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 September 27, 1997 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, TENNESSEE 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 20, 1997 was 17,508,708.
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MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Period Ended September 27, 1997
INDEX
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
a.) Consolidated Statements of Income
for the nine-months and quarters ended
September 27, 1997 and September 28, 1996............3
b.) Consolidated Balance Sheets
as of September 27, 1997 and December 28, 1996.......5
c.) Consolidated Statements of Cash Flows
for the nine-months ended September 27, 1997
and September 28, 1996...............................7
d.) Notes to Consolidated Financial Statements...........9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................11
Part II. Other Information
Item 5. Other Information........................................14
Item 6. Exhibits and Reports on Form 8-K.........................14
Signatures...........................................................15
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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 27, September 28,
1997 1996
Net sales $ 229,133 $ 175,991
Cost of goods sold 181,376 133,204
----------- -----------
Gross profit 47,757 42,787
Depreciation and amortization 5,593 4,697
Selling, general, and administrative expense 15,120 12,809
----------- -----------
Operating income 27,044 25,281
Interest expense (1,818) (1,400)
Environmental reserves (1,100) (1,945)
Other income, net 1,661 1,424
----------- -----------
Income before income taxes 25,787 23,360
Current income tax expense (8,217) (8,532)
Deferred income tax benefit (expense) 481 1,354
----------- -----------
Total income tax expense (7,736) (7,178)
----------- -----------
Net income $ 18,051 $ 16,182
=========== ===========
Net income per share:
Primary:
Average shares outstanding 19,641 19,520
Net income $ 0.92 $ 0.83
=========== ===========
Fully diluted:
Average shares outstanding 19,648 19,550
Net income $ 0.92 $ 0.83
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
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MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
For the Nine-Months Ended
September 27, September 28,
1997 1996
Net sales $ 645,936 $ 546,063
Cost of goods sold 509,845 426,272
----------- -----------
Gross profit 136,091 119,791
Depreciation and amortization 15,409 13,718
Selling, general, and administrative expense 45,850 41,632
----------- -----------
Operating income 74,832 64,441
Interest expense (4,114) (4,113)
Environmental reserves (3,100) (1,945)
Other income, net 4,857 4,364
----------- -----------
Income before income taxes 72,475 62,747
Current income tax expense (21,874) (17,087)
Deferred income tax expense (453) (2,289)
----------- -----------
Total income tax expense (22,327) (19,376)
----------- -----------
Net income $ 50,148 $ 43,371
=========== ===========
Net income per share:
Primary:
Average shares outstanding 19,604 19,477
Net income $ 2.56 $ 2.23
=========== ===========
Fully diluted:
Average shares outstanding 19,641 19,534
Net income $ 2.55 $ 2.22
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
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MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
September 27, December 28,
1997 1996
Assets
Current assets:
Cash and cash equivalents $ 44,333 $ 96,956
Accounts receivable, less allowance
for doubtful accounts of $3,229 in
1997 and $3,188 in 1996 139,254 88,905
Inventories:
Raw material and supplies 21,219 15,416
Work-in-process 20,459 12,540
Finished goods 57,434 42,041
Gold 14,050 6,650
----------- -----------
Total inventories 113,162 76,647
Current deferred income taxes 6,374 6,508
Other current assets 7,009 5,696
----------- -----------
Total current assets 310,132 274,712
Property, plant and equipment, net 256,391 219,855
Deferred income taxes 9,058 10,064
Other assets 34,062 4,726
----------- -----------
$ 609,643 $ 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)
September 27, December 28,
1997 1996
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 19,083 $ 14,844
Accounts payable 36,805 18,305
Accrued wages and other employee costs 21,569 16,872
Other current liabilities 31,925 28,935
----------- -----------
Total current liabilities 109,382 78,956
Long-term debt 61,094 44,806
Pension and postretirement liabilities 15,882 15,875
Environmental reserves 13,043 9,105
Deferred income taxes 2,234 2,922
Other noncurrent liabilities 10,181 9,214
----------- -----------
Total liabilities 211,816 160,878
----------- -----------
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 17,507,508 in 1997 and
17,434,888 in 1996 200 200
Additional paid-in capital, common 253,924 254,214
Retained earnings (since January 1, 1991) 178,131 127,983
Cumulative translation adjustments (4,446) (2,805)
Treasury common stock, at cost (30,623) (31,510)
----------- -----------
Total stockholders' equity 397,186 348,082
Commitments and contingencies (Note 3) - -
----------- -----------
$ 609,643 $ 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 Nine-Months Ended
September 27, September 28,
1997 1996
Operating activities
Net income $ 50,148 $ 43,371
Reconciliation of net income to net
cash provided by operating activities:
Depreciation and amortization 15,409 13,718
Minority interest in subsidiaries 244 459
Deferred income taxes 453 2,289
Gain on disposal of properties (1,641) (1,442)
Changes in assets and liabilities:
Receivables (34,805) (20,756)
Inventories (14,013) (3,332)
Other assets (7,304) (1,325)
Current liabilities 8,071 15,466
Other liabilities (1,495) 294
Other, net (18) 61
----------- -----------
Net cash provided by operating activities 15,049 48,803
----------- -----------
Investing activities
Capital expenditures (26,743) (15,167)
Proceeds from sales of properties 1,722 3,657
Acquisition of businesses (37,743) -
Escrowed IRB financing (23,001) -
----------- -----------
Net cash used in investing activities (85,765) (11,510)
----------- -----------
Financing activities
Proceeds from issuance of long-term debt 27,500 -
Repayments of long-term debt (9,840) (9,341)
Proceeds from the sale of treasury stock 597 1,219
----------- -----------
Net cash provided by (used in) financing
activities 18,257 (8,122)
----------- -----------
Effect of exchange rate changes on cash and
cash equivalents (164) -
----------- -----------
<FN>
See accompanying notes to consolidated financial statements.
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MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
(In thousands)
For the Nine-Months Ended
September 27, September 28,
1997 1996
Increase (decrease) in cash and cash equivalents (52,623) 29,171
Cash and cash equivalents at the
beginning of the period 96,956 48,357
----------- -----------
Cash and cash equivalents at the
end of the period $ 44,333 $ 77,528
=========== ===========
<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
September 27, September 28,
1997 1996
Pro forma earnings per share:
Earnings per common share $ 1.03 $ 0.93
=========== ===========
Earnings per common share
assuming dilution $ 0.92 $ 0.83
=========== ===========
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For the Nine-Months Ended
September 27, September 28,
1997 1996
Pro forma earnings per share:
Earnings per common share $ 2.87 $ 2.49
=========== ===========
Earnings per common share
assuming dilution $ 2.56 $ 2.23
=========== ===========
Note 2 - Long Term Debt
On July 15, 1997, the Company, through a wholly-owned subsidiary,
issued $25 million of 1997 Series IRBs. These 1997 Series IRBs bear
interest at 7.39 percent for seven years and then convert to LIBOR plus 1.35
percent. Payments 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. These 1997 Series IRBs
bear interest at 7.31 percent for five years and then convert to LIBOR plus
1.35 percent. Payments 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.
Note 3 - 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 4 - 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.
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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.
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.
(In thousands, except per share data)
For the Nine-Months Ended
September 27, September 28,
1997 1996
Net sales $ 707,419 $ 712,347
Net income 45,363 38,279
Net income per share:
Primary 2.31 1.97
Fully diluted 2.31 1.96
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.
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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. "Spreads" fluctuate based upon competitive market
conditions.
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 45 to 55 million pounds.
The Company also 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.
Results of Operations
Net income was $18.1 million, or 92 cents per common share, for the
third quarter of 1997, which compares with net income of $16.2 million, or
83 cents per common share, for the same period of 1996. Year-to-date, net
income was $50.1 million, or $2.56 per common share, which compares to net
income of $43.4 million or $2.23 per common share, for 1996. These
comparisons include 1997 Wednesbury, Desnoyers and Precision operations
since their acquisitions during the first half of 1997.
During the third quarter of 1997, the Company's net sales were $229.1
million, which compares to net sales of $176.0 million, or a 30 percent
increase over the same period of 1996. Net sales were $645.9 million in the
first nine-months of 1997 versus $546.1 million in 1996. During the third
quarter of 1997, the Company's manufacturing businesses shipped 140.1
million pounds of product compared to 113.1 million pounds in the same
quarter of 1996. The Company's manufacturing businesses shipped 397.6
million pounds of product in the first nine-months of 1997, or 18 percent
more than the same period of 1996. The Company's third quarter and year-to-
date operating income increased primarily due to: (i) productivity
improvements at its manufacturing plants; (ii) higher sales volumes; (iii)
favorable pricing in copper and plastic fittings; and (iv) cost containment
in selling, general, and administrative expenses. These improvements to
operating income were partially offset by lower domestic copper tube spreads
compared to 1996, and third quarter operating losses of approximately $2
million at our newly acquired European tube businesses.
Interest expense for the third quarter of 1997 totaled $1.8 million
compared to $1.4 million in the same quarter of 1996. For the first nine-
months of 1997, interest expense was $4.1 million, equal to the same period
of 1996. During the first nine-months of 1996, the Company capitalized $0.3
million of interest related to capital improvement programs compared to none
in 1997.
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The Company has provided an additional $1.1 million in the third
quarter, or $3.1 million for the first nine-months of 1997, for
environmental reserves based on updated information and results of ongoing
remediation at previously identified environmental sites.
The effective tax rate of 30.0 percent in the third quarter and 30.8
percent in the first nine-months of 1997 reflect 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.
Liquidity and Capital Resources
Cash provided by operating activities during the first three quarters
of 1997 totaled $15.0 million which is primarily attributable to net income
and depreciation offset by increases in receivables and inventories.
Approximately $8.2 million has been used to fund Wednesbury's trade accounts
receivable, which were not acquired.
During the first three quarters of 1997, the Company used $85.8 million
in investing activities, consisting primarily of $37.7 million in business
acquisitions as described in Note 4, plus $26.7 million in capital
expenditures. On July 15, 1997, the Company, through two wholly-owned
subsidiaries, issued two 1997 Series IRBs for $25 million and $2.5 million.
Proceeds from these IRBs will be used to fund a new copper refining facility
located adjacent to the Company's tube mill in Fulton, Mississippi, and a
new line set plant also in Fulton, Mississippi. Cash used in investing
activities was funded with existing cash plus the proceeds of the two 1997
Series IRBs.
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. Borrowings
under the Credit Facility bear interest, at the Company's option, at (i)
prime rate less .50 percent, (ii) LIBOR plus .27 percent, or (iii) Federal
Funds Rate plus .65 percent. There are no outstanding borrowings under the
Credit Facility. At September 27, 1997, the Company's debt was $80.2
million or 17 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.
Management believes that cash provided by operations, currently
available cash of $44.3 million, and the escrowed proceeds from the 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 2.8 to 1 as of September 27, 1997.
The Company currently anticipates spending approximately $40 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.
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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 28,
1996.
Environmental Matters
Mining Remedial Recovery Company (MRRC)
1. Cleveland Mill Site
The EPA has agreed to permit the Cleveland Mill tailings to be capped
on site, rather than placed at the nearby Hanover site. An approved holding
cell near the tailings is under construction. Consolidation of the mill
tailings into the cell is scheduled to commence this year and capping of the
tailings is anticipated to be substantially completed by the Fall of 1998.
2. Hanover Site
MRRC had chosen to defer regrading and capping of approximately twenty
acres at Hanover pending a decision on storage of tailings in its nearby
Cleveland Mill site. Following the EPA's decision to permit on site storage
of tailings at the Cleveland Mill site, MRRC completed its regrading and
capping of the remaining Hanover acres.
3. Mammoth Mine Site
In response to an Order issued by the California Regional Water Quality
Control Board in 1996, MRRC recently completed a feasibility study
describing measures designed to mitigate the effects of acid rock drainage
in Shasta County, California. MRRC proposed remedial options that would
involve expenditures of approximately $1.7 million by the end of 1998.
Regulatory officials requested MRRC modify its proposed design at two
locations, which MRRC plans to do once it establishes that the requested
modifications can be accomplished for the currently estimated incremental
cost of $200,000. Further remediation may be required depending on how
effective MRRC's remedial options are in reducing acid rock drainage.
4. U.S.S. Lead
In the process of remediating the Lead Refinery site in East Chicago,
Illinois, Lead Refinery identified the presence of suspected petroleum
contamination on site. Lead Refinery is evaluating whether and how to
address remediation of this contamination as part of the Corrective Action
Management Unit.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amended and Restated Employment Agreement, effective as of
September 17, 1997, by and between Mueller Industries, Inc.
and Harvey L. Karp.
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10.2 Amended and Restated Employment Agreement, effective as of
September 17, 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 September 27, 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 September 27, 1997, 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 21, 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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