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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
|
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| | | |
For the quarterly period ended | September 28, 2019 | Commission file number | 1-6770 |
MUELLER INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
|
| |
Delaware | 25-0790410 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
|
| | |
150 Schilling Boulevard | Suite 100 | |
Collierville | Tennessee | 38017 |
(Address of principal executive offices) | (Zip Code) |
(901) 753-3200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
| | |
Title of each class | Trading Symbol | Name of exchange on which registered |
Common Stock | MLI | NYSE |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The number of shares of the Registrant’s common stock outstanding as of October 18, 2019 was 56,952,083.
MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Quarterly Period Ended September 28, 2019
As used in this report, the terms “Company,” “Mueller,” and “Registrant” mean Mueller Industries, Inc. and its consolidated subsidiaries taken as a whole, unless the context indicates otherwise.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
| | | | | | | | | | | | | | | | |
| | For the Quarter Ended | | For the Nine Months Ended |
(In thousands, except per share data) | | September 28, 2019 | | September 29, 2018 | | September 28, 2019 | | September 29, 2018 |
| | | | | | | | |
Net sales | | $ | 608,602 |
| | $ | 645,958 |
| | $ | 1,886,777 |
| | $ | 1,948,791 |
|
| | | | | | | | |
Cost of goods sold | | 510,788 |
| | 566,956 |
| | 1,586,129 |
| | 1,676,446 |
|
Depreciation and amortization | | 10,823 |
| | 10,619 |
| | 31,856 |
| | 29,081 |
|
Selling, general, and administrative expense | | 40,739 |
| | 38,889 |
| | 121,838 |
| | 112,077 |
|
Gain on sale of assets | | — |
| | (2,691 | ) | | — |
| | (334 | ) |
Insurance recovery | | — |
| | (1,486 | ) | | — |
| | (1,486 | ) |
| | | | | | | | |
Operating income | | 46,252 |
| | 33,671 |
| | 146,954 |
| | 133,007 |
|
| | | | | | | | |
Interest expense | | (6,148 | ) | | (6,746 | ) | | (20,135 | ) | | (18,728 | ) |
Other income, net | | 533 |
| | 411 |
| | 823 |
| | 1,557 |
|
| | | | | | | | |
Income before income taxes | | 40,637 |
| | 27,336 |
| | 127,642 |
| | 115,836 |
|
| | | | | | | | |
Income tax expense | | (7,665 | ) | | (3,373 | ) | | (27,643 | ) | | (23,179 | ) |
Loss from unconsolidated affiliates, net of foreign tax | | (2,528 | ) | | (3,100 | ) | | (23,740 | ) | | (13,568 | ) |
| | | | | | | | |
Consolidated net income | | 30,444 |
| | 20,863 |
| | 76,259 |
| | 79,089 |
|
| | | | | | | | |
Net income attributable to noncontrolling interests | | (1,351 | ) | | (571 | ) | | (3,457 | ) | | (1,487 | ) |
| | | | | | | | |
Net income attributable to Mueller Industries, Inc. | | $ | 29,093 |
| | $ | 20,292 |
| | $ | 72,802 |
| | $ | 77,602 |
|
| | | | | | | | |
Weighted average shares for basic earnings per share | | 55,832 |
| | 56,877 |
| | 55,771 |
| | 56,858 |
|
Effect of dilutive stock-based awards | | 482 |
| | 540 |
| | 523 |
| | 524 |
|
| | | | | | | | |
Adjusted weighted average shares for diluted earnings per share | | 56,314 |
| | 57,417 |
| | 56,294 |
| | 57,382 |
|
| | | | | | | | |
Basic earnings per share | | $ | 0.52 |
| | $ | 0.36 |
| | $ | 1.31 |
| | $ | 1.36 |
|
| | | | | | | | |
Diluted earnings per share | | $ | 0.52 |
| | $ | 0.35 |
| | $ | 1.29 |
| | $ | 1.35 |
|
| | | | | | | | |
Dividends per share | | $ | 0.10 |
| | $ | 0.10 |
| | $ | 0.30 |
| | $ | 0.30 |
|
See accompanying notes to condensed consolidated financial statements.
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
| | | | | | | | | | | | | | | | |
| | For the Quarter Ended | | For the Nine Months Ended |
(In thousands) | | September 28, 2019 | | September 29, 2018 | | September 28, 2019 | | September 29, 2018 |
| | | | | | | | |
Consolidated net income | | $ | 30,444 |
| | $ | 20,863 |
| | $ | 76,259 |
| | $ | 79,089 |
|
| | | | | | | | |
Other comprehensive loss, net of tax: | | |
| | |
| | |
| | |
|
Foreign currency translation | | (6,692 | ) | | 1,111 |
| | (3,612 | ) | | (5,534 | ) |
Net change with respect to derivative instruments and hedging activities, net of tax of $56, $(33), $(34), and $243 | | (195 | ) | | 131 |
| | 133 |
| | (896 | ) |
Net change in pension and postretirement obligation adjustments, net of tax of $(232), $(79), $(323), and $(221) | | 777 |
| | 270 |
| | 1,207 |
| | 769 |
|
Attributable to unconsolidated affiliates, net of tax of $(159), $2,005, $(240), and $2,086 | | 547 |
| | (6,907 | ) | | 828 |
| | (7,187 | ) |
| | | | | | | | |
Total other comprehensive loss, net | | (5,563 | ) | | (5,395 | ) | | (1,444 | ) | | (12,848 | ) |
| | | | | | | | |
Consolidated comprehensive income | | 24,881 |
| | 15,468 |
| | 74,815 |
| | 66,241 |
|
Comprehensive income attributable to noncontrolling interests | | (857 | ) | | (34 | ) | | (2,044 | ) | | (1,097 | ) |
| | | | | | | | |
Comprehensive income attributable to Mueller Industries, Inc. | | $ | 24,024 |
| | $ | 15,434 |
| | $ | 72,771 |
| | $ | 65,144 |
|
See accompanying notes to condensed consolidated financial statements.
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) |
| | | | | | | | |
(In thousands, except share data) | | September 28, 2019 | | December 29, 2018 |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 100,338 |
| | $ | 72,616 |
|
Accounts receivable, less allowance for doubtful accounts of $757 in 2019 and $836 in 2018 | | 319,562 |
| | 273,417 |
|
Inventories | | 277,567 |
| | 329,795 |
|
Other current assets | | 33,242 |
| | 26,790 |
|
| | | | |
Total current assets | | 730,709 |
| | 702,618 |
|
| | | | |
Property, plant, and equipment, net | | 361,308 |
| | 370,633 |
|
Operating lease right-of-use assets | | 25,855 |
| | — |
|
Goodwill, net | | 152,445 |
| | 150,335 |
|
Intangible assets, net | | 60,609 |
| | 61,971 |
|
Investments in unconsolidated affiliates | | 46,369 |
| | 58,042 |
|
Other assets | | 25,470 |
| | 25,950 |
|
| | | | |
Total assets | | $ | 1,402,765 |
| | $ | 1,369,549 |
|
| | | | |
Liabilities | | |
| | |
|
Current liabilities: | | |
| | |
|
Current portion of debt | | $ | 7,387 |
| | $ | 7,101 |
|
Accounts payable | | 102,084 |
| | 103,754 |
|
Accrued wages and other employee costs | | 38,282 |
| | 38,549 |
|
Current portion of operating lease liabilities | | 3,832 |
| | — |
|
Other current liabilities | | 95,184 |
| | 83,397 |
|
| | | | |
Total current liabilities | | 246,769 |
| | 232,801 |
|
| | | | |
Long-term debt, less current portion | | 434,082 |
| | 489,597 |
|
Pension liabilities | | 12,783 |
| | 14,237 |
|
Postretirement benefits other than pensions | | 14,616 |
| | 14,818 |
|
Environmental reserves | | 19,774 |
| | 20,009 |
|
Deferred income taxes | | 17,260 |
| | 16,615 |
|
Noncurrent operating lease liabilities | | 22,712 |
| | — |
|
Other noncurrent liabilities | | 10,173 |
| | 18,212 |
|
| | | | |
Total liabilities | | 778,169 |
| | 806,289 |
|
| | | | |
Equity | | |
| | |
|
Mueller Industries, Inc. stockholders' equity: | | |
| | |
|
Preferred stock - $1.00 par value; shares authorized 5,000,000; none outstanding | | — |
| | — |
|
Common stock - $.01 par value; shares authorized 100,000,000; issued 80,183,004; outstanding 56,952,083 in 2019 and 56,702,997 in 2018 | | 802 |
| | 802 |
|
Additional paid-in capital | | 276,198 |
| | 276,849 |
|
Retained earnings | | 880,537 |
| | 824,737 |
|
Accumulated other comprehensive loss | | (79,823 | ) | | (79,792 | ) |
Treasury common stock, at cost | | (470,066 | ) | | (474,240 | ) |
| | | | |
Total Mueller Industries, Inc. stockholders' equity | | 607,648 |
| | 548,356 |
|
Noncontrolling interests | | 16,948 |
| | 14,904 |
|
| | | | |
Total equity | | 624,596 |
| | 563,260 |
|
| | | | |
Commitments and contingencies | | — |
| | — |
|
| | | | |
Total liabilities and equity | | $ | 1,402,765 |
| | $ | 1,369,549 |
|
See accompanying notes to condensed consolidated financial statements.
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) |
| | | | | | | | |
| | For the Nine Months Ended |
(In thousands) | | September 28, 2019 | | September 29, 2018 |
| | | | |
Cash flows from operating activities | | | | |
Consolidated net income | | $ | 76,259 |
| | $ | 79,089 |
|
Reconciliation of consolidated net income to net cash provided by operating activities: | | |
| | |
|
Depreciation and amortization | | 32,095 |
| | 29,320 |
|
Stock-based compensation expense | | 6,355 |
| | 5,953 |
|
Loss from unconsolidated affiliates | | 23,740 |
| | 13,568 |
|
Gain on disposals of properties | | (24 | ) | | (247 | ) |
Insurance recovery | | — |
| | (1,486 | ) |
Change in fair value of contingent consideration | | 4,500 |
| | — |
|
Deferred income tax benefit | | (1,593 | ) | | (1,502 | ) |
Changes in assets and liabilities, net of effects of business acquired: | | |
| | |
|
Receivables | | (47,433 | ) | | (42,201 | ) |
Inventories | | 50,985 |
| | 48,716 |
|
Other assets | | (7,485 | ) | | 11,250 |
|
Current liabilities | | 1,687 |
| | (7,947 | ) |
Other liabilities | | (7,112 | ) | | (13,862 | ) |
Other, net | | (47 | ) | | 1,864 |
|
| | | | |
Net cash provided by operating activities | | 131,927 |
| | 122,515 |
|
| | | | |
Cash flows from investing activities | | |
| | |
|
Capital expenditures | | (20,162 | ) | | (16,685 | ) |
Acquisition of business, net of cash acquired | | 3,465 |
| | (167,677 | ) |
Investments in unconsolidated affiliates | | (11,000 | ) | | (609 | ) |
Proceeds from sales of assets | | 385 |
| | 18,693 |
|
| | | | |
Net cash used in investing activities | | (27,312 | ) | | (166,278 | ) |
| | | | |
Cash flows from financing activities | | |
| | |
|
Dividends paid to stockholders of Mueller Industries, Inc. | | (16,738 | ) | | (17,051 | ) |
Dividends paid to noncontrolling interests | | — |
| | (592 | ) |
Repurchase of common stock | | (1,763 | ) | | (6,575 | ) |
Payment of contingent consideration | | (3,170 | ) | | — |
|
Issuance of long-term debt | | 100,658 |
| | 194,131 |
|
Repayments of long-term debt | | (151,305 | ) | | (139,518 | ) |
Repayment of debt by consolidated joint ventures, net | | (4,352 | ) | | (2,978 | ) |
Net cash used to settle stock-based awards | | (1,069 | ) | | (726 | ) |
| | | | |
Net cash (used in) provided by financing activities | | (77,739 | ) | | 26,691 |
|
| | | | |
Effect of exchange rate changes on cash | | (1,511 | ) | | (442 | ) |
| | | | |
Increase (decrease) in cash, cash equivalents, and restricted cash | | 25,365 |
| | (17,514 | ) |
Cash, cash equivalents, and restricted cash at the beginning of the period | | 77,138 |
| | 126,563 |
|
| | | | |
Cash, cash equivalents, and restricted cash at the end of the period | | $ | 102,503 |
| | $ | 109,049 |
|
See accompanying notes to condensed consolidated financial statements.
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
|
| | | | | | | | | | | | | | | | |
| | For the Quarter Ended | | For the Nine Months Ended |
(In thousands) | | September 28, 2019 | | September 29, 2018 | | September 28, 2019 | | September 29, 2018 |
| | | | | | | | |
Common stock: | | | | | | | | |
Balance at beginning of period | | $ | 802 |
| | $ | 802 |
| | $ | 802 |
| | $ | 802 |
|
| | | | | | | | |
Balance at end of period | | $ | 802 |
| | $ | 802 |
| | $ | 802 |
| | $ | 802 |
|
| | | | | | | | |
Additional paid-in capital: | | | | | | | | |
Balance at beginning of period | | $ | 280,626 |
| | $ | 277,987 |
| | $ | 276,849 |
| | $ | 274,585 |
|
Issuance of shares under incentive stock option plans | | (341 | ) | | (20 | ) | | (624 | ) | | (279 | ) |
Stock-based compensation expense | | 2,053 |
| | 2,047 |
| | 6,355 |
| | 5,953 |
|
Issuance of restricted stock | | (6,140 | ) | | (5,247 | ) | | (6,382 | ) | | (5,492 | ) |
| | | | | | | | |
Balance at end of period | | $ | 276,198 |
| | $ | 274,767 |
| | $ | 276,198 |
| | $ | 274,767 |
|
| | | | | | | | |
Retained earnings: | | | | | | | | |
Balance at beginning of period | | $ | 857,121 |
| | $ | 788,753 |
| | $ | 824,737 |
| | $ | 743,503 |
|
Net income attributable to Mueller Industries, Inc. | | 29,093 |
| | 20,292 |
| | 72,802 |
| | 77,602 |
|
Dividends paid or payable to stockholders of Mueller Industries, Inc. | | (5,677 | ) | | (5,758 | ) | | (17,002 | ) | | (17,262 | ) |
Reclassification of stranded effects of the Act | | — |
| | — |
| | — |
| | (556 | ) |
Other adjustments | | — |
| | 340 |
| | — |
| | 340 |
|
| | | | | | | | |
Balance at end of period | | $ | 880,537 |
| | $ | 803,627 |
| | $ | 880,537 |
| | $ | 803,627 |
|
| | | | | | | | |
Accumulated other comprehensive loss: | | | | | | | | |
Balance at beginning of period | | $ | (74,754 | ) | | $ | (58,101 | ) | | $ | (79,792 | ) | | $ | (51,056 | ) |
Total other comprehensive loss attributable to Mueller Industries, Inc. | | (5,069 | ) | | (4,856 | ) | | (31 | ) | | (12,457 | ) |
Reclassification of stranded effects of the Act | | — |
| | — |
| | — |
| | 556 |
|
| | | | | | | | |
Balance at end of period | | $ | (79,823 | ) | | $ | (62,957 | ) | | $ | (79,823 | ) | | $ | (62,957 | ) |
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
|
| | | | | | | | | | | | | | | | |
(In thousands) | | For the Quarter Ended | | For the Nine Months Ended |
| | September 28, 2019 | | September 29, 2018 | | September 28, 2019 | | September 29, 2018 |
| | | | | | | | |
Treasury stock: | | | | | | | | |
Balance at beginning of period | | $ | (475,524 | ) | | $ | (451,740 | ) | | $ | (474,240 | ) | | $ | (445,723 | ) |
Issuance of shares under incentive stock option plans | | (601 | ) | | 565 |
| | (445 | ) | | 1,136 |
|
Repurchase of common stock | | — |
| | (1,325 | ) | | (1,763 | ) | | (8,158 | ) |
Issuance of restricted stock | | 6,059 |
| | 5,247 |
| | 6,382 |
| | 5,492 |
|
| | | | | | | | |
Balance at end of period | | $ | (470,066 | ) | | $ | (447,253 | ) | | $ | (470,066 | ) | | $ | (447,253 | ) |
| | | | | | | | |
Noncontrolling interests: | | | | |
| | | | |
|
Balance at beginning of period | | $ | 16,091 |
| | $ | 14,388 |
| | $ | 14,904 |
| | $ | 13,917 |
|
Dividends paid to noncontrolling interests | | — |
| | — |
| | — |
| | (592 | ) |
Net income attributable to noncontrolling interests | | 1,351 |
| | 571 |
| | 3,457 |
| | 1,487 |
|
Foreign currency translation | | (494 | ) | | (537 | ) | | (1,413 | ) | | (390 | ) |
| | | | | | | | |
Balance at end of period | | $ | 16,948 |
| | $ | 14,422 |
| | $ | 16,948 |
| | $ | 14,422 |
|
See accompanying notes to condensed consolidated financial statements.
MUELLER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
General
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) have been condensed or omitted. Results of operations for the interim periods presented are not necessarily indicative of results which may be expected for any other interim period or for the year as a whole. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K, including the annual financial statements incorporated therein.
The accompanying unaudited interim financial statements include all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented herein.
Note 1 – Recent Accounting Standards
Adopted
In July 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-11, Leases (Topic 842): Targeted Improvements and ASU No. 2018-10, Codification Improvements to Topic 842, Leases. The ASUs clarify how to apply certain aspects of the new leasing standard, ASC 842. ASC 842 requires an entity to recognize a right-of-use asset and lease liability for each lease with a term of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a financing or operating lease. The guidance also requires certain quantitative and qualitative disclosures about leasing arrangements. The Company adopted the ASU during the first quarter of 2019 using a modified retrospective approach and applied the transition provisions at the beginning of the fiscal year. Financial results reported in periods prior to 2018 are unchanged. The Company elected a package of practical expedients, which, among other things, does not require the reassessment of lease classification. The Company does not separate lease and non-lease components of contracts. The Company implemented a system to identify its entire population of leases and tested the population for completeness. As of the effective date, the Company recognized noncurrent right-of-use assets of $29.5 million and corresponding current and noncurrent lease liabilities of $4.8 million and $25.4 million, respectively.
Issued
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. For employers that sponsor defined benefit pension and/or other postretirement benefit plans, the ASU eliminates requirements for certain disclosures that are no longer considered cost beneficial, requires new disclosures related to the weighted-average interest crediting rate for cash balance plans and explanations for significant gains and losses related to changes in benefit obligations, and clarifies the requirements for entities that provide aggregate disclosures for two or more plans. The ASU will be effective for the annual period beginning in 2020. The updated guidance requires retrospective adoption, and early adoption is permitted. The Company does not expect the adoption of the ASU to have a material impact on its Condensed Consolidated Financial Statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The ASU eliminates requirements to disclose the amount and reasons for transfers between level 1 and level 2 of the fair value hierarchy, but requires public companies to disclose changes in unrealized gains and losses for the period included in other comprehensive income (OCI) for recurring level 3 fair value measurements or instruments held at the end of the reporting period and the range and weighted average used to develop significant unobservable inputs for level 3 fair value measurements. The ASU will be effective for interim and annual periods beginning in 2020. An entity is permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements, and can elect to early adopt in interim periods. The guidance on changes in unrealized gains and losses for the period included in OCI for recurring level 3 measurements, the range and weighted average of significant unobservable inputs used to develop level 3 fair value measurements, and the narrative description of measurement uncertainty is applied prospectively. All other amendments should be applied retrospectively. The Company does not expect the adoption of the ASU to have a material impact on its Condensed Consolidated Financial Statements.
Note 2 – Earnings per Common Share
Basic per share amounts have been computed based on the average number of common shares outstanding. Diluted per share amounts reflect the increase in average common shares outstanding that would result from the assumed exercise of outstanding stock options and vesting of restricted stock awards, computed using the treasury stock method. Approximately 110 thousand and 79 thousand stock-based awards were excluded from the computation of diluted earnings per share for the quarters ended September 28, 2019 and September 29, 2018, respectively, because they were antidilutive.
Note 3 – Acquisitions
ATCO
On July 2, 2018, the Company entered into a stock purchase agreement pursuant to which the Company acquired all of the outstanding capital stock of ATCO Rubber Products, Inc. (ATCO) for approximately $158.1 million, net of working capital adjustments. The total purchase price consisted of $151.8 million in cash at closing and a contingent consideration arrangement which requires the Company to pay the former owner up to $12.0 million based on EBITDA growth of the acquired business. ATCO is an industry leader in the manufacturing and distribution of insulated HVAC flexible duct systems and will support the Company’s strategy to grow its Climate Products businesses to become a more valuable resource to its HVAC customers. The acquired business is reported in the Company’s Climate segment.
The fair value of the assets acquired totaled $137.9 million, consisting primarily of property, plant, and equipment of $83.1 million, inventories of $31.7 million, accounts receivable of $21.8 million, other current assets of $1.1 million, and other assets of $0.2 million. The fair value of the liabilities assumed totaled $20.4 million, consisting primarily of accounts payable of $8.1 million, other current liabilities of $10.2 million, and long-term debt of $2.1 million. Of the remaining purchase price, $17.2 million was allocated to tax-deductible goodwill and $23.4 million was allocated to intangible assets, including technology, customer relationships, trade names, and supply contracts. The valuation of the business has been finalized. Changes to the purchase price allocation from the amounts presented in the Company’s 2018 Annual Report on Form 10-K included the valuation of the contingent consideration, intangible assets, and working capital. These changes resulted in a net decrease to goodwill of $0.5 million.
ATCO had net sales of approximately $49.4 million and $144.8 million, respectively, for the quarter and nine months ended September 28, 2019.
The following table presents condensed pro forma consolidated results of operations as if the ATCO acquisition had occurred at the beginning of 2018. The pro forma information does not purport to be indicative of the results that would have been obtained if the operations had actually been combined during the periods presented and is not necessarily indicative of operating results to be expected in future periods. The most significant pro forma adjustments to the historical results of operations relate to the application of purchase accounting and the financing structure.
|
| | | | |
| | For the Nine Months Ended |
(In thousands, except per share data) | | September 29, 2018 |
| | |
Net sales | | $ | 2,036,367 |
|
Net income | | 84,823 |
|
| | |
Basic earnings per share | | $ | 1.49 |
|
Diluted earnings per share | | 1.48 |
|
Die-Mold
On March 31, 2018, the Company entered into a share purchase agreement pursuant to which the Company acquired all of the outstanding shares of Die-Mold Tool Limited (Die-Mold) for approximately $13.6 million, net of working capital adjustments. The total purchase price consisted of $12.4 million in cash at closing and a contingent consideration arrangement which requires the Company to pay the former owner up to $2.3 million based on EBITDA growth of the acquired business. Die-Mold, based out of Ontario, Canada, is a manufacturer of plastic PEX and other plumbing-related fittings and an integrated designer and manufacturer of plastic injection tooling. The business complements the Company’s existing businesses within the Piping Systems segment.
The fair value of the assets acquired totaled $7.1 million, consisting primarily of property, plant, and equipment of $3.3 million, inventories of $1.8 million, accounts receivable of $1.7 million, and other current assets of $0.3 million. The fair value of the liabilities assumed totaled $2.9 million, consisting primarily of accounts payable of $0.7 million, other current liabilities of $0.2 million, and deferred taxes of $2.0 million. Of the remaining purchase price, $9.4 million was allocated to non-deductible goodwill and intangible assets.
Note 4 – Segment Information
Each of the Company’s reportable segments is composed of certain operating segments that are aggregated primarily by the nature of products offered as follows:
Piping Systems
Piping Systems is composed of the following operating segments: Domestic Piping Systems Group, Great Lakes Copper, Heatlink Group, Die-Mold, European Operations, Trading Group, and Jungwoo-Mueller (the Company’s South Korean joint venture). The Domestic Piping Systems Group manufactures copper tube, fittings, and line sets. These products are manufactured in the U.S., sold in the U.S., and exported to markets worldwide. Outside the U.S., Great Lakes Copper manufactures copper tube and line sets in Canada and sells the products primarily in the U.S. and Canada. Heatlink Group produces a complete line of products for PEX plumbing and radiant systems in Canada and sells these products in Canada and the U.S. Die-Mold manufactures PEX and other plumbing-related fittings and plastic injection tooling in Canada and sells these products in Canada and the U.S. European Operations manufacture copper tube in the U.K. which is sold primarily in Europe. The Trading Group manufactures pipe nipples and resells brass and plastic plumbing valves, malleable iron fittings, faucets, and plumbing specialty products in the U.S. and Mexico. Jungwoo-Mueller manufactures copper-based joining products that are sold worldwide. The Piping Systems segment’s products are sold primarily to plumbing, refrigeration, and air-conditioning wholesalers, hardware wholesalers and co-ops, building product retailers, and air-conditioning original equipment manufacturers (OEMs).
Industrial Metals
Industrial Metals is composed of the following operating segments: Brass Rod & Copper Bar Products, Impacts & Micro Gauge, and Brass Value-Added Products. These businesses manufacture brass rod, impact extrusions, and forgings, as well as a wide variety of end products including plumbing brass, automotive components, valves, fittings, and gas assemblies. These products are manufactured in the U.S. and sold primarily to OEMs in the U.S., many of which are in the industrial, transportation, construction, heating, ventilation, and air-conditioning, plumbing, refrigeration, and energy markets.
Climate
Climate is composed of the following operating segments: Refrigeration Products, Fabricated Tube Products, Westermeyer, Turbotec, and ATCO. These domestic businesses manufacture and fabricate valves, assemblies, high pressure components, coaxial heat exchangers, and insulated HVAC flexible duct systems primarily for the heating, ventilation, air-conditioning, and refrigeration markets in the U.S.
Summarized segment information is as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended September 28, 2019 |
(In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
Net sales | | $ | 390,917 |
| | $ | 135,443 |
| | $ | 90,938 |
| | $ | (8,696 | ) | | $ | 608,602 |
|
| | | | | | | | | | |
Cost of goods sold | | 330,418 |
| | 117,893 |
| | 70,523 |
| | (8,046 | ) | | 510,788 |
|
Depreciation and amortization | | 5,751 |
| | 1,836 |
| | 2,491 |
| | 745 |
| | 10,823 |
|
Selling, general, and administrative expense | | 18,738 |
| | 3,115 |
| | 9,961 |
| | 8,925 |
| | 40,739 |
|
| | | | | | | | | | |
Operating income | | 36,010 |
| | 12,599 |
| | 7,963 |
| | (10,320 | ) | | 46,252 |
|
| | | | | | | | | | |
Interest expense | | |
| | |
| | |
| | |
| | (6,148 | ) |
Other income, net | | |
| | |
| | |
| | |
| | 533 |
|
| | | | | | | | | | |
Income before income taxes | | |
| | |
| | |
| | |
| | $ | 40,637 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended September 29, 2018 |
(In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
Net sales | | $ | 410,525 |
| | $ | 158,709 |
| | $ | 81,619 |
| | $ | (4,895 | ) | | $ | 645,958 |
|
| | | | | | | | | | |
Cost of goods sold | | 363,174 |
| | 141,435 |
| | 66,832 |
| | (4,485 | ) | | 566,956 |
|
Depreciation and amortization | | 5,946 |
| | 1,864 |
| | 2,123 |
| | 686 |
| | 10,619 |
|
Selling, general, and administrative expense | | 17,387 |
| | 3,086 |
| | 6,890 |
| | 11,526 |
| | 38,889 |
|
Gain on sale of assets | | (1,390 | ) | | (1,301 | ) | | — |
| | — |
| | (2,691 | ) |
Insurance recovery | | — |
| | (1,486 | ) | | — |
| | — |
| | (1,486 | ) |
| | | | | | | | | | |
Operating income | | 25,408 |
| | 15,111 |
| | 5,774 |
| | (12,622 | ) | | 33,671 |
|
| | | | | | | | | | |
Interest expense | | |
| | |
| | |
| | |
| | (6,746 | ) |
Other income, net | | |
| | |
| | |
| | |
| | 411 |
|
| | | | | | | | | | |
Income before income taxes | | |
| | |
| | |
| | |
| | $ | 27,336 |
|
Segment information (continued):
|
| | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 28, 2019 |
(In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
Net sales | | $ | 1,193,274 |
| | $ | 434,037 |
| | $ | 276,853 |
| | $ | (17,387 | ) | | $ | 1,886,777 |
|
| | | | | | | | | | |
Cost of goods sold | | 1,019,546 |
| | 372,542 |
| | 212,201 |
| | (18,160 | ) | | 1,586,129 |
|
Depreciation and amortization | | 16,953 |
| | 5,518 |
| | 6,932 |
| | 2,453 |
| | 31,856 |
|
Selling, general, and administrative expense | | 56,620 |
| | 9,280 |
| | 24,336 |
| | 31,602 |
| | 121,838 |
|
| | | | | |
|