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UNITED STATES
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 27, 2003 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) (Zip Code)
(901) 753-3200
(Registrant's telephone number, including area code)
Indicate by 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 / /
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes /X/ No / /
The number of shares of the registrant's common stock outstanding as of
October 17, 2003, was 34,267,677.
-1-
MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Period Ended September 27, 2003
INDEX
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
a.) Consolidated Statements of Income
for the quarters and nine months ended
September 27, 2003 and September 28, 2002 3
b.) Consolidated Balance Sheets
as of September 27, 2003 and December 28, 2002 7
c.) Consolidated Statements of Cash Flows
for the nine months ended September 27, 2003
and September 28, 2002 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 Disclosures About Market Risk 18
Item 4. Controls and Procedures 18
Part II. Other Information
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 21
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Quarter Ended
September 27, 2003 September 28, 2002
(In thousands, except per share data)
Net sales $ 251,053 $ 227,294
Cost of goods sold 201,960 176,302
---------- ----------
Gross profit 49,093 50,992
Depreciation and amortization 9,777 9,277
Selling, general, and
administrative expense 24,301 21,280
---------- ----------
Operating income 15,015 20,435
Interest expense (267) (320)
Environmental expense (306) (483)
Other income, net 826 1,104
---------- ----------
Income from continuing operations
before income taxes 15,268 20,736
Current income tax (expense) benefit (856) 9,102
Deferred income tax benefit (expense) 5,325 (4,016)
---------- ----------
Total income tax benefit (expense) 4,469 5,086
---------- ----------
Income from continuing operations 19,737 25,822
Discontinued operations, net
of income taxes:
Loss from operation of
discontinued operations - (313)
Gain on disposition of
discontinued operations 1,699 21,123
---------- ----------
Net income $ 21,436 $ 46,632
========== ==========
See accompanying notes to consolidated financial statements.
-3-
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (continued)
(Unaudited)
For the Quarter Ended
September 27, 2003 September 28, 2002
(In thousands, except per share data)
Weighted average shares
for basic earnings per share 34,267 34,269
Effect of dilutive stock options 2,590 2,568
---------- ----------
Adjusted weighted average shares
for diluted earnings per share 36,857 36,837
---------- ----------
Basic earnings (loss) per share:
From continuing operations $ 0.58 $ 0.75
From discontinued operations - (0.01)
From gain on disposition of
discontinued operations 0.05 0.62
---------- ----------
Basic earnings per share $ 0.63 $ 1.36
========== ==========
Diluted earnings (loss) per share:
From continuing operations $ 0.53 $ 0.70
From discontinued operations - -
From gain on disposition of
discontinued operations 0.05 0.57
---------- ----------
Diluted earnings per share $ 0.58 $ 1.27
========== ==========
See accompanying notes to consolidated financial statements.
-4-
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (continued)
(Unaudited)
For the Nine Months Ended
September 27, 2003 September 28, 2002
(In thousands, except per share data)
Net sales $ 731,296 $ 736,854
Cost of goods sold 597,336 569,459
---------- ----------
Gross profit 133,960 167,395
Depreciation and amortization 29,239 27,516
Selling, general, and
administrative expense 71,172 65,635
---------- ----------
Operating income 33,549 74,244
Interest expense (870) (1,156)
Environmental expense (770) (888)
Other income, net 3,565 4,144
---------- ----------
Income from continuing operations
before income taxes 35,474 76,344
Current income tax (expense) benefit (3,593) (3,071)
Deferred income tax benefit (expense) 1,295 (10,870)
---------- ----------
Total income tax benefit (expense) (2,298) (13,941)
---------- ----------
Income from continuing operations 33,176 62,403
Discontinued operations, net
of income taxes:
Loss from operation of
discontinued operations (539) (493)
Gain on disposition of
discontinued operations 1,699 21,123
---------- ----------
Net income $ 34,336 $ 83,033
========== ==========
See accompanying notes to consolidated financial statements.
-5-
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (continued)
(Unaudited)
For the Nine Months Ended
September 27, 2003 September 28, 2002
(In thousands, except per share data)
Weighted average shares
for basic earnings per share 34,262 33,905
Effect of dilutive stock options 2,550 3,218
---------- ----------
Adjusted weighted average shares
for diluted earnings per share 36,812 37,123
---------- ----------
Basic earnings (loss) per share:
From continuing operations $ 0.97 $ 1.84
From discontinued operations (0.02) (0.01)
From gain on disposition of
discontinued operations 0.05 0.62
---------- ----------
Basic earnings per share $ 1.00 $ 2.45
========== ==========
Diluted earnings (loss) per share:
From continuing operations $ 0.89 $ 1.68
From discontinued operations (0.01) (0.01)
From gain on disposition of
discontinued operations 0.05 0.57
---------- ----------
Diluted earnings per share $ 0.93 $ 2.24
========== ==========
See accompanying notes to consolidated financial statements.
-6-
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 27, 2003 December 28, 2002
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 219,280 $ 217,601
Accounts receivable, less allowance
for doubtful accounts of $4,087 in
2003 and $5,196 in 2002 162,352 132,427
Inventories:
Raw material and supplies 21,304 22,692
Work-in-process 25,178 21,477
Finished goods 98,951 98,784
---------- ----------
Total inventories 145,433 142,953
Other current assets 11,131 7,366
---------- ----------
Total current assets 538,196 500,347
Property, plant, and equipment, net 349,007 352,469
Goodwill, net 104,849 105,551
Other assets 35,401 29,580
---------- ----------
$ 1,027,453 $ 987,947
========== ==========
See accompanying notes to consolidated financial statements.
-7-
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 27, 2003 December 28, 2002
(In thousands, except share data)
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 3,711 $ 4,161
Accounts payable 37,326 41,004
Accrued wages and other employee costs 25,293 26,199
Other current liabilities 39,425 34,987
---------- ----------
Total current liabilities 105,755 106,351
Long-term debt 11,486 14,005
Pension and postretirement liabilities 35,340 35,550
Environmental reserves 9,876 9,110
Deferred income taxes 60,456 59,269
Other noncurrent liabilities 10,744 9,718
---------- ----------
Total liabilities 233,657 234,003
---------- ----------
Minority interest in subsidiaries 248 421
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 34,267,677
in 2003 and 34,257,419 in 2002 401 401
Additional paid-in capital, common 259,040 258,939
Retained earnings 644,450 610,114
Accumulated other comprehensive loss (15,688) (21,133)
Treasury common stock, at cost (94,655) (94,798)
---------- ----------
Total stockholders' equity 793,548 753,523
Commitments and contingencies (Note 2) - -
---------- ----------
$ 1,027,453 $ 987,947
========== ==========
See accompanying notes to consolidated financial statements.
-8-
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 27, 2003 September 28, 2002
(In thousands)
Cash flows from operating activities
Net income from continuing operations $ 33,176 $ 62,403
Reconciliation of net income from
continuing operations to net cash
provided by operating activities:
Depreciation and amortization 29,239 27,516
Deferred income taxes (1,295) 10,870
Loss (gain) on disposal
of properties 349 (880)
Income tax benefit from exercise
of stock options - 13,205
Minority interest in subsidiaries,
net of dividends paid (173) 66
Changes in assets and liabilities:
Receivables (32,666) (5,599)
Inventories (2,658) (8,563)
Other assets 699 (1,455)
Current liabilities 6,343 (5,147)
Other liabilities 879 493
Other, net 208 136
---------- ----------
Net cash provided by
operating activities 34,101 93,045
---------- ----------
Cash flows from investing activities
Proceeds from sales of
discontinued operations - 55,403
Capital expenditures (24,100) (17,544)
Acquisition of businesses (10,806) (27,555)
Proceeds from sales of properties 1,350 1,485
Escrowed IRB proceeds 449 2,206
---------- ----------
Net cash (used in) provided by
investing activities (33,107) 13,995
---------- ----------
Cash flows from financing activities
Repayments of long-term debt (2,969) (33,097)
Proceeds from the sale of
treasury stock 244 3,191
Acquisition of treasury stock - (14,753)
---------- ----------
Net cash used in financing activities (2,725) (44,659)
---------- ----------
See accompanying notes to consolidated financial statements.
-9-
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
For the Nine Months Ended
September 27, 2003 September 28, 2002
(In thousands)
Effect of exchange rate changes on cash $ 3,158 $ 257
---------- ----------
Increase in cash and cash equivalents 1,427 62,638
Cash provided by discontinued operations 252 70
Cash and cash equivalents at the
beginning of the period 217,601 121,862
---------- ----------
Cash and cash equivalents at the
end of the period $ 219,280 $ 184,570
========== ==========
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 have arisen 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.
The Company has guarantees which are letters of credit issued by the
Company generally to guarantee the payment of insurance deductibles, retiree
health benefits, and certain operating costs of a foreign subsidiary. The
terms of the Company's guarantees are generally one year but are renewable
annually as required. The maximum potential amount of future payments the
Company could have been required to make under its guarantees at September
27, 2003 was $10.0 million.
Note 3 - Recently Issued Accounting Standards
In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, "Consolidation of Variable Interest Entities"
(FIN 46). FIN 46 provides accounting requirements for business enterprises
to consolidate related entities in which they are determined to be the
primary beneficiary as a result of their variable economic interests. The
interpretation provides guidance in judging multiple economic interests in an
entity and in determining the primary beneficiary. The interpretation
-11-
outlines disclosure requirements for variable interest entities (VIEs) in
existence prior to January 31, 2003, and provides consolidation requirements
for VIEs created after January 31, 2003. The adoption of FIN 46 will not
have an effect on the financial position or results of operations of the
Company.
Note 4 - Industry Segments
Summarized segment information is as follows:
For the Quarter Ended
September 27, 2003 September 28, 2002
(In thousands)
Net sales:
Standard Products Division $ 184,306 $ 161,188
Industrial Products Division 70,145 67,946
Elimination of intersegment sales (3,398) (1,840)
---------- ----------
$ 251,053 $ 227,294
========== ==========
Operating income:
Standard Products Division $ 15,555 $ 19,206
Industrial Products Division 2,938 4,640
Unallocated expenses (3,478) (3,411)
---------- ----------
$ 15,015 $ 20,435
========== ==========
For the Nine Months Ended
September 27, 2003 September 28, 2002
(In thousands)
Net sales:
Standard Products Division $ 522,625 $ 528,473
Industrial Products Division 216,677 212,870
Elimination of intersegment sales (8,006) (4,489)
---------- ----------
$ 731,296 $ 736,854
========== ==========
Operating income:
Standard Products Division $ 34,513 $ 69,773
Industrial Products Division 10,586 16,111
Unallocated expenses (11,550) (11,640)
---------- ----------
$ 33,549 $ 74,244
========== ==========
-12-
Note 5 - Comprehensive Income
Comprehensive income is as follows:
For the Quarter Ended
September 27, 2003 September 28, 2002
(In thousands)
Comprehensive income:
Net income $ 21,436 $ 46,632
Other comprehensive income (loss):
Cumulative translation adjustments 201 (348)
Minimum pension liability
adjustment - (1,146)
Change in the fair value
of derivatives 223 (762)
---------- ----------
$ 21,860 $ 44,376
========== ==========
For the Nine Months Ended
September 27, 2003 September 28, 2002
(In thousands)
Comprehensive income:
Net income $ 34,336 $ 83,033
Other comprehensive income (loss):
Cumulative translation adjustments 5,348 6,774
Minimum pension liability
adjustment - 1,871
Change in the fair value
of derivatives 97 318
---------- ----------
$ 39,781 $ 91,996
========== ==========
Note 6 - Stock-Based Compensation
The Company accounts for its stock-based compensation plans using the
intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees", and related Interpretations.
No stock-based employee compensation expense is reflected in net income
because the exercise price of the Company's incentive employee stock options
equals the market price of the underlying stock on the date of grant. The
following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), to stock-based employee compensation.
-13-
For the Quarter Ended
September 27, 2003 September 28, 2002
(In thousands, except per share data)
Net income $ 21,436 $ 46,632
SFAS No. 123 compensation
expense, net of income taxes (609) (554)
---------- ----------
SFAS No. 123 pro forma
net income $ 20,827 $ 46,078
========== ==========
Pro forma earnings per share:
Basic $ 0.61 $ 1.34
Diluted $ 0.57 $ 1.25
Earnings per share, as reported:
Basic $ 0.63 $ 1.36
Diluted $ 0.58 $ 1.27
For the Nine Months Ended
September 27, 2003 September 28, 2002
(In thousands, except per share data)
Net income $ 34,336 $ 83,033
SFAS No. 123 compensation
expense, net of income taxes (1,507) (1,886)
---------- ----------
SFAS No. 123 pro forma
net income $ 32,829 $ 81,147
========== ==========
Pro forma earnings per share:
Basic $ 0.96 $ 2.39
Diluted $ 0.89 $ 2.19
Earnings per share, as reported:
Basic $ 1.00 $ 2.45
Diluted $ 0.93 $ 2.24
Note 7 - Income Tax Benefit (Expense)
During the third quarter of 2003, the Company recognized a deferred
income tax benefit, upon the closure of the open tax year, by reducing a
valuation allowance of $9.3 million related to an operating loss resulting
from the 1999 sale of a subsidiary. Realization of the tax benefit occurred
during the year of sale.
The sale of the Company's Utah Railway Company subsidiary during the
third quarter of 2002 enabled the Company to utilize previously unrecognized
-14-
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.
Note 8 - Discontinued Operations
During the third quarter of 2002, the Company completed the sale of its
wholly owned subsidiary, Utah Railway Company. Proceeds from the sale were
approximately $55.4 million. The Company recognized a gain of $21.1 million
(net of income taxes of $11.6 million) from the sale. Also during 2002 the
Company initiated the disposal of its subsidiary, Mueller Europe S.A. The
Company expects no further obligations or contingencies from these
discontinued operations and, therefore, during the third quarter of 2003 it
recognized a $1.7 million after tax gain to reflect adjustments to the
previous estimates on disposition.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General Overview
The Company 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. The Company's
operations are located throughout the United States, and in Canada, Mexico,
and Great Britain.
The Company's businesses are managed and organized into two segments:
Standard Products Division (SPD) and Industrial Products Division (IPD). SPD
manufactures and sells copper tube, copper and plastic fittings, and valves.
Outside of the United States, SPD manufactures and sells 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.
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 $19.7 million, or 53 cents per
diluted share, for the third quarter of 2003, compared with income from
continuing operations of $25.8 million, or 70 cents per diluted share, for
the same period of 2002. Year-to-date, income from continuing operations was
$33.2 million, or 89 cents per diluted share, compared with income from
continuing operations of $62.4 million, or $1.68 per diluted share, for 2002.
During the third quarter of 2003, the Company's net sales were $251.1
million, which compares with net sales of $227.3 million over the same period
of 2002, an increase of 10.5 percent. Net sales were $731.3 million in the
first nine months of 2003 compared with $736.9 million in the same period of
2002. The average price of copper was approximately 7 percent higher in the
nine-month period of 2003 compared with the same period of 2002. During the
third quarter of 2003, the Company's manufacturing businesses shipped 175
million pounds of product compared to 164 million pounds in the same quarter
of 2002. The Company shipped 532 million pounds of product in the nine
months ended September 27, 2003 compared with 517 million in the same period
of 2002.
Cost of goods sold increased from $176.3 million in the third quarter of
2002 to $202.0 million in the same period of 2003. This increase was
attributable to higher volumes, higher material costs, and increases in
certain manufacturing costs including health care benefit costs and packaging
costs. Selling, general, and administrative expense increased from $21.3
million in the third quarter of 2002 to $24.3 million in the third quarter of
2003. This increase relates primarily to (i) components of the Company's
pension cost, including interest cost, expected return on plan assets, and
amortization of plan gains and losses, (ii) increased provision for bad
debts, and (iii) increased professional fees. Depreciation and amortization
expense increased to $9.8 million and $29.2 million for the third quarter and
nine months ended September 27, 2003, respectively, compared with $9.3
million in the third quarter and $27.5 million in the first nine months of
2002. The increase was due to recent capital expenditures and businesses
acquired during the second half of 2002.
Third quarter operating income decreased from the comparable period in
the prior year primarily due to increased operating costs identified above.
Year-to-date operating income decreased from the comparable period in the
prior year primarily due to reduced spreads in certain product lines,
primarily domestic copper tube, and increased operating costs identified
above. The third quarter 2003 operating income of $15.0 million represents
an increase of $3.6 million over the preceding second quarter 2003 operating
income. This improvement is primarily due to improved spreads in certain
product lines, primarily domestic copper tube. The Company's European
operations continued to show a modest profit during the third quarter of
2003.
Interest expense for the third quarter of 2003 totaled $0.3 million,
even with the same period of 2002. For the first nine months of 2003,
interest expense was $0.9 million compared with $1.2 million for the same
period of 2002. No interest was capitalized in the nine months of 2003 or
the comparable period of 2002. Total interest in the third quarter and first
nine months of 2003 decreased due to debt reductions.
-16-
During the third quarter of 2003, the Company recognized a deferred
income tax benefit, upon the closure of the open tax year, by reducing a
valuation allowance of $9.3 million related to an operating loss resulting
from the 1999 sale of a subsidiary. Realization of the tax benefit occurred
during the year of sale. Without this deferred income tax benefit, the
Company would have recognized income tax expense of approximately $4.8
million, or approximately 32 percent of pretax income from continuing
operations during the third quarter of 2003. Without this deferred income
tax benefit, the Company's income from continuing operations would have been
approximately $10.4 million, or 28 cents per diluted share for the third
quarter and would have been approximately $23.9 million, or 65 cents per
diluted share, for the first three quarters of 2003.
The sale of the Company's Utah Railway Company subsidiary during the
third quarter of 2002 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. Without the
benefit of the capital loss carryforwards, the Company would have recognized
income tax expense of approximately $7.6 million, or approximately 37 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 $13.2 million, or 36 cents per diluted share
for the third quarter and would have been approximately $49.7 million, or
$1.34 per diluted share, for the first three quarters of 2002.
The Company recognized proceeds from the sale of Utah Railway Company in
the third quarter of 2002 of approximately $55.4 million. The Company
recognized a gain of $21.1 million (net of income taxes of $11.6 million)
from the sale. Also during 2002 the Company initiated the disposal of its
subsidiary, Mueller Europe S.A. The Company expects no further obligations
or contingencies from these discontinued operations and, therefore, during
the third quarter of 2003 it recognized a $1.7 million after tax gain to
reflect adjustments to the previous estimates on disposition.
Liquidity and Capital Resources
Cash provided by operating activities in the first nine months of 2003
totaled $34.1 million, which was primarily attributable to net income from
continuing operations, depreciation and amortization, partially offset by
increased receivables. Fluctuations in the cost of copper and other raw
materials affect the Company's liquidity. Changes in material costs directly
impact components of working capital, primarily inventories and accounts
receivable.
During the first nine months of 2003, the Company used $33.1 million for
investing activities, consisting primarily of $10.8 million for the purchase
of a minority interest in Conbraco Industries, Inc. common stock, and $24.1
million for capital expenditures. The Company also used $2.7 million for
financing activities during the nine-month period, consisting primarily of
repayments of long-term debt. Existing cash balances and escrowed IRB
proceeds were used to fund the Company's investing and financing activities.
-17-
The Company's Board of Directors has authorized the repurchase until
October 2004 of up to ten million shares of the Company's common stock
through open market transactions or through privately negotiated
transactions. The Company has no obligation to purchase any shares and may
cancel, suspend, or extend the time period for the purchase of shares at any
time. Any purchases will be funded primarily through existing cash and cash
from operations. The Company may hold any shares purchased in treasury or
use a portion of the repurchased shares for employee benefit plans, as well
as for other corporate purposes. Through September 27, 2003, the Company had
repurchased approximately 2.4 million shares under this authorization.
The Company has an unsecured $200 million revolving credit facility (the
Credit Facility), which matures in November 2003. At September 27, 2003,
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 greater 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 $6.9
million at September 27, 2003. The Company expects to enter into a new
credit agreement with similar terms prior to the maturity date of the
existing Credit Facility.
The Company expects to invest between $30 and $35 million for capital
projects during 2003. Management believes that cash provided by operations
and currently available cash of $219.3 million will be adequate to meet the
Company's normal future capital expenditure and operational needs. The
Company's current ratio was 5 to 1 at September 27, 2003.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk are
incorporated herein by reference to Part II, Item 7A, of the Company's Annual
Report on Form 10-K for the year ended December 28, 2002.
During the third quarter, the Company entered into forward contracts to
purchase approximately $1.8 million of natural gas through March 2004.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures designed to
ensure information required to be disclosed in Company reports filed under
the Securities Exchange Act of 1934, as amended, (the Exchange Act) is
recorded, processed, summarized, and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures are designed to provide reasonable
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assurance that information required to be disclosed in Company reports filed
under the Exchange Act is accumulated and communicated to management,
including the Company's Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.
The Company's management, under the supervision and with the
participation of the Company's Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company's disclosure controls
and procedures as of the end of the period covered by this report. Based
upon that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the disclosure controls and procedures are
effective.
There were no changes in the Company's internal control over financial
reporting during the Company's fiscal quarter ending September 27, 2003, that
have materially affected, or are reasonably likely to materially affect the
Company's internal control over financial reporting.
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. On October 21, 2003, the Company was informed that the
investigations of which it was aware in the United States have been closed.
On September 1, 2003, the European Commission released a statement alleging
infringements in Europe of competition rules by manufacturers of copper tubes
including the Company and businesses in France and England, which it acquired
in 1997. The Company took the lead in bringing these issues to the attention
of the European Commission and has fully cooperated in the resulting
investigation from its inception. The Company does not anticipate any
material adverse effect on its business or financial position as a result of
the European Commission's action or other investigations.
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 27, 2003.
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.
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) During the quarter ended September 27, 2003, the registrant
filed the following Current Reports on Form 8-K:
July 15, 2003: Item 7. Financial Statements and Exhibits.
Item 9. Regulation FD Disclosure (Information provided under
Item 12. Results of Operations and Financial Condition).
Second Quarter Earnings Release.
September 13, 2003: Item 7. Financial Statements and Exhibits.
Press Release: European Commission's Statement Regarding Copper
Tube Manufacturers in Europe.
Items 1, 2, 3, and 4 are not applicable and have been omitted.
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SIGNATURES
Pursuant to the requirements 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 October 23, 2003.
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 September 27, 2003. 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.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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