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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 1995 Commission file number 1-6770
MUELLER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-0790410
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2959 N. ROCK ROAD
WICHITA, KANSAS 67226-1191
(Address of principal executive offices)
Registrant's telephone number, including area code: (316) 636-6300
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $0.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by a check mark whether the registrant (1) has filed all reports
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 (Section 229.405 of this chapter) 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.[___].
The number of shares of the Registrant's common stock outstanding as of March
7, 1996 was 17,372,298, excluding 2,627,702 treasury shares. The aggregate
market value of the 16,899,414 shares of common stock held by non affiliates
of the Registrant was $534,443,968 at March 7, 1996 (based on the closing
price on the consolidated transaction reporting system on that date).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into this
Report: (1) Registrant's Annual Report to Shareholders for the year ended
December 30, 1995 (Part I and II); Registrant's Definitive Proxy Statement for
the 1996 Annual Meeting of Stockholders, scheduled to be mailed on or about
March 18, 1996 (Part III).
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MUELLER INDUSTRIES, INC.
As used in this report, the terms "Company," "Mueller" and "Registrant" mean
Mueller Industries, Inc. and its consolidated subsidiaries taken as a whole,
unless the context indicates otherwise.
TABLE OF CONTENTS
Page
PART I
Item 1. Business..................................................3
Item 2. Properties...............................................10
Item 3. Legal Proceedings........................................11
Item 4. Submission of Matters to a Vote of Security Holders......11
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters...................................11
Item 6. Selected Financial Data..................................11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................12
Item 8. Financial Statements and Supplementary Data..............12
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................12
PART III
Item 10. Directors and Executive Officers of the Registrant.......12
Item 11. Executive Compensation...................................12
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................12
Item 13. Certain Relationships and Related Transactions...........12
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K...........................................13
Signatures..............................................................15
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PART I
ITEM 1. BUSINESS
Introduction
The Company is a leading fabricator of copper, brass, plastic and
aluminum products. The range of these products is broad: copper tube and
fittings; brass and copper alloy rods, bars and shapes; aluminum and brass
forgings; aluminum and copper impact extrusions; plastic fittings and valves;
and refrigeration valves, driers and flare fittings. These operations (the
"Manufacturing Segment") accounted for approximately 95% of the Company's
total net sales and 88% of total identifiable assets on a consolidated basis
in 1995. The Company markets its products to the heating and air
conditioning, refrigeration, plumbing, hardware and other industries. Mueller
Brass Co. ("MBCo") and its subsidiaries operate twelve factories in five
states and Canada and have distribution facilities nationwide and sales
representation worldwide.
The Company's natural resource operations are conducted through its
wholly-owned subsidiary Arava Natural Resources Company, Inc. ("Arava") and
the Company's 85% owned subsidiary Alaska Gold Company ("Alaska Gold").
Natural resource operations consist principally of the operation of a short
line railroad in Utah and a placer gold mining operating in Alaska.
Information concerning net sales, operating income, and identifiable
assets of each segment appears under "Note 12 - Industry Segments" on page 21
in the Notes to Consolidated Financial Statements in Mueller's Annual Report
to Stockholders for the year ended December 30, 1995. Such information is
incorporated herein by reference.
MANUFACTURING SEGMENT
Products and Manufacturing Operations
Mueller's standard products include a broad line of copper tube, which
ranges in size from 1/8 inch to 8 inch diameter, and is sold in various
straight lengths and coils. Mueller is a market leader in the air
conditioning and refrigeration tube markets. Additionally, Mueller supplies a
variety of water tube in straight lengths and coils used for plumbing
applications in virtually every type of construction project.
Other standard products include copper and plastic fittings and related
components for the plumbing and heating industry that are used in water
distribution systems, heating systems, air conditioning and refrigeration
applications, and drainage, waste, and vent ("DWV") systems. Additionally,
valves, wrot copper and brass fittings, filter driers and other related
assemblies are manufactured for commercial air conditioning and refrigeration
applications such as vending machines, ice machines, walk-in coolers, and
numerous refrigeration applications. The refrigeration product line also
includes products for the refrigeration and air conditioning installation and
service markets. A major portion of Mueller's products are ultimately used in
the domestic residential and commercial construction markets and, to a lesser
extent, in the automotive and heavy on and off-the-road vehicle markets.
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Mueller's industrial products include brass rod, nonferrous forgings and
impact extrusions that are sold primarily to Original Equipment Manufacturers
("OEM") in the plumbing, refrigeration, fluid power, and automotive
industries, as well as to other manufacturers and distributors. The Port
Huron, Michigan mill extrudes brass, bronze and copper alloy rod in sizes
ranging from 3/8 inches to 4 inches in diameter. These alloys are used in
applications that require a high degree of machinability, wear and corrosion
resistance, and electrical conductivity. Mueller brass and aluminum forgings
are used in a wide variety of end products, including automotive components,
brass fittings, industrial machinery, valve bodies, gear blanks, computer
hardware, and fire fighting equipment. The Company also serves the
automotive, military ordnance, aerospace and general manufacturing industries
with cold-formed aluminum and copper impact extrusions. Typical applications
for impacts are high-strength ordnance, high-conductivity electrical
components, builders' hardware, hydraulic systems, automotive parts and other
uses where toughness must be combined with varying complexities of design and
finish.
The Company's manufacturing facilities have operated at high levels
during 1995, 1994, and 1993.
Marketing and Distribution
Mueller's standard products are marketed primarily through its own sales
and distribution organization, which maintains sales offices and distribution
centers throughout the United States and in Canada. Additionally, these
products are sold and marketed through a network of agents, which, when
combined with the Company's sales organization, provide the Company broad
geographic market representation.
Industrial Products are sold, primarily, direct to OEM customers.
Outside of North America, the Company sells its products through various
channels including exclusive distributors, agents and direct sales channels in
over 65 countries, primarily in Europe, the Far East and the Middle East.
Competition
The businesses in which Mueller is engaged are highly competitive. The
principal methods of competition for Mueller's products are customer service
and quality. No material portion of Mueller's business is dependent upon a
single customer or a small group of related customers. The total amount of
order backlog for Mueller's products on December 30, 1995 and December 31,
1994 was not significant.
The Company competes with various companies depending on the product
line. In copper tubing, there are more than five domestic competitors
including Cerro Copper Products Co., Inc., Halstead Industries, Inc., Reading
Tube Corporation, and Wolverine Tube, Inc. as well as many actual and
potential foreign competitors. Additionally, it competes with a large number
of manufacturers of substitute products made from plastic, iron and steel. In
the copper fittings market, competitors include Elkhart Products, a division
of Amcast Industrial Corporation, and NIBCO, Inc. The plastic fittings
competitors include more than a dozen companies. The brass rod competitors
include Cerro Metal Products Company, Inc., Chase Brass Industries, Inc.,
Extruded Metals Inc., and others. As illustrated above, no one competitor
offers the range of products as does the Company. Management believes that
the Company's ability to offer such a wide ranging product line is a
competitive advantage in some markets.
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Raw Materials and Supplies
The major portion of Mueller's base metal requirements (primarily copper)
are normally obtained through short-term supply contracts with competitive
pricing provisions. Other raw materials used in the production of brass,
including brass scrap, zinc, tin and lead are obtained from zinc and lead
producers, open-market dealers and customers with brass process scrap. Raw
materials used in the fabrication of aluminum and plastic products are
purchased in the open market from major producers.
NATURAL RESOURCES SEGMENT
Mueller, through its subsidiaries Arava and Alaska Gold, is engaged in
the operation of a short line railroad in Utah and placer gold mining in
Alaska. It also owns interests in other natural resource properties.
Short Line Railroad
Utah Railway Company ("Utah Railway"), a wholly-owned subsidiary of
Arava, operates over approximately 100 miles of railroad track in Utah. Utah
Railway serves four major customers pursuant to long-term contracts which
account for more than 75% of tonnage hauled. The Utah Railway transports more
than five million tons of coal per year to an interchange point at Provo,
Utah, although annual tonnage may vary significantly due to fluctuations in
the demand for export coal. The coal is then transported by connecting
railroads to various customers including electric utilities, cement plants,
west coast export facilities and others at destinations throughout the West.
In January, 1996, the Utah Railway entered into an agreement with Union
Pacific Railroad (UP) whereby UP was granted rights to operate over a portion
of Utah Railway track. In exchange, UP granted limited rights to Utah Railway
for operations over Southern Pacific (SP) tracks to Grand Junction, Colorado
and access to additional coal customers. The agreement is contingent on the
regulatory approval of the UP/SP merger.
Gold Mining
Alaska Gold mines placer gold in Nome, Alaska. Alaska Gold produced
18,731 net ounces of gold in 1995, 14,173 net ounces of gold in 1994, 22,440
net ounces of gold in 1993, 17,965 net ounces of gold in 1992, and 19,016 net
ounces of gold in 1991, at a net production cost of $307 per ounce in 1995,
$376 per ounce in 1994, $280 per ounce in 1993, $306 per ounce in 1992, and
$407 per ounce in 1991. Based on the results of past exploratory drilling,
Alaska Gold believes there may be various areas available on its properties to
sustain open pit mining for ten years.
Properties consist of approximately 14,500 acres in and adjacent to Nome.
In addition, Alaska Gold owns or has patented claims on approximately 10,400
acres in the Fairbanks, Alaska area, and approximately 3,000 acres in the
Hogatza, Alaska area.
On March 14, 1996, the Company acquired the minority shareholders'
fifteen percent interest in Alaska Gold, thereby making Alaska Gold a wholly-
owned subsidiary.
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Coal Properties
In 1994, United States Fuel Company ("U.S. Fuel"), a wholly-owned
subsidiary of Arava, entered into an agreement to sell the majority of its
assets. The sale has not yet been consummated, but U.S. Fuel has granted
extensions of the closing date to give the potential purchaser additional time
to finalize financing. If this sale is not completed, U.S. Fuel may offer the
property to other potential buyers or consider other alternatives, while
resuming full scale remediation. Prior to March 1993, U.S. Fuel mined steam
coal by the deep-mine process at its coal properties located in Carbon and
Emery Counties, Utah.
U.S. Fuel's coal properties include approximately 12,700 acres of which
approximately 10,000 acres are owned and 2,700 acres are leased. Following
the proposed sale, U.S. Fuel will own approximately 1,100 acres.
Other Natural Resources Properties
The Company also has interests in various mineral properties located in
nine states and Canada. None of these mineral properties are significant to
the Company's business, and may be sold, developed, or leased.
Canco Oil & Gas Ltd. ("Canco"), a wholly-owned Canadian subsidiary, owns
petroleum and natural gas rights to approximately 30,000 net acres in
Saskatchewan, Canada. The Company is considering various options including
selling or leasing its rights to exploit the development potential of these
properties.
In 1992, Ruby Hill Mining Company ("Ruby Hill") entered into a four-year
Exploration Agreement with Purchase Option (the "Exploration Agreement") with
Homestake Mining Company of California ("Homestake") for its property near
Eureka, Nevada. Homestake has a substantial exploration and drilling program
underway on the property. In 1994, Homestake exercised its option to purchase
the property; the total purchase price is $4 million payable over up to a six-
year period depending on timing of production decisions and commencement of
production. If Homestake produces a total of 500,000 ounces of gold or "gold
equivalents" of other metals from this property, Ruby Hill is thereafter
entitled to a three percent net smelter return royalty, after deduction for
certain taxes and transportation. In early 1996, Homestake confirmed its
decision to proceed with production. Arava owns 81% of the stock of Richmond-
Eureka Mining Company, which owns 75% of the stock of Ruby Hill.
LABOR RELATIONS
The Company employs approximately 2,275 employees of which approximately
925 are represented by various unions. A majority of the unionized employees
are under contracts which expire in 1999.
RAW MATERIAL AND ENERGY AVAILABILITY
Adequate supplies of raw material are available to the Company.
Sufficient energy in the form of natural gas, fuel oils and electricity is
available to operate the Company's production facilities. While temporary
shortages of raw material and fuels may occur occasionally, they have not
materially hampered the Company's operations.
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ENVIRONMENTAL MATTERS
The Company is subject to various laws and regulations relating to
environmental quality. Compliance with these laws and regulations is a matter
of high priority.
Mueller's provision for environmental compliance includes charges of $1.4
million in 1995, $2.9 million in 1994, and $1.1 million in 1993. Except as
discussed below, the Company does not anticipate that it will need to make
material expenditures for such compliance activities during the remainder of
the 1996 fiscal year, or for the next two fiscal years.
Mining Remedial Recovery Company ("MRRC"), a wholly-owned subsidiary of
Arava, was formed for the purpose of managing the remediation of certain
properties and the appropriate disposition thereof.
1. Cleveland Mill Site
In 1993, the EPA issued special notice letters to all known potentially
responsible parties ("PRPs") regarding the Cleveland Mill Superfund Site in
Grant County, New Mexico. In response, MRRC, Bayard Mining Corp. ("Bayard"),
a wholly-owned subsidiary of Arava, and a third party filed a good faith offer
to implement the remedy set forth in the EPA's Record of Decision ("ROD").
Total future costs for remediating the site were estimated by the EPA in the
ROD at approximately $6.2 million. MRRC and Bayard, along with said third
party, have entered into a consent decree relating to the site and have
agreed to an allocation formula requiring Bayard and MRRC to pay 29.20% of
future costs. The third party has agreed to pay the balance. Bids to
process the Cleveland Mill tailings have been solicited from potential
processors.
2. Hanover and Bullfrog Sites
MRRC owns 80 acres in Grant County, New Mexico called the Hanover site,
which contains about 2.7 million cubic yards of mill tailings. During the
third quarter of 1995, MRRC substantially completed its voluntary plan to
regrade and cap tailings at the Hanover site, with completion expected by
mid-1996. MRRC also owns 148 acres located nearby in Grant County, New
Mexico, called the Bullfrog site. A voluntary plan to regrade and cap the
soil at this site was completed in 1995.
3. Mammoth Mine Site
MRRC owns title to some inactive mines in Shasta County, California.
MRRC has continued a program begun in the late 1980s of sealing mine portals
with concrete plugs in mine adits which were discharging water. The sealing
program has achieved a reduction in the metal load in discharges from these
adits; however, additional reductions may be required. In addition, the EPA
and California Bureau of Water Quality have recently commissioned a study
concerning the historic mine waste in the area, some of which is on MRRC
property.
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In 1994, a citizens suit was brought against MRRC under the authority of
the Clean Water Act by the California Sportfishing Protection Alliance. In
January, 1996, MRRC settled this litigation by paying $200,000 and committing
to spend $200,000 on additional remediation studies. Also in January, Alta
Gold Company ("Alta Gold") filed a lawsuit in the United States District Court
for the Eastern District of California against the Company, Arava and MRRC.
The lawsuit seeks reimbursement of Alta Gold's alleged past costs incurred
controlling acid mine drainage on its property, unspecified damages, punitive
damages, attorneys fees, and declaratory relief. The Company intends to
vigorously defend this action.
4. U.S.S. Lead
In 1991, U.S.S. Lead Refinery, Inc. ("Lead Refinery"), responded to an
information request from EPA under Superfund for information on whether Lead
Refinery arranged for the disposal of hazardous substances in the vicinity of
the Grand Calumet River/Indiana Harbor Ship Canal. In 1991, Lead Refinery
also responded to an information request under Superfund regarding the Lead
Refinery site in East Chicago, Indiana. In 1992, EPA advised Lead Refinery
of its intent to list the property as a Superfund site. Lead Refinery opposed
such listing and, as of March 15, 1996, EPA has deferred such listing.
In 1993, Lead Refinery entered into a Consent Order with the EPA pursuant
to Section 3008(h) of the Resource Conservation and Recovery Act ("RCRA").
The Consent Order covers remediation activities at the East Chicago, Indiana
site and provides for Lead Refinery to complete certain on-site interim
remedial activities and studies that extend off site. Lead Refinery has
submitted certain workplans to implement the remedial activities and is
awaiting approval from EPA to commence the required corrective actions. The
costs for the studies and interim clean up efforts are expected to be
approximately $2.5 million, the majority of which would be required to be
expended in 1996 and 1997. Once these activities are completed, additional
work would likely be needed to investigate and remediate any contamination
not addressed by the Consent Order. Lead Refinery, without additional
assistance from MRRC, lacks the financial resources needed to complete the
additional remediation and intends to seek financial assistance from other
PRPs to permit Lead Refinery to conduct a private-party cleanup under RCRA.
Lead Refinery has been informed by the former owner and operator of a
Superfund site located in Pedricktown, New Jersey that it intends to seek
CERCLA response costs for alleged shipments of hazardous substances to the
site. Lead Refinery has executed an agreement regarding that site, which
indefinitely extends the statute of limitations. By letter dated January 26,
1996, Lead Refinery and other PRPs received from EPA, a proposed
Administrative Order on Consent to perform the remedial design for operable
Unit 1 of the Pedricktown Superfund Site. EPA has requested that by March 26,
1996, Lead Refinery and the other parties execute the Administrative Order on
Consent.
Miscellaneous
In 1992, Mueller received a notice from the State of Indiana notifying
Sharon (the Registrant's predecessor) that it had sixty days to coordinate
with other PRPs and present a "good faith" proposal to the State regarding a
site in Indiana. Sharon is alleged to have contributed less than 1% of the
hazardous wastes at this site. Based upon estimated allocated liability and
response costs, Mueller's liability is estimated at less than $250,000.
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In 1994, the Company received notice from the EPA that MBCo was a PRP at
the Jack's Creek/Sitkin Smelting Superfund Site in Eastern Pennsylvania. MBCo
is alleged to have contributed less than 1 percent of the hazardous wastes at
this site. Based upon its estimated allocation ranking, its share of the
EPA's estimated cleanup costs would be less than $500,000. The PRP Steering
Committee has submitted technical data and studies supporting a less costly
remedial plan to the EPA. The EPA has not yet selected a final remedy.
In 1986, the EPA notified Sharon that it may be considered a PRP with
respect to allegedly hazardous wastes released from past mining operations
conducted by UV Industries, Inc. ("UV") in Cherokee County, Kansas. The EPA
asserted that under CERCLA, Sharon was potentially responsible for the cost of
investigation, clean-up and remediation of the wastes allegedly deposited
circa 1917 during leasehold operations conducted by UV. Sharon denied
liability under CERCLA. Mueller has never been contacted concerning this
site and does not know the estimated costs of remediation of this site.
OTHER BUSINESS FACTORS
The Registrant's business is not materially dependent on patents,
trademarks, licenses, franchises or concessions held. In addition,
expenditures for company-sponsored research and development activities were
not material during 1995, 1994, or 1993. No material portion of the
Registrant's business involves governmental contracts.
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ITEM 2. PROPERTIES
Information pertaining to the Registrant's major operating facilities is
included below. Except as noted, the Registrant owns all of its principal
properties. The Registrant's plants are in satisfactory condition and are
suitable for the purpose for which they were designed and are now being used.
Location Property Size Description
Port Huron, MI 260,000 sq. ft. Brass rod mill. Facility includes
23.19 acres casting, extruding, and finishing
equipment to produce brass rods
and bars, in various shapes and
sizes.
Port Huron, MI 46,500 sq. ft. Forgings plant. Produces brass
and aluminum forgings.
Marysville, MI 62,500 sq. ft. Aluminum and Copper Impacts plant.
6.72 acres Produces made to order parts using
cold impact processes.
Port Huron, MI 13,500 sq. ft. Formed tube plant.
5.11 acres Produces copper fittings using
cold heading equipment.
Fulton, MS 405,500 sq. ft. Copper tube mill.
60.70 acres Facility includes casting,
extruding and finishing equipment
to produce copper tubing,
including tube feed stock for the
Company's copper fittings plants.
Fulton, MS 70,500 sq. ft. (1) Copper fittings plant. High-
volume facility that produces
copper fittings using tube feed
stock from the Company's copper
tube mill.
Covington, TN 159,500 sq. ft. Copper fittings plant.
40.88 acres Facility produces copper fittings
using tube feed stock from the
Company's copper tube mill.
Strathroy, Ontario
Canada 54,000 sq. ft. Copper fittings plant.
4.67 acres Facility produces copper fittings
for the Canadian domestic markets
and for export to European
markets.
Upper Sandusky, OH 82,000 sq. ft. Plastic fittings plant.
7.52 acres Produces DWV fittings using
injection molding equipment.
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Kalamazoo, MI 130,000 sq. ft. Plastic fittings plant. Produces
DWV fittings using injection
molding equipment.
Cerritos, CA 115,000 sq. ft. (2) Plastic fittings plant. Produces
DWV fittings using injection
molding equipment.
Hartsville, TN 78,000 sq. ft. Refrigeration Products plant.
4.51 acres Produces products used in
refrigeration applications such as
ball valves, line valves,
compressor valves, and filter
driers.
In addition, the Company owns and/or leases other properties used as
distribution centers and corporate offices.
(1) Facility is leased under long-term lease agreement, with option to
purchase at nominal cost.
(2) Facility is leased under long-term lease agreement, with option to
purchase for a stipulated purchase price prior to December 31, 1997.
ITEM 3. LEGAL PROCEEDINGS
Environmental Proceedings
Reference is made to "Environmental Matters" in Item 1 of this Report,
which is incorporated herein by reference, for a description of environmental
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The information required by Item 5 of this Report is included under the
caption "Capital Stock Information" on page 23 of the Registrant's Annual
Report to Stockholders for the year ended December 30, 1995, which information
is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data are included under the caption "Selected
Financial Data" on page 23 of the Registrant's Annual Report to Stockholders
for the year ended December 30, 1995, which selected financial data is
incorporated herein by reference.
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations is contained under the caption "Financial Review" on pages 8 and
9 of the Registrant's Annual Report to Stockholders for the year ended
December 30, 1995 and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Supplemental Financial Information
on pages 13 and 14 of this Annual Report on Form 10-K which is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is contained under the caption
"Ownership of Common Stock by Directors and Officers and Information about
Director Nominees" in the Company's Proxy Statement for its 1996 Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission on or about March 18, 1996 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is contained under the caption
"Executive Compensation" in the Company's Proxy Statement for its 1996 Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission on or about March 18, 1996 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is contained under the captions
"Principal Stockholders" and "Ownership of Common Stock by Directors and
Officers and Information about Director Nominees" in the Company's Proxy
Statement for its 1996 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or about March 18, 1996 and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is contained under the caption
"Certain Relationships and Transactions with Management" in the Company's
Proxy Statement for its 1996 Annual Meeting of Stockholders to be filed with
the Securities and Exchange Commission on or about March 18, 1996 and is
incorporated herein by reference.
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements: the financial statements, notes, and report of
independent auditors described in Item 8 of this report, which are
incorporated by reference.
2. Financial Statement Schedule: the financial statement schedule
described in Item 8 of this report which is incorporated herein by
reference.
3. Exhibits:
3.1 Certificate of Incorporation of Mueller Industries, Inc. and
all amendments thereto (Incorporated herein by reference to
Exhibit 3.1 of the Registrant's Current Report on Form 8-K
dated December 28, 1990).
3.2 By-laws of Mueller Industries, Inc., as amended and restated,
effective November 10, 1994. (Incorporated herein by reference
to Exhibit 3 (ii) of the Registrant's Current Report on
Form 8-K, dated November 14, 1994.)
4.1 Common Stock Specimen (Incorporated herein by reference to
Exhibit 4.1 of the Registrant's Current Report on Form 8-K
dated December 28, 1990).
4.2 Rights Agreement, dated as of November 10, 1994, between the
Registrant and Continental Stock Transfer and Trust Company, as
Rights Agent, which includes the Form of Certificate of
Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock of the Registrant, as Exhibit A,
the Form of Rights Certificate, as Exhibit B, and the Summary
of Rights to Purchase Preferred Stock, as Exhibit C.
(Incorporated by reference to Exhibit 99.1 of the Registrant's
Current Report on Form 8-K, dated November 14, 1994.)
4.3 Certain instruments with respect to long-term debt of the
Company have not been filed as Exhibits to the Report since the
total amount of securities authorized under any such instrument
does not exceed 10 percent of the total assets of the Company
and its subsidiaries on a consolidated basis. The Company
agrees to furnish a copy of each such instrument upon request
of the Securities and Exchange Commission.
10.1 Employment Agreement, effective October 1, 1991 by and between
Mueller Industries, Inc. and Harvey L. Karp (Incorporated
herein by reference to Exhibit 10.3 of the Registrant's
Current Report on Form 8-K dated November 22, 1991).
10.2 Stock Option Agreement, dated December 4, 1991 by and between
Mueller Industries, Inc. and Harvey L. Karp (Incorporated
herein by reference to Exhibit 10.4 of the Registrant's
Current Report on Form 8-K dated November 22, 1991).
<PAGE> 14
10.3 Mueller Industries, Inc. 1991 Employee Stock Purchase Plan
(Incorporated herein by reference to Exhibit 4(a) of the
Registrant's Registration Statement on Form S-8 dated June 28,
1991).
10.4 Mueller Industries, Inc. 1991 Incentive Stock Option Plan
(Incorporated herein by reference to Exhibit 4(a) of the
Registrant's Registration Statement on Form S-8 dated April 17,
1992).
10.5 Employment Agreement, effective June 3, 1992 by and between
Mueller Industries, Inc. and William D. O'Hagan (Incorporated
herein by reference to Exhibit 10.1 of the Registrant's Current
Report on Form 8-K dated June 3, 1992).
10.6 Summary description of the Registrant's 1996 bonus plan for
certain key employees.
10.7 Amendment to Employment Agreement, effective January 1, 1994,
to Employment Agreement by and between Mueller Industries, Inc.
and Harvey L. Karp. (Incorporated herein by reference to
Exhibit 10.28 of the Registrant's Report on Form 10-K, dated
March 23, 1994, for the fiscal year ended December 25, 1993.)
10.8 Employment Agreement, effective as of January 1, 1994, by and
between Mueller Industries, Inc. and William D. O'Hagan.
(Incorporated herein by reference to Exhibit 10.29 of the
Registrant's Report on Form 10-K, dated March 23, 1994, for the
fiscal year ended December 25, 1993.)
10.9 Amendment to Employment Agreement, effective as of August 10,
1995, by and between Mueller Industries, Inc. and William D.
O'Hagan. (Incorporated herein by reference to Exhibit 10.1 of
the Registrant's Report on Form 10-Q, dated October 20, 1995,
for the quarter ended September 30, 1995.)
10.10 Mueller Industries, Inc. 1994 Stock Option Plan.
(Incorporated herein by reference to Exhibit 10.13 of the
Registrant's Report on Form 10-K, dated March 17, 1995, for the
fiscal year ended December 31, 1994.)
10.11 Mueller Industries, Inc. 1994 Non-Employee Director Stock
Option Plan. (Incorporated herein by reference to Exhibit 10.14
of the Registrant's Report on Form 10-K, dated March 17, 1995,
for the fiscal year ended December 31, 1994.)
13.0 Mueller Industries, Inc.'s Annual Report to Shareholders for
the year ended December 30, 1995. Such report, except to the
extent incorporated herein by reference, is being furnished for
the information of the Securities and Exchange Commission only
and is not to be deemed filed as a part of this Annual Report
on Form 10-K.
21.0 Subsidiaries of the Registrant.
23.0 Consent of Independent Auditor. (Includes report on
Supplemental Financial Information.)
<PAGE> 15
(b) During the three months ended December 30, 1995, no Current Reports on
Form 8-K were filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 21,
1996.
MUELLER INDUSTRIES, INC.
/s/ HARVEY L. KARP
Harvey L. Karp, Chairman of the Board
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 date indicated.
Signature Title Date
/S/ HARVEY L. KARP Chairman of the Board, and Director March 21, 1996
Harvey L. Karp
/S/ ROBERT B. HODES Director March 21, 1996
Robert B. Hodes
/S/ ALLAN MACTIER Director March 21, 1996
Allan Mactier
/S/ WILLIAM D. O'HAGAN President, Chief Executive Officer, March 21, 1996
William D. O'Hagan Director
/S/ ROBERT J. PASQUARELLI Director March 21, 1996
Robert J. Pasquarelli
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the
Registrant and in the capacities and on the date indicated.
Signature and Title Date
/S/ EARL W. BUNKERS March 21, 1996
Earl W. Bunkers
Executive Vice President
Chief Financial Officer
(Principal Accounting Officer)
/S/ KENT A. MCKEE March 21, 1996
Kent A. McKee
Vice President Business Development/
Investor Relations
/S/ RICHARD W. CORMAN March 21, 1996
Richard W. Corman
Director of Corporate Accounting
<PAGE> 16
INDEX TO FINANCIAL STATEMENTS
The consolidated financial statements, together with the report thereon
of Ernst & Young LLP dated February 9, 1996, appearing on page 10 through and
including 22, of the Company's 1995 Annual Report to Stockholders are
incorporated by reference in this Annual Report on Form 10-K. With the
exception of the aforementioned information, no other information appearing in
the 1995 Annual Report to Stockholders is deemed to be filed as part of this
Annual Report on Form 10-K under Item 8. The following Consolidated Financial
Statement Schedule should be read in conjunction with the consolidated
financial statements in such 1995 Annual Report to Stockholders. Consolidated
Financial Statement Schedules not included with this Annual Report on Form 10-
K have been omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes
thereto.
SUPPLEMENTAL FINANCIAL INFORMATION
Page
Schedule for the fiscal years ended December 30, 1995,
December 31, 1994 and December 25, 1993.
Valuation and Qualifying Accounts (Schedule II).......................17
<PAGE> 17
<TABLE>
MUELLER INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 30, 1995, December 31, 1994, and December 25, 1993
(In thousands)
<CAPTION>
Additions
-------------------------------
Balance at Charged to Balance
beginning costs and Other at end
of year expenses Additions Deductions of year
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1995
Allowance for Doubtful Accounts $ 3,336 $ 75 $ - $ 425 $ 2,986
Environmental Reserves $ 11,178 $ 1,421 $ - $ 3,014 $ 9,585
Other Reserves (2) $ 16,150 $ (1,157) $ - $ 4,942 $ 10,051
Valuation Allowance for Deferred
Tax Assets $ 65,927 $ - $ - $ 5,006 $ 60,921
1994
Allowance for Doubtful Accounts $ 3,495 $ 186 $ - $ 345 $ 3,336
Environmental Reserves $ 10,448 $ 2,914 $ 125 (1) $ 2,309 $ 11,178
Other Reserves (2) $ 15,508 $ 4,062 $ (125) (1) $ 3,295 $ 16,150
Valuation Allowance for Deferred
Tax Assets $ 85,338 $ - $ - $ 19,411 $ 65,927
1993
Allowance for Doubtful Accounts $ 4,473 $ 59 $ - $ 1,037 $ 3,495
Environmental Reserves $ 10,985 $ 1,060 $ 1,000 (1) $ 2,597 $ 10,448
Other Reserves (2) $ 18,317 $ (363) $ (1,000) (1) $ 1,446 $ 15,508
Valuation Allowance for Deferred
Tax Assets $ 88,081 $ - $ - $ 2,743 $ 85,338
<FN>
(1) Reclass from Other Reserves to Environmental Reserves.
(2) Other reserves are included in the balance sheet captions "Other
current liabilities" and "Other noncurrent liabilities."
</TABLE>
<PAGE> 18
EXHIBIT INDEX
Exhibits Description Page
4.2 Certain instruments with respect to long-term debt
of the Company have not been filed as Exhibits to the
Report since the total amount of securities authorized
under any such instrument does not exceed 10 percent
of the total assets of the company and its subsidiaries
on a consolidated basis. The Company agrees to furnish
a copy of each such instrument upon request of the
Securities and Exchange Commission.
10.6 Summary description of the Registrant's 1996 bonus plan
for certain key employees.
13.0 Mueller Industries, Inc.'s Annual Report to
Stockholders for the year ended December 30, 1995.
Such report, except to the extent incorporated herein by
reference, is being furnished for the information of
the Securities and Exchange Commission only and is not to
be deemed filed as a part of this Annual Report on
Form 10-K.
21.0 Subsidiaries of the Registrant.
23.0 Consent of Independent Auditor. (Includes report on
Supplemental Financial Information.)
<PAGE> 1
1996 BONUS PLAN FOR CERTAIN KEY EMPLOYEES
The Company has a discretionary bonus program under which exempt salaried
employees (other than the CEO and Chairman) may be paid bonuses up to amounts
ranging from 9.75% to 97.5% of base annual salary. The CEO and Chairman
participate in this plan, with bonuses specifically determined by the board of
directors, but on a percentage of base salary at least equal to the percentage
bonus that will be payable to senior management under the 1996 Bonus Plan.
The bonus percent is based on a variety of guidelines including performance
levels of the respective business unit measured by earnings before tax.
<PAGE> 1 EXHIBIT 13.0
MUELLER INDUSTRIES, INC. COMPANY PROFILE
Mueller Industries, Inc. is a leading fabricator of copper, brass,
plastic and aluminum products.
The range of products is broad: copper tube and fittings; brass and
copper alloy rods, bars and shapes; aluminum and brass forgings; aluminum and
copper impact extrusions; plastic fittings and valves; and refrigeration
valves, driers and flare fittings.
The Company also owns a short line railroad in Utah and a placer gold
mining operation in Alaska.
Mueller operates twelve factories in the United States and Canada, and
has distribution facilities nationwide and sales representation worldwide.
CONTENTS
Financial Highlights 2
A Report to Our Stockholders, Customers, and Employees 3
Profile of Businesses 6
Financial Review 8
Consolidated Financial Statements
Statements of Income 14
Balance Sheets 15
Statements of Cash Flows 17
Statements of Stockholders' Equity 18
Notes to Consolidated Financial Statements 19
Report of Independent Auditors 37
Capital Stock Information 38
Selected Financial Data 39
Directors, Corporate Officers, and Divisional Management 40
Corporate and Stockholder Information 42
<PAGE> 2 EXHIBIT 13.0
<TABLE>
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except share data)
<CAPTION>
1995 1994 1993 1992
<S> <C> <C> <C> <C>
Summary of Operations
Net sales $ 678,838 $ 550,003 $ 501,885 $ 517,339
Sales of manufactured products
(in millions of pounds) 388.3 380.6 362.1 329.5
Net income $ 44,823 $ 27,926 $ 21,136 $ 16,666
Average shares outstanding
(in thousands) 19,149 19,780 20,886 20,110
Net income per share - primary $ 2.34 $ 1.41 $ 1.01 $ .83
Significant Year-End Data
Cash and cash equivalents $ 48,357 $ 34,492 $ 77,336 $ 44,459
Ratio of current assets to
current liabilities 3.1 to 1 2.7 to 1 4.1 to 1 3.1 to 1
Working capital $ 143,154 $ 116,330 $ 146,981 $ 124,355
Long-term debt (including
current portion) $ 75,902 $ 94,736 $ 62,711 $ 69,477
Debt as a percent of
capitalization 21.0% 28.1% 22.0% 25.4%
Stockholders' equity $ 285,875 $ 241,948 $ 222,114 $ 204,421
Book value per share $ 16.48 $ 13.91 $ 11.59 $ 10.61
Capital expenditures $ 40,980 $ 48,152 $ 11,083 $ 10,952
Number of employees 2,274 2,256 2,010 2,055
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993 1992
<S> <C> <C> <C> <C>
Net Income
(Dollars In Thousands) $ 44,823 $ 27,926 $ 21,136 $ 16,666
Primary Earnings Per Share $ 2.34 $ 1.41 $ 1.01 $ .83
</TABLE>
<PAGE> 3 EXHIBIT 13.0
A REPORT TO OUR STOCKHOLDERS, CUSTOMERS, AND EMPLOYEES
Mueller Industries, Inc. had its best year ever in 1995. Sales, net
earnings, pounds of product shipped and earnings per share all reached record
levels. In addition, our strong balance sheet grew even stronger. Moreover,
we are nearing completion of three major capital improvement programs which
should have a significant impact on our future growth and profitability.
All-Time Sales And Earnings Records
Net income was $44.8 million in 1995 compared with $27.9 million in 1994,
a 61 percent increase. This was our fourth consecutive record earnings year,
with every quarter of 1995 constituting an earnings record. Earnings per
share increased to $2.34 for 1995, or 66 percent higher than the $1.41 per
share earned in 1994.
Net sales in 1995 increased to $678.8 million compared with $550.0
million in 1994. This sales increase was due primarily to modest market share
gains, the acquisition of a plastic fittings business in late 1994, and higher
sales prices. The higher sales prices were also partially attributable to
increased raw material costs which were largely incorporated in our selling
prices.
Manufacturing Operations
Our brass rod mill located in Port Huron, Michigan operated at full
capacity for the entire year. This was particularly gratifying as the market
had to absorb an influx of foreign made product which was ordered in late 1994
when brass rod was in short supply. Earnings for the brass rod mill in 1995,
including forgings and impacts, exceeded all prior records.
During the year, we substantially completed the installation of a new
indirect extrusion press at our rod mill, along with related material handling
equipment. This installation was accomplished without interrupting ongoing
production. The new press is now performing well and we are confident that
our conversion costs will decline as our yield and throughput increase.
Our copper tube mill located in Fulton, Mississippi had a very busy year.
Production reached levels never before achieved by this plant. Earnings were
good despite competitive market pressures which limited margins. During the
year, we completed the modernization and installation of major copper tube
drawing and handling equipment at the tube mill. This $20.7 million
investment will reduce our costs and provide additional capacity. Once again,
we were able to install this new equipment without interrupting day-to-day
operations. We believe we are now in the best position ever to service the
needs of our copper tube customers.
Our wrot copper fittings business also had an excellent 1995, although
not as good as it might have been. Specifically, the fall in the value of the
peso curtailed Mexican sales. However, margins and volume on an overall basis
were good. We completed the construction of our new high-volume copper
fittings plant in Fulton, Mississippi. Most production lines in this new
plant are now fully operational.
Further, we continue to make significant manufacturing improvements at
our low-volume copper fittings plant at Covington, Tennessee. Our efforts to-
date have had a positive impact on costs and yield. This improvement program
will continue during 1996.
<PAGE> 4 EXHIBIT 13.0
Our Canadian plant located in Strathroy, Ontario had another strong year,
due primarily to improved copper fittings margins and continued good business
from European customers.
We operate three plastic fittings plants located in Upper Sandusky, Ohio;
Kalamazoo, Michigan; and Cerritos, California. During 1995, we made
significant strides in improving the productivity of each plant and in the
integration and rationalization of their activities. We are well on the way
to achieving our goal of becoming a low cost producer of this product line.
Natural Resource Operations
The Utah Railway Company continued its strong performance in 1995.
Tonnage of coal shipments increased by 12 percent to the highest level in its
long history. Its operating profit also increased comparably. We have
reached an agreement with the Union Pacific Railroad which will allow the Utah
Railway to carry freight to Grand Junction, Colorado and will give the Utah
Railway access to additional coal mining customers. This agreement is
contingent upon the successful conclusion of the proposed merger of the Union
Pacific and Southern Pacific railroads. A decision on the merger by the
recently created federal Surface Transportation Board is expected later in
1996.
Alaska Gold Company, our 85 percent owned subsidiary located in Nome,
Alaska, mined approximately 18,700 ounces of gold in 1995. In February, 1996,
Mueller made an offer to the minority shareholders of Alaska Gold to purchase
their shares. Alaska Gold shares are illiquid and their total valuation does
not justify maintenance of a separate public company.
A Commitment To Our Customers
Mueller is a significant supplier to the plumbing, air-conditioning and
refrigeration industries. Many of our customers are wholesalers who operate
highly entrepreneurial businesses. Original Equipment Manufacturers (OEM)
also represent another important segment of our customer base.
Mueller is dedicated to providing our customers with quality products and
to do so with superior service. We sell our products at competitive prices
and, where possible, endeavor to assist our customers in improving their
growth and profitability.
We believe in long-term business relationships where mutuality of
interest and fair dealing are the norm and not the exception. We will
continue to support our customers by reinvesting a significant portion of our
profits in new technology which will assure product quality, availability,
superior service, and competitiveness. This commitment is not just a string
of fancy words. It guides us daily. And, it works! We expect to earn our
customers' loyalty every day, in every way.
A Commitment To Our Stockholders
To put it simply, our mission, on behalf of our stockholders, is to
create added value in the shares of Mueller stock that they own. The best way
to do this is to continually improve existing operations and seek additional
areas of growth.
<PAGE> 5 EXHIBIT 13.0
Over the past four fiscal years, the value of Mueller's stock has grown
several fold. We believe this increase in value reflects the growing strength
of our day-to-day operations. In addition, Mueller has recently invested or
committed in excess of $100 million in capital improvement projects. Most of
the benefits from these investments will be harvested in the years ahead.
To date, acquisitions have played a minor role in our growth. Our focus
has been on internal operations because the opportunities for improvement here
have been so great. We will make an acquisition only if we believe it will
add to the basic value of our Company. With that in mind, we have commenced a
search for acquisitions which would benefit from our manufacturing or
marketing expertise. We will keep you informed of our progress in this area.
A Commitment To Our Employees
Our Company is fortunate in having so many hard working, talented and
dedicated people in our employ. The progress we have made in recent years
would not have been possible without their support and enthusiasm.
We value our employees and endeavor to provide them with a positive
workplace environment as well as opportunities for career advancement. We
believe that empowering our employees is the key to effectuating change and
improvement. We appreciate their efforts during 1995 and are confident that
they are capable of handling even greater challenges ahead.
Looking Ahead
The overall economic environment should be conducive to another good year
for Mueller. Our nation's economy continues to expand, although at a slower
rate than the year past. The housing industry, which is the most important
market for Mueller's products, should benefit from the prevailing low interest
rates. In early 1996, 30 year fixed-rate mortgages were available at
approximately a 7.3 percent rate of interest, which is 175 basis points less
than fifteen months ago. We are confident that a continuation of low interest
rates will translate into good business for Mueller.
In 1996, we intend to build on the gains of the past and to seek new
opportunities and challenges.
Sincerely,
/s/Harvey L. Karp
Harvey L. Karp
Chairman of the Board
/s/William D. O'Hagan
William D. O'Hagan
President and
Chief Executive Officer
March 18, 1996
<PAGE> 6 EXHIBIT 13.0
PROFILE OF BUSINESSES
STANDARD PRODUCTS
Copper Tube Products
The Fulton, Mississippi plant produces one of the broadest lines of
copper tube products offered by a single manufacturer. Tube products include
dehydrated coils and nitrogen-charged ACR hard drawn straight lengths used
primarily for refrigeration and air-conditioning. Copper water tube in
straight lengths and coils are used in plumbing applications in a wide range
of construction projects. Copper tube products are sold to plumbing and
refrigeration wholesalers and OEM customers in North America and exported to
numerous foreign countries.
The Fulton copper tube mill modernization program was substantially
completed in 1995. This undertaking was accomplished with little to no
disruption of ongoing production. The program included an upgrade of
technology and installation of state-of-the-art tube drawing and material
handling equipment.
Copper and Plastic Fittings Products
Plastic and copper fittings are found in virtually all installations of
water distribution systems, heating systems, air-conditioning and
refrigeration applications, and DWV systems in residential, office and
commercial buildings.
Mueller's Streamline wrot copper fittings are manufactured in four
plants located in Fulton, Mississippi; Covington, Tennessee; Port Huron,
Michigan; and Strathroy, Ontario, Canada. The fittings are converted
primarily from copper tube produced at the Fulton tube mill into over 1,500
different sizes and shapes. Our newest facility, a high-volume copper
fittings plant in Fulton, Mississippi, is adjacent to our tube mill. This
plant became operational in 1995 and will significantly increase Mueller's
production capacity for its most popular fittings. Mueller is also
undertaking a modernization program at our Covington, Tennessee facility, to
reduce conversion costs as well as expand capacity of low-volume copper
fittings. Our Strathroy facility produces inch and metric sized fittings.
It is ISO certified.
Mueller's DWV plastic fittings manufacturing operations are located in
Kalamazoo, Michigan; Cerritos, California; and Upper Sandusky, Ohio.
Together, these operations enable Mueller to supply a full DWV plastic
fittings product line. Injection molding equipment at these three plants
produces over 1,000 different parts in various diameters from a variety of
plastic compounds. Our goal, to become a low cost producer of plastic
fittings, is within our reach.
REFRIGERATION PRODUCTS
Mueller manufactures a broad line of valves, fittings, filters, driers,
and custom OEM products for refrigeration and air-conditioning applications at
its Hartsville, Tennessee plant. Many Hartsville products are machined and
assembled from rod stock and forged products manufactured in our Port Huron
plants. These fittings and assemblies are used in refrigeration applications
such as residential and commercial air-conditioning systems, walk-in coolers,
and ice and vending machines.
<PAGE> 7 EXHIBIT 13.0
Customers of Mueller Refrigeration Products include large and small OEMs
and refrigeration wholesalers located domestically and throughout the world.
INDUSTRIAL PRODUCTS
Mueller rod products, hot forgings and impact extrusions are found in a
variety of end products including plumbing brass, automotive components,
valves and fittings, and industrial machinery and equipment. Industrial
products are sold largely to OEM customers.
Brass Rod Products
The Port Huron, Michigan brass rod mill is a leading extruder of free-
machining brass rod. Mueller produces a broad range of rounds, squares, and
hexagons for a variety of machining, thread rolling, and forging applications.
The rod mill also produces special purpose alloys for use in bearing
applications. This mill continues to expand its production of special shapes
and profiles.
Mueller has recently invested $16 million in its rod mill manufacturing
capabilities. This investment includes the installation of a state-of-the-
art, indirect extrusion press, new billet heating furnaces, rod coilers and
run out conveyors, and product cleaning and material handling systems. This
modernization program significantly upgrades the manufacturing process.
Transition to the new equipment in the first quarter of 1996 will increase
yields and throughput. Enhancing these operations enables us to satisfy the
growing, changing needs of our customers.
Forged Products
The forging operation also located in Port Huron, Michigan produces a
wide variety of brass and aluminum hot closed die forgings. The Company
continues to invest in automated forge press technology. This has opened new
market opportunities for the production of high volume, close tolerance brass
forgings. Forging permits production of custom parts close to final shape and
dimensions. These pressure formed, porosity-free components are produced
without flaws and internal defects.
Impact Extruded Products
Impact extrusions produced at Marysville, Michigan represent one of the
most efficient and economical manufacturing methods. These cold formed
wrought products are desirable where toughness must be combined with varying
complexities of design and finish. Mueller impacts enable customers to
replace multi-part assemblies with a simple, one piece design. This results
in increased strength, reduced weight, and improved appearance.
NATURAL RESOURCE PROPERTIES
The Utah Railway Company (Utah Railway), established in 1912, operates on
approximately 100 miles of track in Utah. Utah Railway hauled 5.5 million
tons of coal in 1995, mined primarily in Carbon and Emery Counties. In
February 1996, Utah Railway reached an agreement with the Union Pacific
Railroad that will grant Utah Railway overhead trackage rights to Grand
Junction, Colorado, and access to additional coal mining customers. The
agreement is contingent upon the consummation of the pending Union
Pacific/Southern Pacific merger.
<PAGE> 8 EXHIBIT 13.0
In 1995, our 85 percent owned Alaska Gold Company mined approximately
18,700 ounces of gold through open-pit operations. The success of the open-
pit program led to the purchase of additional mining equipment for the 1996
season.
FINANCIAL REVIEW
GENERAL OVERVIEW
The Company's principal business is the manufacture and sale of copper
tube, brass rod, copper and plastic fittings, valves, and other products made
of copper, brass, bronze, plastic and aluminum. Some of our core manufacturing
businesses have been in operation for over 75 years. New housing starts and
commercial construction are important determinants of the Company's sales to
the air-conditioning, refrigeration and plumbing markets because the principal
end use of a significant portion of the Company's products is in the
construction of single and multi-family housing units and commercial
buildings.
We sell a majority of our product primarily through wholesalers in the
plumbing, air-conditioning and refrigeration markets and to OEMs who deal in
these and other markets.
Profitability of certain of the Company's product lines is dependent upon
the "spreads" between the cost of metal and the gross selling prices of its
completed products. The open market price for copper cathode, for example,
directly influences the selling price of copper tubing, a principal product
manufactured by the Company. The Company attempts to minimize the effects of
changes in copper prices by passing base metal costs through to its customers.
In 1994, the Company adopted the LIFO method of accounting for the copper
component of certain of its copper tube and fittings inventories. Management
believes the LIFO method results in a better matching of current costs with
current revenues. The market price of copper does, however, indirectly affect
the carrying value (FIFO basis) of the Company's brass and other inventories.
The Company's copper and brass inventories customarily total between 30 to 40
million pounds. "Spreads" between material costs and selling prices of
finished products fluctuate based upon competitive market conditions.
The Company also owns various natural resource properties in the Western
United States and Canada. It operates a short line railroad in Utah and a
placer gold mining company in Alaska. Also, certain other natural resource
properties are leased or are available for sale. Most of these properties
produce rental or royalty income.
RESULTS OF OPERATIONS
1995 PERFORMANCE COMPARED TO 1994
Consolidated net sales of $678.8 million in 1995 compares with $550.0
million in 1994. The increase is primarily attributable to higher copper
prices, which are generally passed through to customers, and to higher
volumes. In 1995, the Company's core manufacturing businesses shipped 388.3
million pounds of product compared to 380.6 million pounds in 1994. This
improvement in shipments was due to modest market share gains in certain core
product lines, and the acquisition of a plastic fittings business in
September, 1994.
<PAGE> 9 EXHIBIT 13.0
Depreciation and amortization totaled $15.5 million in 1995, an increase
from the 1994 level of $12.7 million. The increase is due primarily to added
depreciation from higher capital investments.
Selling, general, and administrative expenses were $49.5 million in 1995
compared with $44.9 million in 1994. This increase is primarily attributable
to increased sales activity.
Interest expense totaled $4.2 million in 1995, down from $6.7 million in
1994. The decrease is due to scheduled debt repayments and capitalized
interest of approximately $2.9 million related to three major capital
improvement programs. Environmental charges of $1.4 million in 1995 were
expensed. These charges pertain to certain added costs incurred or to be
incurred at various, previously identified environmental sites. Other income
declined to $6.1 million in 1995 from $7.6 million due primarily to fewer
gains on asset disposals.
The Company's 1995 effective tax rate of 30.6 percent is primarily due to
the recognition of NOLs available to offset future federal taxable income.
Recognition of NOLs, along with all other tax attributes, requires judgmental
estimates of, among other things, the Company's ability to generate future
federal taxable income.
MANUFACTURING GROUP
During 1995, net sales of the Company's manufacturing segment were $646.9
million. This compares to net sales of $533.4 million in 1994. This change was
primarily attributable to: (i) modest sales volume increases and (ii) pricing
increases due to higher average raw material costs (primarily copper) in 1995.
The Company's core manufacturing businesses shipped 388.3 million pounds of
product in 1995 which compares to 380.6 million pounds in 1994.
Operating income increased primarily due to: (i) productivity
improvements at the manufacturing plants; (ii) selective price increases for
copper fittings and brass rod products; and (iii) leveraging and containment
of certain other costs and expenses throughout the Company.
NATURAL RESOURCES GROUP
Net sales of the Natural Resources Segment were $31.9 million in 1995
compared to $16.6 million in 1994. Transportation revenues of the Utah Railway
increased 14.5 percent in 1995 over 1994. The Utah Railway hauled 5.5 million
tons of coal in 1995, compared with 4.9 million tons of coal in 1994. Gold
sales were $13.0 million (33,820 ounces) in 1995 compared to $.3 million (594
ounces) in 1994. Approximately 14,500 ounces of gold, held in inventory at
December, 1994, were included in the total ounces sold during 1995.
1994 PERFORMANCE COMPARED TO 1993
Consolidated net sales were $550.0 million in 1994, up $48.1 million or
9.6 percent from net sales of $501.9 million in 1993. In the core
manufacturing businesses, sales reached 380.6 million pounds, a 5.1 percent
increase over the prior year. Natural resources sales declined to $16.6
million in 1994 or 29.6 percent from 1993's level due mainly to lower gold
sales.
<PAGE> 10 EXHIBIT 13.0
Cost of goods sold increased $44.7 million to $448.5 million. This
increase is primarily attributable to higher raw material costs, mostly
copper. The Company's gross profit increased $3.4 million to $101.5 million.
This increased gross profit is reflective of price improvements in certain
product lines, as well as cost reductions and yield improvements in the
Company's manufacturing operations. The gross profit improvements were offset
somewhat by lower margins on copper tube. Selling, general, and administrative
expense declined $1.0 million despite higher sales activity.
Depreciation and amortization totaled $12.7 million in 1994 compared with
$14.2 million in 1993. This decline was due primarily to lower amortization of
thawfield expenses related to the Alaska Gold operation.
With the adoption of the LIFO method of inventory accounting, management
believes the Company's operating results will better reflect operating
performance by removing inventory gains and losses that result from wide
fluctuations in copper raw material prices. Nevertheless, comparisons of
operating results to pre-LIFO periods must be analyzed carefully as the pro
forma effects on prior periods are not reasonably determinable. Had the
Company not adopted LIFO effective at the beginning of fiscal 1994, operating
income would have been $57.1 million in 1994.
Provisions for environmental reserves were $2.9 million in 1994
consisting of $2.5 million for Mueller's Mining Remedial Recovery Company and
$.4 million for Mueller's estimated share of costs relating to a Superfund
site in Pennsylvania. This additional provision was judged necessary based on
updated information and the results of ongoing environmental remediation and
monitoring programs for its natural resource operations.
Unusual items in 1994 pertained primarily to certain outstanding
insurance matters related to estimated workers compensation claims for years
prior to 1993. Other income increased to $7.6 million in 1994 from $4.3
million in 1993. This increase is primarily attributable to gains on the sale
of certain of the Company's natural resource properties which totaled
approximately $3.2 million, plus a $.7 million increase in interest income.
Interest expense totaled $6.7 million in 1994, a $1.0 million increase
from 1993 primarily because of new IRB debt financings for the Fulton,
Mississippi copper tube and copper fittings plant capital improvement
projects.
The Company provided $12.9 million for income taxes in 1994, of which
$4.7 million was deferred. The current tax expense of $8.2 million for 1994
increased due to higher taxable income. During 1994, the effective tax rate
declined to 31.6 percent primarily due to the recognition of certain tax
attributes discussed in Note 6 and favorable state tax credits related to IRB
financings. During 1994, the Company entered into a closing agreement with the
IRS. This led to the recognition of additional tax benefits of $17.9 million
which were allocated as a direct addition to paid-in capital.
In 1994, earnings per share was favorably effected by the purchase of
treasury stock aggregating 1,849,750 shares (post split), or 9.6 percent of
shares outstanding at the beginning of the year.
<PAGE> 11 EXHIBIT 13.0
MANUFACTURING GROUP
In 1994, net sales increased $55.1 million to $533.4 million, an 11.5
percent increase over 1993. Of the increase, $24.3 million is attributable to
volume increases and $30.8 million is attributable to price changes. Pricing
changes include the pass through of raw material costs.
Operating income increased primarily due to: (i) productivity and yield
improvements in manufacturing operations; (ii) selective price increases in
fittings; (iii) cost reductions in selling, general, and administrative
expenses; and (iv) offset by lower margins on copper tube.
NATURAL RESOURCES GROUP
Net sales of the Company's natural resources segment were $16.6 million
in 1994 compared to $23.6 million in 1993. This decline was primarily due to
lower gold sales, offset by increased revenues at Utah Railway. Transportation
revenues of Utah Railway were $16.0 million in 1994, a 20.9 percent increase
over 1993. Utah Railway hauled 4.9 million tons of coal in 1994, which was a
27.5 percent increase over 1993. Gold sales decreased to $.3 million (594
ounces) in 1994 from $8.7 million (22,396 ounces) in 1993. At December
31,1994, 14,475 ounces of gold remained in inventory.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $55.0 million in 1995.
Depreciation and amortization of $15.5 million and deferred income taxes of
$7.1 million were the primary non-cash adjustments. Major changes in working
capital included an $8.0 million decrease in inventories. Much of this
decrease was attributable to the reduction of gold inventories. Additionally,
receivables increased $16.9 million, primarily from higher carrying costs
associated with significantly higher copper prices during 1995. Other minor
fluctuations accounted for the remainder of the change.
Net cash used for investing activities in 1995 was $21.1 million, $41.0
million for capital expenditures, offset by the use of $16.1 million of
escrowed IRB proceeds and $3.8 million received from the sale of properties.
Capital expenditures were primarily related to improvements in manufacturing
technology, cost reductions, increased productivity and yield, quality
improvements, and capacity expansion. A majority of these expenditures is
associated with the Company's three major capital improvement programs in its
manufacturing businesses.
Net cash used by financing activities totaled $20.0 million which
includes $2.1 million for the purchase of treasury stock, and $18.8 million
for repayment of debt.
The Company has a $50.0 million unsecured line-of-credit agreement
(Credit Facility) which expires on June 30, 1997, but which may be extended
for successive one year periods by agreement of the parties. At the Company's
option, borrowings bear interest at prime less 1/2 of one percent or at other
options. There are no outstanding borrowings against the Credit Facility.
However, the Company did have $6.1 million in letters of credit backed by the
Credit Facility at the end of 1995. At December 30, 1995, the Company's total
debt was $75.9 million or 21.0 percent of its capitalization, down from 28.1
percent in 1994.
<PAGE> 12 EXHIBIT 13.0
The Company's financing obligations contain various covenants which
require, among other things, the maintenance of minimum levels of working
capital, tangible net worth, and debt service coverage ratios. The Company is
in compliance with all debt covenants.
Management believes that cash provided by operations, and currently
available cash of $48.4 million at the end of 1995, will be adequate to meet
the Company's normal future capital expenditure and operational needs. The
Company's current ratio is 3.1 to 1.
As part of its ongoing strategic planning process, the Company has neared
completion of three major capital expenditure projects at year-end: (i) a
modernization project at its Fulton, Mississippi copper tube mill; (ii) a
modernization project and installation of a new brass rod indirect extrusion
press and material handling equipment at its Port Huron, Michigan brass rod
mill; and (iii) a new high-volume copper fittings plant in Fulton,
Mississippi. These projects required capital of approximately $58.6 million of
which approximately $4.3 million will be funded in 1996. The two Fulton,
Mississippi projects have been financed by IRBs. The primary objective of
these projects is to improve efficiency, yield and productivity, lower cost,
and add some capacity.
Additionally, the Company's modernization of its low-volume copper
fittings plant in Covington, Tennessee will require approximately $7.1 million
and the Company's purchase of one of its leased manufacturing facilities will
require approximately $3.1 million. These commitments will be funded with cash
generated by operations.
UPDATE ON MAJOR CAPITAL IMPROVEMENT PROGRAMS
Mueller is upgrading its brass rod mill manufacturing processes with an
expansion that includes the installation of a new, state-of-the-art, indirect
extrusion press, new billet heating furnaces, and new material handling
systems. Installation of the indirect extrusion press along with much of the
related handling equipment is substantially complete. Production on the new
equipment commenced in early 1996.
Mueller's capital improvement project at its Fulton copper tube mill to
upgrade technology and install state-of-the-art, tube drawing and handling
equipment became operational in the fourth quarter of 1995 and is functioning
well today. It is expected to improve yield and productivity, add capacity and
lower cost of production.
The Company's new, high-volume copper fittings plant at Fulton,
Mississippi also became operational in the second and third quarters of 1995
and most production lines in this new plant are running today. Yield and
productivity continue to improve.
Another important ongoing program is the modernization of the Company's
low-volume copper fittings plant in Covington, Tennessee. Modernization of
this facility, which produces a broad range of low-volume copper fittings, is
estimated to require approximately $7.1 million in capital improvements and
will be completed in 1997.
<PAGE> 13 EXHIBIT 13.0
OTHER MATTERS
The Company is involved with a number of environmental sites which are
presently undergoing remediation. During 1995, the Company charged to expense
$1.4 million for environmental matters. This charge was based on updated
information and results of ongoing remediation and monitoring programs. At
December 30, 1995, the Company has total environmental reserves of
approximately $9.6 million. Based upon information currently available,
management believes that the outcome of pending environmental matters will not
materially affect the overall financial position and results of operations of
the Company.
The Company anticipates that the adoption, in 1996, of recently issued
accounting standards (see Note 1 to the Financial Statements for further
discussion) will not have a material impact on the Company's financial
statements.
The impact of inflation on the Company's operations in 1995, 1994 and
1993 was minimal.
OUTLOOK
New housing starts and commercial construction are important determinants
of Mueller's sales to plumbing, air-conditioning and refrigeration markets and
to OEMs. Some housing analysts currently project slight to moderate decreases
in new housing starts for 1996. However, we remain optimistic about 1996 due
to prevailing low interest rates which have historically stimulated the
housing market.
<PAGE> 14 EXHIBIT 13.0
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 30, 1995, December 31, 1994 and December 25, 1993
<TABLE>
(In thousands, except per share data)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net sales $ 678,838 $ 550,003 $ 501,885
Cost of goods sold 549,884 448,467 403,775
-------- -------- --------
Gross profit 128,954 101,536 98,110
Depreciation and amortization 15,452 12,689 14,160
Selling, general, and administrative
expense 49,491 44,895 45,923
-------- -------- --------
Operating income 64,011 43,952 38,027
Interest expense (4,168) (6,718) (5,759)
Environmental reserves (1,421) (2,914) (1,060)
Unusual items, net - (1,140) (2,024)
Other income, net 6,127 7,644 4,259
-------- -------- --------
Income before income taxes 64,549 40,824 33,443
Income tax expense (19,726) (12,898) (12,307)
-------- -------- --------
Net income $ 44,823 $ 27,926 $ 21,136
======== ======== ========
Net income per share:
Primary
Average shares outstanding 19,149 19,780 20,886
Net income $ 2.34 $ 1.41 $ 1.01
Fully diluted
Average shares outstanding 19,328 19,780 20,996
Net income $ 2.32 $ 1.41 $ 1.01
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 15 EXHIBIT 13.0
CONSOLIDATED BALANCE SHEETS
As of December 30, 1995 and December 31, 1994
<TABLE>
(In thousands, except share data)
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 48,357 $ 34,492
Accounts receivable, less allowance for doubtful
accounts of $2,986 in 1995 and $3,336 in 1994 83,712 66,925
Inventories 66,360 74,368
Current deferred income taxes 7,354 4,491
Other current assets 5,255 3,275
-------- --------
Total current assets 211,038 183,551
Property, plant and equipment, net 221,012 196,772
Deferred income taxes 13,174 23,797
Other assets 5,611 26,635
-------- --------
TOTAL ASSETS $ 450,835 $ 430,755
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 16 EXHIBIT 13.0
CONSOLIDATED BALANCE SHEETS (Continued)
As of December 30, 1995 and December 31, 1994
<TABLE>
(In thousands, except share data)
<CAPTION>
1995 1994
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 16,249 $ 18,611
Accounts payable 16,931 21,607
Accrued wages and other employee costs 14,499 13,105
Current deferred income taxes - 366
Other current liabilities 20,205 13,532
-------- --------
Total current liabilities 67,884 67,221
Long-term debt 59,653 76,125
Pension liabilities 7,093 9,499
Postretirement benefits other than pensions 8,883 8,946
Environmental reserves 9,585 11,178
Deferred income taxes 2,734 3,016
Other noncurrent liabilities 9,128 12,822
-------- --------
Total liabilities 164,960 188,807
-------- --------
Stockholders' Equity
Preferred stock - shares authorized 4,985,000;
none outstanding - -
Series A junior participating preferred stock-
$1.00 par value; shares authorized 15,000;
none outstanding - -
Common stock - $.01 par value; shares authorized
20,000,000; issued 20,000,000; outstanding
17,349,498 in 1995 and 17,397,954 in 1994 200 100
Additional paid-in capital, common 253,969 254,251
Retained earnings since January 1, 1991 66,810 21,987
Cumulative translation adjustments (2,545) (2,832)
Treasury common stock, at cost (32,559) (31,558)
-------- --------
Total stockholders' equity 285,875 241,948
Commitments and contingencies - -
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 450,835 $ 430,755
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 17 EXHIBIT 13.0
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 30, 1995, December 31, 1994 and December 25, 1993
<TABLE>
(In thousands)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 44,823 $ 27,926 $ 21,136
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provisions for unusual items - 1,140 2,024
Depreciation and amortization 15,452 12,689 14,160
Provision for doubtful accounts
receivable 75 186 59
Deferred income taxes 7,112 4,748 9,026
Gain on disposal of properties (1,835) (3,159) (91)
Changes in assets and liabilities:
Receivables (16,862) (7,914) 546
Inventories 8,008 (20,835) 16,505
Other assets (1,885) (382) 3,224
Current liabilities 3,491 7,926 (13,187)
Other liabilities (3,856) 111 (1,731)
Other, net 445 (473) (684)
-------- -------- --------
Net cash provided by operating activities 54,968 21,963 50,987
-------- -------- --------
INVESTING ACTIVITIES:
Acquisition of business - (12,815) -
Capital expenditures (40,980) (48,152) (11,083)
Proceeds from sales of properties 3,827 5,333 2,332
Escrowed IRB proceeds 16,067 (16,078) -
-------- -------- --------
Net cash used by investing activities (21,086) (71,712) (8,751)
-------- -------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - 45,343 386
Repayments of long-term debt (18,834) (13,318) (7,152)
Acquisition of treasury stock (2,055) (25,897) (3,100)
Proceeds from the sale of treasury stock 872 777 507
-------- -------- --------
Net cash provided (used) by
financing activities (20,017) 6,905 (9,359)
-------- -------- --------
Increase (decrease) in cash and
cash equivalents 13,865 (42,844) 32,877
Cash and cash equivalents at the
beginning of the year 34,492 77,336 44,459
-------- -------- --------
Cash and cash equivalents at the
end of the year $ 48,357 $ 34,492 $ 77,336
======== ======== ========
<FN>
For supplemental disclosures of cash flow information, and non-cash investing
and financing activities, see Notes 1, 4, and 6.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 18 EXHIBIT 13.0
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 30, 1995, December 31, 1994 and December 25, 1993
<TABLE>
(In thousands, except share data)
<CAPTION>
Retained
Common Stock Additional Earnings Cumulative Treasury Stock
Number Paid-In (Accumulated Translation Number
of Shares Amount Capital Deficit) Adjustments of Shares Cost Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 26, 1992 20,000,000 $ 100 $ 236,391 $ (27,075) $ (1,094) 723,512 $ (3,901) $204,421
Repurchase of common stock - - - - - 200,000 (3,100) (3,100)
Net income - - - 21,136 - - - 21,136
Issuance of shares under
employee stock purchase plan - - 75 - - (48,898) 263 338
Issuance of shares under
incentive stock option plan - - (60) - - (41,000) 229 169
Cumulative translation
adjustments - - - - (850) - - (850)
---------- --- ------- ------ ----- --------- ------- -------
Balance, December 25, 1993 20,000,000 100 236,406 (5,939) (1,944) 833,614 (6,509) 222,114
Repurchase of common stock - - - - - 1,849,750 (25,897) (25,897)
Net income - - - 27,926 - - - 27,926
Issuance of shares under
employee stock purchase plan - - 103 - - (42,424) 515 618
Recognition of income tax
benefits of preconfirmation
net operating loss carry-
forwards - - 17,916 - - - - 17,916
Issuance of shares under
incentive stock option plan - - (174) - - (38,894) 333 159
Cumulative translation
adjustments - - - - (888) - - (888)
---------- --- ------- ------ ----- --------- ------- --------
Balance, December 31, 1994 20,000,000 100 254,251 21,987 (2,832) 2,602,046 (31,558) 241,948
Repurchase of common stock - - - - - 134,490 (2,055) (2,055)
Net income - - - 44,823 - - - 44,823
Issuance of shares under
employee stock purchase plan - - 110 - - (45,534) 559 669
Issuance of shares under
incentive stock option plans - - (292) - - (40,500) 495 203
Cumulative translation
adjustments - - - - 287 - - 287
Par value of shares issued
in connection with a two-
for-one stock split - 100 (100) - - - - -
---------- --- ------- ------ ----- --------- ------- --------
Balance, December 30, 1995 20,000,000 $ 200 $ 253,969 $ 66,810 $ (2,545) 2,650,502 $(32,559) $285,875
========== === ======= ====== ===== ========= ======= ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 19 EXHIBIT 13.0
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The principal business of Mueller Industries, Inc. is the manufacture and
sale of copper tube and fittings; brass and copper alloy rods, bars and
shapes; aluminum and brass forgings; aluminum and copper impact extrusions;
plastic fittings and valves; and refrigeration valves, driers and flare
fittings. The Company markets its products to the heating and air
conditioning, refrigeration, plumbing, hardware and other industries. The
Company operates twelve factories in five states and Canada and has
distribution facilities nationwide and sales representation worldwide.
The Company also operates a short line railroad through its wholly-owned
subsidiary, Utah Railway Company, and conducts placer gold mining through its
85 percent owned subsidiary Alaska Gold Company. In addition, the Company owns
or leases interests in other natural resource properties.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Mueller
Industries, Inc. and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
INVENTORIES
The Company's inventories are valued at the lower of cost or market. The
material component of certain of its copper tube and copper fittings
inventories was valued on a last-in, first-out (LIFO) basis. Other
inventories, including the non-material components of copper tube and copper
fittings inventories, were valued on a first-in, first-out (FIFO) basis.
Generally, inventory costs include material, labor costs and manufacturing
overhead. Prior to 1994, all inventories were accounted for on a FIFO basis.
See Note 2 for discussion of the accounting change.
DEPRECIATION AND AMORTIZATION
In general, depreciation and amortization of buildings, machinery,
equipment, and intangibles is provided on the straight-line method over the
estimated useful lives ranging from 20 to 40 years for buildings, 5 to 20
years for machinery and equipment, and 3 to 10 years for intangibles.
REVENUE RECOGNITION
Revenue from the sale of products is recognized upon passage of title to
the customer, which, in most cases, coincides with shipment.
EMPLOYEE BENEFITS
The Company sponsors certain defined benefit pension plans that are
noncontributory, and cover certain union employees. The plans provide pension
benefits based on years of service and stated benefit amounts for each year of
service.
<PAGE> 20 EXHIBIT 13.0
In addition to providing pension benefits, the Company sponsors certain
postretirement health and life insurance programs for certain union and
salaried employees, which are accounted for on the accrual method in
accordance with SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. These benefits are funded on a pay-as-you-go
basis and the cost is recognized as earned during the active service life of
employees. Certain retirees pay a premium for health insurance which is based
on the amount of benefits paid during the year less an agreed upon amount that
is paid by the Company.
EARNINGS PER COMMON SHARE
Primary earnings per common share are based upon the weighted average
number of common and common equivalent shares outstanding during each period.
Fully diluted earnings per share are based upon the weighted average number of
common shares outstanding plus the dilutive effects of all outstanding stock
options.
INCOME TAXES
The Company accounts for income taxes under the liability method
required by SFAS No. 109, Accounting for Income Taxes.
CASH EQUIVALENTS
Temporary investments with maturities of three months or less are
considered to be cash equivalents. These investments are stated at cost. At
December 30, 1995 and December 31, 1994, temporary investments consisted of
certificates of deposit, commercial paper, bank repurchase agreements, and
U.S. and foreign government securities totaling $51.7 million and $39.7
million, respectively. These carrying amounts approximate fair value.
CONCENTRATIONS OF CREDIT AND MARKET RISK
Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers comprising the Company's customer
base, and their dispersion across different industries, including air
conditioning, refrigeration and plumbing wholesalers, hardware, automotive,
original equipment manufacturers, and others.
The Company minimizes its market risk of base metal price fluctuations
through various strategies. Generally, it prices an equivalent amount of
copper raw material, under flexible pricing arrangements it maintains with its
suppliers, at the time it determines the selling price to its customers.
Occasionally, the Company hedges portions of its inventories against
price fluctuations through the purchase of option contracts. Gains and losses
on hedging transactions are recognized in income at the time the underlying
inventory is sold. At year-end, there were no open hedge transactions nor any
deferred gains or losses.
The Company's sales are principally denominated and collected in U.S.
currency. However, certain sales of the Company's foreign operations are
collected in foreign currencies. Occasionally, the market risk regarding
foreign currency exchange rate fluctuations is hedged using forward contracts.
At year-end, there were no open forward contracts nor any deferred gains or
losses.
<PAGE> 21 EXHIBIT 13.0
FOREIGN CURRENCY TRANSLATION
For foreign subsidiaries, the functional currency is the local foreign
currency. Balance sheet accounts are translated at exchange rates in effect at
the end of the year and income statement accounts are translated at average
exchange rates for the year. Translation gains and losses are included as a
separate component of stockholders' equity. Transaction gains and losses
included in the statement of income were not significant.
USE OF ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), effective for fiscal years beginning after December
15, 1995. SFAS 123 provides companies with the option of recognizing expense
for stock-based awards based on their fair value on the date of grant or
providing pro forma disclosures of what net income and earnings per share
would have been had the new fair value method been used. The Company
anticipates that it will elect the pro forma disclosure option. The Company
does not plan to early adopt SFAS 123.
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS 121), effective
for fiscal years beginning after December 15, 1995. SFAS 121 addresses the
accounting for the impairment of long-lived assets, such as property, plant
and equipment, identifiable intangibles including patents and trademarks, and
goodwill related to those assets. It specifies when assets should be reviewed
for impairment, how to determine if an asset is impaired, how to measure an
impairment loss, and what disclosures are necessary in the financial
statements. SFAS 121 also requires that long-lived assets and identifiable
intangibles (except for assets of a discontinued operation) held for disposal
be accounted for at the lower of cost or fair value less cost to sell. The
Company does not anticipate that the implementation of SFAS 121 will have a
material impact on the Company.
<PAGE> 22 EXHIBIT 13.0
NOTE 2
INVENTORIES
Inventories consist of the following:
<TABLE>
(In thousands)
<CAPTION>
1995 1994
<S> <C> <C>
Raw material and supplies $ 14,538 $ 20,043
Work-in-process 17,133 18,251
Finished goods 34,689 36,074
-------- --------
Inventories $ 66,360 $ 74,368
======== ========
</TABLE>
Raw material includes $4.6 million of gold inventory in 1994 and none in
1995.
During 1994, the Company elected to change its method of valuing the
material component of certain of its copper tube and copper fittings
inventory, from the FIFO method, to the LIFO method. This change in accounting
principle was applied to the beginning of fiscal 1994. Management believes the
LIFO method results in a better matching of current costs with current
revenues. Additionally, the LIFO method is widely used within the copper tube
and copper fittings industry. The effect of this change reduced net income for
the year ended December 31, 1994 by $9.0 million (or 46 cents per share).
The cumulative effect of this accounting change, and the pro forma
effects on prior years' earnings, have not been included because such effects
are not reasonably determinable.
Inventories valued using the LIFO method were $21.2 million in 1995 and
$20.9 million in 1994. The approximate FIFO current cost of such inventories
was $35.4 million at December 30, 1995 and $34.0 million at December 31, 1994.
<PAGE> 23 EXHIBIT 13.0
NOTE 3
PROPERTIES
Properties stated at fair value as of December 28, 1990, with subsequent
additions recorded at cost, are as follows:
<TABLE>
(In thousands)
<CAPTION>
1995 1994
<S> <C> <C>
Land and land improvements $ 5,979 $ 6,503
Mineral reserves 1,485 1,485
Buildings, machinery and equipment 247,655 196,211
Construction in progress 20,182 32,953
-------- --------
275,301 237,152
Less accumulated depreciation
and amortization (54,289) (40,380)
-------- --------
Property, plant and equipment, net $ 221,012 $ 196,772
======== ========
</TABLE>
NOTE 4
LONG-TERM DEBT AND LEASES
Long-term debt consists of the following:
<TABLE>
(In thousands)
<CAPTION>
1995 1994
<S> <C> <C>
8.38% Unsecured Notes, due through 2000 $ 17,857 $ 21,429
7.54% Unsecured Note Payable, due through 1999 16,000 20,000
1993 Series IRBs with interest at 6.95%, due
through 2000 14,286 17,143
1994 Series IRBs with interest at 8.825%, due
through 2001 14,143 16,714
10.1% Note Payable, due through 1999, secured
by certain railroad trackage 2,180 2,678
Pollution Control Revenue Bonds, interest
at 8% to 8.125%, due through 2001 2,355 2,630
Other, including capitalized lease obligations 9,081 14,142
-------- --------
75,902 94,736
Less current portion of long-term debt (16,249) (18,611)
-------- --------
Long-term debt $ 59,653 $ 76,125
======== ========
</TABLE>
<PAGE> 24 EXHIBIT 13.0
Aggregate annual maturities of such debt are $16.2 million, $14.8
million, $16.0 million, $14.3 million and $10.0 million for the years 1996
through 2000, respectively. Interest paid in 1995, 1994 and 1993 was $7.1
million, $8.1 million and $6.0 million, respectively. During 1995 and 1994,
the Company capitalized interest of $2.9 million and $.7 million,
respectively, related to its major capital improvement programs. Using a
discounted cash flow analysis, the book value of the Company's long-term debt
approximates fair value, based on the estimated current incremental borrowing
rates for similar types of borrowing arrangements.
During the second quarter of 1995, the Company increased to $50.0
million its unsecured line-of-credit agreement (the Credit Facility) which
expires on June 30, 1997, but may be extended for successive one year periods
by agreement of the parties. Borrowings under the Credit Facility bear
interest, at the Company's option, at (i) prime rate less 1/2 of one percent,
(ii) LIBOR plus .6 percent, (iii) certificate of deposit rate plus 1.35
percent, or (iv) Federal Funds Rate plus 1.8 percent. An annual commitment fee
of 15 basis points per annum on the unused portion of the Credit Facility is
payable quarterly. Currently, the Company has no outstanding borrowings under
the Credit Facility. However, availability of funds under the Credit Facility
is reduced by the amount of certain outstanding letters of credit, which
totaled approximately $6.1 million at December 30, 1995.
Borrowings under the above agreements require the Company, among other
things, to maintain certain minimum levels of net worth and meet certain
minimum financial ratios. The Company is in compliance with all covenants.
The Company leases certain facilities and equipment under operating
leases expiring on various dates through 2004. The lease payments under these
agreements aggregate to approximately $4.7 million in 1996, $4.6 million in
1997, $4.5 million in 1998, $4.2 million in 1999, $3.1 million in 2000, and
$3.1 million thereafter. Total lease and rent expense amounted to $7.4 million
in 1995, $6.9 million in 1994 and $5.0 million in 1993.
NOTE 5
STOCKHOLDERS' EQUITY
In 1995, the Company declared a two-for-one stock split to be effected in
the form of a 100 percent stock dividend. All presentations of share data
herein, including earnings per share, have been restated to reflect the split
for all periods presented.
On November 10, 1994, the Company declared a dividend distribution of one
Right for each outstanding share of the Company's common stock. Each Right
entitles the holder to purchase one unit consisting of one-thousandth of a
share of Series A Junior Participating Preferred Stock at a purchase price of
$160 per unit, subject to adjustment. The Rights will not be exercisable, or
transferable apart from the Company's common stock, until ten (10) days
following an announcement that a person or affiliated group has acquired, or
obtained the right to acquire, beneficial ownership of fifteen percent (15
percent) or more of its common stock other than pursuant to certain offers for
all shares of the Company's common stock that have been determined to be fair
to, and in the best interest of, the Company's stockholders. The Rights, which
do not have voting rights, will be exercisable by all holders (except for a
holder or affiliated group beneficially owning 15 percent or more of the
Company's common stock, whose Rights will be void) so that each holder of a
Right shall have the right to receive, upon the exercise thereof, at the then
current exercise price, the number of shares of the Company's common stock
having a market value of two times the exercise price of the Rights. All
<PAGE> 25 EXHIBIT 13.0
Rights expire on November 10, 2004, and may be redeemed by the Company at a
price of $.01 at any time prior to either their expiration or such time that
the Rights become exercisable.
In the event that the Company is acquired in a merger or other business
combination or certain other events occur, provision shall be made so that
each holder of a Right (except Rights previously voided) shall have the right
to receive, upon exercise thereof at the then current exercise price, the
number of shares of common stock of the surviving company which at the time of
such transaction would have a market value of two times the exercise price of
the Right.
On June 3, 1994, the Company purchased 1,849,750 shares of its common
stock, for an aggregate purchase price of approximately $25.9 million. These
shares were placed in treasury and may be used for general corporate purposes,
such as requirements for future exercises of options under various option
plans.
As of December 30, 1995, the Company had reserved 2,655,410 shares of its
common stock for issuance pursuant to certain stock option plans.
Additionally, the Company had reserved 15,000 shares of preferred stock for
issuance pursuant to the Shareholder Rights Plan.
NOTE 6
INCOME TAXES
The components of income before income taxes were taxed under the following
jurisdictions:
<TABLE>
(In thousands)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Domestic $ 56,632 $ 35,641 $ 30,955
Foreign 7,917 5,183 2,488
-------- -------- --------
Income before income taxes $ 64,549 $ 40,824 $ 33,443
======== ======== ========
</TABLE>
<PAGE> 26 EXHIBIT 13.0
Income tax expense consists of the following:
<TABLE>
(In thousands)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current tax expense:
Federal $ 7,838 $ 4,172 $ 153
Foreign 2,769 2,476 1,108
State and local 2,007 1,502 2,020
-------- -------- --------
Current tax expense 12,614 8,150 3,281
-------- -------- --------
Deferred tax expense (benefit):
Federal 7,031 5,621 9,863
State and local 81 (873) (837)
-------- -------- --------
Deferred tax expense 7,112 4,748 9,026
-------- -------- --------
Income tax expense $ 19,726 $ 12,898 $ 12,307
======== ======== ========
</TABLE>
The difference between the reported income tax expense and a tax
determined by applying the applicable U.S. federal statutory income tax rate
to income before taxes, is reconciled as follows:
<TABLE>
(In thousands)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Expected income tax expense $ 22,592 $ 14,288 $ 11,705
State and local income tax 1,357 976 538
Foreign income taxes 230 641 237
Valuation allowance (5,006) (1,495) -
Changes in estimated basis differences - (1,065) -
Effect of enacted tax rate change - - (337)
Other, net 553 (447) 164
-------- -------- --------
Income tax expense $ 19,726 $ 12,898 $ 12,307
======== ======== ========
</TABLE>
<PAGE> 27 EXHIBIT 13.0
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
(In thousands)
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 1,013 $ 1,849
Inventories 4,864 4,856
Preferred stock - 44,881
Abandonment of preferred stock 45,228 -
Pension, OPEB and accrued items 10,661 11,798
Other reserves 10,519 16,068
Net operating loss carryforwards 47,143 52,140
Alternative minimum tax credit
carryforwards 4,217 4,243
-------- --------
Total deferred tax assets 123,645 135,835
Less valuation allowance (60,921) (65,927)
-------- --------
Deferred tax assets, net of
valuation allowance 62,724 69,908
-------- --------
Deferred tax liabilities:
Property, plant and equipment 42,940 41,798
Undistributed income of
foreign subsidiaries 1,931 1,931
Other 59 1,273
-------- --------
Total deferred tax liabilities 44,930 45,002
-------- --------
Net deferred tax asset $ 17,794 $ 24,906
======== ========
</TABLE>
The Company's net operating loss carryforwards (NOLs) for federal income
tax purposes that expire prior to 2005 are subject to an annual limitation of
approximately $14.4 million. This annual limitation is, among other things,
based upon the Company's value and certain statutory interest rates in effect
at the time a "change in ownership" occurs. According to information available
to the Company, a "change of ownership," based upon cumulative change over a
three year period, occurred in June, 1994. Nevertheless, the annual limitation
of $14.4 million will remain available. A future "change in ownership" could
result in further limitations under certain circumstances.
The Internal Revenue Service (IRS) audit for 1992 and prior years was
concluded in 1994 and resulted in no material changes. Following conclusion of
that audit, the Company entered into a Closing Agreement with the IRS. This
Agreement is a definitive determination on certain tax attributes, including
NOLs. Following execution of this Agreement, the Company revised its estimates
with respect to realization of the related deferred tax assets in future
years. During 1994, the Company recognized $17.9 million of these tax
attributes, which reduced the valuation allowance and allocated the benefit to
paid-in capital. During 1995, the Company recognized $4.5 million of these tax
attributes reducing the 1995 deferred income tax provision. As additional NOLs
are utilized, the Company expects to recognize additional tax attributes over
<PAGE> 28 EXHIBIT 13.0
the next several years by reducing the valuation allowance. The tax effect of
future recognition of any of the remaining NOLs of approximately $34.9 million
will reduce the deferred income tax provisions in the periods recognized.
In 1995, the Company "abandoned" all its rights and interests in the
Preferred Stock of Sharon Specialty Steel Inc. (a Delaware corporation). For
book purposes, the carrying value of the preferred stock had been previously
written down. However, the Preferred Stock has a tax basis of approximately
$120 million. The "abandonment" of the Preferred Stock resulted in the Company
recognizing a tax loss. The character of the tax loss, capital or ordinary,
has not yet been definitively determined. Pending this determination, the
Company reduced its valuation allowance by $1.2 million resulting in a current
tax benefit. If the character of this loss is determined to be capital, the
Company's ability to realize benefit, if any, will be limited and recognition
will occur as certain gains are realized for federal tax purposes. If this
loss is determined to be ordinary, the Company may realize and recognize a
substantial benefit by reducing its federal taxable income in the period such
determination is made. Based on current facts and circumstances, management
cannot predict the likelihood that a favorable outcome will be achieved.
As of December 30, 1995, the Company had net operating loss carryforwards
available to offset future federal taxable income of $134.7 million of which
$99.8 million have been recognized. These NOLs expire as follows: $40.9
million in 2000, $20.7 million in 2001, $6.5 million in 2002, $59.8 million in
2005, and $6.8 million in 2006. Realization is dependent on generating
sufficient taxable income prior to expiration of the loss carryforwards.
Although realization is not assured, management believes it is more likely
than not that much of the deferred tax asset will be realized. The amount of
the deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carryforward period
are reduced. In addition, the Company has alternative minimum tax credit
carryforwards of approximately $4.2 million which are available to reduce
future federal regular income taxes, if any, over an indefinite period.
Income taxes paid were approximately $12.0 million in 1995, $7.8 million
in 1994 and $4.9 million in 1993.
<PAGE> 29 EXHIBIT 13.0
NOTE 7
EMPLOYEE BENEFITS
PENSION PLANS
Pension cost for the defined benefit plans sponsored by the Company
includes the following components:
<TABLE>
(In thousands)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost of benefits earned
during the year $ 473 $ 377 $ 277
Interest cost on the projected
benefit obligation 3,214 3,144 2,947
Actual return on plan assets (9,846) 127 (6,066)
Net amortization and deferral 7,792 (2,681) 3,439
-------- -------- --------
Net periodic pension cost $ 1,633 $ 967 $ 597
======== ======== ========
</TABLE>
The expected long-term rate of return on plan assets was 8.5 percent in
1995, 1994, and 1993. Differences between the actual returns and the related
expected returns on plan assets are deferred and considered in the
determination of net pension cost in future periods.
Generally, the Company contributes such amounts as are necessary to pay
benefits to plan participants and to meet ERISA minimum funding requirements.
The plans' investments are held by bank-administered trust funds. Prior
service costs and unrecognized net gains or losses are amortized on a
straight-line basis over the average future service lives of the covered
group.
In 1993, pursuant to a collective bargaining agreement then covering
approximately 65 employees, future participation in one of the Company's
single employer pension plans was curtailed in favor of participation in the
union multiemployer plan. Effective July 1, 1993, all future service accrues
in the multiemployer plan; service earned prior to that date remains the
obligation of the single employer plan. Effective December 31, 1994, this
plan was merged with another single employer defined benefit pension plan.
Each participant's accrued pension benefit, on the effective date of the
merger, was transferred to the surviving plan. Future service accruals were
not affected by this merger; they remain as dictated by the respective pension
plan documents.
Effective April 1, 1994, pursuant to a collective bargaining agreement,
one of the Company's single employer pension plans was amended, increasing the
accumulated benefit obligation. The effect of the amendment is reflected in
the table below.
<PAGE> 30 EXHIBIT 13.0
A reconciliation of the funded status of the plans at December 30, 1995
and December 31, 1994, respectively, to the amounts recognized in the
consolidated balance sheet is as follows:
<TABLE>
(In thousands)
<CAPTION>
1995 1994
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ (39,811) $ (40,935)
-------- --------
Accumulated benefit obligation (43,482) (44,016)
-------- --------
Projected benefit obligation (43,482) (44,016)
Plan assets at fair value held in the pension
plan trusts, primarily listed stocks and
U.S. Government obligations 40,205 32,106
-------- --------
Plan assets less than projected benefit obligation (3,277) (11,910)
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions (11,061) (3,002)
Prior service cost not yet recognized in net
periodic pension cost 3,993 4,560
-------- --------
Accrued pension cost $ (10,345) $ (10,352)
======== ========
</TABLE>
The range of assumed discount rates used in determining the actuarial
present value of the projected benefit obligations presented above was 7.0
percent to 7.75 percent for 1995 and 1994.
The Company makes contributions to certain multiemployer defined benefit
pension plan trusts that cover union employees based on collective bargaining
agreements. Contributions by employees are not required nor are they
permitted. Pension expense under the multiemployer defined benefit pension
plans was $.3 million in 1995, $.3 million in 1994, and $.2 million in 1993.
The Company has employee savings plans that qualify under Section 401(k).
Most employees of the Company (other than those covered by certain collective
bargaining agreements) may participate by deferring from 1 percent to 15
percent of their eligible compensation. Effective July 1, 1995, for employees
not covered by collective bargaining agreements, the Company matches 10
percent of each employee's contribution; effective January 1, 1996, the
Company matches 50 percent of the first 4 percent of each employee's
contribution. The Company match vests 20 percent for each year of service.
Compensation expense for the 401(k) match was $.1 million in 1995.
<PAGE> 31 EXHIBIT 13.0
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the Company provides a fixed
portion of the costs of medical and life insurance benefits to certain retired
hourly and salary employees. Contribution rates are dictated by the employees'
retirement plan which is subject to periodic contract renegotiation. The
Company also provides the full cost of medical and life benefits to certain
United Mine Workers of America (UMWA) retirees and certain qualified
dependents.
In October, 1992, the Coal Industry Retiree Health Benefit Act of 1992
(the Act) was enacted. The Act mandates a method of providing for
postretirement benefits to UMWA current and retired employees, including some
retirees who were never employed by the Company. In October, 1993,
beneficiaries were assigned to the Company and the Company began its mandated
contributions to the UMWA Combined Benefit Fund, a multiemployer trust.
Beginning in 1994, the Company was required to make contributions for assigned
beneficiaries under an additional multiemployer trust created by the Act, the
UMWA 1992 Benefit Plan. The ultimate amount of this liability will vary due to
factors which include, among other things, the validity, interpretation and
regulation of the Act, its joint and several obligation, the number of valid
beneficiaries assigned, and the extent to which funding for this obligation
will be satisfied by transfers of excess assets from the 1950 UMWA pension
plan and transfers from the Abandoned Mine Reclamation Fund. Nonetheless, the
Company believes it has an adequate reserve for this liability, which is
classified as other noncurrent liabilities.
The following table shows funded status reconciled with the amounts
recognized in the Company's financial statements:
<TABLE>
(In thousands)
<CAPTION>
1995 1994
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (8,671) $ (8,679)
Fully eligible active plan participants (496) (500)
Other active plan participants (464) (433)
-------- --------
(9,631) (9,612)
Plan assets at fair value - -
-------- --------
Accumulated postretirement benefit obligation
in excess of plan assets (9,631) (9,612)
Unrecognized net loss 554 647
-------- --------
Accrued postretirement benefit cost $ (9,077) $ (8,965)
======== ========
</TABLE>
Net periodic postretirement benefit cost was $.8 million in 1995, $.8
million in 1994, and $.7 million in 1993.
<PAGE> 32 EXHIBIT 13.0
The cost of medical and life insurance benefits for retired employees
reflected above does not include $.9 million at December 30, 1995 and $1.1
million at December 31, 1994 related to the provision of medical and other
welfare benefits under certain defined benefit multiemployer plans. The
actuarially determined present value of the accumulated postretirement benefit
obligation was calculated using a discount rates ranging from 7.0 percent to
8.5 percent for 1995 and 1994.
The assumed weighted-average annual rate of increase in the per capita
cost of covered benefits ranges from 9.52 percent to 10.57 percent for 1996
and is assumed to ultimately decrease to a rate of 6.25 percent by 2003 and
remain at that level thereafter. A one percentage point increase in the
assumed trend rates for each year would not have a significant effect on the
expected postretirement benefit obligation.
Included in the caption "Accrued wages and other employee costs" is the
current portion of postretirement benefit obligation of $.7 million in 1995
and 1994.
NOTE 8
COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
The Company is subject to environmental standards imposed by federal,
state and local environmental laws and regulations. It has provided and
charged to income $1.4 million in 1995, $2.9 million in 1994, and $1.1 million
in 1993 for pending environmental matters related to natural resources
operations. The basis for the increase is updated information and results of
ongoing remediation and monitoring programs. Management believes that the
outcome of pending environmental matters will not materially affect the
overall financial position or results of operations of the Company.
LITIGATION
The Company is involved in certain litigation as a result of claims that
arise in the ordinary course of business, which management believes will not
have a material adverse affect on the Company's financial condition or results
of operations.
NOTE 9
UNUSUAL ITEMS
During 1994, the Company recognized a $1.1 million charge for outstanding
insurance matters primarily related to estimated workers compensation claims
for years prior to 1993.
During 1993, the Company recognized a $1.4 million charge for employment
related matters. Additionally, a provision of $.6 million was recognized for
the settlement of certain litigation.
<PAGE> 33 EXHIBIT 13.0
NOTE 10
OTHER INCOME
Other income, net included in the consolidated statements of income consists
of the following:
<TABLE>
(In thousands)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Rent and royalties $ 2,009 $ 1,068 $ 1,275
Interest income 2,283 2,865 2,187
Gain on disposal of properties, net 1,835 3,159 1,262
Other - 552 (465)
-------- -------- --------
Other income, net $ 6,127 $ 7,644 $ 4,259
======== ======== ========
</TABLE>
NOTE 11
STOCK OPTIONS AND
EMPLOYEE STOCK PURCHASE PLANS
During 1994, the stockholders approved the adoption of the 1994 Stock
Option Plan (SOP Plan). Under this plan, the Company may grant options to
purchase up to 400,000 shares of common stock at prices not less than the fair
market value of the stock on the day of the grant. Generally, any unexercised
options expire after not more than ten years. No options may be granted under
this plan after ten years from the date the SOP Plan was adopted. The
stockholders also approved the adoption of the 1994 Non-Employee Director
Stock Option Plan (Directors Plan). Options to purchase up to 50,000 shares of
common stock may be granted under this plan at a price not less than the fair
market value of the stock on the day of the grant. Generally, any unexercised
options granted under this plan shall expire on a date which is five years
from the date of option grant.
Under the 1991 Incentive Stock Option Plan (ISO Plan), the Company may
grant options to purchase up to 500,000 shares of common stock at prices not
less than the fair market value of the stock on the date of grant. Generally,
any unexercised options expire after not more than ten years. No options may
be granted under this plan after ten years from the date the ISO Plan was
adopted.
On December 4, 1991, the Company authorized a special stock option grant
of 1,000,000 shares to induce Mr. Harvey L. Karp to enter into an employment
agreement with the Company. The exercise price, $4.125 per share, was the fair
market value on the date of grant. Generally, the options expire one year
after Mr. Karp's separation from employment with the Company unless Mr. Karp
is terminated for cause. On January 30, 1992, the Board approved and
authorized a transaction whereby Mr. Karp was granted options to purchase an
additional 1,000,000 shares, which was subsequently reduced by 200,000 option
shares which the Company issued to secure the employment of Mr. William D.
O'Hagan. Mr. Karp's additional grant of options is on the same terms and
conditions, and at the same price, as the original grant. Although neither Mr.
Karp's nor Mr. O'Hagan's options were granted under the ISO Plan, the terms
and conditions of Mr. O'Hagan's options are generally similar to those granted
under the ISO Plan.
<PAGE> 34 EXHIBIT 13.0
Following is a summary of incentive stock option data (all amounts have
been restated for the two-for-one stock split effected in September, 1995):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Outstanding at beginning of year 2,532,106 2,381,000
Granted 179,000 198,000
Exercised (40,500) (38,894)
Expired, cancelled, or surrendered (20,000) (8,000)
--------- ---------
Outstanding at year-end 2,650,606 2,532,106
--------- ---------
Options exercisable at year-end 2,086,606 1,952,706
--------- ---------
Option prices per share outstanding at year-end $4.06-$28.50 $3.63-$17.88
----------- -----------
</TABLE>
Under the Amended and Restated Mueller Industries, Inc. 1991 Employee
Stock Purchase Plan (the EMSP Plan), the Company may offer to eligible
employees (generally all full-time employees) options to purchase up to three
shares (six shares after giving effect to stock split) of the Company's common
stock for each $1,000 of compensation. The option price is the lower of (i) 85
percent of the fair value of the stock on the offering date, or (ii) 85
percent of the fair value of the stock on the last day of the one-year
offering period. The maximum number of shares which shall be made available
for sale under the EMSP Plan during all offerings shall be 900,000 shares.
Under the EMSP Plan, 176,274 shares have been issued. During the offering
period beginning July 1, 1995, options for 50,142 shares were granted. Of the
grants, 3,338 share options were cancelled or surrendered due to participant
terminations and voluntary withdrawals as provided by the EMSP Plan. At
December 30, 1995, options to purchase 46,804 shares were outstanding at the
exercise price of $20.88 per share under the EMSP Plan. The July 1, 1995
offering was the last authorized under the EMSP Plan.
<PAGE> 35 EXHIBIT 13.0
NOTE 12
INDUSTRY SEGMENTS
The Company is engaged in the manufacture and sale of copper, brass,
bronze, aluminum, and plastic products, and in natural resource operations
consisting principally of a short line railroad, as well as the operation of
placer gold mining. Income and expenses not allocated to industry segments in
computing operating income include general corporate income and expense,
interest expense and interest income. General corporate assets are principally
cash and temporary investments. There are no intersegment sales. The Company
does not have significant foreign operations and, accordingly, geographical
segment information is not presented. Industry segment information is as
follows:
<TABLE>
(In thousands)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net sales:
Manufacturing $ 646,894 $ 533,389 $ 478,287
Natural resources 31,944 16,614 23,598
-------- -------- --------
$ 678,838 $ 550,003 $ 501,885
======== ======== ========
Operating income:
Manufacturing $ 61,384 $ 47,932 $ 38,052
Natural resources 7,874 1,651 5,534
General corporate (5,247) (5,631) (5,559)
-------- -------- --------
64,011 43,952 38,027
Non operating income, net 4,706 3,590 1,175
Interest expense (4,168) (6,718) (5,759)
-------- -------- --------
Consolidated income before income taxes $ 64,549 $ 40,824 $ 33,443
======== ======== ========
Provision for depreciation and amortization:
Manufacturing $ 11,967 $ 9,845 $ 9,172
Natural resources 1,157 1,159 3,791
General corporate 2,328 1,685 1,197
-------- -------- --------
$ 15,452 $ 12,689 $ 14,160
======== ======== ========
Capital expenditures:
Manufacturing $ 38,478 $ 37,095 $ 8,039
Natural resources 2,198 4,028 356
General corporate 304 7,029 2,688
-------- -------- --------
$ 40,980 $ 48,152 $ 11,083
======== ======== ========
Identifiable assets:
Manufacturing $ 339,764 $ 318,351 $ 269,189
Natural resources 47,453 38,042 34,316
-------- -------- --------
387,217 356,393 303,505
General corporate 63,618 74,362 66,238
-------- -------- --------
$ 450,835 $ 430,755 $ 369,743
======== ======== ========
</TABLE>
<PAGE> 36 EXHIBIT 13.0
NOTE 13 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial results by quarter are as follows:
<TABLE>
(In thousands, except share data)
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1995
Net sales $ 171,770 $ 181,380 $ 171,549 $ 154,139
Gross profit (1) $ 31,210 $ 31,793 $ 34,139 $ 31,812(2)
Net income $ 10,050 $ 10,663 $ 11,605 $ 12,505(2)
Net income per share $ .53 $ .56 $ .60 $ .65 (2)
1994
Net sales $ 120,812 $ 136,576 $ 137,975 $ 154,640
Gross profit (1) $ 21,027 $ 24,131 $ 24,722 $ 31,656
Net income $ 4,182 $ 5,778 $ 8,518 $ 9,448
Net income per share $ .20 $ .28 $ .45 $ .50
<FN>
(1) Gross profit is net sales less cost of goods sold, which excludes
depreciation and amortization.
(2) A change in inventory estimate was recognized.
</TABLE>
<PAGE> 37 EXHIBIT 13.0
REPORT OF INDEPENDENT AUDITORS
The Stockholders of Mueller Industries, Inc.
We have audited the accompanying consolidated balance sheets of Mueller
Industries, Inc. as of December 30, 1995 and December 31, 1994 and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Mueller Industries, Inc. at December 30, 1995 and December 31, 1994, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 30, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in 1994
the Company changed its method of accounting for the material component of
some inventories.
Ernst & Young LLP
Memphis, Tennessee
February 9, 1996
<PAGE> 38 EXHIBIT 13.0
<TABLE>
CAPITAL STOCK INFORMATION
The high, low and closing prices on the New York Stock Exchange for each
fiscal quarter of 1995 and 1994 were as follows (restated for two-for-one
stock split):
<CAPTION>
1995 High Low Close
<S> <C> <C> <C>
Fourth quarter $ 29-1/2 $ 22-1/4 $ 29-1/4
Third quarter $ 28-1/4 $ 24-1/8 $ 25-15/16
Second quarter $ 24-15/16 $ 16-3/8 $ 24-5/8
First quarter $ 17-1/8 $ 14-1/4 $ 16-11/16
<CAPTION>
1994 High Low Close
<S> <C> <C> <C>
Fourth quarter $ 17 $ 13-7/16 $ 14-15/16
Third quarter $ 17-3/4 $ 14-1/4 $ 16-7/8
Second quarter $ 17-9/16 $ 15-1/16 $ 15-1/16
First quarter $ 19-5/16 $ 16-3/8 $ 17-1/4
</TABLE>
The principal market for Mueller's common stock is the New York Stock
Exchange under the symbol MLI. As of March 4, 1996, the number of holders of
record of Mueller's common stock was 3,813. The New York Stock Exchange's
closing price for Mueller's common stock on March 4, 1996 was $32 1/4.
The Company has paid no dividends on its common stock and presently does
not anticipate paying cash dividends in the near future.
<PAGE> 39 EXHIBIT 13.0
SELECTED FINANCIAL DATA
<TABLE>
(In thousands, except share data)
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
For the fiscal year:
Net sales $ 678,838 $ 550,003 $ 501,885 $ 517,339 $ 441,431
Operating income (loss)(1) $ 64,011 $ 43,952 $ 38,027 $ 29,318 $ (1,638)
Net income (loss)(2) $ 44,823 $ 27,926 $ 21,136 $ 16,666 $ (43,741)
Net income (loss)
per common share(2) (3) $ 2.34 $ 1.41 $ 1.01 $ .83 $ (2.25)
- ---------------------------------------------------------------------------------------------
At Year End:
Total assets $ 450,835 $ 430,755 $ 369,743 $ 372,547 $ 334,786
Long-term debt $ 59,653 $ 76,125 $ 54,320 $ 62,376 $ 45,156
- ---------------------------------------------------------------------------------------------
<FN>
(1) In 1994, the Company changed its method of accounting for the copper component of certain of its
copper tube and copper fittings inventories to the LIFO method.
(2) Includes charges for unusual items of $1.1 million, or $.06 per common share, in 1994, $2.0
million, or $.10 per common share, in 1993, $5.6 million, or $.28 per common share, in 1992,
and $44.4 million, or $2.28 per common share, in 1991.
(3) Per share amounts have been restated for a two-for-one stock split effected in September, 1995.
</TABLE>
<PAGE> 40 EXHIBIT 13.0
DIRECTORS, CORPORATE OFFICERS, DIVISIONAL MANAGEMENT
BOARD OF DIRECTORS
Harvey L. Karp Chairman of the Board
Mueller Industries, Inc.
Robert B. Hodes (1) (3) Counsel,
Willkie Farr & Gallagher
Allan Mactier (1) (2) (3) Private Investor
William D. O'Hagan President and
Chief Executive Officer
Mueller Industries, Inc.
Robert J. Pasquarelli (1) (2) Steel Industry Consultant
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
CORPORATE OFFICERS
Harvey L. Karp Chairman of the Board
William D. O'Hagan President and
Chief Executive Officer
Earl W. Bunkers Executive Vice President and
Chief Financial Officer
William H. Hensley Vice President
General Counsel and Secretary
Lowell J. Hill Vice President
Human Resources
Kent A. McKee Vice President
Business Development /
Investor Relations
Richard G. Miller Vice President and
Chief Information Officer
Lee R. Nyman Vice President
Manufacturing /
Management Engineering
James H. Rourke Group Vice President
Industrial Products Division
<PAGE> 41 EXHIBIT 13.0
DIVISIONAL MANAGEMENT
STANDARD PRODUCTS DIVISION
Harvey W. Clements Vice President
Tube Manufacturing
John B. Hansen Vice President - Marketing
Roy C. Harris Controller
Larry D. Birch Vice President
Domestic Sales
Robert L. Fleeman Vice President
International Sales
Gregory L. Christopher Vice President
Supply Chain Management
Louis F. Pereira General Manager - Strathroy
David J. Maurer Plant Manager - Fulton
Daniel R. Corbin Plant Manager
Upper Sandusky
Dean M. Thompson Plant Manager - Covington
David G. Cook Plant Manager - Kalamazoo
Jon D. Zimmer Plant Manager - Cerritos
INDUSTRIAL PRODUCTS DIVISION
Felista S. Amburgey Vice President Sales - Rod
Timothy J. Keck Vice President Sales
Forgings / Impacts
William F. Navarre Vice President Manufacturing
Rod / Forgings
David F. O'Brien Plant Manager - Impacts
Richard D. Holmes Controller
REFRIGERATION PRODUCTS DIVISION
Roland P. Robichaud General Manager
Dennis K. Anthony Vice President Sales
Kent K. Miller Director of Engineering
Anthony D. Donato Plant Manager
<PAGE> 42 EXHIBIT 13.0
ARAVA NATURAL RESOURCES DIVISION
Gary L. Barker President - Arava Natural
Resources Company, Inc.
Michael P. Watson Vice President - Arava Natural
Resources Company, Inc.
Michael W. Baum President - Mining Remedial
Recovery Company
John E. West III Executive Vice President
Utah Railway Company
CORPORATE AND STOCKHOLDER INFORMATION
CORPORATE HEADQUARTERS
2959 North Rock Road, Wichita, Kansas, 67226
(316) 636-6300 ( In May, 1996, the Company will relocate its corporate office
to 6799 Great Oaks Road, Memphis, Tennessee 38138)
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at the Crescent Club, 6075
Poplar Avenue, Ninth Floor, Memphis, Tennessee 38119, 10:00 a.m. local time,
May 8, 1996.
FORM 10-K
Copies of the Company's Annual Report on Form 10-K are available upon written
request c/o Mueller Industries, Inc., P.O. Box 789761, Wichita, Kansas 67278
(after May, 1996, 6799 Great Oaks Road, Memphis, Tennessee 38138) Attention:
Investor Relations
COMMON STOCK
Mueller common stock is traded on the NYSE - Symbol MLI.
INDEPENDENT AUDITORS
Ernst & Young LLP, Memphis, Tennessee.
TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer & Trust Co.,
2 Broadway, New York, New York 10004
STOCKHOLDER INQUIRIES
To notify the Company of address changes or lost certificates, stockholders
can call Continental Stock Transfer & Trust Co. at (212) 509-4000.
<PAGE> 1
MUELLER INDUSTRIES, INC.
List of Subsidiaries
State or Country
Subsidiary* of Incorporation
Mueller Brass Co. Michigan
Mueller Industrial Realty Company Michigan
Itawamba Industrial Gas Company, Inc. Mississippi
Streamline Copper & Brass Ltd. Canada
Mueller Plastic Holding Company, Inc. Ohio
Mueller Plastic Corporation Delaware
MPC Foundry, Inc. Delaware
MPC Machine Shop, Inc. Delaware
Mueller Formed Tube Company, Inc. Delaware
Mueller Copper Tube, Inc. Delaware
Mueller Streamline Co. Delaware
Mueller Refrigeration Products Company, Inc. Delaware
Mueller Impacts Company, Inc. Delaware
Mueller Brass Forgings Company, Inc. Delaware
Mueller East, Inc. Delaware
Mueller Fittings, L.P. (1) Tennessee
Mueller Copper Fittings Company, Inc. Delaware
Mueller Streamline FSC, Ltd. Virgin Islands
Arava Natural Resources Company, Inc. Delaware
United States Fuel Company Nevada
King Coal Company Utah
Utah Railway Company Utah
Canco Oil & Gas Ltd. Alberta, Canada
Aegis Oil & Gas Ltd. Alberta, Canada
Bayard Mining Corporation Delaware
Washington Mining Company Maine
Amwest Exploration Company Delaware
USSRAM Exploration Company Maine
Richmond Eureka Mining Company (81%) Maine
Ruby Hill Mining Company (75%) Maine
White Knob Mining Idaho
Arava Exploration Company Colorado
Summit Systems, Inc. Delaware
Kennet Company, Ltd. Bermuda
Mining Remedial Recovery Company Delaware
Carpentertown Coal & Coke Company Pennsylvania
USS Lead Refinery, Inc. Maine
Leon Water Enterprises, Inc. (50%) Texas
Alaska Gold Company (85%) (2) Delaware
Mueller Acquisition Company Delaware
Macomber Construction Company Ohio
Macomber Incorporated Ohio
Macomber Building & Land Corporation Delaware
* All subsidiaries are 100% owned, except as shown.
(1) Mueller East, Inc. is the general partner; Mueller Copper Fittings
Company, Inc. is the Limited partner.
(2) Alaska Gold Company became a 100% owned subsidiary on March 14, 1996.
<PAGE> 1
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Mueller Industries, Inc. of our report dated February 9, 1996, included in
the 1995 Annual Report to Stockholders of Mueller Industries, Inc.
Our audits also included the consolidated financial statement schedule of
Mueller Industries, Inc. listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Forms S-8 No. 33-54705, No. 33-41478 and No. 33-47307) pertaining
to the 1994 Stock Option Plan and 1994 Non-Employee Director Stock Option
Plan, 1991 Employee Stock Purchase Plan and the 1991 Incentive Stock Option
Plan of Mueller Industries, Inc., respectively, of our report dated February
9, 1996, with respect to the consolidated financial statements incorporated
herein by reference, and our report included in the preceding paragraph with
respect to the financial statement schedule included in this Annual Report
(Form 10-K) of Mueller Industries, Inc. for the year ended December 30, 1995.
ERNST & YOUNG LLP
Memphis, Tennessee
March 18, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000089439
<NAME> MUELLER INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 48,357
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<RECEIVABLES> 86,698
<ALLOWANCES> 2,986
<INVENTORY> 66,360
<CURRENT-ASSETS> 211,038
<PP&E> 275,301
<DEPRECIATION> 54,289
<TOTAL-ASSETS> 450,835
<CURRENT-LIABILITIES> 67,884
<BONDS> 59,653
<COMMON> 200
0
0
<OTHER-SE> 285,675
<TOTAL-LIABILITY-AND-EQUITY> 450,835
<SALES> 678,838
<TOTAL-REVENUES> 678,838
<CGS> 549,884
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<OTHER-EXPENSES> 64,943
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</TABLE>
