1
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 / /
2
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
3
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
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
4
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
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
5
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
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
6
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
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
7
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
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
8
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.
9
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.
10
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.
11
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.
12
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.
13
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