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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 report ended September 25, 2021 |
| OR |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from ______ to ______ |
| Commission file number 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 15, 2021 was 57,366,709.
MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Quarterly Period Ended September 25, 2021
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 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 |
| | | | | | | | |
Net sales | | $ | 982,248 | | | $ | 619,105 | | | $ | 2,812,988 | | | $ | 1,722,192 | |
| | | | | | | | |
Cost of goods sold | | 744,265 | | | 500,780 | | | 2,212,395 | | | 1,412,654 | |
Depreciation and amortization | | 10,868 | | | 10,752 | | | 33,757 | | | 32,888 | |
Selling, general, and administrative expense | | 48,524 | | | 38,346 | | | 137,891 | | | 117,749 | |
Gain on sale of businesses | | (54,759) | | | — | | | (54,759) | | | — | |
| | | | | | | | |
| | | | | | | | |
Litigation settlement, net | | — | | | — | | | — | | | (21,933) | |
| | | | | | | | |
| | | | | | | | |
Operating income | | 233,350 | | | 69,227 | | | 483,704 | | | 180,834 | |
| | | | | | | | |
Interest expense | | (1,116) | | | (4,885) | | | (7,451) | | | (15,237) | |
Redemption premium | | — | | | — | | | (5,674) | | | — | |
Other (expense) income, net | | (2,548) | | | 522 | | | (1,288) | | | 3,634 | |
| | | | | | | | |
Income before income taxes | | 229,686 | | | 64,864 | | | 469,291 | | | 169,231 | |
| | | | | | | | |
Income tax expense | | (60,229) | | | (15,450) | | | (120,996) | | | (42,623) | |
Income (loss) from unconsolidated affiliates, net of foreign tax | | 2,799 | | | (5,457) | | | 131 | | | (20,213) | |
| | | | | | | | |
Consolidated net income | | 172,256 | | | 43,957 | | | 348,426 | | | 106,395 | |
| | | | | | | | |
Net income attributable to noncontrolling interests | | (1,276) | | | (1,255) | | | (5,507) | | | (3,322) | |
| | | | | | | | |
Net income attributable to Mueller Industries, Inc. | | $ | 170,980 | | | $ | 42,702 | | | $ | 342,919 | | | $ | 103,073 | |
| | | | | | | | |
Weighted average shares for basic earnings per share | | 56,077 | | | 55,816 | | | 55,979 | | | 55,805 | |
Effect of dilutive stock-based awards | | 731 | | | 550 | | | 784 | | | 534 | |
| | | | | | | | |
Adjusted weighted average shares for diluted earnings per share | | 56,808 | | | 56,366 | | | 56,763 | | | 56,339 | |
| | | | | | | | |
Basic earnings per share | | $ | 3.05 | | | $ | 0.77 | | | $ | 6.13 | | | $ | 1.85 | |
| | | | | | | | |
Diluted earnings per share | | $ | 3.01 | | | $ | 0.76 | | | $ | 6.04 | | | $ | 1.83 | |
| | | | | | | | |
Dividends per share | | $ | 0.13 | | | $ | 0.10 | | | $ | 0.39 | | | $ | 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 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 |
| | | | | | | | |
Consolidated net income | | $ | 172,256 | | | $ | 43,957 | | | $ | 348,426 | | | $ | 106,395 | |
| | | | | | | | |
Other comprehensive (loss) income, net of tax: | | | | | | | | |
Foreign currency translation | | (8,569) | | | 9,320 | | | (667) | | | (11,514) | |
Net change with respect to derivative instruments and hedging activities, net of tax of $(610), $(43), $204, and $(53) | | 2,122 | | | 151 | | | (722) | | | 192 | |
Net change in pension and postretirement obligation adjustments, net of tax of $(137), $92, $(80), and $224 | | 493 | | | (170) | | | 476 | | | (715) | |
Attributable to unconsolidated affiliates, net of tax of $(284), $(99), $(642), and $163 | | 977 | | | 339 | | | 2,211 | | | (564) | |
| | | | | | | | |
Total other comprehensive (loss) income, net | | (4,977) | | | 9,640 | | | 1,298 | | | (12,601) | |
| | | | | | | | |
Consolidated comprehensive income | | 167,279 | | | 53,597 | | | 349,724 | | | 93,794 | |
Comprehensive income attributable to noncontrolling interests | | (192) | | | (2,207) | | | (4,077) | | | (3,062) | |
| | | | | | | | |
Comprehensive income attributable to Mueller Industries, Inc. | | $ | 167,087 | | | $ | 51,390 | | | $ | 345,647 | | | $ | 90,732 | |
See accompanying notes to condensed consolidated financial statements.
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| | (Unaudited) | | |
(In thousands, except share data) | | September 25, 2021 | | December 26, 2020 |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 104,789 | | | $ | 119,075 | |
Accounts receivable, less allowance for doubtful accounts of $2,687 in 2021 and $1,538 in 2020 | | 493,960 | | | 357,532 | |
Inventories | | 405,590 | | | 315,002 | |
Other current assets | | 33,604 | | | 33,752 | |
| | | | |
Total current assets | | 1,037,943 | | | 825,361 | |
| | | | |
Property, plant, and equipment, net | | 370,222 | | | 376,572 | |
Operating lease right-of-use assets | | 24,147 | | | 29,301 | |
Goodwill, net | | 159,988 | | | 167,764 | |
Intangible assets, net | | 63,579 | | | 77,207 | |
Investments in unconsolidated affiliates | | 65,000 | | | 37,976 | |
Other assets | | 7,658 | | | 14,387 | |
| | | | |
Total assets | | $ | 1,728,537 | | | $ | 1,528,568 | |
| | | | |
Liabilities | | | | |
Current liabilities: | | | | |
Current portion of debt | | $ | 1,110 | | | $ | 41,283 | |
Accounts payable | | 180,509 | | | 147,741 | |
Accrued wages and other employee costs | | 49,932 | | | 46,299 | |
Current portion of operating lease liabilities | | 6,193 | | | 6,259 | |
Other current liabilities | | 142,354 | | | 98,061 | |
| | | | |
Total current liabilities | | 380,098 | | | 339,643 | |
| | | | |
Long-term debt, less current portion | | 121,012 | | | 286,593 | |
Pension liabilities | | 10,901 | | | 13,552 | |
Postretirement benefits other than pensions | | 13,231 | | | 13,289 | |
Environmental reserves | | 20,902 | | | 21,256 | |
Deferred income taxes | | 13,393 | | | 16,842 | |
Noncurrent operating lease liabilities | | 17,399 | | | 21,602 | |
Other noncurrent liabilities | | 25,369 | | | 14,731 | |
| | | | |
Total liabilities | | 602,305 | | | 727,508 | |
| | | | |
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 57,367,709 in 2021 and 57,087,432 in 2020 | | 802 | | | 802 | |
Additional paid-in capital | | 283,285 | | | 280,051 | |
Retained earnings | | 1,340,337 | | | 1,019,694 | |
Accumulated other comprehensive loss | | (52,155) | | | (54,883) | |
Treasury common stock, at cost | | (464,707) | | | (468,919) | |
| | | | |
Total Mueller Industries, Inc. stockholders' equity | | 1,107,562 | | | 776,745 | |
Noncontrolling interests | | 18,670 | | | 24,315 | |
| | | | |
Total equity | | 1,126,232 | | | 801,060 | |
| | | | |
Commitments and contingencies | | — | | | — | |
| | | | |
Total liabilities and equity | | $ | 1,728,537 | | | $ | 1,528,568 | |
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 25, 2021 | | September 26, 2020 |
| | | | |
Cash flows from operating activities | | | | |
Consolidated net income | | $ | 348,426 | | | $ | 106,395 | |
Reconciliation of consolidated net income to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 33,932 | | | 33,127 | |
Stock-based compensation expense | | 7,228 | | | 6,332 | |
Provision for doubtful accounts receivable | | 1,310 | | | 953 | |
(Income) loss from unconsolidated affiliates | | (131) | | | 20,213 | |
Redemption premium | | 5,674 | | | — | |
(Gain) loss on disposals of properties | | (1,135) | | | 144 | |
Gain on sale of businesses | | (54,759) | | | — | |
| | | | |
| | | | |
Impairment charges | | 2,568 | | | 3,035 | |
| | | | |
| | | | |
Deferred income tax expense (benefit) | | 6,304 | | | (836) | |
Changes in assets and liabilities, net of effects of businesses acquired and sold: | | | | |
Receivables | | (155,103) | | | (45,530) | |
Inventories | | (96,505) | | | 41,598 | |
Other assets | | (9,335) | | | 9,053 | |
Current liabilities | | 85,523 | | | 25,913 | |
Other liabilities | | 8,335 | | | (5,813) | |
Other, net | | (851) | | | 2,294 | |
| | | | |
Net cash provided by operating activities | | 181,481 | | | 196,878 | |
| | | | |
Cash flows from investing activities | | | | |
Capital expenditures | | (25,547) | | | (29,204) | |
Acquisition of businesses, net of cash acquired | | (13,935) | | | (72,648) | |
Proceeds from sale of businesses, net of cash sold | | 74,250 | | | — | |
Investments in unconsolidated affiliates | | (1,613) | | | — | |
Payment received for (issuance of) notes receivable | | 8,539 | | | (9,155) | |
Proceeds from sales of assets | | 2,124 | | | 12 | |
| | | | |
| | | | |
Net cash provided by (used in) investing activities | | 43,818 | | | (110,995) | |
| | | | |
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | | | | |
| | For the Nine Months Ended |
(In thousands) | | September 25, 2021 | | September 26, 2020 |
| | | | |
Cash flows from financing activities | | | | |
Dividends paid to stockholders of Mueller Industries, Inc. | | (21,846) | | | (16,754) | |
Dividends paid to noncontrolling interests | | (9,722) | | | — | |
Repurchase of common stock | | — | | | (5,574) | |
Payment of contingent consideration | | (1,250) | | | (7,000) | |
Issuance of debt | | 475,000 | | | 150,027 | |
Repayments of debt | | (680,572) | | | (186,492) | |
Repayment of debt by consolidated joint ventures, net | | (4,865) | | | (299) | |
Net cash received (used) to settle stock-based awards | | 219 | | | (160) | |
Debt issuance costs | | (1,111) | | — |
| | | | |
Net cash used in financing activities | | (244,147) | | | (66,252) | |
| | | | |
Effect of exchange rate changes on cash | | (377) | | | (3,294) | |
| | | | |
(Decrease) increase in cash, cash equivalents, and restricted cash | | (19,225) | | | 16,337 | |
Cash, cash equivalents, and restricted cash at the beginning of the period | | 127,376 | | | 98,042 | |
| | | | |
Cash, cash equivalents, and restricted cash at the end of the period | | $ | 108,151 | | | $ | 114,379 | |
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 Nine Months Ended |
(In thousands) | | September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 |
| | | | | | | | |
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 | | $ | 285,148 | | | $ | 281,856 | | | $ | 280,051 | | | $ | 278,609 | |
Acquisition (issuance) of shares under incentive stock option plans | | 163 | | | (229) | | | 728 | | | (896) | |
Stock-based compensation expense | | 2,411 | | | 2,134 | | | 7,228 | | | 6,332 | |
Issuance of restricted stock | | (4,437) | | | (6,098) | | | (4,722) | | | (6,382) | |
| | | | | | | | |
Balance at end of period | | $ | 283,285 | | | $ | 277,663 | | | $ | 283,285 | | | $ | 277,663 | |
| | | | | | | | |
Retained earnings: | | | | | | | | |
Balance at beginning of period | | $ | 1,176,812 | | | $ | 951,992 | | | $ | 1,019,694 | | | $ | 903,070 | |
Net income attributable to Mueller Industries, Inc. | | 170,980 | | | 42,702 | | | 342,919 | | | 103,073 | |
Dividends paid or payable to stockholders of Mueller Industries, Inc. | | (7,455) | | | (5,711) | | | (22,276) | | | (17,160) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Balance at end of period | | $ | 1,340,337 | | | $ | 988,983 | | | $ | 1,340,337 | | | $ | 988,983 | |
| | | | | | | | |
Accumulated other comprehensive loss: | | | | | | | | |
Balance at beginning of period | | $ | (48,262) | | | $ | (89,799) | | | $ | (54,883) | | | $ | (68,770) | |
Total other comprehensive (loss) income attributable to Mueller Industries, Inc. | | (3,893) | | | 8,688 | | | 2,728 | | | (12,341) | |
| | | | | | | | |
| | | | | | | | |
Balance at end of period | | $ | (52,155) | | | $ | (81,111) | | | $ | (52,155) | | | $ | (81,111) | |
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended | | For the Nine Months Ended |
(In thousands) | | September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 |
| | | | | | | | |
Treasury stock: | | | | | | | | |
Balance at beginning of period | | $ | (468,784) | | | $ | (474,170) | | | $ | (468,919) | | | $ | (470,243) | |
(Acquisition) issuance of shares under incentive stock option plans | | (360) | | | (644) | | | (484) | | | 719 | |
Repurchase of common stock | | — | | | — | | | (26) | | | (5,574) | |
Issuance of restricted stock | | 4,437 | | | 6,098 | | | 4,722 | | | 6,382 | |
| | | | | | | | |
Balance at end of period | | $ | (464,707) | | | $ | (468,716) | | | $ | (464,707) | | | $ | (468,716) | |
| | | | | | | | |
Noncontrolling interests: | | | | | | | | |
Balance at beginning of period | | $ | 28,200 | | | $ | 19,523 | | | $ | 24,315 | | | $ | 18,668 | |
Dividends paid to noncontrolling interests | | (9,722) | | | — | | | (9,722) | | | — | |
Net income attributable to noncontrolling interests | | 1,276 | | | 1,255 | | | 5,507 | | | 3,322 | |
Foreign currency translation | | (1,084) | | | 952 | | | (1,430) | | | (260) | |
| | | | | | | | |
Balance at end of period | | $ | 18,670 | | | $ | 21,730 | | | $ | 18,670 | | | $ | 21,730 | |
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. Certain prior year balances have been reclassified to conform to the current year presentation.
Note 1 – Recent Accounting Standards
Adopted
In October 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-10, Codification Improvements: An Amendment of the FASB Accounting Standards Codification. The ASU facilitates updates to the Accounting Standards Codification for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements. The Company adopted the ASU during the first quarter of 2021 using a retrospective approach. The adoption of the ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The new guidance addresses accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The Company adopted the ASU during the first quarter of 2021 using a prospective approach. The adoption of the ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes. The new guidance affects general principles within Topic 740, Income Taxes. The amendments of ASU 2019-12 are meant to simplify and reduce the cost of accounting for income taxes. The Company adopted the ASU during the first quarter of 2021 using a prospective approach. The adoption of the ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
Issued
In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): An Amendment of the FASB Accounting Standards Codification. The new guidance was issued in response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR). Regulators in numerous jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The ASU is effective in 2021 but can be applied through December 31, 2022. 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.
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 30 thousand and three thousand stock-based awards were excluded from the computation of diluted earnings per share for the quarters ended September 25, 2021 and September 26, 2020, respectively, because they were antidilutive.
Note 3 – Acquisitions and Dispositions
Acquisitions
H&C Flex
On December 20, 2020, the Company entered into an asset purchase agreement with Hart & Cooley LLC. The transaction closed on January 29, 2021, whereby the Company purchased the Hart & Cooley flexible duct business, which included inventory, manufacturing equipment, and related assets for approximately $15.3 million. The total purchase price consisted of $14.0 million in cash paid at closing and a contingent consideration arrangement of $1.3 million. The Company treated this as a business combination. The acquired business, H&C Flex, is a manufacturer and distributor of insulated HVAC flexible duct systems. It is reported within and complements the Company’s existing businesses in the Climate segment.
As of September 25, 2021, the provisional fair value of tangible assets acquired totaled $15.3 million, consisting primarily of property, plant, and equipment of $10.8 million and inventory of $4.5 million. Of the remaining purchase price, $0.1 million was allocated to tax-deductible goodwill. During the second quarter of 2021, there was a change in the valuation that resulted in an increase in property, plant, and equipment of $2.4 million, a decrease in goodwill of $1.0 million, and the recognition of contingent consideration of $1.4 million. The purchase price allocation is provisional as of September 25, 2021 and subject to change upon completion of the final valuation of the assets and contingent consideration during the measurement period.
Kessler Sales and Distribution, LLC
On August 3, 2020, the Company entered into an asset purchase agreement with Wieland-Kessler LLC, whereby the Company purchased the Kessler distribution business, which included inventory, manufacturing equipment, and related assets. The total purchase price was $57.2 million in cash paid at closing. The Company treated this as a business combination. The acquired business, Kessler Sales and Distribution, LLC, is a distributor of residential and commercial plumbing products. It is reported within and complements the Company’s existing businesses in the Piping Systems segment.
The fair value of tangible assets acquired totaled $27.3 million, consisting primarily of inventory. Of the remaining purchase price, $29.9 million was allocated to tax-deductible goodwill and intangible assets. During the second quarter of 2021, there was a change in the valuation that resulted in a decrease in property, plant, and equipment and an increase in goodwill of $1.4 million. During the first quarter of 2021, there was a change in the valuation that resulted in a decrease in goodwill and an increase in intangible assets of $1.5 million. The valuation of the business has been finalized as of September 25, 2021.
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 $15.3 million, net of working capital adjustments. The total purchase price consisted of $15.3 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, $9.3 million was allocated to tax-deductible goodwill and intangible assets. The valuation of the business has been finalized. There were no material changes to the purchase price allocation from the amounts presented in the Company’s 2020 Annual Report on Form 10-K.
Dispositions
Die-Mold
On September 2, 2021, the Company entered into a contribution agreement with a limited liability company in the retail distribution business, pursuant to which the Company exchanged the outstanding common stock of Die-Mold for a 17 percent equity interest in the limited liability company. 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. and was included in the Piping Systems Segment. Die-Mold reported net sales of $10.9 million and net income of $1.6 million for the first nine months of 2021 compared to net sales of $10.4 million and net income of $1.4 million in the first nine months of 2020. As a result of the transaction, the Company recognized a gain of $4.7 million based on the excess of the fair value of the consideration received (the 17 percent equity interest) over the carrying value of Die-Mold. The Company utilized a market comparable companies approach using an
EBITDA multiple to determine the fair value of the consideration received of $24.0 million, which is recognized within the Investments in unconsolidated affiliates line of the Condensed Consolidated Balance Sheet. The excess of the fair value of the deconsolidated subsidiary over its carrying value resulted in the gain.
Fabricated Tube Products and Shoals Tubular, Inc.
On July 28, 2021, the Company entered into a purchase agreement with J.W. Harris Co., Inc. and Lincoln Electric Holdings, Inc., pursuant to which the Company sold the assets of Fabricated Tube Products (FTP) and all of the outstanding stock of STI for approximately $78.2 million. These businesses manufacture and fabricate valves and assemblies, brazed manifolds, headers, and distributor assemblies used primarily by manufacturers of residential heating and air conditioning units in the U.S. and were included in the Climate segment. They reported combined net sales of $37.0 million and net income of $5.5 million in the first nine months of 2021 compared to combined net sales of $38.3 million and net income of $4.8 million in the first nine months of 2020. The carrying value of the assets disposed totaled $31.7 million, consisting primarily of accounts receivable, inventories, and long-lived assets. The carrying value of the liabilities disposed totaled $3.6 million, consisting primarily of accounts payable. As a result of the transaction, the Company recognized a pre-tax gain of $50.1 million on the sale of these businesses in the Condensed Consolidating Financial Statements.
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, European Operations, Trading Group, and Jungwoo-Mueller (the Company’s South Korean joint venture). The Domestic Piping Systems Group manufactures and distributes 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. European Operations manufactures 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, Westermeyer, Turbotec, Flex Duct, and Linesets, Inc. These domestic businesses manufacture high pressure components, coaxial heat exchangers, insulated HVAC flexible duct systems, and line sets 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 25, 2021 |
(In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
Net sales | | $ | 688,200 | | | $ | 182,245 | | | $ | 122,252 | | | $ | (10,449) | | | $ | 982,248 | |
| | | | | | | | | | |
Cost of goods sold | | 506,703 | | | 158,822 | | | 89,175 | | | (10,435) | | | 744,265 | |
Depreciation and amortization | | 5,547 | | | 1,661 | | | 2,484 | | | 1,176 | | | 10,868 | |
Selling, general, and administrative expense | | 23,751 | | | 2,710 | | | 9,521 | | | 12,542 | | | 48,524 | |
Gain on sale of businesses | | — | | | — | | | — | | | (54,759) | | | (54,759) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Operating income | | 152,199 | | | 19,052 | | | 21,072 | | | 41,027 | | | 233,350 | |
| | | | | | | | | | |
Interest expense | | | | | | | | | | (1,116) | |
| | | | | | | | | | |
Other (expense) income, net | | | | | | | | | | (2,548) | |
| | | | | | | | | | |
Income before income taxes | | | | | | | | | | $ | 229,686 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended September 26, 2020 |
(In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
Net sales | | $ | 409,414 | | | $ | 118,831 | | | $ | 97,604 | | | $ | (6,744) | | | $ | 619,105 | |
| | | | | | | | | | |
Cost of goods sold | | 339,904 | | | 95,717 | | | 70,450 | | | (5,291) | | | 500,780 | |
Depreciation and amortization | | 5,362 | | | 1,774 | | | 2,547 | | | 1,069 | | | 10,752 | |
Selling, general, and administrative expense | | 19,285 | | | 2,992 | | | 6,451 | | | 9,618 | | | 38,346 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Operating income | | 44,863 | | | 18,348 | | | 18,156 | | | (12,140) | | | 69,227 | |
| | | | | | | | | | |
Interest expense | | | | | | | | | | (4,885) | |
Other income, net | | | | | | | | | | 522 | |
| | | | | | | | | | |
Income before income taxes | | | | | | | | | | $ | 64,864 | |
Segment information (continued):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 25, 2021 |
(In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
Net sales | | $ | 1,947,564 | | | $ | 527,137 | | | $ | 364,986 | | | $ | (26,699) | | | $ | 2,812,988 | |
| | | | | | | | | | |
Cost of goods sold | | 1,515,335 | | | 455,112 | | | 269,560 | | | (27,612) | | | 2,212,395 | |
Depreciation and amortization | | 17,272 | | | 5,098 | | | 7,866 | | | 3,521 | | | 33,757 | |
Selling, general, and administrative expense | | 71,152 | | | 8,529 | | | 23,781 | | | 34,429 | | | 137,891 | |
Gain on sale of businesses | | — | | | — | | | — | | | (54,759) | | | (54,759) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Operating income | | 343,805 | | | 58,398 | | | 63,779 | | | 17,722 | | | 483,704 | |
| | | | | | | | | | |
Interest expense | | | | | | | | | | (7,451) | |
Redemption premium | | | | | | | | | | (5,674) | |
Other income, net | | | | | | | | | | (1,288) | |
| | | | | | | | | | |
Income before income taxes | | | | | | | | | | $ | 469,291 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 26, 2020 |
( In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
Net sales | | $ | 1,128,467 | | | $ | 338,652 | | | $ | 276,983 | | | $ | (21,910) | | | $ | 1,722,192 | |
| | | | | | | | | | |
Cost of goods sold | | 931,339 | | | 285,788 | | | 206,083 | | | (10,556) | | | 1,412,654 | |
Depreciation and amortization | | 16,517 | | | 5,771 | | | 7,770 | | | 2,830 | | | 32,888 | |
Selling, general, and administrative expense | | 57,998 | | | 8,690 | | | 19,607 | | | 31,454 | | | 117,749 | |
| | | | | | | | | | |
Litigation settlement, net | | — | | | — | | | — | | | (21,933) | | | (21,933) | |
| | | | | | | | | | |
| | | | | | | | | | |
Operating income | | 122,613 | | | 38,403 | | | 43,523 | | | (23,705) | | | 180,834 | |
| | | | | | | | | | |
Interest expense | | | | | | | | | | (15,237) | |
Other income, net | | | | | | | | | | 3,634 | |
| | | | | | | | | | |
Income before income taxes | | | | | | | | | | $ | 169,231 | |
The following table presents total assets attributable to each segment:
| | | | | | | | | | | | | | |
(In thousands) | | September 25, 2021 | | December 26, 2020 |
| | | | |
Segment assets: | | | | |
Piping Systems | | $ | 1,142,523 | | | $ | 977,937 | |
Industrial Metals | | 186,040 | | | 152,683 | |
Climate | | 244,603 | | | 258,668 | |
General Corporate | | 155,371 | | | 139,280 | |
| | | | |
| | $ | 1,728,537 | | | $ | 1,528,568 | |
The following tables represent a disaggregation of revenue from contracts with customers, along with the reportable segment for each category:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended September 25, 2021 |
(In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Total |
| | | | | | | | |
Tube and fittings | | $ | 555,161 | | | $ | — | | | $ | — | | | $ | 555,161 | |
Brass rod and forgings | | — | | | 143,788 | | | — | | | 143,788 | |
OEM components, tube & assemblies | | 6,943 | | | 12,076 | | | 29,627 | | | 48,646 | |
Valves and plumbing specialties | | 126,096 | | | — | | | — | | | 126,096 | |
|