<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended
September 30, 1999, or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the transition period
from __________ to __________.
Commission File Number: 0-4791
PAUL MUELLER COMPANY
- ---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Missouri
- ---------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
44-0520907
- ---------------------------------------------------------------------
(I.R.S. Employer Identification No.)
1600 W. Phelps Street, P.O. Box 828, Springfield, Missouri 65801-0828
- ---------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (417) 831-3000
- ---------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all re-
ports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate the number of shares outstanding of the issuer's Common Stock
as of November 9, 1999: 1,174,021
<PAGE> 2
PART I - FINANCIAL INFORMATION
The condensed financial statements included herein have been prepared
by the Company without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in the financial statements,
prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that
these condensed financial statements be read in connection with the
financial statements and the notes thereto included in the Company's
latest annual report on Form 10-K. This report reflects all adjust-
ments of a normal recurring nature which are, in the opinion of man-
agement, necessary for a fair statement of the results for the interim
period.
2
<PAGE> 3
PAUL MUELLER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Sept. 30 Dec. 31
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash............................................ $ 2,557 $ 1,358
Available-for-sale investments, at market....... 3,144 5,254
Accounts and notes receivable, less reserve
of $528 at September 30, 1999, and $642
at December 31, 1998, for doubtful accounts... 16,255 16,030
Inventories (Note 2) -
Raw materials and components.................. $ 5,514 $ 6,257
Work-in-process............................... 4,236 1,808
Finished goods................................ 2,246 2,248
-------- --------
$ 11,996 $ 10,313
Prepayments..................................... 567 437
-------- --------
Total Current Assets........................ $ 34,519 $ 33,392
Other Assets (Note 5) ............................ 4,065 2,956
Property, Plant & Equipment, at cost.............. $ 59,353 $ 58,787
Less - Accumulated depreciation................. 40,944 39,998
-------- --------
$ 18,409 $ 18,789
-------- --------
$ 56,993 $ 55,137
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable................................ $ 4,508 $ 3,077
Accrued expenses................................ 5,940 6,378
Advance billings................................ 6,994 4,514
-------- --------
Total Current Liabilities................... $ 17,442 $ 13,969
Other Long-Term Liabilities....................... 1,157 1,160
Contingencies (Note 4)............................
Shareholders' Investment:
Common Stock, par value $1 per share --
Authorized 20,000,000 shares --
Issued 1,348,325 shares....................... $ 1,348 $ 1,342
Preferred Stock, par value $1 per share --
Authorized 1,000,000 shares --
No shares issued.............................. - -
Paid-in surplus................................. 4,496 4,307
Retained earnings............................... 35,286 36,913
-------- --------
$ 41,130 $ 42,562
Less - Treasury stock, 174,304 shares at
September 30, 1999, and December 31,
1998, at cost............................ 2,554 2,554
Deferred compensation (Note 3)............. 182 -
-------- --------
$ 38,394 $ 40,008
-------- --------
$ 56,993 $ 55,137
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE> 4
PAUL MUELLER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales..................... $ 23,603 $ 25,126 $ 66,668 $ 67,360
Cost of Sales................. 19,204 19,156 51,903 49,722
-------- -------- -------- --------
Gross Profit.............. $ 4,399 $ 5,970 $ 14,765 $ 17,638
Selling, General and
Administrative Expenses..... 4,660 4,453 13,490 12,973
-------- -------- -------- --------
Operating Income.......... $ (261) $ 1,517 $ 1,275 $ 4,665
Other Income (Expense):
Interest income............. $ 87 $ 103 $ 263 $ 297
Interest expense............ (2) (2) (6) (12)
Other, net (Note 4)......... (75) 7 (871) 169
-------- -------- -------- --------
$ 10 $ 108 $ (614) $ 454
-------- -------- -------- --------
Income (Loss) before
Income Taxes................ $ (251) $ 1,625 $ 661 $ 5,119
Provision (Benefit) for
Income Taxes................ (101) 508 178 1,617
-------- -------- -------- --------
Net Income (Loss)......... $ (150) $ 1,117 $ 483 $ 3,502
======== ======== ======== ========
Basic and Diluted
Earnings (Loss) per
Common Share (Note 3)....... $ (0.13) $ 0.96 $ 0.41 $ 3.00
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
PAUL MUELLER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income.................................... $ 483 $ 3,502
Adjustments to reconcile net income to net
cash provided by operating activities:
Bad debts (recoveries)...................... (39) (5)
Depreciation and amortization............... 2,160 1,932
(Gain) on sales of fixed assets............. - (7)
Changes in assets and liabilities -
Decrease in interest receivable........... 58 83
(Increase) decrease in accounts
and notes receivable.................... (187) 3,129
(Increase) in inventory................... (1,683) (4,301)
(Increase) in prepayments................. (130) (567)
(Increase) decrease in other assets....... (68) 103
Increase (decrease) in accounts payable... 1,431 (270)
(Decrease) increase in accrued expenses... (438) 1,495
Increase in advance billings.............. 2,480 282
(Decrease) in long-term liabilities....... (3) (165)
-------- --------
Net Cash Provided by Operations......... $ 4,064 $ 5,211
Cash Flows Provided (Requirements) from
Investing Activities:
Proceeds from maturities of investments....... $ 9,030 $ 10,485
Purchases of investments...................... (6,978) (10,469)
Investment in joint venture................... (1,083) -
Proceeds from sale of equipment............... 9 9
Additions to property, plant and equipment.... (1,734) (3,999)
-------- --------
Net Cash (Required) from
Investing Activities.................. $ (756) $ (3,974)
Cash Flows (Requirements) from
Financing Activities:
Dividends paid................................ $ (2,109) $ (2,102)
-------- --------
Net Cash (Required) by
Financing Activities.................. $ (2,109) $ (2,102)
-------- --------
Net Increase (Decrease) in Cash................. $ 1,199 $ (865)
Cash at Beginning of Period..................... 1,358 3,402
-------- --------
Cash at End of Period................... $ 2,557 $ 2,537
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest.................................... $ 9 $ 14
Income taxes................................ 115 1,372
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
PAUL MUELLER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(Unaudited)
1. The condensed financial statements include the accounts of Paul
Mueller Company (Company) and its wholly owned subsidiaries,
Mueller International Sales Corporation, Mueller Transportation,
Inc., and Mueller Field Operations, Inc. A summary of the
significant accounting policies is included in Note 1 to the
consolidated financial statements included in the Company's
annual report on Form 10-K for the year ended December 31, 1998.
2. Inventory is recorded at the lower of cost, last-in, first-out
(LIFO), or market.
Because the inventory determination under the LIFO method can only
be made at the end of each fiscal year based on the inventory
levels and costs at that time, interim LIFO determinations,
including those at September 30, 1999, must necessarily be based
on management's estimates of expected year-end inventory levels
and costs. Since estimates of future inventory levels and costs
are subject to many factors beyond the control of management,
interim financial results are subject to final year-end LIFO
inventory amounts. Accordingly, inventory components reported
for the period ending September 30, 1999, are estimates based on
management's knowledge of the Company's production cycle, the
costs associated with this cycle, and the sales and purchasing
volume of the Company.
3. On May 13, 1999, 6,000 shares of restricted common stock and
nonqualified stock options for 20,400 shares of common stock,
at a grant price of $36.00 per share, were awarded to key mem-
bers of management with vesting periods of five (5) years. The
market value of the restricted stock was $32.50 per share on the
date of award, and the unamortized balance of deferred compensa-
tion is included under Shareholders' Investment on the accom-
panying consolidated balance sheets. The 20,400 shares related
to the nonqualified stock options were not considered in the
diluted earnings per share computation because they would have
been antidilutive.
The following table sets forth the computation of basic and
diluted earnings per common share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- ----------------------
9-30-99 9-30-98 9-30-99 9-30-98
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss).......... $ (150,000) $1,117,000 $ 483,000 $3,502,000
========== ========== ========== ==========
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............ - - 152 -
---------- ---------- ---------- ----------
Shares for diluted earnings
per common share -
Adjusted weighted average
shares outstanding....... 1,168,021 1,168,021 1,168,173 1,168,021
========== ========== ========== ==========
Basic earnings (loss)
per common share......... $(0.13) $ 0.96 $ 0.41 $ 3.00
====== ====== ====== ======
Diluted earnings (loss)
per common share......... $(0.13) $ 0.96 $ 0.41 $ 3.00
====== ====== ====== ======
</TABLE>
4. As previously reported, the Company was the defendant in a breach-
of-contract/breach-of-warranty lawsuit concerning reactor vessels
sold in 1992 in Tarrant County, Texas (Alcon Laboratories, Inc.
versus Paul Mueller Company). As a result of a trial that ended
in September 1997, the Company received an adverse decision, and
the final judgment awarded damages, interest, and attorneys' fees
totaling $1,700,000 to the Plaintiff. The decision also provided
6
<PAGE> 7
that interest at 10% compounded annually would accrue on the
judgment amount until paid.
Management believed the decision was incorrect and, based on
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 Company decided not to pursue an addi-
tional appeal.
On June 21, 1999, the Company was able to reach a settlement with
Alcon Laboratories, Inc., in the amount of $1,875,000. As a
result of the settlement, the Company increased its reserve for
the lawsuit in the second quarter to fully accrue for its lia-
bility. The addition to the reserve was $734,000, and it is
included in Other, net on the Consolidated Condensed Statements
of Income.
The Company is a defendant in two lawsuits pending at September
30, 1999. In the opinion of management, after consultation with
legal counsel, the outcome of these lawsuits will not have a
material adverse effect on the Company's consolidated financial
statements.
The Company currently employs approximately 850 people, of which
nearly 380 are represented by the Sheet Metal Workers Union. The
International Union called a strike beginning July 25, 1995, and
currently 19 employees are participating.
5. On August 17, 1999, the Company established a joint venture when
it acquired 50% of the common stock of Mueller Montana de Mexico,
a Mexican fabricator of processing equipment, for a price of
$1,083,000. Fifty percent (50%) of the price was a contribu-
tion to the capital of Mueller Montana de Mexico for the benefit
of all shareholders and fifty percent (50%) was paid to former
shareholders. The investment in the joint venture was not
material to the Company's financial position or results of
operations. The investment is included in Other Assets on the
Consolidated Condensed Balance Sheets.
6. The Company 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 the nine months ended September 30, 1999 and 1998, were as
follows:
<TABLE>
<CAPTION>
Three Months Ended September 30
---------------------------------------------------------------
(dollars in thousands)
Dairy Farm Industrial Other /
Equipment Equipment Corporate Consolidated
--------------- --------------- --------------- ---------------
1999 1998 1999 1998 1999 1998 1999 1998
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
from
external
custo-
mers..... $ 6,377 $ 6,301 $17,226 $18,825 $ - $ - $23,603 $25,126
Income
(loss)
before
income
tax...... $ 821 $ 943 $(1,139)$ 305 $ 67 $ 377 $ (251)$ 1,625
<CAPTION>
Nine Months Ended September 30
---------------------------------------------------------------
(dollars in thousands)
Dairy Farm Industrial Other /
Equipment Equipment Corporate Consolidated
--------------- --------------- --------------- ---------------
1999 1998 1999 1998 1999 1998 1999 1998
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
from
external
custo-
mers..... $18,366 $15,402 $48,302 $51,958 $ - $ - $66,668 $67,360
Income
(loss)
before
income
tax...... $ 2,536 $ 2,069 $(1,249)$ 2,602 $ (626)$ 448 $ 661 $ 5,119
</TABLE>
7
<PAGE> 8
PAUL MUELLER COMPANY AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF OPERATING RESULTS
AND FINANCIAL CONDITION
The following is Management's Discussion and Analysis of the signifi-
cant factors 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 Company's execution of internal performance plans,
economic conditions in key export markets, the level of capital
expenditures in the U.S. economy, and other changes to business
conditions.
OPERATING RESULTS
Sales for the three months ended September 30, 1999, were $23,603,000
versus sales of $25,126,000 for the three months ended September 30,
1998. Overall, sales were lower by $1,523,000, with the decrease
attributable to the Industrial Equipment segment, as Dairy Farm
Equipment sales increased very slightly. The lower sales were in
part due to a reduced backlog for the Processing Equipment product
line, within the Industrial Equipment segment, at June 30, 1999,
compared to June 30, 1998. Also, delays by customers for projects
that were in-house reduced the availability of work and shipments
during the third quarter of 1999, particularly for the Processing
Equipment product line. When comparing the third quarter of 1999
to the third quarter of 1998, the sales of Beverage Processing
Equipment were substantially lower in 1999, as 1998 included
several large shipments of custom-fabricated Beverage Equipment
to a Japanese customer. Sales of Dairy Farm Equipment rose only
slightly when comparing the third quarter of 1999 to the third
quarter of 1998, as sales were higher to the domestic market,
but were offset by lower export sales.
The gross profit rate for the third quarter of 1999 was 18.6% com-
pared to 23.8% for the third quarter of 1998. The reduction in the
gross profit rate was due to (a) the $1,523,000 decline in sales and
(b) lower gross margins. Margins were particularly lower on our
custom-fabricated Processing Equipment, as the workload was down
substantially during the third quarter of 1999 compared to the third
quarter of 1998. The low workload, coupled with delays by custo-
mers on projects in-house, contributed to inefficiency in the shop.
Additionally, very competitive pricing conditions in the marketplace
continued to put pressure on margins. In contrast, the third
quarter of 1998 included a much greater workload for custom-
fabricated Processing Equipment and a more profitable mix of
projects. Manufacturing burden was comparable for the third quar-
ter of 1999 and the third quarter of 1998. These factors all
contributed to the lower profitability of the Industrial Equipment
segment for 1999 compared to 1998.
Selling, general and administrative expenses were unfavorable by
$207,000 when comparing the third quarter ended September 30, 1999,
with the same period of a year ago. Higher expenditures were in-
curred for compensation, manufacturers' representative's commissions,
warranty, and insurance.
8
<PAGE> 9
Other income (expense) decreased for the third quarter of 1999 com-
pared to the third quarter of 1998. The reduction was due to lower
trucking income and royalty income and to a decrease in interest
income, as both the level of investable funds and average interest
rates were lower in 1999 compared to 1998.
The effective tax rate for the third quarter of 1999 and 1998 varied
from the statutory tax rate (34%) primarily as a result of tax-
exempt interest and the lower effective tax rate of the Foreign
Sales Corporation (FSC).
Sales for the nine months ended September 30, 1999 and 1998, were
$66,668,000 and $67,360,000, respectively. Industrial Equipment
sales declined by $3,656,000, while Dairy Farm Equipment sales
improved by $2,964,000. The reduction in Industrial Equipment sales
was due to an 18% decrease in sales of custom-fabricated Processing
Equipment when comparing periods. The backlog for Processing
Equipment at December 31, 1998, was 31% lower than the December 31,
1997, backlog, which included several large projects for Processing
Equipment. As mentioned above, sales of custom-fabricated Beverage
Equipment were substantially lower in 1999 compared to 1998 pri-
marily due to a large project for a Japanese customer. Sales of
Dairy Farm Equipment were 19% higher when comparing the first three
quarters of 1999 to the first three quarters of 1998. The increase
came entirely from the domestic market, as export sales were down by
approximately $1,000,000. The favorable milk prices and feed prices
in the domestic market, along with continuing farm consolidation,
were the main reasons for the improved sales. Export sales of Dairy
Farm Equipment were adversely affected by the financial problems in
the Asian market and poor market conditions in the United Kingdom
market.
The gross profit rate for the nine months ended September 30, 1999,
was 22.1% versus 26.2% for the comparable period of 1998. The
primary reasons for the decline in the gross profit rate were a
lower volume of work and sales as mentioned above and lower gross
margin rates. The lower sales related to the Industrial Equipment
segment, and more particularly the Processing Equipment product line.
Beginning 1999 with a substantially lower backlog led to a lower
volume of work in the factory and lower sales. At the same time,
as a result of the low workload, manufacturing burden was higher,
resulting in a reduction in profitability. The gross margin rate
was adversely affected by very competitive pricing, particularly on
custom-fabricated Processing Equipment. Additionally, the low
workload in the factory and delays by customers contributed to
unfavorable labor performance. The lower volume of work and sales
and the lower gross margins were all significant contributors to
the decline in profitability for the Industrial Equipment segment
between 1999 and 1998.
Selling, general, and administrative expenses were higher for the
first nine months of 1999 by $517,000 compared to the first nine
months of 1998. Expenditures were higher for personnel costs,
manufacturers' representative's commissions, warranty, product
development expenses, and insurance. The increase in selling,
general, and administrative expense is reasonable in view of the
fact that order entry was higher by 20% for the Industrial
Equipment segment and higher by 62% for the Dairy Farm Equipment
segment for the first nine months of 1999 compared to the first
nine months of 1998.
Other income (expense) was significantly lower for the nine months
ended September 30, 1999, compared to the nine months ended September
30, 1998. Interest income declined due to lower average interest
rates and a lower level of investable funds. Other, net was lower
due to a lower result from our trucking operation, a reduction in
royalty income, and the additional provision of $734,000 for settle-
ment of the Alcon lawsuit.
The Company was the defendant in a breach-of-contract/breach-of-
warranty lawsuit concerning reactor vessels sold in 1992 in Tarrant
9
<PAGE> 10
County, Texas (Alcon Laboratories, Inc. versus Paul Mueller Company).
As a result of a trial that ended in September 1997, the Company
received an adverse decision, and the final judgment awarded damages,
interest, and attorneys' 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 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 Company decided not to pursue an additional appeal.
On June 21, 1999, the Company was able to reach a settlement with
Alcon Laboratories, Inc., in the amount of $1,875,000. As a result
of the settlement, the Company 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.
The effective tax rate for the nine months ended September 30, 1999
and 1998, varied from the statutory tax rate (34%) primarily as a
result of tax-exempt interest and the lower effective tax rate of
the FSC.
As previously reported, the labor contract with the Sheet Metal
Workers Union (which covers a portion of the employees at the
Springfield, Missouri, plant) expired on June 11, 1994. Extensive
negotiations 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 substantial number of employees returned to work during
1996; and currently, there are only 19 employees participating. No
action has been taken by the union to prevent nonstriking employees
from working. The Company implemented the provisions of its revised
and final offer effective April 1, 1996, which remains open for the
union's acceptance; and no further negotiations are scheduled.
The union has filed unfair labor practice complaints against the
Company. As a result, hearings were held in August 1996 and in
November 1997 before an administrative law judge of the National
Labor Relations Board (NLRB), and the decisions of both hearings
have been appealed to the NLRB. An additional hearing was held
before an administrative law judge of the NLRB in December 1998;
and the judge ruled against the Company on one minor issue, which
it will not appeal. The union appealed the other decisions to the
NLRB. Another hearing before an administrative law judge of the
NLRB on other unfair labor practice complaints against the Company
was held in November 1999 and no decision was rendered. A final
determination of all charges pending may take two to three years.
However, management believes, based on an evaluation by counsel, that
there is no material financial exposure to the Company.
The Company currently employs about 850 people, of which approxi-
mately 380 at the Springfield, Missouri, facility are represented by
the Sheet Metal Workers Union. The Company has facilities located
in Springfield, Missouri, and Osceola, Iowa. There are approximately
760 employees assigned to the Springfield facility; and at the
Osceola facility, there are an additional 90 employees, none of
which are represented by a labor union.
As is more fully described in the Company's annual report on Form
10-K for the year ended December 31, 1998, the Company identified
approximately 330 files that required remediation to make them Year
2000 compliant. All of the files identified have been remediated,
and testing has been performed to verify that the files are Year 2000
10
<PAGE> 11
compliant. A comprehensive system test for additional verification
of Year 2000 compliance was successfully completed. Costs estimated
for the remediation and testing have not changed materially from
those costs estimated in Form 10-K for the year ended December 31,
1998.
Management is in the process of surveying companies with which it
has important commercial relationships (major vendors and customers)
to insure that their systems are Year 2000 compliant and that there
will be no disruption in the supply of goods or services or disrup-
tion of sales and payments. Management has completed the assessment
of its noninformation technology systems within its facilities; and
all equipment has been determined to be compliant, or compliance is
not an issue. Management is also monitoring the progress of its
outside suppliers of utilities and phone service to insure that they
will be Year 2000 compliant. The Company's products are Year 2000
compliant, or Year 2000 compliance is not an issue.
Management does not believe that there is a significant risk of non-
compliant internal systems. Management believes that the key risk
factors associated with the Year 2000 are those they cannot directly
control, primarily the readiness of key suppliers. The failure of
a critical third-party vendor to be Year 2000 compliant could signi-
ficantly disrupt operations. Management intends to closely monitor
the progress of key vendors as to their Year 2000 compliance and to
assess the potential impact on the Company. Essential raw materials
used in production are normally stocked, and stocking levels could
be increased if there are indications of potential problems. Addi-
tionally, management will identify alternate sources of supply to
insure that there is no disruption in the flow of materials used in
production.
The forecast of cost and the date on which management believes it
will complete its Year 2000 modifications are based on its best
estimates that, in turn, were based on management's assumptions of
future events, including continued availability of resources and
other factors. Management cannot be sure that these estimates will
be achieved, and actual results could differ from those anticipated.
Market risks relating to the Company's operations result primarily
from changes in foreign exchange rates and interest rates, as well
as stainless steel prices. The Company periodically enters into
foreign-exchange forward or spot contracts to hedge the exposure
to foreign-currency-denominated purchase transactions. Forward
contracts generally have maturities of less than three months.
Foreign-currency-denominated purchases were $2,690,000 and $2,543,000
for the nine months ended September 30, 1999 and 1998, respectively.
The Company'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, taxable bond
funds, and taxable and tax-exempt variable-rate preferred stock
funds. Tax-exempt bonds generally have maturities of from three to
twelve months. Unrealized holding gains and losses were not material
as of September 30, 1999 or 1998, and there were no significant
realized gains or losses during the periods. The Company does not
use financial instruments for trading purposes. The risk of signi-
ficant changes in stainless steel pricing for 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 Company performs credit evalu-
ations of all new customers and periodically reviews the financial
condition of existing customers. For Industrial Equipment segment
orders, down payments and/or progress payments are generally
required based on the dollar value of the order and customer credit-
worthiness. Foreign receivables are generally secured by irrevocable
letters of credit confirmed by a major U.S. bank.
11
<PAGE> 12
Looking forward to the balance of 1999, there are factors that could
affect the results of operations. If there is expanded employee par-
ticipation 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 markets in Southeast Asia
remain fragile due to the financial crisis, and this could have an
adverse impact on order entry for certain product lines within the
Industrial Equipment segment. The domestic milk price has recently
declined; and coupled with the normal seasonal activity for Dairy
Farm Equipment in the fall, we expect order entry to decline for
the balance of the year. Steel mills announced price increases of
7% for stainless steel in both July and August of 1999. Addition-
ally, effective with shipments of stainless steel in October 1999,
orders are subject to surcharges at the time of shipment based on
the material price of nickel, chromium, and molybdenum. The cost
of our products will be increased by the increase in stainless
steel prices, and this could have an adverse effect on order entry
and profitability if we are unable to pass the cost increases on
to our customers. The market for our custom-fabricated Processing
Equipment continues to be very competitive as to both price and
delivery.
The backlog of sales at September 30, 1999, was $36,700,000 compared
to $27,100,000 at June 30, 1999, and $22,600,000 at September 30,
1998. The September 30, 1999, 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 Company
at September 30, 1999, have not changed significantly since December
31, 1998. There are no significant commitments for capital expendi-
tures at September 30, 1999.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 5. Other Information.
NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS
AND NOMINATIONS FOR DIRECTOR
The Bylaws of Paul Mueller Company (the "Company") were
amended on October 27, 1999, by the Board of Directors to
set forth certain notice requirements for proposals at an
annual meeting of the shareholders ("annual meeting") and
nominations of persons for election to the Board of
Directors. No business may be transacted at an annual
meeting other than business that is either (a) specified
in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors (or a
designated committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction
of the Board of Directors (or a designated committee
thereof), or (c) otherwise properly brought before the
annual meeting by a shareholder who is a shareholder of
record (both on the date said shareholder gives notice of
such business as provided in the Bylaws and on the record
date for the determination of shareholders entitled to
vote at such annual meeting).
The Bylaws provide that in addition to any other applicable
requirements, for business to be properly brought before
an annual meeting by a shareholder, including, without
limitation, nominations of persons for election to the
Board of Directors, such shareholder must have given
timely notice thereof in proper written form to the
Secretary of the corporation. To be timely, a share-
holder's notice must be received by the Secretary of the
Company at the Company's principal executive offices not
later than the close of business on the 90th day nor
earlier than the close of business on the 120th day prior
to the anniversary of the preceding year's annual meeting;
provided, however, that in the event the date of the
annual meeting is more than 30 days before or more than 60
days after such anniversary date, notice by the shareholder
to be timely must be so received not earlier than the close
of business on the 120th day prior to such annual meeting
and not later than the close of business on the later of
(a) the 90th day prior to such annual meeting or (b) the
10th day following the day on which public announcement of
the date of such annual meeting is first made. If the
nomination of a person for election as a director relates
to a special meeting of shareholders, the nomination must
be received by the Secretary of the Company at the prin-
cipal executive offices not earlier than the close of
business on the 120th day prior to such special meeting
and not later than the close of business on the later of
(c) the 90th day prior to such special meeting, or (d) the
10th day following the day on which public announcement is
first made by the Company of the date of such special
meeting.
To be in proper written form, a shareholder's notice to the
Secre-tary shall set forth (a) as to each person whom the
shareholder proposes to nominate for election as a direc-
tor, all information relating to such person that is
required to be disclosed in solicitations of proxies for
election of directors in an election contest, or as other-
wise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934 (the "Exchange
Act"), as amended, and Rule 14a-11 thereunder (including
such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if
elected); (b) as to each other matter the shareholder
proposes to bring before an annual meeting, a brief des-
cription of the business desired to be brought before the
annual meeting, the reasons for conducting such business
13
<PAGE> 14
at the annual meeting, and any material interest of the
shareholder proposing to bring such business before such
meeting (or of any other shareholder known to be sup-
porting such proposal) in such proposal; and (c) as to
the shareholder giving the notice (i) the name and address,
as they appear on the Company's books, of the shareholder
proposing such business, (ii) the class and number of
shares of the Company which are beneficially owned by the
shareholder, (iii) the names and addresses of the bene-
ficial owners, if any, of any capital stock of the cor-
poration registered in such shareholders' names on the
Company's books, and the class and number of shares of
the Company owned by such beneficial owners, (iv) the
names and addresses of other shareholders known by the
shareholder proposing such business to support such
proposal, and the class and number of shares of the
corporation's capital stock beneficially owned by such
other shareholder; and (v) a representation that such
shareholder intends to appear in person or by proxy at
the annual meeting to bring such business before the
meeting.
Only such persons who are nominated (a) by the Board of
Directors (or a designated committee thereof), or (b) by
a shareholder in accordance with the procedures set forth
above shall be eligible to serve as directors of the
Company and only such business shall be conducted at an
annual meeting of shareholders as shall have been brought
before the meeting in accordance with the provisions
summarized above.
Nothing in the Company's Bylaws shall be deemed to affect
any rights of shareholders to request inclusion of propo-
sals in the Company's proxy statement pursuant to Rule
14a-8 of the Exchange Act.
DEADLINES FOR SUBMISSION OF SHAREHOLDER PROPOSALS AND NOMI-
NATIONS FOR 2000 ANNUAL MEETING.
Shareholders of the Company are entitled to present pro-
posals for consideration at forthcoming shareholder
meetings provided that they comply with the proxy rules
under the Exchange Act and the Bylaws of the Company.
Shareholders wishing to present a proposal at the
Company's 2000 Annual Shareholder Meeting (anticipated
date May 1, 2000) must submit such proposal to the Company
by November 29, 1999, if they wish for it to be eligible
for inclusion in the proxy statement and form of proxy
relating to that meeting. In addition, under the Company's
Bylaws, a shareholder wishing to make a proposal or nomi-
nate a person or persons for election as director at the
2000 Annual Shareholder Meeting must submit such a proposal
or nomination to the Secretary of the Company not earlier
than January 3, 2000, and not later than February 3, 2000.
If the Secretary of the Company does not receive notice of
a shareholder proposal or nomination within the time
requirements and in the proper written form set forth in
the Bylaws, then the Company will not be required to
present such proposal at the 2000 Annual Meeting of
Shareholders. The proposals must also comply with all
applicable statutes, laws and regulations.
14
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Page
------ ------------------------------------- --------
<S> <C> <C>
(3) (a) Amendment One to the Restated
Bylaws of Paul Mueller Company,
adopted May 6, 1991, was approved
by the Board of Directors on
May 1, 1995...................... 16
(b) Amendment Two to the Restated
Bylaws of Paul Mueller Company,
adopted May 6, 1991, was approved
by the Board of Directors on
October 27, 1999................. 17
(27) Financial Data Schedule.............. 20
</TABLE>
b. Reports on Form 8-K -- There were no reports on Form 8-K
filed for the three months ended September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
PAUL MUELLER COMPANY
DATE: November 9, 1999 /S/ DONALD E. GOLIK
---------------- ------------------------------------------
Donald E. Golik, Senior Vice President and
Chief Financial Officer
15
<PAGE> 16
AMENDMENT ONE
TO THE
RESTATED BYLAWS OF
PAUL MUELLER COMPANY
ADOPTED MAY 6, 1991
May 1, 1995
RESOLVED, that the current Section 26 of the Bylaws of the
Company shall be deleted in its entirety and replaced with the
following:
26. SALARIES AND COMPENSATION -- Salaries and incentive
compensation plans of all executive officers (as that term
is defined by the Securities and Exchange Commission) of
the Corporation shall be administered by the Compensation
and Benefits Committee of the Board of Directors. Salaries
and compensation plans of all other employees of the Corpor-
ation shall be administered by the President or his
designated representative.
16
<PAGE> 17
AMENDMENT TWO
TO THE
RESTATED BYLAWS OF
PAUL MUELLER COMPANY
ADOPTED MAY 6, 1991
October 27, 1999
RESOLVED, that Section 7 of the Restated Bylaws of Paul Mueller
Company be, and it hereby is, amended by deleting the text of Section
7 in its entirety and replacing it with the following:
7. (a) BUSINESS WHICH MAY BE TRANSACTED AT ANNUAL MEETINGS.
(i) No business may be transacted at an annual meeting of
the shareholders ("annual meeting"), other than business that
is either (a) specified in the notice of meeting (or any supple-
ment thereto) given by or at the direction of the board of
directors (or a designated committee thereof), (b) otherwise
properly brought before the annual meeting by or at the direc-
tion of the board of directors (or a designated committee
thereof), or (c) otherwise properly brought before the annual
meeting by any shareholder of the corporation (x) who is a s
hareholder of record (both on the date such shareholder gives
notice of such business as provided in this Section 7(a) and
on the record date for the determination of shareholders en-
titled to vote at such annual meeting) and (y) who complies
with the provisions of this Section 7(a).
(ii) In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a
shareholder, including, without limitation, nominations of
persons for election or reelection to the board of directors,
such shareholder must have given timely notice thereof in proper
written form to the Secretary of the corporation. To be timely,
a shareholder's notice shall be delivered to, or mailed to and
received by, the Secretary at the corporation's principal execu-
tive offices not later than the close of business on the 90th day
nor earlier than the close of business on the 120th day prior to
the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual
meeting is more than 30 days before or more than 60 days after
such anniversary date, notice by the shareholder to be timely
must be so delivered or mailed and received not earlier than
the close of business on the 120th day prior to such annual
meeting and not later than the close of business on the later
of (x) the 90th day prior to such annual meeting, or (y) the 10th
day following the day on which public announcement of the date
of such meeting is first made. In no event shall the public
announcement of an adjournment of an annual meeting commence a
new time period for the giving of the shareholder's notice as
described above. To be in proper written form, a shareholder's
notice to the Secretary shall set forth (a) as to each person
whom the shareholder proposes to nominate for election or
reelection as a director, all information relating to such
person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or
as otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934 (the "Exchange Act"),
as amended, and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (b) as to
each other matter the shareholder proposes to bring before the
annual meeting, a brief description of the business desired to
be brought before the annual meeting, the reasons for conducting
such business at the annual meeting, and any material interest
of the shareholder proposing to bring such business before such
17
<PAGE> 18
meeting (or any other shareholders known to be supporting such
proposal) in such proposal; and (c) as to the shareholder
giving the notice (i) the name and address, as they appear on
the corporation's books, of the shareholder proposing such
business, (ii) the class and number of shares of the corporation
which are beneficially owned by the shareholder, (iii) the names
and addresses of the beneficial owners, if any, of any capital
stock of the corporation registered in such shareholder's name
on the corporation's books, and the class and number of shares
of the corporation owned by such beneficial owners, (iv) the
names and addresses of other shareholders known by the share-
holder proposing such business to support such proposal, and
he class and number of shares of the corporation's capital
stock beneficially owned by such other shareholders; and (v)
a representation that such shareholder intends to appear in
person or by proxy at the annual meeting to bring such business
before the meeting.
(iii) Notwithstanding anything in the second sentence of
paragraph (a)(ii) of this Section 7 to the contrary, in the
event that the number of directors to be elected to the board
of directors of the corporation is increased and there is no
public announcement by the corporation naming all of the nomi-
nees for director or specifying the size of the increased board
of directors at least 90 days prior to the first anniversary of
the preceding year's annual meeting, a shareholder's notice
required by this Section 7 shall also be considered timely, but
only with respect to nominees for any new positions created by
such increase, if such notice shall be delivered to, or mailed
to and received by, the Secretary at the principal executive
offices of the corporation not later than the close of business
on the 10th day following the day on which such public announce-
ment is first made by the corporation.
(b) BUEINESS WHICH MAY BE TRANSACTED AT SPECIAL MEETINGS.
Only such business shall be conducted at a special meeting of share-
holders as shall have been brought before the meeting pursuant to the
corporation's notice of such meeting. In the event the corporation
calls a special meeting of shareholders for the purpose of electing
one or more directors to the board of directors, any shareholder of
the corporation who is a shareholder of record (both at the time of
giving notice of a nomination as provided in this Section 7(b) and
on the record date for the determination of shareholders entitled to
vote at such special meeting) may nominate a person or persons (as
the case may be), for election as a director as specified in the
corporation's notice of meeting, if the shareholder's notice of nomi-
nation, in written form as required by paragraph (a)(ii)(a) of this
Section 7, shall be delivered to, or mailed to and received by, the
Secretary at the principal executive offices of the corporation not
earlier than the close of business on the 120th day prior to such
special meeting and not later than the close of business on the
later of (x) the 90th day prior to such special meeting, or (y) the
10th day following the day on which public announcement is first made
by the corporation of the date of such special meeting. In no event
shall the public announcement of an adjournment of a special meeting
of shareholders commence a new time period for the giving of a share-
holder's notice as described above.
(c) GENERAL.
(i) Only such persons who are nominated (a) by the board
of directors (or a designated committee thereof), or (b) by a
shareholder in accordance with the procedures set forth in this
Section 7, shall be eligible to serve as directors and only
such business shall be conducted at a meeting of shareholders
as shall have been brought before the meeting in accordance with
the provisions of this Section 7; provided, however, that once
business has been properly brought before the meeting in accor-
dance with such provisions, nothing in this Section 7 shall be
deemed to preclude discussion by any shareholder of any such
business. If the board of directors or a designated committee
18
<PAGE> 19
thereof determines that any shareholder proposal or nomination
is not properly brought before the meeting in accordance with
the provisions of this Section 7 in any material respect, such
proposal or nomination shall not be presented for action at the
annual meeting (or special meeting if the nomination relates
to a special meeting) in question. If neither the board of
directors nor such committee makes a determination as to the
validity of any shareholder proposal or nomination in the
manner set forth above, the presiding officer of the annual
meeting (or special meeting if the nomination relates to a
special meeting) shall determine whether the shareholder
proposal or nomination is properly brought before the meeting
in accordance with the terms of this Section 7. If the pre-
siding officer determines that any shareholder proposal or
nomination is not properly brought before the meeting in accor-
dance with the provisions of this Section 7 in any material
respect, such proposal or nomination shall not be presented
for action at the annual meeting (or special meeting if the
nomination relates to a special meeting) in question. If the
board of directors, a designated committee thereof, or the
presiding officer determines that a shareholder proposal or
nomination was made in accordance with the requirements of this
Section 7, the presiding officer shall so declare at the annual
meeting (or special meeting if the nomination relates to a
special meeting) in question, and ballots shall be provided for
use at the meeting with respect to such proposal or nomination.
(ii) For purposes of this Section 7, "public announcement"
shall mean disclosure in a press release reported by the Dow
Jones News Service, the Associated Press, or a comparable
national news service, or in a document publicly filed by the
corporation with the Securities and Exchange Commission (in-
cluding, without limitation, a Form 8-K) pursuant to Section
13, 14, or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Sec-
tion 7, a shareholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section
7. Nothing in this Section 7 shall be deemed to affect any
rights of shareholders to request inclusion of proposals in the
corporation's proxy statement pursuant to Rule 14a-8 of the
Exchange Act.
and
FURTHER RESOLVED, that Section 11 of the Restated Bylaws of Paul
Mueller Company be, and it hereby is, amended by deleting the text
of Section 11 in its entirety and replacing it with the following:
11. (a) NUMBER OF DIRECTORS. The number of directors to consti-
tute the board of directors shall be determined as provided in the
Articles of Incorporation.
(b) NOMINATION OF DIRECTORS. Subject to the rights of
holders of any class or series of Preferred Stock then outstanding,
nominations for the election of directors may be made (i) by the
board of directors (or a designated committee thereof), or (ii) by
any shareholder who complies with the notice and other provisions
set forth in Section 7 of these Bylaws.
19
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