TO OUR STOCKHOLDERS, CUSTOMERS AND EMPLOYEES The third quarter of 1997 was the best quarter in Mueller's history. Operating income, net earnings, and pounds of product manufactured and shipped all reached record levels. Net earnings for the third quarter of 1997 were $18.1 million, or 92 cents per share, compared to $16.2 million, or 83 cents per share, for the third quarter of 1996. This earnings record was achieved even though our recently acquired European copper tube businesses incurred operating losses of approximately $2 million. We acquired these businesses for a modest investment, with the objective of improving their cost structure and productivity. We see great opportunity to build substantial values in Europe. Net sales for the third quarter of 1997 totaled $229.1 million, an increase of 30 percent over sales of $176.0 million for the same quarter of 1996. Pounds shipped increased by 24 percent. Volume in the U.S. copper tube business continues to be strong; spreads have improved from the second quarter of 1997, though they remain significantly below levels achieved in the third quarter of 1996. Earnings at our copper fittings operations were the best ever. Brass rod also operated with solid volume and earnings. Our DWV plastics business continues to grow. We recently purchased a factory building, which is contiguous to our existing plant in Kalamazoo, Michigan. Nineteen additional injection molding presses were installed in this expansion, and in other facilities. Our copper refinery project in Fulton, Mississippi is on schedule. This $25 million investment, when completed in 1999, will allow our Fulton tube mill to use a lower cost mix of scrap and cathode. Financing was established for this project through a Mississippi Industrial Revenue Bond, which will generate ongoing tax benefits. U.S. economic conditions remain favorable for our business. Fixed 30- year mortgage rates are near 7.5 percent. Unemployment is close to its lowest level in more than 25 years. Inflation is modest. Consumer confidence is high. Although new housing starts declined slightly during the third quarter, the housing market remains solid. Consequently, we are optimistic that Mueller's business will be sound through the end of the year, and into 1998. 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 October 14, 1997 Corporate News Plastics Business Continues Consistent Improvement Profits at Mueller's DWV plastic fittings business have improved dramatically since 1996. The plastic fittings unit earned the prestigious Harvey L. Karp EBIT ("Everyone Benefits In Teamwork") Award in five consecutive quarters commencing with the second quarter of 1996. This deserves special recognition because we have never had back-to-back winners before. This internal award recognizes the business which demonstrates the best earnings improvement over the preceding quarter. The award was established in 1993, and has encouraged a healthy rivalry among the Company's operating units. -2- MUELLER INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data)
For the Quarter Ended September 27, September 28, 1997 1996 Net sales $ 229,133 $ 175,991 Costs of goods sold 181,376 133,204 Depreciation and amortization 5,593 4,697 Selling, general, and administrative expense 15,120 12,809 ----------- ----------- Operating income 27,044 25,281 Interest expense (1,818) (1,400) Environmental reserves (1,100) (1,945) Other income, net 1,661 1,424 ----------- ----------- Income before taxes 25,787 23,360 Income tax expense (7,736) (7,178) ----------- ----------- Net income $ 18,051 $ 16,182 =========== =========== Net income per share: Primary: Average shares outstanding 19,641 19,520 Net income $ 0.92 $ 0.83 =========== =========== Fully diluted: Average shares outstanding 19,648 19,550 Net income $ 0.92 $ 0.83 =========== ===========
-3- MUELLER INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data)
For the Nine-Months Ended September 27, September 28, 1997 1996 Net sales $ 645,936 $ 546,063 Costs of goods sold 509,845 426,272 Depreciation and amortization 15,409 13,718 Selling, general, and administrative expense 45,850 41,632 ----------- ----------- Operating income 74,832 64,441 Interest expense (4,114) (4,113) Environmental reserves (3,100) (1,945) Other income, net 4,857 4,364 ----------- ----------- Income before taxes 72,475 62,747 Income tax expense (22,327) (19,376) ----------- ----------- Net income $ 50,148 $ 43,371 =========== =========== Net income per share: Primary: Average shares outstanding 19,604 19,477 Net income $ 2.56 $ 2.23 =========== =========== Fully diluted: Average shares outstanding 19,641 19,534 Net income $ 2.55 $ 2.22 =========== ===========
-4- MUELLER INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except per share data)
September 27, 1997 December 28, 1996 ASSETS Cash and cash equivalents $ 44,333 $ 96,956 Accounts receivable, net 139,254 88,905 Inventories 113,162 76,647 Other current assets 13,383 12,204 --------- --------- Total current assets 310,132 274,712 Property, plant and equipment, net 256,391 219,855 Other assets 43,120 14,790 --------- --------- $ 609,643 $ 509,357 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt $ 19,083 $ 14,844 Accounts payable 36,805 18,305 Other current liabilities 53,494 45,807 --------- --------- Total current liabilities 109,382 78,956 Long-term debt 61,094 44,806 Other noncurrent liabilities 41,340 37,116 --------- --------- Total liabilities 211,816 160,878 Minority interest in subsidiaries 641 397 Stockholders' equity 397,186 348,082 --------- --------- $ 609,643 $ 509,357 ========= ========= Book value per share $ 22.69 $ 19.96 ========= =========
-5-