<PAGE>
2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended September 23, 2000 Commission file number 1-6770
MUELLER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 25-0790410
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8285 TOURNAMENT DRIVE, SUITE 150
MEMPHIS, TENNESSEE 38125
(Address of principal executive offices)
Registrant's telephone number, including area code: (901) 753-3200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $ 0.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by a 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 / /
The number of shares of the Registrant's common stock outstanding as of
October 31, 2000, was 33,411,935.
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MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Period Ended September 23, 2000
INDEX
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
a.) Consolidated Statements of Income
for the quarters and nine months ended
September 23, 2000 and September 25, 1999 3
b.) Consolidated Balance Sheets
as of September 23, 2000 and December 25, 1999 5
c.) Consolidated Statements of Cash Flows
for the nine months ended September 23, 2000
and September 25, 1999 7
d.) Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<CAPTION>
For the Quarter Ended
September 23, 2000 September 25, 1999
<S> <C> <C>
Net sales $ 295,979 $ 287,880
Cost of goods sold 234,063 216,341
---------- ----------
Gross profit 61,916 71,539
Depreciation and amortization 9,238 9,268
Selling, general, and
administrative expense 22,437 23,162
---------- ----------
Operating income 30,241 39,109
Interest expense (2,207) (3,078)
Other income, net 2,554 2,143
---------- ----------
Income before income taxes 30,588 38,174
Current income tax expense (8,739) (602)
Deferred income tax expense (2,542) (11,232)
---------- ----------
Total income tax expense (11,281) (11,834)
---------- ----------
Net income $ 19,307 $ 26,340
========== ==========
Weighted average shares
for basic earnings per share 34,439 35,683
Effect of dilutive stock options 3,836 4,131
---------- ----------
Adjusted weighted average shares
for diluted earnings per share 38,275 39,814
---------- ----------
Basic earnings per share $ 0.56 $ 0.74
========== ==========
Diluted earnings per share $ 0.50 $ 0.66
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<CAPTION>
For the Nine Months Ended
September 23, 2000 September 25, 1999
<S> <C> <C>
Net sales $ 926,912 $ 869,062
Cost of goods sold 708,370 658,421
---------- ----------
Gross profit 218,542 210,641
Depreciation and amortization 27,519 27,606
Selling, general, and
administrative expense 71,547 74,229
---------- ----------
Operating income 119,476 108,806
Interest expense (7,130) (9,086)
Other income, net 7,509 7,093
---------- ----------
Income before income taxes 119,855 106,813
Current income tax expense (38,605) (15,187)
Deferred income tax expense (5,615) (18,158)
---------- ----------
Total income tax expense (44,220) (33,345)
---------- ----------
Net income $ 75,635 $ 73,468
========== ==========
Weighted average shares
for basic earnings per share 34,582 35,772
Effect of dilutive stock options 3,867 3,979
---------- ----------
Adjusted weighted average shares
for diluted earnings per share 38,449 39,751
---------- ----------
Basic earnings per share $ 2.19 $ 2.05
========== ==========
Diluted earnings per share $ 1.97 $ 1.85
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
<CAPTION>
September 23, 2000 December 25, 1999
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 135,144 $ 149,454
Accounts receivable, less allowance
for doubtful accounts of $5,165 in
2000 and $5,367 in 1999 184,110 167,858
Inventories:
Raw material and supplies 25,772 28,337
Work-in-process 21,669 14,423
Finished goods 77,642 76,884
---------- ----------
Total inventories 125,083 119,644
Current deferred income taxes 387 -
Other current assets 11,353 3,790
---------- ----------
Total current assets 456,077 440,746
Property, plant, and equipment, net 361,059 347,846
Goodwill, net 103,362 94,530
Other assets 19,112 20,958
---------- ----------
$ 939,610 $ 904,080
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
<CAPTION>
September 23, 2000 December 25, 1999
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 23,994 $ 31,012
Accounts payable 50,067 49,958
Accrued wages and other employee costs 27,354 30,182
Other current liabilities 45,182 41,909
---------- ----------
Total current liabilities 146,597 153,061
Long-term debt 107,401 118,858
Pension and postretirement liabilities 13,924 13,591
Environmental reserves 8,453 12,965
Deferred income taxes 30,958 24,275
Other noncurrent liabilities 14,916 11,546
---------- ----------
Total liabilities 322,249 334,296
---------- ----------
Minority interest in subsidiaries 297 354
Stockholders' equity:
Preferred stock - shares authorized
4,985,000; none outstanding - -
Series A junior participating preferred
stock - $1.00 par value; shares
authorized 15,000; none outstanding - -
Common stock - $.01 par value; shares
authorized 100,000,000; issued
40,091,502; outstanding 34,381,435
in 2000 and 34,918,646 in 1999 401 401
Additional paid-in capital, common 261,082 259,977
Retained earnings (Since
January 1, 1991) 448,112 372,477
Cumulative translation adjustment (15,228) (8,112)
Treasury common stock, at cost (77,303) (55,313)
---------- ----------
Total stockholders' equity 617,064 569,430
Commitments and contingencies (Note 2) - -
---------- ----------
$ 939,610 $ 904,080
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
For the Nine Months Ended
September 23, 2000 September 25, 1999
<S> <C> <C>
Cash flows from operating activities
Net income $ 75,635 $ 73,468
Reconciliation of net income to net
cash provided by operating activities:
Depreciation and amortization 27,519 27,606
Minority interest in subsidiaries (57) -
Deferred income taxes 5,615 18,158
Gain on disposal of properties (4) (1,574)
Income tax benefit from exercise
of stock options 1,402 -
Changes in assets and liabilities:
Receivables (16,371) (16,746)
Inventories (6,125) 21,975
Other assets (5,570) 1,304
Current liabilities (1,425) 20,244
Other liabilities (55) (3,061)
Other, net 184 (343)
---------- ----------
Net cash provided by operating activities 80,748 141,031
---------- ----------
Cash flows from investing activities
Capital expenditures (38,349) (26,742)
Businesses acquired (15,245) -
Proceeds from sales of properties 222 4,887
Escrowed IRB proceeds - 6,022
---------- ----------
Net cash used in investing activities (53,372) (15,833)
---------- ----------
Cash flows from financing activities
Acquisition of treasury stock (24,878) (15,915)
Repayments of long-term debt (18,475) (19,560)
Proceeds from stock options exercised 2,591 812
Proceeds from issuance of long-term debt - 125,000
Repayments on line of credit, net - (139,840)
---------- ----------
Net cash used in financing activities (40,762) (49,503)
---------- ----------
Effect of exchange rate changes on cash (924) 356
---------- ----------
</TABLE>
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<TABLE>
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
(In thousands)
<CAPTION>
For the Nine Months Ended
September 23, 2000 September 25, 1999
<S> <C> <C>
(Decrease) increase in cash
and cash equivalents (14,310) 76,051
Cash and cash equivalents at the
beginning of the period 149,454 80,568
---------- ----------
Cash and cash equivalents at the
end of the period $ 135,144 $ 156,619
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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MUELLER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
General
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles 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 by
reference.
The accompanying unaudited interim financial statements include all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented.
Note 1 - 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, computed using the
treasury stock method.
Note 2 - Commitments and Contingencies
The Company is subject to normal environmental standards imposed by
federal, state, local, and foreign environmental laws and regulations.
Based upon information currently available, management believes that the
outcome of pending environmental matters will not materially affect the
overall financial position and results of operations of the Company.
In addition, the Company is involved in certain litigation as either
plaintiff or defendant as a result of claims that arise in the ordinary
course of business which management believes will not have a material
effect on the Company's financial condition.
Note 3 - Comprehensive Income
Comprehensive income for the Company consists of net income and
foreign currency translation adjustments. Total comprehensive income was
$15,811,000 and $27,477,000 for the quarters ending September 23, 2000,
and September 25, 1999, respectively and was $68,519,000 and $71,012,000
for the nine-month periods ending September 23, 2000, and September 25,
1999, respectively.
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Note 4 - Industry Segments
Summarized segment information is as follows:
(In thousands)
[CAPTION]
For the Quarter Ended
September 23, 2000 September 25, 1999
[S] [C] [C]
Net sales:
Standard Products Division $ 219,460 $ 213,163
Industrial Products Division 71,579 68,895
Other Businesses 5,833 6,455
Elimination of intersegment sales (893) (633)
---------- ----------
$ 295,979 $ 287,880
========== ==========
Operating income:
Standard Products Division $ 26,612 $ 33,575
Industrial Products Division 5,334 6,765
Other Businesses 725 1,956
Unallocated expenses (2,430) (3,187)
---------- ----------
$ 30,241 $ 39,109
========== ==========
[CAPTION]
For the Nine Months Ended
September 23, 2000 September 25, 1999
[S] [C] [C]
Net sales:
Standard Products Division $ 680,931 $ 634,094
Industrial Products Division 228,116 219,683
Other Businesses 19,940 17,018
Elimination of intersegment sales (2,075) (1,733)
---------- ----------
$ 926,912 $ 869,062
========== ==========
Operating income:
Standard Products Division $ 102,174 $ 94,400
Industrial Products Division 23,423 23,740
Other Businesses 3,588 3,441
Unallocated expenses (9,709) (12,775)
---------- ----------
$ 119,476 $ 108,806
========== ==========
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Note 5 - Acquisitions
During 2000, Mueller acquired Micro Gauge, Inc. and a related
business, Microgauge Machining Inc., for approximately $9.1 million.
These acquisitions bring to our Industrial Products Division specialized
machining capabilities, which were previously outsourced to Micro Gauge.
The Company also acquired Propipe Technologies, Inc., a fabricator of gas
train manifold systems, for approximately $6.1 million. These acquired
businesses have annualized sales of approximately $30 million, a portion
of which were to Mueller. The transactions were accounted for as
purchases.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General Overview
The Company is a leading manufacturer of copper, brass, plastic, and
aluminum products. The range of these products is broad: copper tube and
fittings; brass and copper alloy rod, bar, and shapes; aluminum and brass
forgings; aluminum and copper impact extrusions; plastic fittings and
valves; refrigeration valves and fittings; and fabricated tubular
products. Mueller's plants are located throughout the United States, and
in Canada, France, and Great Britain. The Company also owns a short line
railroad in Utah and natural resource properties in the Western U.S.
The Company's businesses are managed and organized into three
segments: (i) Standard Products Division ("SPD"); (ii) Industrial Products
Division ("IPD"); and (iii) Other Businesses. SPD manufactures and sells
copper tube, copper and plastic fittings, and valves. Outside of the
United States, SPD manufactures copper tube in Europe and copper fittings
in Canada. SPD sells these products to wholesalers in the HVAC (heating,
ventilation, and air-conditioning), plumbing, and refrigeration markets,
and to distributors to the manufactured housing and recreational vehicle
industries. IPD manufactures and sells brass and copper alloy rod, bar,
and shapes; aluminum and brass forgings; aluminum and copper impact
extrusions; refrigeration valves and fittings; fabricated tubular
products; and gas valves and assemblies. IPD sells its products primarily
to original equipment manufacturers ("OEMs"), many of which are in the
HVAC, plumbing, and refrigeration markets. Other Businesses include Utah
Railway Company and other natural resource properties and interests. SPD
and IPD account for more than 98 percent of consolidated net sales and
more than 81 percent of consolidated net assets.
New housing starts and commercial construction are important
determinants of the Company's sales to the HVAC, refrigeration and
plumbing markets because the principal end use of a significant portion of
the Company's products is in the construction of single and multi-family
housing and commercial buildings.
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Profitability of certain of the Company's product lines depends upon
the "spreads" between the cost of raw material and the selling prices of
its completed products. The open market prices for copper cathode and
scrap, for example, influence the selling price of copper tubing, a
principal product manufactured by the Company. The Company attempts to
minimize the effects of fluctuations in material costs by passing through
these costs to its customers. Spreads fluctuate based upon competitive
market conditions.
Results of Operations
Net income was $19.3 million, or 50 cents per diluted share, for the
third quarter of 2000, compared with net income of $26.3 million, or 66
cents per diluted share, for the same period of 1999. Year-to-date, net
income was $75.6 million, or $1.97 per diluted share, compared with net
income of $73.5 million, or $1.85 per diluted share, for 1999.
During the third quarter of 2000, the Company's net sales were $296.0
million, which compares with net sales of $287.9 million, or a 2.8 percent
increase over the same period of 1999. Net sales were $926.9 million in
the first nine months of 2000 compared with $869.1 million in 1999. The
average price of copper was approximately 18 percent higher in the first
nine months of 2000 compared with the same period of 1999, which
contributed to the increase in net sales. During the third quarter of
2000, the Company's manufacturing businesses shipped 193.2 million pounds
of product compared to 196.0 million pounds in the same quarter of 1999.
The Company shipped 602.8 million pounds of product in the first nine
months of 2000 compared with 615.0 million in the same period of 1999.
Third quarter operating income decreased primarily due to increases
in raw material costs that were not recovered in the selling price of the
Company's products. Year-to date, operating income has increased due to
spread improvements during the first half of 2000, partially offset by the
third quarter raw material cost increases. Operating income was partially
offset by losses at our European operations. Selling, general, and
administrative expense for the third quarter was slightly below the same
period of last year. For the first nine months of 2000, selling, general,
and administrative expense decreased $2.7 million, primarily due to
reduced expenses at businesses acquired in the second half of 1998.
Depreciation and amortization in 2000 is level with 1999.
Interest expense for the third quarter of 2000 totaled $2.2 million
compared to $3.1 million in the same quarter of 1999. For the first nine
months of 2000, interest expense was $7.1 million compared to $9.1 million
for the same period of 1999. The Company capitalized $0.9 million of
interest related to capital improvement programs in the first nine months
of 2000 and capitalized $0.4 million during the same period of 1999.
Total interest in the first nine months of 2000 decreased due to scheduled
repayments of long-term debt.
The Company's effective income tax rate for the first nine months of
2000 was 36.9 percent compared with 31.2 percent for the first nine months
of last year. The tax rate increase was due to the Company having
recognized the majority of historical tax benefits in prior years.
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Liquidity and Capital Resources
Cash provided by operating activities during the first nine months of
2000 totaled $80.7 million which is primarily attributable to net income
and depreciation and amortization, partially offset by components of
working capital. During the first nine months of 2000, the Company used
$53.4 million in investing activities, consisting primarily of $38.3
million in capital expenditures and $15.2 for business acquisitions. The
Company also used $40.8 million for financing activities during the nine-
month period, consisting of $24.9 million for acquisition of treasury
stock and $18.5 million for repayments of long-term debt, offset by $2.6
million of proceeds from the sale of treasury stock. Existing cash
balances and cash from operations were used to fund the investing and
financing activities.
On October 18, 1999, the Company's Board of Directors authorized the
repurchase of up to four million shares of the Company's common stock from
time to time over the next year through open market transactions or
through privately negotiated transactions. The Company will have no
obligation to purchase any shares and may cancel, suspend, or extend the
time period for the purchase of shares at any time. The purchases are
being funded primarily through existing cash and cash from operations.
The Company may hold such shares in treasury or use a portion of the
repurchased shares for employee benefit plans, as well as for other
corporate purposes. Through September 23, 2000, the Company has
repurchased approximately 1,253,000 shares under this program. Subsequent
to the end of the third quarter, the Company's Board of Directors expanded
and extended this authorization to purchase a total of 10 million shares
through October 2001.
The Company has a $100.0 million unsecured line-of-credit agreement
(the Credit Facility) which expires in May 2001, but which may be extended
for successive one-year periods by agreement of the parties. Borrowings
under the Credit Facility bear interest, at the Company's option, at (i)
prime rate less .50 percent, (ii) LIBOR plus .27 percent subject to
adjustment, or (iii) Federal Funds Rate plus .65 percent. There are no
outstanding borrowings under the Credit Facility. At September 23, 2000,
funds available under the Credit Facility were reduced by $7.3 million for
outstanding letters of credit. At September 23, 2000, the Company's total
debt was $131.4 million or 17.6 percent of its total capitalization.
The Company's financing obligations contain various covenants which
require, among other things, the maintenance of minimum levels of working
capital, tangible net worth, and debt service coverage ratios. The
Company is in compliance with all debt covenants.
During the year, the Company completed the installation of equipment
and systems specified in the modernization project for approximately $24
million at the Wynne, Arkansas, copper tube mill. When transition to this
new equipment is complete, the mill's conversion costs as well as yield
should significantly improve. At the Port Huron, Michigan, brass rod
mill, the Company began installation of a horizontal continuous caster.
This investment, totaling approximately $10 million, is expected to be
completed near the end of 2000, and should increase our casting capacity,
improve yield, and reduce conversion costs.
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Approximately $40 million has been authorized for the modernization
of the Company's European factories. This investment will upgrade the
casting, extrusion, drawing, and finishing processes at our facility in
the United Kingdom. The project is expected to be completed near the end
of 2001. During the first quarter, the Company received confirmation of
Regional Selective Assistance financial support from the Department of
Trade and Industry (United Kingdom) of approximately $3.6 million for this
project. During the second quarter, the Company negotiated commitments
and/or signed letters of intent with the primary vendors of equipment and
services for the majority of the project.
Management believes that cash provided by operations and currently
available cash of $135.1 million will be adequate to meet the Company's
normal future capital expenditure and operational needs. The Company's
current ratio remains strong at 3.1 to 1.
During 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). This statement requires companies to record
derivative instruments on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the
values of a derivative would be accounted for depending on the use of a
derivative and whether it qualifies for hedge accounting. The Company
will adopt SFAS No. 133 (as amended by SFAS No. 138) at the beginning of
fiscal year 2001. Because of the Company's minimal historical use of
derivatives, management anticipates that the adoption of SFAS No. 133 will
not have a significant effect on earnings or on the financial position of
the Company.
Part II. OTHER INFORMATION
Item 5. Other Information
The following discussion updates the disclosure in Item 1, Business,
in the Company's Annual Report on Form 10-K, for the year ended December
25, 1999.
Environmental Matters
1. Mammoth Mine Site
In furtherance of remedial activities to reduce or prevent discharge
of acid mine drainage at certain inactive mines owned by MRRC in
Shasta County, California, MRRC completed and submitted in July, 2000
a use attainability analysis which is under review by the California
Regional Water Quality Control Board. Remedial activities continue
and the extent of further remediation depends on the effectiveness of
MRRC's remedial options in reducing acid rock drainage.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Mueller Industries, Inc. 1998 Stock Option Plan
(Amended and Restated as of June 30, 2000)
19.1 Mueller Industries, Inc.'s Quarterly Report to
Stockholders for the quarter ended September 23,
2000. Such report is being furnished for the
information of the Securities and Exchange
Commission only and is not to be deemed filed as
part of this Quarterly Report on Form 10-Q.
(b) During the quarter ended September 23, 2000, the
Registrant filed no Current Reports on Form 8-K.
Items 1, 2, 3, and 4 are not applicable and have been omitted.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on November 3, 2000.
MUELLER INDUSTRIES, INC.
/s/ Kent A. McKee
Kent A. McKee
Vice President and Chief Financial Officer
/s/ Richard W. Corman
Richard W. Corman
Corporate Controller
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<PAGE>
EXHIBIT INDEX
Exhibits Description Page
10.1 Mueller Industries, Inc. 1998 Stock Option Plan
(Amended and Restated as of June 30, 2000)
19.1 Mueller Industries, Inc.'s Quarterly Report to Stockholders
for the quarter ended September 23, 2000. Such report is being
furnished for the information of the Securities and Exchange
Commission only and is not to be deemed filed as part of this
Quarterly Report on Form 10-Q.
27.1 Financial Data Schedule (EDGAR filing only)
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