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 March 25, 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 April 26, 2000, was 34,463,396. -1- MUELLER INDUSTRIES, INC. FORM 10-Q For the Period Ended March 25, 2000 INDEX Part I. Financial Information Page Item 1. Financial Statements (Unaudited) a.) Consolidated Statements of Income for the quarters ended March 25, 2000 and March 27, 1999 3 b.) Consolidated Balance Sheets as of March 25, 2000 and December 25, 1999 4 c.) Consolidated Statements of Cash Flows for the quarters ended March 25, 2000 and March 27, 1999 6 d.) Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12 -2- PART I. FINANCIAL INFORMATION Item 1. Financial Statements MUELLER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data)
For the Quarter Ended March 25, 2000 March 27, 1999 Net sales $ 302,350 $ 287,840 Cost of goods sold 226,514 221,740 ---------- ---------- Gross profit 75,836 66,100 Depreciation and amortization 9,042 8,990 Selling, general, and administrative expense 24,290 25,179 ---------- ---------- Operating income 42,504 31,931 Interest expense (2,627) (2,861) Other income, net 2,224 2,129 ---------- ---------- Income before income taxes 42,101 31,199 Current income tax expense (13,721) (5,023) Deferred income tax expense (1,814) (4,493) ---------- ---------- Total income tax expense (15,535) (9,516) ---------- ---------- Net income $ 26,566 $ 21,683 ========== ========== Weighted average shares for basic earnings per share 34,844 35,833 Effect of dilutive stock options 3,909 3,782 ---------- ---------- Adjusted weighted average shares for diluted earnings per share 38,753 39,615 ---------- ---------- Basic earnings per share $ 0.76 $ 0.61 ========== ========== Diluted earnings per share $ 0.69 $ 0.55 ========== ========== See accompanying notes to consolidated financial statements.
-3- MUELLER INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
March 25, 2000 December 25, 1999 Assets Current assets: Cash and cash equivalents $ 125,575 $ 149,454 Accounts receivable, less allowance for doubtful accounts of $4,770 in 2000 and $5,367 in 1999 199,087 167,858 Inventories: Raw material and supplies 24,352 28,337 Work-in-process 16,934 14,423 Finished goods 80,348 76,884 ---------- ---------- Total inventories 121,634 119,644 Other current assets 10,047 3,790 ---------- ---------- Total current assets 456,343 440,746 Property, plant, and equipment, net 345,230 347,846 Goodwill, net 93,540 94,530 Other assets 20,055 20,958 ---------- ---------- $ 915,168 $ 904,080 ========== ========== See accompanying notes to consolidated financial statements.
-4- MUELLER INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data)
March 25, 2000 December 25, 1999 Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 25,979 $ 31,012 Accounts payable 51,414 49,958 Accrued wages and other employee costs 24,683 30,182 Other current liabilities 56,603 41,909 ---------- ---------- Total current liabilities 158,679 153,061 Long-term debt 117,215 118,858 Pension and postretirement liabilities 12,555 13,591 Environmental reserves 11,712 12,965 Deferred income taxes 26,089 24,275 Other noncurrent liabilities 13,123 11,546 ---------- ---------- Total liabilities 339,373 334,296 ---------- ---------- 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 34,459,596 in 2000 and 34,918,646 in 1999 401 401 Additional paid-in capital, common 259,568 259,977 Retained earnings (Since January 1, 1991) 399,043 372,477 Cumulative translation adjustment (8,535) (8,112) Treasury common stock, at cost (74,979) (55,313) ---------- ---------- Total stockholders' equity 575,498 569,430 ---------- ---------- Commitments and contingencies (Note 2) - - ---------- ---------- $ 915,168 $ 904,080 ========== ========== See accompanying notes to consolidated financial statements.
-5- MUELLER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
For the Quarter Ended March 25, 2000 March 27, 1999 Cash flows from operating activities Net income $ 26,566 $ 21,683 Reconciliation of net income to net cash provided by operating activities: Depreciation and amortization 9,042 8,990 Minority interest in subsidiaries, net of dividend paid (57) - Deferred income taxes 1,814 4,493 Gain on disposal of properties (48) (110) Changes in assets and liabilities: Receivables (32,223) (27,264) Inventories (2,392) 10,277 Other assets (4,100) 4,626 Current liabilities 11,290 (2,297) Other liabilities (481) (3,649) Other, net 194 (216) ---------- ---------- Net cash provided by operating activities 9,605 16,533 ---------- ---------- Cash flows from investing activities Capital expenditures (6,723) (7,730) Proceeds from sales of properties 80 175 Escrowed IRB proceeds - 4,946 ---------- ---------- Net cash used in investing activities (6,643) (2,609) ---------- ---------- Cash flows from financing activities Acquisition of treasury stock (22,377) - Proceeds from issuance of long-term debt - 125,000 Repayments of long-term debt (6,676) (7,203) Net repayments on lines of credit - (122,840) Proceeds from the sale of treasury stock 2,302 470 ---------- ---------- Net cash used in financing activities (26,751) (4,573) ---------- ---------- Effect of exchange rate changes on cash (90) 214 ---------- ---------- (Decrease) increase in cash and cash equivalents (23,879) 9,565 Cash and cash equivalents at the beginning of the period 149,454 80,568 ---------- ---------- Cash and cash equivalents at the end of the period $ 125,575 $ 90,133 ========== ========== See accompanying notes to consolidated financial statements.
-6- 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 or results of operations. Note 3 - Comprehensive Income Comprehensive income for the Company consists of net income and foreign currency translation adjustments. Total comprehensive income was $26,143,000 and $19,173,000 for the quarters ending March 25, 2000, and March 27, 1999, respectively. -7- Note 4 - Industry Segments Summarized segment information is as follows: (In thousands) [CAPTION] For the Quarter Ended March 25, 2000 March 27, 1999 [S] [C] [C] Net sales: Standard Products Division $ 219,734 $ 206,558 Industrial Products Division 75,369 75,867 Other Businesses 7,385 5,438 Elimination of intersegment sales (138) (23) ---------- ---------- $ 302,350 $ 287,840 ========== ========== Operating income: Standard Products Division $ 36,063 $ 26,106 Industrial Products Division 8,321 8,527 Other Businesses 1,618 564 Unallocated expenses (3,498) (3,266) --------- ---------- $ 42,504 $ 31,931 ========= ========== Note 5 - Subsequent Event On April 20, 2000, the Company acquired all of the outstanding shares of Micro Gauge, Inc. and a related business, Microgauge Machining Inc. The acquired businesses are machining suppliers to the Company's Industrial Products Division, as well as other industries, primarily the automotive industry. The combined purchase price for both businesses including the pay-off of outstanding debt was approximately $9.6 million. The transactions will be accounted for as a purchase. 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. -8- 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. 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 $26.6 million, or 69 cents per diluted share, for the first quarter of 2000, which compares with net income of $21.7 million, or 55 cents per diluted share, for the same period of 1999. During the first quarter of 2000, the Company's net sales were $302.4 million, which compares to net sales of $287.8 million, or a five percent increase over the same period of 2000. The average price of copper was 29 percent higher in the first quarter of 2000 compared with the first quarter of 1999, which contributed to the increase in net sales. Pounds shipped totaled 193.9 million compared with shipments of 207.9 million in the first quarter of 1999. This decline in volume was due primarily to production interruptions at the Company's copper tube and fittings operations. The Company is pursuing a business interruption insurance claim for the loss of earnings at these operations. At this time, the amount to be recovered from our insurer cannot be determined. First quarter operating income increased primarily due to spread improvements in the Standard Products Division. Increased operating income was partially offset by losses at our European operations. Selling, general, and administrative expense decreased primarily due to reduced expenses at businesses acquired in the second half of 1998. -9- Interest expense in the first quarter of 2000 totaled $2.6 million, which was $0.3 million less than the first quarter of 1999. The Company capitalized $0.4 million of interest related to capital improvement programs in the first quarter of 1999 while none was capitalized in 2000. Total interest in the first quarter of 2000 decreased due to repayments during 1999 on the Company's lines of credit and scheduled repayments in other long-term debt. The Company's effective income tax rate for the first quarter of 2000 was 36.9 percent compared with 30.5 percent for the first quarter of last year. The tax rate increase was due to the Company having recognized the majority of historical tax benefits in prior years. Liquidity and Capital Resources Cash provided by operating activities in the first quarter of 2000 totaled $9.6 million which is primarily attributable to net income, depreciation and amortization, deferred income taxes and increased current liabilities, offset by increased receivables, inventories and other assets. During the first quarter of 2000, the Company used $6.6 million for investing activities, consisting primarily of $6.7 million for capital expenditures. The Company also used $26.8 million for financing activities during the quarter, consisting of $22.4 million for acquisition of treasury stock and $6.7 million for repayments of long-term debt, offset by $2.3 million of proceeds from the sale of treasury stock. Existing cash balances and cash from operations were used to fund the first quarter 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 March 25, 2000, the Company has repurchased approximately 1,156,000 shares under this program. 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 March 25, 2000, funds available under the Credit Facility was reduced by $5.5 million for outstanding letters of credit. At March 25, 2000, the Company's total debt was $143.2 million or 19.9 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. -10- The Company's capital expenditures and/or commitments may total as much as $90 million in 2000 including the projects described below. During the year, we will complete the capital improvement project for approximately $24 million at our Wynne, Arkansas, copper tube mill, which will update the extrusion and drawing equipment employed at the mill. The project, when completed, will significantly improve the mill's conversion costs as well as yield. At our Port Huron, Michigan, brass rod mill, we began installation of a horizontal continuous caster. This investment, totaling approximately $10 million, is expected to be completed near the end of 2000, and will increase our casting capacity, improve yield, and reduce conversion costs. 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. Management believes that cash provided by operations and currently available cash of $125.6 million will be adequate to meet the Company's normal future capital expenditure and operational needs. The Company's current ratio remains strong at 2.9 to 1. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 19.1 Mueller Industries, Inc.'s Quarterly Report to Stockholders for the quarter ended March 25, 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 March 25, 2000, the Registrant filed no Current Reports on Form 8-K. Items 1, 2, 3, 4, and 5 are not applicable and have been omitted. -11- 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 May 5, 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 -12- EXHIBIT INDEX Exhibits Description 19.1 Mueller Industries, Inc.'s Quarterly Report to Stockholders for the quarter ended March 25, 2000. Such report is being furnished for the information of the Securities and Exchange Commission only and is not to be deemed filed as a part of this Quarterly Report on Form 10-Q. 27.1 Financial Data Schedule (EDGAR filing only) -13-