2001
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 31, 2001 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 30, 2001, was 33,374,361.
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MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Period Ended March 31, 2001
INDEX
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
a.) Consolidated Statements of Income
for the quarters ended March 31, 2001
and March 25, 2000 3
b.) Consolidated Balance Sheets
as of March 31, 2001 and December 30, 2000 4
c.) Consolidated Statements of Cash Flows
for the quarters ended March 31, 2001
and March 25, 2000 6
d.) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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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 31, 2001 March 25, 2000
Net sales $ 276,578 $ 309,336
Cost of goods sold 218,116 233,500
---------- ----------
Gross profit 58,462 75,836
Depreciation and amortization 10,527 9,042
Selling, general, and
administrative expense 22,556 24,290
---------- ----------
Operating income 25,379 42,504
Interest expense (1,424) (2,627)
Environmental reserves (761) -
Other income, net 1,766 2,224
---------- ----------
Income before income taxes 24,960 42,101
Current income tax expense (7,784) (13,721)
Deferred income tax expense (1,707) (1,814)
---------- ----------
Total income tax expense (9,491) (15,535)
---------- ----------
Net income $ 15,469 $ 26,566
========== ==========
Weighted average shares
for basic earnings per share 33,368 34,844
Effect of dilutive stock options 3,766 3,909
---------- ----------
Adjusted weighted average shares
for diluted earnings per share 37,134 38,753
---------- ----------
Basic earnings per share $ 0.46 $ 0.76
========== ==========
Diluted earnings per share $ 0.42 $ 0.69
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
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MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 31, 2001 December 30, 2000
Assets
Current assets:
Cash and cash equivalents $ 87,615 $ 100,268
Accounts receivable, less allowance
for doubtful accounts of $5,412 in
2001 and $5,612 in 2000 172,878 152,157
Inventories:
Raw material and supplies 25,213 25,111
Work-in-process 20,479 19,941
Finished goods 84,182 97,273
---------- ----------
Total inventories 129,874 142,325
Other current assets 9,259 10,421
---------- ----------
Total current assets 399,626 405,171
Property, plant, and equipment, net 377,449 379,885
Goodwill, net 101,567 102,673
Other assets 28,712 22,547
---------- ----------
$ 907,354 $ 910,276
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
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MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
March 31, 2001 December 30, 2000
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 5,265 $ 5,909
Accounts payable 38,760 43,733
Accrued wages and other employee costs 20,345 26,994
Other current liabilities 45,455 41,213
---------- ----------
Total current liabilities 109,825 117,849
Long-term debt 94,946 100,975
Pension and postretirement liabilities 13,829 14,173
Environmental reserves 9,411 9,862
Deferred income taxes 40,790 39,362
Other noncurrent liabilities 14,690 13,653
---------- ----------
Total liabilities 283,491 295,874
---------- ----------
Minority interest in subsidiaries 297 297
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 33,374,361
in 2001 and 33,358,061 in 2000 401 401
Additional paid-in capital, common 261,047 260,979
Retained earnings 480,636 465,167
Cumulative translation adjustments
and accumulated other
comprehensive income (loss) (18,110) (11,826)
Treasury common stock, at cost (100,408) (100,616)
---------- ----------
Total stockholders' equity 623,566 614,105
---------- ----------
Commitments and contingencies (Note 2) - -
---------- ----------
$ 907,354 $ 910,276
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
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MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Quarter Ended
March 31, 2001 March 25, 2000
Cash flows from operating activities
Net income $ 15,469 $ 26,566
Reconciliation of net income to net
cash provided by operating activities:
Depreciation and amortization 10,527 9,042
Minority interest in subsidiaries,
net of dividend paid - (57)
Deferred income taxes 1,707 1,814
Gain on disposal of properties (6) (48)
Changes in assets and liabilities:
Receivables (22,614) (32,223)
Inventories 11,434 (2,392)
Other assets (160) (4,100)
Current liabilities (6,552) 11,290
Other liabilities 669 (481)
Other, net (181) 194
---------- ----------
Net cash provided by operating activities 10,293 9,605
---------- ----------
Cash flows from investing activities
Capital expenditures (9,500) (6,723)
Proceeds from sales of properties 10 80
Escrowed IRB proceeds (5,646) -
---------- ----------
Net cash used in investing activities (15,136) (6,643)
---------- ----------
Cash flows from financing activities
Acquisition of treasury stock - (22,377)
Proceeds from issuance of long-term debt 10,000 -
Repayments of long-term debt (16,673) (6,676)
Proceeds from the sale of treasury stock 276 2,302
---------- ----------
Net cash used in financing activities (6,397) (26,751)
---------- ----------
Effect of exchange rate changes on cash (1,413) (90)
---------- ----------
Decrease in cash and cash equivalents (12,653) (23,879)
Cash and cash equivalents at the
beginning of the period 100,268 149,454
---------- ----------
Cash and cash equivalents at the
end of the period $ 87,615 $ 125,575
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
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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 or results of operations.
Note 3 - Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period's presentation.
During the first quarter, the Company began classifying the cost of
shipping its products to customers as a component of cost of goods sold
resulting from the adoption of Emerging Issues Task Force Issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs." Previously, the
Company classified these costs as a reduction of net sales. This change
required a restatement of net sales and cost of goods sold amounts for all
periods presented and did not have a significant effect on the net sales,
cost of goods sold, and gross profit of the Company.
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Note 4 - Adoption of a New Accounting Standard
Effective at the beginning of fiscal 2001, the Company adopted
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133), as amended
by Statement of Financial Accounting Standards No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities" (SFAS No.
138), which requires that all derivative instruments be reported on the
balance sheet at fair value and establishes criteria for designation and
effectiveness of hedging relationships. The cumulative effect of adopting
SFAS No. 133 and SFAS No. 138 as of the beginning of fiscal 2001 was not
material to the Company's consolidated financial statements.
The Company occasionally uses financial instruments, including forward
exchange contracts and interest rate swap contracts, to manage its exposures
to movements in foreign exchange rates and interest rates. The use of these
financial instruments modifies the exposure of these risks with the intent
to reduce the risk and variability to the Company. The Company does not
hold or issue derivative financial instruments for trading purposes.
During the first quarter, the Company utilized foreign currency forward
exchange contracts to offset the effect of exchange rate fluctuations on
certain foreign sales and the collections of the receivables related to
these sales. These foreign sales were primarily denominated in the Euro,
British pound sterling, and Swedish krona. Also, the Company entered into
interest rate swaps that effectively fix the interest payments of certain
floating rate debt instruments. At March 31, 2001, the Company had interest
rate swap contracts outstanding with a notional principal amount of $10.0
million which expire in 2008. These derivative financial instruments are
accounted for as cash flow hedges. The fair value of these instruments at
March 31, 2001 and changes in their fair values during the first quarter of
2001 were not material to the consolidated financial statements of the
Company.
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Note 5 - Industry Segments
Summarized segment information is as follows:
(In thousands)
For the Quarter Ended
March 31, 2001 March 25, 2000
Net sales:
Standard Products Division $ 203,521 $ 225,698
Industrial Products Division 68,966 76,391
Other Businesses 5,058 7,385
Elimination of intersegment sales (967) (138)
---------- ----------
$ 276,578 $ 309,336
========== ==========
Operating income:
Standard Products Division $ 23,770 $ 36,063
Industrial Products Division 5,129 8,321
Other Businesses 269 1,618
Unallocated expenses (3,789) (3,498)
---------- ----------
$ 25,379 $ 42,504
========== ==========
Note 6 - Comprehensive Income
Comprehensive income for the Company consists of net income and other
comprehensive income. Total comprehensive income was $9,185,000 and
$26,143,000 for the quarters ending March 31, 2001, and March 25, 2000,
respectively. Included in "Cumulative translation adjustments and
accumulated other comprehensive income (loss)" were changes in the fair value
of certain derivative financial instruments which qualify for hedge
accounting totaling $(127,000) at March 31, 2001 and none at December 30,
2000.
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.
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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 86
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 competitive
market conditions.
Results of Operations
Net income was $15.5 million, or 42 cents per diluted share, for the
first quarter of 2001, which compares with net income of $26.6 million, or
69 cents per diluted share, for the same period of 2000.
During the first quarter of 2001, the Company's net sales were $276.6
million compared with net sales of $309.3 million over the same period of
2000. Pounds shipped totaled 175.8 million compared with shipments of 193.9
million in the first quarter of 2000. This decline in volume reflects the
overall slowdown in the economy. The average price of copper was
approximately two percent less in the first quarter of 2001 compared with
the first quarter of 2000, which contributed to the decrease in net sales.
Cost of goods sold decreased from $233.5 million in the first quarter
of 2000 to $218.1 million in the same period of 2001. Selling, general,
and administrative expense also decreased from $24.3 million in 2000 to
$22.6 million in the first quarter of 2001. The decreases in these
operating costs are attributable to the decline in volume experienced in
the first quarter. Depreciation and amortization increased to $10.5
million in the first three months of 2001 compared with $9.0 million in
2000.
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First quarter operating income decreased primarily due to reduced
volumes. Operating income was partially offset by losses at our European
operations.
Interest expense in the first quarter of 2001 totaled $1.4 million,
which was $1.2 million less than the first quarter of 2000. The Company
capitalized $0.5 million of interest related to capital improvement
programs in the first quarter of 2001 while none was capitalized in 2000.
Total interest in the first quarter of 2001 decreased due to rate
reductions following the restructuring of the Company's bank credit
facility late in 2000, combined with lower funded balances.
The Company's effective income tax rate for the first quarter of 2001
was 38.0 percent compared with 36.9 percent for the first quarter of last
year.
Liquidity and Capital Resources
Cash provided by operating activities in the first quarter of 2001
totaled $10.3 million which is primarily attributable to net income,
depreciation and amortization, deferred income taxes and decreased
inventories, offset by increased receivables and decreased current
liabilities.
During the first quarter of 2001, the Company used $15.1 million for
investing activities, consisting primarily of $9.5 million for capital
expenditures. The Company also used $6.4 million for financing activities
during the quarter, consisting of $16.7 million for repayments of long-term
debt, offset by $10.0 million of proceeds from the issuance of Industrial
Revenue Bonds (IRB). Existing cash balances, cash from operations and
IRB proceeds were used to fund the first quarter 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. During 2000, this authorization was
expanded to purchase up to 10 million shares and extended through October
2001. 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 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 31, 2001, the Company has
repurchased approximately 2.3 million shares under this authorization.
There were no shares repurchased during the first quarter of 2001.
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The Company has an unsecured $200 million revolving credit facility
(the Credit Facility) which matures in November 2003. 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. At March 31,
2001 the premium was 25 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 $6.5 million at March 31,
2001.
Borrowings under the above Agreement require the Company, 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 expects to invest approximately $50 million for capital
improvements and additions in 2001, the majority of which relate to
projects approved and initiated during the previous year. The largest
ongoing project is the modernization of the Company's European operations.
This investment, totaling approximately $40 million, will upgrade the
casting, extrusion and drawing processes. The project is expected to be
completed near the end of 2001.
The Company is also investing approximately $10 million at its Port
Huron, Michigan brass rod mill, the majority of which was funded during
2000. This investment, which is expected to be completed during 2001, will
increase casting capacity, improve yield, and reduce conversion costs.
On February 13, 2001, the Company, through a wholly owned subsidiary,
issued $10 million of 2001 Series IRBs. The Company entered into an
interest rate swap agreement which fixes the interest rate at 6.63% for
seven years. Subsequent to the seven-year period, the rate will convert to
LIBOR plus .90 percent. The IRBs call for quarterly interest payments from
June 1, 2001 to March 1, 2021 and for quarterly principal payments of $250
thousand plus interest from June 1, 2011 to March 1, 2021. Proceeds from
these 2001 Series IRBs will be used to fund a new extrusion press in the
Company's tube mill in Fulton, Mississippi.
Management believes that cash provided by operations and currently
available cash of $87.6 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 31, 2001.
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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 31,
2001. 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 31, 2001, the Registrant
filed no Current Reports on Form 8-K.
Items 1, 2, 3, 4, and 5 are not applicable and have been omitted.
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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 May 3, 2001.
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
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EXHIBIT INDEX
Exhibits Description
19.1 Mueller Industries, Inc.'s Quarterly Report to
Stockholders for the quarter ended March 31, 2001.
Such report is being furnished for the
information of the Securities and Exchange
Commission only and is not to be deemed filed as a
part of this Quarterly Report on Form 10-Q.
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