<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
Exchange Act of 1934. For the quarterly period ended
September 30, 1997, or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities 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
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(I.R.S. Employer Identification No.)
1600 W. Phelps Street, P.O. Box 828, Springfield, Missouri 65801-0828
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (417) 831-3000
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(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 November 7, 1997: 1,168,021
<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 of a normal recurring nature 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>
Sept. 30 Dec. 31
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments, at cost $ 1,463 $ 2,221
Available-for-sale investments, at market 11,863 14,605
Accounts and notes receivable, less reserve
of $581 at September 30, 1997, and $698
at December 31, 1996, for doubtful accounts 16,931 15,329
Inventories (Note 2) -
Raw materials and components $ 6,112 $ 3,768
Work-in-process 3,312 719
Finished goods 1,984 1,498
-------- --------
$ 11,408 $ 5,985
Prepayments 546 403
-------- --------
Total Current Assets $ 42,211 $ 38,543
Other Assets 3,492 3,486
Property, Plant & Equipment, at cost $ 49,688 $ 47,107
Less - Accumulated depreciation 37,458 35,951
-------- --------
$ 12,230 $ 11,156
-------- --------
$ 57,933 $ 53,185
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable $ 4,142 $ 2,283
Accrued expenses (Note 5) 6,962 6,093
Advance billings 6,589 4,085
-------- --------
Total Current Liabilities $ 17,693 $ 12,461
Other Long-Term Liabilities (Note 4) 964 1,188
Contingencies (Note 6)
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 36,181 36,441
-------- --------
$ 41,830 $ 42,090
Less - Treasury stock, 174,304 shares at
September 30, 1997, and December 31, 1996,
at cost 2,554 2,554
-------- --------
$ 39,276 $ 39,536
-------- --------
$ 57,933 $ 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 Nine Months Ended
September 30 September 30
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 23,404 $ 21,187 $ 62,480 $ 61,403
Cost of Sales 18,418 15,761 47,864 46,885
-------- -------- -------- --------
Gross Profit $ 4,986 $ 5,426 $ 14,616 $ 14,518
Selling, General and
Administrative Expenses 4,217 3,919 12,351 11,417
-------- -------- -------- --------
Operating Income $ 769 $ 1,507 $ 2,265 $ 3,101
Other Income (Expense):
Interest income $ 172 $ 195 $ 548 $ 523
Interest expense (Note 4) (2) (30) (7) (87)
Other, net (Note 5) (529) 69 (205) 335
-------- -------- -------- --------
$ (359) $ 234 $ 336 $ 771
-------- -------- -------- --------
Income from Operations before
Provision for Income Taxes $ 410 $ 1,741 $ 2,601 $ 3,872
Provision for Income Taxes 50 570 758 1,230
-------- -------- -------- --------
Net Income $ 360 $ 1,171 $ 1,843 $ 2,642
======== ======== ======== ========
Earnings per
Common Share (Note 3) $ 0.31 $ 1.00 $ 1.58 $ 2.26
====== ====== ====== ======
</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>
Nine Months Ended
September 30
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,843 $ 2,642
Adjustments to reconcile net income to net
cash provided by operating activities:
Bad debt expense (24) 211
Depreciation and amortization 1,692 1,896
(Gain) on sales of fixed assets (9) (2)
Changes in assets and liabilities -
Decrease (increase) in interest receivable 57 (60)
(Increase) in accounts and notes receivable (1,578) (410)
(Increase) decrease in inventory (5,423) 3,075
(Increase) in prepayments (143) (33)
(Increase) decrease in other assets (57) 23
Increase in accounts payable 1,859 865
Increase in accrued expenses 869 1,624
Increase (decrease) in advance billings 2,504 (1,739)
(Decrease) in other liabilities (224) (190)
-------- --------
Net Cash Provided by Operations $ 1,366 $ 7,902
Cash Flows Provided (Requirements) from
Investing Activities:
Proceeds from maturities of investments $ 12,990 $ 15,590
Purchases of investments (10,305) (19,340)
Proceeds from sale of equipment 12 2
Additions to property, plant and equipment (2,719) (1,569)
-------- --------
Net Cash (Required) from
Investing Activities $ (22) $ (5,317)
Cash Flows (Requirements) from
Financing Activities:
Dividends paid $ (2,102) $ (1,752)
-------- --------
Net Cash (Required) by
Financing Activities $ (2,102) $ (1,752)
-------- --------
Net (Decrease) Increase in Cash $ (758) $ 833
Cash at Beginning of Period 2,221 2,491
-------- --------
Cash at End of Period $ 1,463 $ 3,324
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 9 $ 89
Income taxes 1,534 756
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
PAUL MUELLER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(Unaudited)
1. The condensed financial statements include the accounts of Paul
Mueller Company (Company) and its wholly owned subsidiaries,
Mueller International Sales Corporation and Mueller Transporta-
tion, Inc. A summary of the significant accounting policies is
included in Note 1 to the consolidated financial statements in-
cluded in the Company's annual report on Form 10-K for the year
ended December 31, 1996.
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 September 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 for the period
ending September 30, 1997, are estimates based on management's
knowledge of the Company'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 September 30, 1997, and September 30, 1996. State-
ment of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share," was issued March 1997 and is effective for the Com-
pany'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 was the defendant in a breach-of-contract / breach-of-
warranty lawsuit concerning reactor vessels sold in 1992 in Tarrant
County, Texas (Alcon Laboratories, Inc. -vs- Paul Mueller Company).
As a result of a trial that ended September 19, 1997, the Company
received an adverse decision, and the final judgment awarded
damages, interest, and attorney's fees totaling $1,700,000 to the
plaintiff. Management believes the decision was incorrect and,
based on the advice of legal counsel, will appeal the decision. As
a result of the decision, a provision of $775,000 was made for a
reserve for the ultimate resolution of the matter and is included
in Other, net on the accompanying Consolidated Condensed Statements
of Income, and the related reserve is included as Accrued expenses
on the Consolidated Condensed Balance Sheet. If the decision is
upheld on appeal, the Company's liability will exceed the reserve.
6. The Company currently employs about 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
22 employees are currently participating.
The Company is a defendant in two lawsuits pending at September 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 con-
solidation 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 third quarter ended September 30, 1997, were
$23,404,000 compared to $21,187,000 for the third quarter of 1996.
Sales were higher for both Processing Equipment and Dairy Farm Equip-
ment. Processing Equipment sales were higher by $1,372,000, and
this consisted of a large order for Thermal Products Equipment that
shipped during the quarter, coupled with reduced sales of Food Pro-
cessing Equipment and Accu-Therm Plate Heat Exchangers. A lower
backlog of Food Processing Equipment at December 31, 1996, compared
to the prior year end, adversely affected sales. Also, lower order
entry for Accu-Therm Plate Heat Exchangers during 1997 versus 1996
led to reduced sales. Dairy Farm Equipment sales improved by
$845,000, with virtually all of the increase due to higher export
shipments, primarily to Canada, Uruguay, and the United Kingdom.
The gross profit rate was 21.3% for the third quarter of 1997 versus
25.6% for the third quarter of 1996. The reduced gross profit rate
was the result of lower overall gross margins and higher manufac-
turing burden. Lower gross margins were recorded for Food and
Pharmaceutical Processing Equipment and for Thermal Products, which
reduced the overall gross margin rate for the quarter. Manufacturing
burden was higher in the third quarter of 1997 compared to the third
quarter of 1996, as sales were higher and there was an increase in
direct labor incurred and the related variable manufacturing burden
expenses.
Selling, general, and administration expenses were higher by $298,000
for the three months ended September 30, 1997, compared to the same
period of a year ago. Expenditures were higher for personnel costs,
travel expense, trade show expense, and service costs.
Interest income for the third quarter of 1997 was lower than the third
quarter of 1996 due primarily to the lower average level of invest-
able funds. Interest expense decreased for 1997 versus 1996 as a
$3,000,000 industrial revenue bond issue was retired in December 1996.
Other, net was unfavorably affected as a provision of $775,000 was
made for a reserve that was established as the result of an adverse
decision in a breach-of-contract / breach-of-warranty lawsuit that was
tried in September 1997 in Tarrant County, Texas (Alcon Laboratories,
Inc. -vs- Paul Mueller Company). In the final judgment assessed
7
<PAGE> 8
against the Company, the plaintiff was awarded damages, interest, and
attorney's fees totaling $1,700,000. Management believes the deci-
sion was incorrect and, based on advice of legal counsel, will appeal
the decision. If the decision is upheld on appeal, the Company's
liability will exceed the reserve that has been established for the
ultimate resolution of the matter.
The effective tax rate for the third quarter of 1997 and the third
quarter of 1996 varied from the statutory rate (34%) primarily as a
result of tax-exempt income and the lower effective tax rate for the
Foreign Sales Corporation (FSC).
Net sales for the nine months ended September 30, 1997, were
$62,480,000 versus $61,403,000 for the same period of a year ago.
Processing Equipment sales declined by $1,969,000, while Dairy Farm
Equipment sales improved by $3,046,000. The decline in Processing
Equipment sales was primarily attributable to reduced sales in Food
and Pharmaceutical Processing Equipment and in Accu-Therm Plate Heat
Exchangers. The reduction in Food and Pharmaceutical Processing
Equipment sales was due to the lower beginning backlog for 1997 as
compared to 1996. The decline in Accu-Therm Plate Heat Exchanger
sales was due to the lower rate of order entry for 1997 as compared
to 1996. The increase in Dairy Farm Equipment sales was 60% in the
domestic market, with the balance in export markets. The increase
in domestic Dairy Farm Equipment sales was due to the higher backlog
at December 31, 1996 (which was the result of a sales promotion dur-
ing the fourth quarter of 1996), an increase in the size of domestic
coolers sold, and an expansion of larger dairy operations (primarily
in the southwestern market of the United States). The improvement
in export sales was due primarily to increased shipments to Canada,
the United Kingdom, Mexico, and Uruguay.
The gross profit rate was 23.4% for the nine months ended September
30, 1997, compared to 23.6% for the nine months ended September 30,
1996. The overall gross margin rates for both periods were compar-
able, and the manufacturing burden expense during the periods was at
approximately the same level.
Selling, general and administrative expenses were $934,000 higher for
the nine months ended September 30, 1997, versus the same period of
a year ago. Higher expenditures were incurred for personnel, media
advertising, trade shows, manufacturers' representative's commis-
sions, and travel. A portion of the increase for 1997 was also 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 for the first nine months of 1997 was higher than for
the comparable period of 1996 due to a higher average interest rate.
Interest expense decreased for 1997 versus 1996, as the $3,000,000
industrial revenue bond issue was retired in December 1996. The
variance in Other, net was due to the provision of $775,000 discussed
above.
The effective tax rate for the first nine months of 1997 and the
first nine months of 1996 varied from the statutory rate (34%) pri-
marily as a result of tax exempt income and the lower effective tax
rate for the FSC.
As previously reported, the labor contract with the Sheet Metal
Workers Union (which covers a portion of the employees at the Spring-
field, Missouri, plant) expired on June 11, 1994. Negotiations with
union representatives continued until an impasse was reached, and the
Company 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
8
<PAGE> 9
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
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. An additional
hearing before an administrative law judge of the NLRB will be held
November 20, 1997, on other unfair labor practice issues. A final
determination of all 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 22 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 factors that could affect
the results of operations. If there is expanded employee partici-
pation 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. Stainless steel prices are expected to
remain relatively stable for the balance of 1997. Domestically, milk
prices paid to dairy farmers are projected to decrease over the next
several months and at the same time feed prices are expected to
moderate. The lower milk prices may have an adverse effect on sales
of Dairy Farm Equipment. The recent financial crisis in Southeast
Asia may adversely affect demand for the Company's products in that
market.
In support of the Company's efforts to expand its marketing of
brewery systems, the Company has elected to open a microbrewery and
brewpub 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 the project is sche-
duled for late 1997.
The backlog of sales at September 30, 1997, was $27,500,000 compared
to $19,500,000 at September 30, 1996. The September 30, 1997, back-
log 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 September 30, 1997, have not changed significantly since December
31, 1996. There are no significant commitments for capital expen-
ditures at September 30, 1997.
9
<PAGE> 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
Sequentially
Exhibit Numbered
Number Exhibit Page
------ ------------------------------------- --------
(27) Financial Data Schedule.............. 11
b. Reports on Form 8-K -- There were no reports on Form 8-K
filed for the three months ended September 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: November 7, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,463
<SECURITIES> 11,863
<RECEIVABLES> 17,512
<ALLOWANCES> 581
<INVENTORY> 11,408
<CURRENT-ASSETS> 42,211
<PP&E> 49,688
<DEPRECIATION> 37,458
<TOTAL-ASSETS> 57,933
<CURRENT-LIABILITIES> 17,693
<BONDS> 161
<COMMON> 1,342
0
0
<OTHER-SE> 40,488
<TOTAL-LIABILITY-AND-EQUITY> 57,933
<SALES> 62,480
<TOTAL-REVENUES> 62,480
<CGS> 47,864
<TOTAL-COSTS> 47,864
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (24)
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 2,601
<INCOME-TAX> 758
<INCOME-CONTINUING> 1,843
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,843
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.58
</TABLE>
