To our Stockholders, Customers and Employees Mueller's earnings continued to grow at a rapid pace in the second quarter of 2000. Net earnings rose 17.3 percent to $29.8 million, or 78 cents per diluted share, compared with $25.4 million or 64 cents per diluted share for the same quarter of 1999. On a pretax basis, Mueller's earnings growth was even more impressive at 26.0 percent. The effective tax rate in the second quarter was 36.9 percent, contrasted with 32.0 percent for the same quarter last year. Net sales for the second quarter totaled $328.6 million, an increase of 12.0 percent over sales of $293.3 million for the second quarter of 1999. We shipped 216 million pounds of product versus 211 million pounds in the same quarter last year. We are pleased to note that the American Metals Market, a metals industry journal, in its annual review of the major companies in the industry, ranked Mueller as the top company in 1999 in terms of return on total assets. At 10.98 percent, Mueller's performance was more than double the average return of the 25 companies listed in the review. During the quarter, 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. Subsequent to the end of the fiscal quarter, the Company also acquired Propipe Technologies, Inc., a fabricator of gas train manifold systems, for approximately $6.0 million. These acquired businesses have annualized sales of approximately $30 million, a portion of which were to Mueller. The outlook for the housing industry continues to appear promising with housing starts currently at a seasonally adjusted annual rate of 1.6 million units. Despite six interest rate increases imposed by the Federal Reserve over the past year, mortgage rates remain attractive. In fact, 30-year fixed-rate mortgages have dropped from a high for the year of 8.82 percent (on May 19) to a rate of 8.16 percent (on July 7). Also, approximately 30 percent of homebuyers are using adjustable rate mortgages to finance their purchases at rates often 100 basis points lower than fixed-rate mortgages. On June 30, 2000, Robert J. Pasquarelli was appointed Mueller's Vice President and General Manager, European Operations. He will be responsible for implementation of the Company's capital improvement program in Europe, as well as day-to-day operations. Mr. Pasquarelli, coincident with his appointment, resigned as a director, and was succeeded by Gary S. Gladstein. Mr. Gladstein, age 55, is a CPA and holds an MBA degree. He formerly served as a Mueller director from 1990 to 1994. We are also pleased to report that John P. Fonzo has been appointed Vice President, General Counsel and Secretary, succeeding William H. Hensley who will be returning to Kansas. -1- Our Annual Stockholders' Meeting was held at Mueller's corporate headquarters in Memphis on May 12, 2000. The Stockholders reelected Messrs. Hodes, Karp, Manolovici, O'Hagan, and Pasquarelli as directors and approved the appointment of Ernst & Young LLP as our independent auditors. Sincerely, /S/HARVEY L. KARP Harvey L. Karp Chairman of the Board /S/WILLIAM D. O'HAGAN William D. O'Hagan President and Chief Executive Officer July 12, 2000 -2- HISTORICAL ANALYSIS (1994-2000) OF QUARTERLY EARNINGS BEFORE TAX AND EARNINGS PER SHARE Mueller's earnings have grown substantially over the past six years. In the second quarter of 2000, our Company earned $47.2 million before tax, compared with $9.1 million for the same quarter of 1994, an increase of 419 percent. Diluted earnings per share have risen 457 percent, from 14 cents to 78 cents. [GRAPH] SECOND QUARTER DILUTED EARNINGS PER SHARE 1994 $0.14 1995 0.28 1996 0.36 1997 0.42 1998 0.50 1999 0.64 2000 0.78 EARNINGS BEFORE TAX (millions)
Quarter ------------------------------------------------ Total 1st 2nd 3rd 4th Year 1994 $ 6.7 $ 9.1 $ 12.0 $ 13.0 $ 40.8 1995 14.7 15.6 17.0 17.2 64.5 1996 19.3 20.1 23.4 25.6 88.4 1997 23.1 23.6 25.8 28.3 100.8 1998 28.5 29.0 26.1 25.7 109.3 1999 31.2 37.4 38.2 38.9 145.7 2000 42.1 47.2
Diluted Earnings Per Share
Quarter ------------------------------------------------ Total 1st 2nd 3rd 4th Year 1994 $ 0.10 $ 0.14 $ 0.22 $ 0.25 $ 0.71 1995 0.27 0.28 0.30 0.32 1.17 1996 0.34 0.36 0.41 0.46 1.57 1997 0.40 0.42 0.46 0.50 1.78 1998 0.49 0.50 0.47 0.45 1.90 1999 0.55 0.64 0.66 0.66 2.51 2000 0.69 0.78
-3- MUELLER INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data)
For the Quarter Ended June 24,2000 June 26,1999 Net sales $ 328,583 $ 293,342 Cost of goods sold 247,793 220,340 Depreciation and amortization 9,239 9,348 Selling, general, and administrative expense 24,820 25,888 ---------- ---------- Operating income 46,731 37,766 Interest expense (2,296) (3,147) Other income, net 2,731 2,821 ---------- ---------- Income before income taxes 47,166 37,440 Income tax expense (17,404) (11,995) ---------- ---------- Net income $ 29,762 $ 25,445 ========== ========== Earnings per share: Basic: Weighted average shares outstanding 34,464 35,799 ========== ========== Basic earnings per share $ 0.86 $ 0.71 ========== ========== Diluted: Weighted average shares outstanding plus assumed conversions 38,319 39,824 ========== ========== Diluted earnings per share $ 0.78 $ 0.64 ========== ==========
-4- MUELLER INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data)
For the Six Months Ended June 24,2000 June 26,1999 Net sales $ 630,933 $ 581,182 Cost of goods sold 474,307 442,080 Depreciation and amortization 18,281 18,338 Selling, general, and administrative expense 49,110 51,067 ---------- ---------- Operating income 89,235 69,697 Interest expense (4,923) (6,008) Other income, net 4,955 4,950 ---------- ---------- Income before income taxes 89,267 68,639 Income tax expense (32,939) (21,511) ---------- ---------- Net income $ 56,328 $ 47,128 ========== ========== Earnings per share: Basic: Weighted average shares outstanding 34,654 35,816 ========== ========== Basic earnings per share $ 1.63 $ 1.32 ========== ========== Diluted: Weighted average shares outstanding plus assumed conversions 38,536 39,719 ========== ========== Diluted earnings per share $ 1.46 $ 1.19 ========== ==========
-5- MUELLER INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
June 24,2000 December 25, 1999 ASSETS Cash and cash equivalents $ 136,985 $ 149,454 Accounts receivable, net 198,375 167,858 Inventories 130,224 119,644 Other current assets 10,714 3,790 ---------- ---------- Total current assets 476,298 440,746 Property, plant and equipment, net 350,435 347,846 Other assets 119,334 115,488 ---------- ---------- $ 946,067 $ 904,080 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt $ 25,302 $ 31,012 Accounts payable 49,343 49,958 Other current liabilities 86,941 72,091 ---------- ---------- Total current liabilities 161,586 153,061 Long-term debt 112,220 118,858 Other noncurrent liabilities 68,410 62,377 ---------- ---------- Total liabilities 342,216 334,296 Minority interest in subsidiaries 297 354 Stockholders' equity 603,554 569,430 ---------- ---------- $ 946,067 $ 904,080 ========== ========== -6-