MUELLER INDUSTRIES, INC. COMPANY PROFILE
Mueller Industries, Inc. is a leading and diversified fabricator of brass,
bronze, copper, plastic and aluminum products.
The range of these products is broad: copper tube and fittings; brass and
copper alloy rods, bars and shapes; brass and bronze forgings; aluminum and
copper impact extrusions; plastic fittings and valves; and refrigeration
valves, driers and flare fittings.
The Company also owns a short line railroad in Utah, a placer gold mining
operation in Alaska, and other natural resource properties.
Mueller operates twelve factories in the United States and Canada, and has
distribution facilities nationwide and sales representation worldwide.
TABLE OF CONTENTS PAGE
Financial Highlights 2
A Report to Stockholders 3
Profile of Businesses 6
Financial Review 8
Consolidated Financial Statements
Statements of Income 13
Balance Sheets 14
Statements of Cash Flows 16
Statements of Stockholders' Equity 18
Notes to Consolidated Financial Statements 19
Report of Independent Auditors 35
Capital Stock Information 36
Selected Financial Data 37
Corporate and Stockholder Information 38
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)
1994 1993 1992
SUMMARY OF OPERATIONS
Net sales $ 550,003 $ 501,885 $ 517,339
Sales of manufactured products
in millions of pounds 380.6 362.1 329.5
Net income $ 27,926 $ 21,136 $ 16,666
Average shares outstanding
(in thousands) 9,890 10,443 10,055
Net income per share - primary $ 2.82 $ 2.02 $ 1.66
SIGNIFICANT YEAR-END DATA
Cash and cash equivalents $ 34,492 $ 77,336 $ 44,459
Ratio of current assets to
current liabilities 2.7 to 1 4.1 to 1 3.1 to 1
Working capital $ 116,330 $ 146,981 $ 124,355
Long-term debt (including
current portion) $ 94,736 $ 62,711 $ 69,477
Debt as a percent of
capitalization 28.1% 22.0% 25.4%
Stockholders' equity $ 241,948 $ 222,114 $ 204,421
Book value per share $ 27.81 $ 23.18 $ 21.21
Capital expenditures $ 48,152 $ 11,083 $ 10,952
Number of employees 2,256 2,010 2,055
1994 1993 1992
PRIMARY EARNINGS PER SHARE(1) $ 2.82 $ 2.02 $ 1.66
TOTAL STOCKHOLDERS EQUITY(2) $ 241,948 $ 222,114 $ 204,421
(1) Earnings per share increased forty percent in 1994 and twenty-two percent
in 1993.
(2) Total stockholders' equity has increased substantially, notwithstanding
the purchase of treasury stock of $25.9 million in 1994 and $3.1 million
in 1993.
A REPORT TO OUR STOCKHOLDERS
Nineteen hundred ninety-four was an excellent year for Mueller
Industries, Inc. For the second consecutive year, our Company achieved record
earnings. Net income was $27.9 million in 1994 compared with $21.1 million in
1993, a 32 percent increase. Earnings per share increased to $2.82 for 1994,
or 40 percent higher than the $2.02 per share earned in 1993.
Net sales increased in 1994 to $550.0 million compared to $501.9 million
in 1993. This increase was partly due to the rise in the price of copper, our
primary raw material. Where possible, our Company endeavors to adjust the
selling price of finished products to reflect increases or decreases in the
price of copper. Measured in pounds of product sold, sales increased by five
percent in 1994.
Copper prices were particularly volatile during 1994, rising from a low
of 80 cents per pound early in the year to a high of $1.39 per pound at year-
end. In response to this volatility, our Company elected in the third quarter
to value the copper component of our inventories on a last-in, first-out
(LIFO) basis, instead of the first-in, first-out (FIFO) basis previously used.
This has the effect of more closely matching current costs of copper with
current selling prices. Adoption of LIFO decreased 1994 reported annual
earnings, but resulted in the establishment of a copper LIFO inventory reserve
of $13.1 million at year-end. LIFO will mitigate the income statement effect
of future copper price fluctuations.
MANUFACTURING OPERATIONS STRONG
Our manufacturing operations had their busiest and most productive year
ever. Our brass rod mill located in Port Huron, Michigan operated at full
capacity for the entire year. A major competitor's labor stoppage during the
fourth quarter exacerbated an already tight market situation, but by working
around the clock, our employees kept our customers supplied with product. We
are in the process of expanding the rod mill's capacity through the
installation of an indirect extrusion press and related improvements. All of
the required equipment has been ordered and installation is scheduled to be
completed by mid-1995. We are confident that this investment will reduce our
conversion costs and increase yields and through-put. The added capacity will
assure our customers a continuation of the best service in the industry.
Our wrot copper fittings business had a banner year in 1994. We sold
every pound of product we were able to manufacture. Demand for copper
fittings continues to be brisk and we have taken appropriate steps to ramp-up
production. We are well along in the construction of a new high-volume copper
fittings plant in Fulton, Mississippi, which will significantly enhance our
production capacity for the most popular fittings. This plant should be
operational by mid-1995.
In addition, our copper fittings plant in Covington, Tennessee is in the
midst of a modernization program. Here our objective is to reduce conversion
costs as well as increase capacity. We expect to see benefits from this
investment in 1995. Also, our Canadian copper fittings plant, located in
Strathroy, Ontario had a strong 1994. Its shipments increased due primarily
to the upward trend in Canadian and European markets.
A REPORT TO OUR STOCKHOLDERS (Continued)
During 1994, Mueller acquired plastic fittings manufacturing operations
located in California and Michigan. This acquisition significantly increased
our market presence in the DWV (drain, waste and vent) business, and we are
now in a position to supply our customers with a full plastic fittings product
line on a national basis. We believe our combined plastic operations will
achieve greater economies of scale and will make a meaningful contribution to
future profitability.
Our copper tube business, located in Fulton, Mississippi had a solid year
in 1994, although somewhat less profitable than in the prior year. Despite a
strong demand for tube products, competitive pressures suppressed our margins.
Our strategy going forward is to invest in state-of-the-art operating
equipment for this business with the objective of being one of the low cost
manufacturers in the industry. Our investment program, which will exceed $20
million, is nearing completion and we will begin to see benefits during the
latter half of 1995.
Mueller's impacts, forgings and refrigeration businesses also made good
progress during 1994. All three of these businesses have demonstrated the
ability to grow and prosper and we are confident they will continue to do so.
NATURAL RESOURCE OPERATIONS
The Utah Railway Company increased its tonnage of coal shipments by 27
percent during 1994 to the highest level in its history. Its operating profit
also increased comparably. The railroad's offices have been consolidated and
are now located in Helper, Utah.
We are also in the process of completing the sale of our United States
Fuel Company coal mining property located in Hiawatha, Utah for a small
profit. The new owner plans to resume mining and eventually develop adjoining
coal reserves. Should this occur, it will result in added business for the
Utah Railway Company.
Alaska Gold Company, our 85 percent owned subsidiary located in Nome,
Alaska, determined in 1994 that the open-pit method of mining gold was cost-
effective. Consequently, we acquired equipment needed for open-pit operations
and they are currently underway.
During 1994, we neared completion of our three year program to divest
and/or lease other miscellaneous natural resource properties. We do not
expect to generate significant additional income in 1995 from dispositions of
remaining miscellaneous properties.
OUTLOOK
We are optimistic about prospects for 1995 for the following reasons:
Our Company is in the process of investing approximately $100 million in
new plant and equipment in 1994 and 1995 to improve efficiency and
productivity of our operations. Three major programs are currently on
schedule. They should favorably affect operations by the latter part of 1995;
A REPORT TO OUR STOCKHOLDERS (Continued)
Our employees are determined to make us a RESOURCE -- not just a source -
- - for our customers;
The national economy is continuing to expand. Consumer confidence is
high, unemployment is low and inflation appears to be under control. Also,
the economies in Europe and the Far East are showing more vitality and this
should aid our export business; and
The housing industry, the most important market for our products,
continues to show strength. In 1994, new housing starts in the United States
totalled 1.45 million units, a 13 percent increase over 1993. This increase
occurred even though 30 year fixed-rate mortgage rates climbed close to 200
basis points. While we believe this indicates that there is a considerable
pent-up demand for new housing, further increases in mortgage rates could
adversely impact the housing industry.
We are gratified with the Company's progress over the past three years;
however, there is no shortage of opportunities in the years ahead. We look
forward to 1995 and beyond with enthusiasm and purpose.
Sincerely,
/s/ HARVEY L. KARP
Harvey L. Karp
Chairman of the Board
/s/ WILLIAM D. O'HAGAN
William D. O'Hagan
President and Chief Executive Officer
March 17, 1995
PROFILE OF BUSINESSES
STANDARD PRODUCTS
COPPER TUBE PRODUCTS
The Fulton, Mississippi plant produces one of the broadest lines of
copper tube products offered by a single manufacturer. Tube products include
dehydrated coils and nitrogen-charged ACR hard drawn straight lengths used
primarily for refrigeration and air conditioning. Copper water tube in
straight lengths and coils are used in plumbing applications in a wide range
of construction projects. Copper tube products are sold to plumbing and
refrigeration wholesalers and OEM customers in North America and exported to
numerous foreign countries.
The Fulton facility again operated at a record production level in 1994.
The previously announced $20 million capital improvement project to upgrade
technology and install state-of-the-art tube drawing equipment is anticipated
to be operational during the third quarter of 1995.
COPPER AND PLASTIC FITTINGS PRODUCTS
Mueller's Streamline wrot copper pressure and drain, waste and vent (DWV)
fittings are manufactured at plants in Covington, Tennessee, Port Huron,
Michigan and Strathroy, Ontario, Canada. These fittings are converted from
copper tube produced at the Fulton tube mill and other outside sources into a
wide variety of over 1,500 different sizes and shapes. Mueller is
constructing a new high-volume fittings plant in Fulton, Mississippi, adjacent
to its tube mill. This plant, which should be operational by mid-1995, will
significantly increase Mueller's production capacity for its most popular
fittings. Mueller is simultaneously undertaking a modernization program at
its Covington, Tennessee copper fittings facility, to reduce conversion costs
as well as expand capacity of its lower volume fittings.
In September, 1994, Mueller acquired DWV plastic fittings manufacturing
operations located in Kalamazoo, Michigan and Cerritos, California. Our
existing plant located in Upper Sandusky, Ohio, together with the acquired
operations, enable Mueller to supply a full DWV plastic fittings product line.
Injection molding equipment at the three plants produces over 1,000 different
parts from a variety of plastic compounds in various diameters. We plan to
rationalize production at the three plants, increase operational efficiencies,
and achieve greater economies of scale. Our goal is to become a low cost
producer of plastic fittings and to better supply more of our customers'
needs.
Plastic and copper fittings are found in virtually all installations of
water distribution systems, heating systems, air-conditioning and
refrigeration applications, and DWV systems in residential, office and
commercial settings. The Strathroy facility focuses on the Canadian and
European markets and is ISO certified. Products from the U.S. plants are sold
primarily to plumbing, refrigeration and hardware wholesalers in the United
States, Mexico and abroad.
REFRIGERATION PRODUCTS
Mueller manufactures a broad line of valves, fittings, filters, driers
and custom OEM products for refrigeration and air-conditioning applications at
its Hartsville, Tennessee plant. Many Hartsville products are machined and
assembled from rod stock and forgings produced in our Port Huron plants.
These fittings and assemblies are used in refrigeration applications such as
residential and commercial air-conditioning systems, walk-in coolers, and ice
and vending machines.
Customers for Mueller refrigeration products include large and small OEMs
and refrigeration wholesalers domestically and throughout the world.
INDUSTRIAL PRODUCTS
Industrial products includes the rod mill and forging facility in Port
Huron, Michigan and the impact extrusion plant in Marysville, Michigan. The
rod mill is a leading extruder of free cutting brass bar stock and also
produces special purpose copper alloy rod. The forging operation produces
brass, bronze and aluminum hot, closed-die forgings in a broad range of sizes
and shapes. Cold forgings (impact extrusions) represent one of the most
efficient and economical manufacturing methods available for certain component
parts where toughness must be combined with varying complexities of design and
finish.
Mueller rod products, hot forgings and impact extrusions are found in a
variety of end products including plumbing brass, automotive components,
valves and fittings, and industrial machinery and equipment. Industrial
products are sold largely to OEM customers in the plumbing, refrigeration,
fluid power, industrial valves and fittings, and automotive industries.
Mueller is upgrading its rod mill manufacturing processes with a $15
million expansion that includes the installation of an indirect extrusion
press, new billet heating furnaces, rod coilers, runout conveyors and material
handling systems. This project is scheduled for completion in the latter half
of 1995.
NATURAL RESOURCE PROPERTIES
The Utah Railway Company (Utah Railway), which was established in 1912,
operates on approximately 100 miles of track in Utah. Utah Railway hauls
coal, mined primarily in Carbon and Emery Counties, Utah, to and connects with
national carriers. In 1994, approximately 3.2 million tons of coal were
shipped under long-term contracts, with the balance consisting of spot
shipments destined for the domestic or export markets.
In 1994, our 85 percent owned Alaska Gold Company (Alaska Gold) concluded
that it could economically extract gold from reserves in the Nome area using
an open-pit method of mining. A full scale open-pit program is currently
underway. Alaska Gold plans to move approximately 1.5 million cubic
yards of dirt, about three times as much as last year.
During 1994, the Company substantially completed its program of divesting
and/or leasing miscellaneous natural resource properties. The Company has in
place agreements with various mining companies to explore properties which we
own in the Western United States. These agreements, which provide for royalty
payments and purchase options, hold the potential for consequential profits
should the exploration efforts prove fruitful.
FINANCIAL REVIEW
GENERAL OVERVIEW
The Company's principal business is the manufacture and sale of copper
tube, brass rod, fittings and other products made of copper, brass, bronze,
plastic and aluminum. These core manufacturing businesses have been in
operation for over 75 years. New housing starts and commercial construction
are important determinants of the Company's sales to the air-conditioning,
refrigeration and plumbing markets because the principal end use of a
significant portion of the Company's products is in the construction of single
and multi-family housing units and commercial buildings.
Profitability of certain of the Company's product lines is dependent upon
the "spreads" between the cost of metal and the gross selling prices of its
completed products. The open market price for copper cathode, for example,
directly influences the selling price of copper tubing, a principal product
manufactured by the Company. The Company attempts to minimize the effects of
changes in copper prices by passing base metal costs through to its customers.
In 1994, the Company adopted the LIFO method of accounting for the copper
component of its copper tube and fittings inventories. Management believes
the LIFO method results in a better matching of current costs with current
revenues. The market price of copper does, however, indirectly effect the
carrying value (FIFO basis) of the Company's brass inventories. The Company's
copper and brass inventories customarily total between 30 to 35 million
pounds. "Spreads" fluctuate based upon competitive market conditions.
The Company also owns various natural resource properties in the Western
United States and Canada. It operates a short line railroad in Utah and a
placer gold mining company in Alaska. Additionally, certain other natural
resource properties produce royalty income or are available for sale.
RESULTS OF OPERATIONS
1994 Performance Compared to 1993:
Consolidated net sales were $550.0 million in 1994, up $48.1 million or
9.6 percent from net sales of $501.9 million in 1993. In the core
manufacturing businesses, sales reached 380.6 million pounds, a 5.1 percent
increase over the prior year. Natural resources sales declined to $16.6
million in 1994 or 29.6 percent from 1993's level due mainly to lower gold
sales.
Cost of goods sold increased $44.7 million to $448.5 million. This
increase is primarily attributable to higher raw material costs, mostly
copper. The Company's gross profit increased $3.4 million to $101.5 million.
This increased gross profit is reflective of price improvements in certain
product lines, as well as cost reductions and yield improvements in the
Company's manufacturing operations. The gross profit improvements were offset
somewhat by lower margins on copper tube. Selling, general, and
administrative expense declined $1.0 million despite higher sales activity.
Depreciation, depletion, and amortization totalled $12.7 million in 1994
compared with $14.2 million in 1993. This decline was due primarily to lower
amortization of thawfield expenses related to the Alaska Gold operation.
FINANCIAL REVIEW (Continued)
With the adoption of the LIFO method of inventory accounting, management
believes the Company's operating results will better reflect operating
performance by removing inventory gains and losses that result from wide
fluctuations in copper raw material prices. Nevertheless, comparisons of
operating results to pre-LIFO periods must be analyzed carefully as the pro
forma effects on prior periods are not reasonably determinable. Had the
Company not adopted LIFO effective at the beginning of fiscal 1994, operating
income would have been $57.1 million in 1994.
Provisions for environmental reserves were $2.9 million in 1994
consisting of $2.5 million for Mueller's Mining Remedial Recovery Company and
$.4 million for Mueller's estimated share of costs relating to a Superfund
site in Pennsylvania. This additional provision was judged necessary based on
updated information and the results of ongoing environmental remediation and
monitoring programs for its natural resource operations.
Unusual items in 1994 pertained primarily to certain outstanding
insurance matters related to estimated workers compensation claims for years
prior to 1993. Other income increased to $7.6 million in 1994 from $4.3
million in 1993. This increase is primarily attributable to gains on the sale
of certain of the Company's natural resource properties which totalled
approximately $3.2 million, plus a $.7 million increase in interest income.
Interest expense totalled $6.7 million in 1994, a $1.0 million increase
from 1993 primarily because of new IRB debt financings for the Fulton,
Mississippi copper tube and copper fittings plant capital improvement
projects.
The Company provided $12.9 million for income taxes in 1994, of which
$4.7 million was deferred. The current tax expense of $8.2 million for 1994
increased due to higher taxable income. During 1994, the effective tax rate
declined to 31.6 percent primarily due to the recognition of certain tax
attributes discussed in Note 6 and favorable state tax credits related to IRB
financings. During 1994, the Company entered into a closing agreement with
the IRS. This led to the recognition of additional tax benefits of $17.9
million which were allocated as a direct addition to paid-in capital.
In 1994, earnings per share was favorably effected by the purchase of
treasury stock aggregating 924,875 shares, or 9.6 percent of shares
outstanding at the beginning of the year.
Manufacturing Group
In 1994, net sales increased $55.1 million to $533.4 million, an 11.5
percent increase over 1993. Of the increase, $24.3 million is attributable to
volume increases and $30.8 million is attributable to price changes. Pricing
changes include the pass through of raw material costs.
Operating income increased primarily due to (i) productivity and yield
improvements in manufacturing operations; (ii) selective price increases in
fittings; (iii) cost reductions in selling, general, and administrative
expenses; and (iv) offset by lower margins on copper tube.
FINANCIAL REVIEW (Continued)
Natural Resources Group
Net sales of the Company's natural resources segment were $16.6 million
in 1994 compared to $23.6 million in 1993. This decline was primarily due to
lower gold sales, offset by increased revenues at Utah Railway.
Transportation revenues of Utah Railway were $16.0 million in 1994, a 20.9
percent increase over 1993. Utah Railway hauled 4.9 million tons of coal in
1994, which was a 27.5 percent increase over 1993. Gold sales decreased to
$.3 million (594 ounces) in 1994 from $8.7 million (22,396 ounces) in 1993.
At year-end, 14,475 ounces of gold remained in inventory.
1993 Performance Compared to 1992
Consolidated net sales of $501.9 million in 1993 compares with $517.3
million in 1992. This 3 percent decline is directly attributable to lower
copper prices, which are generally passed through to customers. During 1993,
spot copper averaged 85 cents per pound, or 17 percent less than the 1992
average of $1.03. In 1993, the Company's core manufacturing businesses
shipped 362.1 million pounds of product compared to 329.5 million pounds in
1992. This 10 percent improvement in shipments is due to improved housing
starts and general business conditions.
Cost of goods sold as a percent of net sales improved to 80.5 percent in
1993 from 83.1 percent in 1992 due primarily to improved sales prices in
certain markets and productivity improvements at the Company's manufacturing
plants.
Depreciation, depletion, and amortization totalled $14.2 million in 1993
which is slightly higher than 1992's level of $12.5 million. This change is
mainly due to higher amortization of deferred preparation costs at Alaska Gold
associated with operating both dredging and open-pit methods of mining during
1993.
Selling, general, and administrative expenses were $45.9 million in 1993
compared with $45.8 million in 1992, despite a 10 percent increase in pounds
of product shipped.
Interest expense totalled $5.8 million in 1993, up slightly from $5.7
million in 1992. Environmental reserves were increased by $1.1 million in
1993 and charged to operations. Charges to operations for unusual items in
1993 totalled $2.0 million, down from $5.6 million in 1992. The 1993 charge
includes $1.4 million for an increase in pension liability and $.6 million in
connection with the settlement of lawsuits.
Manufacturing Group
During 1993, net sales of the Company's manufacturing segment were $478.3
million. This compares to net sales (excluding the malleable iron business,
which was sold in 1992), of $474.1 million in 1992. The change in net sales
was primarily attributable to: (i) sale of the malleable iron business; (ii)
product volume increases (excluding malleable iron) of 10 percent; and (iii)
pricing decreases due to lower average raw material costs (price of copper) in
1993 which, generally, are passed through to customers in certain product
lines. The Company's core manufacturing businesses shipped 362.1 million
pounds of product in 1993 which compares to 329.5 million pounds (excluding
malleable iron) in 1992.
FINANCIAL REVIEW (Continued)
Operating income increased primarily due to: (i) productivity
improvements at the manufacturing plants; (ii) selective price increases in
the copper fittings and brass rod markets; (iii) cost reductions in the areas
of selling, general, and administrative expenses; and (iv) elimination of
certain costs associated with the malleable iron business.
Volatility of copper prices in 1993 did not materially affect average
"spreads." Rapid inventory turns of the Company's products that are sensitive
to copper market prices moderate the impact of such volatility.
Natural Resources Group
Net sales of the natural resources segment were $23.6 million in 1993
compared to $22.6 million in 1992. Transportation revenues of Utah Railway
increased 10 percent in 1993 over 1992. Utah Railway hauled 3.9 million tons
in 1993, compared with 3.3 million tons in 1992. Gold sales were $8.7 million
(22,396 ounces) in 1993 compared to $7.0 million (21,200 ounces) in 1992.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $22.0 million in 1994.
Depreciation of $12.1 million and deferred income taxes of $4.7 million were
the primary non-cash adjustments. Major changes in working capital included a
$20.8 million increase in inventories offset by a $7.9 million increase in
current liabilities. Additionally, receivables increased $7.9 million which
relates primarily to higher carrying costs associated with significantly
higher copper prices at the end of 1994. Other minor fluctuations accounted
for the remainder of the change.
Net cash used for investing activities in 1994 was $71.7 million, $48.2
million for capital expenditures and $12.8 million for the acquisition of DWV
plastic fittings manufacturing operations, offset by $5.3 million received
from the sale of natural resource properties. Capital expenditures were
primarily related to improvements in manufacturing technology, cost
reductions, increased productivity and yield, quality improvements, and
capacity expansion. The majority of these expenditures is associated with the
Company's three major capital improvement programs currently underway in its
manufacturing businesses. Additionally, $16.1 million of financing proceeds
classified as other assets remain escrowed until required by long-term capital
improvement project funding.
Net cash provided by financing activities totalled $6.9 million which
includes proceeds from debt issuances of $45.3 million, offset by $25.9
million for the purchase of treasury stock, and $13.3 million for repayment of
debt. In 1994, the Company entered into IRB financing agreements for two
major capital projects in the State of Mississippi. These IRB financing
obligations totalled $38.0 million of which $16.1 million remains in escrow at
the 1994 year-end.
FINANCIAL REVIEW (Continued)
The Company has a $30.0 million unsecured line-of-credit agreement
(Credit Facility) which expires on June 30, 1996, but may be extended for
successive one year periods by agreement of the parties. At the Company's
option, borrowings bear interest at prime less 1/2 of one percent. There are
no outstanding borrowings under the Credit Facility. At December 31, 1994,
the Company's total debt was $94.7 million or 28.1 percent of its
capitalization.
The Company's financing obligations contain various covenants which
require, among other things, the maintenance of minimum levels of working
capital, tangible net worth, and debt service coverage ratios. The Company is
in compliance with all debt covenants.
Management believes that cash provided by operations and currently
available cash of $34.5 million will be adequate to meet the Company's normal
future capital expenditure and operational needs. The Company's current ratio
is 2.7 to 1.
As part of its ongoing strategic planning process, the Company has
approved three major capital expenditure projects: (i) a modernization
project at its Fulton, Mississippi copper tube mill; (ii) a modernization
project at its Port Huron, Michigan brass rod mill; and (iii) a new high-
volume copper fittings plant in Fulton, Mississippi. These projects will
require capital of approximately $57.0 million. As mentioned above, the two
Fulton, Mississippi projects have been financed by IRBs. The primary
objective of these projects is to improve efficiency, yield and productivity
as well as add some capacity.
Additionally, the Company has identified and is evaluating various other
capital improvement projects that could further enhance productivity and/or
add capacity. Various funding alternatives for such projects are also being
considered.
IMPACT OF INFLATION
The impact of inflation on the Company's operations in 1994, 1993 and
1992 was minimal.
OUTLOOK
New housing starts and commercial construction are important determinants
of Mueller's sales to plumbing, air conditioning and refrigeration markets.
Many housing analysts and economists are currently projecting slight to
moderate decreases in new housing starts for 1995 and 1996. Nonetheless, we
remain optimistic about 1995. We believe that our capital improvement programs
will be completed on schedule. Should that occur, we anticipate that this
will favorably affect our operations by the latter half of 1995 as these
projects will improve manufacturing efficiency and productivity.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1994, December 25, 1993 and December 26, 1992
(In thousands, except per share data)
1994 1993 1992
Net sales $ 550,003 $ 501,885 $ 517,339
Cost of goods sold 448,467 403,775 429,707
-------- -------- --------
Gross profit 101,536 98,110 87,632
Depreciation, depletion, and amortization 12,689 14,160 12,505
Selling, general, and administrative
expense 44,895 45,923 45,809
-------- -------- --------
Operating income 43,952 38,027 29,318
Interest expense (6,718) (5,759) (5,694)
Environmental reserves (2,914) (1,060) --
Unusual items, net (1,140) (2,024) (5,636)
Other income, net 7,644 4,259 6,311
-------- -------- --------
Income before income taxes 40,824 33,443 24,299
Income tax expense (12,898) (12,307) (7,633)
-------- -------- --------
Net income $ 27,926 $ 21,136 $ 16,666
======== ======== ========
Net income per share:
Primary
Average shares outstanding 9,890 10,443 10,055
Net income $ 2.82 $ 2.02 $ 1.66
Fully diluted
Average shares outstanding 9,890 10,498 10,274
Net income $ 2.82 $ 2.01 $ 1.62
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
As of December 31, 1994 and December 25, 1993
(In thousands, except share data)
1994 1993
ASSETS
Current assets
Cash and cash equivalents $ 34,492 $ 77,336
Accounts receivable, less allowance for doubtful
accounts of $3,336 in 1994 and $3,495 in 1993 66,925 59,197
Inventories 74,368 53,118
Current deferred income taxes 4,491 3,242
Other current assets 3,275 1,518
-------- --------
Total current assets 183,551 194,411
Property, plant and equipment, net 196,772 154,403
Deferred income taxes 23,797 12,751
Other assets 26,635 8,178
-------- --------
TOTAL ASSETS $ 430,755 $ 369,743
======== ========
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands except share data)
1994 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 18,611 $ 8,391
Accounts payable 21,607 15,637
Accrued wages and other employee costs 13,105 11,787
Current deferred income taxes 366 446
Other current liabilities 13,532 11,169
-------- --------
Total current liabilities 67,221 47,430
Long-term debt 76,125 54,320
Pension liabilities 9,499 9,336
Postretirement benefits other than pensions 8,946 9,498
Environmental reserves 11,178 10,448
Deferred income taxes 3,016 3,810
Other noncurrent liabilities 12,822 12,787
-------- --------
Total liabilities 188,807 147,629
======== ========
Stockholders' equity
Preferred stock - shares authorized 4,985,000;
none outstanding - -
Series A junior participating preferred stock-
$1.00 par value; shares authorized 15,000;
none outstanding - -
Common stock - $.01 par value; shares authorized
20,000,000; issued 10,000,000; outstanding
8,698,977 in 1994 and 9,583,193 in 1993 100 100
Additional paid-in capital, common 254,251 236,406
Retained earnings (accumulated deficit) since
January 1, 1991 21,987 (5,939)
Cumulative translation adjustments (2,832) (1,944)
Treasury common stock, at cost (31,558) (6,509)
-------- --------
Total stockholders' equity 241,948 222,114
Commitments and contingencies - -
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 430,755 $ 369,743
======== ========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994, December 25, 1993, and December 26, 1992
(In thousands)
1994 1993 1992
OPERATING ACTIVITIES:
Net income $ 27,926 $ 21,136 $ 16,666
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provisions for unusual items 1,140 2,024 5,636
Depreciation, depletion, and
amortizationof intangibles 12,097 11,123 11,590
Amortization of deferred
preparation costs 592 3,037 915
Provision for doubtful accounts
receivable 186 59 2,794
Deferred income taxes 4,748 9,026 2,570
Gain on disposal of properties (3,159) (91) (3,417)
Changes in assets and liabilities:
Receivables (7,914) 546 (4,133)
Inventories (20,835) 16,505 12,695
Other assets (382) 3,224 2,177
Current liabilities 7,926 (13,187) (11,241)
Other liabilities 111 (1,731) 2,954
Other, net (473) (684) (492)
-------- -------- --------
Net cash provided by operating activities 21,963 50,987 38,714
-------- -------- --------
INVESTING ACTIVITIES:
Acquisition of business (12,815) - -
Capital expenditures (48,152) (11,083) (10,952)
Proceeds from sales of properties 5,333 2,332 11,478
Escrowed IRB proceeds (16,078) - -
Issuance of notes receivable - - (4,125)
-------- -------- --------
Net cash used by investing activities (71,712) (8,751) (3,599)
-------- -------- --------
FINANCING ACTIVITIES:
Net borrowings under revolving
credit facility - - (14,000)
Proceeds from issuance of long-term debt 45,343 386 45,000
Repayments of long-term debt (13,318) (7,152) (28,933)
Acquisition of treasury stock (25,897) (3,100) (505)
Proceeds from the sale of treasury stock 777 507 241
-------- -------- --------
Net cash provided (used) by
financing activities 6,905 (9,359) 1,803
-------- -------- --------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 1994, December 25, 1993, and December 26, 1992
(In thousands)
1994 1993 1992
Increase (decrease) in cash and
cash equivalents (42,844) 32,877 36,918
Cash and cash equivalents at the
beginning of the year 77,336 44,459 7,541
Cash and cash equivalents at the
end of the year $ 34,492 $ 77,336 $ 44,459
For supplemental disclosures of cash flow information, and non-cash investing
and financing activities, see Notes 1, 4, and 6.
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1994, December 25, 1993, and December 26, 1992
(In thousands, except share data)
Retained
Common Stock Additional Earnings Cumulative Treasury Stock
Number Paid-In (Accumulated Translation Number
of Shares Amount Capital Deficit) Adjustments of Shares Cost Total
Balance, December 28, 1991 10,000,000 $ 100 $ 199,900 $ (43,741) $ (42) 339,013 $(3,608) $152,609
Repurchase of common stock - - - - - 42,452 (505) (505)
Net income - - - 16,666 - - - 16,666
Issuance of shares under
employee stock purchase plan - - 29 - - (19,709) 212 241
Recognition of income tax
benefits of preconfirmation
net operating loss carry-
forwards -- -- 36,462 -- -- -- -- 36,462
Cumulative translation adjustments -- -- -- -- (1,052) -- -- (1,052)
---------- ---- ------- -------- -------- -------- ------- --------
Balance, December 26, 1992 10,000,000 100 236,391 (27,075) (1,094) 361,756 (3,901) 204,421
Repurchase of common stock -- -- -- -- -- 100,000 (3,100) (3,100)
Net income -- -- -- 21,136 -- -- -- 21,136
Issuance of shares under
employee stock purchase plan -- -- 75 -- -- (24,449) 263 338
Issuance of shares under
incentive stock option plan -- -- (60) -- -- (20,500) 229 169
Cumulative translation
adjustments -- -- -- -- (850) -- -- (850)
---------- ---- ------- -------- -------- -------- ------- --------
Balance, December 25, 1993 10,000,000 100 236,406 (5,939) (1,944) 416,807 (6,509) 222,114
Repurchase of common stock -- -- -- -- -- 924,875 (25,897) (25,897)
Net income -- -- -- 27,926 -- -- -- 27,926
Issuance of shares under
employee stock purchase plan -- -- 103 -- -- (21,212) 515 618
Recognition of income tax
benefits of preconfirmation
net operating loss carry-
forwards -- -- 17,916 -- -- -- -- 17,916
Issuance of shares under
incentive stock option plan -- -- (174) -- -- (19,447) 333 159
Cumulative translation adjustments -- -- -- -- (888) -- -- (888)
---------- ---- ------- -------- -------- --------- ------- --------
Balance, December 31, 1994 10,000,000 $ 100 $ 254,251 $ 21,987 $ (2,832) 1,301,023 $(31,558) $ 241,948
========== ==== ======= ======== ======== ========= ====== ========
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Mueller
Industries, Inc. and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
INVENTORIES
The Company's inventories are valued at the lower of cost or market. At
December 31, 1994, the material component of its copper tube and copper
fittings inventories was valued on a last-in, first-out (LIFO) basis. Other
inventories and the non-material components of copper tube and copper fittings
inventories were valued on a first-in, first-out (FIFO) basis. Generally,
inventory costs include materials, labor costs and manufacturing overhead.
Prior to 1994, all inventories were accounted for on a FIFO basis. See Note 2
for discussion of the accounting change.
DEPRECIATION, DEPLETION, AND AMORTIZATION
In general, depreciation and amortization of buildings, machinery and
equipment is provided on the straight-line method over the estimated useful
lives ranging from 20 to 40 years for buildings and 5 to 20 years for
machinery and equipment. Depletion of mineral properties is generally
computed using the units of production method.
REVENUE RECOGNITION
Revenue from the sale of products is recognized upon passage of title to
the customer, which, in most cases, coincides with shipment of the related
products to customers.
EMPLOYEE BENEFITS
The Company sponsors certain defined benefit pension plans that are
noncontributory, and cover certain union employees. The plans provide pension
benefits based on years of service and stated benefit amounts for each year of
service.
In addition to providing pension benefits, the Company sponsors certain
postretirement health and life insurance programs for certain union and
salaried employees, which are accounted for on the accrual method in
accordance with SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. These benefits are funded on a pay-as-you-go
basis and the cost is recognized as earned during the active service life of
employees. Certain retirees pay a premium which is based on the amount of
benefits paid during the year less an agreed upon amount that is paid by the
Company.
EARNINGS PER COMMON SHARE
Primary earnings per common share are based upon the weighted average
number of common and common equivalent shares outstanding during each period.
Fully diluted earnings per share are based upon the weighted average number of
common shares outstanding plus the dilutive effects of all outstanding stock
options.
INCOME TAXES
The Company accounts for income taxes under the liability method required
by SFAS No. 109, Accounting for Income Taxes.
CASH EQUIVALENTS
Temporary investments with maturities of three months or less are
considered to be cash equivalents. These investments are stated at cost. At
December 31, 1994 and December 25, 1993, temporary investments consisted of
certificates of deposit, commercial paper, bank repurchase agreements, and
U.S. and Foreign Government securities totalling $39.7 million and $76.0
million, respectively. These carrying amounts approximate fair value.
CONCENTRATIONS OF CREDIT AND MARKET RISK
Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers comprising the Company's customer
base, and their dispersion across different industries, including air
conditioning, refrigeration and plumbing wholesalers, hardware retailers,
automotive, original equipment manufacturers and others.
The Company minimizes its market risk of base metal price fluctuations
through various strategies. Generally, the Company prices an equivalent
amount of copper raw material under flexible pricing arrangements it maintains
with its suppliers, at the time it determines the selling price to its
customer.
The Company occasionally hedges portions of its inventories against price
fluctuations through the purchase of option contracts. Gains and losses on
hedging transactions are recognized in income at the time the underlying
inventory is sold. At year-end there were no open hedge transactions.
The Company's sales are principally denominated in and collected in U.S.
currency. Certain sales of the Company's foreign operations are collected in
foreign currencies. Generally, the market risk regarding foreign currency
exchange rate fluctuations is hedged using forward contracts. At year-end
there were no open forward contracts.
FOREIGN CURRENCY TRANSLATION
For foreign subsidiaries whose functional currency is the local foreign
currency, balance sheet accounts are translated at exchange rates in effect at
the end of the year and income statement accounts are translated at average
exchange rates for the year. Translation gains and losses are included as a
separate component of stockholders' equity. Transaction gains and losses
included in the statement of income were not significant.
RECLASSIFICATION
Certain amounts in the 1993 and 1992 consolidated financial statements
have been reclassified to conform with the 1994 presentation.
NOTE 2 INVENTORIES
In 1994, inventories are valued at the lower of cost or market on a last-
in, first-out (LIFO) basis for the copper component of copper tube and copper
fittings inventories, and on a first-in, first-out (FIFO) basis for other
components of inventories. In 1993, all inventories were valued at the lower
of cost or market on a FIFO basis.
(In thousands, except share data)
1994 1993
Raw materials and supplies $ 20,043 $ 8,662
Work-in-process 18,251 12,179
Finished goods 36,074 32,277
-------- --------
$ 74,368 $ 53,118
======== ========
Raw materials includes $4.6 million of gold inventory in 1994 and $.1
million in 1993.
During the third quarter of 1994, the Company elected to change the
method of valuing the material component of its copper tube and copper
fittings inventory, from the FIFO method, to the LIFO method. This change in
accounting principle was applied retroactively to the beginning of fiscal
1994. Management believes the LIFO method results in a better matching of
current costs with current revenues. Additionally, the LIFO method is widely
used within the copper tube and fittings industry. The effect of this change
reduced net income for the year-ended December 31, 1994, by $9.0 million (or
91 cents per share).
The cumulative effect of this accounting change and the pro forma effects
on prior years' earnings have not been included because such effects are not
reasonably determinable.
At December 31, 1994, $20.9 million of inventories were valued using the
LIFO method. The approximate FIFO current cost of such inventories was $34.0
million at December 31, 1994.
NOTE 3 PROPERTIES
Properties stated at fair value as of December 28, 1990, with subsequent
additions recorded at cost, are as follows:
(In thousands)
1994 1993
Land and land improvements $ 6,503 $ 6,369
Mineral reserves 1,485 2,296
Buildings, machinery and equipment 196,211 171,053
Construction in progress 32,953 4,430
-------- --------
237,152 184,148
Less accumulated depreciation,
depletion, and amortization (40,380) (29,745)
-------- --------
$ 196,772 $ 154,403
======== ========
NOTE 4 LONG-TERM DEBT
Long-term debt consists of the following:
(In thousands)
1994 1993
8.38% Notes, due through 2000 $ 21,429 $ 25,000
7.54% Unsecured Note Payable, due through 1999 20,000 20,000
1993 Series IRBs with interest at 6.95%, due
through 2000 17,143 -
1994 Series IRBs with interest at 8.825%, due
through 2001 16,714 -
Contribution Agreement, due through 1996 with
imputed interest at 10% 4,340 4,994
10.1% Note Payable, due through 1999, secured
by certain railroad trackage 2,678 3,128
Pollution Control Revenue Bonds, interest
at 8% to 8.125%, due through 2001 2,630 2,880
Retiree Obligation, due through 1995 with
imputed interest at 10% 2,617 6,365
Other, including capitalized lease obligations 7,185 344
-------- --------
94,736 62,711
Less current portion of long-term debt (18,611) (8,391)
-------- --------
Long-term debt $ 76,125 $ 54,320
======== ========
Aggregate annual maturities of such debt are $18.6 million, $17.5
million, $14.9 million, $15.0 million and $14.3 million for the years 1995
through 1999, respectively. Interest paid in 1994, 1993 and 1992 was $8.1
million, $6.0 million, and $4.8 million, respectively. During 1994, the
Company capitalized interest of $.7 million related to its major capital
improvement programs. Using a discounted cash flow analysis, the book value
of the Company's long-term debt approximates fair value, based on the
estimated current incremental borrowing rates for similar types of borrowing
arrangements.
On December 28, 1993, the Company, through a wholly owned subsidiary,
issued $20.0 million of 6.95% taxable Industrial Development Revenue Bonds due
December 15, 2000 (the 1993 Series IRBs). The 1993 Series IRBs are due in
quarterly installments of $.7 million plus interest beginning March 15, 1994
through December 15, 2000. Proceeds of the 1993 Series IRBs are being used to
fund a modernization project at the Company's Fulton, Mississippi copper tube
mill.
On June 28, 1994, the Company entered into agreement with a syndicate of
six banks to provide for (i) an unsecured line-of-credit facility (Credit
Facility) and (ii) the issuance of unsecured taxable Industrial Revenue Bonds
(the 1994 Series IRBs).
The Credit Facility provides availability of up to $30 million which
expires on June 30, 1996, but may be extended for successive one year periods
by agreement of the parties. Borrowings under the Credit Facility bear
interest, at the Company's option, at (i) prime rate less 1/2 of one percent,
(ii) LIBOR plus .8%, (iii) certificate of deposit rate plus 1.35%, or (iv)
Federal Funds Rate plus 1.8%. An annual commitment fee of 1/4 of one percent
per annum on the unused portion of the Credit Facility is payable quarterly.
Currently, the Company has no outstanding borrowings under the Credit
Facility. Availability of funds under the Credit Facility is reduced by the
amount of certain outstanding letters of credit, which currently total
approximately $3.5 million.
On June 28, 1994, the Company, through a wholly owned subsidiary, issued
an aggregate of $18.0 million of the 1994 Series IRBs which bear interest at
8.825%. The 1994 Series IRBs are due in quarterly installments of $.6 million
plus interest beginning September, 1994 through June, 2001. Proceeds of the
1994 Series IRBs are being used to fund a new high-volume copper fittings
plant adjacent to the Company's existing copper tube mill in Fulton,
Mississippi.
On December 22, 1994, the Company entered into an assumption agreement in
regards to the existing 8.38% Notes whereby the security (including the common
stock of a wholly owned subsidiary) was released in favor of guarantees by
certain wholly-owned subsidiaries. The terms on rate and maturity remained
unchanged.
Borrowings under the above agreements require the Company, among other
things, to maintain certain minimum levels of net worth and meet certain
minimum financial ratios. The Company is in compliance with all covenants.
The Company leases certain facilities and equipment under operating
leases expiring on various dates through 2004. The lease payments under these
agreements aggregate to approximately $4.4 million in 1995, $4.4 million in
1996, $4.3 million in 1997, $4.3 million in 1998, $3.9 million in 1999 and
$5.6 million thereafter. Total rent expense amounted to $6.9 million in 1994,
$5.0 million in 1993 and $5.8 million in 1992.
NOTE 5 STOCKHOLDERS' EQUITY
On June 3, 1994, the Company purchased 924,875 shares of its common
stock, for an aggregate purchase price of approximately $25.9 million. These
shares were placed in treasury and may be used for general corporate purposes,
such as requirements for future exercises of options under various option
plans.
On November 10, 1994, the Board of Directors declared a dividend
distribution of one Right for each outstanding share of the Company's common
stock. Each Right entitles the holder to purchase one unit consisting of one-
thousandth of a share of Series A Junior Participating Preferred Stock at a
purchase price of $160 per unit, subject to adjustment. The Rights will not
be exercisable, or transferable apart from the Company's common stock, until
ten (10) days following an announcement that a person or affiliated group has
acquired, or obtained the right to acquire, beneficial ownership of fifteen
percent (15%) or more of its common stock other than pursuant to certain
offers for all shares of the Company's common stock that have been determined
to be fair to, and in the best interest of, the Company's stockholders. The
Rights, which do not have voting rights, will be exercisable by all holders
(except for a holder or affiliated group beneficially owning 15% or more of
the Company's common stock, whose Rights will be void) so that each holder of
a Right shall have the right to receive, upon the exercise thereof, at the
then current exercise price, the number of shares of the Company's common
stock having a market value of two times the exercise price of the Rights.
All Rights expire on November 10, 2004, and may be redeemed by the Company at
a price of $.01 at any time prior to either their expiration or such time that
the Rights become exercisable.
In the event that the Company is acquired in a merger or other business
combination or certain other events occur, provision shall be made so that
each holder of a Right (except Rights previously voided) shall have the right
to receive, upon exercise thereof at the then current exercise price, the
number of shares of common stock of the surviving company which at the time of
such transaction would have a market value of two times the exercise price of
the Right.
In 1991, the Board of Directors authorized the Company to repurchase up
to 700,000 shares of its common stock. As of December 31, 1994, a total of
481,465 shares had been repurchased under this authorization, of which 105,317
shares were reissued to optionees under the Company's stock option plans.
As of December 31, 1994, the Company had reserved 1,819,683 shares of its
common stock for issuance pursuant to certain stock option plans.
Additionally, the Company had reserved 15,000 shares of preferred stock for
issuance pursuant to the Shareholder Rights Plan.
NOTE 6 INCOME TAXES
The Company adopted SFAS No. 109 as of the beginning of 1992. The
cumulative effect of this change in accounting for income taxes was $.4
million. Additionally, the adoption resulted in recognition of a $36.9
million deferred tax asset of which $36.5 million was a direct addition to
additional paid-in capital.
The components of income before income taxes were taxed under the
following jurisdictions:
(In thousands)
1994 1993 1992
Domestic $ 35,641 $ 30,955 $ 20,839
Foreign 5,183 2,488 3,460
-------- -------- --------
$ 40,824 $ 33,443 $ 24,299
======== ======== ========
Income tax expense consists of the following:
(In thousands)
1994 1993 1992
Current tax expense:
Federal $ 4,172 $ 153 $ 1,313
Foreign 2,476 1,108 1,350
State and local 1,502 2,020 2,400
-------- -------- --------
Current tax expense 8,150 3,281 5,063
-------- -------- --------
Deferred tax expense (benefit):
Federal 5,621 9,863 5,270
State and local (873) (837) (2,700)
-------- -------- --------
Deferred tax expense 4,748 9,026 2,570
-------- -------- --------
$ 12,898 $ 12,307 $ 7,633
======== ======== ========
The difference between the reported income tax expense and a tax
determined by applying the applicable U.S. federal statutory income tax rate
to income before taxes, is reconciled as follows:
(In thousands)
1994 1993 1992
Expected income tax expense $ 14,288 $ 11,705 $ 8,262
State and local income tax 976 538 (1,115)
Foreign income taxes 641 237 891
Valuation allowance (1,495) - -
Changes in estimated basis differences (1,065) - -
Effect of enacted tax rate change - (337) -
Cumulative effect of change in method of
accounting for income taxes - - (446)
Other, net (447) 164 41
-------- -------- --------
$ 12,898 $ 12,307 $ 7,633
======== ======== ========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
(In thousands)
1994 1993
Deferred tax assets:
Accounts receivable $ 1,849 $ 2,977
Inventories 4,856 782
Preferred stock 44,881 44,881
Pension, OPEB and accrued payroll items 11,798 10,538
Other accruals and reserves 16,068 17,921
Net operating loss carryforwards 52,140 64,884
Alternative minimum tax credit
carryforwards 4,243 4,188
-------- --------
Total deferred tax assets 135,835 146,171
Less valuation allowance (65,927) (85,338)
-------- --------
Deferred tax assets, net of
valuation allowance 69,908 60,833
-------- --------
Deferred tax liabilities:
Property, plant and equipment 41,798 46,296
Undistributed income of
foreign subsidiaries 1,931 1,931
Other 1,273 869
-------- --------
45,002 49,096
-------- --------
Net deferred tax asset $ 24,906 $ 11,737
======== ========
The Company's net operating loss carryforwards for federal income tax
purposes that expire prior to 2005 are subject to an annual limitation of
approximately $14.4 million. This annual limitation is, among other things,
based upon the Company's value and certain statutory interest rates in effect
at the time a "change in ownership" occurs. According to information
available to the Company, a "change of ownership," based upon cumulative
change over a three year period, occurred in June, 1994. Nevertheless, the
annual limitation of $14.4 million will remain available. A future "change in
ownership" could result in further limitations under certain circumstances.
The Internal Revenue Service (IRS) audit for 1992 and prior years was
concluded in 1994 and resulted in no material changes. Following the
conclusion of that audit, the Company entered into a Closing Agreement with
the IRS. This agreement is a definitive determination on certain tax
attributes, including NOLs. Following execution of this agreement, the
Company revised its estimates with respect to realization of the related
deferred tax assets in future years. The Company recognized $17.9 million of
these tax attributes, which reduced the valuation allowance and allocated the
benefit to paid-in capital. As additional NOLs are utilized, the Company
expects to recognize additional tax attributes over the next several years by
reducing the valuation allowance. The tax effect of future recognition of any
of the remaining NOLs of approximately $47.8 million will reduce the deferred
income tax provisions in the periods recognized.
As of December 31, 1994, the Company had net operating loss carryforwards
available to offset future federal taxable income of $149.0 million which
expire as follows: $55.2 million in 2000, $20.7 million in 2001, $6.5 million
in 2002, $59.8 million in 2005, and $6.8 million in 2006. In addition, the
Company has alternative minimum tax credit carryforwards of approximately $4.2
million which are available to reduce future federal regular income taxes, if
any, over an indefinite period.
Income taxes paid were approximately $7.8 million in 1994, $4.9 million
in 1993 and $2.5 million in 1992.
NOTE 7 EMPLOYEE BENEFITS
PENSION PLANS
Pension cost for the defined benefit plans sponsored by the Company
includes the following components:
(In thousands)
1994 1993 1992
Service cost of benefits earned
during the year $ 377 $ 277 $ 358
Interest cost on the projected
benefit obligation 3,144 2,947 3,068
Actual return on plan assets (2,863) (6,066) (2,434)
Net amortization and deferral 309 3,439 3
-------- -------- --------
Net periodic pension cost $ 967 $ 597 $ 995
======== ======== ========
Generally, the Company contributes such amounts as are necessary to pay
benefits to plan participants and to meet ERISA minimum funding requirements.
The plans' investments are held by a bank-administered trust fund.
The Company terminated one plan in 1992. All plan participants became
fully vested effective with the plan termination; annuity contracts and/or
cash payments were made to settle such obligations. The effect of the
termination was recognized during 1990.
In 1993, pursuant to a collective bargaining agreement then covering
approximately 65 employees, future participation in one of the Company's
single employer pension plans was curtailed in favor of participation in the
union multiemployer plan. Effective July 1, 1993, all future service accrues
in the multiemployer plan; service earned prior to that date remains the
obligation of the single employer plan. Effective December 31, 1994, this
plan was merged with another single employer defined benefit pension plan.
Each participant's accrued pension benefit, on the effective date of the
merger, was transferred to the surviving plan. Future service accruals were
not effected by this merger; they remain as dictated by the respective pension
plan documents.
Effective April 1, 1994, pursuant to a collective bargaining agreement,
one of the Company's single employer pension plans was amended, increasing the
accumulated benefit obligation. The effect of the amendment is reflected in
the table below.
A reconciliation of the funded status of the plans at December 31, 1994
and December 25, 1993, respectively, to the amounts recognized in the
consolidated balance sheet is as follows:
(In thousands)
1994 1993
Actuarial present value of:
Vested benefit obligation $ (40,935) $ (38,186)
-------- --------
Accumulated benefit obligation (44,016) (40,836)
-------- --------
Projected benefit obligation (44,016) (40,836)
Plan assets at fair value held in the pension
plan trusts, primarily listed stocks and
U.S. Government obligations 32,106 34,771
-------- --------
Plan assets less than projected benefit obligation (11,910) (6,065)
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions (3,002) (4,576)
Prior service cost not yet recognized in net
periodic pension cost 4,560 456
-------- --------
Accrued pension cost $ (10,352) $ (10,185)
======== ========
The range of assumed discount rates used in determining the actuarial
present value of the projected benefit obligations presented above was 7.0% to
7.75% for 1994 and 7.0% for 1993. For purposes of determining pension cost,
the assumed weighted average long-term rate of return on plan assets was 8.5%
for 1994, 1993 and 1992.
The Company makes contributions to certain multiemployer defined benefit
pension plan trusts that cover union employees based on collective bargaining
agreements. Contributions by employees are not required nor are they
permitted. Pension expense under the multiemployer defined benefit pension
plans was $.3 million in 1994, $.2 million in 1993, and $.3 million in 1992.
At December 31, 1994, the accrued pension cost presented above does not
include $1.1 million relating to potential statutory withdrawal liability
under the 1974 United Mine Workers of America Pension Trust. The withdrawal
liability arises due to the curtailment of coal mining operations at United
States Fuel Company.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the Company provides a fixed
portion of the costs of medical and life insurance benefits to certain retired
hourly and salary employees. Contribution rates are dictated by the
employees' retirement plan which is subject to periodic contract
renegotiation. The Company also provides the full cost of medical and life
benefits to certain United Mine Workers of America (UMWA) retirees.
In October, 1992, the Coal Industry Retiree Health Benefit Act of 1992
(the Act) was enacted. The Act mandates a method of providing for
postretirement benefits to UMWA current and retired employees, including some
retirees who were never employed by the Company. In October, 1993,
beneficiaries were assigned to the Company and the Company began its mandated
contributions to the UMWA Combined Benefit Fund, a multiemployer trust.
During 1994, the Company was required to begin making contributions for
assigned beneficiaries under an additional multiemployer trust created by the
Act, the UMWA 1992 Benefit Plan. The ultimate amount of this liability will
vary due to factors which include, among other things, the validity,
interpretation and regulation of the Act, its joint and several obligation,
the number of valid beneficiaries assigned, and the extent to which funding
for this obligation will be satisfied by transfers of excess assets from the
1950 UMWA pension plan and transfers from the Abandoned Mine Reclamation Fund.
Nonetheless, the Company believes it has an adequate reserve for this
liability, which is classified as other noncurrent liabilities.
The following table shows funded status reconciled with the amounts
recognized in the Company's financial statements:
(In thousands)
1994 1993
Accumulated postretirement benefit obligation:
Retirees $ (8,679) $ (8,152)
Fully eligible active plan participants (500) (392)
Other active plan participants (433) (476)
-------- --------
(9,612) (9,020)
Plan assets at fair value - -
-------- --------
Accumulated postretirement benefit obligation
in excess of plan assets (9,612) (9,020)
Unrecognized net loss 647 151
-------- --------
Accrued postretirement benefit cost $ (8,965) $ (8,869)
======== ========
Net periodic postretirement benefit cost was $.8 million in 1994, $.7
million in 1993 and $.5 million in 1992.
The cost of medical and life insurance benefits for retired employees
reflected above does not include $1.1 million at December 31, 1994 and $.6
million at December 25, 1993 related to the provision of medical and other
welfare benefits under certain defined benefit multiemployer plans. The
actuarially determined present value of the accumulated postretirement benefit
obligation was calculated using a discount rates ranging from 7.0% to 8.5% for
1994 and from 7.0% to 7.5% for 1993.
The assumed weighted-average annual rate of increase in the per capita
cost of covered benefits ranges from 9.98% to 11.18% for 1995 and is assumed
to ultimately decrease to rate of 6.25% by 2003 and remain at that level
thereafter. A one percentage point increase in the assumed trend rates for
each year would not have a significant effect on the expected postretirement
benefit obligation.
Included in the caption "Accrued wages and other employee costs" is the
current portion of postretirement benefit obligation of $.7 million in 1994
and 1993.
NOTE 8 COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
The Company is subject to environmental standards imposed by federal,
state and local environmental laws and regulations. It has provided and
charged to income $2.9 million in 1994 and $1.1 million in 1993 for pending
environmental matters related to natural resources operations. No charges
were required for 1992. Of the 1994 charge, $2.5 million pertains to
previously identified locations requiring remediation. The basis for the
increase is updated information and results of ongoing remediation and
monitoring programs. Management believes that the outcome of pending
environmental matters will not materially affect the overall financial
position of the Company.
PURCHASE COMMITMENTS
The Company has committed to capital expenditures for the following
projects: (i) approximately $20.0 million to modernize the copper tube mill
in Fulton, Mississippi; (ii) approximately $15.0 million to modernize the
brass rod mill in Port Huron, Michigan; and (iii) approximately $22.0 million
to construct a new high-volume copper fitting facility adjacent to the
Company's copper tube mill in Fulton, Mississippi. As of December 31, 1994,
$27.1 million has been incurred of which $22.7 million was funded with
proceeds of the 1993 and 1994 Series IRBs. At December 31, 1994, $16.1
million of the IRB proceeds remain escrowed, until required for funding the
projects, and are classified as other assets. These approved major projects
should become fully operational in 1995. No other material purchase
commitments for capital expenditures exist.
LITIGATION
The Company is involved in certain litigation as a result of claims that
arise in the ordinary course of business, which management believes will not
have a material adverse affect on the Company's financial condition.
NOTE 9 UNUSUAL ITEMS
During 1994, the Company recognized a $1.1 million charge for outstanding
insurance matters primarily related to estimated workers compensation claims
for years prior to 1993.
During 1993, the Company recognized a $1.4 million charge for the
potential pension withdrawal liability of its United States Fuel Company
subsidiary. See Note 7 for additional discussion. Additionally, a provision
of $.6 million was recognized for the settlement of certain litigation.
In 1992, the Company recognized a charge of $5.6 million consisting of
(i) a $2.0 million write-off of preferred stock, and (ii) a $3.6 million
reserve for a note receivable.
NOTE 10 OTHER INCOME
"Other income, net" included in the consolidated statements of income
consists of the following:
(In thousands)
1994 1993 1992
Rent and royalties $ 1,068 $ 1,275 $ 2,072
Interest income 2,865 2,187 822
Gain on disposal of properties, net 3,159 1,262 3,417
Other 552 (465) -
-------- -------- --------
$ 7,644 $ 4,259 $ 6,311
======== ======== ========
In 1994, the gain on disposal of properties was primarily due to various
sales of non operating natural resource properties.
On December 15, 1992, the Company's subsidiary, Bayard Mining
Corporation, sold its Continental Mine and related assets located in Grant
County, New Mexico for a net gain of $3.8 million. The mine had been idle
since 1982.
In 1992, the Company sold certain assets of its U-Brand malleable iron
business. In 1993 and 1994, the Company recognized gains of approximately
$1.2 million and $.8 million respectively as a result of that transaction
which provided for additional payments contingent upon certain sales
performance criteria.
NOTE 11 STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLANS
During 1994, the stockholders approved the adoption of the 1994 Stock
Option Plan (SOP Plan). Under this plan, the Company may grant options to
purchase up to 200,000 shares of common stock at prices not less than the fair
market value of the stock on the day of the grant. Generally, any unexercised
options expire after not more than ten years. No options may be granted under
this plan after ten years from the date the SOP Plan was adopted. The
stockholders also approved the adoption of the 1994 Non-Employee Director
Stock Option Plan (Directors Plan). Options to purchase up to 25,000 shares
of common stock may be granted under this plan at a price not less than the
fair market value of the stock on the day of the grant. Generally, any
unexercised options granted under this plan shall expire on a date which is
five years from the date of option grant.
Under the 1991 Incentive Stock Option Plan (ISO Plan), the Company may
grant options to purchase up to 250,000 shares of common stock at prices not
less than the fair market value of the stock on the date of grant. Generally,
any unexercised options expire after not more than ten years. No options may
be granted under this plan after ten years from the date the ISO Plan was
adopted.
On December 4, 1991, the Company authorized a special stock option grant
of 500,000 shares to induce Mr. Harvey L. Karp to enter into an employment
agreement with the Company. The exercise price, $8.25 per share, was the fair
market value on the date of grant. Generally, the options expire one year
after Mr. Karp's separation from employment with the Company unless Mr. Karp
is terminated for cause. On January 30, 1992, the Board approved and
authorized a transaction whereby Mr. Karp was granted options to purchase an
additional 500,000 shares, which was subsequently reduced by 100,000 option
shares which the Company issued to secure the employment of Mr. William D.
O'Hagan. Mr. Karp's additional grant of options is on the same terms and
conditions, and at the same price, as the original grant. Although neither
Mr. Karp's nor Mr. O'Hagan's options were granted under the ISO Plan, the
terms and conditions of Mr. O'Hagan's options are generally similar to those
granted under the ISO Plan.
Following is a summary of incentive stock option data:
1994 1993
Outstanding at beginning of year 1,190,500 1,167,500
Granted 99,000 75,000
Exercised (19,447) (20,500)
Expired, cancelled, or surrendered (4,000) (31,500)
--------- ---------
Outstanding at year-end 1,266,053 1,190,500
--------- ---------
Options exercisable at year-end 976,353 933,500
--------- ---------
Option prices per share outstanding at year-end $7.25 - $35.75 $7.25 - $32.50
------------- -------------
Under the Amended and Restated Mueller Industries, Inc. 1991 Employee
Stock Purchase Plan (the EMSP Plan), the Company may offer to eligible
employees (generally all full-time employees) options to purchase up to three
shares of the Company's common stock for each $1,000 of compensation. The
option price is the lower of (i) 85% of the fair value of the stock on the
offering date, or (ii) 85% of the fair value of the stock on the last day of
the one-year offering period. The maximum number of shares which shall be
made available for sale under the EMSP Plan during all offerings shall be
450,000 shares. Under the EMSP Plan, 65,370 shares have been issued. During
the offering period beginning July 1, 1994, options for 26,173
shares were granted. Of the grants, 1,821 share options were cancelled or
surrendered due to participant terminations and voluntary withdrawals as
provided by the EMSP Plan. At December 31, 1994, options to purchase 24,352
shares were outstanding at the exercise price of $24.97 per share under the
EMSP Plan.
NOTE 12 INDUSTRY SEGMENTS
The Company is engaged in the manufacture and sale of copper, brass,
bronze, aluminum, and plastic products, and in natural resource operations
consisting principally of placer gold mining, as well as the operation of a
Class III short line railroad. Income and expenses not allocated to industry
segments in computing operating income include general corporate income and
expense, interest expense and interest income. General corporate assets are
principally cash and temporary investments and corporate headquarter
facilities. There are no intersegment sales. The Company does not have
significant foreign operations and, accordingly, geographical segment
information is not presented. Industry segment information is as follows:
(In thousands)
1994 1993 1992
Net sales:
Manufacturing $ 533,389 $ 478,287 $ 494,704
Natural resources 16,614 23,598 22,635
-------- -------- --------
$ 550,003 $ 501,885 $ 517,339
======== ======== ========
Operating income:
Manufacturing $ 47,932 $ 38,052 $ 26,419
Natural resources 1,651 5,534 4,252
General corporate (5,631) (5,559) (1,353)
-------- -------- --------
43,952 38,027 29,318
Non-operating income, net 3,590 1,175 675
Interest expense (6,718) (5,759) (5,694)
-------- -------- --------
Consolidated income before income taxes $ 40,824 $ 33,443 $ 24,299
======== ======== ========
Provision for depreciation, depletion
and amortization:
Manufacturing $ 9,845 $ 9,172 $ 9,198
Natural resources 1,159 3,791 2,332
General corporate 1,685 1,197 975
-------- -------- --------
$ 12,689 $ 14,160 $ 12,505
======== ======== ========
Capital expenditures:
Manufacturing $ 37,095 $ 8,039 $ 6,930
Natural resources 4,028 356 80
General corporate 7,029 2,688 3,942
-------- -------- --------
$ 48,152 $ 11,083 $ 10,952
======== ======== ========
Identifiable assets:
Manufacturing $ 318,351 $ 269,189 $ 278,524
Natural resources 38,042 34,316 40,768
-------- -------- --------
356,393 303,505 319,292
General corporate 74,362 66,238 53,255
-------- -------- --------
$ 430,755 $ 369,743 $ 372,547
======== ======== ========
NOTE 13 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial results by quarter are as follows:
(In thousands, except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1994
Net sales $ 120,812 $ 136,576 $ 137,975 $ 154,640
Gross profit (1) $ 21,027 $ 24,131 $ 24,722 $ 31,656
Net income $ 4,182 $ 5,778 $ 8,518 $ 9,448
Net income per share $ .40 $ .57 $ .90 $ 1.00
1993
Net sales $ 131,037 $ 127,321 $ 122,106 $ 121,421
Gross profit (1) $ 22,781 $ 23,898 $ 25,777 $ 25,654
Net income $ 4,213 $ 5,312 $ 5,635 $ 5,976(2)
Net income per share $ .41 $ .51 $ .54 $ .57
(1) Gross profit is net sales less cost of goods sold, which
excludes depreciation, depletion, and amortization.
(2) A change in inventory estimate was recognized in addition to the
items described in Notes 9 and 10.
REPORT OF INDEPENDENT AUDITORS
The Stockholders of Mueller Industries, Inc.
We have audited the accompanying consolidated balance sheets of Mueller
Industries, Inc. as of December 31, 1994 and December 25, 1993 and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Mueller Industries, Inc. at December 31, 1994 and December 25, 1993, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in 1994
the Company changed its method of accounting for the material component of
some inventories.
ERNST AND YOUNG LLP
Wichita, Kansas
February 8, 1995
CAPITAL STOCK INFORMATION
The high, low and closing prices on the New York Stock Exchange for each
fiscal quarter of 1994 and 1993 were as follows:
1994 High Low Close
Fourth quarter $ 34 $ 26-7/8 $ 29-7/8
Third quarter $ 35-1/2 $ 28-1/2 $ 33-3/4
Second quarter $ 35-1/8 $ 30-1/8 $ 30-1/8
First quarter $ 38-5/8 $ 32-3/4 $ 34-1/2
1993 High Low Close
Fourth quarter $ 35 $ 31-1/4 $ 33-3/4
Third quarter $ 34-1/4 $ 27-1/8 $ 31-7/8
Second quarter $ 34-3/4 $ 23-5/8 $ 32-3/8
First quarter $ 27-1/8 $ 20 $ 24-3/8
The principal market for Mueller's common stock is the New York Stock
Exchange under the symbol MLI. As of March 1, 1995, the number of holders of
record of Mueller's common stock was 4,025. The New York Stock Exchange's
closing price for Mueller's common stock on March 1, 1995 was $31 1/2.
The Company has paid no dividends on its common stock and presently does
not anticipate paying cash dividends in the near future.
SELECTED FINANCIAL DATA
(In thousands, except share data)
1994 1993 1992 1991 1990(1)
For the fiscal year: | (Predecessor)
|
Net sales $ 550,003 $ 501,885 $ 517,339 $ 441,431 |$ 505,376
Operating income (loss)(2) $ 43,952 $ 38,027 $ 29,318 $ (1,638) |$ (4,491)
Income (loss) from |
continuing operations(3) $ 27,926 $ 21,136 $ 16,666 $ (43,741) |$ (9,342)
Income (loss) from |
continuing operations |
per common share (3) $ 2.82 $ 2.02 $ 1.66 $ (4.49) | *
- ---------------------------------------------------------------------------------------------
At Year End:
Total assets $ 430,755 $ 369,743 $ 372,547 $ 334,786 $ 415,603
Long-term debt $ 76,125 $ 54,320 $ 62,376 $ 45,156 $ 54,003
- ---------------------------------------------------------------------------------------------
At December 31, 1990, the Company adopted AICPA SOP 90-7, Financial Reporting by Entities
in Reorganization under the Bankruptcy Code. The SOP requires that the financial statements be
prepared on the basis that a new reporting entity is created and that assets and liabilities
should be recorded at their fair values as of the reorganization date based on the specific
elements of the Plan. Since December 31, 1990, the consolidated financial statements have been
prepared as if the Company is a new reporting entity, and therefore a black line has been
presented between years which have not been prepared on a comparable basis.
* Amounts are not comparable due to the reorganization of the Company.
(1) Previously reported consolidated financial information has been restated to reflect the
discontinuance and disposition of the steel segment of the Company's businesses on
December 28, 1990.
(2) In 1994, the Company changed its method of accounting for the copper component of its copper tube
and copper fittings inventories to the LIFO method.
(3) Includes charges for unusual items of $1.1 million, or $.12 per common share, in 1994, $2.0
million, or $.19 per common share, in 1993, $5.6 million, or $.56 per common share, in 1992, and
$44.4 million, or $4.56 per common share, in 1991.
CORPORATE AND STOCKHOLDER INFORMATION
BOARD OF DIRECTORS
Harvey L. Karp Chairman of the Board
Mueller Industries, Inc.
Robert B. Hodes (1) (3) Partner, Willkie Farr & Gallagher
Allan Mactier (1) (2) (3) Private Investor
William D. O'Hagan President and Chief Executive Officer
Mueller Industries, Inc.
Robert J. Pasquarelli (1) (2) Chief Executive Officer of New Jersey
Steel Corporation
OFFICERS
Harvey L. Karp Chairman of the Board
William D. O'Hagan President and Chief Executive Officer
Earl W. Bunkers Executive Vice President and
Chief Financial Officer
Harvey W. Clements Vice President and General Manager -
Tube Division
John B. Hansen Vice President and General Manager -
Fittings Division
William H. Hensley Vice President, General Counsel and
Secretary
Richard G. Miller Vice President and Chief Information
Officer
Lee R. Nyman Vice President - Manufacturing/Management
Engineering
James H. Rourke Vice President and General Manager -
Industrial Division
Roy C. Harris Corporate Controller
Kent A. McKee Treasurer and Assistant Secretary
[FN]
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
Corporate Headquarters 2959 North Rock Road, Wichita, Kansas, 67226
P.O. Box 789761, Wichita, Kansas, 67278-9761
(316) 636-6300
Annual Meeting The Annual Meeting of Stockholders will be
held at the Wichita Marriott, 9100 Corporate
Hills Drive, Wichita, Kansas 67207 at 10:00
a.m. local time, May 9, 1995.
Form 10-K Copies of the Company's Annual Report on
Form 10-K are available upon written request
from the Treasurer, Mueller Industries,
Inc., P.O. Box 789761, Wichita, Kansas
67278-9761.
Common Stock Mueller common stock is traded on the NYSE -
Symbol MLI.
Independent Auditors Ernst & Young LLP, Wichita, Kansas.
Transfer Agent and Registrar Continental Stock Transfer & Trust Co.,
2 Broadway,New York, New York 10004
Stockholder Inquiries To notify the Company of address changes or
lost certificates, stockholders can call
Continental Stock Transfer & Trust Co. at
(212) 509-4000.