, changes in tax laws affecting the real estate industry, high interest rates and the level of non-residential construction activity. Continued uncertainty
about current economic conditions will continue to pose a risk to our business, financial position, results of operations and cash flows, as participants in this
industry may postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a continued
material negative effect on the demand for our products.
Congress has enacted new tax legislation that that could materially impact our business.
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act of 2017 ("TCJA"), which reforms major aspects of the U.S. federal income tax
law affecting the Company. Some of the provisions of TCJA have the potential to affect the Company adversely, including but not limited to:
•
•
•
•
•
•
A limitation on the deductibility of U.S. interest expense, although the Company's preliminary analysis shows that interest expense of the
Company would have to increase substantially, or the Company's earnings would have to decrease significantly, before the limitation would
apply.
A change to the scope of the net income of the Company's foreign subsidiaries that may be required to be included currently in the Company's
U.S. taxable income
A change to the manner in which foreign income taxes are credited by the Company.
A repeal of a deduction related to domestic production activities.
An expansion to the limitation on the deductibility of certain employee compensation.
A tax imposed on certain payments to related foreign persons.
The above list is not comprehensive and represents the Company's current views on the potential impacts of the TCJA; however these views are subject to
change as additional guidance becomes available and further analysis is completed. Elements of the tax reform may be substantially revised through the legislative
process, or may never be implemented. To the extent that such changes, if any, have a negative effect on us or the industries we serve, including as a result of
related uncertainty, these changes may materially and adversely affect our business, financial condition, results of operations and cash flows.
The raw materials on which we depend in our production process may be subject to price increases which we may not be able to pass through to our
customers, or to price decreases which may decrease the price levels of our products. As a result, such price fluctuations could materially and adversely affect
our business, financial position, results of operations or cash flows.
Our results of operations are impacted by changes in commodity prices, primarily steel, copper and PVC resin. Historically, we have not engaged in
material hedging strategies for raw material purchases. Substantially all of the products we sell (such as steel conduit, tubing and framing, copper wiring in our
cables, and PVC conduit) are subject to price fluctuations because they are composed primarily of steel, copper or PVC resin, three industrial commodities that are
subject to price volatility. This volatility can significantly affect our gross profit. We also watch the market trends of certain other commodities, such as zinc (used
in the galvanization process for a number of our products), electricity, natural gas and diesel fuel, as such commodities can be important to us as they impact our
cost of sales, both directly through our plant operations and indirectly through transportation and freight expense.
9
Although, on an aggregate basis in the current year, we have successfully recovered increases in raw material prices through price increases in our
products, we may not always be completely successful in managing market fluctuations in the future. In addition, in periods of declining prices for our raw
materials we may face pricing pressure from our customers. We generally sell our products on a spot basis (and not under long-term contracts). Any increase in raw
material prices that is not offset by an increase in our prices, or our inability to maintain price levels in an environment of declining raw material prices, could
materially and adversely affect our business, financial position, results of operations or cash flows.
We operate in a competitive landscape, and increased competition could materially and adversely affect our business, financial position, results of
operations or cash flows.
The principal markets that we serve are highly competitive. Competition is based primarily on product offering, product innovation, quality, service and
price. Our principal competitors range from national manufacturers to smaller regional manufacturers and differ by each of our product lines. See Item 1, ''Business
— Competition ." Some of our competitors may have greater financial and other resources than we do and some may have more established brand names in the
markets we serve. The actions of our competitors may encourage us to lower our prices or to offer additional services or enhanced products at a higher cost to us,
which could reduce our gross profit, net income or cash flows or may cause us to lose market share. Any of these consequences could materially and adversely
affect our business, financial position, results of operations or cash flows.
Our operating results are sensitive to the availability and cost of freight and energy, such as diesel fuel and electricity, which are important in the
manufacture and transport of our products.
Our operating costs increase when freight or energy costs rise. During periods of increasing freight and energy costs, we might not be able to fully recover
our operating cost increases through price increases without reducing demand for our products. The cost of fuel is largely unpredictable and has fluctuated
significantly in recent years, reaching historically high levels at times. Fuel availability, as well as pricing, is also impacted by political and economic factors that
are beyond our control.
In addition, we are dependent on third-party freight carriers to transport many of our products. Our access to third-party freight carriers is not guaranteed,
and we may be unable to transport our products at economically attractive rates in certain circumstances, particularly in cases of adverse market conditions or
disruptions to transportation infrastructure. Similarly, increasing energy costs, in particular, the cost of diesel fuel, could put a strain on the transportation of
materials and products if it forces certain transporters to close. Our business, financial position, results of operations or cash flows could be materially and
adversely affected if we are unable to pass all of the cost increases on to our customers, if we are unable to obtain the necessary energy supplies or if freight carrier
capacity in our geographic markets were to decline significantly or otherwise become unavailable.
Our business, financial position, results of operations or cash flows could be materially and adversely affected by the level of similar product imports
into the United States, as well as U.S. trade policy and practices.
A substantial portion of our revenue is generated through our operations in the United States. Although we have not been substantially impacted by
imports historically, imports of products similar to those manufactured by us may reduce the volume of products sold by domestic producers and depress the
selling prices of our products and those of our competitors.
We believe import levels are affected by, among other things, overall worldwide product demand, the trade practices of foreign governments, the cost of
freight, the challenges involved in shipping, government subsidies to foreign producers and governmentally imposed trade restrictions, such as quotas, tariffs, and
other trade barriers in the United States. Increased imports of products similar to those manufactured by us in the United States could materially and adversely
affect our business, financial position, results of operations or cash flows.
We are indirectly subject to regulatory changes that may affect demand for our products.
10
The market for certain of our products is influenced by federal, state, local and international governmental regulations and trade policies (such as the
American Recovery and Reinvestment Act of 2009, Underwriters Laboratories, National Electric Code and American Society of Mechanical Engineers) as well as
other policies, including those imposed on the non-residential construction industry (such as the National Electrical Code and corresponding state and local laws
based on the National Electrical Code). These regulations and policies are subject to change. In the event that there would be changes in the National Electrical
Code and any similar state, local or non-U.S. laws, including changes that would allow for alternative products to be used in the non-residential construction
industry or that would render less restrictive or otherwise reduce the current requirements under such laws and regulations, the scope of products that would serve
as alternatives to products we produce would increase. As a result, competition in the industries in which we operate could increase, with a potential corresponding
decrease in the demand for our products. In addition, in the event that changes in such laws would render current requirements more restrictive, we may be required
to change our products or production processes to meet such increased restrictions, which could result in increased costs and cause us to lose market share. Any
changes to such regulations, laws and policies could materially and adversely affect our business, financial position, results of operations or cash flows.
Our results of operations could be adversely affected by weather.
Although weather patterns affect our operating results throughout the year, adverse weather historically has reduced construction activity in our first and
second fiscal quarters. In contrast, our highest volume of net sales historically has occurred in our third and fourth fiscal quarters.
Most of our businesses experience seasonal variation as a result of the dependence of our customers on suitable weather to engage in construction
projects. Generally, during the winter months, construction activity declines due to inclement weather, frozen ground and shorter daylight hours. In addition, to the
extent that hurricanes, severe storms, floods, other natural disasters or similar events occur in the geographic regions in which we operate, our results of operations
may be adversely affected. We anticipate that fluctuations of our operating results from period to period due to seasonality will continue in the future.
We may need to raise additional capital, and we cannot be sure that additional financing will be available.
To satisfy existing obligations and support the development of our business, we depend on our ability to generate cash flow from operations and to borrow
funds and issue securities in the capital markets. We may require additional financing for liquidity, capital requirements or growth initiatives. We may not be able
to obtain financing on terms and at interest rates that are favorable to us or at all. Any inability by us to obtain financing in the future could materially and
adversely affect our business, financial position, results of operations or cash flows.
The indemnification provisions of acquisition agreements by which we have acquired companies may not fully protect us and as a result we may face
unexpected liabilities.
Certain of the acquisition agreements by which we have acquired companies require the former owners to indemnify us against certain liabilities related to
the operation of the company before we acquired it. In most of these agreements, however, the liability of the former owners is limited and former owners may be
unable to meet their indemnification responsibilities. We cannot assure you that these indemnification provisions will protect us fully or at all, and as a result we
may face unexpected liabilities that could adversely affect our financial position, results of operations or cash flows.
We have incurred and continue to incur significant costs to comply with current and future environmental, health and safety laws and regulations,
and our operations expose us to the risk of material environmental, health and safety liabilities and obligations.
11
We are subject to numerous federal, state, local and non-U.S. environmental, health and safety laws governing, among other things, the generation, use,
storage, treatment, transportation, disposal and management of hazardous substances and wastes, emissions or discharges of pollutants or other substances into the
environment, investigation and remediation of, and damages resulting from, releases of hazardous substances and the health and safety of our employees. We have
incurred, and expect to continue to incur, capital expenditures in addition to ordinary course costs to comply with applicable current and future environmental,
health and safety laws, such as those governing air emissions and wastewater discharges. In addition, government agencies could impose conditions or other
restrictions in our environmental permits which increase our costs. These laws are subject to change, which can be frequent and material. More stringent federal,
state or local environmental rules or regulations could increase our operating costs and expenses. Furthermore, our operations are governed by the United States
Occupational Safety and Health Administration, or "OSHA." OSHA regulations may change in a way that increases our costs of operations. Our failure to comply
with applicable environmental, health and safety laws and permit requirements could result in civil or criminal fines or penalties, enforcement actions, and
regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures such as the installation of pollution control equipment, which could
materially and adversely affect our business, financial position, results of operations or cash flows.
From time to time, we may be held liable for the costs to address contamination at any real property we have ever owned, operated or used as a disposal
site. We are currently, and may in the future be, required to investigate, remediate or otherwise address contamination at our current or former facilities. Many of
our current and former facilities have a history of industrial usage for which additional investigation, remediation or other obligations could arise in the future and
that could materially and adversely affect our business, financial position, results of operations or cash flows. For example, as we sell, close or otherwise dispose of
facilities, we may need to address environmental issues at such sites, including any previously unknown contamination.
We could be subject to third-party claims for property damage, personal injury and nuisance or otherwise as a result of violations of, or liabilities under,
environmental, health or safety laws or in connection with releases of hazardous or other materials at any current or former facility. We could also be subject to
environmental indemnification or other claims in connection with assets and businesses that we have divested.
We cannot assure you that any costs relating to future capital and operating expenditures to maintain compliance with environmental, health and safety
laws, as well as costs to address contamination or environmental claims, will not exceed any current estimates or adversely affect our business, financial position,
results of operations or cash flows. In addition, any unanticipated liabilities or obligations arising, for example, out of discovery of previously unknown conditions
or changes in law or enforcement policies, could materially and adversely affect our business, financial position, results of operations or cash flows.
We rely on a few customers for a significant portion of our net sales, and the loss of those customers could materially and adversely affect our
business, financial position, results of operations or cash flows.
Certain of our customers, in particular buying groups representing consortia of independent electrical distributors, national electrical distributors, OEMs ,
data centers and medical center general contractors are material to our business, financial position, results of operations and cash flows because they account for a
significant portion of our net sales. In fiscal 2018 , although no single customer accounted for more than 10% of our net sales, our ten largest customers (including
buyers and distributors in buying groups) accounted for approximately 33% of our net sales. Our percentage of sales to our major customers may increase if we are
successful in pursuing our strategy of broadening the range of products we sell to existing customers. In such an event, or in the event of any consolidation in
certain segments we serve, including retailers selling building products, our sales may be increasingly sensitive to deterioration in the financial condition of, or
other adverse developments with respect to, one or more of our top customers. Our top customers may also be able to exert influences on us with respect to pricing,
delivery, payment or other terms.
A significant asset included in our working capital is accounts receivable from customers. As of September 30, 2018, one customer, Sonepar Management
US, Inc., represented 11% of the Company's accounts receivable balance due to increased sales in the last 60 days of the year. See Note 19, ''Segment Information''
to the accompanying consolidated financial statements included elsewhere in this Annual Report. If customers responsible for a significant amount of accounts
receivable become insolvent or otherwise unable to pay for products and services, or become unwilling or unable to make payments in a timely manner, our
business, financial position, results of operations or cash flows could be materially and adversely affected. A significant deterioration in the economy could have an
adverse effect on the servicing of these accounts receivable, which could result in longer payment cycles, increased collection costs and defaults in excess of
management's expectations. Deterioration in the credit quality of several major customers at the same time could materially and adversely affect our business,
financial position, results of operations or cash flows.
12
In general, we do not have long-term contracts with our customers. As a result, although our customers periodically provide indications of their product
needs and purchases, they generally purchase our products on an order-by-order basis, and the relationship, as well as particular orders, can be terminated at any
time. The loss or bankruptcy of, or significant decrease in business from, any of our major customers could materially and adversely affect our business, financial
position, results of operations or cash flows.
Our working capital requirements could result in us having lower cash available for, among other things, capital expenditures and acquisition
financing.
Our working capital needs fluctuate based on economic activity and the market prices for our main raw materials, which are predominantly steel, copper
and PVC resin. We require significant working capital to purchase these raw materials and sell our products efficiently and profitably to our customers. We are
typically obligated to pay for our raw material purchases within 10 and 30 days of receipt, while we generally collect cash from the sale of manufactured products
between 40 and 50 days from the point at which title and risk of loss transfers. If our working capital requirements increase and we are unable to finance our
working capital on terms and conditions acceptable to us, we may not be able to obtain raw materials to respond to customer demand, which could result in a loss
of sales. Our average working capital days during fiscal 2018 was 62 days.
If our working capital needs increase, the amount of liquidity we have at our disposal to devote to other uses will decrease. A decrease in liquidity could,
among other things, limit our flexibility, including our ability to make capital expenditures and to complete acquisitions that we have identified, thereby materially
and adversely affecting our business, financial condition, results of operations and cash flows.
Work stoppages and other production disruptions may adversely affect our operations and impair our financial performance.
As of September 30, 2018 , approximately 26% of our United States employees were represented with a collective bargaining agreement by labor unions.
A work stoppage or other interruption of production could occur 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. A work stoppage
or interruption of production at our facilities, due to labor disputes, shortages of supplies or any other reason could materially and adversely affect our business,
financial position, results of operations or cash flows. See Item 1, ''Business — Employees ."
If we are unable to hire, engage and retain key personnel, our business, financial position, results of operations or cash flows could be materially and
adversely affected.
We are dependent, in part, on our continued ability to hire, engage and retain key employees at our operations around the world. Additionally, we rely
upon experienced managerial, marketing and support personnel to effectively manage our business and to successfully promote our wide range of products. If we
do not succeed in engaging and retaining key employees and other personnel, or if we do not succeed in facilitating transitions of new key personnel, we may be
unable to meet our objectives and, as a result, our business, financial position, results of operations or cash flows could be materially and adversely affected.
We have financial obligations relating to pension plans that we maintain in the United States.
We provide pension benefits through a number of noncontributory and contributory defined benefit retirement plans covering eligible United States
employees. As of September 30, 2018 , we estimated that our pension plans were underfunded by approximately $17 million . The funded status represents five
plans, all of which are frozen and do not accrue any additional service cost. As such, the funded status is primarily impacted by the performance of the underlying
assets supporting the plan and changes in interest rates or other factors, which may trigger additional cash contributions. Our pension obligation is calculated
annually and is based on several assumptions, including then-prevailing conditions, which may change from year to year. If in any year our assumptions are
inaccurate, we could be required to expend greater amounts than anticipated.
Unplanned outages at our facilities and other unforeseen disruptions could materially and adversely affect our business, financial position, results of
operations or cash flows.
13
Our business depends on the operation of our manufacturing and distribution facilities. It is possible that we could experience prolonged periods of
reduced production or distribution capacity due to interruptions in the operations of our facilities or those of our key suppliers. It is also possible that operations
may be disrupted due to other unforeseen circumstances such as power outages, explosions, fires, floods, accidents and severe weather conditions. Availability of
raw materials and delivery of products to customers could be affected by logistical disruptions. To the extent that lost production or distribution capacity could not
be compensated for at unaffected facilities and depending on the length of the outage, our sales and production costs could be adversely affected.
We rely on the efforts of agents and distributors to generate sales of our products.
We utilize various third-party agents and distributors to market, sell and distribute our products and to directly interface with our customers and end-users
by providing customer service and support. No single agent or distributor accounts for a material percentage of our annual net sales. We do not have long-term
contracts with our third-party agents and distributors, who could cease offering our products. In addition, many of our third-party agents and distributors with
whom we transact business also offer the products of our competitors to our ultimate customers and they could begin offering our products with less prominence.
The loss of a substantial number of our third-party agents or distributors or a dramatic deviation from the amount of sales they generate, including due to an
increase in their sales of our competitors' products, could reduce our sales and could materially and adversely affect our business, financial position, results of
operations or cash flows.
Interruptions in the proper functioning of our information technology, or "IT" systems, including from cybersecurity threats, could disrupt
operations and cause unanticipated increases in costs or decreases in revenues, or both.
We use our information systems to, among other things, manage our manufacturing operations, manage inventories and accounts receivable, make
purchasing decisions and monitor our results of operations, and process, transmit and store sensitive electronic data, including employee, supplier and customer
records. As a result, the proper functioning of our IT systems is critical to the successful operation of our business. Our information systems include proprietary
systems developed and maintained by us. In addition, we depend on IT systems of third parties, such as suppliers, retailers and OEMs to, among other things,
market and distribute our products, develop new products and services, operate our website, host and manage our services, store data, process transactions, respond
to customer inquiries and manage inventory and our supply chain. Although our IT systems are protected through physical and software safeguards and remote
processing capabilities exist, our IT systems or those of third parties whom we depend upon are still vulnerable to natural disasters, power losses, unauthorized
access, telecommunication failures and other problems. If critical proprietary or third-party IT systems fail or are otherwise unavailable, including as a result of
system upgrades and transitions, our ability to process orders, track credit risk, identify business opportunities, maintain proper levels of inventories, collect
accounts receivable, pay expenses and otherwise manage our business would be adversely affected.
Cyber incidents can result from deliberate attacks or unintentional events. These incidents can include, but are not limited to, gaining unauthorized access
to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cybersecurity attacks in
particular are becoming more sophisticated and include, but are not limited to, malicious software, attempts to gain unauthorized access to data (either directly or
through our vendors) and other electronic security breaches. Despite our security measures, our IT systems and infrastructure or those of our third parties may be
vulnerable to such cyber incidents. The result of these incidents could include, but are not limited to, disrupted operations, misstated or misappropriated financial
data, theft of our intellectual property or other confidential information (including of our customers, suppliers and employees), liability for stolen assets or
information, increased cyber security protection costs and reputational damage adversely affecting customer or investor confidence. In addition, if any information
about our customers, including payment information, were the subject of a successful cybersecurity attack against us, we could be subject to litigation or other
claims by the affected customers. We have incurred costs and may incur significant additional costs in order to implement the security measures we feel are
appropriate to protect our IT systems.
We may be required to recognize goodwill, intangible assets or other long-lived asset impairment charges.
As of September 30, 2018 , we had goodwill of $170.1 million , intangible assets of $291.9 million , and other long-lived assets of $214.9 million .
Goodwill and indefinite-lived intangible assets are not amortized and are subject to impairment testing at least annually. Future events, such as declines in our cash
flow projections or customer demand, may cause impairments of our goodwill or long-lived assets based on factors such as the price of our common stock,
projected cash flows, assumptions used, control premiums or other variables.
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In addition, if we divest long-lived assets at prices below their asset value, we must write them down to fair value resulting in long-lived asset impairment
charges, which could adversely affect our financial position or results of operations. For example, in fiscal 2015 we recorded asset impairments of $27.9 million
primarily related to our announced Fence and Sprinkler exit. See Note 13, ''Goodwill and Intangible Assets'' to the accompanying consolidated financial statements
included elsewhere in this Annual Report. We cannot accurately predict the amount and timing of any impairment of assets, and we may be required to recognize
goodwill or other asset impairment charges which could materially and adversely affect our results of operations.
We are subject to certain safety and labor risks associated with the manufacture and testing of our products.
As of September 30, 2018 , we employed approximately 3,500 total full-time equivalent employees, a significant percentage of whom work at our 30
manufacturing facilities. Our business involves complex manufacturing processes and there is a risk that an accident resulting in property damage, personal injury
or death could occur in one of our facilities. In addition, prior to the introduction of new products, our employees test such products under rigorous conditions,
which could potentially result in injury or death. The outcome of any personal injury, wrongful death or other litigation is difficult to assess or quantify and the cost
to defend litigation can be significant. As a result, the costs to defend any action or the potential liability resulting from any such accident or death or arising out of
any other litigation, and any negative publicity associated therewith or negative effects on employee morale, could have a negative effect on our business, financial
position, results of operations or cash flows. In addition, any accident could result in manufacturing or product delays, which could negatively affect our business,
financial position, results of operations or cash flows.
The nature of our business exposes us to product liability, construction defect and warranty claims and litigation as well as other legal proceedings,
which could materially and adversely affect our business, financial position, results of operations or cash flows.
We are exposed to construction defect and product liability claims relating to our various products if our products do not meet customer expectations.
Such claims and liabilities may arise out of the quality of raw materials or component parts we purchase from third-party suppliers, over which we do not have
direct control, or due to our fabrication, assembly, or damage in shipment of our products. In addition, we warrant certain of our products to be free of certain
defects and could incur costs related to paying warranty claims in connection with defective products. We cannot assure you that we will not experience material
losses or that we will not incur significant costs to defend or pay for such claims.
While we currently maintain insurance coverage to address a portion of these types of liabilities, we cannot make assurances that we will be able to obtain
such insurance on acceptable terms in the future, if at all, or that any such insurance will provide adequate coverage against potential claims. Further, while we
intend to seek indemnification against potential liability for product liability claims from relevant parties, we cannot guarantee that we will be able to recover under
any such indemnification agreements. Any claims that result in liability exceeding our insurance coverage and rights to indemnification by third parties could
materially and adversely affect our business, financial position, results of operations or cash flows. Product liability claims can be expensive to defend and can
divert the attention of management and other personnel for significant time periods, regardless of the ultimate outcome. For example, certain of our subsidiaries
have been named as defendants in product liability law suits claiming that our ABF II anti-microbial coated sprinkler pipe allegedly caused environmental stress
cracking in chlorinated PVC pipe. See Note 16, ''Commitments and Contingencies'' to the accompanying consolidated financial statements included elsewhere in
this Annual Report. An unsuccessful product liability defense could be highly costly and accordingly result in a decline in revenues and profitability.
From time to time, we are also involved in government inquiries and investigations, as well as consumer, employment, tort proceedings and other
litigation. We cannot predict with certainty the outcomes of these legal proceedings and other contingencies. The outcome of some of these legal proceedings and
other contingencies could require us to take actions which would adversely affect our operations or could require us to pay substantial amounts of money.
Additionally, defending against these lawsuits and proceedings may involve significant expense and diversion of management's attention and resources from other
matters.
We may not be able to adequately protect our intellectual property rights in foreign countries, and we may become involved in intellectual property
disputes.
15
Our use of contractual provisions, confidentiality procedures and agreements, and patent, trademark, copyright, unfair competition, trade secret and other
laws to protect our intellectual property and other proprietary rights may not be adequate. We have registered intellectual property (mainly trademarks and patents)
in more than 85 countries. Because of the differences in foreign trademark, patent and other intellectual property or proprietary rights laws, we may not receive the
same protection in foreign countries as we would in the United States.
Litigation may be necessary to enforce our intellectual property rights or to defend against claims by third parties that our products infringe their
intellectual property rights. Any litigation or claims brought by or against us could result in substantial costs and diversion of our resources. A successful
intellectual property infringement suit against us could prevent us from manufacturing or selling certain products in a particular area, which could materially and
adversely affect our business, financial position, results of operations or cash flows.
We face risks relating to doing business internationally that could materially and adversely affect our business, financial position, results of
operations or cash flows.
Our business operates and serves customers in certain foreign countries, including Australia, Canada, China, New Zealand and the United Kingdom.
There are certain risks inherent in doing business internationally, including:
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economic volatility and sustained economic downturns;
difficulties in enforcing contractual and intellectual property rights;
currency exchange rate fluctuations and currency exchange controls;
import or export restrictions and changes in trade regulations;
difficulties in developing, staffing, and simultaneously managing a number of foreign operations as a result of distance;
issues related to occupational safety and adherence to local labor laws and regulations;
potentially adverse tax developments;
longer payment cycles;
exposure to different legal standards;
political or social unrest, including terrorism;
risks related to government regulation and uncertain protection and enforcement of our intellectual property rights;
the presence of corruption in certain countries; and
higher than anticipated costs of entry.
One or more of these factors could materially and adversely affect our business, financial position, results of operations or cash flows.
Our inability to introduce new products effectively or implement our innovation strategies could adversely affect our ability to compete.
We continually seek to develop products and solutions that allow us to stay at the forefront of the needs of the Electrical Raceway and MP&S markets.
The success of new products depends on a variety of factors, including but not limited to, timely and successful product development, the effective consummation
of strategic acquisitions, market acceptance and demand, competitive response, protection of associated intellectual property and avoidance of third-party
infringement of the Company's intellectual property, our ability to manage risks associated with product life cycles, the effective management of inventory and
purchase commitments, the availability and cost of raw materials and the quality of our initial products during the initial period of introduction. Some of the
foregoing factors are beyond our control and we cannot fully predict the ultimate success of the introduction of new products, especially in the early stages of
innovation. In introducing new products and implementing our innovation strategies, any delays, unexpected costs, diversion of resources, loss of key employees or
other setbacks could materially and adversely affect our business, financial position, results of operations or cash flows.
The majority of our net sales are credit sales that are made primarily to customers whose ability to pay is dependent, in part, upon the economic
strength of the industries and geographic areas in which they operate, and the failure to collect monies owed from customers could adversely affect our
business, financial position, results of operations or cash flows.
16
The majority of our net sales are facilitated through the extension of credit to our customers, whose ability to pay is dependent, in part, upon the economic
strength of the industries and geographic areas in which they operate. We offer credit to customers, either through unsecured credit that is based solely upon the
creditworthiness of the customer, or secured credit for materials sold for a specific job where the security lies in lien rights associated with the material going into
the job. The type of credit offered depends both on the financial strength of the customer and the nature of the business in which the customer is involved. End
users, resellers and other non-contractor customers generally purchase more on unsecured credit than secured credit. The inability of our customers to pay off their
credit lines in a timely manner, or at all, would adversely affect our business, financial condition, results of operations and cash flows. Furthermore, our collections
efforts with respect to non-paying or slow-paying customers could negatively impact our customer relations going forward.
Because we depend on the creditworthiness of our customers, if the financial condition of our customers declines, our credit risk could increase.
Significant contraction in our markets, coupled with tightened credit availability and financial institution underwriting standards, could adversely affect certain of
our customers. Should one or more of our larger customers declare bankruptcy, it could adversely affect the collectability of our accounts receivable, bad debt
reserves and net income.
Our business, financial position or results of operations could be materially and adversely affected by the ability to import raw materials, component
parts and/or finished goods from existing suppliers and otherwise without government regulations or restrictions incremental to those borne by the business
today.
Our business, financial position or results of operations could be materially and adversely affected by our inability to continue importing raw materials,
component parts and/or finished goods under the regulatory regime applicable to our business. Although we seek to have alternate sources and recover increases in
input costs through price increases in our products, regulatory changes or other governmental actions could result in the need to change suppliers or incur cost
increases that cannot, in the short term, or in some cases even the long term, be offset by our prices. Such changes could reduce our gross profit, net income and
cash flow. Any of these consequences could materially and adversely affect our business, financial position, results of operations or cash flows.
In connection with acquisitions, joint ventures or divestitures, we may become subject to liabilities and required to issue additional debt or equity.
In connection with any acquisitions or joint ventures, we may acquire liabilities or defects such as legal claims, including but not limited to third-party
liability and other tort claims; claims for breach of contract; employment-related claims; environmental liabilities, conditions or damage; permitting, regulatory or
other compliance with law issues; liability for hazardous materials; or tax liabilities. If we acquire any of these liabilities, and they are not adequately covered by
insurance or an enforceable indemnity or similar agreement from a creditworthy counterparty, we may be responsible for significant out-of-pocket expenditures. In
connection with any divestitures, we may incur liabilities for breaches of representations and warranties or failure to comply with operating covenants under any
agreement for a divestiture. In addition, we may indemnify a counterparty in a divestiture for certain liabilities of the subsidiary or operations subject to the
divestiture transaction. These liabilities, if they materialize, could materially and adversely affect our business, financial position, results of operations or cash
flows.
In addition, if we were to undertake a substantial acquisition for cash, the acquisition would likely need to be financed in part through additional financing
from banks, through public offerings or private placements of debt or equity securities or through other arrangements. Such acquisition financing might decrease
our ratio of earnings to fixed charges and adversely affect other leverage criteria and our credit rating. We cannot assure you that the necessary acquisition
financing would be available to us on acceptable terms if and when required. Moreover, acquisitions financed through the issuance of equity securities could cause
our stockholders to experience dilution.
17
We may be unable to identify, acquire, close or integrate acquisition targets successfully.
Acquisitions are a component of our growth strategy; however, there can be no assurance that we will be able to continue to grow our business through
acquisitions as we have done historically or that any businesses acquired will perform in accordance with expectations or that business judgments concerning the
value, strengths and weaknesses of businesses acquired will prove to be correct. We will continue to analyze and evaluate the acquisition of strategic businesses or
product lines with the potential to strengthen our industry position or enhance our existing product offering. We cannot assure you that we will identify or
successfully complete transactions with suitable acquisition candidates in the future, nor can we assure you that completed acquisitions will be successful. If an
acquired business fails to operate as anticipated or cannot be successfully integrated with our existing business, our business, financial condition, results of
operations or cash flows could be materially and adversely affected.
As a result of our international operations, we could be adversely affected by violations of the United States Foreign Corrupt Practices Act and similar
foreign anti-corruption laws.
The United States Foreign Corrupt Practices Act, or the "FCPA," and similar foreign anti-corruption laws generally prohibit companies and their
intermediaries from making improper payments or providing anything of value to influence foreign government officials for the purpose of obtaining or retaining
business or obtaining an unfair advantage. Recent years have seen a substantial increase in the global enforcement of anti-corruption laws, with more frequent
voluntary self-disclosures by companies, aggressive investigations and enforcement proceedings by both the United States Department of Justice and the United
States Securities and Exchange Commission, or the "SEC," resulting in record fines and penalties, increased enforcement activity by non-U.S. regulators, and
increases in criminal and civil proceedings brought against companies and individuals.
We have operations in Australia, Canada, China, New Zealand and the United Kingdom and sell our products in many additional countries. As we acquire
additional businesses, we often become responsible for such businesses' prior violations of anti-corruption laws, if any. Our internal policies provide for
compliance with all applicable anti-corruption laws for us, third-party representatives, distributors and our joint venture operations. Our continued operation and
expansion outside the United States, including in developing countries, could increase the risk of such violations in the future. Despite our training and compliance
programs, we cannot assure you that our internal control policies and procedures always will protect us from unauthorized reckless or criminal acts committed by
our employees, agents or joint venture partners. In the event that we believe or have reason to believe that our employees, agents or distributors have or may have
violated applicable anti-corruption laws, including the FCPA, we may be required to investigate or have outside counsel investigate the relevant facts and
circumstances, which can be expensive and require significant time and attention from senior management. Violations of these laws may result in severe criminal
or civil sanctions, which could disrupt our business and result in a material adverse effect on our business, financial condition, results of operations or cash flows.
Regulations related to "conflict minerals" may force us to incur additional expenses, may make our supply chain more complex and may result in
damage to our reputation with customers.
As a public company, we are subject to the requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the "Dodd-
Frank Act." The SEC has adopted requirements under the Dodd-Frank Act for companies that use certain minerals and metals, known as conflict minerals, in their
products, whether or not these products are manufactured by third parties. These requirements require companies to conduct due diligence and disclose whether or
not such minerals originate from the Democratic Republic of Congo and adjoining countries. There are costs associated with complying with these disclosure
requirements, including for efforts to determine the sources of conflict minerals used in our products and other potential changes to products, processes or sources
of supply as a consequence of such verification activities. In addition, compliance with these requirements could adversely affect the sourcing, supply and pricing
of materials used in those products and we may face reputational challenges if we are unable to verify the origins for all "conflict minerals" used in products
through the procedures we have implemented. We may also encounter challenges to satisfy customers that may require all of the components of products purchased
to be certified as conflict free. If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier.
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Anti-terrorism measures and other disruptions to the raw material supply network could impact our operations.
Our ability to provide efficient distribution of products to our customers is an integral component of our overall business strategy. In the aftermath of
terrorist attacks in the United States, federal, state and local authorities have implemented and continue to implement various security measures that affect the raw
material supply network in the United States and abroad. If security measures disrupt or impede the receipt of sufficient raw materials, we may fail to meet the
needs of our customers or may incur increased expenses to do so.
Our indebtedness may adversely affect our financial health.
Risks Related to Our Indebtedness
As of September 30, 2018 , we had approximately $912.2 million of total long-term consolidated indebtedness outstanding (including current portion)
under AII's credit facilities (" Credit Facilities "), which consist of: (i) an asset-based credit facility (" ABL Credit Facility "); and (ii) the first lien term loan facility
(the " First Lien Term Loan Facility "). As of September 30, 2018 , AII had $315.1 million of available borrowing capacity under the ABL Credit Facility and there
were no outstanding borrowings (excluding $9.9 million of letters of credit issued under the facility). Our indebtedness could have important consequences to you.
Because of our indebtedness:
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our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes
and our ability to satisfy our obligations with respect to our indebtedness may be impaired in the future;
a large portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the
funds available to us for other purposes;
we are exposed to the risk of increased interest rates because a significant portion of our borrowings are at variable rates of interest;
it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on, and acceleration of, such indebtedness;
we may be more vulnerable to general adverse economic and industry conditions;
we may be at a competitive disadvantage compared to our competitors with proportionately less indebtedness or with comparable indebtedness on more
favorable terms and, as a result, they may be better positioned to withstand economic downturns;
our ability to refinance indebtedness may be limited or the associated costs may increase;
our flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited; and
we may be prevented from carrying out capital spending and restructurings that are necessary or important to our growth strategy and efforts to improve
our operating margins.
Despite our indebtedness levels, we and our subsidiaries may incur substantially more indebtedness, which may increase the risks created by our
indebtedness.
We and our subsidiaries may incur substantial additional indebtedness in the future. The terms of the credit agreements governing the Credit Facilities do
not fully prohibit our subsidiaries from incurring additional debt. If our subsidiaries are in compliance with certain coverage ratios set forth in the agreements
governing the Credit Facilities , they may be able to incur substantial additional indebtedness, which may increase the risks created by our current indebtedness.
Subject to certain conditions and without the consent of the then existing lenders, the loans under the First Lien Term Loan Facility may be expanded (or a new
term loan facility, revolving credit facility or letter of credit facility added) by up to $235.0 million , plus an additional amount not to exceed specified coverage
ratios. In addition, subject to certain conditions and without the consent of the then existing lenders, the loans under the ABL Credit Facility may be expanded by
up to $100 million , and the credit agreements governing the Credit Facilities allow for up to $50.0 million of second lien facilities, plus an additional amount not
to exceed a specified leverage ratio. As of September 30, 2018 , we were able to borrow an additional $315.1 million under the ABL Credit Facility.
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Increases in interest rates would increase the cost of servicing our indebtedness and could reduce our profitability.
A significant portion of our outstanding indebtedness bears interest or will bear interest at variable rates. As a result, increases in interest rates would
increase the cost of servicing our indebtedness and could materially and adversely affect our business, financial position, results of operations or cash flows. As of
September 30, 2018 , LIBOR exceeded 1.00%; therefore, each one percentage point change in interest rates would have resulted in a change of approximately $9.3
million in the annual interest expense on the First Lien Term Loan Facility . As of September 30, 2018 , assuming availability was fully utilized, each one
percentage point change in interest rates would have resulted in a change of approximately $3.3 million in annual interest expense on the ABL Credit Facility.
Additionally, if the ABL Credit Facility were fully utilized, the margin we pay on borrowings would increase by 0.50% from the current level and we would incur
additional interest expense of $1.6 million. The impact of increases in interest rates could be more significant for us than it would be for some other companies
because of our indebtedness, thereby affecting our profitability.
A lowering or withdrawal of the ratings, outlook or watch assigned to our indebtedness by rating agencies may increase our future borrowing costs
and reduce our access to capital.
Our indebtedness currently has a non-investment grade rating, and any rating, outlook or watch assigned could be lowered or withdrawn entirely by a
rating agency if, in that rating agency's judgment, current or future circumstances relating to the basis of the rating, outlook or watch, such as adverse changes to
our business, so warrant. Any future lowering of our ratings, outlook or watch likely would make it more difficult or more expensive for us to obtain additional
debt financing.
The agreements and instruments governing our indebtedness contain restrictions and limitations that could significantly impact our ability to operate
our business.
The Credit Facilities contain covenants that, among other things, restrict the ability of AII and its subsidiaries to:
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incur additional indebtedness and create liens;
pay dividends and make other distributions or to purchase, redeem or retire capital stock;
purchase, redeem or retire certain junior indebtedness;
make loans and investments;
enter into agreements that limit AII's or its subsidiaries' ability to pledge assets or to make distributions or
loans to us or transfer assets to us;
sell assets;
enter into certain types of transactions with affiliates;
consolidate, merge or sell substantially all assets;
make voluntary payments or modifications of junior indebtedness; and
enter into lines of business.
The restrictions in the Credit Facilities may prevent us from taking actions that we believe would be in the best interest of our business and may make it
difficult for us to execute our business strategy successfully or effectively compete with companies that are not similarly restricted. We may also incur future debt
obligations that might subject us to additional restrictive covenants that could affect our financial and operational flexibility. Additionally, we may be required to
make accelerated payments due to the covenants and restrictions contained in the Credit Facilities. We may be unable to refinance our indebtedness, at maturity or
otherwise, on terms acceptable to us or at all.
The ability of AII to comply with the covenants and restrictions contained in the Credit Facilities may be affected by economic, financial and industry
conditions beyond our control including credit or capital market disruptions. The breach of any of these covenants or restrictions could result in a default that
would permit the applicable lenders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest. If we are
unable to repay indebtedness, lenders having secured obligations, such as the lenders under the Credit Facilities, could proceed against the collateral securing the
indebtedness. In any such case, we may be unable to borrow under the Credit Facilities and may not be able to repay the amounts due under such facilities. This
could materially and adversely affect our business, financial position, results of operations or cash flows and could cause us to become bankrupt or insolvent.
Our ability to increase or refinance our indebtedness could become more difficult or expensive upon the adoption of the new leasing accounting
standard which requires companies to show all off-balance sheet operating leases as liabilities on the balance sheet.
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The Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2016-02, Leases which the Company is required to
adopt for its 2020 fiscal year. Under this ASU, operating leases are classified as liabilities on the balance sheet. These operating leases are currently treated as off-
balance sheet financing under generally accepted accounting principles currently effective for Atkore. See Note 1, ''Basis of Presentation and Summary of
Significant Accounting Policies'' to the accompanying consolidated financial statements included elsewhere in this Annual Report. Though the terms and
conditions of our current debt agreements relating to covenants and restrictions are not impacted by this change as they incorporate the adoption of the ASU, our
ability to increase or refinance our indebtedness could become more difficult or expensive given the additional liabilities that will be included on our balance
sheet subsequent to the adoption of the ASU.
Our ability to generate the significant amount of cash needed to pay interest and principal on our indebtedness and our ability to refinance all or a
portion of our indebtedness or obtain additional financing depends on many factors beyond our control.
Atkore International Group, Inc. ("AIG"), AII, and AIH are each holding companies, and as such they have no independent operations or material assets
other than ownership of equity interests in their respective subsidiaries. AIG, AII and AIH each depend on their respective subsidiaries to distribute funds to them
so that they may pay obligations and expenses, including satisfying obligations with respect to indebtedness. Our ability to make scheduled payments on, or to
refinance our obligations under, our indebtedness depends on the financial and operating performance of our subsidiaries and their ability to make distributions and
dividends to us, which, in turn, depends on their results of operations, cash flows, cash requirements, financial position and general business conditions and any
legal and regulatory restrictions on the payment of dividends to which they may be subject, many of which may be beyond our control.
We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness.
If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets,
seek to obtain additional equity capital or restructure our indebtedness. In the future, our cash flow and capital resources may not be sufficient for payments of
interest on and principal of our indebtedness, and such alternative measures may not be successful and may not permit us to meet our scheduled debt service
obligations.
The outstanding borrowings under the First Lien Term Loan Facility have a maturity date of December 22, 2023 and the ABL Credit Facility is scheduled
to mature on December 22, 2021 . We may be unable to refinance any of our indebtedness or obtain additional financing, particularly because of our indebtedness.
Market disruptions, such as those experienced in 2008 and 2009, as well as our indebtedness levels, may increase our cost of borrowing or adversely affect our
ability to refinance our obligations as they become due. If we are unable to refinance our indebtedness or access additional credit, or if short-term or long-term
borrowing costs dramatically increase, our ability to finance current operations and meet our short-term and long-term obligations could be adversely affected.
If our subsidiary AII cannot make scheduled payments on its indebtedness, it will be in default and the lenders under the Credit Facilities could terminate
their commitments to loan money or foreclose against the assets securing their borrowings, and we could be forced into bankruptcy or liquidation.
Risks Related to Our Common Stock
AIG is a holding company with no operations of its own, and it depends on its subsidiaries for cash to fund all of its operations and expenses,
including to make future dividend payments, if any.
Our operations are conducted entirely through our subsidiaries, and our ability to generate cash to fund our operations and expenses, to pay dividends or to
meet debt service obligations is highly dependent on the earnings and the receipt of funds from our subsidiaries through dividends or intercompany loans.
Deterioration in the financial condition, earnings or cash flow of AII and its subsidiaries for any reason could limit or impair their ability to pay such distributions.
Additionally, to the extent our subsidiaries are restricted from making such distributions under applicable law or regulation or under the terms of our financing
arrangements, or are otherwise unable to provide funds to the extent of our needs, there could be a material adverse effect on our business, financial condition,
results of operations or cash flows.
For example, the agreements governing the Credit Facilities significantly restrict the ability of our subsidiaries to pay dividends, make loans or otherwise
transfer assets to us. Furthermore, our subsidiaries are permitted under the terms of the Credit Facilities to incur additional indebtedness that may restrict or prohibit
the making of distributions, the payment of dividends or the making of loans by such subsidiaries to us.
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The market price of our common stock may be volatile and could decline.
The market price of our common stock may fluctuate significantly. Among the factors that could affect our stock price are:
industry or general market conditions;
domestic and international economic factors unrelated to our performance;
changes in our customers' preferences;
new regulatory pronouncements and changes in regulatory guidelines;
lawsuits, enforcement actions and other claims by third parties or governmental authorities;
actual or anticipated fluctuations in our quarterly operating results;
changes in securities analysts' estimates of our financial performance or lack of research coverage and reports by industry analysts;
action by institutional stockholders or other large stockholders, including future sales of our common stock;
failure to meet any guidance given by us or any change in any guidance given by us, or changes by us in our guidance practices;
announcements by us of significant impairment charges;
speculation in the press or investment community;
investor perception of us and our industry;
changes in market valuations or earnings of similar companies;
announcements by us or our competitors of significant contracts, acquisitions, dispositions or strategic partnerships;
war, terrorist acts and epidemic disease;
any future sales of our common stock or other securities;
additions or departures of key personnel; and
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• misconduct or other improper actions of our employees.
Stock markets have experienced extreme volatility in recent years that has been unrelated to the operating performance of particular companies. These
broad market fluctuations may adversely affect the trading price of our common stock. In the past, following periods of volatility in the market price of a
company's securities, class action litigation has often been instituted against the affected company. Any litigation of this type brought against us could result in
substantial costs and a diversion of our management's attention and resources, which could materially and adversely affect our business, financial position, results
of operations or cash flows.
The timing and amount of the Company’s share repurchases are subject to a number of uncertainties.
In August 2017, the Company announced that its board of directors had approved a share repurchase program for the repurchase of up to an aggregate
amount of $75 million of the Company’s common stock. Share repurchases under the program have been and we expect will continue to be funded with cash on
hand. The amount and timing of share repurchases will be based on a variety of factors. Important factors that could cause the Company to limit, suspend or delay
its share repurchases include unfavorable trading market conditions, the price of the Company's common stock, the nature of other investment opportunities
presented to us from time to time, the ability to obtain financing at attractive rates and the availability of U.S. cash. The share repurchase program does not obligate
us to acquire any particular amount of common stock, and it may be terminated at any time at the Company’s discretion.
If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our stock price and
trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business.
If one or more of the analysts that covers our common stock downgrades our stock or publishes misleading or unfavorable research about our business, our stock
price would likely decline. If one or more of the analysts ceases coverage of our common stock or fails to publish reports on us regularly, demand for our common
stock could decrease, which could cause our common stock price or trading volume to decline.
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Future offerings of debt or equity securities which would rank senior to our common stock may adversely affect the market price of our common
stock.
If, in the future, we decide to issue debt or equity securities that rank senior to our common stock, it is likely that such securities will be governed by an
indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we issue in the
future may have rights, preferences and privileges more favorable than those of our common stock and may result in dilution to owners of our common stock. We
and, indirectly, our stockholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future
offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings.
Thus, holders of our common stock will bear the risk of our future offerings reducing the market price of our common stock and diluting the value of their stock
holdings in us.
Fulfilling our obligations incident to being a public company, including compliance with the requirements of the Exchange Act, and related rules
under the Sarbanes-Oxley Act of 2002, or the "Sarbanes-Oxley Act," and the Dodd-Frank Act, is expensive and time-consuming, and any delays or difficulties
in satisfying these obligations could have a material adverse effect on our future results of operations and our stock price.
Our IPO was completed in June 2016. As a public company, we are subject to the reporting, accounting and corporate governance requirements of the
NYSE, the Exchange Act, the Sarbanes-Oxley Act and the Dodd-Frank Act that apply to issuers of listed equity, which impose certain significant compliance
requirements, costs and obligations upon us. The changes necessitated by being a publicly listed company require a significant commitment of additional resources
and management oversight which increase our operating costs. Further, to comply with the requirements of being a public company, we may need to undertake
various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. In addition, we may identify
control deficiencies which could result in a material weakness or significant deficiency. In the past, we have identified material weaknesses, all of which have since
been remediated. We did not identify any material weaknesses for fiscal 2018 .
The expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses,
increased directors' fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses. As a public
company, we are required, among other things, to define and expand the roles and the duties of our board of directors and its committees and institute more
comprehensive compliance and investor relations functions. Failure to comply with the Sarbanes-Oxley Act or Dodd-Frank Act could potentially subject us to
sanctions or investigations by the SEC, the NYSE or other regulatory authorities.
Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated by-laws could discourage, delay or
prevent a change of control of our company and may affect the trading price of our common stock.
Our amended and restated certificate of incorporation and our second amended and restated by-laws, ("amended and restated by-laws") include a number
of provisions that may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. For example, our
amended and restated certificate of incorporation and amended and restated by-laws collectively:
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authorize the issuance of "blank check" preferred stock that could be issued by our board of directors to thwart a takeover attempt;
provide for a classified board of directors, which divides our board of directors into three classes, with members of each class serving staggered three-year
terms, which prevents stockholders from electing an entirely new board of directors at an annual meeting;
limit the ability of stockholders to remove directors;
provide that vacancies on our board of directors, including vacancies resulting from an enlargement of our board of directors, may be filled only by a
majority vote of directors then in office;
prohibit stockholders from calling special meetings of stockholders;
prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of stockholders;
establish advance notice requirements for nominations of candidates for election as directors or to bring other business before an annual meeting of our
stockholders; and
require the approval of holders of at least 66⅔% of the outstanding shares of our common stock to amend our amended and restated by-laws and certain
provisions of our amended and restated certificate of incorporation.
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These provisions may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder
in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common
stock if the provisions are viewed as discouraging takeover attempts in the future.
Our amended and restated certificate of incorporation and amended and restated by-laws may also make it difficult for stockholders to replace or remove
our management. Furthermore, the existence of the foregoing provisions could limit the price that investors might be willing to pay in the future for shares of our
common stock. These provisions may facilitate management entrenchment that may delay, deter, render more difficult or prevent a change in our control, which
may not be in the best interests of our stockholders.
We could be the subject of securities class action litigation due to future stock price volatility, which could divert management's attention and
materially and adversely affect our business, financial position, results of operations or cash flows.
The stock market in general, and market prices for the securities of companies like ours in particular, have from time to time experienced volatility that
often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market
price of our common stock, regardless of our operating performance. In certain situations in which the market price of a stock has been volatile, holders of that
stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a similar lawsuit against us,
the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and could materially and adversely affect our
business, financial position, results of operations or cash flows.
We do not currently intend to pay dividends on our common stock for the foreseeable future and, consequently, your ability to achieve a return on
your investment depends on appreciation in the price of our common stock.
We do not currently intend to declare and pay dividends on our common stock for the foreseeable future. We currently intend to use our future earnings, if
any, to repay debt, to fund our growth, to develop our business, for working capital needs and for general corporate purposes. Therefore, you are not likely to
receive any dividends on your common stock for the foreseeable future, and the success of an investment in shares of our common stock depends upon any future
appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders
have purchased their shares. Payments of dividends, if any, are at the sole discretion of our board of directors after taking into account various factors, including
general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements,
contractual, legal, tax and regulatory restrictions and implications of the payment of dividends by us to our stockholders or by our subsidiaries (including AII) to
us, and such other factors as our board of directors may deem relevant. In addition, our operations are conducted almost entirely through our subsidiaries. As such,
to the extent that we determine in the future to pay dividends on our common stock, none of our subsidiaries will be obligated to make funds available to us for the
payment of dividends. Further, the agreements governing the Credit Facilities significantly restrict the ability of our subsidiaries to pay dividends or otherwise
transfer assets to us. In addition, Delaware law imposes additional requirements that may restrict our ability to pay dividends to holders of our common stock.
Our amended and restated certificate of incorporation includes provisions limiting the personal liability of our directors for breaches of fiduciary duty
under the DGCL.
Our amended and restated certificate of incorporation contains provisions permitted under the action asserting a claim arising under the General
Corporation Law of the State of Delaware ("DGCL") relating to the liability of directors. These provisions eliminate a director's personal liability to the fullest
extent permitted by the DGCL for monetary damages resulting from a breach of fiduciary duty, except in circumstances involving:
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any breach of the director's duty of loyalty;
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law;
Section 174 of the DGCL (unlawful dividends); or
any transaction from which the director derives an improper personal benefit.
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The principal effect of the limitation on liability provision is that a stockholder will be unable to prosecute an action for monetary damages against a
director unless the stockholder can demonstrate a basis for liability for which indemnification is not available under the DGCL. These provisions, however, should
not limit or eliminate our rights or any stockholder's rights to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of a director's
fiduciary duty. These provisions do not alter a director's liability under federal securities laws. The inclusion of this provision in our amended and restated
certificate of incorporation may discourage or deter stockholders or management from bringing a lawsuit against directors for a breach of their fiduciary duties,
even though such an action, if successful, might otherwise have benefited us and our stockholders.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for
certain litigation that may be initiated by our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us
or our directors, officers or stockholders.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of
Chancery of the State of Delaware is, to the fullest extent permitted by law, the sole and exclusive forum for (i) any derivative action or proceeding brought on our
behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our directors, officers, other employees, agents or
stockholders, (iii) any action asserting a claim arising out of or under the DGCL, or as to which the DGCL confers jurisdiction on the Court of Chancery of the
State of Delaware (including, without limitation, any action asserting a claim arising out of or pursuant to our amended and restated certificate of incorporation or
our amended and restated by-laws) or (iv) any action asserting a claim that is governed by the internal affairs doctrine. As a stockholder in our company, you are
deemed to have notice of and have consented to the provisions of our amended and restated certificate of incorporation related to choice of forum. The choice of
forum provision in our amended and restated certificate of incorporation may limit our stockholders' ability to obtain a favorable judicial forum for disputes with us
or any of our directors, officers, other employees, agents or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were
to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may
incur additional costs associated with resolving such action in other jurisdictions, which could materially and adversely affect our business, financial position,
results of operations or cash flows.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters are located in owned premises at 16100 South Lathrop Avenue, Harvey, Illinois. We and our operating companies own and
lease a variety of facilities, principally in the United States, for manufacturing, distribution and light assembly. Our manufacturing, distribution and assembly
centers are strategically located to optimize route efficiency, market coverage and overhead. The following chart identifies the number of owned and leased
facilities used by each of our reportable segments as of September 30, 2018 . We believe that these facilities, when considered with our corporate headquarters,
offices and warehouses are suitable and adequate to support the current needs of our business.
Reportable Segment
Electrical Raceway
Mechanical Products & Solutions
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Leased
Facilities
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We believe that our facilities are well-maintained and are sufficient to meet our current and projected needs. We also have an ongoing process to
continually review and update our real estate portfolio to meet changing business needs. Our two principal facilities are located in Harvey, Illinois and New
Bedford, Massachusetts. Our owned manufacturing facility in Harvey, Illinois supports both our Electrical Raceway and MP&S segments. Our owned facility in
New Bedford, Massachusetts supports our Electrical Raceway segment.
Item 3. Legal Proceedings
See Note 16, ''Commitments and Contingencies'' to the accompanying consolidated financial statements included elsewhere in this Annual Report.
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Item 4. Mine Safety Disclosures
None.
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Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Common Stock Market Prices
Shares of our common stock have traded on the NYSE under the symbol ATKR since June 10, 2016.
PART II
** Assumes $100 invested on June 10, 2016 in stock or index, including reinvestment of dividends.
The following group of 10 public companies represents the Company's peer group:
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nVent Electric plc
• Schneider Electric SE
• ABB Ltd. Sponsored ADR
• Acuity Brands
• AZZ Inc.
Holders
• Eaton Corp. Plc
• Hubbell Incorporated Class B
• Littelfuse, Inc.
• Legrand SA
• NCI Building Systems, Inc.
As of November 18, 2018 , there was one stockholder of record of our common stock. This number excludes stockholders whose stock is held in nominee
or street name by brokers.
Dividend Policy
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We have not and do not currently intend to declare or pay dividends on our common stock for the foreseeable future. We currently intend to use our future
earnings, if any, to repay debt, to fund our growth, to develop our business, for working capital needs and for general corporate purposes. Our ability to pay
dividends to holders of our common stock is significantly limited as a practical matter by the Credit Facilities insofar as we may seek to pay dividends out of funds
made available to us by AII or its subsidiaries, because AII's debt instruments directly or indirectly restrict AII's ability to pay dividends or make loans to us. Any
future determination to pay dividends on our common stock will be subject to the discretion of our board of directors and depends upon various factors, including
our results of operations, financial condition, liquidity requirements, capital requirements, level of indebtedness, contractual restrictions with respect to payment of
dividends, restrictions imposed by Delaware law, general business conditions and other factors that our board of directors may deem relevant.
Issuer Purchases of Equity Securities
The following table shows our purchases of our common stock during fiscal 2018 and 2017:
Period
August 1, 2017 - August 31,
2017
September 1, 2017 - September
30, 2017
October 1, 2017 - October 31,
2017
November 1, 2017 - November
30, 2017
December 1, 2017 - December
31, 2017
February 1, 2018 - February
28, 2018
March 1, 2018 - March 31,
2018
May 1, 2018 - May 31, 2018
June 1, 2018 - June 30, 2018
July 1, 2018 - July 31, 2018
Total
Total Number of
Shares Purchased
Average 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)
80.9 $
16.49
700.5 $
17.95
89.6 $
18.91
260.3 $
18.99
1.8 $
20.49
17,225.5 $
21.77
6.4 $
1,333.1 $
25.5 $
77.9 $
19,801.5
19.50
20.81
20.95
20.90
80.9 $
700.5 $
89.6 $
260.3 $
1.8 $
17,225.5 $
6.4 $
1,333.1 $
25.5 $
77.9 $
19,801.5
73,666
61,092
59,398
54,455
54,418
54,418
54,293
26,551
26,017
24,389
(1) In August 2017, the Company announced that its board of directors had approved a share repurchase program for the repurchase of up to an aggregate amount of $75 million of the
Company’s common stock. In January 2018, the Company announced a stock repurchase transaction whereby the Company agreed to repurchase from the CD&R Investor, a related party,
approximately 17.2 million shares of the Company's common stock, par value $0.01 per share, at a per share price equal to $21.77, for a total purchase price of $375 million, subject to the terms
and conditions set forth in the stock purchase agreement. The share repurchase program will be funded from our available cash balances. This share repurchase program does not obligate us to
acquire any particular amount of common stock, and it may be terminated at any time at our discretion. As of September 30, 2018, there were approximately $24.4 million of authorized
repurchases remaining.
28
Securities Authorized for Issuance Under Equity Compensation Plans
The following table contains information, as of September 30, 2018 , about the amount of common shares to be issued upon the exercise of outstanding
options, performance share options (" PSUs ") and restricted stock units (" RSUs ") granted under the Omnibus Incentive Plan ("Omnibus Incentive Plan").
(share amounts in thousands)
Equity compensation plans approved by shareholders
Equity compensation plans not approved by shareholders
Total
Equity Compensation Plan Information
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights
(1)
Weighted Average
Exercise Price of
Outstanding Options
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (excluding
securities reflected in
(1))
3,562 $
—
3,562 $
9.91
—
9.91
2,189
—
2,189
(1) Includes 2,605 stock options, 307 PSUs and 650 RSUs granted to officers pursuant to the Omnibus Incentive Plan. Shares underlying RSUs and PSUs are deliverable without payment of any
consideration, and therefore these awards have not been taken into account in calculating the weighted-average exercise price of outstanding options. PSUs are reflected at the target level of
performance. For a description of the Omnibus Incentive Plan, see Note 5, ''Stock Incentive Plan'' to the accompanying consolidated financial statements included elsewhere in this Annual
Report.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities in fiscal 2018.
29
Item 6. Selected Financial Data
The following tables set forth selected historical financial data as of the dates and for the periods indicated. The selected historical consolidated financial
data as of September 30, 2018 and September 30, 2017 and for the fiscal years ended September 30, 2018 , September 30, 2017 and September 30, 2016 have been
derived from our audited consolidated financial statements and related notes included elsewhere in this Annual Report. The selected historical consolidated
financial data as of September 30, 2016 , September 25, 2015 and September 26, 2014 and for the years ended September 25, 2015 and September 26, 2014 have
been derived from our audited consolidated financial statements and related notes not included in this Annual Report. The selected financial data presented below
should be read in conjunction with Item 7, ''Management's Discussion and Analysis of Financial Condition and Results of Operations'' and the consolidated
financial statements and related notes included in Item 8, ''Financial Statements and Supplementary Data'' of this Annual Report on Form 10-K . Our historical
results are not necessarily indicative of the results to be expected for any future period.
30
(in thousands, except per share data)
Statement of Operations Data:
Net sales
Net income (loss)
Convertible preferred stock and
dividends
Net income per share
Basic
Diluted
Balance Sheet Data (at end of period):
Cash and cash equivalents
Total assets
Long-term obligations
Total equity
Cash Flow Data:
Cash flows provided by (used in):
Operating activities
Investing activities
Financing activities
Other Financial Data:
Adjusted net sales (5)
Adjusted EBITDA (6)
Adjusted EBITDA Margin (7)
Capital expenditures
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
September 30, 2018
(1)
September 30, 2017
(2)
September 30, 2016
September 25, 2015
(3)
September 26, 2014
(4)
1,835,139
136,645
$
$
1,503,934
84,639
$
$
1,523,384
58,796
$
$
1,729,168
(4,955)
$
$
1,702,838
(73,948)
— $
— $
— $
— $
29,055
2.59
2.48
126,662
1,324,060
929,254
122,059
145,703
2,514
(65,931)
1,835,139
271,549
$
$
$
$
$
$
$
$
$
$
$
1.33
1.27
45,718
1,215,092
642,384
360,871
121,654
(205,833)
(67,760)
1,503,934
227,608
$
$
$
$
$
$
$
$
$
$
$
0.94
0.94
200,279
1,164,568
702,500
257,246
156,646
(12,895)
(23,908)
1,515,568
235,002
$
$
$
$
$
$
$
$
$
$
$
(0.08)
(0.08)
$
$
(2.02)
(2.02)
80,598
1,113,799
747,024
156,277
141,073
(46,641)
(44,106)
1,550,575
163,950
$
$
$
$
$
$
$
$
$
33,360
1,185,419
735,060
176,469
86,333
(48,860)
(57,584)
1,510,150
126,597
8.4%
24,362
14.8%
15.1%
38,501
$
25,122
$
15.5%
16,830
$
10.6%
26,849
$
(1)
(2)
(3)
(4)
(5)
Includes results of operations of Cii from January 8, 2018. See Note 2, "Acquisitions" to our audited consolidated financial statements included elsewhere in this Annual Report.
Includes results of operations of FlexHead until March 30, 2018. See Note 3, "Divestitures" to our audited consolidated financial statements included elsewhere in this Annual
Report.
Includes results of operations of Marco, Flexicon and Calpipe from May 18, 2017, September 1, 2017, and September 29, 2017 respectively. See Note 2, "Acquisitions" to our
audited consolidated financial statements included elsewhere in this Annual Report.
Includes results of operations of American Pipe & Plastics, Inc., or "APPI," and Steel Components, Inc., or "SCI," from October 20, 2014 and November 17, 2014, respectively.
Includes results of operations of EP Lenders II, LLC d/b/a Ridgeline ("Ridgeline") from October 11, 2013.
We present Adjusted net sales to facilitate comparisons of reported net sales from period to period. In August 2015, we announced plans to exit our Fence and Sprinkler steel pipe
and tube product lines ("Fence and Sprinkler") in order to re-align our long-term strategic focus. These product lines were discontinued during the first quarter of fiscal 2016. We
define Adjusted net sales as reported net sales excluding net sales directly attributable to Fence and Sprinkler. We believe Adjusted net sales is useful for investors because
management uses Adjusted net sales as an operating measure to evaluate our ongoing business operations, which no longer include Fence and Sprinkler. Adjusted net sales has
limitations as an analytical tool, and should not be considered in isolation or as an alternative to measures based on accounting principles generally accepted in the United States of
America ("GAAP"), such as net sales or other financial statement data presented in our consolidated financial statements as an indicator of revenue. Because Adjusted net sales is
not a measure determined in accordance with GAAP and is susceptible to varying calculations, Adjusted net sales, as presented, may not be comparable to other similarly titled
measures of other companies.
31
(6)
We define Adjusted EBITDA as net income (loss) before: depreciation and amortization, interest expense, net, loss (gain) on extinguishment of debt, income tax expense (benefit),
restructuring and impairments, stock-based compensation, consulting fees, multi-employer pension withdrawal, certain legal matters, transaction costs, gain on sale of a business,
gain on sale of joint venture and other items, such as inventory reserves and adjustments and realized or unrealized gain (loss) on foreign currency transactions. Prior to fiscal 2017,
net income (loss) was also adjusted to exclude net periodic pension benefit costs and the impact from routine anti-microbial coated sprinkler pipe, or "ABF" product liability. These
costs are no longer an adjustment to Adjusted EBITDA beginning in fiscal 2017. Prior fiscal years have not been revised for this change due to the relative insignificance and nature
of the amounts.
We believe Adjusted EBITDA, when presented in conjunction with comparable accounting principles generally accepted in the United States of America ("GAAP") measures, is
useful for investors because management uses Adjusted EBITDA in evaluating the performance of our business.
Adjusted EBITDA is not considered a measure of financial performance under GAAP and the items excluded therefrom are significant components in understanding and assessing
our financial performance. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation or as an alternative to such GAAP measures as net
income (loss), cash flows provided by or used in operating, investing or financing activities or other financial statement data presented in our consolidated financial statements as an
indicator of financial performance or liquidity. Some of these limitations are:
• Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;
• Adjusted EBITDA does not reflect interest expense, or the requirements necessary to service interest or principal payments on debt;
• Adjusted EBITDA does not reflect income tax expense (benefit) or the cash requirements to pay taxes;
• Adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and although depreciation and
amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash
requirements for such replacements.
Because Adjusted EBITDA is not a measure determined in accordance with GAAP and is susceptible to varying calculations, Adjusted EBITDA, as presented, may not be
comparable to other similarly titled measures of other companies.
(7)
We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of net sales.
The following table sets forth a reconciliation of net sales to Adjusted net sales for the periods presented:
(in thousands)
Net sales
Impact of Fence and Sprinkler exit
Adjusted net sales
Fiscal year ended
September 30,
2018
September 30,
2017
September 30,
2016
September 25,
2015
September 26,
2014
$
$
1,835,139 $
1,503,934 $
1,523,384 $
1,729,168 $
—
—
(7,816)
(178,593)
1,835,139 $
1,503,934 $
1,515,568 $
1,550,575 $
1,702,838
(192,688)
1,510,150
The following table sets forth a reconciliation of net income (loss) to Adjusted EBITDA for the periods presented:
September 30, 2018 September 30, 2017 September 30, 2016 September 25, 2015 September 26, 2014
Fiscal year ended
(in thousands)
Net income (loss)
Income tax expense (benefit)
Depreciation and amortization
Interest expense, net
Loss (gain) on extinguishment of debt
Restructuring & impairments (a)
Net periodic pension benefit cost (b)
Stock-based compensation (c)
ABF product liability impact (d)
Consulting fees (e)
Legal matters (f)
Transaction costs (g)
Gain on sale of a business (h)
Gain on sale of joint venture (i)
Other (j)
Impact of Fence and Sprinkler exit (k)
$
136,645 $
84,639 $
58,796 $
(4,955) $
29,707
66,890
40,694
—
1,849
—
14,664
—
—
(4,833)
9,314
(27,575)
—
4,194
—
41,486
54,727
26,598
9,805
1,256
—
12,788
—
—
7,551
4,779
—
(5,774)
(10,247)
—
27,985
55,017
41,798
(1,661)
4,096
441
21,127
850
15,425
1,382
7,832
—
—
1,103
811
(2,916)
59,465
44,809
—
32,703
578
13,523
(216)
3,500
—
6,039
—
—
14,305
(2,885)
(73,948)
(32,939)
58,695
44,266
43,667
46,687
1,368
8,398
2,841
4,854
—
5,049
—
—
12,656
5,003
126,597
Adjusted EBITDA
$
271,549 $
227,608 $
235,002 $
163,950 $
32
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
Restructuring amounts represent exit or disposal costs including termination benefits and facility closure costs. Impairment amounts represent write-downs of goodwill, intangible assets
and/or long-lived assets. See Note 6, ''Restructuring Charges and Asset Impairments'' and Note 13, ''Goodwill and Intangible Assets'' to our consolidated financial statements for further
detail.
Through fiscal 2016, represents pension costs in excess of cash funding for pension obligations in the period. Beginning in fiscal 2017, the Company has not excluded net periodic
pension benefit cost from Adjusted EBITDA. Prior years have not been revised for this change due to the relative insignificance and nature of these amounts. See Note 4,
''Postretirement Benefits'' to our consolidated financial statements for further detail.
Represents stock-based compensation expenses related to stock option awards, performance stock awards and restricted stock awards. See Note 5, ''Stock Incentive Plan'' to our
consolidated financial statements for further detail.
Through fiscal 2016, represents changes in the Company's estimated exposure to ABF matters. Beginning in fiscal 2017, the company has excluded the costs incurred with the routine
ABF product liability from Adjusted EBITDA. Prior years have not been revised for this change due to the relative insignificance and nature of these amounts. See Note 16,
''Commitments and Contingencies'' to our consolidated financial statements for further detail.
Represents amounts paid to CD&R and, until April 9, 2014, to Tyco. The CD&R consulting agreement was terminated on June 15, 2016. See Note 18, ''Related Party Transactions'' to
our consolidated financial statements for further detail.
Represents certain legal matters of an unusual or non recurring nature. See Note 16, ''Commitments and Contingencies'' to our consolidated financial statements for further detail.
Represents expenses related to our initial public offering ("IPO"), secondary offerings and acquisition and divestiture-related activities. See Note 1, ''Basis of Presentation and Summary
of Significant Accounting Policies'' and Note 2, ''Acquisitions'' to our consolidated financial statements for further detail.
Represents pre-tax gain on sale of the assets of FlexHead on March 30, 2018. See Note 3, ''Divestitures'' to our consolidated financial statements for further detail.
Represents gain on sale of Abahsain-Cope Saudi Arabia Ltd. joint venture.
Represents other items, such as inventory reserves and adjustments, realized or unrealized gain (loss) on foreign currency transactions and release of indemnified uncertain tax positions.
Represents historical performance of Fence and Sprinkler and related operating costs.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with the accompanying consolidated financial statements and related notes included in this
Annual 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
elsewhere in this report, particularly in " Special Note Regarding Forward-Looking Statements and Information " and " Risk Factors " included elsewhere in this
Annual Report. The percentages provided below reflect rounding adjustments. Accordingly, figures expressed as percentages when aggregated may not be the
arithmetic sum of the percentages that precede them.
Business Factors Influencing our Results of Operations
We are a leading manufacturer of Electrical Raceway products primarily for the non-residential construction and renovation markets and MP&S for the
construction and industrial markets. Electrical Raceway products form the critical infrastructure that enables the deployment, isolation and protection of a
structure's electrical circuitry from the original power source to the final outlet. MP&S frame, support and secure component parts in a broad range of structures,
equipment and systems in electrical, industrial and construction applications. We believe we hold #1 or #2 positions in the United States by net sales in the vast
majority of our products. The quality of our products, the strength of our brands and our scale and presence provide what we believe to be a unique set of
competitive advantages that position us for profitable growth.
The following factors may affect our results of operations in any given period:
Economic Conditions. Our business depends on demand from customers across various end markets, including wholesale distributors, OEMs , retail
distributors and general contractors. Our products are primarily used by trade contractors in the construction and renovation of non-residential structures such as
commercial office buildings, healthcare facilities and manufacturing plants. In fiscal 2018 , 90% of our net sales were to customers located in the United States. As
a result, our business is heavily dependent on the health of the United States economy, in general, and on United States non-residential construction activity, in
particular. A stronger United States economy and robust non-residential construction generally increase demand for our products.
33
We believe that our business and demand for our products is influenced by two main economic indicators: United States gross domestic product, or
"GDP," and non-residential construction starts, measured in square footage. The United States non-residential construction market has experienced modest growth
over the past few years, in line with United States GDP. Our historic results have been positively impacted by growth in the non-residential construction market, as
such growth leads to greater demand for our products. MR&R activity generally increases and represents a greater share of non-residential construction activity
during challenging periods in the economic or construction cycle. During those periods, our MR&R demand as a percentage of total demand typically increases,
providing a more consistent revenue stream for our business.
Raw Materials. We use a variety of raw materials in the manufacture of our products, which primarily include steel, copper and PVC resin. We believe
that sources for these raw materials are well established, generally available and are in sufficient quantity that we may avoid disruption in our business. The cost to
procure these raw materials is subject to price fluctuations, often as a result of macroeconomic conditions. Our cost of sales may be affected by changes in the
market price of these materials, and to a lesser extent, other commodities, such as zinc, aluminum, electricity, natural gas and diesel fuel. The prices at which we
sell our products may adjust upward or downward based on raw material price changes. We believe several factors drive the pricing of our products, including the
quality of our products, the ability to meet customer delivery expectations and co-loading capabilities, as well as the prices of our raw material inputs. Historically,
we have not engaged in hedging strategies for raw material purchases. Our results may be impacted by inventory liquidations at costs higher or lower than current
prices we pay for similar items.
Working Capital. Our working capital requirements are impacted by our operational activities. Our inventory levels may be impacted from time to time,
due to delivery lead times from our suppliers. We are typically obligated to pay for our raw material purchases within 10 and 30 days of their receipt, while we
generally collect cash from the sale of our manufactured products between 40 and 50 days from the point at which title and risk of loss transfers. Our average
working capital days during fiscal 2018 was 62 days.
Seasonality. In a typical year, our operating results are impacted by seasonality . Historically, sales of our products have been higher in the third and
fourth quarters of each fiscal year due to favorable weather for construction-related activities.
Recent Acquisitions. In addition to our organic growth, we have transformed the Company through acquisitions in recent years, allowing us to expand our
product offerings with existing and new customers. In accordance with GAAP, the results of our acquisitions are reflected in our financial statements from the date
of each acquisition forward.
Our acquisition strategy has focused primarily on growing market share by complementing our existing portfolio with synergistic products and expanding
into end-markets that we have not previously served. In total, we have invested over $400 million in acquisitions since 2011.
Product diversification has been a core element to our growth strategy. Prior to 2013, our Electrical Raceway offering primarily consisted of steel and
copper products. At that time, we produced PVC conduit from a single facility in Georgia, and we did not have a meaningful presence in the market. In 2013 and
2014, we completed the acquisitions of Heritage Plastics, Liberty Plastics, Ridgeline and APPI, which significantly increased our portfolio of PVC products,
including PVC conduit, fittings, elbows and sweeps. The additional scale, which included new operations in the Northeast, Midwest, Southwest and Western
United States, enabled us to more comprehensively serve our largest electrical distribution customers in this product line and significantly increased our market
share and presence in the Electrical Raceway market. These acquisitions also substantially increased our cross-selling opportunities, providing a meaningful avenue
for growth going forward.
In 2015, we acquired SCI, a manufacturer of electrical fittings for steel, flexible and liquidtight conduit as well as armored cable. SCI enhanced the
breadth of our product portfolio and is representative of the opportunities we have in our fragmented markets to add complementary products that will further
support our growth and customer value proposition.
On May 18, 2017, we acquired Marco Cable Management ("Marco"), a leading designer and manufacturer of wire basket cable tray, PVC trunking and
aluminum power poles. Marco's product portfolio adds value to our electrical distribution partners in the United Kingdom and expands the Company's presence in
the United Kingdom and the rest of Europe.
On September 1, 2017, we acquired Flexicon Limited ("Flexicon"), a leading global manufacturer of metallic and non-metallic flexible cable protection
systems that carry many international and market product approvals and serves the industrial, commercial and infrastructure sectors in more than 55 countries.
On September 29, 2017, we acquired Calpipe Industries, LLC ("Calpipe"), a market leader for electrical conduit systems for corrosive environments and
bollards for high security, access control and architectural environments.
34
On January 8, 2018, we acquired the assets of Communications Integrators, Inc. ("Cii"), a manufacturer of modular, prefabricated power, voice and data
distribution systems.
We expect to continue to pursue synergistic acquisitions as part of our growth strategy to expand our product offerings.
See Note 2, ''Acquisitions'' to the accompanying consolidated financial statements included elsewhere in this Annual Report.
Divestitures and Restructurings. Since 2011, we have continuously evaluated our operations to ensure that we are investing resources strategically. Our
assessment has included existing operating performance, required levels of investment to improve performance and the overall complexities of doing business in
certain markets and geographic regions. After careful consideration, we streamlined our business through a combination of business divestitures, asset sales and the
exit of certain product lines.
In 2012, we sold our interest in a joint venture in Saudi Arabia that represented our only investment in the Middle East because we determined that it did
not provide sufficient earnings or strategic value. During that same year, we also sold two low-margin, commodity-oriented businesses in the United States for
which we had limited market presence or competitive differentiation—our hollow structural tube business based in Morrisville, Pennsylvania and our sprinkler
system fabrication business. During 2013, we further reduced our non-domestic footprint by closing one facility in Brazil, selling the remainder of our Brazilian
operations and closing our Acroba subsidiary in France.
In 2015, we exited Fence and Sprinkler, two product lines that did not align with our long-term vision due to limited product differentiation, exposure to
significant import competition, ongoing price pressure due to overcapacity in the market and having different channels to market than our Electrical Raceway and
MP&S segments. In conjunction with the exit from Fence and Sprinkler, we evaluated the viability of a Philadelphia, Pennsylvania manufacturing facility and
determined that significant investment would be required to bring that facility to an acceptable level of operation. Given our ability to shift ongoing production
capacity from that facility to other existing facilities, we closed this facility in the first quarter of fiscal 2016. Neither Fence nor Sprinkler constituted a component,
thus not requiring presentation as discontinued operations. On March 30, 2018, we sold the assets of FlexHead Industries, Inc. and SprinkFLEX, LLC (together
"Flexhead").
See Note 3, ''Divestitures'' and Note 6, ''Restructuring Charges and Asset Impairments'' to the accompanying consolidated financial statements included
elsewhere in this Annual Report.
Foreign Currencies. In fiscal 2018 , approximately 10% of our net sales came from customers located outside the United States, most of which were
foreign currency sales denominated in British pounds sterling, Canadian dollars, Australian dollars, Chinese Yuan and New Zealand dollars. The functional
currency of our operations outside the United States is generally the local currency. Assets and liabilities of our non-U.S. subsidiaries are translated into United
States dollars using period-end exchange rates. Foreign revenue and expenses are translated at the monthly average exchange rates in effect during the period.
Foreign currency translation adjustments are included as a component of accumulated other comprehensive loss within our statements of comprehensive income
(loss). See " Quantitative and Qualitative Disclosures about Market Risk — Foreign Currency Risk ."
See Note 1, ''Basis of Presentation and Summary of Significant Accounting Policies'' to the accompanying consolidated financial statements included
elsewhere in this Annual Report.
Emerging Industry Trends. In addition to United States GDP and non-residential construction starts, there are emerging industry trends that we believe
will drive further demand for our products. These include new building technologies which enhance facility management, such as automation and LED lighting
systems, as well as the rapid expansion of certain non-residential construction categories, including data centers and healthcare facilities. In recent years,
technological advancements aimed at improving facility management have been driven by a number of factors, including integration and interoperability, the
proliferation of the Internet and associated increases in data and power requirements and a desire to reduce costs through improved energy efficiency, lighting
systems and operating effectiveness. We believe that these trends will drive greater needs for electrical capacity and circuitry, increasing the demand for many of
our products. We also target high growth end-markets that are projected to experience rapid growth and to drive demand for our products, including our framing
and support products. According to Dodge non-residential construction data, healthcare sector construction activity is projected to grow at a compound annual
growth rate ("CAGR") of 7.4% between 2018 and 2020. Lastly, based on third-party data, growth in the data center construction market in the United States is
forecast to grow at a CAGR of 4.2% between 2017 and 2023 and, between 2017 and 2022, the building lighting control systems market in the United States is
forecast to grow at a CAGR of 5.9%, while the LED lighting market in North America is forecast to grow at a CAGR of 12% between 2018 and 2022.
35
Reportable Segments
We operate our business through two operating segments which are also our reportable segments: Electrical Raceway and MP&S. Our operating segments
are organized based on primary market channel and, in most instances, the end use of products. We review the results of our operating segments separately for the
purposes of making decisions about resource allocation and performance assessment. We evaluate performance on the basis of net sales, Adjusted net sales and
Adjusted EBITDA . See Note 19, ''Segment Information'' to the accompanying consolidated financial statements included elsewhere in this Annual Report.
Fiscal Year
Starting in fiscal 2016, the Company has a fiscal year that ends on September 30. Prior to fiscal 2016, the fiscal year ended on the last Friday in
September. Fiscal year 2018 and 2017 were 52-week fiscal years which ended on September 30, 2018 and September 30, 2017 , respectively. Fiscal year 2016 was
a 53-week fiscal year which ended on September 30, 2016 . Our fiscal quarters end on the last Friday in December, March and June.
Key Components of Results of Operations
Net sales
Net sales represents external sales of Electrical Raceway products to the non-residential construction and MR&R markets and MP&S products and
solutions to the commercial and industrial markets. Net sales includes gross product sales and freight billed to our customers, net of allowances for rebates, sales
incentives, trade promotions, product returns and discounts.
Adjusted net sales
For further discussion on Adjusted net sales , including definitions thereof and reconciliations of net sales to Adjusted net sales , see Item 6, ''Selected
Financial Data'' .
Cost of sales
Cost of sales includes all costs directly related to the production of goods for sale. These costs include direct material, direct labor, production related
overheads, excess and obsolescence costs, lower-of-cost-or-market provisions, freight and distribution costs and the depreciation and amortization of assets directly
used in the production of goods for sale.
Selling, general and administrative expenses
Selling, general and administrative expenses include payroll related expenses including salaries, wages, employee benefits, payroll taxes, variable cash
compensation for both administrative and selling personnel and consulting and professional services fees. Also included are compensation expense for share-based
awards, restructuring-related charges, third-party professional services and translation gains or losses for foreign currency trade transactions.
Adjusted EBITDA and Adjusted EBITDA Margin
For further discussion on Adjusted EBITDA and Adjusted EBITDA Margin, including definitions thereof and reconciliations of net income (loss) to
Adjusted EBITDA , see Item 6, ''Selected Financial Data'' .
36
Results of Operations
Fiscal 2018 Compared to Fiscal 2017
The results of operations for the fiscal years ended September 30, 2018 and September 30, 2017 were as follows:
($ in thousands)
Net sales
Cost of sales
Gross profit
Selling, general and administrative
Intangible asset amortization
Operating income
Interest expense, net
Loss on extinguishment of debt
Other income, net
Income before income taxes
Income tax expense
Net income
Non-GAAP financial data
Adjusted EBITDA
Adjusted EBITDA Margin
* Not meaningful
Fiscal year ended
September 30, 2018
September 30, 2017 As
Adjusted**
Change ($)
Change (%)
$
$
$
1,835,139
$
1,397,055
1,503,934
$
1,142,664
438,084
226,282
32,104
179,698
40,694
—
(27,348)
166,352
29,707
361,270
182,910
22,407
155,953
26,598
9,805
(6,575)
126,125
41,486
136,645
$
84,639
$
331,205
254,391
76,814
43,372
9,697
23,745
14,096
(9,805)
(20,773)
40,227
(11,779)
52,006
22.0 %
22.3 %
21.3 %
23.7 %
43.3 %
15.2 %
53.0 %
*
315.9 %
31.9 %
(28.4)%
61.4 %
271,549
$
14.8%
227,608
$
43,941
19.3 %
15.1%
** As adjusted due to the adoption of ASU 2017-07. See Note 1, ''Basis of Presentation and Summary of Significant Accounting Policies'' for additional information.
Net sales
Volume
Average selling prices
Foreign exchange
Acquisitions
Net sales
Change (%)
3.4%
11.0%
0.4%
7.2%
22.0%
Net sales for fiscal 2018 increased $331.2 million to $1,835.1 million , an increase of 22.0% compared to $1,503.9 million for fiscal 2017 . Net sales increased by
$165.6 million due to increased average market prices for the Metal and PVC electrical conduit and fittings product categories and the pass-through impact of
higher average input costs of steel, copper, and freight. Additionally, net sales increased $118.5 million due to the acquisitions of Marco, Flexicon and Calpipe
during fiscal 2017 and Cii during fiscal 2018, partially offset by a decrease in net sales of $10.0 million resulting from the divestiture of Flexhead. Lastly, net sales
increased by $51.8 million due to higher volume of products primarily from the mechanical pipe and metal framing and fittings product categories sold within the
Mechanical Products & Solutions segment.
37
Cost of sales
Volume
Average input costs
Foreign exchange
Acquisitions and divestitures
Other
Cost of sales
Change (%)
3.8%
8.1%
0.4%
5.9%
4.1%
22.3%
Cost of sales increased by $254.4 million , or 22.3% to $1,397.1 million for fiscal 2018 compared to $1,142.7 million for fiscal 2017 . Cost of sales
primarily increased due to higher average input costs of steel and copper of $92.5 million . Additionally, cost of sales increased $73.9 million due to the
acquisitions of Marco, Flexicon, and Calpipe during fiscal 2017 and Cii during fiscal 2018, partially offset by a decrease in cost of sales of $6.6 million resulting
from the divestiture of Flexhead. Cost of sales also increased $43.7 million due to higher volume of products primarily from the mechanical pipe and metal framing
and fittings product categories sold within the Mechanical Products & Solutions segment. Lastly, cost of sales increased due to higher other cost of sales related to
freight costs of $33.4 million resulting from a tighter freight market.
Selling, general and administrative
Selling, general and administrative expenses increased $43.4 million , or 23.7% , to $226.3 million for fiscal 2018 compared to $182.9 million for fiscal
2017 . The Company had $26.0 million in additional expenses due to the acquisitions of Marco, Flexicon, and Calpipe during fiscal 2017 and Cii during fiscal
2018, partially offset by a decrease in expenses of $ 1.5 million resulting from the divestiture of Flexhead. Incentive-based compensation and stock-based
compensation expense increased $9.9 million and $1.9 million , respectively during fiscal 2018 compared to fiscal 2017, due to stronger operating results,
additional grants in fiscal 2018, and the modification of a key executive's awards. Additionally, the Company recorded $5.0 million of higher commissions expense
due to the increase in sales volume compared to the prior year. The increase in expense is partially offset by the $7.2 million pre- tax reversal of expense related to
the Antidumping Duty Order for Malleable Iron Pipe Fittings.
Intangible asset amortization
Intangible asset amortization expense increased $9.7 million , or 43.3% to $32.1 million for fiscal 2018 compared to $22.4 million for fiscal 2017 due to
the acquisitions of Marco, Flexicon, and Calpipe during fiscal 2017 and Cii during fiscal 2018.
Interest expense, net
Interest expense, net, increased $14.1 million , or 53.0% to $40.7 million for fiscal 2018 , compared to $26.6 million for fiscal 2017 . The increase is
primarily due to our debt refinancing transactions on February 2, 2018 , which resulted in additional borrowings of $425.0 million . The Company used the
proceeds to 1) repurchase approximately 17.2 million shares of common stock from CD&R Allied Holdings, L.P. ("the CD&R Investor") for a total purchase price
of approximately $375 million, 2) repay $42.0 million of outstanding loans under the ABL Credit Facility and 3) pay $5.8 million in related fees and expenses. See
Note 14, ''Debt'' to the accompanying consolidated financial statements included elsewhere in this Annual Report.
Loss (gain) on extinguishment of debt
The Company recorded a loss on the extinguishment of debt of $9.8 million during September 30, 2017 related to the December 22, 2016 debt refinancing
transaction. See Note 14, ''Debt'' to the accompanying consolidated financial statements included elsewhere in this Annual Report.
Other income, net
On March 30, 2018, the Company sold the assets of FlexHead Industries, Inc. and SprinkFLEX, LLC (together "Flexhead"). The Company recognized a
pre-tax gain of $27.6 million . During fiscal 2017, we recognized a pre-tax gain of $5.8 million on the sale of the minority ownership share in Abahsain-Cope Saudi
Arabia Ltd. when transfer of ownership
38
was completed. See Note 3, ''Divestitures'' and Note 7, ''Other Income, net'' to the accompanying consolidated financial statements included elsewhere in this
Annual Report.
Income tax expense
Income tax expense decreased $11.8 million , to $29.7 million , compared to $41.5 million for fiscal 2017 . The Company's income tax rate decreased to
17.9% for fiscal 2018 , compared to 32.9% for fiscal 2017 . The decrease in the effective tax rate was primarily due to the reduction of the federal statutory rate
from 35% to 21% as a result of the enactment of new tax legislation, TCJA, on December 22, 2017, the remeasurement of the deferred tax liabilities as a result of
the TCJA, and a net tax benefit from the release of indemnified tax positions. See Note 8, ''Income Taxes'' to the accompanying consolidated financial statements
included elsewhere in this Annual Report.
Net income
Net income increased by $52.0 million to $136.6 million for fiscal 2018 , as compared to $84.6 million for fiscal 2017 . The increase in net income was
primarily driven by the gain on the divestiture of Flexhead of $27.6 million , higher operating income of $14.1 million , and lower tax expense of $11.8 million .
Adjusted EBITDA
Adjusted EBITDA increased by $43.9 million or 19.3% , to $271.5 million for fiscal 2018 , as compared to $227.6 million for fiscal 2017 . The increase
was primarily due to higher gross profit, partially offset by higher selling, general and administrative expenses attributed to acquisitions in fiscal 2018 and 2017.
Segment results
Electrical Raceway
($ in thousands)
Net sales
Adjusted EBITDA
Adjusted EBITDA Margin
Net sales
Volume
Average selling prices
Foreign exchange
Acquisitions
Net sales
Fiscal year ended
September 30, 2018
September 30, 2017
Change ($)
Change (%)
$
1,366,611
$
255,260
18.7%
1,094,783
$
189,351
17.3%
271,828
65,909
24.8%
34.8%
Change (%)
0.5%
13.0%
0.5%
10.8%
24.8%
Net sales increased $271.8 million , or 24.8% , to $1,366.6 million for fiscal 2018 compared to $1,094.8 million for fiscal 2017 . The increase was
primarily due to increased average market prices for the Metal and PVC electrical conduit and fittings product categories and the pass-through impact of higher
average input costs of steel, copper, and freight of $142.3 million . Additionally, net sales increased by $118.5 million resulting from acquisitions during fiscal
2017 and fiscal 2018.
Adjusted EBITDA
Adjusted EBITDA increased $65.9 million , or 34.8% , to $255.3 million for fiscal 2018 compared to $189.4 million for fiscal 2017 . The increase in
Adjusted EBITDA was largely due to higher gross profit from increased average market prices for the Metal and PVC electrical conduit and fittings product
categories and incremental Adjusted EBITDA resulting from acquisitions. The increase in Adjusted EBITDA was partially offset by an increase in freight costs and
selling, general and administrative expenses attributed to acquisitions in fiscal 2018 and 2017.
39
Mechanical Products & Solutions
($ in thousands)
Net sales
Adjusted EBITDA
Adjusted EBITDA Margin
Net sales
Volume
Average selling prices
Divestitures
Net sales
Fiscal year ended
September 30, 2018
September 30, 2017
Change ($)
Change (%)
$
$
470,153
51,339
$
$
10.9%
410,532
63,687
$
$
15.5%
59,621
(12,348)
14.5 %
(19.4)%
Change (%)
11.2 %
5.7
(2.4)
14.5 %
Net sales increased $59.6 million , or 14.5% to $470.2 million for fiscal 2018 compared to $410.5 million for fiscal 2017 . The increase in net sales was
primarily due to $46.2 million of higher volume of products sold within the mechanical pipe and metal framing and fittings product categories as well as higher
average selling prices of $23.3 million , partially offset by a decrease in net sales of $10.0 million resulting from the Flexhead divestiture.
Adjusted EBITDA
Adjusted EBITDA decreased $12.3 million , or 19.4% , to $51.3 million for fiscal 2018 compared to $63.7 million for fiscal 2017 . Adjusted EBITDA
decreased due to an increase in average input costs, which exceeded the increase in average selling prices, and a decrease attributed to the sale of Flexhead,
partially offset by higher volume of product categories sold.
Fiscal 2017 Compared to Fiscal 2016
40
The results of operations for the fiscal years ended September 30, 2017 and September 30, 2016 were as follows:
($ in thousands)
Net sales
Cost of sales
Gross profit
Selling, general and administrative
Intangible asset amortization
Asset impairment charges
Operating income
Interest expense, net
Gain (loss) on extinguishment of debt
Other income, net
Income before income taxes
Income tax expense
Net income
Non-GAAP financial data
Adjusted net sales
Adjusted EBITDA
Adjusted EBITDA Margin
* Not meaningful
Fiscal year ended
September 30, 2017 As
Adjusted**
September 30, 2016 As
Adjusted**
Change ($)
Change (%)
$
1,503,934
$
1,142,664
361,270
182,910
22,407
—
155,953
26,598
9,805
(6,575)
126,125
41,486
1,523,384
$
1,155,808
367,576
219,743
22,238
129
125,466
41,798
(1,661)
(1,452)
86,781
27,985
$
$
$
84,639
$
58,796
$
1,503,934
227,608
$
$
15.1%
1,515,568
235,002
$
$
15.5%
(19,450)
(13,144)
(6,306)
(36,833)
169
(129)
30,487
(15,200)
11,466
(5,123)
39,344
13,501
25,843
(11,634)
(7,394)
(1.3)%
(1.1)%
(1.7)%
(16.8)%
0.8 %
(100.0)%
24.3 %
(36.4)%
*
*
45.3 %
48.2 %
44.0 %
(0.8)%
(3.1)%
** As adjusted due to the adoption of ASU 2017-07. See Note 1, ''Basis of Presentation and Summary of Significant Accounting Policies'' for additional information.
Net sales
Volume
Average selling prices
Foreign exchange
Acquisitions
Working days
Impact of Fence and Sprinkler exit
Other
Net sales
Change (%)
(4.5)%
5.8
(0.4)
0.4
(2.0)
(0.5)
(0.1)
(1.3)%
Net sales decreased $19.5 million , or 1.3% to $1,503.9 million for fiscal 2017 compared to $1,523.4 million for fiscal 2016. The decrease was primarily
due to $68.0 million of lower volume of product sold primarily due to lower demand for mechanical pipe products within the solar end-market and lower demand
for metal electrical conduit and fittings products. Additionally, there was a decrease of $29.3 million resulting from lower working days during fiscal 2017. There
was a decline in sales of $7.8 million related to the Fence and Sprinkler exit announced in the fourth quarter of fiscal 2015. These product lines were fully
discontinued in the first quarter of fiscal 2016. Partially offsetting the decrease in net sales were $86.5 million of higher average net selling prices due to the pass-
through impact of higher input costs and $6.6 million resulting from the acquisitions of Marco and Flexicon during the third and fourth quarter of fiscal 2017,
respectively.
41
Cost of sales
Volume
Average input costs
Foreign exchange
Acquisitions
Working days
Impact of Fence and Sprinkler exit
Other
Cost of sales
Change (%)
(4.1)%
6.4
(0.4)
0.4
(2.0)
(0.5)
(0.9)
(1.1)%
Cost of sales decreased by $13.1 million , or 1.1% to $1,142.7 million for fiscal 2017 compared to $1,155.8 million for fiscal 2016 . The decrease in cost
of sales was primarily due to $47.8 million of lower volume of mechanical pipe products sold within the solar end-market and metal electrical conduit and fittings
products sold. Additionally, cost of sales decreased $22.8 million due to lower working days during fiscal 2017 and $11 million of lower freight and warehouse
costs resulting from productivity efficiencies included in the Other category above. Partially offsetting these decreases were higher input costs across all product
categories of $73.8 million , including lower-of-cost-or-market charges.
Selling, general and administrative
Selling, general and administrative expenses decreased $36.8 million , or 16.8% to $182.9 million for fiscal 2017 compared to $219.7 million for fiscal
2016 . The decrease was primarily due to $15.4 million of higher consulting service and termination fees paid to CD&R during fiscal 2016. See Note 18, ''Related
Party Transactions'' for additional information. The Company had $10.2 million of lower incentive-based compensation expense during fiscal 2017. Stock-based
compensation expense was $8.3 million lower during fiscal 2017 compared to fiscal 2016 resulting from a change from liability accounting to equity accounting.
See Note 5, ''Stock Incentive Plan'' to the accompanying consolidated financial statements included elsewhere in this Annual Report. In 2016, we released $6.7
million of indemnified uncertain tax positions. The indemnification release was an expense which was offset by the tax benefit of the release of the corresponding
uncertain tax positions recorded as a component of income tax expense. Additionally, we recorded decreased expenses of $3.5 million across a variety of expense
categories, inclusive of IPO related costs. The decrease is partially offset by an increase of $7.5 million in contingent liabilities related to a ruling on the Company's
imports of conduit fittings within the Atkore Steel Components Inc. business. See Note 16, ''Commitments and Contingencies'' to the accompanying consolidated
financial statements included elsewhere in this Annual Report.
Intangible asset amortization
Intangible asset amortization expenses increased $0.2 million , or 0.8% to $22.4 million for fiscal 2017 compared to $22.2 million for fiscal 2016
primarily related to the acquisition of Marco during the third fiscal quarter of 2017.
42
Asset impairment charges
During fiscal 2016, we recorded asset impairments of $0.1 million related to the write-down of prepaid shop supplies resulting from the exit of Fence and
Sprinkler. There were no such asset impairment charges during fiscal 2017.
Interest expense, net
Interest expense, net, decreased $15.2 million , or 36.4% to $26.6 million for fiscal 2017 , compared to $41.8 million for fiscal 2016. The decrease
resulted primarily from the redemption of the Second Lien Term Loan Facility during the first quarter of fiscal 2017, resulting in lower interest expense, partially
offset by higher interest rates. See Note 14, ''Debt'' to the accompanying consolidated financial statements included elsewhere in this Annual Report.
Loss (gain) on extinguishment of debt
We recorded a loss on the extinguishment of debt of $9.8 million during the fiscal year ended September 30, 2017 related to the December 22, 2016 debt
refinancing transactions compared to a gain of $1.7 million during fiscal 2016 related to the redemption of $19.0 million outstanding under the Second Lien Term
Loan Facility. See Note 14, ''Debt'' to the accompanying consolidated financial statements included elsewhere in this Annual Report.
Other income, net
In May 2012, we entered into a share purchase agreement pursuant to which the Company would sell its minority ownership share in Abahsain-Cope
Saudi Arabia Ltd. for cash consideration of $9.1 million. The total carrying value of the investment was $3.3 million. During fiscal 2017, we recognized a pre-tax
gain of $5.8 million on the sale when transfer of ownership was completed.
Income tax expense
Income tax expense increased $13.5 million to $41.5 million for fiscal 2017 , compared to $28.0 million for fiscal 2016. For the fiscal years ended
September 30, 2017 and September 30, 2016 , the Company's effective income tax rate was 32.9% and 32.3% respectively. The change in the effective tax rate for
fiscal year 2017 from fiscal year 2016 was primarily due to the larger tax benefit of the indemnification of uncertain tax positions released in the prior year,
partially offset by the excess tax benefit associated with the exercise of stock options, which is reflected as a reduction in tax expense and a lower effective state tax
rate.
Net income
Net income increased by $25.8 million to $84.6 million for fiscal 2017 compared to $58.8 million for fiscal 2016. The increase was primarily due to lower
selling, general and administrative expenses of $36.8 million and interest expense of $15.2 million , partially offset by a net loss on extinguishment of debt of $9.8
million and higher income tax expense of $13.5 million .
Adjusted EBITDA
Adjusted EBITDA decreased by $7.4 million , or 3.1% to $227.6 million for fiscal 2017 compared to $235.0 million for fiscal 2016. The increase was due
primarily to lower volume of products sold across all product categories partially offset by improved productivity.
43
Segment results
Electrical Raceway
($ in thousands)
Net sales
Adjusted EBITDA
Adjusted EBITDA Margin
Net sales
Average selling prices
Volume
Acquisitions
FX
Working days
Other
Net sales
Fiscal year ended
September 30, 2017
September 30, 2016
Change ($)
Change (%)
$
1,094,783
$
189,351
17.3%
1,068,630
$
181,939
17.0%
26,153
7,412
2.4%
4.1%
Change (%)
6.5 %
(2.2)
0.6
(0.5)
(1.9)
(0.1)
2.4 %
Net sales increased $26.2 million , or 2.4% , to $1,094.8 million for fiscal 2017 compared to $1,068.6 million for fiscal 2016. The increase was due
primarily to higher average selling prices of $70.3 million resulting from the pass-through impact of higher input costs and our ability to earn a premium from
meeting customer expectations of product availability, delivery service levels and co-loading capabilities. Additionally, sales from the acquisition of Marco and
Flexicon during 2017 contributed $6.6 million . The increase in sales was partially offset by lower volume of products sold of $24.1 million largely due to lower
demand across all product lines. Metal electrical conduit and fittings product line sales partially decreased as a key customer began fulfilling a portion of their
demand from a second source beginning in fiscal 2016. Lastly, sales decreased $20.2 million due to lower working days during fiscal 2017.
Adjusted EBITDA
Adjusted EBITDA increased $7.4 million , or 4.1% , to $189.4 million for fiscal 2017 compared to $181.9 million for fiscal 2016. The primary driver of
the year-over-year increase was our ability to execute our pricing strategy which allows us to pass through raw material input costs and to earn a premium from
meeting customer expectations of product availability, delivery service levels and co-loading capabilities. Additionally, Adjusted EBITDA increased due to
improved productivity in manufacturing and lower freight and warehousing costs. The increases are partially offset by the impact of fewer working days during
fiscal 2017.
Mechanical Products & Solutions
($ in thousands)
Net sales
Impact of Fence and Sprinkler exit
Adjusted net sales
Adjusted EBITDA
Adjusted EBITDA Margin
$
$
$
Fiscal year ended
September 30, 2017
September 30, 2016
Change ($)
Change (%)
410,532
$
—
410,532
63,687
$
$
15.5%
44
456,821
$
(7,816)
449,005
81,199
$
$
18.1%
(46,289)
7,816
(38,473)
(17,512)
(10.1)%
(100.0)%
(8.6)%
(21.6)%
Net sales
Average selling prices
Volume
Impact of Fence and Sprinkler exit
Working days
Other
Net sales
Change (%)
3.5 %
(9.6)
(1.7)
(2.0)
(0.3)
(10.1)%
Net sales decreased $46.3 million , or 10.1% to $410.5 million for fiscal 2017 compared to $456.8 million for fiscal 2016. The decrease in net sales was
primarily due to $43.9 million of lower volume of product sold mostly due to lower demand for mechanical pipe products within the solar end-market and $9.2
million resulting from fewer working days during fiscal 2017. Additionally, sales decreased $7.8 million related to the Fence and Sprinkler exit partially offset by a
$16.2 million increase in average selling prices resulting from the pass-through impact of higher input costs and our ability to earn a premium from meeting
customer expectations of product availability, delivery service levels and co-loading capabilities..
Adjusted EBITDA
Adjusted EBITDA decreased $17.5 million , or 21.6% , to $63.7 million for fiscal 2017 compared to $81.2 million for fiscal 2016. The primary driver of
the decrease was lower demand for mechanical pipe products within the solar end-market, partially offset by productivity efficiencies.
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 $126.7 million as of September 30, 2018 , of which $97.4 million was held at non-U.S. subsidiaries. On September 27, 2018, we entered into
a definitive agreement with Pentahold NV to acquire Vergokan International NV ("Vergokan"), a leading manufacturer of cable tray and cable ladder systems,
underfloor installations and industrial floor trunking that serves industrial, power and energy, commercial and infrastructure sectors in more than 45 countries. At
September 30, 2018 more cash was held at non-U.S. subsidiaries to facilitate the acquisition, which was completed on October 1, 2018. 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. Our cash and cash equivalents increased $80.9 million from September 30, 2017 , primarily as a result of the increase in cash
flows from operations and incremental borrowings.
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 our operational needs. As of September 30, 2018 , there were no outstanding borrowings under the
ABL Credit Facility (excluding $9.9 million of standby letters of credit issued under the ABL Credit Facility ). The borrowing base was estimated to be $325.0
million and approximately $315.1 million was available under the ABL Credit Facility as of September 30, 2018 .
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 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
Credit Facilities. 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 payment of interest and principal
on our debt.
Limitations on Distributions and Dividends by Subsidiaries
45
AIG, 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 them so that they may pay obligations and expenses,
including satisfying obligations with respect to indebtedness. The ability of our subsidiaries to make distributions and dividends to us depends on their operating
results, cash requirements and financial and general business conditions, as well as restrictions under the laws of our subsidiaries' jurisdictions.
The agreements governing the Credit Facilities significantly restrict the ability of our subsidiaries, including AII, to pay dividends, make loans or
otherwise transfer assets from AII and, in turn, to us. Further, AII's subsidiaries are permitted under the terms of the Credit Facilities to incur additional
indebtedness that may restrict or prohibit the making of distributions, the payment of dividends or the making of loans by such subsidiaries to AII and, in turn, to
us. The First 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. AII has been in compliance with
the covenants under the agreements for all periods presented. See Note 14, ''Debt'' to the accompanying consolidated financial statements included elsewhere in this
Annual Report.
Cash Flows
The table below summarizes cash flow information derived from our statements of cash flows for the fiscal years ended September 30, 2018 and
September 30, 2017 .
(in thousands)
Cash flows provided by (used in):
Operating activities
Investing activities
Financing activities
Operating activities
September 30, 2018
September 30, 2017
Change ($)
Change (%)
Fiscal year ended
$
145,703 $
2,514
(65,931)
121,654 $
(205,833)
(67,760)
24,049
208,347
1,829
19.8 %
(101.2)%
(2.7)%
During fiscal 2018 , operating activities provided $145.7 million of cash, compared to $121.7 million during fiscal year 2017 . The $24.0 million increase
was primarily due to improved operating income of $23.7 million , see "Results of Operations".
Investing activities
During fiscal 2018 , investing activities provided $2.5 million of cash compared to $205.8 million used during fiscal 2017 . The $208.3 million increase in
cash provided by investing activities is due primarily to a reduction of $180.5 million in cash used in acquisitions in fiscal 2018 compared to fiscal 2017, and the
cash received for the sale of the assets of Flexhead of $42.6 million in fiscal 2018, and partially offset by the increase of $13.4 million in capital expenditures in
fiscal 2018 compared to fiscal 2017. Capital expenditures represent enhancements to our IT infrastructure, manufacturing and distribution operations as well as
replacement of our existing equipment and facilities.
Financing Activities
During fiscal 2018 , we used $65.9 million for financing activities compared to $67.8 million during fiscal 2017. The $1.8 million decrease was due to the
increase in borrowings net of repayments of $393.4 million in fiscal 2018 and the incremental issuance of common stock of $7.9 million in fiscal 2018 compared to
fiscal 2017, partially offset by our incremental share repurchase of $397.8 million in fiscal 2018 compared to fiscal 2017.
46
The table below summarizes cash flow information derived from our statements of cash flows for the fiscal years ended September 30, 2017 and
September 30, 2016 .
(in thousands)
Cash flows provided by (used in):
Operating activities
Investing activities
Financing activities
Operating activities
September 30, 2017
September 30, 2016
Change ($)
Change (%)
Fiscal year ended
$
121,654 $
(205,833)
(67,760)
156,646 $
(12,895)
(23,908)
(34,992)
(192,938)
(43,852)
(22.3)%
1,496.2 %
183.4 %
During fiscal 2017 , operating activities provided $121.7 million of cash, compared to $156.6 million during fiscal year 2016 . The $35.0 million increase
was primarily due to a higher investment in working capital, partially offset by improved earnings of $25.8 million .
Investing activities
During fiscal 2017 , we used $205.8 million for investing activities from continuing operations compared to $12.9 million during fiscal 2016 . The $192.9
million increase in cash used for investing activities is due primarily to $180.5 million used to fund the acquisitions of Marco, Flexicon and Calpipe. There were no
acquisitions during fiscal 2016. The acquisitions of Marco and Flexicon were funded using cash on hand. The acquisition of Calpipe was funded using cash on
hand and the borrowings from the ABL Credit Facility . Additionally, we invested $8.3 million more for capital expenditures during fiscal 2017 as compared to
fiscal 2016. Capital expenditures represent enhancements to our manufacturing and distribution operations as well as replacement and maintenance of our existing
equipment and facilities.
Financing Activities
During fiscal 2017 , we used $67.8 million for financing activities. The use of cash was primarily for the $649.9 million redemption of the Initial First
Lien Term Loan Facility and the Second Lien Term Loan Facility and $13.9 million related to share buybacks. The use of cash was partially offset by cash
provided from the net borrowing of $498.8 million for the First Lien Term Loan Facility , $85.0 million from the net borrowings on the ABL Credit Facility and
$12.2 million from the issuance of common stock.
During fiscal 2016 , we used $23.9 million for financing activities primarily for AII's redemption of $17.0 million of the Prior Second Lien Term Loan
Facility at a redemption price of 89.00% of the par value, and $2.0 million at a redemption price of 89.75% of the par value.
47
Contractual Obligations
The following table presents our contractual obligations and commitments as of September 30, 2018 .
($ in thousands)
Less than 1 Year
1-3 Years
3-5 Years
More than 5
Years
Total
First Lien Term Loan Facility due December 22,
2023 (a)
$
28,136 $
Interest payments (b)
Purchase commitments(c)
Acquisition commitments (d)
Operating lease obligations
Total(e)
49,428
100,649
58,728
11,069
18,400 $
96,191
376
—
18,400 $
848,164 $
91,647
10,276
—
—
—
—
15,322
9,656
11,668
913,100
247,542
101,025
58,728
47,715
$
248,010 $
130,289 $
119,703 $
870,108 $
1,368,110
(a) Of the amount due within less than 1 year for the First Lien Term Loan Facility, $18,936 relates to an accelerated repayment of principal calculated by a formula based on 2018
excess cash flows and a leverage ratio as defined within the Term Loan Agreement. No such accelerated payments are indicated for any of the periods beyond 2019.
(b) Interest expense is estimated based on outstanding loan balances assuming principal payments are made according to the payment schedule and interest rates as of September 30,
2018 (3.50% for the ABL Credit facility, 5.14% for the First Lien Term Loan Facility).
(c) Represents purchases of raw materials in the normal course of business for which all significant terms have been confirmed.
(d) On September 27, 2018, we entered into a definitive agreement with Pentahold NV to acquire Vergokan, a leading manufacturer of cable tray and cable ladder systems, underfloor
installations and industrial floor trunking that serves industrial, power and energy, commercial and infrastructure sectors in more than 45 countries. Note 2, ''Acquisitions'' to the
accompanying consolidated financial statements included elsewhere in this Annual Report.
(e) As of September 30, 2018, we had $0.5 million of income tax liability, gross unrecognized tax benefits of $1.3 million and gross interest and penalties of $0.1 million. Of these
amounts, $1.4 million is classified as a non-current liability in the consolidated balance sheet. At this time, we are unable to make a reasonably reliable estimate of the timing for such
payments in future years; therefore, such amounts have been excluded from the above contractual obligations table.
The ABL Credit Facility provides for a five-year senior secured revolving credit facility of up to $325.0 million . As of September 30, 2018 , there were
no borrowings under the ABL Credit Facility. We have the ability to continually refinance amounts drawn on the ABL Credit Facility through its maturity on
December 22, 2021, subject to borrowing base limitations.
The projected company pension contributions for fiscal 2019 is $1.1 million .
In the normal course of business, we are liable for contract completion and product performance. In the opinion of management, such obligations will not
significantly affect our financial condition, results of operations or cash flows.
Off-Balance Sheet Arrangements
With the exception of operating leases, we do not have any off-balance sheet financing arrangements that we believe are reasonably likely to have a
material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions relating to the reporting of results of operations,
financial condition and related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from those estimates
under different assumptions or conditions. The following are our most critical accounting policies, which are those that require management's most difficult,
subjective and complex judgments, requiring the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent
periods.
The following discussion is not intended to represent a comprehensive list of our accounting policies. For a detailed discussion of the application of these
and other accounting policies, see Note 1, ''Basis of Presentation and Summary of Significant Accounting Policies'' to the accompanying consolidated financial
statements included elsewhere in this Annual Report.
48
Revenue Recognition
We recognize revenue when persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, the price to the buyer is
fixed and determinable and collectability is reasonably assured. Revenues are recognized from product sales when title to the products is passed to the customer,
which generally occurs at the point of shipping. Provisions for volume rebates are based upon contractual terms, our historical experience and expectations
regarding future customer sales. Rebates are recognized as a reduction of sales if settled in cash or customer credits. Our provisions for early payment discounts
and product returns are estimated using our historical experience to approximate future exposures. The amounts recorded may require adjustments if actual
experience differs from our estimates. Historically, these adjustments have not been material.
Income Taxes
In determining income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments affect the
calculation of certain tax liabilities and the determination of the recoverability of certain deferred tax assets, which arise from temporary differences between the
tax and financial statement recognition of revenue and expense. Certain deferred tax assets are reviewed for recoverability and valued accordingly, considering
available positive and negative evidence, including our past results, estimated future taxable income streams and the impact of tax planning strategies in the
applicable tax paying jurisdiction. A valuation allowance is established to reduce deferred tax assets to the amount that is considered more likely than not to be
realized. Valuations related to tax accruals and assets can be impacted by changes in accounting regulations, changes in tax codes and rulings, changes in statutory
tax rates, and changes in our forecasted future taxable income. Any reduction in future taxable income, including but not limited to any future restructuring
activities, may require that we record an additional valuation allowance against our deferred tax assets. An increase in the valuation allowance could result in
additional income tax expense in such period and could have a significant impact on our future earnings.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of
jurisdictions across our global operations. Certain tax positions may be considered uncertain requiring an assessment of whether an allowance should be recorded.
Our provision for uncertain tax positions provides a recognition threshold based on an estimate of whether it is more likely than not that a position will be sustained
upon examination. We measure our uncertain tax position as the largest amount of benefit that has greater than a 50% likelihood of being realized upon ultimate
settlement. We record interest and penalties related to unrecognized tax benefits as a component of provision for income taxes.
We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on our
estimate of whether, and the extent to which, additional taxes will be due. These tax liabilities are reflected net of related tax loss carry-forwards. We adjust these
reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a
payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an
additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would
result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. See Note 8, ''Income Taxes'' to the accompanying
consolidated financial statements included elsewhere in this Annual Report.
Pension and Postretirement Benefits
Our pension expense and obligations are developed from actuarial valuations. Two critical assumptions in determining pension expense and obligations
are the discount rate and expected long-term return on plan assets. We evaluate these assumptions at least annually. Other assumptions reflect demographic factors
such as retirement, mortality and turnover and are evaluated periodically and updated to reflect our actual experience. Actual results may differ from actuarial
assumptions. The following table summarizes the impact of a 50 basis point increase of these assumptions on our operating income for fiscal 2018 :
(in millions)
Discount rate
Return on assets
50 Basis Point Change
$7.8
$(0.5)
See Note 4, ''Postretirement Benefits'' to the accompanying consolidated financial statements included elsewhere in this Annual Report.
49
Long-Lived Asset, Indefinite-Lived Intangible Assets and Goodwill Impairments
Goodwill and other intangible assets primarily result from business acquisitions. The Company assesses the recoverability of goodwill and indefinite-lived
trade names on an annual basis in accordance with Accounting Standards Codification 350 ("ASC"), "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 Company can elect to perform a quantitative or qualitative test of impairment. In the
fourth quarter of 2017, the Company adopted Accounting Standards Update ("ASU") 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test
for Goodwill Impairment." The new guidance eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to
measure goodwill impairment. Under the amendments in the new guidance, the quantitative goodwill impairment testing is performed by comparing the fair value
of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair
value.
For fiscal 2018 and fiscal 2016, the Company performed a quantitative impairment assessment for goodwill. The Company calculated the fair value of its
reporting units considering three valuation approaches: (a) the income approach; (b) the guideline public company method; and (c) a market approach using a
transaction analysis. The income approach calculates the fair value of the reporting unit using a discounted cash flow approach. Internally forecasted future cash
flows, which the Company believes reasonably approximate market participant assumptions, are discounted using a weighted average cost of capital (Discount
Rate) developed for each reporting unit. The Discount Rate is developed using market observable inputs, as well as considering whether or not there is a measure
of risk related to the specific reporting unit’s forecasted performance. Fair value under the guideline public company method is determined for each unit by
applying market multiples for comparable public companies to the unit’s financial results. The key uncertainties in these calculations are the assumptions used in
determining the reporting unit’s forecasted future performance, including revenue growth and operating margins, as well as the perceived risk associated with those
forecasts, along with selecting representative market multiples.
For fiscal 2017, the Company determined through qualitative assessment ("Step 0") that it was not “more likely than not” that the fair values of its
reporting units were less than their carrying values; as a result, the Company was not required to perform the quantitative impairment test.
The Company did not record any goodwill impairments in fiscal 2018, 2017 or 2016. As of September 30, 2018, the fair values of the reporting units
exceeded their respective carrying amount by 10% or more. A 10% decrease in the discounted cash flows utilized in Step 1 for each of the remaining reporting
units would not have changed our determination that the fair value of each reporting unit was in excess of its carrying value.
As noted above, ASC 350 also requires that the Company test the indefinite-lived intangible assets for impairment at least annually. Under ASC 350, if
the carrying value of the indefinite-lived asset is higher than its fair value, then the asset is deemed to be impaired and the impairment charge is estimated as the
difference. The Company calculated the fair value of its indefinite-lived intangible assets using the income approach, specifically the relief-from-royalty method.
The relief-from-royalty method is used to estimate the cost savings that accrue to the owner of an intangible asset who would otherwise have to pay royalties or
license fees on revenues earned through the use of the asset. Internally forecasted revenues, which the Company believes reasonably approximate market
participant assumptions, are multiplied by a royalty rate to arrive at the estimated net after tax cost savings. The royalty rate used in the analysis is based on an
analysis of empirical, market-derived royalty rates for guideline intangible assets. The net after tax cost savings are discounted using the Discount Rate developed
for purposes of the Company's goodwill impairment test. The key uncertainties in these calculations are the assumptions used in determining the revenue associated
with each indefinite-lived intangible asset and the royalty rate.
During fiscal year 2018, 2017, and 2016 the results indicated all indefinite-lived intangible assets had significant excess of fair value over the carrying
value. A reasonably possible change in the estimated revenues associated with the indefinite-lived intangible assets, selected royalty rates or the residual growth
rate would not result in an impairment of any of these assets.
50
Inventories
We account for inventory valuation for a majority of the Company using the last-in, first-out ("LIFO") method measured at the lower of cost or market
value. We utilize the LIFO method of valuing inventories because it reflects how we monitor and manage our business and it matches current costs and revenues.
Valuation of inventory using the LIFO method is made at the end of our fiscal year based on inventory levels and costs at that time. Accordingly, interim LIFO
calculations are based on estimates of expected year-end inventory levels and costs. Other inventories, consisting mostly of foreign inventories, are measured using
first-in, first-out ("FIFO") costing methods. Inventory cost, regardless of valuation method, includes direct material, direct labor and overhead costs. In
circumstances where inventory levels are in excess of anticipated market demand, where inventory is deemed technologically obsolete or not marketable due to its
condition or where the inventory cost for an item exceeds its market value, we record a charge to cost of goods sold and reduce the inventory to its market value.
Product Liability
We are partially self-insured for product liability matters. We utilize third-party actuaries to assist us with measuring our exposure for these matters. Our
product liability reserves represent both reported claims as well as an estimated for incurred but not reported claims. After a claim is filed, liability is estimated as
facts associated with the claim become known. The establishment and update of liabilities for unpaid claims, including claims incurred but not reported, is based on
the assessment by our claim administrator of each claim, an independent actuarial valuation of the nature and severity of total claims, and management's best
estimate. We utilize a third-party claims administrator to pay claims, track and evaluate actual claims experience, and ensure consistency in the data used in the
actuarial valuation. We assess product liability exposures for two different types of matters. The first type are claims and lawsuits alleging that the ABF and ABF II
antimicrobial coating on our steel sprinkler pipe causes stress cracking in chlorinated polyvinyl pipe, or "CPVC," when the two types of pipe are installed in the
same system. The second are product liability exposures unrelated to ABF. Product liability adjustments ranged from $0.5 million to $0.8 million of income for the
2016 through 2018 fiscal year periods. See Note 16, ''Commitments and Contingencies'' to the accompanying consolidated financial statements included elsewhere
in this Annual Report.
Recent Accounting Pronouncements
See Note 1, ''Basis of Presentation and Summary of Significant Accounting Policies'' to the accompanying consolidated financial statements included
elsewhere in this Annual Report.
Special Note Regarding Forward-Looking Statements and Information
This Annual Report on Form 10-K 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 Annual Report 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; timing and amount of share repurchases; 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 Annual 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 Annual 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 under the captions " Risk Factors " and " Management's Discussion and Analysis of Financial Condition and Results of Operations " in this
Annual Report, 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:
51
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•
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•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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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;
changes in prices of raw materials;
pricing pressure, reduced profitability, or loss of market share due to intense competition;
availability and cost of third-party freight carriers and energy;
high levels of imports of products similar to those manufactured by us;
changes in federal, state, local and international governmental regulations and trade policies;
adverse weather conditions;
failure to generate sufficient cash flow from operations or to raise sufficient funds in the capital markets to satisfy existing obligations and support the
development of our business;
increased costs relating to future capital and operating expenditures to maintain compliance with environmental, health and safety laws;
reduced spending by, deterioration in the financial condition of, or other adverse developments with respect to, one or more of our top customers;
increases in our working capital needs, which are substantial and fluctuate based on economic activity and the market prices for our main raw materials,
including as a result of failure to collect, or delays in the collection of, cash from the sale of manufactured products;
work stoppage or other interruptions of production at our facilities as a result of disputes under existing collective bargaining agreements with labor
unions or in connection with negotiations of new collective bargaining agreements, as a result of supplier financial distress, or for other reasons;
challenges attracting and retaining key personnel or high-quality employees;
changes in our financial obligations relating to pension plans that we maintain in the United States;
reduced production or distribution capacity due to interruptions in the operations of our facilities or those of our key suppliers;
loss of a substantial number of our third-party agents or distributors or a dramatic deviation from the amount of sales they generate;
security threats, attacks, or other disruptions to our information systems, or failure to comply with complex network security, data privacy and other legal
obligations or the failure to protect sensitive information;
possible impairment of goodwill or other long-lived assets as a result of future triggering events, such as declines in our cash flow projections or customer
demand;
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;
our inability to introduce new products effectively or implement our innovation strategies;
the inability of our customers to pay off the credit lines extended to them by us in a timely manner and the negative impact on customer relations resulting
from our collections efforts with respect to non-paying or slow-paying customers;
our inability to continue importing raw materials, component parts and/or finished goods;
changes as a result of comprehensive tax reform;
the incurrence of liabilities and the issuance of additional debt or equity in connection with acquisitions, joint ventures or divestitures and the failure of
indemnification provisions in our acquisition agreements to fully protect us from unexpected liabilities;
failure to manage acquisitions successfully, including identifying, evaluating, and valuing acquisition targets and integrating acquired companies,
businesses or assets;
the incurrence of liabilities in connection with violations of the FCPA and similar foreign anti-corruption laws;
the incurrence of additional expenses, increase in 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; and
other risks and factors included under "Risk Factors" and elsewhere in this Annual Report.
You should read this Annual 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 Annual Report are qualified in their entirety by these cautionary
statements. These forward-looking statements are made
52
only as of the date of this Annual 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 7A. Quantitative and Qualitative Disclosures about Market Risk
In the normal course of conducting business, we are exposed to certain risks associated with potential changes in market conditions. These risks include
fluctuations in interest rates, credit risks, commodity prices, including price fluctuations related to our primary raw materials and foreign currency translation rates.
Interest Rate Risk
The Credit Facilities bear interest at a floating rate. The ABL Credit Facility bears interest at a floating rate of LIBOR plus an applicable margin. The
First Lien Term Loan Facility bears interest at the greater of LIBOR or 1.00% plus an applicable margin. As a result, we are exposed to fluctuations in interest rates
to the extent of our net borrowings under the Credit Facilities, which were $912.2 million at September 30, 2018 . As of September 30, 2018 , LIBOR exceeded
1.00%; therefore, each one percentage point change in interest rates would result in an approximately $9.3 million change in the annual interest expense on our
First Lien Term Loan Facility . As of September 30, 2018 , assuming availability was fully utilized, each one percentage point change in interest rates would result
in an approximately $3.3 million change in annual interest expense on the ABL Credit Facility. Additionally, if the ABL Credit Facility were fully utilized, the
margin we pay on borrowings would increase by 0.50% from the current level and we would incur additional interest expense of $1.6 million.
Credit Risk
We are exposed to credit risk on accounts receivable balances. This risk is mitigated due to our large, diverse customer base. In fiscal 2018 , our ten
largest customers (including buyers and distributors in buying groups) accounted for approximately 33.0% of our net sales. However, no single customer
comprised more than 10% of our consolidated net sales in fiscal 2018 , 2017 or 2016 . As of September 30, 2018, one customer, Sonepar Management US, Inc.,
represented 11% of the Company's accounts receivable balance due to increased sales in the last 60 days of the year. See Note 19, ''Segment Information'' to the
accompanying consolidated financial statements included elsewhere in this Annual Report. No single customer comprised more than 10% of consolidated accounts
receivable in fiscal 2017 or 2016 . We maintain provisions for potential credit losses and such losses to date have normally been within our expectations. We
evaluate the solvency of our customers on an ongoing basis to determine if additional allowances for doubtful accounts receivable need to be recorded. We have
historically not been exposed to a material amount of uncollectible receivable balances.
Commodity Price Risk
We are exposed to price fluctuations for our primary raw material commodities such as steel, copper and PVC resin. Our operating performance may be
affected by both upward and downward price fluctuations. We are also exposed to fluctuations in petroleum costs as we deliver a substantial portion of the products
we sell by truck. We seek to minimize the effects of inflation and changing prices through economies of purchasing and inventory management resulting in cost
reductions and productivity improvements as well as price increases to maintain reasonable gross margins. Such commodity price fluctuations have from time to
time produced volatility in our financial performance and could do so in the future.
Foreign Currency Risk
Because we conduct our business on an international basis in multiple currencies, we may be adversely affected by foreign exchange rate fluctuations.
Although we report financial results in United States dollars, approximately 10% of our net sales and expenses are denominated in currencies other than the United
States dollar, particularly Canadian dollars, British pounds sterling, Australian dollars, Chinese Yuan and New Zealand dollars. Fluctuations in exchange rates
could therefore significantly affect our reported results from period to period as we translate results in local currencies into United States dollars. With the
exception of certain foreign denominated intercompany loans, we generally do not use derivative instruments to hedge translation risks in the ordinary course of
business, including the risk related to earnings of foreign subsidiaries. Due to limited cross border transactions, we do not experience material foreign exchange
transactional gains or losses.
53
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Atkore International Group Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Atkore International Group Inc. and subsidiaries (the "Company") as of September 30, 2018 and
2017, the related consolidated statements of operations, comprehensive income, cash flows, and shareholders' equity, for each of the three years in the period ended
September 30, 2018, and the related notes and the schedules listed in the Index at Part IV, Item 15 (collectively referred to as the "financial statements"). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2018 and 2017, and the results of
its operations and its cash flows for each of the three years in the period ended September 30, 2018, in conformity with accounting principles generally accepted in
the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal
control over financial reporting as of September 30, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our report dated November 28, 2018, expressed an unqualified opinion on the Company's internal
control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements
based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
[ Signature ]
Chicago, Illinois
November 28, 2018
We have served as the Company's auditor since 2011.
54
ATKORE INTERNATIONAL GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Note
September 30, 2018
Fiscal Year Ended
September 30, 2017 As
Adjusted**
September 30, 2016 As
Adjusted**
Net sales
Cost of sales
Gross profit
Selling, general and administrative
Intangible asset amortization
Asset impairment charges
Operating income
Interest expense, net
Loss (gain) on extinguishment of debt
Other income, net
Income before income taxes
Income tax expense
Net income
Net income per share
Basic
Diluted
$
1,835,139
$
1,397,055
1,503,934
$
1,142,664
13
13
14
7
8
438,084
226,282
32,104
—
179,698
40,694
—
(27,348)
166,352
29,707
361,270
182,910
22,407
—
155,953
26,598
9,805
(6,575)
126,125
41,486
$
136,645 $
84,639 $
1,523,384
1,155,808
367,576
219,743
22,238
129
125,466
41,798
(1,661)
(1,452)
86,781
27,985
58,796
9
9
$
$
2.59 $
2.48 $
1.33 $
1.27 $
0.94
0.94
** As adjusted due to the adoption of ASU 2017-07. See Note 1, ''Basis of Presentation and Summary of Significant Accounting Policies'' for additional information.
See Notes to Consolidated Financial Statements
55
ATKORE INTERNATIONAL GROUP INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive (loss), net of tax:
Change in foreign currency translation adjustment
Change in unrecognized loss related to pension benefit plans, net of tax
expense (benefit) of ($1,362), ($3,356), $2,680, respectively
Total other comprehensive income (loss)
10
Fiscal Year Ended
Note
September 30,
2018
September 30, 2017 September 30, 2016
$
136,645 $
84,639 $
58,796
(2,853)
4,397
1,544
1,221
6,747
7,968
(858)
(4,059)
(4,917)
53,879
Comprehensive income
$
138,189 $
92,607 $
See Notes to Consolidated Financial Statements
56
(in thousands, except share and per share data)
Note September 30, 2018 September 30, 2017
ATKORE INTERNATIONAL GROUP INC.
CONSOLIDATED BALANCE SHEETS
Assets
Current Assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $1,762 and $1,239, respectively
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Intangible assets, net
Goodwill
Deferred income taxes
Non-trade receivables
Total Assets
Liabilities and Equity
Current Liabilities:
$
126,662 $
265,147
221,753
33,576
647,138
213,108
291,916
170,129
162
1,607
11
12
13
13
8
45,718
224,427
200,003
35,611
505,759
208,619
344,289
147,716
1,657
7,052
$
1,324,060 $
1,215,092
Short-term debt and current maturities of long-term debt
14
$
Accounts payable
Income tax payable
Accrued compensation and employee benefits
Other current liabilities
Total current liabilities
Long-term debt
Deferred income taxes
Other long-term tax liabilities
Pension liabilities
Other long-term liabilities
Total Liabilities
Equity:
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 47,079,645 and 63,305,434
shares issued and outstanding, respectively
Treasury stock, held at cost, 260,900 and 260,900 shares, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Equity
Total Liabilities and Equity
See Notes to Consolidated Financial Statements
57
14
8
4
10
26,561 $
156,525
542
33,350
55,769
272,747
877,686
16,510
1,443
17,075
16,540
1,202,001
472
(2,580)
457,978
(317,373)
(16,438)
122,059
4,215
125,618
2,581
26,387
53,036
211,837
571,863
17,464
6,771
25,239
21,047
854,221
634
(2,580)
423,232
(42,433)
(17,982)
360,871
$
1,324,060 $
1,215,092
ATKORE INTERNATIONAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of a business
Impairment of assets
Depreciation and amortization
Amortization of debt issuance costs and original issue discount
Deferred income taxes
Loss (gain) on extinguishment of debt
Provision for losses on accounts receivable and inventory
Stock-based compensation expense
Other adjustments to net income
Changes in operating assets and liabilities, net of effects from acquisitions
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable
Income taxes
Accrued and other liabilities
Other, net
Net cash provided by operating activities
Investing activities:
Capital expenditures
Proceeds from sale of properties, plant and equipment
Proceeds from divestiture of business
Proceeds from sale of assets held for sale
Acquisitions of businesses, net of cash acquired
Proceeds from sale of an investment
Other, net
Net cash provided by (used for) investing activities
Financing activities:
Borrowings under credit facility
Repayments under credit facility
Repayments of short-term debt
Issuance of long-term debt
Repayments of long-term debt
Issuance of common stock
Repurchase of common stock
Payments for debt financing costs and fees
58
Fiscal year ended
Note
September 30,
2018
September 30,
2017
September 30, 2016
$
136,645 $
84,639 $
58,796
(27,575)
—
66,890
1,542
(9,008)
—
7,241
14,664
2,023
(44,419)
(36,528)
(1,762)
31,667
(3,179)
7,243
259
145,703
(38,501)
349
42,631
—
(3,467)
—
1,502
2,514
358,000
(443,000)
(8,150)
426,217
(1,217)
20,110
(411,775)
(5,955)
(5,093)
—
54,727
1,446
938
9,805
1,333
12,788
896
(13,445)
(10,301)
(3,074)
8,673
(9,138)
(11,232)
(1,308)
121,654
(357)
129
55,017
3,586
2,556
(1,661)
3,021
21,127
(190)
24,538
(2,437)
(2,986)
4,061
1,005
(9,551)
(8)
156,646
(25,122)
(16,830)
100
—
3,024
(183,923)
—
88
75
—
2,400
—
1,328
132
(205,833)
(12,895)
97,000
(12,000)
(4,200)
498,750
(641,100)
12,168
(13,938)
(4,375)
—
—
(1,619)
—
(22,175)
52
—
—
8
14
5
2
14
14
14
14
14
5
14
(in thousands)
Other, net
Net cash (used for) financing activities
Effects of foreign exchange rate changes on cash and cash equivalents
Increase (decrease) 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
Interest paid
Income taxes paid, net of refunds
Capital expenditures, not yet paid
Reclassification of stock-based compensation liability
5
Fiscal year ended
Note
September 30,
2018
September 30,
2017
September 30,
2016
(161)
(65,931)
(1,342)
80,944
45,718
(65)
(67,760)
(2,622)
(154,561)
200,279
126,662 $
45,718 $
39,898 $
41,601
916
—
26,131 $
49,813
1,330
—
(166)
(23,908)
(162)
119,681
80,598
200,279
49,855
30,859
525
43,870
$
$
See Notes to Consolidated Financial Statements
59
ATKORE INTERNATIONAL GROUP INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the three year period ended September 30, 2018
(in thousands)
Shares
Amount
Amount
Common Stock
Treasury
Stock
Additional
Paid-in Capital
Accumulated
Deficit
Accumulated Other
Comprehensive
Income (Loss)
Total Equity
Balance as of September 25, 2015
62,453 $
626 $
(2,580) $
352,505 $
(173,241) $
(21,033)
$
156,277
Net income
Cumulative effect adjustment for a
change in accounting principle
Other comprehensive loss
Modification of liability award to equity
based compensation
Stock-based compensation
Issuance of common stock
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
43,870
1,865
52
Balance as of September 30, 2016
62,458
626
(2,580)
398,292
Net income
Other comprehensive income
Stock-based compensation
Issuance of common stock
Repurchase of common stock
Balance as of September 30, 2017
Net income
Other comprehensive income
Stock-based compensation
Issuance of common stock
Repurchase of common stock
—
—
—
1,628
(781)
63,305
—
—
—
2,795
(19,020)
—
—
—
16
(8)
—
—
—
—
—
—
—
12,788
12,152
—
634
(2,580)
423,232
—
—
—
28
(190)
—
—
—
—
—
—
—
14,664
20,082
58,796
1,303
—
—
—
—
(113,142)
84,639
—
—
—
(13,930)
(42,433)
136,645
—
—
—
—
58,796
—
(4,917)
—
—
—
1,303
(4,917)
43,870
1,865
52
(25,950)
257,246
—
7,968
—
—
—
(17,982)
—
1,544
—
—
—
84,639
7,968
12,788
12,168
(13,938)
360,871
136,645
1,544
14,664
20,110
(411,775)
Balance as of September 30, 2018
47,080 $
472 $
(2,580) $
457,978 $
(317,373) $
(16,438)
$
122,059
See Notes to Consolidated Financial Statements
60
—
(411,585)
ATKORE INTERNATIONAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
Organization and Ownership Structure — Atkore International Group Inc. (the "Company" or "Atkore") is a leading manufacturer of Electrical Raceway
products primarily for the non-residential construction and renovation markets and Mechanical Products & Solutions ("MP&S") for the construction and industrial
markets. Electrical Raceway products form the critical infrastructure that enables the deployment, isolation and protection of a structure's electrical circuitry from
the original power source to the final outlet. MP&S frame, support and secure component parts in a broad range of structures, equipment and systems in electrical,
industrial and construction applications.
The Company was incorporated in the State of Delaware on November 4, 2010. Atkore is the sole stockholder of Atkore International Holdings Inc.
("AIH"), which in turn is the sole stockholder of Atkore International, Inc. ("AII").
The Transactions — On November 9, 2010, Tyco announced that it had entered into an agreement to sell a majority interest in TEMP to CD&R Allied
Holdings, L.P. (the "CD&R Investor"), an affiliate of the private equity firm Clayton Dubilier & Rice, LLC ("CD&R"). On December 22, 2010, the transaction was
completed and CD&R acquired shares of a newly created class of cumulative convertible preferred stock (the "Preferred Stock") of the Company. The Preferred
Stock initially represented 51% of the Company’s outstanding capital stock (on an as-converted basis). The preferred stock is entitled to a 12% fixed, cumulative
dividend paid quarterly ("Preferred Dividends") and dividends on an as-converted basis when declared on common stock ("Participating Dividends"). On
December 22, 2010, the Company also issued common stock (the "Common Stock") to Tyco’s wholly owned subsidiary, Tyco International Holding S.à.r.l. ("Tyco
Seller"), that initially represented the remaining 49% of the Company’s outstanding capital stock. Subsequent to December 22, 2010, the Company has operated as
an independent, stand-alone entity. The aforementioned transactions described in this paragraph are referred to herein as the "Transactions."
On March 6, 2014, the Company entered into a non-binding letter of intent (the "Letter of Intent") with Tyco for the acquisition (the "Acquisition") of
40.3 million shares of Common Stock held by Tyco Seller. On April 9, 2014, the Company paid $250,000 to Tyco Seller to redeem the shares, which were
subsequently retired. The Company paid $2,000 of expenses related to the share redemption.
In a separate transaction on the same date, the CD&R Investor converted its Preferred Stock and accumulated Preferred Dividends into Common Stock.
As of September 26, 2014, Common Stock is the Company’s sole issued and outstanding class of securities.
Initial Public Offering — On June 9, 2016 , the Company's Registration Statement on Form S-1 relating to an initial public offering ("IPO") of its
common stock was declared effective by the United States Securities and Exchange Commission ("SEC") and on June 15, 2016 , we completed the IPO at a price
to the public of $16.00 per share. In connection with the IPO, the CD&R Investor, an affiliate of CD&R, sold an aggregate of 12,000,000 shares of its common
stock. In a series of secondary offerings during fiscal 2017, the CD&R Investor sold an aggregate 19,550,000 shares of the Company's common stock. The CD&R
Investor received all of the net proceeds and bore all commissions and discounts from the sale of our common stock. The Company did not receive any proceeds
from the IPO or any of the secondary offerings.
Holders of common stock are entitled to cast one vote for each share held of record on all matters submitted to a vote of the stockholders. Additionally,
holders of common stock are entitled to receive, on a pro rata basis, dividends and distributions, if any, that the Company’s board of directors may declare out of
legally available funds, subject to preferences that may be applicable to preferred stock, if any.
Share Repurchase Program — In August 2017, the Company's Board of Directors approved a share repurchase program, under which the Company may
repurchase up to an aggregate amount of $75.0 million of its outstanding stock. Share repurchases will be conducted under the program in the open market and
through broker negotiated purchases in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, and subject to market conditions,
applicable legal requirements, and other relevant factors. 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. As of September 30, 2018, there were approximately $24.4 million of authorized
repurchases remaining.
61
In January 2018, the Company announced a stock repurchase transaction whereby the Company agreed to repurchase from the CD&R Investor, a related
party, approximately 17.2 million shares of the Company's common stock, par value $0.01 per share, at a per share price equal to $21.77, for a total purchase price
of $375 million, subject to the terms and conditions set forth in the stock purchase agreement. Following the stock repurchase transaction in January 2018 and
secondary offerings of the Company's common stock in February 2018 and May 2018, the CD&R Investor completed its exit from its investment in the Company,
and, as of September 30, 2018, no longer owned any of the Company's common stock.
Basis of Presentation — The accompanying audited consolidated financial statements of the Company and all of its subsidiaries included herein have
been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").
The audited 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 audited consolidated financial statements
from the effective date of acquisition or up to the date of disposal.
Fiscal Periods — Starting in fiscal 2016, the Company has a fiscal year that ends on September 30. Prior to fiscal 2016, the fiscal year ended on the last
Friday in September. Fiscal year 2018 and 2017 were 52-week fiscal years which ended on September 30, 2018 and September 30, 2017 , respectively. Fiscal year
2016 was a 53-week fiscal year which ended on September 30, 2016 . The Company's fiscal quarters end on the last Friday in December, March and June.
Use of Estimates — The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclose contingent assets and liabilities at the date of the consolidated financial statements
and report the associated amounts of revenues and expenses. Actual results could differ materially from these estimates.
Summary of significant accounting policies
Revenue Recognition — The Company's revenue is generated principally from the sale of its products. Revenue from the sale of products is recognized at
the time title, risks and rewards of ownership pass. This is generally when the products reach the free-on-board shipping point, the sales price is fixed and
determinable and collection is reasonably assured. The freight charges for shipments are included in the Company's revenues. Revenues are recorded net of tax.
Provisions for certain rebates, sales incentives, trade promotions, product returns and discounts to customers are accounted for as reductions in
determining sales in the same period the related sales are recorded. Rebates are estimated based on sales terms and historical experience.
Product returns are estimated based on historical experience and are recorded at the time revenues are recognized. Accordingly, the Company reduces
recognized revenue for estimated future returns at the time revenue is recorded. The estimates for returns are adjusted periodically based upon changes in historical
rates of returns and trend analysis.
Cost of Sales — The Company includes all costs directly related to the production of goods for sale in cost of sales in the statement of operations. These
costs include direct material, direct labor, production related overheads, excess and obsolescence costs, lower of cost or market provisions, freight and distribution
costs, and the depreciation and amortization of assets directly used in the production of goods for sale.
Selling, General and Administrative Expenses — These amounts primarily include payroll-related expenses for both administrative and selling personnel,
compensation expense from stock-based awards, restructuring-related charges, third-party professional services and transactional gains or losses for foreign
currency transactions, excluding the foreign exchange exposure for intercompany loan transactions, which is included in Other income, net .
Cash and Cash Equivalents — The Company considers all highly liquid investments with a maturity of three months or less, when purchased, to be cash
equivalents.
Accounts Receivable and Allowance for Doubtful Accounts — The Company carries its accounts receivable at their face amounts less an allowance for
doubtful accounts. The allowance for doubtful accounts receivable reflects the best estimate
62
of losses inherent in the Company's accounts receivable portfolio determined on the basis of historical experience, specific allowances for known troubled accounts
and other available evidence.
Inventories — Inventories are recorded at the lower of cost (primarily LIFO) or market value. The Company estimates losses for excess and obsolete
inventory through an assessment of its net realizable value based on the aging of the inventory and an evaluation of the likelihood of recovering the inventory costs
based on anticipated demand and selling price. See Note 11, ''Inventories, net.''
Property, Plant and Equipment — Property, plant and equipment, net, is recorded at cost less accumulated depreciation. Maintenance and repair
expenditures are charged to expense when incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets as
follows:
Buildings
Building improvements
Machinery and production equipment
Support and testing machinery and equipment
Leasehold improvements
Software
4 to 40 years
3 to 20 years
1 to 20 years
2 to 10 years
Lesser of remaining term of the lease or economic useful life
2 to 10 years
The internal and external costs incurred to develop internal use computer software during the application development stage of the implementation,
including the design of the chosen path, are capitalized. Other costs, including expenses incurred during the preliminary project stage, training expenses, data
conversion costs and expenses incurred in the post implementation stage are expensed in the period incurred. Capitalized costs are amortized ratably over the useful
life of the software when the software becomes operational. Upgrades and enhancements to internal use software are capitalized only if the costs result in
additional functionality. The Company does not plan to sell or market our internal use computer software to third parties.
Long-Lived Asset and Finite - Lived Intangible Asset Impairments — The Company reviews long-lived assets, including property, plant and equipment
and finite-lived intangible assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the asset may not be
fully recoverable.
The Company groups assets at the lowest level for which cash flows are separately identified in order to measure an impairment. Recoverability of an
asset or asset group is first measured by a comparison of the carrying amount to its estimated undiscounted future cash flows expected to be generated by the asset
or asset group. If the carrying amount exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the
carrying amount of the asset or asset group exceeds the estimated fair value. If impairment is determined to exist, any related impairment loss is calculated based
on the estimated fair value. Impairment losses on assets to be disposed of or held for sale, if any, are based on the estimated proceeds to be received, less costs of
disposal.
The Company also considers potential impairment indicators associated with other finite-lived intangible assets, including its customer relationships,
patents, and non-compete agreements. An impairment is recognized if the carrying value of an asset or asset group exceeds the estimated undiscounted future cash
flows expected to result from the use of the asset or asset group and its eventual disposition. The Company's key customers are primarily wholesale and national
distributors. The terms of these relationships are based on purchase orders and are not contractually based. Customer relationships are amortized on a straight-line
basis over their useful lives, ranging from 6 to 14 years. The Company evaluates the appropriateness of remaining useful lives based on customer attrition rates.
Other intangible assets are amortized on a straight-lined basis over their estimated useful lives, ranging from 1 to 20 years. The Company did not have a triggering
event during fiscal 2018 and 2017 .
63
Goodwill and Indefinite-Lived Intangible Asset Impairments — The Company assesses the recoverability of goodwill and indefinite-lived trade names on
an annual basis in accordance with Accounting Standards Codification 350 ("ASC"), "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 Company can elect to perform a quantitative or qualitative test of impairment. In the fourth quarter
of 2017, the Company adopted Accounting Standards Update ("ASU") 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment." The new guidance eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill
impairment. Under the amendments in the new guidance, the quantitative goodwill impairment testing is performed by comparing the fair value of the reporting
unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value.
For fiscal 2018 and fiscal 2016, the Company performed a quantitative impairment assessment for goodwill. The Company calculated the fair value of its
reporting units considering three valuation approaches: (a) the income approach; (b) the guideline public company method; and (c) a market approach using a
transaction analysis. The income approach calculates the fair value of the reporting unit using a discounted cash flow approach. Internally forecasted future cash
flows, which the Company believes reasonably approximate market participant assumptions, are discounted using a weighted average cost of capital (Discount
Rate) developed for each reporting unit. The Discount Rate is developed using market observable inputs, as well as considering whether or not there is a measure
of risk related to the specific reporting unit’s forecasted performance. Fair value under the guideline public company method is determined for each unit by
applying market multiples for comparable public companies to the unit’s financial results. The key uncertainties in these calculations are the assumptions used in
determining the reporting unit’s forecasted future performance, including revenue growth and operating margins, as well as the perceived risk associated with those
forecasts, along with selecting representative market multiples.
For fiscal 2017, the Company determined through qualitative assessment ("Step 0") that it was not “more likely than not” that the fair values of its
reporting units were less than their carrying values; as a result, the Company was not required to perform the quantitative impairment test.
The Company did not record any goodwill impairments in fiscal 2018, 2017 or 2016.
As noted above, ASC 350 also requires that the Company test the indefinite-lived intangible assets for impairment at least annually. Under ASC 350, if
the carrying value of the indefinite-lived asset is higher than its fair value, then the asset is deemed to be impaired and the impairment charge is estimated as the
difference. The Company calculated the fair value of its indefinite-lived intangible assets using the income approach, specifically the relief-from-royalty method.
The relief-from-royalty method is used to estimate the cost savings that accrue to the owner of an intangible asset who would otherwise have to pay royalties or
license fees on revenues earned through the use of the asset. Internally forecasted revenues, which the Company believes reasonably approximate market
participant assumptions, are multiplied by a royalty rate to arrive at the estimated net after tax cost savings. The royalty rate used in the analysis is based on an
analysis of empirical, market-derived royalty rates for guideline intangible assets. The net after tax cost savings are discounted using the Discount Rate developed
for purposes of the Company's goodwill impairment test. The key uncertainties in these calculations are the assumptions used in determining the revenue associated
with each indefinite-lived intangible asset and the royalty rate.
Fair Value Measurements — Authoritative guidance for fair value measurements establishes a three-level hierarchy that ranks the quality and reliability
of information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to
unobservable data. In cases where two or more levels of inputs are used to determine fair value, a financial instrument's level is determined based on the lowest
level input that is considered significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are summarized as follows:
Level 1-inputs are based upon quoted prices (unadjusted) in active markets for identical assets or liabilities which are accessible as of the measurement
date.
Level 2-inputs are based upon quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in
markets that are not active, and model-derived valuations for the asset or liability that are derived principally from or corroborated by market data for
which the primary inputs are observable, including forward interest rates, yield curves, credit risk and exchange rates.
64
Level 3-inputs for the valuations are unobservable and are based on management's estimates of assumptions that market participants would use in pricing
the asset or liability. The fair values are therefore determined using model-based techniques such as option pricing models and discounted cash flow
models.
Income Taxes and Uncertain Tax Positions — The Company accounts for income taxes under the asset and liability method, which requires the
recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements.
Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities
using enacted tax rates in effect for the year it is expected the differences will reverse. The effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period of the enactment date. The Company maintains an indemnity receivable for certain tax obligations that are indemnified by Tyco
International Holding S.à.r.l. ("Tyco") and that are expected to be settled directly with the taxing authorities.
The Company periodically assesses the realizabilty of the deferred tax assets. In making this determination management considers all available evidence,
both positive and negative, including earnings history, expectations of future taxable income and available tax planning strategies. A valuation allowance is
recorded to reduce the Company's deferred tax assets to the amount that is considered more likely than not to be realized. Changes in the required valuation
allowance are recorded in income in the period such determination is made.
Certain tax positions may be considered uncertain requiring an assessment of whether an allowance should be recorded. Provisions for uncertain tax
positions provide a recognition threshold based on an estimate of whether it is more likely than not that a position will be sustained upon examination. The
Company measures its uncertain tax positions as the largest amount of benefit that is greater than a 50% likelihood of being realized upon examination. Interest and
penalties related to unrecognized tax benefits are recorded as a component of income tax expense. See Note 8, ''Income Taxes.''
Leases — All leases that are determined not to meet any of the capital lease criteria are classified as operating leases. Operating lease payments are
recognized as an expense in the statement of operations on a straight-line basis over the lease term.
Translation of Foreign Currency — For the Company's non-U.S. subsidiaries that report in a functional currency other than United States dollars, assets
and liabilities are translated into United States dollars using year-end exchange rates. Revenue and expenses are translated at the monthly average exchange rates in
effect during the fiscal year. Foreign currency translation adjustments are included as a component of accumulated other comprehensive loss within the
consolidated statements of comprehensive income .
65
Recent Accounting Pronouncements
A summary of recently adopted Accounting Standards Update ("ASU"s) are as follows. Adoption dates are on the first day of the fiscal year indicated
below, unless otherwise specified.
ASU
Description of ASU
Impact to Atkore
Note Adoption Date
Adopted Guidance
2017-07 Compensation -
Retirement Benefits (Topic
715): Improving the
Presentation of Net Periodic
Pension Cost and Net
Periodic Postretirement
Benefit Cost
The ASU requires an entity to report the service cost
component of pension cost and postretirement benefit
cost as compensation expense during the employee's
service period. The other components of net periodic
pension benefit costs will be presented outside a
subtotal of income from operations.
2017-09 Compensation -
Stock Compensation (Topic
718): Scope of Modification
Accounting
The ASU does not require an entity to apply
modification accounting if the fair value, vesting
conditions and classification of the awards do not
change.
66
Prior to the adoption of ASU 2017-07,
pension costs were reported as cost of
sales and selling, general and
administrative expenses on the
Company's consolidated statements of
income. As a result of the early adoption
of ASU 2017-07, the Company
reclassified a net credit of $1,505 and
$1,453 from operating income to other
income, net on the consolidated
statements of the years ended September
30, 2017, and September 30, 2016,
respectively.
No material impact on the consolidated
financial statements.
4
2018
5
2018
A summary of guidance not yet adopted are as follows:
Guidance not yet adopted
ASU
Description of ASU
Impact to Atkore
2016-16 Income Taxes
(Topic 740): Intra-Entity
Transfers of Assets
The ASU removes the prohibition in ASC 740 against the
immediate recognition of the current and deferred income tax
effects of intra-entity transfers of assets other than inventory.
The ASU provided entities the option to reclassify tax effects
stranded in accumulated other comprehensive income as a result
of the Tax Cuts and Jobs Act to retained earnings.
Under evaluation
Under evaluation.
ASU 2018-02 Income
Statement - Reporting
Comprehensive Income
(Topic 220):
Reclassification of Certain
Tax Effects from
Accumulated Other
Comprehensive Income
2014-09 Revenue from
Contracts with Customers
2016-02 Leases (Topic
842)
2018-14 Compensation -
Retirement Benefits -
Defined Benefit Plans -
General (Subtopic 715-20)
The ASU, and subsequent amendments to the guidance issued in
fiscal 2018, 2017, 2016 and 2015, provide guidance for revenue
recognition. The update's core principle is that a company will
recognize revenue when it transfers promised goods or services to
customers in an amount that reflects the consideration to which
the company expects to be entitled in exchange for those goods or
services. In doing so, companies will need to use more judgment
and make more estimates than under current guidance. Examples
of the use of judgments and estimates may include identifying
performance obligations in the contract, estimating the amount of
variable consideration to include in the transaction price and
allocating the transaction price to each separate performance
obligation. The update also requires more detailed disclosures to
enable users of financial statements to understand the nature,
amount, timing, and uncertainty of revenue and cash flows arising
from contracts with customers. The update provides for two
transition methods to the new guidance: a full retrospective
approach and a modified retrospective approach.
The ASU, and subsequent amendments to the guidance issued in
fiscal 2018 and 2017, require companies to use a "right of use"
lease model that assumes that each lease creates an asset (the
lessee's right to use the leased asset) and a liability (the future rent
payment obligations), which should be reflected on a lessee's
balance sheet to fairly represent the lease transaction and the
lessee's related financial obligations with terms of more than 12
months.
The ASU amends ASC 715 to add, remove and clarify disclosure
requirements related to defined benefit pension and other
postretirement plans.
The Company adopted this standard in the first
quarter of 2019 using the modified
retrospective method. The adoption of the
standard did not have a material impact on the
Company’s consolidated financial statements.
Based on the completion of its reviews and
assessments, the Company has determined that
the pattern of revenue recognition for
substantially all of its existing revenue streams
is substantially unchanged. The Company
implemented the appropriate changes to
business processes and controls to support
recognition and disclosure under the new
standard, including the new qualitative and
quantitative disclosures that will include
information on the nature, amount, timing and
significant judgments impacting revenue from
contracts with customers.
The Company will adopt the new lease
guidance in the first quarter of fiscal 2020. The
Company has established an implementation
team, deployed lease landscape surveys and is
currently evaluating the impact of adoption of
this ASU on its consolidated financial
statements.
Under evaluation.
2018-07 Improvements to
Nonemployee Share-Based
Payment Accounting.
ASU 2018-07 simplifies the accounting for share-based payments
to nonemployees by aligning it with the accounting for share-
based payments to employees, with certain exceptions.
Under evaluation.
67
Effective
Date
2019
2020
2019
2020
2021
2020
2. ACQUISITIONS
From time to time, the Company enters into strategic acquisitions in an effort to better service existing customers and to attain new customers.
On January 8, 2018, AFC Cable Systems, Inc., a wholly-owned subsidiary of the Company, acquired the assets of Communications Integrators, Inc.
("Cii"), a manufacturer of modular, prefabricated power, voice and data distribution systems located in Tempe, Arizona for a total purchase price, including
contingent consideration, of $3,997 . The Cii acquisition complements Atkore's existing modular and prewired products within the Electrical Raceway segment.
On September 29, 2017, AII acquired all of the outstanding stock of Calpipe Industries, LLC ("Calpipe"), a market leader for electrical conduit systems
for corrosive environments and bollards for high security, access control and architectural environments. The Calpipe acquisition expanded the Company's product
portfolio by adding stainless steel and PVC coated conduit systems, introduced security bollards to the Company's offerings and further complemented the
Company's existing Electrical Raceway product offerings.
On September 1, 2017, Unistrut, Ltd, a wholly-owned indirect subsidiary of the Company, acquired all of the outstanding stock of Flexicon Limited
("Flexicon"), a leading global manufacturer of metallic and non-metallic flexible cable protection systems that carries many international and market product
approvals and serves the industrial, commercial and infrastructure sectors in more than 55 countries.
On May 18, 2017, Unistrut, Ltd, a wholly-owned indirect subsidiary of the Company acquired all of the outstanding stock of Marco Cable Management
("Marco"), a leading designer and manufacturer of wire basket cable tray, PVC trunking and aluminum power poles. Marco's product portfolio adds value to the
Company's electrical distribution partners in the U.K. and expands the Company's presence in the U.K. and the rest of Europe.
The acquisitions of Marco and Flexicon were funded using cash-on-hand. The acquisition of Calpipe was partially funded using borrowings from the ABL
Credit Facility. The Company incurred approximately $558 and $1,676 for fiscal 2017 acquisition-related expenses, which were recorded as a component of
selling, general and administrative expenses for the years ended September 30, 2018 and September 30, 2017 , respectively.
The purchase price was allocated to tangible and intangible assets acquired and liabilities assumed, based on their fair values. The following table
summarizes the Level 3 fair values assigned to the net assets acquired and liabilities assumed as of the acquisition date for fiscal 2017:
(in thousands)
Fair value of consideration transferred:
Cash consideration
Working capital adjustment
Purchase price payable
Settlement of pre-existing relationship
Total consideration transferred
Fair value of assets acquired and liabilities assumed:
Cash
Accounts receivable
Inventories
Intangible assets
Fixed assets
Accounts payable
Other
Net assets acquired
Calpipe
Other
Total
$
110,155 $
87,649 $
197,804
120
2,278
(382)
112,171
5,051
10,369
18,360
54,860
3,245
(1,601)
(8,342)
81,942
—
—
—
87,649
8,830
7,589
7,221
40,100
11,242
(1,550)
(11,558)
61,874
120
2,278
(382)
199,820
13,881
17,958
25,581
94,960
14,487
(3,151)
(19,900)
143,816
56,004
Excess purchase price attributed to goodwill acquired
$
30,229 $
25,775 $
From the date of the Company's preliminary purchase price allocation for the 2017 acquisitions through September 30, 2018, the Company recorded
adjustments based on our valuation procedures for our acquisitions that resulted in an increase to
68
goodwill of $24.5 million . The current year adjustments were primarily attributable to a decrease of $18.8 million in the value allocated to acquired assets,
primarily intangible assets and working capital, partially offset by an increase in the value of property, plant and equipment of $2.5 million . Additionally, an
adjustment of $8.2 million was recorded for deferred tax liabilities as a result of the purchase accounting adjustments. Goodwill recognized from the Calpipe
acquisition is tax-deductible and is amortized over 15 years for income tax purposes. Goodwill recognized from the other acquisitions was non-deductible for tax
purposes. The goodwill consists largely of the synergies and economies of scale from integrating these companies with existing businesses. See Note 13, ''Goodwill
and Intangible Assets.''
The following table summarizes the fair value of intangible assets acquired in fiscal 2017 as of the acquisition dates:
($ in thousands)
Customer relationships
Other
Total intangible assets
Calpipe
Other
Fair Value
Weighted Average Useful
Life (Years)
Fair Value
Weighted Average Useful
Life (Years)
$
$
50,680
4,180
54,860
10.0 $
8.5
9.9 $
37,341
2,759
40,100
10.0
8.1
9.9
The following table presents unaudited pro forma results of operations for the fiscal years ended September 30, 2017 and September 30, 2016 as if the
Calpipe acquisition had occurred as of the first day of the fiscal 2016 period:
(in thousands)
Pro forma net sales
Pro forma net income
Fiscal Year Ended
September 30, 2017
September 30, 2016
$
1,575,801 $
91,362
1,589,136
62,127
The pro forma condensed financial information is presented for illustrative purposes only and does not indicate the actual financial results of the Company
if the closing of the Calpipe acquisition had been completed on September 26, 2015, nor is it indicative of the results of operations in future periods. Included in the
unaudited pro forma financial information for the fiscal years ended September 30, 2017 and September 30, 2016 were pro forma adjustments to reflect the results
of operations of Calpipe as well as the impact of amortizing certain acquisition accounting adjustments such as the non recurring inventory step up adjustment of
$2.2 million . The pro forma financial information neither indicates the impact of possible business model changes nor considers any potential impact of current
market conditions, expense efficiencies or other factors.
Net sales and net income of the other companies acquired during fiscal 2018 and 2017 are included in the consolidated statement of operations for fiscal
2018 and fiscal 2017 for the post-acquisition periods. Due to the immaterial nature of these acquisitions, both individually, and in the aggregate, the Company did
not include the full year pro forma results of operations for the acquisition year or previous years.
On September 27, 2018, the Company entered into a definitive agreement with Pentahold NV to acquire Vergokan International NV ("Vergokan"), a
leading manufacturer of cable tray and cable ladder systems, underfloor installations and industrial floor trunking that serves industrial, power and energy,
commercial and infrastructure sectors in more than 45 countries. This transaction provides Atkore with an expanded presence in Western Europe and strengthens
the Company electrical portfolio of cable management products within the Electrical Raceway segment. On October 1, 2018, the Company acquired all of the
outstanding stock of Vergokan for a purchase price of $58,728 . The initial purchase price allocation and pro-forma results of operations have not been completed,
as the Company is still determining the fair value estimates of intangible assets, fixed assets and working capital items.
69
3. DIVESTITURES
On March 30, 2018, the Company sold the assets of FlexHead Industries, Inc. and SprinkFLEX, LLC (together "Flexhead"). The Flexhead businesses
manufacture commercial flexible sprinkler head connection products for use in a variety of markets, including industrial, commercial, cold storage, institutional
and clean room applications. The cash consideration received, net assets divested and resulting gain on sale are as follows:
(in thousands)
Cash consideration
Net assets divested
Gain on sale of a business
Net assets divested included $ 2,626 of goodwill.
4. POSTRETIREMENT BENEFITS
Flexhead
42,631
15,056
27,575
$
$
The Company has a number of non-contributory and contributory defined benefit retirement plans covering certain United States employees. Net periodic
pension benefit cost is based on periodic actuarial valuations that use the projected unit credit method of calculation and is charged to the statements of operations
on a systematic basis over the expected average remaining service lives of current participants. The benefits under the defined benefit plans are based on various
factors, such as years of service and compensation. As of September 30, 2018 , all defined pension benefit plans are frozen, whereby participants no longer accrue
credited service. The net periodic (benefit)/cost for the periods presented was as follows:
(in thousands)
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Net periodic (benefit)/cost
September 30, 2018
September 30, 2017
September 30, 2016
Fiscal Year Ended
$
$
— $
4,098
(6,415)
343
(1,974) $
2,049 $
3,793
(6,601)
1,303
544 $
1,894
4,143
(6,318)
722
441
The weighted-average assumptions used to determine net periodic pension benefit cost during the period were as follow:
Discount rate
Expected return on plan assets
Rate of compensation increase
September 30, 2018
September 30, 2017
September 30, 2016
3.7%
6.4%
N/a
3.5%
7.0%
N/a
4.2%
7.0%
N/a
70
The change in the benefit obligations, plan assets and the amounts recognized on the consolidated balance sheets was as follows (in thousands):
Change in benefit obligations:
Balance as of September 30, 2016
Service cost
Interest cost
Actuarial (gain)
Benefits and administrative expenses paid
Balance as of September 30, 2017
Service cost
Interest cost
Actuarial (gain)
Benefits and administrative expenses paid
Balance as of September 30, 2018
Change in plan assets:
Balance as of September 30, 2016
Actual return on plan assets
Employer contributions
Benefits and administrative expenses paid
Balance as of September 30, 2017
Actual return on plan assets
Employer contributions
Benefits and administrative expenses paid
Balance as of September 30, 2018
Funded status as of September 30, 2018
$
$
$
$
$
133,152
2,049
3,793
(5,012)
(5,130)
128,852
—
4,098
(7,130)
(4,863)
120,957
97,980
10,388
375
(5,130)
103,613
4,701
1,003
(4,863)
104,454
(16,503)
(in thousands)
September 30, 2018
September 30, 2017
Amounts recognized in the consolidated balance sheets consist of:
Pension assets
Pension liabilities
Net amount recognized
Amounts recognized in accumulated other comprehensive loss (before income taxes) consist
of:
Net actuarial loss
Total loss recognized
$
$
$
$
Weighted-average assumptions used to determine pension benefit obligations at year end:
Discount rate
Rate of compensation increase
71
572
$
(17,075)
(16,503)
$
(12,344)
(12,344)
$
$
4.2%
N/a
—
(25,239)
(25,239)
(18,103)
(18,103)
3.7%
N/a
The following table summarizes the defined benefit pension plans with accumulated benefit obligations in excess of plan assets:
(in thousands)
Accumulated benefit obligation
Fair value of plan assets
September 30, 2018
September 30, 2017
$
105,414 $
88,339
128,852
103,613
The following table summarizes the defined benefit pension plans with projected benefit obligations in excess of plan assets:
(in thousands)
Projected benefit obligation
Fair value of plan assets
September 30, 2018
September 30, 2017
$
105,414 $
88,339
128,852
103,613
In determining the expected return on plan assets, the Company considers the relative weighting of plan assets by class, historical performance of asset
classes over long-term periods, asset class performance expectations as well as current and future economic conditions. The Company's investment strategy for its
pension plans is to manage the plans on a going-concern basis. Current investment policy is to maximize the return on assets, subject to a prudent level of portfolio
risk, for the purpose of enhancing the security of benefits for participants. For the pension plans, this policy targets a 60% allocation to equity securities and a 40%
allocation to debt securities.
Pension plans have the following weighted-average asset allocations:
Asset Category:
Equity securities
Debt securities
Cash and cash equivalents
Total
September 30, 2018
September 30, 2017
59%
39%
2%
100%
61%
38%
1%
100%
The Company evaluates its defined benefit plans' asset portfolios for the existence of significant concentrations of risk, such as investments in a single
entity, industry, foreign country and individual fund manager. As of September 30, 2018 , there were no significant concentrations of risk in the Company's defined
benefit plan assets.
The Company's plan assets are accounted for at fair value and are classified in their entirety based on the lowest level of input that is significant to the fair
value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the
valuation of fair value of assets and their placement within the fair value hierarchy levels. The Company's asset allocations are presented in the table below:
(in thousands)
September 30, 2018
September 30, 2017
United States equity securities
Non-U.S. equity securities
Fixed income securities
Cash and cash equivalents
Total
Level 1
Level 2
Total
Level 1
Level 2
Total
$
32,447 $
6,354 $
38,801 $
— $
36,362 $
20,164
34,111
2,101
2,599
6,678
—
22,763
40,789
2,101
—
—
1,500
26,432
39,319
—
36,362
26,432
39,319
1,500
$
88,823 $
15,631 $
104,454 $
1,500 $
102,113 $
103,613
Equity securities consist primarily of publicly traded United States and non-U.S. equities. Publicly traded securities are valued at the last trade or closing
price reported in the active market in which the individual securities are traded. Certain equity securities are held within commingled funds, which are valued at the
unitized net asset value ("NAV") or percentage of the NAV as determined by the custodian of the fund. These values are based on the fair value of the underlying
net assets owned by the fund.
72
Fixed income securities consist primarily of government and agency securities, corporate debt securities, and mortgage and other asset-backed securities.
When available, fixed income securities are valued at the closing price reported in the active market in which the individual security is traded. Government and
agency securities and corporate debt securities are valued using the most recent bid prices or occasionally the mean of the latest bid and ask prices when markets
are less liquid. Asset-backed securities including mortgage-backed securities are valued using broker/dealer quotes when available. When quotes are not available,
fair value is determined by utilizing a discounted cash flow approach, which incorporates other observable inputs such as cash flows, underlying security structure
and market information including interest rates and bid evaluations of comparable securities. As of September 30, 2018 and September 30, 2017 , the Company did
not have any Level 3 pension assets. Certain fixed income securities are held within commingled funds, which are valued utilizing NAV as determined by the
custodian of the fund. These values are based on the fair value of the underlying net assets owned by the fund.
Cash and cash equivalents consist primarily of short-term commercial paper, and other cash or cash-like instruments including settlement proceeds due
from brokers, stated at cost, which approximates fair value.
Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstance giving rise to the transfer, which
generally coincides with the Company's valuation process.
Contribution amounts are determined and funded based on laws and regulations and with the assistance of professionally qualified actuaries. The
Company contributed $1,003 and $375 to its pension plans for the fiscal years ended September 30, 2018 and September 30, 2017 . The Company anticipates that
it will contribute at least the minimum required contribution of $1,077 to its pension plans in fiscal 2019 .
Benefit payments, which reflect future expected service as appropriate, are expected to be paid in each fiscal year as follows:
(in thousands)
2019
2020
2021
2022
2023
2024 and thereafter
$
5,717
6,011
6,340
6,609
6,814
36,690
Defined Contribution Retirement Plans — The Company also sponsors several defined contribution retirement plans - the 401(k) matching programs.
Expense for the defined contribution plans is computed as a percentage of participants' compensation and was $3,600 , $3,000 and $2,817 for the fiscal years ended
September 30, 2018 , September 30, 2017 and September 30, 2016 , respectively.
Multi-Employer Plan — The Company has a liability of $5,934 as of September 30, 2018 and $6,250 as of September 30, 2017 representing the
Company's proportionate share of a multi-employer pension plan which was exited prior to fiscal 2017.
73
5. STOCK INCENTIVE PLAN
On June 10, 2016, the Company's Board of Directors adopted the Atkore International Group Inc. 2016 Omnibus Incentive Plan (the " Omnibus Incentive
Plan "). The Omnibus Incentive Plan provides for stock purchases and grants of other equity awards, including non-qualified stock options, stock purchase rights,
restricted stock, restricted stock units ("RSUs"), performance shares, performance stock units("PSUs"), stock appreciation rights, dividend equivalents and other
stock-based awards to directors, officers, other employees and consultants. The Omnibus Incentive Plan replaces and succeeds the Atkore International Group Inc.
Stock Incentive Plan (the "Stock Incentive Plan"). The Company no longer grants awards from the Stock Incentive Plan. Awards previously granted under the
Stock Incentive Plan were unaffected by the termination. A maximum of 3.8 million shares of common stock is reserved for issuance under the Omnibus Incentive
Plan. All awards have a ten year life. All share-based awards are expected to be fulfilled with new shares of common stock. Stock compensation expense is
included in selling, general and administrative in the Company's consolidated statements of operations and was $14,664 , $12,788 and $21,127 for fiscal years 2018
, 2017 and 2016 , respectively. The total income tax benefit recognized for share-based compensation arrangements was $3,681 , $4,731 and $7,704 for fiscal years
2018 , 2017 and 2016 , respectively.
On May 4, 2018, the Company's Board of Directors modified the stock awards of a key executive. As part of the modification, the Board extended the
date through which the key executive has the right to exercise vested options. In addition, the amendment also accelerated the service vesting period of certain of
his unvested stock options, RSUs and PSUs. As a result of these modifications, the Company recorded the entire incremental stock-based compensation expense of
approximately $0.5 million during the year ended September 30, 2018 .
Stock Options
On September 26, 2014, the Company's Board of Directors modified the Stock Incentive Plan to provide the Company with the discretion to net settle
stock option awards in cash upon exercises by holders upon termination of their employment. Starting at that time, options were considered liability awards and
thus were measured and recorded at their estimated fair value. The Company utilized equity valuations based on comparable publicly-traded companies, discounted
free cash flows, an analysis of the Company's enterprise value and any other factors deemed relevant in estimating the fair value of the common stock. The fair
values of outstanding options were remeasured each reporting period using the Black-Scholes model. Outstanding options granted under the Stock Incentive Plan
vested ratably over five years. Outstanding options granted under the Omnibus Incentive Plan vest ratably over three years.
On July 27, 2016 , the Company's Board of Directors modified the Stock Incentive Plan and terminated the net settlement feature, thereby requiring the
stock option holders to exercise in an open market transaction through broker-assisted sales. The modification, which affected 63 employees, triggered a change
from liability accounting to equity accounting. Consequently, the Company reclassified $43,870 from non-current liabilities to additional-paid-in-capital. The
Company marked the options to their fair value as of July 27, 2016 using the Black-Scholes option pricing model resulting in $2.4 million of additional expense for
vested options.
In accordance with ASC Topic 718 "Compensation - Stock Compensation" , stock compensation expense is recorded on a straight-line basis over the
requisite service period (generally the vesting period), net of actual forfeitures based on the grant-date fair value of the option under the equity accounting method.
The assumptions used in the Black-Scholes option pricing model to value the options granted and modified were as follows:
Expected dividend yield
Expected volatility
Range of risk-free interest rates (%)
Range of expected option lives
Fiscal Year Ended
September 30, 2018
September 30, 2017
September 30, 2016
—%
40%
2.16-2.38
1.00 to 6.00 years
—%
40%
1.95
6.00 years
—%
40%
0.74 - 1.27
2.09 - 6.37 years
Dividends are not paid on the Company's common stock. Expected volatility is based on historical volatilities of comparable companies. The risk-free
interest rate is based on the United States Treasury yield curve in effect at the time of the grant for periods corresponding with the expected life of the options. The
expected life of options is
74
estimated using the simplified method due to limited historical exercise activity. The Company does not estimate forfeitures, which are accounted for as they occur.
Stock option activity for the period September 25, 2015 to September 30, 2018 was as follows:
Shares
(in thousands)
Weighted-
Average
Exercise Price
Weighted-
Average Grant
Date Fair Value
Aggregate
Intrinsic Value
(in thousands)
Weighted-Average
Remaining
Contractual Term
(in years)
Outstanding as of September 25, 2015
6,746
$
Granted
Exercised
Forfeited
Outstanding as of September 30, 2016
Granted
Exercised
Forfeited
Outstanding as of September 30, 2017
Granted
Exercised
Forfeited
Outstanding as of September 30, 2018
Exercisable as of September 30, 2018
72
(18)
(136)
6,664
171
(1,629)
(48)
5,158
185
(2,728)
(10)
2,605
1,915
$
7.70
15.79 $
7.95
8.84
7.76
7.63
$
43
21.45 $
8.84
7.47
9.02
8.30
$
25,757
20.01 $
8.33
7.55
8.28
9.91
8.41
$
$
$
42,512
43,302
34,697
5.61
5.04
As of September 30, 2018 , there was $2,911 of total unrecognized compensation expense related to non-vested options granted expected to be recognized
over a weighted-average period of approximately 1.36 years. The total fair value of shares vested during fiscal years 2018 , 2017 and 2016 was $9,757 , $10,696
and $12,507 , respectively.
Cash received from stock option exercises for the fiscal years 2018 , 2017 and 2016 was $20,110 , $12,168 and $52 , respectively. The actual tax benefit
for the tax deductions from stock option exercises totaled $11,478 , $9,530 and $19 , respectively, for fiscal years 2018 , 2017 and 2016 . The amount of cash the
Company paid to settle the options exercised during the fiscal years ended 2018 , 2017 and 2016 was $0 , $0 and $43 , respectively.
Restricted Stock Units
Generally, RSUs granted under the Omnibus Incentive Plan vest ratably over three years. The fair value of RSU grants was based on the closing price of
the Company's common stock on the date of grant. RSU compensation expense is recorded on a straight-line basis over the remaining vesting period.
Changes to the Company's nonvested RSU awards for the year ended September 30, 2018 were as follows:
Nonvested as of September 30, 2016
Granted
Forfeited
Nonvested as of September 30, 2017
Granted
Vested
Forfeited
Nonvested as of September 30, 2018
Shares
(in thousands)
Weighted-average grant-
date fair value
— $
$
$
$
443
(8)
435
334
(90)
(29)
650
$
—
19.68
21.45
19.65
20.86
21.95
20.57
19.91
75
As of September 30, 2018 , there was $ 7,550 of total unrecognized compensation expense related to non-vested RSUs granted, expected to be recognized
over a weighted-average period of approximately 1.9 years. The total fair value of RSUs vested during fiscal years 2018 , 2017 and 2016 was $ 1,969 , $0 and $300
, respectively.
Performance Share Units
On November 30, 2016 and November 28, 2017, the Company awarded PSUs whose vesting is contingent upon meeting or exceeding certain market and
performance conditions. The performance condition, which was based on an adjusted net income, represented 70% of the award and the market condition, which
was based on Total Shareholder Return ("TSR") of the Company's common stock relative to a peer group represented the remaining 30% . All PSUs cliff vest at
the end of three years based on the satisfaction of the performance conditions. Expense for the performance condition based award is recorded when the
achievement of the performance condition is considered probable of achievement and is recorded on a straight-line basis over the requisite service period. If such
performance criteria are not met, no compensation cost is recognized and any recognized compensation cost is reversed. Expense for the market condition based
award is recorded on a straight-line basis over the explicit service period.
The grant-date fair value for the performance condition based awards represents the closing stock price on the date of grant. For the grants in fiscal 2018
and 2017, the closing stock price on the date of grant was $20.01 and $21.45 , respectively. The grant-date fair value for the market condition based awards was
determined using the Monte-Carlo method. The assumptions used in the Monte-Carlo method to value the performance share awards granted and modified during
the fiscal year ended September 30, 2018 were as follows:
Expected dividend yield
Range of expected volatility
Risk free interest rates
Expected life
Fair value
September 30, 2018
September 30, 2017
—%
17.21 - 79.15
1.83 - 2.54
1 - 3 years
$13.90 - 26.68
$
—%
17.55 - 75.55
1.35%
3 years
29.53
Dividends are not paid on the Company's common stock. Expected volatility is based on historical volatilities of comparable companies. The risk-free
interest rate is based on the United States Treasury yield curve in effect at the time of the grant for periods corresponding with the expected life of the award. The
expected life of the award represents the weighted-average period of time that awards granted are expected to be outstanding, giving consideration to vesting
schedules and expected exercise patterns. The Company does not estimate forfeitures, which are accounted for as they occur.
Changes to the Company's non-vested PSU awards for the year ended September 30, 2018 were as follows:
Nonvested as of September 30, 2016
Granted
Forfeited
Nonvested as of September 30, 2017
Granted
Forfeited
Nonvested as of September 30, 2018
Shares
(in thousands)
Weighted-average grant-
date fair value
— $
$
$
$
184
(3)
181
215
(89)
307
$
—
23.87
23.87
23.87
22.01
28.53
21.22
As of September 30, 2018 , there was $4,472 of total unrecognized compensation expense related to non-vested PSUs granted, expected to be recognized
over a weighted-average period of approximately 1.87 years. There were no PSUs vested during fiscal years 2018 , 2017 and 2016 .
76
6. RESTRUCTURING CHARGES AND ASSET IMPAIRMENTS
Restructuring charges relate to the streamlining of the Company's cost structure and improving its operations. These actions primarily resulted in
workforce reductions, lease termination costs, and other facility rationalization costs. Restructuring reserves are included as a component of other current liabilities
. See Note 1, ''Basis of Presentation and Summary of Significant Accounting Policies.''
(in thousands)
Severance (a)
Other (a)
Severance (b) Other (b)
Severance
Other
Total
Electrical Raceway
Mechanical Products &
Solutions
Other/Corporate
Balance as of September 25, 2015
Charges
Utilization
Reversals
Exchange rate effects
Balance as of September 30, 2016
Charges
Utilization
Reversals
Exchange rate effects
Balance as of September 30, 2017
Charges
Utilization
Reversals
Exchange rate effects
Balance as of September 30, 2018
$
$
$
$
$
206
807
(168)
—
$
$
(4)
841
527
(917)
—
(2)
$
— $
3,511 $
620 $
—
—
—
— $
— $
439
(209)
(230)
—
689
(4,017)
(183)
2,583
(2,542)
(122)
— $
— $
422
(166)
—
22
— $
539 $
63
(556)
(36)
—
15
$
—
(11)
(4)
— $
— $
71
(71)
—
—
61 $
199
(260)
—
— $
— $
—
—
—
—
449
$
— $
278 $
10 $
— $
— $
536
(787)
—
14
1,130
(820)
—
—
97
(178)
(191)
(6)
179
(160)
—
—
98
(98)
—
—
—
—
—
—
212
$
310 $
— $
29 $
— $
— $
4,413
4,278
(6,998)
(309)
(4)
1,380
1,522
(1,919)
(266)
20
737
2,040
(2,043)
(191)
8
551
(a) Primarily related to Atkore's commitment to close certain facilities as part of its continuing effort to realign its strategic focus. The Company recorded severance restructuring
charges of $240 , $297 and $778 related to termination benefits during the fiscal years ended 2018, 2017 and 2016, respectively. The Company recorded other restructuring
charges to close facilities of $976 and $297 for the fiscal years ending September 30, 2018 and September 30, 2017 , respectively.
(b) Primarily related to the August 6, 2015 announcement of the Company's plans to exit its Fence and Sprinkler steel pipe and tube product lines ("Fence and Sprinkler") in
order to realign its long-term strategic focus. The operations associated with these product lines were wound down during the first quarter of fiscal 2016 and resulted in
headcount reductions in the Company's Philadelphia, Phoenix and Harvey facilities. The Company recorded $630 of severance-related expenses for the fiscal year ended
September 30, 2016 related to the headcount reductions. The Company also recorded $64 and $2,066 of facility-related and other charges related to the closure of the facilities
during fiscal 2017 and 2016 respectively.
The Company expects to utilize all restructuring accruals as of September 30, 2018 within the next twelve months. The net restructuring charges included
as a component of selling, general and administrative expense and asset impairment charges in the Company's consolidated statements of operations were as
follows:
(in thousands)
Total restructuring charges, net
Asset impairment charges
Fence and Sprinkler Asset Impairment Charges
Fiscal Year Ended
September 30, 2018
September 30, 2017
September 30, 2016
1,849
—
1,256
—
3,967
129
During fiscal 2016 , the Company recorded impairment charges of $129 for the write-down of prepaid shop supplies related to Fence and Sprinkler.
77
7. OTHER INCOME, NET
Other income, net consisted of the following:
(in thousands)
Gain on sale of a business
Gain on sale of joint venture
Undesignated foreign currency derivative instruments
Foreign exchange gain (loss) on intercompany loans
Debt modification costs
Pension-related benefits
Other
Other income, net
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
September 30, 2018
September 30, 2017
As Adjusted**
September 30, 2016
As Adjusted**
$
(27,575) $
— $
—
(121)
1,500
892
(1,975)
(69)
(5,774)
2,741
(2,038)
—
(1,504)
—
$
(27,348) $
(6,575) $
—
—
—
—
—
(1,452)
—
(1,452)
** As adjusted due to the adoption of ASU 2017-07. See Note 1, ''Basis of Presentation and Summary of Significant Accounting Policies'' for
additional information.
8. INCOME TAXES
On December 22, 2017, "H.R.1," also known as the Tax Cuts and Jobs Act ("TCJA") was signed into law. This newly enacted legislation provides for
significant changes to corporate taxation including, but not limited to, a reduction of the federal corporate tax rate from 35% to 21%, limitations on the
deductibility of interest expense and executive compensation, full expensing of the costs of qualified property in the period of acquisition and the elimination of the
domestic production activities deduction. The legislation also adopts a new quasi-territorial tax regime and imposes a one-time transition tax on deemed repatriated
earnings of certain foreign subsidiaries.
The Company has estimated the impact of the new legislation on its financial position based on information currently available and will continue to assess
the impact as additional guidance is received. As a fiscal year filer, the Company has a blended federal statutory rate of 24.5% for fiscal year 2018, in accordance
with rules described in Section 15 of the Internal Revenue Code, and a federal statutory rate of 21.0% for fiscal year 2019 and following years. The value of the
Company’s net deferred tax liability on the balance sheet decreased as a result of the newly enacted tax rates creating a one-time tax benefit to the Company; the
preliminary analysis of the impact, using December 29, 2017 values, was an estimated decrease to the net deferred tax liability of $ 4,758 , which was recognized
in the period of enactment. At September 30, 2018, the Company has recorded an adjustment to the re-measurement of deferred tax liabilities of an additional $708
benefit as a result of updated estimates. The Company has an accumulated earnings and profits deficit in the foreign jurisdictions in which it operates. As a result, it
does not anticipate an income tax liability from the one-time transition tax on the deemed repatriation of its foreign earnings.
The tax impact of the new legislation was based on the Company's best estimate. The provisional amounts incorporate assumptions made based upon the
Company's current interpretation of the TCJA and may change as the Company receives additional clarification and implementation guidance. Further adjustments
to the provisional amount will be included in income from continuing operations as an adjustment to income tax expense on the Company's consolidated statements
of operations through the end of the measurement period in the first quarter of fiscal 2019.
78
Significant components of income before income taxes and income tax expense for the fiscal years ended September 30, 2018 , September 30, 2017 and
September 30, 2016 consisted of the following:
(in thousands)
Components of income before income taxes:
United States
Non-U.S
Income before income taxes
Income tax expense:
Current:
United States:
Federal
State
Non-U.S:
Current income tax expense
Deferred:
United States:
Federal
State
Non-U.S:
Deferred income tax (benefit) expense
Income tax expense
September 30, 2018
September 30, 2017
September 30, 2016
$
$
$
$
$
$
155,453 $
10,899
166,352 $
116,580 $
9,545
126,125 $
26,586 $
8,662
3,467
38,715 $
(7,149) $
(1,793)
(66)
(9,008)
29,707 $
33,127 $
4,246
3,175
40,548 $
224 $
469
245
938
41,486 $
78,016
8,765
86,781
18,748
4,655
2,026
25,429
642
1,872
42
2,556
27,985
In addition to the change in the U.S. federal statutory rate, t he mix of foreign losses and domestic losses, along with rate reconciling items as outlined
below, impacts the effective tax rate for the periods. Differences between the statutory federal income tax rate and effective income tax rate are summarized below:
(in thousands)
Statutory federal tax
Adjustments to reconcile to the effective income tax rate:
State income taxes
Nondeductible expenses
Change in tax rates
Domestic manufacturing deduction
Indemnified uncertain tax benefits
Stock-based compensation
Other
Effective income tax rate
September 30, 2018
September 30, 2017
September 30, 2016
25 %
3 %
— %
(3)%
(2)%
(2)%
(3)%
— %
18 %
35 %
3 %
— %
— %
(2)%
— %
(3)%
— %
33 %
35 %
5 %
2 %
— %
(3)%
(5)%
— %
(2)%
32 %
The Company's effective tax rate for fiscal 2018 differs from the statutory rate due to a $5,466 benefit from the remeasurement of the deferred tax
liabilities as a result of the TCJA, a $4,091 excess tax benefit associated with the exercise of stock options, a net tax benefit of $ 3,977 from the release of
indemnified tax positions and a benefit of $3,309 for the domestic manufacturing deduction, partially offset by $5,675 of state income tax.
79
The Company's effective tax rate for fiscal 2017 differs from the statutory rate primarily due to a $3,589 excess tax benefit associated with the exercise of
stock options, a $2,761 tax benefit for domestic manufacturing deduction, partially offset by $3,459 of state income tax expense.
The Company's effective tax rate for fiscal 2016 differs from the statutory rate primarily due to a $4,332 tax benefit from the release of indemnified
uncertain tax positions, a $2,805 tax benefit for domestic manufacturing deduction, partially offset by $4,625 of state income tax expense and $1,685 of non-
deductible transaction costs.
Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes.
The components of the net deferred income tax assets are as follows:
(in thousands)
Deferred tax assets:
Accrued liabilities and reserves
Tax loss and credit carryforwards
Postretirement benefits
Inventory
Other
Deferred tax liabilities:
Property, plant and equipment
Intangible assets
Loss on investment
Other
Net deferred tax liability before valuation allowance
Valuation allowance
Net deferred tax liability
September 30, 2018
September 30, 2017
$
$
$
$
$
32,099 $
12,435
4,317
11,220
218
60,289 $
(13,739) $
(48,375)
(5,321)
(1,775)
(69,210) $
(8,921)
(7,427)
(16,348) $
48,619
15,340
9,863
6,482
877
81,181
(13,770)
(65,072)
(6,085)
(2,549)
(87,476)
(6,295)
(9,512)
(15,807)
As of September 30, 2018 , the Company has $43,312 of state net operating loss carryforwards which expire beginning in 2018 through 2035. In certain
non-U.S. jurisdictions, the Company has net operating loss carryforwards of $38,434 which have an expiration period ranging from five years to unlimited.
Valuation allowances have been established on net operating losses and other deferred tax assets in Australia, France, Asia Pacific, and other foreign and
United States state jurisdictions, as a result of the Company's determination that there is less than 50% likelihood that these assets will be realized. Evidence for this
determination includes three year cumulative loss positions, future reversal of temporary differences, and expectations of future losses. For fiscal 2018, the
Company reassessed the need for a valuation allowance against deferred tax assets in the Company's Asia Pacific business based on recent losses and the expected
future performance of the business. As a result, the Company has reestablished a $600 valuation allowance against the deferred tax assets of the Asia Pacific
business.
As of September 30, 2018 , the Company had unrecognized tax benefits of $1,364 which, if recognized, would positively benefit the effective tax rate.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of September 30, 2018 and September 30, 2017 , the
Company had accrued interest and penalties of $78 and $3,193 , respectively, in the consolidated balance sheets.
80
A reconciliation of the beginning and ending amount of unrecognized tax benefit, excluding interest and penalties, is as follows:
(in thousands)
Balance as of September 25, 2015
Additions based on tax positions related to prior years
Settlements
Balance as of September 30, 2016
Additions based on tax positions related to prior years
Settlements
Balance as of September 30, 2017
Additions based on tax positions related to prior years
Settlements
Balance as of September 30, 2018
For the period from September 30, 2016 to
September 30, 2018
8,101
62
(4,360)
3,803
63
(288)
3,578
893
(3,107)
1,364
$
$
During fiscal 2018 , the balance of unrecognized tax benefits decreased by $3,107 as a result of Tyco completing tax audits and the expiration of the
statute of limitations in various state jurisdictions, partially offset by an increase of $893 , primarily related to various state jurisdiction's uncertain tax positions.
The related accrued penalties and interest for uncertain tax positions decreased by $3,139 .
During fiscal 2017 , the balance of unrecognized tax benefits decreased by $288 as a result of Tyco completing tax audits and the expiration of the statute
of limitations in various state jurisdictions. The related accrued penalties and interest for uncertain tax positions decreased by $158 .
During fiscal 2016 , the balance of unrecognized tax benefits decreased by $4,360 as a result of Tyco completing tax audits and the expiration of the
statute of limitations in various state jurisdictions. The related accrued penalties and interest for uncertain tax positions decreased by $596 .
Many of the Company's uncertain tax positions relate to tax years that remain subject to audit by the taxing authorities. The following tax years remain
subject to examination by the major tax jurisdictions as follows:
Jurisdiction
United States
Years Open to Audit
2014, 2016, and 2017
The Company's income tax returns are examined periodically by various taxing authorities. The Company's federal tax return for fiscal 2015 was
examined and completed in fiscal year 2017, with no change as a result of the examination. The Company is currently under examination in various state
jurisdictions. Based on the current status of its income tax audits, the Company believes that it is reasonably possible that there would be no material changes to the
unrecognized tax benefits in the next twelve months.
Other Income Tax Matters —Prior to the passage of the TCJA, foreign undistributed earnings were generally subject to U.S. taxation when repatriated.
The TCJA imposed a one-time transition tax on previously untaxed accumulated earnings of foreign subsidiaries. The Company has accumulated earnings and
profits deficit, therefore, does not anticipate an additional tax liability as a result of the transition tax. The TCJA adopts a new quasi-territorial tax regime that
eliminates U.S income taxes on dividends from foreign subsidiaries. The Company may still be liable for foreign taxes, such as withholding taxes, if earnings are
repatriated.
During the fiscal years ended September 30, 2018 and September 30, 2017 , the Company made no additional provision for United States or non-U.S.
income taxes on the undistributed income of subsidiaries or for unrecognized deferred tax liabilities for temporary differences related to basis differences in
investments in subsidiaries, as such income is expected to be indefinitely reinvested, the investments are essentially permanent in duration, or the Company has
concluded that no additional tax liability will arise as a result of the distribution of such income.
81
As of September 30, 2018 , certain subsidiaries had approximately $39,978 of undistributed income that the Company intends to permanently reinvest. A
liability could arise if the Company's intention to permanently reinvest such income were to change and amounts are distributed by such subsidiaries or if such
subsidiaries are ultimately disposed of. It is not practicable to estimate the additional income taxes related to permanently reinvested income or the basis
differences related to investments in subsidiaries.
The calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of
jurisdictions across its global operations. The Company records tax liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based
on the Company's estimate of whether, and the extent to which, additional taxes will be due. These tax liabilities are reflected net of related tax loss carry-forwards.
The Company adjusts these reserves in light of changing facts and circumstances. However, due to the complexity of some of these
uncertainties, the ultimate resolution may result in a payment that is materially different from the Company's current estimate of the tax liabilities. For uncertain tax
liabilities (including penalties and interest) arising in the periods prior to the Transactions that are resolved in a future period, the Company plans to seek repayment
from Tyco under the terms of an investment agreement. Accordingly, the Company has reflected those liabilities with an offsetting receivable due from Tyco of
$122 on the consolidated balance sheet as of September 30, 2018 . If the Company's estimate of uncertain tax liabilities arising in the periods following the
Transactions proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less
than the recorded amounts, the reversal of the liabilities may result in income tax benefits being recognized in the period when the Company determines the
liabilities are no longer necessary.
Under the terms of an investment agreement between the Company and Tyco, Tyco has agreed to indemnify and hold harmless the Company and its
subsidiaries and their respective affiliates from and against any taxes of the Company with respect to any tax period ending on or before the closing of the
Transactions, as well as all tax liabilities relating to events or transactions occurring on or prior to the closing date of the Transactions. In addition, the Company
has agreed to indemnify and hold harmless Tyco and its affiliates from and against any liability for any taxes of the Company with respect to any post-Transactions
tax period.
9. 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 allocable 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. Prior to fiscal
2018, earnings per share under the two-class method and the treasury method was the same, as net income allocated to participating securities was immaterial.
82
The following table sets forth the computation of basic and diluted earnings per share:
(in thousands, except per share data)
September 30, 2018
September 30, 2017
September 30, 2016
Fiscal Year Ended
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
$
$
136,645 $
2,456
134,189 $
51,791
2,298
54,089
2.59 $
2.48 $
84,639 $
241
84,398 $
63,420
3,134
66,554
1.33 $
1.27 $
58,796
32
58,764
62,486
300
62,786
0.94
0.94
(1) Stock options to purchase approximately 0.3 million , 0.2 million , and 0.1 million shares of common stock were outstanding during the years ended September 30, 2018 ,
September 30, 2017, and September 30, 2016, respectively, but were not included in the calculation of diluted earnings per share as the impact of these would have been anti-
dilutive.
10. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents the changes in accumulated other comprehensive loss by component, net of tax:
(in thousands)
Balance as of September 30, 2016
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive loss
Balance as of September 30, 2017
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive income (loss)
Balance as of September 30, 2018
Defined benefit pension
items
Currency translation
adjustments
Total
$
$
$
(17,192) $
5,941
806
6,747
(10,445) $
4,068
329
4,397
(6,048) $
(8,758) $
1,221
—
1,221
(7,537) $
(2,853)
—
(2,853)
(10,390) $
(25,950)
7,162
806
7,968
(17,982)
1,215
329
1,544
(16,438)
The following is a summary of the amounts reclassified from accumulated other comprehensive loss to net income :
Fiscal Year Ended
(in thousands)
September 30, 2018
September 30, 2017
September 30, 2016
Amortization of defined benefit pension items:
Amortization of net loss (included within other income, net)
Tax expense
Net reclassifications for the period
$
$
343
$
(14)
329
$
1,303 $
(497)
806 $
722
(276)
446
83
The estimated net actuarial loss for pension benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost
over the next fiscal year is expected to be approximately $101 .
11. INVENTORIES, NET
A majority of the Company records inventory at the lower of cost or market (primarily last in, first out, or "LIFO"). Approximately 80% and 75% of the
Company's inventories are valued at the lower of LIFO cost or market at September 30, 2018 and September 30, 2017 , respectively.
(in thousands)
Purchased materials and manufactured parts, net
Work in process, net
Finished goods, net
Inventories, net
September 30, 2018
September 30, 2017
$
$
58,572 $
21,769
141,412
221,753 $
49,168
17,598
133,237
200,003
Total inventories would be $26,340 and $4,915 higher than reported as of September 30, 2018 and September 30, 2017 , respectively, if the first-in, first-
out method was used for all inventories. As of September 30, 2018 and September 30, 2017 , the excess and obsolete inventory reserve was $12,909 and $8,432 ,
respectively.
12. PROPERTY, PLANT AND EQUIPMENT
As of September 30, 2018 and September 30, 2017 , property, plant and equipment at cost and accumulated depreciation were as follows:
(in thousands)
Land
Buildings and related improvements
Machinery and equipment
Leasehold improvements
Software
Construction in progress
Property, plant and equipment
Accumulated depreciation
Property, plant and equipment, net
September 30, 2018
September 30, 2017
$
$
13,295 $
108,758
262,078
7,382
30,502
16,777
438,792
(225,684)
213,108 $
13,296
105,154
248,440
6,744
15,135
16,160
404,929
(196,310)
208,619
Depreciation expense for fiscal years ended September 30, 2018 , September 30, 2017 and September 30, 2016 totaled $34,786 , $32,320 and $32,779 ,
respectively.
84
13. GOODWILL AND INTANGIBLE ASSETS
Goodwill — C hanges in the carrying amount of goodwill are as follows:
(in thousands)
Balance as of September 30, 2016
Goodwill acquired during year
Exchange rate effects
Balance as of September 30, 2017
Goodwill divested during year
Goodwill acquired during year
Purchase price adjustments
Exchange rate effects
Balance as of September 30, 2018
Segment
Electrical Raceway
Mechanical Products &
Solutions
Total
$
$
$
76,640 $
31,477
410
108,527 $
—
813
24,527
(301)
39,189 $
— $
— $
39,189 $
(2,626)
—
—
—
133,566 $
36,563 $
115,829
31,477
410
147,716
(2,626)
813
24,527
(301)
170,129
Goodwill balances include $3,924 and $43,000 of accumulated impairment losses within the Electrical Raceway and MP&S segments, respectively, as of
September 30, 2018 and September 30, 2017.
Intangible Assets — The following table provides the gross carrying value, accumulated amortization, and net carrying value for each major class of
intangible assets:
(in thousands)
Amortizable Intangible Assets:
September 30, 2018
September 30, 2017
Weighted
Average Useful
Life (Years)
Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Customer relationships
11 $
330,295 $
(141,401) $
188,894 $
350,129 $
(118,273) $
231,856
Other
Total
Indefinite-lived Intangible Assets:
Trade names
Total
8
16,003
(5,861)
10,142
27,819
(9,266)
346,298
(147,262)
199,036
377,948
(127,539)
18,553
250,409
92,880
—
92,880
93,880
—
93,880
$
439,178 $
(147,262) $
291,916 $
471,828 $
(127,539) $
344,289
Amortization expense for the fiscal years ended September 30, 2018 , September 30, 2017 and September 30, 2016 was $32,104 , $22,407 and $22,238 ,
respectively. Expected amortization expense for intangible assets over the next five years and thereafter is as follows (in thousands) :
2019
2020
2021
2022
2023
2024 and thereafter
$
31,122
29,401
29,267
27,981
27,860
53,405
Actual amounts of amortization may differ from estimated amounts due to additional intangible asset acquisitions, changes in estimated useful lives,
impairment of intangible assets, and other events.
85
14. DEBT
Debt as of September 30, 2018 and September 30, 2017 was as follows:
(in thousands)
First Lien Term Loan Facility due December 22, 2023
ABL Credit Facility
Deferred financing costs
Other
Total debt
Less: Current portion (a)
Long-term debt
September 30, 2018
September 30, 2017
$
$
$
912,162 $
—
(8,194)
279
904,247 $
26,561
877,686 $
495,134
85,000
(4,496)
440
576,078
4,215
571,863
(a) Of the amount due within 2019 for the First Lien Term Loan Facility, $18,936 relates to an accelerated repayment of principal calculated by a formula based on 2018 excess cash flows and
a leverage ratio as defined within the Term Loan Agreement. No such accelerated payments are indicated for any of the periods beyond 2019.
As of September 30, 2018 , future contractual maturities of long-term debt are as follows (in thousands) :
2019 (a)
2020
2021
2022
2023
2024 and thereafter
$
$
28,136
9,200
9,200
9,200
9,200
848,164
Term Loan Facilities — On April 9, 2014, AII entered into a credit agreement (the " Initial Credit Agreement ") for a $420,000 First Lien Term Loan
Facility (the " Initial First Lien Term Loan Facility ") and a credit agreement for a $250,000 Second Lien Term Loan Facility (the " Second Lien Term Loan
Facility ." The Initial First Lien Term Loan Facility was priced at 99.50% and carried an interest rate of LIBOR plus 3.50% with a LIBOR floor of 1.00% . The
Second Lien Term Loan Facility was priced at 99.00% and carried an interest rate of LIBOR plus 6.75% with a LIBOR floor of 1.00% .
On January 22, 2016 , AII redeemed $17,000 of the Second Lien Term Loan Facility at a redemption price of 89.00% of the par value, and $2,000 at a
redemption price of 89.75% of the par value. For the fiscal year ended September 30, 2016, the Company recorded a gain on the extinguishment of debt of $1,661 .
On December 22, 2016 , AII entered into an amendment to the Initial Credit Agreement, which amended and restated the Initial Credit Agreement and
provided for a new $500,000 first lien term loan facility and extended the maturity of the initial Credit Agreement to December 22, 2023 (the " First Lien Term
Loan Facility "). Loans under the First Lien Term Loan Facility bear interest at either LIBOR plus an applicable margin equal to 3.00% or an alternate base rate
plus an applicable margin equal to 2.00% and are guaranteed by AIH and the United States operating companies owned by AII. The First Lien Term Loan Facility
amortizes at a rate of 1.00% per annum and was priced at 99.75% . AII used proceeds from the First Lien Term Loan Facility and approximately $155 million of
available cash to (i) repay all outstanding loans under the Initial First Lien Term Loan Facility and the Second Lien Term Loan Facility and (ii) pay related fees and
expenses, including accrued interest. For the fiscal year ended September 30, 2017 , the Company recorded a $9,805 loss on the extinguishment of the Initial First
Lien Term Loan Facility and the Second Lien Term Loan Facility.
86
On February 2, 2018 , AII entered into the (i) First Amendment to the Amended and Restated First Lien Credit Agreement, by and among AII, Deutsche Bank AG
New York Branch, as administrative agent and collateral agent, and the other financial institutions party thereto to, among other things, decrease the interest
margins applicable to the ABR Loans to 1.75% and Eurodollar Loans to 2.75% , and (ii) Increase Supplement (the "Increase Supplement") to, among other things,
incur incremental first lien secured term loans in aggregate principal amount of $425.0 million . The Company used the proceeds from the Increase Supplement to
1) repurchase approximately 17.2 million shares of common stock from the CD&R Investor for a total purchase price of approximately $375 million , 2) repay
$42.0 million of outstanding loans under the ABL Credit Facility and 3) pay $5.8 million in related fees and expenses. The revisions to the First Lien Term Loan
were accounted for as a debt modification, resulting in immediate expensing of related financing costs of $892 within other income, net on the consolidated
statements of operations for the year ended September 30, 2018.
The First Lien Term Loan Facility contains customary covenants typical for this type of financing, including limitations on indebtedness, restricted
payments including dividends, liens, restrictions on distributions from restricted subsidiaries, sales of assets, affiliate transactions, mergers and consolidations. The
First Lien Term Loan Facility also contains customary events of default typical for this type of financing, including, without limitation, failure to pay principal
and/or interest when due, failure to observe covenants, certain events of bankruptcy, the rendering of certain judgments, or the loss of any guarantee.
ABL Credit Facility — On December 22, 2016 , AII entered into the Fifth Amendment to Credit Agreement and Third Amendment to and
Reaffirmation of Guarantee and Collateral Agreement to amend its asset based credit facility (the " ABL Credit Facility "). The amendment, among other things,
extended the maturity of the facility to December 22, 2021 , decreased the interest rate margins applicable to loans under the facility to (i) 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 (ii) in the case of Canadian dollar-denominated loans, either (x) the BA 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% and decreased the fee payable with respect to unutilized availability
under the facility from 0.25% to 0.375% depending on the remaining availability under the facility.
The ABL Credit Facility has aggregate commitments of $325,000 and is guaranteed by AIH and the United States subsidiaries owned directly or
indirectly by AII. AII's availability under the ABL Credit Facility was $315,119 and $172,994 as of September 30, 2018 and September 30, 2017 , respectively.
Availability under the ABL Credit Facility is subject to a borrowing base equal to the sum of 85% of eligible accounts receivable plus the lesser of (i) 80% of
eligible inventory of each borrower and guarantor and (ii) 85% of the net orderly liquidation value of eligible inventory, subject to certain limitations. There were
$0 and $85 million of borrowings outstanding under the ABL Credit Facility as of September 30, 2018 and September 30, 2017 , respectively. The company paid a
fee of 0.50% on unutilized availability in fiscal 2016 and up until December 22, 2016, and a fee of 0.375% for the period from December 22, 2016 through
September 30, 2018.
The ABL Credit Facility contains customary representations and warranties and customary affirmative and negative covenants. Affirmative covenants
include, without limitation, the timely delivery of quarterly and annual financial statements, certifications to be made by AIH, AII and each of its restricted
subsidiaries, payment of obligations, maintenance of corporate existence and insurance, notices, compliance with environmental laws, and the grant of liens. The
negative covenants include, without limitation: limitations on indebtedness, dividends and distributions, investments, prepayments or redemptions of subordinated
indebtedness, amendments of subordinated indebtedness, transactions with affiliates, asset sales, mergers, consolidations and sales of all or substantially all assets,
liens, negative pledge clauses, changes in fiscal periods, changes in line of business and changes in charter documents. Additionally, if the availability under the
ABL Credit Facility falls below certain levels, AII would subsequently be required to maintain a minimum fixed charge coverage ratio. AII has not been subject to
the minimum fixed charge coverage ratio during any period subsequent to the establishment of the ABL Credit Facility.
The First Lien Term Loan Facility and the ABL Credit Facility are secured by all of the assets of the U.S. subsidiaries of the Company. The First Lien
Term Loan Facility has priority over all real property, plant and equipment, intellectual property and capital stock of any US subsidiary and any documents or
instruments evidencing 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.
15. FAIR VALUE MEASUREMENTS
Certain assets and liabilities are required to be recorded at fair value on a recurring basis.
87
The Company uses forward currency contracts to hedge the effects of foreign exchange relating to certain of the Company's intercompany receivables
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 six years. Short-term forward currency contracts are recorded in other current liabilities and long-term forward currency contracts are recorded
in other long-term liabilities in the consolidated balance sheets . The fair value gains and losses are included in other income, net within the consolidated statements
of operations . See Note 7, ''Other Income, net'' for further detail.
The total notional amounts of undesignated forward currency contracts were £ 49.1 million and £ 52.6 million as of September 30, 2018 and
September 30, 2017 , respectively. There were no undesignated forward currency contracts as of September 30, 2016 . Cash flows associated with derivative
financial instruments are recognized in the operating section of the 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 recurring assets and liabilities measured at fair value as of September 30, 2018 and September 30, 2017 in accordance
with the fair value hierarchy:
(in thousands)
Assets
Cash equivalents
Liabilities
September 30, 2018
September 30, 2017
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
$
28,175 $
— $
— $
571 $
— $
Forward currency contracts
— $
1,857
—
— $
2,936
—
—
In addition to the recurring assets and liabilities measured at fair value, the Company has a contingent consideration liability of $650 measured at fair
value related to the Cii acquisition, which will be settled in the second quarter of fiscal 2019. The liability is valued using significant unobservable inputs (Level 3)
based on the probability of achievement of first year earnings post acquisition. See Note 2, ''Acquisitions.'' for further detail.
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 consolidated balance sheets were as follows:
(in thousands)
First Lien Term Loan Facility due December 22, 2023
Total debt
September 30, 2018
September 30, 2017
Carrying
Value
Fair Value
Carrying
Value
$
$
913,100 $
916,113 $
496,250 $
913,100 $
916,113 $
496,250 $
Fair Value
498,979
498,979
In determining the approximate fair value of its long-term debt, the Company used the trading value among financial institutions, which were classified
within Level 2 of the fair value hierarchy. The carrying value of the ABL Credit Facility approximates fair value due to it being market-linked variable rate debt.
16. COMMITMENTS AND CONTINGENCIES
The Company has obligations related to commitments to purchase certain goods. As of September 30, 2018 , such obligations were $100,649 for fiscal
2019 , $330 for fiscal 2020 and $46 thereafter. These amounts represent open purchase orders for materials used in production.
The Company leases certain facilities and equipment under operating leases. Total rental expense on all operating leases was $17,403 , $12,941 and
$11,934 in fiscal 2018 , 2017 , and 2016 , respectively. At September 30, 2018 , minimum future operating lease payments for leases with terms in excess of one
year are presented in the table below as follows (in thousands):
88
2019
2020
2021
2022
2023
2024 and thereafter
Total
$
$
11,069
8,226
6,580
4,886
4,254
9,988
45,003
Insurable Liabilities — The Company maintains policies with various insurance companies for its workers' compensation, product, property, general,
auto, and executive liability risks. The insurance policies that the Company maintains have various retention levels and excess coverage limits. The establishment
and update of liabilities for unpaid claims, including claims incurred but not reported, is based on management's estimate as a result of the assessment by the
Company's claim administrator of each claim and an independent actuarial valuation of the nature and severity of total claims. The Company utilizes a third-party
claims administrator to pay claims, track and evaluate actual claims experience, and ensure consistency in the data used in the actuarial valuation.
Legal Contingencies — The Company is a defendant in 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 $6,755 and $5,872 as of September 30, 2018 and September 30, 2017 , respectively. As of September 30,
2018 , the Company believes that the range of probable losses for Special Products Claims and other product liabilities is between $3,000 and $10,000 .
After September 30, 2018, 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 million , as opposed to the $13
million cap negotiated within the original indemnity agreement. Tyco and the Company are examining the Company's total Special Products Claim payments
which are nearly $12 million with the aforementioned settlement payment and as of September 30, 2018, the Company believes that it has recorded $12 million of
cumulative expense related to these Special Products Claims. From and after the point where the Company has spent $12 million on Special Products Claims,
Tyco, now JCI, has a contractual obligation to indemnify the Company in respect of claims of incompatibility between the Company's antimicrobial coated steel
sprinkler pipe and CPVC pipe used in the same sprinkler system.
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.
89
During fiscal 2017, the U.S. Department of Commerce ruled on a scope request in relation to an Antidumping Duty Order for Malleable Iron Pipe Fittings
from China. The ruling subjects certain of the Company's imports of conduit fittings within the Atkore Steel Components Inc. ("ASCI") business (acquired in
November 2014) to antidumping duties, which are incremental to the duties previously paid upon importation. The Company appealed the scope decision and
established an accrual of $7,501 during the second quarter of fiscal 2017 for the related contingent liability with the related expense recorded in selling, general and
administrative expenses in the Company's consolidated statements of operations which covers the post-acquisition period through the date of the scope ruling. On
appeal, the Court of International Trade ordered the U.S. Department of Commerce to re-examine certain aspects of its prior scope ruling, and after doing so, the
Department filed an amended scope ruling for the Court of International Trade’s consideration. The amended scope ruling finds the ASCI products at issue in the
matter to be outside the scope of the aforesaid Antidumping Duty Order. On August 3, 2018, the Court of International Trade sustained the U.S. Department of
Commerce’s new scope determination and entered judgment thereupon. The U.S. Department of Commerce did not appeal the ruling by the Court of International
Trade by the October 2, 2018, deadline and the Company has reversed $7,171 of the related accrual established during the second quarter of fiscal 2017.
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.
17. GUARANTEES
The Company has outstanding letters of credit totaling $9.9 million supporting workers' compensation and general liability insurance policies and surety
bonds primarily related to performance guarantees on supply agreements and construction contracts, and payment of duties and taxes totaling $25.3 million as of
September 30, 2018 .
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.
18. RELATED PARTY TRANSACTIONS
In December 2010, the CD&R Investor acquired a majority stake in the Company (the "CD&R Acquisition"). In connection with the CD&R Acquisition,
the Company, AIH and AII entered into a consulting agreement (the "Consulting Agreement") with CD&R. The fees related to the Consulting Agreement were
paid quarterly, in advance and recorded as a component of selling, general and administrative expenses in the Company's consolidated statement of operations. In
connection with the IPO on June 15, 2016, the Company entered into an agreement with CD&R to terminate the Consulting Agreement, including the ongoing
consulting fees and paid CD&R a fee of $12,800 . The consulting and termination fees were $15,425 for the fiscal year ended September 30, 2016.
On January 22, 2018, the Company announced a stock repurchase transaction whereby the Company agreed to repurchase from the CD&R Investor, a
related party, approximately 17.2 million shares of the Company's common stock, par value $0.01 per share, at a per share price equal to $21.77 , for a total
purchase price of $375 million , subject to the terms and conditions set forth in the stock purchase agreement. Following the stock repurchase transaction in
January 2018 and secondary offerings of the Company's common stock in February 2018 and May 2018, the CD&R Investor no longer owned any of the
company's common stock as of September 30, 2018 .
90
Prior to the CD&R Investor selling all of its remaining shares of the Company in May 2018, transactions between the Company, CD&R and affiliates of
CD&R were considered to be between related parties. In addition to the consulting fees referenced above, affiliates of CD&R own equity positions in one of the
Company's customers. Net sales during fiscal 2018 and 2017 to this customer were $6.0 and $8.3 million , respectively. There were no related party transactions
during fiscal 2016 .
19. SEGMENT INFORMATION
The Company has two operating segments, which are also its reportable segments. The Company's operating segments are organized based upon primary
market channels and, in most instances, the end use of products.
Through its Electrical Raceway segment, the Company manufactures products that deploy, isolate and protect a structure's electrical circuitry from the
original power source to the final outlet. These products, which include electrical conduit, armored cable, cable trays, mounting systems and fittings, are critical
components of the electrical infrastructure for maintenance, repair and remodel markets. The vast majority of the Company's Electrical Raceway net sales are made
to electrical distributors, who then serve electrical contractors and the Company considers both to be customers.
Through the MP&S segment, the Company provides products and services that frame, support and secure component parts in a broad range of structures,
equipment and systems in electrical, industrial and construction applications. The Company's principal products in this segment are metal framing products and in-
line galvanized mechanical tube. Through its metal framing business, the Company designs, manufactures and installs metal strut and fittings used to assemble
mounting structures that support heavy equipment and electrical content in buildings and other structures.
Both segments use Adjusted EBITDA as the primary measure of profit and loss. Segment Adjusted EBITDA is the sum of income (loss) from operations
before income taxes, adjusted to exclude unallocated expenses, depreciation and amortization, interest expense, net, gain (loss) on extinguishment of debt,
restructuring and impairments, stock-based compensation, certain legal matters, consulting fees, transaction costs, gain on sale of joint venture and other items,
such as inventory reserves and adjustments, release of indemnified uncertain tax positions, the impact of foreign exchange gains or losses and the impact from the
Fence and Sprinkler exit. Prior to fiscal 2017, income (loss) before income taxes was also adjusted to exclude net periodic pension benefit cost and routine Special
Products Claims . Beginning in fiscal 2017, these costs are no longer excluded. Prior fiscal years have not been revised for this change due to the relative
insignificance and nature of these amounts.
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
MP&S segment. We allocate 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.
September 30, 2018
Fiscal year ended
September 30, 2017
September 30, 2016
(in thousands)
Electrical Raceway
MP&S
Eliminations
External Net
Sales
Inter-
segment Sales
Adjusted
EBITDA
External Net
Sales
Inter-
segment
Sales
Adjusted
EBITDA
External Net
Sales
Inter-
segment
Sales
Adjusted
EBITDA
$
1,365,067 $
1,544 $
255,260 $
1,093,500 $
1,283 $
189,351 $ 1,066,711 $
1,919 $ 181,939
470,072
81 $
51,339
410,434
98 $
63,687
456,673
148 $
81,199
—
(1,625)
—
(1,381)
—
(2,067)
Consolidated operations $
1,835,139 $
—
$
1,503,934 $
—
$ 1,523,384 $
—
91
(in thousands)
September 30, 2018 September 30, 2017 September 30, 2016
Capital Expenditures
September 30,
2018
Total Assets
September 30,
2017
16,389 $
14,267
7,845
13,037 $
9,161 $
751,024 $
757,775 $
8,212
3,873
6,130
1,539
291,164
281,872
306,229
151,088
September 30,
2016
566,250
343,002
255,316
Electrical Raceway
MP&S
Unallocated
Consolidated
operations
$
$
38,501 $
25,122 $
16,830 $
1,324,060 $
1,215,092 $
1,164,568
Presented below is a reconciliation of operating segment Adjusted EBITDA to Income before income taxes :
(in thousands)
Operating segment Adjusted EBITDA
Electrical Raceway
MP&S
Total
Unallocated expenses (a)
Depreciation and amortization
Interest expense, net
Gain (loss) on extinguishment of debt
Restructuring & impairments
Net periodic pension benefit cost
Stock-based compensation
Special products claims impact
Certain legal matters
Consulting fees
Transaction costs
Gain on sale of a business
Gain on sale of joint venture
Other (b)
Impact of Fence and Sprinkler exit
Income before income taxes
September 30, 2018
September 30, 2017
September 30, 2016
Fiscal Year Ended
$
$
255,260 $
51,339
306,599
$
189,351 $
63,687
253,038 $
(35,050)
(66,890)
(40,694)
—
(1,849)
—
(14,664)
—
4,833
—
(9,314)
27,575
—
(4,194)
—
(25,430)
(54,727)
(26,598)
(9,805)
(1,256)
—
(12,788)
—
(7,551)
—
(4,779)
—
5,774
10,247
—
$
166,352 $
126,125 $
181,939
81,199
263,138
(28,136)
(55,017)
(41,798)
1,661
(4,096)
(441)
(21,127)
(850)
(1,382)
(15,425)
(7,832)
—
—
(1,103)
(811)
86,781
(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, release of indemnified uncertain tax positions and the impact of foreign exchange gains or losses.
The Company's long-lived assets and net sales by geography were as follows:
(in thousands)
United States
Other Americas
Europe
Asia-Pacific
Total
Long-lived assets
Net sales
September 30,
2018
September 30,
2017
September 30,
2016
September 30,
2018
September 30,
2017
September 30,
2016
$
201,101 $
202,823 $
204,640 $
1,651,636 $
1,367,907 $
1,395,750
138
11,090
2,386
164
9,306
3,378
175
1,295
3,826
43,013
90,915
49,575
37,908
55,181
42,938
40,573
40,246
46,815
$
214,715 $
215,671 $
209,936 $
1,835,139 $
1,503,934 $
1,523,384
92
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 any of the last three fiscal years:
(in thousands)
Metal Electrical Conduit and Fittings
Armored Cable and Fittings
PVC Electrical Conduit & Fittings
Other raceway products
Electrical Raceway
Mechanical Pipe
Other MP&S products
Impact of Fence and Sprinkler
MP&S
Net sales
Risks and Concentrations
September 30, 2018
September 30, 2017
September 30, 2016
Fiscal Year Ended
$
517,935 $
349,239 $
336,388
311,811
198,933
1,365,067
253,381
216,691
—
470,072
323,070
265,389
155,802
1,093,500
211,245
199,189
—
410,434
331,526
318,279
258,954
157,952
1,066,711
249,473
199,384
7,816
456,673
$
1,835,139 $
1,503,934 $
1,523,384
Concentration of Credit Risk — The Company extends credit to various customers in the retail and construction industries. Collection of trade receivables
may be affected by changes in economic or other industry conditions and may, accordingly, impact the Company's overall credit risk. Although the Company
generally does not require collateral, the Company performs ongoing credit evaluations of customers and maintains reserves for potential credit losses. As of
September 30, 2018, one customer, Sonepar Management US, Inc., represented 11% of the Company's accounts receivable balance due to increased sales in the
last 60 days of the year. As of November 28, 2018, all amounts outstanding as of September 30, 2018, that are due to be paid from Sonepar Management US, Inc.,
have been received. In fiscal 2017 and 2016, no single customer accounted for more than 10% of sales or accounts receivable.
Concentration of Employees — As of September 30, 2018 , approximately 26% of the Company's employees were represented by a union under a
collective bargaining agreement. All unions are either located in the United States or Canada with no unions or Worker's Councils at any of the other locations
abroad. Our Harvey, Illinois Special Metal Processing Facility agreement with the United Steelworkers Union, involving a bargaining unit of 12 employees,
expired on November 11, 2018. We anticipate that the new collective bargaining agreement will be ratified by the union members within calendar 2018. Our
Harvey Illinois collective bargaining agreement with the United Steelworkers, involving nearly 400 represented employees, does not expire until April 2020. The
Company believes its relationship with their employees is good.
93
20. QUARTERLY OPERATING RESULTS (UNAUDITED)
The following table presents unaudited selected quarterly financial data for the years ended September 30, 2018 and September 30, 2017 . The operating
results for any quarter are not necessarily indicative of the results of any future period.
(in thousands, except per share
data)
Net sales
Gross profit
Net income
Net income per share
Basic (6)
Diluted (6)
December 29,
2017
(3)
414,558 $
$
March 30, 2018
(4)
445,000 $
June 29, 2018
498,014 $
Three Months Ended
September 30,
2018
(5)
477,567 $
December 30,
2016 As
Adjusted **
(1)
337,591 $
March 31,
2017 As
Adjusted **
(2)
372,791 $
June 30, 2017
As Adjusted **
397,745 $
September 30,
2017 As
Adjusted **
395,807
96,867
27,189
109,157
120,329
42,558
34,199
111,731
32,699
91,665
17,382
87,609
18,935
92,485
27,465
89,513
20,857
$
0.43 $
0.83 $
0.41
0.79
0.73 $
0.70
0.69 $
0.66
0.28 $
0.26
0.30 $
0.28
0.43 $
0.41
0.33
0.31
** As adjusted due to the adoption of ASU 2017-07. See Note 1, ''Basis of Presentation and Summary of Significant Accounting Policies'' for additional information.
(1) Includes a $9,805 loss on the extinguishment of the Initial First Lien Term Loan Facility and the Second Lien Term Loan Facility. See Note 14, "Debt."
(2) Includes $5,774 pre-tax gain on sale of Abahsain-Cope Saudi Arabia Ltd joint venture and $7,501 pre-tax expense related to the Antidumping Duty Order for Malleable Iron Pipe
Fittings. See Note 16, "Commitments and contingencies" for additional information
(3) Includes a $4,758 benefit due to the re-measurement of deferred tax liabilities as a result of the TCJA. See Note 8, "Income taxes" for additional information.
(4) Includes $26,737 pre-tax gain on the sale of Flexhead. The Company recorded an additional working capital adjustment to the assets sold, which increased the gain by $838, in the
quarter ending June 29, 2018. See Note 3, "Divestitures" for additional information.
(5) Includes $7,171 pre- tax reversal of expense related to the Antidumping Duty Order for Malleable Iron Pipe Fittings. See Note 16, Commitments and contingencies" for additional
information.
(6) The sum of the quarters may not equal the total of the respective year's earnings per share due to changes in the weighted average shares outstanding throughout the year.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our President and CEO, William E. Waltz , and our Vice President and CFO, David P. Johnson , have evaluated our disclosure controls and procedures
(as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K as required by
Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act. Messrs. Waltz and Johnson have concluded that both the design and operation of our disclosure
controls and procedures were effective as of September 30, 2018 .
Changes in Internal Control over Financial Reporting
No changes in the Company's internal control over financial reporting, as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act, occurred
during the fourth quarter of fiscal 2018 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial
reporting.
Management's Report on Internal Control over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal controls over financial reporting. The Company's internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair
presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide
only reasonable assurance with respect to financial statement preparation and presentation.
94
The Company's management assessed, under the supervision and with the participation of our President and CEO, William E. Waltz , and our Vice
President and CFO, David P. Johnson , the effectiveness of the Company's internal control over financial reporting as of September 30, 2018 . In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated
Framework (2013). Based on this assessment, management concluded that, as of September 30, 2018 , the Company's internal control over financial reporting is
effective based on those criteria.
The Company's independent registered public accounting firm, Deloitte and Touche LLP, has issued an audit report on the Company's internal control
over financial reporting for fiscal 2018 .
95
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Atkore International Group Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Atkore International Group Inc. and subsidiaries (the “Company”) as of September 30, 2018, based
on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2018, based on
criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial
statements and financial statement schedules as of and for the year ended September 30, 2018, of the Company and our report dated November 28, 2018, expressed
an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express
an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
[ Signature ]
Chicago, Illinois
November 28, 2018
96
Item 9B. Other Information
None.
97
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this Item for Atkore will be set forth in Atkore's Proxy Statement for the 2019 Annual Meeting of Stockholders, which
information is hereby incorporated by reference. Atkore has omitted the information required by this Item pursuant to General Instruction I to the Form 10-K.
Item 11. Executive Compensation
The information required by this Item for Atkore will be set forth in Atkore's Proxy Statement for the 2019 Annual Meeting of Stockholders, which
information is hereby incorporated by reference. Atkore has omitted the information required by this Item pursuant to General Instruction I to the Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item for Atkore will be set forth in Atkore's Proxy Statement for the 2019 Annual Meeting of Stockholders, which
information is hereby incorporated by reference. Atkore has omitted the information required by this Item pursuant to General Instruction I to the Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item for Atkore will be set forth in Atkore's Proxy Statement for the 2019 Annual Meeting of Stockholders, which
information is hereby incorporated by reference. Atkore has omitted the information required by this Item pursuant to General Instruction I to the Form 10-K.
Item 14. Principal Accounting Fees and Services
The information required by this Item for Atkore will be set forth in Atkore's Proxy Statement for the 2019 Annual Meeting of Stockholders, which
information is hereby incorporated by reference. Atkore has omitted the information required by this Item pursuant to General Instruction I to the Form 10-K.
98
Item 15. Exhibits and Financial Statement Schedules
(a). Financial Statements, Schedules and Exhibits.
1 . Financial Statements
PART IV
Report of Independent Registered Public Accounting Firm contained in Item 8 of this Annual Report on Form 10-K.
Consolidated Statements Of Operations for the years ended September 30, 2018, September 30, 2017, and September 30, 2016 contained in Item 8 of
this Annual Report on Form 10-K.
Consolidated Statements of Comprehensive Income for the years ended September 30, 2018, September 30, 2017, and September 30, 2016 contained
in Item 8 of this Annual Report on Form 10-K.
Consolidated Balance Sheets for the years ended September 30, 2018, and September 30, 2017 contained in Item 8 of this Annual Report on Form
10-K.
Consolidated Statements of Cash Flows for the years ended September 30, 2018, September 30, 2017, and September 30, 2016 contained in Item 8 of
this Annual Report on Form 10-K.
Consolidated Statements of Shareholders' Equity for the three year period ended September 30, 2018 contained in Item 8 of this Annual Report on
Form 10-K.
Notes to the Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.
54
55
56
57
58
60
61
2 . Financial Statements Schedules
The following information is filed as part of this Annual Report on Form 10-K and should be read in conjunction with the financial statements contained
in Item 8 of this Annual Report on Form 10-K:
Schedule I-Atkore International Group Inc. (Parent) Condensed Financial Information
Schedule II-Valuation and Qualifying Accounts
3. Exhibits
106
110
100
The exhibits filed with this report are listed on the Exhibit Index. Entries marked by the symbol † next to the exhibit's number identify management
compensatory plans, contracts or arrangements.
Item 16. Form 10-K Summary
None.
99
Exhibit Number
Exhibit Index
Exhibit Description
3.1
3.2
4.1
10.1
10.1.1
10.1.2
10.1.3
10.1.4
10.1.5
10.1.6
10.2
Second Amended and Restated Certificate of Incorporation of Atkore International Group Inc., incorporated by reference to Exhibit 3.1 to
Atkore International Group Inc.’s Registration Statement on Form S-8 filed on June 15, 2016.
Second Amended and Restated By-Laws of Atkore International Group Inc., incorporated by reference to Exhibit 3.2 to Atkore International
Group Inc.’s Registration Statement on Form S-8 filed on June 15, 2016.
Form of Common Stock Certificate of Atkore International Group Inc., incorporated by reference to Exhibit 4.1 to Atkore International
Group Inc.’s Registration Statement on Form S-1 filed on May 5, 2016.
Credit Agreement, dated as of December 22, 2010, among Atkore International, Inc., the subsidiary borrowers from time to time party
thereto, the several banks and other financial institutions from time to time party thereto, UBS AG, Stamford Branch, as an issuing lender, as
administrative agent for the lenders thereunder and as collateral agent for the Secured Parties and the Issuing Lenders, Deutsche Bank AG
New York Branch, as co-collateral agent and UBS Loan Finance LLC, as swingline lender, incorporated by reference to Exhibit 10.6 to
AIH’s Registration Statement on Form S-4 filed on August 12, 2011.
First Amendment to Credit Agreement, dated as of February 3, 2011, among Atkore International, Inc., the subsidiary borrowers, the several
banks and other financial institutions from time to time parties thereto, UBS AG, Stamford Branch, as an issuing lender, as administrative
agent for the lenders and as collateral agent for the secured parties, DeutscheBank AG New York Branch, as co-collateral agent, and UBS
Loan Finance LLC, as Swingline Lender, incorporated by reference to Exhibit 10.1.1 to Atkore International Group Inc.’s Registration
Statement on Form S-1 filed on April 15, 2016.
Second Amendment to Credit Agreement and First Amendment to and Reaffirmation of Guarantee and Collateral Agreement, dated as of
October 23, 2013, among Atkore International, Inc., the subsidiary borrowers, the several banks and other financial institutions from time to
time parties thereto, UBS AG, Stamford Branch, as an issuing lender, as administrative agent for the Lenders and as collateral agent for the
secured parties, DeutscheBank AG New York Branch, as co-collateral agent, and UBS Loan Finance LLC, as Swingline Lender,
incorporated by reference to Exhibit 10.1.2 to Atkore International Group Inc.’s Registration Statement on Form S-1 filed on April 15, 2016.
Third Amendment to Credit Agreement, dated as of April 9, 2014, among Atkore International, Inc., the Persons party thereto and identified
on the signature pages as a guarantor, the several banks and other financial institutions from time to time parties thereto, UBS AG, Stamford
Branch, as an issuing lender, as administrative agent for the Lenders and as collateral agent for the secured parties, and Deutsche Bank AG
New York Branch, as co-collateral agent, incorporated by reference to Exhibit 10.1.3 to Atkore International Group Inc.’s Registration
Statement on Form S-1 filed on April 15, 2016.
Additional Lender Joinder Agreement, dated as of December 17, 2014, by and among PNC Bank, National Association, The Huntington
National Bank, Citizens Bank, National Association and JPMorgan Chase Bank, N.A., Atkore International, Inc., the subsidiary borrowers
from time to time party to the Credit Agreement and UBS AG, Stamford Branch, as administrative agent, incorporated by reference to
Exhibit 10.1.4 to Atkore International Group Inc.’s Registration Statement on Form S-1 filed on April 15, 2016.
Fourth Amendment to Credit Agreement, dated as of November 12, 2015, among Atkore International, Inc., the several banks and other
financial institutions from time to time parties thereto, UBS AG, Stamford Branch, as an issuing lender, as administrative agent for the
lenders and as collateral agent for the secured parties, and Deutsche Bank AG New York Branch, as co-collateral agent, incorporated by
reference to Exhibit 10.1.5 to Atkore International Group Inc.’s Registration Statement on Form S-1 filed on April 15, 2016.
Fifth Amendment to Credit Agreement and Third Amendment to and Reaffirmation of Guarantee and Collateral Agreement, dated as of
December 22, 2016, among Atkore International, Inc., the several banks and other financial institutions from time to time parties thereto,
UBS AG, Stamford Branch, as administrative agent for the lenders and as collateral agent for the secured parties, the other loan parties party
thereto and the several banks and other financial institutions party thereto, incorporated by reference to Exhibit 10.1 to Atkore International
Group Inc.’s Current Report on Form 8-K filed on December 22, 2016.
First Lien Credit Agreement, dated as of April 9, 2014, among Atkore International, Inc., the several banks and other financial institutions
from time to time party thereto, and Deutsche Bank AG New York Branch, as administrative agent for the lenders thereunder and as
collateral agent for the secured parties, incorporated by reference to Exhibit 10.2 to Atkore International Group Inc.’s Registration Statement
on Form S-1 filed on April 15, 2016.
100
10.2.1
10.2.2
10.2.3
10.2.4
10.3
10.4
10.5
10.5.1
10.6†
10.7†
10.8†
10.9†
10.10†
10.11†
Amendment No. 1 to First Lien Credit Agreement, dated as of October 14, 2015, among Atkore International, Inc. and Deutsche Bank AG
New York Branch, as administrative agent, incorporated by reference to Exhibit 10.2.1 to Atkore International Group Inc.’s Registration
Statement on Form S-1 filed on April 15, 2016.
Second Amendment to First Lien Credit Agreement and First Amendment to and Reaffirmation of Guarantee and Collateral Agreement,
dated as of December 22, 2016, among Atkore International, Inc., Deutsche Bank AG New York Branch, as administrative agent, the other
loan parties party thereto and the several banks and other financial institutions party thereto, incorporated by reference to Exhibit 10.1 to
Atkore International Group Inc.’s Current Report on Form 8-K filed on December 22, 2016.
First Amendment to Amended and Restated First Lien Credit Agreement, dated as of February 2, 2018 among Atkore International, Inc., a
Delaware corporation, Deutsche Bank AG New York Branch, as administrative agent and collateral agent, and the Lenders and other
financial institutions party thereto, incorporated by reference to Exhibit 10.1 to Atkore International Group Inc.'s Current Report on Form 8-
K filed on February 5, 2018.
Increase Supplement, dated as of February 2, 2018, to the Amended and Restated First Lien Credit Agreement, dated as of December 22,
2016 (as amended by the First Amendment to Amended and Restated First Lien Credit Agreement, dated as of February 2, 2018, and as
further amended, supplemented, waived or otherwise modified from time to time), among Atkore International, Inc., a Delaware corporation,
the several banks and other financial institutions from time to time parties thereto, and Deutsche Bank AG New York Branch, as
administrative agent and collateral agent, incorporated by reference to Exhibit 10.2 to Atkore International Group Inc.'s Current Report on
Form 8-K filed on February 5, 2018.
Guarantee and Collateral Agreement, dated as of December 22, 2010 made by Atkore International Holdings Inc., Atkore International, Inc.
and certain subsidiary borrowers, in favor of UBS AG, Stamford Branch, as collateral agent and administrative agent for the banks and other
financial institutions from time to time parties to the Credit Agreement, incorporated by reference to Exhibit 10.7 to AIH’s Registration
Statement on Form S-4 filed on August 12, 2011.
First Lien Guarantee and Collateral Agreement, dated as of April 9, 2014, made by Atkore International Holdings Inc., Atkore International,
Inc., and certain subsidiaries of Atkore International, Inc. from time to time party thereto, in favor of Deutsche Bank AG New York Branch,
as collateral agent and administrative agent for the banks and other financial institutions from time to time parties to the First Lien Credit
Agreement, incorporated by reference to Exhibit 10.5 to Atkore International Group Inc.’s Registration Statement on Form S-1 filed on April
15, 2016.
Intercreditor Agreement, dated as of December 22, 2010, between UBS AG, Stamford Branch, in its capacity as collateral agent for the ABL
Credit Agreement lenders and Wilmington Trust FSB, in its capacity as collateral agent for the Noteholder Secured Parties, incorporated by
reference to Exhibit 10.9 to AIH’s Registration Statement on Form S-4 filed on August 12, 2011.
First Amendment and Waiver, dated as of April 9, 2014, to the Intercreditor Agreement, dated as of December 22, 2010, among UBS AG,
Stamford Branch, in its capacity as ABL Agent and Deutsche Bank AG New York Branch, in its capacity as Note Agent, incorporated by
reference to Exhibit 10.7.1 to Atkore International Group Inc.’s Registration Statement on Form S-1 filed on April 15, 2016.
Employment Agreement, dated as of May 23, 2011, by and between John Williamson, Atkore International, Inc. and Atkore International
Group Inc., incorporated by reference to Exhibit 10.12 to AIH’s Registration Statement on Form S-4 filed on June 3, 2011.
Offer Letter, dated December 7, 2011, by and between Atkore International, Inc. and Kevin P. Fitzpatrick, incorporated by reference to
Exhibit 10.22 to AIH’s Annual Report on Form 10-K for the year ended September 28, 2012.
Offer Letter, dated as of February 17, 2012, by and between Atkore International, Inc. and James A. Mallak, incorporated by reference to
Exhibit 10.1 to AIH’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2012.
Severance Agreement, dated November 17, 2014, by and between Atkore International, Inc. and Kevin P. Fitzpatrick, incorporated by
reference to Exhibit 10.15 to Atkore International Group Inc.’s Registration Statement on Form S-1 filed on April 15, 2016.
Severance Agreement, dated November 17, 2014, by and between Atkore International, Inc. and James A. Mallak, incorporated by reference
to Exhibit 10.16 to Atkore International Group Inc.’s Registration Statement on Form S-1 filed on April 15, 2016.
Severance Policy, dated May 9, 2012, incorporated by reference to Exhibit 10.21 to AIH’s Annual Report on Form 10-K for the year ended
September 23, 2012.
101
10.12†
10.13†
10.14†
10.15†
Atkore International Group Inc. Stock Incentive Plan, incorporated by reference to Exhibit 10.15 to AIH’s Registration Statement on Form S-
4 filed on June 3, 2011.
Form of Employee Stock Option Agreement, incorporated by reference to Exhibit 10.16 to AIH’s Registration Statement on Form S-4 filed
on June 3, 2011.
Form of Employee Stock Subscription Agreement (Purchased Shares), incorporated by reference to Exhibit 10.17 to AIH’s Registration
Statement on Form S-4 filed on June 3, 2011.
Form of Director Indemnification Agreement, incorporated by reference to Exhibit 10.25 to Atkore International Group Inc.’s Registration
Statement on Form S-1 filed on May 5, 2016.
10.15.1*
Schedule of Signatories to a Director Indemnification Agreement.
10.16†
10.17†
10.17.1†
10.17.2†
10.18†
10.19†
10.20
10.21
10.22
10.23
10.24†
10.25†
10.26†
10.27†
Atkore International Group Inc. Annual Incentive Plan, incorporated by reference to Exhibit 10.26 to Atkore International Group Inc.’s
Registration Statement on Form S-1 filed on May 5, 2016.
Atkore International Group Inc. 2016 Omnibus Incentive Plan, incorporated by reference to Exhibit 10.27 to Atkore International Group
Inc.’s Registration Statement on Form S-1 filed on May 31, 2016.
Form of Employee Stock Option Agreement under the 2016 Omnibus Incentive Plan, incorporated by reference to Exhibit 10.28.1 to Atkore
International Group Inc.’s Registration Statement on Form S-1 filed on May 5, 2016.
Form of Employee Restricted Stock Agreement under the 2016 Omnibus Incentive Plan, incorporated by reference to Exhibit 10.28.2 to
Atkore International Group Inc.’s Registration Statement on Form S-1 filed on May 5, 2016.
Atkore International Group Inc. Non-Employee Director Compensation Program, incorporated by reference to Exhibit 10.29 to Atkore
International Group Inc.’s Registration Statement on Form S-1 filed on May 5, 2016.
Form of Director Restricted Stock Unit Agreement under the 2016 Omnibus Equity Incentive Plan, incorporated by reference to Exhibit
10.30 to Atkore International Group Inc.’s Registration Statement on Form S-1 filed on May 5, 2016.
Indemnification Agreement, dated as of December 22, 2010 among Atkore International Group Inc., Atkore International Holdings Inc.,
Atkore International Inc., CD&R Allied Holdings, L.P., Clayton, Dubilier & Rice Fund VIII, L.P., CD&R Friends & Family Fund VIII, L.P.,
CD&R Allied Advisor Co-Investor, L.P., Clayton, Dubilier & Rice, Inc. and Clayton, Dubilier & Rice, LLC, incorporated by reference to
Exhibit 10.4 to AIH’s Registration Statement on Form S-4 filed on June 3, 2011.
Indemnification Agreement, dated as of December 22, 2010 among Atkore International Group Inc., Atkore International Holdings Inc.,
Atkore International Inc., Tyco International Ltd., Tyco International Holding S.à.r.l. and Tyco International Management Company, LLC,
incorporated by reference to Exhibit 10.5 to AIH’s Registration Statement on Form S-4 filed on June 3, 2011.
Stockholders Agreement, dated as of June 10, 2016, by and among Atkore International Group Inc. and CD&R Allied Holdings, L.P.,
incorporated by reference to Exhibit 10.1 to Atkore International Group Inc.’s Quarterly Report on Form 10-Q filed on August 2, 2016.
Registration Rights Agreement, dated as of June 9, 2016, by and among Atkore International Group Inc. and CD&R Allied Holdings, L.P.,
incorporated by reference to Exhibit 10.2 to Atkore International Group Inc.’s Quarterly Report on Form 10-Q filed on August 2, 2016.
Form of Employee Stock Option Agreement under the Omnibus Incentive Plan, incorporated by reference to Exhibit 10.3 to Atkore
International Group Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2016, as amended.
Form of Employee Restricted Stock Agreement under the Omnibus Incentive Plan, incorporated by reference to Exhibit 10.4 to Atkore
International Group Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2016, as amended.
Form of Employee Performance Share Agreement under the Omnibus Incentive Plan, incorporated by reference to Exhibit 10.5 to Atkore
International Group Inc.’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2016, as amended.
Severance and Retention Policy for Senior Management, effective July 10, 2017, incorporated by reference to Exhibit 10.1 to Atkore
International Group Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.
102
10.28
10.29
10.30
10.31
10.32
10.32.1
21.1*
23.1*
31.1*
31.2*
32.1*
32.2*
Stock Purchase Agreement, dated January 19, 2018, by and among Atkore International Group Inc. and CD&R Allied Holdings, L.P.,
incorporated by reference to Exhibit 10.1 to Atkore International Group Inc.’s Current Report on Form 8-K filed on January 22, 2018.
Commitment Letter, dated January 19, 2018, by and among Atkore International Group Inc., Deutsche Bank AG New York Branch and
Deutsche Bank Securities Inc. incorporated by reference to Exhibit 10.2 to Atkore International Group Inc.’s Current Report on Form 8-K
filed on January 22, 2018.
Letter Agreement, dated as of January 24, 2018, by and among Atkore International, Inc., Deutsche Bank AG New York Branch, Deutsche
Bank Securities, Inc., JPMorgan Chase Bank, N.A., UBS Securities LLC and UBS AG, Stamford Branch, incorporated by reference to
Exhibit 10.1 to Atkore International Group Inc.’s Current Report on Form 8-K filed on January 24, 2018.
Letter Agreement, dated May 4, 2018, by and among William Waltz, Atkore International Inc. and Atkore International Group Inc.,
incorporated by reference to Exhibit 10.1 to Atkore International Group Inc.’s Quarterly Report on Form 10-Q filed on August 7, 2018.
Retirement Agreement, dated May 6, 2018, by and among John Williamson, Atkore International, Inc.and Atkore International Group Inc.,
incorporated by reference to Exhibit 10.2 to Atkore International Group Inc.’s Quarterly Report on Form 10-Q filed on August 7, 2018.
First Amendment to Retirement Agreement, dated August 3, 2018, by and among John Williamson, Atkore International Inc. and Atkore
International Group Inc., incorporated by reference to Exhibit 10.3 to Atkore International Group Inc.’s Quarterly Report on Form 10-Q filed
on August 7, 2018.
List of Subsidiaries of Atkore International Group Inc. as of September 30, 2018.
Consent of Deloitte & Touche LLP.
Certification of Chief Executive Officer of Atkore International Group Inc. pursuant to Rule 13a-14, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer of Atkore International Group Inc. pursuant to Rule 13a-14, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer of Atkore International Group Inc. pursuant to Section 1350 of Chapter 63 of Title 18 of the United
States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer of Atkore International Group Inc. pursuant to Section 1350 of Chapter 63 of Title 18 of the United
States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase
101.DEF*
XBRL Taxonomy Extension Definition Linkbase
101.LAB*
XBRL Taxonomy Extension Label Linkbase
101.PRE*
* Filed herewith.
† Identifies each management contract or compensatory plan or arrangement.
XBRL Extension Presentation Linkbase
103
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
ATKORE INTERNATIONAL GROUP INC.
(Registrant)
Date:
November 28, 2018
By:
/s/ David P. Johnson
Vice President and Chief Financial Officer
Date:
November 28, 2018
By:
/s/ James A. Mallak
Vice President and Chief Accounting Officer
104
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date:
November 28, 2018
By:
/s/ Michael V. Schrock
Name:
Title:
Michael V. Schrock
Director and Chairman of the Board
Date:
November 28, 2018
By:
/s/ William E. Waltz
Name:
Title:
William E. Waltz
President and Chief Executive Officer, Director (Principal Executive Officer)
Date:
November 28, 2018
By:
/s/ David P. Johnson
Name:
Title:
David P. Johnson
Vice President and Chief Financial Officer
Date:
November 28, 2018
By:
/s/ James A. Mallak
Name:
Title:
James A. Mallak
Vice President and Chief Accounting Officer (Principal Accounting Officer)
Date:
November 28, 2018
By:
/s/ Betty R. Johnson
Name:
Title:
Betty R. Johnson
Director
Date:
November 28, 2018
By:
/s/ Jeri L. Isbell
Name:
Title:
Jeri L. Isbell
Director
Date:
November 28, 2018
By:
/s/ Wilbert W. James Jr.
Name:
Title:
Wilbert W. James Jr.
Director
Date:
November 28, 2018
By:
/s/ Justin A. Kershaw
Name:
Title:
Justin A. Kershaw
Director
Date:
November 28, 2018
By:
/s/ Scott H. Muse
Name:
Title:
Scott H. Muse
Director
Date:
November 28, 2018
By:
/s/ William VanArsdale
Name:
Title:
William VanArsdale
Director
Date:
November 28, 2018
By:
/s/ A. Mark Zeffiro
Name:
Title:
A. Mark Zeffiro
Director
105
SCHEDULE I
ATKORE INTERNATIONAL GROUP INC. (PARENT)
CONDENSED FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
(in thousands, except share and per share data)
September 30, 2018
September 30, 2017
Assets
Investment in subsidiary
Total Assets
Liabilities and Equity
Total Liabilities
Equity:
$
$
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 47,079,645 and 63,305,434 shares
issued and outstanding, respectively
$
Treasury stock, held at cost, 260,900 and 260,900 shares, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total Equity
Total Liabilities and Equity
122,059
$
122,059
— $
472
$
(2,580)
457,978
(317,373)
(16,438)
122,059
360,871
360,871
—
634
(2,580)
423,232
(42,433)
(17,982)
360,871
360,871
$
122,059
$
See Notes to Financial Statements
106
SCHEDULE I
ATKORE INTERNATIONAL GROUP INC. (PARENT)
CONDENSED FINANCIAL INFORMATION
CONDENSED STATEMENTS OF OPERATIONS
(in thousands)
Equity in net income of subsidiary
Net income
Other comprehensive income (loss) of subsidiary, net of tax
Comprehensive income
Fiscal Year Ended
September 30, 2018
September 30, 2017
September 30, 2016
$
$
136,645 $
136,645
1,544
138,189 $
84,639 $
84,639
7,968
92,607 $
58,796
58,796
(4,917)
53,879
See Notes to Financial Statements
107
SCHEDULE I
ATKORE INTERNATIONAL GROUP INC. (PARENT)
CONDENSED FINANCIAL INFORMATION
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows from Operating Activities:
September 30, 2018
September 30, 2017
September 30, 2016
For the Year Ended
Net cash provided by operating activities
$
—
$
—
$
Cash Flows from Investing Activities:
Distribution received from subsidiary
Distribution paid to subsidiary
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Issuance of common shares
Repurchase of common shares
Net cash (used in) provided by financing activities
411,775
(20,110)
391,665
20,110
(411,775)
(391,665)
13,938
(12,168)
1,770
12,168
(13,938)
(1,770)
Net change in cash and cash equivalents
—
—
Cash and cash equivalents:
Beginning
Ending
$
—
—
$
—
—
$
See Notes to Financial Statements
108
—
—
(52)
(52)
52
—
52
—
—
—
SCHEDULE I
ATKORE INTERNATIONAL GROUP INC. (PARENT)
CONDENSED FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(dollars in thousands)
1. Description of Atkore International Group Inc.
Atkore International Group Inc. (the "Company," "Parent" or "Atkore") was incorporated in the State of Delaware on November 4, 2010. The Company is
the stockholder of Atkore International Holdings Inc. ("AIH"), which is the sole stockholder of Atkore International, Inc. ("AII"). Prior to the transactions
described below, all of the capital stock of AII was owned by Tyco International Ltd. ("Tyco"). The business of AII was operated as the Tyco Electrical and Metal
Products ("TEMP") business of Tyco. Atkore was initially formed by Tyco as a holding company to hold ownership of TEMP.
On November 9, 2010, Tyco announced that it had entered into an agreement to sell a majority interest in TEMP to CD&R Allied Holdings, L.P. (the
"CD&R Investor), an affiliate of the private equity firm Clayton Dubilier & Rice, LLC ("CD&R"). On December 22, 2010, the transaction was completed and
CD&R acquired shares of a newly created class of cumulative convertible preferred stock (the "Preferred Stock") of the Company. The Preferred Stock initially
represented 51% of the Company's outstanding capital stock (on an as-converted basis). On December 22, 2010, the Company also issued common stock (the
"Common Stock") to Tyco's wholly owned subsidiary, Tyco International Holding S.à.r.l. ("Tyco Seller"), that initially represented the remaining 49% of the
Company's outstanding capital stock. Subsequent to December 22, 2010, the Company has operated as an independent, stand-alone entity.
On March 6, 2014, the Company entered into a non-binding letter of intent (the "Letter of Intent") with Tyco for the acquisition (the "Acquisition") of
40.3 million shares of Common Stock held by Tyco Seller. On April 9, 2014, the Company paid $250,000 to Tyco Seller to redeem the shares, which were
subsequently retired. The Company paid $2,000 of expenses related to the share redemption.
In a separate transaction on the same date, the CD&R Investor converted its Preferred Stock and accumulated Preferred Dividends into Common Stock.
As a result, Common Stock is the Company's sole issued and outstanding class of securities.
The Parent has no significant operations or assets other than its indirect ownership of the equity of AII. Accordingly, the Parent is dependent upon
distributions from AII to fund its obligations. However, under the terms of the agreements governing AII's borrowings, AII's ability to pay dividends or lend to
Atkore Holding or the Parent, is restricted. While certain exceptions to the paying dividends or lending funds restrictions exist, these restrictions have resulted in
the restricted net assets (as defined in Rule 4-08(e)(3) of Regulation S-X) of the Company's subsidiaries exceeding 25% of the consolidated net assets of the
Company and its subsidiaries. Atkore Holding has no obligations to pay dividends to the Parent except to pay specified amounts to Parent in order to fund the
payment of the Parent's tax obligations.
2. Basis of Presentation
The accompanying condensed Parent only financial statements are required in accordance with Rule 4-08(e)(3) of Regulation S-X. The financial
statements include the amounts of the Parent and its investment in its subsidiaries under the equity method, and does not present the financial statements of the
Parent and its subsidiaries on a consolidated basis. Under the equity method, investment in its subsidiaries is stated at cost plus contributions and equity in
undistributed income (loss) of subsidiary less distributions received since the date of acquisition. These condensed Parent only financial statements should be read
in conjunction with the Atkore International Group Inc. consolidated financial statements and their accompanying notes.
3. Dividends and Distributions from Subsidiaries
The Company received distributions of $411,775 , $13,938 , and $0 from its subsidiaries for the years ended September 30, 2018 , September 30, 2017
and September 30, 2016 , respectively. The distributions received in fiscal 2018 and 2017 were used to repurchase shares of the Company's common stock. These
dividends were permissible under an exception to the net asset restrictions of the agreements governing AII's borrowings, which allow for dividend payments from
AII to AIH or the Parent for the purpose of repurchasing shares of Parent's common stock.
4. Common Stock Split
On May 27, 2016, the Company filed a Certificate of Amendment to amend and restate the Company's Certificate of Incorporation in the State of
Delaware, effecting a 1.37 -for-1 common stock split. All applicable share data, per share amounts and related information in the consolidated financial statements
and notes thereto have been adjusted retroactively to give effect to the 1.37 -for-1 common stock split.
109
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Accounts Receivable Allowance for Doubtful
Accounts:
For the fiscal year ended:
2018
2017
2016
Deferred Tax Valuation Allowance:
For the fiscal year ended:
2018
2017
2016
Balance at Beginning of
Year
Additional
(Charges)/Benefit to Income
Write offs and
Other
Balance at End of
Year
$
$
$
$
$
$
(1,239)
(1,006)
(1,173)
(9,512)
(8,658)
(7,532)
110
(389)
(243)
(426)
428
(1,164)
(2,604)
(134) $
10 $
593 $
1,657 $
310 $
1,478 $
(1,762)
(1,239)
(1,006)
(7,427)
(9,512)
(8,658)
ATKORE INTERNATIONAL GROUP INC.
Significant Subsidiaries
As of September 30, 2018
Entity Name
Acroba S.A.S.
AFC Cable Systems, Inc.
Allied Luxembourg S.a.r.l.
Allied Metal Products (Changshu) Co., Ltd.
Allied Products UK Limited
Allied Switzerland GmbH
Allied Tube & Conduit Corporation
American Pipe & Plastics Holdings Group, Inc.
American Pipe & Plastics, Inc.
Atkore Construction Technologies NZ Limited
Atkore Foreign Holdings Inc.
Atkore Holding IX (Denmark) Aps
Atkore International Holdings Inc.
Atkore International, Inc.
Atkore Metal Products Pte Ltd.
Atkore Plastic Pipe Corporation
Atkore Steel Components, Inc.
Calpipe Industries, LLC
Columbia-MBF Inc.
FlexHead Industries, Inc.
Flexicon Australia PTY Limited
Flexicon Limited
Georgia Pipe Company
Kalanda Enterprises Pty Limited
Marco Cable Management Limited
Marco Gearing Limited
SprinkFLEX, LLC
Standard Industries Co., Limited
Swan Metal Skirtings Pty Limited
Tekflex Limited
TKN, Inc.
Unistrut (New Zealand) Holdings Pty Limited
Unistrut Australia Pty Limited
Unistrut Canada Limited
Unistrut International Corporation
Unistrut Limited
WPFY, Inc.
Exhibit 21.1
Jurisdiction of Incorporation
France
Delaware
Luxembourg
China
United Kingdom
Switzerland
Delaware
Delaware
New York
New Zealand
Delaware
Denmark
Delaware
Delaware
Singapore
Delaware
Delaware
California
Canada
Massachusetts
Australia
United Kingdom
Georgia
Australia
United Kingdom
United Kingdom
Massachusetts
Hong Kong
Australia
United Kingdom
Rhode Island
Australia
Australia
Ontario
Nevada
United Kingdom
Delaware
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-212045 on Form S-8 of our reports dated November 28, 2018
, relating to the consolidated financial statements and financial statement schedules of Atkore International Group Inc. and subsidiaries, and
the effectiveness of Atkore International Group Inc. and subsidiaries’ internal control over financial reporting, appearing in this Annual
Report on Form 10-K of Atkore International Group Inc. for the year ended September 30, 2018 .
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
November 28, 2018
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) OF THE EXCHANGE ACT, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, William E. Waltz , certify that:
1. I have reviewed this Annual Report on Form 10-K of Atkore International Group Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Dated:
November 28, 2018
/s/ William E. Waltz
William E. Waltz
President and Chief Executive Officer, Director (Principal
Executive Officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) OF THE EXCHANGE ACT, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, David P. Johnson , certify that:
1. I have reviewed this Annual Report on Form 10-K of Atkore International Group Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Dated:
November 28, 2018
/s/ David P. Johnson
David P. Johnson
Vice President and Chief Financial Officer (Principal Financial
Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, William E. Waltz , the Chief Executive Officer of Atkore International Group Inc., certify that (i) the Annual Report on Form 10-K for the fiscal year ended
September 30, 2018 , fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in
such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Atkore International Group Inc.
Dated:
November 28, 2018 /s/ William E. Waltz
William E. Waltz
President and Chief Executive Officer, Director (Principal Executive Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
I, David P. Johnson , the Chief Financial Officer of Atkore International Group Inc., certify that (i) the Annual Report on Form 10-K for the fiscal year ended
September 30, 2018 , fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in
such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Atkore International Group Inc.
Dated:
November 28, 2018 /s/ David P. Johnson
David P. Johnson
Vice President and Chief Financial Officer (Principal Financial Officer)