1
TO OUR STOCKHOLDERS
Our Company had a good third quarter in 1994. Earnings rose to $8.5 million,
or 90 cents per share on 9,499,000 average shares outstanding, compared to
earnings of $5.6 million, or 54 cents per share on 10,473,000 average shares
outstanding for the third quarter of 1993. For the first nine months of 1994,
earnings were $18.5 million, or $1.84 per share compared to earnings of $15.2
million, or $1.45 per share for the same period in 1993. Earnings in 1994
were favorably effected by the sale of selected natural resource assets and
lower state and federal income tax provisions.
Our earnings for the third quarter of 1994 and for the nine months ended
September 24, 1994 are based on the last-in, first-out (LIFO) method of
valuing the copper component of our inventories, instead of the first-in,
first-out (FIFO) method previously used.
In recent years, the market price of copper, our principal raw material, has
been particularly volatile. For example, copper was 80 cents per pound on
January 3, 1994, and increased by 60 percent, to $1.28 per pound on September
23, 1994. Consequently, the wide swings in copper prices have had a direct
impact upon our earnings, sometimes favorably and sometimes unfavorably. The
LIFO method of valuing the copper component of inventories should mitigate the
income statement effect of copper price fluctuations by more closely matching
current costs with current selling prices.
The change to LIFO also involves restatement of our earnings for the first and
second quarters of 1994, the effect of which is included in the attached
statement of income for the nine months ended September 24, 1994. Further, by
adopting LIFO, Mueller has established a LIFO inventory reserve of $9.6
million, as of September 24, 1994.
Net sales for the third quarter of 1994 totalled $138.0 million compared to
$122.1 million for the same quarter of 1993. In terms of pounds of product
shipped, which we believe is a more relevant indicator of our sales activity,
pounds increased during the third quarter of 1994 by eight percent over 1993
levels.
In mid-September, Mueller acquired the DWV (drain, waste and vent) plastic
fittings manufacturing operations of Colonial Engineering, Inc. These
operations are located in Michigan and California, and will significantly
increase our Polyvinyl Chloride (PVC) and Acrrylonitrile Butadiene Styrene
(ABS) plastic fittings manufacturing capacity. In addition, this acquisition
will allow us to leverage our existing sales and distribution network and
reduce costs.
In addition, we continue to make very good progress on other internal capital
improvement projects including our Fulton copper tube expansion, installation
of a new extrusion press at our Port Huron plant, and construction of a high
volume copper fittings plant at Fulton, Mississippi. All of these projects
were announced previously.
2
The Internal Revenue Service (IRS) audit for 1992 and prior years was
concluded in the third quarter of 1994 and resulted in no material changes.
Following the conclusion of that audit, the Company entered into a Closing
Agreement with the IRS which definitized the NOL (net operating loss) which
the Company is entitled to utilize. This led to the recognition of additional
tax benefits in the amount of $17.9 million, which has been added to paid-in
capital in the third quarter of 1994.
We believe business will remain strong for the balance of 1994. Demand for
housing continues to be vigorous and that is good for our business.
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 14, 1994
3
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except share data)
For the Quarter Ended For the Nine-months Ended
Sep. 24, Sep. 25, Sep. 24, Sep. 25,
1994 1993 1994 1993
Net sales $137,975 $122,106 $395,363 $380,464
Costs and expenses 126,977 112,602 366,996 353,132
------- ------- ------- -------
Operating income 10,998 9,504 28,367 27,332
Non operating income (expense), net 1,035 (494) (552) (2,628)
------- ------- ------- -------
Income before taxes 12,033 9,010 27,815 24,704
Income tax expense 3,515 3,375 9,337 9,544
------- ------- ------- -------
Net income $ 8,518 $ 5,635 $ 18,478 $ 15,160
======= ======= ======= =======
Earnings per common and
common equivalent share:
Primary $ .90 $ .54 $ 1.84 $ 1.45
======= ======= ======= =======
Fully diluted $ .90 $ .54 $ 1.84 $ 1.44
======= ======= ======= =======
4
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
Sep. 24, 1994 Dec. 25, 1993
Assets
Current assets $ 178,504 $ 194,411
Property, plant and equipment, net 173,869 154,403
Other assets 76,011 20,929
------- -------
$ 428,384 $ 369,743
======= =======
Liabilities and Stockholders' Equity
Current liabilities $ 71,581 $ 50,906
Long-term debt 83,657 54,320
Other noncurrent liabilities 39,873 42,403
------- -------
Total liabilities 195,111 147,629
------- -------
Stockholders' equity:
Common stock 100 100
Paid-in capital, common 254,275 236,406
Retained earnings (Accumulated deficit)
since January, 1991 12,539 (5,939)
Cumulative translation adjustments (2,048) (1,944)
Treasury common stock at cost (31,593) (6,509)
------- -------
Total stockholders' equity 233,273 222,114
------- -------
$ 428,384 $ 369,743
======= =======
Book value per share $ 26.82 $ 23.18
======= =======
5
DIRECTORS AND OFFICERS
DIRECTORS
Harvey L. Karp Chairman of the Board
Mueller Industries, Inc.
Rodman L. Drake (1) (2) President of Rodman L. Drake & Co., Inc.
Allan Mactier (1) (2) (3) Private Investor
William D. O'Hagan President and Chief Executive Officer
Mueller Industries, Inc.
Robert J. Pasquarelli (1) (3) Chief Executive Officer of
New Jersey Steel Corporation
OFFICERS
Harvey L. Karp Chairman of the Board
William D. O'Hagan President and Chief Executive Officer
Earl W. Bunkers Executive Vice President and
Chief Financial Officer
Harvey W. Clements Vice President and General Manager -
Tube Division
John B. Hansen Vice President and General Manager-
Fittings Division
William H. Hensley Vice President, General Counsel
and Secretary
Lee R. Nyman Vice President - Manufacturing/
Management Engineering
James H. Rourke Vice President and General Manager -
Industrial Division
Roy C. Harris Corporate Controller
Kent A. McKee Treasurer and Assistant Secretary
Mueller Industries, Inc./2959 N. Rock Road/Wichita, KS 67226/(316)636-6300
[FN]
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee