TO OUR STOCKHOLDERS, CUSTOMERS, AND EMPLOYEES Mueller's net income was $46.6 million, or $1.27 per diluted share, in the third quarter of 2002 compared with $19.0 million, or 51 cents per diluted share, for the same quarter last year. Earnings for the current quarter included a gain of $21.1 million, or 57 cents per diluted share, from the sale of the Utah Railway. In addition, the Company utilized a capital loss carryforward to offset a portion of the taxes due on the sale of the railroad. This tax benefit amounted to $12.7 million, or 34 cents per share, in the third quarter of 2002. Net sales for the third quarter were $238.5 million compared with net sales of $247.6 million for the third quarter of 2001. Income from continuing operations for the third quarter was $24.9 million, or 68 cents per diluted share, compared with $18.2 million, or 49 cents, in the same period of 2001. We shipped 175.9 million pounds of product versus 173.6 million pounds in the third quarter of last year. Profit margins continued at sub-par levels, particularly in our copper tube business. We believe better pricing will come when the national economy improves. Mueller's financial condition is excellent. We ended the quarter with $185 million in cash on hand, and only $17.9 million in debt. During the third quarter, we acquired certain assets of Colonial Engineering, Inc.'s Fort Pierce, Florida operations. These operations manufacture injected molded plastic pressure fittings for plumbing, agricultural, and industrial use including an extensive line of PVC Schedule 40 and 80 and CPVC fittings. These operations generated sales of approximately $15 million in 2001. The purchase price was approximately $14.5 million. This acquisition will allow Mueller to offer our customers a single source for DWV and pressure plastic fittings. Benefits should be realized as we leverage our core manufacturing capabilities in injection molding as well as our selling and distribution costs. Also during the third quarter, Mueller acquired 100 percent of the outstanding stock of Overstreet-Hughes, Co., Inc. Overstreet-Hughes, located in Carthage, Tennessee, manufactures precision tubular components and assemblies primarily for the OEM air-conditioning market and had sales in 2001 of approximately $8.0 million. Total consideration paid at closing, including assumption of debt, was approximately $6.4 million. A contingent payment of up to $2 million will be paid if certain financial targets are achieved. Acquiring Overstreet-Hughes positions Mueller to capitalize on the growing trend by OEMs in the HVAC industries to outsource assemblies of tubular components. Mueller currently serves many of the same customers in these industries. By acquiring Overstreet-Hughes, we will be able to offer additional value added products to existing and new customers. -1- At the end of the third quarter, Mueller acquired a 16 percent equity interest in Conbraco Industries, Inc. for $7.3 million in cash. Conbraco, headquartered in Matthews, North Carolina, is a manufacturer of flow control products including Apollo ball valves, automation products, backflow preventers, butterfly valves, check valves, forged steel products, marine valves, safety relief valves, strainers and plumbing and heating products for commercial and industrial applications. We will be working with the management of Conbraco to explore ways our companies can better supply our customers with the full line of pipe, valves, and fittings (PVF). We are confident that together both of our companies will benefit. The housing industry has continued to be a bright spot in the national economy. Mortgage rates are at a 40-year low and inventories of new homes for sale are also low. On the other hand, mortgage foreclosure rates have recently climbed. We believe that over the next year, the pace of the housing and construction industry may moderate, but at a comparatively high level. Sincerely, /S/HARVEY L. KARP /S/WILLIAM D. O'HAGAN Harvey L. Karp William D. O'Hagan Chairman of the Board President and Chief Executive Officer October 15, 2002 -2- MUELLER INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data)
For the Quarter Ended September 28, 2002 September 29, 2001 Net sales $ 238,481 $ 247,568 Cost of goods sold 187,353 186,462 Depreciation and amortization 9,735 10,518 Selling, general, and administrative expense 21,915 20,891 ---------- ---------- Operating income 19,478 29,697 Nonoperating income (expense), net 302 (306) ---------- ---------- Income from continuing operations before income taxes 19,780 29,391 Income tax (expense) benefit 5,086 (11,163) ---------- ---------- Income from continuing operations 24,866 18,228 Income from discontinued operations, net of tax 643 773 Gain on sale of Other Businesses, net of tax 21,123 - ---------- ---------- Net income $ 46,632 $ 19,001 ========== ========== Basic earnings per share: Weighted average shares outstanding 34,269 33,424 ---------- ---------- From continuing operations $ 0.72 $ 0.55 From discontinued operations 0.02 0.02 From gain on sale of Other Businesses 0.62 - ---------- ---------- Basic earnings per share $ 1.36 $ 0.57 ========== ========== Diluted earnings per share: Weighted average shares outstanding plus assumed conversions 36,837 37,298 ---------- ---------- From continuing operations $ 0.68 $ 0.49 From discontinued operations 0.02 0.02 From gain on sale of Other Businesses 0.57 - ---------- ---------- Diluted earnings per share $ 1.27 $ 0.51 ========== ==========
-3- MUELLER INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data)
For the Nine Months Ended September 28, 2002 September 29, 2001 Net sales $ 771,649 $ 798,399 Cost of goods sold 604,329 615,363 Depreciation and amortization 29,011 31,220 Selling, general, and administrative expense 67,500 65,845 ---------- ---------- Operating income 70,809 85,971 Nonoperating income (expense), net 2,103 (945) ---------- ---------- Income from continuing operations before income taxes 72,912 85,026 Income tax expense (13,957) (32,332) ---------- ---------- Income from continuing operations 58,955 52,694 Income from discontinued operations, net of tax 2,955 2,551 Gain on sale of Other Businesses, net of tax 21,123 - ---------- ---------- Net income $ 83,033 $ 55,245 ========== ========== Basic earnings per share: Weighted average shares outstanding 33,905 33,396 ---------- ---------- From continuing operations $ 1.74 $ 1.57 From discontinued operations 0.09 0.08 From gain on sale of Other Businesses 0.62 - ---------- ---------- Basic earnings per share $ 2.45 $ 1.65 ========== ========== Diluted earnings per share: Weighted average shares outstanding plus assumed conversions 37,123 37,237 ---------- ---------- From continuing operations $ 1.59 $ 1.41 From discontinued operations 0.08 0.07 From gain on sale of Other Businesses 0.57 - ---------- ---------- Diluted earnings per share $ 2.24 $ 1.48 ========== ==========
-4- MUELLER INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
September 28, 2002 December 29, 2001 ASSETS Cash and cash equivalents $ 184,570 $ 121,862 Accounts receivable, net 151,285 148,808 Inventories 137,475 126,629 Other current assets 4,414 6,614 ---------- ---------- Total current assets 477,744 403,913 Property, plant, and equipment, net 361,818 387,533 Other assets 150,052 124,619 ---------- ---------- $ 989,614 $ 916,065 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt $ 3,652 $ 3,996 Accounts payable 40,059 34,209 Other current liabilities 68,992 63,283 ---------- ---------- Total current liabilities 112,703 101,488 Long-term debt 14,224 46,977 Other noncurrent liabilities 95,778 94,396 ---------- ---------- Total liabilities 222,705 242,861 Minority interest in subsidiaries 337 271 Stockholders' equity 766,572 672,933 ---------- ---------- $ 989,614 $ 916,065 ========== ==========
Statements in this release that are not strictly historical may be "forward-looking" statements, which involve risks and uncertainties. These include economic and currency conditions, market demand, pricing, and competitive and technological factors, among others, as set forth in the Company's SEC filings. -5-