1 EXHIBIT 13.0
Mueller Industries, Inc. is a leading fabricator of brass, bronze, copper,
plastic and aluminum products.
The range of these products is broad: copper tube and fittings; brass and
copper alloy rods, bars and shapes; brass and bronze forgings; aluminum and
copper impact extrusions; plastic fittings and valves; and refrigeration
valves, driers and flare fittings.
The Company also owns a short line railroad in Utah and natural resource
properties in the Western United States, Alaska and Canada.
Mueller operates eight factories in the United States and Canada, and has
distribution facilities nationwide and sales representation worldwide.
CONTENTS
Financial Highlights 2
Long-Term Goals & Strategies 3
Report to Stockholders 4
Profile of Businesses 6
Financial Review 8
Consolidated Financial Statements
Statements of Operations 12
Balance Sheets 13
Statements of Cash Flows 15
Statements of Stockholders' Equity 17
Notes to Consolidated Financial Statements 18
Report of Independent Auditors 34
Capital Stock Information 35
Selected Financial Data 36
Corporate Information 37
2 EXHIBIT 13.0
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except share data)
1993 1992
SUMMARY OF OPERATIONS
Net sales $ 501,885 $ 517,339
Sales of manufactured products
in millions of pounds 362 329
Net income $ 21,136 $ 16,666
Average shares outstanding 10,443 10,055
Net income per share- primary $ 2.02 $ 1.66
SIGNIFICANT YEAR-END DATA
Cash and cash equivalents $ 77,336 $ 44,459
Ratio of current assets to
current liabilities 3.8 to 1 3.0 to 1
Working capital $ 143,505 $ 120,855
Long-term debt (including current portion) $ 62,711 $ 69,477
Debt as a percent of capitalization 22.0% 25.4%
Stockholders' equity $ 222,114 $ 204,421
Book value per share $ 23.18 $ 21.21
Capital expenditures $ 11,083 $ 10,952
Number of employees 2,010 2,055
3 EXHIBIT 13.0
LONG-TERM GOALS & STRATEGIES
Mueller has grown and prospered for over 75 years. The Company
manufactures products of world class quality and provides customers with
superior service. We are proud of this heritage, but are determined to achieve
even higher standards in the future. To realize this goal, we will pursue the
following strategies:
* Reduce our Costs to be a low cost supplier to our customers;
* Employ the Best Technology to assure our customers of quality products and
service;
* Broaden our Product Lines through internal growth and acquisitions; and
* Leverage our Distribution Network by increasing product offerings to our
domestic and international customers.
Management believes these goals are realistic and achievable. Our
objective is to enhance the value of our stockholders' investment.
4 EXHIBIT 13.0
A REPORT TO OUR STOCKHOLDERS
It is a pleasure to report that Mueller Industries, Inc. achieved record
earnings in 1993. Net income was $21.1 million compared with $16.7 million in
1992, a 27 percent increase. Earnings per share increased to $2.02 in 1993,
compared with $1.66 in 1992. Perhaps the best indicator of our Company's
earnings momentum was the 30 percent increase in our operating profit to $38.0
million compared with $29.3 million in 1992.
Net sales totaled $501.9 million in 1993 compared with $517.3 million in
1992. This sales decline was directly attributable to a significant drop in
copper prices. The most relevant measure of the Company's sales activity is
total pounds shipped which improved 10 percent in 1993.
STRONG FINANCIAL CONDITION:
Mueller continues to gain in financial strength. Our cash position at
year-end was $77.3 million, with a current asset to current liability ratio of
3.8 to 1. By the end of 1993, our stockholders' equity increased to $222.1
million and working capital climbed to $143.5 million. Our debt to total
capitalization remained conservative at 22 percent at the close of
1993.
MANUFACTURING OPERATIONS CONTINUE TO IMPROVE:
Our manufacturing operations had a highly successful year. The copper tube
mill exceeded all prior production records. In part, this was the result of a
capital improvement program which increased annual capacity by 12 to 15
million pounds. The added capacity became fully available in the fourth
quarter of 1993 and, consequently, its full benefit will be realized in 1994.
We also have scheduled a follow-up capital improvement program for the tube
mill. This new program will cost approximately $20 million and should be
completed by mid-1995. Our objective is to improve efficiency, productivity
and yields as well as add capacity.
Our fittings plant in Covington, Tennessee operated near full capacity
during the latter part of 1993, and at times the demand for our wrot copper
products exceeded our ability to supply them. We are, of course, taking steps
to increase our production capacity. In fact, we are in the planning phase of
a multi-year program to expand and modernize our wrot copper fittings
business. We could see the initial benefits from this program as early as
1994, and even more in the following years.
The Company's plastic fittings business increased its sales and production
during 1993, but nonetheless, operated at a loss. This was due to a sharp
decline in the selling prices of these products. We believe this price decline
is economically unsound and will be reversed in due course. In recent months,
prices have increased somewhat although they remain below the average prices
of the last three years.
Our brass rod mill had an outstanding year. Production and shipments were
the best in its 75 year history. The rod mill is an excellent example of the
benefits of teamwork and hard work. We now produce the finest quality brass
rod in the industry and are backing it up with the best service. However, we
are confident that we can do even more. In 1994, we start the installation of
an indirect extrusion press. The costs of the press and related improvements
will be approximately $15 million. The press will significantly reduce our
conversion costs while increasing capacity. Installation of the new press,
which is anticipated to be completed in mid-1995, should not interfere with
current production.
The impacts, forgings and refrigeration businesses also had a successful
1993. These businesses have untapped potentials and it is our mission to
explore and exploit these opportunities for growth.
Our export business held its own in 1993, despite the severe recession
in Europe. Our Canadian subsidiary also was affected by the downturn of
European economies, but nonetheless, was solidly profitable.
5 EXHIBIT 13.0
A REPORT TO OUR STOCKHOLDERS (Continued)
NATURAL RESOURCE PROPERTIES:
The Utah Railway Company increased its tonnage of coal shipments by
approximately 18 percent during 1993 with a comparable increase in operating
profits. We are proud of our Utah employees who operate, what we believe to
be, one of the most efficient short haul railroads in the United States.
Alaska Gold Company, our 85 percent owned subsidiary, located in Nome,
Alaska sold 22,396 ounces of gold in 1993 at an average price of $375 per
ounce. In 1994, Alaska Gold will be operating a second pilot program to
determine the feasibility of open pit mining. By next year, we expect to know
whether this method of mining for gold is cost effective.
Early in 1993, we ceased coal mining operations in Hiawatha, Utah and sold
our rights under our remaining coal supply contract. This mining property is
undergoing reclamation and will be offered for sale in about one year.
We are proceeding with our previously announced plan to divest certain of
our natural resource properties.
OUTLOOK:
The principal market for our manufactured products is the housing
industry. In 1993, new housing starts totaled 1,285,000 units, a 7 percent
increase over 1992.
Many housing analysts believe there is a considerable pent-up demand for
housing due to continued improvement in the national economy, renewed consumer
confidence, continued low interest rates, mortgage rates near 25 year lows,
the deferred demand from the 1990-1991 downturn, and an increase in the rate
of household formations. Consequently, we expect the housing industry to
experience vigorous growth over the next two to three years. Housing analysts
are currently projecting housing starts of 1,400,000 units in both 1994 and
1995. Such increases should provide Mueller with a favorable business climate.
Effective as of January 1, 1994, Mueller's Board of Directors appointed
William D. O'Hagan, C.E.O. of the Company. Harvey L. Karp will continue to
serve the Company on a full-time basis as Chairman of the Board.
Our Company's progress during 1993 would not have been possible without
the dedication, ability and enthusiasm of our employees. They are the soul and
the substance of our Company and the reason for our optimism about Mueller's
future.
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 17, 1994
6 EXHIBIT 13.0
INDUSTRIAL PRODUCTS
The Industrial Products Division includes the rod mill and forging
facility in Port Huron, Michigan and the impact extrusion plant in Marysville,
Michigan. The rod mill is a leading extruder of free-cutting brass bar stock
and also produces special purpose copper alloy rod. The forging operation
produces brass, bronze and aluminum hot, closed-die forgings in a broad range
of sizes and shapes. Mueller cold forgings (impact extrusions) represent one
of the most efficient and economical manufacturing methods available for
component parts that deliver significant savings in both labor and
materials.
Mueller rod products, hot forgings and impact extrusions are found in a
variety of end products ranging from plumbing brass, automotive components,
valves and fittings, and industrial machinery and equipment. Industrial
products are sold largely to OEM customers in the plumbing, refrigeration,
fluid power, industrial valves and fittings, and automotive industries.
Mueller is upgrading the rod mill manufacturing processes with a $15
million expansion that includes the installation of an indirect extrusion
press, new billet heating furnaces, rod coilers, runout conveyors and material
handling systems. Mueller's objective is to become the low cost producer of
free cutting brass rod in North America.
COPPER TUBE PRODUCTS
The Fulton, Mississippi plant produces more than 200 copper tube products
which is one of the broadest lines offered by a single manufacturer. Tube
products include dehydrated coils and nitrogen-charged ACR hard drawn straight
lengths used primarily for refrigeration and air conditioning. Hard drawn
water tube in straight lengths and capped soft coils are used in plumbing
applications in a wide range of construction projects. Copper tube products
are sold to plumbing and refrigeration wholesalers and OEM customers in North
America and exported to numerous foreign countries.
The Fulton facility again operated at a record production level in 1993,
aided by the completion of a $3 million capital improvement project. An
additional $20 million of capital improvements are planned including the
installation of state-of-the-art tube drawing technology. This relatively new
method of tube drawing will replace the conventional methods used today.
FITTINGS PRODUCTS
Mueller Streamline wrot copper pressure and drain, waste and vent (DWV)
fittings are manufactured at plants in Covington, Tennessee, Strathroy,
Ontario, Canada and Port Huron, Michigan. Copper fittings are converted from
tube produced at the Fulton tube mill into a wide variety of over 1,500
different sizes and shapes. Injection molding equipment at the Upper Sandusky,
Ohio plant produces over one thousand different parts from a variety of
plastic compounds in diameters ranging from 1/2 to 6 inches.
Plastic and copper fittings are found in virtually all installations of
water distribution systems, heating systems, air-conditioning and
refrigeration applications, and DWV systems in residential, office and
commercial settings. The Strathroy facility focuses on the Canadian and
European markets and is ISO certified. The Covington and Upper Sandusky
products are sold primarily to plumbing and refrigeration and hardware
wholesalers in the United States, Mexico and abroad.
7 EXHIBIT 13.0
REFRIGERATION PRODUCTS
We manufacture a broad line of valves, fittings, filters, filter driers
and custom OEM products for refrigeration and air-conditioning applications in
the Hartsville, Tennessee plant. Many Hartsville products are machined and
assembled from rod stock and forgings produced in our Port Huron plants. These
fittings and assemblies are used in refrigeration applications such as
residential and commercial air-conditioning systems, walk-in coolers, and ice
and vending machines.
Customers for Mueller refrigeration products include large and small OEMs
and refrigeration wholesalers domestically and throughout the world.
During 1993, in preparation for ISO certification, Hartsville instituted
demand flow manufacturing technology to optimize management of inventory,
manufacturing flow, and quality control.
NATURAL RESOURCE PROPERTIES
The Utah Railway Company, which operates 100 miles of track in Utah, hauls
coal to and connects with national carriers. The Utah Railway hauled 3.9
million tons in 1993, an 18 percent increase over 1992.
Gold sales of our 85 percent owned Alaska Gold Company totaled 22,396
ounces in 1993, a 6 percent increase over 1992. Alaska Gold continues to test
methods for economically extracting gold reserves in the Nome area.
Over the past several years, the Company entered into agreements with
various mining companies to explore properties which we own in the Western
United States. These agreements, which provide for royalty payments and
purchase options, hold the potential for consequential profits should the
exploration efforts prove fruitful.
8 EXHIBIT 13.0
FINANCIAL REVIEW
GENERAL OVERVIEW
The Company's principal business is the manufacture and sale of copper
tube, brass rod, fittings and other products made of copper, brass, bronze,
plastic and aluminum. These core manufacturing businesses have been in
operation for over 75 years. New housing starts and commercial construction
are important determinants of the Company's sales to the air-conditioning,
refrigeration and plumbing markets because the principal end use of a
significant portion of the Company's products is in the construction of single
and multi-family housing units and commercial buildings.
Profitability of certain of the Company's product lines is dependent upon
the "spreads" between the cost of metal and the gross selling prices of its
products. The open market price for grade A copper cathode, for example,
directly influences the selling price for copper tubing, a principal product
manufactured by the Company. The Company attempts to minimize the effects of
changes in copper prices by passing through to its customers base metal costs.
The market price of copper does, however, effect the carrying value (FIFO
basis) of the Company's copper inventories and, to a lesser extent, brass
inventories. These inventories customarily total between 30 to 35 million
pounds. "Spreads" fluctuate based upon competitive market conditions. In 1993
and 1992, "spreads" were favorable by historical standards.
The Company also owns various natural resource properties in the Western
United States and Canada. It operates a short line railroad in Utah and a
placer gold mining company in Alaska. Additionally, certain other natural
resource properties produce royalty income or are available for sale.
The Company is the successor to Sharon Steel Corporation, which emerged
from Chapter 11 bankruptcy on December 28, 1990, pursuant to a Plan of
Reorganization. Under the Plan, the Company's steel assets were sold to a new,
unaffiliated company at the time of reorganization. The Plan is further
described in the Company's 1993 consolidated financial statements and Annual
Report on Form 10-K.
RESULTS OF OPERATIONS
1993 Performance Compared to 1992:
Consolidated net sales of $501.9 million in 1993 compares with $517.3
million in 1992. This 3 percent decline is directly attributable to lower
copper prices, which are generally passed through to customers. During 1993,
spot copper averaged 85 cents per pound, or 17 percent less than the 1992
average of $1.03. In 1993, the Company's core manufacturing businesses shipped
362.1 million pounds of product compared to 329.5 million pounds (excluding
shipments from our discontinued business) in 1992. This 10 percent improvement
in shipments is due to improved housing starts and general business
conditions.
Cost of goods sold as a percent of net sales improved to 80.5 percent in
1993 from 83.1 percent in 1992 due primarily to improved sales prices in
certain markets and productivity improvements at the Company's manufacturing
plants.
Depreciation, depletion, and amortization totaled $14.2 million in 1993
which is slightly higher than 1992's level of $12.5 million. This change is
mainly due to higher amortization of deferred preparation costs at Alaska Gold
associated with operating both dredging and open-pit methods of mining during
1993.
Selling, general and administrative expenses were $45.9 million in 1993
compared with $45.8 million in 1992, despite a 10 percent increase in pounds
of product shipped.
9 EXHIBIT 13.0
FINANCIAL REVIEW (Continued)
Interest expense totalled $5.8 million in 1993, up slightly from $5.7
million in 1992. Debt amounted to 22 percent of total capitalization at the
end of 1993 compared to 25 percent in 1992.
Environmental reserves were increased by $1.1 million in 1993 and charged
to operations.
Charges to operations for unusual items in 1993 totaled $2.0 million, down
from $5.6 million in 1992. The 1993 charge includes $1.4 million for an
increase in pension liability and $0.6 million in connection with the
settlement of lawsuits.
Manufacturing Group
During 1993, net sales of the Company's manufacturing segment were $478.3
million. This compares to net sales (excluding the malleable iron business,
which was sold in 1992), of $474.1 million in 1992. The change in net sales
was primarily attributable to product volume increases of 10 percent offset by
price decreases. The latter was due to lower raw material costs (price of
copper) in 1993 which, generally, are passed through to customers in certain
product lines. The Company's core manufacturing businesses shipped 362.1
million pounds of product in 1993 which compares to 329.5 million pounds
(excluding malleable iron) in 1992.
Operating income increased primarily due to: (i) productivity improvements
at the manufacturing plants; (ii) selective price increases in the copper
fittings and brass rod markets; (iii) cost reductions in the areas of selling,
general and administrative expenses; and (iv) elimination of certain costs
associated with the malleable iron business.
Volatility of copper prices in 1993 did not materially affect average
"spreads." Rapid inventory turns of the Company's products that are sensitive
to copper market prices moderate the impact of such volatility.
Natural Resources Group
Net sales of the natural resources segment were $23.6 million in 1993
compared to $22.6 million in 1992. Transportation revenues of the Utah Railway
increased 10 percent in 1993 over 1992. The Utah Railway hauled 3.9 million
tons in 1993, compared with 3.3 million tons in 1992. Gold sales were $8.7
million (22,396 ounces) in 1993 compared to $7.0 million (21,200 ounces) in
1992.
Alaska Gold continues to search for lower cost methods of mining gold in
Alaska including the open pit method of mining. Based on current plans and
economic conditions, Alaska Gold will phase out dredging operations in 1994 or
soon thereafter. Alaska Gold has adequate reserves on its books to discontinue
the dredging operations without incurring a material loss.
1992 Performance Compared to 1991:
Consolidated net sales were $517.3 million in 1992, up $75.9 million or 17
percent from net sales of $441.4 million in 1991. Thirteen out of this
seventeen point increase in sales was due to improved volume in our key
manufactured product lines. The remaining 4 percent increase resulted largely
from price changes caused partially by changes in base metal prices. The sales
volume increase was primarily due to a 19 percent increase in housing starts
in the United States, and the general improvement in the overall U.S. economy.
Natural resources sales declined to $22.6 million in 1992 or 20 percent
from 1991's level due mainly to lower coal sales by our subsidiary United
States Fuel Company (U.S. Fuel).
10 EXHIBIT 13.0
FINANCIAL REVIEW (Continued)
Cost of goods sold dropped to 83.1 percent of net sales in 1992 compared
with 88.1 percent in 1991. This improvement resulted primarily from increased
spreads. The Company also achieved cost reductions in its manufacturing
operations. A lower provision for doubtful accounts in 1992 also contributed
to the improvement. In addition, fewer expenses relating to reorganization
matters were incurred in 1992.
Depreciation, depletion, and amortization totaled $12.5 million in 1992
compared with $13.3 million in 1991. This decline was due primarily to lower
amortization of thawfield expenses related to the Alaska Gold operation.
Selling, general and administrative expenses were $45.8 million in 1992,
or 8.9 percent of net sales compared to 9.3 percent of net sales in 1991.
The $44.4 million write-off of unusual items in 1991 pertained to the
write-down of certain natural resources and other assets. By comparison, the
Company incurred a $5.6 million charge for unusual items in 1992. This
included a $2.0 million write-down of preferred stock of Sharon Specialty
Steel, Inc., which was acquired pursuant to the 1990 reorganization, and a
$3.6 million reserve for other potential losses relating to Sharon.
Interest expense totaled $5.7 million in 1992 down $.4 million from 1991
primarily because of lower interest rates on new debt financing which occurred
in August and October of 1992. Other income increased to $6.3 million in 1992
from $5.1 million in 1991. This 1992 increase was a result of a $3.8 million
gain on the sale of the Company's Bayard Mining Corporation (Bayard) assets
which the Company sold on December 15, 1992, offset by a $1.1 million drop of
rent and royalty income, and a $1.0 million decline in interest income.
The Company provided $8.1 million for income taxes in 1992, of which $3.0
million was deferred. The current tax expense of $5.1 million for 1992
increased due to higher taxable income, particularly under the alternative
minimum tax laws. The Company also adopted the asset and liability method of
accounting for income taxes required by SFAS No. 109, Accounting for Income
Taxes, which resulted in a $.4 million benefit for recognition of post-
reorganization net operating loss carryforwards.
MANUFACTURING GROUP
Net sales by the manufacturing segment increased 20 percent to $494.7
million in 1992 compared to $413.2 million in 1991. Higher copper tube, rod,
aluminum impacts and refrigeration sales offset slightly lower iron fitting
sales in 1992. Improved volume accounted for over 75 percent of the 1992
increase. Selling prices of the Company's products are adjusted, to the extent
that competitive pressures permit, by fluctuations in metal prices,
particularly copper.
The Company sold its malleable iron fitting business in 1992. This
business accounted for approximately $20.0 million of the Group's 1992 net
sales. Sale of the malleable iron assets generated approximately $7.7 million
of cash. The Company also relocated formed tube manufacturing from a separate
plant in Port Huron, Michigan and consolidated it with copper fittings
manufacturing at the Company's Covington, Tennessee plant.
NATURAL RESOURCES GROUP
Net sales of the Company's natural resources segment were $22.6 million in
1992 compared to $28.2 million in 1991. This decline was due to lower coal
sales by U.S. Fuel. Its coal shipments dropped to 97,020 tons in 1992 from
179,000 tons in 1991. Transportation revenues of Utah Railway were $12.1
million in 1992, almost even with 1991 sales of $11.9 million. Utah Railway
hauled 3.3 million tons of coal in 1992, which was comparable to 1991's level.
This company continues to be profitable. Gold sales decreased to $7.0 million
(21,200 ounces) in 1992 from $7.4 million (18,304 ounces) in 1991.
11 EXHIBIT 13.0
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $51.0 million in 1993.
Depreciation of $11.1 million and deferred income taxes of $9.0 million were
the primary non-cash adjustments. Major changes in working capital included a
$16.5 million decrease in inventories offset by a $13.2 million decrease in
current liabilities. Other minor fluctuations accounted for the remainder of
the change.
Net cash used for investing activities in 1993 was $8.8 million, $11.1
million for capital expenditures offset by $2.3 million received from the sale
of properties. Capital expenditures were primarily related to cost reductions,
increased productivity, quality improvements, and capacity expansion in
manufacturing businesses as well as expenditures for corporate activities.
Net cash used by financing activities was $9.4 million which includes $3.1
million for the purchase of treasury stock and $7.2 million for repayment of
debt.
The Company has an unsecured line-of-credit agreement (the Credit
Facility) which expires on September 30, 1994, but may be extended to
September 30, 1995 at the Company's option. Borrowings bear interest at prime
less 1/2 of one percent.
On December 28, 1993, subsequent to fiscal year end, the Company agreed to
reduce its borrowing availability under the Credit Facility to $7.0 million
concurrently with a transaction whereby it entered into an Industrial Revenue
Bond obligation (IRBs). At December 25, 1993, the Company's total debt was
$62.7 million or 22 percent of its capitalization. On a pro forma basis
including the IRBs, total debt would be $82.7 million, or 27 percent of its
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. Additionally,
certain notes issued by its wholly-owned subsidiary restrict the amount of
cash that may be loaned or dividended by that subsidiary. The Company is in
compliance with all debt covenants.
Management believes that cash provided by operations and currently
available cash of $77.3 million will be adequate to meet the Company's normal
future capital expenditure and operational needs. The Company's current ratio
is 3.8 to 1.
The Company has approved two major capital expenditure projects and is
evaluating a third for the following plants: (i) Fulton, Mississippi copper
tube mill; (ii) Port Huron, Michigan brass rod mill; and (iii) Covington,
Tennessee copper fittings plant. These projects will require capital of
approximately $15.0 to $20.0 million each. The primary objective of these
projects is to improve efficiency and productivity as well as add some
capacity.
The Fulton project was financed by IRBs which were issued subsequent to
fiscal year end. The Company is also evaluating various forms of funding the
other two projects including cash from operations and debt financing.
IMPACT OF INFLATION
The impact of inflation on the Company's operations in 1993, 1992 and 1991
was minimal.
OUTLOOK
New housing starts and commercial construction are important determinants
of Mueller's sales to plumbing, air conditioning and refrigeration markets.
Many housing analysts and economists are currently projecting new housing
starts of 1.4 million units in 1994 and 1995, and should that occur, our sales
by the manufacturing group should remain strong.
12 EXHIBIT 13.0
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 25, 1993, December 26, 1992 and December 28, 1991
(In thousands, except per share data)
1993 1992 1991
Net sales $ 501,885 $ 517,339 $ 441,431
Cost of goods sold 403,775 429,707 388,863
Depreciation, depletion, and amortization 14,160 12,505 13,294
Selling, general, and administrative
expense 45,923 45,809 40,912
-------- -------- --------
Operating income (loss) 38,027 29,318 (1,638)
Interest expense (5,759) (5,694) (6,114)
Environmental reserves (1,060) -- (2,700)
Unusual items (2,024) (5,636) (44,400)
Other income, net 4,259 6,311 5,117
-------- -------- --------
Income (loss) before income taxes
and cumulative effect of change
in accounting for income taxes 33,443 24,299 (49,735)
Income tax (expense) benefit (12,307) (8,079) 5,994
-------- -------- --------
Income (loss) before cumulative
effect of accounting change 21,136 16,220 (43,741)
Cumulative effect of change in
method of accounting for income taxes -- 446 --
-------- -------- --------
Net income (loss) $ 21,136 $ 16,666 $ (43,741)
======== ======== ========
Net income (loss) per share:
Primary:
Average shares outstanding 10,443 10,055 9,746
Income (loss) before cumulative
effect of accounting change $ 2.02 $ 1.61 $ (4.49)
Cumulative effect of accounting
change -- 0.05 --
-------- -------- --------
Net income (loss) $ 2.02 $ 1.66 $ (4.49)
======== ======== ========
Net income (loss) per share:
Fully diluted:
Average shares outstanding 10,498 10,274 9,746
Income (loss) before cumulative
effect of accounting change $ 2.01 $ 1.58 $ (4.49)
Cumulative effect of accounting
change -- 0.04 --
-------- -------- --------
Net income (loss) $ 2.01 $ 1.62 $ (4.49)
======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
13 EXHIBIT 13.0
CONSOLIDATED BALANCE SHEETS
As of December 25, 1993 and December 26, 1992
(In thousands, except share data)
1993 1992
ASSETS
Current assets
Cash and cash equivalents $ 77,336 $ 44,459
Accounts receivable, less allowance for doubtful
accounts of $3,495 in 1993 and $4,473 in 1992 59,197 59,802
Inventories 53,118 69,623
Current deferred income taxes 3,242 4,099
Other current assets 1,518 4,398
-------- --------
Total current assets 194,411 182,381
Property, plant and equipment, net 154,403 156,682
Deferred income taxes 12,751 21,757
Other assets 8,178 11,727
-------- --------
TOTAL ASSETS $ 369,743 $ 372,547
======== ========
<FN>
See accompanying notes to consolidated financial statements.
14 EXHIBIT 13.0
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands except share data)
1993 1992
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 8,391 $ 7,101
Accounts payable 15,637 25,674
Accrued wages and other employee costs 11,787 10,478
Restructuring reserves 5,305 6,968
Current deferred income taxes 446 1,169
Other current liabilities 9,340 10,136
-------- --------
Total current liabilities 50,906 61,526
Long-term debt 54,320 62,376
Pension liabilities 9,336 9,665
Postretirement benefits other than pensions 9,498 8,688
Environmental reserves 8,648 9,185
Deferred income taxes 3,810 3,924
Other noncurrent liabilities 11,111 12,762
-------- --------
Total liabilities 147,629 168,126
======== ========
Stockholders' equity
Preferred stock - shares authorized
5,000,000; none outstanding -- --
Common stock - $.01 par value; shares
authorized 20,000,000; issued 10,000,000 100 100
Additional paid-in capital, common 236,406 236,391
Accumulated deficit since January 1, 1991 (5,939) (27,075)
Cumulative translation adjustments (1,944) (1,094)
Treasury common stock at cost,
416,807 shares in 1993 and
361,756 shares in 1992 (6,509) (3,901)
-------- --------
Total stockholders' equity 222,114 204,421
Commitments and contingencies -- --
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 369,743 $ 372,547
======== ========
<FN>
See accompanying notes to consolidated financial statements.
15 EXHIBIT 13.0
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 25, 1993, December 26, 1992 and December 28, 1991
(In thousands)
1993 1992 1991
OPERATING ACTIVITIES
Net income (loss) $ 21,136 $ 16,666 $(43,741)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Cumulative effect of change
in method of accounting for
income taxes -- (446) --
Provisions for unusual items 2,024 5,636 44,400
Depreciation, depletion and
amortization of intangibles 11,123 11,590 10,729
Amortization of deferred
preparation costs 3,037 915 2,565
Provision for doubtful accounts
receivable 59 2,794 6,344
Deferred income taxes 9,026 3,016 (8,476)
Gain on disposal of properties (91) (3,417) (33)
Changes in assets and liabilities:
Receivables 546 (4,133) (10,966)
Inventories 16,505 12,695 15,363
Other assets 3,224 2,177 3,326
Current liabilities (13,211) (10,541) (961)
Other liabilities (1,707) 2,254 (13,137)
Other, net (684) (492) 205
-------- -------- --------
Net cash provided by operating activities 50,987 38,714 5,618
-------- -------- --------
INVESTING ACTIVITIES
Capital expenditures (11,083) (10,952) (11,825)
Proceeds from sales of properties 2,332 11,478 1,092
Purchase of preferred stock -- -- (5,112)
Issuance of notes receivable -- (4,125) --
-------- -------- --------
Net cash used by investing activities (8,751) (3,599) (15,845)
-------- -------- --------
FINANCING ACTIVITIES
Net borrowings under revolving credit
facility -- (14,000) 14,000
Proceeds from issuance of long-term debt 386 45,000 --
Repayments of long-term debt (7,152) (28,933) (8,352)
Payment of Delayed Distribution Notes -- -- (25,000)
Acquisition of treasury stock (3,100) (505) (3,608)
Proceeds from the sale of treasury stock 507 241 --
-------- -------- --------
Net cash provided (used) by
financing activities (9,359) 1,803 (22,960)
-------- -------- --------
16 EXHIBIT 13.0
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 25, 1993, December 26, 1992 and December 28, 1991
(In thousands)
1993 1992 1991
Increase (decrease) in cash and
cash equivalents 32,877 36,918 (33,187)
Cash and cash equivalents at the
beginning of the year 44,459 7,541 40,728
-------- -------- --------
Cash and cash equivalents at the
end of the year $ 77,336 $ 44,459 $ 7,541
======== ======== ========
<FN>
For supplemental disclosures of cash flow information, and non-cash investing
and financing activities, see Notes 1, 4, and 6.
See accompanying notes to consolidated financial statements.
17 EXHIBIT 13.0
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 25, 1993, December 26, 1992 and December 28, 1991
(In thousands, except share data)
Retained
Common Stock Additional Earnings Cumulative Treasury Stock
Number Paid-In (Accumulated Translation Number
of Shares Amount Capital Deficit) Adjustments of Shares Cost Total
Balance, December 31, 1990 10,000,000 $ 100 $ 199,900 $ -- $ -- -- $ -- $200,000
Repurchase of common stock -- -- -- -- -- 339,013 (3,608) (3,608)
Net loss -- -- -- (43,741) -- -- -- (43,741)
Cumulative translation
adjustments -- -- -- -- (42) -- -- (42)
---------- ---- ------- -------- -------- -------- ------- --------
Balance, December 28, 1991 10,000,000 100 199,900 (43,741) (42) 339,013 (3,608) 152,609
Repurchase of common stock -- -- -- -- -- 42,452 (505) (505)
Net income -- -- -- 16,666 -- -- -- 16,666
Issuance of shares under
employee stock purchase plan -- -- 29 -- -- (19,709) 212 241
Recognition of income tax
benefits of preconfirmation
net operating loss carry-
forwards -- -- 36,462 -- -- -- -- 36,462
Cumulative translation adjustments -- -- -- -- (1,052) -- -- (1,052)
---------- ---- ------- -------- -------- -------- ------- --------
Balance, December 26, 1992 10,000,000 100 236,391 (27,075) (1,094) 361,756 (3,901) 204,421
Repurchase of common stock -- -- -- -- -- 100,000 (3,100) (3,100)
Net income -- -- -- 21,136 -- -- -- 21,136
Issuance of shares under
employee stock purchase plan -- -- 75 -- -- (24,449) 263 338
Issuance of shares under
incentive stock option plan -- -- (60) -- -- (20,500) 229 169
Cumulative translation
adjustments -- -- -- -- (850) -- -- (850)
---------- ---- ------- -------- -------- -------- ------- --------
Balance, December 25, 1993 10,000,000 $ 100 $ 236,406 $ (5,939) $ (1,944) 416,807 $ (6,509) $ 222,114
========== ==== ======= ======== ======== ======== ======= ========
<FN>
See accompanying notes to consolidated financial statements.
18 EXHIBIT 13.0
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reorganization
Mueller Industries, Inc. was formed for the purpose of merging with Sharon
Steel Corporation, the predecessor company, pursuant to the Third Amended and
Restated Plan of Reorganization filed with the United States Bankruptcy Court
for the Western District of Pennsylvania, Erie Division and confirmed on
November 21, 1990. Upon consummation of the Plan on December 28, 1990, Mueller
Industries, Inc. became the successor to Sharon Steel for purposes of the
Bankruptcy Code.
Principles of Consolidation
The consolidated financial statements include the accounts of Mueller
Industries, Inc. and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Inventories
The Company's inventories are valued at the lower of cost or market on a
first-in, first-out (FIFO) basis. Generally, inventory costs include
materials, labor costs and manufacturing overhead.
Depreciation, Depletion and Amortization
In general, depreciation and amortization of buildings, machinery and
equipment is provided on the straight-line method over the estimated useful
lives ranging from 20 to 40 years for buildings and 5 to 20 years for
machinery and equipment. Depletion of mineral properties is generally computed
using the units of production method.
Maintenance and Repairs
Routine maintenance and repairs are normally charged to operations.
Expenditures that materially increase values, change capacities or extend
useful lives are capitalized. Capitalized renewals or replacements are charged
to the property accounts, in which event, the properties that are replaced are
removed from the property accounts.
Revenue Recognition
Revenue from the sale of products is recognized upon passage of title to
the customer, which, in most cases, coincides with shipment of the related
products to customers.
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 which is based on the amount of
benefits paid during the year less an agreed upon amount that is paid by the
Company.
19 EXHIBIT 13.0
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Common Share
Primary earnings per common share are based upon the weighted average
number of common and common equivalent shares outstanding during each period.
Fully diluted earnings per share are based upon the weighted average number of
common shares outstanding plus the dilutive effects of all outstanding stock
options.
Income Taxes
Effective at the beginning of 1992, the Company adopted SFAS No. 109 and
has reported the cumulative effect of that change in the method of accounting
for income taxes in the 1992 consolidated statement of operations. Prior
years' financial statements have not been restated.
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 25, 1993 and December 26, 1992, temporary investments consisted of
certificates of deposit, commercial paper, bank repurchase agreements, and
U.S. and Foreign Government securities totaling $76.0 million and $42.9
million, respectively. These carrying amounts approximate fair
value.
Concentrations of Credit and Market Risk
Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers comprising the Company's customer
base, and their dispersion across different industries, including air
conditioning, refrigeration and plumbing wholesalers, hardware retailers,
automotive, original equipment manufacturers and others.
The Company minimizes its market risk of base metal price fluctuations
through various strategies. Generally, the Company prices an equivalent amount
of copper under flexible pricing arrangements it maintains with its suppliers,
at the time it determines the selling price to its customer.
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.
The Company's sales are principally denominated in and collected in U.S.
currency. Certain sales of the Company's foreign operations are collected in
foreign currencies. The market risk regarding foreign currency exchange rate
fluctuations is hedged using forward contracts.
Reclassification
Certain amounts in the 1992 and 1991 consolidated financial statements
have been reclassified to conform with the 1993 presentation.
20 EXHIBIT 13.0
NOTE 2 INVENTORIES
Inventories are valued at the lower of cost or market on a first-in,first-out
(FIFO) basis as follows:
(In thousands)
1993 1992
Raw materials and supplies $ 5,704 $ 5,224
Work-in-process 16,501 16,393
Finished goods 30,913 48,006
-------- --------
$ 53,118 $ 69,623
======== ========
NOTE 3 PROPERTIES
Properties stated at fair value as of December 28, 1990, with subsequent
additions recorded at cost, are as follows:
(In thousands)
1993 1992
Land and land improvements $ 6,369 $ 6,737
Mineral reserves 2,296 2,296
Buildings, machinery and equipment 171,053 165,625
Construction in progress 4,430 3,379
-------- --------
184,148 178,037
Less accumulated depreciation,
depletion and amortization (29,745) (21,355)
-------- --------
$ 154,403 $ 156,682
========= ========
21 EXHIBIT 13.0
NOTE 4 LONG TERM DEBT
Long term debt consists of the following:
(In thousands)
1993 1992
8.38% Notes, due through 2000,secured by
subsidiary common stock $ 25,000 $ 25,000
7.54% Unsecured Note Payable, due through 1999 20,000 20,000
Retiree Obligation, due through 1995 with imputed
interest at 10% 6,365 9,554
Contribution Agreement, due through 1996 with
imputed interest at 10% 4,994 5,469
10.1% Note Payable due through 1999,
secured by certain railroad trackage 3,128 3,536
Pollution Control Revenue Bonds, interest
at 8% to 8.125%, due through 2001 2,880 3,110
9% Industrial Revenue Bonds, due through 1993,
secured by certain property and equipment -- 2,800
Other, including capitalized lease obligations 344 8
-------- --------
62,711 69,477
Less current portion of long-term debt 8,391 7,101
-------- --------
Long-term debt $ 54,320 $ 62,376
======== ========
Aggregate annual maturities of such debt are $12.9 million, $11.3 million,
$8.6 million and $8.6 million for the years 1995 through 1998, respectively.
Interest paid in 1993, 1992 and 1991 was $6.0 million, $4.8 million and $5.4
million, respectively. 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.
At December 25, 1993, the Company had available up to $20.0 million (see
subsequent event discussed below) under the terms of a line-of-credit facility
(Credit Facility) which expires on September 30, 1994, but may be extended,
solely at the Company's option, to September 30, 1995. Borrowings under the
Credit Facility bear interest, at the Company's option, at (i) prime rate less
1/2 of one percent, (ii) certificate of deposit rate plus 1.35%, or (iii)
LIBOR plus 1.125%. An annual commitment fee of 1/4 of one percent per annum on
the unused portion of the Credit Facility is payable monthly. 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 currently total $1.0 million.
Borrowings under the above agreements require the Company, among other
things, to maintain certain minimum levels of net worth and working capital,
and meet certain minimum financial ratios. The Company is in compliance with
all covenants.
22 EXHIBIT 13.0
NOTE 4 LONG TERM DEBT (Continued)
The Company leases certain facilities and equipment under operating leases
expiring on various dates through 2001. The lease payments under these
agreements aggregate to approximately $3.3 million in 1994, $3.1 million in
1995, $3.0 million in 1996, $2.8 million in 1997, $2.8 million in 1998 and
$5.2 million thereafter. Total rent expense amounted to $5.0 million in 1993,
$5.8 million in 1992 and $3.4 million in 1991.
On December 28, 1993, subsequent to year end, the Company, through a
wholly owned subsidiary, issued $20.0 million of 6.95% taxable Industrial
Development Revenue Bonds due December 15, 2000 (the 6.95% Bonds). The 6.95%
Bonds are due in quarterly installments of $0.7 million beginning March 15,
1994 through December 15, 2000. Interest on the 6.95% Bonds is payable
quarterly commencing March 15, 1994. The 6.95% Bonds are secured by $10
million of cash and securities on deposit in an investment account with the
lender. The $10 million of cash security will reduce to zero in 1996. Proceeds
of the 6.95% Bonds will be used to fund a modernization project at the
Company's Fulton, Mississippi facility. The 6.95% Bonds were purchased by the
same financial institution that provided the Credit Facility. Concurrently,
the Company agreed to reduce availability under the Credit Facility to $7.0
million to accommodate the lender's internal policy limits. Availability is
restored as the Company repays its obligations held by that institution.
NOTE 5 STOCKHOLDERS' EQUITY
The Company and Quantum Fund are parties to a standstill agreement, dated
as of July 1, 1993 (the Standstill Agreement), pursuant to which Quantum Fund
has agreed, except with the prior written approval of the Company's Chairman
of the Board and Chief Executive Officer not to offer, sell, contract to sell,
grant any option to purchase or pledge, hypothecate or otherwise dispose of
any Common Stock of the Company prior to December 31, 1994. Pursuant to the
Standstill Agreement, Quantum Fund has also agreed, except with respect to
matters which may be specifically excluded from the provisions of the
Standstill Agreement by the Company's Chairman of the Board and Chief
Executive Officer, that at all annual and special meetings of the Company's
stockholders, and in all consents of such stockholders in lieu of any such
annual or special meeting, Quantum Fund will vote all shares of Common Stock
of the Company then owned by Quantum Fund in proportion to the manner in which
all Common Stock of the Company other than the shares of Common Stock then
owned by Quantum Fund shall be voted (or abstain from voting) at such annual
or special meeting or pursuant to such consent with respect to each matter to
be acted upon by such stockholders.
In 1991, the Board of Directors authorized the Company to repurchase up to
700,000 shares of its common stock. As of December 25, 1993, a total of
481,465 shares had been repurchased under this authorization, of which 64,658
shares were reissued to optionees under the Company's stock option plans.
23 EXHIBIT 13.0
NOTE 6 INCOME TAXES
The Company adopted SFAS No. 109 as of the beginning of 1992. The
cumulative effect of this change in accounting for income taxes of $.4 million
was determined as of the beginning of 1992 and was reported separately in the
consolidated statement of operations for the year ended December 26, 1992.
Additionally, the adoption resulted in recognition of a $36.9 million deferred
tax asset of which $36.5 million was a direct addition to additional paid-in
capital.
The components of income (loss) before income taxes and cumulative effect
of change in accounting principal were taxed under the following
jurisdictions:
(In thousands)
1993 1992 1991
Domestic $ 30,955 $ 20,839 $ (52,556)
Foreign 2,488 3,460 2,821
-------- -------- --------
$ 33,443 $ 24,299 $ (49,735)
======== ======== ========
Income tax expense (benefit) consists of the following:
(In thousands)
1993 1992 1991
Current tax expense:
Federal $ 153 $ 1,313 $ --
Foreign 1,108 1,350 979
State and local 2,020 2,400 1,503
-------- -------- --------
Total current 3,281 5,063 2,482
======== ======== ========
Deferred tax expense (benefit):
Federal 9,863 5,716 (7,445)
State and local (837) (2,700) (1,031)
-------- -------- --------
Total deferred 9,026 3,016 (8,476)
-------- -------- --------
Total provision (benefit) for
income taxes $ 12,307 $ 8,079 $ (5,994)
======== ======== ========
24 EXHIBIT 13.0
NOTE 6 INCOME TAXES (continued)
The difference between the reported provision for income taxes and a tax
determined by applying the applicable U.S. federal statutory income tax rate
to income (loss) before taxes, is reconciled as follows:
(In thousands)
1993 1992 1991
Expected income tax expense (benefit) $ 11,705 $ 8,262 $ (16,910)
State and local income tax 538 (1,115) 990
Foreign income taxes 237 891 20
Financial operating loss carryforwards -- -- 9,906
Effect of enacted tax rate change (337) -- --
Other, net 164 41 --
-------- -------- --------
$ 12,307 $ 8,079 $ (5,994)
======== ======== ========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
(In thousands)
1993 1992
Deferred tax assets:
Accounts receivable $ 2,977 $ 3,678
Inventories 782 1,066
Preferred stock 44,881 44,649
Pension and OPEB obligations 10,538 6,667
Other accruals and reserves 17,921 22,220
Net operating loss carryforwards 64,884 74,329
Alternative minimum tax credit carryforwards 4,188 3,442
Investment tax credit carryforwards -- 9,432
-------- --------
Total gross deferred tax assets 146,171 165,483
Less valuation allowance (85,338) (88,081)
-------- --------
Deferred tax assets, net of valuation
allowance 60,833 77,402
-------- --------
Deferred tax liabilities:
Property, plant and equipment 46,296 53,684
Undistributed income of foreign subsidiaries 1,931 1,931
Other 869 1,024
-------- --------
Total gross deferred tax liabilities 49,096 56,639
-------- --------
Net deferred tax asset $ 11,737 $ 20,763
======== ========
25 EXHIBIT 13.0
NOTE 6 INCOME TAXES (Continued)
As a result of the ownership change which occurred in connection with the
reorganization on December 28, 1990 (see Note 1), the Company's net operating
loss carryforwards for federal income tax purposes that expire prior to 2005
are subject to an annual limitation of approximately $14.4 million.
As of December 25, 1993, the Company had net operating loss carryforwards
available to offset future federal taxable income of $185.4 million which
expire as follows: $4.5 million in 1998, $94.9 million in 2000, $6.6 million
in 2001, $6.5 million in 2002, $66.5 million in 2005, and $6.4 million in
2006. In addition, the Company has alternative minimum tax credit
carryforwards of approximately $4.2 million which are available to reduce
future federal regular income taxes, if any, over an indefinite period.
Income taxes paid (relating to both current and prior years) were
approximately $4.9 million in 1993, $2.5 million in 1992 and $2.0 million in
1991.
NOTE 7 EMPLOYEE BENEFITS
Pension cost for the defined benefit plans sponsored by the Company
includes the following components:
(In thousands)
1993 1992 1991
Service cost of benefits earned
during the year $ 277 $ 358 $ 396
Interest cost on the projected
benefit obligation 2,947 3,068 4,242
Return on plan assets:
Actual (6,066) (2,434) (3,092)
Deferred gain (loss) 3,381 3 35
Net amortization 58 -- 8
-------- -------- --------
Net periodic pension cost $ 597 $ 995 $ 1,589
======== ======== ========
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 a bank administered trust fund.
The Company terminated one plan in 1992 and three plans during 1991. All
plan participants became fully vested effective with the plan terminations;
annuity contracts and/or cash payments were made to settle such obligations.
The effect of these terminations was recognized during 1990.
In 1993, pursuant to a collective bargaining agreement covering
approximately 65 employees, future participation in one of the Company's
single employer pension plans was curtailed in favor of participation in the
union multiemployer plan. Effective July 1, 1993, all future service accrues
in the multiemployer plan; service earned prior to that date remains the
obligation of the single employer plan.
26 EXHIBIT 13.0
NOTE 7 EMPLOYEE BENEFITS (Continued)
A reconciliation of the funded status of the plans at December 25, 1993
and December 26, 1992, respectively, to the amounts recognized in the
consolidated balance sheet is as follows:
(In thousands)
1993 1992
Actuarial present value of:
Vested benefit obligation $ (38,186) $ (35,406)
-------- --------
Accumulated benefit obligation (40,836) (38,130)
-------- --------
Projected benefit obligation (40,836) (38,130)
Plan assets at fair value held in the pension
plan trusts, primarily listed stocks and
U.S. Government obligations 34,771 31,233
-------- --------
Plan assets less than projected
benefit obligation (6,065) (6,897)
Unrecognized net gain from past experience
different from that assumed and effects
of changes in assumptions (4,576) (3,566)
Prior service cost not yet recognized in
net periodic pension cost 456 --
-------- --------
Accrued pension cost $ (10,185) $ (10,463)
======== ========
The assumed discount rate used in determining the actuarial present value
of the projected benefit obligations presented above was 7.0% for 1993 and
8.25% for 1992. For purposes of determining pension cost, the assumed weighted
average long-term rate of return on plan assets was 8.5% for 1993, 1992 and
1991.
The Company makes contributions to certain multiemployer defined benefit
pension plan trusts that cover union employees based on collective bargaining
agreements. Contributions by employees are not required nor are they
permitted. Pension expense under the multiemployer defined benefit pension
plans was $0.2 million in 1993 and $0.3 million in 1992 and 1991. At December
25, 1993, the accrued pension cost presented above does not include $1.4
million relating to potential statutory withdrawal liability under the 1974
United Mine Workers of America Pension Trust. This provision is classified as
Unusual Items (see Note 9). The withdrawal liability arises due to the
curtailment of coal mining operations at U.S. Fuel.
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.
27 EXHIBIT 13.0
NOTE 7 EMPLOYEE BENEFITS (Continued)
In October, 1992, the Coal Industry Retiree Health Benefit Act of 1992
(the Act) was enacted. The Act mandates a method of providing for
postretirement benefits to UMWA current and retired employees, including some
retirees who were never employed by the Company. In October, 1993,
beneficiaries were assigned to the Company and the Company began its mandated
contributions to the UMWA Combined Benefit Fund, a multiemployer trust. The
ultimate amount of this liability will vary due to factors which include,
among other things, the validity, interpretation and regulation of the Act,
its joint and several obligation, the number of valid beneficiaries assigned,
and the extent to which funding for this obligation will be satisfied by
transfers of excess assets from the 1950 UMWA pension plan and transfers from
the Abandoned Mine Reclamation Fund. Nonetheless, the Company believes it has
an adequate reserve for this liability, which is classified as other
noncurrent liabilities.
The following table shows funded status reconciled with the amounts
recognized in the Company's financial statements:
(In thousands)
1993 1992
Accumulated postretirement benefit obligation:
Retirees $ (8,152) $ (7,982)
Fully eligible active plan participants (392) (409)
Other active plan participants (476) (432)
-------- --------
(9,020) (8,823)
Plan assets at fair value -- 30
-------- --------
Accumulated postretirement benefit obligation
in excess of plan assets (9,020) (8,793)
Unrecognized net gain 151 --
-------- --------
Accrued postretirement benefit cost $ (8,869) $ (8,793)
======== ========
Net periodic postretirement benefit cost was $0.7 million in 1993, $0.5
million in 1992 and $1.4 million in 1991.
The cost of medical and life insurance benefits for retired employees
reflected above does not include $0.6 million at December 25, 1993 and $0.5
million at December 26, 1992 related to the provision of medical and other
welfare benefits under certain defined benefit multiemployer plans. The
actuarially determined present value of the accumulated postretirement benefit
obligation was calculated using a discount rate ranging from 7.0% to 7.5% for
1993 and from 7.5% to 8.25% for 1992.
The assumed weighted-average annual rate of increase in the per capita
cost of covered benefits ranges from 10.45% to 11.80% for 1994 and is assumed
to decrease to an ultimate rate of 5.5% 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 $0.7 million in 1993
and $0.6 million in 1992.
28 EXHIBIT 13.0
NOTE 8 COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
The Company is subject to environmental standards imposed by federal,
state and local environmental laws and regulations. It has provided and
charged to income $1.1 million in 1993, and $2.7 million in 1991 for pending
environmental matters. No charges were required for 1992. Management believes
that the outcome of pending environmental matters will not materially affect
the overall financial position of the Company.
PURCHASE COMMITMENTS
Subsequent to fiscal year-end, the Company committed to capital
expenditures of approximately $20.0 million, for a major project to modernize
the copper tube mill in Fulton, Mississippi. In February, 1994, the Board
approved a $15.0 million modernization project for the brass rod mill in Port
Huron, Michigan. Both of these approved major projects should become fully
operational in mid-1995. No other material purchase commitments for capital
expenditures exist.
NOTE 9 UNUSUAL ITEMS
During 1993, the Company recognized a $1.4 million charge for a potential
pension withdrawal liability for its U.S. Fuel subsidiary. See Note 7 for
additional discussion. Additionally, a provision of $0.6 million was
recognized for the settlement of certain litigation.
On November 30, 1992, Sharon Specialty Steel, Inc. (together with its
subsidiaries, collectively Sharon) filed for relief under Chapter 11 of the
Federal Bankruptcy Code. Consequently, the Company recognized a charge of $5.6
million consisting of (i) a $2.0 million write-off of the preferred stock of
Sharon, and (ii) a $3.6 million reserve for the $4.125 million loan to Sharon
that was funded pursuant to the Caster Guarantee settlement, and other matters
associated with potential losses relating to Sharon or Sharon Steel.
During 1991, the Company recognized a charge of $27.9 million for
permanent impairment in the value of certain natural resource assets which it
owns. The impairment relates to certain mining and mineral properties.
Management believes these write-downs were necessary to reflect realizable
values. While the book value of these assets, prior to the write-downs, was
significant, their contribution to operations is not material.
The Company also recognized a charge of $13.0 million in 1991, to reduce
its carrying cost of preferred stock of Sharon. Pursuant to the Plan, one
series of preferred stock was purchased from the Quantum Fund in 1991 at which
time Quantum Fund was a 46 percent stockholder. The Company has not recognized
unpaid dividend income accruing to the preferred stock. Additionally, the
Company recognized a charge of $2.5 million for priority tax claims that
pertained to the reorganization. An additional $1.0 million charge was also
recognized for other non-operating assets.
29 EXHIBIT 13.0
NOTE 10 OTHER INCOME
"Other income, net" included in the consolidated statements of
operations consists of the following:
(In thousands)
1993 1992 1991
Rent & royalties $ 1,275 $ 2,072 $ 3,251
Interest income 2,187 822 1,834
Gain on disposal of properties, net 1,262 3,417 32
Other (465) -- --
-------- -------- --------
$ 4,259 $ 6,311 $ 5,117
======== ======== ========
On December 15, 1992, the Company's subsidiary, Bayard Mining Corporation,
sold its Continental Mine and related assets located in Grant County, New
Mexico for a net gain of $3.8 million. The mine had been idle since 1982.
In 1992, the Company sold certain assets of its U-Brand malleable iron
business. In 1993, the Company recognized a gain of approximately $1.2 million
as a result of that transaction which provided for additional payments
contingent upon certain sales performance criteria.
NOTE 11 LITIGATION
In addition to the matters described below, the Company is involved in
certain litigation as a result of claims that arise in the ordinary course of
business, which management believes will not have a material adverse affect on
the Company's financial condition.
Michigan Settlement
In April, 1991, a suit was initiated against Mueller Brass Co. (Mueller
Brass), a wholly-owned subsidiary of the Company, alleging the violation of
certain environmental laws and regulations. In February, 1992, Mueller Brass
entered into a consent decree pursuant to which Mueller Brass will conduct a
planned site investigation and will subsequently perform any required cleanup.
Mueller Brass will also remove contaminants from storm water within six months
of receiving a discharge permit. Mueller Brass paid $1.5 million in penalties
and contributions towards environmentally oriented projects in Michigan in
1992, $0.3 million in 1993, and will pay another $0.3 million, plus interest,
through March, 1995. These amounts were accrued as of December 28, 1991.
Caster Guarantee
As part of the Plan (see Note 1), the Company agreed to provide a $16.5
million guarantee (the Caster Guarantee) of the financing and start-up by
Sharon Specialty Steel, Inc. (Sharon) of a continuous caster slab facility. In
early 1992, the Company and Sharon instituted declaratory judgment actions to
determine whether the Company's obligations under the Caster Guarantee had
expired. This litigation was settled on August 20, 1992. The settlement
provided for a $4.125 million loan to Sharon and the granting of options to
Sharon to purchase all equity securities of Sharon owned by the Company.
30 EXHIBIT 13.0
NOTE 12 STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLANS
Under the 1991 Incentive Stock Option Plan (ISO Plan), the Company may
grant options to purchase up to 250,000 shares of common stock at prices not
less than the fair market value of the stock on the date of grant. Generally,
any unexercised options expire after not more than ten years. No options may
be granted under this plan after ten years from the date the ISO Plan was
adopted.
On December 4, 1991, the Company authorized a special stock option grant
of 500,000 shares to induce Mr. Harvey L. Karp to enter into an employment
agreement with the Company. The exercise price, $8.25 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 500,000 shares, which was subsequently reduced by 100,000 option
shares which the Company issued to secure the employment of Mr. William D.
O'Hagan as its chief operating officer. Mr. Karp's additional grant of options
is on the same terms and conditions, and at the same price, as the original
grant. Although neither Mr. Karp's nor Mr. O'Hagan's options were granted
under the ISO Plan, the terms and conditions of Mr. O'Hagan's options are
generally similar to those granted under the ISO Plan.
Following is a summary of incentive stock option data:
1993 1992
Outstanding at beginning of year 1,167,500 500,000
Granted 75,000 782,500
Exercised (20,500) --
Expired, cancelled, or surrendered (31,500) (115,000)
--------- ---------
Outstanding at year-end 1,190,500 1,167,500
========= =========
Options exercisable at year-end 933,500 905,000
========= =========
Option prices per share outstanding at year-end $7.25-$32.50 $7.25-$14.00
========= =========
Under the Amended and Restated Mueller Industries, Inc. 1991 Employee
Stock Purchase Plan (the EMSP Plan), the Company may offer to eligible
employees (generally all full-time employees) options to purchase up to three
shares of the company's common stock for each $1,000 of compensation. The
option price is the lower of (i) 85% of the fair value of the stock on the
offering date, or (ii) 85% of the fair value of the stock on the last day of
the one-year offering period. The maximum number of shares which shall be made
available for sale under the EMSP Plan during all offerings shall be 450,000
shares. Under the EMSP Plan, 44,158 shares have been issued. During the
offering period beginning July 1, 1993, options for 25,379 shares were
granted. Of the grants, 3,653 share options were cancelled or surrendered due
to participant terminations and voluntary withdrawals as provided by the EMSP
Plan. At December 25, 1993, options to purchase 21,726 shares were outstanding
at the exercise price of $28.69 per share under the EMSP Plan.
31 EXHIBIT 13.0
NOTE 13 INDUSTRY SEGMENTS
The Company is engaged in the manufacture and sale of copper, brass,
bronze, aluminum, and plastic products, and in natural resource operations
consisting principally of placer gold mining, as well as the operation of a
Class III short line railroad. 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 and corporate headquarter
facilities. There are no intersegment sales. The Company does not have
significant foreign operations and, accordingly, geographical segment
information is not presented.
(In thousands)
1993 1992 1991
Net sales:
Manufacturing $ 478,287 $ 494,704 $ 413,210
Natural resources 23,598 22,635 28,221
-------- -------- --------
Consolidated net sales 501,885 517,339 441,431
-------- -------- --------
Operating income (loss):
Manufacturing 38,052 26,419 5,629
Natural resources 5,534 4,252 1,214
General corporate (5,559) (1,353) (8,481)
-------- -------- --------
Consolidated operating income (loss) 38,027 29,318 (1,638)
Non-operating income (expense)* 1,175 675 (41,983)
Interest expense (5,759) (5,694) (6,114)
Consolidated income (loss) before taxes
and accounting change $ 33,443 $ 24,299 $ (49,735)
======== ======== ========
Provision for depreciation, depletion
and amortization:
Manufacturing $ 9,172 $ 9,198 $ 8,825
Natural resources 3,791 2,332 4,284
General corporate 1,197 975 185
-------- -------- --------
Consolidated provision for depreciation,
depletion and amortization $ 14,160 $ 12,505 $ 13,294
======== ======== ========
Capital expenditures:
Manufacturing $ 8,039 $ 6,930 $ 7,670
Natural resources 356 80 762
General corporate 2,688 3,942 3,393
-------- -------- --------
Consolidated capital expenditures $ 11,083 $ 10,952 $ 11,825
======== ======== ========
32 EXHIBIT 13.0
NOTE 13 INDUSTRY SEGMENTS (Continued)
(In thousands)
1993 1992 1991
Identifiable assets:
Manufacturing $ 269,189 $ 278,524 $ 282,143
Natural resources 34,316 40,768 48,246
-------- -------- --------
Total identifiable assets 303,505 319,292 330,389
General corporate assets 66,238 53,255 4,397
-------- -------- --------
Consolidated assets $ 369,743 $ 372,547 $ 334,786
======== ======== ========
<FN>
*The sum of unusual items (of which $27.9 million related to Natural Resources
and $16.5 million related to general corporate in 1991),environmental reserves
and other income items.
33 EXHIBIT 13.0
NOTE 14 QUARTERLY FINANCIAL INFORMATION (Unaudited)
Financial results by quarter are as follows:
(In thousands, except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
1993
Net sales $ 131,037 $ 127,321 $ 122,106 $ 121,421
Gross profit (1) $ 22,781 $ 23,898 $ 25,777 $ 25,654
Net income $ 4,213 $ 5,312 $ 5,635 $ 5,976(2)
Net income per share $ .41 $ .51 $ .54 $ .57
1992
Net sales $ 117,895 $ 130,882 $ 147,670 $ 120,892
Gross profit (1) $ 20,487 $ 20,662 $ 24,531 $ 21,952
Net income before
cumulative effect $ 3,560 $ 4,002 $ 4,220 $ 4,438
Cumulative effect of
accounting change 446 -- -- --
-------- -------- -------- --------
Net income $ 4,006 $ 4,002 $ 4,220 $ 4,438(2)
======== ======== ======== ========
Net income before
cumulative effect per share $ .37 $ .40 $ .42 $ .43
Cumulative effect of
accounting change .05 -- -- --
-------- -------- -------- --------
Net income per share $ .42 $ .40 $ .42 $ .43
======== ======== ======== ========
<FN>
(1) Gross profit is net sales less cost of goods sold, which excludes
depreciation, depletion and amortization.
(2) A change in inventory estimate was recognized in addition to the items
described in Notes 9 and 10.
34 EXHIBIT 13.0
REPORT OF INDEPENDENT AUDITORS
The Stockholders of Mueller Industries, Inc.
We have audited the accompanying consolidated balance sheets of Mueller
Industries, Inc. as of December 25, 1993 and December 26, 1992 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 25, 1993. 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 25, 1993 and December 26, 1992, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 25, 1993, in conformity with
generally accepted accounting principles.
ERNST AND YOUNG
Wichita, Kansas
February 14, 1994
35 EXHIBIT 13.0
CAPITAL STOCK INFORMATION
The high, low and closing prices on the New York Stock Exchange for
each fiscal quarter of 1993 and 1992 were as follows:
1993 High Low Close
Fourth quarter $ 35 $ 31-1/4 $ 33-3/4
Third quarter $ 34-1/4 $ 27-1/8 $ 31-7/8
Second quarter $ 34-3/4 $ 23-5/8 $ 32-3/8
First quarter $ 27-1/8 $ 20 $ 24-3/8
1992 High Low Close
Fourth quarter $ 21-7/8 $ 15-5/8 $ 21-3/8
Third quarter $ 16-3/4 $ 12-3/8 $ 16-3/8
Second quarter $ 15-3/8 $ 11-5/8 $ 14-1/8
First quarter $ 13-7/8 $ 7 $ 12-1/8
The principal market for Mueller's common stock is the New York
Stock Exchange under the symbol MLI. As of March 1, 1994, the number of
holders of record of Mueller's common stock was 4,190. The New York
Stock Exchange's closing price for Mueller's common stock on March 1,
1994 was $35-3/8.
The Company has paid no dividends on its common stock and presently
does not anticipate paying cash dividends in the near future.
36 EXHIBIT 13.0
SELECTED FINANCIAL DATA
(In thousands, except share data)
1993 1992 1991 1990(1) 1989(1)
For the fiscal year: | (Predecessor)
Net sales $ 501,885 $ 517,339 $ 441,431 |$ 505,376 $ 510,537
Operating income (loss) $ 38,027 $ 29,318 $ (1,638) |$ (4,491) $ 22,643
Income (loss) from |
continuing operations $ 21,136(2) $ 16,220(3) $ (43,741)(4)|$ (9,342) $ 14,041
Income (loss) from |
continuing operations |
per common share $ 2.02(2) $ 1.61(3) $ (4.49)(4)| * *
- ---------------------------------------------------------------------------------------------
At Year End: |(Predecessor)
Total assets $ 369,743 $ 372,547 $ 334,786 $ 415,603| *
Long-term debt $ 54,320 $ 62,376 $ 45,156 $ 54,003| *
- ---------------------------------------------------------------------------------------------
At December 31, 1990, the Company adopted AICPA SOP 90-7, Financial Reporting by Entities
in Reorganization under the Bankruptcy Code. The SOP requires that the financial statements be
prepared on the basis that a new reporting entity is created and that assets and liabilities
should be recorded at their fair values as of the reorganization date based on the specific
elements of the Plan. Since December 31, 1990, the consolidated financial statements have been
prepared as if the Company is a new reporting entity, and therefore a black line has been
presented between years which have not been prepared on a comparable basis.
<FN>
* Amounts are not comparable due to the reorganization of the Company.
(1) Previously reported consolidated financial information has been restated to reflect the
discontinuance and disposition of the steel segment of the Company's businesses on
December 28, 1990.
(2) Includes a charge for unusual items of $2.0 million, or $.19 per common share.
(3) Includes a charge for unusual items of $5.6 million, or $.56 per common share.
(4) Includes a charge for unusual items of $44.4 million, or $4.56 per common share.
37 EXHIBIT 13.0
CORPORATE INFORMATION
DIRECTORS
Harvey L. Karp Chairman of the Board
Mueller Industries, Inc.
Ray C. Adam (1) (2) Private Investor
Rodman L. Drake (2) (3) President of Rodman L. Drake & Co., Inc.
Gary S. Gladstein (1) (2) Managing Director of Soros Fund Management
Allan Mactier (1) (3) Private Investor
William D. O'Hagan President and Chief Executive Officer
Mueller Industries, Inc.
Robert J. Pasquarelli (1) Chief Executive Officer of New Jersey
Steel Corporation
Paul Soros Private Investor
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
Harvey W. Clements Vice President and General Manager -
Tube Division
John B. Hansen Vice President and General Manager -
Fittings Division
William H. Hensley Vice President, General Counsel and
Secretary
Lee R. Nyman Vice President - Manufacturing/Management
Engineering
James H. Rourke Vice President and General Manager -
Industrial Division
Roy C. Harris Corporate Controller
Kent A. McKee Treasurer and Assistant Secretary
38 EXHIBIT 13.0
Corporate Headquarters 2959 North Rock Road, Wichita, Kansas, 67226
P.O. Box 789761, Wichita, Kansas, 67278-9761
(316) 636-6300
Annual Meeting The Annual Meeting of Stockholders will be
held at the Wichita Marriott, 9100 Corporate
Hills Drive, Wichita, Kansas 67207 at 10:00
a.m. local time, May 12, 1994.
Form 10-K Copies of the Company's Annual Report on Form
10-K are available upon written request from
the Treasurer, Mueller Industries, Inc.,
P.O. Box 789761, Wichita, Kansas 67278-9761.
Common Stock Mueller common stock is traded on the NYSE -
Symbol MLI.
Independent Auditors Ernst & Young, Wichita, Kansas.
Legal Counsel Willkie Farr & Gallagher, One Citicorp
Center, 153 E. 53rd Street,
New York, New York 10022
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.
[FN]
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee