TO OUR STOCKHOLDERS, CUSTOMERS AND EMPLOYEES
The second quarter of 1999 was, by far, the best quarter in Mueller's
history. Product shipments, sales, net income and earnings per share all
increased by more than 25 percent versus the same quarter of 1998. Net
income was $25.4 million, or 64 cents per share, compared to $19.7 million
or 50 cents per share in the same quarter last year.
Sales for the second quarter were $293.3 million, a 30 percent increase
over sales of $225.9 million for the same quarter of 1998. Product
shipments of 211.1 million pounds (including volume from businesses
acquired in 1998) grew 33 percent over the like period last year.
Net income for the first half of 1999 was $47.1 million, an increase of 21
percent over the first half of 1998. Product shipments in the first half
of 1999 grew to 419.0 million pounds, compared to 315.3 million pounds in
the first half of 1998. Net sales and operating income showed similar
improvements.
These outstanding results are the consequence of an excellent economic
environment, the major operational improvements that Mueller has
implemented in its product lines, and of the Company's recent strategic
acquisitions.
Housing starts for the first five months of 1999 were 9.3 percent ahead of
1998's pace, even though 30-year mortgage rates are currently more than
100 basis points higher than last year's low. Measures of housing
affordability remain strong. Consumer confidence is at a high level.
Inflation and unemployment are modest, and the index of leading indicators
remains near its high for the decade. Demographics also favor continuing
strength in the U.S. housing market due to increasingly affluent baby
boomers, rising homeownership rates, and strong household formations.
Overall, these are positive factors for the housing industry and for our
business.
Mueller is continuing to invest in major capital improvements. In May, our
Board of Directors approved a $24 million dollar program to upgrade our
recently-acquired copper tube mill in Wynne, Arkansas. This investment has
the objective of transforming Wynne into a world-class facility,
substantially reducing its production costs. Major new extruding and
drawing equipment will be installed over the next 18 months. We are also
continuing to invest in our copper and plastic fittings plants, and in the
brass rod mill. These investments should continue to improve manufacturing
flexibility and ratchet down costs.
We are continuing to make operational improvements in our European tube
businesses, with the goal of reducing manufacturing and distribution
costs. Despite these operational improvements, our European businesses
incurred losses in the second quarter due to competitive pricing,
particularly in the United Kingdom. Nonetheless, we believe the
opportunities in Europe will become increasingly attractive due to the
likelihood of consolidation in the copper fabrication industry.
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The Company continues to achieve its long-term plan of divesting certain
natural resource properties and businesses. On April 26, 1999, the Company
sold its interests in Alaska Gold Company, realizing a modest gain in the
second quarter. Moreover, the Company will realize an ordinary federal
income tax deduction reducing our current tax obligation by approximately
$25 million.
Our Annual Stockholders' meeting was held at Mueller's new corporate
headquarters in Memphis on May 6, 1999. The stockholders reelected all
Board members and approved the reappointment of our independent auditors.
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
July 13, 1999
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Historical Analysis (1994-1999) of Quarterly
Earnings Before Tax and Earnings Per Share
Mueller's earnings have grown substantially over the past five years. In
the second quarter of 1999, our Company earned $37.4 million before tax,
compared with $9.1 million for the same quarter of 1994, an increase of 311
percent. Diluted earnings per share have risen 357 percent, from $0.14 to
$0.64.
[GRAPH]
Second Quarter Diluted Earnings Per Share
1994 $0.14
1995 0.28
1996 0.36
1997 0.42
1998 0.50
1999 0.64
Earnings Before Tax (millions)
Quarter
------------------------------------------------ Total
1st 2nd 3rd 4th Year
1994 $ 6.7 $ 9.1 $ 12.0 $ 13.0 $ 40.8
1995 14.7 15.6 17.0 17.2 64.5
1996 19.3 20.1 23.4 25.6 88.4
1997 23.1 23.6 25.8 28.3 100.8
1998 28.5 29.0 26.1 25.7 109.3
1999 31.2 37.4
Diluted Earnings Per Share
Quarter
------------------------------------------------ Total
1st 2nd 3rd 4th Year
1994 $ 0.10 $ 0.14 $ 0.22 $ 0.25 $ 0.71
1995 0.27 0.28 0.30 0.32 1.17
1996 0.34 0.36 0.41 0.46 1.57
1997 0.40 0.42 0.46 0.50 1.78
1998 0.49 0.50 0.47 0.45 1.90
1999 0.55 0.64
-3-
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
For the Quarter Ended
June 26,1999 June 27,1998
Net sales $ 293,342 $ 225,867
Cost of goods sold 220,340 173,518
Depreciation and amortization 9,348 5,689
Selling, general, and
administrative expense 25,888 18,412
---------- ----------
Operating income 37,766 28,248
Interest expense (3,147) (1,191)
Environmental reserves - -
Other income, net 2,821 1,981
---------- ----------
Income before taxes 37,440 29,038
Income tax expense (11,995) (9,328)
---------- ----------
Net income $ 25,445 $ 19,710
========== ==========
Earnings per share:
Basic:
Weighted average shares outstanding 35,799 35,225
========== ==========
Basic earnings per share $ 0.71 $ 0.56
========== ==========
Diluted:
Weighted average shares outstanding
plus assumed conversions 39,824 39,712
========== ==========
Diluted earnings per share $ 0.64 $ 0.50
========== ==========
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MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
For the Six Months Ended
June 26,1999 June 27,1998
Net sales $ 581,182 $ 452,519
Cost of goods sold 442,080 348,975
Depreciation and amortization 18,338 11,273
Selling, general, and
administrative expense 51,067 36,254
---------- ----------
Operating income 69,697 56,017
Interest expense (6,008) (2,543)
Environmental reserves - (600)
Other income, net 4,950 4,704
---------- ----------
Income before taxes 68,639 57,578
Income tax expense (21,511) (18,603)
---------- ----------
Net income $ 47,128 $ 38,975
========== ==========
Earnings per share:
Basic:
Weighted average shares outstanding 35,816 35,163
========== ==========
Basic earnings per share $ 1.32 $ 1.11
========== ==========
Diluted:
Weighted average shares outstanding
plus assumed conversions 39,719 39,629
========== ==========
Diluted earnings per share $ 1.19 $ 0.98
========== ==========
-5-
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
June 26,1999 December 26, 1998
ASSETS
Cash and cash equivalents $ 131,716 $ 80,568
Accounts receivable, net 172,902 155,601
Inventories 117,213 134,732
Other current assets 11,193 11,423
---------- ----------
Total current assets 433,024 382,324
Property, plant and equipment, net 378,144 379,082
Other assets 106,170 113,288
---------- ----------
$ 917,338 $ 874,694
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 30,521 $ 19,980
Accounts payable 52,052 46,641
Other current liabilities 82,537 75,953
---------- ----------
Total current liabilities 165,110 142,574
Long-term debt 146,374 174,569
Other noncurrent liabilities 60,579 55,075
---------- ----------
Total liabilities 372,063 372,218
Minority interest in subsidiaries 354 354
Stockholders' equity 544,921 502,122
---------- ----------
$ 917,338 $ 874,694
========== ==========
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