<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Ex-
change Act of 1934. For the quarterly period ended June 30, 1997,
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securi-
ties Exchange Act of 1934. For the transition period from _______
to _______.
Commission File Number: 0-4791
PAUL MUELLER COMPANY
- ----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Missouri
- ----------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
44-0520907
- ----------------------------------------------------------------------
(I.R.S. Employer Identification No.)
1600 W. Phelps Street, P.O. Box 828, Springfield, Missouri 65801-0828
- ----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (417) 831-3000
- ----------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all re-
ports 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 [ ]
Indicate the number of shares outstanding of the issuer's Common Stock
as of August 1, 1997: 1,168,021
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
The condensed financial statements included herein have been prepared
by the Company without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in the financial statements,
prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that
these condensed financial statements be read in connection with the
financial statements and the notes thereto included in the Company's
latest annual report on Form 10-K. This report reflects all adjust-
ments which are, in the opinion of management, necessary for a fair
statement of the results for the interim period.
2
<PAGE> 3
PAUL MUELLER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30 Dec. 31
1997 1996
------- -------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash............................................ $ 5,354 $ 2,221
Available-for-sale investments, at market....... 10,241 14,605
Accounts and notes receivable, less reserve of
$644 at June 30,1997, and $698 at December 31,
1996, for doubtful accounts................... 14,158 15,329
Inventories (Note 2) -
Raw materials and components.................. $ 5,636 $ 3,768
Work-in-process............................... 3,009 719
Finished goods................................ 2,169 1,498
-------- --------
$ 10,814 $ 5,985
Prepayments..................................... 581 403
-------- --------
Total Current Assets........................ $ 41,148 $ 38,543
Other Assets...................................... 3,549 3,486
Property, Plant & Equipment, at cost.............. $ 48,667 $ 47,107
Less - Accumulated depreciation................. 36,941 35,951
-------- --------
$ 11,726 $ 11,156
-------- --------
$ 56,423 $ 53,185
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- ----------------------------------------
Current Liabilities:
Accounts payable................................ $ 3,988 $ 2,283
Accrued expenses................................ 7,101 6,093
Advance billings................................ 4,917 4,085
-------- --------
Total Current Liabilities................... $ 16,006 $ 12,461
Other Long-Term Liabilities (Note 4).............. 799 1,188
Contingencies (Note 5)............................
Shareholders' Investment:
Common Stock, par value $1 per share -
Authorized 20,000,000 shares - Issued
1,342,325 shares.............................. $ 1,342 $ 1,342
Preferred Stock, par value $1 per share -
Authorized 1,000,000 shares - No shares issued - -
Paid-in surplus................................. 4,307 4,307
Retained earnings............................... 36,523 36,441
-------- --------
$ 42,172 $ 42,090
Less - Treasury stock, 174,304 shares at
June 30, 1997, and December 31, 1996,
at cost.................................. 2,554 2,554
-------- --------
$ 39,618 $ 39,536
-------- --------
$ 56,423 $ 53,185
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE> 4
PAUL MUELLER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales..................... $ 21,868 $ 21,526 $ 39,076 $ 40,216
Cost of Sales................. 16,467 16,499 29,446 31,125
-------- -------- -------- --------
Gross Profit.............. $ 5,401 $ 5,027 $ 9,630 $ 9,091
Selling, General &
Administrative Expenses..... 4,231 3,819 8,134 7,498
-------- -------- -------- --------
Operating Income.......... $ 1,170 $ 1,208 $ 1,496 $ 1,593
Other Income (Expense):
Interest income............. $ 183 $ 160 $ 376 $ 328
Interest expense (Note 4)... (3) (30) (5) (57)
Other, net.................. 212 80 324 267
-------- -------- -------- --------
$ 392 $ 210 $ 695 $ 538
-------- -------- -------- --------
Income from Operations before
Provision for Income Taxes.. $ 1,562 $ 1,418 $ 2,191 $ 2,131
Provision for Income Taxes.... 515 447 708 660
-------- -------- -------- --------
Net Income................ $ 1,047 $ 971 $ 1,483 $ 1,471
======== ======== ======== ========
Earnings per Common
Share (Note 3).............. $ 0.90 $ 0.83 $ 1.27 $ 1.26
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
PAUL MUELLER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
------------------
1997 1996
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income...................................... $ 1,483 $ 1,471
Adjustments to reconcile net income to net
cash provided by operating activities:
Bad debt expense.............................. 17 87
Depreciation and amortization................. 1,108 1,241
(Gain) on sales of fixed assets............... (2) -
Changes in assets and liabilities -
Decrease (increase) in interest receivable.. 55 (96)
Decrease (increase) in accounts and
notes receivable.......................... 1,153 (2,056)
(Increase) decrease in inventory............ (4,829) 583
(Increase) in prepayments................... (177) (127)
(Increase) in other assets.................. (99) (26)
Increase in accounts payable................ 1,705 1,625
Increase in accrued expenses................ 1,008 1,687
Increase (decrease) in advance billings..... 832 (358)
(Decrease) in long-term liabilities......... (389) (321)
-------- --------
Net Cash Provided by Operations........... $ 1,865 $ 3,710
Cash Flows Provided (Requirements) from
Investing Activities:
Proceeds from maturities of investments......... $ 10,440 $ 12,600
Purchases of investments........................ (6,130) (12,765)
Proceeds from sale of equipment................. 2 1
Additions to property, plant and equipment...... (1,642) (1,164)
-------- --------
Net Cash Provided (Required) from
Investing Activities.................. $ 2,670 $ (1,328)
Cash Flows (Requirements) from
Financing Activities:
Dividends paid.................................. $ (1,402) $ (1,168)
-------- --------
Net Cash (Required) by
Financing Activities.................. $ (1,402) $ (1,168)
-------- --------
Net Increase in Cash.............................. $ 3,133 $ 1,214
Cash at Beginning of Period....................... 2,221 2,491
-------- --------
Cash at End of Period............................. $ 5,354 $ 3,705
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest...................................... $ 9 $ 61
Income taxes.................................. 895 544
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
PAUL MUELLER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
1. The condensed financial statements include the accounts of Paul
Mueller Company (Company) and its wholly owned subsidiaries,
Mueller International Sales Corporation and Mueller Transportation,
Inc. A summary of the significant accounting policies is included
in Note 1 to the consolidated financial statements included in
the Company's annual report on Form 10-K for the year ended
December 31, 1997.
2. Inventory is recorded at the lower of cost, last-in, first-out
(LIFO), or market.
Because the inventory determination under the LIFO method can only
be made at the end of each fiscal year based on the inventory
levels and costs at that time, interim LIFO determinations, in-
cluding those at June 30, 1997, must necessarily be based on
management's estimate of expected year-end inventory levels and
costs. Since estimates of future inventory levels and prices are
subject to many factors beyond the control of management, interim
financial results are subject to final year-end LIFO inventory
amounts. Accordingly, inventory components reported as of June 30,
1997, are estimates based on management's knowledge of the Com-
pany's production cycle, the costs associated with this cycle and
the sales and purchasing volume of the Company.
3. The net income per share of common stock has been computed on
the basis of weighted average shares outstanding: 1,168,021 for
periods ended June 30, 1997, and June 30, 1996. Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," was issued March 1997 and is effective for the Company's
1997 calendar year. Adoption of SFAS No. 128 will not affect the
calculation of earnings per share.
4. The $3,000,000 Floating Rate Weekly Demand Industrial Development
Revenue Bond issue due on December 1, 1996, was repaid as required.
5. The Company currently employs over 900 people, of which approxi-
mately 400 are represented by the Sheet Metal Workers Union. The
International Union called a strike beginning July 25, 1995, and
currently 24 employees are participating.
The Company is a defendant in two lawsuits pending at June 30,
1997. In the opinion of management, after consultation with
legal counsel, the outcome of these lawsuits will not have a
material adverse effect on the Company's consolidated financial
statements.
6
<PAGE> 7
PAUL MUELLER COMPANY AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF OPERATING RESULTS
AND FINANCIAL CONDITION
The following is Management's Discussion and Analysis of the signifi-
cant factors which have affected the Companies' financial condition
and operating results reflected in the accompanying Consolidated
Condensed Financial Statements.
The information discussed below in Management's Discussion and Analy-
sis of Operating Results and Financial Condition contains statements
regarding matters that are not historical facts, but rather are
forward-looking statements. These statements are based on current
financial and economic conditions and current expectations, and
involve risk and uncertainties. Actual future results may differ
materially depending on a variety of factors. These factors, some of
which are identified in the discussion accompanying such forward-
looking statements, include, but are not limited to, milk prices paid
to dairy farmers, feed prices, weather conditions, dairy farm consoli-
dation and other factors affecting the profitability of dairy farmers,
the price of stainless steel, actions of competitors, labor strife,
the Registrant's execution of internal performance plans, economic
conditions in key export markets, the level of capital expenditures in
the U.S. economy, and other changes to business conditions.
OPERATING RESULTS
Net sales for the second quarter ended June 30, 1997, were $21,868,000
compared to $21,526,000 for the second quarter of 1996. The improve-
ment was solely due to an increase of $998,000 in shipments of Dairy
Farm Equipment, virtually all of which related to the domestic mar-
ket. Although milk prices declined during the second quarter of 1997
and feed prices remained high, the number of milk cooler units shipped
increased. The rise in domestic Dairy Farm Equipment sales was due to
the increased backlog at December 31, 1996 (which was the result of a
sales promotion during the fourth quarter of 1996), an increase in the
size of domestic milk coolers sold, and the expansion of dairy opera-
tions in the western and southwestern markets of the United States.
Export shipments of Dairy Farm Equipment were flat for the second
quarter of 1997 compared to the second quarter of 1996. The decrease
in Processing Equipment shipments was due primarily to lower sales of
Commercial Refrigeration Equipment.
Commercial Refrigeration sales for the quarter were adversely affected
by a lower rate of order entry for 1997 compared to 1996.
The most significant factor affecting the improvement in the gross
profit rate for the second quarter of 1997 compared to the second
quarter of 1996 was an increase in gross margins. The improvement
in gross margins occurred principally in Dairy Farm Equipment, in
PyroPure Equipment, and in Food and Pharmaceutical Processing Equip-
ment, as sales and the gross margin rate were higher for Dairy Farm
Equipment and PyroPure Equipment and the gross margin rate was better
for Food and Pharmaceutical Equipment.
Selling, general and administrative expenses increased $412,000 for
the second quarter ended June 30, 1997, compared to the second quar-
ter of 1996. Increased expenditures were incurred for personnel,
training, advertising, manufacturers' representative commissions, and
travel.
Interest income increased for the second quarter of 1997 compared to
second quarter of 1996 due to higher interest rates, as the average
level of investable funds was comparable between years. Interest ex-
pense decreased for the second quarter of 1997 versus 1996, as the
$3,000,000 industrial revenue bond issue was retired in December 1996.
Other, net increased for the second quarter of 1997 versus the second
quarter of 1996 due to improved trucking results, increased royalty
income, and an increase in miscellaneous income.
7
<PAGE> 8
The effective tax rate for the second quarter of 1997 and the second
quarter of 1996 varied from the statutory tax rate (34%) primarily as
a result of tax-exempt income and the lower effective tax rate for
the FSC.
Net sales for the six months ended June 30, 1997, were $39,076,000
versus $40,216,000 for the six months ended June 30, 1996. Dairy
Farm Equipment sales improved by $2,200,000, while Processing Equip-
ment shipments declined by $3,340,000. The improvement in Dairy
Farm Equipment sales was primarily in the domestic market for the
reasons mentioned above. Export sales of Dairy Farm Equipment were
up slightly due to the strong market in the United Kingdom. The de-
crease in Processing Equipment sales was mainly the result of lower
shipments for Food and Pharmaceutical Processing Equipment, Accu-Therm
Plate Heat Exchangers, and Commercial Refrigeration products. Food
and Pharmaceutical Processing Equipment sales declined due to a lower
backlog at December 31, 1996, compared to December 31, 1995. Lower
shipments were recorded for Commercial Refrigeration and Accu-Therm
Plate Heat Exchangers due to the lower rate of order entry in 1997
compared to 1996.
The gross profit rate was 24.6% for the six months ended June 30,
1997, and 22.6% for the six months ended June 30, 1996. An improve-
ment in gross margins and lower net manufacturing burden were the
primary reasons for the improvement in the gross profit rate. In-
creased sales were achieved for Dairy Farm Equipment and PyroPure
Equipment, which contributed to the increase in the overall gross
margin for the first six months of 1997 compared to the same period
of a year ago. Net manufacturing burden was lower for the first six
months of 1997 compared to the first six months of 1996, as burden
absorption was much higher due to the increased level of manufacturing
activity. The manufacturing activity was higher in 1997 compared to
1996 due to the fact that there were approximately 145 employees par-
ticipating in the strike during most of the first six months of 1996.
Selling, general and administrative expenses were higher by $636,000
for the six months ended June 30, 1997, compared to the same period
of a year ago. A portion of the increase in expenses was due to the
reasons mentioned above. The balance was due to the receipt of a
$312,000 group life insurance premium refund during the first quarter
of 1996, of which $234,000 was credited to general and administrative
expense.
Interest income increased for the first six months of 1997 compared
to first six months of 1996 due to higher interest rates and a higher
average level of investable funds. Interest expense decreased for
1997 versus 1996, as the $3,000,000 industrial revenue bond issue
was retired in December 1996. Other, net improved due to increased
royalty income and an increase in miscellaneous income.
The effective tax rate for the first six months of 1997 and the first
six months of 1996 varied from the statutory rate (34%) primarily as a
result of tax-exempt income and lower effective tax rate for the FSC.
As previously reported, the labor contract with the Sheet Metal Work-
ers Union (which covers a portion of the employees at the Springfield,
Missouri, plant) expired on June 11, 1994. Negotiations with union
representatives continued until an impasse was reached, and the Com-
pany implemented specific provisions of its final offer effective
September 19, 1994. In November 1994, the Regional Director of the
National Labor Relations Board (NLRB) also concluded that a lawful
impasse had been reached in negotiations prior to the Company's imple-
mentation of its offer.
However, on December 22, 1994, the Regional Director of the NLRB
issued an unfair labor practice complaint against the Company for
refusing to supply information to union representatives about the
personal health insurance claims of individual employees and their
dependents and reversed his previous decision regarding the implemen-
tation of changes in wages and benefits. A hearing on these and other
unfair labor practice issues was held in August 1996 by an administra-
tive law judge of the NLRB. The administrative law judge issued his
8
<PAGE> 9
decision on May 21, 1997, and, on the major issues, found that a law-
ful impasse had been reached in negotiations prior to the Company's
implementation of its offer, and that the Company was entitled to
refuse to supply information to union representatives about personal
health insurance claims of individual employees and their dependents.
The administrative law judge, however, ruled against the Company on
some other unfair labor practice issues, and the Company and the union
both have appealed the decision to the NLRB. A decision by the NLRB
is not expected for several months, and there can be an appeal from
any NLRB decision, either by the Company or the union. A final de-
termination of the charges may take up to two years, however; and
management believes, based on an evaluation by counsel, that there
is no significant financial exposure to the Company.
The Company currently employs about 900 people, of which approximately
400 at the Springfield, Missouri, facility are represented by the
Sheet Metal Workers Union. The International Union called a strike
beginning on July 25, 1995, and currently there are still 24 employees
participating. No action has been taken by the union to prevent non-
striking employees from working.
The Company has implemented the provisions of its revised and final
offer effective April 1, 1996, which remains open for the union's
acceptance, and no further negotiations are scheduled.
The Company has facilities located in Springfield, Missouri and
Osceola, Iowa. There are approximately 800 employees assigned to
the Springfield facility, and there are an additional 100 employees
at the Osceola facility (none of which are represented by a labor
union).
Looking to the balance of 1997, there are several factors that could
affect the results of operations. If there is expanded employee
participation for an extended period of time in the strike mentioned
above, this could have an adverse effect on the level of production
and the ability to secure orders. Another stainless steel price in-
crease of 5% was announced effective June 1997, and although stainless
steel prices are expected to remain relatively stable for the balance
of 1997, any further increases could reduce the profitability of the
Company's products. Domestically, the average price paid to farmers
for milk was lower for the second quarter of 1997 compared to the
first quarter of 1997. Prices are expected to remain relatively low
until late summer or early fall, while feed prices are expected to
remain high. These factors may have an adverse effect on sales of
Dairy Farm Equipment.
In support of the Company's efforts to expand its marketing of brew-
ery systems, the Company has elected to open a microbrewery and brew-
pub operation in Springfield, Missouri. The operation will showcase
the Company's brewery technology capability, while also functioning
as a training and product development facility for brewery equipment.
Beer will be distributed locally in draft and sold at retail in the
brewpub. Completion of this project is scheduled for late 1997.
The backlog of sales at June 30, 1997, was $31,000,000 compared to
$24,900,000 at June 30, 1996. The June 30, 1997, backlog primarily
represents orders that will be completed and shipped over the next
twelve months.
FINANCIAL CONDITION
The consolidated financial condition and the liquidity of the Company
at June 30, 1997, have not changed significantly since December 31,
1996. There were no material commitments for capital expenditures at
June 30, 1997.
9
<PAGE> 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Page
------ ------------------------------------- --------
<S> <C> <C>
(27) Financial Data Schedule.............. 11
</TABLE>
b. Reports on Form 8-K -- There were no reports on form 8-K
filed for the three months ended June 30, 1997.
SIGNATURES
Pursuant to the requirements 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.
PAUL MUELLER COMPANY
DATE: August 2, 1997 /S/ DONALD E. GOLIK
-------------- --------------------------------------
Donald E. Golik, Senior Vice President
and Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,354
<SECURITIES> 10,241
<RECEIVABLES> 14,802
<ALLOWANCES> 644
<INVENTORY> 10,814
<CURRENT-ASSETS> 41,148
<PP&E> 48,667
<DEPRECIATION> 36,941
<TOTAL-ASSETS> 56,423
<CURRENT-LIABILITIES> 16,006
<BONDS> 161
0
0
<COMMON> 1,342
<OTHER-SE> 40,830
<TOTAL-LIABILITY-AND-EQUITY> 56,423
<SALES> 39,076
<TOTAL-REVENUES> 39,076
<CGS> 29,446
<TOTAL-COSTS> 29,446
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 17
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 2,191
<INCOME-TAX> 708
<INCOME-CONTINUING> 1,483
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,483
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 1.27
</TABLE>
