Atkore Inc. 10-Q

Item 1. Financial Statements ATKORE INTERNATIONAL GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three months ended (in thousands, except per share data) Note December 25, 2020 December 27, 2019 Net sales $ 511,082 $ 447,448 Cost of sales 321,891 330,604 Gross profit 189,191 116,844 Selling, general and administrative 61,078 56,215 Intangible asset amortization 11 8,260 8,113 Operating income 119,853 52,516 Interest expense, net 8,254 10,620 Other income, net 5 ( 431 ) ( 234 ) Income before income taxes 112,030 42,130 Income tax expense 6 26,964 7,340 Net income $ 85,066 $ 34,790 Net income per share Basic 7 $ 1.78 $ 0.72 Diluted 7 $ 1.75 $ 0.71 See Notes to unaudited condensed consolidated financial statements. 2 ATKORE INTERNATIONAL GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three months ended (in thousands) Note December 25, 2020 December 27, 2019 Net income $ 85,066 $ 34,790 Other comprehensive income, net of tax: Change in foreign currency translation adjustment 7,051 5,109 Change in unrecognized loss related to pension benefit plans 4 262 207 Total other comprehensive income 8 7,313 5,316 Comprehensive income $ 92,379 $ 40,106 See Notes to unaudited condensed consolidated financial statements. 3 ATKORE INTERNATIONAL GROUP INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share and per share data) Note December 25, 2020 September 30, 2020 Assets Current Assets: Cash and cash equivalents $ 280,420 $ 284,471 Accounts receivable, less allowance for current and expected credit losses of $ 2,455 and $ 3,168 , respectively 350,255 298,242 Inventories, net 9 221,261 199,095 Prepaid expenses and other current assets 40,119 46,868 Total current assets 892,055 828,676 Property, plant and equipment, net 10 244,995 243,891 Intangible assets, net 11 248,835 255,349 Goodwill 11 189,984 188,239 Right-of-use assets, net 36,857 38,692 Deferred tax assets 6 955 687 Other long-term assets 892 2,991 Total Assets $ 1,614,573 $ 1,558,525 Liabilities and Equity Current Liabilities: Accounts payable 156,717 142,601 Income tax payable 16,088 1,360 Accrued compensation and employee benefits 25,746 32,836 Customer liabilities 48,375 35,802 Lease obligations 11,753 15,786 Other current liabilities 50,825 47,785 Total current liabilities 309,504 276,170 Long-term debt 12 764,379 803,736 Long-term lease obligations 26,193 24,143 Deferred tax liabilities 6 24,517 22,525 Other long-term tax liabilities 1,536 1,619 Pension liabilities 38,706 40,023 Other long-term liabilities 12,391 11,899 Total Liabilities 1,177,226 1,180,115 Equity: Common stock, $ 0.01 par value, 1,000,000,000 shares authorized, 46,624,975 and 47,407,023 shares issued and outstanding, respectively 467 475 Treasury stock, held at cost, 260,900 and 260,900 shares, respectively ( 2,580 ) ( 2,580 ) Additional paid-in capital 488,815 487,223 Accumulated deficit ( 14,114 ) ( 64,154 ) Accumulated other comprehensive loss 8 ( 35,241 ) ( 42,554 ) Total Equity 437,347 378,410 Total Liabilities and Equity $ 1,614,573 $ 1,558,525 See Notes to unaudited condensed consolidated financial statements. 4 ATKORE INTERNATIONAL GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three months ended (in thousands) Note December 25, 2020 December 27, 2019 Operating activities: Net income $ 85,066 $ 34,790 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,044 18,730 Deferred income taxes 6 1,117 3,088 Stock-based compensation 5,522 3,123 Amortization of right-of-use assets 3,352 3,627 Other adjustments to net income 1,703 2,855 Changes in operating assets and liabilities, net of effects from acquisitions Accounts receivable ( 45,382 ) 25,139 Inventories ( 20,326 ) ( 17,640 ) Accounts payable 13,060 ( 14,898 ) Other, net 23,120 ( 6,641 ) Net cash provided by operating activities 86,276 52,173 Investing activities: Capital expenditures ( 8,229 ) ( 9,809 ) Insurance proceeds for property, plant and equipment 1,122 — Acquisition of businesses, net of cash acquired ( 7,186 ) — Other, net 35 15 Net cash used in investing activities ( 14,258 ) ( 9,794 ) Financing activities: Repayments of long-term debt 12 ( 40,000 ) — Issuance of common stock, net of shares withheld for tax ( 3,927 ) ( 2,981 ) Repurchase of common stock ( 35,037 ) — Other, net ( 17 ) ( 60 ) Net cash used for financing activities ( 78,981 ) ( 3,041 ) Effects of foreign exchange rate changes on cash and cash equivalents 2,912 1,382 (Decrease) increase in cash and cash equivalents ( 4,051 ) 40,720 Cash and cash equivalents at beginning of period 284,471 123,415 Cash and cash equivalents at end of period $ 280,420 $ 164,135 Supplementary Cash Flow information Capital expenditures, not yet paid $ 306 $ 618 See Notes to unaudited condensed consolidated financial statements. 5 ATKORE INTERNATIONAL GROUP INC. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) Common Stock Treasury Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Equity (in thousands) Shares Amount Amount Balance as of September 30, 2020 47,407 $ 475 $ ( 2,580 ) $ 487,223 $ ( 64,154 ) $ ( 42,554 ) $ 378,410 Net income — — — — 85,066 — 85,066 Other comprehensive income — — — — — 7,313 7,313 Stock-based compensation — — — 5,522 — — 5,522 Issuance of common stock, net of shares withheld for tax 358 3 — ( 3,930 ) — — ( 3,927 ) Repurchase of common stock ( 1,140 ) ( 11 ) — — ( 35,026 ) — ( 35,037 ) Balance as of December 25, 2020 46,625 $ 467 $ ( 2,580 ) $ 488,815 $ ( 14,114 ) $ ( 35,241 ) $ 437,347 Common Stock Treasury Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Equity (in thousands) Shares Amount Amount Balance as of September 30, 2019 46,955 $ 471 $ ( 2,580 ) $ 477,139 $ ( 200,396 ) $ ( 41,698 ) $ 232,936 Net income — — — — 34,790 — 34,790 Other comprehensive income — — — — — 5,316 5,316 ASU 2016-02 modified retrospective adoption — — — — ( 1,053 ) — ( 1,053 ) Stock-based compensation — — — 3,123 — — 3,123 Issuance of common stock, net of shares withheld for tax 524 5 — ( 2,986 ) — — ( 2,981 ) Balance as of December 27, 2019 47,479 $ 476 $ ( 2,580 ) $ 477,276 $ ( 166,659 ) $ ( 36,382 ) $ 272,131 See Notes to unaudited condensed consolidated financial statements. 6 ATKORE INTERNATIONAL GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (dollars and shares in thousands, except per share data) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Organization and Ownership Structure — Atkore International Group Inc. (the "Company", "Atkore" or "AIG") is a leading manufacturer of Electrical products primarily for the non-residential construction and renovation markets and Safety & Infrastructure solutions for the construction and industrial markets. Atkore was incorporated in the State of Delaware on November 4, 2010. Atkore is the sole stockholder of Atkore International Holdings Inc. ("AIH"), which in turn is the sole stockholder of Atkore International, Inc. ("AII"). Segment Redefinition — Effective in the first quarter of fiscal 2021, the Company renamed and redefined its reportable segments. The Electrical Raceway segment was renamed as the Electrical segment. The Electrical segment manufactures high quality products used in the construction of electrical power systems including conduit, cable, and installation accessories. This segment serves contractors, in partnership with the electrical wholesale channel. The Mechanical Products & Solutions segment was renamed as the Safety & Infrastructure segment. This segment designs and manufactures solutions including metal framing, mechanical pipe, perimeter security, and cable management for the protection and reliability of critical infrastructure. These solutions are marketed to contractors, original equipment manufacturers and end users. Segment Realignment & Reclassifications — Effective in the first quarter of fiscal 2021, the Company implemented a realignment (the “Realignment”) of its segment financial reporting structure. The Company’s domestic cable management and prefabrication modular businesses had historically been reported in the Electrical Raceway segment. Due to transitions in the Company’s Executive Leadership Team, these businesses are now reported in the Safety & Infrastructure segment. The Realignment reflects how the Company’s Chief Operating Decision Maker now assesses the operating performance and allocates resources to the Safety & Infrastructure segment. Goodwill was also reallocated on a relative fair value basis between the applicable reporting units. The Company reflected these changes to its segment information retrospectively to the earliest period presented which resulted in a transfer of external net sales, intersegment sales, total assets, and Adjusted EBITDA from the Electrical segment to the Safety & Infrastructure segment. These changes had no impact on the Company’s previously reported consolidated net sales, operating income, net income or earnings per share. See Note 16, ''Segment Information'' for additional details. Basis of Presentation — The accompanying unaudited condensed consolidated financial statements of the Company included herein have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These unaudited condensed consolidated financial statements have been prepared in accordance with the Company's accounting policies and on the same basis as those financial statements included in the Company's latest Annual Report on Form 10-K for the year ended September 30, 2020, filed with the U.S. Securities and Exchange Commission (the "SEC") on November 19, 2020, and should be read in conjunction with those consolidated financial statements and the notes thereto. Certain information and disclosures normally included in the Company's annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The unaudited condensed consolidated financial statements include the assets and liabilities used in operating the Company's business. All intercompany balances and transactions have been eliminated in consolidation. The results of companies acquired or disposed of are included in the unaudited condensed consolidated financial statements from the effective date of acquisition or up to the date of disposal. These statements include all adjustments (consisting of normal recurring adjustments) that the Company considered necessary to present a fair statement of its results of operations, financial position and cash flows. The results reported in these unaudited condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. 7 Fiscal Periods — The Company has a fiscal year that ends on September 30. The Company's fiscal quarters typically end on the last Friday in December, March and June as it follows a 4-5-4 calendar. Use of Estimates — The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclose contingent assets and liabilities at the date of the condensed consolidated financial statements and report the associated amounts of revenues and expenses. Actual results could differ materially from these estimates. Recent Accounting Pronouncements A summary of recently adopted accounting guidance is as follows. Adoption dates are on the first day of the fiscal year indicated below, unless otherwise specified. ASU Description of ASU Impact to Atkore Adoption Date 2016-13 Financial Instruments - Credit Losses (Topic 326) The ASU adds to GAAP an impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The Company adopted this standard in the first quarter of 2021. The adoption of the standard did not have a material impact on the Company's consolidated financial statements. 2021 A summary of accounting guidance not yet adopted is as follows. Effective dates are on the first day of the fiscal year indicated below, unless otherwise specified. ASU Description of ASU Impact to Atkore Effective Date 2019-12, Simplifying the accounting for income taxes (Topic 740) The ASU eliminates certain existing exceptions related to the general approach in ASC 740 relating to franchise taxes, reducing complexity in the interim period accounting for year to date loss limitations and changes in tax laws and clarifying the accounting for transactions outside of a business combination that result in a step up in the tax basis of goodwill. Under evaluation. Based on procedures performed to date, the Company does not anticipate the adoption of this ASU to be material to the financial statements. 2022 2020-04, Reference rate reform Topic 848: Facilitation of the effects of reference rate reform on financial reporting The ASU addresses constituents’ concerns about certain accounting consequences that could result from the global markets’ anticipated transition away from the use of the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. Under evaluation. Based on procedures performed to date, the Company does not anticipate the adoption of this ASU to be material to the financial statements. Option to implement ASU expires in 2022 2. REVENUE FROM CONTRACTS WITH CUSTOMERS The Company’s revenue arrangements primarily consist of a single performance obligation to transfer promised goods which is satisfied at a point in time when title, risks and rewards of ownership, and subsequently control have transferred to the customer. This generally occurs when the product is shipped to the customer, with an immaterial amount of transactions in which control transfers upon delivery. The Company primarily offers assurance-type standard warranties that do not represent separate performance obligations. The Company has certain arrangements that require it to estimate at the time of sale the amounts of variable consideration that should not be recorded as revenue as certain amounts are not expected to be collected from customers, as well as an estimate of the value of products to be returned. The Company principally relies on historical experience, specific customer agreements, and anticipated future trends to estimate these amounts at the time of sale and to reduce the transaction price. These arrangements include sales discounts and allowances, volume rebates, and returned goods. The Company records amounts billed to customers for reimbursement of shipping and handling costs within revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are 8 accounted for as fulfillment costs and are included in cost of goods sold. Sales taxes and other usage-based taxes are excluded from revenue. The Company does not evaluate whether the selling price includes a financing interest component for contracts that are less than a year. The Company also expenses costs incurred to obtain a contract, primarily sales commissions, as all obligations will be settled in less than one year. The Company typically receives payment 30 to 60 days from the point it has satisfied the related performance obligation. See Note 16, ''Segment Information'' for revenue disaggregated by geography and product categories. 3. ACQUISITIONS From time to time, the Company enters into strategic acquisitions in an effort to better service existing customers and to obtain new customers. On October 22, 2020, the Company acquired Queen City Plastics, Inc., a leading manufacturer of PVC conduit, elbows and fittings for the electrical market. The preliminary purchase price was allocated to tangible assets acquired and liabilities assumed based on their fair values. As of December 25, 2020, the purchase price allocation has not been finalized as the Company is refining its fair value estimates for working capital and fixed assets. The purchase price of $ 7.2 million was deemed immaterial to the Company. 4. POSTRETIREMENT BENEFITS The Company provides pension benefits through a number of noncontributory and contributory defined benefit retirement plans covering eligible U.S. employees. As of September 30, 2017, all defined pension benefit plans were frozen, whereby participants no longer accrue credited service. The net periodic benefit credit was as follows: Three months ended (in thousands) Note December 25, 2020 December 27, 2019 Interest cost $ 682 $ 935 Expected return on plan assets ( 1,606 ) ( 1,583 ) Amortization of actuarial loss 333 222 Net periodic benefit credit 5 $ ( 591 ) $ ( 426 ) 9 5. OTHER INCOME, NET Other income, net consisted of the following: Three months ended (in thousands) December 25, 2020 December 27, 2019 Undesignated foreign currency derivative instruments $ 2,617 $ 3,123 Foreign exchange gain on intercompany loans ( 2,457 ) ( 2,931 ) Pension-related benefits ( 591 ) ( 426 ) Other income, net $ ( 431 ) $ ( 234 ) 6. INCOME TAXES For the three months ended December 25, 2020 and December 27, 2019, the Company's effective tax rate attributable to income before income taxes was 24.1 % and 17.4 %, respectively. For the three months ended December 25, 2020 and December 27, 2019, the Company's income tax expense was $ 26,964 and $ 7,340 respectively. The increase in the current period effective tax rate was primarily due to a decrease in the excess tax benefit associated with stock compensation. A valuation allowance has been recorded against certain net operating losses in certain foreign jurisdictions. A valuation allowance is recorded when it is determined to be more likely than not that these assets will not be fully realized in the foreseeable future. The realization of deferred tax assets is dependent upon whether the Company can generate future taxable income in the appropriate character and jurisdiction to utilize the assets. The amount of the deferred tax assets considered realizable is subject to adjustment in future periods. The Company recognizes the benefits of uncertain tax positions taken or expected to be taken in tax returns in the provision for income taxes only for those positions that we have determined are more likely than not to be realized upon examination. We record interest and penalties related to unrecognized tax benefits as a component of income tax expense. During the three months ended December 25, 2020, the balance of unrecognized tax benefits decreased by $ 84 upon the resolution of a state audit item. For the three months ended December 25, 2020, the Company made no additional provision for U.S. or non-U.S. income taxes for unrecognized deferred tax liabilities for temporary differences related to basis differences in investments in subsidiaries, as the investments are essentially permanent in duration. 7. EARNINGS PER SHARE The Company calculates basic and diluted earnings per common share using the two-class method. Under the two-class method, net earnings are allocated to each class of common stock and participating securities as if all of the net earnings for the period had been distributed. The Company's participating securities consist of share-based payment awards that contain a non-forfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common stockholders. Basic earnings per common share excludes dilution and is calculated by dividing the net earnings allocated to common stock by the weighted-average number of common stock outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocated to common stock by the weighted-average number of shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards. The following table sets forth the computation of basic and diluted earnings per share: 10 Three months ended (in thousands, except per share data) December 25, 2020 December 27, 2019 Numerator: Net income $ 85,066 $ 34,790 Less: Undistributed earnings allocated to participating securities 1,656 857 Net income available to common shareholders $ 83,410 $ 33,933 Denominator: Basic weighted average common shares outstanding 46,917 47,126 Effect of dilutive securities: Non-participating employee stock options (1) 630 873 Diluted weighted average common shares outstanding 47,547 47,999 Basic earnings per share $ 1.78 $ 0.72 Diluted earnings per share $ 1.75 $ 0.71 (1) Stock options to purchase approximately 0.1 million and 0.1 million shares of common stock were outstanding during the three months ended December 25, 2020 and December 27, 2019, respectively, but were not included in the calculation of diluted earnings per share as the impact of these options would have been anti-dilutive. 8. ACCUMULATED OTHER COMPREHENSIVE LOSS The following table presents the changes in accumulated other comprehensive loss by component for the three months ended December 25, 2020 and December 27, 2019. (in thousands) Defined benefit pension items Currency translation adjustments Total Balance as of September 30, 2020 $ ( 30,761 ) $ ( 11,793 ) $ ( 42,554 ) Other comprehensive income before reclassifications — 7,051 7,051 Amounts reclassified from accumulated other comprehensive loss, net of tax 262 — 262 Net current period other comprehensive income 262 7,051 7,313 Balance as of December 25, 2020 $ ( 30,499 ) $ ( 4,742 ) $ ( 35,241 ) (in thousands) Defined benefit pension items Currency translation adjustments Total Balance as of September 30, 2019 $ ( 23,818 ) $ ( 17,880 ) $ ( 41,698 ) Other comprehensive income before reclassifications — 5,109 5,109 Amounts reclassified from accumulated other comprehensive loss, net of tax 207 — 207 Net current period other comprehensive income 207 5,109 5,316 Balance as of December 27,2019 $ ( 23,611 ) $ ( 12,771 ) $ ( 36,382 ) 11 9. INVENTORIES, NET A majority of the Company's inventories are recorded at the lower of cost (primarily last in, first out, or "LIFO") or market or net realizable value, as applicable. Approximately 74 % and 73 % of the Company's inventories were valued at the lower of LIFO cost or market at December 25, 2020 and September 30, 2020, respectively. Interim LIFO determinations, including those at December 25, 2020, are based on management's estimates of future inventory levels and costs for the remainder of the current fiscal year. (in thousands) December 25, 2020 September 30, 2020 Purchased materials and manufactured parts, net $ 56,864 $ 49,192 Work in process, net 26,759 24,113 Finished goods, net 137,638 125,790 Inventories, net $ 221,261 $ 199,095 Total inventories would be $ 1,997 higher and $ 4,418 lower than reported as of December 25, 2020 and September 30, 2020, respectively, if the first-in, first-out method was used for all inventories. As of December 25, 2020, and September 30, 2020, the excess and obsolete inventory reserve was $ 15,184 and $ 14,533 , respectively. 10. PROPERTY, PLANT AND EQUIPMENT As of December 25, 2020, and September 30, 2020, property, plant and equipment at cost and accumulated depreciation were as follows: (in thousands) December 25, 2020 September 30, 2020 Land $ 23,378 $ 20,460 Buildings and related improvements 130,435 129,538 Machinery and equipment 338,829 332,260 Leasehold improvements 10,269 9,862 Software 27,665 27,028 Construction in progress 22,227 22,736 Property, plant and equipment 552,803 541,884 Accumulated depreciation ( 307,808 ) ( 297,993 ) Property, plant and equipment, net $ 244,995 $ 243,891 Depreciation expense for the three months ended December 25, 2020 and December 27, 2019 totaled $ 10,783 and $ 10,617 respectively. 12 11. GOODWILL AND INTANGIBLE ASSETS Changes in the carrying amount of goodwill are as follows: (in thousands) Electrical Safety & Infrastructure Total Balance as of October 1, 2020 $ 144,662 $ 43,577 $ 188,239 Exchange rate effects 1,745 — 1,745 Balance as of December 25, 2020 $ 146,407 $ 43,577 $ 189,984 Goodwill balances as of October 1, 2020 and December 25, 2020 include $ 3,924 and $ 43,000 of accumulated impairment losses within the Electrical and Safety & Infrastructure segments, respectively. The Company assesses the recoverability of goodwill and indefinite-lived trade names on an annual basis in accordance with ASC 350, "Intangibles - Goodwill and Other." The measurement date is the first day of the fourth fiscal quarter, or more frequently, if events or circumstances indicate that it is more likely than not that the fair value of a reporting unit or the respective indefinite-lived trade name is less than the carrying value. The following table provides the gross carrying value, accumulated amortization and net carrying value for each major class of intangible assets: December 25, 2020 September 30, 2020 ($ in thousands) Weighted Average Useful Life (Years) Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value Amortizable intangible assets: Customer relationships 11 $ 358,254 $ ( 211,271 ) $ 146,983 $ 355,735 $ ( 202,677 ) $ 153,058 Other 8 19,086 ( 10,114 ) 8,972 19,086 ( 9,675 ) 9,411 Total 377,340 ( 221,385 ) 155,955 374,821 ( 212,352 ) 162,469 Indefinite-lived intangible assets: Trade names 92,880 — 92,880 92,880 — 92,880 Total $ 470,220 $ ( 221,385 ) $ 248,835 $ 467,701 $ ( 212,352 ) $ 255,349 Other intangible assets consist of definite-lived trade names, technology, non-compete agreements and backlogs. Amortization expense for the three months ended December 25, 2020 and December 27, 2019 was $ 8,260 and $ 8,113 , respectively. Expected amortization expense for intangible assets for the remainder of fiscal 2021 and over the next five years and thereafter is as follows: (in thousands) Remaining 2021 $ 26,351 2022 31,169 2023 31,045 2024 26,173 2025 13,721 2026 12,519 Thereafter 14,977 Actual amounts of amortization may differ from estimated amounts due to additional intangible asset acquisitions, impairment of intangible assets and other events. 13 12. DEBT Debt as of December 25, 2020 and September 30, 2020 was as follows: (in thousands) December 25, 2020 September 30, 2020 First Lien Term Loan Facility due December 22, 2023 $ 771,585 $ 811,540 Deferred financing costs ( 7,206 ) ( 7,804 ) Total debt $ 764,379 $ 803,736 Less: Current portion — — Long-term debt $ 764,379 $ 803,736 During the three months ended December 25, 2020, the Company made a voluntary prepayment of $ 40,000 of principal on the First Lien Loan. The voluntary prepayments in the past two years resulted in the elimination of all principal payment requirements until the contractual maturity of the debt in fiscal 2024. The asset-based credit facility (the "ABL Credit Facility") has aggregate commitments of $ 325,000 and is guaranteed by AIH, the U.S. operating companies owned by AII and certain other restricted subsidiaries of AII that AII causes to be a subsidiary guarantor from time to time. AII's availability under the ABL Credit Facility was $ 313,270 and $ 265,899 as of December 25, 2020 and September 30, 2020, respectively. 13. FAIR VALUE MEASUREMENTS Certain assets and liabilities are required to be recorded at fair value on a recurring basis. The Company uses forward currency contracts to hedge the effects of foreign exchange relating to certain of the Company’s intercompany balances denominated in a foreign currency. These derivative instruments are not formally designated as hedges by the Company and the terms of these instruments range from six months to two years . Short-term forward currency contracts are recorded in either other current assets or other current liabilities and long-term forward currency contracts are recorded in either other long-term assets or other long-term liabilities in the condensed consolidated balance sheet. The fair value gains and losses are included in other income, net within the condensed consolidated statements of operations. See Note 5, ''Other Income, net'' for further detail. The total notional amounts of undesignated forward currency contracts were £ 36.8 million and £ 43.3 million as of December 25, 2020 and September 30, 2020, respectively. Cash flows associated with derivative financial instruments are recognized in the operating section of the condensed consolidated statements of cash flows. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The following table presents the Company's assets and liabilities measured at fair value: December 25, 2020 September 30, 2020 (in thousands) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Assets Cash equivalents $ 208,038 $ — $ — $ 209,421 $ — $ — Forward currency contracts — — — — 2,209 — Liabilities Forward currency contracts — 440 — — 102 — 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. 14 The estimated fair value of financial instruments not carried at fair value in the condensed consolidated balance sheets were as follows: December 25, 2020 September 30, 2020 (in thousands) Carrying Value Fair Value Carrying Value Fair Value First Lien Term Loan Facility due December 22, 2023 $ 772,120 $ 772,892 $ 812,120 $ 808,060 In determining the approximate fair value of its long-term debt, the Company used the trading values among financial institutions, and these values fall within Level 2 of the fair value hierarchy. The carrying value of the ABL Credit Facility approximates fair value due to it being a market-linked variable rate debt. 14. COMMITMENTS AND CONTINGENCIES The Company has obligations related to commitments to purchase certain goods. As of December 25, 2020, such obligations were $ 267,331 for the rest of fiscal year 2021 and $ 9,710 for fiscal year 2022 and beyond. These amounts represent open purchase orders for materials used in production. Legal Contingencies — The Company is a defendant in a number of pending legal proceedings, some of which were inherited from its former parent, Tyco International Ltd. ("Tyco"), including certain product liability claims. Several lawsuits have been filed against the Company and the Company has also received other claim demand letters alleging that the Company's anti-microbial coated steel sprinkler pipe, which the Company has not manufactured or sold for several years, is incompatible with chlorinated polyvinyl chloride and caused stress cracking in such pipe manufactured by third parties when installed together in the same sprinkler system, which the Company refers to collectively as the "Special Products Claims." After an analysis of claims experience, the Company reserved its best estimate of the probable and reasonably estimable losses related to these matters. The Company's total product liability reserves for Special Products Claims and other product liability matters were $ 643 and $ 597 as of December 25, 2020 and September 30, 2020, respectively. As of December 25, 2020, the Company believes that the range of aggregate reasonably possible losses for Special Products Claims and other product liabilities is between $ 1,000 and $ 8,000 . During fiscal 2019, Tyco and the Company agreed with a plaintiff to settle one Special Products Claim that was to go to trial. The Company agreed to fund the total settlement in exchange for Tyco's agreement to cap the Company's Special Products Claim deductible at $ 12,000 , as opposed to the $ 13,000 cap negotiated within the original indemnity agreement. In conjunction with the payment of that settlement, Tyco and the Company examined the Company's total Special Products Claim payments and agreed that with that settlement payment and payment of a few other legal fee invoices, all of which have now been paid, the Company had met its $ 12,000 deductible obligation related to these Special Products Claims. Tyco, now Johnson Controls, Inc. ("JCI"), has a contractual obligation to indemnify the Company in respect of all remaining and future claims of incompatibility between the Company's antimicrobial coated steel sprinkler pipe and CPVC pipe used in the same sprinkler system. Tyco has defended and indemnified the Company on Special Products Claims as required. At this time, the Company does not expect the outcome of the Special Products Claims proceedings, either individually or in the aggregate, to have a material adverse effect on its business, financial condition, results of operations or cash flows, and the Company believes that its reserves are adequate for all remaining contingencies for Special Products Claims. In addition to the matters discussed above, from time to time, the Company is subject to a number of disputes, administrative proceedings and other claims arising out of the ordinary conduct of the Company's business. These matters generally relate to disputes arising out of the use or installation of the Company's products, product liability litigation, contract disputes, patent infringement accusations, employment matters, personal injury claims and similar matters. On the basis of information currently available to the Company, it does not believe that existing proceedings and claims will have a material adverse effect on its business, financial condition, results of operations or cash flows. However, litigation is unpredictable, and the Company could incur judgments or enter into settlements for current or future claims that could adversely affect its business, financial condition, results of operations or cash flows. 15. GUARANTEES The Company had outstanding letters of credit totaling $ 9,501 supporting workers' compensation and general liability insurance policies as of December 25, 2020. The Company also had surety bonds primarily related to performance guarantees on supply agreements and construction contracts, and payment of duties and taxes totaling $ 15,025 as of December 25, 2020. 15 In disposing of assets or businesses, the Company often provides representations, warranties and indemnities to cover various risks including unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and legal fees related to periods prior to disposition. The Company does not have the ability to estimate the potential liability from such indemnities because they relate to unknown conditions. However, the Company has no reason to believe that these uncertainties would have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. In the normal course of business, the Company is liable for product performance and contract completion. In the opinion of management, such obligations will not have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. 16. SEGMENT INFORMATION Effective in the first quarter of fiscal 2021, the Company renamed and redefined its reportable segments. The Electrical Raceway segment was renamed as the Electrical segment. The Electrical segment manufactures high quality products used in the construction of electrical power systems including conduit, cable, and installation accessories. This segment serves contractors in partnership with the electrical wholesale channel . The Mechanical Products & Solutions segment was renamed as the Safety & Infrastructure segment. This segment designs and manufactures solutions including metal framing, mechanical pipe, perimeter security, and cable management for the protection and reliability of critical infrastructure. These solutions are marketed to contractors, original equipment manufacturers and end users. Effective in the first quarter of fiscal 2021, the Company also implemented the Realignment of its segment financial reporting structure such that its domestic cable management and prefabrication modular businesses are now reflected in its Safety & Infrastructure segment. These businesses were previously reflected within the Electrical segment. See Note 1, ''Basis of Presentation and Summary of Significant Accounting Policies'' for additional information. Prior year results have been revised for the impact of the Realignment for comparability . Both segments use Adjusted EBITDA as the primary measure of profit and loss. Segment Adjusted EBITDA is income (loss) before income taxes, adjusted to exclude unallocated expenses, depreciation and amortization, interest expense, net, restructuring charges, stock-based compensation, certain legal matters, transaction costs and other items, such as inventory reserves and adjustments, loss on disposal of property, plant and equipment, release of indemnified uncertain tax positions, and realized or unrealized gain (loss) on foreign currency impacts of intercompany loans and related forward currency derivatives. Intersegment transactions primarily consist of product sales at designated transfer prices on an arm's-length basis. Gross profit earned and reported within the segment is eliminated in the Company's consolidated results. Certain manufacturing and distribution expenses are allocated between the segments on a pro rata basis due to the shared nature of activities. Recorded amounts represent a proportional amount of the quantity of product produced for each segment. Certain assets, such as machinery and equipment and facilities, are not allocated to each segment despite serving both segments. These shared assets are reported within the Safety & Infrastructure segment. The Company allocates certain corporate operating expenses that directly benefit our operating segments, such as insurance and information technology, on a basis that reasonably approximates an estimate of the use of these services. Three months ended December 25, 2020 December 27, 2019 (in thousands) External Net Sales Intersegment Sales Adjusted EBITDA External Net Sales Intersegment Sales Adjusted EBITDA Electrical $ 386,320 $ 825 $ 133,273 $ 323,941 $ 606 $ 68,119 Safety & Infrastructure 124,762 3 $ 14,252 123,507 1 $ 18,727 Eliminations — ( 828 ) — ( 607 ) Consolidated operations $ 511,082 $ — $ 447,448 $ — 16 Presented below is a reconciliation of operating segment Adjusted EBITDA to Income before income taxes: Three months ended (in thousands) December 25, 2020 December 27, 2019 Operating segment Adjusted EBITDA Electrical $ 133,273 $ 68,119 Safety & Infrastructure 14,252 18,727 Total $ 147,525 $ 86,846 Unallocated expenses (a) ( 10,535 ) ( 9,136 ) Depreciation and amortization ( 19,044 ) ( 18,730 ) Interest expense, net ( 8,254 ) ( 10,620 ) Restructuring charges 2 ( 220 ) Stock-based compensation ( 5,522 ) ( 3,123 ) Transaction costs ( 284 ) ( 51 ) Other (b) 8,142 ( 2,836 ) Income before income taxes $ 112,030 $ 42,130 (a) Represents unallocated selling, general and administrative activities and associated expenses including, in part, executive, legal, finance, human resources, information technology, business development and communications, as well as certain costs and earnings of employee-related benefits plans, such as stock-based compensation and a portion of self-insured medical costs. (b) Represents other items, such as inventory reserves and adjustments, loss on disposal of property, plant and equipment, insurance recovery related to damages of property, plant and equipment, release of indemnified uncertain tax positions and realized or unrealized gain (loss) on foreign currency impacts of intercompany loans and related forward currency derivatives. The Company's net sales by geography were as follows for the three months ended December 25, 2020 and December 27, 2019: Three months ended (in thousands) December 25, 2020 December 27, 2019 United States $ 454,764 $ 396,141 Other Americas 6,773 6,586 Europe 39,354 33,309 Asia-Pacific 10,191 11,412 Total $ 511,082 $ 447,448 The table below shows the amount of net sales from external customers for each of the Company's product categories which accounted for 10% or more of consolidated net sales in either period for the three months ended December 25, 2020 and December 27, 2019: 17 Three months ended (in thousands) December 25, 2020 December 27, 2019 Metal Electrical Conduit and Fittings $ 124,829 $ 123,842 Armored Cable and Fittings 73,512 83,823 PVC Electrical Conduit and Fittings 140,535 72,888 International Cable Management Products 43,213 38,220 Other Electrical products 4,231 5,168 Electrical 386,320 323,941 Mechanical Pipe 65,511 58,331 Other Safety & Infrastructure products 59,251 65,176 Safety & Infrastructure 124,762 123,507 Net sales $ 511,082 $ 447,448 18