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 June 28, 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
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
July 17, 1997 was 17,506,508.
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MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Period Ended June 28, 1997
INDEX
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
a.) Consolidated Statements of Income
for the six-months and quarters ended
June 28, 1997 and June 29, 1996......................3
b.) Consolidated Balance Sheets
as of June 28, 1997 and December 28, 1996............4
c.) Consolidated Statements of Cash Flows
for the six-months ended June 28, 1997
and June 29, 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 4. Submission of Matters to a Vote of Security Holders......11
Item 6. Exhibits and Reports on Form 8-K.........................12
Signatures...........................................................13
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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 For the Six-Months Ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
Net sales $215,437 $189,557 $416,803 $370,072
Cost of goods sold 172,685 149,536 328,469 293,068
------- ------- ------- -------
Gross profit 42,752 40,021 88,334 77,004
Depreciation and amortization 4,984 4,571 9,816 9,021
Selling, general, and
administrative expense 15,234 14,919 30,730 28,823
------- ------- ------- -------
Operating income 22,534 20,531 47,788 39,160
Interest expense (1,118) (1,473) (2,296) (2,713)
Environmental reserves - - (2,000) -
Other income, net 2,166 1,060 3,196 2,940
------- ------- ------- -------
Income before income taxes 23,582 20,118 46,688 39,387
Current income tax expense (6,929) (3,294) (13,657) (8,555)
Deferred income tax expense (314) (2,927) (934) (3,643)
------- ------- ------- -------
Total income tax expense (7,243) (6,221) (14,591) (12,198)
------- ------- ------- -------
Net income $ 16,339 $ 13,897 $ 32,097 $ 27,189
======= ======= ======= =======
Net income per share:
Primary:
Average shares outstanding 19,579 19,525 19,614 19,457
Net income $ 0.83 $ 0.71 $ 1.64 $ 1.40
======= ======= ======= =======
Fully diluted:
Average shares outstanding 19,615 19,550 19,640 19,550
Net income $ 0.83 $ 0.71 $ 1.63 $ 1.39
======= ======= ======= =======
<FN>
See accompanying notes to consolidated financial statements.
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MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
June 28, 1997 December 28, 1996
Assets
Current assets:
Cash and cash equivalents $ 36,439 $ 96,956
Accounts receivable, less allowance
for doubtful accounts of $3,223 in
1997 and $3,188 in 1996 119,025 88,905
Inventories:
Raw material and supplies 19,020 15,416
Work-in-process 19,502 12,540
Finished goods 54,676 42,041
Gold 8,117 6,650
------- -------
Total inventories 101,315 76,647
Current deferred income taxes 6,441 6,508
Other current assets 10,072 5,696
------- -------
Total current assets 273,292 274,712
Property, plant and equipment, net 240,295 219,855
Deferred income taxes 9,208 10,064
Other assets 25,985 4,726
------- -------
$ 548,780 $ 509,357
======= =======
<FN>
See accompanying notes to consolidated financial statements.
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MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
June 28, 1997 December 28, 1996
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 14,914 $ 14,844
Accounts payable 28,269 18,305
Accrued wages and other employee costs 18,506 16,872
Other current liabilities 26,978 28,935
------- -------
Total current liabilities 88,667 78,956
Long-term debt 39,335 44,806
Pension and postretirement liabilities 15,244 15,875
Environmental reserves 10,960 9,105
Deferred income taxes 2,933 2,922
Other noncurrent liabilities 10,063 9,214
------- -------
Total liabilities 167,202 160,878
------- -------
Minority interest in subsidiaries 641 397
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 17,506,508
in 1997 and 17,434,888 in 1996 200 200
Additional paid-in capital, common 253,939 254,214
Retained earnings
(Since January 1, 1991) 160,080 127,983
Cumulative translation adjustment (2,628) (2,805)
Treasury common stock, at cost (30,654) (31,510)
------- -------
Total stockholders' equity 380,937 348,082
Commitments and contingencies (Note 2) - -
------- -------
$ 548,780 $ 509,357
======= =======
<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 Six-Months Ended
June 28, 1997 June 29, 1996
Operating activities
Net income $ 32,097 $ 27,189
Reconciliation of net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,816 9,021
Minority interest in subsidiaries 244 325
Deferred income taxes 934 3,643
Gain on disposal of properties (452) (1,366)
Changes in assets and liabilities:
Receivables (27,149) (23,506)
Inventories (10,228) (2,019)
Other assets (14,732) (4,812)
Current liabilities 6,848 14,304
Other liabilities 109 (2,080)
Other, net (276) 9
------- -------
Net cash provided by (used in)
operating activities (2,789) 20,708
------- -------
Investing activities
Capital expenditures (16,468) (11,031)
Proceeds from sales of properties 1,344 1,366
Acquisition of businesses (37,743) -
------- -------
Net cash used in investing activities (52,867) (9,665)
------- -------
Financing activities
Repayments of long-term debt (5,442) (6,825)
Proceeds from sale of treasury stock 581 229
------- -------
Net cash used in financing activities (4,861) (6,596)
------- -------
Increase (decrease) in cash and cash equivalents (60,517) 4,447
Cash and cash equivalents at the
beginning of the period 96,956 48,357
------- -------
Cash and cash equivalents at the
end of the period $ 36,439 $ 52,804
======= =======
<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 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:
For the Quarter Ended For the Six-Months Ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
Pro forma earnings per share:
Earnings per common share $ 0.93 $ 0.80 $ 1.84 $ 1.57
======= ======= ======= =======
Earnings per common share
assuming dilution $ 0.83 $ 0.71 $ 1.64 $ 1.40
======= ======= ======= =======
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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.
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.
On May 15, 1997, the Company acquired Desnoyers S.A., a copper tube
manufacturer which operates two factories near Paris in Laigneville and
Longueville, France. The Company acquired Desnoyers for approximately $13.5
million which includes certain assumed debt obligations. Desnoyers had net
sales of approximately $100.0 million in 1996. The cost of this acquisition
is included in the other assets classification of the interim consolidated
balance sheet.
These acquisitions are accounted for using the purchase method.
Therefore, the results of operations of the acquired businesses are
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.
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(In thousands, except per share data)
For the Six-Months Ended
June 28, 1997 June 29, 1996
Net sales $ 478,286 $ 490,001
Net income 28,056 23,865
Net income per share:
Primary 1.43 1.23
Fully diluted 1.43 1.22
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 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 component
of certain of its domestic 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 40 to 50 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 rental or royalty income.
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Results of Operations
Net income was $16.3 million, or 83 cents per common share, for the
second quarter of 1997, which compares with net income of $13.9 million, or
71 cents per common share, for the same period of 1996. Year-to-date, net
income was $32.1 million, or $1.64 per common share, which compares to net
income of $27.2 million or $1.40 per common share, for 1996.
During the second quarter of 1997, the Company's net sales were $215.4
million, which compares to net sales of $189.6 million, or a 13.6 percent
increase over the same period of 1996. Net sales were $416.8 million in the
first half of 1997 versus $370.1 million in 1996. During the second quarter
of 1997, the Company's manufacturing businesses shipped 132.8 million pounds
of product compared to 114.3 million pounds in the same quarter of 1996.
The Company's manufacturing businesses shipped 257.5 million pounds of
product in the first half of 1997, or 15 percent more than the same period
of 1996. These comparisons include 1997 Wednesbury and Precision operations
since their acquisitions during the first quarter of 1997. Second quarter
and first half operating income increased primarily due to: (i)
productivity improvements at its manufacturing plants; (ii) higher sales
volumes; (iii) selective price increases in the fittings markets; and (iv)
cost containment in selling, general, and administrative expenses. The
second quarter increase in operating income occurred despite experiencing
the lowest spreads in the copper tube business in the last five years.
Interest expense for the second quarter of 1997 totaled $1.1 million
compared to $1.5 million in the same quarter of 1996. For the first six-
months of 1997, interest expense was $2.3 million compared to $2.7 million
for the same period of 1996. During the first half of 1996, the Company
capitalized $0.3 million of interest related to capital improvement programs
compared to none in 1997. Total interest in 1997 decreased due to
reductions in long-term debt.
The effective tax rate of 30.7 percent in the second quarter and 31.3
percent in the first six-months of 1997 reflect the benefits of a lower
federal provision relating to the recognition of net operating loss carry
forwards and a lower state provision associated with incentive IRB
financings.
Liquidity and Capital Resources
Cash used in operating activities during the first half of 1997 totaled
$2.8 million which is primarily attributable to increases in receivables,
inventories, and other assets, offset by net income and depreciation.
Approximately $9.6 million has been used to fund Wednesbury's trade accounts
receivable which were not acquired.
During the first half of 1997, the Company used $52.9 million in
investing activities, consisting primarily of $37.8 million in business
acquisitions as described in Note 3, plus $16.5 million in capital
expenditures. Cash used in investing activities was funded with existing
cash.
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The Company has a $100.0 million unsecured line-of-credit agreement
(the Credit Facility) which expires in December 1999, 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 June 28,
1997, the Company's debt was $54.2 million or 12 percent of its total
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.
On July 15, 1997, subsequent to the end of the second quarter, the
Company, through a wholly owned subsidiary, issued $25 million of 1997
Series IRBs. The 1997 Series IRBs bear interest at 7.39 percent for seven
years then convert to LIBOR plus 1.35 percent. The 1997 Series IRBs are due
in quarterly installments of $875 thousand plus interest for seven years
beginning October 15, 1997, followed by annual payments of $50 thousand plus
interest for ten years. Proceeds of these 1997 Series IRBs will be used to
fund a new copper refining facility located adjacent to the Company's
existing tube mill in Fulton, Mississippi.
Also, on July 15, 1997, the Company, through another wholly owned
subsidiary, issued $2.5 million of 1997 Series IRBs. The 1997 Series IRBs
bear interest at 7.31 percent for five years then convert to LIBOR plus 1.35
percent. The 1997 Series IRBs are due in quarterly installments of $115
thousand plus interest for five years beginning October 15, 1997, followed
by annual payments of $29 thousand plus interest for seven years. Proceeds
of these 1997 Series IRBs will be used to fund a new line set plant in
Fulton, Mississippi.
Management believes that cash provided by operations, currently
available cash of $36.4 million, and the proceeds from the above 1997 Series
IRBs will be adequate to meet the Company's normal future capital
expenditure and operational needs. The Company's current ratio remains
strong at 3.1 to 1 as of June 28, 1997.
The Company currently anticipates spending approximately $50 million
for major capital improvement projects during 1997. The significant
projects were identified in the Company's Quarterly Report on Form 10-Q for
the quarter ended March 29, 1997. These capital improvement projects will
be funded from existing cash balances, cash generated from operations, and
the IRB financing discussed above.
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 7, 1997, the Company held its Annual Meeting of Stockholders at
which two proposals were voted upon: (i) election of directors; and
(ii) the appointment of auditors.
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The following persons were duly elected to serve, subject to the
Company's Bylaws, as Directors of the Company until the next Annual Meeting,
or until election and qualification of their successors:
Votes in Favor Votes Withheld
Robert B. Hodes 14,936,373 90,294
Harvey L. Karp 14,937,881 88,786
Allan Mactier 14,940,409 86,258
William D. O'Hagan 13,467,513 1,559,154
Robert J. Pasquarelli 14,944,173 82,494
The proposal to approve the appointment of Ernst & Young LLP as the
Company's auditors was ratified by 14,972,685 votes in favor, 31,703 votes
against and 22,279 votes abstaining.
There were no broker non-votes pertaining to these proposals.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amendment to Employment Agreement, effective as of
June 6, 1997, 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 June 28, 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.
(b) During the quarter ended June 28, 1997, the Registrant filed no
Current Reports on Form 8-K.
Items 1, 2, 3 and 5 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 July 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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