1995
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 July 1, 1995 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
14, 1995 was 8,644,732.
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 July 1, 1995
INDEX
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
a.) Consolidated Statements of Income
for the six-months and quarters ended
July 1, 1995 and June 25, 1994 3
b.) Consolidated Balance Sheets
as of July 1, 1995 and December 31, 1994 4
c.) Consolidated Statements of Cash Flows
for the six-months ended July 1, 1995
and June 25, 1994 6
d.) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
For the Quarter Ended For the Six-Months Ended
July 1, June 25, July 1, June 25,
1995 1994 1995 1994
Net sales $181,380 $136,576 $353,150 $257,388
Cost of goods sold 149,587 112,445 290,147 212,230
------- ------- ------- -------
Gross profit 31,793 24,131 63,003 45,158
Depreciation, depletion, and
amortization 3,763 3,175 7,409 5,875
Selling, general, and
administrative expense 12,409 11,226 25,376 21,914
------- ------- ------- -------
Operating income 15,621 9,730 30,218 17,369
Interest expense (1,134) (1,618) (2,511) (3,312)
Environmental reserves - - - (412)
Unusual items - (1,141) - (1,406)
Other income, net 1,102 2,164 2,575 3,543
------- ------- ------- -------
Income before income taxes 15,589 9,135 30,282 15,782
Current income tax expense (4,419) (1,528) (8,687) (2,117)
Deferred income tax expense (507) (1,829) (882) (3,705)
------- ------- ------- -------
Total income tax expense (4,926) (3,357) (9,569) (5,822)
------- ------- ------- -------
Net income $ 10,663 $ 5,778 $ 20,713 $ 9,960
======= ======= ======= =======
Net income per share:
Primary:
Average shares outstanding 9,550 10,176 9,506 10,302
Net income $ 1.12 $ .57 $ 2.18 $ .97
======= ======= ======= =======
Fully diluted:
Average shares outstanding 9,600 10,176 9,614 10,302
Net income $ 1.11 $ .57 $ 2.15 $ .97
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
July 1, 1995 December 31, 1994
Assets
Current assets:
Cash and cash equivalents $ 19,521 $ 34,492
Accounts receivable, less allowance
for doubtful accounts of $3,360 in
1995 and $3,336 in 1994 99,308 66,925
Inventories:
Raw materials and supplies 13,152 20,043
Work-in-process 15,448 18,251
Finished goods 44,744 36,074
------- -------
Total inventories 73,344 74,368
Current deferred income taxes 4,455 4,491
Other current assets 5,472 3,275
------- -------
Total current assets 202,100 183,551
Property, plant and equipment, net 212,963 196,772
Deferred income taxes 22,882 23,797
Other assets 16,088 26,635
------- -------
$ 454,033 $ 430,755
======= =======
See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
July 1, 1995 December 31, 1994
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 18,079 $ 18,611
Accounts payable 29,329 21,607
Accrued wages and other employee costs 13,272 13,105
Current deferred income taxes 344 366
Other current liabilities 18,219 13,532
------- -------
Total current liabilities 79,243 67,221
Long-term debt 69,151 76,125
Pension and post retirement liabilities 19,084 18,445
Environmental reserves 9,862 11,178
Deferred income taxes 2,969 3,016
Other noncurrent liabilities 12,800 12,822
------- -------
Total liabilities 193,109 188,807
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 20,000,000; issued
10,000,000; outstanding 8,644,232
in 1995 and 8,698,977 in 1994 100 100
Paid-in capital, common 254,044 254,251
Retained earnings
(Since January 1, 1991) 42,700 21,987
Cumulative translation adjustment (2,612) (2,832)
Treasury common stock, at cost (33,308) (31,558)
------- -------
Total stockholders' equity 260,924 241,948
Commitments and contingencies (Note 2) - -
------- -------
$ 454,033 $ 430,755
======= =======
See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Six-Months Ended
July 1, 1995 June 25, 1994
Cash flows from operating activities
Net income $ 20,713 $ 9,960
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for unusual items - 1,406
Depreciation, depletion, and
amortization of intangibles 7,409 5,875
Provision for doubtful accounts receivable - 114
Deferred income taxes 882 3,705
Gain on disposal of properties (584) (1,893)
Changes in assets and liabilities:
Receivables (32,383) (9,275)
Inventories 1,024 (1,766)
Other assets (2,320) (1,798)
Current liabilities 12,676 11,596
Other liabilities (699) (1,787)
Other, net 138 (405)
------- -------
Net cash provided by operating activities 6,856 15,732
------- -------
Cash flows from investing activities
Capital expenditures (23,682) (10,895)
Proceeds from sales of properties 834 2,884
Escrowed IRB financing 10,484 (16,375)
------- -------
Net cash used by investing activities (12,364) (24,386)
------- -------
Cash flows from financing activities
Repayments of long-term debt (7,506) (4,287)
Proceeds from sale of treasury stock 98 148
Acquisition of treasury stock (2,055) (25,897)
Issuance of long-term debt - 20,000
------- -------
Net cash used by financing activities (9,463) (10,036)
------- -------
Decrease in cash and cash equivalents (14,971) (18,690)
Cash and cash equivalents at the
beginning of the period 34,492 77,336
------- -------
Cash and cash equivalents at the
end of the period $ 19,521 $ 58,646
======= =======
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.
Note 1 - 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 2 - 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 for the following
projects: (i) approximately $20.0 million to modernize the copper tube mill
in Fulton, Mississippi; (ii) approximately $16.0 million to modernize the
brass rod mill in Port Huron, Michigan; and (iii) approximately $22.0 million
to construct a new high-volume copper fitting facility adjacent to the
Company's copper tube mill in Fulton, Mississippi. As of July 1, 1995,
expenditures of $43.8 million have been incurred of which $33.6 million was
funded with proceeds of the 1993 and 1994 Series IRBs. At July 1, 1995, $5.6
million of the IRB proceeds remain escrowed, until required for funding the
projects, and are classified as other assets. These approved major projects
should become fully operational in 1995. No other material purchase
commitments for capital expenditures exist.
Forward Contracts
During the first quarter of 1995, the Company entered into a forward
contract to deliver approximately 15,000 ounces of gold on July 6, 1995 at a
price of $381 per ounce. At July 1, 1995, there were no other open hedge
transactions.
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
completed products. The open market price for copper cathode, for example,
directly influences the selling price of copper tubing, a principal product
manufactured by the Company. The Company attempts to minimize the effects of
changes in copper prices by passing base metal costs through to its customers.
In 1994, the Company adopted the LIFO method of accounting for the copper
metal component of its copper tube and fittings inventories. Management
believes the LIFO method results in a better matching of current costs with
current revenues. The market price of copper does, however, indirectly effect
the carrying value (FIFO basis) of the Company's brass inventories. The
Company's copper and brass 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 operation in Alaska. Additionally, certain other natural
resource properties produce royalty income.
Results of Operations
Net income was $10.7 million, or $1.12 per common share, for the second
quarter of 1995, which compares with net income of $5.8 million, or 57 cents
per common share, for the same period of 1994. Year-to-date, net income was
$20.7 million, or $2.18 per common share, which compares to net income of
$10.0 million or 97 cents per common share, for 1994.
During the second quarter of 1995, the Company's net sales were $181.4
million, which compares to net sales of $136.6 million, or a 32.8 percent
increase over the same period of 1994. Net sales were $353.2 million in the
first half of 1995 versus $257.4 million in 1994. The increase in first half
net sales was primarily attributable to the core manufacturing businesses,
which shipped 11.0 percent more pounds of product. The September, 1994
acquisition of two plastic manufacturing facilities contributed to this
increase. The net sales increase is also reflective of price increases which
pass through higher metal costs. The Company's core manufacturing businesses
shipped 106.3 million pounds of product in the second quarter of 1995 which
compares to 97.0 million pounds in the same quarter of 1994. Second quarter
operating income increased primarily due to: (i) productivity improvements at
its manufacturing plants; (ii) higher sales volumes; (iii) selective price
increases in the fittings and brass rod markets; and (iv) cost containment in
selling, general, and administrative expenses.
Interest expense for the second quarter of 1995 decreased approximately
$0.5 million due to capitalized interest of $0.7 million related to capital
improvement programs at the copper tube mill, the brass rod mill, and the
high-volume copper fittings factory. The effective tax rate of 31.6 percent
in the second quarter of 1995 reflects the benefits of a lower federal
provision relating to the recognition of net operating loss carryforwards and
a lower state provision associated with incentive IRB financings.
Compared to the same periods of 1994, second quarter and first half 1995
earnings per share were favorably effected by the June, 1994 purchase of
treasury stock aggregating 924,875 shares, or 9.6 percent of shares then
outstanding.
Liquidity and Capital Resources
Cash provided by operating activities in the first half of 1995 totalled
$6.9 million which is primarily attributable to net income and increases in
current liabilities offset by an increase in accounts receivable. The
increase in accounts receivable reflects the favorable increase in sales
activity.
During the first half of 1995, the Company's capital expenditures
totalled $23.7 million which was provided for by cash from operations, except
that portion related to two major capital improvement projects which were
funded by IRBs.
During the second quarter of 1995, the Company increased to $50.0 million
its unsecured line-of-credit agreement (the Credit Facility) which expires on
June 30, 1997, but may be extended for successive one year periods by
agreement of the parties. At the Company's option, borrowings bear interest
at prime less 1/2 of one percent. There are no outstanding borrowings under
the Credit Facility. At July 1, 1995, the Company's total debt was $87.2
million or 25.1 percent of its capitalization.
The Company's financing obligations contain various covenants which
require, among other things, the maintenance of minimum levels of working
capital, tangible net worth, and debt service coverage ratios. The Company is
in compliance with all debt covenants.
Management believes that cash provided by operations and currently
available cash of $19.5 million will be adequate to meet the Company's normal
future capital expenditure and operational needs. The Company's current ratio
remains strong at 2.6 to 1.
The Company has ongoing three major capital expenditure projects: (i) a
modernization project at its Fulton, Mississippi copper tube mill; (ii) a
modernization project at its Port Huron, Michigan brass rod mill; and (iii) a
new high-volume copper fittings plant in Fulton, Mississippi. These projects
will require capital of approximately $58.0 million. The two Fulton,
Mississippi projects have been financed primarily by IRBs. The objective of
these projects is to improve efficiency, yield and productivity as well as add
some capacity.
Additionally, the Company has identified and is evaluating various other
capital improvement projects that could further enhance productivity and/or
add capacity. Various funding alternatives for such projects are also being
considered.
Update on Capital Improvement Programs
Mueller is upgrading its brass rod mill manufacturing processes with an
expansion that includes the installation of an indirect extrusion press, new
billet heating furnaces, and material handling systems. The indirect
extrusion press and much of the related equipment arrived at the Port Huron
facility in May, 1995. The Company expects to transition production to the
new equipment during the fourth quarter of 1995.
The building containing Mueller's new high-volume fittings plant in
Fulton, Mississippi, is completed and most fittings manufacturing equipment
has arrived. Limited production of certain fittings commenced in the second
quarter, however, the plant will not become fully operational until later in
1995.
Mueller's capital improvement project at its Fulton copper tube mill to
upgrade technology and install state-of-the-art tube drawing equipment remains
on schedule. All major items of equipment have been delivered and installed
at the Fulton facility. The Company anticipates that the new equipment will
be operational late in the third quarter of 1995.
Another important ongoing program, the modernization of the copper
fittings plant in Covington, Tennessee, should be completed by mid-1996.
Modernization of this facility, which produces a broad range of low-volume
items, is estimated to require approximately $6.0 to $7.0 million in capital
improvements.
Update on Other Matters
Gold Mining
Last winter, Alaska Gold Company ("Alaska Gold") commenced full scale
open-pit mining operations in Nome, Alaska. During the winter and spring of
1995, Alaska Gold moved approximately 1.1 million cubic yards of overburden.
Alaska Gold believes that its stockpile of pay gravel from the current open-
pit will total approximately 275,000 cubic yards. The stockpiled pay gravel
thaws naturally and is then run through a wash house in the summer, with the
raw gold being sent to a third party to be refined into pure gold, which can
then be sold. During the second quarter, Alaska Gold processed approximately
24,000 cubic yards of pay gravel which yielded 1,302 ounces of gold. Alaska
Gold expects to process and refine the remaining pay gravel during the latter
half of 1995.
Coal Properties
In 1994, United States Fuel Company ("US Fuel") entered into an agreement
to sell the majority of its assets. This sale has not yet been consummated,
but US Fuel has granted extensions of the closing date to give the purchaser
additional time to finalize financing. If this sale is not completed, US Fuel
intends to resume full scale remediation at the site.
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 9, 1995, the Company held its Annual Meeting of Stockholders at
which two proposals were voted upon: (i) Election of Directors; and (ii) 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
Robert B. Hodes 6,218,960 969,750
Harvey L. Karp 6,217,370 971,340
Allan Mactier 6,356,101 832,609
William D. O'Hagan 6,221,304 967,406
Robert J. Pasquarelli 6,355,181 833,529
The proposal to approve the appointment of Ernst & Young LLP as the
Company's Auditors was ratified by 7,158,896 votes in favor, 14,738 votes
against and 15,076 votes abstaining.
There were no broker non-votes pertaining to these proposals.
Item 5. Other Information
The following discussion updates the disclosure in Item 1, Business, in
the Company's Annual Report on Form 10-K, for the year ended December 31,
1994.
Environmental Matters
Mining Remedial Recovery Company (MRRC)
1. Cleveland Mill Site
Late in the second quarter, the consent decree relating to the site
was entered by the federal district court.
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 July 1, 1995.
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
19, 1995.
(b) During the quarter ended July 1, 1995, the Registrant filed no
Current Reports on Form 8-K.
Items 1, 2, and 3 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 20, 1995.
MUELLER INDUSTRIES, INC.
/S/ EARL W. BUNKERS
Earl W. Bunkers, Executive Vice
President and Chief Financial Officer
/S/ KENT A. MCKEE
Kent A. McKee
Treasurer and Assistant Secretary
/S/ RICHARD W. CORMAN
Richard W. Corman
Director of Corporate Accounting