Mueller Paul (MUEL) 10-Q 2002 Q1 Quarterly report

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

___________________________________________

FORM 10-Q

(Mark One)

[X]	Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934.  For the quarterly period endedMARCH 31, 2002, or
[   ]	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  For the transition period from ______________________ to ______________________.

Commission File Number: 0-4791 

PAUL MUELLER COMPANY

__________________________________________________________________________________
(exact name of registrant as specified in its charter)

MISSOURI __________________________________________________________________
(state or other jurisdiction of incorporation or organization)   1600 WEST PHELPS STREET -- P.O. BOX 828
SPRINGFIELD, MISSOURI __________________________________________________________________
(address of principal executive offices) 44-0520907 ____________________________
(I.R.S. employer identification no.)  
65801-0828 ____________________________
(zip code)

Registrant's telephone number, including area code: (417) 831-3000

__________________________________________________________________________________
(former name, former address and former fiscal year, if changed since last report)

Indicate by 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  [   ] 

Indicate the number of shares outstanding of the issuer's Common Stock as of April 25, 2002: 1,179,721 

PART I	--	FINANCIAL INFORMATION
The condensed financial statements included herein have been prepared by the Registrant without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in the financial statements, prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations, although the Registrant believes that the disclosures are adequate to make the information presented not misleading.  It is suggested that these condensed financial statements be read in connection with the financial statements and the notes thereto included in the Registrant's latest annual report on Form 10-K.  This report reflects all adjustments of a normal recurring nature that are, in the opinion of management, necessary for a fair statement of the results for the interim period.

PAUL MUELLER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)

ASSETS - ----------- Current Assets      Cash and cash equivalents      Accounts and notes receivable, less reserve of $474 at March 31, 2002,            and $382 at December 31, 2001, for doubtful accounts      Inventories --            Raw materials and components            Work-in-process            Finished goods      Prepayments                    Total Current Assets Other Assets Property, Plant & Equipment, at cost      Less -- Accumulated depreciation	Mar. 31,  2002     - ------------    $    1,878    17,675  $    6,437  3,750  2,206  - ------------  $  12,393  389  - ------------  $  32,335  4,248  67,074  46,254  - ------------  $  20,820  - ------------  $  57,403  =======	Dec. 31,   2001      - ------------    $    1,921    17,302  $    6,236  2,119  1,209  - ------------  $    9,564  923  - ------------  $  29,710  4,253  66,350  45,558  - ------------  $  20,792  - ------------  $  54,755  =======
LIABILITIES AND SHAREHOLDERS' INVESTMENT - ----------------------------------------------------------------------- Current Liabilities:      Accounts payable      Accrued expenses      Advance billings                    Total Current Liabilities Other Long-Term Liabilities Contingencies Shareholders' Investment:      Common stock, par value $1 per share -- Authorized 20,000,000 shares --             Issued 1,354,325 shares      Preferred stock, par value $1 per share -- Authorized 1,000,000 shares --             No shares issued      Paid-in surplus      Retained earnings      Less -- Treasury stock, 174,604 shares at cost                  Deferred compensation                  Accumulated other comprehensive loss	$    5,654  7,093  8,170  - ------------  $  20,917  2,317  $    1,354  - --  4,662  30,992  - ------------  $  37,008  2,562  217  60  - ------------  $  34,169  - ------------  $  57,403  =======	$    4,525  6,945  5,574  - ------------  $  17,044  1,748  $    1,354  - --  4,662  32,812  - ------------  $  38,828  2,562  234  69  - ------------  $  35,963  - ------------  $  54,755  =======

The accompanying notes are an integral part of these consolidated condensed balance sheets.

PAUL MUELLER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)

	Three Months Ended March 31 - -------------------------
Net Sales Cost of Sales           Gross Profit Selling, General, and Administrative Expenses                     Operating (Loss) Other Income (Expense):           Interest income           Interest expense           Other, net (Loss) before Income Taxes (Benefit) for Income Taxes (Loss) before Equity in (Loss) of Joint Venture Equity in (Loss) of Joint Venture                     Net (Loss) Basic and Diluted (Loss) per Common Share	2002    - -----------    $ 18,597  15,561  - -----------  $   3,036  4,870  - -----------    $ (1,834) - -----------  $        26  (2) 77  - -----------    $      101  $ (1,733)   (622) - -----------  $ (1,111)   (2) - -----------  $ (1,113) ======    $ (0.95) =====	2001    - -----------    $ 16,090  13,752  - -----------  $   2,338  4,709  - -----------    $ (2,371) - -----------  $        57  (3) 73  - -----------    $      127  $ (2,244)   (822) - -----------  $ (1,422)   (28) - -----------  $ (1,450) ======    $ (1.24) =====

The accompanying notes are an integral part of these consolidated condensed statements.

PAUL MUELLER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

	Three Months Ended March 31 - ---------------------------
Cash Flows from Operating Activities:       Net (loss)      Adjustments to reconcile net (loss) to net cash provided                by operating activities:           Equity in loss of joint venture           Bad debt expense           Depreciation and amortization           (Gain) on sales of fixed assets           Changes in assets and liabilities --                (Increase) decrease in accounts and notes receivable                (Increase) in inventories                Decrease (increase) in prepayments                Decrease (increase) in other assets                Increase in accounts payable                Increase in accrued expenses                Increase in advance billings                Increase in long-term liabilities                     Net Cash Provided by Operations Cash Flows (Requirements) from Investing Activities:      Proceeds from maturities of investments      Purchases of investments      Additions to property, plant, and equipment                     Net Cash (Required) by Investing Activities Cash Flows (Requirements) from Financing Activities:      Short-term bank barrowings      Dividends paid                     Net Cash (Required) by Financing Activities Net (Decrease) in Cash Cash at Beginning of Period                     Cash at End of Period Supplemental Disclosures of Cash Flow Information:      Cash paid during the period for --           Income taxes	2002     - -----------    $  (1,113) 2  81  758  1    (454) (2,829) 534  12  1,129  148  2,596  569  - ------------  $    1,434  $    1,000  (1,000) (769) - ------------  $     (769) $          --  (708) - ------------  $     (708) - ------------  $       (43) 1,921  - ------------  $    1,878  =======  $         28	2001     - -----------  $  (1,450) 28  23  681  - --    886  (5,478) (691) (44) 1,503  495  4,600  855  - ------------  $    1,408  $       607  - --  (2,878) - ------------  $  (2,271) $       900  (704) - ------------  $       196  - ------------  $     (667) 667  - ------------  $          --  =======  $         25

The accompanying notes are an integral part of these consolidated condensed statements.

PAUL MUELLER COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS MARCH 31, 2002 AND 2001, AND DECEMBER 31, 2001 (Unaudited)
1.	The consolidated condensed financial statements include the accounts of Paul Mueller Company (Registrant) and its wholly owned subsidiaries, Mueller Transportation, Inc., and Mueller Field Operations, Inc. (Companies).  A summary of the significant accounting policies is included in Note 1 to the consolidated financial statements included in the Registrant's annual report on Form 10K for the year ended December 31, 2001.  The dissolution of Mueller International Sales Corporation, a wholly-owned Foreign Sales Corporation, was completed on July 27, 2001.
2.	Inventory is recorded at the lower of cost on a last-in, first-out (LIFO) basis or market.  Because the inventory determination under the LIFO method can only be made at the end of each fiscal year based on the inventory levels and costs at that time, interim LIFO determinations, including those at March 31, 2002, must necessarily be based on management's estimate of expected year-end inventory levels and costs.  Since estimates of future inventory levels and prices are subject to many factors beyond the control of management, interim financial results are subject to final year-end LIFO inventory amounts. Accordingly, inventory components reported for the period ending March 31, 2002, are estimates based on management's knowledge of the Registrant's production cycle, the costs associated with this cycle, and the sales and purchasing volume of the Registrant.
3.	The following table sets forth the computation of basic and diluted earnings per common share:

	Three Months Ended - --------------------------------
Net income (loss) Shares for basic earnings per common share --     Weighted average shares outstanding Effect of restricted stock granted Shares for diluted earnings per common share --     Adjusted weighted average shares outstanding Basic and diluted (loss) per common share	3-31-02    - --------------  $(1,113,000) ========  1,168,021  - --  - -------------  1,168,021  ========  $ (0.95) =====	3-31-01    - --------------  $(1,450,000) ========  1,168,021  - --  - -------------  1,168,021  ========  $ (1.24) =====

4. The Registrant has three reportable segments:  Industrial Equipment, Dairy Farm Equipment, and Field Fabrication.  The Field Fabrication segment has been set out separately, and the activities were previously included in the Industrial Equipment segment.  Net sales include revenues from sales to unaffiliated and affiliated customers before elimination of intersegment sales.  Intersegment eliminations are primarily sales from the Industrial Equipment segment to the Field Fabrication segment.  The "Other/Corporate" classification includes other revenues and corporate other income (expense). 

Net sales and profitability for each segment for the three months ended March 31, 2002 and 2001, were as follows: 

	2002 - -----------------------------------------------------------------------------------------------------------------------
Net sales Income (loss) before      income tax	Dairy Farm   Equipment   - ----------------  $         4,257    $            382	Industrial    Equipment   - ----------------  $       13,369    $       (1,925)	Field        Fabrication   - ----------------  $            424    $          (350)	Other /       Corporate    - ----------------  $            768    $            160	Intersegment  Eliminations  - ----------------  $          (221)   $               --	Consolidated  - ----------------  $       18,597    $       (1,733)

	2001 - -----------------------------------------------------------------------------------------------------------------------
Net sales Income (loss) before      income tax	Dairy Farm   Equipment   - ----------------  $         3,049    $            (49)	Industrial    Equipment   - ----------------  $       14,999    $       (2,203)	Field        Fabrication   - ----------------  $            168    $          (166)	Other /       Corporate    - ----------------  $            775    $            174	Intersegment  Eliminations  - ----------------  $       (2,901)   $               --	Consolidated  - ----------------  $       16,090    $       (2,244)

5. The Registrant reports comprehensive income (loss) and its components in accordance with Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." Comprehensive income and its components, net of tax, are summarized below: 

	Three Months Ended - --------------------------------
Net income (loss) Gain on investments, net of tax Foreign currency translation adjustment, net of tax Total comprehensive income (loss)	3-31-02    - --------------  $(1,113,000) - --  8,000  - --------------  $(1,105,000) ========	3-31-01    - --------------  $(1,450,000) 16,000  7,000  - --------------  $(1,427,000) ========

6.

The Registrant has a $6,000,000 bank-borrowing facility that expires on May 31, 2002.  As of March 31, 2002, there were no outstanding borrowings under the facility.

7.

The Registrant and its subsidiaries are involved in legal proceedings incident to the conduct of their business.  It is management's opinion that none of these matters will have a materially adverse effect on the consolidated financial position, results of operations, or cash flows.  The Registrant and the Sheet Metal Workers Union, Local 208, agreed to a new three-year labor contract effective April 7, 2001.  However, two cases involving minor issues remain before the National Labor Relations Board, and the final determination of these cases may take a year.  Management believes, based on an evaluation by counsel, that there is no material financial exposure to the Registrant.

PAUL MUELLER COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS
AND FINANCIAL CONDITION

The following is Management's discussion and analysis of the significant factors that have affected the Companies' earnings during the periods included in the accompanying Consolidated Condensed Statements of Income. 

The information discussed below in Management's Discussion and Analysis of Operating Results and Financial Condition contains statements regarding matters that are not historical facts, but rather are forward-looking statements.  These statements are based on current financial and economic conditions and current expectations and involve risk and uncertainties.  Actual future results may differ materially depending on a variety of factors.  These factors, some of which are identified in the discussion accompanying such forward-looking statements, include, but are not limited to, milk prices paid to dairy farmers, feed prices, weather conditions, dairy farm consolidation and other factors affecting the profitability of dairy farmers, the price of stainless steel, actions of competitors, the Registrant's execution of internal performance plans, economic conditions in key export markets, the level of capital expenditures in the U.S. economy, and other ch anges to business conditions. 

OPERATING RESULTS

Consolidated net sales for the quarter ended March 31, 2002, were $18,597,000 compared to $16,090,000 for the quarter ended March 31, 2001.  All segments recorded increases in net sales during the first quarter of 2002 compared to the first quarter of 2001, exclusive of intersegment sales.  Dairy Farm Equipment sales were $1,208,000 higher, as the backlog at the beginning of 2002 was approximately $1,150,000 greater than the backlog at the beginning of 2001.  Additionally, order entry increased during the first quarter of 2002 versus the first quarter of 2001, as the average milk price was higher by approximately 8% for the first quarter of 2002 versus the first quarter of 2001; and milk production was higher during the first quarter of 2002 versus the first quarter of 2001.  The increase in sales for the Dairy Farm Equipment segment was primarily to the domestic market, although export sales were also higher with improved sales to Mexico and Ireland .  Sales for the Industrial Equipment segment, exclusive of intersegment sales, increased by approximately $1,000,000 during the first quarter of 2002 versus the first quarter of 2001.  The greater sales volume was directly attributable to the higher backlog at the beginning of 2002 versus the backlog at the beginning of 2001.  Sales for the Field Fabrication segment were $424,000 for the first quarter of 2002 versus $168,000 for the first quarter of 2001. Field Fabrication sales for 2002 were low as a direct result of the backlog at the beginning of 2002, which was only $318,000.  Field Fabrication sales for the 2001 first quarter reflect the fact that there was limited completion of vessels on field-fabrication projects. 

The consolidated gross profit rate for the three months ended March 31, 2002, was 16.3% compared to 14.5% for the same period of a year ago.  The improvement in the gross profit rate was directly attributable to the increase in net sales compared the same quarter of the prior year and a comparable level of manufacturing burden for 2002 and 2001.  The gross profit rate was adversely affected by an increase to the LIFO reserve during the first quarter of 2002 versus 2001, and this related to an increase in stainless steel prices. 

Selling, general, and administrative expenses were approximately 3% higher for the first quarter of 2002 versus the first quarter of 2001 due to increased expenditures for personnel and service and warranty costs. 

Other income for the three months ended March 31, 2002, was less than the three months ended March 31, 2001, due to lower interest rates for investable funds. 

On a segment basis, the Dairy Farm Equipment segment recorded income before income tax of $382,000 for the first quarter of 2002 versus a loss before income tax of $49,000 for the first quarter of 2001.  The significant difference in profitability related to an increase in sales of $1,208,000 for 2002 compared to 2001. The Industrial Equipment segment incurred a loss before income tax of $1,925,000 for 2002 compared to a loss before income tax of $2,203,000 for the first quarter of 2001.  The improvement in results is due to the fact that sales to outside customers were higher during the first quarter of 2002 compared to 2001 when there were significant intersegment sales to the Field Fabrication segment.  The Field Fabrication segment incurred a loss before income tax of $350,000 for the first quarter of 2002 versus a loss before income tax of $166,000 for the first quarter of 2001.  For both quarters, a low level of sales contributed to the loss before taxes.&nb sp;

The effective tax rate for the three months ended March 31, 2001, varied from the statutory tax rate (34%) due primarily to tax credits. 

The Registrant and the Sheet Metal Workers Union, Local 208, reached agreement on a new labor contract effective April 7, 2001.  The new contract extends over three years and includes all of the provisions of the Registrant's last and final offer.  However, two cases involving minor issues as a result of a strike that ended in December 2000 remain pending before the National Labor Relations Board; but management believes, based on an evaluation by counsel, that there is no material financial exposure to the Registrant. 

Market risks relating to the Registrant's operations result primarily from changes in foreign-exchange rates and stainless-steel prices.  The Registrant periodically enters into foreign-exchange forward or spot contracts to hedge the exposure to foreign-currency-denominated purchase transactions.  Forward contracts generally have maturities of less than three months.  Foreign-currency-denominated purchases were $131,300 and $421,800 for the three months ended March 31, 2002 and 2001, respectively.  There were no foreign-exchange forward contracts outstanding at March 31, 2002 or 2001.  There were no foreign currencies held at March 31, 2002, or at March 31, 2001.  The risk of increases in stainless steel prices, which can be significant to large Industrial Equipment and Field Fabrication segment projects that extend over several months, is managed by contracting for stainless steel at the time the project is obtained. 

Concentration of credit risk, with respect to receivables, is limited due to the large number of customers and their dispersion across a wide geographic area.  The Registrant performs credit evaluations on new customers and periodically reviews the financial condition of existing customers.  For Industrial Equipment orders and Field Fabrication segment projects, down payments and/or progress payments are generally required based on the dollar value of the order and customer creditworthiness.  Foreign receivables generally are secured by irrevocable letters of credit confirmed by major U.S. banks. 

Looking to the balance of 2002, there are factors that could affect the results of operations.  The average price of milk paid to dairy farmers in the domestic market year-to-date for 2002 is 8% above the average price paid for the same period of 2001.  However, the current milk price remains low considering historic levels, and this could have an adverse effect on order entry, sales, and profitability in the Dairy Farm Equipment segment. 

The current economic conditions and the related decrease in capital expenditures are having an adverse effect on the Industrial Equipment segment.  Although order entry has increased for the BioPharm product line, order entry for other products within the Industrial Equipment segment is down by approximately 19% during the first quarter of 2002 versus the first quarter of 2001.  Additionally, market conditions continue to be very competitive. 

The price of stainless steel has increased from the beginning of 2002 due to the increase in and the volatility of the market price of nickel, a material used in the production of stainless steel.  This has led to an increase in the surcharge that is assessed at the time of shipment.  Also, there is pressure from the mills to raise the base price of stainless steel, and increases are expected by mid-year.  If the price increases are significant, they may delay projects or reduce profitability if we are not able to pass the increases along completely.  Additionally, higher stainless steel prices may require an additional increase to the LIFO reserve. 

In general, the Registrant's business is not subject to seasonal variation and demand for its products.  However, because orders for certain products can be large in terms of sales dollars, a small number of large orders can have a significant impact on the Registrant's sales in any one particular quarter.  As a result, a relatively small reduction or delay in the number of orders shipped or completed and accepted by the customer can have a material effect on the Registrant's sales for any particular quarter.  Gross margins may vary from quarter-to-quarter as a result of the variations in profitability of large orders, as well as the mix of various products manufactured or fabricated by the Registrant.  Accordingly, results of operations for the Registrant for any one particular quarter are not necessarily indicative of the results that may be expected for any subsequent quarter of the calendar year. 

The backlog of sales at March 31, 2002, was $35,900,000 compared to $36,600,000 at March 31, 2001.  The level of backlog, at any particular point in time, is not necessarily indicative of the future operating performance of the Registrant in the following quarter due to the long manufacturing or fabrication cycle for some projects. Orders in the backlog are subject to delays in completion and/or holds at the request of the customer, and this could have a significant impact on quarterly results.  The March 31, 2002, backlog represents orders that will be completed and shipped over the next twelve months. 

FINANCIAL CONDITION

The consolidated financial condition and the liquidity of the Registrant as of March 31, 2002, have not changed significantly since December 31, 2001.  Commitments for capital expenditures at March 31, 2002, total about $1,530,000. 

The Registrant has a $6,000,000 banking facility that expires on May 31, 2002; and there were no borrowings under the facility at March 31, 2002.  Of the amount available, $1,000,000 is reserved for the issuance of standby letters of credit by the Registrant and the remaining $5,000,000 is available for borrowing.  The Registrant intends to renew the facility prior to the expiration date. 

The Registrant has adopted SFAS No. 142, "Goodwill and Other Intangible Assets," issued in June 2001; and it is not expected to have a material effect on the Registrant's financial position or results of operations.

PART II   --   OTHER INFORMATION

Item 6. Exhibits and reports on Form 8-K.

a.	Exhibits
	Exhibit Number - ----------	Exhibit - ----------------------------------------------------------------------------------------------	Sequentially Numbered Page - ---------------
	(10)	Amendments to the Paul Mueller Company Profit-Sharing and Retirement Savings Plan (restated effective April 1, 2001), adopted by the Registrant on January 8, 2002	12

b. Reports on Form 8-K -- There were no reports on Form 8-K filed for the three months ended March 31, 2002. 

SIGNATURES

Pursuant to the requirements 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. 

	PAUL MUELLER COMPANY
DATE:    April 25, 2002	/S/ DONALD E. GOLIK - ----------------------------------------------------------------------           Donald E. Golik, Senior Vice President and                          Chief Financial Officer