<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended: December 31, 1998
Commission File Number: 0-4791
PAUL MUELLER COMPANY
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(Exact name of registrant as specified in its charter)
Missouri
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(State or other jurisdiction of incorporation or organization)
44-0520907
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(I.R.S. Employer Identification No.)
1600 West Phelps, Springfield, Missouri 65802
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(Address of principal executive offices) (Zip Code)
(417) 831-3000
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(Registrant's telephone number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $1 per share
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(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K: [X]
The aggregate market value of the voting stock of the Registrant
held by nonaffiliates on February 26, 1999, was $35,320,167. As of
March 12, 1999, there were 1,168,021 shares of common stock, $1
par value, of the Registrant outstanding.
Portions of the Proxy Statement for the annual meeting of shareholders
to be held May 3, 1999, are incorporated by reference into Part III.
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PART I
ITEM 1. - DESCRIPTION OF BUSINESS
A. GENERAL DEVELOPMENT OF BUSINESS
The Registrant was incorporated under the laws of Missouri
in 1946 as the successor to a business begun in 1940 to
perform general sheet metal work, primarily for the building
industry. In the mid-1940's, the Registrant expanded its
operations to include the manufacture of poultry processing
equipment and stainless steel cheese-making vats for dairy
plants. The Registrant, in 1955, began manufacturing stain-
less steel milk coolers for dairy farms and in 1960 began
manufacturing stainless steel storage tanks and discontinued
its sheet metal operations. The Registrant purchased a
water purification product line in January 1987. Today, the
Registrant is one of the world's largest manufacturers of
milk coolers for dairy farms. The Registrant is also one of
the nation's leading manufacturers of custom-made stainless
steel processing equipment for the food, dairy, beverage,
chemical, pharmaceutical, and other industries. The Regis-
trant's products are incorporated into a wide variety of
industrial applications, including food and beverage pro-
cessing, pharmaceutical and chemical processing, water
distillation, heat transfer, HVAC, heat recovery, process
cooling, and thermal energy storage. The Registrant opened
a microbrewery and brewpub operation in December 1997 to
showcase its brewery technology capability and expand its
marketing of brewery systems.
The Registrant entered into a license agreement in January
1992 under which it acquired the right to manufacture and
market water distillation equipment. Sales can be made on a
nonexclusive basis to the water bottling industry and for
industrial process water applications; pharmaceutical,
laboratory and medical applications; and for milk concen-
tration. The Registrant began selling equipment during
1992.
The Registrant entered into a license agreement in February
1994 under which it acquired the rights to manufacture and
market evaporator assemblies used in liquid-ice systems.
The agreement provides the Registrant an exclusive license
to manufacture and to sell or to sublicense its rights for
the following applications: HVAC; gas turbine; process
cooling of food and chemicals; and concentration of milk,
fruit juices and acid solutions. The exclusive license is
restricted to specific territories defined by application.
The license is exclusive until expiration of the patents,
but may become nonexclusive if royalties fail to equal
specified minimum levels for any calendar year. The
Registrant is also the sole licensee of the technology for
milk cooling on dairy farm applications with no minimum
annual royalties required. The Registrant began manufac-
turing and marketing equipment in 1995.
The Registrant has a license agreement with a Dutch company
for the production and sale of Dairy Farm Equipment in
Europe, which provides royalties for the Registrant. The
license will terminate March 31, 2000, unless it is extended
by agreement of the parties.
The Registrant formed Mueller Field Operations, Inc., a
wholly owned subsidiary, during 1998 to perform field
fabrication, installation, and erection services.
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B. FINANCIAL INFORMATION ABOUT SEGMENTS
Information about the earnings data by segment and sales
by product category are covered in Note 5 of the Notes to
Consolidated Financial Statements found in Part II, Item 8,
and is incorporated herein by reference.
C. NARRATIVE DESCRIPTION OF BUSINESS
The Registrant's segments include Dairy Farm Equipment and
Industrial Equipment.
The Dairy Farm Equipment segment includes standard products
that are built to stock and are available for sale from
inventory. The Dairy Farm Equipment segment sells milk
cooling and storage equipment and accessories, refrigeration
units, and heat recovery equipment for use on dairy farms
to independent dealers for resale. Sales are made to the
domestic and export markets.
The Industrial Equipment segment includes products that
are designed and built to customer specifications. The
Industrial Equipment segment sells the following products
directly to industrial customers: food, beverage, chemical,
and pharmaceutical processing equipment; tank components;
industrial heat transfer equipment; pure water equipment;
thermal energy storage equipment; and commercial refrigera-
tion equipment. Food processing equipment includes stain-
less steel storage and mixing tanks, food processors,
cookers and coolers, and a variety of other custom-
fabricated tanks. Beverage processing equipment includes
stainless steel storage and fermentation tanks, brewhouse
equipment, and other special equipment for breweries,
wineries, distilleries, and soft-drink bottlers. Chemical
and pharmaceutical processing equipment includes stainless
steel and other alloy pressure vessels. Other industrial
equipment products include water purification equipment,
heat transfer equipment, thermal energy storage equipment,
and commercial refrigeration equipment.
The Industrial Equipment segment includes sales to the
domestic and export markets.
Raw materials used in the fabrication of Registrant's
products are readily available from sources in the United
States. The Registrant purchases a component from a German
vendor under a sales and supply agreement for its heat
transfer product line.
Patents held by the Registrant generally are not considered
significant to the successful conduct of each segment's
business. Trademarks are registered for the Registrant's
name for certain products sold in the Industrial Equipment
segment and for the products sold in the Dairy Farm Equip-
ment segment in the key markets served by the Registrant.
Trademarks are considered significant to the successful
conduct of the Dairy Farm Equipment segment business. Key
license agreements that are maintained by the Registrant
have been discussed in Section A above.
In general, the seasonality of the Registrant's business
segments is not material.
The Registrant carries a significant inventory of standard
sizes of stainless steel coil and plate used in the manu-
facture of its products. For some Industrial Equipment
orders, stainless steel is specifically ordered for the
project. The Registrant provides extended payment terms
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primarily for export orders with payment secured generally
by a letter of credit and to qualifying domestic Dairy Farm
Equipment distributors. The Registrant requires down pay-
ments and/or progress payments on significant Industrial
Equipment orders.
Sales of the Registrant's products are distributed among
several customers, and sales to any one customer are not
significant to total consolidated sales. Sales to any one
customer did not exceed 10% of the Registrant's consolidated
sales during 1998.
The backlog of sales was approximately $29,958,000 at
February 28, 1999, compared to approximately $29,898,000
at February 28, 1998. It is anticipated that substantially
all of the February 28, 1999, backlog will be shipped during
the current fiscal year.
In the Industrial Equipment segment, there are several
competitors, most of which are smaller than the Registrant.
Many Industrial Equipment projects are bid among several
possible suppliers, which tends to make pricing very com-
petitive. The principal methods of competition are price,
quality, delivery and service. In the Dairy Farm Equipment
segment, there are relatively few competitors, and the
Registrant is one of the largest manufacturers of farm milk
coolers in the world.
During 1998, stainless steel prices remained relatively flat
compared to the prior year. Stainless steel prices are
projected to be higher during 1999 due to announced price
increases by the mills. Also, the dumping suits filed in
1998 by the domestic stainless steel producers will tend to
restrict the inflow of lower-priced foreign steel.
The Registrant spent $978,900 in 1998, $719,200 in 1997,
and $653,200 in 1996 on research activities relating to the
development of new products or services and the improvement
of existing products or services. Fourteen full-time admin-
istrative employees are engaged in this activity.
It is not anticipated that compliance with Federal, State
and local provisions, which have been enacted or adopted
regulating the discharge of materials into the environment
or otherwise relating to the protection of the environment,
will have a material effect upon the capital expenditures,
earnings or competitive position of the Registrant and its
subsidiaries.
The number of employees at December 31, 1998, was 854.
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. Negotiations with union representatives continued
until an impasse was reached, and the Registrant implemented
specific provisions of its final offer effective September
19, 1994. In November 1994, the Regional Director of the
National Labor Relations Board (NLRB) also concluded that a
lawful impasse had been reached in negotiations prior to the
Registrant's implementation of its offer.
However, on December 22, 1994, the Regional Director of the
NLRB issued an unfair labor practice complaint against the
Registrant for refusing to supply information to union
representatives about the personal health insurance claims
of individual employees and their dependents and reversed
his previous decision regarding the implementation of
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changes in wages and benefits. A hearing on these and other
unfair labor practice issues was held during August 1996 by
an administrative law judge of the NLRB, who ruled against
the Registrant on some unfair labor practice issues, and the
Registrant and the union have both appealed the decision
to the NLRB. A decision by the NLRB is not expected for
several months, and there can be an appeal from any NLRB
decision, either by the Registrant or by the union. An
additional hearing was held before an administrative law
judge of the NLRB in November 1997, and the judge ruled
against the Registrant on the unfair labor practice issues
involved. The Registrant has appealed the decision to the
NLRB. A hearing was held before an administrative law
judge of the NLRB in December of 1998, and the judge ruled
against the Registrant on one minor issue, which it will
not appeal. The union has appealed the other decisions to
the NLRB. A final determination of all charges pending may
take up to two years; however, management believes, based on
an evaluation by counsel, that there is no material finan-
cial exposure to the Registrant.
The Registrant currently employs about 860 people, of which
approximately 380 at the Springfield, Missouri, facility
are represented by the Sheet Metal Workers Union. The
International Union called a strike which began on July 25,
1995, and the largest number of employees participating was
approximately 185 during the fourth quarter of 1995. A
substantial number of employees returned to work during
1996, and currently there are only 20 employees partici-
pating. No action has been taken by the union to prevent
nonstriking employees from working.
The Registrant has implemented the provisions of its revised
and final offer effective April 1, 1996, which remains open
for the union's acceptance, and no further negotiations are
scheduled.
The Registrant has facilities located in Springfield,
Missouri, and Osceola, Iowa. There are approximately 760
employees assigned to the Springfield facility, and there
are an additional 100 employees at the Osceola facility,
none of which are represented by a labor union.
D. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
Information about the amounts of export sales is covered in
Note 5 of the Notes to Consolidated Financial Statements
found in Part II, Item 8, and is incorporated herein by
reference.
ITEM 2. - PROPERTIES
The Registrant's primary domestic manufacturing facilities are
located in Springfield, Missouri, and occupy approximately
720,000 square feet on 50 acres of land. These facilities are
owned by the Registrant, as is all of the equipment it uses.
The original section of the present Springfield plant was built
in 1950 and consisted of 23,720 square feet. Since then, the
Registrant has added to this facility many times in the course of
a continuing program for enlarging and modernizing its facilities
and increasing its capabilities. The last addition of approxi-
mately 14,100 square feet was made in 1981. In February 1987,
the Registrant acquired an additional manufacturing facility in
Osceola, Iowa, which contains approximately 216,000 square feet.
In February 1997, the Registrant purchased land and a building,
which contains about 21,000 square feet, in downtown Springfield,
Missouri, for the purpose of operating a microbrewery and brew-
pub.
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ITEM 3. - LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business or matters
for which insurance coverage is adequate, which involves the
Registrant, nor is any director, officer or any management
security holder involved in any litigation that could adversely
affect the Registrant.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Registrant did not submit any matter to a vote of security
holders, through a solicitation of proxies or otherwise, during
the fourth quarter of 1998
ITEM 10. (from PART III) - EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Position(s) with Registrant
------------------- --- -------------------------------------
<S> <C> <C>
Paul Mueller<F1> 83 Chairman of the Board and Director
Daniel C. Manna<F1> 52 President and Director
Donald E. Golik<F1> 55 Senior Vice President and Chief Finan-
cial Officer, Secretary and Director
<FN>
<F1> Individual has been employed by the Registrant through the past
five years.
</FN>
</TABLE>
Each of the above officers was elected to serve until the next
annual meeting of the Board of Directors, which will be held on
May 3, 1999, and until his successor shall have been duly elected
and qualified or until his earlier resignation or removal.
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PART II
ITEM 5. - MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
The Registrant's common stock is traded on The Nasdaq Stock
Market(R) under the symbol MUEL. As of December 31, 1998,
there were approximately 270 shareholders of record and approxi-
mately 760 beneficial shareholders.
Market high and low prices and quarterly cash dividends in 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 Quarter Ended 1997 Quarter Ended
------------------------------ ------------------------------
Mar 31 Jne 30 Spt 30 Dec 31 Mar 31 Jne 30 Spt 30 Dec 31
------ ------ ------ ------ ------ ------ ------ ------
MARKET PRICE OF STOCK
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High... 43 41 43-3/4 42 43 39 49-1/2 45
Low.... 36-3/4 36-1/4 37 36-13/16 36-1/2 34-1/4 37-1/4 36-1/2
<CAPTION>
CASH DIVIDENDS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Declared
per
share.. $0.60 $0.60 $0.60 $0.60 $0.60 $0.60 $0.60 $0.60
</TABLE>
ITEM 6. - SELECTED FINANCIAL DATA
<TABLE>
SELECTED FINANCIAL DATA - FIVE-YEAR SUMMARY
<CAPTION>
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.... $89,745,547 $86,693,022 $83,950,990 $78,375,636 $79,475,354
Net income... $ 3,134,301 $ 2,944,540 $ 4,424,019 $ 1,954,653 $ 3,510,966
Earnings
per common
share....... $ 2.68 $ 2.52 $ 3.79 $ 1.67 $ 3.01
Weighted
average
common
shares out-
standing.... 1,168,021 1,168,021 1,168,021 1,168,021 1,168,021
Dividends
declared
per common
share....... $ 2.40 $ 2.40 $ 2.10 $ 2.00 $ 2.00
Total assets. $55,137,271 $56,547,290 $53,184,971 $54,678,904 $54,250,236
Long-term
debt........ $ 161,434 $ 161,434 $ 161,434 $ 161,434 $ 3,153,747
</TABLE>
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ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain information discussed in Management's Discussion and
Analysis 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, feed costs, weather conditions,
dairy farm consolidation and other factors affecting the profit-
ability of dairy farmers, the price of stainless steel, actions
of competitors, labor strife, the Registrant's execution of
internal performance plans, economic conditions in key export
markets, the level of capital expenditures in the U.S. economy,
and other changes to business conditions.
OPERATING RESULTS
Although sales and gross margins were higher for 1998 compared to
1997, these factors were mitigated by an adverse LIFO provision
and higher operating expense.
SALES -- Comparative consolidated sales for the past three years
were as follows:
<TABLE>
<CAPTION>
Sales
------------------------------
(in thousands of dollars)
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Dairy Farm Equipment.... $ 19,193 $ 22,390 $ 19,169
Industrial Equipment.... 70,553 64,303 64,782
-------- -------- --------
$ 89,746 $ 86,693 $ 83,951
======== ======== ========
</TABLE>
Sales of Dairy Farm Equipment decreased by $3,197,000 during 1998
compared to 1997, with about 46% of the decline attributable to
domestic operations and the balance resulting from reduced export
sales. Although the average milk price during 1998 was an all-
time high and feed costs were reasonable, the number of milk
coolers sold in the domestic market was down by 21% from the
prior year. The starting backlog of Dairy Farm Equipment for
1998 was 30% lower than the prior year; and during the first
half of 1998, there was a soft market due to declining milk
prices and unfavorable weather conditions in the major dairying
areas of the U.S. Additionally, there were concerns about U.S.
governmental involvement in milk prices. Although milk prices
increased significantly during the last half of the year and feed
costs were reasonable, milk production increased only slightly
from the prior year and milk cooling and storage equipment sales
lagged. Export sales of Dairy Farm Equipment experienced a de-
cline of 23% for 1998, with a 22% decline in the number of milk
cooling units sold. The reduction in sales related directly to
economic problems in key foreign markets, coupled with a strong
U.S. dollar. The decline in export sales was primarily due to
decreased sales to countries in South America, Europe, Africa,
and North America.
During 1997, sales of Dairy Farm Equipment increased by
$3,221,000 compared to 1996. About 63% of the improvement was
attributable to domestic operations, with the balance resulting
from increased export sales of Dairy Farm Equipment. Although
the average price for milk during 1997 was about 10% lower than
the average price during 1996 and feed costs remained relatively
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high, production did increase in 1997 over the prior year.
Domestic sales of Dairy Farm Equipment were aided in 1997 by a
favorable backlog at the beginning of 1997, a sales promotion
in the fourth quarter of 1997, and an expansion of larger dairy
operations, primarily in the southwestern market of the United
States. Although the number of milk coolers sold declined
slightly in 1997 compared to 1996, there was a significant
increase in the average size of domestic milk coolers sold such
that the higher unit prices more than offset the effect on sales
revenue due to the decline in units. In contrast, export sales
of Dairy Farm Equipment included approximately a 16% increase in
the number of milk cooler units sold. The improvement in export
sales was primarily due to increased sales to countries in North
America, South America, Africa, and Europe.
For 1999, although the milk price is expected to decline from
its record high, the milk price on average and feed costs are
expected to be at reasonable levels. Domestic dairy farmers
experienced a profitable year during 1998; and with reasonable
milk prices and feed costs, low interest rates, and low land
values anticipated for 1999, conditions are favorable for
increased milk production. With respect to the outlook for
export sales of Dairy Farm Equipment for 1999, international
markets are expected to improve somewhat. This is primarily
true for Europe and to some extent in Latin America where cer-
tain countries are expected to have improved economic conditions.
In the domestic Dairy Farm Equipment market, the number of dairy
farms continues to decline, as high-production-cost dairies are
eliminated. This process leaves fewer dairy farm operations
with the need for larger milk cooling and storage capacity. The
Registrant is well positioned to meet the cooling and storage
requirements for the changing marketplace, and any impact on
revenues and profitability will depend upon the rate at which
farm consolidation continues.
During 1998, sales of Industrial Equipment were $70,553,000, an
increase of about 10% from the prior year. The improvement was
primarily attributable to processing equipment sales, which in-
creased by 25% over 1997. The sales improvement was the direct
result of a higher backlog of processing equipment at the begin-
ning of 1998, coupled with an increase in order entry of over
7% for the whole Industrial Equipment segment during 1998 com-
pared to 1997. The increase in processing equipment sales for
1998 primarily related to an export order for brewery equipment.
Although most Industrial Equipment product lines recorded sales
increases during 1998, some product lines experienced declines
due to the impact of the Asian financial crisis.
During 1997, sales of Industrial Equipment decreased by about
$500,000. Industrial Equipment order entry for 1997 was about
3% lower than for 1996 due to very competitive market conditions.
Another significant factor affecting sales of Industrial Equip-
ment was the low backlog for processing equipment at the begin-
ning of 1997 that was attributable to extremely low order entry
during the third quarter of 1996. This translated into a low
level of shipments for the first quarter of 1997, from which we
were unable to recover during the year. Although order entry
for processing equipment was slow for the first quarter of 1997,
order entry for the year was 15% higher. However, the timing of
the order entry was such that there was not sufficient time to
complete and ship the products during 1997. For other Industrial
Equipment product lines, sales were adversely affected by aggres-
sive price competition; and although we were able to improve
sales of some of our product lines, the improvements were not
sufficient to increase overall sales for the Industrial Equipment
segment.
Looking forward to 1999, the Industrial Equipment segment back-
log, as we start the year, is approximately 11% lower than
at the beginning of 1998. Additionally, economic growth is
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predicted to slow during 1999, as corporate profit margins are
expected to deteriorate. Exports are expected to be weak in
1999 due to the strong dollar and the economic problems overseas,
and this will have the effect of subduing growth in the U.S.
economy. Capital expenditures for 1999 are projected to in-
crease, but at a slower rate than in 1998 as companies are
expected to reduce costs to maintain cash flow. With the
economic outlook projected, we foresee very competitive con-
ditions for our Industrial Equipment segment during 1999 with
respect to pricing and delivery, particularly for large projects.
Although the Asian financial crisis has eased somewhat, it will
still have a negative effect on companies located in that region,
and construction and capital investment are projected to be weak
again in 1999. This could have an adverse impact on order entry
and sales of certain products included in the Industrial Equip-
ment segment that are sold into the Asian market. Generally,
the outlook for foreign economic growth remains sluggish, with
Europe being the area most likely to provide some measure of
growth during 1999. During 1998, Mueller Field Operations,
Inc., was established to do field fabrication, erection and
installation services. This is a new capability that offers
the potential for additional business for the Industrial Equip-
ment segment.
During 1998, stainless steel prices remained relatively flat.
However, looking to 1999, it appears the price of stainless steel
will be in a state of flux, as mills are attempting to increase
prices; but inventories of imported, lower-priced foreign stain-
less steel in the United States are continuing to cause pricing
pressure.
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. Exten-
sive negotiations were conducted with union representatives, but
a new contract was not achieved. The International Union called
a strike which began on July 25, 1995, and the largest number of
employees participating was approximately 185 during the fourth
quarter of 1995. A substantial number of employees returned to
work during 1996; and currently, there are only 20 employees
participating. No action has been taken by the union to prevent
nonstriking employees from working. The Registrant 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 Registrant; and as a result, hearings were held in August
of 1996 and in November of 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 of 1998, and the judge ruled against
the Registrant on one minor issue, which it will not appeal.
The union has appealed the other decisions to the NLRD. A final
determination of all charges pending may take up to two years.
However, management believes, based on an evaluation by counsel,
there is no material financial exposure to the Registrant.
The Registrant currently employs about 860 people, of which
approximately 380 at the Springfield, Missouri, facility are
represented by the Sheet Metal Workers Union. The Registrant
has facilities located in Springfield, Missouri, and Osceola,
Iowa. There are approximately 760 employees assigned to the
Springfield facility; and at the Osceola facility, there are
an additional 100 employees, none of which are represented by
a labor union.
Sales backlog totaled $22,008,000 at December 31, 1998, versus
$25,579,000 and $27,400,000 at the end of 1997 and 1996, respec-
tively. The backlog of Industrial Equipment was $20,081,000,
$22,500,000, and $23,000,000 at the end of 1998, 1997, and 1996,
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respectively, with the remaining balance in each year attribu-
table to Dairy Farm Equipment. Substantially all of the December
31, 1998, backlog will be shipped during the current year.
OPERATING INCOME -- Operating income for 1998 was $3,890,000
versus $3,535,000 for 1997. Although sales and gross profit
improved during 1998, operating profit was adversely affected by
a LIFO provision and higher operating expenses. The improvement
in gross profit was primarily due to processing equipment, as
sales were higher than the prior year and gross margins increased
due to orders of higher quality, coupled with improved plant
labor efficiency. The inventory level at the end of 1998 was
greater than at the end of 1997, which required an increase in
the required LIFO reserve; and this had the effect of decreasing
operating income by $730,000. On the other hand, for 1997, there
was a reduction in the required LIFO reserve, and this had the
effect of increasing operating income by $440,000. Selling,
general, and administrative expenses were higher in 1998 compared
to 1997, as expenditures were higher for personnel, manufac-
turers' representative's commissions, travel expenses, medical
expenses, and product development costs.
Operating income for 1997 was $3,535,000 versus $5,843,000 for
1996. The factors contributing to the decrease were a signifi-
cantly smaller LIFO effect, a lower gross margin rate, and an
increase in operating expenses. In 1997, a decline in steel
prices resulted in a reduction in the required LIFO reserve, and
this had the effect of increasing operating income by $440,000.
On the other hand, during 1996, a significant decrease in the
inventory levels, coupled with a decline in stainless steel
prices, resulted in a reduction of the required LIFO reserve
which increased operating income by approximately $1,859,000.
The gross margin rate was also lower during 1997 compared to 1996
primarily for processing equipment. Competitive market condi-
tions, coupled with several complex orders, resulted in lower
margins. Operating expenses were also higher in 1997 compared to
1996, as manufacturing burden increased due to increased sales
and production inefficiencies. Additionally, selling, general,
and administrative expenses were higher in 1997 compared to 1996,
as expenditures were higher for personnel, advertising, trade
shows, and travel expense due to the increase in marketing acti-
vities during the year.
The profitability of Industrial Equipment is lower than for Dairy
Farm Equipment, as generally all Industrial Equipment projects
are engineered-to-order. The projects require much greater sup-
port from the sales, engineering, and manufacturing areas and a
higher degree of skill to fabricate. Also, the risks of manufac-
turing are greater because the products are custom-designed and
built; and the chances of misinterpretation, errors, and mistakes
are, in general, much greater than with a standard product. Many
of the Industrial Equipment projects are bid among several possi-
ble suppliers, which tends to make pricing very competitive. On
the other hand, the Dairy Farm Equipment segment sells standard
products, and engineering designs have been well defined and
manufacturing methods have been refined for efficiency. The
proprietary nature of the products also permits more attractive
pricing. There are relatively few competitors, and the Regis-
trant is one of the largest manufacturers of dairy farm milk
coolers.
Inflation is a factor that affects the cost of operations, and
the Registrant seeks ways to minimize the effect on operating
results. To the extent permitted by competitive conditions,
higher material prices, labor costs, and operating costs are
passed on to the customer by increasing prices. The Registrant
uses the LIFO method of accounting for inventories; and under
this method, the cost of products sold, as reported in the
financial statements, approximates the current replacement cost.
Additionally, the Registrant uses accelerated depreciation
methods in charging depreciation expense to current operations,
which to a certain extent offsets the effect of the increased
cost of replacement productive capacity.
11
<PAGE> 12
OTHER INCOME (EXPENSE) -- The average level of investable funds
and the average interest rate were lower during 1998 compared
to 1997, which resulted in a lower level of interest income.
Although the average level of investable funds was lower during
1997 compared to 1996, the average interest rate for 1997 was
higher, which resulted in a comparable level of interest income.
A $3,000,000 Floating Rate Weekly Demand Industrial Development
Revenue Bond issue was repaid on December 1, 1996, which reduced
interest expense in 1997 and 1998.
Other, net for 1998 and 1996 was greater than 1997 primarily due
to a provision of $775,000 made in 1997 as a result of an adverse
decision in a lawsuit. The Registrant was the defendant in a
breach-of-contract/breach-of-warranty lawsuit concerning reactor
vessels sold in 1992 in Tarrant County, Texas (Alcon Labora-
tories, Inc. -vs- Paul Mueller Company). As a result of a trial
that ended September 19, 1997, the Registrant received an adverse
decision, and the final judgment awarded damages, interest, and
attorney's fees totaling approximately $1,700,000 to the plain-
tiff. Management believes that this decision was incorrect and,
based on advice of legal counsel, has appealed the decision.
During 1997, a provision of $775,000 was made for the estimated
liability for ultimate resolution of this matter. If the deci-
sion is upheld on appeal, the Registrant's liability will exceed
the reserve that has been established.
PROVISION FOR INCOME TAXES -- The effective tax rates for 1998,
1997, and 1996 were 28.5%, 25.4%, and 31.8%, respectively. The
effective tax rates for 1998, 1997, and 1996 were below the sta-
tutory rate (34%) primarily as a result of the lower effective
tax rate for the foreign sales corporation, tax-exempt interest,
and tax credits.
YEAR 2000 ISSUE -- The Year 2000 issue exists because many com-
puter systems and applications, including those imbedded in
equipment and facilities, use two-digit rather than four-digit
date fields to designate an applicable year. Any of the Regis-
trant's computer systems or plant equipment systems that have
time-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a
system failure or miscalculation, causing a disruption of
operations.
Management began the process of assessing the Year 2000 issues
in July 1997. The AS/400 computer operating system was upgraded
in November 1997 as a result of the need for enhanced function-
ality, and it is Year 2000 compliant. The financial software
system and the design engineering system are both Year 2000
compatible. The manufacturing software and certain internally
developed software must be modified to make them Year 2000 com-
pliant. The manufacturing software and certain internally
developed software systems have all been examined, and approxi-
mately 330 files have been identified that will require remedi-
ation. Seventy-five percent of the files identified have been
remediated, and testing has been performed to verify that the
files are Year 2000 compliant. The files and associated code
are tested in isolation to verify proper performance. After
successful testing, the remediated files are placed into produc-
tion with all other files to insure that they perform properly.
Remediation and testing of the balance of the files should be
completed by June 30, 1999.
The cost associated with the remediation and testing effort
will consist primarily of personnel costs that are expensed as
incurred and funded through operating cash flows. Personnel
costs incurred in 1997 and 1998 were approximately $200,000.
These costs are estimated to be approximately $70,000 for 1999.
Management has also purchased approximately $30,000 of software
and hardware for the project, which have been capitalized and
are being amortized and depreciated in accordance with Registrant
policies.
12
<PAGE> 13
Management is in the process of surveying companies with which
it has important commercial relationship (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 disruption of sales and payments. Management has
completed the assessment of its noninformation technology systems
within its facilities, and substantially all equipment has been
determined to be compliant. 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 Regis-
trant'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
noncompliant internal systems. Based on internal assessments and
the work completed to date, management believes that the Year
2000 issue should not pose significant operational problems or
have a material impact on the Registrant's consolidated financial
position, results of operations, or cash flow. Files that are
being remediated are being put into production, which provides
the opportunity to determine any noncompliance problems. Addi-
tionally, a more comprehensive system test will be performed
after all remediation has been completed. Management believes
that any noncompliance from internal systems would be isolated
and could be remediated without a major disruption of operations.
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 significantly
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 Registrant. Essential raw
materials used in production are normally stocked, and stocking
levels could be increased if there are indications of potential
problems. Additionally, 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 estimate which, in turn, were based on management's assump-
tions 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.
FINANCIAL CONDITION
LIQUIDITY - CAPITAL RESOURCES -- Working capital was $19,424,000
at December 31, 1998, compared to $20,599,000 at December 31,
1997. The current ratio, a measure of liquidity, was 2.39 at
December 31, 1998, versus 2.31 at December 31, 1997. The Regis-
trant has no significant amount of long-term debt.
Net cash provided by operations was $2,495,000 in 1998 compared
to $5,473,000 in 1997 and $9,723,000 in 1996. The 1998 cash flow
was primarily attributable to net income and to depreciation and
amortization expense. The 1997 cash flow was primarily attri-
butable to net income, an increase in current liabilities, and
depreciation and amortization expense. The 1996 cash flow was
primarily attributable to net income, a decrease in inventories,
and depreciation and amortization expense.
Capital expenditures for the most recent three years were
$4,769,000 in 1998, $7,777,000 in 1997, and $2,131,000 in 1996.
Capital expenditures during 1998 included a substantial portion
to improve production efficiency and reduce through-put time.
The increase in capital expenditures for 1997 compared to the
13
<PAGE> 14
other years related to the establishment of a microbrewery/
brewpub operation in Springfield, Missouri, and the addition of
a corporate aircraft. In support of the Registrant's efforts to
expand its marketing of brewery systems, the Registrant opened a
microbrewery/brewpub operation in December 1997. The operation
showcases the Registrant's brewery technology capability, while
also functioning as a training and product-development facility
for brewery equipment. The corporate aircraft was purchased to
facilitate travel primarily in the marketing of the Registrant's
products.
The level of planned expenditures for 1999 is $3,000,000, none
of which has been committed as of December 31, 1998. Anticipated
expenditures are primarily for plant equipment to maintain qua-
lity and improve efficiency. Management has the discretion of
lowering the level of expenditures if operating results deviate
from budgeted performance.
The Registrant has a $2,000,000 bank borrowing facility that
expires on May 31, 1999, none of which is currently used.
Management believes that cash flow provided by operations and
the cash and investment position will continue to be sufficient
to satisfy the Registrant's working capital requirements, normal
capital expenditure levels, and anticipated dividends. A policy
of requiring down payments and progress payments on large Indus-
trial Equipment orders provides a favorable effect on cash flows.
Management expects internally generated funds to be sufficient
to finance operations, and this is consistent with historical
performance.
Market risks relating to the Registrant's operations result
primarily from changes in foreign-exchange rates, interest
rates, as well as stainless steel prices. The Registrant
periodically enters into foreign-exchange forward or spot
contracts to hedge the exposure to foreign-currency-denominated
purchase transactions. Forward contracts generally have maturi-
ties of less than three months. Foreign-currency-denominated
purchases were $3,700,000, $2,200,000, and $2,000,000 for 1998,
1997, and 1996, respectively. There were no foreign-exchange
forward contracts outstanding or currencies held at December 31,
1998 or 1997. The Registrant's financial instruments that are
exposed to interest rate risks consist of available-for-sale
investments that are recorded at market value. Available-for-
sale investments are maintained in high-quality securities that
consist of tax-exempt bonds, 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
December 31, 1998 or 1997, and there were no significant realized
gains or losses during 1998, 1997, or 1996. The Registrant does
not use financial instruments for trading purposes. The risk of
significant 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 Registrant performs credit
evaluations 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 creditworthiness. Foreign receivables generally are
secured by irrevocable letters of credit confirmed by a major
U.S. bank.
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
issued in June 1998 and effective for the Registrant's 1999
fiscal year, is not expected to have a material effect on the
Registrant's financial position or results of operations.
14
<PAGE> 15
ITEM 7.A. - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Certain information concerning market risk is set forth in Item 7,
page 14, and is incorporated herein by reference. Other disclosure
requirements are not submitted because they are not applicable or they
are not material.
15
<PAGE> 16
ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents (Note 1).................. $ 1,358,060 $ 3,401,527
Available-for-sale investments,
at market (Note 1)............................ 5,254,224 8,347,227
Accounts and notes receivable, less reserve of
$641,899 in 1998 and $559,261 in 1997 for
doubtful accounts (Note 1).................... 16,030,138 16,113,239
Inventories (Note 1) -
Raw materials and components.................... $ 6,256,675 $ 5,101,658
Work-in-process................................. 1,808,244 1,727,815
Finished goods.................................. 2,247,814 1,202,936
----------- -----------
$ 10,312,733 $ 8,032,409
Prepayments....................................... 437,607 474,430
----------- -----------
Total Current Assets...................... $33,392,762 $36,368,832
Other Assets (Notes 2 and 3)........................ 2,955,817 3,523,801
Property, Plant and Equipment - at cost (Note 1) -
Land and land improvements........................ $ 3,087,283 $ 2,712,112
Buildings......................................... 13,228,773 12,876,279
Shop equipment.................................... 28,702,060 26,165,326
Transportation, office and other equipment........ 13,016,281 12,118,952
Construction-in-progress.......................... 752,855 440,278
----------- -----------
$58,787,252 $54,312,947
Less - Accumulated depreciation................... 39,998,560 37,658,290
----------- -----------
$18,788,692 $16,654,657
----------- -----------
$55,137,271 $56,547,290
=========== ===========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- ----------------------------------------
Current Liabilities:
Accounts payable.................................. $ 3,077,192 $ 4,295,684
Accrued expenses -
Income taxes (Note 3)........................... 214,520 290,700
Payrolls........................................ 2,532,346 2,125,019
Vacations....................................... 1,931,177 1,907,269
Other (Note .................................... 1,700,454 1,926,361
Advance billings.................................. 4,513,524 5,225,012
----------- -----------
Total Current Liabilities................. $13,969,213 $15,770,045
Other Long-Term Liabilities (Note 2)................ 1,159,798 1,100,036
Contingencies (Note 4)
Shareholders' Investment:
Common stock, par value $1 per share -
Authorized 20,000,000 shares -
Issued 1,342,325 shares....................... $ 1,342,325 $ 1,342,325
Preferred stock, par value $1 per share -
Authorized 1,000,000 shares -
No shares issued.............................. - -
Paid-in surplus................................... 4,306,728 4,306,728
Retained earnings................................. 36,913,240 36,582,189
----------- -----------
$42,562,293 $42,231,242
Less - Treasury stock, 174,304 shares, at cost.... 2,554,033 2,554,033
----------- -----------
$40,008,260 $39,677,209
----------- -----------
$55,137,271 $56,547,290
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
16
<PAGE> 17
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales.............................. $89,745,547 $86,693,022 $83,950,990
Cost of Sales (Note 1)................. 68,173,874 66,826,192 62,252,750
----------- ----------- -----------
Gross profit......................... $21,571,673 $19,866,830 $21,698,240
Selling, General & Administrative
Expenses (Note 1).................... 17,682,108 16,331,730 15,855,134
----------- ----------- -----------
Operating income..................... $ 3,889,565 $ 3,535,100 $ 5,843,106
Other Income (Expense):
Interest income...................... $ 403,564 $ 704,965 $ 710,324
Interest expense..................... (14,635) (15,930) (107,619)
Other, net (Note 4).................. 104,807 (276,595) 44,208
----------- ----------- -----------
$ 493,736 $ 412,440 $ 646,913
----------- ----------- -----------
Income before provision
for income taxes............... $ 4,383,301 $ 3,947,540 $ 6,490,019
Provision for Income Taxes (Note 3).... 1,249,000 1,003,000 2,066,000
----------- ----------- -----------
Net Income............................. $ 3,134,301 $ 2,944,540 $ 4,424,019
=========== =========== ===========
Basic Earnings per
Common Share (Note 1)................ $ 2.68 $ 2.52 $ 3.79
====== ====== ======
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
For the Years Ended December 31, 1998, 1997 and 1996
<CAPTION>
Common Stock Treasury Stock
-------------------- Paid-in Retained ---------------------
Shares Amount Surplus Earnings Shares Amount
--------- --------- --------- ---------- -------- ----------
$'s $'s $'s $'s
<S> <C> <C> <C> <C> <C> <C>
Balance,
12-31-95 1,342,325 1,342,325 4,306,728 34,469,724 (174,304) (2,554,033)
Add
(Deduct):
Net income - - - 4,424,019 - -
Dividends,
$2.10 per
common
share - - - (2,452,844) - -
--------- --------- --------- ---------- -------- ----------
Balance,
12-31-96 1,342,325 1,342,325 4,306,728 36,440,899 (174,304) (2,554,033)
Add
(Deduct):
Net income - - - 2,944,540 - -
Dividends,
$2.40 per
common
share - - - (2,803,250) - -
--------- --------- --------- ---------- -------- ----------
Balance,
12-31-97 1,342,325 1,342,325 4,306,728 36,582,189 (174,304) (2,554,033)
Add
(Deduct):
Net income - - - 3,134,301 - -
Dividends,
$2.40 per
common
share - - - (2,803,250) - -
--------- --------- --------- ---------- -------- ----------
Balance,
12-31-98 1,342,325 1,342,325 4,306,728 36,913,240 (174,304) (2,554,033)
========= ========= ========= ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
17
<PAGE> 18
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income........................... $ 3,134,301 $ 2,944,540 $ 4,424,019
Adjustments to reconcile net income
to net cash provided by
operating activities:
Bad debt (recovery) expense........ (4,834) (16,744) 279,061
Depreciation and amortization...... 2,687,894 2,296,292 2,560,862
(Gain) on sales of equipment....... (8,328) (41,523) (7,603)
Changes in assets and liabilities -
Decrease (increase) in
interest receivable............ 70,684 58,230 (124,140)
Decrease (increase) in accounts
and notes receivable........... 87,935 (767,926) (2,573,970)
(Increase) decrease in
inventories.................... (2,280,324) (2,047,385) 5,212,831
Decrease (increase) in
prepayments.................... 36,823 (71,170) 214,185
Decrease (increase) in
other assets................... 511,984 (102,047) 203,293
(Decrease) increase in
accounts payable............... (1,218,492) 2,012,787 322,074
Increase in accrued expenses..... 129,148 156,745 1,296,750
(Decrease) increase in
advance billings............... (711,488) 1,139,860 (2,053,740)
Increase (decrease) in other
long-term liabilities.......... 59,762 (88,363) (30,192)
----------- ----------- -----------
Net Cash Provided by
Operating Activities......... $ 2,495,065 $ 5,473,296 $ 9,723,430
Cash Flows (Requirements) from
Investing Activities:
Proceeds from maturities
of investments..................... $15,508,981 $20,780,000 $22,431,823
Purchases of investments............. (12,486,663) (14,580,000) (24,850,000)
Proceeds from sales of equipment..... 10,923 87,768 7,603
Additions to property,
plant, and equipment............... (4,768,523) (7,776,935) (2,130,531)
----------- ----------- -----------
Net Cash (Required) by
Investing Activities......... $(1,735,282) $(1,489,167) $(4,541,105)
Cash Flows (Requirements)
from Financing Activities:
Repayment of debt.................... $ - $ - $(3,000,000)
Dividends paid....................... (2,803,250) (2,803,250) (2,452,844)
----------- ----------- -----------
Net Cash (Required) by
Financing Activities......... $(2,803,250) $(2,803,250) $(5,452,844)
----------- ----------- -----------
Net (Decrease) Increase in Cash........ $(2,043,467) $ 1,180,879 $ (270,519)
Cash and Cash Equivalents
at Beginning of Year................. 3,401,527 2,220,648 2,491,167
----------- ----------- -----------
Cash and Cash Equivalents
at End of Year....................... $ 1,358,060 $ 3,401,527 $ 2,220,648
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
18
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(1) SUMMARY OF ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION -- Paul Mueller Company (Registrant)
specializes in the manufacture of high-quality stainless steel
tanks and industrial processing equipment. The Registrant serves
the food, beverage, chemical, pharmaceutical and other process
industries and the dairy farm market. The financial statements
include the accounts of the Registrant and its wholly owned
subsidiaries, Mueller International Sales Corporation, a foreign
sales corporation (FSC); Mueller Transportation, Inc.; and Mueller
Field Operations, Inc. (Companies). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Effective January 1, 1997, all transportation operations, pre-
viously performed by the Registrant, and the related assets were
transferred to Mueller Transportation, Inc.
USE OF ESTIMATES -- The preparation of financial statements,
in conformity with generally accepted accounting principles,
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
REVENUE RECOGNITION AND RETAINAGES -- Revenue from sales of
manufactured products is recognized upon passage of title to
the customer, which generally coincides with shipment. Contracts
with some customers provide for a portion of the sales amount to
be retained by the customer for a period of time after completion
of the contract. Retainages included in accounts receivable were
$102,600 at December 31, 1998, and $426,300 at December 31, 1997.
INVENTORIES -- The Registrant's inventories are recorded at the
lower of cost on a last-in, first-out (LIFO) basis or market.
Cost includes material, labor, and manufacturing burden required
in the production of the Registrant's products.
Under the first-in, first-out (FIFO) method of accounting, which
approximates current cost, Registrant inventories would have been
$7,409,602, $6,679,563, and $7,119,773 higher than those reported
at December 31, 1998, 1997, and 1996, respectively.
A reduction in inventory quantities during 1996 resulted in liqui-
dation of LIFO quantities recorded at lower costs prevailing in
prior years as compared with the cost of 1996 purchases. The
effect was to lower the cost of sales, which increased net income
by $531,300, or $0.45 per share.
RESEARCH AND DEVELOPMENT -- Research and development costs are
charged to expense as incurred and were $978,900 in 1998, $719,200
in 1997, and $653,200 in 1996.
DEPRECIATION POLICIES -- The Companies provide for depreciation
expense using principally the double-declining balance method
for new items and the straight-line method for used items. The
economic useful lives for the more significant items within each
property classification are as follows:
19
<PAGE> 20
<TABLE>
<CAPTION>
Years
-------
<S> <C>
Buildings................................... 40
Land improvements........................... 10 - 20
Shop equipment.............................. 5 - 10
Transportation, office and other equipment.. 3 - 10
</TABLE>
Maintenance and repairs are charged to expense as incurred. The
cost and accumulated depreciation of assets retired are removed
from the accounts, and any resulting gains or losses are reflected
in net income currently.
EARNINGS PER COMMON SHARE -- The net income per share of common
stock has been computed on the basis of shares outstanding
(1,168,021 shares in 1998, 1997, and 1996).
INVESTMENTS -- The Registrant classifies its investments in tax-
exempt bonds, a taxable bond fund, and taxable and tax-exempt
variable rate preferred stock funds as available-for-sale and
records them at market value. These securities are a part of
the Registrant's asset/liability management program and may be
sold in response to capital or liquidity needs. Investments in
tax-exempt bonds generally have maturities from three to twelve
months. Available-for-sale investments on the accompanying con-
solidated balance sheets at December 31, 1998 and 1997, include:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Taxable bond fund....................... $ 552,682 $ 1,000,000
Tax-exempt bonds........................ 3,625,000 6,200,000
Tax-exempt preferred stock funds........ - 1,000,000
Taxable preferred stock fund............ 1,000,000 -
Accrued interest........................ 76,542 147,227
----------- -----------
$ 5,254,224 $ 8,347,227
=========== ===========
</TABLE>
Unrealized holding gains and losses were not material as of
December 31, 1998 or 1997. There were no significant realized
gains or losses during 1998, 1997, or 1996.
STATEMENTS OF CASH FLOWS -- For purposes of the statements of
cash flows, the Registrant considers investments with a maturity
of three months or less to be cash equivalents.
Interest and income tax payments for each of the three years
during the period ended December 31, 1998, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Interest payments.......... $ 14,600 $ 15,900 $ 107,600
Income tax payments........ $ 1,420,500 $ 1,601,700 $ 1,336,600
</TABLE>
(2) RETIREMENT PLANS:
The Registrant has a Profit Sharing and Retirement Savings
Plan [401(k) plan] in which substantially all employees are
eligible to participate. The plan provides for a match of
20
<PAGE> 21
employees' contributions up to a specified limit. The plan also
has a profit-sharing feature whereby an additional match is made
if the Registrant's net income reaches predetermined levels
established annually by the Board of Directors. The funds of
the plan are deposited with an insurance company and are invested
at the employee's option in one or more investment funds. The
Registrant's contributions to the plan were $415,300 for 1998,
$336,500 for 1997, and $587,500 for 1996.
The Registrant has pension plans covering substantially all em-
ployees. Benefits under the plans are based either on final
average pay or a flat benefit formula.
Total pension expense under the plans was $781,800 in 1998,
$659,900 in 1997, and $364,200 in 1996. Management's policy is
to fund pension expense that is currently deductible for tax
purposes.
The following table sets forth the required disclosures for the
pension plans at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year....... $29,600,900 $25,263,700
Service cost.................................. 1,172,900 1,005,400
Interest cost................................. 2,129,600 1,927,300
Actuarial loss................................ 731,800 2,505,600
Benefits paid and expenses.................... (1,103,000) (1,101,100)
----------- -----------
Benefit obligation at end of year............. $32,532,200 $29,600,900
=========== ===========
Change in Plan Assets
Fair value of plan assets
at beginning of year........................ $33,008,900 $28,502,600
Actual return on plan assets.................. 3,699,500 5,086,200
Employer contribution......................... 688,200 521,200
Benefits paid and expenses.................... (1,103,000) (1,101,100)
----------- -----------
Fair value of plan assets at end of year...... $36,293,600 $33,008,900
=========== ===========
Reconciliation
Funded status................................. $ 3,761,400 $ 3,408,000
Unrecognized net actuarial (gain)............. (4,269,900) (3,692,600)
Unrecognized transition (asset)............... (810,400) (1,160,900)
Unrecognized prior service cost............... 1,991,300 2,211,500
----------- -----------
Prepaid benefit cost.......................... $ 672,400 $ 766,000
=========== ===========
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Components of Pension Expense
Service cost..................... $ 1,172,900 $ 1,005,400 $ 897,200
Interest cost.................... 2,129,600 1,927,300 1,692,400
Expected return on plan assets... (2,388,500) (2,141,900) (2,018,800)
Amortization of
transition (asset)............. (350,500) (350,500) (350,500)
Amortization of
prior service cost............. 220,200 220,200 143,900
Recognized net actuarial (gain).. (1,900) (600) -
----------- ----------- -----------
Pension expense.................. $ 781,800 $ 659,900 $ 364,200
=========== =========== ===========
</TABLE>
21
<PAGE> 22
Prepaid pension assets of $2,377,500 and $2,392,700 at December
31, 1998 and 1997, respectively, are included in other assets
on the accompanying consolidated balance sheets. Pension lia-
bilities of $1,705,100 and $1,626,700 at December 31, 1998 and
1997, respectively, are included in current and other long-term
liabilities on the accompanying consolidated balance sheets.
The weighted average expected long-term rate of return on plan
assets used in the determination of annual pension expense was
8.5% for 1998, 1997, and 1996. The weighted average assumed
discount rate used to measure the benefit obligation was 7.0% at
December 31, 1998 and 1997. The assumed rate of compensation
increase used to measure the benefit obligation was 4.5% at
December 31, 1998 and 1997, for the applicable plan.
(3) INCOME TAXES:
The provision for taxes on income from operations includes:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current tax expense........... $1,037,200 $1,087,800 $1,823,800
Deferred, net................. 211,800 (84,800) 242,200
---------- ---------- ----------
$1,249,000 $1,003,000 $2,066,000
========== ========== ==========
</TABLE>
The deferred tax consequences of temporary differences in report-
ing items for financial statement and income tax purposes are
recognized, if appropriate. Net deferred tax assets of $320,000
and $778,200 at December 31, 1998 and 1997, respectively, are
included in other assets on the accompanying consolidated balance
sheets. The income tax effect of temporary differences comprising
the deferred tax assets and deferred tax liabilities in the accom-
panying consolidated balance sheets is a result of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred Tax Assets:
Insurance............................. $ 69,800 $ 82,100
Vacation.............................. 637,200 635,800
Warranty.............................. 18,500 56,200
Doubtful accounts..................... 237,500 206,900
Healthcare benefits................... 164,300 176,000
Lawsuit............................... 383,500 367,400
Other................................. 126,000 110,800
---------- ----------
$1,636,800 $1,635,200
========== ==========
Deferred Tax Liabilities:
Depreciation.......................... $ 658,300 $ 292,100
Pensions.............................. 510,300 538,000
Other................................. 148,200 26,900
---------- ----------
$1,316,800 $ 857,000
========== ==========
</TABLE>
A reconciliation between the statutory federal income tax rate
(34%) and the effective rate of income tax expense for each of the
three years during the period ended December 31, 1998, follows:
22
<PAGE> 23
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
Amount % Amount % Amount %
---------- ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Statutory federal
income tax......... $1,490,300 34.0 $1,342,200 34.0 $2,206,600 34.0
Increase (decrease)
in taxes resulting
from:
State tax, net of
federal benefit... 65,400 1.5 53,700 1.4 67,600 1.0
Tax-exempt
interest.......... (71,100) (1.6) (137,400) (3.5) (165,700) (2.6)
Tax credits........ (27,200) (0.6) (22,200) (0.5) (14,400) (0.2)
FSC exempt income.. (170,900) (3.9) (138,700) (3.5) (138,500) (2.1)
Other, net......... (37,500) (0.9) (94,600) (2.5) 110,400 1.7
---------- ---- ---------- ---- ---------- ----
$1,249,000 28.5 $1,003,000 25.4 $2,066,000 31.8
========== ==== ========== ==== ========== ====
</TABLE>
(4) CONTINGENCIES:
The Registrant was the defendant in a breach-of-contract/breach-
of-warranty lawsuit concerning reactor vessels sold in 1992 in
Tarrant County, Texas (Alcon Laboratories, Inc. -vs- Paul Mueller
Company). As a result of a trial that ended September 19, 1997,
the Registrant received an adverse decision, and the final judg-
ment awarded damages, interest, and attorney's fees totaling
approximately $1,700,000 to the plaintiff. Management believes
the decision was incorrect and, based on the advice of legal
counsel, has appealed the decision. As a result of the decision,
a provision of $775,000 was made during 1997 as an estimate of
the liability for the ultimate resolution of the matter and is
included in other, net on the accompanying consolidated statements
of income, and the related reserve is included in accrued expenses
on the consolidated balance sheets. If the decision is upheld on
appeal, the Registrant's liability will exceed the reserve that
has been established.
The Registrant is a defendant in another lawsuit pending at
December 31, 1998. In the opinion of management, after consul-
tation with legal counsel, the outcome of the lawsuit will not
have a material adverse effect on the Registrant's consolidated
financial statements.
The Registrant employs nearly 860 people, of which approximately
380 are represented by the Sheet Metal Workers Union. The
International Union called a strike beginning July 25, 1995, and
currently 20 employees are participating. The Registrant has
unfair labor practice charges pending before the National Labor
Relations Board, and the final determination of these charges may
take up to two years. However, management believes, based on
evaluation by counsel, that there is no material financial ex-
posure to the Registrant.
(5) SEGMENT DATA:
The Registrant has two reportable segments: Industrial Equipment
and Dairy Farm Equipment. The Registrant's Industrial Equipment
segment sells the following products directly to industrial cus-
tomers: food, beverage, chemical, and pharmaceutical processing
equipment; industrial heat transfer equipment; pure water equip-
ment; thermal energy storage equipment; and commercial refrigera-
tion equipment. The Registrant's Dairy Farm Equipment segment
sells milk cooling and storage equipment and accessories, refri-
geration units, and heat recovery equipment for use on dairy farms
to independent dealers for resale.
Management evaluates performance and allocates resources based
on operating income or loss before income taxes. The account-
ing policies of the reportable segments are the same as those
23
<PAGE> 24
described in Summary of Accounting Policies in Note 1 to these
Consolidated Financial Statements. There are no intersegment
sales.
The Registrant's reportable segments are managed separately
because they offer different products. Industrial Equipment
products have been aggregated because they are designed and built
to a customer's specifications, and they use common processes and
resources in the manufacturing operation. The long-term financial
performance of the product lines included in the Industrial Equip-
ment segment is affected by similar economic conditions. The
Dairy Farm Equipment segment includes standard products that are
built to stock and are available for sale from inventory. The
demand for Dairy Farm Equipment products relates to the economic
factors that influence the profitability of dairy farmers.
<TABLE>
<CAPTION>
1998
--------------------------------------------------
Dairy Farm Industrial Other /
Equipment Equipment Corporate Consolidated
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues from
external customers... $19,192,965 $70,552,582 $ - $89,745,547
Depreciation and
amortization expense. $ 506,320 $ 1,866,868 $ 314,706 $ 2,687,894
Income (expense)
before income tax.... $ 2,472,637 $ 2,105,629 $ (194,965) $ 4,383,301
Assets................ $10,761,132 $32,806,912 $11,569,227 $55,137,271
Additions to
property, plant,
and equipment........ $ 426,789 $ 4,030,797 $ 310,937 $ 4,768,523
<CAPTION>
1997
--------------------------------------------------
Dairy Farm Industrial Other /
Equipment Equipment Corporate Consolidated
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues from
external customers... $22,390,144 $64,302,878 $ - $86,693,022
Depreciation and
amortization expense. $ 780,138 $ 1,176,630 $ 339,524 $ 2,296,292
Income before
income tax........... $ 3,454,940 $ 272,869 $ 219,731 $ 3,947,540
Assets................ $11,987,432 $27,857,839 $16,702,019 $56,547,290
Additions to
property, plant,
and equipment........ $ 1,236,037 $ 6,067,429 $ 473,469 $ 7,776,935
<CAPTION>
1996
--------------------------------------------------
Dairy Farm Industrial Other /
Equipment Equipment Corporate Consolidated
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues from
external customers... $19,169,174 $64,781,816 $ - $83,950,990
Depreciation and
amortization expense. $ 842,512 $ 1,313,830 $ 404,520 $ 2,560,862
Income before
income tax........... $ 2,479,867 $ 3,917,004 $ 93,148 $ 6,490,019
Assets ............... $10,401,372 $21,171,140 $21,612,459 $53,184,971
Additions to
property, plant,
and equipment........ $ 812,711 $ 1,059,414 $ 258,406 $ 2,130,531
</TABLE>
Revenues from external customers by product category for the three
years ended December 31, 1998, were:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Milk cooling & storage equipment... $17,144,400 $20,455,089 $18,285,168
Processing equipment............... 47,613,127 38,066,204 39,964,316
Other industrial equipment......... 24,988,020 28,171,729 25,701,506
----------- ----------- -----------
$89,745,547 $86,693,022 $83,950,990
=========== =========== ===========
</TABLE>
24
<PAGE> 25
Revenues by geographic location are attributed to countries based
on the location of the customer and for the three years ended
December 31, 1998, were:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
United States...................... $65,914,311 $67,996,277 $67,687,328
North America...................... 6,935,491 6,065,359 5,581,414
Asia & the Far East................ 13,385,745 7,665,046 6,648,292
Other areas........................ 3,510,000 4,966,340 4,033,956
----------- ----------- -----------
$89,745,547 $86,693,022 $83,950,990
=========== =========== ===========
</TABLE>
During the years presented, 1998 included export sales to Japan
($10,358,984) that were in excess of 10% of consolidated sales.
All long-lived assets owned by the Registrant and its subsidiaries
are located in the United States.
During 1998, 1997, and 1996, sales to any one customer were not in
excess of 10% of consolidated sales.
<TABLE>
FINANCIAL HIGHLIGHTS BY QUARTER (UNAUDITED)
(In Thousands, Except Per Share Data)
<CAPTION>
Quarter Ended
---------------------------------------------------------------
March 31 June 30 September 30 December 31
--------------- --------------- --------------- ---------------
1998 1997 1998 1997 1998 1997 1998 1997
------- ------- ------- ------- ------- ------- ------- -------
<F2> <F3> <F4>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.... $17,424 $17,208 $24,810 $21,868 $25,126 $23,404 $22,386 $24,213
Gross
profit (a).. $ 4,793 $ 4,229 $ 6,875 $ 5,401 $ 5,970 $ 4,986 $ 3,934 $ 5,251
Net income
(loss)...... $ 701 $ 436 $ 1,684 $ 1,047 $ 1,117 $ 360 $ (368)$ 1,102
Earnings
(loss) per
common
share....... $ 0.60 $ 0.37 $ 1.44 $ 0.90 $ 0.96 $ 0.31 $(0.32) $ 0.94
<FN>
<F1> Because the inventory determination under the LIFO method can
only be made at the end of each fiscal year based on the inven-
tory levels and costs at that point, interim LIFO determinations
must be based on management's estimate of expected year-end
inventory levels and costs.
<F2> Net income for the third quarter of 1997 was unfavorably affected
by a provision of $488,000 after tax, or $0.42 per share, made
as a result of an adverse jury decision in a breach-of-contract/
breach-of-warranty lawsuit.
<F3> Net income for the fourth quarter of 1998 was unfavorably
affected by a LIFO adjustment and by large healthcare claims.
The effect of the LIFO adjustment decreased net income by
$284,000, or $0.24 per share, and the healthcare claims de-
creased net income by $328,000, or $0.28 per share.
<F4> Net income for the fourth quarter of 1997 was favorably affected
by a LIFO adjustment. The adjustment increased net income by
$510,400, or $0.44 per share.
</FN>
</TABLE>
25
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Paul Mueller Company:
We have audited the accompanying consolidated balance sheets of
PAUL MUELLER COMPANY (a Missouri corporation) AND SUBSIDIARIES as of
December 31, 1998 and 1997, and the related consolidated statements
of income, shareholders' investment, and cash flows for each of the
three years in the period ended December 31, 1998. These financial
statements and Schedule II are the responsibility of the Registrant's
management. Our responsibility is to express an opinion on these
financial statements and Schedule II 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 rea-
sonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Paul Mueller Company and Subsidiaries as of December 31, 1998 and
1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on
the basic financial statements taken as a whole. Schedule II is pre-
sented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Kansas City, Missouri,
February 12, 1999
ITEM 9. - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements on accounting principles or
financial statement disclosure with the independent public
accountants.
26
<PAGE> 27
PART III
ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information as to Directors of the Registrant required by Item 10
is included on pages 4 and 5 of the Registrant's Proxy Statement
for the annual meeting of shareholders to be held May 3, 1999,
and is incorporated herein by reference. The information con-
cerning executive officers is set forth on page 6 of Part I
hereof.
ITEM 11. - EXECUTIVE COMPENSATION
Information as to executive compensation required by Item 11 is
included on pages 5 and 6 of the Registrant's Proxy Statement for
the annual meeting of shareholders to be held May 3, 1999, and is
incorporated herein by reference.
ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Information as to security ownership of certain beneficial owners
and management required by Item 12 is included on pages 3, 4, and
5 of the Registrant's Proxy Statement for the annual meeting of
shareholders to be held May 3, 1999, and is incorporated herein
by reference.
ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information as to certain relationships and related transactions
required by Item 13 is included on page 5 of the Registrant's
Proxy Statement for the annual meeting of shareholders to be held
May 3, 1999, and is incorporated herein by reference.
27
<PAGE> 28
PART IV
ITEM 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
A. The financial statements and schedules, required under
Part II - Item 8, are as follows:
1. The consolidated financial statements of the Registrant and
its subsidiaries, for the year ended December 31, 1998:
- Consolidated Balance Sheets............December 31, 1998
and 1997
- Consolidated Statements of Income......For years ended
December 31, 1998,
1997 and 1996
- Consolidated Statements of
Shareholders' Investment...............For years ended
December 31, 1998,
1997 and 1996
- Consolidated Statements of
Cash Flows.............................For years ended
December 31, 1998,
1997 and 1996
- Notes to Consolidated
Financial Statements...................December 31, 1998,
1997 and 1996
- Financial Highlights by Quarter........For years ended
December 31, 1998
and 1997
- Report of Independent
Public Accountants
2. Additional financial statement schedules included herein:
- Schedule II - Valuation and
Qualifying Accounts.............................Page 30
- All other schedules are not submitted
because they are not applicable or
not required, or because the required
information is included in the finan-
cial statements or notes thereto.
3. The exhibits set forth in the Exhibit Index found on pages
31 through 33.
B. No reports on Form 8-K were filed by the Registrant during the
last quarter of 1998.
28
<PAGE> 29
SIGNATURES -
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PAUL MUELLER COMPANY
DATE March 12, 1999 BY /S/ DANIEL C. MANNA
-------------- -------------------------------------
Daniel C. Manna
President
(Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
DATE March 12, 1999 BY /S/ DANIEL C. MANNA
-------------- -------------------------------------
Daniel C. Manna
President and Director
(Chief Executive Officer)
DATE March 12, 1999 BY /S/ PAUL MUELLER
-------------- -------------------------------------
Paul Mueller
Chairman of the Board
and Director
DATE March 12, 1999 BY /S/ DONALD E. GOLIK
-------------- -------------------------------------
Donald E. Golik
Senior Vice President, Chief Financial
Officer, Secretary and Director
DATE March 12, 1999 BY /S/ DAVID T. MOORE
-------------- -------------------------------------
David T. Moore
Director
DATE March 12, 1999 BY /S/ WILLIAM B. JOHNSON
-------------- -------------------------------------
William B. Johnson
Director
DATE March 12, 1999 BY /S/ WILLIAM R. PATTERSON
-------------- -------------------------------------
William R. Patterson
Director
DATE March 12, 1999 BY /S/ CHARLES M. RUPRECHT
-------------- -------------------------------------
Charles M. Ruprecht
Director
29
<PAGE> 30
<TABLE>
SCHEDULE II
PAUL MUELLER COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
<CAPTION>
Balance at Charged to Charged Balance
Beginning Costs and to Other at End of
of Period Expenses Accounts Deductions Period
-------- -------- -------- -------- --------
RESERVE FOR
DOUBTFUL ACCOUNTS
<S> <C> <C> <C> <C> <C>
12-31-98... $559,261 $125,703 $ - $ 43,065<F1> $641,899
12-31-97... $698,036 $(82,689) $ - $ 56,086<F1> $559,261
12-31-96... $531,601 $316,990 $ - $150,555<F1> $698,036
<FN>
<F1> Accounts written off during the year.
</FN>
</TABLE>
30
<PAGE> 31
<TABLE>
EXHIBIT INDEX
<CAPTION>
Number Description Page No.
- ------ ----------------------------------------------------------- --------
<S> <C> <C>
(3) ARTICLES OF INCORPORATION AND BY-LAWS - The Restated Ar-
ticles of Incorporation of the Registrant filed with the
Secretary of State on May 20, 1991, and the Restated By-
Laws of the Registrant dated May 6, 1991, attached as
Exhibit (3), page 19, of the Registrant's Form 10-K for
the year ended December 31, 1991, are incorporated herein
by reference.
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS -
(a) A specimen stock certificate (unlimited denomination)
representing shares of the common stock, par value $1
per share, attached as Exhibit (4), page 69, of the
Registrant's Form 10-K for the year ended December 31,
1981, is incorporated herein by reference.
(b) The Shareholder Rights Plan, dated January 29, 1991,
between Paul Mueller Company and United Missouri Bank
of Kansas City, N.A., is incorporated by reference to
Form 8-A under the Securities Exchange Act of 1934,
dated January 31, 1991, and filed with the Securities
and Exchange Commission on February 1, 1991.
(10) MATERIAL CONTRACTS -
(a) The Exclusive License Agreement between Registrant
and Superstill Technology, Inc., dated January 9, 1992,
Addendum No. 1 dated January 28, 1992, and Addendum
No. 2 dated June 15, 1992, were attached as Exhibit
(10), page 30, of the Registrant's Form 10-K for the
year ended December 31, 1996, and is incorporated
herein by reference.
(b) The following Material Contracts, attached as Exhibit
(10) of the Registrant's Form 10-Q for the quarter
ended September 30, 1995, are incorporated herein by
reference:
<C> CAPTION
Description Page No.
--------------------------------------------- --------
<S><C> <C>
1. The Paul Mueller Company Tax Savings Plan
and Trust, effective January 1, 1996, and
adopted by the Board of Directors on August
2, 1995.................................... 11
2. The Paul Mueller Company Dependent Care
Assistant Plan, effective January 1, 1996,
and adopted by the Board of Directors on
August 2, 1995............................. 22
<S> <C> <C>
(c) The Paul Mueller Company Noncontract Employees Retirement
Plan, as amended and restated effective January 1, 1989,
31
<PAGE> 32
<CAPTION>
Number Description Page No.
- ------ ----------------------------------------------------------- --------
<S> <C> <C>
and adopted by the Board of Directors of the Registrant
on May 7, 1990, was attached as Exhibit (10), page 179,
of the Registrant's Form 10-K for the year ended Decem-
ber 31, 1990, and is incorporated herein by reference.
Amendment Number One, effective October 29, 1991, was
adopted by the Board of Directors on October 29, 1991,
and Amendment Number Two, effective June 1, 1992, was
adopted by the Board of Directors on May 4, 1992, and
both were attached as Exhibit (10), page 18, of the
Registrant's Form 10-K for the year ended December 31,
1992, and both are incorporated herein by reference.
Amendment Number Three was adopted by the Board of
Directors on July 26, 1994, and Amendment Number Four,
effective January 1, 1994, was adopted by unanimous
consent of the Executive Committee of the Board of
Directors on December 5, 1994, and both were attached
as Exhibit (10), page 59, of the Registrant's Form
10-K for the year ended December 31, 1994, and both
are incorporated herein by reference. Amendment Number
Five, adopted by the Board of Directors on October 31,
1995, was attached as Exhibit (10), page 26, of the
Registrant's Form 10-Q for the quarter ended September
30, 1995, and is incorporated herein by reference.
Amendment Number Six, effective January 1, 1996, and
executed on May 6, 1996, was attached as Exhibit (10),
page 14, of the Registrant's Form 10-Q for the quarter
ended March 31, 1996, and is incorporated herein by
reference.
(d) The Paul Mueller Company Employee Benefit Plan, amended
and restated effective June 1, 1998, and adopted by the
Trustees on August 5, 1998, was attached as Exhibit
(10), page 33, of the Registrant's Form 10-Q for the
quarter ended September 30, 1998, and is incorporated
herein by reference.
(e) The Paul Mueller Company Profit Sharing and Retirement
Savings Plan, restated effective January 1, 1993, and
adopted by the Trustees on June 22, 1994, was attached
as Exhibit (10), page 15, of the Registrant's Form
10-K for the year ended December 31, 1994. The First
Amendment, effective September 1, 1997, was executed
on August 14, 1997, was attached as Exhibit (10), page
32, of the Registrant's Form 10-K for the quarter ended
December 31, 1997, and is incorporated herein by refer-
ence.
(f) The Paul Mueller Company Contract Employees Retirement
Plan, restated effective January 1, 1992, and adopted
November 17, 1992, was attached as Exhibit (10), page
22, of the Registrant's Form 10-K for the year ended
December 31, 1992, and is incorporated herein by refer-
ence. Amendment Number One, effective September 19,
1994, was executed October 20, 1994, and Amendment
Number Two, effective January 1, 1993, was executed
December 2, 1994, and both were attached as Exhibit
(10), page 67, of the Registrant's Form 10-K for the
year ended December 31, 1994, and are incorporated
herein by reference. Amendment Number Three, executed
April 10, 1996, was attached as Exhibit (10), page 10,
of the Registrant's Form 10-Q for the quarter ended
March 31, 1996, and is incorporated herein by reference.
Amendment Number Four, executed July 26, 1996, was
attached as Exhibit (10), page 11, of the Registrant's
Form 10-Q for the quarter ended September 30, 1996,
and is incorporated herein by reference
(g) The Agreement and Declaration of Trust for the Paul
Mueller Company Employee Benefit Plan dated May 2, 1988,
32
<PAGE> 33
<CAPTION>
Number Description Page No.
- ------ ----------------------------------------------------------- --------
<S> <C> <C>
attached as Exhibit (10), page 107, of the Registrant's
Form 10-K for the year ended December 31, 1988, is in-
corporated herein by reference.
(h) The Paul Mueller Company Salaried and Clerical Employees
Retirement Trust, as amended August 11, 1981, was at-
tached as Exhibit (10), page 318, of the Registrant's
Form 10-K for the year ended December 31, 1981, and is
incorporated herein by reference. The First Amendment
to the trust, adopted by the Board of Directors on May 1,
1983, was attached as Exhibit (10), page 160, of the
Registrant's Form 10-K for the year ended December 31,
1983, and is incorporated herein by reference.
(i) The Executive Compensation Plans and Arrangements:
i. The Paul Mueller Company Supplemental Executive Re-
tirement Plan, effective January 1, 1996, adopted
by the Board of Directors on February 8, 1996, was
attached as Exhibit (10), page 30, of the Regis-
trant's Form 10-K for the year ended December 31,
1995, and is incorporated herein by reference.
ii. The Executive Short-Term Incentive Plan, adopted
January 31, 1995, attached as Exhibit (10), page 71,
of the Registrant's Form 10-K for the year ended
December 31, 1994, is incorporated herein by refer-
ence.
(21) SUBSIDIARIES OF THE REGISTRANT............................. 34
(27) FINANCIAL DATA SCHEDULE AS OF DECEMBER 31, 1998............ 35
</TABLE>
32
<PAGE> 34
SUBSIDIARIES OF REGISTRANT
Mueller International Sales Corporation, a Foreign Sales Corporation,
was organized December 18, 1984, and incorporated under the laws of
the Virgin Islands of the United States and became active in 1985.
This is a wholly owned subsidiary and its accounts have been included
in the consolidated financial statements filed herein.
Mueller Transportation, Inc., a Missouri Corporation, was incorporated
on October 15, 1996. This is a wholly owned subsidiary that began
operations effective January 1, 1997. Its accounts have been included
in the consolidated financial statements filed herein.
Mueller Field Operations, Inc., a Missouri Corporation, was incorpo-
rated on January 28, 1998. This is a wholly owned subsidiary that
began operations effective January 28, 1998. Its accounts have been
included in the consolidated financial statements filed herein.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
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0
0
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