<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 June 30,
2000, 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
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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 August 7, 2000: 1,173,721
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
The condensed financial statements included herein have been prepared
by the Registrant without audit, pursuant to the rules and regula-
tions of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in the financial state-
ments, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules
and regulations, although the Registrant believes that the disclo-
sures 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 Registrant's latest annual report on Form 10-K.
This report reflects all adjustments of a normal recurring nature
that are, in the opinion of management, necessary for a fair state-
ment of the results for the interim period.
2
<PAGE> 3
PAUL MUELLER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30 Dec. 31
2000 1999
-------- --------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash............................................ $ 4,057 $ 700
Available-for-sale investments, at market....... 1,217 2,296
Accounts and notes receivable, less reserve of
of $511 at June 30, 2000, and $518 at
December 31, 1999, for doubtful accounts...... 18,151 18,811
Inventories (Note 2) -
Raw materials and components.................. $ 9,115 $ 6,795
Work-in-process............................... 5,106 3,114
Finished goods................................ 2,964 1,150
-------- --------
$ 17,185 $ 11,059
Prepayments..................................... 607 570
-------- --------
Total Current Assets........................ $ 41,217 $ 33,436
Other Assets...................................... 3,811 3,733
Property, Plant & Equipment, at cost.............. $ 61,259 $ 59,755
Less - Accumulated depreciation................. 42,289 41,301
-------- --------
$ 18,970 $ 18,454
-------- --------
$ 63,998 $ 55,623
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
----------------------------------------
Current Liabilities:
Accounts payable................................ $ 6,132 $ 3,484
Accrued expenses................................ 6,726 5,138
Advance billings................................ 10,181 6,591
-------- --------
Total Current Liabilities................... $ 23,039 $ 15,213
Other Long-Term Liabilities....................... 1,417 1,401
Contingencies (Note 4)............................
Shareholders' Investment:
Common Stock, par value $1 per share -
Authorized 20,000,000 shares - Issued
1,348,325 shares.............................. $ 1,348 $ 1,348
Preferred Stock, par value $1 per share -
Authorized 1,000,000 shares -
No shares issued.............................. - -
Paid-in surplus................................. 4,494 4,496
Retained earnings............................... 36,468 35,970
-------- --------
$ 42,310 $ 41,814
Less - Treasury stock, 174,604 shares at
June 30, 2000, and 174,304 shares
at December 31, 1999, at cost.......... 2,562 2,554
Deferred compensation (Note 3)........... 145 172
Accumulated other comprehensive loss..... 61 79
-------- --------
$ 39,542 $ 39,009
-------- --------
$ 63,998 $ 55,623
======== ========
</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
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales..................... $ 27,203 $ 24,181 $ 49,676 $ 43,065
Cost of Sales................. 20,973 18,214 37,927 32,699
-------- -------- -------- --------
Gross Profit.............. $ 6,230 $ 5,967 $ 11,749 $ 10,366
Selling, General &
Administrative Expenses..... 4,761 4,575 9,212 8,830
-------- -------- -------- --------
Operating Income.......... $ 1,469 $ 1,392 $ 2,537 $ 1,536
Other Income (Expense):
Interest income............. $ 69 $ 87 $ 115 $ 176
Interest expense............ (2) (2) (4) (4)
Other, net (Note 4)......... (27) (822) 53 (796)
-------- -------- -------- --------
$ 40 $ (737) $ 164 $ (624)
-------- -------- -------- --------
Income from Operations before
Provision for Income Taxes.. $ 1,509 $ 655 $ 2,701 $ 912
Provision for Income Taxes.... 440 189 833 279
-------- -------- -------- --------
Income before Equity in
Earnings of Joint Venture... $ 1,069 $ 466 $ 1,868 $ 633
Equity in Earnings
of Joint Venture............ 16 - 39 -
-------- -------- -------- --------
Net Income................ $ 1,085 $ 466 $ 1,907 $ 633
======== ======== ======== ========
Basic and Diluted Earnings
per Common Share (Note 3)... $ 0.93 $ 0.40 $ 1.63 $ 0.54
======== ======== ======== ========
</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
------------------
2000 1999
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income...................................... $ 1,907 $ 633
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of joint venture........... (39) -
Bad debt expense (recovery)................... 72 (30)
Depreciation and amortization................. 1,319 1,402
Loss on sales of fixed assets................. - 3
Changes in assets and liabilities -
Decrease (increase) in interest receivable.. 4 (21)
Decrease in accounts and notes receivable... 588 149
(Increase) in inventory..................... (6,126) (1,472)
(Increase) in prepayments................... (32) (190)
(Increase) in other assets.................. (78) (31)
Increase in accounts payable................ 2,648 727
Increase (decrease) in accrued expenses..... 1,588 (509)
Increase in advance billings................ 3,590 1,006
Increase in long-term liabilities........... 1 513
-------- --------
Net Cash Provided by Operations........... $ 5,442 $ 2,180
Cash Flows Provided (Requirements) from
Investing Activities:
Proceeds from maturities of investments......... $ 2,200 $ 5,088
Purchases of investments........................ (1,073) (5,010)
Proceeds from sale of equipment................. 4 6
Additions to property, plant, and equipment..... (1,807) (956)
-------- --------
Net Cash (Required) from
Investing Activities.................. $ (676) $ (872)
Cash Flows (Requirements) from
Financing Activities:
Dividends paid.................................. $ (1,409) $ (1,405)
-------- --------
Net Cash (Required) by
Financing Activities.................. $ (1,409) $ (1,405)
-------- --------
Net Increase (Decrease) in Cash................... $ 3,357 $ (97)
Cash at Beginning of Period....................... 700 1,358
-------- --------
Cash at End of Period..................... $ 4,057 $ 1,261
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest...................................... $ 7 $ 9
Income taxes.................................. 459 85
</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, 2000 AND 1999, AND DECEMBER 31, 1999
(Unaudited)
1. The condensed financial statements include the accounts of Paul
Mueller Company (Registrant) and its wholly owned subsidiaries,
Mueller International Sales Corporation, Mueller Transportation,
Inc., and Mueller Field Operations, Inc. A summary of the signi-
fycant accounting policies is included in Note 1 to the consoli-
dated financial statements included in the Registrant's annual
report on Form 10-K for the year ended December 31, 1999.
2. Inventory is recorded at the lower of cost; last-in, first-out
(LIFO) method or market.
Because the inventory determination under the LIFO method can
only be made at the end of each fiscal year based on the inven-
tory levels and costs at that time, interim LIFO determinations,
including those at June 30, 2000, 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 June 30, 2000, are estimates based on management's
knowledge of the Registrant's production cycle, the costs associ-
ated with this cycle, and the sales and purchasing volume of the
Registrant.
3. On May 13, 1999, 6,000 shares of restricted common stock and non-
qualified stock options for 20,400 shares of common stock, at a
grant price of $36.00 per share, were awarded to key members of
management with vesting periods of five years. The market value
of the restricted stock was $32.50 per share on the date of award,
and the unamortized balance of deferred compensation is included
under Shareholders' Investment on the accompanying Consolidated
Condensed Balance Sheets.
The following table sets forth the computation of basic and di-
luted earnings per common share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
6-30-00 6-30-99 6-30-00 6-30-99
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income................. $1,085,000 $ 466,000 $1,907,000 $ 633,000
========== ========== ========== ==========
Shares for basic earnings
per common share -
Weighted average shares
outstanding.............. 1,168,021 1,168,021 1,168,021 1,168,021
Effect of restricted
stock granted............ 102 7 148 4
---------- ---------- ---------- ----------
Shares for diluted earnings
per common share -
Adjusted weighted average
shares outstanding....... 1,168,123 1,168,028 1,168,169 1,168,025
========== ========== ========== ==========
Basic earnings per
common share............. $0.93 $0.40 $1.63 $0.54
===== ===== ===== =====
Diluted earnings per
common share............. $0.93 $0.40 $1.63 $0.54
===== ===== ===== =====
</TABLE>
4. The Registrant 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
6
<PAGE> 7
Company). As a result of a trial that ended in September 1997,
the Registrant received an adverse decision; and the final judg-
ment awarded damages, interest, and attorney's fees totaling
$1,700,000 to the plaintiff. The decision also provided that
interest at 10% compounded annually would accrue on the judgment
amount until paid.
Management believed the decision was incorrect and, based on the
advice of legal counsel, appealed the decision. A decision on
the appeal was rendered by the Court of Appeals on May 27, 1999,
and the trial court's decision was upheld. After consultation
with legal counsel, the Registrant decided not to pursue an addi-
tional appeal.
On June 21, 1999, the Registrant was able to reach a settlement
with Alcon Laboratories, Inc., in the amount of $1,875,000. As
a result of the settlement, the Registrant increased its reserve
for the lawsuit in the second quarter of 1999 to fully accrue for
its liability. The addition to the reserve was $734,000; and it
is included in Other, net on the Consolidated Condensed Statements
of Income for 1999.
The Registrant is involved in other legal proceedings incident to
the conduct of its business. It is management's opinion that none
of these matters will have a materially adverse effect on the con-
solidated financial position, results of operations, or cash flows.
The Registrant currently employs approximately 850 people, of
which nearly 400 are represented by the Sheet Metal Workers Union.
The International Union called a strike beginning July 25, 1995,
and currently 16 employees are participating
5. The Registrant has two reportable segments: Industrial Equipment
and Dairy Farm Equipment. There are no intersegment sales.
Revenues and profitability for each segment for the three months
and six months ended June 30, 2000 and 1999, were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30
---------------------------------------------------------------
(dollars in thousands)
Dairy Farm Industrial Other /
Equipment Equipment Corporate Consolidated
--------------- --------------- --------------- ---------------
2000 1999 2000 1999 2000 1999 2000 1999
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
from
external
custo-
mers..... $ 7,432 $ 6,836 $19,771 $17,345 $ - $ - $27,203 $24,181
Income
(loss)
before
income
tax...... $ 1,328 $ 976 $ 141 $ 485 $ 40 $ (806)$ 1,509 $ 655
<CAPTION>
Six Months Ended June 30
---------------------------------------------------------------
(dollars in thousands)
Dairy Farm Industrial Other /
Equipment Equipment Corporate Consolidated
--------------- --------------- --------------- ---------------
2000 1999 2000 1999 2000 1999 2000 1999
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
from
external
custo-
mers..... $12,863 $11,989 $36,813 $31,076 $ - $ - $49,676 $43,065
Income
(loss)
before
income
tax...... $ 2,264 $ 1,715 $ 273 $ (110)$ 164 $ (693)$ 2,701 $ 912
</TABLE>
7
<PAGE> 8
6. The Registrant reports comprehensive income and its components in
accordance with Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." Comprehensive income and
its components, net of tax, are summarized below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
6-30-00 6-30-99 6-30-00 6-30-99
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income................. $1,085,000 $ 466,000 $1,907,000 $ 633,000
Unrealized gain on invest-
ments, net of tax........ 22,000 - 33,000 -
Foreign currency trans-
lation adjustment,
net of tax............... (35,000) - (16,000) -
---------- ---------- ---------- ----------
Comprehensive income....... $1,072,000 $ 466,000 $1,924,000 $ 633,000
========== ========== ========== ==========
</TABLE>
8
<PAGE> 9
PAUL MUELLER COMPANY AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF OPERATING RESULTS
AND FINANCIAL CONDITION
The following is Management's discussion and analysis of the signify-
cant factors that have affected the Companies' earnings during the
periods included in the accompanying Consolidated Condensed State-
ments 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
consolidation 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 ex-
penditures in the U.S. economy, and other changes to business condi-
tions.
OPERATING RESULTS
Sales for the second quarter ended June 30, 2000, were $27,203,000,
an increase of $3,022,000 over the second quarter of 1999. Indus-
trial Equipment segment sales improved by $2,426,000, while Dairy
Farm Equipment segment sales increased by $596,000. Within the
Industrial Equipment segment, the increase in sales was primarily
attributable to Processing Equipment for pharmaceutical applications.
The improved performance in sales was attributable to the signify-
cantly higher backlog of sales when comparing March 31, 2000, to
March 31, 1999. Dairy Farm Equipment sales were about 9% higher for
the second quarter of 2000 compared to the second quarter of 1999,
and the increase again was due to improved backlog at March 31, 2000,
compared to March 31, 1999. This increase in sales was solely attri-
butable to higher export shipments, principally to Mexico and Japan,
as domestic sales decreased approximately 7%.
The gross profit rate for the three months ended June 30, 2000, was
22.9% compared to 24.7% for the second quarter of 1999. The decrease
in the gross profit rate was due primarily to a higher provision to
increase the LIFO reserve made during the second quarter of 2000
($645,000) compared to the second quarter of 1999 ($75,000). The
higher provision was necessary due to the effect of increases in the
base price of stainless steel and the implementation of surcharges at
time of shipment. Additionally, the gross margin rate was somewhat
less during the second quarter of 2000 compared to the second quarter
of 1999 due to a change in the product mix.
Selling, general, and administrative expenses increased by about 4%
for the second quarter of 2000 compared to the second quarter of 1999.
The increase was due to personnel costs, provisions made for poten-
tial warranty expense and bad debts, and legal and tax consulting
fees.
Other income (expense) for the three months ended June 30, 2000,
varied significantly from the three months ended June 30, 1999, due
to the effect of the Alcon lawsuit settlement (see Note 4 above) in
June 1999. As a result of the settlement, the Registrant increased
its reserve for the lawsuit in the second quarter of 1999 to fully
accrue for its liability, and the addition to the reserve was $734,000.
Interest income was lower for the second quarter of 2000 compared
9
<PAGE> 10
to the second quarter of 1999 due to the lower level of investable
funds.
The effective tax rate for the three months ended June 30, 2000, and
June 30, 1999, varied from the statutory tax rate (34%) primarily
as a result of tax credits and the lower effective tax rate of the
Foreign Sales Corporation (FSC).
Sales for the six months ended June 30, 2000, were $6,611,000 higher
than sales for the six months ended June 30, 1999. Sales of Indus-
trial Equipment improved by $5,737,000, and Dairy Farm Equipment
sales improved by $874,000. Within the Industrial Equipment segment,
the improvement in sales was primarily attributable to Processing
Equipment and again primarily for pharmaceutical applications. The
improvement in sales was due to the significantly higher backlog at
December 31, 1999, compared to December 31, 1998, primarily for the
Processing Equipment product line within the Industrial Equipment
segment. The higher level of sales for the Dairy Farm Equipment
segment was due to the significantly higher backlog at December 31,
1999, compared to the backlog at December 31, 1998. The increase
in sales of Dairy Farm Equipment during the first six months of 2000
compared to the first six months of 1999 was due to an increase in
export shipments, as shipments to the domestic market were approxi-
mately 5% lower. This increase in export sales was due to higher
shipments to the Japanese and Mexican markets during 2000 compared
to 1999.
For the six months ended June 30, 2000 and 1999, the gross profit
rate was 23.7% and 24.1%, respectively. The decrease in the gross
profit rate was due primarily to the significantly higher provi-
sion made to the LIFO reserve during the first six months of 2000
($1,130,000) compared to the first six months of 1999 ($75,000).
The higher LIFO provision was necessary due to the higher stainless
steel prices in effect for 2000 compared to 1999.
Selling, general, and administrative expenses for the first six
months of 2000 compared to the first six months of 1999 were approxi-
mately 4% higher. The increase was due to higher personnel costs,
provisions made for potential warranty expense and bad debts, and
legal and tax consulting fees. Selling, general, and administrative
expense, as a percent of sales, was lower for the first six months
of 2000 versus the first six months of 1999.
Other income (expense) was $164,000 for the first six months ended
June 30, 2000, compared to a loss of $624,000 for the first six
months of 1999. The variance was primarily due to the settlement
of the Alcon lawsuit in June 1999 (as described above and in Note 4
above). Interest expense was lower for the first six months of 2000
compared to the first six months of 1999 due to a lower level of in-
vestable funds.
The effective tax rate for the six months ended June 30, 2000, and
June 30, 1999, varied from the statutory tax rate (34%) primarily as
a result of tax credits, the lower effective tax rate of the Foreign
Sales Corporation, and tax-exempt interest.
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. Extensive negotia-
tions were conducted with union representatives, but a new contract
was not achieved. The International Union called a strike that began
on July 25, 1995, and the largest number of employees participating
was approximately 185 during the fourth quarter of 1995. A substan-
tial number of employees returned to work during 1996; and currently,
there are only 16 employees participating. No action has been taken
by the union to prevent nonstriking employees from working. The
Registrant implemented the provisions of its revised and final offer
10
<PAGE> 11
effective April 1, 1996, which remains open for the union's accep-
tance; and no further negotiations are scheduled.
The union has filed unfair labor practice complaints against the Re-
gistrant. As a result, hearings were held in August 1996, November
1997, December 1998, and November 1999 before an administrative law
judge of the National Labor Relations Board (NLRB), and the decisions
of these hearings (except for one minor issue) have been appealed to
the NLRB. A hearing before an administrative law judge on another
unfair labor practice complaint against the Registrant is currently
scheduled for October 2000. A final determination of all charges
pending may take up to two years after a decision by the NLRB. How-
ever, management believes that, based on an evaluation by counsel,
there is no material financial exposure to the Registrant.
The Registrant currently employs about 850 people, of which approxi-
mately 400 at the Springfield, Missouri, facility are represented
by the Sheet Metal Workers Union. The Registrant has facilities
located in Springfield, Missouri, and Osceola, Iowa. There are
approximately 740 employees assigned to the Springfield facility;
and at the Osceola facility, there are approximately 110 employees,
none of whom are represented by a labor union.
The Registrant has experienced no significant Year 2000 problems.
The AS/400 computer operating system and all major business systems,
including the financial, design engineering, and manufacturing soft-
ware systems, have functioned properly. A few minor problems were
encountered, but they were corrected immediately. All noninforma-
tion technology systems and equipment within the Registrant's facili-
ties performed without problems. To date, the Registrant has not
experienced any problem with either suppliers or customers.
Market risks relating to the Registrant's operations result pri-
marily from changes in foreign exchange rates and interest rates,
as well as stainless steel prices. The Registrant periodically
enters into foreign-exchange forward or spot contracts to hedge the
exposure to foreign-currency-denominated purchase transactions. For-
ward contracts generally have maturities of less than three months.
Foreign-currency-denominated purchases were $792,000 and $1,188,000
for the six months ended June 30, 2000 and 1999, respectively. There
were no foreign-exchange forward contracts outstanding at June 30,
2000 and 1999. There were foreign currencies held at June 30, 2000,
amounting to approximately $28,000, for payment of foreign-currency-
denominated vendor invoices. The Registrant's financial instruments
that are exposed to interest rate risks consist of available-for-sale
investments that are recorded at market value. Available-for-sale
investments are maintained in high-quality securities that consist
of tax-exempt bonds and a taxable bond fund. Tax-exempt bonds gener-
ally have maturities of from three to twelve months. Unrealized
holding gains and losses were not material as of June 30, 2000 and
1999, and there were no significant realized gains or losses during
the periods. The Registrant does not use financial instruments for
trading purposes. The risk of changes in stainless steel prices for
significant Industrial Equipment segment projects that extend over
several months is managed by contracting for the stainless steel at
the time the project is obtained.
Concentration of credit risk, with respect to receivables, is limited
due to the large number of customers and their dispersion across a
wide geographic area. The Registrant performs credit evaluations on
all new customers and periodically reviews the financial condition of
existing customers. For Industrial Equipment orders, down payments
and/or progress payments are generally required based on the dollar
value of the order and customer creditworthiness. Foreign receiva-
bles are generally secured by irrevocable letters of credit confirmed
by a major U.S. bank.
11
<PAGE> 12
Looking to the balance of 2000, there are factors that could affect
the results of operations. If there is expanded employee participa-
tion 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. The average price of milk paid to farmers
in the domestic market year-to-date for 2000 is 21% below the average
milk price for the same period of 1999. Although feed prices have
remained favorable, new orders for Dairy Farm Equipment year-to-date
in 2000 are down 25% compared to the first six months of 1999, a year
when record order entry and sales were achieved. About 90% of the
decrease in order entry occurred during the second quarter, as the
last eight months of low milk prices are affecting the profitability
of dairy farmers. The decrease in order entry has been in the domes-
tic market, as export year-to-date order entry for 2000 has been
higher than for the similar period for 1999. A continuing trend of
decreasing order entry for the balance of 2000 will affect sales and
profitability of the Dairy Farm Equipment segment. Also, order entry
in the Industrial Equipment segment has slowed in recent months; and
market conditions are very competitive for the projects that are
available. These factors could adversely affect sales and profita-
bility for the Industrial Equipment segment for the balance of the
year. Stainless steel mills implemented a price increase for stain-
less steel earlier this year; and since October of 1999, orders
placed for stainless steel have been subject to a surcharge, at time
of shipment, as a result of the escalating price for nickel, a key
component used in making stainless steel. In order to protect
against the escalation of stainless steel prices, the Registrant
increased its inventory of standard sizes of stainless steel coil
used in the manufacture of its products. As the Registrant's inven-
tories are recorded on the last-in, first-out (LIFO) method, addi-
tional provisions to increase the LIFO reserve may be required,
based on the Registrant's projections of inventory levels, the mix
of inventory, and cost of items in inventory at year-end.
The backlog of sales at June 30, 2000, was $32,401,000 compared to
$37,399,000 at March 31, 2000, and $27,100,000 at June 30, 1999. The
June 30, 2000, backlog represents orders that will be completed and
shipped over the next twelve months.
FINANCIAL CONDITION
The consolidated financial condition and the liquidity of the Regis-
trant at June 30, 2000, have not changed significantly since December
31, 1999. There are no significant commitments for capital expendi-
tures at June 30, 2000.
The Registrant has a $6,000,000 bank-borrowing facility that expires
on March 30, 2001, none of which is currently used. There are no
commitment fees for the facility.
12
<PAGE> 13
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.............. 14
</TABLE>
b. Reports on Form 8-K -- There were no reports on Form 8-K
filed for the three months ended June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its be-
half by the undersigned, thereunto duly authorized.
PAUL MUELLER COMPANY
DATE: August 7, 2000 /S/ DONALD E. GOLIK
-------------- --------------------------------------
Donald E. Golik, Senior Vice President
and Chief Financial Officer
13
