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. -1- 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 -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 September 23, 2000 September 25, 1999 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 ========== ========== See accompanying notes to consolidated financial statements.
-3- MUELLER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data)
For the Nine Months Ended September 23, 2000 September 25, 1999 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 ========== ========== See accompanying notes to consolidated financial statements.
-4- MUELLER INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
September 23, 2000 December 25, 1999 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 ========== ========== See accompanying notes to consolidated financial statements.
-5- MUELLER INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data)
September 23, 2000 December 25, 1999 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 ========== ========== See accompanying notes to consolidated financial statements.
-6- MUELLER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
For the Nine Months Ended September 23, 2000 September 25, 1999 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 ---------- ----------
-7- MUELLER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) (In thousands)
For the Nine Months Ended September 23, 2000 September 25, 1999 (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 ========== ========== See accompanying notes to consolidated financial statements.
-8- 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. -9- 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 ========== ========== -10- 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. -11- 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. -12- 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. -13- 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. -14- 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. -15- 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 -16- 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) -17-