Atkore Inc. 10-Q

Item 1. Financial Statements ATKORE INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three months ended Six months ended (in thousands, except per share data) Note March 26, 2021 March 27, 2020 March 26, 2021 March 27, 2020 Net sales $ 639,543 $ 455,654 $ 1,150,625 $ 903,102 Cost of sales 399,694 324,051 721,585 654,655 Gross profit 239,849 131,603 429,040 248,447 Selling, general and administrative 67,340 62,360 128,418 118,575 Intangible asset amortization 11 8,096 8,071 16,356 16,184 Operating income 164,413 61,172 284,266 113,688 Interest expense, net 8,416 10,564 16,670 21,184 Other income, net 5 ( 7,240 ) ( 1,685 ) ( 7,671 ) ( 1,919 ) Income before income taxes 163,237 52,293 275,267 94,423 Income tax expense 6 38,304 13,100 65,268 20,440 Net income $ 124,933 $ 39,193 $ 209,999 $ 73,983 Net income per share Basic 7 $ 2.62 $ 0.81 $ 4.39 $ 1.53 Diluted 7 $ 2.58 $ 0.80 $ 4.33 $ 1.50 See Notes to unaudited condensed consolidated financial statements. 2 ATKORE INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three months ended Six months ended (in thousands) Note March 26, 2021 March 27, 2020 March 26, 2021 March 27, 2020 Net income $ 124,933 $ 39,193 209,999 $ 73,983 Other comprehensive income (loss), net of tax: Change in foreign currency translation adjustment ( 818 ) ( 6,229 ) 6,233 ( 1,120 ) Change in unrecognized loss related to pension benefit plans 4 262 226 524 433 Total other comprehensive income (loss) 8 ( 556 ) ( 6,003 ) 6,757 ( 687 ) Comprehensive income $ 124,377 $ 33,190 $ 216,756 $ 73,296 See Notes to unaudited condensed consolidated financial statements. 3 ATKORE INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share and per share data) Note March 26, 2021 September 30, 2020 Assets Current Assets: Cash and cash equivalents $ 304,469 $ 284,471 Accounts receivable, less allowance for current and expected credit losses of $ 2,454 and $ 3,168 , respectively 431,161 298,242 Inventories, net 9 237,892 199,095 Prepaid expenses and other current assets 44,895 46,868 Total current assets 1,018,417 828,676 Property, plant and equipment, net 10 256,216 243,891 Intangible assets, net 11 258,990 255,349 Goodwill 11 199,513 188,239 Right-of-use assets, net 35,034 38,692 Deferred tax assets 6 999 687 Other long-term assets 879 2,991 Total Assets $ 1,770,048 $ 1,558,525 Liabilities and Equity Current Liabilities: Accounts payable 187,699 142,601 Income tax payable 605 1,360 Accrued compensation and employee benefits 33,980 32,836 Customer liabilities 43,615 35,802 Lease obligations 11,648 15,786 Other current liabilities 48,334 47,785 Total current liabilities 325,881 276,170 Long-term debt 12 765,049 803,736 Long-term lease obligations 24,280 24,143 Deferred tax liabilities 6 33,321 22,525 Other long-term tax liabilities 1,620 1,619 Pension liabilities 37,391 40,023 Other long-term liabilities 12,344 11,899 Total Liabilities 1,199,886 1,180,115 Equity: Common stock, $ 0.01 par value, 1,000,000,000 shares authorized, 46,982,664 and 47,407,023 shares issued and outstanding, respectively 471 475 Treasury stock, held at cost, 260,900 and 260,900 shares, respectively ( 2,580 ) ( 2,580 ) Additional paid-in capital 497,250 487,223 Retained earnings 110,818 ( 64,154 ) Accumulated other comprehensive loss 8 ( 35,797 ) ( 42,554 ) Total Equity 570,162 378,410 Total Liabilities and Equity $ 1,770,048 $ 1,558,525 See Notes to unaudited condensed consolidated financial statements. 4 ATKORE INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six months ended (in thousands) Note March 26, 2021 March 27, 2020 Operating activities: Net income $ 209,999 $ 73,983 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 38,309 37,208 Deferred income taxes 6 4,692 1,036 Stock-based compensation 10,390 7,646 Amortization of right-of-use assets 7,025 7,384 Loss on disposal of property, plant and equipment 50 4,560 Other adjustments to net income 918 2,672 Changes in operating assets and liabilities, net of effects from acquisitions Accounts receivable ( 124,261 ) 7,757 Inventories ( 31,424 ) ( 22,719 ) Accounts payable 42,130 ( 18,856 ) Other, net ( 4,583 ) ( 51,387 ) Net cash provided by operating activities 153,246 49,284 Investing activities: Capital expenditures ( 20,374 ) ( 17,139 ) Insurance proceeds for property, plant and equipment 3,117 — Acquisition of businesses, net of cash acquired ( 43,699 ) — Other, net 21 30 Net cash used in investing activities ( 60,935 ) ( 17,109 ) Financing activities: Repayments of long-term debt 12 ( 40,000 ) — Issuance of common stock, net of shares withheld for tax ( 356 ) ( 2,380 ) Repurchase of common stock ( 35,037 ) ( 15,011 ) Other, net ( 11 ) ( 30 ) Net cash used for financing activities ( 75,404 ) ( 17,421 ) Effects of foreign exchange rate changes on cash and cash equivalents 3,091 ( 967 ) Increase in cash and cash equivalents 19,998 13,787 Cash and cash equivalents at beginning of period 284,471 123,415 Cash and cash equivalents at end of period $ 304,469 $ 137,202 Supplementary Cash Flow information Capital expenditures, not yet paid $ 1,023 $ 713 See Notes to unaudited condensed consolidated financial statements. 5 ATKORE INC. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Equity (in thousands) Shares Amount Amount Balance as of September 30, 2020 47,407 $ 475 $ ( 2,580 ) $ 487,223 $ ( 64,154 ) $ ( 42,554 ) $ 378,410 Net income — — — — 85,066 — 85,066 Other comprehensive income — — — — — 7,313 7,313 Stock-based compensation — — — 5,522 — — 5,522 Issuance of common stock, net of shares withheld for tax 358 3 — ( 3,930 ) — — ( 3,927 ) Repurchase of common stock ( 1,140 ) ( 11 ) — — ( 35,026 ) — ( 35,037 ) Balance as of December 25, 2020 46,625 $ 467 $ ( 2,580 ) $ 488,815 $ ( 14,114 ) $ ( 35,241 ) $ 437,347 Net income — — — — 124,933 — 124,933 Other comprehensive income — — — — — ( 556 ) ( 556 ) Stock-based compensation — — — 4,868 — — 4,868 Issuance of common stock, net of shares withheld for tax 358 4 — 3,566 — — 3,570 Balance as of March 26, 2021 46,983 $ 471 $ ( 2,580 ) $ 497,249 $ 110,819 $ ( 35,797 ) $ 570,162 Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Equity (in thousands) Shares Amount Amount Balance as of September 30, 2019 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 Net income — — — — 39,193 — 39,193 Other comprehensive income — — — — — ( 6,003 ) ( 6,003 ) Stock-based compensation — — — 4,523 — — 4,523 Issuance of common stock, net of shares withheld for tax 91 1 — 600 — — 601 Repurchase of common stock ( 394 ) ( 4 ) — — ( 15,007 ) — ( 15,011 ) Balance as of March 27, 2020 47,176 $ 473 $ ( 2,580 ) $ 482,399 $ ( 142,473 ) $ ( 42,385 ) $ 295,434 See Notes to unaudited condensed consolidated financial statements. 6 ATKORE INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (dollars and shares in thousands, except per share data) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Organization and Ownership Structure — Atkore Inc. (the "Company", "Atkore" or "AI") is a leading manufacturer of Electrical products primarily for the non-residential construction and renovation markets and Safety & Infrastructure solutions for the construction and industrial markets. Atkore was incorporated in the State of Delaware on November 4, 2010 under the name Atkore International Group, Inc. Atkore is the sole stockholder of Atkore International Holdings Inc. ("AIH"), which in turn is the sole stockholder of Atkore International Inc. ("AII"). Segment Redefinition — Effective in the first quarter of fiscal 2021, the Company renamed and redefined its reportable segments. The Electrical Raceway segment was renamed as the Electrical segment. The Electrical segment manufactures high quality products used in the construction of electrical power systems including conduit, cable, and installation accessories. This segment serves contractors, in partnership with the electrical wholesale channel. The Mechanical Products & Solutions segment was renamed as the Safety & Infrastructure segment. This segment designs and manufactures solutions including metal framing, mechanical pipe, perimeter security, and cable management for the protection and reliability of critical infrastructure. These solutions are marketed to contractors, original equipment manufacturers and end users. Segment Realignment & Reclassifications — Effective in the first quarter of fiscal 2021, the Company implemented a realignment (the “Realignment”) of its segment financial reporting structure. The Company’s domestic cable management and prefabrication modular businesses had historically been reported in the Electrical Raceway segment. Due to transitions in the Company’s Executive Leadership Team, these businesses are now reported in the Safety & Infrastructure segment. The Realignment reflects how the Company’s Chief Operating Decision Maker now assesses the operating performance and allocates resources to the Safety & Infrastructure segment. Goodwill was also reallocated on a relative fair value basis between the applicable reporting units. The Company reflected these changes to its segment information retrospectively to the earliest period presented which resulted in a transfer of external net sales, intersegment sales, total assets, and Adjusted EBITDA from the Electrical segment to the Safety & Infrastructure segment. These changes had no impact on the Company’s previously reported consolidated net sales, operating income, net income or earnings per share. See Note 16, ''Segment Information'' for additional details. Basis of Presentation — The accompanying unaudited condensed consolidated financial statements of the Company included herein have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These unaudited condensed consolidated financial statements have been prepared in accordance with the Company's accounting policies and on the same basis as those financial statements included in the Company's latest Annual Report on Form 10-K for the year ended September 30, 2020, filed with the U.S. Securities and Exchange Commission (the "SEC") on November 19, 2020, and should be read in conjunction with those consolidated financial statements and the notes thereto. Certain information and disclosures normally included in the Company's annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The unaudited condensed consolidated financial statements include the assets and liabilities used in operating the Company's business. All intercompany balances and transactions have been eliminated in consolidation. The results of companies acquired or disposed of are included in the unaudited condensed consolidated financial statements from the effective date of acquisition or up to the date of disposal. These statements include all adjustments (consisting of normal recurring adjustments) that the Company considered necessary to present a fair statement of its results of operations, financial position and cash flows. The results reported in these unaudited condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. 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. 8 The Company records amounts billed to customers for reimbursement of shipping and handling costs within revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Sales taxes and other usage-based taxes are excluded from revenue. The Company does not evaluate whether the selling price includes a financing interest component for contracts that are less than a year. The Company also expenses costs incurred to obtain a contract, primarily sales commissions, as all obligations will be settled in less than one year . The Company typically receives payment 30 to 60 days from the point it has satisfied the related performance obligation. See Note 16, ''Segment Information'' for revenue disaggregated by geography and product categories. 3. ACQUISITIONS From time to time, the Company enters into strategic acquisitions in an effort to better service existing customers and to obtain new customers. On October 22, 2020, the Company acquired Queen City Plastics, Inc. ("Queen City Plastics"), a leading manufacturer of PVC conduit, elbows and fittings for the electrical market. The purchase price was allocated to tangible assets acquired and liabilities assumed based on their fair values for which the purchase accounting has been finalized. The purchase price of $ 6.2 million was deemed immaterial to the Company. On February 24, 2021, the Company acquired FRE Composites Group, a leading manufacturer of fiberglass conduit for the electrical and industrial market. The purchase price was allocated to tangible and intangible assets acquired and liabilities assumed, based on their fair values. As of March 26, 2021, the purchase price allocation has not been finalized as the Company is refining its fair value estimates for working capital, fixed assets and intangible assets. The preliminary purchase price was $ 37.1 million. The following table summarizes the Level 3 fair values assigned to the net assets acquired and liabilities assumed as of the acquisition date: (in thousands) Fair value of consideration transferred: Cash consideration 37,060 Fair value of assets acquired and liabilities assumed: Accounts receivable 2,163 Inventories 4,311 Intangible assets 17,900 Fixed assets 9,968 Accounts payable ( 1,186 ) Income taxes ( 5,054 ) Other ( 465 ) Net assets acquired 27,637 Excess purchase price attributed to goodwill acquired $ 9,423 The Company estimates $ 1.7 million of the goodwill is deductible for tax purposes. Goodwill recognized from this acquisition consists largely of the synergies and economies of scale from integrating this company with existing businesses. The following table summarizes the fair value of intangible assets as of the acquisition date: FRE Composites Group ($ in thousands) Fair Value Weighted Average Useful Life (Years) Customer relationships $ 14,500 11 Other 3,400 6 Total intangible assets $ 17,900 9 Net sales and net income of both the above acquisitions are included in the condensed consolidated statement of operations 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. 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 Six months ended (in thousands) Note March 26, 2021 March 27, 2020 March 26, 2021 March 27, 2020 Interest cost $ 682 $ 935 $ 1,364 $ 1,870 Expected return on plan assets ( 1,606 ) ( 1,583 ) ( 3,212 ) ( 3,166 ) Amortization of actuarial loss 333 222 666 444 Net periodic benefit credit 5 $ ( 591 ) $ ( 426 ) $ ( 1,182 ) $ ( 852 ) 10 5. OTHER INCOME, NET Other income, net consisted of the following: Three months ended Six months ended (in thousands) March 26, 2021 March 27, 2020 March 26, 2021 March 27, 2020 Business interruption insurance recovery $ ( 6,000 ) $ — $ ( 6,000 ) $ — Undesignated foreign currency derivative instruments 793 ( 3,666 ) 3,410 ( 543 ) Foreign exchange gain on intercompany loans ( 711 ) 2,407 ( 3,168 ) ( 524 ) Pension-related benefits ( 591 ) ( 426 ) ( 1,182 ) ( 852 ) Gain on purchase of business ( 731 ) — ( 731 ) — Other income, net $ ( 7,240 ) $ ( 1,685 ) $ ( 7,671 ) $ ( 1,919 ) 6. INCOME TAXES For the three months ended March 26, 2021 and March 27, 2020, the Company's effective tax rate attributable to income before income taxes was 23.5 % and 25.1 %, respectively. For the three months ended March 26, 2021 and March 27, 2020, the Company's income tax expense was $ 38,304 and $ 13,100 respectively. The decrease in the current period effective tax rate was primarily due to an increase in the excess tax benefit associated with stock compensation. For the six months ended March 26, 2021 and March 27, 2020, the Company's effective tax rate attributable to income before income taxes was 23.7 % and 21.6 %, respectively. For the six months ended March 26, 2021 and March 27, 2020, the Company's tax expense was $ 65,268 and $ 20,440 , respectively. The increase in the six month period effective tax rate was primarily due to a smaller increase in the net discrete tax benefit compared to the increase in earnings period over period. A valuation allowance has been recorded against certain net operating losses in certain foreign jurisdictions. A valuation allowance is recorded when it is determined to be more likely than not that these assets will not be fully realized in the foreseeable future. The realization of deferred tax assets is dependent upon whether the Company can generate future taxable income in the appropriate character and jurisdiction to utilize the assets. The amount of the deferred tax assets considered realizable is subject to adjustment in future periods. The Company recognizes the benefits of uncertain tax positions taken or expected to be taken in tax returns in the provision for income taxes only for those positions that we have determined are more likely than not to be realized upon examination. We record interest and penalties related to unrecognized tax benefits as a component of income tax expense. During the six months ended March 26, 2021, the balance of unrecognized tax benefits decreased by an immaterial amount due to the change in reserves for state audit items. For the six months ended March 26, 2021, the Company made no additional provision for U.S. or non-U.S. income taxes for unrecognized deferred tax liabilities for temporary differences related to basis differences in investments in subsidiaries, as the investments are essentially permanent in duration. 7. EARNINGS PER SHARE The Company calculates basic and diluted earnings per common share using the two-class method. Under the two-class method, net earnings are allocated to each class of common stock and participating securities as if all of the net earnings for the period had been distributed. The Company's participating securities consist of share-based payment awards that contain a non-forfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common stockholders. Basic earnings per common share excludes dilution and is calculated by dividing the net earnings allocated to common stock by the weighted-average number of common stock outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocated to common stock by the weighted-average number of shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards. 11 The following table sets forth the computation of basic and diluted earnings per share: Three months ended Six months ended (in thousands, except per share data) March 26, 2021 March 27, 2020 March 26, 2021 March 27, 2020 Numerator: Net income $ 124,933 $ 39,193 $ 209,999 $ 73,983 Less: Undistributed earnings allocated to participating securities 2,435 853 4,091 1,719 Net income available to common shareholders $ 122,498 $ 38,340 $ 205,908 $ 72,264 Denominator: Basic weighted average common shares outstanding 46,803 47,404 46,858 47,268 Effect of dilutive securities: Non-participating employee stock options (1) 744 691 728 961 Diluted weighted average common shares outstanding 47,547 48,095 47,586 48,229 Basic earnings per share $ 2.62 $ 0.81 $ 4.39 $ 1.53 Diluted earnings per share $ 2.58 $ 0.80 $ 4.33 $ 1.50 (1) Stock options to purchase approximately 0.0 million and 0.3 million shares of common stock were outstanding during the three months ended March 26, 2021 and March 27, 2020, respectively, but were not included in the calculation of diluted earnings per share as the impact of these options would have been anti-dilutive. Stock options to purchase approximately 0.0 million and 0.1 million shares of common stock were outstanding during the six months ended March 26, 2021 and March 27, 2020, respectively, but were not included in the calculation of diluted earnings per share as the impact of these options would have been anti-dilutive. 12 8. ACCUMULATED OTHER COMPREHENSIVE LOSS The following table presents the changes in accumulated other comprehensive loss by component for the three months ended March 26, 2021 and March 27, 2020. (in thousands) Defined benefit pension items Currency translation adjustments Total Balance as of December 25, 2020 $ ( 30,499 ) $ ( 4,742 ) $ ( 35,241 ) Other comprehensive loss before reclassifications — ( 818 ) ( 818 ) Amounts reclassified from accumulated other comprehensive loss, net of tax 262 — 262 Net current period other comprehensive income (loss) 262 ( 818 ) ( 556 ) Balance as of March 26, 2021 $ ( 30,237 ) $ ( 5,560 ) $ ( 35,797 ) (in thousands) Defined benefit pension items Currency translation adjustments Total Balance as of December 27, 2019 $ ( 23,611 ) $ ( 12,771 ) $ ( 36,382 ) Other comprehensive loss before reclassifications — ( 6,229 ) ( 6,229 ) Amounts reclassified from accumulated other comprehensive loss, net of tax 226 — 226 Net current period other comprehensive income (loss) 226 ( 6,229 ) ( 6,003 ) Balance as of March 27, 2020 $ ( 23,385 ) $ ( 19,000 ) $ ( 42,385 ) The following table presents the changes in accumulated other comprehensive loss by component for the six months ended March 26, 2021 and March 27, 2020. (in thousands) Defined benefit pension items Currency translation adjustments Total Balance as of September 30, 2020 $ ( 30,761 ) $ ( 11,793 ) $ ( 42,554 ) Other comprehensive income before reclassifications — 6,233 6,233 Amounts reclassified from accumulated other comprehensive loss, net of tax 524 — 524 Net current period other comprehensive income 524 6,233 6,757 Balance as of March 26, 2021 $ ( 30,237 ) $ ( 5,560 ) $ ( 35,797 ) (in thousands) Defined benefit pension items Currency translation adjustments Total Balance as of September 30, 2019 $ ( 23,818 ) $ ( 17,880 ) $ ( 41,698 ) Other comprehensive loss before reclassifications — ( 1,120 ) ( 1,120 ) Amounts reclassified from accumulated other comprehensive loss, net of tax 433 — 433 Net current period other comprehensive income (loss) 433 ( 1,120 ) ( 687 ) Balance as of March 27, 2020 $ ( 23,385 ) $ ( 19,000 ) $ ( 42,385 ) 13 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 77 % and 73 % of the Company's inventories were valued at the lower of LIFO cost or market at March 26, 2021 and September 30, 2020, respectively. Interim LIFO determinations, including those at March 26, 2021, are based on management's estimates of future inventory levels and costs for the remainder of the current fiscal year. (in thousands) March 26, 2021 September 30, 2020 Purchased materials and manufactured parts, net $ 58,536 $ 49,192 Work in process, net 27,713 24,113 Finished goods, net 151,643 125,790 Inventories, net $ 237,892 $ 199,095 Total inventories would be $ 32,550 higher and $ 4,418 lower than reported as of March 26, 2021 and September 30, 2020, respectively, if the first-in, first-out method was used for all inventories. As of March 26, 2021, and September 30, 2020, the excess and obsolete inventory reserve was $ 13,762 and $ 14,533 , respectively. 10. PROPERTY, PLANT AND EQUIPMENT As of March 26, 2021, and September 30, 2020, property, plant and equipment and accumulated depreciation were as follows: (in thousands) March 26, 2021 September 30, 2020 Land $ 23,170 $ 20,460 Buildings and related improvements 131,188 129,538 Machinery and equipment 363,108 332,260 Leasehold improvements 10,465 9,862 Software 27,844 27,028 Construction in progress 18,846 22,736 Property, plant and equipment, at cost 574,621 541,884 Accumulated depreciation ( 318,405 ) ( 297,993 ) Property, plant and equipment, net $ 256,216 $ 243,891 Depreciation expense for the three months ended March 26, 2021 and March 27, 2020 totaled $ 11,170 and $ 10,407 respectively. Depreciation expense for the six months ended March 26, 2021 and March 27, 2020 totaled $ 21,953 and $ 21,024 , respectively. 14 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 Goodwill acquired during year 9,423 — 9,423 Exchange rate effects 1,851 — 1,851 Balance as of March 26, 2021 $ 155,936 $ 43,577 $ 199,513 Goodwill balances as of October 1, 2020 and March 26, 2021 include $ 3,924 and $ 43,000 of accumulated impairment losses within the Electrical and Safety & Infrastructure segments, respectively. The Company assesses the recoverability of goodwill and indefinite-lived trade names on an annual basis in accordance with ASC 350, "Intangibles - Goodwill and Other." The measurement date is the first day of the fourth fiscal quarter, or more frequently, if events or circumstances indicate that it is more likely than not that the fair value of a reporting unit or the respective indefinite-lived trade name is less than the carrying value. The following table provides the gross carrying value, accumulated amortization and net carrying value for each major class of intangible assets: March 26, 2021 September 30, 2020 ($ in thousands) Weighted Average Useful Life (Years) Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value Amortizable intangible assets: Customer relationships 11 $ 370,848 $ ( 219,196 ) $ 151,652 $ 355,735 $ ( 202,677 ) $ 153,058 Other 8 24,893 ( 10,435 ) 14,458 19,086 ( 9,675 ) 9,411 Total 395,741 ( 229,631 ) 166,110 374,821 ( 212,352 ) 162,469 Indefinite-lived intangible assets: Trade names 92,880 — 92,880 92,880 — 92,880 Total $ 488,621 $ ( 229,631 ) $ 258,990 $ 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 March 26, 2021 and March 27, 2020 was $ 8,096 and $ 8,071 , respectively. Amortization expense for the six months ended March 26, 2021 and March 27, 2020 was $ 16,356 and $ 16,184 , 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 $ 22,744 2022 34,950 2023 34,842 2024 28,974 2025 15,450 2026 14,104 Thereafter 15,046 Actual amounts of amortization may differ from estimated amounts due to additional intangible asset acquisitions, impairment of intangible assets and other events. 15 12. DEBT Debt as of March 26, 2021 and September 30, 2020 was as follows: (in thousands) March 26, 2021 September 30, 2020 First Lien Term Loan Facility due December 22, 2023 $ 771,629 $ 811,540 Deferred financing costs ( 6,580 ) ( 7,804 ) Total debt $ 765,049 $ 803,736 Less: Current portion — — Long-term debt $ 765,049 $ 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 $ 315,499 and $ 265,899 as of March 26, 2021 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 £ 36.1 million and £ 43.3 million as of March 26, 2021 and September 30, 2020, respectively. Cash flows associated with derivative financial instruments are recognized in the operating section of the condensed consolidated statements of cash flows. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The following table presents the Company's assets and liabilities measured at fair value: March 26, 2021 September 30, 2020 (in thousands) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Assets Cash equivalents $ 218,684 $ — $ — $ 209,421 $ — $ — Forward currency contracts — — — — 2,209 — Liabilities Forward currency contracts — $ 1,174 — — 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. The estimated fair value of financial instruments not carried at fair value in the condensed consolidated balance sheets were as follows: 16 March 26, 2021 September 30, 2020 (in thousands) Carrying Value Fair Value Carrying Value Fair Value First Lien Term Loan Facility due December 22, 2023 $ 772,120 $ 772,808 $ 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 March 26, 2021, such obligations were $ 293,136 for the rest of fiscal year 2021 and $ 10,905 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 $ 682 and $ 597 as of March 26, 2021 and September 30, 2020, respectively. As of March 26, 2021, the Company believes that the range of aggregate reasonably possible losses for Special Products Claims and other product liabilities is between $ 1,000 and $ 8,000 . During fiscal 2019, Tyco and the Company agreed with a plaintiff to settle one Special Products Claim that was to go to trial. The Company agreed to fund the total settlement in exchange for Tyco's agreement to cap the Company's Special Products Claim deductible at $ 12,000 , as opposed to the $ 13,000 cap negotiated within the original indemnity agreement. In conjunction with the payment of that settlement, Tyco and the Company examined the Company's total Special Products Claim payments and agreed that with that settlement payment and payment of a few other legal fee invoices, all of which have now been paid, the Company had met its $ 12,000 deductible obligation related to these Special Products Claims. Tyco, now Johnson Controls, Inc. ("JCI"), has a contractual obligation to indemnify the Company in respect of all remaining and future claims of incompatibility between the Company's antimicrobial coated steel sprinkler pipe and CPVC pipe used in the same sprinkler system. Tyco has defended and indemnified the Company on Special Products Claims as required. At this time, the Company does not expect the outcome of the Special Products Claims proceedings, either individually or in the aggregate, to have a material adverse effect on its business, financial condition, results of operations or cash flows, and the Company believes that its reserves are adequate for all remaining contingencies for Special Products Claims. During the year ended September 30, 2020, one of the Company’s manufacturing facilities experienced a flood which resulted in damage to certain property, plant and equipment. This facility is covered under the Company’s property and casualty loss and business interruption insurance policies. The Company recorded an expense of $ 6,046 for losses related to fully written off property, plant and equipment, with a related insurance recovery of $ 5,046 within selling, general and administrative expenses in its consolidated statements of operations for the year ended September 30, 2020. The Company believes that, other than the $ 1,000 deductible expense under the related insurance claim, it will be reimbursed for substantially all other property, plant and equipment losses in connection with the event under its current insurance policies. During the three months ended March 26, 2021, the Company received $ 6,000 of business interruption insurance recovery proceeds related to this incident. The amount was recorded as other income within the condensed consolidated statements of operations for the three and six months ended March 26, 2021. In addition to the matters discussed above, from time to time, the Company is subject to a number of disputes, administrative proceedings and other claims arising out of the ordinary conduct of the Company's business. These matters generally relate to disputes arising out of the use or installation of the Company's products, product liability litigation, contract disputes, patent infringement accusations, employment matters, personal injury claims and similar matters. On the basis of information currently available to the Company, it does not believe that existing proceedings and claims will have a material adverse effect on its business, financial condition, results of operations or cash flows. However, litigation is unpredictable, and 17 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 March 26, 2021. The Company also had surety bonds primarily related to performance guarantees on supply agreements and construction contracts, and payment of duties and taxes totaling $ 15,675 as of March 26, 2021. 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, insurance recovery related to damages of property, plant and equipment, release of indemnified uncertain tax positions, and realized or unrealized gain (loss) on foreign currency impacts of intercompany loans and related forward currency derivatives. Intersegment transactions primarily consist of product sales at designated transfer prices on an arm's-length basis. Gross profit earned and reported within the segment is eliminated in the Company's consolidated results. Certain manufacturing and distribution expenses are allocated between the segments on a pro rata basis due to the shared nature of activities. Recorded amounts represent a proportional amount of the quantity of product produced for each segment. Certain assets, such as machinery and equipment and facilities, are not allocated to each segment despite serving both segments. These shared assets are reported within the Safety & Infrastructure segment. The Company allocates certain corporate operating expenses that directly benefit our operating segments, such as insurance and information technology, on a basis that reasonably approximates an estimate of the use of these services. 18 Three months ended March 26, 2021 March 27, 2020 (in thousands) External Net Sales Intersegment Sales Adjusted EBITDA External Net Sales Intersegment Sales Adjusted EBITDA Electrical $ 486,924 $ 576 $ 188,826 $ 322,524 $ 694 $ 77,233 Safety & Infrastructure 152,619 81 16,193 133,130 — 17,888 Eliminations — ( 657 ) — ( 694 ) Consolidated operations $ 639,543 $ — $ 455,654 $ — Six months ended March 26, 2021 March 27, 2020 (in thousands) External Net Sales Intersegment Sales Adjusted EBITDA External Net Sales Intersegment Sales Adjusted EBITDA Electrical $ 873,244 $ 1,401 $ 322,099 $ 646,464 $ 1,301 $ 145,352 Safety & Infrastructure 277,381 84 30,445 256,638 — 36,615 Eliminations — ( 1,485 ) — ( 1,301 ) Consolidated operations $ 1,150,625 $ — $ 903,102 $ — Presented below is a reconciliation of operating segment Adjusted EBITDA to Income before income taxes: Three months ended Six months ended (in thousands) March 26, 2021 March 27, 2020 March 26, 2021 March 27, 2020 Operating segment Adjusted EBITDA Electrical $ 188,826 $ 77,233 $ 322,099 $ 145,352 Safety & Infrastructure 16,193 17,888 30,445 36,615 Total $ 205,019 $ 95,121 $ 352,544 $ 181,967 Unallocated expenses (a) ( 11,654 ) ( 8,115 ) ( 22,189 ) ( 17,251 ) Depreciation and amortization ( 19,265 ) ( 18,478 ) ( 38,309 ) ( 37,208 ) Interest expense, net ( 8,416 ) ( 10,564 ) ( 16,670 ) ( 21,184 ) Stock-based compensation ( 4,868 ) ( 4,523 ) ( 10,390 ) ( 7,646 ) Other (b) 2,421 ( 1,148 ) 10,281 ( 4,255 ) Income before income taxes $ 163,237 $ 52,293 $ 275,267 $ 94,423 (a) Represents unallocated selling, general and administrative activities and associated expenses including, in part, executive, legal, finance, human resources, information technology, business development and communications, as well as certain costs and earnings of employee-related benefits plans, such as stock-based compensation and a portion of self-insured medical costs. (b) Represents other items, such as inventory reserves and adjustments, loss on disposal of property, plant and equipment, insurance recovery related to damages of property, plant and equipment, release of indemnified uncertain tax positions, realized or unrealized gain (loss) on foreign currency impacts of intercompany loans and related forward currency derivatives, gain on purchase of business, restructuring costs and transaction costs. The Company's net sales by geography were as follows for the six months ended March 26, 2021 and March 27, 2020: 19 Three months ended Six months ended (in thousands) March 26, 2021 March 27, 2020 March 26, 2021 March 27, 2020 United States $ 572,427 $ 401,055 1,027,191 $ 797,195 Other Americas 12,636 7,655 19,410 14,242 Europe 43,546 37,241 82,899 69,327 Asia-Pacific 10,934 9,703 21,125 22,338 Total $ 639,543 $ 455,654 $ 1,150,625 $ 903,102 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 six months ended March 26, 2021 and March 27, 2020: Three months ended Six months ended (in thousands) March 26, 2021 March 27, 2020 March 26, 2021 March 27, 2020 Metal Electrical Conduit and Fittings $ 148,405 $ 125,610 $ 273,234 $ 249,451 Armored Cable and Fittings 85,440 82,615 158,952 166,438 PVC Electrical Conduit and Fittings 197,139 71,341 337,674 144,229 International Cable Management Products 48,048 39,414 91,261 77,634 Other Electrical products 7,892 3,544 12,123 8,712 Electrical 486,924 322,524 873,244 646,464 Mechanical Pipe 86,480 65,693 151,991 124,025 Other Safety & Infrastructure products 66,139 67,437 125,390 132,613 Safety & Infrastructure 152,619 133,130 277,381 256,638 Net sales $ 639,543 $ 455,654 $ 1,150,625 $ 903,102 20