2002
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 30, 2002 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 17, 2002, was 33,823,446.
-1-
MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Period Ended March 30, 2002
INDEX
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
a.) Consolidated Statements of Income
for the quarters ended
March 30, 2002 and March 31, 2001 3
b.) Consolidated Balance Sheets
as of March 30, 2002 and December 29, 2001 4
c.) Consolidated Statements of Cash Flows
for the quarters ended March 30, 2002
and March 31, 2001 6
d.) Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure
of Market Risk 13
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
-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 30, 2002 March 31, 2001
Net sales $ 268,024 $ 276,578
Cost of goods sold 208,490 218,116
---------- ----------
Gross profit 59,534 58,462
Depreciation and amortization 9,759 10,527
Selling, general, and
administrative expense 22,717 22,556
---------- ----------
Operating income 27,058 25,379
Interest expense (493) (1,424)
Environmental expense (175) (761)
Other income, net 1,636 1,766
---------- ----------
Income before income taxes 28,026 24,960
Current income tax expense (7,477) (7,784)
Deferred income tax expense (2,613) (1,707)
---------- ----------
Total income tax expense (10,090) (9,491)
---------- ----------
Net income $ 17,936 $ 15,469
========== ==========
Weighted average shares
for basic earnings per share 33,506 33,368
Effect of dilutive stock options 3,823 3,766
---------- ----------
Adjusted weighted average shares
for diluted earnings per share 37,329 37,134
---------- ----------
Basic earnings per share $ 0.54 $ 0.46
========== ==========
Diluted earnings per share $ 0.48 $ 0.42
========== ==========
See accompanying notes to consolidated financial statements.
-3-
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 30, 2002 December 29, 2001
Assets
Current assets:
Cash and cash equivalents $ 107,410 $ 121,862
Accounts receivable, less allowance
for doubtful accounts of $6,684 in
2002 and $6,573 in 2001 172,422 148,808
Inventories:
Raw material and supplies 26,231 28,185
Work-in-process 19,903 16,346
Finished goods 77,337 82,098
---------- ----------
Total inventories 123,471 126,629
Other current assets 5,851 6,614
---------- ----------
Total current assets 409,154 403,913
Property, plant, and equipment, net 385,441 387,533
Goodwill, net 98,749 98,749
Other assets 25,497 25,870
---------- ----------
$ 918,841 $ 916,065
========== ==========
See accompanying notes to consolidated financial statements.
-4-
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
March 30, 2002 December 29, 2001
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 3,986 $ 3,996
Accounts payable 45,808 34,209
Accrued wages and other employee costs 21,577 21,349
Other current liabilities 43,723 41,934
---------- ----------
Total current liabilities 115,094 101,488
Long-term debt 15,955 46,977
Pension and postretirement liabilities 19,494 22,746
Environmental reserves 9,068 9,203
Deferred income taxes 53,738 51,768
Other noncurrent liabilities 10,363 10,679
---------- ----------
Total liabilities 223,712 242,861
---------- ----------
Minority interest in subsidiaries 271 271
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 33,615,075
in 2002 and 33,466,512 in 2001 401 401
Additional paid-in capital, common 261,395 261,647
Retained earnings 550,057 532,122
Accumulated other comprehensive loss (18,765) (22,038)
Treasury common stock, at cost (98,230) (99,199)
---------- ----------
Total stockholders' equity 694,858 672,933
Commitments and contingencies (Note 2) - -
---------- ----------
$ 918,841 $ 916,065
========== ==========
See accompanying notes to consolidated financial statements.
-5-
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Quarter Ended
March 30, 2002 March 31, 2001
Cash flows from operating activities
Net income $ 17,936 $ 15,469
Reconciliation of net income to net
cash provided by operating
activities:
Depreciation and amortization 9,759 10,527
Income tax benefit from exercise
of stock options 2,245 -
Deferred income taxes 2,613 1,707
Gain on disposal of properties (497) (6)
Changes in assets and liabilities:
Receivables (24,025) (22,614)
Inventories 2,874 11,434
Other assets (249) (160)
Current liabilities 14,696 (6,552)
Other liabilities (346) 669
Other, net 826 (181)
---------- ----------
Net cash provided by operating activities 25,832 10,293
---------- ----------
Cash flows from investing activities
Capital expenditures (8,761) (9,500)
Proceeds from sales of properties 552 10
Escrowed IRB proceeds 539 (5,646)
---------- ----------
Net cash used in investing activities (7,670) (15,136)
---------- ----------
Cash flows from financing activities
Acquisition of treasury stock (2,283) -
Proceeds from issuance of
long-term debt - 10,000
Repayments of long-term debt (31,032) (16,673)
Proceeds from the sale of
treasury stock 756 276
---------- ----------
Net cash used in financing activities (32,559) (6,397)
---------- ----------
Effect of exchange rate changes on cash (55) (1,413)
---------- ----------
See accompanying notes to consolidated financial statements.
-6-
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
(In thousands)
For the Quarter Ended
March 30, 2002 March 31, 2001
Decrease in cash
and cash equivalents $ (14,452) $ (12,653)
Cash and cash equivalents at the
beginning of the period 121,862 100,268
---------- ----------
Cash and cash equivalents at the
end of the period $ 107,410 $ 87,615
========== ==========
See accompanying notes to consolidated financial statements.
-7-
MUELLER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
General
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States 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 - Amortization of Goodwill
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS No. 141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS No.
142), effective for fiscal years beginning after December 15, 2001. These
Statements eliminated the pooling-of-interests method of accounting for
business combinations and the systematic amortization of goodwill. SFAS No.
141 applies to all business combinations with a closing date after June 30,
2001, of which the Company had no such activity. At the beginning of fiscal
2002, the Company adopted SFAS No. 142. Under the new standard, purchased
goodwill is no longer amortized over its useful life but will be subject to
-8-
annual impairment tests. Therefore, the Company did not incur any goodwill
amortization expense during the first quarter of 2002. Goodwill amortization
expense recorded in the first quarter of 2001 was $1.1 million, which had a
negative impact of $1.0 million on net income, or 3 cents per diluted share.
During 2002, the Company will perform the first of the required impairment
tests of goodwill and indefinite lived intangible assets as of the beginning
of its fiscal year. The Company believes the results of the impairment tests
associated with the adoption of FAS No. 142, will not have a significant
effect on its earnings or its financial position.
Note 4 - Industry Segments
Summarized segment information is as follows:
(In thousands)
For the Quarter Ended
March 30, 2002 March 31, 2001
Net sales:
Standard Products Division $ 192,486 $ 203,521
Industrial Products Division 69,987 68,966
Other Businesses 6,583 5,058
Elimination of intersegment sales (1,032) (967)
---------- ----------
$ 268,024 $ 276,578
========== ==========
Operating income:
Standard Products Division $ 23,791 $ 23,770
Industrial Products Division 5,668 5,129
Other Businesses 1,356 269
Unallocated expenses (3,757) (3,789)
---------- ----------
$ 27,058 $ 25,379
========== ==========
-9-
Note 5 - Comprehensive Income
Comprehensive income is as follows:
(In thousands)
For the Quarter Ended
March 30, 2002 March 31, 2001
Comprehensive income:
Net income $ 17,936 $ 15,469
Other comprehensive income (loss):
Cumulative translation adjustments (825) (6,157)
Minimum pension liability
adjustment 2,907 -
Change in the fair value
of derivatives 1,190 (127)
---------- ----------
$ 21,208 $ 9,185
========== ==========
Note 6 - Recently Issued Accounting Standards
The FASB issued Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" (SFAS No.143) in June 2001.
SFAS No.143 applies to legal obligations associated with the retirement of
certain tangible long-lived assets. This statement is effective for fiscal
years beginning after June 15, 2002. The adoption of SFAS No. 143 will not
have a significant effect on earnings or the financial position of the
Company.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General Overview
Mueller Industries, Inc. is a leading manufacturer of 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 operations are located throughout the United States and in Canada,
Mexico, France, and Great Britain. The Company also owns a short line
railroad in Utah.
-10-
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,
and copper and plastic fittings and valves. Outside of the United States,
SPD manufactures copper tube in Europe. SPD sells these products to
wholesalers in the HVAC (heating, ventilation, and air-conditioning),
plumbing and refrigeration markets, to distributors to the manufactured
housing and recreational vehicle industries, and to building material
retailers. 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 is composed primarily of Utah
Railway Company. SPD and IPD account for more than 98 percent of
consolidated net sales and more than 83 percent of consolidated total
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
market conditions.
Results of Operations
Net income was $17.9 million, or 48 cents per diluted share, for the
first quarter of 2002, which compares with net income of $15.5 million, or
42 cents per diluted share, for the same period of 2001.
During the first quarter of 2002, the Company's net sales were $268.0
million compared with net sales of $276.6 million over the same period of
2001. The average price of copper was approximately 12 percent less in the
first quarter of 2002 compared with the first quarter of 2001, which
contributed to the decrease in net sales. Pounds shipped totaled 194.9
million compared with shipments of 175.8 million in the first quarter of
2001.
Cost of goods sold decreased from $218.1 million in the first quarter
of 2001 to $208.5 million in the same period of 2002, despite the 10.9
percent increase in volume. This decrease is attributable to reductions in
raw material costs, primarily copper, cost containment measures, and
production efficiencies, primarily at our Bilston copper tube mill.
-11-
Depreciation and amortization expense decreased to $9.8 million for the
first quarter of 2002 compared with $10.5 million during the first quarter
of 2001. The decrease was due to discontinuing goodwill amortization as
described in Note 3, offset by increased depreciation due to recent capital
expenditures. Selling, general, and administrative expense was $22.7
million for the first quarter of 2002 compared with $22.6 million for the
same period of 2001.
First quarter earnings include a modest profit from our European
operations, representing a turnaround from losses incurred in prior years.
Although consolidated volumes are returning to levels present before the
recent economic slowdown, spreads in certain product lines have declined
resulting in lower margins.
Interest expense in the first quarter of 2002 totaled $0.5 million,
which was $0.9 million less than the first quarter of 2001. The Company
capitalized $0.5 million of interest related to capital improvement programs
in the first quarter of 2001 while none was capitalized in 2002. Total
interest in the first quarter of 2002 decreased due to lower funded
balances.
The Company's effective income tax rate for the first quarter of 2002
was 36.0 percent compared with 38.0 percent for the first quarter of last
year. This rate decrease is due to realization of tax benefits attributable
to European earnings.
Liquidity and Capital Resources
Cash provided by operating activities in the first quarter of 2002
totaled $25.8 million, which is primarily attributable to net income,
depreciation and amortization, and increased current liabilities, offset by
increased receivables. Fluctuations in the cost of copper and other raw
materials affect the Company's liquidity. Changes in material costs
directly impact components of working capital, primarily inventories and
accounts receivable.
During the first quarter of 2002, the Company used $7.7 million for
investing activities, consisting primarily of $8.8 million for capital
expenditures. The Company also used $32.6 million for financing activities
during the quarter, consisting primarily of $31.0 million for repayments of
long-term debt. Existing cash balances, cash from operations and escrowed
IRB proceeds were used to fund the first quarter investing and financing
activities.
During the first quarter, the Chairman of the Company's Board of
Directors, Mr. Harvey L. Karp, exercised options to purchase 200,000
shares of Company stock. As provided in Mr. Karp's option agreement, the
Company withheld the number of shares, at their fair market value,
sufficient to cover the minimum withholding taxes incurred by the exercise.
These shares withheld have been classified as acquisition of treasury stock
on the Company's Consolidated Statement of Cash Flows. The income tax
benefit of $2.2 million from the exercise of stock options was recognized as
a direct addition to additional paid-in capital and, therefore, had no
effect on the Company's earnings.
-12-
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. During 2000, this authorization was
expanded and extended to repurchase up to a total of ten million shares.
During 2001, the authorization was extended through October, 2002. The
Company has 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 will be 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 30, 2002, the Company has repurchased
approximately 2.3 million shares under this authorization.
The Company has an unsecured $200 million revolving credit facility
(the Credit Facility), which matures in November 2003. At March 30, 2002,
there were no outstanding borrowings under the Credit Facility. Borrowings
under the Credit Facility bear interest, at the Company's option, at (i)
LIBOR plus a variable premium or (ii) the larger of Prime, or the Federal
Funds rate plus .50 percent. LIBOR advances may be based upon the one, two,
three, or six-month LIBOR. The variable premium over LIBOR is based on
certain financial ratios, and can range from 25 to 40 basis points.
Additionally, a facility fee is payable quarterly on the total commitment
and varies from 12.5 to 22.5 basis points based upon the Company's
capitalization ratios. When funded debt is 50 percent or more of the
commitment, a utilization fee is payable quarterly on the average loan
balance outstanding and varies from 0 to 20 basis points based upon the
capitalization ratio. Availability of funds under the Credit Facility is
reduced by the amount of certain outstanding letters of credit, which
totaled approximately $6.4 million at March 30, 2002.
Under the above Agreement the Company is required, among other things,
to maintain certain minimum levels of net worth and meet certain minimum
financial ratios. The Company is in compliance with all debt covenants.
The Company's major capital projects were substantially complete in
2001, including casting facilities at the Company's brass rod mill,
modernization of the European copper tube mill, and installation of an
additional extrusion press at the Company's Fulton, Mississippi, copper tube
mill. The Company expects to invest between $35 and $40 million for capital
projects during 2002.
Management believes that cash provided by operations and currently
available cash of $107.4 million will be adequate to meet the Company's
normal future capital expenditure and operational needs. The Company's
current ratio is 3.6 to 1 at March 30, 2002.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Quantitative and qualitative disclosures about market risk are
incorporated herein by reference to Part II, Item 7A, of the Company's
Report on Form 10-K for the year ended December 29, 2001.
-13-
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 30, 2002.
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 30, 2002, the Registrant filed
no Current Reports on Form 8-K.
Items 1, 2, 3, 4, and 5 are not applicable and have been omitted.
-14-
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
April 24, 2002.
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
-15-