Atkore Inc. 10-K

Item 1. Business 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, our scale and national presence provide what we believe to be a unique set of competitive advantages that position us for profitable growth. On February 5, 2019, the board of directors approved a share repurchase program, under which the Company may repurchase up to $50.0 million of its outstanding common stock. As of September 30, 2020, there were $35.0 million of authorized repurchases remaining. 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 37 manufacturing facilities and 28 distribution facilities that enable us to efficiently receive materials from our suppliers and deliver products to our customers. In fiscal 2020 , 89% 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 Electrical Raceway Metal Electrical Conduit and Fittings Metal Conduit: • Electrical Metallic Tubing (EMT) Allied Tube & Conduit • Intermediate Metal Conduit (IMC) • Galvanized Rigid Conduit (GRC) Columbia-MBF Metal Conduit Fittings: • Elbows Konkore Fittings • Couplings • Nipples • Conduit Bodies PVC Electrical Conduit & Fittings PVC Conduit: • Rigid Non-Metallic Conduit (RNC) Allied Tube & Conduit PVC Conduit Fittings: Cor-Tek • Elbows • Couplings Heritage Plastics • Conduit Bodies • Duct spacers Corrosion Resistant Conduit • Stainless conduit Calbond • PVC coated conduit Calbrite • Aluminum conduit Calconduit Flexible Electrical Conduit and Fittings Flexible Electrical Conduit: • Flexible Metallic Conduit (FMC) AFC Cable Systems • Liquidtight Flexible Metal Conduit (LFMC) • Liquidtight Flexible Non-Metallic Conduit (LNFC) Kaf-Tech • Flexible Metallic Tubing (FMT) Flexible Electrical Conduit Fittings: Flexicon • Cord Connectors • Angle Connectors Armored Cable and Fittings Armored Cable: • Metal Clad Cable (MC) AFC Cable Systems • Armor Clad Cable (AC) • Healthcare Facility Cable (HFC) Armored Cable Fittings: • Connectors Kaf-Tech • Service Entry Fittings Cable Tray & Cable Ladders • Ladder Cable Tray Cope • Hat Cable Tray Marco • Channel Cable Tray Vergokan • I Beam Cable Tray US Tray • Wire Basket Cable Tray 3 Product Category Sample Products Brands Sample Product Images MP&S Metal Framing & Fittings • Channel Power-Strut • Channel Fittings • Pipe Clamps/Hangers • Concrete Inserts Unistrut Construction Services • Design, Fabrication and Installation Services Unistrut Construction • Modular support structures • Fall protection Mechanical Pipe • In-line galvanized mechanical tube Allied Tube & Conduit • Non-galvanized tube • Fabrication services Barbed Tape • Security Confinement Razor Ribbon • 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. 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 more than 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 84% of our net sales for fiscal 2020 . We distribute our products to electrical and industrial distributors from our manufacturing and distribution facilities as well as from over 40 dedicated distribution facilities operated by our agents. Our products are also stocked by electrical and industrial distributors who are located 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 16% of our net sales for fiscal 2020 . 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 2020 , 2019 and 2018 , approximately 89% , 88% and 90% , respectively, of our net sales were sold to customers located in the United States. Our net sales by geographic area were as follows: Fiscal Year Ended (in millions) September 30, 2020 September 30, 2019 September 30, 2018 United States $ 1,563 $ 1,689 $ 1,652 International 202 228 183 Total $ 1,765 $ 1,917 $ 1,835 In fiscal 2020 , our top ten customers accounted for approximately 37% 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 2020 , 2019 or 2018 . 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, Cleveland-Cliffs 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 or widespread detrimental public health conditions, including the pandemic caused by the spread of the novel coronavirus (COVID-19) in fiscal 2020 which resulted in delays in projects during the third and fourth quarters of the 2020 fiscal year. Manufacturing We currently manufacture products in 37 facilities and operate a total footprint of approximately 6 million square feet of manufacturing and distribution space in eight 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, Belgium, China, New Zealand, Russia and the United Kingdom. 5 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-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." 6 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 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 2019, we completed the implementation of an integrated system for order management, advanced warehouse management, finished goods inventory management and accounts receivable. We have spent over $15.3 million to date on this project, which went live in the fourth quarter of fiscal 2018. Human Capital Resources As of September 30, 2020 , we employed approximately 3,700 total full-time equivalent employees of whom approximately 12% are temporary or contract workers. Our employees are primarily located in the United States, with about 19% employed at our international locations in Australia, Belgium, Canada, China, New Zealand, Russia and the United Kingdom. As of September 30, 2020 , approximately 24% of our domestic and international 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 our other locations abroad. From time to time our collective bargaining agreements expire and come up for re-negotiation. On July 14, 2020, the Company and the United Steelworkers Union, representing approximately 350 employees, reached agreement on the terms of a new collective bargaining agreement for our largest facility in Harvey, Illinois, which expires in April 2024. We believe our relationship with our employees is good. As part of our human capital resource objectives, we seek to recruit, retain and incentivize our employees by utilizing strategic workforce planning to forecast future needs, building and leveraging an inclusive leadership mindset, and applying a robust performance management process, including our onboarding and immersion program. The purpose of the onboarding and immersion program is to introduce new hires and transition employees to the Company and their roles to accelerate learning and exposure to key systems used at Atkore, provide clarity about Atkore’s strategy, vision, mission and values, and ensure that every employee begins to develop a productive network of key stakeholders with whom they will interact during the performance of their jobs. Regulatory Matters Our facilities are subject to various federal, state, local and non-U.S. regulations including 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, or the "IEPA," 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 7 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. The installation of the low-flow oil and water separation equipment is complete and certain additional remediation activities are in progress. 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 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 commenced 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, which was modified in December 2019 to accommodate trials of a metal coating technology that would nearly eliminate the largest source of zinc emissions from our galvanizing operations. We expect to achieve compliance in accordance with the negotiated 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. In April 2014, 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. Impacts of COVID-19 The outbreak of the novel coronavirus (COVID-19) has continued to spread and is currently classified as a pandemic which is contributing to significant volatility and uncertainty in markets and the global economy. This heightened volatility and uncertainty makes it difficult for us to predict the extent of COVID-19’s impact on our operations going forward. As of the date of this filing, we have seen volume declines in our business across several product categories, as customers and end markets face some uncertainty and delays in timing of work. In particular, some construction site closures or project delays have occurred, and job sites have had to adjust to increased physical distancing and health-related precautions. Given the continued volatility within the economic impacts of the pandemic it is too early to make any judgment on how significant the COVID-19 effect will become. Factors that contribute to our ability to adjust to the outbreak include currently being deemed an “essential business”, benefiting from mostly localized supply chains, and continuing to take actions within our control to minimize the disruptive impacts of the outbreak. However, there can be no assurance that we will not be materially and adversely impacted in the future. The extent to which COVID-19 will impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence. Currently, none of our facilities are closed due to COVID-19 related developments. In response to COVID-19, we have implemented a variety of countermeasures to promote the health and safety of our employees during this pandemic, including health screening, physical distancing practices, enhanced cleaning, use of personal protective equipment, business travel restrictions, and remote work capabilities. 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 8 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. References to our website in this Annual Report on Form 10-K do not constitute an incorporation by reference of any of the information found on our website, and such information is not a part of this or any other report we file with or furnish to the SEC.