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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 March 27, 2004 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
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 / /
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
April 15, 2004, was 34,976,567.
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MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Period Ended March 27, 2004
INDEX
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
a.) Consolidated Statements of Income
for the quarters ended
March 27, 2004 and March 29, 2003 3
b.) Consolidated Balance Sheets
as of March 27, 2004 and December 27, 2003 5
c.) Consolidated Statements of Cash Flows
for the quarters ended March 27, 2004
and March 29, 2003 7
d.) Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 16
Item 4. Controls and Procedures 17
Part II. Other Information
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Quarter Ended
March 27, 2004 March 29, 2003
(In thousands, except per share data)
Net sales $ 345,959 $ 232,022
Cost of goods sold 281,029 191,915
---------- ----------
Gross profit 64,930 40,107
Depreciation and amortization 9,965 9,740
Selling, general, and
administrative expense 26,682 23,296
Impairment charge 3,941 -
---------- ----------
Operating income 24,342 7,071
Interest expense (224) (311)
Environmental expense (169) (207)
Other income, net 2,793 557
---------- ----------
Income from continuing operations
before income taxes 26,742 7,110
Current income tax expense (8,674) (1,867)
Deferred income tax expense (108) (783)
---------- ----------
Total income tax expense (8,782) (2,650)
---------- ----------
Income from continuing operations 17,960 4,460
Loss from operation of
discontinued operations, net
of income taxes - (539)
---------- ----------
Net income $ 17,960 $ 3,921
========== ==========
See accompanying notes to consolidated financial statements.
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MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (continued)
(Unaudited)
For the Quarter Ended
March 27, 2004 March 29, 2003
(In thousands, except per share data)
Weighted average shares
for basic earnings per share 34,658 34,257
Effect of dilutive stock options 2,250 2,514
---------- ----------
Adjusted weighted average shares
for diluted earnings per share 36,908 36,771
---------- ----------
Basic earnings (loss) per share:
From continuing operations $ 0.52 $ 0.13
From discontinued operations - (0.02)
---------- ----------
Basic earnings per share $ 0.52 $ 0.11
========== ==========
Diluted earnings (loss) per share:
From continuing operations $ 0.49 $ 0.12
From discontinued operations - (0.01)
---------- ----------
Diluted earnings per share $ 0.49 $ 0.11
========== ==========
Dividends per share $ 0.10 $ -
========== ==========
See accompanying notes to consolidated financial statements.
-4-
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 27, 2004 December 27, 2003
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 208,332 $ 255,088
Accounts receivable, less allowance
for doubtful accounts of $5,450 in
2004 and $4,734 in 2003 233,641 163,006
Inventories:
Raw material and supplies 29,609 22,261
Work-in-process 20,461 20,395
Finished goods 100,511 97,892
---------- ----------
Total inventories 150,581 140,548
Other current assets 18,659 11,713
---------- ----------
Total current assets 611,213 570,355
Property, plant, and equipment, net 340,188 345,537
Goodwill, net 102,570 104,849
Other assets 31,621 34,443
---------- ----------
$ 1,085,592 $ 1,055,184
========== ==========
See accompanying notes to consolidated financial statements.
-5-
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
March 27, 2004 December 27, 2003
(In thousands, except share data)
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 1,960 $ 2,835
Accounts payable 55,519 42,081
Accrued wages and other employee costs 26,302 25,631
Other current liabilities 37,324 42,959
---------- ----------
Total current liabilities 121,105 113,506
Long-term debt 11,386 11,437
Pension and postretirement liabilities 32,356 31,643
Environmental reserves 9,402 9,560
Deferred income taxes 65,149 63,734
Other noncurrent liabilities 11,221 10,238
---------- ----------
Total liabilities 250,619 240,118
---------- ----------
Minority interest in subsidiaries 208 208
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 34,975,867
in 2004 and 34,276,343 in 2003 401 401
Additional paid-in capital, common 255,717 259,110
Retained earnings 669,962 655,495
Accumulated other comprehensive loss (3,770) (5,586)
Treasury common stock, at cost (87,545) (94,562)
---------- ----------
Total stockholders' equity 834,765 814,858
---------- ----------
Commitments and contingencies (Note 2) - -
---------- ----------
$ 1,085,592 $ 1,055,184
========== ==========
See accompanying notes to consolidated financial statements.
-6-
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Quarter Ended
March 27, 2004 March 29, 2003
(In thousands)
Cash flows from operating activities
Net income from continuing operations $ 17,960 $ 4,460
Reconciliation of net income from
continuing operations to net cash
used in operating activities:
Depreciation and amortization 9,965 9,740
Income tax benefit from exercise
of stock options 9,685 -
Impairment charge 3,941 -
Equity in loss of unconsolidated
subsidiaries 3,272 278
Deferred income taxes 108 783
(Gain) loss on disposal
of properties (5,142) 212
Minority interest in subsidiaries - 38
Changes in assets and liabilities:
Receivables (70,032) (13,518)
Inventories (9,714) (2,904)
Other assets (6,149) 1,261
Current liabilities 8,248 (4,644)
Other liabilities 997 (1,534)
Other, net 483 (216)
---------- ----------
Net cash used in operating activities (36,378) (6,044)
---------- ----------
Cash flows from investing activities
Capital expenditures (5,063) (6,599)
Purchase of Conbraco Industries, Inc.
common stock - (10,806)
Proceeds from sales of properties 5,173 27
Escrowed IRB proceeds - 449
---------- ----------
Net cash provided by (used in)
investing activities 110 (16,929)
---------- ----------
See accompanying notes to consolidated financial statements.
-7-
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
For the Quarter Ended
March 27, 2004 March 29, 2003
(In thousands)
Cash flows from financing activities
Acquisition of treasury stock $ (9,320) $ -
Dividends paid (3,493) -
Repayments of long-term debt (926) (1,122)
Proceeds from the sale of
treasury stock 3,259 -
---------- ----------
Net cash used in financing activities (10,480) (1,122)
---------- ----------
Effect of exchange rate changes on cash (8) 1,157
---------- ----------
Decrease in cash
and cash equivalents (46,756) (22,938)
Cash provided by discontinued operations - 252
Cash and cash equivalents at the
beginning of the period 255,088 217,601
---------- ----------
Cash and cash equivalents at the
end of the period $ 208,332 $ 194,915
========== ==========
See accompanying notes to consolidated financial statements.
-8-
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.
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.
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 March 27, 2004
was $7.1 million.
Note 3 - Impairment Charge
The Company recognized a $3.9 million impairment charge related to its
subsidiary, Overstreet-Hughes Co., Inc., of which $2.3 million was goodwill and
the remainder was property, plant, and equipment. The results of Overstreet-
Hughes, which manufactures tubular components and assemblies primarily for the
original equipment manufacturer (OEM) air-conditioning market, have not met
expectations. Initiatives to improve performance have not been successful.
Furthermore, Overstreet-Hughes' primary customer has announced the closure of
its facility that consumes the majority of Overstreet-Hughes' output.
-9-
Consequently, the Company has reduced its carrying cost in these long-lived
assets to its best estimate of fair value. This estimate was determined based
on a discounted cash flow method.
Note 4 - Industry Segments
Summarized segment information is as follows:
For the Quarter Ended
March 27, 2004 March 29, 2003
(In thousands)
Net sales:
Standard Products Division $ 249,657 $ 159,380
Industrial Products Division 99,778 74,947
Elimination of intersegment sales (3,476) (2,305)
---------- ----------
$ 345,959 $ 232,022
========== ==========
Operating income:
Standard Products Division $ 24,990 $ 7,081
Industrial Products Division 3,353 4,051
Unallocated expenses (4,001) (4,061)
---------- ----------
$ 24,342 $ 7,071
========== ==========
Operating income for the Industrial Products Division was reduced by a
$3.9 million impairment charge for the quarter ended March 27, 2004.
Note 5 - Comprehensive Income
Comprehensive income is as follows:
For the Quarter Ended
March 27, 2004 March 29, 2003
(In thousands)
Comprehensive income:
Net income $ 17,960 $ 3,921
Other comprehensive income (loss):
Cumulative translation adjustments 1,961 350
Change in the fair value
of derivatives (145) 28
---------- ----------
$ 19,776 $ 4,299
========== ==========
-10-
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.
For the Quarter Ended
March 27, 2004 March 29, 2003
(In thousands, except per share data)
Net income $ 17,960 $ 3,921
SFAS No. 123 pro forma compensation
expense, net of income taxes (419) (443)
---------- ----------
SFAS No. 123 pro forma
net income $ 17,541 $ 3,478
========== ==========
Pro forma earnings per share:
Basic $ 0.51 $ 0.10
Diluted $ 0.48 $ 0.09
Earnings per share, as reported:
Basic $ 0.52 $ 0.11
Diluted $ 0.49 $ 0.11
-11-
Note 7 - Employee Benefits
The Company sponsors several qualified and nonqualified pension plans and
other postretirement benefit plans for certain of its employees. The net
periodic benefit cost is based on estimated values provided by independent
actuaries. The components of net periodic benefit cost are as follows:
For the Quarter Ended
March 27, 2004 March 29, 2003
(In thousands)
Pension benefits:
Service cost $ 484 $ 365
Interest cost 1,929 1,899
Expected return on plan assets (2,119) (2,006)
Amortization of prior service cost 88 123
Amortization of net loss 241 114
---------- ----------
Net periodic benefit cost $ 623 $ 495
========== ==========
Other benefits:
Service cost $ 1 $ 1
Interest cost 174 213
Expected return on plan assets (2) (2)
Amortization of prior service cost 30 31
---------- ----------
Net periodic benefit cost $ 203 $ 243
========== ==========
The Company previously disclosed in its financial statements for the year
ended December 27, 2003, that it expected to contribute between $1.0 million
and $1.5 million to its pension plans and approximately $1.0 million to its
other postretirement benefit plans in 2004. During the first quarter of 2004,
$0.3 million of contributions have been made to certain pension plans and $0.2
million of contributions have been made to other postretirement benefit plans.
The impact, if any, of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 has not been recognized in the Consolidated Financial
Statements as of March 27, 2004.
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, and
Great Britain.
-12-
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 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.
Repairs and remodeling projects are also important drivers of underlying demand
for these products.
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.
The Company's earnings and cash flow are dependent upon these spreads that
fluctuate based upon market conditions.
Earnings and profitability are also subject to market trends such as
substitute products and imports. Plastic plumbing systems are the primary
substitute product; these products represent an increasing share of
consumption. Imports of copper tubing from Mexico have increased in recent
years, although U.S. consumption is still predominantly supplied by U.S.
manufacturers.
Results of Operations
During the first quarter of 2004, the Company's net sales were $346.0
million compared with net sales of $232.0 million over the same period of 2003.
Pounds shipped totaled 197.6 million in the current period compared with
shipments of 166.6 million in the first quarter of 2003. This increase in
volume as well as increased selling prices in certain product lines resulted in
the increase in net sales.
Cost of goods sold increased from $191.9 million in the first quarter of
2003 to $281.0 million in the same period of 2004. This increase was
attributable to increases in raw material costs, primarily copper, partially
offset by reductions in per unit conversion costs. The COMEX average copper
price in the first quarter of 2004 was approximately 62 percent greater than in
the same period of 2003. Inventories valued using the LIFO method totaled
$32.6 million at March 27, 2004 and $34.2 at December 27, 2003. At March 27,
2004 and December 27, 2003, the approximate FIFO cost of such inventories was
$54.5 million and $42.0 million, respectively.
-13-
Depreciation and amortization expense increased to $10.0 million for the
first quarter of 2004 compared with $9.7 million during the first quarter of
2003. The increase was due primarily to recent capital expenditures. Selling,
general, and administrative expense was $26.7 million for the first quarter of
2004 compared with $23.3 million for the same period of 2003. This increase
relates primarily to higher sales and distribution costs due primarily to the
increase in net sales.
The Company recognized a $3.9 million impairment charge related to its
subsidiary, Overstreet-Hughes Co., Inc., of which $2.3 million was goodwill and
the remainder was property, plant, and equipment. The results of Overstreet-
Hughes, which manufactures tubular components and assemblies primarily for the
OEM air-conditioning market, have not met expectations. Initiatives to improve
performance have not been successful. Furthermore, Overstreet-Hughes' primary
customer has announced the closure of its facility that consumes the majority
of Overstreet-Hughes' output. Consequently, the Company has reduced its
carrying cost in these long-lived assets to its best estimate of fair value.
This estimate was determined based on a discounted cash flow method.
Operating income increased to $24.3 million due to a 19 percent increase
in shipment volume and improvement in margins for most product lines,
particularly copper tube.
Interest expense in the first quarter of 2004 totaled $0.2 million, which
was $0.1 million less than the first quarter of 2003. This decrease was due to
lower funded balances in 2004. No interest was capitalized during the first
quarter of 2004 or during the first quarter of 2003.
Other income, net increased from $0.6 million in the first quarter of 2003
to $2.8 million in the first quarter of 2004. During the first quarter of
2004, the Company completed the sale of certain undeveloped land that resulted
in recognizing a gain of $5.2 million. The proceeds realized from sale were
$5.2 million. Also during the first quarter of 2004, the Company recognized a
$3.3 million loss related to its equity interest in Conbraco Industries, Inc.
The loss relates primarily to certain federal income tax audit exposures of
Conbraco that were assessed during the first quarter of 2004.
The Company's effective income tax rate for the first quarter of 2004 was
32.8 percent compared with 37.3 percent for the first quarter of last year.
The lower rate in the first quarter of 2004 is primarily attributable to the
recognition of a capital loss carryforward related to the sale of land that had
a tax basis significantly less than the realized proceeds.
In the first quarter of 2003 the Company's Consolidated Statement of
Income reflected operating losses from discontinued operations. These losses
were incurred by Mueller Europe S.A. for the period the business operated.
Liquidity and Capital Resources
Cash used in operating activities in the first quarter of 2004 totaled
$36.4 million, which is primarily attributable to increased receivables and
increased inventories partially offset by net income from continuing
operations, depreciation and amortization, the income tax benefit from the
exercise of stock options, and an increase in liabilities. 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 quarter of 2004, the
-14-
average COMEX copper price was approximately $1.23 per pound, which represents
a 62 percent increase over the average price during the first quarter of 2003.
This rise in the price of cathode has also resulted in sharp increases in the
open market price for copper scrap and, to a lesser extent, the price of brass
scrap.
During the first quarter of 2004, cash provided from investing activities
was $0.1 million, consisting primarily of $5.2 million proceeds from sales of
properties reduced by $5.1 million for capital expenditures. The Company also
used $10.5 million for financing activities during the quarter, consisting
primarily of the acquisition of treasury stock and payment of dividends,
partially offset by the proceeds from stock option exercises. Existing cash
balances were used to fund the first quarter investing and financing
activities.
During the three months ended March 27, 2004, the Chairman of the
Company's Board of Directors, Mr. Harvey L. Karp, exercised options to purchase
900,000 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
$9.7 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.
The Company has a $150 million unsecured line-of-credit (Credit Facility)
which expires in November 2006. At March 27, 2004, there were no outstanding
borrowings under the Credit Facility. Approximately $7.0 million in letters
of credit were backed by the Credit Facility at the end of the first quarter.
At March 27, 2004 the Company's total debt was $13.3 million or two percent of
its total capitalization.
Covenants contained in the Company's financing obligations require, among
other things, the maintenance of minimum levels of working capital, tangible
net worth, and debt service coverage ratios. At March 27, 2004, the Company
was in compliance with all of its debt covenants.
During the first quarter of 2004, the Company's Board of Directors
declared a regular quarterly dividend of ten cents per share on its common
stock. Payment of dividends in the future is dependent upon the Company's
financial condition, cash flows, capital requirements, earnings, and other
factors.
Management believes that cash provided by operations and currently
available cash of $208.3 million will be adequate to meet the Company's normal
future capital expenditures and operational needs. The Company's current ratio
was 5.2 to 1 at March 27, 2004. There have been no material changes to the
contractual obligations discussed in the Company's December 27, 2003 Form 10-K.
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
-15-
repurchased shares for employee benefit plans, as well as for other corporate
purposes. Through March 27, 2004, the Company has repurchased approximately
2.4 million shares under this authorization.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in foreign currency
exchange, raw material costs, and energy costs. To reduce such risks, the
Company may periodically use financial instruments. All hedging transactions
are authorized and executed pursuant to policies and procedures. Further, the
Company does not buy or sell financial instruments for trading purposes.
Foreign Currency Exchange Rates
Foreign currency exposures arising from transactions include firm
commitments and anticipated transactions denominated in a currency other than
an entity's functional currency. The Company and its subsidiaries generally
enter into transactions denominated in their respective functional currencies.
Foreign currency exposures arising from transactions denominated in currencies
other than the functional currency are not material; however, the Company may
utilize certain forward fixed-rate contracts to hedge such transactional
exposures. Gains and losses with respect to these positions are deferred in
stockholders' equity as a component of comprehensive income and reflected in
earnings upon collection of receivables. At March 27, 2004, the Company had an
open forward contract to exchange foreign currency totaling approximately $3.6
million.
The Company's primary foreign currency exposure arises from foreign-
denominated revenues and profits and their translation into U.S. dollars. The
primary currencies to which the Company is exposed include the Canadian dollar,
the British pound sterling, the Euro, and the Mexican peso. The Company
generally views as long-term its investments in foreign subsidiaries with a
functional currency other than the U.S. dollar. As a result, the Company
generally does not hedge these net investments.
Cost and Availability of Raw Materials and Energy
Copper and brass represent the largest component of the Company's variable
costs of production. The cost of these materials is subject to global market
fluctuations caused by factors beyond the Company's control. Significant
increases in the cost of metal, to the extent not reflected in prices for the
Company's finished products, or the lack of availability could materially and
adversely affect the Company's business, results of operations and financial
condition.
The Company occasionally enters into forward fixed-price arrangements with
certain customers. The Company may utilize forward contracts to hedge risks
associated with forward fixed-price arrangements. The Company may also utilize
forward contracts to manage price risk associated with inventory. Gains or
losses with respect to these positions are deferred in stockholders' equity as
a component of comprehensive income and reflected in earnings upon the sale of
inventory. Periodic value fluctuations of the contracts generally offset the
value fluctuations of the underlying fixed-price transactions or inventory.
During the first quarter, the Company entered into forward contracts to
purchase approximately $1.7 million of copper. As of March 27, 2004, the
Company held open forward contracts to purchase approximately $2.1 million of
copper through December 2004.
-16-
Futures contracts may also be used to manage price risk associated with
natural gas purchases. Gains and losses with respect to these positions are
deferred in stockholders' equity as a component of comprehensive income and
reflected in earnings upon consumption of natural gas. Periodic value
fluctuations of the contracts generally offset the value fluctuations of the
underlying natural gas prices. At March 27, 2004, the Company had no open
forward contracts to purchase natural gas.
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 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 March 27, 2004, 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
Competition Matters
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 condition as a result of the
European Commission's action or other investigations.
-17-
Commerce Department Petition
On April 7, 2004, two metals-industry groups filed a petition with the
Commerce Department to restrict exports of copper scrap and copper-alloy scrap.
The Commerce Department has 105 days to determine whether to impose temporary
monitoring and export controls and 45 more days to publish final regulations
and effect any possible relief. The Company is unable to estimate the extent,
if any, that the filing of this petition will affect near-term availability of
scrap or the likelihood that meaningful relief will be obtained.
Labor Relations Update
The Company's labor contracts with certain bargaining unit employees at
its Port Huron and Marysville, Michigan operations expired on April 1, 2004.
Presently, bargaining unit employees are working under an extension of the
expired contracts. Management believes that labor contracts will be agreed to
in the near-term.
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 27, 2004.
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.
(b) During the quarter ended March 27, 2004, the Registrant filed
the following Current Reports on Form 8-K:
February 3, 2004: Item 7. Financial Statements and Exhibits.
Item 12. Results of Operations and Financial Condition.
Fourth Quarter and Annual Earnings Release.
February 17, 2004: Item 5. Other Events and Regulation FD
Disclosure. Item 7. Financial Statements and Exhibits.
Press Release: Declaration of a Dividend.
Items 1, 2, 3, and 4 are not applicable and have been omitted.
-18-
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 April
16, 2004.
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
-19-
EXHIBIT INDEX
Exhibits Description
19.1 Mueller Industries, Inc.'s Quarterly Report to Stockholders
for the quarter ended March 27, 2004. 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
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002