1
1994
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 26, 1994 Commissions file number 1-569
MUELLER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-0790410
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2959 N. ROCK ROAD
WICHITA, KANSAS 67226-1191
(Address of principal executive offices)
Registrant's telephone number, including area code: (316) 636-6300
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $ 0.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
The number of shares of the Registrant's common stock outstanding as of April
11, 1994 was 9,599,193.
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 / /
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MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Period Ended March 26, 1994
INDEX
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
a.) Consolidated Statements of Income
for the quarters ended March 26, 1994
and March 27, 1993 3
b.) Consolidated Balance Sheets
as of March 26, 1994 and December 25, 1993. 4
c.) Consolidated Statements of Cash Flows
for the quarters ended March 26, 1994 and
March 27, 1993 6
d.) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except share data)
For the Quarter Ended
March 26, 1994 March 27, 1993
Net sales $ 120,812 $ 131,037
Cost of goods sold 97,473 108,256
Depreciation, depletion, and
amortization 2,700 2,875
Selling, general, and
administrative expense 10,688 12,058
------- -------
Operating income 9,951 7,848
Interest expense (1,694) (1,495)
Environmental reserves (412) -
Unusual items (265) -
Other income, net 1,379 632
------- -------
Income before income taxes 8,959 6,985
Current income tax expense (794) (851)
Deferred income tax expense (2,528) (1,921)
------- -------
Total income tax expense (3,322) (2,772)
------- -------
Net income $ 5,637 $ 4,213
======= =======
Earnings per common and
common equivalent share
Primary:
Average shares outstanding 10,437,000 10,372,000
Net income $ 0.54 $ 0.41
======= =======
Fully diluted:
Average shares outstanding 10,437,000 10,398,000
Net income $ 0.54 $ 0.41
======= =======
<FN>
See accompanying notes to consolidated financial statements.
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MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 26, 1994 December 25, 1993
Assets
Current assets:
Cash and cash equivalents $ 79,360 $ 77,336
Accounts receivable, less allowance
for doubtful accounts of $3,500 in
1994 and $3,495 in 1993 62,404 59,197
Inventories:
Raw materials and supplies 10,261 5,704
Work-in-process 13,606 16,501
Finished goods 30,509 30,913
------- -------
Total inventories 54,376 53,118
Current deferred income taxes 2,714 3,242
Other current assets 2,835 1,518
------- -------
Total current assets 201,689 194,411
Property, plant and equipment, net 156,388 154,403
Deferred income taxes 10,751 12,751
Other assets 24,264 8,178
------- -------
$ 393,092 $ 369,743
======= =======
<FN>
See accompanying notes to consolidated financial statements.
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MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
March 26, 1994 December 25, 1993
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 11,352 $ 8,391
Accounts payable 16,245 15,637
Accrued wages and other employee costs 11,148 11,787
Restructuring reserves 4,835 5,305
Current deferred income taxes 441 446
Other current liabilities 10,544 9,340
------- -------
Total current liabilities 54,565 50,906
Long-term debt 69,654 54,320
Pension and post retirement liabilities 18,362 18,834
Deferred income taxes 3,810 3,810
Other noncurrent liabilities 19,328 19,759
------- -------
Total liabilities 165,719 147,629
Stockholders' equity:
Preferred stock-shares authorized
5,000,000; none outstanding - -
Common stock - $.01 par value; shares
authorized 20,000,000; issued and
outstanding 10,000,000 100 100
Paid-in capital, common 236,293 236,406
Accumulated deficit (Since
January 1, 1991) (302) (5,939)
Cumulative translation adjustment (2,435) (1,944)
Treasury common stock at cost,
402,307 shares in 1994 and 416,807
shares in 1993 (6,283) (6,509)
------- -------
Total stockholders' equity 227,373 222,114
Commitments and contingencies - -
------- -------
$ 393,092 $ 369,743
======= =======
<FN>
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 26, 1994 March 27, 1993
Cash flows from operating activities
Net income $ 5,637 $ 4,213
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for unusual items 265 -
Depreciation, depletion and
amortization of intangibles 2,700 2,875
Deferred income taxes 2,528 1,921
Gain on disposal of properties (753) (24)
Changes in assets and liabilities:
Receivables (3,207) (9,074)
Inventories (1,258) 6,653
Other assets (826) 1,948
Current liabilities 702 (5,281)
Other liabilities (1,167) 1,192
Other, net (262) 213
------- -------
Net cash provided by operating activities 4,359 4,636
------- -------
Cash flows from investing activities
Capital expenditures (5,730) (3,342)
Proceeds from sales of properties 1,596 59
Escrowed IRB proceeds included
in other assets (16,609) -
------- -------
Net cash used by investing activities (20,743) (3,283)
------- -------
Cash flows from financing activities
Repayments of long-term debt (1,705) (1,191)
Proceeds from sale of treasury stock 113 118
Issuance of long-term debt 20,000 386
------- -------
Net cash provided (used) by
financing activities 18,408 (687)
------- -------
Increase in cash and cash equivalents 2,024 666
Cash and cash equivalents at the
beginning of the period 77,336 44,459
------- -------
Cash and cash equivalents at the
end of the period $ 79,360 $ 45,125
======= =======
<FN>
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 - Income Taxes
As discussed more fully in Note 6 of Notes to Consolidated Financial
Statements included in the Company's 1993 Annual Report, the Company has
substantial Net Operating Loss Carryforwards (NOL). As of December 25, 1993,
approximately $21.7 million of these NOLs were available for immediate use.
Use of the remaining NOLs is limited to an annual amount of $14.4 million by
Section 382 of the Internal Revenue Code of 1986, as amended (the Code), as a
result of the "change in ownership" that occurred on December 28, 1990 in
connection with the reorganization of Sharon Steel Corporation, the Company's
predecessor for purposes of the Bankruptcy Code. See Note 1 of Notes to
Consolidated Financial Statements. Based on information available to the
Company, the sale in August, 1993, of shares of Common Stock by Quantum Fund
N.V. (Quantum), as described in the Registration Statement on Form S-3 filed
with the Securities and Exchange Commission on July 7, 1993, has resulted in a
substantial owner shift, but will not, standing alone, result in a "change of
ownership" for purposes of Section 382 of the Code.
Note 2 - 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 3 - Long-term Debt
On December 28, 1993, the Company, through a wholly owned subsidiary,
issued $20.0 million of 6.95% taxable Industrial Development Revenue Bonds due
December 15, 2000 (the IRBs). The IRBs are due in quarterly installments of
$0.7 million beginning March 15, 1994 through December 15, 2000. Interest on
the IRBs is payable quarterly commencing March 15, 1994. The IRBs are secured
by $10 million of cash and securities on deposit in an investment account with
the lender. The $10 million of cash security will reduce to zero in 1996.
Proceeds of the IRBs will be used to fund a modernization project at the
Company's Fulton, Mississippi facility. The IRBs were purchased by the same
financial institution that provided the Credit Facility. Concurrently, the
Company agreed to reduce availability under the Credit Facility to $7.0
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million to accommodate the lender's internal policy limits. Availability is
restored as the Company repays its obligations held by that institution.
Note 4 - Commitments and Contingencies
The Company is subject to normal environmental standards imposed by
federal, state and local environmental laws and regulations. Management
believes that the outcome of pending environmental matters will not materially
affect the overall financial position of the Company.
In addition, the Company is involved in certain litigation as either
plaintiff or defendant as a result of claims that arise in the ordinary course
of business which management believes will not have a material effect on the
Company's financial condition.
Purchase Commitments
The Company has committed to capital expenditures of approximately $20.0
million, for a major project to modernize the copper tube mill in Fulton,
Mississippi. In February, 1994, the Board approved a $15.0 million
modernization project for the brass rod mill in Port Huron, Michigan. Both of
these approved major projects should become fully operational in the latter
half of 1995. No other material purchase commitments for capital expenditures
exist.
Canco Litigation Settlement
On March 25, 1994, the Company's Canco Oil & Gas Ltd. (Canco) subsidiary
settled all litigation against the Government of Saskatchewan and Scurry
Rainbow Oil Limited in which Canco asserted, among other things, that its
royalty interests continued against mineral titles transferred to the
government as well as other expropriated properties. The Company recognized a
gain of approximately $.6 million as a result of the settlement.
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 price of the
related manufactured product. The open market price for grade A copper
cathode, for example, directly influences the selling price for copper tubing,
a principal product manufactured by the Company. The Company attempts to
minimize the effects of changes in copper prices by passing through to its
customers base metal costs. The market price of copper does, however, effect
the carrying value (FIFO basis) of the Company's copper inventories and, to a
lesser extent, brass inventories. These inventories customarily total between
30 to 35 million pounds. "Spreads" fluctuate based upon competitive market
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conditions. In 1993 and 1992, "spreads" were favorable by historical
standards.
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 company in Alaska. Additionally, certain other natural
resource properties produce royalty income or are available for sale.
Results of Operations
Net income was $5.6 million, or 54 cents per common share, for the first
quarter of 1994, which compares with net income of $4.2 million, or 41 cents
per common share, for the same period of 1993.
During the first quarter of 1994 the Company's net sales were $120.8
million, which compares to net sales of $131.0 million, or a 8 percent
decrease over the same period of 1993. The change in net sales was primarily
attributable to: (i) volume increases of 3 percent; and (ii) pricing
decreases due to lower average raw material costs (price of copper) in 1994
the benefits of which generally are passed through to customers in certain
product lines. The Company's core manufacturing businesses shipped 92.0
million pounds of product in the first quarter of 1994 which compares to 89.1
million pounds in the same quarter of 1993. First quarter operating income
increased primarily due to: (i) productivity improvements at its
manufacturing plants; (ii) selective price increases in the fittings and brass
rod markets; and (iii) cost reductions in the areas of selling, general and
administrative expenses.
The Company uses the first-in, first-out (FIFO) method of accounting for
its inventories. Under this method, the inventory items acquired first are
assumed to be sold first, thereby matching earliest costs with current selling
prices. In two of the principal product line markets in which the Company
competes, selling prices are influenced by the current price of metal
(primarily copper as well as base metals used in the formation of brass
alloys). Therefore, when metal prices change on the open market, the Company
adjusts its selling prices, to the extent competitive pressures allow, to
reflect such changes and maintain the "spreads". Nonetheless, financial
reporting, under the FIFO method, matches historical inventory costs with
current selling prices, rather than current replacement costs with current
selling prices. While the impact of metal price volatility is moderated by
rapid inventory turns, upward and downward trends of longer duration may
impact gross profits under the FIFO method.
Interest expense increased approximately $.2 million due to IRBs issued
early in the first quarter of 1994 for the purpose of financing a capital
improvement program at the copper tube mill. Other non-operating items
included (i) a gain of $.6 million related to the settlement of litigation as
discussed in Note 4, (ii) a provision for environmental reserves of $.4
million related to a site in which Mueller Brass Co., a subsidiary of the
Company, was notified it was a potentially responsible party, and (iii) a $.3
million provision to further reduce the carrying cost of a note receivable
from Sharon Specialty Steel Company, Inc.
Liquidity and Capital Resources
Cash provided by operating activities in the first quarter of 1994 totaled
$4.4 million which is primarily attributable to net income, depreciation, and
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deferred income taxes, offset by increases in receivables and inventories.
During the first quarter of 1994, the Company's capital expenditures
totaled $5.7 million which was provided for by cash from operations, except
that portion related to the copper tube mill project which was funded by the
IRBs as discussed in Note 3.
The Company has an unsecured line-of-credit agreement (the Credit Facility)
which expires on September 30, 1994, but may be extended to September 30, 1995
at the Company's option. Borrowings bear interest at prime less 1/2 of one
percent.
During the first quarter of 1994, the Company agreed to reduce its
borrowing availability under the Credit Facility to $7.0 million concurrently
with the issuance of the IRBs. At March 26, 1994, the Company's total debt
was $81.0 million or 26.3 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. Additionally,
certain notes issued by its wholly-owned subsidiary restrict the amount of
cash that may be loaned or dividended by that subsidiary. The Company is in
compliance with all debt covenants.
Management believes that cash provided by operations and currently
available cash of $79.4 million will be adequate to meet the Company's normal
future capital expenditure and operational needs. The Company's current ratio
remains strong at 3.7 to 1.
As part of its ongoing strategic planning process, the Company has approved
two major capital expenditure projects and is evaluating a third for the
following plants: (i) Fulton, Mississippi copper tube mill; (ii) Port Huron,
Michigan brass rod mill; and (iii) our copper fittings operation. These
projects will require capital of approximately $15.0 to $20.0 million each.
The primary objective of these projects is to improve efficiency and
productivity as well as add some capacity.
The Fulton project was financed by IRBs which were issued during the first
quarter of 1994. The Company is also evaluating alternatives for funding the
other two projects including cash from operations and debt financing.
Part II. OTHER INFORMATION
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 26, 1994. 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 April 22, 1994.
(b) During the quarter ended March 26, 1994, the Registrant filed no Current
Reports on Form 8-K.
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Items 1, 2, 3, 4 and 5 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 April 22,
1994.
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/ ROY C. HARRIS
Roy C. Harris
Corporate Controller