<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 October 2, 1999
[ ] 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 November 15, 1999,
all of which are held by Merchants Metals Holding Company.
<PAGE> 2
MMI PRODUCTS, INC.
INDEX
<TABLE>
<S> <C>
Page
PART I. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES Number
------
Item 1. Consolidated Financial Statements and Notes 3
Item 2. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE> 3
MMI PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
October 2,
1999 January 2,
(Unaudited) 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,164 $ 1,979
Accounts receivable, net of allowance for doubtful accounts of
$2,626 and $1,926, respectively 75,181 58,633
Inventories 66,430 62,347
Deferred income taxes 2,087 1,495
Prepaid expenses 1,028 1,443
----------- -----------
Total current assets 147,890 125,897
Property, plant and equipment
Land 5,509 4,814
Buildings and improvements 21,811 21,129
Machinery and equipment 69,664 63,171
Rental equipment 4,646 3,259
----------- -----------
101,630 92,373
Less accumulated depreciation 36,676 31,456
----------- -----------
Property, plant and equipment, net 64,954 60,917
Intangible assets 31,383 29,123
Deferred charges and other assets 4,934 4,289
----------- -----------
Total assets $ 249,161 $ 220,226
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 41,405 $ 50,328
Accrued interest 7,948 3,238
Accrued liabilities 13,081 11,175
Income taxes payable 1,699 672
Current maturities of long-term obligations 2,206 1,630
----------- -----------
Total current liabilities 66,339 67,043
Long-term obligations 171,462 158,807
Deferred income taxes and other long-term liabilities 7,853 7,383
Commitments and contingencies
Stockholder's equity (deficit):
Common stock, $1 par value; 500,000 shares authorized;
252,000 shares issued and outstanding 252 252
Additional paid-in capital 13,009 13,009
Accumulated other comprehensive income, net of tax of $148 (221) (221)
Retained deficit (9,533) (26,047)
----------- -----------
Total stockholder's equity (deficit) 3,507 (13,007)
----------- -----------
Total liabilities and stockholder's equity (deficit) $ 249,161 $ 220,226
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
MMI PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- -------------------------
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 131,158 $ 114,062 $ 370,298 $ 316,551
Cost of sales 105,884 94,829 299,518 266,448
----------- ----------- ----------- -----------
Gross profit 25,274 19,233 70,780 50,103
Selling, general and administrative expenses 9,808 7,966 28,057 23,063
Other (income) expense, net (77) (144) 181 (82)
----------- ----------- ----------- -----------
Income before interest and income taxes 15,543 11,411 42,542 27,122
Interest expense 4,958 4,351 14,552 12,919
----------- ----------- ----------- -----------
Income before income taxes 10,585 7,060 27,990 14,203
Provision for income taxes 4,340 2,824 11,476 5,681
----------- ----------- ----------- -----------
Net income $ 6,245 $ 4,236 $ 16,514 $ 8,522
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
MMI PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
October 2, October 3,
1999 1998
----------- -----------
<S> <C> <C>
Net income $ 16,514 $ 8,522
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 6,671 5,096
Deferred income taxes (150) (410)
Other 823 284
Changes in operating assets and liabilities:
Increase in operating assets and liabilities (14,989) (2,917)
Other 442 (40)
----------- -----------
Cash provided by operating activities 9,311 10,535
Investing activities:
Capital expenditures (5,678) (7,957)
Acquisitions (13,290) (22,709)
Divestiture -- 3,501
Other (27) 51
----------- -----------
Cash used in investing activities (18,995) (27,114)
Financing activities:
Proceeds from issuance of senior subordinated notes 32,137 --
Proceeds from (payment of) revolving credit facility, net (18,537) 16,841
Debt offering costs (1,065) --
Payment of capital leases (1,334) (1,021)
Proceeds from (payment of) other long-term debt (332) 996
----------- -----------
Cash provided by financing activities 10,869 16,816
----------- -----------
Increase in cash and cash equivalents 1,185 237
Cash and cash equivalents, beginning of period 1,979 3,509
----------- -----------
Cash and cash equivalents, end of period $ 3,164 $ 3,746
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
MMI PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of MMI Products, Inc.
and its wholly-owned subsidiary, Security Fence Supply Co. Inc. (collectively
"MMI"). MMI Products, Inc., is a wholly-owned subsidiary of Merchants Metals
Holding Company ("Holding") which prior to October 8, 1999 was substantially
wholly-owned by MMI Products, L.L.C. ("LLC"). On October 8, 1999, LLC
distributed the capital stock of Holding owned by LLC to its members. The
accompanying unaudited consolidated 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 the Company's annual financial
statements for the year ended January 2, 1999 included in MMI's Form 10-K filed
with the Securities and Exchange Commission on April 2, 1999.
In the opinion of management, the consolidated financial statements contain all
adjustments, consisting only of normal recurring adjustments, considered
necessary to present fairly the consolidated financial position of MMI as of
October 2, 1999 and the consolidated results of its operations and its cash
flows for the respective periods ended October 2, 1999 and October 3, 1998.
Interim results for the nine months ended October 2, 1999 are not necessarily
indicative of results that may be expected for the fiscal year ending January 1,
2000.
Effective January 3, 1999 MMI has adopted the following new accounting
standards:
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting For the Costs of Computer
Software Developed For or Obtained For Internal-Use." The SOP requires the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal-use. Prior to the
adoption of SOP 98-1, MMI expensed internal-use software related costs
as incurred. The adoption of this statement did not have a material impact on
the consolidated results of operations or financial position.
In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-Up
Activities", which requires that costs related to start-up activities be
expensed as incurred. This accounting treatment is consistent with MMI's
previous policy; therefore the adoption of this statement had no impact on the
consolidated results of operations or financial position.
Certain reclassifications have been made to the financial statements in order to
conform to the current presentation.
2. ACQUISITIONS
On June 7, 1999, MMI purchased certain assets of the wholesale fence division of
National Wholesale Fence Supply, Inc. ("National Wholesale") for cash of
approximately $13.2 million, which was funded by the revolving credit facility.
6
<PAGE> 7
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
2. ACQUISITIONS (CONTINUED)
The operations acquired include a manufacturer of ornamental iron fence products
in San Fernando, California and distributors of fence products in California.
MMI entered into subleases for the ornamental iron fence manufacturing plant and
the four distribution locations. The acquisition has been accounted for as a
purchase. The excess of the purchase price over the preliminary estimate of the
fair value of the assets acquired of $2.9 million is being amortized over 20
years. The consolidated financial statements include the results of the former
National Wholesale operations from the date of the acquisition.
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
October 2, 1999
(Unaudited) January 2, 1999
--------------- ---------------
(In Thousands)
<S> <C> <C>
Raw materials $ 14,862 $ 17,024
Work-in-process 1,593 1,150
Finished goods 49,975 44,173
-------------- ------------
$ 66,430 $ 62,347
============== ============
</TABLE>
4. LONG-TERM OBLIGATIONS
On February 12, 1999, MMI issued $30 million of 11.25% senior subordinated notes
due 2007 in a private offering. The net proceeds of approximately $31.1 million
including original issuance premium, after fees and expenses, were used to
reduce its borrowings under the revolving credit facility.
On April 30, 1999, MMI exchanged the $30 million Senior Subordinated Notes
issued on February 12, 1999 for Registered Senior Subordinated Notes. These
notes have the same form and terms as the February 12, 1999 notes and the $120
million Registered Senior Subordinated Notes issued on April 16, 1997.
5. SEGMENT REPORTING
MMI has five operating units that are aggregated into two reportable segments;
Fence and Concrete Construction Products. The Fence Segment has three operating
units that offer similar products and services. The Concrete Construction
Products Segment has two operating units that offer complimentary products and
services within the concrete construction industry.
7
<PAGE> 8
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
5. SEGMENT REPORTING (CONTINUED)
Summarized financial information concerning the reportable segments is shown in
the following table. The Corporate column for earnings before interest and
income taxes represents amortization of intangibles. Corporate general and
administrative expenses are allocated to the segments based upon proportional
net sales.
<TABLE>
<CAPTION>
Three months ended October 2, 1999
----------------------------------------------------------
(In thousands) Concrete
Fence Construction
Products Products Corporate Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
External sales $ 76,152 $ 55,006 $ -- $131,158
Earnings before interest and income taxes 6,539 9,318 (314) 15,543
Interest expense -- -- 4,958 4,958
Income taxes -- -- 4,340 4,340
Net income 6,539 9,318 (9,612) 6,245
Depreciation and amortization 935 1,129 314 2,378
EBITDA (1) 7,474 10,447 -- 17,921
</TABLE>
<TABLE>
<CAPTION>
Three months ended October 3, 1998
----------------------------------------------------------
Concrete
Fence Construction
Products Products Corporate Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
External sales $ 55,404 $ 58,658 $ -- $114,062
Earnings before interest and income taxes 3,734 7,855 (178) 11,411
Interest expense -- -- 4,351 4,351
Income taxes -- -- 2,824 2,824
Net income 3,734 7,855 (7,353) 4,236
Depreciation and amortization 685 963 178 1,826
EBITDA (1) 4,419 8,818 -- 13,237
</TABLE>
<TABLE>
<CAPTION>
Nine months ended October 2, 1999
----------------------------------------------------------
Concrete
Fence Construction
Products Products Corporate Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
External sales $207,922 $162,376 $ -- $370,298
Earnings before interest and income taxes 16,706 26,715 (879) 42,542
Interest expense -- -- 14,552 14,552
Income taxes -- -- 11,476 11,476
Net income 16,706 26,715 (26,907) 16,514
Depreciation and amortization 2,599 3,193 879 6,671
EBITDA (1) 19,305 29,908 -- 49,213
Segment Assets (2) 111,415 96,651 41,095 249,161
</TABLE>
8
<PAGE> 9
MMI PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
5. SEGMENT REPORTING (CONTINUED)
<TABLE>
<CAPTION>
Nine months ended October 3, 1998
----------------------------------------------------------
(In thousands) Concrete
Fence Construction
Products Products Corporate Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
External sales $153,686 $162,865 $ -- $316,551
Earnings before interest and income taxes 10,339 17,262 (479) 27,122
Interest expense -- -- 12,919 12,919
Income taxes -- -- 5,681 5,681
Net income 10,339 17,262 (19,079) 8,522
Depreciation and amortization 2,059 2,558 479 5,096
EBITDA (1) 12,398 19,820 -- 32,218
Segment Assets (2) 75,246 96,203 32,416 203,865
</TABLE>
(1) EBITDA is defined as the sum of income before interest expense, income
taxes, depreciation, and amortization. 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.
(2) Segment assets include accounts receivable, inventory and property, plant
and equipment. Corporate assets include all other components of total
consolidated assets.
6. SUBSEQUENT EVENT
On November 12, 1999, Holding completed a recapitalization transaction in which
(i) Holding entered into a $69.2 million subordinated credit facility due in
2007 (the "Holding Credit Facility") with an investment fund managed by an
affiliate of Holding's majority economic owner, (ii) Holding redeemed its
existing equity interests including stock options granted to certain employees
and a director of MMI, and (iii) certain Holding stockholders and new
stockholders invested in new common and preferred stock of Holding. Interest at
a rate of 14% per annum on the Holding Credit Facility is payable semi-annually
in cash or in kind at the option of Holding. The Holding preferred shares have a
stated value of $64.8 million and accrue cumulative preferred dividends at a
rate of 12% per annum. Cash payment of dividends on Holding's common and
preferred stock is not permitted while the Holding Credit Facility is
outstanding.
Availability of cash at Holding to pay the Holding Credit Facility interest and
cumulative preferred dividends is principally dependent upon MMI's cash flows.
MMI's Revolving Credit Facility agreement and senior subordinated notes
indenture require MMI to meet certain restricted payment tests before
distribution of any dividends to Holding.
As a result of the Holding recapitalization, MMI will, in the fourth quarter of
fiscal year 1999, recognize a non-cash compensation charge of approximately $2.6
million ($1.5 million net of tax) relating to the redemption of Holding's stock
options granted in previous years to certain employees and a director of MMI.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
STATEMENT OF OPERATIONS - SELECTED DATA
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------------- ---------------------------------------
October 2, October 3, October 2, October 3,
1999 Change 1998 1999 Change 1998
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fence Products $ 76,152 $ 20,748 $ 55,404 $ 207,922 $ 54,236 $ 153,686
Percentage of net sales 58.1% 9.5% 48.6% 56.1% 7.6% 48.6%
Concrete Construction Products $ 55,006 $ (3,652) $ 58,658 $ 162,376 $ (489) $ 162,865
Percentage of net sales 41.9% (9.5)% 51.4% 43.9% (7.6)% 51.4%
Net Sales $ 131,158 $ 17,096 $ 114,062 $ 370,298 $ 53,747 $ 316,551
Gross profit $ 25,274 $ 6,041 $ 19,233 $ 70,780 $ 20,677 $ 50,103
Percentage of net sales 19.3% 2.4% 16.9% 19.1% 3.3% 15.8%
Selling, general, administrative
and other expenses $ 9,731 $ 1,909 $ 7,822 $ 28,238 $ 5,257 $ 22,981
Percentage of net sales 7.4% 0.6% 6.9% 7.6% 0.4% 7.3%
Income before interest and income taxes $ 15,543 $ 4,132 $ 11,411 $ 42,542 $ 15,420 $ 27,122
Percentage of net sales 11.9% 1.8% 10.0% 11.5% 2.9% 8.6%
Interest expense $ 4,958 $ 607 $ 4,351 $ 14,552 $ 1,633 $ 12,919
Percentage of net sales 3.8% 0.0% 3.8% 3.9% (0.2)% 4.1%
Effective income tax rate 41.0% 40.0% 41.0% 40.0%
Net income $ 6,245 $ 2,009 $ 4,236 $ 16,514 $ 7,992 $ 8,522
Percentage of net sales 4.8% 1.0% 3.7% 4.5% 1.8% 2.7%
</TABLE>
Net sales for the three months and nine months ended October 2, 1999 increased
$17.1 million (15.0%) and $53.7 million (17.0%), respectively, from the
corresponding periods of the prior fiscal year. The fence products segment
generated net sales increase of $21.0 million and $54.2 million for the three
months and nine months ended October 2, 1999, respectively. This increase in net
sales was primarily a result of the acquisition of Security Fence and Supply
Company, Inc. in October 1998 and the acquisition of National Wholesale Fence in
June 1999. These acquisitions contributed 60.5% and 74.9% of the fence products
segments net sales increase for the three months and nine months ended October
2, 1999, respectively. The fence products segment also benefited from the
expansion of its distribution network by 8 locations. Third quarter fence sales
were adversely impacted by poor weather conditions in the Eastern region. The
concrete construction products segment revenues declined $3.7 million and $.5
million for the three months and nine months ended October 2, 1999,
respectively. After giving consideration to the decline in sales resulting from
the disposition of a chemical processing business in September 1998, net sales
for the concrete construction products segment declined $2.1 million and
improved $1.2 million for the three months and nine months ended October 2,
1999, respectively. The year to date increase was due primarily to strong
activity in commercial and infrastructure construction markets, some acquisition
of market share, and the full 1999 period impact of the acquisition of The Burke
Group L.L.C. in February 1998. This increase began to diminish in the third
quarter due to lower construction market activity in the southeast.
10
<PAGE> 11
Gross profit, as a percentage of sales, increased from 16.9% to 19.3% and from
15.8% to 19.1% for the three months and nine months ended October 2, 1999,
respectively, from the corresponding periods of the prior fiscal year. The
increase in gross profit was primarily due to the decrease of raw material costs
for both segments; with emphasis on the wire mesh product line within the
concrete construction products segment due to its high volume of raw material
usage. In addition, both the fence and concrete construction product segments
have benefited from a change in product mix to higher margin products, as a
result of the Security Fence, National Wholesale and Burke Group acquisitions.
These benefits offset decreases in per unit pricing in the wire mesh product
line and inflationary pressures in certain manufacturing plant costs.
Selling, general, administrative, and other expenses as a percentage of net
sales have increased from 6.9% to 7.4% and from 7.3% to 7.6% in the three months
and nine months ended October 2, 1999. The increase is primarily due to bad debt
provisions for a few customers experiencing financial difficulties, higher
amortization of intangibles resulting from 1998 and 1999 business acquisitions,
and a non-recurring casualty loss at a manufacturing facility.
Interest expense increased $0.6 million and $1.6 million for the three months
and nine months ended October 2, 1999, respectively, as compared to
corresponding periods of the prior fiscal year. The increases were principally
due to higher levels of invested capital as a result of MMI's business
acquisitions in February 1998 and October 1998 and higher interest rates as a
result of the issuance of the $30 million 11.25% Senior Subordinated Notes in
February 1999.
Net income increased $2.0 million and $8.0 million for the three months and nine
months ended October 2, 1999, respectively, as compared to the same period of
the last fiscal year. The increase in net income was primarily the result of the
factors discussed above.
LIQUIDITY AND SOURCES OF CAPITAL
Cash Flows. For the nine months ended October 2, 1999, operating activities
provided net cash of approximately $9.3 million. Seasonal increases in net
operating assets and liabilities of $15.0 million partially offset operating
cash flow of $24.3 million provided by net income adjusted for non-cash items
such as depreciation, amortization, and other non-cash charges and the increase
in other long-term assets. Investing activities utilized approximately $19.0
million of cash, consisting of the National Wholesale acquisition and capital
expenditures. Financing activities provided approximately $10.9 million of cash,
primarily from the issuance of the $30 million Senior Subordinated Notes.
EBITDA is a widely accepted financial indicator of a company's ability to
service and incur debt. MMI's EBITDA for the first nine months of fiscal year
1999 and 1998 was $49.2 million and $32.2 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.
11
<PAGE> 12
MMI 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, and existing debt service.
Pursuant to a recapitalization on November 12, 1999, Holding entered into a
$69.2 million subordinated credit facility due 2007 bearing interest at a rate
of 14% per annum and preferred stock with a stated value of $64.8 million and
cumulative preferred dividends at a rate of 12% per annum. The Holding Credit
Facility interest is payable semi-annually in cash or in kind, at the option of
Holding. Availability of cash at Holding to pay the Holding Credit Facility
interest is principally dependent on MMI's cash flows. MMI's Revolving Credit
Facility agreement and senior subordinated notes indenture require MMI to meet
certain restricted payment tests before distribution of any dividends to
Holding. Cash payment of dividends on Holding's common and preferred stock is
not permitted while the Holding Credit Facility is outstanding.
MMI has pursued and intends to continue to pursue a strategy of business
acquisitions that will broaden its distribution network, complement or extend
its existing product lines or increase its production capacity. Negotiations are
underway to acquire two businesses that would operate in the Concrete
Construction Products segment for purchase prices totaling approximately $45
million. If the negotiations result in definitive agreements, the borrowing
availability under MMI's bank line of credit is expected to be
available to partially finance such acquisitions. There can be no assurance
when and if either of such acquisitions will be consummated. Management
believes that MMI has sufficient assets to justify an increase to its bank line
of credit to finance the acquisitions currently being negotiated and its bank
has expressed its willingness to do so. It is possible that, depending upon
MMI's future operating cash flows and the size of future potential
acquisitions, MMI will seek additional sources of financing subject to
limitations set forth in its senior subordinated notes indenture.
SEASONALITY
MMI's products are used in the commercial, infrastructure, and residential
construction industries. These industries are both cyclical and seasonal, and
changes in demand for construction services have a material impact on MMI'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 MMI's
second and third quarters and will be lower in the first and fourth quarters.
IMPACT OF YEAR 2000
State of Readiness. MMI completed an assessment and has completed or is in the
process of modifying or replacing portions of its software so that its computer
systems will function properly with respect to dates in the Year 2000 and
beyond. In October 1998, MMI replaced its general ledger, accounts payable,
accounts receivable, sales analysis, and financial reporting systems with
software which includes eight digit dates and date routines. Although the
software supplier is confident that the current code will successfully handle
the Year 2000 turnover, it has recommended an upgrade to its most recent version
to achieve the highest possible degree of assurance for a successful Year 2000
turnover. MMI is currently working on this project and will
12
<PAGE> 13
complete this upgrade by the end of 1999. Year 2000 compliance in other systems
has been achieved through modification of internally developed programs.
Third Party Relationships. MMI does not expect any significant disruption on
operations in the event that any of its suppliers or customers fail to achieve
Year 2000 compliance.
Risks and Uncertainties. Because the existing software for general ledger,
accounts payable, accounts receivable, sales analysis, and financial reporting
does incorporate eight digit dates and date routines, any delay in accomplishing
the upgrade project is not expected to have a materially adverse impact. MMI
believes that it will experience at most, isolated and minor disruptions of
business processes as a result of the Year 2000 issue. Such disruptions are not
expected to have a material effect on MMI's business, consolidated financial
position or results of operations. However, the magnitude of all Year 2000
disturbances cannot be predicted. Failure to complete these programs as planned
could result in a system failure or miscalculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities,
all of which could have a material impact on MMI's business, consolidated
financial position or results of operations.
Costs. MMI's significant growth in recent years required system software and
hardware upgrades and improvements that were planned for and initiated in 1996.
Because the costs of software and hardware upgrades were already being incurred,
and planned modification of internal systems is primarily for improvement and
increased capacity, the actual cost for Year 2000 specific upgrades and
modifications is not expected to exceed $100,000 and is being expensed as
incurred.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MMI is subject to market risk exposure related to changes in interest rates on
its revolving credit facility. Borrowings under the revolving credit facility
bear interest, at the option of MMI, at either the bank's base rate plus 0.25
percent or Eurodollar rate plus 1.5 percent. MMI has exposure to price
fluctuations associated with steel rod, its primary raw material. MMI negotiates
purchase commitments from one to nine months in advance to limit its exposure to
price fluctuation and ensure availability of the materials. Approximately 50% of
steel rod is purchased from foreign sources.
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibit 27 Financial Data Schedule
B. Reports on Form 8-K None.
14
<PAGE> 15
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: November 16, 1999 By: /s/ Robert N. Tenczar
---------------------------------------
Robert N. Tenczar, Vice President
and Chief Financial Officer
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> OCT-02-1999
<EXCHANGE-RATE> 1.0
<CASH> 3,164
<SECURITIES> 0
<RECEIVABLES> 77,807
<ALLOWANCES> 2,626
<INVENTORY> 66,430
<CURRENT-ASSETS> 147,890
<PP&E> 101,630
<DEPRECIATION> 36,676
<TOTAL-ASSETS> 249,161
<CURRENT-LIABILITIES> 66,339
<BONDS> 150,000
0
0
<COMMON> 252
<OTHER-SE> 3,255
<TOTAL-LIABILITY-AND-EQUITY> 249,161
<SALES> 370,298
<TOTAL-REVENUES> 370,298
<CGS> 299,518
<TOTAL-COSTS> 299,518
<OTHER-EXPENSES> 28,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,552
<INCOME-PRETAX> 27,990
<INCOME-TAX> 11,476
<INCOME-CONTINUING> 16,514
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,514
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
