<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 March 31,
1998, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Secu-
rities Exchange Act of 1934. For the transition period from
_______________ to _______________.
Commission File Number: 0-4791
PAUL MUELLER COMPANY
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(Exact name of registrant as specified in its charter)
Missouri
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(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 May 7, 1998: 1,168,021
1
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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
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PAUL MUELLER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Mar. 31 Dec. 31
1998 1997
------- -------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash............................................ $ 1,245 $ 3,402
Available-for-sale investments, at market....... 6,842 8,347
Accounts and notes receivable, less reserve
of $577 at March 31, 1998, and $559 at
December 31, 1997, for doubtful accounts...... 15,475 16,113
Inventories (Note 2) -
Raw materials and components.................. $ 6,346 $ 5,101
Work-in-process............................... 3,223 1,728
Finished goods................................ 3,771 1,203
-------- --------
$ 13,340 $ 8,032
Prepayments..................................... 440 475
-------- --------
Total Current Assets...................... $ 37,342 $ 36,369
Other Assets...................................... 3,504 3,523
Property, Plant & Equipment, at cost.............. $ 55,943 $ 54,313
Less - Accumulated depreciation................. 38,236 37,658
-------- --------
$ 17,707 $ 16,655
-------- --------
$ 58,553 $ 56,547
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- ----------------------------------------
Current Liabilities:
Accounts payable................................ $ 4,221 $ 4,296
Accrued expenses................................ 7,112 6,249
Advance billings................................ 6,298 5,225
-------- --------
Total Current Liabilities................. $ 17,631 $ 15,770
Other Long-Term Liabilities....................... 1,245 1,100
Contingencies (Note 4)............................
Shareholders' Investment:
Common stock, par value $1 per share - Autho-
rized 20,000,000 shares - Issued 1,342,325
shares........................................ $ 1,342 $ 1,342
Preferred stock, par value $1 per share - Autho-
rized 1,000,000 shares - No shares issued..... - -
Paid-in surplus................................. 4,307 4,307
Retained earnings............................... 36,582 36,582
-------- --------
$ 42,231 $ 42,231
Less - Treasury stock, 174,304 shares at
March 31, 1998, and December 31, 1997,
at cost.................................. 2,554 2,554
-------- --------
$ 39,677 $ 39,677
-------- --------
$ 58,553 $ 56,547
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
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PAUL MUELLER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
1998 1997
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<S> <C> <C>
Net Sales........................................ $ 17,424 $ 17,208
Cost of Sales.................................... 12,631 12,979
-------- --------
Gross Profit............................. $ 4,793 $ 4,229
Selling, General & Administrative Expenses....... 4,015 3,903
-------- --------
Operating Income......................... $ 778 $ 326
Other Income (Expense):
Interest income.............................. $ 107 $ 193
Interest expense............................. (2) (2)
Other, net................................... 124 112
-------- --------
$ 229 $ 303
-------- --------
Income from Operations before Provision
for Income Taxes............................. $ 1,007 $ 629
Provision for Income Taxes....................... 306 193
-------- --------
Net Income............................... $ 701 $ 436
======== ========
Earnings per Common Share (Note 3)............... $ 0.60 $ 0.37
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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PAUL MUELLER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
1998 1997
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income..................................... $ 701 $ 436
Adjustments to reconcile net income to net
cash provided (required) by operating
activities:
Bad debt (recovery).......................... (4) (45)
Depreciation and amortization................ 606 552
(Gain) on sales of fixed assets.............. - (2)
Changes in assets and liabilities -
(Increase) in interest receivable.......... (15) (45)
Decrease in accounts and notes receivable.. 642 2,189
(Increase) in inventories.................. (5,308) (4,579)
Decrease in prepayments.................... 35 83
Decrease (increase) in other assets........ 6 (138)
(Decrease) increase in accounts payable.... (75) 1,454
Increase in accrued expenses............... 863 424
Increase in advance billings............... 1,073 1,717
Increase (decrease) in
long-term liabilities.................... 145 (559)
-------- --------
Net Cash (Required) Provided
by Operations........................ $ (1,331) $ 1,487
Cash Flows Provided (Requirements) from
Investing Activities:
Proceeds from maturities of investments........ $ 3,750 $ 4,950
Purchases of investments....................... (2,230) (4,500)
Proceeds from sales of equipment............... - 1
Additions to property, plant and equipment..... (1,645) (879)
-------- --------
Net Cash (Required) by
Investing Activities................. $ (125) $ (428)
Cash Flows (Requirements) from
Financing Activities:
Dividends paid................................. $ (701) $ (701)
-------- --------
Net Cash (Required) by
Financing Activities................. $ (701) $ (701)
-------- --------
Net (Decrease) Increase in Cash.................. $ (2,157) $ 358
Cash at Beginning of Period...................... $ 3,402 $ 2,221
-------- --------
Cash at End of Period............................ $ 1,245 $ 2,579
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for -
Interest..................................... $ - $ -
Income taxes................................. 7 435
</TABLE>
The accompanying notes are an integral part of these statements.
5
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PAUL MUELLER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(Unaudited)
1. The condensed financial statements include the accounts of Paul
Mueller Company (Company) and its wholly owned subsidiaries,
Mueller International Sales Corporation, Mueller Transportation,
Inc., and Mueller Field Operations, 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 March 31, 1998, 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 March 31, 1998, are estimates based on management's know-
ledge 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 March 31, 1998, and March 31, 1997.
4. 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. versus Paul Mueller Com-
pany). 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 deci-
sion. As a result of the decision, a provision of $775,000 was
made during the third quarter of 1997 for the ultimate resolution
of the matter; 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.
The Company is a defendant in two other lawsuits pending at March
31, 1998. 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.
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 20 employees are participating.
6
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PAUL MUELLER COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND 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' earnings during the
periods included in the accompanying Consolidated Condensed Statements
of Income.
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 quarter ended March 31, 1998, were $17,424,000 ver-
sus $17,208,000 for the quarter ended March 31, 1997. Although the
overall level of sales between periods was comparable, Processing
Equipment shipments increased by $1,652,000, while Dairy Farm Equip-
ment shipments declined by $1,436,000. The increase in shipments for
Processing Equipment was due primarily to custom-fabricated Processing
Equipment, which had a backlog that was 30% higher as of December 31,
1997, compared to December 31, 1996. Lower sales were recorded for
Dairy Farm Equipment for both domestic and international markets, with
the major portion attributable to decreased domestic sales. Domestic
sales of Dairy Farm Equipment for the first quarter of 1998 were ad-
versely affected by lower backlog at December 31, 1997, compared to
December 31, 1996, coupled with soft market conditions during the
first quarter as a result of concerns about the potential for high
feed costs and the government's involvement in domestic milk markets.
Export shipments of Dairy Farm Equipment were down from the corre-
sponding quarter of the prior year in several key markets. The strong
U.S. dollar, a lower backlog going into 1998, and higher inventory
levels at some customers all contributed to decreased order entry and
shipments during the first quarter.
The gross profit rate for the three months ended March 31, 1998, was
27.5% versus 24.6% for the same period a year ago. The improved gross
profit rate was due to higher gross margins and lower net manufac-
turing burden, as absorption was higher. The improvement in gross
margins occurred primarily in custom-fabricated Processing Equipment
as a result of improved labor efficiency in the factory and a higher
quality sales backlog as of December 31, 1997, compared to December
31, 1996. Manufacturing burden absorption increased during the first
quarter of 1998 compared to the first quarter of 1997, as the level of
manufacturing activity was greater and labor efficiency improved in
both manufacturing facilities.
Selling, general, and administrative expenses for the quarter ended
March 31, 1998, increased by $112,000 over the quarter ended March 31,
1997. The increase was primarily due to higher expenditures for per-
sonnel, factory consumables, and travel expenses.
Other income (expense) was lower for the first quarter of 1998 com-
pared to the same period of a year ago primarily due to lower interest
income, as the level of investable funds was lower than the first
quarter of 1997.
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The effective tax rate for the first quarter of 1998 and 1997 varied
from the statutory tax rate (34%) primarily as a result of tax-exempt
interest, the lower effective rate for the Foreign Sales Corporation,
and tax credits.
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
personal health insurance claims of individual employees and their
dependents and reversed his previous decision regarding the imple-
mentation of changes in wages and benefits. A hearing on these and
other unfair labor practice issues was held during August 1996 by an
administrative law judge of the NLRB, who ruled against the Company on
some unfair labor practice issues, and the Company and the union have
both 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 by the union. An additional
hearing was held before an administrative law judge of the NLRB in
November 1997, and the judge ruled against the Company on the unfair
labor practice issues involved. The Company has appealed the decision
to the NLRB. A final determination of all charges pending may take up
to two years; however, management believes, based on an evaluation by
counsel, that there is no material 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
which began on July 25, 1995, and the largest number of employees
participating was approximately 185 during the fourth quarter of 1995.
A substantial number of employees returned to work during 1996, and
currently there are only 20 employees participating. No action has
been taken by the union to prevent nonstriking 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 1998, 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,
it could have an adverse impact on the level of production and the
ability to secure orders. The average price paid to domestic dairy
farmers for milk is expected to decline in the coming months, and this
may have an adverse effect on sales of Dairy Farm Equipment. The
price of stainless steel is projected to remain stable for the balance
of this year.
The backlog of sales at March 31, 1998, was $29,600,000 compared to
$28,100,000 at March 31, 1997. The March 31, 1998, backlog represents
orders that will be completed and shipped over the next twelve months.
8
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FINANCIAL CONDITION
The consolidated financial condition and the liquidity of the Company
at March 31, 1998, have not changed significantly since December 31,
1997. There are no significant commitments for capital expenditures
at March 31, 1998.
9
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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 March 31, 1998.
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: May 7, 1998 /S/ DONALD E. GOLIK
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Donald E. Golik, Senior Vice President
and Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,245
<SECURITIES> 6,842
<RECEIVABLES> 16,052
<ALLOWANCES> 577
<INVENTORY> 13,340
<CURRENT-ASSETS> 37,342
<PP&E> 55,943
<DEPRECIATION> 38,236
<TOTAL-ASSETS> 58,553
<CURRENT-LIABILITIES> 17,631
<BONDS> 161
0
0
<COMMON> 1,342
<OTHER-SE> 40,889
<TOTAL-LIABILITY-AND-EQUITY> 58,553
<SALES> 17,424
<TOTAL-REVENUES> 17,424
<CGS> 12,631
<TOTAL-COSTS> 12,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (4)
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 1,007
<INCOME-TAX> 306
<INCOME-CONTINUING> 701
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 701
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
