1998
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 26, 1998 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
October 30, 1998 was 35,797,196.
-1-
MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Period Ended September 26, 1998
INDEX
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
a.) Consolidated Statements of Income
for the quarters and nine-months ended September 26,
1998 and September 27, 1997..........................3
b.) Consolidated Balance Sheets
as of September 26, 1998 and December 27, 1997.......5
c.) Consolidated Statements of Cash Flows
for the nine-months ended September 26, 1998
and September 27, 1997...............................7
d.) Notes to Consolidated Financial Statements...........8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................11
Part II. Other Information
Item 5. Other Information........................................15
Item 6. Exhibits and Reports on Form 8-K.........................16
Signatures...........................................................17
-2-
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 26, September 27,
1998 1997
Net sales $ 212,746 $ 229,133
Cost of goods sold 163,952 181,376
--------- ---------
Gross profit 48,794 47,757
Depreciation and amortization 5,650 5,593
Selling, general, and
administrative expense 17,692 15,120
--------- ---------
Operating income 25,452 27,044
Interest expense (1,158) (1,818)
Environmental reserves - (1,100)
Other income, net 1,809 1,661
--------- ---------
Income before income taxes 26,103 25,787
Current income tax expense (9,666) (8,217)
Deferred income tax benefit 2,328 481
--------- ---------
Total income tax expense (7,338) (7,736)
--------- ---------
Net income $ 18,765 $ 18,051
========= =========
Weighted average shares
for basic earnings per share 35,689 35,015
Effect of dilutive stock options 4,111 4,268
--------- ---------
Adjusted weighted average shares
for diluted earnings per share 39,800 39,283
--------- ---------
Basic earnings per share $ 0.53 $ 0.52
========= =========
Diluted earnings per share $ 0.47 $ 0.46
========= =========
<FN>
See accompanying notes to consolidated financial statements.
-3-
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
For the Nine-Months Ended
September 26, September 27,
1998 1997
Net sales $ 665,265 $ 645,936
Cost of goods sold 512,927 509,845
--------- ---------
Gross profit 152,338 136,091
Depreciation and amortization 16,923 15,409
Selling, general, and
administrative expense 53,946 45,850
--------- ---------
Operating income 81,469 74,832
Interest expense (3,701) (4,114)
Environmental reserves (600) (3,100)
Other income, net 6,513 4,857
--------- ---------
Income before income taxes 83,681 72,475
Current income tax expense (25,908) (21,874)
Deferred income tax expense (33) (453)
--------- ---------
Total income tax expense (25,941) (22,327)
--------- ---------
Net income $ 57,740 $ 50,148
========= =========
Weighted average shares
for basic earnings per share 35,338 34,991
Effect of dilutive stock options 4,348 4,217
--------- ---------
Adjusted weighted average shares
for diluted earnings per share 39,686 39,208
--------- ---------
Basic earnings per share $ 1.63 $ 1.43
========= =========
Diluted earnings per share $ 1.45 $ 1.28
========= =========
<FN>
See accompanying notes to consolidated financial statements.
-4-
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
September 26, 1998 December 27, 1997
Assets
Current assets:
Cash and cash equivalents $ 62,121 $ 69,978
Accounts receivable, less allowance
for doubtful accounts of $3,970 in
1998 and $3,680 in 1997 141,769 128,902
Inventories:
Raw material and supplies 18,366 19,960
Work-in-process 21,485 20,283
Finished goods 70,281 57,531
Gold 7,547 407
--------- ---------
Total inventories 117,679 98,181
Current deferred income taxes 4,793 5,023
Other current assets 5,382 6,967
--------- ---------
Total current assets 331,744 309,051
Property, plant and equipment, net 294,370 260,364
Deferred income taxes 8,461 7,837
Other assets 64,708 33,524
--------- ---------
$ 699,283 $ 610,776
========= =========
<FN>
See accompanying notes to consolidated financial statements.
-5-
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
September 26, 1998 December 27, 1997
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 18,187 $ 18,980
Accounts payable 34,573 30,530
Accrued wages and other employee costs 21,103 21,095
Other current liabilities 45,551 29,952
--------- ---------
Total current liabilities 119,414 100,557
Long-term debt 56,223 53,113
Pension and postretirement liabilities 13,225 14,222
Environmental reserves 9,118 10,368
Deferred income taxes 2,191 2,040
Other noncurrent liabilities 13,901 11,745
--------- ---------
Total liabilities 214,072 192,045
--------- ---------
Minority interest in subsidiaries 390 691
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 100,000,000; issued
40,091,502 in 1998 and
40,000,000 in 1997; outstanding
35,759,396 in 1998 and 35,017,416
in 1997 401 200
Additional paid-in capital, common 257,987 253,928
Retained earnings
(Since January 1, 1991) 255,493 197,753
Cumulative translation adjustment (2,432) (3,232)
Treasury common stock, at cost (26,628) (30,609)
--------- ---------
Total stockholders' equity 484,821 418,040
Commitments and contingencies (Note 2) - -
--------- ---------
$ 699,283 $ 610,776
========= =========
<FN>
See accompanying notes to consolidated financial statements.
-6-
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Nine-Months Ended
September 26, September 27,
1998 1997
Cash flows from operating activities
Net income $ 57,740 $ 50,148
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 16,923 15,409
Minority interest in subsidiaries (301) 244
Deferred income taxes 33 453
Gain on disposal of properties (1,676) (1,641)
Changes in assets and liabilities:
Receivables 623 (34,805)
Inventories (5,096) (14,013)
Other assets (3,984) (7,304)
Current liabilities 4,638 8,071
Other liabilities (1,938) (1,495)
Other, net (117) (18)
--------- ---------
Net cash provided by operating activities 66,845 15,049
--------- ---------
Cash flows from investing activities
Businesses acquired (39,859) (37,743)
Capital expenditures (36,227) (26,743)
Proceeds from sales of properties 1,816 1,722
Escrowed IRB proceeds 9,549 (23,001)
Note receivable (4,484) -
--------- ---------
Net cash used in investing activities (69,205) (85,765)
--------- ---------
Cash flows from financing activities
Proceeds from issuance of long-term debt - 27,500
Repayments of long-term debt (12,037) (9,840)
Proceeds from stock options exercised
including related tax benefits 6,803 597
--------- ---------
Net cash (used in) provided by
financing activities (5,234) 18,257
--------- ---------
Effect of exchange rate changes on cash (263) (164)
--------- ---------
Decrease in cash and cash equivalents (7,857) (52,623)
Cash and cash equivalents at the
beginning of the period 69,978 96,956
--------- ---------
Cash and cash equivalents at the
end of the period $ 62,121 $ 44,333
========= =========
<FN>
See accompanying notes to consolidated financial statements.
-7-
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
Basic per share amounts have been computed based on the average number
of common shares outstanding. Diluted per share amounts reflect the
increase in average common shares outstanding that would result from the
assumed exercise of outstanding stock options, computed using the treasury
stock method.
Note 2 - Commitments and Contingencies
The Company is subject to normal environmental standards imposed by
federal, state, local and foreign 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 - Comprehensive Income
During 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income
(SFAS No. 130). The Company adopted this Statement as of the beginning of
1998. SFAS No. 130 established new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had no impact on the Company's net income or stockholders'
equity. SFAS No. 130 requires foreign currency translation adjustments,
which prior to adoption were reported separately in stockholders' equity,
to be included in other comprehensive income.
-8-
Total comprehensive income was $20,922,000 and $16,233,000 for the
quarters ending September 26, 1998, and September 27, 1997, respectively
and was $58,540,000 and $48,507,000 for the nine-month periods ending
September 26, 1998 and September 27, 1997, respectively.
Note 4 - Income Taxes
In August 1998, the Company entered into a Closing Agreement with the
Internal Revenue Service (IRS) which concluded the audit of the years 1993
through 1995. The Closing Agreement provides for an ordinary loss of
approximately $70 million, realization of which is dependent upon the
occurrence of certain future events described in specific tax regulations.
The Closing Agreement also specifies that the character of the tax loss
from the 1995 "abandonment" of the Preferred Stock of Sharon Specialty
Steel Inc. is a capital loss. Of this $49.1 million capital loss, $3.6
million was used in 1996 and 1997. The remaining $45.5 million of this
capital loss is available to offset capital gains of the Company, if any,
through December 30, 2000. The effect of recognizing certain tax
attributes resulting from the Closing Agreement during the quarter
increased net income by $1.6 million or $0.04 per diluted share. For
financial reporting purposes, additional tax attributes may be recognized
in future periods based upon the assessment of realization. Such
assessments would consider relevant risks associated with realization.
Note 5 - Acquisitions
On September 15, 1998, the Company acquired Lincoln Brass Works, Inc.
Lincoln operates manufacturing facilities in Jacksboro, Tennessee and
Waynesboro, Tennessee. Lincoln produces custom control valve assemblies
for the gas appliance market, as well as custom metal assemblies, gas
delivery systems, and tubular products. Lincoln had net sales of
approximately $35 million in 1997. For a nominal consideration plus the
assumption of Lincoln's debt, Mueller acquired 100 percent of the
outstanding common shares of Lincoln.
On August 11, 1998, the Company completed the acquisition of B&K
Industries, Inc. B&K is an import distributor of residential and
commercial plumbing products in the United States with net sales in excess
of $50 million in 1997. B&K sells through all major distribution channels
including hardware co-ops, home centers, plumbing wholesalers, hardware
wholesalers, OEMs, and manufactured housing wholesalers. Retail customers
include Ace Hardware Corporation, Lowe's Companies, Inc., The Home Depot,
Inc., and Tru*Serv Corporation (True Value, Servistar and Coast to Coast
Hardware Stores). The purchase price was $33.5 million, of which ninety
percent was paid in cash and the remainder paid in shares of Mueller
common stock.
During the first half of 1997, the Company acquired the assets and
certain liabilities of Precision Tube Company, Inc., the assets of
Wednesbury Tube Company, and Desnoyers S.A.
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
their respective acquisition dates.
-9-
The following condensed pro forma consolidated results of operations
are presented as if the acquisitions had occurred at the beginning of
1997. This information combines the historical results of operations of
the Company and the acquired businesses after the effects of estimated
purchase accounting adjustments. 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)
[CAPTION]
For the Nine-Months Ended
September 26, September 27,
1998 1997
[S] [C] [C]
Net sales $ 730,498 $ 772,655
Net income 57,004 45,045
Basic earnings per share 1.61 1.28
Diluted earnings per share 1.43 1.14
The final assessment of fair values of the assets and reserves
associated with the Desnoyers S.A. acquisition was completed during the
second quarter of 1998. The determination of final fair values resulted
in adjustments consisting of changes from initially recorded values.
These adjustments increased property, plant and equipment, and other
current liabilities by approximately $12.4 million and $8.6 million
respectively, and decreased other assets by approximately $3.8 million.
On August 10, 1998, the Company announced that it had entered into a
definitive merger agreement to acquire Halstead Industries, Inc. for a
purchase price of approximately $92 million payable in shares of Mueller
stock. Halstead operates a copper tube mill in Wynne, Arkansas, and a
line sets facility in Clinton, Tennessee, with total sales of
approximately $250 million in 1997. On October 30, 1998, the Company
purchased approximately 58 percent of the outstanding common stock of
Halstead and executed an amended and restated definitive merger agreement.
Under the amended and restated merger agreement, the transaction was
restructured from a stock to an all cash transaction. The total cash
purchase price for all outstanding common stock of Halstead (including the
approximately 58 percent purchased on October 30, 1998) will be $94,743,000
and will be funded with existing cash balances and borrowings under the
existing credit facility among the Company, Michigan National Bank (as a
bank) and Michigan National Bank (as agent). The amount of consideration
paid on October 30, 1998 and to be paid in the merger was determined as the
result of arms-length negotiations between Halstead and Mueller. The merger,
which is expected to be consummated in November, will be accounted for under
the purchase method. Mueller intends to continue to use the assets acquired
in the merger in the business in which such assets were used by Halstead.
-10-
Note 6 - Stock Option Exercise
On June 15, 1998, the Company loaned $4.5 million, on a full recourse
basis, to an officer. Proceeds of $1.4 million were used by the officer
to exercise options on the Company's stock. That portion of the loan has
been classified as a reduction of additional paid-in capital, while the
remaining balance of the loan is included in other assets in the Company's
consolidated financial statements. The loan is secured by common stock of
the Company.
The tax benefit associated with the exercise of these options reduced
taxes payable, classified as other current liabilities, by $3.8 million.
Such benefits are reflected as additions to additional paid-in capital.
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, copper and plastic fittings, forgings, valves, and other
products made of copper, brass, bronze, plastic and aluminum. 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 and commercial buildings. The Company's product is sold to
wholesalers in the plumbing, air-conditioning and refrigeration markets
and to OEMs in these and other markets. Mueller's plants are located
throughout the United States and in Canada, France and Great Britain. The
Company also owns a short line railroad in Utah and natural resource
properties in the Western U.S.
Profitability of certain of the Company's product lines depends upon
the "spreads" between the cost of material and the selling prices of its
completed products. The open market prices for copper cathode and scrap,
for example, influence the selling price of copper tubing, a principal
product manufactured by the Company. The Company attempts to minimize the
negative effects of fluctuations in material costs by passing these costs
through to its customers. "Spreads" fluctuate based upon competitive
market conditions.
During 1997, the Company acquired two European copper tube
manufacturers. Wednesbury Tube is located in Bilston, England, and
Desnoyers S.A. is located near Paris, France. These acquisitions give the
Company a major manufacturing and sales presence in Europe. In addition,
the acquisition of B&K Industries, Inc. in the third quarter of 1998, will
provide the Company opportunities to increase sales of its existing
products in the retail channel, which is a large and growing component of
the plumbing supply business.
The Company uses the LIFO method to value the copper component of
certain of its copper tube and fittings inventories in the United States.
The market price of copper also indirectly affects the carrying value
(FIFO basis) of the Company's brass and other metal inventories.
-11-
Results of Operations
Net income was $18.8 million, or 47 cents per diluted share, for the
third quarter of 1998, which compares with net income of $18.1 million, or
46 cents per diluted share, for the same period of 1997. Year-to-date net
income was $57.7 million, or $1.45 per diluted share, which compares to
net income of $50.1 million, or $1.28 cents per diluted share for 1997.
Pounds of product sold in the third quarter of 1998 totaled 150.7
million, an increase of 8 percent over the 140.1 million pounds sold in
the same quarter of 1997. Net sales for the third quarter were $212.7
million, which compares to net sales of $229.1 million in the same period
of 1997. This decline in net sales reflected the drop in the price of
copper from an average of $1.02 per pound in the third quarter of 1997, to
75 cents per pound in the same quarter of 1998. Net sales were $665.3
million in the first nine-months of 1998 versus $645.9 million in 1997.
The Company's manufacturing businesses shipped 466.0 million pounds of
product in the first nine-months of 1998, or 17 percent more than the same
period of 1997.
Third quarter 1998 operating income decreased compared to the same
period in 1997 primarily due to reduced spreads in our copper and plastic
fittings businesses. Year-to-date operating income increased primarily
due to: (i) productivity improvements at the Company's North American
manufacturing operations; (ii) higher sales volumes particularly at brass
rod and plastics; and (iii) spread improvements in domestic copper tube.
Selling, general, and administrative expense increased primarily due to
acquired businesses.
Interest expense for the third quarter of 1998 totaled $1.2 million
compared to $1.8 million in the same quarter of 1997. For the first nine-
months of 1998, interest expense was $3.7 million compared to $4.1 million
for the same period of 1997. During the first nine-months of 1998, the
Company capitalized $0.5 million of interest related to capital
improvement programs compared to none in 1997. Total interest in the
first nine-months of 1998 increased due to the increase in long-term debt
following the issuance of Industrial Development Revenue Bonds in the
third quarter of 1997, partially offset by scheduled reductions in other
long-term debt.
The effective tax rate of 28.1 percent in the third quarter and 31.0
percent in the first nine-months of 1998 reflects the effect of
recognizing certain tax attributes resulting from the Closing Agreement,
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 provided by operating activities during the first nine-months of
1998 totaled $66.8 million which is primarily attributable to net income
and depreciation. During the first nine-months of 1998, the Company used
$69.2 million in investing activities, consisting primarily of $39.9
million for business acquisitions, plus $36.2 million in capital
expenditures offset by $9.5 million proceeds from escrowed IRB funds.
Cash used in investing activities was funded with existing cash balances,
cash from operations, plus escrowed IRB proceeds.
-12-
The Company has a $100.0 million unsecured line-of-credit agreement
(the Credit Facility) which expires in May 2001, but which 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 26, 1998, funds available under the
Credit Facility were reduced by $4.2 million for outstanding letters of
credit. At September 26, 1998, the Company's total debt was $74.4 million
or 13.3 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 and currently
available cash of $62.1 million will be adequate to meet the Company's
normal future capital expenditure and operational needs. Additionally,
certain capital improvements are being funded with escrowed IRB proceeds.
The Company's current ratio remains strong at 2.8 to 1.
During the third quarter, the Company used $39.9 million of cash in
business acquisitions, which includes the payoff of $7.5 million of
acquired debt. The Company also assumed $14.4 million of long-term debt
in these transactions. The acquisition of Halstead Industries, Inc. will
be funded with existing cash and draws on the Company's existing line of
credit. The Company is evaluating other long-term financing alternatives
for these acquired businesses.
The Company has an ongoing capital improvement project at its Fulton
copper tube mill to improve the utilization of scrap metal and enhance the
mill's refining processes. Mueller has increased its projected cost for
this project to approximately $33.4 million, due to (i) engineering
changes in the scope of the project, (ii) increases resulting from changes
in environmental regulations, and (iii) additional concrete footings and
related infrastructure changes necessitated by soil composition.
Completion of this project is expected in the first half of 1999.
Another important ongoing program is the modernization of the Company's
copper fittings plant in Covington, Tennessee. Modernization of this
facility, which produces a broad range of low-volume copper fittings, is
estimated to require approximately $7.3 million in capital improvements
and will be completed in 1999. This project, when completed, will also
increase output and improve efficiency.
-13-
Year 2000 Program
Mueller has established a Year 2000 program to evaluate, confirm
compliance, and identify any necessary changes to its information
technology (IT) and non-IT (operating) systems to address Year 2000
requirements. Mueller has retained a consulting firm specializing in this
area to assist in the program. To date, Mueller has expensed
approximately $400,000 related to this outside consultant. Mueller
believes that additional future expense related to the consultant will be
approximately $500,000 over the next year. There are four phases to this
program: assessment; inventory; test and correction; and certification.
Assessment involves the examination of Mueller's IT and non-IT systems for
specific date impacts, component complexity and inter-relationships.
Inventory involves the identification and categorization of Mueller's
systems, applications, data structures, system interfaces, programmable
logic controllers, etc., which, based on the assessment, potentially raise
Year 2000 issues. Once the assessment and inventory is completed, Mueller
plans to determine Year 2000 compliance through a combination of testing,
use assessments, third party verifications, and correction. Once this is
completed, Mueller would be positioned to certify one or more of its
systems or facilities as Year 2000 compliant.
IT Systems
Mueller has completed its assessment and inventory of its IT systems.
Based on that assessment, Mueller has concluded that it will need to
replace certain hardware at an estimated cost of $250,000 (which has been
scheduled to be completed by the end of 1998), and rewrite less than 4
percent of its modified software code (which it anticipates will require
internal IS personnel approximately 120 person-hours to accomplish by a
scheduled completion date of the end of 1998).
Certain business systems of Mueller's European businesses are not Year
2000 compliant, but this will be resolved within the context of an overall
upgrade to these information systems in order to accommodate, among other
things, the Euro single currency. Total implementation costs for this
upgrade are estimated at approximately $900,000.
Non-IT Systems
Mueller has completed its assessment and inventory at over half of its
North American manufacturing facilities. Mueller selected these factories
for assessment and inventory because of their importance or likelihood of
Year 2000 issues. Mueller has identified certain non-IT systems which are
not Year 2000 compliant, but which Mueller plans to replace and/or correct
and certify as compliant in the first quarter of 1999 at an estimated cost
of less than $50,000.
-14-
Third Parties
Mueller is in the process of contacting its major product and service
suppliers to determine their Year 2000 readiness, and will continue to
follow up these inquiries to ensure, to the best of its ability, that
these suppliers will be Year 2000 compliant. Nonetheless, there can be no
assurance that the systems used by these suppliers will be remediated in a
timely manner, which, if not remediated, may have an adverse effect on
Mueller. Mueller intends to defer development of any Year 2000
contingency plans until it completes its assessment of third party
suppliers, which is scheduled to be completed by the end of 1998.
Halstead Industries, Inc.
Halstead has evaluated, and will continue to evaluate, its information
systems and technology infrastructure for Year 2000 compliance. During
the normal course of business, most of the software systems used by
Halstead have been recently upgraded or replaced and little or no
additional changes are required to be made. For Year 2000 compliance,
Halstead anticipates spending no more than $200,000 through 1999 to modify
its information technology infrastructure. Halstead does not anticipate
any material disruption in its operation as a result of any failure by
Halstead to be in compliance.
Halstead does not currently have any information concerning the Year
2000 compliance status of its suppliers and customers. In the event that
any of Halstead's significant suppliers or customers do not successfully
and timely achieve Year 2000 compliance, Halstead's business or operations
could be adversely affected. However, Halstead is presently developing a
program for contacting its major suppliers and customers to determine
their Year 2000 readiness. Following the completion of its assessment of
customers and suppliers in early 1999, Halstead will determine the level
and extent of its Year 2000 contingency plans.
Part II. OTHER INFORMATION
Item 5. Other Information
Mueller has programs underway to make near-term improvements at its
European operations. Further, the Company is also considering various
long-term capital investments for these businesses which will further
improve their cost structure and productivity.
Pursuant to the requirements of the French labor code, management at
Desnoyers is engaged in ongoing consultations regarding the terms of a
social plan relating to management's proposed closure of its Laigneville
facility. Management's proposed action is anticipated to be finalized
near the end of the year.
-15-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Amended and Restated Agreement and Plan of Merger among
Mueller Industries, Inc., Mueller Acquisition Corp. and
Halstead Industries, Inc. Dated as of October 30, 1998.
Schedules as listed in the index to this Agreement have
been omitted. The Company agrees to furnish copies of any
such schedule upon request of the Securities and Exchange
Commission.
2.2 Form of Stock Purchase Agreement with William B. Halstead.
2.3 Form of Stock Purchase Agreement with remaining Halstead
stockholders.
19.1 Mueller Industries, Inc.'s Quarterly Report to
Stockholders for the quarter ended September 26, 1998.
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 26, 1998, the Registrant
filed no Current Reports on Form 8-K.
Items 1, 2, 3 and 4 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 November 6,
1998.
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
Corporate Controller
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EXHIBIT INDEX
Exhibits Description
2.1 Amended and Restated Agreement and Plan of Merger among
Mueller Industries, Inc., Mueller Acquisition Corp. and
Halstead Industries, Inc. Dated as of October 30, 1998.
2.2 Form of Stock Purchase Agreement with William B. Halstead.
2.3 Form of Stock Purchase Agreement with other Halstead
stockholders.
19.1 Quarterly Report to Stockholders.
27.1 Financial Data Schedule for the period ended September 26, 1998
(EDGAR filing only).
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