1
MUELLER INDUSTRIES, INC.
1996 ANNUAL REPORT
COMMITMENT TO EXCELLENCE
We are committed to being the supplier of choice in our industry.
Continual investment in state-of-the-art technology, equipment, and people
will set us apart...and allow us to anticipate and exceed the needs of our
customers. Serving our customers and employees well should prove to be a
worthwhile reward for our long-term shareholders.
In 1997, we will be able to better serve our customers' needs because of
our recent investments:
High efficiency extrusion and continuous tube drawing;
Indirect extrusion press increasing yield at our brass rod mill;
Plastic fittings capacity;
Key item/high-volume copper fittings factory;
Entry into the line set business; and
Acquisition of Precision Tube Company business.
Our goal is to continually improve existing operations, pursue additional
areas of growth, and provide our customers with superior service. Areas of
focus in 1997 include:
Improving the utilization of scrap metal with enhanced refining
processes;
Broadening our plastics product offering;
Building a prototype distribution center in Covington, Tennessee;
and
Streamlining our distribution network.
You will also see continuing focus in the future on external growth of
our Company through strategic acquisitions.
As you can imagine, our employees are never satisfied with simply
maintaining the status quo. Originality is the principal source of human
improvement. Original thinkers don't fear change, they embrace it! They look
forward to change because they know it is where they thrive. The happiness
and well-being of our employees is dependent on their ability to be flexible
and receptive to change. They can and will continue to meet every future
challenge.
2
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)
1992 1993 1994 1995 1996
Summary of Operations
Net sales $ 517,339 $ 501,885 $ 550,003 $ 678,838 $ 718,312
Sales of manufactured products
(in millions of pounds) 329.5 362.1 380.6 388.3 447.0
Net income $ 16,666 $ 21,136 $ 27,926 $ 44,823 $ 61,173
Average shares outstanding (in thousands) 20,110 20,886 19,780 19,149 19,497
Net income per share - primary $ .83 $ 1.01 $ 1.41 $ 2.34 $ 3.14
Significant Year-End Data
Cash and cash equivalents $ 44,459 $ 77,336 $ 34,492 $ 48,357 $ 96,956
Ratio of current assets to current liabilities 3.1 to 1 4.1 to 1 2.7 to 1 3.1 to 1 3.5 to 1
Working capital $ 124,355 $ 146,981 $ 116,330 $ 143,154 $ 195,756
Long-term debt (including current portion) $ 69,477 $ 62,711 $ 94,736 $ 75,902 $ 59,650
Debt as a percent of total capitalization 25.4% 22.0% 28.1% 21.0% 14.6%
Stockholders' equity $ 204,421 $ 222,114 $ 241,948 $ 285,875 $ 348,082
Book value per share $ 10.61 $ 11.59 $ 13.91 $ 16.48 $ 19.96
Capital expenditures $ 10,952 $ 11,083 $ 48,152 $ 40,980 $ 18,868
Number of employees 2,055 2,010 2,256 2,274 2,339
[GRAPH]
1992 1993 1994 1995 1996
Net Income (Dollars In Thousands) $ 16,666 $ 21,136 $ 27,926 $ 44,823 $ 61,173
Primary Earnings Per Share $ .83 $ 1.01 $ 1.41 $ 2.34 $ 3.14
3
A REPORT TO OUR STOCKHOLDERS, CUSTOMERS, AND EMPLOYEES
In 1996, Mueller Industries, Inc. again achieved record earnings. Sales,
net earnings, pounds of product shipped, and earnings per share all reached
record levels. Our major capital investments of the past few years have
resulted in increased production capacity, higher yields, and improved
efficiency at the Company's manufacturing operations. Our excellent balance
sheet, dedicated employees, and strong customer relationships provide Mueller
with many opportunities for growth in the years ahead.
Record Results
Net income increased to $61.2 million in 1996, compared to $44.8 million
in 1995, a gain of 37 percent. Earnings per share rose 34 percent, to $3.14
for 1996 from $2.34 per share in 1995. Despite a decline in copper prices,
which are largely incorporated into our selling prices, net sales climbed to
$718.3 million in 1996, from $678.8 million in the prior year. Mueller
shipped 447.0 million pounds of product in 1996, up 15 percent from 388.3
million pounds in 1995.
Manufacturing Operations
Mueller's copper tube mill, located in Fulton, Mississippi, had a busy
and productive year. Market demand for tube products was strong, but by
working around-the-clock, Mueller's employees beat all prior production
records and met our customers' needs. An enlarged billet package and state-
of-the-art drawing equipment enabled the mill to increase deliveries, while
maintaining quality standards and reducing conversion costs.
Demand for wrot copper fittings was also strong in 1996. Selling prices
dropped slightly, but overall, our margins remained solid. Manufacturing
productivity at Mueller's low-volume copper fittings plant in Covington,
Tennessee, improved. All production lines at our new high-volume copper
fittings plant in Fulton, Mississippi, are now operational. Although this
plant provides needed additional capacity, it is not yet operating at planned
levels of throughput and yield. Mueller's Canadian copper fittings plant,
located in Strathroy, Ontario, had another good year, despite the slow economy
in Canada and Europe.
Our plastic fittings business had a breakthrough year. Mueller's plants
in Ohio, Michigan, and California operated at unprecedented volume and
efficiency. Our decision in 1994 to expand our presence in the plastics
business has proved worthwhile giving us the size and leverage to become one
of the lowest cost producers in the industry.
Our refrigeration business, based in Hartsville, Tennessee, continued to
grow both in sales and profitability. We are working to achieve further
growth, while delivering products more effectively through our OEM and
wholesale channels of distribution.
Mueller's Port Huron, Michigan, brass rod mill ran near capacity for the
entire year. The new indirect extrusion press, installed in late 1995,
permitted an increase in throughput to meet brisk market demand. Sales at our
forgings plant, also in Port Huron, remained solid. Production improved
significantly at our aluminum impact extrusion facility in Marysville,
Michigan. This business has successfully transitioned from dependence on
munitions to a more diverse product portfolio with greater potential for
growth.
4
Natural Resource Operations
The Utah Railway Company had its best year ever in 1996. Tonnage shipped
increased by 14 percent, resulting in increased operating profits. As a
result of the Union Pacific/Southern Pacific merger, the railroad gained
trackage rights and access to additional coal mining customers. We are
exploring these new opportunities.
In March 1996, Mueller acquired the minority interest in Alaska Gold
Company, thereby making it a wholly-owned subsidiary. Alaska Gold, which
operates open-pit placer gold mines in Nome, Alaska, had a difficult year due
to lower grade pay gravel and increased exploration costs. In 1997, Alaska
Gold will focus on profitable extraction of gold from ongoing open-pit
operations.
Internal Growth
The Company has begun a two-year program to upgrade its copper casting
and refining processes at the Fulton copper tube mill. This investment,
totaling approximately $25 million, will increase copper tube capacity and
allow greater flexibility in the use of copper scrap when market conditions
warrant.
In the plastic fittings business, Mueller has embarked on an $11 million
capital investment program to increase productivity and capacity at our
manufacturing plants. In addition, we will invest approximately $7 million
over the next two years in our Covington, Tennessee, low-volume copper
fittings plant to increase output and improve efficiency.
Finally, Mueller is implementing several initiatives to improve our
distribution systems. Warehouse capacity at the Fulton tube mill will expand
substantially, permitting more large orders to ship direct to customers.
Direct shipments will increase availability and reduce handling costs. We
also plan to install a new, highly automated part-picking and shipping system
in Covington, allowing for faster order processing.
Acquisitions
Mueller made two acquisitions in 1996. In June, we entered the line sets
business by acquiring the assets of Vanguard Industries, Inc. Line sets, made
from copper tube, are used to control the flow of refrigerant gases. The
acquisition was immediately accretive to earnings. Our sales force has had
considerable success distributing line sets to both OEMs and wholesalers. To
keep up with anticipated demand, we will construct a new line sets factory in
Fulton, Mississippi, during 1997.
On December 30, 1996, Mueller acquired the assets of Precision Tube
Company, Inc., with operations in North Wales, Pennsylvania, and Salisbury,
Maryland. Precision Tube manufactures copper tubing, copper alloy tubing,
aluminum tubing, and fabricated tubular products. Precision Tube's largest
market is the baseboard heating industry. The acquisition should be accretive
to earnings in 1997.
Mueller will continue to seek acquisitions, on a global basis, that will
add to the basic value of our Company. We look for logical extensions to our
existing product lines that can benefit from our manufacturing or marketing
expertise. In anticipation of continued growth, Mueller increased its
unsecured line-of-credit facility to $100 million in December 1996.
5
Philosophy
Mueller is committed to long-term business relationships. We work every
day to understand and anticipate our customers' needs. We will continue to
invest the care and capital to ensure quality, availability, and service.
Empowering employees is the key to successful change. The progress of
the past few years would not have been possible without the dedication and
enthusiasm of our many talented and hard-working employees. Mueller will
continue to respect and to support our employees, to reward thoughtful
initiative, and to provide opportunities for career advancement.
Outlook
Economic indicators going into 1997 are favorable for our business.
Housing starts are near the highest levels of the 1990s. Larger homes are
being built, with more bathrooms, generating increasing demand for our
products. Consumer confidence is high. Fixed rate 30-year mortgages are
available at interest rates below 8 percent. These favorable economic
conditions hold the promise for another good year for Mueller.
Enthusiasm and excitement pervade Mueller. Our Company has achieved much
in the past five years with each accomplishment creating new opportunities.
We will pursue these opportunities with energy 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, 1997
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BUSINESS INTERESTS
STANDARD PRODUCTS DIVISION
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 produced at Mueller's copper tube
mill and copper rod into over 1,500 different sizes and shapes. Our newest
facility, a high-volume 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 specialized high-volume
factory enables the Company's facility in Covington to focus on a much broader
range of low-volume items, where careful scheduling and quick changeovers are
critical to profitable and efficient operation. Mueller is also undertaking a
modernization program at this plant in Covington 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 where metric sized products are required.
Plastic Fittings
Mueller manufactures a full DWV plastic fittings product line. These
operations are located in Kalamazoo, Michigan; Cerritos, California; and Upper
Sandusky, Ohio. Injection molding equipment at these three plants produces
over 1,000 different parts in PVC and ABS in various diameters. 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 and valves. The Company plans to broaden its plastics
offering in the future to better supply our customers' needs.
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.
A mill modernization program, completed in 1995, included an upgrade of
extrusion technology and installation of state-of-the-art tube drawing and
material handling equipment, significantly increasing productivity and
efficiency. Because of this investment, the Company was better able to serve
its customers' growing demand for tube in 1996.
7
Line Sets
The Company entered the line sets business during the second quarter by
acquiring the assets of Vanguard Industries, Inc. We sell this product, which
is used for controlling the flow of refrigerant gases, to both OEMs and
wholesalers. Line sets are a logical extension of our product line as they
are made from copper tube and are distributed by our present sales
organization. The Company manufactures line sets at a separate factory in
Fulton, Mississippi.
PRECISION TUBE COMPANY
Precision Tube manufactures copper tubing, copper alloy tubing, aluminum
tubing and fabricated tubular products. Precision Tube's principal product
line, manufactured at its plant in North Wales, Pennsylvania, is copper tubing
for the baseboard heating industry. Other applications include appliances,
aircraft, connectors, medical instruments, musical instruments, and sports and
leisure products.
Precision Tube also manufactures semi-rigid and flexible coaxial cables
and assemblies at its facility in Salisbury, Maryland (Coaxitube Division).
Applications of these products include defense and microwave technologies.
The Coaxitube Division also has exclusive North American rights to market and
distribute Spinner GmbH connectors, which are used in applications where
precise tolerances are critical.
The Precision Tube acquisition, completed on December 30, 1996, is a
logical extension of the Company's copper fabricating business. With access
to additional capital, Precision Tube should be able to expand its customer
base and improve its operating efficiency and profitability.
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 sold through service centers and to OEM customers.
Brass Rod
The Port Huron, Michigan, mill is a leading extruder of free-machining
brass rod. Mueller produces a broad range of rounds, squares, and hexagons
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.
During 1996, Mueller completed a two-year, $16 million investment program
at its brass rod mill. This investment included the installation of a state-
of-the-art indirect extrusion press, new billet heating furnaces, rod coilers
and run out conveyors, and product cleaning and material handling systems.
This modernization program significantly upgrades the manufacturing process.
Mueller is enhancing these operations to achieve greater throughput enabling
us to satisfy the growing, changing needs of our customers.
8
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 close to final
shape and dimensions.
Impact Extrusions
Impact extrusions produced at Marysville, Michigan, are QS 9000
certified. These cold formed aluminum and copper wrot products combine
toughness with versatility of design and finish. Mueller impacts enable
customers to replace multi-part assemblies with simple one piece designs,
resulting in increased strength, reduced weight, and improved appearance.
REFRIGERATION PRODUCTS DIVISION
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.
NATURAL RESOURCE OPERATIONS
The Utah Railway Company, established in 1912, hauls coal to connections
with national carriers, power plants and to other destinations. In 1996,
Utah Railway hauled 6.2 million tons of coal mined primarily in Carbon and
Emery Counties, Utah. In February 1996, Utah Railway reached an agreement
with the Union Pacific Railroad granting us overhead trackage rights to Grand
Junction, Colorado, and access to additional coal mining customers.
In 1996, Alaska Gold Company mined approximately 24,100 ounces of gold
through open-pit and other operations. Alaska Gold will continue open-pit
mining in Nome during 1997.
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[GRAPH]
EARNINGS PER SHARE BY QUARTER
1996 1995 1994
Fourth quarter $ .91 $ .65 $ .50
Third quarter .83 .60 .45
Second quarter .71 .56 .28
First quarter .69 .53 .20
[GRAPH]
DEBT AS A PERCENT OF TOTAL CAPITALIZATION BY QUARTER
1996 1995 1994
Fourth quarter 14.6% 21.0% 28.1%
Third quarter 16.8% 22.7% 30.3%
Second quarter 18.1% 25.1% 27.3%
First quarter 19.5% 26.7% 26.3%
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FINANCIAL REVIEW
OVERVIEW
The Company's principal business is the manufacture and sale of copper
tube, brass rod, copper and plastic fittings, forgings, valves, and other
products made of copper, brass, bronze, plastic and aluminum. 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, commercial buildings, and other construction. A majority of the
Company's product is sold through wholesalers in the plumbing, air-
conditioning and refrigeration markets and to OEMs in these and other
markets.
Profitability of certain of the Company's product lines depends upon
the "spreads" between the cost of metal and the gross selling prices of its
completed products. The open market price for copper cathode, for example,
directly influences the selling price of copper tubing, a principal product
manufactured by the Company. The Company minimizes the effects of changes
in copper prices by passing base metal costs through to its customers as
metal prices fluctuate.
In 1994, Mueller adopted the LIFO method of accounting for the copper
component of certain of its copper tube and fittings inventories.
Management believes the LIFO method results in a better matching of current
costs with current revenues. The market price of copper does, however,
indirectly affect the carrying value (FIFO basis) of the Company's brass
and other inventories. The Company's copper and brass inventories
customarily total between 30 and 40 million pounds. "Spreads" between
material costs and selling prices of finished products fluctuate based upon
competitive market conditions.
The Company also owns various natural resource properties in the
Western United States and Canada. It operates a short line railroad in
Utah and a placer gold mining company in Alaska. Also, certain other
natural resource properties are leased while others are offered for sale.
Certain properties produce rental or royalty income.
RESULTS OF OPERATIONS
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. Natural resource sales declined to $20.3 million in
1996 from $31.9 million in 1995 due to the timing of gold sales.
11
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 is mainly for
Mueller's Mining Remedial Recovery Company and is based on updated
information and results of ongoing environmental remeditation and
monitoring programs for previously identified environmental sites.
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, both in our natural resource
businesses. 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.
12
Natural Resources Group
Net sales of the Company's natural resources segment 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.
1995 Performance Compared to 1994
Consolidated net sales of $678.8 million in 1995 compares with $550.0
million in 1994. The increase is primarily attributable to higher copper
prices, which are generally passed through to customers, and to higher
volumes. In 1995, the Company's core manufacturing businesses shipped
388.3 million pounds of product compared to 380.6 million pounds in 1994.
This improvement in shipments was due to modest market share gains in
certain core product lines and the acquisition of two plastic fittings
manufacturing facilities in September, 1994.
Depreciation and amortization totaled $15.5 million in 1995, an
increase from the 1994 level of $12.7 million. The increase is due
primarily to added depreciation from higher capital investments.
Selling, general, and administrative expenses were $49.5 million in
1995 compared with $44.9 million in 1994. This increase is primarily
attributable to increased sales activity.
Interest expense totaled $4.2 million in 1995, down from $6.7 million
in 1994. The decrease is due to scheduled debt repayments and capitalized
interest of approximately $2.9 million related to three major capital
improvement programs. Environmental charges of $1.4 million in 1995 were
expensed. These charges pertain to certain added costs incurred or to be
incurred at various, previously identified environmental sites. Other
income declined to $6.1 million in 1995 from $7.6 million due primarily to
fewer gains on asset disposals.
The Company's 1995 effective tax rate of 30.6 percent is primarily due
to the recognition of NOLs available to offset future federal taxable
income. Recognition of NOLs, along with all other tax attributes, requires
judgmental estimates of, among other things, the Company's ability to
generate future federal taxable income.
Manufacturing Group
During 1995, net sales of the Company's manufacturing segment were
$646.9 million. This compares to net sales of $533.4 million in 1994.
This change was primarily attributable to: (i) sales volume increases and
(ii) pricing increases due to higher average raw material costs (primarily
copper) in 1995. The Company's core manufacturing businesses shipped 388.3
million pounds of product in 1995 which compares to 380.6 million pounds in
1994.
13
Operating income increased primarily due to: (i) productivity
improvements at the manufacturing plants; (ii) selective price increases
for copper fittings and brass rod products; and (iii) leveraging and
containment of certain other costs and expenses throughout the Company.
Natural Resources Group
Net sales of the natural resources segment were $31.9 million in 1995
compared to $16.6 million in 1994. Transportation revenues of Utah Railway
increased 14.5 percent in 1995 over 1994. Utah Railway hauled 5.5 million
tons of coal in 1995, compared with 4.9 million tons of coal in 1994. Gold
sales were $13.0 million (33,820 ounces) in 1995 compared to $.3 million
(594 ounces) in 1994. Approximately 14,500 ounces of gold, held in
inventory at December, 1994, were included in the total ounces sold during
1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalent balance increased $48.6 million
during 1996 to $97.0 million at year-end. Major components of the 1996
change include $78.7 million of cash provided by operating activities,
$19.3 million of cash used for capital expenditures and acquisitions, and
$16.3 million of cash used for repayment of long-term debt.
Net income of $61.2 million in 1996 was the primary component of cash
provided by operating activities. Depreciation and amortization of $18.5
million and deferred income taxes of $4.1 million were the primary non-cash
adjustments. Major changes in working capital included a $10.1 million
increase in inventories, a $5.6 million increase in receivables, and a
$12.5 million increase in current liabilities. Much of this increase in
inventories is attributable to gold, whereas receivables increased $5.6
million primarily from higher 1996 sales volume. Current liabilities
increased due to higher federal and state tax liabilities, increased
discounts and allowances from higher 1996 sales volume, certain railroad
track maintenance costs and interline charges, higher accounts payable and
accrued employee costs and increased reserves for certain medical, workers'
compensation and insurance costs.
Net cash used in investing activities in 1996 was $15.1 million, $19.3
million for capital expenditures and a business acquisition, offset by $4.1
million received from the sale of properties. Capital expenditures were
primarily related to improvements in manufacturing technology, cost
reductions, increased productivity and yield, quality improvements, and
capacity expansion. A majority of these expenditures is associated with
the Company's major capital improvement programs in its manufacturing
businesses.
Net cash used in financing activities totaled $15.0 million which
includes $16.3 million for repayment of debt, offset by $1.3 million from
sales of treasury stock under terms of outstanding stock option grants and
the employee stock purchase plan.
14
The Company has a $100.0 million unsecured line-of-credit agreement
which expires in December 1999, but which may be extended for successive
one year periods by agreement of the parties. This credit facility was
increased from $50.0 million in December 1996. There are no outstanding
borrowings against the credit facility. However, the Company did have $4.7
million in letters of credit backed by the credit facility at the end of
1996. At December 28, 1996, the Company's total debt was $59.7 million or
14.6 percent of its total capitalization, down from 21.0 percent at the end
of 1995.
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.
Management believes that cash provided by operations, and currently
available cash of $97.0 million at the end of 1996, will be adequate to
meet the Company's normal future capital expenditure and operational needs.
The Company's current ratio is 3.5 to 1 at December 1996, compared to 3.1
to 1 at December 1995.
The Company has approved a $25.0 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 capacity. Moreover, the
project, when completed in approximately two years, will allow the tube
mill to use more scrap copper when market conditions warrant.
The Company is also committed to an $11.0 million capital investment
program to increase productivity and capacity at its plastic fittings
manufacturing operations. Another important ongoing program is the
modernization of the Company's low-volume, copper fittings plant in
Covington, Tennessee. Modernization of this facility, which produces a
broad range of low-volume copper fittings, is estimated to require
approximately $7.1 million in capital improvements and will be completed in
1998. This project, when completed, will also increase output and improve
efficiency. Further, the Company has approved capital expenditures
totaling approximately $4.5 million to develop a prototype copper fittings
distribution center in Covington, Tennessee, and expand its Fulton,
Mississippi, copper tube distribution capabilities.
These capital improvement projects will be funded with existing cash
balances and cash generated by operations. Additionally, the Company is
evaluating other financing alternatives for certain of these projects.
The Company has also completed two acquisitions in fiscal 1997 as
discussed in Note 12. The purchase price and working capital requirements
for these acquisitions are funded from existing cash.
15
OTHER MATTERS
At December 28, 1996, the Company has total environmental reserves of
approximately $9.1 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 1997 adoption of a recently issued
accounting standard, as discussed in Note 1, will not have a material
impact on the Company's financial statements.
The impact of inflation on the Company's operations in 1996, 1995 and
1994 was not material.
OUTLOOK
New housing starts and commercial construction are important
determinants of Mueller's sales to the plumbing, air-conditioning and
refrigeration markets and to OEMs. We remain optimistic about 1997 due to
prevailing low mortgage interest rates which have historically stimulated
the housing market.
16
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 28, 1996, December 30, 1995 and December 31, 1994
(In thousands, except per share data)
1996 1995 1994
Net sales $ 718,312 $ 678,838 $ 550,003
Cost of goods sold 554,570 549,884 448,467
-------- -------- --------
Gross profit 163,742 128,954 101,536
Depreciation and amortization 18,472 15,452 12,689
Selling, general, and administrative
expense 54,808 49,491 44,895
-------- -------- --------
Operating income 90,462 64,011 43,952
Interest expense (5,346) (4,168) (6,718)
Environmental reserves (2,045) (1,421) (2,914)
Other income, net 5,341 6,127 6,504
-------- -------- --------
Income before income taxes 88,412 64,549 40,824
Income tax expense (27,239) (19,726) (12,898)
-------- -------- --------
Net income $ 61,173 $ 44,823 $ 27,926
======== ======== ========
Net income per share:
Primary
Average shares outstanding 19,497 19,149 19,780
Net income $ 3.14 $ 2.34 $ 1.41
Fully diluted
Average shares outstanding 19,499 19,328 19,780
Net income $ 3.14 $ 2.32 $ 1.41
<FN>
See accompanying notes to consolidated financial statements.
17
CONSOLIDATED BALANCE SHEETS
As of December 28, 1996 and December 30, 1995
(In thousands, except share data)
1996 1995
ASSETS
Current assets
Cash and cash equivalents $ 96,956 $ 48,357
Accounts receivable, less allowance for doubtful
accounts of $3,188 in 1996 and $2,986 in 1995 88,905 83,712
Inventories 76,647 66,360
Current deferred income taxes 6,508 7,354
Other current assets 5,696 5,255
-------- --------
Total current assets 274,712 211,038
Property, plant and equipment, net 219,855 221,012
Deferred income taxes 10,064 13,174
Other assets 4,726 5,611
-------- --------
TOTAL ASSETS $ 509,357 $ 450,835
======== ========
<FN>
See accompanying notes to consolidated financial statements.
18
CONSOLIDATED BALANCE SHEETS (Continued)
As of December 28, 1996 and December 30, 1995
(In thousands, except share data)
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 14,844 $ 16,249
Accounts payable 18,305 16,931
Accrued wages and other employee costs 16,872 14,499
Other current liabilities 28,935 20,205
-------- --------
Total current liabilities 78,956 67,884
Long-term debt 44,806 59,653
Pension liabilities 7,735 7,093
Postretirement benefits other than pensions 8,140 8,883
Environmental reserves 9,105 9,585
Deferred income taxes 2,922 2,734
Other noncurrent liabilities 9,214 9,128
-------- --------
Total liabilities 160,878 164,960
-------- --------
Minority interest in subsidiaries 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
17,434,888 in 1996 and 17,349,498 in 1995 200 200
Additional paid-in capital, common 254,214 253,969
Retained earnings since January 1, 1991 127,983 66,810
Cumulative translation adjustments (2,805) (2,545)
Treasury common stock, at cost (31,510) (32,559)
-------- --------
Total stockholders' equity 348,082 285,875
Commitments and contingencies - -
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 509,357 $ 450,835
======== ========
<FN>
See accompanying notes to consolidated financial statements.
19
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 28, 1996, December 30, 1995 and December 31, 1994
(In thousands)
1996 1995 1994
OPERATING ACTIVITIES:
Net income $ 61,173 $ 44,823 $ 27,926
Reconciliation of net income to
net cash provided by operating
activities:
Depreciation and amortization 18,472 15,452 12,689
Provision for doubtful accounts
receivable 435 75 186
Minority interest in subsidiaries 397 - -
Deferred income taxes 4,144 7,112 4,748
Gain on disposal of properties (973) (1,835) (3,159)
Changes in assets and liabilities:
Receivables (5,628) (16,862) (7,914)
Inventories (10,070) 8,008 (20,835)
Other assets (793) (1,885) (382)
Current liabilities 12,477 3,491 8,801
Other liabilities (495) (3,856) 376
Other, net (439) 445 (473)
-------- -------- --------
Net cash provided by operating activities 78,700 54,968 21,963
-------- -------- --------
INVESTING ACTIVITIES:
Acquisition of business (417) - (12,815)
Capital expenditures (18,868) (40,980) (48,152)
Proceeds from sales of properties 4,142 3,827 5,333
Escrowed IRB proceeds - 16,067 (16,078)
-------- -------- --------
Net cash used in investing activities (15,143) (21,086) (71,712)
-------- -------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - - 45,343
Repayments of long-term debt (16,252) (18,834) (13,318)
Acquisition of treasury stock - (2,055) (25,897)
Proceeds from the sale of treasury stock 1,294 872 777
-------- -------- --------
Net cash (used in) provided by
financing activities (14,958) (20,017) 6,905
-------- -------- --------
Increase (decrease) in cash and
cash equivalents 48,599 13,865 (42,844)
Cash and cash equivalents at the
beginning of the year 48,357 34,492 77,336
-------- -------- --------
Cash and cash equivalents at the
end of the year $ 96,956 $ 48,357 $ 34,492
======== ======== ========
<FN>
For supplemental disclosures of cash flow information, see Notes 1, 4, and 6.
See accompanying notes to consolidated financial statements.
20
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 28, 1996, December 30, 1995 and December 31, 1994
(In thousands)
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 25, 1993 20,000 $ 100 $ 236,406 $ (5,939) $ (1,944) 834 $ (6,509) $222,114
Repurchase of common stock - - - - - 1,850 (25,897) (25,897)
Net income - - - 27,926 - - - 27,926
Issuance of shares under
employee stock purchase plan - - 103 - - (43) 515 618
Recognition of income tax
benefits of preconfirmation
net of operating loss
carryforwards - - 17,916 - - - - 17,916
Issuance of shares under
incentive stock option plan - - (174) - - (39) 333 159
Cumulative translation
adjustments - - - - (888) - - (888)
---------- --- ------- ------ ----- --------- ------- -------
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
========== === ======= ====== ===== ========= ======= ========
<FN>
See accompanying notes to consolidated financial statements.
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The principal business of Mueller Industries, Inc. is the manufacture
and sale of copper tube and fittings; brass and copper alloy rods, bars and
shapes; aluminum and brass forgings; aluminum and copper impact extrusions;
plastic fittings and valves; and refrigeration valves, driers and flare
fittings. The Company markets its products to the heating and air-
conditioning, refrigeration, plumbing, hardware and other industries.
During 1996, the Company operated thirteen factories in five states and
Canada 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.
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 copper tube and copper fittings
inventories is valued on a last-in, first-out (LIFO) basis. Other
inventories, including the non-material components of 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. Prior to 1994, all inventories were accounted for
on a FIFO basis. See Note 2 for discussion of the accounting change.
DEPRECIATION AND AMORTIZATION
In general, depreciation 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.
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.
22
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
Primary earnings per common share are based upon the weighted average
number of common and common equivalent shares outstanding during each
period. Fully diluted earnings per share are based upon the weighted
average number of common shares outstanding plus the dilutive effects of
all outstanding stock options.
INCOME TAXES
The Company accounts for income taxes 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 28, 1996, and December 30, 1995, temporary investments
consisted of certificates of deposit, commercial paper, bank repurchase
agreements, and U.S. and foreign government securities totaling $98.1
million and $51.7 million, respectively. These carrying amounts
approximate fair value.
CONCENTRATIONS OF CREDIT AND MARKET RISK
Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers comprising the Company's
customer base, and their dispersion across different industries, including
air-conditioning, refrigeration, 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 to its
customers.
Occasionally, the Company hedges portions of its inventories against
price fluctuations through the purchase of option contracts. Gains and
losses on hedging transactions are recognized in income at the time the
underlying inventory is sold. At year-end, there were no open hedge
transactions nor any deferred gains or losses.
23
The Company's sales are principally denominated and collected in U.S.
currency. Certain sales of the Company's foreign operations are collected
in foreign currencies. Occasionally, the market risk regarding foreign
currency exchange rate fluctuations is hedged using forward contracts. At
year-end, there were no open forward contracts nor any deferred gains or
losses.
FOREIGN CURRENCY TRANSLATION
For foreign subsidiaries, the functional currency is the local foreign
currency. Balance sheet accounts are translated at exchange rates in
effect at the end of the year and income statement accounts are translated
at average exchange rates for the year. Translation gains and losses are
included as a separate component of stockholders' equity. Transaction
gains and losses included in the statement of income were not significant.
USE OF ESTIMATES
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.
RECENTLY ISSUED ACCOUNTING STANDARDS
During 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1, Environmental Remediation Liabilities
(SOP 96-1), effective for fiscal years beginning after December 15, 1996.
SOP 96-1 provides authoritative guidance on the recognition, measurement
and disclosure of environmental remediation liabilities. The Company will
adopt SOP 96-1 in the first quarter of 1997 and, based on current
circumstances, does not believe the effect of the adoption will be
material.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 consolidated financial statements
have been reclassified to conform with the 1996 presentation.
24
NOTE 2 - INVENTORIES
Inventories consist of the following:
(In thousands)
1996 1995
Raw material and supplies $ 15,416 $ 14,538
Work-in-process 12,540 17,133
Finished goods 42,041 34,681
Gold 6,650 8
-------- --------
Inventories $ 76,647 $ 66,360
======== ========
During 1994, the Company elected to change its method of valuing the
material component of certain of its copper tube and copper fittings
inventory from the FIFO method to the LIFO method. This change in
accounting principle was applied to the beginning of fiscal 1994.
Management believes the LIFO method results in a better matching of current
costs with current revenues. Additionally, the LIFO method is widely used
within the copper tube and copper fittings industry. The effect of this
change reduced net income for the year ended December 31, 1994, by $9.0
million (or 46 cents per share).
Inventories valued using the LIFO method were $20.9 million in 1996
and $21.2 million in 1995. The approximate FIFO current cost of such
inventories was $26.7 million at December 28, 1996, and $35.4 million at
December 30, 1995.
NOTE 3 - PROPERTIES
Properties stated at fair value as of December 28, 1990, with
subsequent additions recorded at cost, are as follows:
(In thousands)
1996 1995
Land and land improvements $ 6,646 $ 7,464
Buildings, machinery and equipment 279,116 247,655
Construction in progress 5,001 20,182
-------- --------
290,763 275,301
Less accumulated depreciation (70,908) (54,289)
-------- --------
Property, plant and equipment, net $ 219,855 $ 221,012
======== ========
25
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
(In thousands)
1996 1995
8.38% Unsecured Notes, due through 2000 $ 14,286 $ 17,857
7.54% Unsecured Note Payable, due through 1999 13,000 16,000
1993 Series IRBs with interest at 6.95%, due
through 2000 11,429 14,286
1994 Series IRBs with interest at 8.825%, due
through 2001 11,571 14,143
Other, including capitalized lease obligations 9,364 13,616
-------- --------
59,650 75,902
Less current portion of long-term debt (14,844) (16,249)
-------- --------
Long-term debt $ 44,806 $ 59,653
======== ========
Aggregate annual maturities of such debt are $14.8 million, $15.0
million, $15.3 million, $10.0 million and $2.4 million for the years 1997
through 2001, respectively. Interest paid in 1996, 1995 and 1994 was $5.2
million, $7.1 million and $8.1 million, respectively. During 1996 and
1995, the Company capitalized interest of $.3 million and $2.9 million,
respectively, related to its major capital improvement programs. Using a
discounted cash flow analysis, the book value of the Company's long-term
debt approximates fair value, based on the estimated current incremental
borrowing rates for similar types of borrowing arrangements.
During the fourth quarter of 1996, the Company increased to $100.0
million its unsecured line-of-credit agreement (the Credit Facility) which
expires on December 15, 1999, 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.
An annual 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 $4.7 million at December 28,
1996.
Borrowings under the above agreements require the Company, among other
things, to maintain certain minimum levels of net worth and meet certain
minimum financial ratios. The Company is in compliance with all covenants.
The Company leases certain facilities and equipment under operating
leases expiring on various dates through 2001. The lease payments under
these agreements aggregate to approximately $4.7 million in 1997, $4.4
million in 1998, $3.9 million in 1999, $2.5 million in 2000, and $.6
million in 2001. Total lease and rent expense amounted to $7.7 million in
1996, $7.4 million in 1995 and $6.9 million in 1994.
26
NOTE 5 - STOCKHOLDERS' EQUITY
In 1995, the Company declared a two-for-one stock split to be effected
in the form of a 100 percent stock dividend. All presentations of share
data herein, including earnings per share, have been restated to reflect
the split for all periods presented.
On November 10, 1994, the Company declared a dividend distribution of
one Right for each outstanding share of the Company's common stock. Each
Right entitles the holder to purchase one unit consisting of one-thousandth
of a share of Series A Junior Participating Preferred Stock at a purchase
price of $160 per unit, subject to adjustment. The Rights will not be
exercisable, or transferable apart from the Company's common stock, until
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.
On June 3, 1994, the Company purchased 1,849,750 shares of its common
stock, for an aggregate purchase price of approximately $25.9 million.
These shares were placed in treasury and may be used for general corporate
purposes, such as requirements for future exercises of options under
various option plans.
As of December 28, 1996, the Company had reserved 2,562,656 shares of
its common stock for issuance pursuant to certain stock option plans.
Additionally, the Company had reserved 15,000 shares of preferred stock for
issuance pursuant to the Shareholder Rights Plan.
27
NOTE 6 - INCOME TAXES
The components of income before income taxes were taxed under the
following jurisdictions:
(In thousands)
1996 1995 1994
Domestic $ 80,557 $ 56,632 $ 35,641
Foreign 7,855 7,917 5,183
-------- -------- --------
Income before income taxes $ 88,412 $ 64,549 $ 40,824
======== ======== ========
Income tax expense consists of the following:
(In thousands)
1996 1995 1994
Current tax expense:
Federal $ 18,296 $ 7,838 $ 4,172
Foreign 3,249 2,769 2,476
State and local 1,550 2,007 1,502
-------- -------- --------
Current tax expense 23,095 12,614 8,150
-------- -------- --------
Deferred tax expense (benefit):
Federal 3,995 7,031 5,621
State and local 149 81 (873)
-------- -------- --------
Deferred tax expense 4,144 7,112 4,748
-------- -------- --------
Income tax expense $ 27,239 $ 19,726 $ 12,898
======== ======== ========
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:
(In thousands)
1996 1995 1994
Expected income tax expense $ 30,944 $ 22,592 $ 14,288
State and local income tax,
net of federal benefit 1,027 1,357 976
Foreign income taxes 1,035 230 641
Reduction in valuation allowance (4,622) (5,006) (1,495)
Other, net (1,145) 553 (1,512)
-------- -------- --------
Income tax expense $ 27,239 $ 19,726 $ 12,898
======== ======== ========
28
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)
1996 1995
Deferred tax assets:
Accounts receivable $ 1,140 $ 1,013
Inventories 3,617 4,864
Pension, OPEB and accrued items 11,109 10,661
Other reserves 11,134 10,519
Net operating loss carryforwards 43,924 47,143
Loss carryforward-prior abandonment
of preferred stock 41,301 45,228
Alternative minimum tax credit
carryforwards 4,053 4,217
-------- --------
Total deferred tax assets 116,278 123,645
Less valuation allowance (56,299) (60,921)
-------- --------
Deferred tax assets, net of
valuation allowance 59,979 62,724
-------- --------
Deferred tax liabilities:
Property, plant and equipment 44,398 42,940
Undistributed income of
foreign subsidiaries 1,931 1,931
Other - 59
-------- --------
Total deferred tax liabilities 46,329 44,930
-------- --------
Net deferred tax asset $ 13,650 $ 17,794
======== ========
The Company's net operating loss carryforwards (NOLs) for federal
income tax purposes that expire prior to 2007 are subject to an annual
limitation of 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.
29
The Internal Revenue Service (IRS) audit for 1992 and prior years was
concluded in 1994 and resulted in no material changes. Following
conclusion of that audit, the Company entered into a Closing Agreement with
the IRS. This Agreement is a definitive determination on certain tax
attributes, including NOLs. Following execution of this Agreement, the
Company revised its estimates with respect to realization of the related
deferred tax assets in future years. During 1994, the Company recognized
$17.9 million of these tax attributes, which reduced the valuation
allowance and allocated the benefit to paid-in capital. During 1996 and
1995, the Company recognized $.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 $31.7 million will reduce the deferred
income tax provisions in the periods recognized.
As of December 28, 1996, the Company had net operating loss
carryforwards available to offset future federal taxable income of $125.5
million of which $93.8 million have been recognized. These NOLs expire as
follows: $31.7 million in 2000, $20.7 million in 2001, $6.5 million in
2002, $59.8 million in 2005, and $6.8 million in 2006. Realization is
dependent on generating sufficient taxable income prior to expiration of
the loss carryforwards. Although realization is not assured, management
believes it is more likely than not that much of the deferred tax asset
will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of
future taxable income during the carryforward period are reduced. In
addition, the Company has alternative minimum tax credit carryforwards of
approximately $4.1 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 fair value of the preferred
stock was negligible and, for book purposes, had been previously written
down. However, the Preferred Stock had a tax basis of approximately $120
million. The "abandonment" of the Preferred Stock resulted in the Company
recognizing a tax loss. The character of the tax loss, capital or
ordinary, has not yet been definitively determined. Pending this
determination, the Company reduced its valuation allowance by $3.9 million
in 1996 and $1.2 million in 1995. 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 $19.3 million in 1996, $12.0
million in 1995 and $7.8 million in 1994.
30
NOTE 7 - OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
(In thousands)
1996 1995
Accrued discounts and allowances $ 6,923 $ 4,102
Freight settlements due to other railroads 6,166 4,991
Income taxes payable 3,389 75
Other 12,457 11,037
-------- --------
Other current liabilities $ 28,935 $ 20,205
======== ========
NOTE 8 - EMPLOYEE BENEFITS
PENSION PLANS
Pension cost for the defined benefit plans sponsored by the Company
includes the following components:
(In thousands)
1996 1995 1994
Service cost of benefits earned
during the year $ 490 $ 473 $ 377
Interest cost on the projected
benefit obligation 3,232 3,214 3,144
Actual return on plan assets (6,530) (9,846) 127
Net amortization and deferral 3,120 7,792 (2,681)
-------- -------- --------
Net periodic pension cost $ 312 $ 1,633 $ 967
======== ======== ========
The expected long-term rate of return on plan assets was 8.5 percent
in 1996, 1995, and 1994. 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 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.
31
A reconciliation of the funded status of the plans at December 28,
1996, and December 30, 1995, respectively, to the amounts recognized in the
consolidated balance sheet is as follows:
(In thousands)
1996 1995
Actuarial present value of:
Vested benefit obligation $ (39,920) $ (39,811)
-------- --------
Accumulated benefit obligation (43,766) (43,482)
-------- --------
Projected benefit obligation (43,766) (43,482)
Plan assets at fair value held in the pension
plan trusts, primarily listed stocks and
U.S. Government obligations 45,512 40,205
-------- --------
Projected benefit obligation less than
(in excess of) plan assets 1,746 (3,277)
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions (13,708) (11,061)
Prior service cost not yet recognized in net
periodic pension cost 3,434 3,993
-------- --------
Accrued pension cost $ (8,528) $ (10,345)
======== ========
The range of assumed discount rates used in determining the actuarial
present value of the projected benefit obligations presented above was 7.0
percent to 7.75 percent for 1996 and 1995.
The Company makes contributions to certain multiemployer defined
benefit pension plan trusts that cover union employees based on collective
bargaining agreements. Contributions by employees are not required nor are
they permitted. Pension expense under the multiemployer defined benefit
pension plans was $.3 million for 1996, 1995 and 1994.
The Company has employee savings plans that qualify under Section
401(k). Most employees of the Company (other than those covered by certain
collective bargaining agreements) may participate by deferring from 1
percent to 15 percent of their eligible compensation. 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 match vests 25 percent for each year of
service. Compensation expense for the 401(k) match was $.5 million in 1996
and $.1 million in 1995.
32
In 1996, the Company established a nonqualified, deferred compensation
plan which permits certain management employees to annually elect to defer
a portion of their compensation, on a pre-tax basis, until their
retirement. The retirement 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 $.1 million
in 1996. 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 $.8 million at December 28, 1996.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the Company provides a
fixed portion of the costs of medical and life insurance benefits to
certain retired hourly and salary employees. Contribution rates are
dictated by the employees' retirement plan which is subject to periodic
contract renegotiation. The Company also provides the full cost of medical
and life benefits to certain United Mine Workers of America (UMWA) retirees
and certain qualified dependents.
In October 1992, the Coal Industry Retiree Health Benefit Act of 1992
(the Act) was enacted. The Act mandates a method of providing for
postretirement benefits to UMWA current and retired employees, including
some retirees who were never employed by the Company. In October 1993,
beneficiaries were assigned to the Company and the Company began its
mandated contributions to the UMWA Combined Benefit Fund, a multiemployer
trust. Beginning in 1994, the Company was required to make contributions
for assigned beneficiaries under an additional multiemployer trust created
by the Act, the UMWA 1992 Benefit Plan. The ultimate amount of this
liability will vary due to factors which include, among other things, the
validity, interpretation and regulation of the Act, its joint and several
obligation, the number of valid beneficiaries assigned, and the extent to
which funding for this obligation will be satisfied by transfers of excess
assets from the 1950 UMWA pension plan and transfers from the Abandoned
Mine Reclamation Fund. Nonetheless, the Company believes it has an
adequate reserve for this liability, which is classified as other
noncurrent liabilities.
33
The following table shows funded status reconciled with the amounts
recognized in the Company's financial statements:
(In thousands)
1996 1995
Accumulated postretirement benefit obligation:
Retirees $ (8,364) $ (8,671)
Fully eligible active plan participants (506) (496)
Other active plan participants (450) (464)
-------- --------
(9,320) (9,631)
Plan assets at fair value - -
-------- --------
Accumulated postretirement benefit obligation
in excess of plan assets (9,320) (9,631)
Unrecognized net loss 139 554
-------- --------
Accrued postretirement benefit cost $ (9,181) $ (9,077)
======== ========
Net periodic postretirement benefit cost was $2.0 million in 1996,
$.8 million in 1995, and $.8 million in 1994. The 1996 cost includes
charges of $1.3 million 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 $.9 million at December 28, 1996, and $.9
million at December 30, 1995, 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 discount rates ranging from 7.0
percent to 8.5 percent for 1996 and 1995.
The assumed weighted average annual rate of increase in the per capita
cost of covered benefits ranges from 9.05 percent to 9.95 percent for 1997
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 $.8 million in
1996 and $.7 million in 1995.
34
NOTE 9 - 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 $2.0 million in 1996, $1.4 million in 1995, and $2.9
million in 1994 for pending environmental matters related to natural
resources operations. The basis for the increase is updated information
and results of ongoing remediation and monitoring programs. Management
believes that the outcome of pending environmental matters will not
materially affect the financial condition or results of operations of the
Company.
LITIGATION
The Company is involved in certain litigation as a result of claims
that arise in the ordinary course of business, which management believes
will not have a material adverse effect on the Company's financial
condition or results of operations.
NOTE 10 - OTHER INCOME
Other income, net included in the consolidated statements of income
consists of the following:
(In thousands)
1996 1995 1994
Rent and royalties $ 1,413 $ 2,009 $ 1,068
Interest income 3,352 2,283 2,865
Gain on disposal of properties, net 973 1,835 3,159
Minority interest in income of
subsidiaries (397) - -
Unusual items - - (1,140)
Other - - 552
-------- -------- --------
Other income, net $ 5,341 $ 6,127 $ 6,504
======== ======== ========
During 1994, the Company recognized as unusual items a $1.1 million
charge for outstanding insurance matters primarily related to estimated
workers' compensation claims for years prior to 1993.
35
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.
During 1994, the stockholders approved the adoption of the 1994 Stock
Option Plan (SOP Plan). Under this plan, the Company may grant options to
purchase up to 400,000 shares of common stock at prices not less than the
fair market value of the stock on the day of the grant. Generally, 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. The
stockholders also approved the adoption of the 1994 Non-Employee Director
Stock Option Plan. Options to purchase up to 50,000 shares of common stock
may be granted under this plan at a price not less than the fair market
value of the stock on the day of the grant. Generally, any unexercised
options granted under this plan shall expire on a date which is five years
from the date of option grant.
Under the 1991 Incentive Stock Option Plan (ISO Plan), the Company may
grant options to purchase up to 500,000 shares of common stock at prices
not less than the fair market value of the stock on the date of grant.
Generally, 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 1,000,000 shares to induce Mr. Harvey L. Karp to enter into an
employment agreement with the Company. The exercise price, $4.125 per
share, was the fair market value on the date of grant. Generally, the
options expire one year after Mr. Karp's separation from employment with
the Company unless Mr. Karp is terminated for cause. On January 30, 1992,
the Board approved and authorized a transaction whereby Mr. Karp was
granted options to purchase an additional 1,000,000 shares, which was
subsequently reduced by 200,000 option shares which the Company issued to
secure the employment of Mr. William D. O'Hagan. Mr. Karp's additional
grant of options is on the same terms and conditions, and at the same
price, as the original grant. Although neither Mr. Karp's nor Mr.
O'Hagan's options were granted under the ISO Plan, the terms and conditions
of Mr. O'Hagan's options are generally similar to those granted under the
ISO Plan.
36
A summary of the Company's stock option activity and related
information follows:
1996
Weighted Average
Options Exercise Price
Outstanding at beginning of year 2,650,606 $ 7.37
Granted 74,500 37.41
Exercised (45,950) 7.14
Expired, cancelled, or surrendered (5,000) 4.06
--------- ---------
Outstanding at year-end 2,674,156 $ 8.22
--------- ---------
Options exercisable at year-end 2,191,456 $ 5.49
--------- ---------
Weighted average fair value per option
granted during the year $ 16.89
========================
1995
Weighted Average
Options Exercise Price
Outstanding at beginning of year 2,532,106 $ 5.94
Granted 179,000 26.31
Exercised (40,500) 5.00
Expired, cancelled, or surrendered (20,000) 7.06
--------- ---------
Outstanding at year-end 2,650,606 $ 7.37
--------- ---------
Options exercisable at year-end 2,086,606 $ 4.87
--------- ---------
Weighted average fair value per option
granted during the year $ 11.99
========================
Exercise prices for stock options outstanding at December 28, 1996,
ranged from $4.06 to $40.25. Of the 2,674,156 stock options that are
outstanding at year-end, 1,800,000 are owned by Mr. Harvey Karp, and, as
explained above, these options expire one year after Mr. Karp's separation
from employment with the Company. The weighted average remaining life of
the remaining 874,156 shares is 1.6 years, and the weighted average
exercise price of these shares is $16.64.
37
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 pricing model with the following
weighted average assumptions for the years 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; risk free
interest rate of 6.5%; and no dividend payments.
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 input 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:
(In thousands, except per share data)
1996 1995
Net income $ 61,173 $ 44,823
SFAS No. 123 compensation expense (560) (164)
-------- --------
SFAS No. 123 pro forma net income 60,613 44,659
======== ========
Pro forma earnings per share:
Primary $ 3.12 $ 2.34
Fully diluted $ 3.12 $ 2.31
======== ========
Because SFAS No. 123 applies only to stock-based compensation award for
1995 and future 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.
38
The Amended and Restated Mueller Industries, Inc. 1991 Employee Stock
Purchase Plan (the EMSP Plan) expired on June 30, 1996. Under this plan,
the Company could offer to eligible employees (generally all full-time
employees) options to purchase up to six shares of the Company's common
stock for each $1,000 of compensation. The option price was the lower of
(i) 85 percent of the fair value of the stock on the offering date, or (ii)
85 percent of the fair value of the stock on the last day of the one-year
offering period. The maximum number of shares available for sale under the
EMSP Plan during all offerings was 900,000 shares. Under the EMSP Plan,
215,714 shares were issued. During the final offering period beginning
July 1, 1995, and ending June 30, 1996, 39,440 shares were issued at an
exercise price of $20.88 per share.
NOTE 12 - SUBSEQUENT EVENTS
On December 30, 1996, the Company acquired the assets and certain
liabilities of Precision Tube Company, Inc. (Precision) for approximately
$6.8 million. Precision, which fabricates tubing and coaxial cables and
assemblies, had net sales of approximately $20.0 million in 1996.
Precision's tubing and coaxial divisions are located in North Wales,
Pennsylvania, and Salisbury, Maryland, respectively.
On February 28, 1997, the Company acquired certain assets of
Wednesbury Tube Company (Wednesbury) for approximately $20.3 million.
Wednesbury, which manufactures copper tube and is located in Bilston, West
Midlands, England, had net sales of approximately $94.0 million in 1996.
Both acquisitions will be accounted for using the purchase method.
39
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 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. During 1996, 1995 and 1994 the Company did not have significant
foreign operations and, accordingly, geographical segment information is
not presented. Industry segment information is as follows:
(In thousands)
1996 1995 1994
Net sales:
Manufacturing $ 698,026 $ 646,894 $ 533,389
Natural resources 20,286 31,944 16,614
-------- -------- --------
$ 718,312 $ 678,838 $ 550,003
======== ======== ========
Operating income:
Manufacturing $ 98,669 $ 61,384 $ 47,932
Natural resources 2,037 7,874 1,651
General corporate (10,244) (5,247) (5,631)
-------- -------- --------
90,462 64,011 43,952
Non operating income, net 3,296 4,706 3,590
Interest expense (5,346) (4,168) (6,718)
-------- -------- --------
Consolidated income before income taxes $ 88,412 $ 64,549 $ 40,824
======== ======== ========
Provision for depreciation and amortization:
Manufacturing $ 14,594 $ 11,967 $ 9,845
Natural resources 1,388 1,157 1,159
General corporate 2,490 2,328 1,685
-------- -------- --------
$ 18,472 $ 15,452 $ 12,689
======== ======== ========
Capital expenditures:
Manufacturing $ 14,277 $ 38,478 $ 37,095
Natural resources 3,131 2,198 4,028
General corporate 1,460 304 7,029
-------- -------- --------
$ 18,868 $ 40,980 $ 48,152
======== ======== ========
Identifiable assets:
Manufacturing $ 355,429 $ 339,764 $ 318,351
Natural resources 65,785 47,453 38,042
-------- -------- --------
421,214 387,217 356,393
General corporate 88,143 63,618 74,362
-------- -------- --------
$ 509,357 $ 450,835 $ 430,755
======== ======== ========
40
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
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
Net income per share .69 .71 .83 .91
1995
Net sales 171,770 181,380 171,549 154,139
Gross profit (1) 31,210 31,793 34,139 31,812(2)
Net income 10,050 10,663 11,605 12,505(2)
Net income per share .53 .56 .60 .65 (2)
<FN>
(1) Gross profit is net sales less cost of goods sold, which excludes
depreciation and amortization.
(2) A change in inventory estimate was recognized.
41
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 28, 1996 and December 30, 1995 and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 28, 1996.
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 28, 1996 and December 30, 1995, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 28, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Memphis, Tennessee
February 7, 1997,
except for the second paragraph of Note 12,
as to which the date is February 28, 1997
42
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 1996 and 1995 were as follows:
1996 High Low Close
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
1995 High Low Close
Fourth quarter $ 29 1/2 $ 22 1/4 $ 29 1/4
Third quarter 28 1/4 24 1/8 25 15/16
Second quarter 24 15/16 16 3/8 24 5/8
First quarter 17 1/8 14 1/4 16 11/16
As of March 7, 1997, the number of holders of record of Mueller's common
stock was 3,656. The New York Stock Exchange's closing price for Mueller's
common stock on March 7, 1997 was $44 3/4.
The Company has paid no cash dividends on its common stock and presently
does not anticipate paying cash dividends in the near future.
43
SELECTED FINANCIAL DATA
(In thousands, except per share data)
1992 1993 1994 1995 1996
For the fiscal year:
Net sales $ 517,339 $ 501,885 $ 550,003 $ 678,838 $ 718,312
Operating income (1) 29,318 38,027 43,952 64,011 90,462
Net income (2) 16,666 21,136 27,926 44,823 61,173
Net income
per common share(2) (3) .83 1.01 1.41 2.34 3.14
- --------------------------------------------------------------------------------------------
At year-end:
Total assets 372,547 369,743 430,755 450,835 509,357
Long-term debt 62,376 54,320 76,125 59,653 44,806
- ---------------------------------------------------------------------------------------------
<FN>
(1) In 1994, the Company changed its method of accounting for the copper component of certain of its
copper tube and copper fittings inventories to the LIFO method.
(2) Includes charges for unusual items of $1.1 million, or $.06 per common share, in 1994, $2.0
million, or $.10 per common share, in 1993, $5.6 million, or $.28 per common share, in 1992.
(3) Per share amounts have been restated for a two-for-one stock split effected in September, 1995.
44
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) Metals Industry Consultant
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
CORPORATE OFFICERS
Harvey L. Karp Chairman of the Board
William D. O'Hagan President and
Chief Executive Officer
Earl W. Bunkers Executive Vice President and
Chief Financial Officer
William H. Hensley Vice President, General Counsel and
Secretary
Lowell J. Hill Vice President Human Resources
Kent A. McKee Vice President
Business Development/Investor Relations
Richard G. Miller Vice President and
Chief Information Officer
Lee R. Nyman Vice President
Manufacturing/Management Engineering
James H. Rourke Group Vice President
Industrial Products Division
DIVISIONAL MANAGEMENT
STANDARD PRODUCTS DIVISION
Harvey W. Clements Vice President - Copper Tube
Manufacturing
Roy C. Harris Controller
Larry D. Birch Vice President - Domestic Sales and
Marketing
Robert L. Fleeman Vice President - International Sales
45
Gregory L. Christopher Vice President - Supply Chain
Management
Louis F. Pereira General Manager - Canadian Operations
Daniel R. Corbin General Manager - Plastic Fittings
Manufacturing
Tommy L. Jamison General Manager - Copper Fittings
Manufacturing
INDUSTRIAL PRODUCTS DIVISION
Felista S. Amburgey Vice President Sales - Rod
Timothy J. Keck Vice President Sales - Forgings/Impacts
William F. Navarre Vice President Manufacturing -
Rod/Forgings
David F. O'Brien Plant Manager - Impacts
Richard D. Holmes Controller
REFRIGERATION PRODUCTS DIVISION
Roland P. Robichaud General Manager
Dennis K. Anthony Vice President - Sales
Kent K. Miller Director of Engineering
Anthony D. Donato Plant Manager
PRECISION TUBE DIVISION
H. Eugene Passmore President
Charles W. Blackledge Vice President - Operations
John R. Gentile Director of Sales & Marketing
Thomas M. Sarisky Director or Engineering
ARAVA NATURAL RESOURCES DIVISION
Gary L. Barker President - Arava Natural Resources
Company, Inc., Utah Railway Company and
Alaska Gold Company
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
46
Corporate Headquarters Mueller Industries, Inc.
6799 Great Oaks Road, Suite 200,
Memphis, TN 38138-2572
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, 1997.
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, NY 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.