Atkore International Group Inc.
10-Q on 08/07/2019   Download
SEC Document
SEC Filing
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________
FORM 10-Q
_________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to
Commission file number 001-37793
 _________________________________________
Atkore International Group Inc.
(Exact name of registrant as specified in its charter)
 _________________________________________
Delaware
 
90-0631463
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
16100 South Lathrop Avenue, Harvey, Illinois 60426
(Address of principal executive offices) (Zip Code)
708-339-1610
(Registrant's telephone number, including area code)
_________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which registered
Common Stock, $.01 par value per share
ATKR
New York Stock Exchange
_____________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
 
 
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
 
 
Smaller reporting company
 
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  
_____________________
As of July 26, 2019, there were 46,819,639 shares of the registrant's common stock, $0.01 par value per share, outstanding.
 
 
 
 
 





Table of Contents
 
 
Page No.
 
 
 
 
 
 

1



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ATKORE INTERNATIONAL GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
 
 
 
Three months ended
 
Nine months ended
(in thousands, except per share data)
 
Note
 
June 28, 2019
 
June 29, 2018
 
June 28, 2019
 
June 29, 2018
Net sales
 
 
 
$
493,491


$
498,014

 
$
1,414,828

 
$
1,357,572

Cost of sales
 
 
 
367,357

 
377,685

 
1,061,350

 
1,031,219

Gross profit
 
 
 
126,134

 
120,329

 
353,478

 
326,353

Selling, general and administrative
 
 
 
59,049

 
57,482

 
171,778

 
169,195

Intangible asset amortization
 
13
 
7,868

 
7,694

 
24,278

 
24,146

Operating income
 
 
 
59,217

 
55,153

 
157,422

 
133,012

Interest expense, net
 
 
 
12,789

 
12,442

 
38,277

 
28,322

Other (income) expense, net
 
7
 
(1,228
)
 
(1,840
)
 
(3,422
)
 
(27,516
)
Income before income taxes
 
 
 
47,656

 
44,551

 
122,567

 
132,206

Income tax expense
 
8
 
11,106

 
10,352

 
29,513

 
28,260

Net income
 
 
 
$
36,550

 
$
34,199

 
$
93,054

 
$
103,946

 
 
 
 
 
 
 
 
 
 
 
Net income per share
 
 
 
 
 
 
 


 


Basic
 
9
 
$
0.77

 
$
0.73

 
$
1.95

 
$
1.92

Diluted
 
9
 
$
0.75

 
$
0.70

 
$
1.90

 
$
1.84

 
 
 
 
 
 
 
 
 
 
 
 
See Notes to unaudited condensed consolidated financial statements.


2



ATKORE INTERNATIONAL GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
 
 
Three months ended
 
Nine months ended
(in thousands)
 
Note
 
June 28, 2019
 
June 29, 2018
 
June 28, 2019
 
June 29, 2018
Net income
 
 
 
$
36,550

 
$
34,199

 
$
93,054

 
$
103,946

Other comprehensive (loss) income , net of tax:
 
 
 
 
 
 
 
 
 
 
Change in foreign currency translation adjustment
 
 
 
(610
)
 
(3,293
)
 
(2,404
)
 
(1,793
)
Change in unrecognized loss related to pension benefit plans
 
5
 
20

 
65

 
60

 
194

Total other comprehensive (loss)
 
10
 
(590
)
 
(3,228
)
 
(2,344
)
 
(1,599
)
Comprehensive income
 
 
 
$
35,960

 
$
30,971

 
$
90,710

 
$
102,347

See Notes to unaudited condensed consolidated financial statements.



3



ATKORE INTERNATIONAL GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share data)
 
Note
 
June 28, 2019
 
September 30, 2018
Assets
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
$
100,734

 
$
126,662

Accounts receivable, less allowance for doubtful accounts of $1,448 and $1,762, respectively
 
 
 
322,156

 
265,147

Inventories, net
 
11
 
224,771

 
221,753

Prepaid expenses and other current assets
 
 
 
43,225

 
33,576

Total current assets
 
 
 
690,886

 
647,138

Property, plant and equipment, net
 
12
 
237,565

 
213,108

Intangible assets, net
 
13
 
291,188

 
291,916

Goodwill
 
13
 
189,050

 
170,129

Deferred tax assets
 
8
 
1,074

 
162

Other long-term assets
 
 
 
3,251

 
1,607

Total Assets
 
 
 
$
1,413,014

 
$
1,324,060

Liabilities and Equity
 
 
 
 
 
 
Current Liabilities:
 
 
 

 
 
Short-term debt and current maturities of long-term debt
 
14
 
$

 
$
26,561

Accounts payable
 
 
 
152,898

 
156,525

Income tax payable
 
 
 
1,082

 
542

Accrued compensation and employee benefits
 
 
 
29,153

 
33,350

Customer liabilities
 
2
 
42,922

 
3,377

Other current liabilities
 
 
 
42,963

 
52,392

Total current liabilities
 
 
 
269,018

 
272,747

Long-term debt
 
14
 
884,503

 
877,686

Deferred tax liabilities
 
8
 
26,749

 
16,510

Other long-term tax liabilities
 
 
 
894

 
1,443

Pension liabilities
 
 
 
15,068

 
17,075

Other long-term liabilities
 
 
 
14,264

 
16,540

Total Liabilities
 
 
 
1,210,496

 
1,202,001

Equity:
 
 
 
 
 
 
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 46,676,788 and 47,079,645 shares issued and outstanding, respectively
 
 
 
468

 
472

Treasury stock, held at cost, 260,900 and 260,900 shares, respectively
 
 
 
(2,580
)
 
(2,580
)
Additional paid-in capital
 
 
 
472,138

 
457,978

Accumulated deficit
 
 
 
(246,393
)
 
(317,373
)
Accumulated other comprehensive loss
 
10
 
(21,115
)
 
(16,438
)
Total Equity
 
 
 
202,518

 
122,059

Total Liabilities and Equity
 
 
 
$
1,413,014

 
$
1,324,060

See Notes to unaudited condensed consolidated financial statements.



4



ATKORE INTERNATIONAL GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
 
 
 
Nine months ended
(in thousands)
 
Note
 
June 28, 2019
 
June 29, 2018
Operating activities:
 
 
 
 
 
 
Net income
 
 
 
$
93,054

 
$
103,946

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
Depreciation and amortization
 
 
 
54,061

 
49,255

Deferred income taxes
 
8
 
1,882

 
(4,354
)
Gain on sale of a business
 
4
 

 
(27,575
)
Stock-based compensation
 
 
 
8,936

 
9,828

Other adjustments to net income
 
 
 
3,857

 
4,642

Changes in operating assets and liabilities, net of effects from acquisitions
 
 
 
 
 
 
Accounts receivable
 
 
 
(4,190
)
 
(40,160
)
Inventories
 
 
 
5,032

 
(18,038
)
Accounts payable
 
 
 
(11,218
)
 
29,420

Other, net
 
 
 
(31,235
)
 
13,614

Net cash provided by operating activities
 
 
 
120,179

 
120,578

Investing activities:
 
 
 
 
 
 
Capital expenditures
 
 
 
(21,611
)
 
(26,314
)
Divestiture of business
 
4
 

 
42,631

Acquisition of businesses, net of cash acquired
 
3
 
(83,385
)
 
(3,350
)
Other, net
 
 
 
(194
)
 
1,475

Net cash (used in) provided by investing activities
 
 
 
(105,190
)
 
14,442

Financing activities:
 
 
 
 
 
 
Borrowings under credit facility
 
 
 
39,000

 
309,000

Repayments under credit facility
 
 
 
(39,000
)
 
(394,000
)
Repayments of short-term debt
 
14
 
(20,980
)
 
(5,850
)
Repayments of long-term debt
 
 
 

 
(1,217
)
Issuance of long-term debt
 
 
 

 
426,217

Payment for debt financing costs and fees
 

 

 
(5,801
)
Issuance of common stock
 
 
 
5,232

 
10,874

Repurchase of common stock
 
 
 
(24,419
)
 
(410,157
)
Other, net
 
 
 
(105
)
 
(114
)
Net cash used for financing activities
 
 
 
(40,272
)
 
(71,048
)
Effects of foreign exchange rate changes on cash and cash equivalents
 
 
 
(645
)
 
(171
)
(Decrease) increase in cash and cash equivalents
 
 
 
(25,928
)
 
63,801

Cash and cash equivalents at beginning of period
 
 
 
126,662

 
45,718

Cash and cash equivalents at end of period
 
 
 
$
100,734

 
$
109,519

Supplementary Cash Flow information
 
 
 
 
 
 
Capital expenditures, not yet paid
 
 
 
$
767

 
$
363


See Notes to unaudited condensed consolidated financial statements.





5




ATKORE INTERNATIONAL GROUP INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
 
Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Total Equity
(in thousands)
Shares
 
Amount
 
Amount
 
 
 
 
Balance as of September 30, 2017
63,305

 
$
634

 
$
(2,580
)
 
$
423,232

 
$
(42,433
)
 
$
(17,982
)
 
$
360,871

Net income

 

 

 

 
27,189

 

 
27,189

Other comprehensive income

 

 

 

 

 
396

 
396

Stock-based compensation

 

 

 
3,564

 

 

 
3,564

Issuance of common stock
565

 
6

 

 
3,322

 

 

 
3,328

Repurchase of common stock
(351
)
 
(4
)
 

 

 
(6,676
)
 

 
(6,680
)
Balance as of December 29, 2017
63,519

 
636

 
(2,580
)
 
430,118

 
(21,920
)
 
(17,586
)
 
388,668

Net income

 

 

 

 
42,558

 

 
42,558

Other comprehensive income

 

 

 

 

 
1,233

 
1,233

Stock-based compensation

 

 

 
2,770

 

 

 
2,770

Issuance of common stock
291

 
3

 

 
1,968

 

 

 
1,971

Repurchase of common stock
(17,232
)
 
(172
)
 

 

 
(374,953
)
 

 
(375,125
)
Balance as of March 30, 2018
46,578

 
467

 
(2,580
)
 
434,856

 
(354,315
)
 
(16,353
)
 
62,075

Net income

 

 

 

 
34,199

 

 
34,199

Other comprehensive loss

 

 

 

 

 
(3,228
)
 
(3,228
)
Stock-based compensation

 

 

 
3,494

 

 

 
3,494

Issuance of common stock
753

 
7

 

 
5,568

 

 

 
5,575

Repurchase of common stock
(1,359
)
 
(13
)
 

 

 
(28,339
)
 

 
(28,352
)
Balance as of June 29, 2018
45,972

 
461

 
(2,580
)
 
443,918

 
(348,455
)
 
(19,581
)
 
73,763



6



 
Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Total Equity
(in thousands)
Shares
 
Amount
 
Amount
 
 
 
 
Balance as of September 30, 2018
47,080

 
$
472

 
$
(2,580
)
 
$
457,978

 
$
(317,373
)
 
$
(16,438
)
 
$
122,059

Net income

 

 

 

 
26,949

 

 
26,949

Other comprehensive loss

 

 

 

 

 
(2,721
)
 
(2,721
)
Stock-based compensation

 

 

 
2,982

 

 

 
2,982

Issuance of common stock
131

 
1

 

 
(696
)
 

 

 
(695
)
Repurchase of common stock
(1,230
)
 
(12
)
 

 

 
(24,407
)
 

 
(24,419
)
Balance as of December 28, 2018
45,981

 
461

 
(2,580
)
 
460,264

 
(314,831
)
 
(19,159
)
 
124,155

Net income

 

 

 

 
29,555

 

 
29,555

Other comprehensive loss

 

 

 

 

 
967

 
967

Reclassification of stranded tax benefits (1)

 

 

 

 
2,333

 
(2,333
)
 

Stock-based compensation

 

 

 
1,834

 

 

 
1,834

Issuance of common stock
235

 
2

 

 
1,984

 

 

 
1,986

Balance as of March 29, 2019
46,216

 
463

 
(2,580
)
 
464,082

 
(282,943
)
 
(20,525
)
 
158,497

Net income

 

 

 

 
36,550

 

 
36,550

Other comprehensive income

 

 

 

 

 
(590
)
 
(590
)
Stock-based compensation

 

 

 
4,120

 

 

 
4,120

Issuance of common stock
460

 
5

 

 
3,936

 

 

 
3,941

Balance as of June 28, 2019
46,676

 
$
468

 
$
(2,580
)
 
$
472,138

 
$
(246,393
)
 
$
(21,115
)
 
$
202,518

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Due to the adoption of ASU 2018-02.

See Notes to unaudited condensed consolidated financial statements.

7



ATKORE INTERNATIONAL GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(dollars and shares in thousands, except per share data)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    
Basis of Presentation

Organization and Ownership Structure — Atkore International Group Inc. (the "Company", "Atkore" or "AIG") is a leading manufacturer of Electrical Raceway products primarily for the non-residential construction and renovation markets and Mechanical Products & Solutions ("MP&S") for the construction and industrial markets. Electrical Raceway products form the critical infrastructure that enables the deployment, isolation and protection of a structure's electrical circuitry from the original power source to the final outlet. MP&S frame, support and secure component parts in a broad range of structures, equipment and systems in electrical, industrial and construction applications.

Atkore was incorporated in the State of Delaware on November 4, 2010. Atkore is the sole stockholder of Atkore International Holdings Inc. ("AIH"), which in turn is the sole stockholder of Atkore International, Inc. ("AII").

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, 2018 filed with the U.S. Securities and Exchange Commission (the "SEC") on November 28, 2018, 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. It is the Company's practice to establish quarterly closings using a 4-5-4 calendar. The Company's fiscal quarters end on the last Friday in December, March and June.
    
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.

Summary of Significant Accounting Policies

Fair Value Measurements — Authoritative guidance for fair value measurements establishes a three-level hierarchy that ranks the quality and reliability of information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. In cases where two or more levels of inputs are used to determine fair value, a financial instrument’s level is determined based on the lowest level input that is considered significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are summarized as follows:

Level 1inputs are based upon quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible as of the measurement date.
    

8



Level 2inputs are based upon quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations for the asset or liability that are derived principally from or corroborated by market data for which the primary inputs are observable, including forward interest rates, yield curves, credit risk and exchange rates.

Level 3inputs for the valuations are unobservable and are based on management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques such as option pricing models and discounted cash flow models.

See Note 15, ''Fair Value Measurements'' for further detail.

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.

9



ASU
 
Description of ASU
 
Impact to Atkore
 
Note
 
Adoption Date
2014-09 Revenue from Contracts with Customers and subsequent amendments
 
The Accounting Standards Update ("ASU") provides guidance for revenue recognition. The update's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. Examples of the use of judgments and estimates may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The update also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The update provides for two transition methods to the new guidance: a full retrospective approach and a modified retrospective approach.
 
The Company adopted the guidance in the first quarter of 2019 using the modified retrospective method. See Note 2, "Revenue from Contracts with Customers" for further detail.
 
2
 
2019
2018-02 Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
 
The ASU provided entities with the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of the "H.R.1", also known as the "Tax Cuts and Jobs Act" ("TCJA") to retained earnings.
 
The Company elected to adopt the guidance early in the quarter ended March 29, 2019. As a result of adoption of the ASU, the Company reclassified $2,333 of stranded tax benefits related to its pension plans out of Accumulated other comprehensive loss and into Accumulated deficit for the quarter ended March 29, 2019. The Company's policy is to release the tax effects as the related amounts in other comprehensive income are recognized in net income.
 
10
 
2019
2018-07 Improvements to Nonemployee Share-Based Payment Accounting.
 
The ASU simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions.
 
The Company elected to adopt the guidance early in the quarter ended June 28, 2019. There was no material impact to the consolidated financial statements as a result of the adoption of ASU 2018-07.
 
 
 
2019
2018-13 Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
 
The ASU amends Accounting Standard Codification ("ASC") 820 to add, remove and clarify disclosure requirements related to fair value measurements.
 
The Company elected to adopt the guidance early in the quarter ended June 28, 2019. There was no material impact to the consolidated financial statements as a result of the adoption of ASU 2018-13.
 
 
 
2019


10



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
2016-02 Leases (Topic 842)
 
The ASU requires companies to use a "right of use" lease model that assumes that each lease creates an asset (the lessee's right to use the leased asset) and a liability (the future rent payment obligations), which should be reflected on a lessee's balance sheet to fairly represent the lease transaction and the lessee's related financial obligations with terms of more than 12 months.
 
The Company will adopt the new lease guidance in the first quarter of fiscal 2020. The Company has established an implementation team, deployed lease landscape surveys, selected a software provider, completed lease data abstraction, progressed on software implementation and is currently evaluating the impact of adoption of this ASU on its consolidated financial statements.
 
2020
2016-13 Financial Instruments - Credit Losses (Topic 326)
 
The ASU adds to U.S. 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.
 
 
Under evaluation.
 
2021
2018-14 Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
 
The ASU amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans.
 
Under evaluation.
 
2021


2. REVENUE FROM CONTRACTS WITH CUSTOMERS

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016, and December 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10 and ASU 2016-20, respectively. The core principle of this new revenue recognition guidance is that a company will recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance defines a five-step process to implement this core principle. The new guidance also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance provides for two transition methods, a full retrospective approach and a modified retrospective approach. The Company adopted the new guidance on October 1, 2018 utilizing the modified retrospective method of adoption for contracts not completed at the adoption date and determined there were no changes required to its reported revenues and earnings as a result of the adoption. The impacts to the consolidated financial statements consist of balance sheet reclassifications including amounts associated with the changes in the classification of reserves related to volume rebates and returns reserves. The Company has also enhanced its disclosures of revenue to comply with the new guidance. The impact to the Company’s financial statements as of June 28, 2019 was as follows:

 
As of June 28, 2019
Balance Sheet
As Reported
Balances before adoption of ASC 606
Effect of Adoption
Higher/(Lower)
Accounts receivable, net
322,156

283,482

38,674

Customer liabilities
42,922

4,248

38,674



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

11



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.

As part of the adoption of the new revenue standard, the Company has elected to utilize certain practical expedients. 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 practical expedient not to disclose information about remaining performance obligations has also been elected as these obligations have an original duration of one year or less. 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 18, ''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 attain new customers.

On June 3, 2019, the Company acquired the assets of United Structural Products, LLC, a manufacturer of welded aluminum and engineered-to-order cable trays, for a purchase price of $25,486, net of cash received. The condensed consolidated financial statements include the results of the acquired company from the acquisition date. Net sales and net income of the acquired company included in the condensed consolidated statement of operations for the three and nine months ended June 28, 2019, were insignificant. As a result of the acquisition, the Company recognized $10,137 of goodwill, $11,937 of identifiable intangible assets and $3,412 of working capital and other net other tangible assets. As of June 28, 2019, the purchase price allocation has not been finalized as the Company is finalizing working capital, intangible asset and fixed asset fair values.

On October 1, 2018, the Company acquired all of the outstanding stock of Vergokan International NV ("Vergokan") for a purchase price of $57,899, net of cash received. Vergokan is a leading manufacturer of cable tray and cable ladder systems, underfloor installations and industrial floor trunking that serves industrial, power and energy, commercial and infrastructure sectors in more than 45 countries. This transaction provides Atkore with an expanded presence in Western Europe and strengthens the Company's electrical portfolio of cable management products within the Electrical Raceway segment. The Company incurred approximately $148 for acquisition-related expenses for Vergokan which were recorded as a component of selling, general and administrative expenses for the nine months ended June 28, 2019. The Company incurred approximately $293 for acquisition-related expenses for Vergokan which were recorded as a component of selling, general and administrative expenses for the three and twelve months ended September 30, 2018.

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:

12



(in thousands)
 
Vergokan
Fair value of consideration transferred:
 
 
Cash consideration
 
$
58,728

Fair value of assets acquired and liabilities assumed:
 


Cash
 
829

Accounts receivable
 
8,761

Inventories
 
11,434

Intangible assets
 
12,621

Fixed assets
 
32,490

Accounts payable
 
(18,716
)
Other
 
1,680

Net assets acquired
 
49,099

Excess purchase price attributed to goodwill acquired
 
$
9,629


    
The following table summarizes the fair value of intangible assets as of the acquisition date:
 
 
Vergokan
($ in thousands)
 
Fair Value
 
Weighted Average Useful Life (Years)
Customer relationships
 
$
10,535

 
12.0
Other
 
2,086

 
9.0
Total intangible assets
 
$
12,621

 



The purchase price allocation, intangible asset values and related estimates of useful lives for Vergokan have been finalized as of June 28, 2019.

On January 8, 2018, the Company acquired the assets of Communications Integrators, Inc. ("Cii"), a manufacturer of modular, prefabricated power, voice and data distribution systems located in Tempe, Arizona for a total purchase price, including contingent consideration, of $3,997.


4. DIVESTITURES

On March 30, 2018, the Company sold the assets of FlexHead Industries, Inc. and SprinkFLEX, LLC (together "FlexHead"). The FlexHead businesses manufacture commercial flexible sprinkler head connection products for use in a variety of markets, including for industrial, commercial, cold storage, institutional and clean room applications. The cash consideration received, net assets disposed and resulting gain on sale are as follows:
(in thousands)
 
FlexHead
Cash consideration
 
$
42,631

Net assets divested
 
15,056

Gain on sale of a business
 
$
27,575



Net assets divested included $2,626 of goodwill. Gain on sale of a business includes a working capital adjustment of $838 recorded as a component of Other (income) expense, net for the three and nine months ended June 29, 2018.


13



5. 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 28, 2019
 
June 29, 2018
 
June 28, 2019
 
June 29, 2018
Interest cost
 
 
 
1,166

 
1,025

 
$
3,498

 
$
3,074

Expected return on plan assets
 
 
 
(1,593
)
 
(1,604
)
 
(4,779
)
 
(4,811
)
Amortization of actuarial loss
 
 
 
25

 
86

 
75

 
257

Net periodic benefit credit
 
7
 
$
(402
)
 
$
(493
)
 
$
(1,206
)
 
$
(1,480
)


6. RESTRUCTURING CHARGES

The liability for restructuring reserves is included within other current liabilities in the Company's condensed consolidated balance sheets as follows: 
 
Electrical Raceway
 
MP&S
 
Other/Corporate
 
 
(in thousands)
Severance (a)
 
Other (a)
 
Severance
 
Other
 
Severance
 
Total
Balance as of September 30, 2017
$
449

 
$

 
$
278

 
$
10

 
$

 
$
737

Charges
536

 
1,130

 
97

 
179

 
98

 
2,040

Utilization
(787
)
 
(820
)
 
(178
)
 
(160
)
 
(98
)
 
(2,043
)
Reversal

 

 
(191
)
 

 

 
(191
)
Exchange rate effects
14

 

 
(6
)
 

 

 
8

Balance as of September 30, 2018
212

 
310

 

 
29

 

 
551

Charges
681

 
2,500

 

 

 

 
3,181

Utilization
(806
)
 
(2,751
)
 

 
(29
)
 

 
(3,586
)
Balance as of June 28, 2019
$
87

 
$
59

 
$

 
$

 
$

 
$
146

(a) Primarily related to Atkore's commitment to close certain facilities as part of its continuing effort to realign its strategic focus. The Company recorded severance restructuring charges of $681 and $327 related to termination benefits during the nine months ended June 28, 2019 and June 29, 2018, respectively. The Company recorded other restructuring charges to close facilities of $2,473 and $600 for the nine months ended June 28, 2019 and June 29, 2018, respectively.
    
The Company expects to utilize all restructuring accruals as of June 28, 2019 within the next twelve months. The net restructuring charges included as a component of selling, general and administrative expenses in the Company's condensed consolidated statements of operations were as follows:
 
Three months ended
 
Nine months ended
(in thousands)
June 28, 2019
 
June 29, 2018
 
June 28, 2019
 
June 29, 2018
Total restructuring charges, net
$
709

 
$
407

 
$
3,181

 
$
1,245




14



7. OTHER (INCOME) EXPENSE, NET

Other (income) expense, net consisted of the following:
 
 
Three months ended
 
Nine months ended
(in thousands)
 
June 28, 2019
 
June 29, 2018
 
June 28, 2019
 
June 29, 2018
Gain on sale of a business
 

 
(838
)
 

 
(27,575
)
Undesignated foreign currency derivative instruments
 
(2,095
)
 
(3,757
)
 
(3,562
)
 
(22
)
Foreign exchange (gain) loss on intercompany loans
 
1,360

 
3,374

 
1,423

 
795

Debt modification costs
 

 

 

 
892

Pension-related benefits
 
(402
)
 
(493
)
 
(1,206
)
 
(1,480
)
Other
 
(91
)
 
(126
)
 
(77
)
 
(126
)
Other (income) expense, net
 
$
(1,228
)
 
$
(1,840
)
 
$
(3,422
)
 
$
(27,516
)
 
 
 
 
 
 
 
 
 



8. INCOME TAXES    

On December 22, 2017, "H.R.1," also known as the "Tax Cuts and Jobs Act" ("TCJA"), was signed into law. TCJA provides for significant changes to corporate taxation including, but not limited to, a reduction of the federal corporate tax rate from 35% to 21%, limitations on the deductibility of interest expense and executive compensation, full expensing of the costs of qualified property in the period of acquisition, the elimination of the domestic production activities deduction and a new provision designed to tax global intangible low-taxed income ("GILTI"). The legislation also adopted a new quasi-territorial tax regime and imposed a one-time transition tax on deemed repatriated earnings of certain foreign subsidiaries.

The value of the Company’s net deferred tax liability on the balance sheet decreased as a result of the enacted tax rates creating a one-time tax benefit to the Company; the preliminary analysis of the impact, using December 29, 2017 values, was an estimated decrease to the net deferred tax liability of $4,758, which was recognized in the first quarter of fiscal 2018. The SEC Staff Accounting Bulletin No. 118 allowed for a measurement period of up to one year from the date of enactment; during the course of the fiscal year ended September 30, 2018, the Company recorded an adjustment to the re-measurement of deferred tax liabilities of an additional $708 benefit as a result of updated estimates. For the period ended December 28, 2018, the Company finalized the re-measurement with no additional adjustments. The Company has an accumulated earnings and profit deficit in the foreign jurisdictions in which it operates. The Company completed its calculation and did not have an income tax liability from the one-time transition tax on the deemed repatriation of its foreign earnings.
    
The GILTI provision of TCJA requires certain income earned by controlled foreign corporations ("CFCs") to be included currently in the gross income of the CFC's controlling U.S. shareholder. In accordance with accounting standards applicable to income taxes, there is allowed an accounting policy choice of either (1) treating taxes due on U.S. inclusions in taxable income related to GILTI as a current period expense when incurred (the “period cost method”) or (2) factoring such amounts into the Company’s measurement of its deferred taxes (the “deferred method”). The Company has elected the period method and included an estimate of the GILTI tax in the Company’s annualized effective tax rate.

For the three months ended June 28, 2019 and June 29, 2018, the Company's effective tax rate attributable to income before income taxes was 23.3% and 23.2%, respectively. For the three months ended June 28, 2019 and June 29, 2018, the Company's income tax expense was $11,106 and $10,352 respectively. The increase in the current period effective tax rate was primarily due to the impact of certain nondeductible items as a result of the TCJA.

For the nine months ended June 28, 2019 and June 29, 2018, the Company's effective tax rate attributable to income before income taxes was 24.1% and 21.4%, respectively. For the nine months ended June 28, 2019 and June 29, 2018, the Company's income tax expense was $29,513 and $28,260 respectively. The increase in the effective tax rate was primarily due to the prior year benefit of the one-time re-measurement of deferred taxes as a result of the TCJA, which was recorded in the first quarter of fiscal 2018.


15



The Company has recorded a valuation allowance against net operating losses in certain foreign jurisdictions. A valuation allowance is recorded when it is determined to be more likely than not that deferred tax 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 of appropriate character in the relevant jurisdiction to utilize the assets. For the nine months ended June 28, 2019, the Company has fully released a valuation allowance for $550 on deferred tax assets in its Asia Pacific business due to an increase in forecasted taxable income. For the three months ended June 28, 2019, the Company has released the remaining valuation allowance of $284 on deferred tax assets in its Asia Pacific business due to an increase in forecasted taxable income.
    
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 it has determined are more likely than not to be realized upon examination. The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense. During the nine months ended June 28, 2019, the balance of unrecognized tax benefits decreased by $549 primarily due to the resolution of a state audit item. During the three months ended June 28, 2019, the balance of unrecognized tax benefits decreased by an additional $13.

For the nine months ended June 28, 2019, 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.

9. EARNINGS PER SHARE
    
The Company calculates basic and diluted earnings per common share using the two-class method. Under the two-class method, net earnings are allocated to each class of common stock and participating securities as if all of the net earnings for the period had been distributed. The Company's participating securities consist of share-based payment awards that contain a non-forfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common stockholders.
 
    
Basic earnings per common share excludes dilution and is calculated by dividing the net earnings allocable to common stock by the weighted-average number of common stock outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocated to common stock by the weighted-average number of shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards.

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 28, 2019
 
June 29, 2018
 
June 28, 2019
 
June 29, 2018
Numerator: