Atkore Inc. 10-Q

Item 1. Financial Statements ATKORE INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three months ended Nine months ended (in thousands, except per share data) Note June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021 Net sales $ 1,061,590 $ 853,658 $ 2,884,963 $ 2,004,283 Cost of sales 607,267 514,385 1,659,416 1,235,970 Gross profit 454,323 339,273 1,225,547 768,313 Selling, general and administrative 95,952 81,832 263,020 210,250 Intangible asset amortization 11 8,624 8,707 25,554 25,063 Operating income 349,747 248,734 936,973 533,000 Interest expense, net 7,243 8,090 21,676 24,760 Loss on extinguishment of debt — 4,202 — 4,202 Other income, net 5 150 ( 509 ) ( 964 ) ( 8,180 ) Income before income taxes 342,354 236,951 916,261 512,218 Income tax expense 6 88,041 61,654 223,630 126,922 Net income $ 254,313 $ 175,297 $ 692,631 $ 385,296 Net income per share Basic 7 $ 5.81 $ 3.69 $ 15.30 $ 8.08 Diluted 7 $ 5.74 $ 3.64 $ 15.10 $ 7.95 See Notes to unaudited condensed consolidated financial statements. 2 ATKORE INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three months ended Nine months ended (in thousands) Note June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021 Net income $ 254,313 $ 175,297 $ 692,631 $ 385,296 Other comprehensive (loss) income, net of tax: Change in foreign currency translation adjustment ( 6,658 ) 2,152 ( 10,669 ) 8,385 Change in unrecognized loss related to pension benefit plans 4 124 262 373 786 Total other comprehensive (loss) income 8 ( 6,534 ) 2,414 ( 10,296 ) 9,171 Comprehensive income $ 247,779 $ 177,711 $ 682,335 $ 394,467 See Notes to unaudited condensed consolidated financial statements. 3 ATKORE INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share and per share data) Note June 24, 2022 September 30, 2021 Assets Current Assets: Cash and cash equivalents $ 186,650 $ 576,289 Accounts receivable, less allowance for current and expected credit losses of $ 4,204 and $ 2,510 , respectively 737,319 524,926 Inventories, net 9 444,661 285,989 Prepaid expenses and other current assets 65,076 34,248 Total current assets 1,433,706 1,421,452 Property, plant and equipment, net 10 343,337 275,622 Intangible assets, net 11 351,477 241,204 Goodwill 11 281,949 199,048 Right-of-use assets, net 42,124 41,113 Deferred tax assets 6 29,431 29,693 Other long-term assets 2,027 1,967 Total Assets $ 2,484,051 $ 2,210,099 Liabilities and Equity Current Liabilities: Accounts payable 275,367 243,164 Income tax payable 10,176 72,953 Accrued compensation and employee benefits 48,927 57,437 Customer liabilities 95,435 80,324 Lease obligations 11,336 11,785 Other current liabilities 76,913 59,273 Total current liabilities 518,154 524,936 Long-term debt 12 759,999 758,386 Long-term lease obligations 31,714 30,236 Deferred tax liabilities 6 16,881 16,746 Pension liabilities 1,854 3,819 Other long-term liabilities 15,440 11,240 Total Liabilities 1,344,042 1,345,363 Equity: Common stock, $ 0.01 par value, 1,000,000,000 shares authorized, 42,530,966 and 45,997,159 shares issued and outstanding, respectively 426 461 Treasury stock, held at cost, 290,600 and 290,600 shares, respectively ( 2,580 ) ( 2,580 ) Additional paid-in capital 496,785 506,921 Retained earnings 684,400 388,660 Accumulated other comprehensive loss 8 ( 39,022 ) ( 28,726 ) Total Equity 1,140,009 864,736 Total Liabilities and Equity $ 2,484,051 $ 2,210,099 See Notes to unaudited condensed consolidated financial statements. 4 ATKORE INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine months ended (in thousands) Note June 24, 2022 June 25, 2021 Operating activities: Net income $ 692,631 $ 385,296 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 60,467 58,475 Deferred income taxes 6 ( 12,649 ) 17,939 Stock-based compensation 14,180 14,158 Amortization of right-of-use assets 9,868 10,545 Loss on extinguishment of debt — 4,202 Other non-cash adjustments to net income 13,268 ( 964 ) Changes in operating assets and liabilities, net of effects from acquisitions Accounts receivable ( 189,306 ) ( 217,583 ) Inventories ( 152,705 ) ( 32,556 ) Prepaid expenses and other current assets ( 17,236 ) ( 7,081 ) Accounts payable 15,598 69,353 Accrued and other liabilities 13,063 35,665 Income taxes ( 76,996 ) ( 15,023 ) Other, net 1,592 ( 3,805 ) Net cash provided by operating activities 371,776 318,621 Investing activities: Capital expenditures ( 81,990 ) ( 34,242 ) Proceeds from sale of properties and equipment 658 3,117 Acquisition of businesses, net of cash acquired ( 255,361 ) ( 43,195 ) Other, net — 17 Net cash used in investing activities ( 336,693 ) ( 74,303 ) Financing activities: Repayments of long-term debt 12 — ( 812,120 ) Proceeds from issuance of long-term debt 12 — 798,000 Payment for debt financing costs and fees — ( 11,294 ) Issuance of common stock, net of shares withheld for tax ( 24,312 ) 65 Repurchase of common stock ( 396,929 ) ( 110,063 ) Net cash used for financing activities ( 421,241 ) ( 135,412 ) Effects of foreign exchange rate changes on cash and cash equivalents ( 3,481 ) 3,765 (Decrease) Increase in cash and cash equivalents ( 389,639 ) 112,671 Cash and cash equivalents at beginning of period 576,289 284,471 Cash and cash equivalents at end of period $ 186,650 $ 397,142 Supplementary Cash Flow information Capital expenditures, not yet paid $ 5,212 $ 457 Operating lease right-of-use assets obtained in exchange for lease liabilities $ 2,919 $ 2,630 Acquisitions of businesses, not yet paid 3,266 $ — 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, 2021 45,997 $ 461 $ ( 2,580 ) $ 506,921 $ 388,660 $ ( 28,726 ) $ 864,736 Net income — — — — 204,843 — 204,843 Other comprehensive loss — — — — — ( 1,333 ) ( 1,333 ) Stock-based compensation — — — 3,427 — — 3,427 Issuance of common stock, net of shares withheld for tax 355 4 — ( 24,509 ) — — ( 24,505 ) Repurchase of common stock ( 958 ) ( 10 ) — ( 104,537 ) — ( 104,547 ) Balance as of December 24, 2021 45,394 $ 455 $ ( 2,580 ) $ 485,839 $ 488,966 $ ( 30,059 ) $ 942,621 Net income — — — — 233,477 — 233,477 Other comprehensive loss — — — — — ( 2,429 ) ( 2,429 ) Stock-based compensation — — — 6,128 — — 6,128 Issuance of common stock, net of shares withheld for tax 24 — — 103 — — 103 Repurchase of common stock ( 1,539 ) ( 15 ) — — ( 156,611 ) — ( 156,626 ) Balance as of March 25, 2022 43,879 $ 440 $ ( 2,580 ) $ 492,070 $ 565,832 $ ( 32,488 ) $ 1,023,274 Net income — — — — 254,313 — 254,313 Other comprehensive loss — — — — — ( 6,534 ) ( 6,534 ) Stock-based compensation — — — 4,625 — — 4,625 Issuance of common stock, net of shares withheld for tax 25 — — 90 — 90 Repurchase of common stock ( 1,374 ) ( 14 ) — — ( 135,745 ) — ( 135,759 ) Balance as of June 24, 2022 42,530 $ 426 $ ( 2,580 ) $ 496,785 $ 684,400 $ ( 39,022 ) $ 1,140,009 6 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 (loss) — — — — — ( 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 Net income — — — — 175,297 — 175,297 Other comprehensive income — — — — — 2,414 2,414 Stock-based compensation — — — 3,768 — — 3,768 Issuance of common stock 38 3 — 421 — — 424 Repurchase of common stock ( 918 ) ( 11 ) — — ( 75,017 ) — ( 75,028 ) Balance as of June 25, 2021 46,103 463 ( 2,580 ) 501,438 211,099 ( 33,383 ) 677,037 See Notes to unaudited condensed consolidated financial statements. 7 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 ” ). 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 Safety & Infrastructure 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. 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, 2021, filed with the U.S. Securities and Exchange Commission (the “ SEC ” ) on November 18, 2021, 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. 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. 8 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 2019-12 Simplifying the accounting for income taxes (Topic 740) The ASU eliminates certain existing exceptions related to the general approach in ASC 740 relating to franchise taxes, reducing complexity in the interim period accounting for year to date loss limitations and changes in tax laws and clarifying the accounting for transactions outside of a business combination that result in a step up in the tax basis of goodwill. The Company adopted this standard in the first quarter of 2022. The adoption of the standard did not have a material impact on the Company ’ s consolidated financial statements. 2022 2. REVENUE FROM CONTRACTS WITH CUSTOMERS The Company’s revenue arrangements primarily consist of a single performance obligation to transfer promised goods which is satisfied at a point in time when title, risks and rewards of ownership, and subsequently control have transferred to the customer. This generally occurs when the product is shipped to the customer, with an immaterial amount of transactions in which control transfers upon delivery. The Company primarily offers assurance-type standard warranties that do not represent separate performance obligations. The Company has certain arrangements that require it to estimate at the time of sale the amounts of variable consideration that should not be recorded as revenue as certain amounts are not expected to be collected from customers, as well as an estimate of the value of products to be returned. The Company principally relies on historical experience, specific customer agreements, and anticipated future trends to estimate these amounts at the time of sale and to reduce the transaction price. These arrangements include sales discounts and allowances, volume rebates, and returned goods. The Company records amounts billed to customers for reimbursement of shipping and handling costs within revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Sales taxes and other usage-based taxes are excluded from revenue. The Company does not evaluate whether the selling price includes a financing interest component for contracts that are less than a year. The Company also expenses costs incurred to obtain a contract, primarily sales commissions, as all obligations will be settled in less than one year . 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. Fiscal 2022 On June 22, 2022, Atkore International Inc., a wholly-owned subsidiary of the Company acquired all of the outstanding stock of United Poly Systems, LLC (“United Poly”), for a purchase price of $ 226,506 . United Poly is a manufacturer of high density polyethylene (“HDPE”) pressure pipe and conduit, primarily serving the telecommunications, water infrastructure, renewables and energy markets. The purchase price allocation has not been finalized as the Company is finalizing working capital, inventory, intangible asset, deferred tax asset and liabilities and fixed asset fair values. 9 On May 19, 2022, Allied Tube and Conduit Corporation, wholly-owned subsidiary of the Company acquired the assets of Talon Products, LLC (“Talon”), for a purchase price of $ 4,193 . Talon is a manufacturer of non-metallic, injection molded cable cleats, primarily serving the power distribution markets. The purchase price allocation has not been finalized as the Company is finalizing working capital and intangible asset fair values. On December 21, 2021, Atkore HDPE, LLC and Allied Tube and Conduit Corporation, wholly-owned subsidiaries of the Company, acquired the assets of Four Star Industries LLC (“Four Star”), for a purchase price of $ 23,195 . Four Star is a manufacturer of high density polyethylene (HDPE) conduit, primarily serving the telecommunications, utility, infrastructure and datacom markets. The Company finalized the purchase price allocation of Four Star in the third quarter of fiscal 2022. On December 20, 2021, Columbia-MBF Inc., a wholly-owned subsidiary of the Company acquired all of the outstanding stock of Sasco Tubes & Roll Forming Inc. (“Sasco”), for a purchase price of $ 16,184 , of which $ 13,320 was paid at closing and additional purchase price payable of $ 2,864 was accrued. Sasco is a Canadian manufacturer of metal framing and related products serving the electrical, mechanical, construction and solar industries. The Company finalized the purchase price allocation of Sasco in the third quarter of fiscal 2022. The acquisitions in fiscal 2022 were funded using cash-on-hand. The Company incurred approximately $ 3,274 in acquisition-related expenses for these acquisitions, which were recorded as a component of selling, general and administrative expenses. The purchase price was allocated to tangible and intangible assets acquired and liabilities assumed, based on their fair values. The following table summarizes the Level 3 fair values assigned to the net assets acquired and liabilities assumed as of the acquisition date for fiscal 2022: (in thousands) United Poly Other Total Fair value of consideration transferred: Cash consideration $ 226,506 $ 40,306 $ 266,812 Purchase price payable — 3,266 3,266 Total consideration transferred $ 226,506 $ 43,572 $ 270,078 Fair value of assets acquired and liabilities assumed: Cash 11,451 — 11,451 Accounts receivable 23,679 5,684 29,363 Inventories 13,266 4,821 18,087 Intangible assets 118,670 19,640 138,310 Fixed assets 14,091 2,784 16,875 Accounts payable ( 11,940 ) ( 3,995 ) ( 15,935 ) Income taxes ( 12,189 ) ( 2,075 ) ( 14,264 ) Other ( 103 ) ( 129 ) ( 232 ) Net assets acquired 156,925 26,730 183,655 Excess purchase price attributed to goodwill acquired $ 69,581 $ 16,842 $ 86,423 The Company estimates $ 11.7 million of the goodwill recognized on the United Poly acquisition is deductible for tax purposes. Goodwill recognized from the acquisitions in fiscal 2022 consists largely of the synergies and economies of scale from integrating this company with existing businesses. 10 The following table summarizes the fair value of intangible assets as of the acquisition date: United Poly Other (in thousands) Fair Value Weighted Average Useful Life (Years) Fair Value Weighted Average Useful Life (Years) Customer relationships $ 96,100 11 $ 16,720 10 Other 22,570 8 2,920 8 Total intangible assets $ 118,670 $ 19,640 The following table presents unaudited pro forma results of operations for the Company and all companies acquired in fiscal 2022 as if those acquisitions had occurred on October 1, 2020. The results presented below are for the three and nine months ended: Three months ended Nine months ended (in thousands) June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021 Pro forma net sales $ 1,096,866 $ 883,980 $ 2,992,265 $ 2,068,169 Pro forma net income 256,356 175,107 696,012 378,795 The pro forma condensed financial information is presented for illustrative purposes only and does not indicate the actual financial results of the Company if the closing of the acquisitions in the current year had been completed on October 1, 2020, nor is it indicative of the results of operations in future periods. Included in the unaudited pro forma financial information for the three and nine months ended June 24, 2022 and June 25, 2021 were pro forma adjustments to reflect the results of operations of the acquisitions in the current year as though those acquisitions were completed as of the beginning of October 1, 2020, as well as the impact of amortizing certain acquisition accounting adjustments such as amortizable intangible assets. The pro forma financial information neither indicates the impact of possible business model changes nor considers any potential impact of current market conditions, expense efficiencies or other factors. Net sales and net income of the acquired companies are included in the consolidated statement of operations for the quarter and nine months ended June 24, 2022 for the post-acquisition period. Fiscal 2021 On February 24, 2021, Atkore Southwest, LLC, a wholly-owned subsidiary of the Company acquired the assets of FRE Composites USA Inc. and separately the Company acquired all of the outstanding stock of FRE Composites Inc., collectively described as FRE Composites Group (“FRE Composites”), for a purchase price of $ 36,993 , net of cash received. FRE Composites is 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. On October 22, 2020, Atkore Plastics Southeast, LLC, a wholly-owned subsidiary of the Company acquired the assets of 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. The purchase price of $ 6,214 was deemed immaterial to the Company. The purchase price for FRE Composites, which was finalized during the fourth quarter of fiscal 2021, was allocated to tangible and intangible assets acquired and liabilities assumed, based on their fair values. 11 The acquisitions in fiscal 2021 were funded using cash-on-hand. The Company incurred approximately $ 646 in acquisition-related expenses for these acquisitions, which were recorded as a component of selling, general and administrative expenses. The following table summarizes the Level 3 fair values assigned to the net assets acquired and liabilities assumed as of the acquisition date for fiscal 2021: (in thousands) FRE Composites Fair value of consideration transferred: Cash consideration $ 36,993 Fair value of assets acquired and liabilities assumed: Cash 437 Accounts receivable 2,163 Inventories 3,355 Intangible assets 18,300 Fixed assets 8,509 Accounts payable ( 1,186 ) Income taxes ( 4,293 ) Other ( 240 ) Net assets acquired 27,045 Excess purchase price attributed to goodwill acquired $ 9,948 The Company estimates $ 1.6 million of the goodwill recognized on the FRE acquisition is deductible for tax purposes. Goodwill recognized from the acquisitions in fiscal 2021 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 (in thousands) Fair Value Weighted Average Useful Life (Years) Customer relationships $ 14,700 12 Other 3,600 6 Total intangible assets $ 18,300 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. 12 4. POSTRETIREMENT BENEFITS The Company provides pension benefits through a number of noncontributory and contributory defined benefit retirement plans covering eligible U.S. employees. As of September 30, 2017, all defined pension benefit plans were frozen, whereby participants no longer accrue credited service. The net periodic benefit credit was as follows: Three months ended Nine months ended (in thousands) Note June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021 Interest cost $ 739 $ 682 $ 2,218 $ 2,047 Expected return on plan assets ( 1,348 ) ( 1,606 ) ( 4,044 ) ( 4,818 ) Amortization of actuarial loss 158 332 473 995 Net periodic benefit credit 5 $ ( 451 ) $ ( 592 ) $ ( 1,353 ) $ ( 1,776 ) 5. OTHER INCOME, NET Other income, net consisted of the following: Three months ended Nine months ended (in thousands) June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021 Business interruption insurance recovery $ — $ — $ — $ ( 6,000 ) Undesignated foreign currency derivative instruments ( 2,662 ) 377 ( 3,472 ) 3,786 Foreign exchange loss (gain) on intercompany loans 3,263 ( 294 ) 3,860 ( 3,459 ) Pension-related benefits ( 451 ) ( 592 ) ( 1,352 ) ( 1,776 ) Gain on purchase of business — — — ( 731 ) Other income, net $ 150 $ ( 509 ) $ ( 964 ) $ ( 8,180 ) 6. INCOME TAXES For the three months ended June 24, 2022 and June 25, 2021, the Company’s effective tax rate attributable to income before income taxes was 25.7 % and 26.0 %, respectively. For the three months ended June 24, 2022 and June 25, 2021, the Company’s income tax expense was $ 88,041 and $ 61,654 respectively. The decrease in the current period effective tax rate was primarily driven by the prior year one-time tax expense from the deferred remeasurement of our UK subsidiaries due to the enactment of the Finance Act of 2021 which, among other things, changed the UK corporate tax rate from 19% to 25%. For the nine months ended June 24, 2022 and June 25, 2021, the Company’s effective tax rate attributable to income before income taxes was 24.4 % and 24.8 %, respectively. For the nine months ended June 24, 2022 and June 25, 2021, the Company’s income tax expense was $ 223,630 and $ 126,922 respectively. The decrease in the current period effective tax rate was driven by an increase 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. 13 The Company recognizes the benefits of uncertain tax positions taken or expected to be taken in tax returns in the provision for income taxes only for those positions that we have determined are more likely than not to be realized upon examination. We record interest and penalties related to unrecognized tax benefits as a component of income tax expense. During the nine months ended June 24, 2022, the balance of unrecognized tax benefits decreased by $ 1,893 primarily due to the resolution of a state tax matter. For the nine months ended June 24, 2022, 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: Three months ended Nine months ended (in thousands, except per share data) June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021 Numerator: Net income $ 254,313 $ 175,297 $ 692,631 $ 385,296 Less: Undistributed earnings allocated to participating securities 3,883 3,389 11,002 7,483 Net income available to common shareholders $ 250,430 $ 171,908 $ 681,629 $ 377,813 Denominator: Basic weighted average common shares outstanding 43,072 46,602 44,553 46,771 Effect of dilutive securities: Non-participating employee stock options (1) 558 684 578 742 Diluted weighted average common shares outstanding 43,630 47,286 45,131 47,513 Basic earnings per share $ 5.81 $ 3.69 $ 15.30 $ 8.08 Diluted earnings per share $ 5.74 $ 3.64 $ 15.10 $ 7.95 (1) Stock options to purchase shares of common stock that would have been anti-dilutive are not included in the calculation. There were no anti-dilutive options outstanding during the three months ended June 24, 2022 and June 25, 2021. Additionally, there were no anti-dilutive options outstanding during the nine months ended June 24, 2022 and June 25, 2021. 14 8. ACCUMULATED OTHER COMPREHENSIVE LOSS The following table presents the changes in accumulated other comprehensive loss by component for the three months ended June 24, 2022 and June 25, 2021. (in thousands) Defined Benefit Pension Items Currency Translation Adjustments Total Balance as of March 25, 2022 $ ( 19,068 ) $ ( 13,420 ) $ ( 32,488 ) Other comprehensive loss before reclassifications — ( 6,657 ) ( 6,657 ) Amounts reclassified from accumulated other comprehensive income, net of tax 123 — 123 Net current period other comprehensive income (loss) 123 ( 6,657 ) ( 6,534 ) Balance as of June 24, 2022 $ ( 18,945 ) $ ( 20,077 ) $ ( 39,022 ) (in thousands) Defined Benefit Pension Items Currency Translation Adjustments Total Balance as of March 26, 2021 $ ( 30,237 ) $ ( 5,560 ) $ ( 35,797 ) Other comprehensive income before reclassifications — 2,152 2,152 Amounts reclassified from accumulated other comprehensive income, net of tax 262 — 262 Net current period other comprehensive income 262 2,152 2,414 Balance as of June 25, 2021 $ ( 29,975 ) $ ( 3,408 ) $ ( 33,383 ) The following table presents the changes in accumulated other comprehensive loss by component for the nine months ended June 24, 2022 and June 25, 2021. (in thousands) Defined Benefit Pension Items Currency Translation Adjustments Total Balance as of September 30, 2021 $ ( 19,318 ) $ ( 9,408 ) $ ( 28,726 ) Other comprehensive loss before reclassifications — ( 10,669 ) ( 10,669 ) Amounts reclassified from accumulated other comprehensive income, net of tax 373 — 373 Net current period other comprehensive income (loss) 373 ( 10,669 ) ( 10,296 ) Balance as of June 24, 2022 $ ( 18,945 ) $ ( 20,077 ) $ ( 39,022 ) 15 (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 — 8,385 8,385 Amounts reclassified from accumulated other comprehensive income, net of tax 786 — 786 Net current period other comprehensive income 786 8,385 9,171 Balance as of June 25, 2021 $ ( 29,975 ) $ ( 3,408 ) $ ( 33,383 ) 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 85 % and 81 % of the Company ’ s inventories were valued at the lower of LIFO cost or market at June 24, 2022 and September 30, 2021, respectively. Interim LIFO determinations, including those at June 24, 2022, are based on management ’ s estimates of future inventory levels and costs for the remainder of the current fiscal year. (in thousands) June 24, 2022 September 30, 2021 Purchased materials and manufactured parts, net $ 134,531 $ 105,460 Work in process, net 65,436 35,043 Finished goods, net 244,694 145,486 Inventories, net $ 444,661 $ 285,989 Total inventories would be $ 101,710 higher and $ 108,911 higher than reported as of June 24, 2022 and September 30, 2021, respectively, if the first-in, first-out method was used for all inventories. As of June 24, 2022, and September 30, 2021, the excess and obsolete inventory reserve was $ 21,486 and $ 11,780 , respectively. 16 10. PROPERTY, PLANT AND EQUIPMENT As of June 24, 2022, and September 30, 2021, property, plant and equipment and accumulated depreciation were as follows: (in thousands) June 24, 2022 September 30, 2021 Land $ 26,596 $ 23,043 Buildings and related improvements 167,290 136,680 Machinery and equipment 411,808 372,503 Leasehold improvements 9,769 9,720 Software 35,485 28,288 Construction in progress 60,788 43,055 Property, plant and equipment, at cost 711,736 613,289 Accumulated depreciation ( 368,399 ) ( 337,667 ) Property, plant and equipment, net $ 343,337 $ 275,622 Depreciation expense for the three months ended June 24, 2022 and June 25, 2021 totaled $ 11,804 and $ 11,459 respectively. Depreciation expense for the nine months ended June 24, 2022 and June 25, 2021 totaled $ 34,914 and $ 33,412 respectively. 11. GOODWILL AND INTANGIBLE ASSETS Changes in the carrying amount of goodwill are as follows: (in thousands) Electrical Safety & Infrastructure Total Balance as of September 30, 2021 $ 155,471 $ 43,577 $ 199,048 Goodwill acquired during year 76,928 9,495 86,423 Exchange rate effects ( 3,476 ) ( 46 ) ( 3,522 ) Balance as of June 24, 2022 $ 228,923 $ 53,026 $ 281,949 Goodwill balances as of September 30, 2021 and June 24, 2022 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. 17 The following table provides the gross carrying value, accumulated amortization and net carrying value for each major class of intangible asset: June 24, 2022 September 30, 2021 (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 $ 483,965 $ ( 259,167 ) $ 224,798 $ 371,048 $ ( 234,946 ) $ 136,102 Other 7 44,645 ( 10,846 ) 33,799 23,633 ( 11,411 ) 12,222 Total 528,610 ( 270,013 ) 258,597 394,681 ( 246,357 ) 148,324 Indefinite-lived intangible assets: Trade names 92,880 — 92,880 92,880 — 92,880 Total $ 621,490 $ ( 270,013 ) $ 351,477 $ 487,561 $ ( 246,357 ) $ 241,204 Other intangible assets consist of definite-lived trade names, technology, non-compete agreements and backlogs. Amortization expense for the three months ended June 24, 2022 and June 25, 2021 was $ 8,624 and $ 8,707 , respectively. Amortization expense for the nine months ended June 24, 2022 and June 25, 2021 was $ 25,554 and $ 25,063 , respectively. Expected amortization expense for intangible assets for the remainder of fiscal 2022 and over the next five years and thereafter is as follows: (in thousands) Remaining 2022 $ 14,334 2023 46,402 2024 41,224 2025 29,221 2026 27,200 2027 25,252 Thereafter 74,964 Actual amounts of amortization may differ from estimated amounts due to additional intangible asset acquisitions, impairment of intangible assets and other events. 12. DEBT Debt as of June 24, 2022 and September 30, 2021 was as follows: (in thousands) June 24, 2022 September 30, 2021 Senior Secured Term Loan Facility due May 26, 2028 $ 371,310 $ 371,095 Senior Notes due June 2031 400,000 400,000 Deferred financing costs ( 11,311 ) ( 12,709 ) Long-term debt $ 759,999 $ 758,386 The asset-based credit facility (the “ ABL Credit Facility ” ) has aggregate commitments of $ 325,000 . AII is the borrower under the ABL Credit Facility which is guaranteed by the Company and all other 18 subsidiaries of the Company (other than AII) that are guarantors of the Senior Notes. AII ’ s availability under the ABL Credit Facility was $ 312,905 and $ 315,499 as of June 24, 2022 and September 30, 2021. 13. FAIR VALUE MEASUREMENTS Certain assets and liabilities are required to be recorded at fair value on a recurring basis. The Company uses a forward currency contract to hedge the effects of foreign exchange relating to one of the Company’s intercompany balances denominated in a foreign currency. This derivative instrument is not formally designated as a hedge by the Company and the remaining term of the instrument is two months . 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 £ 30.6 million and £ 37.4 million as of June 24, 2022 and September 30, 2021, respectively. Cash flows associated with derivative financial instruments are recognized in the operating section of the condensed consolidated statements of cash flows. The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The following table presents the Company ’ s assets and liabilities measured at fair value: June 24, 2022 September 30, 2021 (in thousands) Level 1 Level 2 Level 1 Level 2 Assets Cash equivalents $ 97,476 $ — $ 489,987 $ — Forward currency contracts — 3,381 — 127 Liabilities Forward currency contracts — 472 — 183 The Company ’ s remaining financial instruments consist primarily of cash, accounts receivable and accounts payable whose carrying value approximate their fair value due to their short-term nature. The estimated fair value of financial instruments not carried at fair value in the condensed consolidated balance sheets were as follows: June 24, 2022 September 30, 2021 (in thousands) Carrying Value Fair Value Carrying Value Fair Value Senior Secured Term Loan Facility due May 26, 2028 $ 373,000 $ 369,852 $ 373,000 $ 371,486 Senior Notes due June 2031 400,000 340,000 400,000 415,828 Total Debt $ 773,000 $ 709,852 $ 773,000 $ 787,314 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. 19 14. COMMITMENTS AND CONTINGENCIES The Company has obligations related to commitments to purchase certain goods. As of June 24, 2022, such obligations were $ 238,059 for the rest of fiscal year 2022 and $ 12,334 for fiscal year 2023 and beyond. These amounts represent open purchase orders for materials used in production. Insurable Liabilities — The Company maintains policies with various insurance companies for its workers’ compensation, product, property, general, auto, and executive liability risks. The insurance policies that the Company maintains have various retention levels and excess coverage limits. The establishment and update of liabilities for unpaid claims, including claims incurred but not reported, is based on management's estimate as a result of the assessment by the Company's claim administrator of each claim and an independent actuarial valuation of the nature and severity of total claims. The Company utilizes a third-party claims administrator to pay claims, track and evaluate actual claims experience, and ensure consistency in the data used in the actuarial valuation. Legal Contingencies — Historically, a number of 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.” Tyco International Ltd. (“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. When Special Products Claims arise, JCI has defended and indemnified the Company 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 $ 12,095 supporting workers ’ compensation and general liability insurance policies as of June 24, 2022. The Company also had surety bonds primarily related to performance guarantees on supply agreements and construction contracts, and payment of duties and taxes totaling $ 30,039 as of June 24, 2022. 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. 20 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 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 Safety & Infrastructure 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. 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, stock-based compensation, loss on extinguishment of debt, certain legal matters, and other items, such as inventory reserves and adjustments, (gain) 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. 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 June 24, 2022 June 25, 2021 (in thousands) External Net Sales Intersegment Sales Adjusted EBITDA External Net Sales Intersegment Sales Adjusted EBITDA Electrical $ 819,845 $ 1,721 $ 351,466 $ 660,198 $ 965 $ 267,824 Safety & Infrastructure 241,745 164 45,669 193,460 32 22,365 Eliminations — ( 1,885 ) — ( 997 ) Consolidated operations $ 1,061,590 $ — $ 853,658 $ — 21 Nine months ended June 24, 2022 June 25, 2021 (in thousands) External Net Sales Intersegment Sales Adjusted EBITDA External Net Sales Intersegment Sales Adjusted EBITDA Electrical $ 2,218,535 $ 1,947 $ 961,983 $ 1,533,442 $ 2,366 $ 589,923 Safety & Infrastructure 666,428 276 102,018 470,841 116 52,810 Eliminations — ( 2,223 ) — ( 2,482 ) Consolidated operations $ 2,884,963 $ — $ 2,004,283 $ — Presented below is a reconciliation of operating Segment Adjusted EBITDA to Income before income taxes: Three months ended Nine months ended (in thousands) June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021 Operating segment Adjusted EBITDA Electrical $ 351,466 $ 267,824 $ 961,983 $ 589,923 Safety & Infrastructure 45,669 22,365 102,018 52,810 Total $ 397,135 $ 290,189 $ 1,064,001 $ 642,733 Unallocated expenses (a) ( 19,605 ) ( 15,925 ) ( 47,295 ) ( 38,114 ) Depreciation and amortization ( 20,428 ) ( 20,166 ) ( 60,467 ) ( 58,475 ) Interest expense, net ( 7,243 ) ( 8,090 ) ( 21,676 ) ( 24,760 ) Transaction costs ( 1,708 ) ( 287 ) ( 3,274 ) ( 646 ) Loss on extinguishment of debt — ( 4,202 ) — ( 4,202 ) Stock-based compensation ( 4,625 ) ( 3,768 ) ( 14,180 ) ( 14,158 ) Other (b) ( 1,172 ) ( 800 ) ( 848 ) 9,840 Income before income taxes $ 342,354 $ 236,951 $ 916,261 $ 512,218 (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, gain on purchase of business. realized or unrealized gain (loss) on foreign currency impacts of intercompany loans and related forward currency derivatives, and restructuring charges. 22 The Company ’ s net sales by geography were as follows for the three months ended and nine months ended June 24, 2022 and June 25, 2021: Three months ended Nine months ended (in thousands) June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021 United States $ 961,954 $ 773,204 $ 2,614,937 $ 1,800,395 Other Americas 30,094 15,475 77,230 34,885 Europe 56,952 52,126 160,115 135,025 Asia-Pacific 12,588 12,853 32,681 33,978 Total $ 1,061,590 $ 853,658 $ 2,884,963 $ 2,004,283 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 and nine months ended June 24, 2022 and June 25, 2021: Three months ended Nine months ended (in thousands) June 24, 2022 June 25, 2021 June 24, 2022 June 25, 2021 Metal Electrical Conduit and Fittings $ 181,196 $ 200,989 $ 484,122 $ 474,223 Electrical Cable & Flexible Conduit 142,298 106,645 395,237 265,597 PVC Pipe and Conduit 389,438 270,527 1,053,203 608,201 Other Electrical products 106,913 82,037 285,973 185,421 Electrical 819,845 660,198 2,218,535 1,533,442 Mechanical Pipe 115,156 112,110 339,217 264,101 Other Safety & Infrastructure products 126,589 81,350 327,211 206,740 Safety & Infrastructure 241,745 193,460 666,428 470,841 Net sales $ 1,061,590 $ 853,658 $ 2,884,963 $ 2,004,283 17. SUBSEQUENT EVENTS Subsequent to quarter end, the Company has repurchased 1.2 million shares at a cost of $ 103.2 million as of July 29, 2022. 23