<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended April 4, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 333-29141
MMI PRODUCTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 74-1622891
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
515 West Greens Road, Suite 710
Houston, Texas 77067
(Address of Principal Executive Offices)
(281) 876-0080
(Registrant's telephone number, including area code)
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 [X] No [ ]
There were 252,000 shares of the Registrant's Class A Common Stock
outstanding as of the close of business on May 13, 1998,
all of which are held by Merchants Metals Holding Company.
<PAGE> 2
MMI PRODUCTS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL STATEMENTS AND NOTES NUMBER
------
<S> <C>
Item 1. Financial Statements and Notes 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
<PAGE> 3
Item 1. CONDENSED FINANCIAL STATEMENTS AND NOTES
MMI PRODUCTS, INC.
BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
April 4, January 3,
1998 1998
-------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,426 $ 3,509
Accounts receivable, net of allowance for doubtful
accounts of $1,961 and $1,876, respectively 50,918 38,940
Inventories 66,900 48,938
Income tax receivable 1,610 1,710
Prepaid expenses and other current assets 2,668 2,384
-------- ---------
Total current assets 124,522 95,481
Property, plant and equipment
Land 4,814 4,814
Buildings and improvements 17,215 16,473
Machinery and equipment 56,185 50,343
Rental equipment 1,364 -
-------- ---------
79,578 71,630
Less accumulated depreciation 27,058 25,712
-------- ---------
Property, plant and equipment, net 52,520 45,918
Intangibles assets 18,125 5,831
Deferred charges and other assets 4,525 5,588
-------- ---------
Total assets $199,692 $152,818
======== =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 39,895 $ 27,276
Accrued interest 6,575 3,172
Accrued liabilities 10,703 10,025
Due to Holding, net 3,554 3,573
Current maturities of long-term debt,
including capital lease obligations 1,529 1,127
-------- ---------
Total current liabilities 62,256 45,173
Long-term debt, including capital lease obligations 152,146 122,740
Deferred income taxes and other long-term liabilities 5,774 5,778
Commitments and contingencies
Stockholder's deficit
Common stock, $1 par value; 500,000 shares
authorized; 252,000 shares issued and outstanding 252 252
Additional paid-in capital 14,711 14,711
Accumulated other comprehensive income
Additional minimum pension liability, net
of tax of $107 (151) (151)
Retained deficit (35,296) (35,685)
-------- ---------
Total stockholder's deficit (20,484) (20,873)
-------- ---------
Total liabilities and stockholder's deficit $199,692 $152,818
======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
MMI PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 4, March 29,
1998 1997
-------- ---------
<S> <C> <C>
Net sales $ 86,308 $ 69,587
Cost of sales 74,267 60,426
-------- --------
Gross profit 12,041 9,161
Selling, general, and administrative expenses 7,330 6,315
Other income, net (55) (42)
-------- --------
Income before interest and income taxes 4,766 2,888
Interest expense 4,112 1,502
-------- --------
Income before income taxes 654 1,386
Provision for income taxes 265 554
-------- --------
Net income $ 389 $ 832
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
MMI PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
April 4, March 29,
1998 1997
--------- ---------
<S> <C> <C>
Net income $ 389 $ 832
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,583 1,306
Other 190 281
Changes in operating assets and liabilities, net of
effects of acquired businesses:
Increase in operating assets and liabilities (8,509) (5,134)
Decrease in due to Holding (19) (2,328)
Other 103 (173)
--------- ---------
Net cash used in operating activities (6,263) (5,216)
--------- ---------
Investing activities:
Capital expenditures (954) (1,158)
Acquisition (23,154) -
Other 20 9
--------- ---------
Cash used in investing activities (24,088) (1,149)
--------- ---------
Financing activities:
Proceeds from credit facility and long-term debt, net 29,619 7,305
Payment of capital lease (351) (221)
--------- ---------
Cash provided by financing activities 29,268 7,084
--------- ---------
Net change in cash and cash equivalents (1,083) 719
Cash and cash equivalents, beginning of period 3,509 234
--------- ---------
Cash and cash equivalents, end of period $ 2,426 $ 953
========= =========
Supplemental Cash Flow Information:
Supplemental disclosure of noncash investing activities
Issuance of capital lease obligations
for capital expenditures $ 540 $ 471
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 6
MMI PRODUCTS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted. These financial
statements should be read in conjunction with MMI Products, Inc.'s (the
"Company") annual financial statements for the year ended January 3, 1998
included in the Company's Form 10-K filed with the Securities and Exchange
Commission on March 30, 1998.
In the opinion of management, the financial statements contain all
adjustments, consisting only of normal recurring adjustments, considered
necessary to present fairly the financial position of the Company as of
April 4, 1998 and the results of its operations and its cash flows for the
respective periods ended April 4, 1998 and March 29, 1997. Interim results for
the three months ended April 4, 1998 are not necessarily indicative of
results that may be expected for the fiscal year ending January 2,1999.
As of January 4, 1998, the Company adopted Financial Accounting Standards
Board Statement 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes new rules for reporting and display of comprehensive income and its
components; however, the adoption of SFAS 130 has no impact on the Company's net
income or shareholder's equity. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION> (Unaudited)
April 4, 1998 January 3, 1998
------------- ---------------
(In Thousands)
<S> <C> <C>
Raw materials $ 19,253 $ 11,188
Work-in-process 408 255
Finished goods 47,239 37,495
--------- ---------
$ 66,900 $ 48,938
========= =========
</TABLE>
<PAGE> 7
MMI PRODUCTS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
3. ACQUISITIONS
During the three months ended April 4, 1998, the Company made the
acquisitions set forth below, each of which has been accounted for as a
purchase. The financial statements include the operating results of each
business from the date of the acquisition.
On February 18, 1998, the Company acquired certain net assets of The Burke
Group L.L.C. ("Burke"), a manufacturer of hardware devices and processor of
chemicals used in the concrete construction industry. The acquisition expands
the offerings of the Company's concrete accessories product line. The total
purchase price was approximately $20.8 million, of which $19.6 million was
funded by the Company's revolving credit facility. The estimated $1.2 million
remainder will also be funded by the Company's revolving credit facility at the
final settlement date. The excess of the purchase price over the fair values of
the net assets acquired was an estimated $11.8 million and is being amortized
over 40 years.
On March 2, 1998, the Company purchased substantially all of the assets of
Wholesale Fencing Supply, Inc. and affiliated entities for approximately $2.1
million, of which $1.1 million was funded by the Company's revolving credit
facility and $1.0 million by a note payable to seller. Acquired operations
include the manufacture of ornamental iron fencing in Tacoma, Washington, and
distribution of fence products in Tacoma, Washington and two Oregon locations.
The excess of the purchase price over the fair values of the net assets acquired
was $0.4 million.
4. COMMITMENTS AND CONTINGENCIES
A former stockholder of Holding exercised its appraisal rights and filed a
lawsuit against Holding with respect to the value of the common and preferred
stock redeemed in connection with the Recapitalization which occurred on
December 13, 1996. In January 1997, Holding paid the stockholder $2.2 million
with respect to the value of the preferred stock, the original value offered in
the Recapitalization. The Company has recorded a liability to Holding for $3.7
million, which is equal to the amount the stockholder would have received for
its common stock if it had not exercised its appraisal rights. Although
management believes the value that the Recapitalization provided to be paid to
holders of Holding common stock was fair to such holders, there can be no
assurance that the court will agree. The payment of the $3.7 million, plus or
minus any difference resulting from the settlement of the value of the common
stock plus any interest owed to the former stockholder, will be funded by the
Company's revolving credit facility and recorded as an adjustment to the
contribution of capital from Holding. The payment will therefore have no effect
on the operating results of the Company. A trial date has been set in August
1998.
The Company is involved in a number of legal actions arising in the
ordinary course of business. The Company believes that the various asserted
claims and litigation in which it is involved will not materially affect its
financial position or future operating results, although no assurance can be
given with respect to the ultimate outcome of any such claim or litigation.
<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations as a
percentage of net sales.
<TABLE>
<CAPTION> Three Months Ended
April 4, March 29,
1998 1997
--------- ---------
<S> <C> <C>
Fence 45.1% 48.0%
Wire Mesh 37.5% 40.0%
Concrete Accessories 17.4% 12.0%
--------- ---------
Net sales 100.0% 100.0%
Cost of sales 86.0% 86.8%
--------- ---------
Gross profit 14.0% 13.2%
Selling, general and administrative expenses 8.5% 9.1%
Other income, net (0.1%) (0.1%)
--------- ---------
Income before interest and income taxes 5.6% 4.2%
Interest expense 4.8% 2.2%
--------- ---------
Income before income taxes 0.8% 2.0%
Provision for income taxes 0.3% 0.8%
--------- ---------
Net income 0.5% 1.2%
========= =========
</TABLE>
Net sales for the three months ended April 4, 1998 increased $16.7 million
or 24.0% to $86.3 million from $69.6 million for the same period of the prior
fiscal year. The concrete accessories product line generated a net sales
increase of $6.7 million, of which $4.0 million is attributable to the
acquisition of The Burke Group L.L.C. in February 1998. The fence product line,
which contributed $5.4 million of the total net sales increase, benefited from
mild weather and the expansion of its distribution network by five locations
during the fourth quarter of 1997 and first quarter of 1998. The wire mesh
product line, which contributed $4.6 million of the total net sales increase,
benefited from recent investments to increase capacity of several manufacturing
facilities.
Gross profit for the first quarter as a percentage of sales increased from
13.2% in 1997 to 14.0% in 1998 due primarily to the change in product mix to
higher margin concrete accessories products. Despite its increase in net sales,
the wire mesh product line gross profits declined from levels achieved in the
first quarter of 1997 due primarily to increases in raw material costs which
could not be passed along as price increases to customers. Fence product line
gross profit margins were comparable for each of the reported periods.
Selling, general, and administrative expenses as a percentage of net sales
decreased 0.6% for the three months ended April 4, 1998 from the corresponding
period of the prior fiscal year primarily as a result of realized cost
efficiencies from integrating acquired businesses into the Company's operations.
<PAGE> 9
Interest expense increased $2.6 million to $4.1 million for the three
months ended April 4, 1998 from $1.5 million for the corresponding period of the
prior fiscal year. The increases were principally due to the higher levels of
outstanding debt as a result of the issuance of the $120 million 11.25% Senior
Subordinated Notes in April 1997 and additional borrowing under the revolving
credit facility to fund acquisitions in February and March 1998. If the
proceeds from the issuance of the $120 million Senior Subordinated Notes had
been available at the beginning of fiscal year 1997, pro forma interest expense
for the first three months of fiscal year 1997 would have been $3.7 million, an
increase of $2.2 million over the $1.5 million actually incurred. Pro forma
interest expense is based on the 11.25% rate on the Senior Subordinated Notes
plus the amortization of deferred financing costs over the life of the debt less
interest expense on debt that would have been retired.
Net income for the three months ended April 4, 1998 was $389,000 compared
to net income of $832,000 for the corresponding period of the prior fiscal
year. The decrease was primarily a result of the factors discussed above. If
the proceeds from the issuance of the $120 million Senior Subordinated Notes had
been available at the beginning of fiscal year 1997, net income for the three
months ended April 4, 1998 would have increased $900,000 from the corresponding
period of the prior fiscal year.
LIQUIDITY AND SOURCES OF CAPITAL
Cash Flows. For the three months ended April 4, 1998, operating
activities used net cash of approximately $6.3 million. Seasonal increases in
net operating assets and liabilities of $8.5 million offset operating cash flow
of $2.2 million provided by net income adjusted for non-cash items such as
depreciation, amortization, and other non-cash charges and the decrease in
other long-term assets. Investing activities utilized approximately $24.1
million of cash, principally consisting of acquisitions. Financing activities
provided approximately $29.3 million of cash, primarily from the Company's
revolving credit facility.
EBITDA is a widely accepted financial indicator of a company's ability to
service and incur debt. The Company's EBITDA for the first three months of
fiscal year 1998 and 1997 was $6.3 million and $4.2 million, respectively. The
increase in EBITDA is primarily due to higher income before interest and income
taxes due to the changes in net sales, gross profit and selling, general and
administrative expenses discussed in "Results of Operations" above. EBITDA
should not be considered in isolation from or as a substitute for net income or
cash flow measures prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity. EBITDA is
defined as the sum of income before interest, income taxes, depreciation and
amortization, and non-recurring expenses.
The Company expects that cash flows from operations and the borrowing
availability under its bank line of credit, which includes a revolving credit
facility and a term facility, will provide sufficient liquidity to meet its
normal operating requirements, capital expenditure plans, existing debt
service, and business acquisition strategy over the near term.
<PAGE> 10
SEASONALITY
The Company's products are used in the residential, commercial and
infrastructure construction industries. These industries are both cyclical and
seasonal, and changes in demand for construction services have a material
impact on the Company's sales and profitability. The highest level of sales
and profitability occur during the times of the year when climatic conditions
are most conducive to construction activity. Accordingly, sales will typically
be higher in the Company's second and third quarters and will be lower in the
first and fourth quarters.
FORWARD LOOKING INFORMATION
The statements contained in this report which are not historical facts,
including, but not limited to, statements found under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" above,
are forward looking statements that involve a number of risks and uncertainties.
The actual results of the future events described in such forward looking
statements in this report could differ materially from those contemplated by
such forward looking statements. Among the factors that could cause actual
results to differ materially are the risks and uncertainties discussed in the
report, including without limitations the portions of such statements under the
caption referenced above, and the uncertainties set forth from time to time in
the Company's other public reports and filings and public statements.
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The information set forth in Note 4 in the Notes to the Financial
Statements in Part I of this report is incorporated by reference
thereto.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBIT 27 Financial Data Schedule
B. REPORTS ON FORM 8-K The Company filed a Current Report on Form
8-K during the three months ended April 4,
1998 relating to the acquisition of The
Burke Group L.L.C. on February 18, 1998.
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
Undersigned thereunto duly authorized.
Date: May 13, 1997 By: /s/ Robert N. Tenczar
---------------------------------
Robert N. Tenczar, Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001040736
<NAME> MMI PRODUCTS, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> APR-04-1998
<EXCHANGE-RATE> 1.0
<CASH> 2,426
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<CURRENT-LIABILITIES> 62,256
<BONDS> 120,000
0
0
<COMMON> 252
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</TABLE>
