EXHIBIT 99.1
To Our Stockholders, Customers & Employees
Mueller's results for 2007 were gratifying, considering the sharp
decline in the housing market and the turbulence in the sub-prime mortgage
market. Net income was $115.5 million, or $3.10 per diluted share, compared
with $148.9 million, or $4.00 per share for the year 2006.
Net sales in 2007 totaled $2.70 billion, compared with $2.51 billion the
year before. The sales increase was largely due to the acquisition of
Extruded Metals, Inc. (Extruded) in February of 2007, and the increase in the
price of copper, our principal raw material. The average price of copper in
2007 was $3.22 per pound, or 4% higher than in 2006.
Housing starts in 2007 declined by 24.8%, following a decline of 12.9%
the prior year. We may see an additional decline in starts in 2008 as
inventories of new and existing unsold homes are at a high level and builders
remain cautious. On a positive note, in 2007, the private non-residential
construction market continued its upward trend and grew by 18.3%.
Operations
Although shipment volumes in our core products of copper tube and brass
rod (excluding Extruded's volume) declined over 15% from 2006, we posted
operating income of $191.6 million in 2007. The volume declines we
experienced were comparable to overall industry reductions due to lower
demand.
We are pleased with the results of Extruded. Our expectations have been
met and we are moving forward with plans to combine operations and activities
to leverage our two brass rod mills. As we move forward with implementation,
benefits will accrue. Our manufacturing operations were challenged with
significant fluctuations in demand due to the economic downturn as well as
continued volatility of copper prices which ranged from a low of $2.58 per
pound in January to a high of $3.62 per pound in July. We handled the U.S.
changes with a more effective response than was the case in Europe and China.
We are reviewing our options to address the impact of such volume
fluctuation. We expect to implement measures to improve productivity and
asset utilization. Finally, our commercial tube initiative has been
recalibrated due to general business conditions. We will continue to seek
opportunities to secure a firm position in this niche market.
As expected with improved management, our North American Trading
operations exceeded the previous year's results. We believe opportunities
exist to continue this improvement trend with better penetration in wholesale
markets as well as maintaining significant presence within the retail
channel.
1
Production of ABS plastic pipe began at our Ontario, California
facility. Volume and margins have been significantly below expectations due
to the severe decline in residential construction in California, Arizona, and
Nevada. We're convinced, however, that when these markets improve, our
geographic location and cost structure will prove to be a competitive
advantage.
Financial Condition
Our financial position remains strong. With over $300 million in cash
at year end and an untapped credit facility of $200 million, we have the
financial wherewithal to take advantage of business and growth opportunities.
Our capitalization remains conservative at 33 percent debt to total capital.
Our operations in 2007 generated $185.8 million of cash flow. Total capital
expenditures were $29.9 million during 2007. For 2008, we expect our capital
expenditure opportunities will focus on consolidation, centralization, and
standardization ensuring that we remain among the low-cost providers of our
products.
Business Outlook
The year 2008 will be challenging as the national economy has slowed
down and the housing market continues to contract. However, the U.S. economy
has proven to be remarkably resilient, and we believe that later this year
the housing market will bottom out and then gradually start to improve.
Also, we anticipate that our non-residential businesses, which
constitute a significant portion of our total, will have another good year in
2008.
Mueller is well positioned to take advantage of opportunities in our
marketplace. On average, we have made one or more acquisitions per year over
the past decade. We will continue our quest to acquire sound companies which
are compatible with our core businesses.
Closing
In October, 2007, Greg Christopher, 45 years old, was appointed Chief
Operating Officer. Greg has been with Mueller for over 15 years and has
excelled at the assignments he's undertaken. He has our full confidence and
support.
In January, 2008, Scott Goldman, 55 years old, was named a director of
our company. Scott is an expert in communications technology and has broad
management experience. We welcome him to our Board.
Also, Larry Stoddard, 48 years old, was appointed President of our
Standard Products Division in February of 2008. Larry is an industry veteran
who will bring experience and market knowledge that will be important as we
seek to broaden our product offerings and strengthen our position in the
marketplace.
2
The undersigned, Bill O'Hagan, Chief Executive Officer, is pleased to
report that after treatment my lung cancer is in remission. I remain active
as CEO, although rehabilitation regimen may require absences from time to
time. I will keep you informed of my progress.
The key to Mueller's success is the dedication, enthusiasm and
initiative of our employees. We extend our thanks and appreciation to them
for the results achieved in the past year.
Sincerely,
/s/ HARVEY L. KARP
HARVEY L. KARP
CHAIRMAN OF THE BOARD
/s/WILLIAM D. O'HAGAN
WILLIAM D. O'HAGAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
March 7, 2008
3