Mueller Industries, Inc. Reports Third Quarter Results

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MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

For the Quarter Ended

For the Nine Months Ended

October 1,

September 25,

October 1,

September 25,

2011

2010

2011

2010

(Unaudited)

(Unaudited)

Net sales

$ 585,809

$       507,240

$ 1,926,413

$    1,532,896

Cost of goods sold

523,984

437,597

1,687,735

1,317,290

Depreciation and amortization

8,716

9,934

27,581

30,372

Selling, general, and administrative expense

34,245

28,810

102,944

99,601

Litigation settlement

-

-

(10,500)

-

Insurance settlement

-

12

-

(21,284)

Operating income

18,864

30,887

118,653

106,917

Interest expense

(2,822)

(3,072)

(9,004)

(8,568)

Other income (expense), net

102

30

1,425

(2,348)

Income before income taxes

16,144

27,845

111,074

96,001

Income tax expense

(5,403)

(9,098)

(37,060)

(26,418)

Consolidated net income

10,741

18,747

74,014

69,583

Net (income) loss attributable to noncontrolling interest

(266)

162

(621)

(1,158)

Net income attributable to Mueller Industries, Inc.

$   10,475

$         18,909

$      73,393

$         68,425

Weighted average shares

for basic earnings per share

37,878

37,710

37,779

37,657

Effect of dilutive stock-based awards

483

92

367

77

Adjusted weighted average shares

for diluted earnings per share

38,361

37,802

38,146

37,734

Basic earnings per share

$       0.28

$             0.50

$          1.94

$             1.82

Diluted earnings per share

$       0.27

$             0.50

$          1.92

$             1.81

Dividends per share

$       0.10

$             0.10

$          0.30

$             0.30

Summary Segment Data:

Net sales:

Plumbing & Refrigeration Segment

$ 325,776

$       282,735

$ 1,053,434

$       825,114

OEM Segment

266,560

228,981

899,982

718,965

Elimination of intersegment sales

(6,527)

(4,476)

(27,003)

(11,183)

Net sales

$ 585,809

$       507,240

$ 1,926,413

$    1,532,896

Operating income:

Plumbing & Refrigeration Segment

$   13,884

$         11,511

$      68,357

$         71,710

OEM Segment

12,172

22,994

60,634

56,057

Unallocated expenses

(7,192)

(3,618)

(10,338)

(20,850)

Operating income

$   18,864

$         30,887

$    118,653

$       106,917

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

October 1,

December 25,

2011

2010

(Unaudited)

ASSETS

Cash and cash equivalents

$    448,853

$      394,139

Accounts receivable, net

315,709

269,258

Inventories

214,868

209,892

Other current assets

53,366

39,025

   Total current assets

1,032,796

912,314

Property, plant, and equipment, net

207,761

229,498

Other assets

118,353

117,184

$ 1,358,910

$   1,258,996

LIABILITIES AND STOCKHOLDERS' EQUITY

Current portion of debt

$      52,827

$        32,020

Accounts payable

65,743

67,849

Other current liabilities

113,823

95,258

   Total current liabilities

232,393

195,127

Long-term debt

156,726

158,226

Pension and postretirement liabilities

39,649

40,939

Environmental reserves

23,111

23,902

Deferred income taxes

19,788

24,081

Other noncurrent liabilities

2,187

824

   Total liabilities

473,854

443,099

Total Mueller Industries, Inc. stockholders' equity

856,189

788,736

Noncontrolling interest

28,867

27,161

   Total equity

885,056

815,897

$ 1,358,910

$   1,258,996

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For the Nine Months Ended

October 1,

September 25,

2011

2010

(Unaudited)

Operating activities:

Consolidated net income

$   74,014

$    69,583

Reconciliation of net income to net cash provided by

operating activities:

Depreciation and amortization

27,844

30,550

Stock-based compensation expense

2,583

2,185

(Gain) loss on disposal of properties

(99)

252

Insurance settlement

-

(21,284)

Insurance proceeds - noncapital related

10,000

5,561

Deferred income taxes

(2,785)

(8,386)

Income tax benefit from exercise of stock options

(867)

(89)

Changes in assets and liabilities, net of business acquired:

Receivables

(38,480)

(50,810)

Inventories

(10,432)

2,800

Other assets

(9,263)

6,158

Current liabilities

13,703

21,562

Other liabilities

1,907

2,839

Other, net

759

(225)

Net cash provided by operating activities

68,884

60,696

Investing activities:

Capital expenditures

(13,128)

(14,210)

Acquisition of business

(6,882)

(2,021)

Insurance proceeds

-

17,703

Proceeds from sales of properties

1,745

26

Net (deposits into) withdrawals from restricted cash balances

(5,120)

1,649

Net cash (used in) provided by investing activities

(23,385)

3,147

Financing activities:

Dividends paid

(11,345)

(11,300)

Debt issuance costs

(1,942)

-

Issuance of shares under stock-based incentive plans

from treasury

11,885

2,463

Income tax benefit from exercise of stock options

867

89

Acquisition of treasury stock

(8,211)

(85)

Repayments of long-term debt

(1,902)

-

Issuance (repayment) of debt by joint venture, net

19,316

(1,097)

Net cash provided by (used in) financing activities

8,668

(9,930)

Effect of exchange rate changes on cash

547

202

Increase in cash and cash equivalents

54,714

54,115

Cash and cash equivalents at the beginning of the period

394,139

346,001

Cash and cash equivalents at the end of the period

$ 448,853

$   400,116

MUELLER INDUSTRIES, INC.

RECONCILIATION OF NET INCOME AS REPORTED

TO NET INCOME BEFORE LOWER-OF-COST-OR-MARKET RESERVE

(In thousands, except per share data)

Earnings without the lower-of-cost-or-market (LCM) reserve in the third quarter of 2011 is a measurement not derived in accordance with generally accepted accounting principles (GAAP).  Excluding the LCM reserve is useful as it assists in comparing our results to competitors.  The LCM reserve resulted from the decrease in copper prices experienced near the end of the quarter, causing the Company to write-down approximately $6.8 million of certain inventories valued using the first-in, first-out (FIFO) and average cost methods to the lower-of-cost-or-market.  Reconciliation of net income as reported to earnings without the LCM reserve is as follows:

For the Three Months Ended October 1, 2011

Impact of

Pro forma

As

LCM

Without

Reported

Reserve

LCM Reserve

(Unaudited)

Operating income

$ 18,864

$  6,796

$       25,660

Interest expense

(2,822)

-

(2,822)

Other income, net

102

-

102

Income before income taxes

16,144

6,796

22,940

Income tax expense

(5,403)

(2,379)

(7,782)

Consolidated net income

10,741

4,417

15,158

Net income attributable to noncontrolling interest

(266)

-

(266)

Net income attributable to Mueller Industries, Inc.

$ 10,475

$  4,417

$       14,892

Diluted earnings per share

$     0.27

$    0.12

$           0.39

MUELLER INDUSTRIES, INC.

RECONCILIATION OF NET INCOME AS REPORTED

TO NET INCOME BEFORE LITIGATION SETTLEMENT, LOWER-OF-COST-OR-MARKET RESERVE,  

AND INSURANCE SETTLEMENT

(In thousands, except per share data)

Earnings without the litigation settlement and lower-of-cost-or-market (LCM) reserve in 2011 and without the insurance settlement in 2010 is a measurement not derived in accordance with generally accepted accounting principles (GAAP).  Excluding the LCM reserve is useful as it assists in comparing our results to competitors. Excluding the litigation settlement and insurance settlement is useful as it measures the operating results that are the outcome of daily operating decisions made in the normal course of business. The LCM reserve resulted from the decrease in copper prices experienced near the end of the quarter, causing the Company to write-down approximately $6.8 million of certain inventories valued using the first-in, first-out (FIFO) and average cost methods to the lower-of-cost-or-market. The litigation settlement resulted from the collection of proceeds from the lawsuit against Peter Berkman, Jeffrey Berkman, and Homewerks Worldwide LLC.  The insurance settlement resulted from the final settlement for losses claimed as a result of a fire at our U.K. subsidiary in November 2008, the results of which are not impacted by daily operations and are not expected to recur in future periods. Reconciliations of net income as reported to earnings without the litigation settlement, LCM reserve, and insurance settlement are as follows:

For the Nine Months Ended October 1, 2011

Pro forma

Without

Impact of

Impact of

Litigation

As

Litigation

LCM

Settlement

Reported

Settlement

Reserve

& LCM

(Unaudited)

Operating income

$ 118,653

$ (10,500)

$    6,796

$ 114,949

Interest expense

(9,004)

-

-

(9,004)

Other income, net

1,425

-

-

1,425

Income before income taxes

111,074

(10,500)

6,796

107,370

Income tax expense

(37,060)

3,675

(2,379)

(35,764)

Consolidated net income

74,014

(6,825)

4,417

71,606

Net income attributable to noncontrolling interest

(621)

-

-

(621)

Net income attributable to Mueller Industries, Inc.

$   73,393

$   (6,825)

$    4,417

$   70,985

Diluted earnings per share

$       1.92

$     (0.18)

$      0.12

$       1.86

For the Nine Months Ended September 25, 2010

Pro forma

Impact of

Without

As

Insurance

Insurance

Reported

Settlement

Settlement

(Unaudited)

Operating income

$ 106,917

$ (21,284)

$   85,633

Interest expense

(8,568)

-

(8,568)

Other expense, net

(2,348)

-

(2,348)

Income before income taxes

96,001

(21,284)

74,717

Income tax expense (Note A)

(26,418)

(1,090)

(27,508)

Consolidated net income

69,583

(22,374)

47,209

Net income attributable to noncontrolling interest

(1,158)

-

(1,158)

Net income attributable to Mueller Industries, Inc.

$   68,425

$ (22,374)

$   46,051

Diluted earnings per share

$       1.81

$     (0.59)

$       1.22

(A) Realization of this insurance settlement resulted in a tax benefit primarily from the utilization of U.K. net operating losses that were previously reserved.