S-1/A 1 d137452ds1a.htm AMENDMENT NO. 4 Amendment No. 4
Table of Contents

As filed with the U.S. Securities and Exchange Commission on May 31, 2016

Registration No. 333-209940

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

Amendment No. 4

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Atkore International Group Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   3699   90-0631463

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

16100 South Lathrop Avenue

Harvey, Illinois 60426

(708) 339-1610

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Daniel S. Kelly, Esq.

Vice President—General Counsel and Secretary

Atkore International Group Inc.

16100 South Lathrop Avenue

Harvey, Illinois 60426

(708) 339-1610

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Paul M. Rodel, Esq.

Debevoise & Plimpton LLP

919 Third Avenue

New York, New York 10022

(212) 909-6000

 

Marc D. Jaffe, Esq.

Wesley C. Holmes, Esq.

Latham & Watkins LLP

885 Third Avenue

New York, New York 10022

(212) 906-1200

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Amount to be

Registered(1)

 

Proposed Maximum

Aggregate Offering

Price Per Share(1)(2)

 

Proposed Maximum

Aggregate Offering

Price(1)(2)

 

Amount of

Registration Fee(3)

Common Stock, par value $0.01 per share

 

13,800,000

 

$22.00

  $303,600,000   $30,573

 

 

(1) Includes shares/offering price of shares that may be sold upon exercise of the underwriters’ option to purchase additional shares.
(2) This amount represents the proposed maximum aggregate offering price of the securities registered hereunder. These figures are estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(3) The registrant previously paid $10,070 of this amount.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the U.S. Securities and Exchange Commission declares our registration statement effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED MAY 31, 2016

12,000,000 Shares

 

LOGO

Atkore International Group Inc.

Common Stock

 

 

This is an initial public offering of shares of common stock of Atkore International Group Inc. All of the 12,000,000 shares of common stock are being offered by the selling stockholder identified in this prospectus. We will not receive any of the proceeds from the sale of the shares being sold in this offering.

Prior to this offering, there has been no public market for the common stock. We anticipate that the initial public offering price will be between $20.00 and $22.00 per share. We have been approved to list our common stock on the New York Stock Exchange, or the “NYSE,” under the symbol “ATKR”.

After the completion of this offering, we expect to be a “controlled company” within the meaning of the corporate governance standards of the NYSE.

 

 

Investing in our common stock involves risks. See “Risk Factors” beginning on page 17 of this prospectus to read about factors you should consider before buying shares of our common stock.

 

     Per Share      Total  

Initial public offering price

   $                    $                

Underwriting discounts and commissions(1)

   $                $            

Proceeds, before expenses, to the selling stockholder

   $                $            

 

(1) See “Underwriting” for additional information regarding total underwriter compensation.

The underwriters also may purchase up to 1,800,000 additional shares from the selling stockholder at the initial offering price less the underwriting discounts and commissions, within 30 days from the date of this prospectus.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved the securities described herein or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares to purchasers on or about                     , 2016.

 

 

 

Credit Suisse   Deutsche Bank Securities   J.P. Morgan
UBS Investment Bank
Citigroup   RBC Capital Markets   Wells Fargo Securities

 

 

Prospectus dated                     , 2016


Table of Contents

LOGO


Table of Contents

TABLE OF CONTENTS

 

Presentation of Information

     ii   

Market and Industry Data

     ii   

Trademarks

     ii   

Prospectus Summary

     1   

Risk Factors

     17   

Special Note Regarding Forward-Looking Statements and Information

     38   

Use of Proceeds

     40   

Dividend Policy

     41   

Capitalization

     42   

Dilution

     43   

Selected Historical Consolidated Financial Data

     44   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     47   

Business

     80   

Management

     97   

Executive and Director Compensation

     104   

Principal and Selling Stockholders

     125   

Certain Relationships and Related Party Transactions

     127   

Description of Capital Stock

     131   

Shares Available for Future Sale

     137   

Description of Certain Indebtedness

     139   

U.S. Federal Income Tax Considerations for Non-U.S. Holders

     146   

Underwriting

     150   

Legal Matters

     158   

Experts

     158   

Where You Can Find More Information

     158   

Index to Consolidated Financial Statements

     F-1   

You should rely only on the information contained in this prospectus and any free writing prospectus we may authorize to be delivered to you. We have not, and the selling stockholder and the underwriters have not, authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus and any related free writing prospectus. We, the selling stockholder and the underwriters take no responsibility for, and can provide no assurances as to the reliability of, any information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is only accurate as of the date of this prospectus, regardless of the time of delivery of this prospectus and any sale of shares of our common stock.

 

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PRESENTATION OF INFORMATION

Unless the context otherwise requires, the terms “we,” “us,” “our,” “Atkore,” and the “Company,” as used in this prospectus, refer to Atkore International Group Inc. and its consolidated subsidiaries. The term “AIH” refers to Atkore International Holdings Inc., our direct wholly owned subsidiary. The term “AII” refers to Atkore International, Inc., our indirect wholly owned subsidiary.

We account for a majority of our inventory using the last-in, first-out, or “LIFO,” method measured at the lower-of-cost-or-market value. We have adopted this accounting principle because the LIFO method of valuing inventories reflects how we monitor and manage our business and matches current costs and revenues. Certain of our subsidiaries made changes to their accounting principles to conform to our accounting principles.

We have a 52- or 53-week fiscal year that ends on the last Friday in September. Fiscal 2015, 2014 and 2013 were 52-week fiscal years which ended on September 25, 2015, September 26, 2014 and September 27, 2013, respectively. Our next fiscal year will end on September 30, 2016, and will be a 53-week year. Our fiscal quarters end on the last Friday in December, March and June.

MARKET AND INDUSTRY DATA

This prospectus includes estimates regarding market and industry data and forecasts, which are based on publicly available information, industry publications and surveys, reports from government agencies, reports by market research firms and our own estimates based on our management’s knowledge of, and experience in, the market segments in which we operate. We have not independently verified market and industry data from third-party sources. This information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process, and other limitations and uncertainties inherent in surveys of market size. In addition, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the captions “Risk Factors,” “Special Note Regarding Forward-Looking Statements and Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

TRADEMARKS

We hold various service marks, trademarks and trade names, such as Atkore International, our logo design, AFC Cable Systems, Allied Tube & Conduit, Cope, FlexHead, Heritage Plastics, Kaf-Tech, Power-Strut, SprinkFLEX and Unistrut, that we deem particularly important to the advertising activities conducted by each of our businesses. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to in this prospectus are listed without the ™, ® and © symbols, but such references do not constitute a waiver of any rights that might be associated with the respective trademarks, service marks, trade names or copyrights included or referred to in this prospectus. This prospectus also contains trademarks, service marks and trade names of other companies which are the property of their respective holders. We do not intend our use or display of such names or marks to imply relationships with, or endorsements of us by, any other company.

 

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PROSPECTUS SUMMARY

The following summary highlights selected information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information you should consider before investing in our common stock. You should carefully read the entire prospectus, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision.

Our Company

We are a leading manufacturer of Electrical Raceway products primarily for the non-residential construction and renovation markets and Mechanical Products & Solutions, or “MP&S,” for the construction and industrial markets. Electrical Raceway products form the critical infrastructure that enables the deployment, isolation and protection of a structure’s electrical circuitry from the original power source to the final outlet. MP&S frame, support and secure component parts in a broad range of structures, equipment and systems in electrical, industrial and construction applications. We believe we hold #1 or #2 positions in the United States by net sales in the vast majority of our products. The quality of our products, the strength of our brands, our reliable service capabilities and our scale and national presence provide what we believe to be a unique set of competitive advantages that positions us for profitable growth.

We manufacture a broad range of end-to-end integrated products and solutions that are critical to our customers’ businesses. Our broad product offering enables us to bundle and co-load a wide range of products, which simplifies the ordering and delivery processes and streamlines logistics, reducing costs for us and our customers. We primarily serve electrical contractors and original equipment manufacturers, or “OEMs,” both directly and through our established core customer base of electrical and industrial distributors. Our operational footprint, together with our national distribution network, provides important proximity to our customers and enables efficient and reliable delivery of our products. Our scale creates meaningful purchasing power with key suppliers and enables us to leverage common manufacturing technology and processes across our business.

We estimate that we operate in a $13 billion subset of the $78 billion U.S. electrical products market for our Electrical Raceway products and in a $3.8 billion U.S. addressable market for our MP&S products. Both of these markets are highly fragmented and present attractive opportunities for significant growth. As illustrated in the following charts, approximately 70% of our net sales in fiscal 2015 were derived from U.S. construction demand, which primarily consisted of new non-residential construction and maintenance, repair and remodel, or “MR&R,” spending on existing non-residential structures. Based on data from Dodge Data & Analytics, or “Dodge,” new non-residential construction starts remain significantly below long-term historical average levels and have meaningful opportunity for growth going forward.

 

LOGO

 

(1) International primarily includes Australia, Canada, China, New Zealand and United Kingdom.
(2) MR&R includes non-residential and residential markets.

 



 

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Since our separation from Tyco International Ltd., or “Tyco,” in December 2010, we have undertaken a significant transformation of our business. We have acquired six businesses, which have strengthened and extended our capabilities and offerings across our entire product portfolio. We also divested four businesses and permanently closed other businesses that we considered non-core operations due to unfavorable competitive positions or cost structures. This proactive optimization of our portfolio has enabled us to focus on our core businesses, improve our mix of higher margin products, drive market share gains and improve overall profitability.

In order to execute our business transformation we have significantly upgraded our management team, with over 90% of our executives and 70% of our senior leadership in new roles or new to the Company since 2011. Our executives have extensive experience with leading electrical and industrial corporations, including Danaher Corporation, Eaton Corporation plc, ITT Corporation, Legrand S.A., Pentair plc and Tyco. Our management team has also developed and implemented the Atkore Business System, or “ABS,” a foundational set of principles, behaviors and beliefs based on driving excellence in strategy, people and processes. The deployment of ABS throughout our operations has provided the skillset, mindset and toolset for our employees to identify, execute and sustain a series of business initiatives that have contributed to our growth and profitability improvements since 2011. By implementing employee incentives that reinforce our organization’s engagement and alignment around ABS, we expect that we will be able to achieve future business improvements and drive profitable growth in excess of the growth rates of the markets in which we compete.

As a result of our transformational business initiatives, we have been able to deliver strong financial and operating performance from fiscal 2011 to the twelve months ended March 25, 2016, or “LTM March 2016,” as set forth below:

 

    We grew our Adjusted net sales and net sales at compound annual growth rates, or “CAGRs,” of 3.9% and 2.1%, respectively, to $1,487.1 million and $1,586.1 million, respectively;

 

    We increased our Adjusted EBITDA at a CAGR of 25.6% to $207.1 million and increased our net income by $53.0 million from a net loss position to net income of $14.6 million; and

 

    We have driven approximately 800 basis points and 360 basis points of expansion in our Adjusted EBITDA margins and net income margins, respectively.

For a reconciliation of net sales to Adjusted net sales, net income (loss) to Adjusted EBITDA and a definition of Adjusted EBITDA margin, see “—Summary Historical Consolidated Financial Data.”

Our Reportable Segments

We operate through two reportable segments: Electrical Raceway and MP&S. Our segments benefit from common raw material usage, similar manufacturing processes and a complementary distribution network. Our scale and rigorous application of efficient manufacturing techniques across both segments enable us to be a low-cost manufacturer, which further adds to our competitive advantage.

Electrical Raceway: Through our Electrical Raceway segment, we manufacture products that deploy, isolate and protect a structure’s electrical circuitry from the original power source to the final outlet. These products, which include electrical conduit, armored cable, cable trays, mounting systems and fittings, are critical components of the electrical infrastructure for new construction and MR&R markets. Our broad product offering and variety of base materials, such as steel, copper and polyvinyl chloride, or “PVC,” resin, provide contractors and OEMs with a complete Electrical Raceway solution. The vast majority of our Electrical Raceway net sales are made to electrical distributors, who then serve electrical contractors and we consider both to be customers. Our customers benefit from bundling and co-loading of our products, resulting in streamlined logistics and reduced costs. We believe we have a meaningful competitive advantage as the only U.S. manufacturer providing a broad product offering across most Electrical Raceway categories.

 



 

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Mechanical Products & Solutions: Through our MP&S segment, we provide products and services that frame, support and secure component parts in a broad range of structures, equipment and systems in electrical, industrial and construction applications. Our principal products in this segment are metal framing products and in-line galvanized mechanical tube. Through our metal framing business, we design, manufacture and install metal strut and fittings used to assemble mounting structures that support heavy equipment and electrical content in buildings and other structures. Approximately 40% of our U.S. net sales in strut and fittings are generally sold to mechanical and other broad-line industrial distributors, while the remaining 60% of our U.S. net sales in strut and fittings are used for mounting Electrical Raceway products and are sold to electrical distributors. Our international net sales, which are included in our MP&S segment, primarily consist of metal framing products that serve Electrical Raceway and mechanical support applications. Through our mechanical tubular products business, we believe that we are one of only two companies in the United States that manufacture and market in-line galvanized tubular products on a national basis. We believe that approximately 90% of our net sales in this business are made directly or indirectly to OEM customers serving a wide range of industrial and construction end markets.

 

    

Electrical Raceway

  

Mechanical Products & Solutions

Overview    Products that deploy, isolate and protect a structure’s electrical circuitry from the original power source to the final outlet    Products and services that frame, support and secure component parts in a broad range of structures, equipment and systems in electrical, industrial and construction applications
LTM March 2016 Adjusted Net Sales/Net Sales(1)(2)    $961.4 million/$961.4 million    $527.2 million/$621.8 million
LTM March 2016 Adjusted EBITDA(1)(3)    $140.7 million    $90.7 million
% Adjusted EBITDA margin(3)        14.6%/14.6%        17.2%/14.6%
Estimated U.S. Market Size(4)    $13 billion    $3.8 billion
Estimated U.S. Market Share(4)    ~8%    ~12%
Leading Market Positions(5)    LOGO    LOGO    LOGO    LOGO    LOGO
  

#1 Steel Conduit 

(35% share)

   #1 PVC Conduit (37% share)   

#1 Armored Cable

(36% share)

  

#2 Metal Framing & Related Fittings

(21% share)

  

#1 In-line Galvanized Mechanical Tube

(80% share)

Core Products   

•    Electrical conduit and fittings

 

•    Armored cable and fittings

 

•    Flexible and liquidtight electrical conduit and fittings

 

•    Cable tray, cable ladder and wire basket

  

•    Metal framing and related fittings

 

•    In-line galvanized mechanical tube

Primary Market Channel    Electrical distribution    Electrical, industrial and specialized distribution and direct to OEMs
Principal Brands    LOGO    LOGO    LOGO    LOGO    LOGO   

LOGO

LOGO

 

(1) Includes intersegment sales and excludes amounts attributable to Corporate.
(2) For a reconciliation of LTM March 2016 segment net sales to segment Adjusted net sales see “—Summary Historical Consolidated Financial Data.”
(3) For a reconciliation of LTM March 2016 segment Adjusted EBITDA to segment Adjusted EBITDA for the fiscal year ended September 25, 2015 see “—Summary Historical Consolidated Financial Data.” Adjusted EBITDA margin is calculated as segment Adjusted EBITDA as a percentage of Adjusted net sales and also as Adjusted EBITDA as a percentage of net sales.
(4) Management estimates based on market data and industry knowledge. Market share is based on our U.S. Adjusted net sales relative to the estimated U.S. addressable market size.
(5) Based on our Adjusted net sales relative to the estimated net sales of known competitors in addressable markets. Unless stated otherwise, market position refers to management’s estimate of our market position in the United States within the estimated addressable markets we serve.

 



 

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Our Industries

Electrical Raceway

We estimate that we operate in a $13 billion subset of the $78 billion U.S. electrical products market for our Electrical Raceway products. We believe we have an approximately 8% share of this $13 billion market, in which our existing product offering addresses an estimated $4 billion of the total market opportunity. As a result, we have a substantial opportunity to expand our presence in this market through the introduction of new products as well as through strategic acquisitions. The Electrical Raceway market is highly fragmented and is undergoing significant change as a result of consolidation among electrical distributors and manufacturers, product mix changes stemming from increasing demand for new building technology such as increased facility automation and adoption of LED lighting systems, and a demographic shift in the electrical installer base. We believe these changes are likely to drive the need for additional electrical content in building infrastructure, thereby driving growth in demand for our products. Some of the largest competitors in the Electrical Raceway market include ABB Ltd., Eaton Corporation plc, Pentair plc and Hubbell Incorporated. While most of our competitors manufacture products for only a few Electrical Raceway categories, we believe we provide a more complete offering of products and solutions, which gives us a distinct competitive advantage.

Mechanical Products & Solutions

Our MP&S segment serves a number of niche markets that we estimate to comprise an aggregate U.S. addressable market of approximately $3.8 billion, of which we believe we currently have approximately 12% market share. Our businesses in this segment include two principal product areas: metal framing and in-line galvanized mechanical tube. We believe we have the #2 position in the metal framing market in the United States with approximately 21% market share. Our primary competitors in the market include B-Line (part of Eaton Corporation plc), Thomas & Betts (part of ABB Ltd.) and Haydon Corporation, as well as a number of smaller manufacturers. Like our Electrical Raceway segment, demand in our metal framing business is primarily driven by non-residential construction trends. We believe we have the #1 position in the United States in the in-line galvanized mechanical tube market, which is a subset of the broader market for mechanical tubular products. In-line galvanization provides superior anti-corrosive performance, aesthetic appearance and product strength when compared to tubular products using other anti-corrosive processes. In this business, we serve customers in a range of industries and end markets, for example, agricultural, utility grade solar power generation and other industrial end markets for whom demand is correlated to overall economic growth and industrial production, as well as market-specific factors such as alternative energy tax credits for solar power.

Non-residential Construction

Demand for products in both our Electrical Raceway and MP&S segments is primarily driven by non-residential construction activity. Construction activity in this market depends on a number of factors, including the overall economic outlook, general business cycle, interest rates, availability of credit and demographic trends that influence the location and magnitude of construction related to new business activities. We believe we will benefit from the ongoing recovery in the non-residential construction market. According to Dodge, new non-residential construction starts were estimated to be 942 million square feet in 2015, which remains well below historical levels. Starts would need to increase approximately 18% from 2015 levels to reach the average of the five cyclical troughs since 1968 prior to the downturn that began in 2008, approximately 66% to reach the average of the five cyclical peaks over the same period and approximately 35% to achieve the market average since 1968.

 



 

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Our Competitive Strengths

We believe that we have established a reputation as an industry leader in quality, delivery, value and innovation, primarily as a result of the following competitive strengths:

Leading market positions and strong brands. We believe we have leading market positions in the core products that we offer. Based on management estimates, we believe that approximately 85% of our Adjusted net sales in fiscal 2015 were derived from products for which we hold the #1 or #2 market positions by net sales in the United States. These leadership positions include the #1 positions by net sales in steel conduit and fittings, PVC conduit and fittings, armored cable and fittings and in-line galvanized mechanical tubes, and the #2 position by net sales in metal framing for cable and electrical supports. We go to market with an impressive portfolio of leading brands, including Allied Tube & Conduit, AFC Cable Systems, Heritage Plastics, Unistrut, Power-Strut and Cope. We believe that our leading market positions and strong brands are the result of the reliable performance and quality of our products, our ability to deliver superior service to address our customers’ needs and our well-established customer relationships.

Superior customer value proposition. We offer mission-critical products from a single integrated platform, enabling our customers to conveniently and efficiently purchase a broad range of solutions. Our Electrical Raceway products are core items that we believe must be stocked by U.S. electrical distributors as a staple of their inventory. We believe we maintain the broadest portfolio of products in our industry, enabling us to satisfy this demand and to deliver integrated source-to-outlet electrical solutions. Our ability to bundle and co-load a wide range of Electrical Raceway products for our customers simplifies the ordering and delivery processes and streamlines logistics, reducing costs for us and for our customers. Co-loading benefits our customers by decreasing costs, while bundling allows us to increase our customers’ overall spend by serving as their one-stop-shop. In addition, our ability to provide complete turnkey solutions for large construction and renovation projects creates labor savings for installers. Our MP&S segment employs difficult-to-replicate manufacturing technologies, such as in-line galvanizing, which provides advanced levels of corrosion protection and delivers higher strength levels in mechanical tubular products. Our customer-centric business strategy has translated into strong, consistent performance in terms of product quality, on-time delivery and customer service, further enhancing our reliability and solidifying our customer value proposition. This is evidenced by the average tenure of our top 10 customers, which is approximately 20 years.

Compelling product portfolio with demonstrated ability to innovate and acquire new product capabilities. Since 2011, we have undertaken a series of strategic acquisitions, divestitures and business closures and have developed a number of key new products that have transformed our business into a unique and scalable franchise. These efforts to optimize our product portfolio have expanded our positions in attractive segments of the Electrical Raceway and MP&S markets, while reducing our exposure to less attractive, lower margin businesses and non-core geographies. Through acquisitions, we have expanded our PVC conduit and cable and conduit fittings offerings, enabling us to provide customers with complete Electrical Raceway product solutions. We have also introduced a number of successful new products, such as Luminary Cable, an innovative product that combines data and power transmission within a single armored cable. The success of our portfolio optimization initiatives demonstrates our ability to identify, execute and integrate acquisitions and introduce new products to meet customer demand, and we maintain and continue to pursue a robust pipeline of acquisition targets and additional new product development opportunities. Given the fragmented nature of the markets we serve and evolving customer needs, we believe there is significant opportunity to continue to leverage this strength to grow our business profitably going forward.

Strong platform for growth across attractive end-markets. We believe that we are well positioned to capitalize on industry growth and end-market opportunities, while leveraging our broadening product offering to secure a larger share of customer spend. Demand for our Electrical Raceway and MP&S products is primarily driven by non-residential construction activity, which remains significantly below historical levels according to

 



 

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Dodge. We believe the continuing recovery in new non-residential construction supports a strong platform for growth, and our meaningful participation in MR&R activity provides a steady base of demand for recurring sales of our products. In addition to the positive tailwinds associated with construction trends, we believe we are positioned to benefit from the expansion of higher-growth market segments particularly suited for our products, such as healthcare and data centers, as well as broader energy-efficiency trends, such as increased facility automation and adoption of LED lighting systems, that are driving greater electrical content in buildings and greater demand for our products.

Significant scale providing barriers to entry. Our industry-leading scale creates significant sales, service, manufacturing and procurement advantages over our competitors. We have developed a large, carefully constructed network of highly trained Electrical Raceway and MP&S sales agents with loyal, long-term relationships with Atkore that represent our products in the market. Our positions on our agents’ line cards (product rosters that describe an agent’s offerings) are powerful and difficult to displace, which we believe creates a sustainable advantage. Our comprehensive, integrated distribution and logistics network, consisting of Electrical Raceway stocking agents, MP&S stocking agents and company-operated warehouse locations across the United States, enables us to provide timely and reliable delivery and support for our largest distributor customers and to respond more quickly than our competitors to changes in customer demand. Our high-volume manufacturing and warehousing operations, including our one million square foot facility in Harvey, Illinois, allow us to leverage shared technology, processes and fixed costs across our platform, creating significant operating efficiencies and cost advantages. We estimate the replacement cost of our production and distribution footprint is over $350 million, which represents a sizable impediment to new competition. Finally, our significant purchasing scale enables us to achieve favorable pricing, terms and delivery from our suppliers. On average, we are able to purchase our core raw materials at discounts to market indices such as the CRU Steel Index and the CDI PVC resin index for conduit.

Strong management team driving a highly efficient operating structure. We believe we have built a world-class management team with over 90% of our executives and 70% of our senior leadership in new roles or new to the Company since 2011. Our management team has established a rigorous metric-driven culture to focus on sustained performance. Through the development and implementation of ABS, the proprietary foundational system by which our Company operates, we have transformed our business into a highly efficient platform poised to deliver future growth and incremental operating efficiency. Our operational efficiency is evidenced by our Perfect Order Rate, or “POR” (which we define as the product of order line fill, order error rate and on time delivery), which has increased from 81% in fiscal 2011 to 92% in fiscal 2015, and our Defective Parts per Million, or “DPPM” (which we calculate as volume returned to us as defective per one million of volume shipped), which has decreased by 34% over the same period. We have also taken measures to ensure our products are optimally priced in the markets we serve, employing a disciplined internal pricing strategy and equipping our sales team with the critical information and tools to optimize pricing decisions. Our rigorous internal processes support sustainability and continuous improvement of our business and drive accountability and high-level engagement by our employees.

Strong margin and cash flow profile. Since fiscal 2011, we have meaningfully improved our financial performance, and we believe that we have significant margin expansion opportunities beyond the results achieved to date. Through our business improvement initiatives and product portfolio optimization activities, we increased our Adjusted EBITDA margins by 800 basis points from 5.9% in 2011 to 13.9% for LTM March 2016 and our net income margins by approximately 360 basis points from (2.7)% in 2011 to 0.9% for LTM March 2016. Our business model generates strong cash flow with limited maintenance capital expenditure requirements that typically approximate 2% of net sales. This has given us the flexibility to pursue accretive acquisition targets while simultaneously reducing the leverage on our balance sheet.

 



 

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Our Strategies

Our goal is to be our customers’ first choice for Electrical Raceway and MP&S, and we intend to drive profitable growth in excess of the growth rates of the markets in which we operate through the following key strategies:

Increase market share by increasing sales to existing customers. We intend to further penetrate existing markets for our Electrical Raceway products and MP&S by strategically focusing our sales and marketing resources on our highly valued accounts. We have built a robust cross-selling sales organization that targets our largest distributor customers by marketing the benefits of ordering our entire product suite for both inventory stocking and for large projects. Our broad portfolio enables co-loading and bundling of our product solutions in an integrated manner. We intend to further grow our share of wallet with our largest and most valued customers by continuing to deliver cost savings, reliable customer service and the benefits of our single source platform.

Expand our product offering and improve our margin mix through new product development and acquisitions. We proactively develop new products and solutions that allow us to stay at the forefront of the needs of the Electrical Raceway and MP&S markets. We have a long history of innovation, which includes the introductions of Kwik-fit electrical conduit, Unistrut Defender and Luminary Cable. We expect to continue to invest in new product development to drive differentiation and growth. Further, our transformational portfolio optimization since 2011 has included a series of strategic acquisitions, divestitures and business closures that have expanded our positions in attractive segments of the Electrical Raceway and MP&S markets while reducing our exposure to less value-added, lower margin businesses and non-core geographies. Given the fragmented nature of the markets we serve and the sizes of our closest adjacent product categories, we intend to pursue our robust pipeline of opportunities to profitably grow our business in higher margin product categories going forward.

Capitalize on projected growth in our end markets while expanding into segments with accelerating growth trends. Market forecasts suggest that non-residential construction starts will grow from 2015 levels, which remain below the average of the past five cyclical troughs and significantly below the average annual starts since 1968, according to Dodge. We believe our exposure to new construction will provide momentum for us to increase sales and earnings as construction starts increase, and our MR&R business will provide a stable sales base going forward. Other industry trends that we believe also support our continued growth include increased facility automation, the adoption of LED lighting systems, as well as the expanding need for data centers that require greater electrical circuitry and more of our products and solutions. We intend to place particular emphasis on markets with potential for greater-than-market growth for our products, such as commercial construction, data centers and healthcare.

Continue to provide reliable service and delivery to our customers. Over the last several years, we have made substantial improvements in our service and delivery performance, including significant increases in our POR and reductions in our DPPM. We believe that reliability and quality are key differentiators for our customers when choosing a supplier. As a result of these business improvements, we have strengthened our value proposition to customers and increased our pricing power. We have identified several additional initiatives in manufacturing processes, supply chain, logistics and inventory management that we expect will further improve the quality of our products and our delivery performance. We believe our focus on continuous improvement will further enhance our value to customers and will translate into accelerated sales growth and profitability in the future.

Continue our focus on excellence in processes and execution to drive margin expansion and cash flow improvements. ABS is the foundational system that drives our organizational focus on excellence in strategy, people and processes. ABS, with its key components of Lean Daily Management, or “LDM,” and our Strategy Deployment Process, or “SDP,” enables us to identify the key levers to further improve our business and subsequently manage and sustain the business improvements we realize. We believe there is a strong correlation

 



 

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between our implementation and execution of ABS and the business, volume, margin and cash flow conversion improvements we have made over the last four years. We have several initiatives currently underway to continue to improve our profitability and cash flow, including strengthening our Electrical Raceway go-to-market strategy, driving industry best delivery, enhancing our commercial excellence and accelerating innovation and new product development. These and other initiatives are focused on profitably growing our business by becoming our customers’ first choice for Electrical Raceway and MP&S, providing unmatched quality, delivery and value.

Our Sponsor and Organizational Structure

Founded in 1978, Clayton, Dubilier & Rice, LLC, or “CD&R,” is a private equity firm composed of a combination of financial and operating executives with a disciplined and clearly defined investment strategy and a special focus on manufacturing, distribution and multi-location services businesses. Over the last decade, CD&R has been an active investor in the industrial and construction markets.

After the completion of this offering, we expect that CD&R Allied Holdings, L.P., the “CD&R Investor” or the “selling stockholder,” which is owned by investment funds managed by, or affiliated with, CD&R, will hold approximately 80.1% of our common stock. As a result, we expect to qualify as and elect to be a “controlled company” within the meaning of the NYSE rules following the completion of this offering. This election will allow us to rely on exemptions from certain corporate governance requirements otherwise applicable to NYSE -listed companies. See “Management—Corporate Governance.”

 



 

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The following chart illustrates our ownership and organizational structure, after giving effect to this offering, assuming the underwriters do not exercise their option to purchase additional shares from the selling stockholder:

 

LOGO

 

(a) Guarantor of AII’s (i) asset-based credit facility, or the “ABL Credit Facility,” (ii) first lien term loan facility, or the “First Lien Term Loan Facility,” (iii) second lien term loan facility, or the “Second Lien Term Loan Facility,” and together with the First Lien Term Loan Facility, the “Term Loan Facilities,” and together with the ABL Credit Facility, the “Credit Facilities.” See “Description of Certain Indebtedness.”

 

(b) Domestic operating subsidiaries are guarantors of the Credit Facilities. See “Description of Certain Indebtedness.”

Risks Related to Our Business

Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows and prospects that you should consider before making a decision to invest in our common stock. These risks are discussed more fully in “Risk Factors” in this prospectus. These risks include, but are not limited to, the following:

 

    the effect of general business and economic conditions;

 

    another downturn in the non-residential construction industry;

 

    fluctuations in the prices of raw materials on which we depend in our production process;

 



 

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    the availability and cost of freight and energy;

 

    the level of similar product imports into the United States;

 

    regulatory changes that may affect demand for our products;

 

    our indebtedness may adversely affect our financial health;

 

    our ability to service our debt and to refinance all or a portion of our indebtedness;

 

    securities or industry analysts may not publish research or may publish misleading or unfavorable research about our business;

 

    fulfilling our obligations incident to being a public company; and

 

    other factors set forth under the caption “Risk Factors” in this prospectus.

Our Corporate Information

Atkore International Group Inc. is a Delaware corporation. Our principal executive offices are located at 16100 South Lathrop Avenue, Harvey, Illinois 60426, and our telephone number is (708) 339-1610. Our website is www.atkore.com. None of the information contained on, or that may be accessed through, our website or any other website identified herein is part of, or incorporated into, this prospectus.

 



 

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THE OFFERING

 

Common stock offered by the selling stockholder

12,000,000 shares.

 

Option to purchase additional shares

The underwriters have a 30-day option to purchase up to an additional 1,800,000 shares of common stock from the selling stockholder at the initial public offering price, less underwriting discounts and commissions.

 

Common stock to be outstanding after this offering

62,458,367 shares.

 

Use of proceeds

We will not receive any proceeds from the sale of our common stock by the selling stockholder in this offering.

 

Principal stockholder

Upon completion of this offering, the CD&R Investor will control a majority of our outstanding common stock. Accordingly, we expect to qualify as a “controlled company” within the meaning of the NYSE corporate governance standards.

 

Dividend policy

We do not currently anticipate paying dividends on our common stock for the foreseeable future. Any future determination to pay dividends on our common stock will be subject to the discretion of our board of directors and depend upon various factors. See “Dividend Policy.”

 

Risk factors

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 17 of this prospectus.

 

Proposed NYSE symbol

“ATKR”.

The number of shares of our common stock to be outstanding immediately following this offering is based on 62,458,367 shares outstanding as of May 27, 2016, and excludes:

 

    6,682,428 shares of common stock issuable upon exercise of options outstanding as of May 27, 2016 at a weighted average exercise price of $7.69 per share; and

 

    3,767,500 shares of common stock reserved for future issuance following the completion of this offering under our equity plans.

Unless otherwise indicated, all information in this prospectus:

 

    gives effect to a 1.37-for-1 stock split on our common stock effected on May 27, 2016;

 

    assumes no exercise by the underwriters of their option to purchase 1,800,000 additional shares from the selling stockholder;

 

    assumes that the initial public offering price of our common stock will be $21.00 per share (which is the midpoint of the price range set forth on the cover page of this prospectus); and

 

    gives effect to amendments to our amended and restated certificate of incorporation and amended and restated by-laws to be adopted prior to the completion of this offering.

 



 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

The following tables set forth our summary historical consolidated financial data derived from our consolidated financial statements as of the dates and for each of the periods indicated. The summary historical balance sheet data as of September 25, 2015 and September 26, 2014 and the summary historical statement of operations data for the years ended September 25, 2015, September 26, 2014 and September 27, 2013 are derived from our audited consolidated financial statements and related notes included elsewhere in this prospectus. The summary historical balance sheet data as of September 27, 2013 is derived from our unaudited consolidated financial statements and related notes not included elsewhere in this prospectus. The summary historical statement of operations data for the six months ended March 25, 2016 and for the six months ended March 27, 2015 and the summary historical balance sheet data as of March 25, 2016 and March 27, 2015 are derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The summary historical statement of operations data for the six months ended March 28, 2014 and the summary historical balance sheet data as of March 28, 2014 are derived from our unaudited condensed consolidated financial statements not included elsewhere in this prospectus. The summary historical statement of operations data, cash flow data and other financial data for the twelve months ended March 25, 2016 are calculated as fiscal year ended September 25, 2015 less six months ended March 27, 2015 plus six months ended March 25, 2016. The summary historical statement of operations data, cash flow data and other financial data for the twelve months ended March 27, 2015 are calculated as fiscal year ended September 26, 2014 less six months ended March 28, 2014 plus six months ended March 27, 2015. Our historical results are not necessarily indicative of the results to be expected for any future period.

 



 

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You should read this summary historical consolidated financial data in conjunction with the sections entitled “Selected Historical Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, included elsewhere in this prospectus.

 

    Twelve Months Ended     Six Months Ended     Fiscal Year Ended  

(in thousands, except per share data)

    March 25,  
2016
      March 27,  
2015(1)
    March 25,
2016
    March 27,
2015(1)
    March 28,
2014(2)
    September 25,
2015(1)
    September 26,
2014(2)
    September 27,
2013(3)
 

Statement of Operations Data:

               

Net sales

    $1,581,602      $ 1,759,223      $ 711,421      $ 858,987      $ 802,602      $ 1,729,168      $ 1,702,838      $ 1,475,897   

Cost of sales

    1,268,201        1,521,794        547,602        735,776        689,710        1,456,375        1,475,728        1,264,348   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    313,401        237,429        163,819        123,211        112,892        272,793        227,110        211,549   

Selling, general and administrative

    199,056        178,072        98,020        84,779        87,533        185,815        180,783        160,749   

Intangible asset amortization

    22,666        20,976        11,089        10,526        10,407        22,103        20,857        15,317   

Asset impairment charges(4)

    27,937        44,381        —          —          —          27,937        44,424        9,161   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    63,742        (6,000     54,710        27,906        14,952        36,938        (18,954     26,322   

Interest expense, net

    42,845        43,286        20,448        22,412        23,392        44,809        44,266        47,869   

(Gain) loss on extinguishment of debt(5)

    (1,661)        40,913        (1,661     —          2,754        —          43,667        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations before income taxes

    22,558        (90,199     35,923        5,494        (11,194     (7,871     (106,887     (21,547

Income tax expense (benefit)

    7,972        (30,558     13,344        2,456        75        (2,916     (32,939     (2,966
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

    14,586        (59,641     22,579        3,038        (11,269)        (4,955     (73,948     (18,581

Loss from discontinued
operations(6)

    —          —          —          —          —          —          —          (42,654

(Expense) benefit for income taxes

    —          —          —          —          —          —          —          (2,791
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 14,586      $ (59,641   $ 22,579      $ 3,038      $ (11,269   $ (4,955   $ (73,948   $ (61,235
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Convertible preferred stock and dividends

    —          3,259        —          —          25,796        —          29,055        47,234   

Net income (loss) attributable to common stockholders

    14,586        (62,900     22,579        3,038        (37,065     (4,955     (103,003     (108,469

Weighted average shares outstanding:

               

Basic

    62,498        61,872        62,478        62,537        40,790        62,527        50,998        40,744   

Diluted

    62,498        61,872        62,478        62,537        40,790        62,527        50,998        40,744   

Net income (loss) per share:

               

Basic

  $ 0.23      $ (1.02   $ 0.36      $ 0.05      $ (0.91   $ (0.08   $ (2.02   $ (2.66

Diluted

  $ 0.23      $ (1.02   $ 0.36      $ 0.05      $ (0.91   $ (0.08   $ (2.02   $ (2.66

Balance Sheet Data (at end of period):

               

Cash and cash equivalents

  $ 134,477      $ 24,608      $ 134,477      $ 24,608      $ 28,771      $ 80,598      $ 33,360      $ 54,770   

Total assets

    1,118,605        1,237,592        1,118,605        1,237,592        1,282,407        1,113,799        1,185,419        1,272,195   

Long-term debt, including current maturities

    632,250        728,191        632,250        728,191        464,266        652,208        692,867        451,297   

Cumulative convertible preferred stock

    —          —          —          —          449,371        —          —          423,576   

Total equity

    179,207        177,681        179,207        177,681        499,799        156,277        176,469        510,377   

Cash Flow Data:

               

Cash flows provided by (used in):

               

Operating activities

  $ 223,303      $ 83,789      $ 82,157      $ (73   $ 2,471      $ 141,073      $ 86,333      $ 35,424   

Investing activities

    (14,700     (52,548     (8,511     (40,452     (36,764     (46,641     (48,860     (87,252

Financing activities

    (97,451     3,453        (19,973     33,372        8,509        (44,106     (57,584     55,823   

Other Financial Data:

               

Adjusted net sales(7)

  $ 1,487,055      $ 1,565,225      $ 703,605      $ 767,125      $ 712,050      $ 1,550,575      $ 1,510,150      $ 1,277,175   

Adjusted EBITDA(8)

    207,101        130,244        106,414        63,263        59,616        163,950        126,597        111,559   

Adjusted EBITDA Margin(8)

    13.9     8.3     15.1     8.2     8.4     10.6     8.4     8.7

Capital expenditures

    23,316        25,927        9,014        12,547        10,341        26,849        24,362        14,999   

 

(1) Includes results of operations of American Pipe & Plastics, Inc., or “APPI,” and Steel Components, Inc., or “SCI,” from October 20, 2014 and November 17, 2014, respectively.
(2) Includes results of operations of EP Lenders II, LLC, or “Ridgeline,” from October 11, 2013.
(3) Includes results of operations of Heritage Plastics, Inc., Heritage Plastics Central, Inc. and Heritage Plastics West, Inc., collectively “Heritage Plastics” and Liberty Plastics, LLC, or “Liberty Plastics,” from September 17, 2013.
(4)

We recorded asset impairments of $27.9 million for fiscal 2015, of which $24.0 million relates to long-lived assets from the closure of a Philadelphia, Pennsylvania manufacturing facility. We announced our planned exit from our Fence and Sprinkler steel pipe and tube product lines, or “Fence and Sprinkler,” and the closure of a Philadelphia, Pennsylvania manufacturing facility, in August 2015. The remaining $3.9 million represents impairment of goodwill from our SCI acquisition, which is part of our Electrical Raceway reportable segment. We recorded asset impairments of $44.4 million for fiscal 2014, of which $43.0 million represents goodwill

 



 

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  impairment from a reporting unit within our MP&S reportable segment. The remaining $1.4 million primarily represents a $0.9 million impairment of trade names of our Razor Ribbon and Columbia MBF commercial businesses. We recorded asset impairments of $9.2 million for fiscal 2013, which includes $5.9 million to adjust the carrying value of several held-for-sale facilities recorded at fair value. The remaining $3.3 million represents a write-down of property, plant and equipment of our Acroba business located in France.
(5) Incurred in connection with the redemption in fiscal 2014 of AII’s 9.875% Senior Secured Notes due 2018, or the “Senior Notes.” See Note 8 to our audited consolidated financial statements included elsewhere in this prospectus for further detail.
(6) We divested our business in Brazil during fiscal 2013, which was reported as a discontinued operation. See Note 18 to our audited consolidated financial statements included elsewhere in this prospectus for further detail.
(7) We present Adjusted net sales to facilitate comparisons of reported net sales from period to period. In August 2015, we announced plans to exit Fence and Sprinkler in order to re-align our long-term strategic focus. We define Adjusted net sales as reported net sales excluding net sales directly attributable to Fence and Sprinkler. Adjusted net sales has limitations as an analytical tool, and should not be considered in isolation or as an alternative to measures based on accounting principles generally accepted in the United States of America, or “GAAP,” such as net sales or other financial statement data presented in our consolidated financial statements as an indicator of revenue. Because Adjusted net sales is not a measure determined in accordance with GAAP and is susceptible to varying calculations, Adjusted net sales, as presented, may not be comparable to other similarly titled measures of other companies.

The following table sets forth a reconciliation of net sales to Adjusted net sales for the periods presented, as well as the three months ended March 25, 2016 and March 27, 2015:

 

    Twelve Months Ended     Six Months Ended     Three Months Ended     Fiscal Year Ended  

($ in thousands)

  March 25,
2016
    March 27,
2015
    March 25,
2016
    March 27,
2015
    March 28,
2014
    March 25,
2016
    March 27,
2015
    September 25,
2015
    September 26,
2014
    September 27,
2013
 

Net sales

  $ 1,581,602      $ 1,759,223      $ 711,421      $ 858,987      $ 802,602      $ 353,046      $ 432,586      $ 1,729,168      $ 1,702,838      $ 1,475,897   

Impact of Fence and Sprinkler exit

    (94,547     (193,998     (7,816     (91,862     (90,552     —          (45,811     (178,593     (192,688     (198,722
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net sales

  $ 1,487,055      $ 1,565,225      $ 703,605      $ 767,125      $ 712,050      $ 353,046      $ 386,775      $ 1,550,575      $ 1,510,150      $ 1,277,175   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table sets forth a reconciliation of net sales to Adjusted net sales by segment for LTM March 2016 and LTM March 2015:

 

    Twelve Months Ended  

($ in thousands)

  March 25, 2016     March 27, 2015  
  Electrical Raceway     MP&S     Electrical Raceway     MP&S  

Net sales

  $ 961,362      $ 621,761      $ 1,014,580      $ 745,549   

Impact of Fence and Sprinkler exit

    —          (94,547     —          (193,998
 

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net sales

  $ 961,362      $ 527,214      $ 1,014,580      $ 551,551   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(8) We define Adjusted EBITDA as net income (loss) before: loss from discontinued operations (net of income tax), depreciation and amortization, loss on extinguishment of debt, interest expense (net), income tax expense (benefit), restructuring and impairments, net periodic pension benefit cost, stock-based compensation, impact from anti-microbial coated sprinkler pipe, or “ABF,” product liability, consulting fees, multi-employer pension withdrawal, transaction costs, other items, and the impact from our Fence and Sprinkler exit. We believe Adjusted EBITDA, when presented in conjunction with comparable GAAP measures, is useful for investors because management uses Adjusted EBITDA in evaluating the performance of our business.

We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of Adjusted net sales. We use Adjusted EBITDA in the preparation of our annual operating budgets and as an indicator of business performance. We believe Adjusted EBITDA allows us to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance. Adjusted EBITDA is not considered a measure of financial performance under GAAP and the items excluded therefrom are significant components in understanding and assessing our financial performance. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation or as an alternative to such GAAP measures as net income (loss), cash flows provided by or used in operating, investing or financing activities or other financial statement data presented in our consolidated financial statements as an indicator of financial performance or liquidity. Some of these limitations are:

 

    Adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;

 



 

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    Adjusted EBITDA does not reflect interest expense, or the requirements necessary to service interest or principal payments on debt;

 

    Adjusted EBITDA does not reflect income tax expense (benefit) or the cash requirements to pay taxes;

 

    Adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and

 

    although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.

Because Adjusted EBITDA is not a measure determined in accordance with GAAP and is susceptible to varying calculations, Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies.

The following table sets forth a reconciliation of net income (loss) to Adjusted EBITDA for the periods presented, as well as the three months ended March 25, 2016 and March 27, 2015:

 

($ in thousands)

  Twelve Months
Ended
    Six Months Ended     Three Months
Ended
    Fiscal Year Ended  
  March 25,
2016
    March 27,
2015
  March 25,
2016
    March 27,
2015
    March 28,
2014
    March 25,
2016
    March 27,
2015
    September 25,
2015
    September 26,
2014
    September 27,
2013
 

Net income (loss)

    $14,586      $ (59,641   $ 22,579      $ 3,038      $ (11,269     14,007        5,800      $ (4,955   $ (73,948   $ (61,235

Loss from discontinued operations, net of income tax expense

    —          —          —          —          —          —          —          —          —          42,654   

Depreciation and amortization

    57,183        58,568        26,742        29,024        29,151        13,249        14,308        59,465        58,695        48,412   

(Gain) loss on extinguishment of debt

    (1,661     40,913        (1,661     —          2,754        (1,661     —          —          43,667        —     

Interest expense, net

    42,845        43,286        20,448        22,412        23,392        10,567        11,483        44,809        44,266        47,869   

Income tax expense (benefit)

    7,972        (30,558     13,344        2,456        75        8,746        2,809        (2,916     (32,939     (2,966

Restructuring and impairments (a)

    34,605        46,597        2,069        167        258        775        154        32,703        46,687        10,931   

Net periodic pension benefit cost (b)

    509        973        220        289        684        110        144        578        1,368        3,371   

Stock-based compensation (c)

    23,765        8,800        12,043        1,801        1,398        9,998        377        13,523        8,398        2,199   

ABF product liability impact (d)

    (913)        2,833        425        1,122        1,130        213        561        (216     2,841        1,383   

Consulting fee (e)

    3,500        3,604        1,750        1,750        3,000        875        875        3,500        4,854        6,000   

Multi-employer pension withdrawal (f)

    —          —          —          —          —          —          —          —          —          7,290   

Transaction costs (g)

    8,316        2,975        3,431        1,154        3,228        2,776        637        6,039        5,049        1,780   

Other (h)

    16,748        11,422        4,213        1,770        3,004        (1,294     499        14,305        12,656        7,685   

Impact of Fence and Sprinkler (i)

    (354     472        811        (1,720     2,811        —          (1,534     (2,885     5,003        (3,814
 

 

 

   

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 207,101      $ 130,244      $ 106,414      $ 63,263      $ 59,616      $ 58,361      $ 36,113      $ 163,950      $ 126,597      $ 111,559   
 

 

 

   

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) Restructuring amounts represent exit or disposal costs including termination benefits and facility closure costs. Impairment amounts represent write-downs of goodwill, intangible assets and/or long-lived assets. See Notes 6 and 15 to our audited consolidated financial statements and Notes 6 and 14 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus for further detail.
  (b) Represents pension costs in excess of cash funding for pension obligations in the period. See Note 10 to our audited consolidated financial statements and Note 10 to our unaudited condensed consolidated statements included elsewhere in this prospectus in further detail.
  (c) Represents stock-based compensation expenses related to options awards and restricted stock units. See Note 13 to our audited consolidated financial statements and Note 12 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus for further detail.
  (d) Represents changes in our estimated exposure to ABF matters. See Note 16 to our audited consolidated financial statements and Note 15 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus for further detail.
  (e) Represents amounts paid to CD&R and, until April 9, 2014, to Tyco. In connection with this offering, we expect to enter into a termination agreement with CD&R, pursuant to which the parties will agree to terminate this consulting fee. See “Certain Relationships and Related Party Transactions—Consulting Agreement.” See Note 3 to our audited consolidated financial statements and Note 3 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus for further detail.
  (f) Represents our proportional share of a multi-employer pension liability from which we withdrew in fiscal 2013. See Note 10 to our audited financial statements included elsewhere in this prospectus for further detail.
  (g) Represents expenses associated with acquisition and divestiture-related activities.

 



 

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  (h) Represents other items, such as lower-of-cost-or-market inventory adjustments and the impact of foreign exchange gains or losses related to our divestiture in Brazil.
  (i) Represents historical performance of Fence and Sprinkler and related operating costs.

The following table sets forth a reconciliation of segment Adjusted EBITDA for the fiscal year ended September 25, 2015 to segment Adjusted EBITDA for LTM March 2016:

 

($ in thousands)

   Electrical
Raceway
     Mechanical
Products & Solutions
 

Fiscal Year Ended September 25, 2015

   $ 106,717       $ 79,553   

Six Months Ended March 25, 2016

     76,619         41,701   
  

 

 

    

 

 

 
     183,336         121,254   

Less: Six Months Ended March 27, 2015

     42,680         30,556   
  

 

 

    

 

 

 

Twelve Months Ended March 25, 2016

   $ 140,656       $ 90,698   
  

 

 

    

 

 

 

For further information with respect to segment Adjusted EBITDA, see Note 19 to our audited consolidated financial statements and Note 18 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus.

 



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties described below, as well as other information contained in this prospectus, including our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. The risks described below are not the only ones facing us. The occurrence of any of, or a combination of, the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial position, results of operations or cash flows. In any such case, the trading price of our common stock could decline, and you may lose all or part of your investment. This prospectus also contains forward-looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks and uncertainties described below.

Risks Related to Our Business

Our business is affected by general business and economic conditions, which could materially and adversely affect our business, financial position, results of operations or cash flows.

Demand for our products is affected by a number of general business and economic conditions. A decline in the U.S. and international markets in which we operate could materially and adversely affect our business, financial position, results of operations or cash flows. Our profit margins, as well as overall demand for our products, could decline as a result of a large number of factors beyond our control, including economic recessions, changes in end-user preferences, consumer confidence, inflation, availability of credit, fluctuation in interest and currency exchange rates and changes in the fiscal or monetary policies of governments in the regions in which we operate.

During the most recent U.S. economic recession, which began in the second half of 2007 and continued through 2011, demand for our products declined significantly. Another economic downturn in any of the markets we serve may result in a reduction of sales and pricing for our products. If the creditworthiness of our customers declines, we could face increased credit risk and some, or many, of our customers may not be able to pay us amounts when they become due. While the U.S. recession that began in 2007 has ended and there has been growth in the U.S. construction markets that we serve, there can be no assurance that any improvement will be sustained or continue.

We cannot predict the duration of current economic conditions, or the timing or strength of any future recovery of activities in our markets. Weakness in the markets in which we operate could have a material adverse effect on our business, financial condition, results of operations or cash flows. We may have to close underperforming facilities from time to time as warranted by general economic conditions and/or weakness in the markets in which we operate. In addition to a reduction in demand for our products, these factors may also reduce the price we are able to charge for our products. This, combined with an increase in excess capacity, could negatively impact our business, financial condition, results of operations or cash flows.

The non-residential construction industry accounts for a significant portion of our business, and the U.S. non-residential construction industry in recent years experienced a significant downturn followed by a slow recovery. Another downturn could materially and adversely affect our business, financial position, results of operations or cash flows.

Our business is largely dependent on the non-residential construction industry. Approximately 40% and 37% of our net sales and Adjusted net sales in fiscal 2015, respectively, were directly related to U.S. new non-residential construction. For new construction, we estimate that our product installation typically lags U.S. non-residential starts by six to twelve months. The U.S. non-residential construction industry is cyclical, with product demand based on numerous factors such as availability of credit, interest rates, general economic conditions, consumer confidence and other factors that are beyond our control. U.S. non-residential construction starts, as

 

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reported by Dodge reached a historic low of 680 million square feet in 2010 and increased to 942 million square feet in 2015, which remains well below historical levels. We expect to capitalize on any recovery in non-residential construction activity over the coming years and potentially drive higher margins by leveraging the scalability of our operations.

From time to time we have been adversely affected in various parts of the country by declines in non-residential building construction starts due to, among other things, changes in tax laws affecting the real estate industry, high interest rates and the level of non-residential construction activity. Continued uncertainty about current economic conditions will continue to pose a risk to our business, financial position, results of operations and cash flows, as participants in this industry may postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a continued material negative effect on the demand for our products.

The raw materials on which we depend in our production process may be subject to price increases which we may not be able to pass through to our customers, or to price decreases which may decrease the price levels of our products. As a result, such price fluctuations could materially and adversely affect our business, financial position, results of operations or cash flows.

Our results of operations are impacted by changes in commodity prices, primarily steel, copper and PVC resin. Historically, we have not engaged in material hedging strategies for raw material purchases. Substantially all of the products we sell (such as steel conduit, tubing and framing, copper wiring in our cables, and PVC conduit) are subject to price fluctuations because they are composed primarily of steel, copper or PVC resin, three industrial commodities that are subject to price volatility. This volatility can significantly affect our gross profit. We also watch the market trends of certain other commodities, such as zinc (used in the galvanization process for a number of our products), electricity, natural gas and diesel fuel, as such commodities can be important to us as they impact our cost of sales, both directly through our plant operations and indirectly through transportation and freight expense.

Although we seek to recover increases in raw material prices through price increases in our products, we have not always been completely successful. In addition, in periods of declining prices for our raw materials we may face pricing pressure from our customers. We generally sell our products on a spot basis (and not under long-term contracts). Any increase in raw material prices that is not offset by an increase in our prices, or our inability to maintain price levels in an environment of declining raw material prices, could materially and adversely affect our business, financial position, results of operations or cash flows.

We operate in a competitive landscape, and increased competition could materially and adversely affect our business, financial position, results of operations or cash flows.

The principal markets that we serve are highly competitive. Competition is based primarily on product offering, product innovation, quality, service and price. Our principal competitors range from national manufacturers to smaller regional manufacturers and differ by each of our product lines. See “Business—Competition.” Some of our competitors may have greater financial and other resources than we do and some may have more established brand names in the markets we serve. The actions of our competitors may encourage us to lower our prices or to offer additional services or enhanced products at a higher cost to us, which could reduce our gross profit, net income, and cash flow or may cause us to lose market share. Any of these consequences could materially and adversely affect our business, financial position, results of operations or cash flows.

Our operating results are sensitive to the availability and cost of freight and energy, such as diesel fuel and electricity, which are important in the manufacture and transport of our products.

Our operating costs increase when freight or energy costs rise. During periods of increasing freight and energy costs, we might not be able to fully recover our operating cost increases through price increases without

 

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reducing demand for our products. The cost of fuel is largely unpredictable and has fluctuated significantly in recent years, reaching historically high levels at times. Fuel availability, as well as pricing, is also impacted by political and economic factors that are beyond our control.

In addition, we are dependent on third-party freight carriers to transport many of our products. Our access to third-party freight carriers is not guaranteed, and we may be unable to transport our products at economically attractive rates in certain circumstances, particularly in cases of adverse market conditions or disruptions to transportation infrastructure. Similarly, increasing energy costs, in particular, the cost of diesel fuel, could put a strain on the transportation of materials and products if it forces certain transporters to close. Our business, financial position, results of operations or cash flows could be materially and adversely affected if we are unable to pass all of the cost increases on to our customers, if we are unable to obtain the necessary energy supplies or if freight carrier capacity in our geographic markets were to decline significantly or otherwise become unavailable.

Our business, financial position, results of operations or cash flows could be materially and adversely affected by the level of similar product imports into the United States.

A substantial portion of our revenue is generated through our operations in the United States. Although we have not been substantially impacted by imports historically, imports of products similar to those manufactured by us may reduce the volume of products sold by domestic producers and depress the selling prices of our products and those of our competitors.

We believe import levels are affected by, among other things, overall worldwide product demand, the trade practices of foreign governments, the cost of freight, the challenges involved in shipping, government subsidies to foreign producers and governmentally imposed trade restrictions in the United States. Increased imports of products similar to those manufactured by us in the United States could materially and adversely affect our business, financial position, results of operations or cash flows.

We are indirectly subject to regulatory changes that may affect demand for our products.

The market for certain of our products is influenced by federal, state, local and international governmental regulations and trade policies (such as the American Recovery and Reinvestment Act of 2009, Underwriters Laboratories, National Electric Code and American Society of Mechanical Engineers) as well as other policies, including those imposed on the non-residential construction industry (such as the National Electrical Code and corresponding state and local laws based on the National Electrical Code). These regulations and policies are subject to change. In the event that there would be changes in the National Electrical Code and any similar state, local or non-U.S. laws, including changes that would allow for alternative products to be used in the non-residential construction industry or that would render less restrictive or otherwise reduce the current requirements under such laws and regulations, the scope of products that would serve as alternatives to products we produce would increase. As a result, competition in the industries in which we operate could increase, with a potential corresponding decrease in the demand for our products. In addition, in the event that changes in such laws would render current requirements more restrictive, we may be required to change our products or production processes to meet such increased restrictions, which could result in increased costs and cause us to lose market share. Any changes to such regulations, laws and policies could materially and adversely affect our business, financial position, results of operations or cash flows.

Our results of operations could be adversely affected by weather.

Although weather patterns affect our operating results throughout the year, adverse weather historically has reduced construction activity in our first and second fiscal quarters. In contrast, our highest volume of net sales historically has occurred in our third and fourth fiscal quarters.

Most of our business units experience seasonal variation as a result of the dependence of our customers on suitable weather to engage in construction projects. Generally, during the winter months, construction activity

 

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declines due to inclement weather, frozen ground and shorter daylight hours. For example, during the spring of 2013 and 2014, extremely cold weather significantly reduced the level of construction activities in the United States, thereby impacting our net sales. In addition, to the extent that hurricanes, severe storms, floods, other natural disasters or similar events occur in the geographic regions in which we operate, our results of operations may be adversely affected. We anticipate that fluctuations of our operation results from period to period due to seasonality will continue in the future.

We may need to raise additional capital, and we cannot be sure that additional financing will be available.

To satisfy existing obligations and support the development of our business, we depend on our ability to generate cash flow from operations and to borrow funds and issue securities in the capital markets. We may require additional financing for liquidity, capital requirements or growth initiatives. We may not be able to obtain financing on terms and at interest rates that are favorable to us or at all. Any inability by us to obtain financing in the future could materially and adversely affect our business, financial position, results of operations or cash flows.

We have incurred and continue to incur significant costs to comply with current and future environmental, health and safety laws and regulations, and our operations expose us to the risk of material environmental, health and safety liabilities and obligations.

We are subject to numerous federal, state, local and non-U.S. environmental, health and safety laws governing, among other things, the generation, use, storage, treatment, transportation, disposal and management of hazardous substances and wastes, emissions or discharges of pollutants or other substances into the environment, investigation and remediation of, and damages resulting from, releases of hazardous substances and the health and safety of our employees. We have incurred, and expect to continue to incur, capital expenditures in addition to ordinary course costs to comply with applicable current and future environmental, health and safety laws, such as those governing air emissions and wastewater discharges. In addition, governing agencies could impose conditions or other restrictions in our environmental permits which increase our costs. These laws are subject to change, which can be frequent and material. More stringent federal, state or local environmental rules or regulations could increase our operating costs and expenses. Furthermore, our operations are governed by the United States Occupational Safety and Health Administration, or “OSHA.” OSHA regulations may change in a way that increases our costs of operations. Our failure to comply with applicable environmental, health and safety laws and permit requirements could result in civil or criminal fines or penalties, enforcement actions, and regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures such as the installation of pollution control equipment, which could materially and adversely affect our business, financial position, results of operations or cash flows.

From time to time, we may be held liable for the costs to address contamination at any real property we have ever owned, operated or used as a disposal site. We are currently, and may in the future be, required to investigate, remediate or otherwise address contamination at our current or former facilities. Many of our current and former facilities have a history of industrial usage for which additional investigation, remediation or other obligations could arise in the future and that could materially and adversely affect our business, financial position, results of operations or cash flows. For example, as we sell, close or otherwise dispose of facilities, we may need to address environmental issues at such sites, including any previously unknown contamination.

We could be subject to third-party claims for property damage, personal injury and nuisance or otherwise as a result of violations of, or liabilities under, environmental, health or safety laws or in connection with releases of hazardous or other materials at any current or former facility. We could also be subject to environmental indemnification or other claims in connection with assets and businesses that we have divested.

In 2007, the United States Supreme Court classified carbon dioxide as an air pollutant under the Clean Air Act in a case seeking to require the United States Environmental Protection Agency to regulate carbon dioxide in

 

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vehicle emissions. As issues relating to climate change have become more prevalent, foreign, federal, state and local governments have responded, and are expected to continue to respond, with increased legislation and regulation, including laws aimed at reducing emissions of greenhouse gases. Such legislation and regulation can negatively affect us by, among other things, requiring us to incur costs to upgrade our equipment.

We cannot assure you that any costs relating to future capital and operating expenditures to maintain compliance with environmental, health and safety laws, as well as costs to address contamination or environmental claims, will not exceed any current estimates or adversely affect our business, financial position, results of operations or cash flows. In addition, any unanticipated liabilities or obligations arising, for example, out of discovery of previously unknown conditions or changes in law or enforcement policies, could materially and adversely affect our business, financial position, results of operations or cash flows.

We rely on a few customers for a significant portion of our net sales, and the loss of those customers could materially and adversely affect our business, financial position, results of operations or cash flows.

Certain of our customers, in particular buying groups representing consortia of independent electrical distributors, national electrical distributors and OEMs serving various end markets, are material to our business, financial position, results of operations and cash flows because they account for a significant portion of our net sales. In fiscal 2015, although our single largest customer accounted for approximately 5% of our net sales, our ten largest customers (including buyers and distributors in buying groups) accounted for approximately 32% of our net sales. Our percentage of sales to our major customers may increase if we are successful in pursuing our strategy of broadening the range of products we sell to existing customers. In such an event, or in the event of any consolidation in certain segments we serve, including retailers selling building products, our sales may be increasingly sensitive to deterioration in the financial condition of, or other adverse developments with respect to, one or more of our top customers. Our top customers may also be able to exert influences on us with respect to pricing, delivery, payment or other terms.

A significant asset included in our working capital is accounts receivable from customers. If customers responsible for a significant amount of accounts receivable become insolvent or otherwise unable to pay for products and services, or become unwilling or unable to make payments in a timely manner, our business, financial position, results of operations or cash flows could be materially and adversely affected. A significant deterioration in the economy could have an adverse effect on the servicing of these accounts receivable, which could result in longer payment cycles, increased collection costs and defaults in excess of management’s expectations. Deterioration in the credit quality of several major customers at the same time could materially and adversely affect our business, financial position, results of operations or cash flows.

In general, we do not have long-term contracts with our customers. As a result, although our customers periodically provide indications of their product needs and purchases, they generally purchase our products on an order-by-order basis, and the relationship, as well as particular orders, can be terminated at any time. The loss or bankruptcy of, or significant decrease in business from, any of our major customers could materially and adversely affect our business, financial position, results of operations or cash flows.

Our working capital requirements could result in us having lower cash available for, among other things, capital expenditures and acquisition financing.

Our working capital needs fluctuate based on economic activity and the market prices for our main raw materials, which are predominantly steel, copper and PVC resin. We require significant working capital to purchase these raw materials and sell our products efficiently and profitably to our customers. We are typically obligated to pay for our raw material purchases within 10 and 30 days of receipt, while we generally collect cash from the sale of manufactured products between 40 and 50 days from the point at which title and risk of loss transfers. If our working capital requirements increase and we are unable to finance our working capital on terms and conditions acceptable to us, we may not be able to obtain raw materials to respond to customer demand, which could result in a loss of sales.

 

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If our working capital needs increase, the amount of liquidity we have at our disposal to devote to other uses will decrease. A decrease in liquidity could, among other things, limit our flexibility, including our ability to make capital expenditures and to complete acquisitions that we have identified, thereby materially and adversely affecting our business, financial condition, results of operations and cash flows.

Work stoppages and other production disruptions may adversely affect our operations and impair our financial performance.

As of March 25, 2016, approximately 34% of our U.S. employees were represented with a collective bargaining agreement by labor unions. A work stoppage or other interruption of production could occur at our facilities as a result of disputes under existing collective bargaining agreements with labor unions or in connection with negotiations of new collective bargaining agreements, as a result of supplier financial distress, or for other reasons. For example, in the third quarter of fiscal 2014, in connection with labor negotiations, we experienced a week-long work stoppage at our Harvey, Illinois facility. In addition, we may encounter supplier constraints, be unable to maintain favorable supplier arrangements and relations or be affected by disruptions in the supply chain. A work stoppage or interruption of production at our facilities, due to labor disputes, shortages of supplies or any other reason could materially and adversely affect our business, financial position, results of operations or cash flows. See “Business—Employees.”

If we are unable to hire, engage and retain key personnel, our business, financial position, results of operations or cash flows could be materially and adversely affected.

We are dependent, in part, on our continued ability to hire, engage and retain key employees at our operations around the world. Additionally, we rely upon experienced managerial, marketing and support personnel to effectively manage our business and to successfully promote our wide range of products. If we do not succeed in engaging and retaining key employees and other personnel, we may be unable to meet our objectives and, as a result, our business, financial position, results of operations or cash flows could be materially and adversely affected.

We have financial obligations relating to pension plans that we maintain in the United States.

We provide pension benefits through a number of noncontributory and contributory defined benefit retirement plans covering eligible U.S. employees. As of September 25, 2015, we estimated that our pension plans were underfunded by approximately $28 million. The funded status represents five plans, four of which are frozen and do not accrue any additional service cost. The fifth plan will be frozen in our fiscal 2017. As such, the funded status is primarily impacted by the performance of the underlying assets supporting the plan and changes in interest rates or other factors, which may trigger additional cash contributions. Our pension obligation is calculated annually and is based on several assumptions, including then-prevailing conditions, which may change from year to year. If in any year our assumptions are inaccurate, we could be required to expend greater amounts than anticipated.

Unplanned outages at our facilities and other unforeseen disruptions could materially and adversely affect our business, financial position, results of operations or cash flows.

Our business depends on the operation of our manufacturing and distribution facilities. It is possible that we could experience prolonged periods of reduced production or distribution capacity due to interruptions in the operations of our facilities or those of our key suppliers. It is also possible that operations may be disrupted due to other unforeseen circumstances such as power outages, explosions, fires, floods, accidents and severe weather conditions. Availability of raw materials and delivery of products to customers could be affected by logistical disruptions. To the extent that lost production or distribution capacity could not be compensated for at unaffected facilities and depending on the length of the outage, our sales and production costs could be adversely affected.

 

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We rely on the efforts of agents and distributors to generate sales of our products.

We utilize various third-party agents and distributors to market, sell and distribute our products and to directly interface with our customers and end-users by providing customer service and support. No single agent or distributor accounts for a material percentage of our annual net sales. We do not have long-term contracts with our third-party agents and distributors, who could cease offering our products. In addition, many of our third-party agents and distributors with whom we transact business also offer the products of our competitors to our ultimate customers and they could begin offering our products with less prominence. The loss of a substantial number of our third-party agents or distributors or a dramatic deviation from the amount of sales they generate, including due to an increase in their sales of our competitors’ products, could reduce our sales and could materially and adversely affect our business, financial position, results of operations or cash flows.

Interruptions in the proper functioning of our information technology, or “IT” systems, including from cybersecurity threats, could disrupt operations and cause unanticipated increases in costs or decreases in revenues, or both.

We use our information systems to, among other things, manage our manufacturing operations, manage inventories and accounts receivable, make purchasing decisions and monitor our results of operations, and process, transmit and store sensitive electronic data, including employee, supplier and customer records. As a result, the proper functioning of our IT systems is critical to the successful operation of our business. Our information systems include proprietary systems developed and maintained by us. In addition, we depend on IT systems of third parties, such as suppliers, retailers and OEMs to, among other things, market and distribute our products, develop new products and services, operate our website, host and manage our services, store data, process transactions, respond to customer inquiries and manage inventory and our supply chain. Although our IT systems are protected through physical and software safeguards and remote processing capabilities exist, our IT systems or those of third parties whom we depend upon are still vulnerable to natural disasters, power losses, unauthorized access, telecommunication failures and other problems. If critical proprietary or third-party IT systems fail or are otherwise unavailable, including as a result of system upgrades and transitions, our ability to process orders, track credit risk, identify business opportunities, maintain proper levels of inventories, collect accounts receivable, pay expenses and otherwise manage our business would be adversely affected.

Cyber incidents can result from deliberate attacks or unintentional events. These incidents can include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cybersecurity attacks in particular are becoming more sophisticated and include, but are not limited to, malicious software, attempts to gain unauthorized access to data (either directly or through our vendors) and other electronic security breaches. Despite our security measures, our IT systems and infrastructure or those of our third parties may be vulnerable to such cyber incidents. The result of these incidents could include, but are not limited to, disrupted operations, misstated or misappropriated financial data, theft of our intellectual property or other confidential information (including of our customers, suppliers and employees), liability for stolen assets or information, increased cyber security protection costs and reputational damage adversely affecting customer or investor confidence. In addition, if any information about our customers, including payment information, were the subject of a successful cybersecurity attack against us, we could be subject to litigation or other claims by the affected customers. We have incurred costs and may incur significant additional costs in order to implement the security measures we feel are appropriate to protect our IT systems.

We may be required to recognize goodwill or other long-lived asset impairment charges.

As of March 25, 2016, we had goodwill of $115.8 million and indefinite-lived intangibles of $93.9 million. Goodwill and indefinite-lived intangibles are not amortized and are subject to impairment testing at least annually using a fair value based approach. Future triggering events, such as declines in our cash flow projections or customer demand, may cause impairments of our goodwill or long-lived assets based on factors such as the stock price of our common stock, projected cash flows, assumptions used, control premiums or other variables.

 

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In addition, if we divest assets at prices below their asset value, we must write them down to fair value resulting in asset impairment charges, which could adversely affect our financial position or results of operations. For example, in fiscal 2015 we recorded asset impairments of $27.9 million primarily related to our announced Fence and Sprinkler exit. We cannot accurately predict the amount and timing of any impairment of assets, and we may be required to recognize goodwill or other asset impairment charges which could materially and adversely affect our results of operations.

We are subject to certain safety and labor risks associated with the manufacture and in the testing of our products.

As of March 25, 2016, we employed approximately 3,200 total full-time equivalent employees, a significant percentage of whom work at our 27 manufacturing facilities. Our business involves complex manufacturing processes and there is a risk that an accident or death could occur in one of our facilities. In addition, prior to the introduction of new products, our employees test such products under rigorous conditions, which could potentially result in injury or death. The outcome of any personal injury, wrongful death or other litigation is difficult to assess or quantify and the cost to defend litigation can be significant. As a result, the costs to defend any action or the potential liability resulting from any such accident or death or arising out of any other litigation, and any negative publicity associated therewith or negative effects on employee morale, could have a negative effect on our business, financial position, results of operations or cash flows. In addition, any accident could result in manufacturing or product delays, which could negatively affect our business, financial position, results of operations or cash flows.

The nature of our business exposes us to product liability, construction defect and warranty claims and litigation as well as other legal proceedings, which could materially and adversely affect our business, financial position, results of operations or cash flows.

We are exposed to construction defect and product liability claims relating to our various products if our products do not meet customer expectations. Such claims and liabilities may arise out of the quality of raw materials or component parts we purchase from third-party suppliers, over which we do not have direct control, or due to our fabrication, assembly or manufacture of our products. In addition, we warrant certain of our products to be free of certain defects and could incur costs related to paying warranty claims in connection with defective products. We cannot assure you that we will not experience material losses or that we will not incur significant costs to defend or pay for such claims.

While we currently maintain insurance coverage to address a portion of these types of liabilities, we cannot make assurances that we will be able to obtain such insurance on acceptable terms in the future, if at all, or that any such insurance will provide adequate coverage against potential claims. Further, while we intend to seek indemnification against potential liability for product liability claims from relevant parties, we cannot guarantee that we will be able to recover under any such indemnification agreements. Any claims that result in liability exceeding our insurance coverage and rights to indemnification by third parties could materially and adversely affect our business, financial position, results of operations or cash flows. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for significant time periods, regardless of the ultimate outcome. An unsuccessful product liability defense could be highly costly and accordingly result in a decline in revenues and profitability. For example, certain of our subsidiaries have been named as defendants in a product liability class action lawsuit in South Florida claiming that our ABF II anti-microbial coated sprinkler pipe allegedly caused environmental stress cracking in chlorinated PVC pipe. See “Business—Legal Proceedings.” If this case were to be decided against us at the class certification stage or otherwise, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, even if we are successful in defending any claim relating to the products we distribute, claims of this nature could negatively impact customer confidence in us and our products.

From time to time, we are also involved in government inquiries and investigations, as well as consumer, employment, tort proceedings and other litigation. We cannot predict with certainty the outcomes of these legal

 

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proceedings and other contingencies. The outcome of some of these legal proceedings and other contingencies could require us to take actions which would adversely affect our operations or could require us to pay substantial amounts of money. Additionally, defending against these lawsuits and proceedings may involve significant expense and diversion of management’s attention and resources from other matters.

We may not be able to adequately protect our intellectual property rights in foreign countries, and we may become involved in intellectual property disputes.

Our use of contractual provisions, confidentiality procedures and agreements, and patent, trademark, copyright, unfair competition, trade secret and other laws to protect our intellectual property and other proprietary rights may not be adequate. We have registered intellectual property (mainly trademarks and patents) in more than 75 countries. Because of the differences in foreign trademark, patent and other intellectual property or proprietary rights laws, we may not receive the same protection in foreign countries as we would in the United States.

Litigation may be necessary to enforce our intellectual property rights or to defend against claims by third parties that our products infringe their intellectual property rights. Any litigation or claims brought by or against us could result in substantial costs and diversion of our resources. A successful intellectual property infringement suit against us could prevent us from manufacturing or selling certain products in a particular area, which could materially and adversely affect our business, financial position, results of operations or cash flows.

We face risks relating to doing business internationally that could materially and adversely affect our business, financial position, results of operations or cash flows.

Our business operates and serves customers in certain foreign countries, including Australia, Canada, China, New Zealand and the United Kingdom. There are certain risks inherent in doing business internationally, including:

 

    economic volatility and sustained economic downturns;

 

    difficulties in enforcing contractual and intellectual property rights;

 

    currency exchange rate fluctuations and currency exchange controls;

 

    import or export restrictions and changes in trade regulations;

 

    difficulties in developing, staffing, and simultaneously managing a number of foreign operations as a result of distance;

 

    issues related to occupational safety and adherence to local labor laws and regulations;

 

    potentially adverse tax developments;

 

    longer payment cycles;

 

    exposure to different legal standards;

 

    political or social unrest, including terrorism;

 

    risks related to government regulation and uncertain protection and enforcement of our intellectual property rights;

 

    the presence of corruption in certain countries; and

 

    higher than anticipated costs of entry.

One or more of these factors could materially and adversely affect our business, financial position, results of operations or cash flows.

 

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Our inability to introduce new products effectively or implement our innovation strategies could adversely affect our ability to compete.

We continually seek to develop products and solutions that allow us to stay at the forefront of the needs of the Electrical Raceway and MP&S markets. The success of new products depends on a variety of factors, including but not limited to, timely and successful product development, the effective consummation of strategic acquisitions, market acceptance and demand, competitive response, our ability to manage risks associated with product life cycles, the effective management of inventory and purchase commitments, the availability and cost of raw materials and the quality of our initial products during the initial period of introduction. Some of the foregoing factors are beyond our control and we cannot fully predict the ultimate success of the introduction of new products, especially in the early stages of innovation. In introducing new products and implementing our innovation strategies, any delays, unexpected costs, diversion of resources, loss of key employees or other setbacks could materially and adversely affect our business, financial position, results of operations or cash flows.

The majority of our net sales are credit sales that are made primarily to customers whose ability to pay is dependent, in part, upon the economic strength of the industries and geographic areas in which they operate, and the failure to collect monies owed from customers could adversely affect our business, financial position, results of operations or cash flows.

The majority of our net sales are facilitated through the extension of credit to our customers, whose ability to pay is dependent, in part, upon the economic strength of the industries and geographic areas in which they operate. Our business units offer credit to customers, either through unsecured credit that is based solely upon the creditworthiness of the customer, or secured credit for materials sold for a specific job where the security lies in lien rights associated with the material going into the job. The type of credit offered depends both on the financial strength of the customer and the nature of the business in which the customer is involved. End users, resellers and other non-contractor customers generally purchase more on unsecured credit than secured credit. The inability of our customers to pay off their credit lines in a timely manner, or at all, would adversely affect our business, financial condition, results of operations and cash flows. Furthermore, our collections efforts with respect to non-paying or slow-paying customers could negatively impact our customer relations going forward.

Because we depend on the creditworthiness of our customers, if the financial condition of our customers declines, our credit risk could increase. Significant contraction in our markets, coupled with tightened credit availability and financial institution underwriting standards, could adversely affect certain of our customers. Should one or more of our larger customers declare bankruptcy, it could adversely affect the collectability of our accounts receivable, bad debt reserves and net income.

In connection with acquisitions, joint ventures or divestitures, we may become subject to liabilities and required to issue additional debt or equity.

In connection with any acquisitions or joint ventures, we may acquire liabilities or defects such as legal claims, including but not limited to third party liability and other tort claims; claims for breach of contract; employment-related claims; environmental liabilities, conditions or damage; permitting, regulatory or other compliance with law issues; liability for hazardous materials; or tax liabilities. If we acquire any of these liabilities, and they are not adequately covered by insurance or an enforceable indemnity or similar agreement from a creditworthy counterparty, we may be responsible for significant out-of-pocket expenditures. In connection with any divestitures, we may incur liabilities for breaches of representations and warranties or failure to comply with operating covenants under any agreement for a divestiture. In addition, we may indemnify a counterparty in a divestiture for certain liabilities of the subsidiary or operations subject to the divestiture transaction. These liabilities, if they materialize, could materially and adversely affect our business, financial position, results of operations or cash flows.

In addition, if we were to undertake a substantial acquisition for cash, the acquisition would likely need to be financed in part through additional financing from banks, through public offerings or private placements of

 

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debt or equity securities or through other arrangements. Such acquisition financing might decrease our ratio of earnings to fixed charges and adversely affect other leverage criteria and our credit rating. We cannot assure you that the necessary acquisition financing would be available to us on acceptable terms if and when required. Moreover, acquisitions financed through the issuance of equity securities could cause our stockholders to experience dilution.

We may be unable to identify, acquire, close or integrate acquisition targets successfully.

Acquisitions are a component of our growth strategy; however, there can be no assurance that we will be able to continue to grow our business through acquisitions as we have done historically or that any businesses acquired will perform in accordance with expectations or that business judgments concerning the value, strengths and weaknesses of businesses acquired will prove to be correct. We will continue to analyze and evaluate the acquisition of strategic businesses or product lines with the potential to strengthen our industry position or enhance our existing product offering. We cannot assure you that we will identify or successfully complete transactions with suitable acquisition candidates in the future, nor can we assure you that completed acquisitions will be successful. If an acquired business fails to operate as anticipated or cannot be successfully integrated with our existing business, our business, financial condition, results of operations or cash flows could be materially and adversely affected.

As a result of our international operations, we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws.

The U.S. Foreign Corrupt Practices Act, or the “FCPA,” and similar foreign anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to influence foreign government officials for the purpose of obtaining or retaining business or obtaining an unfair advantage. Recent years have seen a substantial increase in the global enforcement of anti-corruption laws, with more frequent voluntary self-disclosures by companies, aggressive investigations and enforcement proceedings by both the U.S. Department of Justice and the United States Securities and Exchange Commission, or the “SEC,” resulting in record fines and penalties, increased enforcement activity by non-U.S. regulators, and increases in criminal and civil proceedings brought against companies and individuals.

We have operations in Australia, Canada, China, New Zealand and the United Kingdom and sell our products in many additional countries. Our internal policies provide for compliance with all applicable anti-corruption laws for both us and for our joint venture operations. Our continued operation and expansion outside the United States, including in developing countries, could increase the risk of such violations in the future. Despite our training and compliance programs, we cannot assure you that our internal control policies and procedures always will protect us from unauthorized reckless or criminal acts committed by our employees, agents or joint venture partners. In the event that we believe or have reason to believe that our employees, agents or distributors have or may have violated applicable anti-corruption laws, including the FCPA, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violations of these laws may result in severe criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on our business, financial condition, results of operations and cash flows.

Regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may result in damage to our reputation with customers.

As a public company, we will be subject to the requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the “Dodd-Frank Act.” The SEC has adopted requirements under the Dodd-Frank Act for companies that use certain minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by third parties. These requirements require companies to conduct due diligence and disclose whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries. There are costs associated with complying with these disclosure requirements,

 

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including for efforts to determine the sources of conflict minerals used in our products and other potential changes to products, processes or sources of supply as a consequence of such verification activities. In addition, compliance with these requirements could adversely affect the sourcing, supply, and pricing of materials used in those products and we may face reputational challenges if we are unable to verify the origins for all “conflict minerals” used in products through the procedures we have implemented. We may also encounter challenges to satisfy customers that may require all of the components of products purchased to be certified as conflict free. If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier.

Anti-terrorism measures and other disruptions to the raw material supply network could impact our operations.

Our ability to provide efficient distribution of products to our customers is an integral component of our overall business strategy. In the aftermath of terrorist attacks in the United States, federal, state and local authorities have implemented and continue to implement various security measures that affect the raw material supply network in the United States and abroad. If security measures disrupt or impede the receipt of sufficient raw materials, we may fail to meet the needs of our customers or may incur increased expenses to do so.

Risks Related to Our Indebtedness

Our indebtedness may adversely affect our financial health.

As of March 25, 2016, we had approximately $632.3 million of total long-term consolidated indebtedness outstanding (including current portion). As of March 25, 2016, AII had $220.7 million of available borrowing capacity under the ABL Credit Facility and there were no outstanding borrowings under AII’s ABL Credit Facility (excluding $17.9 million of letters of credit issued under the facility). In addition, subject to certain conditions and without the consent of the then existing lenders, the loans under the First Lien Term Loan Facility and the Second Lien Term Loan Facility may be expanded (or a new term loan facility, revolving credit facility or letter of credit facility added) by up to $125.0 million and $75.0 million, respectively, plus an additional amount not to exceed specified coverage ratios. See “Description of Certain Indebtedness—First Lien Term Loan Facility” and “Description of Certain Indebtedness—Second Lien Term Loan Facility.” In addition, we are able to incur additional indebtedness in the future, subject to the limitations contained in the agreements governing our indebtedness. Our indebtedness could have important consequences to you. Because of our indebtedness:

 

    our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes and our ability to satisfy our obligations with respect to our indebtedness may be impaired in the future;

 

    a large portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for other purposes;

 

    we are exposed to the risk of increased interest rates because a significant portion of our borrowings are at variable rates of interest;

 

    it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on, and acceleration of, such indebtedness;

 

    we may be more vulnerable to general adverse economic and industry conditions;

 

    we may be at a competitive disadvantage compared to our competitors with proportionately less indebtedness or with comparable indebtedness on more favorable terms and, as a result, they may be better positioned to withstand economic downturns;

 

    our ability to refinance indebtedness may be limited or the associated costs may increase;

 

    our flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited; and

 

    we may be prevented from carrying out capital spending and restructurings that are necessary or important to our growth strategy and efforts to improve our operating margins.

 

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Despite our indebtedness levels, we and our subsidiaries may incur substantially more indebtedness, which may increase the risks created by our indebtedness.

We and our subsidiaries may incur substantial additional indebtedness in the future. The terms of the credit agreements governing the Credit Facilities do not fully prohibit our subsidiaries from incurring additional debt. If our subsidiaries are in compliance with certain coverage ratios set forth in the agreements governing the Credit Facilities, they may be able to incur substantial additional indebtedness, which may increase the risks created by our current indebtedness. In addition, subject to certain conditions and without the consent of the then existing lenders, the loans under the First Lien Term Loan Facility and the Second Lien Term Loan Facility may be expanded (or a new term loan facility, revolving credit facility or letter of credit facility added) by up to $125.0 million and $75.0 million, respectively, plus an additional amount not to exceed specified leverage ratios. See “Description of Certain Indebtedness—First Lien Term Loan Facility” and “Description of Certain Indebtedness—Second Lien Term Loan Facility.” As of March 25, 2016, we were able to borrow an additional $220.7 million under the ABL Credit Facility. In addition, we can request an increase in the commitments to our ABL Credit Facility from the participating banks or other banks of up to $75.0 million under the terms of the facility.

Increases in interest rates would increase the cost of servicing our indebtedness and could reduce our profitability.

A significant portion of our outstanding indebtedness bears interest or will bear interest at variable rates. As a result, increases in interest rates would increase the cost of servicing our indebtedness and could materially and adversely affect our business, financial position, results of operations or cash flows. As of March 25, 2016, assuming LIBOR exceeded 1.00%, each one percentage point change in interest rates would result in a change of approximately $6.4 million in the annual interest expense on our Term Loan Facilities. As of March 25, 2016, assuming availability was fully utilized, each one percentage point change in interest rates would result in a change of approximately $3.6 million in annual interest expense on the ABL Credit Facility. The impact of increases in interest rates could be more significant for us than it would be for some other companies because of our indebtedness, thereby affecting our profitability.

A lowering or withdrawal of the ratings, outlook or watch assigned to our indebtedness by rating agencies may increase our future borrowing costs and reduce our access to capital.

Our indebtedness currently has a non-investment grade rating, and any rating, outlook or watch assigned could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, current or future circumstances relating to the basis of the rating, outlook or watch, such as adverse changes to our business, so warrant. Any future lowering of our ratings, outlook or watch likely would make it more difficult or more expensive for us to obtain additional debt financing.

The agreements and instruments governing our indebtedness contain restrictions and limitations that could significantly impact our ability to operate our business.

The Credit Facilities contain covenants that, among other things, restrict the ability of AII and its subsidiaries to:

 

    incur additional indebtedness and create liens;

 

    pay dividends and make other distributions or to purchase, redeem or retire capital stock;

 

    purchase, redeem or retire certain junior indebtedness;

 

    make loans and investments;

 

    enter into agreements that limit AII’s or its subsidiaries’ ability to pledge assets or to make distributions or loans to us or transfer assets to us;

 

    sell assets;

 

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    enter into certain types of transactions with affiliates;

 

    consolidate, merge or sell substantially all assets;

 

    make voluntary payments or modifications of junior indebtedness; and

 

    enter into lines of business.

The restrictions in the Credit Facilities may prevent us from taking actions that we believe would be in the best interest of our business and may make it difficult for us to execute our business strategy successfully or effectively compete with companies that are not similarly restricted. We may also incur future debt obligations that might subject us to additional restrictive covenants that could affect our financial and operational flexibility. We may be unable to refinance our indebtedness, at maturity or otherwise, on terms acceptable to us or at all.

The ability of AII to comply with the covenants and restrictions contained in the Credit Facilities may be affected by economic, financial and industry conditions beyond our control including credit or capital market disruptions. The breach of any of these covenants or restrictions could result in a default that would permit the applicable lenders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest. If we are unable to repay indebtedness, lenders having secured obligations, such as the lenders under the Credit Facilities, could proceed against the collateral securing the indebtedness. In any such case, we may be unable to borrow under the Credit Facilities and may not be able to repay the amounts due under such facilities. This could materially and adversely affect our business, financial position, results of operations or cash flows and could cause us to become bankrupt or insolvent.

Our ability to generate the significant amount of cash needed to pay interest and principal on our indebtedness and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many factors beyond our control.

Atkore and AII are each holding companies, and as such they have no independent operations or material assets other than ownership of equity interests in their respective subsidiaries. Atkore and AII each depend on their respective subsidiaries to distribute funds to them so that they may pay obligations and expenses, including satisfying obligations with respect to indebtedness. Our ability to make scheduled payments on, or to refinance our obligations under, our indebtedness depends on the financial and operating performance of our subsidiaries and their ability to make distributions and dividends to us, which, in turn, depends on their results of operations, cash flows, cash requirements, financial position and general business conditions and any legal and regulatory restrictions on the payment of dividends to which they may be subject, many of which may be beyond our control.

We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and interest on our indebtedness. If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or restructure our indebtedness. In the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of our indebtedness, and such alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

The outstanding borrowings under the First Lien Term Loan Facility have a maturity date of April 9, 2021, the outstanding borrowings under the Second Lien Term Loan Facility have a maturity date of October 9, 2021 and the ABL Credit Facility is scheduled to mature on October 23, 2018. We may be unable to refinance any of our indebtedness or obtain additional financing, particularly because of our substantial of indebtedness. Market disruptions, such as those experienced in 2008 and 2009, as well as our indebtedness levels, may increase our cost of borrowing or adversely affect our ability to refinance our obligations as they become due. If we are unable to refinance our indebtedness or access additional credit, or if short-term or long-term borrowing costs dramatically increase, our ability to finance current operations and meet our short-term and long-term obligations could be adversely affected.

 

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If our subsidiary AII cannot make scheduled payments on its indebtedness, it will be in default and the lenders under the Credit Facilities could terminate their commitments to loan money or foreclose against the assets securing their borrowings, and we could be forced into bankruptcy or liquidation.

Risks Related to Our Common Stock and This Offering

Atkore is a holding company with no operations of its own, and it depends on its subsidiaries for cash to fund all of its operations and expenses, including to make future dividend payments, if any.

Our operations are conducted entirely through our subsidiaries, and our ability to generate cash to fund our operations and expenses, to pay dividends or to meet debt service obligations is highly dependent on the earnings and the receipt of funds from our subsidiaries through dividends or intercompany loans. Deterioration in the financial condition, earnings or cash flow of AII and its subsidiaries for any reason could limit or impair their ability to pay such distributions. Additionally, to the extent our subsidiaries are restricted from making such distributions under applicable law or regulation or under the terms of our financing arrangements, or are otherwise unable to provide funds to the extent of our needs, there could be a material adverse effect on our business, financial condition, results of operations or cash flows.

For example, the agreements governing the Credit Facilities significantly restrict the ability of our subsidiaries to pay dividends, make loans or otherwise transfer assets to us. Furthermore, our subsidiaries are permitted under the terms of the Credit Facilities to incur additional indebtedness that may restrict or prohibit the making of distributions, the payment of dividends or the making of loans by such subsidiaries to us.

Our common stock has no prior public market, and the market price of our common stock may be volatile and could decline after this offering.

Prior to this offering, there has been no public market for our common stock, and an active market for our common stock may not develop or be sustained after this offering. We and the selling stockholders will negotiate the initial public offering price per share with the representatives of the underwriters and, therefore, that price may not be indicative of the market price of our common stock after this offering. We cannot assure you that an active public market for our common stock will develop after this offering or, if one does develop, that it will be sustained. In the absence of an active public trading market, you may not be able to sell your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to make strategic investments by using our shares as consideration. In addition, the market price of our common stock may fluctuate significantly. Among the factors that could affect our stock price are:

 

    industry or general market conditions;

 

    domestic and international economic factors unrelated to our performance;

 

    changes in our customers’ preferences;

 

    new regulatory pronouncements and changes in regulatory guidelines;

 

    lawsuits, enforcement actions and other claims by third parties or governmental authorities;

 

    actual or anticipated fluctuations in our quarterly operating results;

 

    changes in securities analysts’ estimates of our financial performance or lack of research coverage and reports by industry analysts;

 

    action by institutional stockholders or other large stockholders (including the CD&R Investor), including future sales of our common stock;

 

    failure to meet any guidance given by us or any change in any guidance given by us, or changes by us in our guidance practices;

 

    announcements by us of significant impairment charges;

 

    speculation in the press or investment community;

 

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    investor perception of us and our industry;

 

    changes in market valuations or earnings of similar companies;

 

    announcements by us or our competitors of significant contracts, acquisitions, dispositions or strategic partnerships;

 

    war, terrorist acts and epidemic disease;

 

    any future sales of our common stock or other securities;

 

    additions or departures of key personnel; and

 

    misconduct or other improper actions of our employees.

In particular, we cannot assure you that you will be able to resell your shares at or above the initial public offering price. Stock markets have experienced extreme volatility in recent years that has been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In the past, following periods of volatility in the market price of a company’s securities, class action litigation has often been instituted against the affected company. Any litigation of this type brought against us could result in substantial costs and a diversion of our management’s attention and resources, which could materially and adversely affect our business, financial position, results of operations or cash flows.

Future sales of shares by existing stockholders could cause our stock price to decline.

Sales of substantial amounts of our common stock in the public market following this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Based on shares outstanding as of May 27, 2016, upon the completion of this offering, we will have 62,458,367 outstanding shares of common stock. All of the shares sold pursuant to this offering will be immediately tradable without restriction under the Securities Act of 1933, as amended, or the “Securities Act,” except for any shares held by “affiliates,” as that term is defined in Rule 144 under the Securities Act, or “Rule 144.”

The remaining 50,458,367 shares of common stock outstanding as of May 27, 2016 will be restricted securities within the meaning of Rule 144 but will be eligible for resale subject to applicable volume, manner of sale, holding period and other limitations of Rule 144 or pursuant to an exception from registration under Rule 701 under the Securities Act, or “Rule 701,” subject to the terms of the lock-up agreements entered into by us, the selling stockholder, our executive officers and directors, and stockholders currently representing substantially all of the outstanding shares of our common stock.

Upon the completion of this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act to register the shares of common stock to be issued under our equity compensation plans and, as a result, all shares of common stock acquired upon exercise of stock options granted under our plans will also be freely tradable under the Securities Act, subject to the terms of the lock-up agreements, unless purchased by our affiliates. As of May 27, 2016, there were stock options outstanding to purchase a total of 6,682,428 shares of our common stock. In addition, 3,767,500 shares of our common stock are reserved for future issuances under the equity incentive plan adopted in connection with this offering.

In connection with this offering, we, our executive officers and directors, and stockholders currently representing substantially all of the outstanding shares of our common stock, including the selling stockholder, have signed lock-up agreements under which, subject to certain exceptions, we and they have agreed not to sell, transfer or dispose of or hedge, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock for a period of 180 days after the date of this prospectus, except with the prior written consent of any two of Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC, collectively, the “Lock-Up Release Parties.” See

 

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“Underwriting.” Following the expiration of this 180-day lock-up period, 50,458,367 shares of our common stock will be eligible for future sale, subject to the applicable volume, manner of sale, holding period and other limitations of Rule 144 or pursuant to an exception from registration under Rule 701. See “Shares Available for Future Sale” for a discussion of the shares of common stock that may be sold into the public market in the future. In addition, our significant stockholders may distribute shares that they hold to their investors who themselves may then sell into the public market following the expiration of the lock-up period. Such sales may not be subject to the volume, manner of sale, holding period and other limitations of Rule 144. As resale restrictions end, the market price of our common stock could decline if the holders of those shares sell them or are perceived by the market as intending to sell them. Furthermore, stockholders currently representing substantially all of the outstanding shares of our common stock will have the right to require us to register shares of common stock for resale in some circumstances.

In the future, we may issue additional shares of common stock or other equity or debt securities convertible into or exercisable or exchangeable for shares of our common stock in connection with a financing, strategic investment, litigation settlement or employee arrangement or otherwise. Any of these issuances could result in substantial dilution to our existing stockholders and could cause the trading price of our common stock to decline.

If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have, and may never obtain, research coverage for our common stock. If there is no research coverage of our common stock, the trading price for our common stock may be negatively impacted. In the event we obtain research coverage for our common stock, if one or more of the analysts downgrades our stock or publishes misleading or unfavorable research about our business, our stock price would likely decline. If one or more of the analysts ceases coverage of our common stock or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause our common stock price or trading volume to decline.

The CD&R Investor will have significant influence over us and may not always exercise its influence in a way that benefits our public stockholders.

Following the completion of this offering, the CD&R Investor will own approximately 80.1% of the outstanding shares of our common stock, assuming that the underwriters do not exercise their option to purchase additional shares from the selling stockholder. As a result, the CD&R Investor will exercise significant influence over all matters requiring stockholder approval for the foreseeable future, including approval of significant corporate transactions, which may reduce the market price of our common stock.

As long as the CD&R Investor continues to beneficially own at least 50% of our outstanding common stock, the CD&R Investor generally will be able to determine the outcome of corporate actions requiring stockholder approval, including the election of the members of our board of directors and the approval of significant corporate transactions, such as mergers and the sale of substantially all of our assets. Even after the CD&R Investor reduces its beneficial ownership below 50% of our outstanding common stock, it will likely still be able to assert significant influence over our board of directors and certain corporate actions. Following the consummation of this offering, the CD&R Investor will have the right to designate for nomination for election at least a majority of our directors as long as the CD&R Investor beneficially owns at least 50% of our common stock.

Because the CD&R Investor’s interests may differ from your interests, actions the CD&R Investor takes as our controlling stockholder or as a significant stockholder may not be favorable to you. For example, the concentration of ownership held by the CD&R Investor could delay, defer or prevent a change of control of us

 

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or impede a merger, takeover or other business combination that another stockholder may otherwise view favorably. Other potential conflicts could arise, for example, over matters such as employee retention or recruiting, or our dividend policy.

Under our amended and restated certificate of incorporation, the CD&R Investor and its affiliates and, in some circumstances, any of our directors and officers who is also a director, officer, employee, member or partner of the CD&R Investor and its affiliates, have no obligation to offer us corporate opportunities.

The policies relating to corporate opportunities and transactions with the CD&R Investor to be set forth in our second amended and restated certificate of incorporation, or “amended and restated certificate of incorporation,” address potential conflicts of interest between Atkore, on the one hand, and the CD&R Investor and its officers, directors, employees, members or partners who are directors or officers of our company, on the other hand. In accordance with those policies, the CD&R Investor may pursue corporate opportunities, including acquisition opportunities that may be complementary to our business, without offering those opportunities to us. By becoming a stockholder in Atkore, you will be deemed to have notice of and have consented to these provisions of our amended and restated certificate of incorporation. Although these provisions are designed to resolve conflicts between us and the CD&R Investor and its affiliates fairly, conflicts may not be resolved in our favor or be resolved at all.

Future offerings of debt or equity securities which would rank senior to our common stock may adversely affect the market price of our common stock.

If, in the future, we decide to issue debt or equity securities that rank senior to our common stock, it is likely that such securities will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock and may result in dilution to owners of our common stock. We and, indirectly, our stockholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common stock will bear the risk of our future offerings reducing the market price of our common stock and diluting the value of their stock holdings in us.

Fulfilling our obligations incident to being a public company, including with respect to the requirements of and related rules under the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act,” and the Dodd-Frank Act, will be expensive and time-consuming, and any delays or difficulties in satisfying these obligations could have a material adverse effect on our future results of operations and our stock price.

Following this offering, we will be subject to the reporting, accounting and corporate governance requirements, under the listing standards of the NYSE, the Sarbanes-Oxley Act and the Dodd-Frank Act that apply to issuers of listed equity, which will impose certain new compliance requirements, costs and obligations upon us. The changes necessitated by publicly listing our equity will require a significant commitment of additional resources and management oversight which will increase our operating costs. Further, to comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff. In addition, we may identify control deficiencies which could result in a material weakness or significant deficiency. In the past, we have identified material weaknesses, all of which have since been remediated. We did not identify any material weaknesses for fiscal 2015.

The expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses. As a public company, we will be required, among other things, to define and expand the roles and the duties of our board of directors

 

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and its committees and institute more comprehensive compliance and investor relations functions. Failure to comply with Sarbanes-Oxley Act or Dodd-Frank Act could potentially subject us to sanctions or investigations by the SEC, the NYSE or other regulatory authorities.

Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated by-laws could discourage, delay or prevent a change of control of our company and may affect the trading price of our common stock.

Our amended and restated certificate of incorporation and our second amended and restated by-laws, or “amended and restated by-laws,” include a number of provisions that may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. For example, prior to the completion of this offering, our amended and restated certificate of incorporation and amended and restated by-laws will collectively:

 

    authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt;

 

    establish a classified board of directors, as a result of which our board of directors will be divided into three classes, with members of each class serving staggered three-year terms, which prevents stockholders from electing an entirely new board of directors at an annual meeting;

 

    limit the ability of stockholders to remove directors if the CD&R Investor ceases to beneficially own at least 40% of the outstanding shares of our common stock;

 

    provide that vacancies on our board of directors, including vacancies resulting from an enlargement of our board of directors, may be filled only by a majority vote of directors then in office;

 

    prohibit stockholders from calling special meetings of stockholders if the CD&R Investor ceases to beneficially own at least 40% of the outstanding shares of our common stock;

 

    prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders, if the CD&R Investor ceases to beneficially own at least 40% of the outstanding shares of our common stock;

 

    establish advance notice requirements for nominations of candidates for election as directors or to bring other business before an annual meeting of our stockholders; and

 

    require the approval of holders of at least 66 23% of the outstanding shares of our common stock to amend our amended and restated by-laws and certain provisions of our amended and restated certificate of incorporation if the CD&R Investor ceases to beneficially own at least 40% of the outstanding shares of our common stock.

These provisions may prevent our stockholders from receiving the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if the provisions are viewed as discouraging takeover attempts in the future. See “Description of Capital Stock—Anti-Takeover Effects of our Certificate of Incorporation and By-Laws.”

Our amended and restated certificate of incorporation and amended and restated by-laws may also make it difficult for stockholders to replace or remove our management. Furthermore, the existence of the foregoing provisions, as well as the significant amount of common stock that the CD&R Investor will own following this offering, could limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions may facilitate management entrenchment that may delay, deter, render more difficult or prevent a change in our control, which may not be in the best interests of our stockholders.

 

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We could be the subject of securities class action litigation due to future stock price volatility, which could divert management’s attention and materially and adversely affect our business, financial position, results of operations or cash flows.

The stock market in general, and market prices for the securities of companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. A certain degree of stock price volatility can be attributed to being a newly public company. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. In certain situations in which the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders were to bring a similar lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and could materially and adversely affect our business, financial position, results of operations or cash flows.

We do not intend to pay dividends on our common stock for the foreseeable future and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We do not intend to declare and pay dividends on our common stock for the foreseeable future. We currently intend to use our future earnings, if any, to repay debt, to fund our growth, to develop our business, for working capital needs and for general corporate purposes. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future, and the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares. Payments of dividends, if any, will be at the sole discretion of our board of directors after taking into account various factors, including general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications of the payment of dividends by us to our stockholders or by our subsidiaries (including AII) to us, and such other factors as our board of directors may deem relevant. In addition, our operations are conducted almost entirely through our subsidiaries. As such, to the extent that we determine in the future to pay dividends on our common stock, none of our subsidiaries will be obligated to make funds available to us for the payment of dividends. Further, the agreements governing the Credit Facilities significantly restrict the ability of our subsidiaries to pay dividends or otherwise transfer assets to us. In addition, Delaware law imposes additional requirements that may restrict our ability to pay dividends to holders of our common stock.

We expect to be a “controlled company” within the meaning of NYSE rules and, as a result, we will qualify for, and currently intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

After the completion of this offering, the CD&R Investor will control a majority of the voting power of our outstanding common stock. Accordingly, we expect to qualify as a “controlled company” within the meaning of NYSE corporate governance standards. Under NYSE rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain NYSE corporate governance standards, including:

 

    the requirement that a majority of the board of directors consist of independent directors;

 

    the requirement that our nominating and governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

    the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

    the requirement for an annual performance evaluation of the nominating and governance and compensation committees.

 

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Following this offering, we intend to utilize these exemptions. As a result, we will not have a majority of independent directors, our nominating and governance committee and compensation committee will not consist entirely of independent directors and such committees may not be subject to annual performance evaluations. Consequently, you will not have the same protections afforded to stockholders of companies that are subject to all of NYSE corporate governance rules and requirements. Our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price.

Our amended and restated certificate of incorporation will include provisions limiting the personal liability of our directors for breaches of fiduciary duty under the DGCL.

Our amended and restated certificate of incorporation will contain provisions permitted under the action asserting a claim arising under the General Corporation Law of the State of Delaware, or the “DGCL,” relating to the liability of directors. These provisions will eliminate a director’s personal liability to the fullest extent permitted by the DGCL for monetary damages resulting from a breach of fiduciary duty, except in circumstances involving:

 

    any breach of the director’s duty of loyalty;

 

    acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law;

 

    under Section 174 of the DGCL (unlawful dividends); or

 

    any transaction from which the director derives an improper personal benefit.

The principal effect of the limitation on liability provision is that a stockholder will be unable to prosecute an action for monetary damages against a director unless the stockholder can demonstrate a basis for liability for which indemnification is not available under the DGCL. These provisions, however, should not limit or eliminate our rights or any stockholder’s rights to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of a director’s fiduciary duty. These provisions will not alter a director’s liability under federal securities laws. The inclusion of this provision in our amended and restated certificate of incorporation may discourage or deter stockholders or management from bringing a lawsuit against directors for a breach of their fiduciary duties, even though such an action, if successful, might otherwise have benefited us and our stockholders.

Our amended and restated certificate of incorporation will designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or stockholders.

Our amended and restated certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our directors, officers, other employees, agents or stockholders, (iii) any action asserting a claim arising out of or under the DGCL, or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware (including, without limitation, any action asserting a claim arising out of or pursuant to our amended and restated certificate of incorporation or our amended and restated by-laws) or (iv) any action asserting a claim that is governed by the internal affairs doctrine. By becoming a stockholder in our company, you will be deemed to have notice of and have consented to the provisions of our amended and restated certificate of incorporation related to choice of forum. The choice of forum provision in our amended and restated certificate of incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or any of our directors, officers, other employees, agents or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially and adversely affect our business, financial position, results of operations or cash flows.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION

This prospectus contains forward-looking statements and cautionary statements. Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “shall,” “should,” “would,” “could,” “seeks,” “aims,” “projects,” “is optimistic,” “intends,” “plans,” “estimates,” “anticipates” or other comparable terms. Forward-looking statements include, without limitation, all matters that are not historical facts. They appear in a number of places throughout this prospectus and include, without limitation, statements regarding our intentions, beliefs, assumptions or current expectations concerning, among other things, financial position; results of operations; cash flows; prospects; growth strategies or expectations; customer retention; the outcome (by judgment or settlement) and costs of legal, administrative or regulatory proceedings, investigations or inspections, including, without limitation, collective, representative or class action litigation; and the impact of prevailing economic conditions.

Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes, including, without limitation, our actual results of operations, financial condition and liquidity, and the development of the market in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. In addition, even if our results of operations, financial condition and cash flows, and the development of the market in which we operate, are consistent with the forward-looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors, including, without limitation, the risks and uncertainties discussed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus, could cause actual results and outcomes to differ materially from those reflected in the forward-looking statements. Additional factors that could cause actual results and outcomes to differ from those reflected in forward-looking statements include, without limitation:

 

    declines in, and uncertainty regarding, the general business and economic conditions in the U.S. and international markets in which we operate;

 

    weakness or another downturn in the U.S. non-residential construction industry;

 

    changes in prices of raw materials;

 

    pricing pressure, reduced profitability, or loss of market share due to intense competition;

 

    availability and cost of third-party freight carriers and energy;

 

    high levels of imports of products similar to those manufactured by us;

 

    changes in federal, state, local and international governmental regulations and trade policies;

 

    adverse weather conditions;

 

    failure to generate sufficient cash flow from operations or to raise sufficient funds in the capital markets to satisfy existing obligations and support the development of our business;

 

    increased costs relating to future capital and operating expenditures to maintain compliance with environmental, health and safety laws;

 

    reduced spending by, deterioration in the financial condition of, or other adverse developments with respect to, one or more of our top customers;

 

    increases in our working capital needs, which are substantial and fluctuate based on economic activity and the market prices for our main raw materials, including as a result of failure to collect, or delays in the collection of, cash from the sale of manufactured products;

 

    work stoppage or other interruptions of production at our facilities as a result of disputes under existing collective bargaining agreements with labor unions or in connection with negotiations of new collective bargaining agreements, as a result of supplier financial distress, or for other reasons;

 

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    challenges attracting and retaining key personnel or high-quality employees;

 

    changes in our financial obligations relating to pension plans that we maintain in the United States;

 

    reduced production or distribution capacity due to interruptions in the operations of our facilities or those of our key suppliers;

 

    loss of a substantial number of our third-party agents or distributors or a dramatic deviation from the amount of sales they generate;

 

    security threats, attacks, or other disruptions to our information systems, or failure to comply with complex network security, data privacy and other legal obligations or the failure to protect sensitive information;

 

    possible impairment of goodwill or other long-lived assets as a result of future triggering events, such as declines in our cash flow projections or customer demand;

 

    safety and labor risks associated with the manufacture and in the testing of our products;

 

    product liability, construction defect and warranty claims and litigation relating to our various products, as well as government inquiries and investigations, and consumer, employment, tort and other legal proceedings;

 

    our ability to protect our intellectual property and other material proprietary rights;

 

    risks inherent in doing business internationally;

 

    our inability to introduce new products effectively or implement our innovation strategies;

 

    the inability of our customers to pay off the credit lines extended to them by us in a timely manner and the negative impact on customer relations resulting from our collections efforts with respect to non-paying or slow-paying customers;

 

    the incurrence of liabilities and the issuance of additional debt or equity in connection with acquisitions, joint ventures or divestitures;

 

    failure to manage acquisitions successfully, including identifying, evaluating, and valuing acquisition targets and integrating acquired companies, businesses or assets;

 

    the incurrence of liabilities in connection with violations of the FCPA and similar foreign anti-corruption laws;

 

    the incurrence of additional expenses, increase in complexity of our supply chain and potential damage to our reputation with customers resulting from regulations related to “conflict minerals”;

 

    disruptions or impediments to the receipt of sufficient raw materials resulting from various anti-terrorism security measures;

 

    restrictions contained in our debt agreements;

 

    failure to generate cash sufficient to pay the principal of, interest on, or other amounts due on our debt;

 

    the significant influence the CD&R Investor will have over corporate decisions; and

 

    other risks and factors included under “Risk Factors” and elsewhere in this prospectus.

You should read this prospectus completely and with the understanding that actual future results may be materially different from expectations. All forward-looking statements attributable to us or persons acting on our behalf that are made in this prospectus are qualified in their entirety by these cautionary statements. These forward-looking statements are made only as of the date of this prospectus, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, and changes in future operating results over time or otherwise.

Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.

 

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USE OF PROCEEDS

The selling stockholder will receive all of the net proceeds from the sale of shares of our common stock offered pursuant to this prospectus. Accordingly, we will not receive any proceeds from the sale of the shares being sold in this offering, including the sale of any shares by the selling stockholder if the underwriters exercise their option to purchase additional shares. The selling stockholder will bear any underwriting commissions and discounts attributable to its sale of our common stock, and we will bear the remaining expenses. See “Principal and Selling Stockholders.”

 

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DIVIDEND POLICY

We do not intend to declare or pay dividends on our common stock for the foreseeable future. We currently intend to use our future earnings, if any, to repay debt, to fund our growth, to develop our business, for working capital needs and general corporate purposes. Our ability to pay dividends to holders of our common stock is significantly limited as a practical matter by the Credit Facilities insofar as we may seek to pay dividends out of funds made available to us by AII or its subsidiaries, because AII’s debt instruments directly or indirectly restrict AII’s ability to pay dividends or make loans to us. Any future determination to pay dividends on our common stock will be subject to the discretion of our board of directors and depend upon various factors, including our results of operations, financial condition, liquidity requirements, capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by Delaware law, general business conditions and other factors that our board of directors may deem relevant. See “Description of Certain Indebtedness” for a description of restrictions on our ability to pay dividends under our debt instruments.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization on a consolidated basis as of March 25, 2016.

All of the shares of common stock offered in this offering are being sold by the selling stockholder. We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholder in this offering, including from any exercise by the underwriters of their option to purchase additional shares from the selling stockholder.

You should read this table in conjunction with “Use of Proceeds,” “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Description of Certain Indebtedness” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

(in thousands, except share and per share amounts)

   As of March 25,
2016
 

Cash and cash equivalents(1)

   $ 134,477   
  

 

 

 

Long term debt:

  

ABL Credit Facility(2)

     —     

First Lien Term Loan Facility

   $ 412,200   

Second Lien Term Loan Facility

     229,306   

Deferred financing costs

     (9,870

Other

     614   
  

 

 

 

Total long-term debt (including current portion)

     632,250   

Equity:

  

Common stock $0.01 par value per share; 1,000,000,000 shares authorized, 62,458,367 shares issued and outstanding

     626   

Treasury stock, held at cost, 260,900 shares

     (2,580

Additional paid-in capital

     352,557   

Accumulated deficit

     (150,662

Accumulated other comprehensive loss

     (20,734
  

 

 

 

Total equity

     179,207   
  

 

 

 

Total capitalization

   $ 811,457   
  

 

 

 

 

(1) Upon consummation of this offering, we will use available cash of approximately $19.3 million to pay a fee of $12.8 million to CD&R to terminate our consulting agreement with them and to pay offering expenses. See “Certain Relationships and Related Party Transactions—Consulting Agreements.”
(2) As of March 25, 2016, we had $17.9 million of letters of credit issued under the ABL Credit Facility and available borrowing capacity of $220.7 million under the ABL Credit Facility.

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value per share of our common stock. Net tangible book value dilution per share to new investors means that the per share offering price of the common stock exceeds the book value per share attributable to the shares of common stock held by existing stockholders.

Our net tangible book value (deficit) as of March 25, 2016 was a deficit of $202.7 million. Net tangible book value (deficit) per share before the offering has been determined by dividing net tangible book value (deficit) (total book value of tangible assets less total liabilities) by the number of shares of common stock outstanding as of March 25, 2016, after giving effect to a 1.37-for-1 stock split of our common stock effected on May 27, 2016.

We will not receive any proceeds from the sale of common stock by the selling stockholder in this offering. Consequently, this offering will not result in any change to our net tangible deficit per share, prior to giving effect to the payment of estimated fees and expenses in connection with this offering. Purchasing shares of common stock in this offering will result in net tangible book value dilution to new investors of $24.25 per share. The following table illustrates this per share dilution to new investors:

 

     Per Share  

Assumed initial public offering price per share

   $ 21.00   

Net tangible book deficit per share as of March 25, 2016

   $ (3.25

Dilution in net tangible book value per share to new investors

   $ 24.25   
  

 

 

 

The following table summarizes, as of May 27, 2016, the total number of shares of common stock owned by the existing stockholders prior to the completion of this offering, the total consideration paid and the average price per share paid by the existing stockholders (amounts in thousands, except share and per share data):

 

     Shares Purchased      Total Consideration      Average Price Per Share  

Existing stockholders(1)

     62,458,367       $ 455,998       $ 7.30   

The foregoing table does not reflect stock options outstanding under our stock incentive plans or stock options to be granted after this offering. As of May 27, 2016, there were 6,682,428 stock options outstanding with an average exercise price of $7.69 per share. To the extent that any of these stock options are exercised, there may be further dilution to new investors. See “Executive and Director Compensation” and Note 13 to our audited consolidated financial statements included elsewhere in this prospectus.

After giving effect to the sale of shares by the selling stockholder in this offering, new investors will hold 12.0 million shares, or 19.2% of the total number of shares of common stock after this offering and existing stockholders will hold 80.8% of the total shares outstanding. If the underwriters exercise their option to purchase additional shares in full, the number of shares held by new investors will increase to 13.8 million, or 22.1% of the total number of shares of common stock after this offering, and the percentage of shares held by existing stockholders will decrease to 77.9% of the total shares outstanding.

In addition, we may choose to raise capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in further dilution to our stockholders.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following tables set forth selected historical financial data as of the dates and for the periods indicated. The selected historical consolidated financial data are presented for two periods: Predecessor and Successor, which relate to the period from September 25, 2010 through December 22, 2010 (preceding the transactions that resulted in the CD&R Investor acquiring a controlling interest in the Company) and the period from December 23, 2010 through September 30, 2011 and all periods subsequent to September 30, 2011 (succeeding such transactions), respectively. The selected historical consolidated financial data as of and for the years ended September 25, 2015 and September 26, 2014 and for the fiscal years ended September 25, 2015, September 26, 2014 and September 27, 2013 have been derived from our audited consolidated financial statements and related notes included elsewhere in this prospectus. The selected historical consolidated financial data as of September 27, 2013, September 28, 2012, the period from December 23, 2010 through September 30, 2011 (Successor) and the period from September 25, 2010 through December 22, 2010 (Predecessor) and for the fiscal year ended September 28, 2012 have been derived from our unaudited consolidated financial statements and related notes not included elsewhere in this prospectus. The selected historical consolidated financial data as of and for the six months ended March 25, 2016 and March 27, 2015 are derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The summary historical statement of operations data for the six months ended March 28, 2014 and the summary historical balance sheet data as of March 28, 2014 are derived from our unaudited condensed consolidated financial statements not included elsewhere in this prospectus. The summary historical statement of operations data, cash flow data and other financial data for the twelve months ended March 25, 2016 are calculated as fiscal year ended September 25, 2015 less six months ended March 27, 2015 plus six months ended March 25, 2016. The summary historical statement of operations data, cash flow data and other financial data for the twelve months ended March 27, 2015 are calculated as fiscal year ended September 26, 2014 less six months ended March 28, 2014 plus six months ended March 27, 2015. Our historical results are not necessarily indicative of the results to be expected for any future period.

 

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This “Selected Historical Consolidated Financial Data” is qualified in its entirety by, and should be read in conjunction with, our audited consolidated financial statements and related notes and our unaudited condensed consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Prospectus Summary—Summary Historical Consolidated Financial Data” included elsewhere in this prospectus.

 

    Successor         Predecessor  
    Twelve Months Ended     Six Months Ended     Fiscal Year Ended     Period
from
Dec. 23,
2010
through
Sept. 30,
2011
        Period
from
Sept. 25,
2010
through
Dec. 22,
2010
 

(in thousands, except per share
data)

  Mar. 25,
2016
    Mar. 27,
2015(1)
    Mar. 25,
2016
    Mar. 27,
2015(1)
    Mar. 28,
2014(2)
    Sept. 25,
2015(1)
    Sept. 26,
2014(2)
    Sept. 27,
2013(3)
    Sept. 28,
2012
       

Statement of Operations Data:

                       

Net sales

    $1,581,602      $ 1,759,223      $ 711,421      $ 858,987      $ 802,602      $ 1,729,168      $ 1,702,838      $ 1,475,897      $ 1,549,325      $ 1,135,212        $ 303,764   

Cost of sales

    1,268,201        1,521,794        547,602        735,776        689,710        1,456,375        1,475,728        1,264,348        1,305,432        981,525          255,399   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Gross profit

    313,401        237,429        163,819        123,211        112,892        272,793        227,110        211,549        243,893        153,687          48,365   

Selling, general and administrative

    199,056        178,072        98,020        84,779        87,533        185,815        180,783        160,749        162,845        147,865          37,146   

Intangible asset amortization

    22,666        20,976        11,089        10,526        10,407        22,103        20,857        15,317        14,939        10,205          16   

Asset impairment charges(4)

    27,937        44,381        —          —          —          27,937        44,424        9,161        12,153        —            —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Operating income (loss)

    63,742        (6,000     54,710        27,906        14,952        36,938        (18,954     26,322        53,956        (4,383       11,203   

Interest expense, net

    42,845        43,286        20,448        22,412        23,392        44,809        44,266        47,869        50,113        38,139          10,976   

(Gain) loss on extinguishment of debt(5)

    (1,661)        40,913        (1,661)        —          2,754        —          43,667        —          —          —            —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Income (loss) from operations before income taxes

    22,558        (90,199     35,923        5,494        (11,194     (7,871     (106,887     (21,547     3,843        (42,522       227   

Income tax expense (benefit)

    7,972        (30,558     13,344        2,456        75        (2,916     (32,939     (2,966     (3,347     (9,849       382   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Income (loss) from continuing operations

    14,586        (59,641     22,579        3,038        (11,269)        (4,955     (73,948     (18,581     7,190        (32,673       (155

Loss from discontinued
operations(6)

    —          —          —          —          —          —          —          (42,654     (5,142     (2,337       (3,270

(Expense) benefit for income taxes

    —          —          —          —          —          —          —          (2,791     1,129        (254       251   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss)

  $ 14,586      $ (59,641   $ 22,579      $ 3,038      $ (11,269   $ (4,955   $ (73,948   $ (61,235   $ 2,048      $ (35,010     $ (3,425
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

Convertible preferred stock and dividends

    —          3,259        —          —          25,796        —          29,055        47,234        41,967        28,374       

Net income (loss) attributable to common stockholders

    14,586        (62,900     22,579        3,038        (37,065     (4,955     (103,003     (108,469     (39,919     (63,384    

Weighted average shares outstanding:

                       

Basic

    62,498        61,872        62,478        62,537        40,790        62,527        50,998        40,744        40,688        40,414       

Diluted

    62,498        61,872        62,478        62,537        40,790        62,527        50,998        40,744        40,688        40,414       

Net income (loss) per share:

                       

Basic

  $ 0.23      $ (1.02   $ 0.36      $ 0.05      $ (0.91   $ (0.08   $ (2.02   $ (2.66   $ (0.98   $ (1.57    

Diluted

  $ 0.23      $ (1.02   $ 0.36      $ 0.05      $ (0.91   $ (0.08   $ (2.02   $ (2.66   $ (0.98   $ (1.57    

Balance Sheet Data (at end of period):

                       

Cash and cash equivalents

  $ 134,477      $ 24,608      $ 134,477      $ 24,608      $ 28,771      $ 80,598      $ 33,360      $ 54,770      $ 51,927      $ 47,714       

Total assets

    1,118,605        1,237,592        1,118,605        1,237,592        1,282,407        1,113,799        1,185,419        1,272,195        1,267,996        1,333,700       

Long-term debt, including current maturities

    632,250        728,191        632,250        728,191        464,266        652,208        692,867        451,297      $ 389,633      $ 430,916       

Cumulative convertible preferred stock

    —          —          —          —          449,371        —          —          423,576        376,341        334,374       

Total equity

    179,207        177,681        179,207        177,681        499,799        156,277        176,469        510,377        543,378        552,581       

Cash Flow Data:

                       

Cash flows provided by (used in):

                       

Operating activities

  $ 223,303      $ 83,789      $ 82,157      $ (73)      $ 2,471      $ 141,073      $ 86,333      $ 35,424      $ 58,361      $ 67,993       

Investing activities

    (14,700     (52,548     (8,511)        (40,452)        (36,764     (46,641     (48,860     (87,252     (12,750     (49,429    

Financing activities

    (97,451     3,453        (19,973)        33,372        8,509        (44,106     (57,584     55,823        (41,246     18,880       

Other Financial Data:

                       

Adjusted net sales(7)

  $ 1,487,055      $ 1,565,225      $ 703,605      $ 767,125      $ 712,050      $ 1,550,575      $ 1,510,150      $ 1,277,175      $ 1,347,848      $ 993,130        $ 256,403   

Adjusted EBITDA(8)

    207,101        130,244        106,414        63,263        59,616        163,950        126,597        111,559        124,877        61,888          12,408   

Adjusted EBITDA Margin(8)

    13.9     8.3     15.1%        8.2%        8.4     10.6     8.4     8.7     9.3     6.2       4.8

Capital expenditures

    23,316        25,927        9,014        12,547        10,341        26,849        24,362        14,999        19,192        37,098          10,324   

 

(1) Includes results of operations of APPI and SCI from October 20, 2014 and November 17, 2014, respectively.
(2) Includes results of operations of Ridgeline from October 11, 2013.
(3) Includes results of Heritage Plastics and Liberty Plastics from September 17, 2013.
(4)

We recorded asset impairments of $27.9 million for fiscal 2015, of which $24.0 million relates to long-lived assets from the closure of a Philadelphia, Pennsylvania facility. The remaining $3.9 million represents impairment of goodwill from our SCI acquisition, which is part of our Electrical Raceway reportable segment. We recorded asset impairments of $44.4 million for fiscal 2014, of which, $43.0 million represents goodwill impairment from a reporting unit within our MP&S reportable segment. The

 

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  remaining $1.4 million primarily represents a $0.9 million impairment of trade names of our Razor Ribbon and Columbia MBF commercial businesses. We recorded asset impairments of $9.2 million for fiscal 2013, which includes $5.9 million to adjust the carrying value of several held-for-sale facilities recorded at fair value. The remaining $3.3 million represents a write-down of property, plant and equipment of our Acroba business located in France. We recorded $12.2 million for fiscal 2012, which included $6.6 million related to the write-down of an Enterprise Resource Planning system and $5.3 million to adjust the carrying value of a manufacturing facility reported as held for sale. See Notes 6 and 15 to our audited consolidated financial statements included elsewhere in this prospectus for further detail.
(5) Incurred in connection with the redemption in fiscal 2014 of AII’s Senior Notes. See Note 8 to our audited consolidated financial statements included elsewhere in this prospectus for further detail.
(6) We divested our business in Brazil during fiscal 2013, which was reported as a discontinued operation. See Note 18 to our audited consolidated financial statements included elsewhere in this prospectus for further detail.
(7) For the complete definition of Adjusted net sales, see “Prospectus Summary—Summary Historical Consolidated Financial Data.” The following table sets forth a reconciliation of net sales to Adjusted net sales for the periods presented:

 

    Successor          Predecessor  

($ in thousands)

  Twelve Months Ended     Six Months Ended     Fiscal Year Ended     Period from
March 23,
2010 through
September 30,
2011
         Period from
September 25,
2010 through
December 22,
2010
 
  March 25,
2016
    March 27,
2015
    March 25,
2016
    March 27,
2015
    March 28,
2014
    September 25,
2015
    September 26,
2014
    September 27,
2013
    September 28,
2012
       

Net sales

  $ 1,581,602      $ 1,759,223      $ 711,421      $ 858,987      $ 802,602      $ 1,729,168      $ 1,702,838      $ 1,475,897      $ 1,549,325      $ 1,135,212          $ 303,764   

Impact of Fence and

Sprinkler exit

    (94,547     (193,998     (7,816)        (91,862        (90,552)        (178,593     (192,688     (198,722     (201,477     (142,082         (47,361
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Adjusted net sales

  $ 1,487,055      $ 1,565,225      $ 703,605      $ 767,125      $ 712,050      $ 1,550,575      $ 1,510,150      $ 1,277,175      $ 1,347,848      $ 993,130          $ 256,403   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

 

(8) For the complete definition of Adjusted EBITDA and Adjusted EBITDA margin, see “Prospectus Summary—Summary Historical Consolidated Financial Data.” The following table sets forth a reconciliation of net income (loss) to Adjusted EBITDA for the periods presented:

 

    Successor          Predecessor  
    Twelve Months
Ended
    Six Months Ended     Fiscal Year Ended     Period from
December 23,
2010 through
September 30,
2011
         Period from
September 25,
2010 through
December 22,
2010
 

($ in thousands)

  March 25,
2016
    March 27,
2015
    March 25,
2016
    March 27,
2015
    March 28,
2014
    September 25,
2015
    September 26,
2014
    September 27,
2013
    September 28,
2012
       

Net income (loss)

  $ 14,586      $ (59,641   $ 22,579      $ 3,038      $ (11,269   $ (4,955   $ (73,948   $ (61,235   $ 2,048      $ (35,010       $ (3,425

Loss from discontinued operations, net of income tax expense

    —          —          —          —          —          —          —          42,654        5,142        2,337            3,270   

Depreciation and amortization

    57,183        58,568        26,742        29,024        29,151        59,465        58,695        48,412        38,587        11,572            671   

(Gain) loss on extinguishment of debt

    (1,661     40,913        (1,661)        —          2,754        —          43,667        —          —          —              —     

Interest expense, net

    42,845        43,286        20,448        22,412        23,392        44,809        44,266        47,869        50,113        38,139            10,976   

Income tax expense (benefit)

    7,972        (30,558     13,344        2,456        75        (2,916     (32,939     (2,966     (3,347     (9,849         382   

Restructuring and impairments(a)

    34,605        46,597        2,069        167        258        32,703        46,687        10,931        12,731        2,114,            (1,234

Net periodic pension benefit cost(b)

    509        973        220        289        684        578        1,368        3,371        2,935        1,218            406   

Stock-based compensation(c)

    23,765        8,800        12,043        1,801        1,398        13,523        8,398        2,199        1,035        557            863   

ABF product liability impact(d)

    (913     2,833        425        1,122        1,130        (216     2,841        1,383        3,437        1,429            —     

Consulting fee(e)

    3,500        3,604        1,750        1,750        3,000        3,500        4,854        6,000        6,000        4,500            1,500   

Multi-employer pension withdrawal(f)

    —          —          —          —          —          —          —          7,290        —          —              —     

Transaction costs(g)

    8,316        2,975        3,431        1,154        3,228        6,039        5,049        1,780        1,258        18,829            (1,529

Other(h)

    16,748        11,422        4,213        1,770        3,004        14,305        12,656        7,685        8,092        30,217            1,916   

Impact of Fence and Sprinkler(i)

    (354     472        811        (1,720     2,811        (2,885     5,003        (3,814     (3,154     (4,166         (1,389
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Adjusted EBITDA

  $ 207,101      $ 130,244      $ 106,414      $ 63,263      $ 59,616      $ 163,950      $ 126,597      $ 111,559      $ 124,877      $ 61,888          $ 12,408   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

 

  (a) Restructuring amounts represent exit or disposal costs including termination benefits and facility closure costs. Impairment amounts represent write-downs of goodwill, intangible assets and/or long-lived assets. See Notes 6 and 15 to our audited consolidated financial statements and Notes 6 and 14 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus for further detail.
  (b) Represents pension costs in excess of cash funding for pension obligations in the period. See Note 10 to our audited consolidated financial statements and Note 10 to our unaudited condensed consolidated statements included elsewhere in this prospectus in further detail.
  (c) Represents stock-based compensation expenses related to options awards and restricted stock units. See Note 13 to our audited consolidated financial statements and Note 12 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus for further detail.
  (d) Represents changes in our estimated exposure to ABF matters. See Note 16 to our audited consolidated financial statements and Note 15 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus for further detail.
  (e) Represents amounts paid to CD&R and, until April 9, 2014, to Tyco. In connection with this offering, we expect to enter into a termination agreement with CD&R, pursuant to which the parties will agree to terminate this consulting fee. See “Certain Relationships and Related Party Transactions—Consulting Agreement.” See Note 3 to our audited consolidated financial statements and Note 3 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus for further detail.
  (f) Represents our proportional share of a multi-employer pension liability from which we withdrew in fiscal 2013. See Note 10 to our audited financial statements included elsewhere in this prospectus for further detail.
  (g) Represents expenses associated with acquisition and divestiture-related activities.
  (h) Represents other items, such as lower-of-cost-or-market inventory adjustments and the impact of foreign exchange gains or losses related to our divestiture in Brazil.
  (i) Represents historical performance of Fence and Sprinkler and related operating costs.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following information should be read in conjunction with our audited consolidated financial statements and related notes and our unaudited condensed consolidated financial statements and related notes included elsewhere in this prospectus, “Prospectus Summary—Summary Historical Consolidated Financial Data” and “Selected Historical Consolidated Financial Data.” The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this prospectus, particularly under the captions “Risk Factors” and “Special Note Regarding Forward-Looking Statements and Information.” The percentages provided below reflect rounding adjustments. Accordingly, figures expressed as percentages when aggregated may not be the arithmetic sum of the percentages that precede them.

Company Overview

We are a leading manufacturer of Electrical Raceway products primarily for the non-residential construction and renovation markets and MP&S for the construction and industrial markets. Electrical Raceway products form the critical infrastructure that enables the deployment, isolation and protection of a structure’s electrical circuitry from the original power source to the final outlet. MP&S frame, support and secure component parts in a broad range of structures, equipment and systems in electrical, industrial and construction applications. We believe we hold #1 or #2 positions in the United States by net sales in the vast majority of our products. The quality of our products, the strength of our brands and our scale and national presence provide what we believe to be a unique set of competitive advantages that position us for profitable growth.

Prior to December 2010, we operated as the Tyco Electrical and Metal Products, or “TEMP,” business of Tyco. In December 2010, an affiliate of Tyco completed the sale to the CD&R Investor of a 51% stake in the Company. In April 2014, we acquired all of the shares of our common stock then held by an affiliate of Tyco. For further discussion of our corporate history, see “Business—Company History.” Since our separation from Tyco, we have undertaken a significant transformation of our business, including:

 

    the acquisition of six businesses, which have strengthened and extended our capabilities and offerings across our entire product portfolio;

 

    the divestiture and permanent closure of businesses that we considered non-core operations due to unfavorable competitive positions or cost structures;

 

    significant upgrades in our management team, with over 90% of our executives and 70% of our senior leadership in new roles or new to the Company since 2011; and

 

    the development and implementation of ABS, a foundational set of principles, behaviors and beliefs based on driving excellence in strategy, people and processes.

This proactive optimization of our portfolio has enabled us to focus on our core businesses, improve our mix of higher margin products, drive market share gains and improve overall profitability.

Business Factors Influencing our Results of Operations

The following factors may affect our results of operations in any given period:

Economic Conditions. Our business depends on demand from customers across various end markets, including wholesale distributors, OEMs, retail distributors and general contractors. Our products are primarily used by trade contractors in the construction and renovation of non-residential structures such as commercial

 

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office buildings, healthcare facilities and manufacturing plants. In fiscal 2015, 93% of our net sales were to customers located in the United States. As a result, our business is heavily dependent on the health of the U.S. economy, in general, and on U.S. non-residential construction activity, in particular. A stronger U.S. economy and robust non-residential construction generally increase demand for our products.

We believe that our business and demand for our products is influenced by two main economic indicators: U.S. gross domestic product, or “GDP,” and non-residential construction starts, measured in square footage. The U.S. non-residential construction market has experienced modest growth over the past few years, in line with U.S. GDP. Our historic results have been positively impacted by growth in the non-residential construction market, as such growth leads to greater demand for our products. MR&R activity generally increases and represents a greater share of non-residential construction activity during challenging periods in the economic or construction cycle. During those periods, our MR&R demand as a percentage of total demand typically increases, providing a more consistent revenue stream for our business.

Raw Materials. We use a variety of raw materials in the manufacture of our products, which primarily include steel, copper and PVC resin. We believe that sources for these raw materials are well established, generally available and are in sufficient quantity that we may avoid disruption in our business. The cost to procure these raw materials is subject to price fluctuations, often as a result of macroeconomic conditions. Our cost of sales may be affected by changes in the market price of these materials, and to a lesser extent other commodities, such as zinc, electricity, natural gas and diesel fuel. The prices at which we sell our products may adjust upward or downward based on raw material price changes. We believe several factors drive the pricing of our products, including the quality of our products, the ability to meet customer delivery expectations and co-loading capabilities as well as the prices of our raw material inputs. Historically, we have not engaged in hedging strategies for raw material purchases. Our results may be impacted by inventory liquidations at costs higher or lower than current prices we pay for similar items.

Working Capital. Our working capital requirements are impacted by our operational activities. Our inventory levels may be impacted from time to time, due to delivery lead times from our suppliers. We are typically obligated to pay for our raw material purchases within 10 and 30 days of their receipt, while we generally collect cash from the sale of our manufactured products between 40 and 50 days from the point at which title and risk of loss transfers.

Seasonality. In a typical year, our operating results are impacted by seasonality. Historically, sales of our products have been higher in the third and fourth quarters of each fiscal year due to favorable weather for construction-related activities.

Recent Acquisitions. In addition to our organic growth, we have transformed our Company through acquisitions in recent years, allowing us to expand our product offerings with existing and new customers. In accordance with GAAP, the results of our acquisitions are reflected in our financial statements from the date of each acquisition forward.

Our acquisition strategy has focused primarily on growing market share by complementing our existing portfolio with synergistic products and expanding into end-markets that we have not previously served. In total, we have invested over $200 million in acquisitions since 2011. In 2012, we acquired Flexhead Industries, or “Flexhead,” a leading manufacturer of flexible sprinkler drops that provided a set of higher margin, value-added products to our MP&S portfolio. Flexhead’s products provide engineers, architects, contractors and building owners with solutions for rapid installation, simple relocation and system versatility for commercial ceilings applications.

Product diversification has been a core element to our growth strategy. Prior to 2013, our Electrical Raceway offering primarily consisted of steel and copper products. At that time, we produced PVC conduit from a single facility in Georgia, and we did not have a meaningful presence in the market. In 2013 and 2014, we completed the acquisitions of Heritage Plastics, Liberty Plastics, Ridgeline and APPI, which significantly

 

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increased our portfolio of PVC products, including PVC conduit, fittings, elbows and sweeps. The additional scale, which included new operations in the Northeast, Midwest, Southwest and Western United States, enabled us to more comprehensively serve our largest electrical distribution customers in this product line and significantly increased our market share and presence in the Electrical Raceway market. These acquisitions also substantially increased our cross-selling opportunities, providing a meaningful avenue for growth going forward.

In 2015, we acquired SCI, a manufacturer of electrical fittings for steel, flexible and liquidtight conduit as well as armored cable. SCI enhanced the breadth of our product portfolio and is representative of the opportunities we have in our fragmented markets to add complementary products that will further support our growth and customer value proposition. We expect to continue to pursue synergistic acquisitions as part of our growth strategy to expand our product offerings.

See Note 2 to our audited consolidated financial statements included elsewhere in this prospectus for further detail.

Divestitures and Restructurings. Since 2011, we have continuously evaluated our operations to ensure that we are investing resources strategically. Our assessment has included existing operating performance, required levels of investment to improve performance and the overall complexities of doing business in certain markets and geographic regions. After careful consideration, we streamlined our business through a combination of business divestitures, asset sales and the exit of certain product lines.

In 2012, we sold our interest in a joint venture in Saudi Arabia that represented our only investment in the Middle East because we determined that it did not provide sufficient earnings or strategic value to support the complexities of managing foreign operations. During that same year, we also sold two low-margin, commodity-oriented businesses in the United States for which we had limited market presence or competitive differentiation—our hollow structural tube business based in Morrisville, Pennsylvania and our sprinkler system fabrication business. During 2013, we further reduced our non-domestic footprint by closing one facility in Brazil, selling the remainder of our Brazilian operations and closing our Acroba subsidiary in France. Exiting these international businesses allowed us to generate cash, eliminate low-margin businesses from our portfolio and mitigate various risks, such as foreign currency exposure and the general complexities of managing operations outside the United States.

In April 2014, AII refinanced its then outstanding indebtedness with the proceeds of the Term Loan Facilities. AII paid a dividend to AIH with a portion of the proceeds of the Term Loan Facilities, and AIH in turn paid a dividend to us to fund our acquisition of all of the shares of our common stock then held by the Tyco Seller for an aggregate cash purchase price of approximately $250.0 million.

In 2015, we exited Fence and Sprinkler, two product lines that did not align with our long-term vision due to limited product differentiation, exposure to significant import competition, ongoing price pressure due to overcapacity in the market and having different channels to market than our Electrical Raceway and MP&S segments. In conjunction with the exit from Fence and Sprinkler, we evaluated the viability of a Philadelphia, Pennsylvania manufacturing facility and determined that significant investment would be required to bring that facility to an acceptable level of operation. Given our ability to shift ongoing production capacity from that facility to other existing facilities, we closed this facility in the first quarter of fiscal 2016. Neither Fence nor Sprinkler constituted a component with a significance level that would have required presentation as discontinued operations.

See Notes 15 and 18 to our audited consolidated financial statements included elsewhere in this prospectus for further detail.

 

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Foreign currencies. In fiscal 2015, approximately 6% of our net sales came from customers located outside the United States, most of which were foreign currency sales denominated in Canadian dollars, British pounds sterling, Australian dollars, Chinese Yuan and New Zealand dollars. The functional currency of our operations outside the United States is generally the local currency. Assets and liabilities of our non-U.S. subsidiaries are translated into U.S. dollars using period-end exchange rates. Foreign revenue and expenses are translated at the monthly average exchange rates in effect during the period. Foreign currency translation adjustments are included as a component of accumulated other comprehensive loss within our statements of comprehensive loss. See “—Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Risk.”

See Note 1 to our audited consolidated financial statements included elsewhere in this prospectus for further detail.

Emerging Industry Trends. In addition to U.S. GDP and non-residential construction starts, there are emerging industry trends that we believe will drive further demand for our products. These include new building technologies which enhance facility management, such as automation and LED lighting systems, as well as the rapid expansion of certain non-residential construction categories, including data centers and healthcare facilities. In recent years, technological advancements aimed at improving facility management have been driven by a number of factors, including integration and interoperability, the proliferation of the Internet and associated increases in data and power requirements and a desire to reduce costs through improved energy efficiency, lighting systems and operating effectiveness. We believe that these trends will drive greater needs for electrical capacity and circuitry, increasing the demand for many of our products. We also target high growth end-markets that are projected to experience rapid growth and to drive demand for our products, including our framing and support products. According to Dodge non-residential construction data, healthcare sector construction activity is projected to grow at a CAGR of 8.6% between 2015 and 2018. Lastly, based on third-party data, growth in the data center construction market in the United States is forecast to grow at a CAGR of 4.2% between 2014 and 2019 and, between 2015 and 2020, the building lighting control systems market in the United States is forecast to grow at a CAGR of 5%, while the LED lighting market in North America is forecast to grow at a CAGR of 13%.

Reportable Segments

We operate our business through two operating segments which are also our reportable segments: Electrical Raceway and MP&S. Our operating segments are organized based on primary market channel and, in most instances, the end use of products. We review the results of our operating segments separately for the purposes of making decisions about resource allocation and performance assessment. We evaluate performance on the basis of net sales, Adjusted net sales and Adjusted EBITDA. See Note 18 to our audited consolidated financial statements included elsewhere in this prospectus for further detail.

Intersegment transactions primarily consist of product sales at transfer prices which we set on an arms-length basis. Gross profit earned and reported within each segment from such transactions is eliminated in our consolidated results. Certain manufacturing and distribution expenses are allocated between our operating segments on a pro rata basis due to the shared nature of activities. 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 MP&S segment. We allocate 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.

In addition to our operating segments, our consolidated financial results include “Corporate.” Corporate consists of unallocated selling, general and administrative activities and associated expenses including executive, legal, finance, human resources, information technology, business development and communications. In addition, certain costs and earnings of employee-related benefits plans, such as stock-based compensation and the portion of medical costs for which the Company is self-insured, are included in Corporate and not allocated to our operating segments. Corporate also reflects our cash pooling structures and borrowings under the Credit Facilities to meet liquidity needs.

 

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Fiscal Year

We have a 52- or 53-week fiscal year that ends on the last Friday in September. Fiscal 2015, 2014 and 2013 were 52-week fiscal years which ended on September 25, 2015, September 26, 2014 and September 27, 2013, respectively. Our next fiscal year will end on September 30, 2016 and will be a 53-week year. Our fiscal quarters end on the last Friday in December, March and June.

Key Components of Results of Operations

Net sales

Net sales represents external sales of Electrical Raceway products to the non-residential construction and MR&R markets and MP&S products and solutions to the commercial and industrial markets. Net sales includes gross product sales and freight billed to our customers, net of allowances for rebates, sales incentives, trade promotions, product returns and discounts.

Adjusted net sales

We present Adjusted net sales to facilitate comparisons of reported net sales from period to period within our MP&S segment. In August 2015, we announced plans to exit Fence and Sprinkler in order to re-align our long-term strategic focus. These product lines were discontinued during the first quarter of fiscal 2016. Management uses Adjusted net sales to evaluate our ongoing business operations, which no longer include Fence and Sprinkler. For further discussion on Adjusted net sales, including the definition thereof and a reconciliation to net sales, see “Prospectus Summary—Summary Historical Consolidated Financial Data.”

Cost of sales

Cost of sales includes all costs directly related to the production of goods for sale. These costs include direct material, direct labor, production related overheads, excess and obsolescence costs, lower-of-cost-or-market provisions, freight and distribution costs and the depreciation and amortization of assets directly used in the production of goods for sale.

Gross profit

Gross profit represents the difference between our net sales and cost of sales.

Selling, general and administrative expenses

Selling, general and administrative costs includes payroll related expenses including salaries, wages, employee benefits, payroll taxes, variable cash compensation for both administrative and selling personnel and consulting and professional services fees and other recurring costs as we prepare to be a public company. Also included are compensation expense for share-based awards, restructuring-related charges, third-party professional services and translation gains or losses for foreign currency transactions.

Adjusted EBITDA and Adjusted EBITDA margin

We use Adjusted EBITDA and Adjusted EBITDA Margin in evaluating the performance of our business. We use Adjusted EBITDA and Adjusted EBITDA Margin in the preparation of our annual operating budgets and as indicators of business performance. We believe Adjusted EBITDA and Adjusted EBITDA Margin allow us to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance. For further discussion on Adjusted EBITDA and Adjusted EBITDA Margin, including definitions thereof and a reconciliation of net income (loss) to Adjusted EBITDA, see “Prospectus Summary—Summary Historical Consolidated Financial Data.”

 

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Results of OperationsTwelve Months Ended March 25, 2016 and March 27, 2015

 

     Twelve Months Ended              

($ in thousands)

   March 25,
2016
    March 27,
2015
    Change     %
Change
 

Net sales

   $ 1,581,602      $ 1,759,223      $ (177,621     (10.10 )% 

Cost of sales

     1,268,201        1,521,794        (253,593     (16.66 )% 
  

 

 

   

 

 

   

 

 

   

Gross profit

     313,401        237,429        75,972        32.00

Selling, general and administrative

     199,056        178,072        20,984        11.78

Intangible asset amortization

     22,666        20,976        1,690        8.06

Asset impairment charges

     27,937        44,381        (16,444     (37.05 )% 
  

 

 

   

 

 

   

 

 

   

Operating income (loss)

     63,742        (6,000     69,742        *   

Interest expense, net

     42,845        43,286        (441     (1.02 )% 

Loss (gain) on extinguishment of debt

     (1,661     40,913        (42,574     *   
  

 

 

   

 

 

   

 

 

   

Income (loss) from operations before income taxes

     22,558        (90,199     112,757        *   

Income tax expense (benefit)

     7,972        (30,558     38,530        *   
  

 

 

   

 

 

   

 

 

   

Net income (loss)

   $ 14,586      $ (59,641   $ 74,227        *   
  

 

 

   

 

 

   

 

 

   

Non-GAAP financial data

        

Adjusted net sales

     1,487,055        1,565,225        (78,170     (4.99 )% 

Adjusted EBITDA

     207,101        130,245        76,856        59.01

Adjusted EBITDA Margin

     13.9     8.3    

 

* Not meaningful

Twelve Months Ended March 25, 2016 Compared to March 27, 2015

Net sales

Net sales decreased $177.6 million, or 10.1%, for the twelve months ended March 25, 2016 to $1,581.6 million, compared to $1,759.2 million for the twelve months ended March 27, 2015. The decrease was primarily due to $99.5 million related to the Fence and Sprinkler exit, which we announced in the fourth quarter of fiscal 2015. These product lines were fully discontinued in the first quarter of fiscal 2016. Net sales also declined $63.4 million due to lower average selling prices as a result of lower raw material prices during the period and lower sales volume of $25.6 million. The decline in sales volume is primarily due to a change in the mix of our products, in particular armored cable and fittings products, sold to focus on higher margin products. Lastly, net sales declined $14.2 million due to an unfavorable foreign exchange impact resulting from a stronger U.S. dollar on reported foreign currency sales. These declines were offset in part by $23.9 million of increased sales from our APPI and SCI businesses which were acquired in the first quarter of fiscal 2015 and increased freight revenue of $1.2 million.

Cost of sales

Cost of sales decreased $253.6 million, or 16.7%, for the twelve months ended March 25, 2016 to $1,268.2 million, compared to $1,521.8 million for the twelve months ended March 27, 2015. The decrease was primarily due to $143.8 million of lower raw material costs, $96.9 million related to the exit of the Fence and Sprinkler product lines and a favorable foreign exchange impact of $14.8 million due to a stronger U.S. dollar. Cost of sales also declined due to lower freight and warehouse expenses of $11.8 million due to process improvements, lower volume of $11.0 million, lower depreciation expense of $3.9 million due to lower levels of property, plant, and equipment and $0.3 million of other costs. These declines were offset in part by increases to cost of sales of $19.2 million due to our APPI and SCI businesses and write-downs representing a lower-of-cost-or-market adjustment of $9.7 million.

 

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Gross profit

Gross profit increased by $76.0 million, or 32.0%, to $313.4 million for the twelve months ended March 25, 2016, compared to $237.4 million for the twelve months ended March 27, 2015. The net increase was primarily attributable to the benefit of material costs declining in excess of the decline in average selling prices, lower warehouse and freight costs and contributions received from our acquisitions of APPI and SCI businesses, offset in part by the impact of our exit of the Fence and Sprinkler product lines.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $21.0 million, or 11.8%, to $199.1 million for the twelve months ended March 25, 2016, compared to $178.1 million for the twelve months ended March 27, 2015. The increase is due to incremental stock compensation expense of $15.0 million due to an increase in the estimated fair value of a share of our common stock. Our stock-based awards are accounted for as liability awards and require mark-to-market adjustments each period to account for the fair value of the awards. We also recorded increased transaction costs of $5.2 million which primarily consist of accounting, legal and other professional fees associated with our initial public offering. Lastly, we incurred restructuring charges of $4.3 million related to the Fence and Sprinkler exit and the closure of the Philadelphia, Pennsylvania manufacturing facility. These increases are offset in part by favorable foreign exchange impact of $2.0 million due to a stronger U.S. dollar and a reduction of other expenses of $1.5 million across a variety of expense categories.

Intangible asset amortization

Intangible asset amortization expenses increased $1.7 million, or 8.1%, to $22.7 million for the twelve months ended March 25, 2016, compared to $21.0 million for the twelve months ended March 27, 2015. The increase is primarily attributable to incremental amortization from intangible assets acquired from the APPI and SCI businesses.

Asset impairment charges

During the twelve months ended March 25, 2015, we announced the exit from our Fence and Sprinkler product lines and the planned closure of a manufacturing facility in Philadelphia, Pennsylvania. As such, we recorded asset impairments of $24.0 million related to long-lived assets and prepaid shop supplies which were written-down to their fair value.

Additionally, we recorded a $3.9 million impairment to goodwill related to our SCI acquisition. The impairment was triggered by a decline in net sales and earnings in part due to a shift in the mix of products sold to a key customer, which was not expected to be replaced. The customer operates in the oil and gas end market which has recently experienced a significant downturn. Consequently, sales volume was expected to decline due to this customer’s exposure to volatility in the oil and gas industry. Additionally, this customer chose an alternative supplier outside the United States for certain other products. The decline in net sales and earnings occurred after the acquisition closed. We recorded this impairment within our Electrical Raceway reportable segment.

We concluded that the circumstances surrounding this customer constituted a triggering event in accordance with ASC 360 - Property, Plant & Equipment. We compared the estimated undiscounted cash flows of the finite lived customer relationship intangible asset to its carrying value to assess the recoverability. As the undiscounted cash flows related to the customer relationship intangible asset exceeded its carrying value, we did not proceed to the second step of the impairment test.

During the twelve months ended March 27, 2014, we recorded impairment to goodwill of $43.0 million related to a reporting unit in our MP&S segment. Additionally, we recorded impairments of $0.9 million related

 

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to the Razor Ribbon and Columbia MBF trade names due to a contraction in the long-term growth projections of products sold under these trade names. The impairments of trade names were recorded in our MP&S reportable segment. Lastly, we recorded $0.5 million impairment related to our closed facility in Reux, France to adjust the carrying value to its fair value.

Operating income (loss)

Operating income (loss) increased $69.7 million to income of $63.7 million for the twelve months ended March 25, 2016, compared to a loss of $6.0 million for the twelve months ended March 27, 2015. The increase was due primarily to expanded gross profit of $76.0 million and lower asset impairment charges of $16.4 million offset in part by an increase in selling, general and administrative expenses of $21.0 million and increased intangible asset amortization expenses of $1.7 million.

Interest expense, net

Interest expense, net, decreased by $0.4 million, or 1.0%, to $42.8 million for the twelve months ended March 25, 2016, compared to $43.3 million for the twelve months ended March 27, 2015. Interest expense was higher during the twelve months ended March 27, 2015 due to increased borrowings against the ABL Credit Facility compared to the twelve months ended March 25, 2016.

(Gain) loss from extinguishment of debt

During the twelve months ended March 25, 2016, AII redeemed $17.0 million of the Second Lien Term Loan Facility at a redemption price of 89.00% of the par value, and $2.0 million at a redemption price of 89.75% of the par value. We recorded a gain on the extinguishment of debt of $1.7 million compared to a $40.9 million loss on the redemption of our Senior Notes during the twelve months ended March 27, 2015. The loss primarily included an early redemption premium and a write-off of unamortized debt issuance costs.

Income tax expense (benefit)

We recorded tax expense of $8.0 million for the twelve months ended March 25, 2016, compared to a tax benefit of $30.6 million for the twelve months ended March 27, 2015. Our income tax expense was primarily attributable to our increase in income from operations before taxes as compared to a loss from operations before taxes in the preceding period.

Adjusted EBITDA

Adjusted EBITDA increased by $76.9 million, or 59.0%, to $207.1 million for the twelve months ended March 25, 2016, compared to $130.2 million for the twelve months ended March 27, 2015. The increase was due primarily to higher gross profit driven by our ability to maintain an average selling price that declined less than the decrease in raw material costs in both business segments. In addition, our acquisitions of APPI and SCI contributed $4.1 million of Adjusted EBITDA.

Segment results

Electrical Raceway

 

($ in thousands)

   March 25,
2016
    March 27,
2015
    Change      % Change  

Net sales

   $ 961,362      $ 1,014,580      $ (53,218      (5.2 )% 

Adjusted EBITDA

   $ 140,656      $ 86,648      $ 54,008         62.3

Adjusted EBITDA margin

     14.6     8.5     

 

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Net sales

Net sales decreased $53.2 million, or 5.2%, for the twelve months ended March 25, 2016 to $961.4 million, compared to $1,014.6 million for the twelve months ended March 27, 2015. The decrease was primarily due to $46.7 million lower average selling prices as a result of lower raw material prices during the period. Volume declined $27.4 million primarily due to change in the mix of our products sold to focus on higher-margin products. Lastly, negative foreign currency translation provided a negative impact of $4.7 million due to a strengthened U.S. dollar. These decreases were partially offset in part by $23.9 million of increased sales acquired from our APPI and SCI businesses and $1.7 million of increased freight and other revenue.

Adjusted EBITDA

Adjusted EBITDA increased $54.0 million, or 62.3%, to $140.7 million for the twelve months ended March 25, 2016, compared to $86.6 million for the twelve months ended March 27, 2015. The increase was due primarily to higher gross profit driven by our ability to maintain an average selling price that declined less than the decrease in raw material costs. Additionally, our APPI and SCI businesses contributed $4.1 million to the increase.

Mechanical Products & Solutions

 

($ in thousands)

   March 25,
2016
    March 27,
2015
    Change      % Change  

Net sales

   $ 621,761      $ 745,549      $ (123,788      (16.6 )% 

Impact of Fence and Sprinkler exit

     (94,547     (193,998     99,451         (51.3 )% 
  

 

 

   

 

 

      

Adjusted net sales

   $ 527,214      $ 551,551      $ (24,337      (4.4 )% 

Adjusted EBITDA

   $ 90,698      $ 61,638      $ 29,060         47.1

Adjusted EBITDA margin

     17.2     11.2     

Net sales

Net sales decreased $123.8 million, or 16.6%, for the twelve months ended March 25, 2016 to $621.8 million, compared to $745.5 million for the twelve months ended March 27, 2015. The decrease was primarily due to declines in sales of $99.5 million related to the Fence and Sprinkler exit. Net sales further declined $16.7 million due to lower average selling prices, $9.4 due to negative foreign currency translation impact from a strengthened U.S. dollar and $0.2 million from other sales. These declines were offset in part by $1.7 million in higher volume. The higher volume was due to an acceleration of purchases by our customers in calendar 2015 to meet demand within the solar industry in anticipation of the potential expiration of the Solar Investment Tax Credit, or the “ITC.” Lastly, the declines in net sales were offset by $0.3 million due to increased freight revenue.

Adjusted EBITDA

Adjusted EBITDA increased $29.1 million, or 47.1%, for the twelve months ended March 25, 2016 to $90.7 million, compared to $61.6 million for the twelve months ended March 27, 2015. The increase was due primarily to higher gross profit driven by our ability to maintain an average selling price that declined less than the decrease in raw material costs.

 

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Results of Operations—Three and Six Months Ended March 25, 2016 and March 27, 2015

 

    Three Months Ended     Six Months Ended  

($ in thousands)

  March 25,
2016
    March 27,
2015
    Change     %
Change
    March 25,
2016
    March 27,
2015
    Change     %
Change
 

Net sales

  $ 353,046      $ 432,586      $ (79,540     (18.4 )%    $ 711,421      $ 858,987      $ (147,566     (17.2 )% 

Cost of sales

    261,636        365,140        (103,504     (28.3 )%      547,602        735,776        (188,174     (25.6 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    91,410        67,446        23,964        35.5     163,819        123,211        40,608        33.0

Selling, general and administrative

    54,179        41,981        12,198        29.1     98,020        84,779        13,241        15.6

Intangible asset amortization

    5,572        5,373        199        3.7     11,089        10,526        563        5.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    31,659        20,092        11,567        57.6     54,710        27,906        26,804        96.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense, net

    10,567        11,483        (916     (8.0 )%      20,448        22,412        (1,964     (8.8 )% 

Gain on extinguishment of debt

    (1,661     —          (1,661     *        (1,661     —          (1,661     *   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations before income taxes

    22,753        8,609        14,144        164.3     35,923        5,494        30,429        553.9

Income tax expense

    8,746        2,809        5,937        211.4     13,344        2,456        10,888        443.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 14,007      $ 5,800      $ 8,207        141.5   $ 22,579      $ 3,038      $ 19,541        643.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP financial data

               

Adjusted net sales

  $ 353,046      $ 386,775      $ (33,729     (8.7 )%    $ 703,605      $ 767,125      $ (63,520     (8.3 )% 

Adjusted EBITDA

    58,361        36,113        22,248        61.6     106,414        63,263        43,151        68.2

Adjusted EBITDA Margin

    16.5     9.3         15.1     8.2    

 

* Not meaningful

Three and Six Months Ended March 25, 2016 Compared to March 27, 2015

Net sales

Net sales decreased $79.5 million, or 18.4%, to $353.0 million for the three months ended March 25, 2016, compared to $432.6 million for the three months ended March 27, 2015. The decrease was primarily due to declines in sales of $45.8 million related to the Fence and Sprinkler exit announced in the fourth quarter of fiscal 2015. These product lines were fully discontinued in the first quarter of fiscal 2016. Sales further decreased $21.0 million due to lower net average selling prices as a result of lower raw material prices during the period and $9.2 million due to lower volume. Volume declined primarily due to a reduction in mechanical pipe product demand. Our customers had increased purchases in calendar 2015 to meet demand within the solar industry in anticipation of the potential expiration of the ITC, which was ultimately extended in December 2015. Lastly, net sales declined $2.3 million due to the impact of a stronger U.S. dollar on reported foreign currency sales and $1.2 million of decreased freight revenue.

Net sales decreased $147.6 million, or 17.2%, to $711.4 million for the six months ended March 25, 2016, compared to $859.0 million for the six months ended March 27, 2015. The decrease was primarily due to declines in sales of $84.0 million related to the Fence and Sprinkler exit, $38.6 million due to lower average selling prices as a result of lower raw material prices and $21.7 million due to lower volume. Volume declined primarily due to a change in the mix of our armored cable and fittings products and our metal electrical conduit and fittings products to focus on higher margin products as part of our pricing strategy, which resulted in us accepting fewer orders from these product categories. Lastly, net sales declined $5.5 million due to the impact of a stronger U.S. dollar and $1.0 million of decreased freight revenue. These declines were partially offset by $3.2 million of increased sales from our APPI and SCI businesses which were acquired in the first quarter of fiscal 2015.

 

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Cost of sales

Cost of sales decreased by $103.5 million, or 28.3%, to $261.6 million for the three months ended March 25, 2016, compared to $365.1 million for the three months ended March 27, 2015. The decrease was primarily due to lower costs resulting from the Fence and Sprinkler exit of $41.1 million, lower material costs of $39.0 million and $7.7 million of lower volume due to a change in product mix of our products sold. Additionally, freight and warehouse costs declined $7.5 million attributable to the decline in volume. A stronger U.S. dollar provided a favorable foreign currency translation impact of $5.1 million which lowered cost of sales. Additionally, market conditions for raw material prices did not require a downward adjustment for lower-of-cost-or-market during the three months-ended March 25, 2016. The new cost basis for inventory sold had a favorable impact decreasing cost of sales by $2.1 million. Lastly, our depreciation expense decreased by $1.5 million due to lower levels of property, plant, and equipment offset in part by an increase in other miscellaneous costs of $0.5 million.

Cost of sales decreased by $188.2 million, or 25.6%, to $547.6 million for the six month ended March 25, 2016, compared to $735.8 million for the six months ended March 27, 2015. The decrease was primarily due to $82.4 million of lower material costs, $77.6 million due to the Fence and Sprinkler exit, $12.6 million of lower freight and warehouse costs and $11.2 million of lower volume due to a change in the product mix of our products sold. Additionally, cost of sales decreased due to a favorable foreign exchange impact of $7.8 million due to the strengthening of the U.S. dollar and $3.3 million from lower depreciation expense. These decreases are partially offset by $2.9 million of increased costs from our APPI and SCI businesses, other miscellaneous costs of $2.1 million and $1.7 million due to increases in lower-of-cost-or-market adjustments to inventory.

Gross profit

Gross profit increased by $24.0 million, or 35.5%, to $91.4 million for the three months ended March 25, 2016, compared to $67.4 million for the three months ended March 27, 2015. The net increase was primarily attributable to the benefit of material costs declining in excess of the decline in sales prices and lower freight and warehouse costs offset in part by the impact of our exit of the Fence and Sprinkler product lines.

Gross profit increased by $40.6 million, or 33.0%, to $163.8 million for the six months ended March 25, 2016, compared to $123.2 million for the six months ended March 27, 2015. The net increase was primarily attributable to the benefit of material costs declining in excess of the decline in sales prices, lower freight and warehouse costs and contribution received from our acquisitions of APPI and SCI. The gross profit was offset in part by the impact of our exit of the Fence and Sprinkler product lines.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $12.2 million, or 29.1%, to $54.2 million for the three months ended March 25, 2016 compared to $42.0 million for the three months ended March 27, 2015. The increase was primarily due to incremental stock-based compensation expense of $9.6 million due to an increase in the estimated fair value of a share of our common stock. Our stock-based awards are accounted for as liability awards and require mark-to-market adjustments each period to account for the fair value of the awards. Additionally, we incurred $2.1 million of increased transaction costs and $0.5 million across a variety of expense categories.

Selling, general and administrative expenses increased $13.2 million, or 15.6%, to $98.0 million for the six months ended March 25, 2016 compared to $84.8 million for the six months ended March 27, 2015. The increase was primarily due to incremental stock-based compensation expense of $10.2 million due to an increase in the estimated fair value of a share of our common stock and $2.3 million of increased transaction costs and $0.7 million across a variety of expense categories.

 

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Intangible asset amortization

Intangible asset amortization expenses increased $0.2 million, or 3.7%, to $5.6 million for the three months ended March 25, 2016, compared to $5.4 million for the three months ended March 27, 2015. The increase was due to current year amortization arising from intangible assets acquired from the purchases of APPI and SCI.

Intangible asset amortization expenses increased $0.6 million, or 5.3%, to $11.1 million for the six months ended March 25, 2016, compared to $10.5 million for the six months ended March 27, 2015. The increase was due to current year amortization arising from intangible assets acquired from the purchases of APPI and SCI.

Operating income

Operating income increased $11.6 million, or 57.6%, to $31.7 million for the three months ended March 25, 2016, compared to $20.1 million for the three months ended March 27, 2015. The increase was due primarily to expanded gross profit of $24.0 million offset in part by an increase in selling, general, and administrative expenses of $12.2 million and intangible asset amortization of $0.2 million.

Operating income increased $26.8 million, or 96.1%, to $54.7 million for the six months ended March 25, 2016, compared to $27.9 million for the six months ended March 27, 2015. The increase was due primarily to expanded gross profit of $40.6 million offset in part by an increase in selling, general, and administrative expenses of $13.2 million and intangible asset amortization of $0.6 million.

Interest expense, net

Interest expense, net, decreased $0.9 million, or 8.0%, to $10.6 million for the three months ended March 25, 2016 compared to $11.5 million for the three months ended March 27, 2015. Interest expense, net, decreased $2.0 million, or 8.8%, to $20.4 million from $22.4 million for the six months ended March 25, 2016 and March 27, 2015, respectively. These decreases were due primarily to higher interest expense in fiscal year 2015 from borrowings under the ABL Credit Facility. There were no amounts outstanding under the ABL Credit Facility during the three and six months ended March 25, 2016.

Gain on extinguishment of debt

On January 22, 2016, we redeemed $17.0 million of the Second Lien Term Loan Facility at a redemption price of 89.00% of the par value, and $2.0 million at a redemption price of 89.75% of the par value. We recorded a gain on the extinguishment of debt of $1.7 million during the three months ended March 25, 2016. There were no gains or losses recorded during the three or six months ended March 27, 2015.

Income tax expense (benefit)

Our income tax expense was $8.7 million for the three months ended March 25, 2016, compared to $2.8 million for the three months ended March 27, 2015. The increase was primarily a result of increased earnings in the U.S., which are subject to a higher tax rate, increased state tax expense, and nondeductible permanent items, partially offset by the benefit of the Section 199 Domestic Production Activities Deduction.

Our income tax expense was $13.3 million for the six months ended March 25, 2016, compared to $2.5 million for the six months ended March 27, 2015. The increase was primarily a result of increased earnings in the U.S., which are subject to a higher tax rate, and increased state expense, partially offset by the favorable benefit of the Section 199 Domestic Production Activities Deduction.

Adjusted EBITDA

Adjusted EBITDA increased by $22.2 million, or 65.6%, to $58.4 million for the three months ended March 25, 2016, compared to $36.1 million for the three months ended March 27, 2015. The increase was due

 

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primarily to higher gross profit driven by our ability to maintain an average selling price that declined less than the decrease in raw material costs along with lower freight and warehouse costs due to process improvements. Our average raw material costs decreased approximately 27% for the three and six months ended March 25, 2016 compared to the same periods in the prior year. The average selling prices of our products did not decline in the same proportion.

Adjusted EBITDA increased by $43.2 million, or 68.2%, to $106.4 million for the six months ended March 25, 2016, compared to $63.3 million for the six months ended March 27, 2015. The increase was due primarily to higher gross profit driven by our ability to maintain an average selling price that declined less than the decrease in raw material costs along with lower freight and warehouse costs due to process improvements. Our average raw material costs decreased approximately 27% for the three and six months ended March 25, 2016 compared to the same periods in the prior year. The average selling prices of our products did not decline in the same proportion.

Segment results

Electrical Raceway

 

     Three Months Ended     Six Months Ended  

($ in thousands)

   March 25,
2016
    March 27,
2015
    Change     %
Change
    March 25,
2016
    March 27,
2015
    Change     %
Change
 

Net sales

   $ 231,293      $ 251,279      $ (19,986     (8.0 )%    $ 454,898      $ 499,115      $ (44,217     (8.9 )% 

Adjusted EBITDA

   $ 42,186      $ 23,792      $ 18,394        77.3   $ 76,619      $ 42,680      $ 33,939        79.5

Adjusted EBITDA margin

     18.2     9.5         16.8     8.6    

Net sales

Net sales declined $20.0 million, or 8.0%, to $231.3 million for the three months ended March 25, 2016, compared to $251.3 million for the three months ended March 27, 2015. The decrease was due primarily to lower average selling prices of $15.3 million, lower net volume of $4.3 million and a negative foreign currency translation impact of $0.8 million due to a strengthened U.S. dollar. This decrease is offset in part by increased other sales of $0.4 million.

Net sales declined $44.2 million, or 8.9%, to $454.9 million for the six months ended March 25, 2016, compared to $499.1 million for the six months ended March 27, 2015. The decrease was due primarily to lower average selling prices of $29.2 million and lower net volume of $17.1 million primarily due to a change in the mix of our armored cable and fittings products and our metal electrical conduit and fittings products to focus on higher margin products as part of our pricing strategy, which resulted in us accepting fewer orders from these product categories. Additionally, net sales declined due to negative foreign currency translation impact of $2.1 million due to a strengthened U.S. dollar. This decrease is offset in part by increased sales of $3.5 million from our APPI and SCI businesses, other sales of $0.6 million and lower freight revenue of $0.1 million.

Adjusted EBITDA

Adjusted EBITDA for the three months ended March 25, 2016 increased $18.4 million, or 77.3%, to $42.2 million from $23.8 million. Adjusted EBITDA for the six months ended March 25, 2016 increased $33.9 million, or 79.5%, to $76.6 million from $42.7 million. The primary driver of the year-over-year improvements was our ability to maintain an average selling price that declined less than the decrease in raw material costs.

 

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Mechanical Products & Solutions

 

     Three Months Ended     Six Months Ended  

($ in thousands)

   March 25,
2016
    March 27,
2015
    Change     %
Change
    March 25,
2016
    March 27,
2015
    Change     %
Change
 

Net sales

   $ 122,245      $ 181,545      $ (59,300     (32.7 )%    $ 257,347      $ 360,348      $ (103,001     (28.6 )% 

Impact of Fence and
Sprinkler exit

     —          (45,811     45,811        *        (7,816     (91,862     84,046        *   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net sales

   $ 122,245      $ 135,734      $ (13,489     (9.9 )%    $ 249,531      $ 268,486      $ (18,955     (7.1 )% 

Adjusted EBITDA

   $ 22,324      $ 17,685      $ 4,639        26.2   $ 41,701      $ 30,556      $ 11,145        36.5

Adjusted EBITDA margin

     18.3     9.7         16.2     8.5    

 

* Not meaningful

Net sales

Net sales declined $59.3 million, or 32.7%, to $122.2 million for the three months ended March 25, 2016, compared to $181.5 million for the months ended March 27, 2015. The decrease was primarily due to declines in sales of $45.8 million related to the Fence and Sprinkler exit. Net sales further declined $5.7 million due to lower average selling prices, $4.9 million due to lower volume, $1.5 million due to negative foreign currency translation impact from a strengthened U.S. dollar, $1.3 million from lower freight revenue and $0.1 million of lower other sales. Lower volume was primarily due to the fact that our customers had increased purchases in calendar 2015 to meet demand within the solar industry in anticipation of the potential expiration of the ITC, which was ultimately extended in December 2015.

Net sales declined $103.0 million, or 28.6%, to $257.3 million for the six months ended March 25, 2016 compared to $360.3 million for the six months ended March 27, 2015. The decrease was primarily due to declines in sales of $84.0 million related to the Fence and Sprinkler exit, $9.5 million due to lower average selling prices and $4.7 million due to lower volume. Net sales also declined due to negative foreign currency translation impact of $3.4 million, lower freight revenue of $1.2 and $0.2 million of lower other sales.

Adjusted EBITDA

Adjusted EBITDA increased $4.6 million, or 26.2%, to $22.3 million for the three months ended March 25, 2016, compared to $17.7 million for the three months ended March 27, 2015. Adjusted EBITDA increased $11.1 million, or 36.5%, to $41.7 million from $30.6 million for the three months ended March 25, 2016. The expansion of our Adjusted EBITDA was due to our ability to maintain an average selling price that declined less than the decrease in raw material costs. In addition, lower freight and warehouse costs due to process improvements added to the Adjusted EBITDA increase.

 

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Results of Operations—Fiscal Years 2015, 2014 and 2013

 

    For the Year Ended     Change     % Change  

($ in thousands)

  September 25,
2015
    September 26,
2014
    September 27,
2013
    September 25,
2015 vs

September 26,
2014
    September 26,
2014 vs

September 27,
2013
    September 25,
2015 vs

September 26,
2014
    September 26,
2014 vs

September 27,
2013
 

Net sales

  $ 1,729,168      $ 1,702,838      $ 1,475,897      $ 26,330      $ 226,941        1.5     15.4

Cost of sales

    1,456,375        1,475,728        1,264,348        (19,353     211,380        (1.3     16.7   
 

 

 

   

 

 

   

 

 

         

Gross profit

    272,793        227,110        211,549        45,683        15,561        20.1        7.4   

Selling, general and administrative

    185,815        180,783        160,749        5,032        20,034        2.8        12.5   

Intangible asset amortization

    22,103        20,857        15,317        1,246        5,540        6.0        36.2   

Asset impairment charges

    27,937        44,424        9,161        (16,487     35,263        (37.1     384.9   
 

 

 

   

 

 

   

 

 

         

Operating income (loss)

    36,938        (18,954     26,322        55,892        (45,276     *        *   

Interest expense, net

    44,809        44,266        47,869        543        (3,603     1.2        *   

Loss on extinguishment of debt

    —          43,667        —          (43,667     43,667        *        *   
 

 

 

   

 

 

   

 

 

         

Loss from continuing operations before income taxes

    (7,871     (106,887     (21,547     99,016        (85,340    

Income tax benefit

    (2,916     (32,939     (2,966     30,023        (29,973     91.1        *   
 

 

 

   

 

 

   

 

 

         

Loss from continuing operations

    (4,955     (73,948     (18,581     68,993        (55,367     93.3        *   

Loss from discontinued operations, net of income tax expense of $0, $0, $2,791, respectively

    —          —          (42,654     —          42,654        —          *   
 

 

 

   

 

 

   

 

 

         

Net loss

  $ (4,955   $ (73,948   $ (61,235   $ 68,993      $ (12,713     *        20.8
 

 

 

   

 

 

   

 

 

         

Non-GAAP financial data

             

Adjusted net sales

  $ 1,550,575      $ 1,510,150      $ 1,277,175      $ 40,425      $ 232,975        2.7        18.2   

Adjusted EBITDA

    163,950        126,597        111,559        37,353        15,038        29.5        13.5   

Adjusted EBITDA Margin

    10.6     8.4     8.7        

 

* Not meaningful.

Fiscal 2015 Compared to Fiscal 2014

Net sales

Net sales increased $26.4 million, or 1.5%, to $1,729.2 million for fiscal 2015, compared to $1,702.8 million for fiscal 2014. The increase was due mainly to higher volume of $42.4 million from several key product categories. These volume increases represent market share growth due to investments in manufacturing capacity expansion to meet increased market demand and our ability to improve service delivery to our customers resulting in increased orders. Net sales also increased due to incremental revenue of $37.5 million generated by APPI and SCI, which were acquired in the first quarter of fiscal 2015. The increase in volume was offset by lower average selling prices of $40.2 million driven by declining input costs and a negative foreign currency translation impact of $13.3 million.

Cost of sales

Cost of sales decreased by $19.3 million, or 1.3%, to $1,456.4 million for fiscal 2015, compared to $1,475.7 million for fiscal 2014. The decrease in cost of sales was largely due to lower material costs of $78.6 million, favorable foreign currency translation impact of $11.1 million and lower direct and indirect manufacturing costs of $3.1 million. Additionally, we had productivity improvements driving down direct labor and production-related overhead by approximately $1.1 million. Offsetting these amounts in part were higher costs of sales of $30.9 million from our acquisitions of APPI and SCI. Excluding the impact from acquisitions, our remaining

 

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businesses incurred higher cost of sales of $28.5 million due to volume increases. In addition, we recorded a lower-of-cost-or-market adjustment during the current period due to the decline in raw material prices for steel and copper that was $8.2 million higher than a similar adjustment recorded in the previous period. Lastly, our freight and warehousing costs increased $7.0 million due to the increased product volume shipped during year.

Gross profit

Gross profit increased by $45.7 million, or 20.1%, to $272.8 million for fiscal 2015, compared to $227.1 million for fiscal 2014. The increase in gross profit was due primarily to our ability to maintain an average selling price that declined less than the decrease in raw material costs, contributions from our acquired businesses and productivity improvements.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $5.0 million, or 2.8%, to $185.8 million for fiscal 2015, compared to $180.8 million for fiscal 2014. The increase was due to incremental stock compensation expense in fiscal 2015 of $5.1 million due to an increase in the estimated fair value of a share of our common stock. Our stock-based awards are accounted for as liability awards and require mark-to-market adjustments each period to account for the fair value of the awards. Additionally, we recorded restructuring charges of $2.4 million related to the exit of our Fence and Sprinkler product lines and the closure of a Philadelphia, Pennsylvania manufacturing facility. Lastly, we incurred other net increases of $0.3 million across a variety of expense categories. These increases were offset by lower foreign currency translation expenses of $1.4 million and lower consulting fees paid to our sponsor of $1.4 million.

Intangible asset amortization

Intangible asset amortization increased $1.2 million, or 6.0%, to $22.1 million for fiscal 2015, compared to $20.9 million for fiscal 2014. The increase is primarily attributable to incremental amortization from intangible assets acquired from the purchases of APPI and SCI.

Asset impairment

In fiscal 2015, we announced the exit from Fence and Sprinkler and the planned closure of the Philadelphia, Pennsylvania manufacturing facility. As such, we recorded asset impairments of $24.0 million related to long-lived assets and prepaid shop supplies written-down to their fair value.

Additionally, we recorded a $3.9 million impairment to goodwill related to our SCI acquisition. The impairment was triggered by a decline in net sales and earnings due to a shift in the mix of products sold to a key customer, which was not expected to be replaced. The customer operates in the oil and gas end market, which has recently experienced a significant downturn, and chose an alternative supplier outside the United States for certain of our higher-margin products. The decline in net sales and earnings occurred after the acquisition closed. We recorded this impairment within our Electrical Raceway reportable segment.

We concluded that the circumstances surrounding this customer constituted a triggering event in accordance with ASC 360—Property, Plant & Equipment. We compared the estimated undiscounted cash flows of the finite-lived customer relationship intangible asset to its carrying value to assess the recoverability. As the undiscounted cash flows related to the customer relationship intangible asset exceeded its carrying value, we did not proceed to the second step of the impairment test.

In fiscal 2014, we recorded impairment to goodwill of $43.0 million related to a reporting unit in our MP&S segment. Additionally, we recorded impairments of $0.9 million related to the Razor Ribbon and Columbia MBF trade names due to a contraction in the long-term growth projections of products sold under these trade names. The impairments of trade names were recorded in our MP&S reportable segment. Lastly, we recorded, $0.6 million impairment related to our closed facility in Reux, France to adjust the carrying value to its fair value.

 

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Operating income (loss)

Operating income (loss) increased by $55.9 million to income of $36.9 million for fiscal 2015, compared to a loss of $19.0 million for fiscal 2014. The increase was due to expanded gross profit of $45.7 million, lower asset impairment charges of $16.5 million. To a lesser extent, operating income was offset by higher selling, general and administrative expenses and amortization expense.

Interest expense, net

Interest expense, net increased by $0.5 million, or 1.1%, to $44.8 million for fiscal 2015, compared to $44.3 million for fiscal 2014. The increase was primarily due to lower interest income in the current year resulting from the collection of interest bearing deferred payments associated with the divestiture from our Brazilian operations during fiscal 2014.

Loss on extinguishment of debt

During fiscal 2014, we recognized a $43.7 million loss on the redemption of our Senior Notes which included an early redemption premium of $28.6 million, a write-off of $14.1 million of unamortized debt issuance costs, incremental interest expense of $0.8 million, and legal fees of $0.1 million. There were no losses on extinguishment of debt recorded in fiscal 2015.

Income tax benefit

For fiscal, 2015, we recorded a tax benefit of $2.9 million as compared to a benefit of $32.9 million for fiscal 2014. The lower tax benefit was due in part to higher operating income and from the tax benefit from the release of indemnified state uncertain tax positions offset by nondeductible expenses and a valuation allowance against deferred tax assets in foreign jurisdictions in which the deferred tax assets are not expected to be realized. In addition, the effective tax rate for fiscal 2014 reflected the tax impact of nondeductible goodwill impairment offset by the tax benefit from additional federal net operating losses recognized from the closure of a federal audit for prior periods and income of certain foreign subsidiaries deemed indefinitely reinvested.

Adjusted EBITDA

Adjusted EBITDA increased by $37.4 million, or 29.5%, to $164.0 million for fiscal 2015, compared to $126.6 million for fiscal 2014. The increase was due primarily to higher gross profit driven by our ability to maintain an average selling price that declined less than the decrease in raw material costs in both business segments and lower direct labor and production-related overhead costs due to productivity improvements. In addition, our acquisitions of APPI and SCI contributed $4.9 million of Adjusted EBITDA.

Segment results

Electrical Raceway

 

($ in thousands)

   September 25,
2015
    September 26,
2014
    Change      % Change  

Net Sales

   $ 1,005,579      $ 967,766      $ 37,813         3.9

Adjusted EBITDA

     106,717        86,273        20,444         23.7   

Adjusted EBITDA margin

     10.6     8.9     

Net sales

Net sales increased $37.8 million, or 3.9%, to $1,005.6 million from $967.8 million. The acquisitions of APPI and SCI contributed $37.5 million of incremental revenue. Both acquisitions closed in the first quarter of

 

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our fiscal 2015. Excluding the impact of our acquisitions, sales volume increased $27.1 million across multiple product categories. These increases were partially offset by lower average selling prices of $22.5 million and negative foreign currency translation impact of $4.3 million due to a strengthened U.S. dollar.

Adjusted EBITDA

Adjusted EBITDA increased $20.4 million, or 23.7%, to $106.7 million, from $86.3 million. The expansion of our Adjusted EBITDA was primarily attributable to a net positive impact of maintaining average selling prices in excess of the declines in our raw material costs. The average input of our raw material prices declined more than the decline in our average selling prices. Productivity improvements also contributed to the Adjusted EBITDA improvement by lowering direct labor and production-related overhead costs. Additionally, our acquisitions of APPI and SCI contributed Adjusted EBITDA of $4.9 million.

Mechanical Products & Solutions

 

($ in thousands)

   September 25,
2015
    September 26,
2014
    Change      % Change  

Net sales

   $ 724,762      $ 736,050      $ (11,288      (1.5 )% 

Impact of Fence and Sprinkler exit

     (178,593     (192,688     14,095         7.3   
  

 

 

   

 

 

      

Adjusted net sales

   $ 546,169      $ 543,362      $ 2,807         0.5   

Adjusted EBITDA

   $ 79,553      $ 59,941      $ 19,612         32.7   

Adjusted EBITDA margin

     14.6     11.0     

Net sales

Net sales decreased $11.3 million, or 1.5%, to $724.8 million, from $736.1 million. The decline was primarily attributable to lower average selling prices of $17.6 million from our steel products and the impact of foreign currency of $9.1 million due a strengthening U.S. dollar. Partially offsetting these impacts were increases of volume of $15.4 million.

Adjusted EBITDA

Adjusted EBITDA increased $19.7 million, or 32.7%, to $79.6 million, from $59.9 million. The expansion of our Adjusted EBITDA was primarily due to our ability to maintain an average selling price that declined less than the decrease in raw material costs. Our average material costs declined approximately 15% for fiscal 2015 as compared to fiscal 2014 and our average selling prices decrease at a lower rate. Productivity improvements also contributed to the Adjusted EBITDA improvement by lowering direct labor and production-related overhead costs.

Fiscal 2014 Compared to Fiscal 2013

Net sales

Net sales increased $226.9 million to $1,702.8 million, or 15.4%, for fiscal 2014, compared to $1,475.9 million for fiscal 2013. The increase was primarily due to $179.4 million of incremental revenue generated by Heritage Plastics and Ridgeline, which were acquired in the fourth quarter of fiscal 2013 and first quarter of fiscal 2014, respectively. Additionally, net higher average selling prices resulted in an increase of $15.5 million while higher volume provided an increase of $34.6 million. Foreign currency negatively impacted sales by $2.6 million.

Cost of sales

Cost of sales increased by $211.4 million, or 16.7%, to $1,475.7 million for fiscal 2014, compared to $1,264.3 million for fiscal 2013. The increase in cost of sales was due primarily to the incremental cost of sales

 

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incurred of $155.0 million at Heritage Plastics and Ridgeline which were acquired in the fourth quarter of fiscal 2013 and first quarter of fiscal 2014, respectively. Additionally, our costs increased due to higher volume and manufacturing costs, which totaled $61.7 million. Our increased manufacturing costs included unabsorbed overhead that was not considered to be attributable to normal production capacity and higher direct labor and production-related overhead costs primarily related to a week-long work stoppage at our Harvey, Illinois facility. We also incurred higher material costs of $23.5 million related to steel. Offsetting these increases in part were lower freight and warehousing costs of $23.5 million principally due to process improvements including optimizing the transportation mode for shipping our products to end customers. We also experienced a favorable impact of $2.3 million related to foreign currency translation and other improvements in direct costs of $3.0 million.

Gross profit

Gross profit increased by $15.6 million, or 7.4%, to $227.1 million for fiscal 2014, compared to $211.5 million for fiscal 2013. The increase in gross profit was due primarily to profits generated by the acquired businesses, higher average selling prices in excess of higher raw material costs for certain of our products, and higher volume. Partially offsetting these increases was the decline of our average selling prices of certain other products.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $20.1 million, or 12.5%, to $180.8 million for fiscal 2014, compared to $160.7 million for fiscal 2013. The increase was due to $12.6 million related to newly acquired businesses, an increase of $6.2 million in stock option expense largely due to an increase in the estimated fair value of our common stock. Our stock based awards are accounted for as liability awards requiring mark-to-market adjustments each period to account for the fair value of the awards. Additionally, our product liability expense increased $1.6 million due to further development of open claims and incurred-but-not-reported claims, offset by other decreases of $0.3 million across a variety of expense categories.

Intangible asset amortization

Intangible asset amortization increased $5.6 million, or 36.2%, to $20.9 million for fiscal 2014, compared to $15.3 million for fiscal 2013. The increase reflects the impact of amortization recorded in relation to the Ridgeline and Heritage Plastics’ acquisitions offset by lower amortization expense recorded in relation to acquisitions made in prior years.

Asset impairment

In fiscal 2014, we recorded impairment to goodwill of $43.0 million related to a reporting unit in our MP&S segment. The impairment was driven by changes in market conditions, the reporting unit’s actual results in fiscal 2014 that were below amounts estimated in fiscal 2013 and revisions to the unit’s growth projections. Our long-term forecasted demand for certain steel products, including our Fence and Sprinkler products which were discontinued in fiscal 2016, decreased during 2014 and was not expected to grow at or above rates projected for non-residential construction markets. The projected volume declines of these products further contracted an already low profit margin. Additionally, we recorded impairments of $0.9 million related to the Razor Ribbon and Columbia MBF trade names due to a contraction in the long-term growth projections of products sold under these trade names. The impairments of trade names were recorded in our MP&S reportable segment. Lastly, we recorded, $0.6 million impairment related to our closed facility in Reux, France to adjust the carrying value to its fair value.

For fiscal 2013, we recorded $9.2 million of asset impairment charges related to property, plant and equipment written-down to their fair value. Certain of these assets were held for sale.

 

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Operating income (loss)

Operating income (loss) changed by $45.3 million, to a loss of $19.0 million for fiscal 2014, compared to income of $26.3 million for fiscal 2013. The decrease was due primarily to higher selling, general and administrative expenses of $20.1 million, higher amortization expense of $5.5 million and higher asset impairment charges of $35.3 million, offset in part by higher gross profit of $15.6 million.

Interest expense, net

Interest expense, net decreased by $3.6 million, to $44.3 million for fiscal 2014, compared to $47.9 million for fiscal 2013. The decrease was due to net lower average interest rates despite increased borrowings. Our interest expense declined by $2.4 million. Additionally, we recognized higher interest income of $1.2 million from outstanding installment payments from the sale of our subsidiary in Brazil.

Loss on extinguishment of debt

During fiscal 2014, we recognized a $43.7 million loss on the redemption of our Senior Notes which included an early redemption premium of $28.6 million, a write-off of $14.1 million of unamortized debt issuance costs, incremental interest expense of $0.8 million, and additional legal fees of $0.1 million related to the Senior Notes. There were no losses on extinguishment of debt recorded in fiscal 2013.

Income tax benefit

For fiscal 2014 and fiscal 2013, we recognized tax benefits of $32.9 million and $3.0 million, respectively. The larger tax benefit recognized in fiscal 2014 was primarily attributable to a larger loss from continuing operations before income taxes, as well as income of permanently reinvested foreign subsidiaries offset by nondeductible goodwill impairment. The tax benefit recognized in fiscal 2013 reflected a one-time tax benefit from federal net operating losses recognized from the closure of a federal audit.

Loss from discontinued operations, net of income tax expense

Loss from discontinued operations, net of tax was $0 for fiscal 2014 compared to a loss of $42.7 million for fiscal 2013 related to the divestiture of our operations in Brazil.

Adjusted EBITDA

Adjusted EBITDA increased by $15.0 million, or 13.5%, to $126.6 million for fiscal 2014, compared to $111.6 million for fiscal 2013. The increase was due primarily to the impact of our Heritage Plastics and Ridgeline acquisitions, which contributed $17.2 million of incremental adjusted EBITDA. Additionally, the benefit of average selling prices increasing in excess of the increase in material costs contributed to our increased profitability.

Segment results

Electrical Raceway

 

($ in thousands)

   September 25,
2014
    September 26,
2013
    Change      % Change  

Net sales

   $ 967,766      $ 740,095      $ 227,671         30.8

Adjusted EBITDA

   $ 86,273      $ 66,845        19,428         29.1   

Adjusted EBITDA margin

     8.9     9.0     

Net sales

Net sales increased $227.7 million, or 30.8%, to $967.8 million from $740.1 million. The increase was attributable to $179.4 million of incremental revenue generated by our acquisitions Heritage Plastics and

 

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Ridgeline, which were acquired in the fourth quarter of our fiscal 2013 and the first quarter of fiscal 2014, respectively. Additionally, volume increased $52.8 million across multiple product categories. Partially offsetting these increases were lower average selling prices of $2.2 million and negative foreign currency translation impact of $2.3 million due to the strengthened U.S. dollar.

Adjusted EBITDA

Adjusted EBITDA increased $19.5 million, or 29.1%, to $86.3 million, from $66.8 million. The expansion in our Adjusted EBITDA was due primarily to the impact from our Heritage Plastics and Ridgeline acquisitions, and overall volume growth across a variety of our product categories. The average selling prices of certain products increased in excess of raw material costs.

Mechanical Products and Solutions

 

($ in thousands)

   September 25,
2014
    September 26,
2013
    Change      % Change  

Net sales

   $ 736,050      $ 736,937      $ (887      (0.1 )% 

Impact of Fence and Sprinkler exit

     (192,688     (198,722     6,034         3.0   
  

 

 

   

 

 

      

Adjusted net sales

   $ 543,362      $ 538,215      $ 5,147         1.0   

Adjusted EBITDA

   $ 59,941      $ 63,415      $ (3,474      (5.5

Adjusted EBITDA margin

     11.0     11.8     

Net sales

Net sales declined $0.8 million, or 0.1%, to $736.1 million, from $736.9 million. The decline was attributable to lower volume of $18.1 million and a negative foreign currency translation impact of $0.4 million due to a strengthened U.S. dollar. Offsetting these negative impacts were higher average selling prices of $17.7 million.

Adjusted EBITDA

Adjusted EBITDA declined $3.5 million, or 5.5%, to $59.9 million, from $63.4 million. The main drivers of the year-over-year decline were increased raw material costs and unabsorbed overhead that was not considered to be attributable to normal production, as well as higher direct labor and production-related overhead costs primarily related to a week-long work stoppage at our Harvey, Illinois facility. While average selling prices increased, they did not increase in the same proportion as the 8% increase in material costs.

 

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Quarterly Results of Operations Data

The following tables set forth certain consolidated statement of operations data as well as Adjusted EBITDA data (including a reconciliation to net income (loss)) for each of the most recent eight fiscal quarters. We have prepared these quarterly data on a basis that is consistent with the financial statements included elsewhere in this prospectus. In the opinion of management, this financial information reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of these data. This information is not a complete set of financial statements and should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus. These results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.

 

    Three Months Ended  

($ in thousands)

  March 25,
2016
    December 25,
2015
    September 25,
2015
    June 26,
2015
    March 27,
2015
    December 25,
2014
    September 26,
2014
    June 27,
2014
 

Net sales

  $ 353,046      $ 358,375      $ 437,814      $ 432,367      $ 432,586      $ 426,401      $ 454,356      $ 445,880   

Cost of sales

    261,636        285,966        366,980        353,619        365,140        370,636        397,166        388,852   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

    91,410        72,409        70,834        78,748        67,446        55,765        57,190        57,028   

Selling, general and administrative

    54,179        43,841        55,124        45,912        41,981        42,798        50,843        42,450   

Intangible asset amortization

    5,572        5,517        6,328        5,249        5,373        5,153        5,218        5,232   

Asset impairment charges

    —          —          27,937        —          —          —          43,939        442   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    31,659        23,051        (18,555     27,587        20,092        7,814        (42,810     8,904   

Interest expense, net

    10,567        9,881        11,185        11,212        11,483        10,929        11,042        9,832   

Loss on extinguishment of debt

    (1,661     —          —          —          —          —          —          40,913   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

    22,753        13,170        (29,740     16,375        8,609        (3,115     (53,852     (41,841

Income tax expense (benefit)

    8,746        4,598        (2,689     (2,683     2,809        (353     (17,135     (15,879
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    14,007        8,572        (27,051     19,058        5,800        (2,762     (36,717     (25,962

Depreciation and amortization

    13,249        13,493        16,092        14,349        14,308        14,716        14,943        14,601   

Loss on extinguishment of debt

    (1,661     —          —          —          —          —          —          40,913   

Interest expense, net

    10,567        9,881        11,185        11,212        11,483        10,929        11,042        9,832   

Income tax expense (benefit)

    8,746        4,598        (2,689     (2,683     2,809        (353     (17,135     (15,879

Restructuring & impairments

    775        1,294        32,061        475        154        13        45,500        930   

Net periodic pension benefit cost

    110        110        144        145        144        145        342        342   

Stock-based compensation

    9,998        2,045        11,061        661        377        1,424        6,170        829   

ABF product liability

    213        212        (1,899     561        561        561        1,162        549   

Consulting fee

    875        875        875        875        875        875        875        979   

Transaction costs

    2,776        655        2,009        2,876        637        517        1,322        499   

Other

    (1,294     5,507        9,975        2,560        499        1,271        5,875        3,777   

Impact of Fence and Sprinkler

    —          811        2,236        (3,401     (1,534     (186     3,938        (1,746
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 58,361      $ 48,053      $ 53,999      $ 46,688      $ 36,113      $ 27,150      $ 37,317      $ 29,664   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liquidity and Capital Resources

We believe we have sufficient liquidity to support our ongoing operations and to invest in future growth and create value for stockholders. Our cash and cash equivalents were $134.5 million as of March 25, 2016, of which $21.4 million was held at non-U.S. subsidiaries. Those cash balances at foreign subsidiaries may be subject to U.S. or local country taxes if the Company’s intention to permanently reinvest such income were to change and cash was repatriated to the U.S. Our cash and cash equivalents increased $53.9 million from September 25, 2015. Since the end of our fiscal 2014, we have reduced total debt by $60.1 million.

In general, we require cash to fund working capital, capital expenditures, debt repayment, interest payments and taxes. We have access to the ABL Credit Facility to fund operational needs. As of March 25, 2016, there were no outstanding borrowings under the ABL Credit Facility (excluding $17.9 million of letters of credit issued under the ABL Credit Facility), and the borrowing base was estimated to be $238.6 million. As outstanding letters of credit count

 

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as utilization of the ABL Credit Facility and reduce the amount available for borrowings, approximately $220.7 million was available under our ABL Credit Facility as of March 25, 2016. The agreements governing the Credit Facilities contain covenants that limit or restrict AII’s ability to incur additional indebtedness, repurchase debt, incur liens, sell assets, make certain payments (including dividends) and enter into transactions with affiliates. AII has been in compliance with the covenants under the agreements for all periods presented.

Our use of cash may fluctuate during the year and from year to year due to differences in demand and changes in economic conditions primarily related to the prices of commodities we purchase.

Capital expenditures have historically been necessary to expand and update the production capacity and improve the productivity of our manufacturing operations. Our ongoing liquidity needs are expected to be funded by cash on hand, net cash provided by operating activities and, as required, borrowings under the Credit Facilities. We expect that cash provided from operations and available capacity under the ABL Credit Facility will provide sufficient funds to operate our business, make expected capital expenditures and meet our liquidity requirements for at least the next twelve months, including payment of interest and principal on our debt. In fiscal 2015, our capital expenditures were $26.8 million. We expect our capital expenditures in fiscal 2016 to be approximately $28.1 million.

Limitations on Distributions and Dividends by Subsidiaries

Atkore and AII are each holding companies, and as such have no independent operations or material assets other than ownership of equity interests in their respective subsidiaries. Each company depends on its respective subsidiaries to distribute funds to them so that they may pay obligations and expenses, including satisfying obligations with respect to indebtedness. The ability of our subsidiaries to make distributions and dividends to us depends on their operating results, cash requirements and financial and general business conditions, as well as restrictions under the laws of our subsidiaries’ jurisdictions.

The agreements governing the Credit Facilities significantly restrict the ability of our subsidiaries, including AII, to pay dividends, make loans or otherwise transfer assets from AII and, in turn, to us. Further, AII’s subsidiaries are permitted under the terms of the Credit Facilities to incur additional indebtedness that may restrict or prohibit the making of distributions, the payment of dividends or the making of loans by such subsidiaries to AII and, in turn, to us. The First Lien Term Loan Facility and Second Lien Term Loan Facility require AII to meet a certain consolidated coverage ratio on an incurrence basis in connection with additional indebtedness. The ABL Credit Facility contains limits on additional indebtedness based on various conditions for incurring the additional debt. See “Description of Certain Indebtedness.”

Cash Flows

The table below summarizes cash flow information derived from our statements of cash flows for the periods indicated:

 

     Six Months Ended     Year Ended  

($ in thousands)

   March 25,
2016
    March 27,
2015
    September 25,
2015
    September 26,
2014
    September 27,
2013
 

Cash flows provided by (used in):

          

Operating activities

   $ 82,157      $ (73   $ 141,073      $ 86,333      $ 35,424   

Investing activities

     (8,511     (40,452     (46,641     (48,860     (87,252

Financing activities

     (19,973     33,372        (44,106     (57,584     55,823   

Operating activities

During the six months ended March 25, 2016, $82.2 million was provided by operating activities, compared to $0.1 million used by operating activities during the six months ended March 27, 2015. The increase is due to improved operating income and lower investment in working capital, principally accounts receivable and inventory due to the Fence and Sprinkler exit.

 

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During fiscal 2015, operating activities provided $141.1 million of cash, compared to $86.3 million of cash provided by operating activities during fiscal 2014. The increase in cash from operating activities during fiscal 2015 compared to fiscal 2014, was due primarily to improved operating income and lower investment in working capital, principally inventory.

During fiscal 2014, operating activities provided $86.3 million of cash, compared to $35.4 million of cash provided by operating activities during fiscal 2013. The increase in cash from operating activities during fiscal 2014 compared to fiscal 2013, was due primarily to a lower net loss, excluding the impact of non-cash impairment charges impacting earnings and overall improvements in working capital.

Investing activities

During the six months ended March 25, 2016, we used $8.5 million for investing activities, compared to $40.5 million during the six months ended March 27, 2015. The majority of the cash used in the six months ended March 25, 2016 was to fund the acquisitions of APPI and SCI. In aggregate, we paid $31.3 million for both businesses. There were no acquisitions during the six months ended March 25, 2016. Additionally, we invested $9.0 million compared to $12.5 million during the six months ended March 25, 2016 and March 27, 2015, respectively for capital expenditures representing our enhancements of our manufacturing and distribution operations as well as replacement and maintenance of existing equipment and facilities. During the six months ended March 25, 2016, we received $0.5 million related to the sale of a building previously classified as an asset held for sale in Madison, Indiana during fiscal 2013 compared to $2.3 million received during the six months ended March 27, 2015 related to the divestiture of our joint venture in Saudi Arabia.

We used cash for investing activities of $46.6 million for fiscal 2015. The majority use of cash in the current year was to fund the acquisitions of APPI and SCI. In aggregate, we paid $30.5 million for both businesses. Additionally, we invested $26.8 million for capital expenditures representing enhancements of our manufacturing and distribution operations as well as replacement and maintenance of existing equipment and facilities.

We used cash for investing activities of $48.9 million for fiscal 2014, which was primarily to fund the $39.8 million acquisition of substantially all of the assets of EP Lenders, II, LLC d/b/a Ridgeline Plastics, and used $24.4 million for capital expenditures representing enhancements of our manufacturing and distribution operations as well as replacement and maintenance of existing equipment and facilities.

We used cash for investing activities of $87.3 million for fiscal 2013, which was primarily to fund the $102.5 million acquisition of substantially all of the assets of Heritage Plastics. Additionally, we invested $15.0 million toward capital investments representing enhancements of our manufacturing and distribution operations as well as replacement and maintenance of existing equipment and facilities. Discontinued investing activities provided $26.5 million from the sale of our Brazil operations.

Financing Activities

We used $20.0 million for financing activities during the six months ended March 25, 2016. For the six months ended March 25, 2016, AII redeemed $17.0 million of the Second Lien Term Loan Facility at a redemption price of 89.00% of the par value, and $2.0 million at a redemption price of 89.75% of the par value. We had $0 net borrowings under the Credit Facility during the six months ended March 25, 2016, compared to $36.3 million net borrowings under the Credit Facility during the six months ended March 27, 2015. The borrowings under the Credit Facility during fiscal year 2015 were mainly to fund the $31.3 million acquisition SCI and APPI.

We used $44.1 million cash for financing activities during fiscal 2015. The cash was primarily used to repay the $40.0 million balance on the ABL Credit Facility. As of September 25, 2015, AII had no amounts outstanding under the ABL Credit Facility.

 

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For fiscal 2014, we used $57.6 million for financing activities. The use of cash was primarily to repurchase and retire shares of our common stock that were previously held by Tyco for $250.0 million. We also made a net repayment of $19.0 million related to the ABL Credit Facility. These uses of cash were offset by net proceeds of $226.8 million related to the issuance of the long-term debt. We entered into a $420.0 million First Lien Term Loan Facility and a $250.0 million Second Lien Term Loan Facility.

For fiscal 2013, financing activities provided $55.8 million of cash primarily due to net borrowings of $59.0 million related to the ABL Credit Facility offset by reduced net borrowings under the line of credit at a foreign operation of $3.4 million.

The agreements governing the Credit Facilities contain significant covenants, including prohibitions on our ability to incur certain additional indebtedness and to make certain investments and to pay dividends. For all periods presented, AII was in compliance with all covenants of the Credit Facilities. AII was not subject to the minimum fixed charge coverage ratio during any period subsequent to the establishment of the Credit Facilities. See “Description of Certain Indebtedness” and Note 8 to our audited consolidated financial statements included elsewhere in this prospectus for further detail.

Critical Accounting Policies and Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions relating to the reporting of results of operations, financial condition and related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from those estimates under different assumptions or conditions. The following are our most critical accounting policies, which are those that require management’s most difficult, subjective and complex judgments, requiring the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

The following discussion is not intended to represent a comprehensive list of our accounting policies. For a detailed discussion of the application of these and other accounting policies, see Note 1 to our audited consolidated financial statements included elsewhere in this prospectus.

Revenue Recognition

We recognize revenue when persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed and determinable and collectability is reasonably assured. Revenues are recognized from product sales when title to the products is passed to the customer, which generally occurs at the point of shipping. Provisions for volume rebates are based upon contractual terms, our historical experience and expectations regarding future customer sales. The amounts recorded may require adjustments if actual experience differs from our estimates. Historically, these adjustments have not been material. Rebates are recognized as a reduction of sales if settled in cash or customer credits. Our provisions for early payment discounts and product returns are estimated using our historical experience to approximate future exposures.

Income Taxes

In determining income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments affect the calculation of certain tax liabilities and the determination of the recoverability of certain deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense. Certain deferred tax assets are reviewed for recoverability and valued accordingly, considering available positive and negative evidence, including our past results, estimated future taxable income streams and the impact of tax planning strategies in the applicable tax paying jurisdiction. A valuation allowance is established to reduce deferred tax assets to the amount that is considered more likely than not to be realized. Valuations related to tax accruals and assets can be impacted by changes in accounting regulations, changes in tax codes and rulings, changes in statutory tax rates, and changes

 

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in our forecasted future taxable income. Any reduction in future taxable income, including but not limited to any future restructuring activities, may require that we record an additional valuation allowance against our deferred tax assets. An increase in the valuation allowance could result in additional income tax expense in such period and could have a significant impact on our future earnings.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations. Certain tax positions may be considered uncertain requiring an assessment of whether an allowance should be recorded. Our provision for uncertain tax positions provides a recognition threshold based on an estimate of whether it is more likely than not that a position will be sustained upon examination. We measure our uncertain tax position as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. We record interest and penalties related to unrecognized tax benefits as a component of provision for income taxes.

We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. These tax liabilities are reflected net of related tax loss carry-forwards. We adjust these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary.

Pension and Postretirement Benefits

Our pension expense and obligations are developed from actuarial valuations. Two critical assumptions in determining pension expense and obligations are the discount rate and expected long-term return on plan assets. We evaluate these assumptions at least annually. Other assumptions reflect demographic factors such as retirement, mortality and turnover and are evaluated periodically and updated to reflect our actual experience. Actual results may differ from actuarial assumptions. The following table summarizes the impact that a change in these assumptions would have on our operating income for fiscal 2015:

 

(in millions)

   50 Basis Point Increase      50 Basis Point Decrease  

Discount rate

   $ 129.8       $ 112.6   

Return on assets

     7.3         6.3   

Long-Lived Asset, Indefinite-Lived Intangibles and Goodwill Impairments

We review long-lived assets, including property, plant and equipment and finite-lived intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the asset may not be fully recoverable. We perform undiscounted operating cash flow analyses to determine if impairment exists. For purposes of recognition and measurement of an impairment of assets held for use, we group assets and liabilities at the lowest level for which cash flows are separately identified. If impairment is determined to exist, any related impairment loss is calculated based on fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.

We assess the recoverability of goodwill and indefinite-lived intangible assets on a yearly basis, or more frequently, if triggering events occur. Our measurement date is the first day of the fourth fiscal quarter. This assessment employs a two-step approach. The first step (“Step 1”) compares the fair value of a reporting unit with its carrying amount, including goodwill. If a reporting unit’s carrying amount exceeds its fair value, a goodwill impairment may exist. The second part of the test (“Step 2”) compares the implied fair value of goodwill with its carrying amount.

 

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Assessing goodwill for impairment requires us to estimate future operating results and cash flows that require judgment by management. Using different estimates could impact the amount and timing of impairment. We determine the fair value of a reporting unit using three valuation approaches: (a) an income approach using a discounted cash flow analysis; (b) a market approach using a comparable company analysis; (c) a market approach using a transaction analysis.

For fiscal 2015, we recorded a $3.9 million non-cash charge for goodwill impairment related to our SCI reporting unit in the Electrical Raceway segment. This impairment was triggered due to a degradation of net sales and earnings in part due to a shift in the mix of products sold to a key customer. This customer had historically purchased a disproportionate amount of higher-margin product for use in a particular geographic end market. This represented a full impairment of goodwill related to SCI. A 10% decrease in the discounted cash flows utilized in Step 1 for each of the remaining reporting units would not have changed our determination that the fair value of each reporting unit was in excess of its carrying value.

The impairment testing for long-lived assets, indefinite-lived intangibles and goodwill involves the use of significant assumptions, estimates and judgments, and is subject to inherent uncertainties and subjectivity. The analysis estimates numerous factors, including future sales, gross profit, selling, general and administrative expense rates and capital expenditures. These estimates are based on our business plans and forecasts. For goodwill and indefinite-lived intangibles, these estimated cash flows are then discounted, which necessitates the selection of an appropriate discount rate. The discount rate used reflects the market-based estimates of the risks associated with the projected cash flows of the reporting unit.

Inventories

We account for inventory valuation for a majority of the Company using the LIFO method measured at the lower-of-cost-or-market value. We have adopted this accounting principle because the LIFO method of valuing inventories reflects how we monitor and manage our business and matches current costs and revenues. Valuation of inventory using the LIFO method is made at the end of our fiscal year based on inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on estimates of expected year-end inventory levels and costs. Other inventories, consisting mostly of foreign inventories, are measured using FIFO costing methods. Inventory cost, regardless of valuation method, includes direct material, direct labor and overhead costs. In circumstances where inventory levels are in excess of anticipated market demand, where inventory is deemed technologically obsolete or not marketable due to its condition or where the inventory cost for an item exceeds its net realizable value, we record a charge to cost of goods sold and reduce the inventory to its net realizable value.

Product Liability

We are partially self-insured for product liability matters. We utilize third-party actuaries to assist us with measuring our exposure for these matters. Our product liability reserves represent both reported claims as well as an estimated for incurred but not reported claims. After a claim is filed, liability is estimated as facts associated with the claim become known. The establishment and update of liabilities for unpaid claims, including claims incurred but not reported, is based on the assessment by our claim adminis