1996 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 29, 1996 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.) 6799 GREAT OAKS ROAD MEMPHIS, TN 38138-2572 (Address of principal executive offices) Registrant's telephone number, including area code: (901) 753-3200 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 15, 1996 was 17,386,898. MUELLER INDUSTRIES, INC. FORM 10-Q For the Period Ended June 29, 1996 INDEX Part I. Financial Information Page Item 1. Financial Statements (Unaudited) a.) Consolidated Statements of Income for the six-months and quarters ended June 29, 1996 and July 1, 1995.......................3 b.) Consolidated Balance Sheets as of June 29, 1996 and December 30, 1995............4 c.) Consolidated Statements of Cash Flows for the six-months ended June 29, 1996 and July 1, 1995.....................................6 d.) Notes to Consolidated Financial Statements...........7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................7 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders......10 Item 5. Other Information........................................10 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 June 29, July 1, June 29, July 1, 1996 1995 1996 1995 Net sales $189,557 $181,380 $370,072 $353,150 Cost of goods sold 149,536 149,587 293,068 290,147 ------- ------- ------- ------- Gross profit 40,021 31,793 77,004 63,003 Depreciation and amortization 4,571 3,763 9,021 7,409 Selling, general, and administrative expense 14,919 12,409 28,823 25,376 ------- ------- ------- ------- Operating income 20,531 15,621 39,160 30,218 Interest expense (1,473) (1,134) (2,713) (2,511) Other income, net 1,060 1,102 2,940 2,575 ------- ------- ------- ------- Income before income taxes 20,118 15,589 39,387 30,282 Current income tax expense (3,294) (4,419) (8,555) (8,687) Deferred income tax expense (2,927) (507) (3,643) (882) ------- ------- ------- ------- Total income tax expense (6,221) (4,926) (12,198) (9,569) ------- ------- ------- ------- Net income $ 13,897 $ 10,663 $ 27,189 $ 20,713 ======= ======= ======= ======= Net income per share: Primary: Average shares outstanding 19,525 19,099 19,457 19,012 Net income $ 0.71 $ 0.56 $ 1.40 $ 1.09 ======= ======= ======= ======= Fully diluted: Average shares outstanding 19,550 19,201 19,550 19,227 Net income $ 0.71 $ 0.56 $ 1.39 $ 1.08 ======= ======= ======= ======= See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands)
June 29, 1996 December 30, 1995 Assets Current assets: Cash and cash equivalents $ 52,804 $ 48,357 Accounts receivable, less allowance for doubtful accounts of $2,821 in 1996 and $2,986 in 1995 107,218 83,712 Inventories: Raw material and supplies 14,752 14,538 Work-in-process 18,586 17,133 Finished goods 35,041 34,689 ------- ------- Total inventories 68,379 66,360 Current deferred income taxes 6,570 7,354 Other current assets 9,386 5,255 ------- ------- Total current assets 244,357 211,038 Property, plant and equipment, net 223,699 221,012 Deferred income taxes 10,467 13,174 Other assets 5,617 5,611 ------- ------- $ 484,140 $ 450,835 ======= ======= See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data)
June 29, 1996 December 30, 1995 Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 16,177 $ 16,249 Accounts payable 24,479 16,931 Accrued wages and other employee costs 16,268 14,499 Other current liabilities 25,192 20,205 ------- ------- Total current liabilities 82,116 67,884 Long-term debt 52,900 59,653 Pension and postretirement liabilities 14,742 15,976 Environmental reserves 8,629 9,585 Deferred income taxes 2,886 2,734 Other noncurrent liabilities 9,238 9,128 ------- ------- Total liabilities 170,511 164,960 ------- ------- Minority interest in subsidiaries 325 - 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 50,000,000; issued 20,000,000; outstanding 17,385,898 in 1996 and 17,349,498 in 1995 200 200 Additional paid-in capital, common 253,750 253,969 Retained earnings (Since January 1, 1991) 93,999 66,810 Cumulative translation adjustment (2,534) (2,545) Treasury common stock, at cost (32,111) (32,559) ------- ------- Total stockholders' equity 313,304 285,875 Commitments and contingencies (Note 2) - - ------- ------- $ 484,140 $ 450,835 ======= ======= See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
For the Six-Months Ended June 29, 1996 July 1, 1995 Operating activities Net income $ 27,189 $ 20,713 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,021 7,409 Minority interest in subsidaries 325 - Deferred income taxes 3,643 882 Gain on disposal of properties (1,366) (584) Changes in assets and liabilities: Receivables (23,506) (32,383) Inventories (2,019) 1,024 Other assets (4,812) (2,320) Current liabilities 14,304 12,676 Other liabilities (2,080) (699) Other, net 9 138 ------- ------- Net cash provided by operating activities 20,708 6,856 ------- ------- Investing activities Capital expenditures (11,031) (23,682) Proceeds from sales of properties 1,366 834 Escrowed IRB financing - 10,484 ------- ------- Net cash used by investing activities (9,665) (12,364) ------- ------- Financing activities Repayments of long-term debt (6,825) (7,506) Proceeds from sale of treasury stock 229 98 Acquisition of treasury stock - (2,055) ------- ------- Net cash used by financing activities (6,596) (9,463) ------- ------- Increase (decrease) in cash and cash equivalents 4,447 (14,971) Cash and cash equivalents at the beginning of the period 48,357 34,492 ------- ------- Cash and cash equivalents at the end of the period $ 52,804 $ 19,521 ======= ======= 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. In 1995, the Company declared and effected a two-for-one stock split in the form of a 100 percent stock dividend. All presentations of share data herein, including earnings per share, have been restated to reflect the split for all periods presented. Note 2 - Commitments and Contingencies The Company is subject to normal environmental standards imposed by federal, state and local 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. 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 material and the 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. The Company uses the LIFO method of accounting for the copper component of certain 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 affect the carrying value (FIFO basis) of the Company's brass and other 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 rental or royalty income. Results of Operations Net income was $13.9 million, or 71 cents per common share, for the second quarter of 1996, which compares with net income of $10.7 million, or 56 cents per common share, for the same period of 1995. Year-to-date, net income was $27.2 million, or $1.40 per common share, which compares to net income of $20.7 million or $1.09 per common share, for 1995. During the second quarter of 1996, the Company's net sales were $189.6 million, which compares to net sales of $181.4 million, or a 4.5 percent increase over the same period of 1995. Net sales were $370.1 million in the first-half of 1996 versus $353.2 million in 1995. The increase in first-half net sales was primarily attributable to a 6.6 percent increase in pounds of product shipped. The Company's manufacturing businesses shipped 114.3 million pounds of product in the second quarter of 1996 which compares to 106.3 million pounds in the same quarter of 1995. Second quarter and first-half gross profit increased primarily due to: (i) price improvements in certain product lines; (ii) yield and productivity improvements of manufacturing operations; and (iii) higher sales volumes. Selling, general and administrative expenses increased due to higher sales activity and expenses associated with relocating the corporate offices. Interest expense for the second quarter and first-half of 1996 increased approximately $0.3 million and $0.2 million, respectively. In 1995, interest expense was lower due to capitalized interest 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 30.9 percent in the second quarter and first-half of 1996 reflects the benefits of lower federal provisions relating to the recognition of net operating loss carry forwards and lower state provisions associated with incentive IRB financings. Liquidity and Capital Resources Cash provided by operating activities in the first-half of 1996 totaled $20.7 million which is primarily attributable to net income and depreciation and amortization, offset by changes in other assets and liabilities. During the first-half of 1996, the Company's capital expenditures totaled $11.0 million which was provided for primarily by cash from operations. The Company has a $50.0 million 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 or at other options. There are no outstanding borrowings under the Credit Facility. At June 29, 1996, the Company's total debt was $69.1 million or 18.1 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 $52.8 million will be adequate to meet the Company's normal future capital expenditure and operational needs. The Company's current ratio remains strong at 3.0 to 1. The Company's modernization of its low-volume copper fittings plant in Covington, Tennessee will require approximately $7.1 million. The Company, through its wholly-owned subsidiary, Utah Railway Company, also committed approximately $2.7 million for the construction of trackage to serve a new coal loadout facility. This commitment, which is contingent upon completion of the merger between the Southern Pacific and Union Pacific railroads (see Item 5, Other Matters), secures exclusive access to a new customer for Utah Railway Company. These commitments will be funded with cash generated by operations. Update on Major Capital Improvement Programs Mueller has substantially completed the upgrade of its brass rod mill manufacturing processes with an expansion that includes the installation of a new, state-of-the-art indirect extrusion press, new billet heating furnaces, and new material handling systems. Production on the new equipment commenced during the first quarter of 1996, and production transition should be completed during the summer. Mueller's capital improvement project at its Fulton copper tube mill to upgrade technology and install state-of-the-art copper tube drawing and handling equipment became operational in the fourth quarter of 1995. The Company expects continued refinements which should further improve operational performance in the mill during 1996. The Company's new, high-volume copper fittings plant at Fulton, Mississippi also became operational in the second and third quarters of 1995 and most production lines in this new plant are running today. Yield and productivity continue to improve. Another important ongoing program is the modernization of the Company's low-volume copper fittings plant in Covington, Tennessee. Modernization of this facility, which produces a broad range of low-volume copper fittings, is estimated to require approximately $7.1 million in capital improvements and will be completed in 1997. Part II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders On May 8, 1996, the Company held its Annual Meeting of Stockholders at which three proposals were voted upon: (i) election of directors; (ii) increase the number of authorized shares of common stock from 20,000,000 to 50,000,000; and (iii) 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 13,363,069 783,065 Harvey L. Karp 13,358,455 787,679 Allan Mactier 13,597,843 548,291 William D. O'Hagan 13,365,167 780,967 Robert J. Pasquarelli 13,598,623 547,511 The proposal to increase the number of authorized shares of common stock to 50,000,000 was approved by 10,496,897 votes in favor, 3,595,739 votes against, with 53,498 votes abstaining. The proposal to approve the appointment of Ernst & Young LLP as the Company's auditors was ratified by 14,122,987 votes in favor, 8,966 votes against and 14,181 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 30, 1995. Environmental Matters The following matters relate to the Company's wholly-owned subsidiary, Mining Remedial Recovery Company (MRRC). 1. Cleveland Mill Site Bids to process the Cleveland Mill tailings were solicited from potential processors; however, no bids were received from processors acceptable to the Environmental Protection Agency (EPA). MRRC, Bayard and a third party have proposed to the regulatory agencies to move the tailings to permanent storage at MRRC's Hanover site in Grant County, New Mexico, and be included as part of MRRC's ongoing plan to regrade and cap tailings at the Hanover site. 2. Hanover and Bullfrog Sites MRRC has now delayed completion of its regrading and capping project at its Hanover site, pending a decision on storage of the tailings from the nearby Cleveland Mill site. 3. Mammoth Mine Site In April, 1996, MRRC settled its lawsuit with Alta Gold. MRRC paid Alta Gold $380,000 and acquired all of Alta Gold's patented mining claims and other property located in Shasta County (approximately 4,000 acres). MRRC intends to remediate the mine sites on this acquired property as part of its overall efforts at Mammoth. 4. U.S.S. Lead In May, 1996, U.S.S. Lead Refinery, Inc.'s plan for interim cleanup measures at its East Chicago, Indiana site was approved and implementation is pending EPA's response to public comments. Other Matters In January, 1996, the Utah Railway entered into an agreement with Union Pacific Railroad (UP) whereby Utah Railway granted UP rights to allow a third party railroad to operate over a portion of Utah Railway track. In exchange, UP granted limited rights to Utah Railway for operations over Southern Pacific (SP) tracks to Grand Junction, Colorado and access to additional customers. The agreement is contingent on the regulatory approval of the UP/SP merger, which in July, 1996, was unanimously approved by the Federal Surface Transportation Board (the STB). The STB's final order of regulatory approval is expected later in 1996. 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 29, 1996. 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. 27.1 Financial data schedules. 99.1 Press Release issued by Mueller Industries, Inc. on July 18, 1996. (b) During the quarter ended June 29, 1996, 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 22, 1996. MUELLER INDUSTRIES, INC. /S/ EARL W. BUNKERS Earl W. Bunkers, Executive Vice President and Chief Financial Officer /S/ KENT A. MCKEE Kent A. McKee Vice President Business Development/Investor Relations /S/ RICHARD W. CORMAN Richard W. Corman Director of Corporate Accounting