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 September 30, 1995 Commissions 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.) 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 October 18, 1995 was 17,334,998. 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 September 30, 1995 INDEX Part I. Financial Information Page Item 1. Financial Statements (Unaudited) a.) Consolidated Statements of Income for the nine-months and quarters ended September 30, 1995 and September 24, 1994 3 b.) Consolidated Balance Sheets as of September 30, 1995 and December 31, 1994 5 c.) Consolidated Statements of Cash Flows for the nine-months ended September 30, 1995 and September 24, 1994 7 d.) Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. Other Information Item 5. Other information 12 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 13 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 September 30, September 24, 1995 1994 Net sales $ 171,549 $ 137,975 Cost of goods sold 137,410 113,253 ----------- ----------- Gross profit 34,139 24,722 Depreciation, depletion, and amortization 4,098 3,227 Selling, general, and administrative expense 13,011 10,497 ----------- ----------- Operating income 17,030 10,998 Interest expense (820) (1,988) Environmental reserves (955) - Unusual items - - Other income, net 1,736 3,023 ----------- ----------- Income before income taxes 16,991 12,033 Current income tax expense (4,202) (3,221) Deferred income tax expense (1,184) (294) ----------- ----------- Total income tax expense (5,386) (3,515) ----------- ----------- Net income $ 11,605 $ 8,518 =========== =========== Net income per share: Primary: Average shares outstanding 19,263,000 18,997,000 Net income $ 0.60 $ 0.45 =========== =========== Fully diluted: Average shares outstanding 19,263,000 19,029,000 Net income $ 0.60 $ 0.45 =========== =========== See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data)
For the Nine-Months Ended September 30, September 24, 1995 1994 Net sales $ 524,699 $ 395,363 Cost of goods sold 427,557 325,483 ----------- ----------- Gross profit 97,142 69,880 Depreciation, depletion, and amortization 11,507 9,102 Selling, general, and administrative expense 38,387 32,411 ----------- ----------- Operating income 47,248 28,367 Interest expense (3,331) (5,300) Environmental reserves (955) (412) Unusual items - (1,406) Other income, net 4,311 6,566 ----------- ----------- Income before income taxes 47,273 27,815 Current income tax expense (12,889) (5,342) Deferred income tax expense (2,066) (3,995) ----------- ----------- Total income tax expense (14,955) (9,337) ----------- ----------- Net income $ 32,318 $ 18,478 =========== =========== Net income per share: Primary: Average shares outstanding 19,115,000 20,071,000 Net income $ 1.69 $ 0.92 =========== =========== Fully diluted: Average shares outstanding 19,256,000 20,077,000 Net income $ 1.68 $ 0.92 =========== =========== See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
September 30, December 31, 1995 1994 Assets Current assets: Cash and cash equivalents $ 31,176 $ 34,492 Accounts receivable, less allowance for doubtful accounts of $3,182 in 1995 and $3,336 in 1994 96,229 66,925 Inventories: Raw materials and supplies 18,243 20,043 Work-in-process 14,255 18,251 Finished goods 37,236 36,074 ----------- ----------- Total inventories 69,734 74,368 Current deferred income taxes 5,724 4,491 Other current assets 3,469 3,275 ----------- ----------- Total current assets 206,332 183,551 Property, plant and equipment, net 220,315 196,772 Deferred income taxes 20,097 23,797 Other assets 13,275 26,635 ----------- ----------- $ 460,019 $ 430,755 =========== =========== See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data)
September 30, December 31, 1995 1994 Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 17,721 $ 18,611 Accounts payable 23,446 21,607 Accrued wages and other employee costs 14,529 13,105 Current deferred income taxes 194 366 Other current liabilities 25,324 13,532 ----------- ----------- Total current liabilities 81,214 67,221 Long-term debt 62,727 76,125 Pension and postretirement liabilities 16,721 18,445 Environmental reserves 10,144 11,178 Deferred income taxes 2,787 3,016 Other noncurrent liabilities 12,924 12,822 ----------- ----------- Total liabilities 186,517 188,807 ----------- ----------- 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 20,000,000; outstanding 17,334,998 in 1995 and 17,397,954 in 1994 200 100 Additional paid-in capital, common 254,056 254,251 Retained earnings (since January 1, 1991) 54,305 21,987 Cumulative translation adjustments (2,322) (2,832) Treasury common stock, at cost (32,737) (31,558) ----------- ----------- Total stockholders' equity 273,502 241,948 Commitments and contingencies (Note 2) - - ----------- ----------- $ 460,019 $ 430,755 =========== =========== See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
For the Nine-Months Ended September 30, September 24, 1995 1994 Cash flows from operating activities Net income $ 32,318 $ 18,478 Adjustments to reconcile net income to net cash provided by operating activities: Provisions for unusual items - 1,406 Depreciation, depletion, and amortization of intangibles 11,507 8,509 Amortization of deferred preparation costs - 593 Provision for doubtful accounts receivable - 146 Deferred income taxes 2,066 3,995 Gain on disposal of properties (1,081) (2,804) Changes in assets and liabilities: Receivables (29,304) (10,252) Inventories 4,634 (11,538) Other assets (309) (1,344) Current liabilities 15,155 10,107 Other liabilities (2,656) (2,662) Other, net 631 291 ----------- ----------- Net cash provided by operating activities 32,961 14,925 ----------- ----------- Cash flows from investing activities Capital expenditures (34,555) (30,161) Acquisition of business - (12,964) Proceeds from sales of properties 1,137 4,759 Escrowed IRB proceeds 12,703 (27,695) ----------- ----------- Net cash used by investing activities (20,715) (66,061) ----------- ----------- Cash flows from financing activities Repayments of long-term debt (14,288) (6,581) Proceeds from the sale of treasury stock 781 766 Acquisition of treasury stock (2,055) (25,897) Proceeds from issuance of long-term debt - 45,344 ----------- ----------- Net cash provided (used) by financing activities (15,562) 13,632 ----------- ----------- Decrease in cash and cash equivalents (3,316) (37,504) Cash and cash equivalents at the beginning of the period 34,492 77,336 ----------- ----------- Cash and cash equivalents at the end of the period $ 31,176 $ 39,832 =========== =========== 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 effect 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 September 30, 1995, expenditures of $50.5 million have been incurred of which $35.9 million was funded with proceeds of the 1993 and 1994 Series IRBs. At September 30, 1995, $3.4 million of the IRB proceeds remain escrowed, until required for funding the projects, and are classified as other assets. These approved major projects should be substantially complete by the end of 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 September 30, 1995, there were no open hedge transactions. Note 3 - Stockholders' Equity During the third quarter of 1995, the Company's Board of Directors declared a two-for-one stock split to be effected in the form of a 100 percent stock dividend. The record date was September 6, 1995. All presentations of share data herein, including earnings per share, have been adjusted to reflect the split for all periods presented. 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 40 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 and other income. Results of Operations Net income was $11.6 million, or 60 cents per common share, for the third quarter of 1995, which compares with net income of $8.5 million, or 45 cents per common share, for the same period of 1994. Year-to-date, net income was $32.3 million, or $1.69 per common share, which compares to net income of $18.5 million or 92 cents per common share, for 1994. During the third quarter of 1995, the Company's net sales were $171.5 million, which compares to net sales of $138.0 million, or a 24 percent increase over the same period of 1994. Net sales were $524.7 million in the first three quarters of 1995 versus $395.4 million in 1994. The third quarter increase in net sales was primarily attributable to (i) higher sales prices in the core manufacturing businesses, partially attributable to the pass through of higher metal costs, and (ii) higher sales activity in the natural resources segment that pertains to gold sales. The year-to-date increase in net sales is primarily attributable to the manufacturing businesses which achieved higher volume (approximately 6.9 percent more pounds in 1995), and higher sales prices. The September, 1994 acquisition of two plastic manufacturing facilities contributed to the volume increase. The Company's core manufacturing businesses shipped 90.9 million pounds of product in the third quarter of 1995 which compares to 92.3 million pounds in the same quarter of 1994. The slight third quarter decline in pounds shipped was due to minor production interruptions. Third quarter operating income increased primarily due to: (i) productivity improvements at its manufacturing plants; and (ii) selective price increases in the fittings and brass rod markets. Interest expense for the third quarter of 1995 decreased approximately $1.2 million due to capitalized interest of $.9 million related to capital improvement programs at the copper tube mill, the brass rod mill, and the high-volume copper fittings factory. A charge of $955 thousand for environmental reserves was recorded; the amount results from cost overruns and updated estimates for costs associated with various sites. The effective tax rate of 31.7 percent in the third 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, third quarter and year-to-date 1995 earnings per share were favorably effected by the June, 1994 purchase of treasury stock aggregating 9.6 percent of shares then outstanding. Liquidity and Capital Resources Cash provided by operating activities in the first three quarters of 1995 totaled $33.0 million which is primarily attributable to net income, increases in current liabilities, and depreciation, depletion, and amortization offset by an increase in accounts receivable. The increase in accounts receivable reflects the favorable increase in sales activity. During the first three quarters of 1995, the Company's capital expenditures totaled $34.6 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 September 30, 1995, the Company's total debt was $80.4 million or 22.7 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 $31.2 million will be adequate to meet the Company's normal future capital expenditure and operational needs. The Company's current ratio remains strong at 2.5 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 to install an indirect extrusion press; 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's modernization of its copper fittings plant in Covington, Tennessee will require approximately $6.0 to $7.0 million. This project will be funded with cash generated by operations. 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 has arrived at the Port Huron facility. The Company expects to transition production to the new equipment by early 1996. 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, most lines in the plant will become fully operational 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. At the beginning of October, 1995, the Company began permanently operating the new equipment. Another important ongoing program is the modernization of the copper fittings plant in Covington, Tennessee. 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 gold mining operations in Nome, Alaska. During the winter and spring of 1995, Alaska Gold removed overburden and stockpiled pay gravel for processing in the summer. The stockpiled pay gravel thaws naturally and is then run through a wash plant 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 and third quarters, Alaska Gold processed approximately 300,000 cubic yards of pay gravel which yielded approximately 18,000 ounces of gold. Coal Properties In 1994, United States Fuel Company ("U.S. Fuel") entered into an agreement to sell the majority of its assets. This sale has not yet been consummated, but U.S. Fuel has granted extensions of the closing date to give the potential purchaser additional time to finalize financing. If this sale is not completed, U.S. Fuel intends to offer the property to other potential buyers while resuming full scale remediation at the site. Part II. OTHER INFORMATION 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 During the third quarter, MRRC and Bayard Mining Corp. ("Bayard"), both wholly-owned subsidiaries of Arava Natural Resources Company, Inc., collectively paid $384,000 to governmental entities, which represented Bayard's and MRRC's share of past response costs and natural resource damage claims. The remainder of the past response costs and natural resource damage claims were paid by a third party. Bids to process the Cleveland Mill tailings have been solicited from potential processors, with bid responses due later this year. 2. Hanover During the third quarter, MRRC substantially completed its voluntary plan to regrade and cap tailings at the Hanover site located in Grant County, New Mexico. During excavation, MRRC discovered that the actual volume of tailings on the site was significantly greater than had been estimated, which resulted in MRRC's costs exceeding budget by approximately $300,000. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Amendment to Employment Agreement, effective as of August 10, 1995, by and between Mueller Industries, Inc. and William D. O'Hagan. 19.1 Mueller Industries, Inc.'s Quarterly Report to Stockholders for the quarter ended September 30, 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 October 18, 1995. (b) During the quarter ended September 30, 1995, the Registrant filed no Current Reports on Form 8-K. Items 1, 2, 3, and 4 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 October 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