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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 27, 1997 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.)
6799 GREAT OAKS ROAD, SUITE 200
MEMPHIS, TENNESSEE 38138
(Address of principal executive offices)
Registrant's telephone number, including area code: (901) 753-3200
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.[_X_].
The number of shares of the Registrant's common stock outstanding as of March
10, 1998 was 17,569,737, excluding 2,430,263 treasury shares. The aggregate
market value of the 17,024,628 shares of common stock held by non-affiliates
of the Registrant was $936,354,540 at March 10, 1998 (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 Stockholders for the year ended
December 27, 1997 (Part I and II); Registrant's Definitive Proxy Statement for
the 1998 Annual Meeting of Stockholders, scheduled to be mailed on or about
March 18, 1998 (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............................................... 9
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...................11
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...........................................12
Signatures..............................................................16
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PART I
ITEM 1. BUSINESS
Introduction
The Company is a leading manufacturer of copper, brass, plastic and
aluminum products. The range of these products is broad: copper tube and
fittings; brass and copper alloy rod, bar and shapes; aluminum and brass
forgings; aluminum and copper impact extrusions; plastic fittings and
valves; refrigeration valves, driers and flare fittings; and copper alloy
tubing, aluminum tubing and fabricated tubular products. These operations
("Manufacturing Segment") accounted for approximately 96 percent of the
Company's total net sales and 80 percent of total identifiable assets on a
consolidated basis in 1997. The Company markets its products to the
heating and air-conditioning, refrigeration, plumbing, hardware and other
industries. Mueller operates eighteen factories in the United States,
Canada, the United Kingdom, and France and has distribution facilities in
each of these countries and sales representation worldwide.
The Company also has operations which are conducted through its
wholly-owned subsidiaries Arava Natural Resources Company, Inc. ("Arava")
and Alaska Gold Company ("Alaska Gold"). These operations consist
principally of the operation of a short line railroad in Utah and a placer
gold mining operation in Alaska.
Information concerning net sales, operating income, and identifiable
assets of each segment appears under "Note 13 - Industry Segments" in the
Notes to Consolidated Financial Statements in Mueller's Annual Report to
Stockholders for the year ended December 27, 1997. 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.
In 1997, the Company acquired copper tube manufacturing operations in
England and France. On February 28, 1997, the Company acquired certain
assets of Wednesbury Tube Company ("Wednesbury") for approximately $21.3
million. Wednesbury is located in Bilston, West Midlands, England. On May
15, 1997, the Company acquired Desnoyers S.A., a copper tube manufacturer
which operates two factories near Paris in Laigneville and Longueville,
France. The Company acquired Desnoyers for approximately $13.5 million
which includes certain assumed debt obligations. These acquisitions
established a significant manufacturing and sales presence in Europe for
the Company's manufacturing operations.
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Standard Products also includes 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 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.
On December 30, 1996, the Company acquired the assets and certain
liabilities of Precision Tube Company, Inc. ("Precision") for approximately
$6.6 million. Precision fabricates tubing and coaxial cables and
assemblies.
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 automotive parts, high-
strength ordnance, high-conductivity electrical components, builders'
hardware, hydraulic systems, 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 1997, 1996, and 1995.
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, the United
Kingdom, and France. 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.
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Competition
The businesses in which Mueller is engaged are highly competitive.
The principal methods of competition for Mueller's products are customer
service and availability. 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 27,
1997 and December 28, 1996 was not significant.
The Company competes with various companies depending on the product
line. In the U.S. copper tubing business, the domestic competition
includes Cerro Copper Products Co., Inc., Halstead Industries, Inc.,
Reading Tube Corporation, Wolverine Tube, Inc., and Howell Metal Company,
as well as many actual and potential foreign competitors. In the European
copper tubing business, Mueller competes with more than ten European based
manufacturers of copper tubing as well as foreign based manufacturers.
Additionally, the Company's copper tube businesses compete 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 both domestic and
foreign. As illustrated above, no other single competitor offers such a
wide ranging product line; management believes that this is a competitive
advantage in some markets.
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.
Other Businesses
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 coal tonnage hauled. The Utah Railway
transports coal to an interchange point at Provo, Utah. Annual tonnage may
vary significantly due to fluctuations in the production from the coal
mines on the Utah Railway's lines and the demand for export coal. In the
past five years, annual tonnage has ranged between 3.9 and 6.2 million
tons. From Provo, Utah, the coal is transported by connecting railroads to
various customers including electric utilities, cement plants, west coast
export facilities and others at destinations throughout the West.
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In addition to railway operations discussed above, Union Pacific
Railroad granted limited rights to Utah Railway for operations over Union
Pacific tracks to Grand Junction, Colorado and access to additional coal
customers. Also, in 1997, Utah Railway began a switching operation
primarily in the Salt Lake City, Ogden, and Provo, Utah, metropolitan
areas. Switching operations consist of accepting freight from other
railroad carriers for delivery to rail served customers and/or accepting
loads of freight from such customers for delivery to long haul railroad
carriers to be transported to final destinations.
Gold Mining
Alaska Gold mines placer gold in Nome, Alaska. Alaska Gold produced
28,154 net ounces of gold in 1997, 22,918 net ounces of gold in 1996,
18,731 net ounces of gold in 1995, 14,173 net ounces of gold in 1994, and
22,440 net ounces of gold in 1993, at a net production cost of $316 per
ounce in 1997, $352 per ounce in 1996, $307 per ounce in 1995, $376 per
ounce in 1994, and $280 per ounce in 1993. 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.
Continued operations, however, depend upon the economic feasibility.
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.
Other Properties
In 1997, United States Fuel Company ("U.S. Fuel"), a wholly-owned
subsidiary of Arava, sold its coal properties. Until coal production
ceased in March 1993, U.S. Fuel mined steam coal by the deep-mine process
at these properties.
In early 1998, Ruby Hill Mining Company ("Ruby Hill") received a final
$1.0 million installment payment from Homestake Mining Company of
California ("Homestake") for Ruby Hill's mining property near Eureka,
Nevada. As of December 27, 1997, the Company has received and recognized
as gains $3.0 million from this transaction. 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.
Labor Relations
At December 27, 1997, the Company employed approximately 3,400
employees of which approximately 1,900 were represented by various unions.
A majority of the unionized employees are under contracts which expire in
1999. Substantially all of the 1997 increase in employment relates to
businesses acquired during the year.
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 $3.1 million in 1997, $2.0 million in 1996, $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 1998 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 percent of future costs. The third
party has agreed to pay the balance. Work at this site has commenced and
is anticipated to be substantially completed in 1998.
2. Mammoth Mine Site
MRRC owns title to certain 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
are being required. In response to a 1996 Order issued by the California
Regional Water Quality Control Board, MRRC completed a feasibility study in
1997 describing measures designed to mitigate the effects of acid rock
drainage. MRRC has agreed to implement additional remedial options at an
estimated cost of approximately $1.7 million. Further remediation may be
required depending on how effective MRRC's remedial options are in reducing
acid rock drainage.
In April 1996, MRRC settled a lawsuit from an adjoining landowner. As
part of the settlement, MRRC acquired approximately 4,000 acres of patented
mining claims and other property located in Shasta County. MRRC intends to
remediate the mine sites on this acquired property as part of its overall
efforts at Mammoth.
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3. 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. By letter
dated February 4, 1997, the Indiana Department of Environmental Management
(IDEM) notified Lead Refinery that a preassessment screening of the Grand
Calumet River and the Indiana Harbor Canal conducted pursuant to Superfund,
had identified releases of hazardous substances from Lead Refinery and
other PRPs that had adversely impacted natural resources. Based on the
prescreening assessment, IDEM has requested that Lead Refinery agree to
fund the preparation of an assessment plan which will, in part, quantify
the loss of natural resources. By letter dated March 11, 1997, Lead
Refinery responded to the February 4 letter and without waiving its
affirmative defenses, stated its willingness to participate in the
preparation of an assessment plan. 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; however, as of March 17, 1998,
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. In
November 1996, the EPA approved, with modifications, the Interim
Stabilization Measures Workplan and designated a Corrective Action
Management Unit at the Lead Refinery site. Site activities, based on the
approval, began during December 1996. Costs for studies and interim clean
up efforts were estimated at approximately $4.5 million in the first
quarter of 1997. In the process of remediating the site, Lead Refinery
subsequently identified suspected petroleum contamination on site. Lead
Refinery is evaluating whether and how to address remediation of this
contamination as part of the Corrective Action Management Unit. 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. Lead Refinery determined not to
execute the Administrative Order on Consent. Several other PRPs, however,
executed the agreement and are conducting the remedial design.
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Miscellaneous
In 1994, the Company received notice from the EPA that Mueller Brass
Co. was a PRP at the Jack's Creek/Sitkin Smelting Superfund Site in Eastern
Pennsylvania. Mueller Brass Co. 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 $400,000. Cleanup will commence in 1998.
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 1997, 1996, or 1995. No material portion of the
Registrant's business involves governmental contracts.
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.
Approximate
Location Property Size Description
____________ _____________ _________________________________
Port Huron, MI 322,500 sq. ft. Brass rod mill. Facility includes
71.5 acres casting, extruding, and finishing
equipment to produce brass rods
and bars, in various shapes and
sizes.
Port Huron, MI 127,500 sq. ft. Forgings plant. Produces brass
and aluminum forgings.
Marysville, MI 81,500 sq. ft. Aluminum and copper impacts plant.
6.72 acres Produces made-to-order parts using
cold impact processes.
Port Huron, MI 40,000 sq. ft. Formed tube plant. Produces
5.11 acres copper fittings using cold heading
equipment.
Fulton, MS 418,000 sq. ft. Copper tube mill. Facility
64.27 acres includes casting, extruding, and
finishing equipment to produce
copper tubing, including tube feed
stock for the Company's copper
fittings plants, Line sets plant,
and Precision Tube factory.
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Fulton, MS 70,000 sq. ft.(1) Copper fittings plant. High-
7.68 acres volume facility that produces
copper fittings using tube feed
stock from the Company's copper
tube mill.
Fulton, MS 58,500 sq. ft.(1) Line sets plant. Produces copper
15.53 acres tube line sets using tube feed
stock from the Company's copper
tube mill.
Covington, TN 159,500 sq. ft. Copper fittings plant. Facility
40.88 acres produces copper fittings using
tube feed stock from the Company's
copper tube mill.
Strathroy, 54,000 sq. ft. Copper fittings plant. Facility
Ontario Canada 4.67 acres produces copper fittings for the
Canadian domestic markets and for
export to European markets.
Upper Sandusky, 82,000 sq. ft. Plastic fittings plant. Produces
OH 7.52 acres DWV fittings using injection
molding equipment.
Kalamazoo, MI 205,000 sq. ft. Plastic fittings plant. Produces
18 acres DWV fittings using injection
molding equipment.
Cerritos, CA 115,000 sq. ft. Plastic fittings plant. Produces
5.1 acres 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.
North Wales, PA 174,000 sq. ft. Precision Tube factory. Facility
18.9 acres fabricates copper tubing, copper
alloy tubing, aluminum tubing, and
fabricated tubular products.
Salisbury, MD 12,000 sq. ft.(2) Coaxial cable plant. Facility
manufactures semi-rigid coaxial
cable and high-performance cable
assemblies.
Bilston, England 402,500 sq. ft. Copper tube mill. Facility
United Kingdom 14.95 acres includes casting, extruding and
finishing equipment to produce
copper tubing.
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Longueville 332,500 sq. ft. Copper tube mill. Facility
France 16.3 acres includes extrusion and finishing
equipment to produce copper
tubing.
Laigneville 387,500 sq. ft. Copper tube mill. Facility
France 18.8 acres includes drawing and finishing
equipment to produce copper
tubing.
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 operating lease.
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" in the Registrant's Annual Report
to Stockholders for the year ended December 27, 1997, which information is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data are included under the caption "Selected
Financial Data" in the Registrant's Annual Report to Stockholders for the
year ended December 27, 1997, which selected financial data is incorporated
herein by reference.
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" in
the Registrant's Annual Report to Stockholders for the year ended December
27, 1997 and is incorporated herein by reference.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Supplemental Financial
Information 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 1998 Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission on or about March 18, 1998 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 1998
Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission on or about March 18, 1998 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 1998 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or about March 18, 1998 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 1998 Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission on or about March 18, 1998 and
is incorporated herein by reference.
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.
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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 Credit Agreement among Mueller Industries, Inc. (as
Borrower) and Michigan National Bank (as a Bank) and
Michigan National Bank (as Agent) dated as of June 1, 1994
(Incorporated herein by reference to Exhibit 4.3 of the
Registrant's Report on Form 10-K, dated March 20, 1997, for
the fiscal year ended December 28, 1996).
4.4 First Amendment to Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan National Bank
(as a Bank) and Michigan National Bank (as Agent) dated as
of December 14, 1994 (Incorporated herein by reference to
Exhibit 4.4 of the Registrant's Report on Form 10-K, dated
March 20, 1997, for the fiscal year ended December 28, 1996).
4.5 Second Amendment to Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan National Bank
(as a Bank) and Michigan National Bank (as Agent) dated as
of June 1, 1995 (Incorporated herein by reference to
Exhibit 4.5 of the Registrant's Report on Form 10-K, dated
March 20, 1997, for the fiscal year ended December 28, 1996).
4.6 Third Amendment to Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan National Bank
(as a Bank) and Michigan National Bank (as Agent) dated as
of December 18, 1996 (Incorporated herein by reference to
Exhibit 4.6 of the Registrant's Report on Form 10-K, dated
March 20, 1997, for the fiscal year ended December 28, 1996).
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4.7 Fourth Amendment to Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan National Bank
(as a Bank) and Michigan National Bank (as Agent) dated
December 31, 1997.
4.8 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).
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 Summary description of the Registrant's 1998 bonus plan for
certain key employees.
10.6 Amended and Restated Employment Agreement, effective as of
September 17, 1997, by and between Mueller Industries, Inc.
and Harvey L. Karp (Incorporated herein by reference to
Exhibit 10.1 of the Registrant's Report on Form 10-Q, dated
October 21, 1997, for the quarter ended September 27, 1997).
10.7 Amended and Restated Employment Agreement, effective as of
September 17, 1997, by and between Mueller Industries, Inc.
and William D. O'Hagan (Incorporated herein by reference to
Exhibit 10.2 of the Registrant's Report on Form 10-Q, dated
October 21, 1997, for the quarter ended September 27, 1997).
-14-
<PAGE>
10.8 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).
10.9 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).
10.10 Mueller Industries, Inc. Deferred Compensation Plan,
effective January 1, 1997 (Incorporated herein by reference
to Exhibit 10.12 of the Registrant's Report on Form 10-K,
dated March 20, 1997, for the fiscal year ended
December 28, 1996).
13.0 Mueller Industries, Inc.'s Annual Report to Stockholders for
the year ended December 27, 1997. 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).
(b) During the three months ended December 27, 1997, no Current
Reports on Form 8-K were filed.
-15-
<PAGE>
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 19, 1998.
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 19, 1998
Harvey L. Karp
/S/ROBERT B. HODES Director March 19, 1998
Robert B. Hodes
/S/ALLAN MACTIER Director March 19, 1998
Allan Mactier
/S/WILLIAM D. O'HAGAN President, Chief Executive Officer, March 19, 1998
William D. O'Hagan Director
/S/ROBERT J. PASQUARELLI Director March 19, 1998
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 19, 1998
Earl W. Bunkers
Executive Vice President
Chief Financial Officer
(Principal Accounting Officer)
/S/ KENT A. MCKEE March 19, 1998
Kent A. McKee
Vice President Business Development/
Investor Relations
/S/ RICHARD W. CORMAN March 19, 1998
Richard W. Corman
Director of Corporate Accounting
-16-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The consolidated financial statements, together with the report
thereon of Ernst & Young LLP dated February 6, 1998, appearing
on page 18 through and including 46, of the Company's 1997 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 1997 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 1997 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 27, 1997,
December 28, 1996, and December 30, 1995.
Valuation and Qualifying Accounts (Schedule II) 18
-17-
<PAGE>
MUELLER INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 27, 1997, December 28, 1996, and December 30, 1995
(In thousands)
<TABLE>
<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>
1997
Allowance for doubtful accounts $ 3,188 $ 107 $ 677 (1) $ 292 $ 3,680
Environmental reserves $ 9,105 $ 3,100 $ 3,949 (1) $ 5,786 $ 10,368
Other reserves (2) $ 10,368 $ 250 $ 2,089 (1) $ 2,259 $ 10,448
Valuation allowance for deferred
tax assets $ 56,299 $ - $ - $ 4,226 $ 52,073
1996
Allowance for doubtful accounts $ 2,986 $ 435 $ - $ 233 $ 3,188
Environmental reserves $ 9,585 $ 2,045 $ - $ 2,525 $ 9,105
Other reserves (2) $ 10,051 $ 828 $ - $ 511 $ 10,368
Valuation allowance for deferred
tax assets $ 60,921 $ - $ - $ 4,622 $ 56,299
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
<FN>
(1) Resulted from acquisitions during 1997.
(2) Other reserves are included in the balance sheet captions "Other
current liabilities" and "Other noncurrent liabilities".
</TABLE>
-18-
<PAGE>
EXHIBIT INDEX
Exhibits Description Page
4.7 Fourth Amendment to Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan
National Bank (as a Bank) and Michigan National
Bank (as Agent) dated December 31, 1997.
10.5 Summary description of the Registrant's 1998 bonus
plan for certain key employees.
13.0 Mueller Industries, Inc.'s Annual Report to
Stockholders for the year ended December 27, 1997.
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).
-19-
<PAGE>
FOURTH AMENDMENT
TO
CREDIT AGREEMENT
This Fourth Amendment to Credit Agreement (this "Fourth Amendment"),
dated as of Decemeber 31, 1997, is among Michigan National Bank, a national
banking association, and the other banking institutions listed on Exhibit A
attached hereto and who appear as signatories to this Fourth Amendment (each
a "Bank" and collectively the "Banks"), Michigan National Bank, as agent
("Agent"), and Mueller Industries, Inc., a Delaware corporation
("Borrower").
Recitals
The Agent, the Borrower and some of the Banks executed a certain Credit
Agreement (the "Credit Agreement") dated as of June 1, 1994, as amended,
providing for, among other things, the establishment by the Banks for the
benefit of the Borrower of a line of credit in the amount of $100,000,000.
The Credit Agreement was amended by a First Amendment to Credit Agreement,
dated as of December 14, 1994, by a Second Amendment to Credit Agreement,
dated as of June 1, 1995, and by a Third Amendment to Credit Agreement,
dated as of Decemeber 18, 1996(the Credit Agreement, as so amended, the
"Amended Credit Agreement").
The Borrower has now requested the Banks to extend the Line of Credit
Maturity from December 31, 1999 to May 30, 2001, and the Banks have
consented to such extension.
Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Amended Credit Agreement.
NOW, THEREFORE, the parties hereto agree that the Amended Credit
Agreement shall be amended, effective (unless otherwise specified herein) on
and as of December 31, 1997, as follows:
1. The Line of Credit Maturity is hereby extended to May 30, 2001.
2. Except as herein provided, the Amended Credit Agreement shall remain
in full force and effect, including the provisions of Section 9 thereof
which are herein incorporated by this reference.
3. The Borrower hereby reaffirms the representations and warranties set
forth in Section 4 of the Amended Credit Agreement and certifies that no
Event of Default has occurred or is existing under the Amended Credit
Agreement.
-1-
<PAGE>
4. Contemporaneously herewith, Borrower shall execute and deliver each
Bank a new Amended and Restated Line of Credit Note to reflect the new Due
Date of May 30, 2001.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to
be executed and delivered as of the date first hereinabove set forth.
"BORROWER"
MUELLER INDUSTRIES, INC.
WITNESS:
_________________________ By:_________________________
_________________________ Its: Executive Vice President
"BANKS"
MICHIGAN NATIONAL BANK
_________________________ By:_________________________
_________________________ Its: Senior Realtionship Manager
BOATMEN'S NATIONAL BANK
_________________________ By:___________________________
_________________________ Its:__________________________
THE FIRST NATIONAL BANK OF CHICAGO
_________________________ By:___________________________
_________________________ Its:__________________________
MERCANTILE BANK NATIONAL ASSOCIATION
_________________________ By:___________________________
_________________________ Its:__________________________
-2-
<PAGE>
KEY BANK NATIONAL ASSOCIATION
_________________________ By:___________________________
_________________________ Its:__________________________
"AGENT"
MICHIGAN NATIONAL BANK
_________________________ By:___________________________
_________________________ Its:__________________________
-3-
<PAGE>
1998 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 7.5 percent to 97.5 percent of base annual salary.
The CEO and Chairman participate in this plan, with bonuses specifically
determined by the board of directors. The bonus percent is based on a
variety of guidelines including performance levels of the respective
business unit measured by earnings before tax.
<PAGE>
MUELLER INDUSTRIES, INC.
1997 ANNUAL REPORT
MUELLER INDUSTRIES, INC.
COMPANY PROFILE
Mueller Industries, Inc. is a leading manufacturer of copper tube and
fittings; brass and copper alloy rod, bar, and shapes; aluminum and brass
forgings; aluminum and copper impact extrusions; plastic fittings and
valves; refrigeration valves and fittings; and fabricated tubular products.
Mueller's plants are located throughout the United States and in Canada,
France, and Great Britain. The Company also owns a short line railroad in
Utah and various natural resource properties.
BALANCED SCORECARD STRATEGIC MANAGEMENT SYSTEM
Mueller uses a management tool called the Balanced Scorecard (BSC) to focus
its resources. The BSC integrates traditional financial measurements with
measurements of internal process improvement, customer focus, and learning
& growth.
The goals of the BSC are the continuous improvement of existing operations,
the pursuit of additional areas of growth, and superior service to our
customers. The achievement of these goals will benefit our customers,
employees, and stockholders.
-1-
<PAGE>
MUELLER INDUSTRIES, INC.
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net sales $ 501,885 $ 550,003 $ 678,838 $ 718,312 $ 888,997
Sales of manufactured products
(in millions of pounds) 362.1 380.6 388.3 447.0 545.3
Net income $ 21,136 $ 27,926 $ 44,823 $ 61,173 $ 69,770
Diluted earnings per share $ 1.01 $ 1.41 $ 2.34 $ 3.14 $ 3.56
Capital expenditures $ 11,083 $ 48,152 $ 40,980 $ 18,868 $ 36,865
Significant Year-End Data
Cash and cash equivalents $ 77,336 $ 34,492 $ 48,357 $ 96,956 $ 69,978
Ratio of current assets to current liabilities 4.1 to 1 2.7 to 1 3.1 to 1 3.5 to 1 3.1 to 1
Long-term debt (including current portion) $ 62,711 $ 94,736 $ 75,902 $ 59,650 $ 72,093
Debt as a percent of total capitalization 22.0% 28.1% 21.0% 14.6% 14.7%
Stockholders' equity $ 222,114 $ 241,948 $ 285,875 $ 348,082 $ 418,040
Book value per share $ 11.59 $ 13.91 $ 16.48 $ 19.96 $ 23.88
Number of employees 2,010 2,256 2,274 2,339 3,378
</TABLE>
[GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Net income (in millions) $ 16,666 $ 21,136 $ 27,926 $ 44,823 $ 61,173 $ 69,770
Diluted earnings per share $ .83 $ 1.01 $ 1.41 $ 2.34 $ 3.14 $ 3.56
-2-
</TABLE>
<PAGE>
A REPORT TO OUR STOCKHOLDERS, CUSTOMERS, AND EMPLOYEES
It is a pleasure to report that in 1997 Mueller Industries, Inc. achieved
its sixth consecutive year of record earnings. Sales, net earnings, pounds
of product shipped, and earnings per share all once again reached record
levels. In addition to strong operating performance, our Company
accomplished many other significant objectives in 1997, which provide us
with major opportunities in the years ahead.
Record Results
Net income increased to $69.8 million in 1997, compared to $61.2 million in
1996, a gain of 14 percent. Earnings rose to $3.56 a diluted share for
1997 from $3.14 a diluted share in the prior year.
Net sales climbed 24 percent to $889.0 million in 1997, from $718.3 million
in 1996. Mueller shipped 545.3 million pounds of product in 1997, up 22
percent from 447.0 million in the prior year.
Copper prices were particularly volatile during 1997, beginning the year
around $1.00 per pound, rising above $1.15 per pound in the summer, and
then falling off rapidly to end the year below $0.80 per pound. Where
possible, we minimize our exposure to this volatility by passing through
metal costs to customers.
U.S. Manufacturing Operations
Our manufacturing operations performed well in 1997. Mueller's copper tube
mill, located in Fulton, Mississippi, achieved record production levels.
Yield and productivity also increased. Copper tube profitability was
satisfactory, even though we experienced tighter spreads on sales in the
first half of the year. Spreads did improve slightly during the second
half.
In 1997, we began a two-year, $25 million capital investment program to
upgrade the copper casting and refining processes at the tube mill. This
investment will allow the tube mill to use a lower cost mix of copper scrap
and cathode and it will increase casting capacity. The project is
proceeding on schedule to be completed in early 1999. We are also
investing to improve warehouse flexibility and efficiency at the tube
mill, permitting more direct shipments to customers. This will reduce
handling costs, improve service, and enable us to make more effective use
of our inventory.
In June, we completed construction of a new line sets plant adjacent to the
Fulton tube mill. We are now positioned to grow this business.
Sales of copper fittings increased modestly in 1997; however, profits rose
to the best levels ever. We made significant progress modernizing our
plant in Covington, Tennessee, thereby reducing material and conversion
costs.
-3-
<PAGE>
Our other copper fittings plants made significant progress during 1997. The
newest fittings plant in Fulton, Mississippi, is midway through a major
initiative to reduce costs and improve throughput. Our Canadian
subsidiary, located in Strathroy, Ontario, remained profitable, although it
suffered from declines in the European metric fittings business and the
application of anti-dumping provisions in Canada.
The DWV plastic fittings business had an outstanding year, both in volume
and in profits. We expanded this business by purchasing a building
contiguous to our existing plant in Kalamazoo, Michigan, and are installing
additional injection molding machines in this facility, and in our plants
in Cerritos, California, and Upper Sandusky, Ohio.
Market demand for brass rod was strong throughout 1997. Mueller's Port
Huron, Michigan, brass rod mill ran near capacity for the whole year. An
improvement in our casting operations, implemented during the third
quarter, boosted production to record levels. Our forgings and aluminum
impacts operations, in Port Huron and Marysville, Michigan, respectively,
continued to generate good profits. Also, our refrigeration products
business, based in Hartsville, Tennessee, had its best year yet in both
sales and earnings.
Precision Tube, purchased at the end of 1996, exceeded our expectations and
had its strongest year ever.
European Manufacturing Operations
Mueller completed two substantial acquisitions during 1997. On February 28,
Mueller purchased the assets of Wednesbury Tube, a copper tube manufacturer
located in Bilston, England, and on May 15, we acquired operations near
Paris, France. These acquisitions give Mueller a major European
manufacturing and sales presence in copper plumbing tube.
We acquired these businesses for a modest investment with the objective of
reducing their cost structure and increasing productivity. A program to
improve these operations is currently underway. The market for copper tube
in Europe represents a substantial opportunity for Mueller.
Other Businesses
The Utah Railway generated good profits in 1997. In April, the railroad
entered into an agreement with The Burlington Northern and Santa Fe Railway
Company to provide switching services in Utah's central corridor. This new
business has the potential for additional growth.
At year-end, we completed the sale, at a small profit, of a dormant coal
mining property in Hiawatha, Utah. The buyer intends to resume mining
which may lead to additional business for Utah Railway.
Our open-pit placer gold mining business in Nome, Alaska, was affected by
the dramatic fall in the price of gold. If gold prices do not recover,
mining operations may well be curtailed.
-4-
<PAGE>
Acquisitions
Mueller is actively seeking acquisitions that relate to our core businesses
and product lines. Our strategy is to concentrate on our areas of skill
and expertise, where we can leverage our existing manufacturing, sales, and
distribution capabilities. An acquisition should strengthen a core
business, creating economies of scale, extending a product line, or opening
new markets. We will only consider a purchase in an unrelated area under
special circumstances.
The candidates of greatest interest to Mueller are fundamentally sound
businesses where new investment can generate long-term growth. We do not
require an acquisition to be immediately accretive to earnings; but, we do
insist on a clear vision of how the acquisition will build future value.
Financial Structure
Our balance sheet remains strong, providing great flexibility and
ample financial resources for the future growth of the Company. At year-
end, our current ratio was in excess of 3 to 1, debt as a percent of total
capitalization was only 14.7 percent, our cash position was approximately
$70 million, and we have not drawn on our $100 million line-of-credit.
Balanced Scorecard
The Balanced Scorecard (BSC) is a strategic management system which aligns
individual and organizational initiatives. This is accomplished, in part,
by broadening the traditional financial measurements to include
measurements of internal process improvement, customer focus, and learning
& growth. Our management team is employing the BSC in each business unit
and is expanding its application throughout the Company. The BSC will help
Mueller maintain the dynamic environment needed to achieve our long-term
goals. Our customers, employees, and stockholders will benefit from the
disciplined strategic focus the BSC brings to management.
Outlook
Many factors underlying the U.S. economy are favorable for our business.
Long-term mortgage rates are low and appear to be headed even lower. The
leading economic indicators remain strong. Unemployment is low and consumer
confidence remains high. Housing demographics are excellent, the housing
affordability index is near its 25-year best, and the stock of unsold homes
continues to trend down. These favorable economic conditions hold promise
for another good year for the Company.
Mueller's rapid progress over the past six years was achieved through the
talents and dedication of our employees. They are committed to being the
best.
-5-
<PAGE>
We are committed to enhancing the value of our stockholders' investment.
We are fortunate to have many outstanding opportunities to pursue, and will
do so with vigor and purpose.
Sincerely,
/s/Harvey L. Karp /s/William D. O'Hagan
Harvey L. Karp William D. O'Hagan
Chairman of the Board President and Chief
Executive Officer
March 18, 1998
-6-
<PAGE>
STANDARD PRODUCTS DIVISION
The Standard Products Division manufactures copper tube and fittings,
plastic fittings, and line sets. These products are manufactured at nine
factories throughout the U.S. and in Canada, and are marketed primarily to
wholesalers.
Copper Tube
The Company's copper tube mill, located in Fulton, Mississippi, produces
one of the broadest lines of copper tube offered by any single
manufacturer. Products include dehydrated coils and nitrogen-charged
straight lengths used primarily for refrigeration and air-conditioning,
copper water tube in straight lengths and coils used for plumbing and
construction, and redraw tubing for OEMs. We sell to plumbing and
refrigeration wholesalers and to OEM customers in North America and
numerous foreign countries.
To better serve our customers' growing demand for copper tube, we launched
a project in 1997 to significantly improve warehouse flexibility and
efficiency. This expansion will permit more direct shipments to customers.
By reducing handling, we will improve on-time delivery and response time
and minimize the chance for product damage during shipment.
Copper Fittings
Copper fittings are found in virtually all water distribution systems,
heating systems, and air-conditioning and refrigeration applications in
residential, office, and commercial construction. Mueller manufactures
Streamline wrot copper fittings at four plants located in Fulton,
Mississippi; Covington, Tennessee; Port Huron, Michigan; and Strathroy,
Ontario, Canada. The plants convert tube, primarily produced at Mueller's
copper tube mill, and copper rod into over 1,500 different sizes and shapes
of fittings.
Our newest copper fittings plant is adjacent to our tube mill in Fulton.
This plant opened in late 1995 and increased Mueller's capacity to produce
its most popular copper fittings. This highly automated factory enables
the Company's facility in Covington to focus on a broad range of low-volume
items, where careful scheduling and quick changeovers are critical to
profitable and efficient operation. During 1997, substantial progress was
made in a modernization program to reduce conversion costs and expand
capacity. Our Strathroy facility produces inch and metric-sized fittings
and is ISO certified. The Strathroy operation serves many of our European
customers who require metric-sized products.
Plastic Fittings
Mueller offers a full line of DWV plastic fittings. Operations are located
in Kalamazoo, Michigan; Cerritos, California; and Upper Sandusky, Ohio.
Injection molding machines at these plants produce over 1,000 different
parts in PVC and ABS materials. Recent investments in new production
equipment and processing technology have greatly enhanced the Company's
efficiency, making Mueller a low cost producer of plastic fittings.
Opportunities exist for the Company to broaden its plastics offering in the
future by expanding beyond DWV.
-7-
<PAGE>
Line Sets
The Company manufactures line sets at a factory near its Fulton,
Mississippi, copper tube mill. This product, which is used for controlling
the flow of refrigerant gases, is sold to both OEMs and wholesalers.
Product uses include air-conditioning, ice machine, and other refrigeration
applications. Line sets are insulated copper tube coils ranging from 10 to
100 feet in length and are available in plain ends or quick connectors.
INDUSTRIAL PRODUCTS DIVISION
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 marketed to service centers and OEM customers.
Brass Rod
The Port Huron, Michigan, mill is a leading extruder of brass rod. Mueller
produces a broad range of round, square, and hexagon rod for machining,
thread rolling, and forging applications. The rod mill also produces
special purpose alloys and continues to expand its line of special shapes
and profiles.
Mueller's brass rod mill includes state-of-the-art extrusion, billet
heating, coiling, product cleaning, and material handling systems. Recent
upgrades have significantly improved the manufacturing process. Further
enhancements are regularly being evaluated to enable us to satisfy the
growing, changing needs of our customers.
Forgings
The forging operation, also located in Port Huron, Michigan, produces a
wide variety of brass and aluminum parts. The Company continues to invest
in automated forging technology. This has opened new market opportunities
for the production of high-volume, close tolerance, custom parts.
Impact Extrusions
Impact extrusions, produced at Marysville, Michigan, are QS 9000 certified.
These cold formed aluminum and copper products combine toughness with
versatility of design and finish. Impacts enable customers to replace
multi-part assemblies with simple, one-piece designs, resulting in
increased strength, reduced weight, and improved appearance.
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 the
Company's Port Huron plants. These fittings and assemblies are used in
refrigeration applications such as residential and commercial air-
conditioning systems, walk-in coolers, and ice and vending machines.
Customers for Mueller's refrigeration products include OEMs and
refrigeration wholesalers in the United States and throughout the world.
-8-
<PAGE>
EUROPEAN OPERATIONS
During 1997, the Company acquired two European copper tube manufacturers.
The combined presence of these operations assures Mueller a significant
position in the European copper tube business.
We have identified many opportunities to achieve significant yield,
productivity, and cost improvements at these operations. Projects are
already underway to realize these benefits. When these projects are
complete, our European operations should become a significant contributor
to Mueller's earnings.
PRECISION TUBE DIVISION
Precision Tube manufactures specialty copper, copper alloy, and aluminum
tubing. Precision Tube's principal product line, manufactured at its plant
in North Wales, Pennsylvania, is copper tubing for the baseboard heating
industry. Precision Tube also manufactures tubular products for
appliances, aircraft, connectors, medical instruments, musical instruments,
and sports and leisure products.
Precision Tube also operates a factory in Salisbury, Maryland, which
manufactures semi-rigid and flexible coaxial cables and assemblies.
UTAH RAILWAY COMPANY
The Utah Railway Company, established in 1912, hauls coal to connections
with national carriers, power plants, and to other destinations. In 1997,
Utah Railway transported 4.9 million tons of coal, mined primarily in
Carbon and Emery counties, Utah. Also during 1997, Utah Railway began a
new line of business providing train switching services in Utah's central
corridor.
-9-
<PAGE>
BALANCED SCORECARD
The BSC integrates traditional financial measurements with additional
measurements of performance, emphasizing those characteristics needed for
the long-term creation of value. The four key perspectives and desired
outcomes of the BSC are:
INTERNAL BUSINESS PROCESSES-INCREASE EFFICIENCY, EFFECTIVITY, AND
PRODUCTIVITY
Our objectives are to produce the highest quality products and to do so at
the lowest cost. This requires that we use flexible and responsive
manufacturing processes, eliminate non-value added activities, and achieve
material cost reductions.
Over the past 5 years, Mueller has spent or committed over $150 million in
capital projects to promote these goals. Here are two examples of recent
projects:
* In 1997, we committed $25 million to build a casting and refining
facility at our Fulton, Mississippi, copper tube mill. This project
will enable us to use the optimum mix of copper scrap and cathode, and
should eliminate competitive disadvantage. The new facility will be
completed by early 1999.
* Similarly, we are benefiting from the installation of an additional
melter at our Port Huron, Michigan, brass mill. The benefits include
improved capacity, flexible product scheduling, and reduced maintenance
costs.
We continue to find many internal areas of our business which merit
additional investment. We are determined to become a world class
manufacturer of every product we offer. We have made substantial progress
to date, but much more can be accomplished.
CUSTOMER-EXCEED MARKET GROWTH WHILE IMPROVING MARGINS
We intend to grow our business by achieving customer satisfaction, and along
with it, customer confidence that Mueller is a resource, not just a source.
Here are a few examples of Mueller's ongoing efforts in this regard:
* We have provided our customer service professionals with improved
information technology to monitor customer orders, determine the
availability of inventory, place production orders, and advise on
delivery dates, pricing, etc. Moreover, our customer service teams are
structured so that customers will always have access to needed
information.
* To assure prompt and timely delivery, we are investing in a state-of-
the-art picking and packing warehouse system in Covington, Tennessee.
When fully functional, this facility will virtually eliminate shipping
errors as product is automatically scanned and tracked during the
order-filling process.
-10-
<PAGE>
* At our brass rod mill in Port Huron, Michigan, we now use technology
which balances customer demand and orders against the mill's capacity.
This scheduling system maximizes plant throughput while improving on-
time deliveries.
Mueller plans to make additional investments in resources and people to
provide our customers with the very best service in our industry.
LEARNING & GROWTH-CREATE A CLIMATE FOR ACTION
We believe that developing the skills and unleashing the talents of our
employees is the key to achieving a sustained competitive advantage. For
example, Mueller Tool & Machine was created to enhance and develop our own
capability to build tools and equipment for our manufacturing sites to
maintain competitive advantage.
Our goal is to create a climate where change is embraced and
entrepreneurship is esteemed. We foster an atmosphere of action, risk-
taking, self-improvement, and leadership. We know that employee
satisfaction is an essential element to employee productivity. We tie
employee compensation to attainment of financial and operating goals.
FINANCIAL-CREATE GROWTH AND ADD VALUE
Management's financial objectives are clear-use the Company's assets to
create growth and add value. Creating value takes time and cannot always be
measured on a quarterly basis.
We plan to grow over time by making capital improvements which provide an
attractive return on investment, by expanding our product lines, by
leveraging our sales and distribution systems, by reducing our cost
structure, and by making acquisitions which are financially attractive and
add to our opportunities.
Since 1992, our pre-tax earnings have grown at an average compounded rate of
33 percent per year. We believe the Balanced Scorecard strategic management
system will help management develop, evaluate, and execute strategic plans
and initiatives to continue growing. As we complete its implementation
throughout the Company, we anticipate the BSC will have an even greater
impact in the future.
-11-
<PAGE>
FINANCIAL REVIEW
OVERVIEW
Mueller Industries, Inc. is a leading manufacturer of copper tube and
fittings, brass and copper alloy rod, bar, and shapes; aluminum and brass
forgings; aluminum and copper impact extrusions; plastic fittings and
valves; refrigeration valves and fittings; and fabricated tubular products.
Mueller's plants are located throughout the United States and in Canada,
France and Great Britain. The Company also owns a short line railroad in
Utah and natural resource properties in the Western U.S.
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 and commercial buildings. The Company's product is sold to
wholesalers in the plumbing, air-conditioning and refrigeration markets and
to OEMs in these and other markets.
During 1997, the Company acquired two European copper tube manufacturers.
Wednesbury Tube is located in Bilston, England, and Desnoyers S.A. is
located near Paris, France. These acquisitions give the Company a major
manufacturing and sales presence in Europe.
Profitability of certain of the Company's product lines depends upon the
"spreads" between the cost of metal and the 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 as metal prices fluctuate. "Spreads" fluctuate based upon
competitive market conditions.
RESULTS OF OPERATIONS
1997 PERFORMANCE COMPARED TO 1996
Consolidated net sales of $889.0 million in 1997 compares with $718.3
million in 1996. The increase was due to acquisitions, internal growth,
and gold sales of $15.5 million. Businesses acquired during 1997 added
approximately $128.6 million to net sales. In 1997, the Company's core
manufacturing businesses shipped 545.3 million pounds of product compared
to 447.0 million pounds in 1996. Of this increase, 73.9 percent was
attributable to acquired businesses. Net sales were also affected by lower
copper prices, which were partially offset by higher prices of other
products.
Cost of goods sold totaled $704.8 million in 1997 compared to $554.6
million in 1996. The increase is primarily attributable to acquisitions,
higher sales volume, and gold sales. The Company's gross profit, excluding
acquisitions, was 23.4 percent compared to 22.8 percent in 1996. This
improvement resulted from continued higher yields, cost reductions, and
certain price increases. Including acquisitions, gross profit increased
$20.5 million to $184.2 million, or 20.7 percent of net sales in 1997.
-12-
<PAGE>
Depreciation and amortization totaled $21.0 million in 1997 compared to
$18.5 million in 1996. This increase was due to heavy capital expenditure
programs in recent years and to the 1997 acquisitions.
Selling, general, and administrative expense increased $8.7 million in 1997
to $63.5 million or 7.1 percent of net sales. It was 7.6 percent in 1996.
The 1997 amount of increase was due mainly to the acquisitions and higher
sales volume.
Interest expense decreased 7.1 percent in 1997 to $5.0 million compared to
$5.3 million in 1996. The provision for environmental reserves totaled
$3.1 million in 1997 compared to $2.0 million in 1996. The 1997 provision
relates to Mining Remedial Recovery Company, a non-core subsidiary, and is
based on updated information and results of ongoing environmental
remediation and monitoring programs at previously identified sites. Other
income increased $3.8 million in 1997 from $5.3 million in 1996. This
increase occurred primarily from higher gold royalty income and gains from
the sale of coal mining property in Hiawatha, Utah, and certain other
properties at Alaska Gold.
The Company provided $31.1 million for income taxes in 1997, of which $2.8
million was deferred. Current tax expense of $28.3 million increased $5.1
million over 1996 because of higher taxable income. The 30.8 percent
effective tax rate for 1997, which is equal to the 1996 rate, reflects the
recognition of certain tax attributes discussed in Note 6 and certain
favorable state tax credits including IRB financings.
The Company's employment level increased to 3,378 at year-end.
Substantially all of the additional employees relate to businesses acquired
during 1997.
Manufacturing Group
Net sales in 1997 increased 22.2 percent to $853.3 million compared to
$698.0 million in 1996. Measured in pounds of product sold, 1997 sales
totaled 545.3 million pounds or 22.0 percent over 1996 levels.
Acquisitions accounted for 73.9 percent of the increase. Copper raw
material costs, on average, were lower in 1997 than in 1996, and they were
particularly volatile. They began the year at around $1.00 per pound,
reached a high of around $1.15 per pound mid-year, and then closed the year
below $0.80 a pound. Pricing changes of finished product incorporate
fluctuations in raw material costs. Increased volume combined with
improved spreads in certain products, better yield and productivity in most
products, and lower costs, resulted in strong operating income. Copper
tube spreads for 1997 were lower, on average, than 1996.
Mueller uses the LIFO method to value the copper component of certain of
its copper tube and fittings inventories in the United States. The market
price of copper also indirectly affects the carrying value (FIFO basis) of
the Company's brass and other metal inventories. Inventory at our newly
acquired European businesses was valued on a FIFO basis.
-13-
<PAGE>
Other Businesses
Net sales were $35.7 million in 1997 compared to $20.3 million in 1996.
This increase was primarily due to the sale of $15.5 million of gold in
1997. None was sold in 1996. Transportation revenues at the Utah Railway
were $19.7 million in 1997 compared to $20.0 million in 1996. The Utah
Railway hauled 4.9 million tons of coal in 1997, down 21.7 percent from
1996 levels. This decline was the result of temporary operating
difficulties at the mines we serve, along with service disruptions in the
Union Pacific system. Revenue and earnings from The Burlington Northern
and Santa Fe train switching services agreement in Utah's central corridor
partially offset the 1997 operating results from the decline in tons of
coal hauled. In December 1997, Mueller sold its dormant coal mining assets
in Utah for a small profit, to a buyer who plans to resume coal mining.
This may lead to additional coal transportation business for Utah Railway
in the future. Alaska Gold sold 54,500 ounces of gold in 1997. This
included production and royalty gold from both 1997 and 1996.
1996 PERFORMANCE COMPARED TO 1995
Consolidated net sales were $718.3 million in 1996, up $39.5 million or 5.8
percent from net sales of $678.8 million in 1995. In the manufacturing
businesses, sales reached 447.0 million pounds, for a 15.1 percent volume
increase over the prior year. Lower copper raw material costs, which are
largely reflected in the selling price of the Company's products, account
for the difference in the rates of increase in sales dollars and pounds.
In the other businesses, sales declined to $20.3 million in 1996 from $31.9
million in 1995 due to the timing of gold sales.
Cost of goods sold increased $4.7 million to $554.6 million in 1996. This
increase is primarily attributable to higher sales volume. The Company's
gross profit increased $34.8 million, or 27 percent, to $163.7 million as
the Company leveraged its operating costs. This increase reflects cost
reductions and yield improvements in our manufacturing operations as well
as price improvements in certain product lines.
Depreciation and amortization totaled $18.5 million in 1996 compared with
$15.5 million in 1995. This increase results from heavy capital
expenditure programs in recent years.
Selling, general, and administrative expense increased $5.3 million in 1996
from $49.5 million in 1995. This increase was due mainly to the relocation
of the Company's corporate office to Memphis, Tennessee, higher sales
volume in 1996, increased employee incentive compensation, and growth
related expenses.
Interest expense in 1996 totaled $5.3 million, or $1.2 million more than in
1995. The Company capitalized $2.6 million less interest in 1996 on major,
long-term, capital improvement programs than it capitalized in 1995 because
most of these capital programs became operational in late 1995 and early
1996. Total interest payments in 1996 decreased due to reductions in long-
term debt.
The 1996 provision for environmental reserves totaled $2.0 million compared
to $1.4 million in 1995. This additional provision was based on updated
information and results of ongoing environmental remediation and monitoring
programs at previously identified environmental sites.
-14-
<PAGE>
Other income decreased to $5.3 million in 1996 from $6.1 million in 1995.
This decrease was due mainly to lower rent and royalty income and a reduced
gain from disposal of properties. This decrease was partially offset by
higher interest income as the Company's cash balance increased during 1996.
The Company provided $27.2 million for income taxes in 1996, of which $4.1
million was deferred. The current tax expense of $23.1 million for 1996
increased due to higher taxable income. During 1996, the effective tax
rate of 30.8 percent reflects the recognition of certain tax attributes
discussed in Note 6 and certain favorable state tax credits including IRB
financings.
Manufacturing Group
In 1996, net sales increased $51.1 million to $698.0 million, a 7.9 percent
increase over 1995. Sales volume, measured in pounds of product sold,
increased 15.1 percent in 1996. Copper raw material costs were lower in
1996 than they were in 1995. Pricing changes incorporate fluctuations in
raw material cost. Increased volume and spread, combined with improved
operating efficiency and yield, resulted in a 35 percent improvement in
gross profit.
Operating income increased primarily due to: (i) productivity and yield
improvements in manufacturing operations; (ii) selective price increases in
fittings; and (iii) higher margins on copper tube.
Other Businesses
Net sales were $20.3 million in 1996 compared to $31.9 million in 1995.
This decline was primarily due to lower gold sales, offset by increased
revenues at Utah Railway. Transportation revenues of Utah Railway were
$20.0 million in 1996, a 9.8 percent increase over 1995. Utah Railway
hauled 6.2 million tons of coal in 1996, which was a 13.6 percent increase
over 1995. Alaska Gold did not sell gold during 1996; in 1995, gold sales
totaled $13.0 million (33,820 ounces). At December 28, 1996, approximately
24,100 ounces of gold remained in inventory.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalent balance decreased $27.0 million
during 1997 to $70.0 million at year-end. Major components of the 1997
change include $52.9 million of cash provided by operating activities,
$90.1 million of cash used for investing activities, and $10.0 million of
cash provided by financing activities.
Net income of $69.8 million in 1997 was the primary component of cash
provided by operating activities. Depreciation and amortization of $21.0
million and deferred income taxes of $2.8 million were the primary non-cash
adjustments. Major changes in working capital included a $24.4 million
increase in receivables, a $5.4 million increase in other assets, and a
$5.4 million decrease in other liabilities. Receivables increased $24.4
million primarily due to the funding of Wednesbury receivables and internal
domestic growth. The Wednesbury receivable portfolio was not purchased at
acquisition date.
-15-
<PAGE>
Major changes impacting net cash used in investing activities in 1997
included $36.9 million for capital expenditures and $37.9 million for
business acquisitions, offset by $5.8 million received from the sale of
non-manufacturing properties. The remaining major component pertains to
the portion of IRB proceeds which are escrowed. 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 are associated with
the Company's major capital improvement programs in its manufacturing
businesses.
Net cash provided by financing activities totaled $10.0 million. In 1997,
the Company entered into IRB financing agreements for two capital projects
in Mississippi. These IRB financing obligations totaled $27.5 million of
which $21.1 million remained in escrow at the 1997 year-end. These IRBs
have favorable tax attributes. Also, during 1997 the Company repaid $18.1
million of its debt.
The Company has a $100.0 million unsecured line-of-credit agreement which
expires in May, 2001, but which may be extended for successive one year
periods by agreement of the parties. There are no outstanding borrowings
against the credit facility. However, the Company did have approximately
$5.0 million in letters of credit backed by this credit facility at the end
of 1997. At December 27, 1997, the Company's total debt was $72.1 million
or 14.7 percent of its total capitalization.
The Company's financing obligations contain various covenants which
require, among other things, the maintenance of minimum levels of working
capital, tangible net worth, and debt service coverage ratios. The Company
is in compliance with all of its debt covenants.
The Company has approved a $25.3 million capital improvement project at its
Fulton copper tube mill to improve the utilization of scrap metal and
enhance the mill's refining processes. This project is also expected to
improve yield and productivity and increase casting capacity. Moreover,
the project, when completed in early 1999, will allow the tube mill to use
more scrap copper when market conditions warrant.
Another important ongoing program is the modernization of the Company's
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 $7.3 million for capital improvements
and will be completed in 1999. This project, when completed, will also
increase output and improve efficiency.
Mueller also has programs under way to make improvements in the near-term
at its recently acquired European operations. Further, the Company is also
considering various long-term capital investments for these businesses
which will further improve their cost structure and productivity.
Management believes that cash provided by operations, and currently
available cash of $70.0 million, will be adequate to meet the Company's
normal future capital expenditure and operational needs. Additionally,
certain capital improvement projects will be funded with escrowed IRB cash.
The Company's current ratio is 3.1 to 1 at December 27, 1997.
-16-
<PAGE>
OTHER MATTERS
At December 27, 1997, the Company has total environmental reserves of
approximately $10.4 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 1998 adoption of recently issued
accounting standards, as discussed in Note 1, will not have a material
impact on the Company's financial statements.
During 1997, the Securities and Exchange Commission issued new disclosure
rules related to derivatives and exposures to market risk from derivative
financial instruments, other financial instruments, and certain derivative
commodity instruments. The Company is currently evaluating these
disclosure requirements which are required for annual reports on years
ending after June 15, 1998.
The impact of inflation on the Company's operations in 1997, 1996, and 1995
was not material.
The Company has established a Year 2000 program to evaluate, confirm
compliance, and identify any necessary changes to its information and
operations systems to address Year 2000 requirements. Mueller has retained
a consulting firm specializing in this area to assist in the program.
There are four phases to this program: assessment, inventory, test and
certification, and correction. The first phase, which to date has focused
primarily on North American operations, is nearing completion. Certain
financial systems of our European businesses are not Year 2000 compliant.
This matter, along with requirements to accommodate the Euro single
currency, will be resolved within the context of an overall upgrade to
these information systems. Based on results to date, we do not expect that
the incremental costs associated with Year 2000 issues will have a material
impact on the Company's results of operations, financial condition, or cash
flows.
OUTLOOK
New housing starts and commercial construction are important determinants
of Mueller's sales to the plumbing, air-conditioning and refrigeration
markets. We believe the U.S. economic background continues to be very
favorable for our businesses:
* Long-term mortgage rates are currently in the 7 percent range.
* Leading economic indicators remain strong.
* Unemployment is low.
* Consumer confidence remains high.
* Housing affordability is near its 25-year best.
These are favorable economic conditions and, should they persist, they will
provide Mueller with a favorable economic environment in 1998.
-17-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 27, 1997, December 28, 1996, and December 30, 1995
<TABLE>
(In thousands, except per share data)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales $ 888,997 $ 718,312 $ 678,838
Cost of goods sold 704,801 554,570 549,884
-------- -------- --------
Gross profit 184,196 163,742 128,954
Depreciation and amortization 20,998 18,472 15,452
Selling, general, and administrative
expense 63,489 54,808 49,491
-------- -------- --------
Operating income 99,709 90,462 64,011
Interest expense (4,968) (5,346) (4,168)
Environmental reserves (3,100) (2,045) (1,421)
Other income, net 9,180 5,341 6,127
-------- -------- --------
Income before income taxes 100,821 88,412 64,549
Income tax expense (31,051) (27,239) (19,726)
-------- -------- --------
Net income $ 69,770 $ 61,173 $ 44,823
======== ======== ========
Weighted average shares
for basic earnings per share 17,499 17,399 17,323
Effect of dilutive stock options 2,126 2,098 1,826
-------- -------- --------
Adjusted weighted average shares
for diluted earnings per share 19,625 19,497 19,149
-------- -------- --------
Basic earnings per share $ 3.99 $ 3.52 $ 2.59
======== ======== ========
Diluted earnings per share $ 3.56 $ 3.14 $ 2.34
======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
-18-
<PAGE>
CONSOLIDATED BALANCE SHEETS
As of December 27, 1997 and December 28, 1996
<TABLE>
(In thousands)
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 69,978 $ 96,956
Accounts receivable, less allowance for doubtful
accounts of $3,680 in 1997 and $3,188 in 1996 128,902 88,905
Inventories 98,181 76,647
Current deferred income taxes 5,023 6,508
Other current assets 6,967 5,696
-------- --------
Total current assets 309,051 274,712
Property, plant and equipment, net 260,364 219,855
Deferred income taxes 7,837 10,064
Other assets 33,524 4,726
-------- --------
TOTAL ASSETS $ 610,776 $ 509,357
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
-19-
<PAGE>
CONSOLIDATED BALANCE SHEETS (Continued)
As of December 27, 1997 and December 28, 1996
<TABLE>
(In thousands, except share data)
<CAPTION>
1997 1996
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 18,980 $ 14,844
Accounts payable 30,530 18,305
Accrued wages and other employee costs 21,095 16,872
Other current liabilities 29,952 28,935
-------- --------
Total current liabilities 100,557 78,956
Long-term debt 53,113 44,806
Pension liabilities 6,743 7,735
Postretirement benefits other than pensions 7,479 8,140
Environmental reserves 10,368 9,105
Deferred income taxes 2,040 2,922
Other noncurrent liabilities 11,745 9,214
-------- --------
Total liabilities 192,045 160,878
-------- --------
Minority interest in subsidiaries 691 397
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
50,000,000; issued 20,000,000; outstanding
17,508,708 in 1997 and 17,434,888 in 1996 200 200
Additional paid-in capital, common 253,928 254,214
Retained earnings since January 1, 1991 197,753 127,983
Cumulative translation adjustments (3,232) (2,805)
Treasury common stock, at cost (30,609) (31,510)
-------- --------
Total stockholders' equity 418,040 348,082
Commitments and contingencies - -
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 610,776 $ 509,357
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
-20-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 27, 1997, December 28, 1996, and December 30, 1995
<TABLE>
(In thousands)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 69,770 $ 61,173 $ 44,823
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 20,998 18,472 15,452
Provision for doubtful accounts
receivable 107 435 75
Minority interest in subsidiaries 294 397 -
Deferred income taxes 2,830 4,144 7,112
Gain on disposal of properties (3,702) (973) (1,835)
Changes in assets and liabilities:
Receivables (24,422) (5,628) (16,862)
Inventories 1,329 (10,070) 8,008
Other assets (5,451) (793) (1,885)
Current liabilities (3,543) 12,477 3,491
Other liabilities (5,416) (495) (3,856)
Other, net 136 (439) 445
-------- -------- --------
Net cash provided by operating activities 52,930 78,700 54,968
-------- -------- --------
INVESTING ACTIVITIES:
Acquisition of businesses (37,874) (417) -
Capital expenditures (36,865) (18,868) (40,980)
Proceeds from sales of properties 5,826 4,142 3,827
Escrowed IRB proceeds (21,146) - 16,067
-------- -------- --------
Net cash used in investing activities (90,059) (15,143) (21,086)
-------- -------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 27,500 - -
Repayments of long-term debt (18,133) (16,252) (18,834)
Acquisition of treasury stock - - (2,055)
Proceeds from the sale of treasury stock 615 1,294 872
-------- -------- --------
Net cash provided by (used in)
financing activities 9,982 (14,958) (20,017)
-------- -------- --------
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
-21-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years Ended December 27, 1997, December 28, 1996, and December 30, 1995
<TABLE>
(In thousands)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Effect of exchange rate changes on cash $ 169 $ - $ -
-------- -------- --------
(Decrease) increase in cash and
cash equivalents (26,978) 48,599 13,865
Cash and cash equivalents at the
beginning of the year 96,956 48,357 34,492
-------- -------- --------
Cash and cash equivalents at the
end of the year $ 69,978 $ 96,956 $ 48,357
======== ======== ========
<FN>
For supplemental disclosures of cash flow information, see
Notes 1, 4, 6, and 12.
See accompanying notes to consolidated financial statements.
</TABLE>
-22-
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 27, 1997, December 28, 1996, and December 30, 1995
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Cumulative Treasury Stock
Number Paid-In Retained Translation Number
of Shares Amount Capital Earnings Adjustments of Shares Cost Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 20,000 $ 100 $ 254,251 $ 21,987 $ (2,832) 2,602 $(31,558) $241,948
Repurchase of common stock - - - - - 135 (2,055) (2,055)
Net income - - - 44,823 - - - 44,823
Issuance of shares under
employee stock purchase plan - - 110 - - (46) 559 669
Issuance of shares under
incentive stock option plan - - (292) - - (40) 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 20,000 200 253,969 66,810 (2,545) 2,651 (32,559) 285,875
Net income - - - 61,173 - - - 61,173
Issuance of shares under
employee stock purchase plan - - 484 - - (40) 484 968
Issuance of shares under
incentive stock option plans - - (239) - - (46) 565 326
Cumulative translation
adjustments - - - - (260) - - (260)
------- --- ------- ------- ----- ------ ------- --------
Balance, December 28, 1996 20,000 200 254,214 127,983 (2,805) 2,565 (31,510) 348,082
Net income - - - 69,770 - - - 69,770
Issuance of shares under
incentive stock option plan - - (286) - - (74) 901 615
Cumulative translation
adjustments - - - - (427) - - (427)
------- --- ------- ------- ----- ------ ------- -------
Balance, December 27, 1997 20,000 $ 200 $ 253,928 $ 197,753 $ (3,232) 2,491 $(30,609) $418,040
======= === ======= ======= ===== ====== ======= =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
-23-
<PAGE>
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 rod, bar, and
shapes; aluminum and brass forgings; aluminum and copper impact extrusions;
plastic fittings and valves; refrigeration valves and fittings; and
fabricated tubular products. The Company markets its products to the
heating and air-conditioning, refrigeration, plumbing, hardware, and other
industries. During 1997, the Company operated eighteen factories in seven
states, Canada, Great Britain, and France and had distribution facilities
nationwide and sales representation worldwide.
The Company also operates a short line railroad through its subsidiary,
Utah Railway Company, and conducts placer gold mining through its
subsidiary, Alaska Gold Company. In addition, the Company owns interests
in or leases other natural resource properties in the Western U.S.
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. The
minority interest represents separate private ownership of 25 percent of
Ruby Hill Mining Company and 19 percent of Richmond-Eureka Mining Company.
INVENTORIES
The Company's inventories are valued at the lower of cost or market. The
material component of certain of its U.S. copper tube and copper fittings
inventories is valued on a last-in, first-out (LIFO) basis. Other
inventories, including the non-material components of U.S. copper tube and
copper fittings inventories, are valued on a first-in, first-out (FIFO)
basis. Generally, inventory costs include material, labor costs, and
manufacturing overhead.
DEPRECIATION AND AMORTIZATION
In general, depreciation of buildings, machinery and equipment, and
amortization of intangibles are 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.
-24-
<PAGE>
EMPLOYEE BENEFITS
The Company sponsors certain defined benefit pension plans that are
noncontributory and cover certain union employees. The plans provide
pension benefits based on years of service and stated benefit amounts for
each year of service.
In addition to providing pension benefits, the Company sponsors certain
postretirement health and life insurance programs for certain union and
salaried employees, which are accounted for on the accrual method in
accordance with SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. These benefits are funded on a pay-as-you-go
basis and the cost is recognized as earned during the active service life
of employees. Certain retirees pay a premium for health insurance which is
based on benefits paid less an agreed upon amount that is paid by the
Company.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB No. 25) and related Interpretations.
EARNINGS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share (SFAS No. 128). This statement replaced the calculation
of primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share for the Company is very similar to
the previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where appropriate,
restated to conform to SFAS No. 128 requirements.
INCOME TAXES
The Company accounts for income taxes using 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 27, 1997, and December 28, 1996, temporary investments
consisted of certificates of deposit, commercial paper, bank repurchase
agreements, and U.S. and foreign government securities totaling $70.9
million and $98.1 million, respectively. These carrying amounts
approximate fair value.
-25-
<PAGE>
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, plumbing, hardware, automotive, OEMs, 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 of finished
products to its customers.
The risk related to certain inventories is reduced by entering into forward
contracts. Under these arrangements, specific quantities of base metal are
sold forward and require financial settlement or physical delivery at the
contract term. Further, the Company occasionally hedges portions of its
inventories against price fluctuations through the purchase of option
contracts. Gains and losses on hedging transactions are recognized in
income at the time the underlying inventory is sold. At year-end, open
hedge forward contracts totaled approximately $5.4 million.
The Company's sales are principally denominated and collected in the U.S.
dollar. Certain sales are collected in other currencies. Occasionally,
the market risk regarding currency exchange rate fluctuations is hedged
using forward contracts. At year-end, open forward contracts totaled
approximately $4.2 million.
FOREIGN CURRENCY TRANSLATION
For foreign subsidiaries, the functional currency is the local 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
The 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.
-26-
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
(SFAS No. 130) and Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information (SFAS
No. 131). Both statements are effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 establishes new rules for the reporting
and display of comprehensive income and its components in financial
statements. The Company is currently evaluating the reporting formats
recommended under this statement. SFAS No. 131 establishes a new method by
which companies report operating segment information. This method is based
on the manner in which management organizes the segments within a company
for making operating decisions and assessing performance. The Company is
evaluating the provisions of this statement and, upon adoption, may
establish different operating segments for reporting purposes.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits (SFAS No. 132), which is
effective for fiscal years beginning after December 15, 1997. The Company
is currently evaluating the required disclosures under this statement.
NOTE 2 - INVENTORIES
Inventories consist of the following:
<TABLE>
(In thousands)
<CAPTION>
1997 1996
<S> <C> <C>
Raw material and supplies $ 19,960 $ 15,416
Work-in-process 20,283 12,540
Finished goods 57,531 42,041
Gold 407 6,650
-------- --------
Inventories $ 98,181 $ 76,647
======== ========
</TABLE>
Inventories valued using the LIFO method were $20.2 million in 1997 and
$20.9 million in 1996. The approximate FIFO cost of such inventories was
$22.8 million at December 27, 1997, and $26.7 million at December 28, 1996.
-27-
<PAGE>
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>
1997 1996
<S> <C> <C>
Land and land improvements $ 9,859 $ 6,646
Buildings, machinery and equipment 319,112 279,116
Construction in progress 20,531 5,001
-------- --------
349,502 290,763
Less accumulated depreciation (89,138) (70,908)
-------- --------
Property, plant and equipment, net $ 260,364 $ 219,855
======== ========
</TABLE>
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
(In thousands)
<CAPTION>
1997 1996
<S> <C> <C>
8.38% Unsecured Notes, due through 2000 $ 10,714 $ 14,286
7.54% Unsecured Note Payable, due through 1999 9,000 13,000
1993 Series IRBs with interest at 6.95%, due
through 2000 8,571 11,429
1994 Series IRBs with interest at 8.825%, due
through 2001 9,000 11,571
1997 Series IRBs with interest at 7.39%, due
through 2014 24,125 -
1997 Series IRBs with interest at 7.31%, due
through 2009 2,385 -
Other, including capitalized lease obligations 8,298 9,364
-------- --------
72,093 59,650
Less current portion of long-term debt (18,980) (14,844)
-------- --------
Long-term debt $ 53,113 $ 44,806
======== ========
</TABLE>
-28-
<PAGE>
Aggregate annual maturities of such debt are $19.0 million, $18.3 million,
$15.0 million, $6.4 million and $4.6 million for the years 1998 through
2002, respectively. Interest paid in 1997, 1996, and 1995 was $4.8
million, $5.2 million and $7.1 million, respectively. During 1997 and
1996, the Company capitalized interest of $.1 million and $.3 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.
On July 15, 1997, the Company, through a wholly-owned subsidiary, issued
$25.0 million of 7.39 percent taxable Industrial Development Revenue Bonds
due July 15, 2014. The Bonds are due in quarterly installments of $875
thousand from October 15, 1997 through July 15, 2004, and annual
installments of $50 thousand from July 15, 2005 through July 15, 2014.
Interest on the Bonds is payable in quarterly installments computed at 7.39
percent from October 15, 1997 through July 15, 2004; thereafter, the
interest is payable in semi-annual installments at a rate equivalent to the
six month LIBOR rate plus 135 basis points. The bonds, as well as other
IRBs, are unsecured. The proceeds of the Bonds are being used to fund the
construction of a new copper refining facility adjacent to the Company's
existing tube mill in Fulton, Mississippi.
The Company has an unsecured $100.0 million line-of-credit agreement (the
Credit Facility) which expires in May 2001, 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 .50 percent, (ii) LIBOR plus .27 percent, or (iii) Federal Funds
Rate plus .65 percent. A commitment fee of 11 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.
Availability of funds under the Credit Facility is reduced by the amount of
certain outstanding letters of credit which totaled approximately $5.0
million at December 27, 1997.
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 debt
covenants.
NOTE 5 - STOCKHOLDERS' EQUITY
In 1995, the Company declared a two-for-one stock split 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.
-29-
<PAGE>
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
10 days following an announcement that a person or affiliated group has
acquired, or obtained the right to acquire, beneficial ownership of 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 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.
NOTE 6 - INCOME TAXES
The components of income before income taxes were taxed under the following
jurisdictions:
<TABLE>
(In thousands)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Domestic $ 101,577 $ 80,557 $ 56,632
Foreign (756) 7,855 7,917
-------- -------- --------
Income before income taxes $ 100,821 $ 88,412 $ 64,549
======== ======== ========
</TABLE>
-30-
<PAGE>
Income tax expense consists of the following:
<TABLE>
(In thousands)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current tax expense:
Federal $ 23,855 $ 18,296 $ 7,838
Foreign 2,666 3,249 2,769
State and local 1,700 1,550 2,007
-------- -------- --------
Current tax expense 28,221 23,095 12,614
-------- -------- --------
Deferred tax expense (benefit):
Federal 3,872 3,995 7,031
Foreign (1,263) - -
State and local 221 149 81
-------- -------- --------
Deferred tax expense 2,830 4,144 7,112
-------- -------- --------
Income tax expense $ 31,051 $ 27,239 $ 19,726
======== ======== ========
</TABLE>
U.S. income and foreign withholding taxes are provided on the earnings of
foreign subsidiaries that are expected to be remitted to the extent that
taxes on the distribution of such earnings would not be offset by foreign
tax credits.
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 income taxes, is reconciled as follows:
<TABLE>
(In thousands)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Expected income tax expense $ 35,287 $ 30,944 $ 22,592
State and local income tax,
net of federal benefit 1,254 1,027 1,357
Foreign income taxes (398) 1,035 230
Reduction in valuation allowance (4,226) (4,622) (5,006)
Other, net (866) (1,145) 553
-------- -------- --------
Income tax expense $ 31,051 $ 27,239 $ 19,726
======== ======== ========
</TABLE>
-31-
<PAGE>
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>
1997 1996
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 1,047 $ 1,140
Inventories 1,762 3,617
Pension, OPEB and accrued items 9,939 11,109
Other reserves 9,963 11,134
Net operating loss carryforwards 38,218 43,924
Loss carryforward-prior abandonment
of preferred stock 40,757 41,301
Foreign tax credits 2,106 -
Alternative minimum tax credit
carryforwards 4,053 4,053
-------- --------
Total deferred tax assets 107,845 116,278
Less valuation allowance (52,073) (56,299)
-------- --------
Deferred tax assets, net of
valuation allowance 55,772 59,979
-------- --------
Deferred tax liabilities:
Property, plant and equipment 43,522 44,398
Other 1,430 1,931
-------- --------
Total deferred tax liabilities 44,952 46,329
-------- --------
Net deferred tax asset $ 10,820 $ 13,650
======== ========
</TABLE>
-32-
<PAGE>
As of December 27, 1997, the Company had net operating loss carryforwards
(NOLs) available to offset future federal taxable income of $108.2 million
of which $87.4 million have been recognized. These NOLs expire as follows:
$14.4 million in 2000, $20.7 million in 2001, $6.5 million in 2002, $59.8
million in 2005, and $6.8 million in 2006. Annual limitations on these NOLs
are approximately $17.3 million through 2001 and approximately $14.4
million through 2006. 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. A future "change in ownership",
should it occur, could result in further limitations. 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. During
1997, 1996, and 1995, the Company recognized $3.8 million, $.7 million, and
$4.5 million, respectively, of these tax attributes, reducing the deferred
income tax provision in each year. As additional NOLs are utilized, the
Company expects to recognize additional tax attributes over the next
several years by reducing the valuation allowance. The tax effect of
future recognition of any of the remaining NOLs of approximately $20.8
million will reduce the deferred income tax provisions in the periods
recognized. In addition, the Company has alternative minimum tax credit
carryforwards of approximately $4.1 million which are available to reduce
future federal regular income taxes, if any, over an indefinite period.
In 1995, the Company "abandoned" all its rights and interests in the
Preferred Stock of Sharon Specialty Steel Inc. (a Delaware corporation)
which filed for bankruptcy protection. The "abandonment" of the Preferred
Stock resulted in the Company recognizing a tax loss of approximately $120
million. Although the IRS has represented that the loss is a capital loss,
the ultimate character of the tax loss, capital or ordinary, has not yet
been definitively determined. Pending this determination, the Company
reduced its valuation allowance by $1.8 million, $3.9 million and $1.2
million in 1997, 1996, and 1995, respectively. If the character of this
loss is determined to be capital, the Company's ability to realize
additional 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 a substantial benefit by
reducing its federal taxable income. The tax benefits relating to this
loss will be recognized primarily as additions to paid-in capital and, to a
lesser extent, reductions to current income tax expense. Based on current
facts and circumstances, management cannot predict the likelihood that a
favorable outcome will be achieved. The tax loss carryforwards from this
loss will expire in 2000 if the loss is determined to be capital and will
expire in 2010 if the loss is determined to be ordinary.
Income taxes paid were approximately $29.9 million in 1997, $19.3 million
in 1996, and $12.0 million in 1995.
-33-
<PAGE>
NOTE 7 - OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
<TABLE>
(In thousands)
<CAPTION>
1997 1996
<S> <C> <C>
Accrued discounts and allowances $ 6,985 $ 6,923
Freight settlements due to other railroads 3,724 6,166
Income taxes payable 1,559 3,389
Other 17,684 12,457
-------- --------
Other current liabilities $ 29,952 $ 28,935
======== ========
</TABLE>
NOTE 8 - EMPLOYEE BENEFITS
PENSION PLANS
Pension cost (benefit) for the defined benefit plans sponsored by the
Company includes the following components:
<TABLE>
(In thousands)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost of benefits earned
during the year $ 525 $ 490 $ 473
Interest cost on the projected
benefit obligation 3,476 3,232 3,214
Actual return on plan assets (13,711) (6,530) (9,846)
Net amortization and deferral 9,577 3,120 7,792
-------- -------- --------
Net periodic pension (benefit) cost $ (133) $ 312 $ 1,633
======== ======== ========
</TABLE>
The expected long-term rate of return on plan assets ranged from 7.5 to 8.5
percent in 1997, 1996, and 1995. 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. The decrease
in 1997 and 1996 pension cost resulted primarily from the amortization of
actual over expected investment returns on plan assets.
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.
-34-
<PAGE>
A reconciliation of the funded status of the plans at December 27, 1997,
and December 28, 1996, respectively, to the amounts recognized in the
consolidated balance sheets is as follows:
<TABLE>
(In thousands)
<CAPTION>
1997 1996
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ (43,860) $ (39,920)
-------- --------
Accumulated benefit obligation (47,394) (43,766)
-------- --------
Projected benefit obligation (47,394) (43,766)
Plan assets at fair value held in the pension
plan trusts, primarily listed stocks and
U.S. Government obligations 59,567 45,512
-------- --------
Projected benefit obligation less than
plan assets 12,173 1,746
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions (22,304) (13,708)
Prior service cost not yet recognized in net
periodic pension cost 2,957 3,434
-------- --------
Accrued pension cost $ (7,174) $ (8,528)
======== ========
</TABLE>
The range of assumed discount rates used in determining the actuarial
present value of the projected benefit obligations presented above was 7.0
to 7.75 percent for 1997 and 1996.
As part of the acquisition of Wednesbury Tube, the Company assumed the
accumulated pension benefit obligation and related pension assets for
certain current employees of the acquired business. Although the amount of
the accumulated pension benefit obligation assumed and the related assets
to be transferred by the seller have not been determined, the Company
expects to receive sufficient asset transfers to cover the related
obligations assumed.
The Company makes contributions to certain multi-employer 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 multi-employer defined benefit
pension plans was $.3 million for 1997, 1996, and 1995.
-35-
<PAGE>
The Company has employee savings plans that qualify under Section 401(k).
Most U.S. employees of the Company (other than those covered by certain
collective bargaining agreements) may participate by deferring from 1 to 15
percent of their eligible compensation. Beginning July 1, 1995, for
employees not covered by collective bargaining agreements, the Company
began matching 10 percent of each employee's contribution. The Company
increased the matching percentage to 50 percent of the first 4 percent of
each employee's contribution effective January 1, 1996, and 50 percent of
the first 6 percent of each employee's contribution effective January 1,
1997. The Company's matching percentage was again increased effective
January 1, 1998 to 50 percent of the first 8 percent of each employee's
contribution. The Company's match vests 25 percent for each year of
service. Compensation expense for the 401(k) match was $.8 million in
1997, $.5 million in 1996, and $.1 million in 1995.
In 1996, the Company established a nonqualified, deferred compensation plan
which permits certain management employees to annually elect to defer, on a
pre-tax basis, a portion of their compensation. The deferred benefit to be
provided is based on the amount of compensation deferred, Company match,
and earnings on the deferrals. The expense associated with the deferred
compensation plan was $.3 million and $.1 million in 1997 and 1996,
respectively. The Company has invested in corporate-owned life insurance
policies to assist in funding this plan. The cash surrender value of these
policies, included in "Other assets", was $2.1 million and $.8 million at
December 27, 1997 and December 28, 1996, respectively.
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 multi-employer
trust. Beginning in 1994, the Company was required to make contributions
for assigned beneficiaries under an additional multi-employer trust created
by the Act, the UMWA 1992 Benefit Plan. The ultimate amount of the
Company's liability under the Act 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.
-36-
<PAGE>
The following table shows funded status reconciled with the amounts
recognized in the Company's financial statements:
<TABLE>
(In thousands)
<CAPTION>
1997 1996
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (7,346) $ (8,364)
Fully eligible active plan participants (342) (506)
Other active plan participants (430) (450)
-------- --------
(8,118) (9,320)
Plan assets at fair value - -
-------- --------
Accumulated postretirement benefit obligation
in excess of plan assets (8,118) (9,320)
Unrecognized net (gain) loss (1,132) 139
-------- --------
Accrued postretirement benefit cost $ (9,250) $ (9,181)
======== ========
</TABLE>
Net periodic postretirement benefit cost was $1.1 million in 1997, $2.0
million in 1996, and $.8 million in 1995. Included in these costs are
charges of $.4 million and $1.3 million for 1997 and 1996, respectively, to
establish a provision for certain of the health care and life insurance
benefits described above.
The cost of medical and life insurance benefits for retired employees
reflected above does not include $1.2 million at December 27, 1997, and $.9
million at December 28, 1996, related to the provision of medical and other
welfare benefits under certain defined benefit multi-employer plans. The
actuarially determined present value of the accumulated postretirement
benefit obligation was calculated using discount rates ranging from 7.0 to
8.5 percent for 1997 and 1996.
The assumed weighted average annual rate of increase in the per capita cost
of covered benefits ranges from 8.58 percent to 9.33 percent for 1998 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 1997
and $.8 million in 1996.
-37-
<PAGE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company is subject to environmental standards imposed by federal,
state, local, and foreign environmental laws and regulations. It has
provided and charged to income $3.1 million in 1997, $2.0 million in 1996,
and $1.4 million in 1995, for pending environmental matters. 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 financial condition or
results of operations of the Company.
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 effect on the Company's financial condition or
results of operations.
The Company leases certain facilities and equipment under operating leases
expiring on various dates through 2002. The lease payments under these
agreements aggregate to approximately $4.8 million in 1998, $4.5 million in
1999, $3.0 million in 2000, $1.2 million in 2001, and $.5 million in 2002.
Total lease and rent expense amounted to $7.7 million in 1997, $7.7 million
in 1996, and $7.4 million in 1995.
NOTE 10 - OTHER INCOME
Other income, net included in the consolidated statements of income
consists of the following:
<TABLE>
(In thousands)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Rent and royalties $ 2,188 $ 1,413 $ 2,009
Interest income 3,584 3,352 2,283
Gain on disposal of properties, net 3,702 973 1,835
Minority interest in income of
subsidiaries (294) (397) -
-------- -------- --------
Other income, net $ 9,180 $ 5,341 $ 6,127
======== ======== ========
</TABLE>
NOTE 11 - STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLANS
The Company follows APB No. 25 in accounting for its employee stock
options. Under APB No. 25, no compensation expense is recognized because
the exercise price of the Company's incentive employee stock options equals
the market price of the underlying stock on the date of grant.
-38-
<PAGE>
Under the 1994 Stock Option Plan (SOP Plan), the Company may grant options
to purchase up to 400 thousand shares of common stock at prices not less
than the fair market value of the stock on the date of the grant.
Generally, the options vest annually in 20 percent increments over a five
year period beginning one year from the date of the grant. 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.
Options to purchase up to 50 thousand shares of common stock may be granted
under the 1994 Non-Employee Director Stock Option 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. Options are
vested when granted.
Under the 1991 Incentive Stock Option Plan (ISO Plan), the Company may
grant options to purchase up to 500 thousand shares of common stock at
prices not less than the fair market value of the stock on the date of
grant. Generally, the options vest annually in 20 percent increments over
a five year period beginning one year from the date of the grant. 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 million 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 million shares, which was subsequently reduced by
200 thousand 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. On May 7, 1997, Mr. O'Hagan was granted an additional
special option to purchase 90 thousand shares at the fair market value on
the date of the 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.
Exercise prices for stock options outstanding at December 27, 1997, ranged
from $4.06 to $46.75. Of the 2.8 million stock options that are
outstanding at year-end, 1.8 million are owned by Mr. Harvey Karp, and, as
explained above, expire one year after Mr. Karp's separation from
employment with the Company. The weighted average remaining life of the
remaining 961 thousand shares is 4.9 years, and the weighted average
exercise price of these shares is $21.62. The weighted average fair value
per option granted was $18.62 in 1997, $16.89 in 1996, and $11.99 in 1995.
-39-
<PAGE>
A summary of the Company's stock option activity and related information
follows:
<TABLE>
(Shares in thousands)
<CAPTION>
Weighted Average
Options Exercise Price
<S> <C> <C>
Outstanding at December 31, 1994 2,532 $ 5.94
Granted 179 26.31
Exercised (40) 5.00
Expired, cancelled, or surrendered (20) 7.06
--------
Outstanding at December 30, 1995 2,651 $ 7.37
Granted 74 37.41
Exercised (46) 7.14
Expired, cancelled, or surrendered (5) 4.06
--------
Outstanding at December 28, 1996 2,674 $ 8.22
Granted 161 42.67
Exercised (74) 8.40
--------
Outstanding at December 27, 1997 2,761 $ 10.21
========
Options exercisable at:
December 30, 1995 2,087 $ 4.87
December 28, 1996 2,191 $ 5.49
December 27, 1997 2,301 $ 6.14
</TABLE>
As of December 27, 1997, the Company had reserved 2.5 million shares of its
common stock for issuance pursuant to certain stock option plans.
Additionally, the Company had reserved 15 thousand shares of preferred
stock for issuance pursuant to the Shareholder Rights Plan.
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (SFAS No. 123), and has been determined as if
the Company had accounted for its employee stock options under the fair
value method. The fair value for these options at the date of grant was
estimated using a Black-Scholes option valuation model with the following
weighted average assumptions for the years 1997, 1996 and 1995: volatility
factor of the expected market value of the Company's common stock of 0.344;
weighted average expected life of the options of 6 years; and no dividend
payments. The risk free interest rate used in the model was 5.55 percent
for 1997 and 6.50 percent for 1996 and 1995.
-40-
<PAGE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require highly subjective assumptions including the expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
(In thousands, except per share data)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net income $ 69,770 $ 61,173 $ 44,823
SFAS No. 123 compensation expense (960) (560) (164)
-------- -------- --------
SFAS No. 123 pro forma net income $ 68,810 $ 60,613 $ 44,659
======== ======== ========
Pro forma earnings per share:
Basic earnings per share $ 3.93 $ 3.48 $ 2.58
Diluted earnings per share $ 3.52 $ 3.12 $ 2.34
======== ======== ========
</TABLE>
Because SFAS No. 123 applies only to stock-based compensation awards for
1995 and later years, the pro forma disclosures under SFAS No. 123 are not
likely to be indicative of future disclosures until the disclosures reflect
all outstanding, nonvested awards.
NOTE 12 - ACQUISITIONS
On December 30, 1996, the Company acquired the assets and certain
liabilities of Precision Tube for approximately $6.6 million. Precision
fabricates tubing and coaxial cables and assemblies.
On February 28, 1997, Mueller acquired certain assets of Wednesbury Tube
for approximately $21.3 million. Wednesbury manufactures copper tube and
is located in Bilston, West Midlands, England.
On May 15, 1997, the Company acquired Desnoyers S.A., a copper tube
manufacturer with operations near Paris, France. The Company acquired
Desnoyers for approximately $13.5 million which includes certain assumed
debt obligations.
-41-
<PAGE>
Each of the acquisitions was accounted for using the purchase method.
Therefore, the results of operations of the acquired businesses were
included in the consolidated financial statements of the Company from their
respective acquisition dates. The purchase price for these acquisitions,
which was financed by available cash resources, has been allocated to the
assets of the acquired businesses based on their respective fair market
values. The total fair value of assets acquired during 1997 was
approximately $69.8 million. Liabilities assumed in these acquisitions
totaled approximately $31.9 million. The financial statements reflect the
preliminary allocation of the Desnoyers purchase price as the purchase
price allocation has not been finalized.
The following table presents condensed pro forma consolidated results of
operations as if the acquisitions had occurred at the beginning of the
periods presented. This information combines the historical results of
operations of the Company and the acquired businesses after the effects of
estimated preliminary purchase accounting adjustments. Actual adjustments
may differ from those reflected below. The pro forma information does not
purport to be indicative of the results that would have been obtained if
the operations had actually been combined during the periods presented and
is not necessarily indicative of operating results to be expected in future
periods.
<TABLE>
(In thousands, except per share data)
<CAPTION>
1997 1996
<S> <C> <C>
Net sales $ 950,480 $ 936,454
Net income 65,060 56,618
Pro forma earnings per share:
Basic earnings per share $ 3.72 $ 3.25
Diluted earnings per share $ 3.32 $ 2.90
======== ========
</TABLE>
NOTE 13 - INDUSTRY SEGMENTS
The Company has two business segments. One is engaged in the manufacture
and sale of copper, brass, bronze, aluminum, and plastic products; the
second includes other businesses consisting principally of a short line
railroad, as well as the operation of a placer gold mine. 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. Industry and geographical
segment information is as follows:
-42-
<PAGE>
<TABLE>
(In thousands)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales:
Manufacturing $ 853,309 $ 698,026 $ 646,894
Other businesses 35,688 20,286 31,944
-------- -------- --------
$ 888,997 $ 718,312 $ 678,838
======== ======== ========
Operating income:
Manufacturing $ 102,527 $ 98,669 $ 61,384
Other businesses 3,458 2,037 7,874
General corporate (6,276) (10,244) (5,247)
-------- -------- --------
99,709 90,462 64,011
Non-operating income, net 6,080 3,296 4,706
Interest expense (4,968) (5,346) (4,168)
-------- -------- --------
Consolidated income before income taxes $ 100,821 $ 88,412 $ 64,549
======== ======== ========
Provision for depreciation
and amortization:
Manufacturing $ 17,467 $ 14,594 $ 11,967
Other businesses 1,479 1,388 1,157
General corporate 2,052 2,490 2,328
-------- -------- --------
$ 20,998 $ 18,472 $ 15,452
======== ======== ========
Capital expenditures:
Manufacturing $ 32,853 $ 14,277 $ 38,478
Other businesses 2,727 3,131 2,198
General corporate 1,285 1,460 304
-------- -------- --------
$ 36,865 $ 18,868 $ 40,980
======== ======== ========
Identifiable assets:
Manufacturing $ 488,200 $ 355,429 $ 339,764
Other businesses 64,878 65,785 47,453
-------- -------- --------
553,078 421,214 387,217
General corporate 57,698 88,143 63,618
-------- -------- --------
$ 610,776 $ 509,357 $ 450,835
======== ======== ========
</TABLE>
-43-
<PAGE>
<TABLE>
(In thousands)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales of operations located in:
North America $ 781,334 $ 718,312 $ 678,838
Europe 107,663 - -
-------- -------- --------
$ 888,997 $ 718,312 $ 678,838
======== ======== ========
Operating income (loss):
North America $ 104,079 $ 90,462 $ 64,011
Europe (4,370) - -
-------- -------- --------
$ 99,709 $ 90,462 $ 64,011
======== ======== ========
Identifiable assets:
North America $ 524,884 $ 509,357 $ 450,835
Europe 85,892 - -
-------- -------- --------
$ 610,776 $ 509,357 $ 450,835
======== ======== ========
</TABLE>
-44-
<PAGE>
NOTE 14 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial results by quarter are as follows:
<TABLE>
(In thousands, except per share data)
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1997
Net sales $ 201,366 $ 215,437 $ 229,133 $ 243,061
Gross profit (1) 45,582 42,752 47,757 48,105
Net income 15,758 16,339 18,051 19,622
Diluted earnings per share (2) .80 .83 .92 1.00
1996
Net sales $ 180,515 $ 189,557 $ 175,991 $ 172,249
Gross profit (1) 36,983 40,021 42,787 43,951
Net income 13,292 13,897 16,182 17,802
Diluted earnings per share (2) .69 .71 .83 .91
<FN>
(1) Gross profit is net sales less cost of goods sold, which excludes
depreciation and amortization.
(2) The 1996 and first three quarters of 1997 earnings per share amounts
have been restated to comply with SFAS No. 128 requirements.
</TABLE>
-45-
<PAGE>
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 27, 1997 and December 28, 1996 and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 27, 1997.
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 27, 1997 and December 28, 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 27, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Memphis, Tennessee
February 6, 1998
-46-
<PAGE>
Forward-Looking Statements
This Annual Report contains various forward-looking statements and includes
assumptions concerning Mueller's operations, future results, and prospects.
These forward-looking statements are based on current expectations and are
subject to risk and uncertainties. In connection with the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, Mueller
provides the following cautionary statement identifying important economic,
political and technological factors, among others, the absence of which
could cause the actual results or events to differ materially from those
set forth in or implied by the forward-looking statements and related
assumptions.
Such factors include: (i) continuation of the current and projected future
business environment, including interest rates and capital and consumer
spending; (ii) competitive factors and competitor responses to Mueller
initiatives; (iii) successful completion of major ongoing capital projects;
(iv) stability of government laws and regulations, including taxes; and (v)
continuation of the environment to make acquisitions, domestic and foreign,
including regulatory requirements and market values of candidates.
<TABLE>
CAPITAL STOCK INFORMATION
The high, low and closing prices of Mueller's common stock on the New York
Stock Exchange for each fiscal quarter of 1997 and 1996 were as follows:
<CAPTION>
1997 High Low Close
<S> <C> <C> <C>
Fourth quarter $ 56 5/16 $ 43 7/16 $ 53 3/16
Third quarter 48 42 1/2 45 1/4
Second quarter 45 1/8 36 1/2 43
First quarter 45 3/8 38 1/8 39 3/4
<CAPTION>
1996 High Low Close
<S> <C> <C> <C>
Fourth quarter $ 42 5/8 $ 36 1/8 $ 36 1/8
Third quarter 42 3/8 31 3/8 39 3/4
Second quarter 44 1/4 35 1/4 41 1/2
First quarter 35 5/8 26 35 3/8
</TABLE>
As of March 2, 1998, the number of holders of record of Mueller's common
stock was approximately 3,300. The New York Stock Exchange's closing price
for Mueller's common stock on March 2, 1998 was $55 1/8.
The Company has paid no cash dividends on its common stock and presently
does not anticipate paying cash dividends in the near future.
-47-
<PAGE>
SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 (3) 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
For the fiscal year:
Net sales $ 888,997 $ 718,312 $ 678,838 $ 550,003 $ 501,885
Operating income (1) 99,709 90,462 64,011 43,952 38,027
Net income 69,770 61,173 44,823 27,926 21,136
Diluted earnings
per share (2) 3.56 3.14 2.34 1.41 1.01
At year-end:
Total assets 610,776 509,357 450,835 430,755 369,743
Long-term debt 53,113 44,806 59,653 76,125 54,320
<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) Earnings per share amounts have been restated to comply with SFAS No. 128 requirements and
to reflect a two-for-one stock split effected in September 1995.
(3) Includes effects of acquisitions described in Note 12 to the Consolidated Financial Statements.
</TABLE>
-48-
<PAGE>
DIRECTORS, CORPORATE OFFICERS, AND 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) General Manager - Mansfield, Armco, Inc.
(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
DIVISIONAL MANAGEMENT
STANDARD PRODUCTS DIVISION
Roy C. Harris Division General Manager
Harvey W. Clements Vice President Copper Tube Manufacturing
Larry D. Birch Vice President Domestic Sales and Marketing
Robert L. Fleeman Vice President International Sales
Gregory L. Christopher Vice President Supply Chain Management
-49-
<PAGE>
Louis F. Pereira General Manager Canadian Operations
Daniel R. Corbin General Manager Plastic Fittings Manufacturing
Tommy L. Jamison General Manager Copper Fittings Manufacturing
Andrew A. Sippel Controller
INDUSTRIAL PRODUCTS DIVISION
Kevin N. McGrath Divisional Vice President Sales
William F. Navarre Vice President Manufacturing - Rod/Forgings
Felista S. Amburgey Vice President Sales - Rod
Timothy J. Keck Vice President Sales - Forgings/Impacts
David F. O'Brien Plant Manager - Impacts
Richard D. Holmes Controller
Roland P. Robichaud General Manager - Refrigeration Products
Mark E. Bornand Vice President Sales - Refrigeration Products
Kent K. Miller Director of Engineering -
Refrigeration Products
Anthony D. Donato Plant Manager - Refrigeration Products
PRECISION TUBE DIVISION
H. Eugene Passmore President
Charles W. Blackledge Vice President Operations
John R. Gentile Director of Sales and Marketing
Thomas M. Sarisky Director of Engineering
EUROPEAN OPERATIONS
Robert B. Gillespie Managing Director European Operations
Peter J. S. Brookes Finance Director
Roger Y. Boutonnet Sales Director - French Operations
Bryan A. Evans Director of Manufacturing - U.K.
Jean-Claude Glaichenhaus Director of Manufacturing - France
Peter J. Marsh Sales Director - U.K. Operations
-50-
<PAGE>
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 Headquarters 6799 Great Oaks Road, Suite 200,
Memphis, TN 38138
(901) 753-3200
Annual Meeting The Annual Meeting of Stockholders will be held
at the Fogelman Executive Center at The
University of Memphis, 330 Deloach Street,
Memphis, Tennessee, 10:00 A.M. local time,
May 7, 1998.
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 382100,
Memphis, TN 38183-2100
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.
-51-
<PAGE>
MUELLER INDUSTRIES, INC.
List of Subsidiaries
State or Country
Subsidiary* of Incorporation
Mueller Brass Co.
(Assumed name: Mueller Brass Products) Michigan
Mueller Industrial Realty Co. Michigan
Itawamba Industrial Gas Company, Inc. Mississippi
Streamline Copper & Brass Ltd. Canada
Mueller Plastics Holding Company, Inc. Ohio
Mueller Plastics Corporation, Inc. Delaware
MPC Foundry, Inc. Delaware
MPC Machine Shop, Inc. Delaware
Mueller Brass Forging Company, Inc. Delaware
Mueller Copper Fittings Company, Inc. Delaware
Mueller Fittings Company, Inc. Michigan
Mueller Copper Tube Company, Inc. Delaware
Mueller East, Inc. Delaware
Mueller Fittings, L.P. (1)
Mueller Formed Tube Company, Inc. Delaware
Mueller Impacts Company, Inc. Delaware
Mueller Line Set Inc. Delaware
Mueller Refrigeration Products Company, Inc. Delaware
Mueller Refrigeration Company, Inc. Michigan
Mueller Refrigeration Holding Co., Inc. Delaware
Mueller Refrigeration Products L.P. (2)
Mueller Streamline Co. Delaware
Precision Tube Company, Inc. Pennsylvania
Mueller Tool and Machine, Inc. Delaware
Mueller Casting Company, Inc. Delaware
WTC Holding Company, Inc. Michigan
Wednesbury Tube & Fittings
Company Limited United Kingdom
DENO Investment Company, Inc. Michigan
DENO Holding Company, Inc. Michigan
DENO Acquisition France
Desnoyers, S.A. France
Toutubes, S.A.R.L. France
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. Canada
Aegis Oil & Gas Leasing Ltd. Canada
Bayard Mining Corporation Delaware
Washington Mining Company Maine
-1-
<PAGE>
List of Subsidiaries (continued)
State or Country
Subsidiary* of Incorporation
Amwest Exploration Company Delaware
USSRAM Exploration Company Maine
Richmond-Eureka Mining Company (81%) Maine
Ruby Hill Mining Company (75%) Maine
White Knob Mining Company Idaho
Arava Exploration Company Colorado
Summit Systems, Inc. Delaware
Kennet Company Limited 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 Delaware
Macomber Construction Company Ohio
Macomber Incorporated Ohio
Macomber Building and Land Corporation Delaware
* All subsidiaries are 100% owned, except as shown.
(1) Tennessee Limited Partnership between Mueller East, Inc. and
Mueller Fittings Company, Inc.
(2) Tennessee Limited Partnership between Mueller Refrigeration
Holding Co., Inc. and Mueller Refrigeration Company, Inc.
-2-
<PAGE>
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 6, 1998,
included in the 1997 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
6, 1998, with respect to the consolidated financial statements of
Mueller Industries, Inc. incorporated by reference in its Annual Report (Form
10-K) for the year ended December 27, 1997, and the related financial
statement schedule included therein filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Memphis, Tennessee
March 18, 1998
<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 27, 1997 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-27-1997
<PERIOD-END> DEC-27-1997
<CASH> 69,978
<SECURITIES> 0
<RECEIVABLES> 132,582
<ALLOWANCES> 3,680
<INVENTORY> 98,181
<CURRENT-ASSETS> 309,051
<PP&E> 349,502
<DEPRECIATION> 89,138
<TOTAL-ASSETS> 610,776
<CURRENT-LIABILITIES> 100,557
<BONDS> 53,113
0
0
<COMMON> 200
<OTHER-SE> 417,840
<TOTAL-LIABILITY-AND-EQUITY> 610,776
<SALES> 888,997
<TOTAL-REVENUES> 888,997
<CGS> 704,801
<TOTAL-COSTS> 704,801
<OTHER-EXPENSES> 84,487
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,968
<INCOME-PRETAX> 100,821
<INCOME-TAX> 31,051
<INCOME-CONTINUING> 69,770
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,770
<EPS-PRIMARY> 3.99
<EPS-DILUTED> 3.56
</TABLE>
