1
1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended September 28, 1996 Commissions file number 1-6770
MUELLER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-0790410
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6799 GREAT OAKS ROAD, SUITE 200
MEMPHIS, TN 38138-2572
(Address of principal executive offices)
Registrant's telephone number, including area code: (901) 753-3200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $ 0.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
The number of shares of the Registrant's common stock outstanding as of
October 18, 1996 was 17,427,338.
2
MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Period Ended September 28, 1996
INDEX
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
a.) Consolidated Statements of Income
for the nine-months and quarters ended
September 28, 1996 and September 30, 1995............3
b.) Consolidated Balance Sheets
as of September 28, 1996 and December 30, 1995.......5
c.) Consolidated Statements of Cash Flows
for the nine-months ended September 28, 1996
and September 30, 1995...............................7
d.) Notes to Consolidated Financial Statements...........8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................8
Part II. Other Information
Item 5. Other Information........................................11
Item 6. Exhibits and Reports on Form 8-K.........................12
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
September 28, September 30,
1996 1995
Net sales $ 175,991 $ 171,549
Cost of goods sold 133,204 137,410
----------- -----------
Gross profit 42,787 34,139
Depreciation and amortization 4,697 4,098
Selling, general, and administrative expense 12,809 13,011
----------- -----------
Operating income 25,281 17,030
Interest expense (1,400) (820)
Environmental reserves (1,945) (955)
Other income, net 1,424 1,736
----------- -----------
Income before income taxes 23,360 16,991
Current income tax expense (8,532) (4,202)
Deferred income tax benefit (expense) 1,354 (1,184)
----------- -----------
Total income tax expense (7,178) (5,386)
----------- -----------
Net income $ 16,182 $ 11,605
=========== ===========
Net income per share:
Primary:
Average shares outstanding 19,520 19,263
Net income $ 0.83 $ 0.60
=========== ===========
Fully diluted:
Average shares outstanding 19,550 19,263
Net income $ 0.83 $ 0.60
=========== ===========
<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 28, September 30,
1996 1995
Net sales $ 546,063 $ 524,699
Cost of goods sold 426,272 427,557
----------- -----------
Gross profit 119,791 97,142
Depreciation and amortization 13,718 11,507
Selling, general, and administrative expense 41,632 38,387
----------- -----------
Operating income 64,441 47,248
Interest expense (4,113) (3,331)
Environmental reserves (1,945) (955)
Other income, net 4,364 4,311
----------- -----------
Income before income taxes 62,747 47,273
Current income tax expense (17,087) (12,889)
Deferred income tax expense (2,289) (2,066)
----------- -----------
Total income tax expense (19,376) (14,955)
----------- -----------
Net income $ 43,371 $ 32,318
=========== ===========
Net income per share:
Primary:
Average shares outstanding 19,477 19,115
Net income $ 2.23 $ 1.69
=========== ===========
Fully diluted:
Average shares outstanding 19,534 19,256
Net income $ 2.22 $ 1.68
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
5
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
September 28, December 30,
1996 1995
Assets
Current assets:
Cash and cash equivalents $ 77,528 $ 48,357
Accounts receivable, less allowance
for doubtful accounts of $2,844 in
1996 and $2,986 in 1995 104,468 83,712
Inventories:
Raw material and supplies 10,750 14,538
Work-in-process 16,296 17,133
Finished goods 42,646 34,689
----------- -----------
Total inventories 69,692 66,360
Current deferred income taxes 7,002 7,354
Other current assets 5,880 5,255
----------- -----------
Total current assets 264,570 211,038
Property, plant and equipment, net 221,171 221,012
Deferred income taxes 11,320 13,174
Other assets 5,361 5,611
----------- -----------
$ 502,422 $ 450,835
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
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MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
September 28, December 30,
1996 1995
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 15,234 $ 16,249
Accounts payable 22,069 16,931
Accrued wages and other employee costs 18,868 14,499
Other current liabilities 26,164 20,205
----------- -----------
Total current liabilities 82,335 67,884
Long-term debt 51,327 59,653
Pension and postretirement liabilities 16,078 15,976
Environmental reserves 9,642 9,585
Deferred income taxes 2,817 2,734
Other noncurrent liabilities 9,263 9,128
----------- -----------
Total liabilities 171,462 164,960
----------- -----------
Minority interest in subsidiaries 459 -
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 17,427,338 in 1996 and
17,349,498 in 1995 200 200
Additional paid-in capital, common 254,231 253,969
Retained earnings (since January 1, 1991) 110,181 66,810
Cumulative translation adjustments (2,509) (2,545)
Treasury common stock, at cost (31,602) (32,559)
----------- -----------
Total stockholders' equity 330,501 285,875
Commitments and contingencies (Note 2) - -
----------- -----------
$ 502,422 $ 450,835
=========== ===========
<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 Nine-Months Ended
September 28, September 30,
1996 1995
Operating activities
Net income $ 43,371 $ 32,318
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13,718 11,507
Minority interest in subsidiaries 459 -
Deferred income taxes 2,289 2,066
Gain on disposal of properties (1,442) (1,081)
Changes in assets and liabilities:
Receivables (20,756) (29,304)
Inventories (3,332) 4,634
Other assets (1,325) (309)
Current liabilities 15,466 15,155
Other liabilities 294 (2,656)
Other, net 61 631
----------- -----------
Net cash provided by operating activities 48,803 32,961
----------- -----------
Investing activities
Capital expenditures (15,167) (34,555)
Proceeds from sales of properties 3,657 1,137
Escrowed IRB financing - 12,703
----------- -----------
Net cash used by investing activities (11,510) (20,715)
----------- -----------
Financing activities
Repayments of long-term debt (9,341) (14,288)
Proceeds from the sale of treasury stock 1,219 781
Acquisition of treasury stock - (2,055)
----------- -----------
Net cash used by financing activities (8,122) (15,562)
----------- -----------
Increase (decrease) in cash and cash equivalents 29,171 (3,316)
Cash and cash equivalents at the
beginning of the period 48,357 34,492
----------- -----------
Cash and cash equivalents at the
end of the period $ 77,528 $ 31,176
=========== ===========
<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 - Earnings Per Common Share
Primary earnings per common share are based upon the weighted average
number of common and common equivalent shares outstanding during the period.
Fully diluted earnings per share are based upon the weighted average number
of common shares outstanding plus the dilutive effects of all outstanding
stock options.
In 1995, the Company declared and effected a two-for-one stock split in
the form of a 100 percent stock dividend. All presentations of share data
herein, including earnings per share, have been restated to reflect the
split for all periods presented.
Note 2 - Commitments and Contingencies
The Company is subject to normal environmental standards imposed by
federal, state and local environmental laws and regulations. Management
believes that the outcome of pending environmental matters will not
materially affect the overall financial position or results of operations of
the Company.
In addition, the Company is involved in certain litigation as either
plaintiff or defendant as a result of claims that arise in the ordinary
course of business which management believes will not have a material affect
on the Company's financial condition or results of operations.
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.
9
Profitability of certain of the Company's product lines is dependent
upon the "spreads" between the cost of material and the selling prices of
its completed products. The open market price for copper cathode, for
example, directly influences the selling price of copper tubing, a principal
product manufactured by the Company. The Company attempts to minimize the
effects of changes in copper prices by passing base metal costs through to
its customers.
The Company uses the LIFO method of accounting for the copper metal
component of certain of its copper tube and fittings inventories.
Management believes the LIFO method results in a better matching of current
costs with current revenues. The market price of copper does, however,
indirectly affect the carrying value (FIFO basis) of the Company's brass and
other inventories. The Company's copper and brass inventories customarily
total between 30 to 40 million pounds. "Spreads" fluctuate based upon
competitive market conditions.
The Company also owns various natural resource properties in the
Western United States and Canada. It operates a short line railroad in Utah
and a placer gold mining operation in Alaska. Additionally, certain other
natural resource properties produce royalty and other income.
Results of Operations
Net income was $16.2 million, or 83 cents per common share, for the
third quarter of 1996, which compares with net income of $11.6 million, or
60 cents per common share, for the same period of 1995. Year-to-date, net
income was $43.4 million, or $2.23 per common share, which compares to net
income of $32.3 million or $1.69 per common share, for 1995.
During the third quarter of 1996, the Company's net sales were $176.0
million, which compares to net sales of $171.5 million, or a 3 percent
increase over the same period of 1995. Net sales were $546.1 million in the
first three quarters of 1996 versus $524.7 million in 1995. The Company's
core manufacturing businesses shipped 113.1 million pounds of product in the
third quarter of 1996 which compares to 90.9 million pounds in the same
quarter of 1995. Year-to-date and third quarter operating income increased
primarily due to: (i) higher shipment volumes; (ii) yield and productivity
improvements at its manufacturing operations; and (iii) spread improvements
in certain product lines, including copper tube and plastic fittings.
Compared to the same periods of 1995, interest expense for the third
quarter of 1996 increased to $1.4 million and year-to-date 1996 increased to
$4.1 million. The Company is no longer capitalizing interest related to
capital improvement programs at the copper tube mill, the brass rod mill,
and the high-volume copper fittings factory. A charge of $1.9 million for
environmental reserves was recorded; the amount results from updated
estimates for costs associated with various, previously identified sites.
The effective tax rate of 30.7 percent in the third quarter of 1996 reflects
the benefits of a lower federal provision relating to the recognition of net
operating loss carryforwards and a lower state provision associated
primarily with incentive IRB financings.
10
Liquidity and Capital Resources
Cash provided by operating activities in the first three quarters of
1996 totaled $48.8 million which is primarily attributable to net income,
depreciation and amortization, and increases in current liabilities 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 1996, the Company's capital
expenditures totaled $15.2 million which was provided for by cash from
operations.
The Company has a $50.0 million unsecured line-of-credit agreement (the
Credit Facility) which expires on June 30, 1997, but may be extended for
successive one year periods by agreement of the parties. At the Company's
option, borrowings bear interest at prime less 1/2 of one percent or at
other options. There are no outstanding borrowings under the Credit
Facility. At September 28, 1996, the Company's total debt (including the
current portion) was $66.6 million or 16.8 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 $77.5 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's modernization of its copper fittings plant in Covington,
Tennessee will require approximately $7.0 million, of which approximately
$3.4 million has been approved. The Company, through its wholly-owned
subsidiary, Utah Railway Company, also committed approximately $2.7 million
for the construction of trackage to serve a new coal loadout facility. This
commitment secures exclusive access to a new customer for the Utah Railway
Company. These commitments will be funded with cash generated by
operations.
Update on Capital Improvement Programs
Mueller has completed the upgrade of its brass rod mill manufacturing
processes with an expansion that includes the installation of a new, state-
of-the-art, indirect extrusion press, new billet heating furnaces, and new
material handling systems. Production on the new equipment commenced during
the first quarter of 1996.
Mueller's capital improvement project at its Fulton copper tube mill to
upgrade technology and install state-of-the-art copper tube drawing and
handling equipment became operational in the fourth quarter of 1995. The
Company expects continued refinements which should further improve
operational performance in the mill during 1996.
The Company's new, high-volume copper fittings plant at Fulton,
Mississippi became operational in the second and third quarters of 1995 and
most production lines in this new plant are running today. Yield and
productivity continue to improve.
11
Another important ongoing program is the modernization of the Company's
low-volume copper fittings plant in Covington, Tennessee. The Company is
currently evaluating the scope of this project.
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 30,
1995.
Environmental Matters
Mining Remedial Recovery Company (MRRC)
1. Cleveland Mill Site
MRRC, Bayard and a third party are negotiating with the New Mexico
Environmental Department about the terms of a consent order which
would permit placement of the Cleveland Mill site mill tailings at the
nearby Hanover site.
2. Hanover
Regrading and capping of the remaining twenty acres at Hanover has
been deferred pending a decision on storage of tailings from the
nearby Cleveland Mill site.
3. USS Lead
In August, 1996, U.S.S. Lead Refinery, Inc. (USS Lead) began
demolition of buildings and other limited environmental stabilization
and clean up at its East Chicago, Indiana site that could be
accomplished prior to finalization of its interim cleanup plan. In
response to public comments concerning USS Lead's plan for interim
cleanup measures at this site, USS Lead and the Environmental
Protection Agency are discussing amending the interim workplan to
cover changes to the workplan at the site and to include certain
offsite testing and monitoring.
Other Matters
In January, 1996, the Utah Railway entered into an agreement with Union
Pacific Railroad (UP) whereby Utah Railway granted UP rights to allow a
third party railroad to operate over a portion of Utah Railway track. In
exchange, UP granted limited rights to Utah Railway for operations over
Southern Pacific (SP) tracks to Grand Junction, Colorado and access to
additional customers. The agreement is contingent on the regulatory
approval of the UP/SP merger. The Federal Surface Transportation Board (the
STB) unanimously issued a final order of regulatory approval in September,
1996. The STB's final order is being challenged by third parties.
12
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 September 28, 1996. Such report is
being furnished for the information of the Securities and
Exchange Commission only and is not to be deemed filed as
part of this Quarterly Report on Form 10-Q.
99.1 Press Release issued by Mueller Industries, Inc. on October
16, 1996.
(b) During the quarter ended September 28, 1996, 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 18, 1996.
MUELLER INDUSTRIES, INC.
/S/ EARL W. BUNKERS
Earl W. Bunkers, Executive Vice President
and Chief Financial Officer
/S/ KENT A. MCKEE
Kent A. McKee
Vice President Business Development/
Investor Relations
/S/ RICHARD W. CORMAN
Richard W. Corman
Director of Corporate Accounting