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2002
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 September 28, 2002 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
October 31, 2002, was 34,254,319.
-1-
MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Period Ended September 28, 2002
INDEX
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
a.) Consolidated Statements of Income
for the quarters and nine months ended
September 28, 2002 and September 29, 2001 3
b.) Consolidated Balance Sheets
as of September 28, 2002 and December 29, 2001 7
c.) Consolidated Statements of Cash Flows
for the nine months ended September 28, 2002
and September 29, 2001 9
d.) Notes to Consolidated Financial Statements 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosure
of Market Risk 19
Item 4. Controls and Procedures 19
Part II. Other Information
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands)
For the Quarter Ended
September 28, 2002 September 29, 2001
Net sales $ 238,481 $ 247,568
Cost of goods sold 187,353 186,462
---------- ----------
Gross profit 51,128 61,106
Depreciation and amortization 9,735 10,518
Selling, general, and
administrative expense 21,915 20,891
---------- ----------
Operating income 19,478 29,697
Interest expense (320) (660)
Environmental expense (483) (1,349)
Other income, net 1,105 1,703
---------- ----------
Income from continuing operations
before income taxes 19,780 29,391
Current income tax benefit (expense) 9,102 (6,569)
Deferred income tax expense (4,016) (4,594)
---------- ----------
Total income tax benefit (expense) 5,086 (11,163)
---------- ----------
Income from continuing operations 24,866 18,228
Discontinued operations:
Income from operation of discontinued
operations, net of tax 643 773
Gain on sale of Other Businesses, net
of tax 21,123 -
---------- ----------
Net income $ 46,632 $ 19,001
========== ==========
-3-
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (continued)
(Unaudited)
(In thousands, except per share data)
For the Quarter Ended
September 28, 2002 September 29, 2001
Weighted average shares
for basic earnings per share 34,269 33,424
Effect of dilutive stock options 2,568 3,874
---------- ----------
Adjusted weighted average shares
for diluted earnings per share 36,837 37,298
---------- ----------
Basic earnings per share:
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:
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
========== ==========
See accompanying notes to consolidated financial statements.
-4-
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (continued)
(Unaudited)
(In thousands)
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
---------- ----------
Gross profit 167,320 183,036
Depreciation and amortization 29,011 31,220
Selling, general, and
administrative expense 67,500 65,845
---------- ----------
Operating income 70,809 85,971
Interest expense (1,156) (2,764)
Environmental expense (888) (2,966)
Other income, net 4,147 4,785
---------- ----------
Income from continuing operations
before income taxes 72,912 85,026
Current income tax expense (3,087) (23,475)
Deferred income tax expense (10,870) (8,857)
---------- ----------
Total income tax expense (13,957) (32,332)
---------- ----------
Income from continuing operations 58,955 52,694
Discontinued operations:
Income from operation of 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
========== ==========
-5-
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (continued)
(Unaudited)
(In thousands, except per share data)
For the Nine Months Ended
September 28, 2002 September 29, 2001
Weighted average shares
for basic earnings per share 33,905 33,396
Effect of dilutive stock options 3,218 3,841
---------- ----------
Adjusted weighted average shares
for diluted earnings per share 37,123 37,237
---------- ----------
Basic earnings per share:
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:
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
========== ==========
See accompanying notes to consolidated financial statements.
-6-
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
September 28, 2002 December 29, 2001
Assets
Current assets:
Cash and cash equivalents $ 184,570 $ 121,862
Accounts receivable, less allowance
for doubtful accounts of $6,791 in
2002 and $6,573 in 2001 151,285 148,808
Inventories:
Raw material and supplies 23,074 28,185
Work-in-process 22,083 16,346
Finished goods 92,318 82,098
---------- ----------
Total 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
Goodwill, net 98,749 98,749
Other assets 51,303 25,870
---------- ----------
$ 989,614 $ 916,065
========== ==========
See accompanying notes to consolidated financial statements.
-7-
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
(In thousands, except share data)
September 28, 2002 December 29, 2001
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 3,652 $ 3,996
Accounts payable 40,059 34,209
Accrued wages and other employee costs 25,023 21,349
Other current liabilities 43,969 41,934
---------- ----------
Total current liabilities 112,703 101,488
Long-term debt 14,224 46,977
Pension and postretirement liabilities 19,324 22,746
Environmental reserves 9,158 9,203
Deferred income taxes 56,624 51,768
Other noncurrent liabilities 10,672 10,679
---------- ----------
Total liabilities 222,705 242,861
---------- ----------
Minority interest in subsidiaries 337 271
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 34,254,319
in 2002 and 33,466,512 in 2001 401 401
Additional paid-in capital, common 258,939 261,647
Retained earnings 615,155 532,122
Accumulated other comprehensive
loss (13,075) (22,038)
Treasury common stock, at cost (94,848) (99,199)
---------- ----------
Total stockholders' equity 766,572 672,933
---------- ----------
Commitments and contingencies (Note 2) - -
---------- ----------
$ 989,614 $ 916,065
========== ==========
See accompanying notes to consolidated financial statements.
-8-
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Nine Months Ended
September 28, 2002 September 29, 2001
Cash flows from operating activities
Income from continuing operations $ 58,955 $ 52,694
Reconciliation of income from continuing
operations to net cash provided by
operating activities:
Depreciation and amortization 29,011 31,220
Income tax benefit from exercise of
stock options 13,205 252
Deferred income taxes 10,870 8,857
Minority interest in subsidiaries 66 -
Gain on disposal of properties (880) (243)
Changes in assets and liabilities:
Receivables (5,622) (3,963)
Inventories (9,377) 13,981
Other assets (1,391) (3,626)
Current liabilities (5,347) 19,021
Other liabilities 229 1,992
Other, net 136 (2,597)
---------- ----------
Net cash provided by operating activities 89,855 117,588
---------- ----------
Cash flows from investing activities
Proceeds from the sale of discontinued
operations 55,403 -
Escrowed IRB proceeds 2,206 (1,891)
Proceeds from sales of properties 1,485 2,476
Capital expenditures (17,944) (32,387)
Businesses acquired (27,555) -
---------- ----------
Net cash provided by (used in)
investing activities 13,595 (31,802)
---------- ----------
Cash flows from financing activities
Proceeds from stock options exercised 3,191 902
Proceeds from issuance of long-term debt - 10,000
Acquisition of treasury stock (14,753) -
Repayments of long-term debt (33,097) (64,879)
---------- ----------
Net cash used in financing activities (44,659) (53,977)
---------- ----------
-9-
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Nine Months Ended
September 28, 2002 September 29, 2001
Effect of exchange rate changes on cash 495 (561)
---------- ----------
Increase in cash
and cash equivalents 59,286 31,248
Cash provided by discontinued operations 3,422 2,004
Cash and cash equivalents at the
beginning of the period 121,862 100,268
---------- ----------
Cash and cash equivalents at the
end of the period $ 184,570 $ 133,520
========== ==========
See accompanying notes to consolidated financial statements.
-10-
MUELLER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
General
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States 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 - Amortization of Goodwill
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 141, "Business
Combinations" (SFAS No. 141), and No. 142, "Goodwill and Other Intangible
Assets" (SFAS No. 142), effective for fiscal years beginning after December
15, 2001. These Statements eliminated the pooling-of-interests method of
accounting for business combinations and the systematic amortization of
goodwill. SFAS No. 141 applies to all business combinations with a closing
date after June 30, 2001. At the beginning of fiscal 2002, the Company
adopted SFAS No. 142. Under the new standard, purchased goodwill is no
longer amortized over its useful life but will be subject to annual
-11-
impairment tests. Therefore, the Company did not incur any goodwill
amortization expense during the first nine months of 2002. Goodwill
amortization expense recorded in the third quarter of 2001 was $1.1
million, which had a negative impact of $1.0 million on net income, or 3
cents per diluted share. For the first nine months of 2001, goodwill
amortization expense was $3.3 million, which had a negative impact of $2.9
million on net income, or 8 cents per diluted share.
Note 4 - Industry Segments
Summarized segment information is as follows:
(In thousands)
For the Quarter Ended
September 28, 2002 September 29, 2001
Net sales:
Standard Products Division $ 172,375 $ 188,345
Industrial Products Division 67,946 60,745
Elimination of intersegment sales (1,840) (1,522)
---------- ----------
$ 238,481 $ 247,568
========== ==========
Operating income:
Standard Products Division $ 18,249 $ 29,743
Industrial Products Division 4,640 3,225
Unallocated expenses (3,411) (3,271)
---------- ----------
$ 19,478 $ 29,697
========== ==========
For the Nine Months Ended
September 28, 2002 September 29, 2001
Net sales:
Standard Products Division $ 563,268 $ 606,397
Industrial Products Division 212,870 195,206
Elimination of intersegment sales (4,489) (3,204)
---------- ----------
$ 771,649 $ 798,399
========== ==========
Operating income:
Standard Products Division $ 66,338 $ 86,132
Industrial Products Division 16,111 12,525
Unallocated expenses (11,640) (12,686)
---------- ----------
$ 70,809 $ 85,971
========== ==========
-12-
Prior to the third quarter of 2002, the Company's operations included a
segment classified as Other Businesses. The primary business included in the
caption of Other Businesses was the operation of Utah Railway Company. As
described in Note 6, the Utah Railway Company was sold during the third
quarter, and its operations have been classified as discontinued operations in
the Consolidated Statements of Income. The above summarized segment
information has been restated to conform to the current period presentation.
Other operations formerly included in the Other Businesses segment, which
consist primarily of expenses related to retiree benefits at inactive
operations, are included in the Unallocated expenses classification.
Note 5 - Comprehensive Income
Comprehensive income is as follows:
(In thousands)
For the Quarter Ended
September 28, 2002 September 29, 2001
Comprehensive income:
Net income $ 46,632 $ 19,001
Other comprehensive income (loss):
Cumulative translation adjustments (348) 5,741
Minimum pension liability adjustment (1,146) (13)
Change in the fair value
of derivatives (762) (1,102)
---------- ----------
$ 44,376 $ 23,627
========== ==========
For the Nine Months Ended
September 28, 2002 September 29, 2001
Comprehensive income:
Net income $ 83,033 $ 55,245
Other comprehensive income (loss):
Cumulative translation adjustments 6,774 (115)
Minimum pension liability adjustment 1,871 (13)
Change in the fair value
of derivatives 318 (2,806)
---------- ----------
$ 91,996 $ 52,311
========== ==========
-13-
Note 6 - Discontinued Operations
On August 28, 2002, the Company completed the sale of its wholly owned
subsidiary, Utah Railway Company, to Genessee & Wyoming Inc. Proceeds from the
sale were approximately $55.4 million, subject to final working capital
adjustments. The Company recognized a gain of $21.1 million (net of income
taxes of $11.6 million) from the sale. The primary assets sold included
approximately $4.3 million of accounts receivable and $18.1 million of net
property, plant, and equipment.
As a result of the sale of the Utah Railway Company, the following results
formerly classified in the Other Businesses segment have been presented as
discontinued operations in the accompanying consolidated statements of income:
(In thousands)
For the Quarter Ended
September 28, 2002 September 29, 2001
Net sales $ 3,297 $ 5,870
---------- ----------
Income before taxes 880 1,228
Income tax expense (237) (455)
---------- ----------
Income from operation of discontinued
operations 643 773
Gain on sale of Other Businesses, net
of tax 21,123 -
---------- ----------
$ 21,766 $ 773
========== ==========
For the Nine Months Ended
September 28, 2002 September 29, 2001
Net sales $ 15,394 $ 17,638
---------- ----------
Income before taxes 4,625 4,051
Income tax expense (1,670) (1,500)
---------- ----------
Income from operation of discontinued
operations 2,955 2,551
Gain on sale of Other Businesses, net
of tax 21,123 -
---------- ----------
$ 24,078 $ 2,551
========== ==========
-14-
Note 7 - Income tax benefit (expense)
The sale of Utah Railway Company enabled the Company to utilize
previously unrecognized capital loss carryforwards. In accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", the recognition of this capital loss carryforward benefit of $12.7
million was classified as a reduction to current income taxes on continuing
operations, resulting in a net current income tax benefit for the third
quarter of 2002.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General Overview
Mueller Industries, Inc. is a leading manufacturer of 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 operations are located throughout the United States and in
Canada, Mexico, France, and Great Britain.
The Company's businesses are managed and organized into two segments:
(i) Standard Products Division (SPD) and (ii) Industrial Products Division
(IPD). SPD manufactures and sells copper tube, and copper and plastic
fittings and valves. Outside of the United States, SPD manufactures copper
tube in Europe. SPD sells these products to wholesalers in the HVAC
(heating, ventilation, and air-conditioning), plumbing and refrigeration
markets, to distributors to the manufactured housing and recreational
vehicle industries, and to building material retailers. 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. SPD and
IPD account for more than 83 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 market conditions.
-15-
Results of Operations
Income from continuing operations was $24.9 million, or 68 cents per
diluted share, for the third quarter of 2002, compared with income from
continuing operations of $18.2 million, or 49 cents per diluted share, for
the same period of 2001. Weighted average shares outstanding plus assumed
conversions used to compute diluted earnings per share were 36.8 million
during the third quarter of 2002 versus 37.3 million for the third quarter
last year. Year-to-date, income from continuing operations was $59.0
million, or $1.59 per diluted share, compared with income from continuing
operations of $52.7 million, or $1.41 per diluted share, for 2001.
During the third quarter of 2002, the Company's net sales were $238.5
million, which compares with net sales of $247.6 million, or a 3.7 percent
decrease from the same period of 2001. Net sales were $771.6 million in
the first nine months of 2002 compared with $798.4 million in 2001. The
average price of copper was approximately 2.5 percent lower in the first
nine months of 2002 compared with the same period of 2001, which
contributed to the decrease in net sales. During the third quarter of
2002, the Company's manufacturing businesses shipped 175.9 million pounds
of product compared to 173.6 million pounds in the same quarter of 2001.
The Company shipped 569.1 million pounds of product in the first nine
months of 2002 compared with 535.8 million in the same period of 2001.
Volume increases were primarily attributable to brass rod and retail sales
of Standard Products.
Cost of goods sold increased from $186.5 million in the third quarter
of 2001 to $187.4 million in the same period of 2002. Selling, general,
and administrative expense also increased from $20.9 million in 2001 to
$21.9 million in the third quarter of 2002. The increases in these
operating costs are attributable to the increase in volume experienced in
the third quarter. Depreciation and amortization expense decreased to $9.7
million and $29.0 million for the third quarter and first nine months of
2002, respectively, compared with $10.5 million in the third quarter and
$31.2 million in the first nine months of 2001. The decrease was due to
discontinuing goodwill amortization as described in Note 3, offset by
increased depreciation due to recent capital expenditures.
Third quarter and year-to-date operating income decreased from the
comparable periods in the prior year primarily due to reduced spreads in
certain product lines, primarily domestic and European copper tube. The
Company's European operations lost approximately $1.9 million from
operations during the third quarter and have lost approximately $1.4
million year-to-date.
Interest expense for the third quarter of 2002 totaled $0.3 million
compared with $0.7 million in the same quarter of 2001. For the first nine
months of 2002, interest expense was $1.2 million compared with $2.8
million for the same period of 2001. The Company capitalized $1.4 million
of interest related to capital improvement programs in the three quarters
of 2001 while none was capitalized in 2002. Total interest in the third
quarter and first nine months of 2002 decreased due to lower funded
balances.
-16-
On August 28, 2002, the Company completed the sale of its wholly owned
subsidiary, Utah Railway Company, to Genessee & Wyoming Inc. Proceeds from
the sale were approximately $55.4 million, subject to final working capital
adjustments. The Company recognized a gain of $21.1 million (net of income
taxes of $11.6 million) from the sale. Utah Railway Company's operations
have been classified as discontinued operations in the Consolidated
Statements of Income.
The sale of Utah Railway Company enabled the Company to utilize
previously unrecognized capital loss carryforwards. The recognition of
this capital loss carryforward benefit of $12.7 million was classified as a
reduction to current income taxes on continuing operations, resulting in a
net current income tax benefit for the third quarter of 2002. Without the
benefit of the capital loss carryforwards, the Company would have
recognized income tax expense of approximately $7.6 million, or
approximately 38 percent of pretax income from continuing operations.
Without the benefit of the capital loss carryforwards, the Company's income
from continuing operations would have been approximately $12.2 million, or
33 cents per diluted share for the third quarter and would have been
approximately $46.3 million, or $1.25 per diluted share, for the first
three quarters of 2002.
During the third quarter, the Company 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 of approximately
$14.5 million payable in cash is subject to certain working capital
adjustments. The Company also 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. The cost of these acquisitions is included in the other assets
classification of the interim Consolidated Balance Sheet.
Also during the third quarter, the Company 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.
Liquidity and Capital Resources
Cash provided by operating activities during the first nine months of
2002 totaled $89.9 million, which is primarily attributable to income from
continuing operations, depreciation and amortization, income tax benefits
from the exercise of stock options, and deferred income taxes. During the
-17-
first nine months of 2002, investing activities provided $13.6 million of
cash, consisting primarily of proceeds from the sale of Other Businesses,
less capital expenditures and businesses acquired. The Company used $44.7
million for financing activities during the nine-month period consisting
primarily of $33.1 million for repayments of long-term debt, and $14.8
million for the acquisition of treasury stock. Existing cash balances,
cash from operations, proceeds from the sale of Other Businesses, and IRB
proceeds were used to fund the year-to-date investing and financing
activities.
During the nine months ended September 28, 2002, the Chairman of the
Company's Board of Directors, Mr. Harvey L. Karp, exercised options to
purchase 1,200,000 shares of Company stock. As provided in Mr. Karp's
option agreement, the Company withheld the number of shares, at their fair
market value, sufficient to cover the minimum withholding taxes incurred by
the exercise. These shares withheld have been classified as acquisition of
treasury stock on the Company's Consolidated Statement of Cash Flows. The
income tax benefit of $13.2 million from the exercise of stock options was
recognized as a direct addition to additional paid-in capital and,
therefore, had no effect on the Company's earnings.
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 through open market transactions or through privately
negotiated transactions. During 2000, this authorization was expanded to
purchase up to 10 million shares. During the third quarter, the
authorization was extended through October 2003. 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 September 28, 2002, the Company has
repurchased approximately 2.4 million shares under this authorization.
There were 52,700 shares repurchased during the third quarter of 2002.
The Company has an unsecured $200 million revolving credit facility
(the Credit Facility), which matures in November 2003. At September 28,
2002, there were no outstanding borrowings under the Credit Facility.
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. 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 $6.6 million at September 28, 2002. At September 28,
2002, the Company's total debt was $17.8 million or 2.3 percent of its
total capitalization.
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Under the above Agreement, the Company is required, 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's major capital projects were substantially complete in
2001, including casting facilities at the Company's brass rod mill,
modernization of the European copper tube mill, and installation of an
additional extrusion press at the Company's Fulton, Mississippi copper tube
mill. The Company expects to invest approximately $25 million for capital
projects during 2002.
Management believes that cash provided by operations and currently
available cash of $184.6 million will be adequate to meet the Company's
normal future capital expenditure and operational needs. The Company's
current ratio is 4.2 to 1 at September 28, 2002.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
Quantitative and qualitative disclosures about market risk are
incorporated herein by reference to Part II, Item 7A, of the Company's
Report on Form 10-K for the year ended December 29, 2001.
Item 4. Controls and Procedures
An evaluation was performed under the supervision and with the
participation of the Company's management, including the Chief Executive
Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of
the design and operation of the Company's disclosure controls and
procedures within 90 days before the filing date of this quarterly report.
Based on that evaluation, the Company's management, including the CEO and
CFO, concluded that the Company's disclosure controls and procedures were
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included
in the Company's periodic SEC filings. There have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect internal controls subsequent to their evaluation.
Part II. OTHER INFORMATION
Item 5. Other Information
The Company is aware of investigations of competition in markets in
which it participates, or has participated in the past, in Europe, Canada,
and the United States. No charges or allegations have been filed against
the Company, which is cooperating with the investigations. The Company
does not anticipate any material adverse effect on its business or
financial condition as a result of the investigations.
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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 September 28, 2002.
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.
99.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(b) During the quarter ended September 28, 2002 the Registrant
filed no Current Reports on Form 8-K.
Items 1, 2, 3, and 4 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
November 4, 2002.
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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CERTIFICATION
I, William D. O'Hagan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mueller
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report the financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
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6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 4, 2002
/s/ William D. O'Hagan
Chief Executive Officer
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CERTIFICATION
I, Kent A. McKee, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mueller
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report the financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
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6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 4, 2002
/s/ Kent A. McKee
Vice President - Chief
Financial Officer
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EXHIBIT INDEX
Exhibits Description Page
19.1 Mueller Industries, Inc.'s Quarterly Report to
Stockholders for the quarter ended September 28,
2002. 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.
99.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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