mli-20200627

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			June 27, 2020			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 July 17, 2020 was 56,791,916.

MUELLER INDUSTRIES, INC.

FORM 10-Q

For the Quarterly Period Ended June 27, 2020

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


		Page Number
Part I. Financial Information

	Item 1. – Financial Statements (Unaudited)

	a.) Condensed Consolidated Statements of Income	3

	b.) Condensed Consolidated Statements of Comprehensive Income	4

	c.) Condensed Consolidated Balance Sheets	5

	d.) Condensed Consolidated Statements of Cash Flows	6

	e.) Condensed Consolidated Statements of Changes in Equity	7

	f.) Notes to Condensed Consolidated Financial Statements	9

	Item 2. – Management's Discussion and Analysis of Financial Condition and Results of Operations	24

	Item 3. – Quantitative and Qualitative Disclosures About Market Risk	34

	Item 4. – Controls and Procedures	35

Part II. Other Information

	Item 1. – Legal Proceedings	35

	Item 1A – Risk Factors	36

	Item 2. – Unregistered Sales of Equity Securities and Use of Proceeds	37

	Item 6. – Exhibits	38

Signatures			39

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	For the Quarter Ended						For the Six Months Ended
(In thousands, except per share data)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019

Net sales	$	500,168	$	666,394	$	1,103,087	$	1,278,175

Cost of goods sold	403,159		563,948		911,874		1,075,341
Depreciation and amortization	11,097		10,478		22,136		21,033
Selling, general, and administrative expense	33,616		40,446		76,368		81,099
Asset impairments	—		—		3,035		—
Litigation settlement, net	—		—		(21,933)		—


Operating income	52,296		51,522		111,607		100,702

Interest expense	(4,973)		(7,033)		(10,352)		(13,987)
Other income, net	2,834		462		3,112		290

Income before income taxes	50,157		44,951		104,367		87,005

Income tax expense	(13,029)		(10,432)		(27,173)		(19,978)
Loss from unconsolidated affiliates, net of foreign tax	(8,641)		(5,843)		(14,756)		(21,212)

Consolidated net income	28,487		28,676		62,438		45,815

Net income attributable to noncontrolling interests	(531)		(690)		(2,067)		(2,106)

Net income attributable to Mueller Industries, Inc.	$	27,956	$	27,986	$	60,371	$	43,709

Weighted average shares for basic earnings per share	55,723		55,753		55,799		55,741
Effect of dilutive stock-based awards	471		561		527		543

Adjusted weighted average shares for diluted earnings per share	56,194		56,314		56,326		56,284

Basic earnings per share	$	0.50	$	0.50	$	1.08	$	0.78

Diluted earnings per share	$	0.50	$	0.50	$	1.07	$	0.78

Dividends per share	$	0.10	$	0.10	$	0.20	$	0.20

See accompanying notes to condensed consolidated financial statements.

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	For the Quarter Ended						For the Six Months Ended
(In thousands)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019

Consolidated net income	$	28,487	$	28,676	$	62,438	$	45,815

Other comprehensive (loss) income, net of tax:
Foreign currency translation	421		(2,977)		(20,834)		3,080
Net change with respect to derivative instruments and hedging activities, net of tax of $(970), $253, $(10), and $(90)	3,398		(929)		41		328
Net change in pension and postretirement obligation adjustments, net of tax of $375, $(198), $132, and $(91)	(1,284)		676		(545)		430
Attributable to unconsolidated affiliates, net of tax of $810, $(68), $262, and $(81)	(2,790)		234		(903)		281

Total other comprehensive (loss) income, net	(255)		(2,996)		(22,241)		4,119

Consolidated comprehensive income	28,232		25,680		40,197		49,934
Comprehensive loss (income) attributable to noncontrolling interests	90		433		(855)		(1,187)

Comprehensive income attributable to Mueller Industries, Inc.	$	28,322	$	26,113	$	39,342	$	48,747

See accompanying notes to condensed consolidated financial statements.

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	(Unaudited)
(In thousands, except share data)	June 27, 2020		December 28, 2019
Assets
Current assets:
Cash and cash equivalents	$	123,610	$	97,944
Accounts receivable, less allowance for doubtful accounts of $2,205 in 2020 and $770 in 2019	273,710		269,943
Inventories	244,414		292,107
Other current assets	28,957		33,778

Total current assets	670,691		693,772

Property, plant, and equipment, net	362,785		363,128
Operating lease right-of-use assets	17,172		26,922
Goodwill, net	153,335		153,276
Intangible assets, net	63,004		60,082
Investments in unconsolidated affiliates	32,443		48,363
Other assets	23,960		25,397

Total assets	$	1,323,390	$	1,370,940

Liabilities
Current liabilities:
Current portion of debt	$	6,543	$	7,530
Accounts payable	93,579		85,644
Accrued wages and other employee costs	40,409		41,673
Current portion of operating lease liabilities	4,623		5,250
Other current liabilities	84,110		94,190

Total current liabilities	229,264		234,287

Long-term debt, less current portion	323,114		378,724
Pension liabilities	5,819		9,126
Postretirement benefits other than pensions	12,179		13,082
Environmental reserves	19,776		19,972
Deferred income taxes	19,635		21,094
Noncurrent operating lease liabilities	13,009		22,388
Other noncurrent liabilities	10,390		10,131

Total liabilities	633,186		708,804

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 56,791,916 in 2020 and 56,949,246 in 2019	802		802
Additional paid-in capital	281,856		278,609
Retained earnings	951,992		903,070
Accumulated other comprehensive loss	(89,799)		(68,770)
Treasury common stock, at cost	(474,170)		(470,243)

Total Mueller Industries, Inc. stockholders' equity	670,681		643,468
Noncontrolling interests	19,523		18,668

Total equity	690,204		662,136

Commitments and contingencies	—		—

Total liabilities and equity	$	1,323,390	$	1,370,940

See accompanying notes to condensed consolidated financial statements.

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Six Months Ended
(In thousands)	June 27, 2020		June 29, 2019

Cash flows from operating activities
Consolidated net income	$	62,438	$	45,815
Reconciliation of consolidated net income to net cash provided by operating activities:
Depreciation and amortization	22,296		21,192
Stock-based compensation expense	4,198		4,302
Provision for doubtful accounts receivable	1,850		(100)
Loss from unconsolidated affiliates	14,756		21,212

Gain on disposals of properties	(9)		(37)

Impairment charges	3,035		—


Deferred income tax expense (benefit)	764		(67)
Changes in assets and liabilities, net of effects of business acquired:
Receivables	(11,212)		(42,045)
Inventories	43,263		30,080
Other assets	3,967		(4,617)
Current liabilities	(277)		(9,735)
Other liabilities	(5,369)		(1,485)
Other, net	3,082		(532)

Net cash provided by operating activities	142,782		63,983

Cash flows from investing activities
Capital expenditures	(22,215)		(13,034)
Acquisition of business, net of cash acquired	(15,415)		3,465

Investments in unconsolidated affiliates	—		(10,500)
Proceeds from sales of assets	1		351


Net cash used in investing activities	(37,629)		(19,718)

Cash flows from financing activities
Dividends paid to stockholders of Mueller Industries, Inc.	(11,168)		(11,151)

Repurchase of common stock	(5,574)		(1,763)

Issuance of long-term debt	110,015		100,638
Repayments of long-term debt	(166,021)		(110,914)
Repayment of debt by consolidated joint ventures, net	(471)		(4,132)
Net cash received (used) to settle stock-based awards	696		(127)

Net cash used in financing activities	(72,523)		(27,449)

Effect of exchange rate changes on cash	(6,160)		118

Increase in cash, cash equivalents, and restricted cash	26,470		16,934
Cash, cash equivalents, and restricted cash at the beginning of the period	98,042		77,138

Cash, cash equivalents, and restricted cash at the end of the period	$	124,512	$	94,072

See accompanying notes to condensed consolidated financial statements.

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


	For the Quarter Ended						For the Six Months Ended
(In thousands)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019

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	$	280,197	$	278,800	$	278,609	$	276,849
Issuance of shares under incentive stock option plans	(270)		(227)		(667)		(283)
Stock-based compensation expense	2,213		2,295		4,198		4,302
Issuance of restricted stock	(284)		(242)		(284)		(242)

Balance at end of period	$	281,856	$	280,626	$	281,856	$	280,626

Retained earnings:
Balance at beginning of period	$	929,810	$	834,798	$	903,070	$	824,737
Net income attributable to Mueller Industries, Inc.	27,956		27,986		60,371		43,709
Dividends paid or payable to stockholders of Mueller Industries, Inc.	(5,774)		(5,663)		(11,449)		(11,325)



Balance at end of period	$	951,992	$	857,121	$	951,992	$	857,121

Accumulated other comprehensive loss:
Balance at beginning of period	$	(90,165)	$	(72,881)	$	(68,770)	$	(79,792)
Total other comprehensive income (loss) attributable to Mueller Industries, Inc.	366		(1,873)		(21,029)		5,038


Balance at end of period	$	(89,799)	$	(74,754)	$	(89,799)	$	(74,754)

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


(In thousands)	For the Quarter Ended						For the Six Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019

Treasury stock:
Balance at beginning of period	$	(474,957)	$	(476,121)	$	(470,243)	$	(474,240)
Issuance of shares under incentive stock option plans	503		274		1,363		156
Repurchase of common stock	—		—		(5,574)		(1,763)
Issuance of restricted stock	284		323		284		323

Balance at end of period	$	(474,170)	$	(475,524)	$	(474,170)	$	(475,524)

Noncontrolling interests:
Balance at beginning of period	$	19,613	$	16,524	$	18,668	$	14,904

Net income attributable to noncontrolling interests	531		690		2,067		2,106
Foreign currency translation	(621)		(1,123)		(1,212)		(919)

Balance at end of period	$	19,523	$	16,091	$	19,523	$	16,091

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 June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Disclosure Framework- Measurement of Credit Losses on Financial Instruments. The ASU significantly changes the current incurred credit loss model under U.S. GAAP, which delays the recognition of credit losses until it is probable a loss has been incurred, to a current expected credit losses model which requires immediate recognition of management estimates of credit losses. The Company adopted the ASU during the first quarter of 2020 using a retrospective approach. The adoption of the ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

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 Company adopted the ASU during the first quarter of 2020 using a retrospective approach. The adoption of the ASU did not have a material impact on the Company’s 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 Company adopted the ASU during the first quarter of 2020. 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 are applied retrospectively. The adoption of the ASU did not have a material impact on the Company’s 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 eight thousand and nine thousand stock-based awards were excluded from the computation of diluted earnings per share for the quarters ended June 27, 2020 and June 29, 2019, respectively, because they were antidilutive.

Note 3 – Acquisitions

Shoals Tubular, Inc.

On January 17, 2020, the Company entered into a stock purchase agreement pursuant to which the Company acquired all of the outstanding stock of Shoals Tubular, Inc. (STI) for approximately $15.4 million, net of working capital adjustments. The total purchase price consisted of $15.4 million in cash at closing. STI is a manufacturer of brazed manifolds, headers, and distributor assemblies used primarily by manufacturers of residential heating and air conditioning units. The acquired business is reported within and complements the Company’s existing businesses in the Climate segment.

The fair value of the tangible assets acquired totaled $6.2 million, consisting primarily of property, plant, and equipment of $3.7 million, inventories of $1.8 million, and accounts receivable of $0.7 million. The fair value of the liabilities assumed totaled $0.2 million, consisting primarily of accounts payable. Of the remaining purchase price, $9.4 million was allocated to tax-deductible goodwill and intangible assets. The purchase price allocation is provisional as of June 27, 2020 and subject to change upon completion of the final valuation of the long-lived assets and working capital during the measurement period.

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, ATCO, Linesets, Inc., and STI. These domestic businesses manufacture and fabricate valves, assemblies, high pressure components, coaxial heat exchangers, insulated HVAC flexible duct systems, line sets, brazed manifolds, headers, and distributor assemblies primarily for the heating, ventilation, air-conditioning, and refrigeration markets in the U.S.

Summarized segment information is as follows:


	For the Quarter Ended June 27, 2020
(In thousands)	Piping Systems		Industrial Metals		Climate		Corporate and Eliminations		Total

Net sales	$	334,040	$	88,619	$	86,107	$	(8,598)	$	500,168

Cost of goods sold	272,271		75,274		64,540		(8,926)		403,159
Depreciation and amortization	5,456		1,995		2,757		889		11,097
Selling, general, and administrative expense	15,239		2,477		6,457		9,443		33,616




Operating income	41,074		8,873		12,353		(10,004)		52,296

Interest expense									(4,973)
Other income, net									2,834

Income before income taxes									$	50,157


	For the Quarter Ended June 29, 2019
(In thousands)	Piping Systems		Industrial Metals		Climate		Corporate and Eliminations		Total

Net sales	$	425,865	$	147,719	$	96,081	$	(3,271)	$	666,394

Cost of goods sold	364,332		127,950		74,849		(3,183)		563,948
Depreciation and amortization	5,652		1,838		2,128		860		10,478
Selling, general, and administrative expense	19,985		3,020		6,069		11,372		40,446




Operating income	35,896		14,911		13,035		(12,320)		51,522

Interest expense									(7,033)
Other income, net									462

Income before income taxes									$	44,951