1994
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 June 25, 1994 Commissions file number 1-569
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.)
2959 N. ROCK ROAD
WICHITA, KANSAS 67226-1191
(Address of principal executive offices)
Registrant's telephone number, including area code: (316) 636-6300
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 July
18, 1994 was 8,676,318.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes /X/ No / /
MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Period Ended June 25, 1994
INDEX
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
a.) Consolidated Statements of Income
for the six-months and quarters ended
June 25, 1994 and June 26, 1993 3
b.) Consolidated Balance Sheets
as of June 25, 1994 and December 25, 1993 4
c.) Consolidated Statements of Cash Flows
for the six-months ended June 25, 1994
and June 26, 1993 6
d.) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except share data)
For the Quarter Ended For the Six-months Ended
June 25, June 26, June 25, June 26,
1994 1993 1994 1993
Net sales $136,576 $127,321 $257,388 $258,358
Cost of goods sold 110,040 103,423 207,513 211,679
Depreciation, depletion, and
amortization 3,175 3,342 5,875 6,217
Selling, general, and
administrative expense 11,226 10,576 21,914 22,634
------- ------- ------- -------
Operating income 12,135 9,980 22,086 17,828
Interest expense (1,618) (1,450) (3,312) (2,945)
Environmental reserves - - (412) -
Unusual items (1,141) (637) (1,406) (637)
Other income, net 2,164 816 3,543 1,448
------- ------- ------- -------
Income before income taxes 11,540 8,709 20,499 15,694
Current income tax expense (1,930) (897) (2,724) (1,748)
Deferred income tax expense (2,310) (2,500) (4,838) (4,421)
------- ------- ------- -------
Total income tax expense (4,240) (3,397) (7,562) (6,169)
------- ------- ------- -------
Net income $ 7,300 $ 5,312 $ 12,937 $ 9,525
======= ======= ======= =======
Net income per share:
Primary:
Average shares outstanding 10,176 10,443 10,302 10,402
Net income $ .72 $ .51 $ 1.26 $ .92
======= ======= ======= =======
Fully diluted:
Average shares outstanding 10,176 10,485 10,302 10,483
Net income $ .72 $ .51 $ 1.26 $ .91
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
June 25, 1994 December 25, 1993
Assets
Current assets:
Cash and cash equivalents $ 58,646 $ 77,336
Accounts receivable, less allowance
for doubtful accounts of $3,606 in
1994 and $3,495 in 1993 68,358 59,197
Inventories:
Raw materials and supplies 13,184 5,704
Work-in-process 15,275 16,501
Finished goods 31,142 30,913
------- -------
Total inventories 59,601 53,118
Current deferred income taxes 2,007 3,242
Other current assets 4,225 1,518
------- -------
Total current assets 192,837 194,411
Property, plant and equipment, net 158,643 154,403
Deferred income taxes 9,016 12,751
Other assets 23,166 8,178
------- -------
$ 383,662 $ 369,743
======= =======
See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
June 25, 1994 December 25, 1993
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 12,069 $ 8,391
Accounts payable 24,965 15,637
Accrued wages and other employee costs 14,066 11,787
Restructuring reserves 4,681 5,305
Current deferred income taxes 441 446
Other current liabilities 11,702 9,340
------- -------
Total current liabilities 67,924 50,906
Long-term debt 66,355 54,320
Pension and post retirement liabilities 18,746 18,834
Deferred income taxes 3,678 3,810
Other noncurrent liabilities 18,324 19,759
------- -------
Total liabilities 175,027 147,629
Stockholders' equity:
Preferred stock-shares authorized
5,000,000; none outstanding - -
Common stock - $.01 par value; shares
authorized 20,000,000; issued and
outstanding 10,000,000 100 100
Paid-in capital, common 236,255 236,406
Retained earnings (accumulated deficit)
Since January 1, 1991 6,998 (5,939)
Cumulative translation adjustment (2,611) (1,944)
Treasury common stock at cost,
1,323,682 shares in 1994 and 416,807
shares in 1993 (32,107) (6,509)
------- -------
Total stockholders' equity 208,635 222,114
Commitments and contingencies (Note 4) - -
------- -------
$ 383,662 $ 369,743
======= =======
See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Six-months Ended
June 25, 1994 June 26, 1993
Cash flows from operating activities
Net income $ 12,937 $ 9,525
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for unusual items 1,406 -
Depreciation, depletion and
amortization of intangibles 5,462 5,593
Amortization of deferred preparation costs 413 624
Provision for doubtful accounts receivable 114 -
Deferred income taxes 4,838 4,421
Gain on disposal of properties (1,893) (313)
Changes in assets and liabilities:
Receivables (9,275) (4,750)
Inventories (6,483) 9,195
Other assets (1,798) 935
Current liabilities 12,203 (7,667)
Other liabilities (1,787) 554
Other, net (405) 494
------- -------
Net cash provided by operating activities 15,732 18,611
------- -------
Cash flows from investing activities
Capital expenditures (10,895) (5,795)
Proceeds from sales of properties 2,884 1,180
Escrowed IRB proceeds included
in other assets (16,375) -
------- -------
Net cash used by investing activities (24,386) (4,615)
------- -------
Cash flows from financing activities
Repayments of long-term debt (4,287) (3,411)
Acquisition of treasury stock (25,897) -
Issuance of long-term debt 20,000 386
Proceeds from issuance of treasury stock 148 138
------- -------
Net cash used by financing activities (10,036) (2,887)
------- -------
Increase (decrease) in cash and cash equivalents (18,690) 11,109
Cash and cash equivalents at the
beginning of the period 77,336 44,459
------- -------
Cash and cash equivalents at the
end of the period $ 58,646 $ 55,568
======= =======
See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
General
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles 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. Certain amounts
in the 1993 financial statements have been reclassified to conform with
current period presentation.
Note 1 - Income Taxes
As discussed more fully in Note 6 of Notes to Consolidated Financial
Statements included in the Company's 1993 Annual Report, the Company has
substantial Net Operating Loss Carryforwards (NOLs). Use of these NOLs is
generally limited to an annual amount of $14.4 million by Section 382 of the
Internal Revenue Code of 1986, as amended (the Code), as a result of the
"change in ownership" that occurred on December 28, 1990. Section 382
limitations are, among other things, based upon the Company's value and
certain statutory interest rates in effect at the time a "change in ownership"
occurs. Based on information available to the Company, a "change of
ownership" occurred in June, 1994. Nevertheless, the annual limitation of
$14.4 million will remain available under Section 382. A future "change in
ownership" could result in further limitations under certain circumstances.
Note 2 - Earnings Per Common Share
Primary earnings per common share are based upon the weighted average number
of common and common equivalent shares outstanding during the period. Fully
diluted earnings per share are based upon the weighted average number of
common shares outstanding plus the dilutive effects of all outstanding stock
options.
Note 3 - Long-Term Debt
On December 28, 1993, the Company, through a wholly owned subsidiary, issued
$20.0 million of 6.95% taxable Industrial Development Revenue Bonds due
December 15, 2000 (the 1993 Series IRBs). The 1993 Series IRBs are due in
quarterly installments of $0.7 million plus interest beginning March 15, 1994
through December 15, 2000. Proceeds of the 1993 Series IRBs will be used to
fund a modernization project at the Company's Fulton, Mississippi facility.
On June 28, 1994, subsequent to the end of the second fiscal quarter, the
Company entered into agreement with a syndicate of six banks to provide for
(i) an unsecured line-of-credit facility (Credit Facility) and (ii) the
issuance of unsecured taxable Industrial Revenue Bonds (the 1994 Series IRBs).
The Credit Facility provides availability of up to $30 million which expires
on June 30, 1996, but each year may be extended for up to 12 months.
Borrowings under the Credit Facility bear interest, at the Company's option,
at (i) prime rate less 1/2 of one percent, (ii) LIBOR plus .8%, (iii)
certificate of deposit rate plus 1.35%, or (iv) Federal Funds Rate plus 1.8%.
An annual commitment fee of 1/4 of one percent per annum on the unused portion
of the Credit Facility is payable quarterly. Currently, the Company has no
outstanding borrowings under the Credit Facility. Availability of funds under
the Credit Facility is reduced by the amount of certain outstanding letters of
credit, which currently total approximately $2.9 million.
On June 28, 1994, the Company, through a wholly owned subsidiary, issued an
aggregate of $18.0 million of the 1994 Series IRBs which bear interest at
8.825%. The 1994 Series IRBs are due in quarterly installments of $0.6
million plus interest beginning September, 1994 through June, 2001. Proceeds
of the 1994 Series IRBs will be used to fund a new high volume copper fittings
plant that will be located adjacent to the Company's existing copper tube mill
in Fulton, Mississippi.
Borrowings under the above agreements require the Company, among other things,
to maintain certain minimum levels of net worth and meet certain minimum
financial ratios. The Company is in compliance with all covenants.
Note 4 - Commitments and Contingencies
The Company is subject to normal environmental standards imposed by federal,
state and local environmental laws and regulations. Management believes that
the outcome of pending environmental matters will not materially affect the
overall financial position 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.
Purchase Commitments
The Company has committed to capital expenditures of approximately $20.0
million, for a major project to modernize the copper tube mill in Fulton,
Mississippi. In February, 1994, the Company's Board of Directors (the Board)
approved a $15.0 million modernization project for the brass rod mill in Port
Huron, Michigan. Additionally, in May, 1994, the Board approved a $18.0
million investment to construct a high-volume copper fittings plant in Fulton,
Mississippi. These approved major projects should become operational in the
latter half of 1995. No other material purchase commitments for capital
projects exist.
Canco Litigation Settlement
On March 25, 1994, the Company's Canco Oil & Gas Ltd. (Canco) subsidiary
settled all litigation against the Government of Saskatchewan and Scurry
Rainbow Oil Limited in which Canco asserted, among other things, that its
royalty interests continued against mineral titles transferred to the
government as well as other expropriated properties. The Company recognized a
gain of approximately $0.6 million as a result of the settlement.
Note 5 - Stockholders' Equity
On June 3, 1994, the Company purchased 924,875 shares of its common stock, for
an aggregate purchase price of approximately $25.9 million, from the Quantum
Fund N.V. These shares were placed in treasury and may be used for general
Corporate purposes, such as requirements for future exercises of options under
various option plans.
At the Company's Annual Meeting of Stockholders on May 12, 1994, the
stockholders approved the adoption of two stock option plans, the 1994 Stock
Option Plan and the 1994 Non-Employee Director Stock Option Plan. Under the
1994 Stock Option Plan, the Company may issue a maximum of 200,000 shares of
common stock; under the 1994 Non-Employee Director Stock Option Plan, the
Company may issue a maximum of 25,000 shares of common stock.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General Overview
The Company's principal business is the manufacture and sale of copper tube,
brass rod, fittings and other products made of copper, brass, bronze, plastic
and aluminum. These core manufacturing businesses have been in operation for
over 75 years. New housing starts and commercial construction are important
determinants of the Company's sales to the air-conditioning, 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
units and commercial buildings.
Profitability of certain of the Company's product lines is dependent upon the
"spreads" between the cost of metal and the gross selling prices of its
products. The open market price for grade A copper cathode, for example,
directly influences the selling price for copper tubing, a principal product
manufactured by the Company. The Company attempts to minimize the effects of
changes in copper prices by passing through to its customers base metal costs.
The market price of copper does, however, effect the carrying value (FIFO
basis) of the Company's copper inventories and, to a lesser extent, brass
inventories. These inventories customarily total between 30 to 35 million
pounds. "Spreads" fluctuate based upon competitive market conditions.
The Company also owns various natural resource properties in the Western
United States and Canada. It operates a short line railroad in Utah and a
placer gold mining company in Alaska. Additionally, certain other natural
resource properties produce royalty income or are available for sale.
Results of Operations
Net income was $7.3 million, or 72 cents per common share, for the second
quarter of 1994, which compares with net income of $5.3 million, or 51 cents
per common share, for the same period of 1993. Year-to-date, net income was
$12.9 million, or $1.26 per common share, which compares to net income of $9.5
million, or 92 cents per common share, for 1993.
During the second quarter of 1994 the Company's net sales were $136.6 million,
which compares to net sales of $127.3 million, or a 7.3 percent increase over
the same period of 1993. Net sales were $257.4 million in the first half of
1994, which compares to net sales of $258.4 million in the same period of
1993. The change in net sales was primarily attributable to: (i) volume
increases of 5.8 percent in the second quarter and 4.5 percent in the first
half; and (ii) pricing increases due to higher average raw material costs
(price of copper) in 1994 which, generally, are passed through to customers in
certain product lines. The Company's core manufacturing businesses shipped
97.0 million pounds of product in the second quarter of 1994 which compares to
91.7 million pounds in the same quarter of 1993; year-to-date, volumes were
189.0 million pounds in 1994 and 180.9 million pounds in 1993. Second quarter
operating income increased primarily due to: (i) productivity improvements at
its manufacturing plants; (ii) selective price increases in fittings; and
(iii) cost reductions in the areas of selling, general and administrative
expenses.
The Company uses the first-in, first-out (FIFO) method of accounting for its
inventories. Under this method, the inventory items acquired first are
assumed to be sold first, thereby matching earliest costs with current selling
prices. In two of the principal product line markets in which the Company
competes, selling prices are influenced by the current price of metal
(primarily copper as well as base metals used in the formation of brass
alloys). Therefore, when metal prices change on the open market, the Company
adjusts its selling prices, to the extent competitive pressures allow, to
reflect such changes. Nonetheless, financial reporting, under the FIFO
method, matches historical inventory costs with current selling prices, rather
than current replacement costs with current selling prices. While the impact
of metal price volatility is moderated by rapid inventory turns, upward and
downward trends of longer duration may impact operating income under the FIFO
method.
Interest expense increased approximately $0.2 million for the quarter and $0.4
million year-to-date due to the 1993 Series IRBs issued early in the first
quarter of 1994 for the purpose of financing a capital improvement program at
the copper tube mill. Year-to-date, other non-operating items included (i) a
gain of $.6 million related to the settlement of litigation as discussed in
Note 4, (ii) a provision for environmental reserves of $.4 million related to
a site in which Mueller Brass Co., a subsidiary of the Company, was notified
it was a potentially responsible party, (iii) a provision to further reduce
the carrying cost of a note receivable from Sharon Specialty Steel Company,
Inc., and (iv) gains of $2.0 million related to sales of natural resource
properties. Additionally, the Company recorded an unusual item of $1.1
million for outstanding insurance matters primarily related to estimated
workers compensation claims for years prior to 1993.
Liquidity and Capital Resources
Cash provided by operating activities in the first half of 1994 totaled $15.7
million which is primarily attributable to net income, depreciation, and
deferred income taxes, offset by increases in receivables and inventories.
During the first-half of 1994, the Company's capital expenditures totaled
$10.9 million which was provided for by cash from operations, except that
portion related to the copper tube mill project which was funded by IRB
financing as discussed in Note 3.
During the first-half, the Company issued the 1993 Series IRBs as described in
Note 3. The 1994 Series IRBs were issued subsequent to June 25, 1994. At
June 25, 1994, the Company's total debt was $78.4 million or 27 percent of its
capitalization. On a pro forma basis including the 1994 Series IRBs, total
debt would be $96.4 million, or 32 percent of its capitalization.
The Company's financing obligations contain various covenants which require,
among other things, the maintenance of minimum levels of tangible net worth,
and certain minimum financial ratios. Additionally, certain notes issued by
its wholly-owned subsidiary restrict the amount of cash that may be loaned or
dividended by that subsidiary. The Company is in compliance with all debt
covenants.
Management believes that cash provided by operations and currently available
cash of $58.6 million will be adequate to meet the Company's normal future
capital expenditure and operational needs. The Company's current ratio
remains strong at 2.8 to 1.
As part of its ongoing strategic planning process, the Company has approved
three major capital expenditure projects for the following operations: (i)
Fulton, Mississippi copper tube mill; (ii) Port Huron, Michigan brass rod
mill; and (iii) a high volume copper fittings plant to be located adjacent to
the Company's existing copper tube mill in Fulton, Mississippi. These
projects will require capital of approximately $15.0 to $20.0 million each.
The primary objective of these projects is to improve efficiency and
productivity as well as add some capacity.
Both of the Fulton projects were financed by IRBs which were issued during
fiscal 1994. The Company is also evaluating alternatives for funding the
other project including cash from operations and debt financing.
During the first-half, the Company purchased treasury stock for an aggregate
purchase price of $25.9 million. The purchase was funded with existing cash
balances and should not impair the Company's ability to finance operational
requirements.
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 12, 1994, the Company held its Annual Meeting of Stockholders at which
four proposals were voted upon: (i) Election of Directors; (ii) Adoption of
1994 Stock Option Plan; (iii) Adoption of 1994 Non-Employee Director Stock
Option Plan; and (iv) the Appointment of Auditors.
The following persons were duly elected to serve, subject to the Company's
Bylaws, as directors of the Company until the next Annual Meeting, or until
election and qualification of their successors:
Votes in Favor Votes Withheld
Rodman L. Drake 7,799,300 156,932
Gary S. Gladstein 7,804,155 155,409
Harvey L. Karp 7,804,313 151,919
Allan Mactier 7,801,978 154,254
William D. O'Hagan 7,804,379 151,853
Robert J. Pasquarelli 7,800,823 155,409
Paul Soros 7,639,240 316,992
The proposal to approve the adoption of the Company's 1994 Stock Option Plan
was approved by 6,205,145 votes in favor, 1,979,155 votes against and 328,354
votes abstaining. The proposal to approve the adoption of the 1994 Non-
Employee Director Stock Option Plan was approved by 7,847,994 votes in favor,
326,107 votes against and 338,553 votes abstaining. The appointment of Ernst
& Young as the Company's Auditors was ratified by 8,487,351 votes in favor,
10,929 votes against and 14,374 votes abstaining.
There were no broker non-votes pertaining to these proposals.
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 June 25, 1994. 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 Press Release issued by Mueller Industries, Inc. on July 18, 1994.
(b) During the quarter ended June 25, 1994, the Registrant filed no Current
Reports on Form 8-K.
Items 1, 2, 3 and 5 are not applicable and have been omitted.
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 July 22, 1994.
MUELLER INDUSTRIES, INC.
/S/ EARL W. BUNKERS
Earl W. Bunkers, Executive Vice President,
and Chief Financial Officer
/S/ ROY C. HARRIS
Roy C. Harris
Corporate Controller
/S/ KENT A. MCKEE
Kent A. McKee
Treasurer and Assistant Secretary