1997
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 March 29, 1997 Commission 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, Suite 200
Memphis, Tennessee 38138
(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
April 11, 1997, was 17,505,488.
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MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Period Ended March 29, 1997
INDEX
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
a.) Consolidated Statements of Income
for the quarters ended March 29, 1997
and March 30, 1996 3
b.) Consolidated Balance Sheets
as of March 29, 1997 and December 28, 1996 4
c.) Consolidated Statements of Cash Flows
for the quarters ended March 29, 1997
and March 30, 1996 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 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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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
March 29, 1997 March 30, 1996
Net sales $ 201,366 $ 180,515
Cost of goods sold 155,784 143,532
---------- ----------
Gross profit 45,582 36,983
Depreciation and amortization 4,832 4,450
Selling, general, and
administrative expense 15,496 13,904
---------- ----------
Operating income 25,254 18,629
Interest expense (1,178) (1,240)
Environmental reserves (2,000) -
Other income, net 1,030 1,880
---------- ----------
Income before income taxes 23,106 19,269
Current income tax expense (6,728) (5,261)
Deferred income tax expense (620) (716)
---------- ----------
Total income tax expense (7,348) (5,977)
---------- ----------
Net income $ 15,758 $ 13,292
========== ==========
Net income per share:
Primary:
Average shares outstanding 19,592 19,368
Net income $ 0.80 $ 0.69
========== ==========
Fully diluted:
Average shares outstanding 19,592 19,464
Net income $ 0.80 $ 0.68
========== ==========
See accompanying notes to consolidated financial statements.
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MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 29, 1997 December 28, 1996
Assets
Current assets:
Cash and cash equivalents $ 67,189 $ 96,956
Accounts receivable, less allowance
for doubtful accounts of $3,210 in
1997 and $3,188 in 1996 115,445 88,905
Inventories:
Raw material and supplies 16,060 15,416
Work-in-process 19,114 12,540
Finished goods 47,797 42,041
Gold 6,632 6,650
---------- ----------
Total inventories 89,603 76,647
Current deferred income taxes 6,479 6,508
Other current assets 8,617 5,696
---------- ----------
Total current assets 287,333 274,712
Property, plant and equipment, net 232,340 219,855
Deferred income taxes 9,476 10,064
Other assets 6,589 4,726
---------- ----------
$ 535,738 $ 509,357
========== ==========
See accompanying notes to consolidated financial statements.
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MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
March 29, 1997 December 28, 1996
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 14,925 $ 14,844
Accounts payable 25,193 18,305
Accrued wages and other employee costs 18,850 16,872
Other current liabilities 29,771 28,935
---------- ----------
Total current liabilities 88,739 78,956
Long-term debt 42,193 44,806
Pension and postretirement liabilities 15,567 15,875
Environmental reserves 11,800 9,105
Deferred income taxes 2,925 2,922
Other noncurrent liabilities 9,965 9,214
---------- ----------
Total liabilities 171,189 160,878
---------- ----------
Minority interest in subsidiaries 397 397
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 17,505,488
in 1997 and 17,434,888 in 1996 200 200
Additional paid-in capital, common 253,934 254,214
Retained earnings (Since
January 1, 1991) 143,741 127,983
Cumulative translation adjustment (3,062) (2,805)
Treasury common stock, at cost (30,661) (31,510)
---------- ----------
Total stockholders' equity 364,152 348,082
Commitments and contingencies (Note 2) - -
---------- ----------
$ 535,738 $ 509,357
========== ==========
See accompanying notes to consolidated financial statements.
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MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Quarter Ended
March 29, 1997 March 30, 1996
Cash flows from operating activities
Net income $ 15,758 $ 13,292
Reconciliation of net income to net
cash provided by operating activities:
Depreciation and amortization 4,832 4,450
Minority interest in subsidiaries - 325
Deferred income taxes 620 716
(Gain) loss on disposal
of properties 116 (1,065)
Changes in assets and liabilities:
Receivables (23,566) (15,616)
Inventories 1,484 1,629
Other assets (3,622) (3,192)
Current liabilities 7,879 7,347
Other liabilities 1,173 (1,532)
Other, net (153) 43
---------- ----------
Net cash provided by operating activities 4,521 6,397
---------- ----------
Cash flows from investing activities
Businesses acquired (27,855) -
Capital expenditures (5,019) (7,228)
Proceeds from sales of properties 590 1,065
---------- ----------
Net cash used in investing activities (32,284) (6,163)
---------- ----------
Cash flows from financing activities
Repayments of long-term debt (2,573) (3,273)
Proceeds from sale of treasury stock 569 153
---------- ----------
Net cash used in financing activities (2,004) (3,120)
---------- ----------
Decrease in cash and cash equivalents (29,767) (2,886)
Cash and cash equivalents at the
beginning of the period 96,956 48,357
---------- ----------
Cash and cash equivalents at the
end of the period $ 67,189 $ 45,471
========== ==========
See accompanying notes to consolidated financial statements.
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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 February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS No. 128), which is required to be adopted for periods ending after
December 15, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. The following table presents pro forma earnings per share amounts
computed using SFAS No. 128:
[CAPTION]
For the Quarter Ended
March 29, 1997 March 30, 1996
[S] [C] [C]
Pro forma earnings per share:
Earnings per common share $ 0.90 $ 0.77
========== ==========
Earnings per common share -
assuming dilution $ 0.80 $ 0.69
========== ==========
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.
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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.
Note 3 - Acquisitions
On December 30, 1996, the Company acquired the assets and certain
liabilities of Precision Tube Company, Inc. (Precision) for approximately
$6.6 million. Precision, which fabricates tubing and coaxial cables and
assemblies, had net sales of approximately $20.0 million in 1996.
Precision's tubing and coaxial divisions are located in North Wales,
Pennsylvania, and Salisbury, Maryland, respectively.
On February 28, 1997, the Company acquired certain assets of Wednesbury
Tube Company (Wednesbury) for approximately $21.3 million. Wednesbury,
which manufactures copper tube and is located in Bilston, West Midlands,
England, had net sales of approximately $94.0 million in 1996.
Both acquisitions are accounted for using the purchase method.
Therefore, the results of operations of the acquired businesses will be
included in the consolidated financial statements of the Company from the
date of acquisition.
The following table presents condensed pro forma consolidated results
of operations as if the acquisitions had occurred at the beginning of the
periods presented. This information combines the historical results of
operations of the Company and the acquired businesses after the effects of
estimated preliminary purchase accounting adjustments. Actual adjustments
may differ from those reflected below. The pro forma information does not
purport to be indicative of the results that would have been obtained if the
operations had actually been combined during the periods presented and is
not necessarily indicative of operating results to be expected in future
periods.
(In thousands, except per share data)
[CAPTION]
For the Quarter Ended
March 29, 1997 March 30, 1996
[S] [C] [C]
Net sales $ 215,249 $ 211,205
Net income 15,365 13,127
Net income per share:
Primary 0.78 0.68
Fully diluted 0.78 0.67
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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, copper and plastic fittings, forgings, valves, and other
products made of copper, brass, bronze, plastic and aluminum. 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,
commercial buildings, and other construction. A majority of the Company's
product is sold through wholesalers in the plumbing, air-conditioning and
refrigeration markets and to OEMs in these and other markets.
Profitability of certain of the Company's product lines depends 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 minimizes the effects of changes
in copper prices by passing base metal costs through to its customers as
metal prices fluctuate.
The Company accounts for the copper component of certain of its copper
tube and fittings inventories using the LIFO method. 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 worldwide copper and brass inventories customarily total
between 40 and 50 million pounds. "Spreads" between material costs and
selling prices of finished products fluctuate based upon competitive market
conditions.
The Company also owns various natural resource properties in the
Western United States. It operates a short line railroad in Utah and a
placer gold mining company in Alaska. Also, certain other natural resource
properties are leased while others are offered for sale. Certain properties
produce rental or royalty income.
Results of Operations
Net income was $15.8 million, or 80 cents per common share, for the
first quarter of 1997, which compares with net income of $13.3 million, or
69 cents per common share, for the same period of 1996.
During the first quarter of 1997 the Company's net sales were $201.4
million, which compares to net sales of $180.5 million, or a 12 percent
increase over the same period of 1996. The increase in net sales was
primarily attributable to the core manufacturing businesses, which shipped
14 percent more pounds of product. These core manufacturing businesses
shipped 124.8 million pounds of product in the first quarter of 1997 which
compares to 109.3 million pounds in the same quarter of 1996. First quarter
operating income increased primarily due to:(i) higher sales volumes;
(ii) productivity improvements at the Company's manufacturing plants; and
(iii) earnings at our acquired businesses.
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Interest expense in the first quarter of 1997 totaled $1.2 million
which was equal to the first quarter of 1996. The Company capitalized $0.3
million of interest related to capital improvement programs in the first
quarter of 1996 compared to none in the first quarter of 1997. Total
interest in the first quarter of 1997 decreased due to reductions in
long-term debt.
The provision for environmental reserves of $2.0 million in the first
quarter of 1997 was based on updated information and results of ongoing
environmental remediation at a previously identified environmental site.
The effective tax rate of 31.8 percent in the first quarter of 1997
reflects the benefit of a lower federal provision relating to the
recognition of net operating loss carryforwards and a lower state provision
associated with incentive IRB financings.
Liquidity and Capital Resources
Cash provided by operating activities in the first quarter of 1997
totaled $4.5 million which is primarily attributable to net income,
depreciation and amortization, and increased current liabilities, offset by
increased receivables. Approximately $8.1 million of the total $23.6
million increase in receivables related to the businesses acquired during
the first quarter.
During the first quarter of 1997, the Company used $32.3 million for
investing activities, consisting primarily of $27.9 million for business
acquisitions as described in Note 3, plus $5.0 million for capital
expenditures. Existing cash balances plus cash from operations were used to
fund the first quarter investing activities.
The Company has a $100.0 million unsecured line-of-credit agreement
(the Credit Facility) which expires in December 1999, but which 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 March 29, 1997, funds available under the Credit Facility was reduced by
$5.0 million for outstanding letters of credit. At March 29, 1997, the
Company's total debt was $57.1 million or 13.6 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 $67.2 million will be adequate to meet the Company's
normal future capital expenditure and operational needs. The Company's
current ratio remains strong at 3.2 to 1.
The Company has approved a $25.0 million capital improvement project at
its Fulton copper tube mill to improve the utilization of scrap metal and
enhance the mill's refining processes. This project is also expected to
improve yield and productivity and increase capacity. Moreover, the
project, when completed in approximately two years, will allow the tube mill
to use more scrap copper when market conditions warrant.
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The Company is also committed to an $11.0 million capital investment
program to increase productivity and capacity at its plastic fittings
manufacturing operations. 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
1998. This project, when completed, will also increase output and improve
efficiency. Further, the Company has approved capital expenditures totaling
approximately $4.5 million to develop a prototype copper fittings
distribution center in Covington, Tennessee, and expand its Fulton,
Mississippi, copper tube distribution capabilities.
These capital improvement projects will be funded with existing cash
balances and cash generated by operations. Additionally, the Company is
evaluating other financing alternatives for certain of these projects.
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 28, 1996.
Environmental Matters
Mining Remedial Recovery Company (MRRC)
1. U.S.S. Lead
In November 1996, the EPA approved, with modifications, an Interim
Stabilization Measures Workplan and designated a Corrective Action
Management Unit ("CAMU") at the Lead Refinery site. Site activities, based
on the approval, began during 1996. During the first quarter of 1997, it
was determined that the volume of materials to be placed in the CAMU will
exceed original estimates necessitating an increase in the size of the CAMU.
The additional Interim Stabilization Measures identified in the first
quarter have increased the costs of the interim clean up at the Lead
Refinery Site to approximately $4.5 million, an increase of $2.0 million
over previous estimates.
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 March 29, 1997. 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
(b) During the quarter ended March 29, 1997, the Registrant filed
no Current Reports on Form 8-K.
Items 1, 2, 3, and 4 are not applicable and have been omitted.
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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 April 18, 1997.
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
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