Company Quick10K Filing
Mueller Industries
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 57 $1,632
10-Q 2019-10-23 Quarter: 2019-09-28
10-Q 2019-07-24 Quarter: 2019-06-29
10-Q 2019-04-24 Quarter: 2019-03-30
10-K 2019-02-27 Annual: 2018-12-29
10-Q 2018-10-24 Quarter: 2018-09-29
10-Q 2018-07-24 Quarter: 2018-06-30
10-Q 2018-04-25 Quarter: 2018-03-31
10-K 2018-02-28 Annual: 2017-12-30
10-Q 2017-10-25 Quarter: 2017-09-30
10-Q 2017-07-26 Quarter: 2017-07-01
10-Q 2017-04-26 Quarter: 2017-04-01
10-K 2017-03-01 Annual: 2016-12-31
10-Q 2016-10-27 Quarter: 2016-10-01
10-Q 2016-07-28 Quarter: 2016-07-02
10-Q 2016-04-27 Quarter: 2016-04-02
10-K 2016-02-24 Annual: 2016-02-24
10-Q 2015-10-21 Quarter: 2015-09-26
10-Q 2015-07-22 Quarter: 2015-06-27
10-Q 2015-04-23 Quarter: 2015-03-28
10-K 2015-02-24 Annual: 2014-12-27
10-Q 2014-10-24 Quarter: 2014-09-27
10-Q 2014-07-25 Quarter: 2014-06-28
10-Q 2014-04-25 Quarter: 2014-03-29
10-K 2014-02-26 Annual: 2013-12-28
10-Q 2013-10-28 Quarter: 2013-09-28
10-Q 2013-07-26 Quarter: 2013-06-29
10-Q 2013-04-26 Quarter: 2013-03-30
10-K 2013-02-27 Annual: 2012-12-29
10-Q 2012-10-26 Quarter: 2012-09-29
10-Q 2012-07-27 Quarter: 2012-06-30
10-Q 2012-04-27 Quarter: 2012-03-31
10-K 2012-02-28 Annual: 2011-12-31
10-Q 2011-10-27 Quarter: 2011-10-01
10-Q 2011-07-28 Quarter: 2011-07-02
10-Q 2011-04-28 Quarter: 2011-04-02
10-K 2011-02-22 Annual: 2010-12-25
10-Q 2010-10-21 Quarter: 2010-09-25
10-Q 2010-07-23 Quarter: 2010-06-26
10-Q 2010-04-21 Quarter: 2010-03-27
10-K 2010-02-23 Annual: 2009-12-26
8-K 2019-11-08 Other Events, Exhibits
8-K 2019-10-22
8-K 2019-08-02 Officers, Other Events, Exhibits
8-K 2019-07-23 Earnings, Exhibits
8-K 2019-05-02 Officers, Shareholder Vote, Other Events, Exhibits
8-K 2019-04-23 Earnings, Exhibits
8-K 2019-03-28 Regulation FD, Exhibits
8-K 2019-02-25 Other Events, Exhibits
8-K 2019-02-05 Earnings, Exhibits
8-K 2018-11-21 Officers
8-K 2018-11-09 Other Events, Exhibits
8-K 2018-10-23 Earnings, Exhibits
8-K 2018-08-06 Other Events, Exhibits
8-K 2018-08-02 Other Events, Exhibits
8-K 2018-07-24 Earnings, Exhibits
8-K 2018-07-02 Enter Agreement, Other Events, Exhibits
8-K 2018-05-03 Shareholder Vote, Other Events, Exhibits
8-K 2018-04-24 Earnings, Exhibits
8-K 2018-03-29 Regulation FD, Exhibits
8-K 2018-03-15 Officers, Exhibits
8-K 2018-02-26 Other Events, Exhibits
8-K 2018-02-06 Earnings, Exhibits
MLI 2019-09-28
Part I. Financial Information
Item 1. Financial Statements
Note 1 - Recent Accounting Standards
Note 2 - Earnings per Common Share
Note 3 - Acquisitions
Note 4 - Segment Information
Note 5 - Cash, Cash Equivalents, and Restricted Cash
Note 6 - Inventories
Note 7 - Financial Instruments
Note 8 - Leases
Note 9 - Investments in Unconsolidated Affiliates
Note 10 - Benefit Plans
Note 11 - Commitments and Contingencies
Note 12 - Income Taxes
Note 13 - Accumulated Other Comprehensive Income (Loss)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 q32019exhibit311.htm
EX-31.2 q32019exhibit312.htm
EX-32.1 q32019exhibit321.htm
EX-32.2 q32019exhibit322.htm

Mueller Industries Earnings 2019-09-28

MLI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
MDR 1,651 9,998 9,204 8,710 512 -2,925 -2,492 3,101 6% -1.2 -29%
MLI 1,632 1,417 813 2,483 367 94 195 2,017 15% 10.4 7%
DRQ 1,585 1,202 105 389 111 -90 -73 1,162 29% -15.9 -7%
DNOW 1,583 1,849 585 3,147 636 68 113 1,565 20% 13.8 4%
KALU 1,570 1,422 676 1,555 296 99 188 1,804 19% 9.6 7%
MWA 1,527 1,293 726 955 318 49 116 1,839 33% 15.9 4%
SNHY 1,431 1,060 502 565 217 62 131 1,764 38% 13.4 6%
NPO 1,353 1,725 849 1,517 476 39 153 1,669 31% 10.9 2%
MINI 1,338 2,093 1,274 610 0 64 191 2,228 0% 11.6 3%
WIRE 1,197 854 102 1,312 195 80 121 1,012 15% 8.4 9%

Document
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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
mlilogocoppera01.jpg
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
 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



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.



3



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.





4



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.

5


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.

6


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
)

7


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.


8



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.


9



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




10



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.


11



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