-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DzvorkKkVu/PSD4hauE1Gu7zW2z4KezH/9MJ3+aynwFRT5jvt8mEkDmS7NJ3EWQ0 0m+kN62gPLlrPbAFlXkLuA== 0000068726-98-000007.txt : 19980323 0000068726-98-000007.hdr.sgml : 19980323 ACCESSION NUMBER: 0000068726-98-000007 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980320 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUELLER PAUL CO CENTRAL INDEX KEY: 0000068726 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED PLATE WORK (BOILER SHOPS) [3443] IRS NUMBER: 440520907 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-04791 FILM NUMBER: 98569438 BUSINESS ADDRESS: STREET 1: 1600 W PHELPS ST STREET 2: PO BOX 828 CITY: SPRINGFIELD STATE: MO ZIP: 65802 BUSINESS PHONE: 4178313000 MAIL ADDRESS: STREET 1: 1600 WEST PHELPS STREET STREET 2: P O BOX 828 CITY: SPRINGFIELD STATE: MO ZIP: 65801-0928 10-K405 1 1997 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------- FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended: December 31, 1997 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from: _______________ to _______________. Commission File Number: 0-4791 PAUL MUELLER COMPANY - ------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Missouri - ------------------------------------------------------------------------ (State or other jurisdiction of incorporation or organization) 44-0520907 - ------------------------------------------------------------------------ (I.R.S. Employer Identification No.) 1600 West Phelps, Springfield, Missouri 65802 - ------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (417) 831-3000 - ------------------------------------------------------------------------ (Registrant's telephone number, including Area Code) Securities registered pursuant to Section 12(b) of the Act: - ------------------------- ------------------------------------------- (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: Common Stock par value $1 per share - ------------------------------------------------------------------------ (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be con- tained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: [X] State the aggregate market value of the voting stock held by nonaffili- ates of the Registrant: The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock as of a specified date within 60 days prior to the date of filing. Aggregate market value on February 27, 1998, based on the last reported closing price: $ 38,725,988 Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of March 13, 1998: Common stock, $1 par value, outstanding: 1,168,021 shares Portions of the Proxy Statement for the annual meeting of shareholders to be held May 4, 1998, are incorporated by reference into Part III. 1 2 PART I ITEM 1. - DESCRIPTION OF BUSINESS A. GENERAL DEVELOPMENT OF BUSINESS The Registrant was incorporated under the laws of Missouri in 1946 as the successor to a business begun in 1940 to perform general sheet metal work, primarily for the building industry. In the mid-1940's, the Registrant expanded its operations to include the manufacture of poultry processing equipment and stainless steel cheese-making vats for dairy plants. The Registrant in 1955 began manufacturing stainless steel milk coolers for dairy farms and in 1960 began manufacturing stain- less steel storage tanks and discontinued its sheet metal operations. The Registrant purchased a water purification product line in January 1987. Today, the Registrant is one of the world's largest manufacturers of milk coolers for dairy farms. The Registrant is also one of the nation's leading manufacturers of standard and custom-made stainless steel pro- cessing equipment for the food and dairy, beverage, chemical and pharmaceutical, and other industries. The Registrant opened a microbrewery and brewpub operation in December 1997 to showcase its brewery technology capability and expand its marketing of brewery systems. The Registrant entered into a license agreement in January 1992 under which it acquired the right to manufacture and market water distillation equipment. Sales can be made on a nonexclusive basis to the water bottling industry and for industrial process water applications; pharmaceutical, laboratory and medical applications; and for milk concen- tration. The Registrant began selling equipment during 1992. The Registrant entered into a license agreement in February 1994 under which it acquired the rights to manufacture and market evaporator assemblies used in liquid-ice systems. The agreement provides the Registrant an exclusive license to manufacture and to sell or to sublicense its rights for the following applications: HVAC; gas turbine; process cooling of food and chemicals; and concentration of milk, fruit juices and acid solutions. The exclusive license is restricted to specific territories defined by application. The license is exclusive until expiration of the patents, but may become nonexclusive if royalties fail to equal specified minimum levels for any calendar year. The Registrant is also the sole licensee of the technology for milk cooling on dairy farm applications with no minimum annual royalties required. The Registrant began manufacturing and marketing equipment in 1995. The Registrant has a license agreement with a Dutch company, which was extended during 1994 for five years, for the pro- duction and sale of Mueller Dairy Farm Equipment in Europe, which provides royalties for the Registrant. 2 3 B. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS EARNINGS DATA BY INDUSTRY SEGMENT
Dairy Farm Processing Equipment Equipment Consolidated ----------- ----------- ----------- 1997 ------------------------------------- Sales to unaffiliated customers.................. $22,390,144 $64,302,878 $86,693,022 =========== =========== =========== Operating profit............. $ 3,793,311 $ 1,320,461 $ 5,113,772 =========== =========== General corporate expenses... (1,578,672) Other income................. 412,440 ----------- Income from operations before income taxes........ $ 3,947,540 =========== Identifiable assets at December 31................ $11,987,432 $27,857,839 $39,845,271 =========== =========== Corporate assets............. 16,702,019 ----------- Total assets at December 31.. $56,547,290 =========== Additions to property, plant and equipment........ $ 1,351,065 $ 6,108,650 =========== =========== Depreciation expense......... $ 780,138 $ 1,112,297 =========== =========== 1996 ------------------------------------- Sales to unaffiliated customers.................. $19,169,174 $64,781,816 $83,950,990 =========== =========== =========== Operating profit............. $ 2,762,583 $ 5,024,339 $ 7,786,922 =========== =========== General corporate expenses... (1,943,816) Other income................. 646,913 ----------- Income from operations before income taxes........ $ 6,490,019 =========== Identifiable assets at December 31................ $10,401,372 $21,171,140 $31,572,512 =========== =========== Corporate assets............. 21,612,459 ----------- Total assets at December 31.. $53,184,971 =========== Additions to property, plant and equipment........ $ 829,961 $ 886,576 =========== =========== Depreciation expense......... $ 842,512 $ 1,157,830 =========== =========== 1995 ------------------------------------- Sales to unaffiliated customers.................. $17,954,458 $60,421,178 $78,375,636 =========== =========== =========== Operating profit............. $ 2,545,379 $ 819,115 $ 3,364,494 =========== =========== General corporate expenses... (1,815,617) Other income................. 1,065,776 ----------- Income from operations before income taxes........ $ 2,614,653 =========== Identifiable assets at December 31................ $10,576,803 $24,430,407 $35,007,210 =========== =========== Corporate assets............. 19,671,694 ----------- Total assets at December 31.. $54,678,904 =========== Additions to property, plant and equipment........ $ 719,071 $ 1,017,864 =========== =========== Depreciation expense......... $ 751,451 $ 1,143,519 =========== ===========
C. NARRATIVE DESCRIPTION OF BUSINESS The Registrant's industry segments include Dairy Farm Equip- ment and Processing Equipment. The Dairy Farm Equipment segment includes sales of milk coolers, pre-coolers, automatic washing systems and heat recovery equipment to the dairy farm industry. The Dairy Farm Equipment segment includes sales to domestic and export markets. 3 4 The Processing Equipment segment includes: (1) food, dairy, meat and poultry processing equipment; (2) beer, wine and beverage equipment; (3) chemical and pharmaceutical equipment; (4) industrial heat transfer equipment; (5) thermal energy storage equipment; and (6) water distilling/pure steam gener- ating equipment. The food, dairy, meat and poultry processing equipment mar- kets include stainless steel storage and mixing tanks, food processors, cookers and coolers, and a variety of other custom-fabricated tanks. The beer, wine and beverage equipment markets include stain- less steel storage and fermentation tanks, brewhouse equipment and other special equipment for breweries, wineries, distil- leries and soft drink bottlers. The chemical, pharmaceutical and industrial equipment markets include stainless steel and other alloy pressure vessels and tanks, tank components, water purification products, systems and applications for a variety of heat transfer products, and thermal energy storage equipment. The Processing Equipment segment includes sales to the domes- tic and export markets. Information as to classes of products: SALES DATA BY PRODUCT CATEGORY (In Thousands of Dollars)
1997 1996 1995 ------------- ------------- ------------- % of % of % of Total Total Total Sales Sales Sales Sales Sales Sales ------- ----- ------- ----- ------- ----- DAIRY FARM EQUIPMENT.... $22,390 26% $19,169 23% $17,955 23% PROCESSING EQUIPMENT Food and Beverage Equipment.......... $24,732 28% $24,626 29% $24,972 32% Chemical, Pharmaceuti- cal and Industrial Equipment.......... 39,571 46% 40,156 48% 35,449 45% ------- ---- ------- ---- ------- ---- $64,303 74% $64,782 77% $60,421 77% ------- ---- ------- ---- ------- ---- TOTAL.............. $86,693 100% $83,951 100% $78,376 100% ======= ==== ======= ==== ======= ====
Raw materials used in the fabrication of Registrant's products are readily available from sources in the United States. The Registrant purchases a component from a German vendor under a sales and supply agreement for its plate heat exchanger pro- duct line. Patents held by the Registrant generally are not considered significant to the successful conduct of each segment's busi- ness. Trademarks are registered for the Registrant's name, for certain products sold in the Processing Equipment segment and for the products sold in the Dairy Farm Equipment segment in the key markets served by the Registrant. Trademarks are considered significant to the successful conduct of the Dairy Farm Equipment segment business. Key license agreements that are maintained by the Registrant have been discussed in Sec- tion A above. In general, the seasonality of the Registrant's business seg- ments is not material. The Registrant carries a significant inventory of standard sizes of stainless steel coil and plate used in the manufac- ture of its products. For some Processing Equipment orders, 4 5 stainless steel is specifically ordered for the project. The Registrant provides extended payment terms primarily for export orders with payment secured generally by a letter of credit and to qualifying domestic Dairy Farm Equipment distributors. The Registrant requires down payments or progress payments on significant Processing Equipment orders. Sales of the Registrant's products are distributed among several customers, and sales to any one customer are not significant to total consolidated sales. Sales to any one customer did not exceed 10% of the Registrant's consolidated sales during 1997. The backlog of sales was approximately $29,898,000 at February 28, 1998, compared to approximately $28,400,000 at February 28, 1997. It is anticipated that substantially all of the February 28, 1998, backlog will be shipped during the current fiscal year. In the Processing Equipment segment, there are several compe- titors, most of which are smaller than the Registrant. Many Processing Equipment projects are bid among several possible suppliers, which tends to make pricing very competitive. The principal methods of competition are price, quality, delivery and service. In the Dairy Farm Equipment segment, there are relatively few competitors, and the Registrant is one of the largest manufacturers of farm milk coolers in the world. During 1997, stainless steel prices declined compared to the prior year. Stainless steel prices are projected to be rela- tively stable during 1998 due to a market overcapacity and foreign competition. The Registrant spent $719,200 in 1997, $653,200 in 1996, and $597,600 in 1995 on research activities relating to the development of new products or services and the improvement of existing products or services. Ten full-time administra- tive employees are engaged in this activity. It is not anticipated that compliance with Federal, State and local provisions, which have been enacted or adopted regu- lating the discharge of materials into the environment or otherwise relating to the protection of the environment, will have a material effect upon the capital expenditures, earnings or competitive position of the Registrant and its subsidi- aries. The number of employees at December 31, 1997, was 903. As previously reported, the labor contract with the Sheet Metal Workers Union (which covers a portion of the employees at the Springfield, Missouri, plant) expired on June 11, 1994. Negotiations with union representatives continued until an impasse was reached, and the Registrant implemented specific provisions of its final offer effective September 19, 1994. In November 1994, the Regional Director of the National Labor Relations Board (NLRB) also concluded that a lawful impasse had been reached in negotiations prior to the Registrant's implementation of its offer. However, on December 22, 1994, the Regional Director of the NLRB issued an unfair labor practice complaint against the Registrant for refusing to supply information to union repre- sentatives about the personal health insurance claims of individual employees and their dependents and reversed his previous decision regarding the implementation of changes in wages and benefits. A hearing on these and other unfair labor practice issues was held during August 1996 by an administra- tive law judge of the NLRB, who ruled against the Registrant on some unfair labor practice issues, and the Registrant and the union have both appealed the decision to the NLRB. A decision by the NLRB is not expected for several months, and there can be an appeal from any NLRB decision, either by the Registrant or by the union. An additional hearing was held before an administrative law judge of the NLRB in November 5 6 1997, and the judge ruled against the Registrant on the unfair labor practice issues involved. The Registrant has appealed the decision to the NLRB. A final determination of all charges pending may take up to two years; however, management believes, based on an evaluation by counsel, that there is no material financial exposure to the Registrant. The Registrant currently employs about 900 people, of which approximately 400 at the Springfield, Missouri, facility are represented by the Sheet Metal Workers Union. The Interna- tional Union called a strike which began on July 25, 1995, and the largest number of employees participating was approxi- mately 185 during the fourth quarter of 1995. A substantial number of employees returned to work during 1996, and cur- rently there are only 20 employees participating. No action has been taken by the Union to prevent nonstriking employees from working. The Registrant has implemented the provisions of its revised and final offer effective April 1, 1996, which remains open for the Union's acceptance, and no further negotiations are scheduled. The Registrant has facilities located in Springfield, Missouri, and Osceola, Iowa. There are approximately 800 employees assigned to the Springfield facility, and there are an additional 100 employees at the Osceola facility, none of which are represented by a labor union. D. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES Information about the amounts of export sales is covered in Note 5 of the Notes to Consolidated Financial Statements found in Part II, Item 8, and is incorporated herein by reference. Export sales were about 40% Dairy Farm Equipment and 60% Processing Equipment during 1997. ITEM 2. - PROPERTIES The Registrant's primary domestic manufacturing facilities are located in Springfield, Missouri, and occupy approximately 720,000 square feet on 50 acres of land. These facilities are owned by the Registrant, as is all of the equipment it uses. The original section of the present Springfield plant was built in 1950 and consisted of 23,720 square feet. Since then, the Registrant has added to this facility many times in the course of a continuing program for enlarging and modernizing its facilities and increasing its capabilities. The last addition of approximately 14,100 square feet was made in 1981. In February 1987, the Registrant acquired an additional manufacturing facility in Osceola, Iowa, which con- tains approximately 216,000 square feet. In February 1997, the Registrant purchased land and a building in downtown Springfield, Missouri, for the purpose of operating a microbrewery and brewpub. ITEM 3. - LEGAL PROCEEDINGS There are no material pending legal proceedings, other than or- dinary routine litigation incidental to the business or matters for which insurance coverage is adequate, which involves the Regis- trant, nor is any director, officer or any management security holder involved in any litigation that could adversely affect the Registrant. 6 7 ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Registrant did not submit any matter to a vote of security holders, through a solicitation of proxies or otherwise, during the fourth quarter of 1997. ITEM 10. (from PART III) - EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position(s) with Registrant ------------------- --- ----------------------------------------- Paul Mueller 82 Chairman of the Board and Director Daniel C. Manna 51 President and Director Donald E. Golik 54 Senior Vice President and Chief Financial Officer, Secretary and Director Individual has been employed by the Registrant through the past five years.
Each of the above officers was elected to serve until the next annual meeting of the Board of Directors, which will be held on May 4, 1998, and until his successor shall have been duly elected and qualified or until his earlier resignation or removal. 7 8 PART II ITEM 5. - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Registrant's common stock is traded on the Nasdaq National Market tier of The Nasdaq Stock Market(SM) under the symbol MUEL. As of December 31, 1997, there were approximately 300 shareholders of record and approximately 800 beneficial shareholders. Market high and low prices and quarterly cash dividends in 1997 and 1996 were as follows:
1997 Quarter Ended 1996 Quarter Ended ------------------------------ ------------------------------ Mar 31 Jne 30 Spt 30 Dec 31 Mar 31 Jne 30 Spt 30 Dec 31 ------ ------ ------ ------ ------ ------ ------ ------ MARKET PRICE OF STOCK High....... 43 39 49-1/2 45 34-1/2 34 35 43 Low........ 36-1/2 34-1/4 37-1/4 36-1/2 30 29-3/4 31-3/4 33 CASH DIVIDENDS Declared per share.. $0.60 $0.60 $0.60 $0.60 $0.50 $0.50 $0.50 $0.60
ITEM 6. - SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA - FIVE-YEAR SUMMARY
1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- Net sales...... $86,693,022 $83,950,990 $78,375,636 $79,475,354 $73,756,659 Net income..... $ 2,944,540 $ 4,424,019 $ 1,954,653 $ 3,510,966 $ 2,217,656 Earnings per common share.. $ 2.52 $ 3.79 $ 1.67 $ 3.01 $ 1.90 Weighted average common shares outstanding... 1,168,021 1,168,021 1,168,021 1,168,021 1,168,021 Dividends de- clared per common share.. $ 2.40 $ 2.10 $ 2.00 $ 2.00 $ 2.00 Total assets... $56,547,290 $53,184,971 $54,678,904 $54,250,236 $52,947,295 Long-term debt. $ 161,434 $ 161,434 $ 161,434 $ 3,153,747 $ 3,153,747
8 9 ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information discussed below in Management's Discussion and Analysis of Operating Results and Financial Condition contains statements regarding matters that are not historical facts, but rather are forward-looking statements. These statements are based on current financial and economic conditions and current expecta- tions, and involve risk and uncertainties. Actual future results may differ materially depending on a variety of factors. These factors, some of which are identified in the discussion accompany- ing such forward-looking statements, include, but are not limited to, milk prices, feed costs, weather conditions, dairy farm con- solidation and other factors affecting the profitability of dairy farmers, the price of stainless steel, actions of competitors, labor strife, the Registrant's execution of internal performance plans, economic conditions in key export markets, the level of capital expenditures in the U.S. economy, and other changes to business conditions. OPERATING RESULTS The primary factors affecting 1997 results were a significantly reduced effect of LIFO, a lower gross margin rate, higher operating expenses, and a provision made for a lawsuit. SALES -- Comparative consolidated sales for the past three years were as follows:
Sales ------------------------------ (in thousands of dollars) 1997 1996 1995 -------- -------- -------- Dairy Farm Equipment.... $ 22,390 $ 19,169 $ 17,955 Processing Equipment.... 64,303 64,782 60,421 -------- -------- -------- $ 86,693 $ 83,951 $ 78,376 ======== ======== ========
Sales of Dairy Farm Equipment increased by $3,221,000 during 1997 compared to 1996. About 63% of the improvement was attributable to domestic operations, with the balance resulting from increased export sales of Dairy Farm Equipment. Although the average price for milk during 1997 was about 10% lower than the average price during 1996 and feed costs remained relatively high, milk produc- tion did increase in 1997 over the prior year. Domestic sales of Dairy Farm Equipment were aided in 1997 by a favorable backlog at the beginning of 1997, a sales promotion in the fourth quarter of 1997, and an expansion of larger dairy operations, primarily in the southwestern market of the United States. Although the number of milk coolers sold declined slightly in 1997 compared to 1996, there was a significant increase in the average size of domestic milk cooler sold such that the higher unit prices more than offset the effect on sales revenue due to the decline in units. In contrast, export sales of Dairy Farm Equipment included approximately a 16% increase in the number of milk coolers sold. The improvement in export sales was primarily due to increased sales to countries in North America, South America, Africa, and Europe. During 1996, sales of Dairy Farm Equipment increased by $1,214,000. All of the increase was attributable to domestic operations, as unit sales of milk coolers increased by 17%. The domestic market remained relatively soft early in 1996 due to extremely high costs for feed. However, in the spring, the milk price began to escalate and reached an all-time record high level during the third quarter of 1996. In spite of high feed costs, milk prices were at levels that allowed dairy farmers to invest in additional milk cooling and storage capacity. The level of export sales of Dairy Farm Equipment for 1996 was comparable to 1995. Economic problems in Argentina and Mexico and the effect of "mad cow disease" in the United Kingdom and Ireland slowed sales to those countries. How- ever, modest growth was achieved in other export markets, and export sales were maintained at approximately the same level as in the prior year. 9 10 For 1998, the domestic market conditions for Dairy Farm Equip- ment are expected to remain similar to the year just ended. Milk production is not expected to increase and, with moderate milk prices anticipated and continued relatively high feed costs, these factors could have the effect of reducing dairy expansions. With respect to the outlook for export sales during 1998, we expect continued economic improvement in the Mexican economy, along with areas in Latin America, and the United Kingdom market should con- tinue to be favorable for Dairy Farm Equipment. Although the Asian financial crisis could slow sales to that area, we expect stable conditions in the other markets we serve, which may provide the opportunity for some growth in order entry and sales. In the domestic Dairy Farm Equipment market, the number of dairy farms continues to decline. This consolidation process leaves fewer dairy farm operations and the need for larger milk cooling and storage equipment. The Registrant is well positioned to meet the cooling and storage requirements of the changing marketplace, and any impact on revenues and profitability will depend upon the rate at which farm consolidation continues. During 1997, sales of Processing Equipment decreased by about 1%, or $500,000. Processing Equipment order entry for 1997 was about 3% lower than for 1996 due to very competitive market conditions. Another significant factor affecting sales of Processing Equipment was the low backlog of our traditional custom-fabricated products at the beginning of 1997 that was attributable to extremely low order entry during the third quarter of 1996. This translated into a low level of shipments for the first quarter of 1997, from which we were unable to recover during the year. Although order entry for our traditional custom-fabricated products was slow for the first quarter of 1997, order entry for the year was 15% higher. However, the timing of the order entry was such that there was not sufficient time to complete and ship the products during 1997. Additionally, sales were lower for our Heat Transfer products (Temp-Plate [Registered] Heat Transfer Surface and Accu-Therm [Registered] Plate Heat Exchangers) and Component Products due to aggressive pricing competition. Although we were able to improve sales of our PyroPure (Registered) Water Purification Systems and Thermal Energy Storage Systems, the increase was not sufficient to offset the decrease in our other Processing Equipment products. During 1996, sales of Processing Equipment increased by about 7%, or $4,361,000. Although order entry for Processing Equipment was comparable between 1996 and 1995, the backlog at the beginning of 1996 for Processing Equipment was approximately $6,000,000 higher than at the beginning of 1995. An increase in sales was recorded in 1996 in our traditional custom-fabricated products, such as Pharmaceutical Processing Equipment and Component Products, as well as increases in PyroPure Water Purification Systems and Accu- Therm Plate Heat Exchangers. During mid-1996, approximately 100 employees, who had been on strike, returned to work. As the strike primarily affected Processing Equipment, the return of the experienced employees allowed us to increase our capacity and effi- ciency in the fabrication of traditional Processing Equipment. Additionally, export sales of Processing Equipment were approxi- mately 40% higher during 1996 compared to 1995. With respect to 1998 operations, although the overall backlog of Processing Equipment at December 31, 1997, is down slightly from the level at the end of 1996, our backlog of traditional custom- fabricated products is about 30% higher. Our level of order entry and sales in 1998 will depend upon the capital expenditure environ- ment in 1998. Although quote activity was relatively strong for the fourth quarter of 1997, the outlook is for capital expenditures to slow during 1998 compared to 1997, as corporate profit growth is projected to moderate with the result that companies will likely spend less on capital goods. We expect very competitive conditions to continue for the projects that are available, particularly with respect to price and delivery. Additionally, the Asian financial crisis will have a negative effect on companies located in that region, and construction spending and capital investment are ex- pected to slow in 1998. This could have an adverse impact on order entry and sales of certain products included in the Processing Equipment segment that are sold into the Asian market. During the past year, 10 11 the Registrant expanded its brewery systems capabilities, and this provides the potential for additional business for custom- fabricated Processing Equipment. During 1997, after price increases in March and June, stainless steel prices declined to more reasonable levels. Looking to 1998, stainless steel prices are expected to remain relatively flat due to worldwide increases in stainless steel production capacity and to continuing pricing pressure afforded by foreign suppliers. As previously reported, the labor contract with the Sheet Metal Workers Union (which covers a portion of the employees at the Springfield, Missouri, plant) expired on June 11, 1994. Negotia- tions with union representatives continued until an impasse was reached, and the Registrant implemented specific provisions of its final offer effective September 19, 1994. In November 1994, the Regional Director of the National Labor Relations Board (NLRB) also concluded that a lawful impasse had been reached in negotiations prior to the Registrant's implementation of its offer. However, on December 22, 1994, the Regional Director of the NLRB issued an unfair labor practice complaint against the Registrant for refusing to supply information to union representatives about the personal health insurance claims of individual employees and their dependents, and the Regional Director reversed his previous decision regarding the implementation of changes in wages and bene- fits. A hearing on these and other unfair labor practice issues was held during August 1996 by an administrative law judge of the NLRB, who ruled against the Registrant on some unfair labor prac- tice issues, and the Registrant and the union have both appealed the decision to the NLRB. A decision by the NLRB is not expected for several months, and there can be an appeal from any NLRB deci- sion, either by the Registrant or by the union. An additional hearing was held before an administrative law judge of the NLRB in November 1997, and the judge ruled against the Registrant on the unfair labor practice issues involved. The Registrant has appealed the decision to the NLRB. A final determination of all charges pending may take up to two years; however, management believes, based on an evaluation by counsel, that there is no material financial exposure to the Registrant. The Registrant currently employs about 900 people, of which approximately 400 at the Springfield, Missouri, facility are represented by the Sheet Metal Workers Union. The International Union called a strike which began on July 25, 1995, and the largest number of employees participating was approximately 185 during the fourth quarter of 1995. A substantial number of employees returned to work during 1996, and currently there are only 20 employees participating. No action has been taken by the Union to prevent nonstriking employees from working. The Registrant implemented the provisions of its revised and final offer effective April 1, 1996, which remains open for the Union's acceptance, and no further negotiations are scheduled. The Registrant has facilities located in Springfield, Missouri, and Osceola, Iowa. There are approximately 800 employees assigned to the Springfield facility, and at the Osceola facility, there are an additional 100 employees, none of which are represented by a labor union. Sales backlog totaled $25,579,000 at December 31, 1997, versus $27,400,000 and $25,700,000 at the end of 1996 and 1995, respec- tively. The backlog of Processing Equipment was $22,500,000, $23,000,000, and $22,200,000 at the end of 1997, 1996, and 1995, respectively, with the remaining balance in each year attributable to Dairy Farm Equipment. Substantially all of the December 31, 1997, backlog will be shipped during the current year. OPERATING INCOME -- Operating income for 1997 was $3,535,000 versus $5,843,000 for 1996. The factors contributing to the decrease were a significantly smaller LIFO effect, a lower gross margin rate, and an increase in operating expenses. Although the inventory level at the end of 1997 was higher than at the end 11 12 of 1996, a change in the mix of the components of inventory and the effect of a decline in steel prices during 1997 resulted in a reduction in the required LIFO reserve, and this had the effect of increasing operating income by $440,000. On the other hand, during 1996 a significant decrease in the inventory levels, coupled with a decline in stainless steel prices, resulted in a reduction of the required LIFO reserve, which increased operating income by approximately $1,859,000. The gross margin rate was also lower during 1997 compared to 1996 primarily for custom-fabricated Processing Equipment. Competitive market conditions, coupled with several complex projects, resulted in lower margins. Operating expenses were also higher in 1997 compared to 1996, as manufac- turing burden increased due to increased sales and production inefficiencies. Additionally, selling, general, and administra- tive expenses were higher in 1997 compared to 1996, as expenditures were higher for personnel, advertising, trade shows, and travel expense due to the increase in marketing activities during the year. Operating income for 1996 was $5,843,000 compared to $1,549,000 for 1995. The major factors contributing to the increase in operating income, in comparing 1996 to 1995, were the increase in sales of $5,575,000 and the significant reduction in the LIFO reserve. In addition to the increase in sales, gross margins improved in 1996 compared to 1995, particularly for custom- fabricated Processing Equipment, which was the product area most affected by the strike. During 1996, the significant decrease in inventory levels, coupled with the decline in stainless steel prices, resulted in a reduction in the required LIFO reserve, and this had the effect of increasing operating income by approximately $1,859,000. Expenditures for selling, general, and administrative expenses were comparable between 1996 and 1995, and this was due primarily to the curtailment of selling expenses during the first half of 1996 when there was still a significant number of employees participating in the strike. The profitability of Processing Equipment is much lower than for Dairy Farm Equipment, as a substantial number of Processing Equip- ment projects are engineered-to-order. These projects require much greater support from the sales, engineering, and manufacturing areas and a higher degree of skill to fabricate. Also, the risks of manufacturing are greater because the products are custom- designed and built, and the chances of misinterpretation, errors, and mistakes are, in general, much greater than with a standard product. Many of the projects are bid among several possible suppliers, which tends to make pricing very competitive. On the other hand, Dairy Farm Equipment is a standard product, and engineering designs have been well defined and manufacturing methods have been refined for efficiency. The proprietary nature of the product also permits more attractive pricing. There are relatively few competitors, and the Registrant is one of the largest manufacturers of dairy farm milk coolers. Inflation is a factor that affects the cost of operations, and the Registrant seeks ways to minimize the effect on operating results. To the extent permitted by competitive conditions, higher material prices, labor costs and operating costs are passed on to the customer by increasing prices. The Registrant uses the LIFO method of accounting for inventories, and under this method, the cost of products sold, as reported in the financial statements, approximates the current replacement cost. Additionally, the Registrant uses accelerated depreciation methods in charging depreciation expense to current operations, which to a certain extent offsets the effect of the increased cost of replacement productive capacity. Management has determined that its manufacturing software and certain internally developed software must be modified to make them year 2000 compliant. The computer operating system and the finan- cial software are year 2000 compatible. Management is currently in the process of examining its manufacturing software and certain internally developed software systems and making the necessary modifications to those systems. Management does not believe the cost associated with the year 2000 issue will be material to the Registrant's financial position or results of operations. 12 13 OTHER INCOME (EXPENSE) -- Although the average level of investable funds was lower during 1997 compared to 1996, the average interest rate for 1997 was higher, which resulted in a comparable level of interest income. The average interest rate was lower during 1996, and interest income increased compared to 1995, as the average level of investable funds was higher. Interest expense was lower during 1997, as a $3,000,000 Floating Rate Weekly Demand Industrial Development Revenue Bond issue was repaid on December 1, 1996. Interest expense in 1996 and 1995 was consistent with the interest rate levels during those years. Other, net for 1997 was lower than 1996 primarily due to a provi- sion of $775,000 made as a result of an adverse decision in a lawsuit. The Registrant was the defendant in a breach-of-contract / breach-of-warranty lawsuit concerning reactor vessels sold in 1992 in Tarrant County, Texas (Alcon Laboratories, Inc. -vs- Paul Mueller Company). As a result of a trial that ended September 19, 1997, the Registrant received an adverse decision and the final judgment awarded damages, interest and attorney's fees totaling approximately $1,700,000 to the plaintiff. Management believes that this decision was incorrect and, based on advice of legal counsel, has appealed the decision. During 1997, a provision of $775,000 was made for the estimated liability for ultimate reso- lution of this matter. If the decision is upheld on appeal, the Registrant's liability will exceed the reserve that has been established. Other income for 1996 was lower than 1995 due to an additional 401(k) match, reduced miscellaneous income, lower trucking operation results, and reduced royalty income. PROVISION FOR INCOME TAXES -- The effective tax rates for 1997, 1996, and 1995 were 25.4%, 31.8%, and 25.2%, respectively. The effective tax rates for 1997, 1996, and 1995 were below the statutory rate (34%) primarily as a result of tax-exempt interest, the lower effective tax rate for the foreign sales corporation, and tax credits. FINANCIAL CONDITION LIQUIDITY - CAPITAL RESOURCES -- Working capital was $20,599,000 at December 31, 1997, compared to $26,082,000 at December 31, 1996. The current ratio, a measure of liquidity, was 2.31 at December 31, 1997, versus 3.09 at December 31, 1996. The Registrant has no significant amount of long-term debt. Net cash provided by operations was $5,473,000 in 1997 compared to $9,723,000 in 1996 and $5,160,000 in 1995. The 1997 cash flow was primarily attributable to net income, an increase in current liabilities, and depreciation and amortization expense. The 1996 cash flow was primarily attributable to net income, a decrease in inventories, and depreciation and amortization expense. The 1995 cash flow was primarily attributable to net income, depreciation and amortization expense, a decrease in accounts and notes re- ceivable, and an increase in advanced billings. Capital expenditures for the most recent three years were $7,777,000 in 1997, $2,131,000 in 1996, and $2,284,000 in 1995. The increase in capital expenditures for 1997 compared to the prior years related to the establishment of a microbrewery and brewpub operation in Springfield, Missouri, and the addition of a corporate aircraft. In support of the Registrant's efforts to expand its marketing of brewery systems, the Registrant opened a microbrewery and brewpub operation in December 1997. The operation will show- case the Registrant's brewery technology capability, while also functioning as a training and product-development facility for brewery equipment. The corporate aircraft was purchased to faci- litate travel primarily in the marketing of the Registrant's products. The level of planned expenditures for 1998 is $3,000,000, none of which has been committed as of December 31, 1997. Anticipated expenditures are primarily for plant equipment to maintain quality and improve efficiency. Management has the discretion of lowering the level of expenditures if operating results deviate from bud- geted performance. 13 14 The Registrant has a $2,000,000 bank borrowing facility that ex- pires May 31, 1998, none of which is currently used. Management believes that cash flows provided by operations and the strong cash and investment position will continue to be sufficient to satisfy the Registrant's working capital requirements, normal capital ex- penditure levels, and anticipated dividends. A policy of requiring down payments and progress payments on large Processing Equipment orders has had a favorable effect on cash flows. Management ex- pects internally generated funds to be sufficient to finance operations, and this is consistent with historical performance. Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," was issued in June 1996, effective for the Registrant's 1997 fiscal year, and the adoption of SFAS No. 125 did not have a material effect on the Registrant's financial position or results of operations. SFAS No. 128, "Earnings per Share," was issued in February 1997, effective for the Registrant's 1997 fiscal year, and the adoption of SFAS No. 128 had no effect on the Registrant's disclosure for earnings per share. SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Informa- ion," both issued in June 1997, are effective for the Registrant's 1998 fiscal year and are not expected to have a material effect on the Registrant's financial position or results of operations. 14 15 ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996
1997 1996 ----------- ----------- ASSETS - ------ Current Assets: Cash and cash equivalents (Note 1)................ $ 3,401,527 $ 2,220,648 Available-for-sale investments, at market (Note 1) 8,347,227 14,605,457 Accounts and notes receivable, less reserve of $559,261 in 1997 and $698,036 in 1996 for doubtful accounts (Note 1).................... 16,113,239 15,328,569 Inventories (Note 1) - Raw materials and components.................... $ 5,101,658 $ 3,768,312 Work-in-process................................. 1,727,815 719,176 Finished goods.................................. 1,202,936 1,497,536 ----------- ----------- $ 8,032,409 $ 5,985,024 Prepayments....................................... 474,430 403,260 ----------- ----------- Total Current Assets...................... $36,368,832 $38,542,958 Other Assets (Notes 2 and 3)........................ 3,523,801 3,486,087 Property, Plant and Equipment - at cost (Note 1) - Land and land improvements........................ $ 2,712,112 $ 2,611,250 Buildings......................................... 12,876,279 10,477,887 Shop equipment.................................... 26,165,326 23,872,341 Transportation, office & other equipment.......... 12,118,952 9,524,357 Construction-in-progress.......................... 440,278 621,210 ----------- ----------- $54,312,947 $47,107,045 Less - Accumulated depreciation................... 37,658,290 35,951,119 ----------- ----------- $16,654,657 $11,155,926 ----------- ----------- $56,547,290 $53,184,971 =========== =========== LIABILITIES AND SHAREHOLDERS' INVESTMENT - ---------------------------------------- Current Liabilities: Accounts payable.................................. $ 4,295,684 $ 2,282,897 Accrued expenses - Income taxes (Note 3)........................... 290,700 799,467 Payrolls........................................ 2,125,019 2,334,298 Vacations....................................... 1,907,269 1,633,914 Other (Note 6).................................. 1,926,361 1,324,925 Advance billings.................................. 5,225,012 4,085,152 ----------- ----------- Total Current Liabilities................. $15,770,045 $12,460,653 Other Long-Term Liabilities (Note 2)................ 1,100,036 1,188,399 Contingencies (Note 6).............................. Shareholders' Investment: Common stock, par value $1 per share--Authorized 20,000,000 shares--Issued 1,342,325 shares.... $ 1,342,325 $ 1,342,325 Preferred stock, par value $1 per share-- Authorized 1,000,000 shares--No shares issued. - - Paid-in surplus................................... 4,306,728 4,306,728 Retained earnings................................. 36,582,189 36,440,899 ----------- ----------- $42,231,242 $42,089,952 Less - Treasury stock, 174,304 shares, at cost.... 2,554,033 2,554,033 ----------- ----------- $39,677,209 $39,535,919 ----------- ----------- $56,547,290 $53,184,971 =========== ===========
The accompanying notes are an integral part of these balance sheets. 15 16 CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 ----------- ----------- ----------- Net Sales.............................. $86,693,022 $83,950,990 $78,375,636 Cost of Sales (Note 1)................. 66,826,192 62,252,750 61,012,139 ----------- ----------- ----------- Gross profit......................... $19,866,830 $21,698,240 $17,363,497 Selling, General & Administrative Expenses (Note 1).................. 16,331,730 15,855,134 15,814,620 ----------- ----------- ----------- Operating income..................... $ 3,535,100 $ 5,843,106 $ 1,548,877 Other Income (Expense): Interest income...................... $ 704,965 $ 710,324 $ 581,456 Interest expense (Note 4)............ (15,930) (107,619) (129,608) Other, net (Note 6).................. (276,595) 44,208 613,928 ----------- ----------- ----------- $ 412,440 $ 646,913 $ 1,065,776 ----------- ----------- ----------- Income before provision for income taxes............... $ 3,947,540 $ 6,490,019 $ 2,614,653 Provision for Income Taxes (Note 3).... 1,003,000 2,066,000 660,000 ----------- ----------- ----------- Net Income............................. $ 2,944,540 $ 4,424,019 $ 1,954,653 =========== =========== =========== Earnings per Common Share (Note 1)..... $ 2.52 $ 3.79 $ 1.67 ====== ====== ======
The accompanying notes are an integral part of these statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT For the Years Ended December 31, 1997, 1996 and 1995
Common Stock Treasury Stock -------------------- Paid-in Retained --------------------- Shares Amount Surplus Earnings Shares Amount --------- --------- --------- ---------- -------- ---------- $'s $'s $'s $'s Balance, 12-31-94 1,342,325 1,342,325 4,306,728 34,851,113 (174,304) (2,554,033) Add (Deduct): Net income - - - 1,954,653 - - Dividends, $2 per com- mon share - - - (2,336,042) - - --------- --------- --------- ---------- -------- ---------- Balance, 12-31-95 1,342,325 1,342,325 4,306,728 34,469,724 (174,304) (2,554,033) Add (Deduct): Net income - - - 4,424,019 - - Dividends, $2.10 per common share - - - (2,452,844) - - --------- --------- --------- ---------- -------- ---------- Balance, 12-31-96 1,342,325 1,342,325 4,306,728 36,440,899 (174,304) (2,554,033) Add (Deduct): Net income - - - 2,944,540 - - Dividends, $2.40 per common share - - - (2,803,250) - - --------- --------- --------- ---------- -------- ---------- Balance, 12-31-97 1,342,325 1,342,325 4,306,728 36,582,189 (174,304) (2,554,033) ========= ========= ========= ========== ======== ==========
The accompanying notes are an integral part of these statements. 16 17 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 ----------- ----------- ----------- Cash Flows from Operating Activities: Net income............................ $ 2,944,540 $ 4,424,019 $ 1,954,653 Adjustments to reconcile net income to net cash provided by operating activities: Bad debt (recovery) expense......... (16,744) 279,061 114,432 Depreciation and amortization....... 2,296,292 2,560,862 2,507,260 (Gain) on sales of equipment........ (41,523) (7,603) (7,711) Changes in assets and liabilities- Decrease (increase) in interest receivable........... 58,230 (124,140) 83,180 (Increase) decrease in accounts and notes receivable.......... (767,926) (2,573,970) 1,691,385 (Increase) decrease in inventories (2,047,385) 5,212,831 (1,818,373) (Increase) decrease in prepayments (71,170) 214,185 (24,667) (Increase) decrease in other assets.................. (102,047) 203,293 (150,295) Increase (decrease) in accounts payable.............. 2,012,787 322,074 (325,454) Increase (decrease) in accrued expenses.............. 156,745 1,296,750 (1,543,014) Increase (decrease) in advance billings.............. 1,139,860 (2,053,740) 2,890,583 (Decrease) in other long-term liabilities......... (88,363) (30,192) (212,059) ----------- ----------- ----------- Net Cash Provided by Operating Activities........ $ 5,473,296 $ 9,723,430 $ 5,159,920 Cash Flows (Requirements) from Investing Activities: Proceeds from maturities of investments.................... $20,780,000 $22,431,823 $20,235,000 Purchases of investments.............. (14,580,000) (24,850,000) (20,170,000) Proceeds from sales of equipment...... 87,768 7,603 12,376 Additions to property, plant and equipment..................... (7,776,935) (2,130,531) (2,284,352) ----------- ----------- ----------- Net Cash (Required) by Investing Activities.......... $(1,489,167) $(4,541,105) $(2,206,976) Cash Flows (Requirements) from Financing Activities: Repayment of debt..................... $ - $(3,000,000) $ - Dividends paid........................ (2,803,250) (2,452,844) (2,336,042) ----------- ----------- ----------- Net Cash (Required) by Financing Activities........ $(2,803,250) $(5,452,844) $(2,336,042) ----------- ----------- ----------- Net Increase (Decrease) in Cash......... $ 1,180,879 $ (270,519) $ 616,902 Cash and Cash Equivalents at Beginning of Year..................... 2,220,648 2,491,167 1,874,265 ----------- ----------- ----------- Cash and Cash Equivalents at End of Year........................... $ 3,401,527 $ 2,220,648 $ 2,491,167 =========== =========== ===========
The accompanying notes are an integral part of these statements. 17 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 (1) SUMMARY OF ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION -- Paul Mueller Company (Registrant) specializes in the manufacture of high-quality stainless steel tanks and industrial processing equipment. The Registrant serves the food, beverage, chemical, pharmaceutical and other process industries and the dairy farm market. The financial statements include the accounts of the Registrant and its wholly owned sub- sidiaries, Mueller International Sales Corporation, a foreign sales corporation (FSC), and Mueller Transportation, Inc. (Companies). All significant intercompany accounts and transactions have been eliminated in consolidation. Effective January 1, 1997, all trans- portation operations, previously performed by the Registrant, and the related assets were transferred to Mueller Transportation, Inc., a wholly owned subsidiary. 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 reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION AND RETAINAGES -- Revenue from sales of manu- factured products is recognized upon passage of title to the customer, which generally coincides with shipment. Contracts with some customers provide for a portion of the sales amount to be retained by the customer for a period of time after completion of the contract. Retainages included in accounts receivable were $426,300 at December 31, 1997, and $175,900 at December 31, 1996. INVENTORIES -- The Registrant's inventories are recorded at the lower of cost, last-in, first-out (LIFO), or market. Cost includes material, labor, and manufacturing burden required in the production of the Registrant's products. Under the first-in, first-out (FIFO) method of accounting, which approximates current cost, Registrant inventories would have been $6,679,563, $7,119,773, and $8,978,736 higher than those reported at December 31, 1997, 1996, and 1995, respectively. A reduction in inventory quantities during 1996 resulted in liqui- dation of LIFO quantities recorded at lower costs prevailing in prior years as compared with the cost of 1996 purchases. The effect was to lower the cost of sales, which increased net income by $531,300, or $0.45 per share. RESEARCH AND DEVELOPMENT -- Research and development costs are charged to expense as incurred and were $719,200 in 1997, $653,200 in 1996, and $597,600 in 1995. DEPRECIATION POLICIES -- The Companies provide for depreciation expense using principally the double-declining balance method for new items and the straight-line method for used items. The economic useful lives for the more significant items within each property classification are as follows:
Years ------- Buildings................................... 40 Land improvements........................... 10 - 20 Shop equipment.............................. 5 - 10 Transportation, office and other equipment.. 3 - 10
Maintenance and repairs are charged to expense as incurred. The cost and accumulated depreciation of assets retired are removed from the accounts, and any resulting gains or losses are reflected in net income currently. 18 19 EARNINGS PER COMMON SHARE -- The net income per share of common stock has been computed on the basis of weighted average shares outstanding (1,168,021 shares in 1997, 1996, and 1995). INVESTMENTS -- The Registrant classifies its investments in tax- exempt bonds and tax-exempt variable rate preferred stock funds as available-for-sale and records them at market value. These securities are a part of the Registrant's asset/liability manage- ment program and may be sold in response to capital or liquidity needs. Investments in tax-exempt bonds generally have maturities from three to twelve months. Available-for-sale investments on the accompanying consolidated balance sheets at December 31, 1997 and 1996, include:
1997 1996 ----------- ----------- Tax-exempt bonds......................... $ 7,200,000 $11,900,000 Tax-exempt preferred stock funds......... 1,000,000 2,500,000 Accrued interest......................... 147,227 205,457 ----------- ----------- $ 8,347,227 $14,605,457 =========== ===========
Unrealized holding gains and losses were not material as of December 31, 1997 or 1996. There were no realized gains or losses during 1997, 1996, or 1995. STATEMENTS OF CASH FLOWS -- For purposes of the statements of cash flows, the Registrant considers all short-term highly liquid investments in money market funds to be cash equivalents. Interest and income tax payments for each of the three years during the period ended December 31, 1997, were as follows:
1997 1996 1995 ----------- ----------- ----------- Interest payments........... $ 15,900 $ 107,600 $ 129,300 =========== =========== =========== Income tax payments......... $ 1,601,700 $ 1,336,600 $ 1,275,200 =========== =========== ===========
(2) RETIREMENT PLANS: The Registrant has a Profit Sharing and Retirement Savings Plan [401(k) plan] in which substantially all employees are eligible to participate. The plan provides for a match of employees' con- tributions up to a specified limit. The plan also has a profit- sharing feature whereby an additional match is made if the Registrant's net income reaches predetermined levels established annually by the Board of Directors. The funds of the plan are deposited with an insurance company and are invested at the employee's option in one or more investment funds. The Regis- trant's contributions to the plan were $336,500 for 1997, $587,500 for 1996, and $289,800 for 1995. The Registrant has pension plans covering substantially all employees. Benefits under the plans are based either on final average pay or a flat benefit formula. Total pension expense under the plans was $659,900 in 1997, $364,200 in 1996, and $98,700 in 1995. Management's policy is to fund pension expense that is currently deductible for tax purposes. 19 20 The following table sets forth the funded status of the plans at December 31, 1997 and 1996:
Funded Status --------------------------------------------------------------------------- December 31 ------------------------ 1997 1996 ----------- ----------- Actuarial present value of accumulated benefit obligation, including vested benefits of $22,820,100 and $20,155,800 at December 31, 1997 and 1996, respectively..................... $26,128,000 $22,373,300 =========== =========== Plans' assets at fair value, primarily listed stocks and insurance company investment funds... $33,008,900 $28,502,600 Actuarial present value of projected benefit obligation for services rendered to date........ 29,600,900 25,145,400 ----------- ----------- Assets in excess of projected benefit obligation.. $ 3,408,000 $ 3,357,200 Unrecognized net (gain)........................... (3,679,000) (3,250,200) Unrecognized net (asset).......................... (1,174,500) (1,511,400) Unrecognized prior service cost................... 2,211,500 2,309,100 ----------- ----------- Prepaid pension asset............................. $ 766,000 $ 904,700 =========== ===========
Prepaid pension assets of $2,392,700 and $2,452,900 at December 31, 1997 and 1996, respectively, are included in other assets on the accompanying consolidated balance sheets. Pension liabilities of $1,626,700 and $1,548,200 at December 31, 1997 and 1996, respec- tively, are included in current and other long-term liabilities on the accompanying consolidated balance sheets. Net pension expense for the Registrant's plans includes the follow- ing components:
1997 1996 1995 ----------- ----------- ----------- Service cost - benefit earned during year......... $ 1,005,400 $ 897,200 $ 662,700 Interest cost on projected benefit obligation......... 1,927,300 1,692,400 1,493,700 Actual return on assets...... (5,086,200) (3,249,700) (4,654,500) Amortization of unrecognized net assets................. (130,900) (206,600) (231,200) Deferred asset gain (loss)... 2,944,300 1,230,900 2,828,000 ----------- ----------- ----------- Net pension expense.......... $ 659,900 $ 364,200 $ 98,700 =========== =========== ===========
The weighted average expected long-term rate of return on plan assets used in the determination of annual pension expense was 8.5% for 1997, 1996, and 1995. The weighted average assumed discount rates used to measure the projected benefit obligation were 7.0% at December 31, 1997, and 7.5% at December 31, 1996. The assumed rate of compensation increase used to measure the projected benefit obli- gation was 4.5% at December 31, 1997 and 1996, for the applicable plan. (3) INCOME TAXES: The provision for taxes on income from operations includes:
1997 1996 1995 ---------- ---------- ---------- Current tax expense............. $1,087,800 $1,823,800 $ 780,200 Deferred, net................... (84,800) 242,200 (120,200) ---------- ---------- ---------- $1,003,000 $2,066,000 $ 660,000 ========== ========== ==========
The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recog- nized, if appropriate. Net deferred tax assets of $778,200 and 20 21 $693,400 at December 31, 1997 and 1996, respectively, are included in other assets on the accompanying consolidated balance sheets. The income tax effect of temporary differences comprising the deferred tax assets and deferred tax liabilities in the accompany- ing consolidated balance sheets is a result of the following:
1997 1996 ---------- ---------- Deferred Tax Assets: Insurance............................... $ 82,100 $ 107,700 Vacation................................ 635,800 547,900 Warranty................................ 56,200 142,400 Doubtful accounts....................... 206,900 258,300 Healthcare benefits..................... 176,000 185,000 Lawsuit................................. 367,400 - Other................................... 110,800 226,000 ---------- ---------- $1,635,200 $1,467,300 ========== ========== Deferred Tax Liabilities: Depreciation............................ $ 292,100 $ 219,500 Pensions................................ 538,000 527,600 Other................................... 26,900 26,800 ---------- ---------- $ 857,000 $ 773,900 ========== ==========
A reconciliation between the statutory federal income tax rate (34%) and the effective rate of income tax expense for each of the three years during the period ended December 31, 1997, follows:
1997 1996 1995 ---------------- ---------------- ---------------- Amount % Amount % Amount % ---------- ---- ---------- ---- ---------- ---- Statutory federal income tax........... $1,342,200 34.0 $2,206,600 34.0 $ 889,000 34.0 Increase (decrease) in taxes resulting from: State tax, net of federal benefit.... 53,700 1.4 67,600 1.0 17,700 0.7 Tax-exempt interest. (137,400) (3.5) (165,700) (2.6) (147,800) (5.7) Tax credits......... (22,200) (0.5) (14,400) (0.2) (23,400) (0.9) FSC exempt income... (138,700) (3.5) (138,500) (2.1) (105,400) (4.0) Other, net.......... (94,600) (2.5) 110,400 1.7 29,900 1.1 ---------- ---- ---------- ---- ---------- ---- $1,003,000 25.4 $2,066,000 31.8 $ 660,000 25.2 ========== ==== ========== ==== ========== ====
(4) DEBT: The $3,000,000 Floating Rate Weekly Demand Industrial Development Revenue Bond issue due December 1, 1996, was repaid as required. (5) OPERATIONS BY INDUSTRY AND EXPORT SALES: A description of the various industries in which the Companies operate and a summary of operations by industry are included on pages 3 and 4 of this annual report. The information included therein is incorporated as an integral part of these consolidated financial statements. The Registrant's export sales were $18,696,700 in 1997, $16,263,700 in 1996, and $13,385,800 in 1995. Export sales during 1997, 1996 and 1995, respectively, were made to the following geographic areas: North America - $6,065,400, $5,581,400, and $4,275,800; Asia and the Far East - $7,665,000, 21 22 $6,648,300, and $5,395,200; and other areas - $4,966,300, $4,034,000, and $3,714,800. During 1997, 1996 and 1995, sales to any one customer were not in excess of 10% of consolidated sales. (6) CONTINGENCIES: The Registrant was the defendant in a breach-of-contract / breach- of-warranty lawsuit concerning reactor vessels sold in 1992 in Tarrant County, Texas (Alcon Laboratories, Inc. -vs- Paul Mueller Company). As a result of a trial that ended September 19, 1997, the Registrant received an adverse decision, and the final judg- ment awarded damages, interest, and attorney's fees totaling approximately $1,700,000 to the plaintiff. Management believes the decision was incorrect and, based on the advice of legal counsel, has appealed the decision. As a result of the decision, a provision of approximately $775,000 was made during 1997 as an estimate of the liability for the ultimate resolution of the matter and is included in other, net on the accompanying consolidated statements of income, and the related reserve is included in accrued expenses on the consolidated balance sheets. If the decision is upheld on appeal, the Registrant's liability will exceed the reserve that has been established. The Registrant is a defendant in two other lawsuits pending at December 31, 1997. In the opinion of management, after consultation with legal counsel, the outcome of these lawsuits will not have a material adverse effect on the Registrant's consolidated financial statements. The Registrant employs nearly 900 people, of which approximately 400 are represented by the Sheet Metal Workers Union. The International Union called a strike beginning July 25, 1995, and currently 20 em- ployees are participating. The Registrant has unfair labor practice charges pending before the National Labor Relations Board, and the final determination of these charges may take up to two years. However, management believes, based on evaluation by counsel, that there is no material financial exposure to the Registrant. 22 23 FINANCIAL HIGHLIGHTS BY QUARTER (UNAUDITED) (In Thousands, Except Per Share Data)
Quarter Ended --------------------------------------------------------------- March 31 June 30 September 30 December 31 --------------- --------------- --------------- --------------- 1997 1996 1997 1996 1997 1996 1997 1996 ------- ------- ------- ------- ------- ------- ------- ------- Net sales...... $17,208 $18,690 $21,868 $21,526 $23,404 $21,187 $24,213 $22,548 Gross profit... $ 4,229 $ 4,065 $ 5,401 $ 5,026 $ 4,986 $ 5,426 $ 5,251 $ 7,181 Net income..... $ 436 $ 500 $ 1,047 $ 971 $ 360 $ 1,171 $ 1,102 $ 1,782 Earnings per common share.. $ 0.37 $ 0.43 $ 0.90 $ 0.83 $ 0.31 $ 1.00 $ 0.94 $ 1.53 Because the inventory determination under the LIFO method can only be made at the end of each fiscal year based on the inventory levels and costs at that point, interim LIFO determinations must be based on management's estimate of expected year-end inventory levels and costs. Net income for the first quarter of 1996 was favorably affected by an insurance refund of $197,000 after tax, or $0.17 per share. Net income for the third quarter of 1997 was unfavorably affected by a provision of $488,000 after tax, or $0.42 per share, made as a result of an adverse jury decision in a breach-of-contract / breach-of-warranty lawsuit. Net income for the fourth quarter of 1997 was favorably affected by a LIFO adjustment. The adjustment increased net income by $510,400, or $0.44 per share. Net income for the fourth quarter of 1996 was favorably affected by a LIFO adjustment. The adjustment increased net income by $1,321,300, or $1.13 per share.
23 24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Paul Mueller Company: We have audited the accompanying consolidated balance sheets of PAUL MUELLER COMPANY (a Missouri corporation) AND SUBSIDIARIES as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' investment, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Registrant's management. Our responsi- bility 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 state- ment 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 financial position of Paul Mueller Company and Subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with gener- ally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II is the respon- sibility of the Registrant's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been sub- jected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP Kansas City, Missouri, February 13, 1998 ITEM 9. - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements on accounting principles or finan- cial statement disclosure with the independent public accountants. 24 25 PART III ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information as to Directors of the Registrant required by Item 10 is included on pages 4 and 5 of the Registrant's Proxy Statement for the annual meeting of shareholders to be held May 4, 1998, and is incorporated herein by reference. The information concerning executive officers is set forth on page 7 of Part I hereof. ITEM 11. - EXECUTIVE COMPENSATION Information as to executive compensation required by Item 11 is included on pages 5 and 6 of the Registrant's Proxy Statement for the annual meeting of shareholders to be held May 4, 1998, and is incorporated herein by reference. ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information as to security ownership of certain beneficial owners and management required by Item 12 is included on pages 3, 4, and 5 of the Registrant's Proxy Statement for the annual meeting of shareholders to be held May 4, 1998, and is incorporated herein by reference. ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information as to certain relationships and related transactions required by Item 13 is included on page 5 of the Registrant's Proxy Statement for the annual meeting of shareholders to be held May 4, 1998, and is incorporated herein by reference. 25 26 PART IV ITEM 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K A. The financial statements and schedules, required under Part II- Item 8, are as follows: 1. The consolidated financial statements of the Registrant and its subsidiaries, for the year ended December 31, 1997: - Consolidated Balance Sheets..............December 31, 1997 and 1996 - Consolidated Statements of Income........For years ended December 31, 1997, 1996 and 1995 - Consolidated Statements of Shareholders' Investment.................For years ended December 31, 1997, 1996 and 1995 - Consolidated Statements of Cash Flows....For years ended December 31, 1997, 1996 and 1995 - Notes to Consolidated Financial Statements...............................December 31, 1997, 1996 and 1995 - Financial Highlights by Quarter..........For years ended December 31, 1997 and 1996 - Report of Independent Public Accountants 2. Additional financial statement schedules included herein: - Schedule II - Valuation and Qualifying Accounts....Page 28 - All other schedules are not submitted because they are not applicable or not required, or because the required information is included in the financial statements or notes thereto. 3. The exhibits set forth in the Exhibit Index found on pages 29 through 31. B. No reports on Form 8-K were filed by the Registrant during the last quarter of 1997. 26 27 SIGNATURES - Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. PAUL MUELLER COMPANY DATE March 13, 1998 BY /S/ DANIEL C. MANNA -------------- ------------------------------------- Daniel C. Manna President (Chief Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. DATE March 13, 1998 BY /S/ DANIEL C. MANNA -------------- ------------------------------------- Daniel C. Manna President and Director (Chief Executive Officer) DATE March 13, 1998 BY /S/ PAUL MUELLER -------------- ------------------------------------- Paul Mueller Chairman of the Board and Director DATE March 13, 1998 BY /S/ DONALD E. GOLIK -------------- ------------------------------------- Donald E. Golik Senior Vice President, Chief Financial Officer, Secretary and Director DATE March 13, 1998 BY /S/ ROBERT A. BECKER -------------- ------------------------------------- Robert A. Becker Director DATE March 13, 1998 BY /S/ DAVID T. MOORE -------------- ------------------------------------- David T. Moore Director DATE March 13, 1998 BY /S/ WILLIAM B. JOHNSON -------------- ------------------------------------- William B. Johnson Director DATE March 13, 1998 BY /S/ WILLIAM R. PATTERSON -------------- ------------------------------------- William R. Patterson Director DATE March 13, 1998 BY /S/ CHARLES M. RUPRECHT -------------- ------------------------------------- Charles M. Ruprecht Director 27 28 SCHEDULE II PAUL MUELLER COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1997
Balance at Charged to Charged Balance Beginning Costs and to Other at End of of Period Expenses Accounts Deductions Period -------- -------- -------- -------- -------- RESERVE FOR DOUBTFUL ACCOUNTS 12-31-97..... $698,036 $(82,689) $ - $ 56,086 $559,261 12-31-96..... $531,601 $316,990 $ - $150,555 $698,036 12-31-95..... $679,018 $ 20,465 $ - $167,882 $531,601 Accounts written off during the year.
28 29 EXHIBIT INDEX
Number Description Page No. - ------ ----------------------------------------------------------- -------- (3) ARTICLES OF INCORPORATION AND BY-LAWS - The Restated Arti- cles of Incorporation of the Registrant filed with the Secretary of State on May 20, 1991, and the Restated By-Laws of the Registrant dated May 6, 1991, attached as Exhibit (3), page 19, of the Registrant's Form 10-K for the year ended December 31, 1991, are incorporated herein by reference. (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS - (a) A specimen stock certificate (unlimited denomination) representing shares of the common stock, par value $1 per share, attached as Exhibit (4), page 69, of the Registrant's Form 10-K for the year ended December 31, 1981, is incorporated herein by reference. (b) Shareholder Rights Plan, dated January 29, 1991, between Paul Mueller Company and United Missouri Bank of Kansas City, N.A., is incorporated by reference to Form 8-A under the Securities Exchange Act of 1934, dated January 31, 1991, and filed with the Securities and Exchange Commission on February 1, 1991. (10) MATERIAL CONTRACTS - (a) Exclusive License Agreement between Registrant and Superstill Technology, Inc. dated January 9, 1992, Addendum No. 1 dated January 28, 1992, and Addendum No. 2 dated June 15, 1992, were attached as Exhibit (10), page 30, of the Registrant's Form 10-K for the year ended December 31, 1996, and is incorporated herein by reference. (b) The following Material Contracts, attached as Exhibit (10) of the Registrant's Form 10-Q for the quarter ended September 30, 1995, are incorporated herein by reference: CAPTION Description Page No. --------------------------------------------- -------- 1. Paul Mueller Company Tax Savings Plan and Trust, effective January 1, 1996, and adopted by the Board of Directors on August 2, 1995............................ 11 2. Paul Mueller Company Dependent Care Assis- tant Plan, effective January 1, 1996, and adopted by the Board of Directors on August 2, 1995............................ 22 (c) Paul Mueller Company Noncontract Employees Retirement Plan, as amended and restated effective January 1, 1989, and adopted by the Board of Directors of the Registrant on May 7, 1990, was attached as Exhibit (10), page 179, of the Registrant's Form 10-K for the year ended December 31, 1990, and is incorporated herein by reference. Amendment Number One, effective October 29, 1991, was adopted by the Board of Directors on October 29, 1991, and Amendment Number Two, effective June 1, 1992, was adopted by the Board of Directors on May 4, 29 30 Number Description Page No. - ------ ----------------------------------------------------------- -------- 1992, and both were attached as Exhibit (10), page 18, of the Registrant's Form 10-K for the year ended December 31, 1992, and both are incorporated herein by reference. Amendment Number Three was adopted by the Board of Directors on July 26, 1994, and Amendment Number Four, effective January 1, 1994, was adopted by unanimous consent of the Executive Committee of the Board of Directors on December 5, 1994, and both were attached as Exhibit (10), page 59, of the Registrant's Form 10-K for the year ended December 31, 1994, and both are incorporated herein by reference. Amendment Number Five, adopted by the Board of Directors on October 31, 1995, was attached as Exhibit (10), page 26, of the Registrant's Form 10-Q for the quarter ended September 30, 1995, and is incorporated herein by reference. Amendment Number Six, effective January 1, 1996, and executed on May 6, 1996, was attached as Exhibit (10), page 14, of the Registrant's Form 10-Q for the quarter ended March 31, 1996, and is incorporated herein by reference. (d) Paul Mueller Company Employee Benefit Plan, amended and restated effective March 22, 1995, and adopted by the Trustees on April 14, 1995, was attached as Exhibit (10), page 10, of the Registrant's Form 10-Q for the quarter ended March 31, 1995, and is incorporated herein by reference. The First Amendment, adopted by the Trustees on October 12, 1995, was attached as Exhibit (10), page 25, of the Registrant's Form 10-Q for the quarter ended September 30, 1995, and is incorporated herein by reference. The Second Amendment, effective April 1, 1996, and executed on May 15, 1996, was attached as Exhibit (10), page 11, of the Registrant's Form 10-Q for the quarter ended June 30, 1996, and is incorporated herein by reference. (e) Paul Mueller Company Profit Sharing and Retirement Savings Plan, restated effective January 1, 1993, and adopted by the Trustees on June 22, 1994, was attached as Exhibit (10), page 15, of the Registrant's Form 10-K for the year ended December 31, 1994. The First Amend- ment, effective September 1, 1997, was executed on August 14, 1997........................................ 32 (f) Paul Mueller Company Contract Employees Retirement Plan, restated effective January 1, 1992, and adopted November 17, 1992, was attached as Exhibit (10), page 22, of the Registrant's Form 10-K for the year ended December 31, 1992, and is incorporated herein by reference. Amendment Number One, effective September 19, 1994, was executed October 20, 1994, and Amendment Number Two, effective January 1, 1993, was executed December 2, 1994, and both were attached as Exhibit (10), page 67, of the Registrant's Form 10-K for the year ended December 31, 1994, and are incorporated herein by reference. Amendment Number Three, executed April 10, 1996, was attached as Exhibit (10), page 10, of the Registrant's Form 10-Q for the quarter ended March 31, 1996, and is incorporated herein by reference. Amendment Number Four, executed July 26, 1996, was attached as Exhibit (10), page 11, of the Registrant's Form 10-Q for the quarter ended September 30, 1996, and is incorporated herein by reference. (g) Agreement and Declaration of Trust for the Paul Mueller Company Employee Benefit Plan dated May 2, 1988, at- tached as Exhibit (10), page 107, of the Registrant's Form 10-K for the year ended December 31, 1988, is incorporated herein by reference. 30 31 Number Description Page No. - ------ ----------------------------------------------------------- -------- (h) Paul Mueller Company Salaried and Clerical Employees Retirement Trust, as amended August 11, 1981, was attached as Exhibit (10), page 318, of the Registrant's Form 10-K for the year ended December 31, 1981, and is incorporated herein by reference. The First Amendment to the trust, adopted by the Board of Directors on May 1, 1983, was attached as Exhibit (10), page 160, of the Registrant's Form 10-K for the year ended December 31, 1983, and is incorporated herein by reference. (i) Executive Compensation Plans and Arrangements: i. Paul Mueller Company Supplemental Executive Retire- ment Plan, effective January 1, 1996, adopted by the Board of Directors on February 8, 1996, was attached as Exhibit (10), page 30, of the Regis- trant's Form 10-K for the year ended December 31, 1995, and is incorporated herein by reference. ii. Executive Short-Term Incentive Plan, adopted January 31, 1995, attached as Exhibit (10), page 71, of the Registrant's Form 10-K for the year ended December 31, 1994, is incorporated herein by reference. (21) SUBSIDIARIES OF THE REGISTRANT............................. 56 (27) FINANCIAL DATA SCHEDULE AS OF DECEMBER 31, 1997............ 57
31 EX-10 2 EXHIBIT 10(E) FOR 1997 FORM 10-K THE PRINCIPAL FINANCIAL GROUP PROTOTYPE FOR SAVINGS PLAN ADOPTION AGREEMENT - PLUS A. This ADOPTION AGREEMENT is 1) [ ] the Employer's first adoption of The Principal Financial Group Prototype for Savings Plans. Together with THE PRINCIPAL FINANCIAL GROUP PROTOTYPE BASIC SAVINGS PLAN, it constitutes a) [ ] a new plan. b) [ ] a restatement of an existing plan (and trust). That plan was qualifiable under 401(a) of the Internal Revenue Code. The provisions of this restatement are effective on _________________, 19__. This is the RESTATEMENT DATE. 2) [X] Amendment No. 1 to the Plan. It replaces all prior amend- ments to the Plan and the first Adoption Agreement. The provisions of this amendment are effective on September 1, 1997. B. The terms we, us and our, as they are used in this Plan, refer to the EMPLOYER. We, PAUL MUELLER COMPANY, are the Employer. C. The PLAN'S NAME is PAUL MUELLER COMPANY PROFIT SHARING AND RETIRE- MENT SAVINGS PLAN. D. Our retirement plan became effective on January 1, 1989. This is the EFFECTIVE DATE. E. The YEARLY DATE is the first day of each Plan Year. The Yearly Date is January 1, 1989, and 1) [X] the same day of each following year. 2) [ ] each following _______________ (month and day). 3) [ ] (a) each following _______________ (month and day) through (b) _______________, 19__ and (c) each following ______________ (month and day). If the first date in Item E is after the Effective Date, Yearly Dates, before the first date in Item E above, shall be determined under the provisions of the Prior Plan (Plan) before that date. F. The FISCAL YEAR is our taxable year and ends on December 31. 32 2 G. We are the NAMED FIDUCIARY, unless otherwise specified in (1) below. 1) [ ] ______________________ is the Named Fiduciary. H. We are the PLAN ADMINISTRATOR, unless otherwise specified in (1) below. 1) [ ] ______________________ is the Plan Administrator. The address, phone number and tax filing number of the Plan Administrator are the same as the Employer's unless otherwise specified below: Address: ______________________________________________________ Phone: ________________________________________________________ Tax Filing No.: _______________________________________________ I. A PREDECESSOR employer is a firm of which we were once a part or a firm absorbed by us because of a change of name, merger, acquisition or a change of corporate status. 1) [X] A Predecessor is deemed to be the Employer for purposes of determining: a) [X] Entry Service. b) [X] Vesting Service. c) [X] Hours of Service required to be eligible for an Employer Contribution. d) [X] Pay. 2) [ ] Service with or pay from a Predecessor shall be counted ONLY if service continued with us without interruption. This item shall not apply if this Plan is a continuation of a plan of that Predecessor. 3) [ ] Service with or pay from a Predecessor shall INCLUDE service or pay while a proprietor or partner. (If this item is not checked, such service or pay shall not be counted.) 4) [X] Service with or pay from a Predecessor shall be counted ONLY as to a Predecessor which a) [ ] maintained a qualified pension or profit sharing plan (or) 33 3 b) [X] is named below: BABSON BROS. CO. J. An ELIGIBLE EMPLOYEE is 1) [X] an Employee of ours or of an Adopting Employer listed in Item Z. 2) [ ] an Employee of ours or of an Adopting Employer listed in Item Z provided the Employee meets the requirement(s) selected below. a) [ ] Employed in the following employment classification: i) [ ] Paid on a salaried basis. ii) [ ] Paid on a commission basis iii) [ ] Paid on an hourly rate basis. iv) [ ] Represented for collective bargaining purposes by A. [ ] any bargaining unit. B. [ ] _______________________________________________ v) [ ] Not represented for collective bargaining purposes by A. [ ] any bargaining unit for which retirement bene- fits have been the subject of good faith bargaining between Employee representatives and us. B. [ ] _______________________________________________ b) If more than one employment classification is selected, the Employee must meet i) [ ] each one of the employment classifications selected above. ii) [ ] any one of the employment classifications selected above. c) [ ] Not covered under any other qualified i) [ ] profit sharing plan (or) ii) [ ] pension plan to which we contribute. 34 4 d) [ ] Employed at the following location or divisions or in the following positions: __________________________________ e) [ ] Not employed at the following location or divisions or in the following positions: _______________________________ K. ENTRY REQUIREMENTS 1) SERVICE REQUIRED to become an Active Member: a) [ ] Service is NOT required. b) [X] The minimum Entry Service required is i) [X] 1 (one) whole year. ii) [ ] __/12 of a year. NOTE: If a fractional part of a year is required, the Hours Method may not be used to determine Entry Service. 2) ENTRY SERVICE, subject to the provisions of the Plan Section 1.02, shall be determined as follows: a) [ ] ELAPSED TIME METHOD. Entry Service is the total of an Employee's countable Periods of Service without regard to Hours of Service. b) [X] HOURS METHOD. A year of Entry Service is an Entry Service Period which has ended and in which an Employee has 1,000 Hours of Service, unless a lesser number is specified in (i) below. i) [ ] ____ Hours of Service ii) [ ] A year of Entry Service shall be credited before the end of the Entry Service Period if the Employee has the number of Hours of Service specified above. iii) An ENTRY SERVICE PERIOD is the 12-consecutive month period beginning on an Employee's Hire Date and each following 12-consecutive month period ending on the last day of the Plan Year, including the 12-consecutive month period ending on the last day of the first Plan Year after his Hire Date, unless otherwise specified in A. below. (See Plan Section 1.02 for the crediting of Entry Service during the first two periods.) 35 5 A. [ ] An Entry Service Period is the 12-consecutive month period beginning on an Employee's Hire Date and each following 12-consecutive month period beginning on an anniversary of that Hire Date. iv) An ENTRY BREAK in service, when the Hours Method is used, is an Entry Service Period in which an Employee is credited with not more than one-half of the Hours of Service required for a year of Entry Service, unless otherwise specified in A. below. A. [ ] ____ or fewer Hours of Service. 3) AGE REQUIRED to become an Active Member: a) [X] A minimum age is NOT required. b) [ ] The Employee must be ____ or older. 4) [ ] The requirement(s) for entry checked below shall be waived on _______________, 19__. This date shall be an Entry Date if the Eligible Employee has met all the other entry requirements. a) [ ] Service requirement. b) [ ] Age requirement. L. ENTRY DATE. An Eligible Employee may enter the Plan as an Active Member on the earliest 1) [X] Monthly Date, 2) [ ] Semi-yearly Date, 3) [ ] Quarterly Date, 4) [ ] Yearly Date, 5) [ ] date on or after the date this Plan became effective, on which he meets all the entry requirements. This date is his ENTRY DATE. M. PAY 1) COMPENSATION for purposes of Plan Section 3.06 is as defined therein, under Information required to be reported under Code Sections 6041 and 6051 (Wages, Tips and Other Compensation Box on Form W-2), which is actually paid or made available by us for the Limitation Year, unless otherwise specified in (a) or (b) below. 36 6 a) [ ] 415 safe-harbor compensation as defined in Plan Section 3.06. b) [ ] Code Section 3401(a) wages (wages for purposes of income tax withholding) as defined in Plan Section 3.06. 2) [ ] The definition of Compensation above shall apply on and after the 1994 Limitation Year. The definition of Compensation on any date before the 1994 Limitation Year shall be determined in accordance with the provisions of the Prior Plan. 3) PAY for purposes of Plan Section 1.02 is the same as compensa- tion for purposes of Plan Section 3.06 as specified in (1) above. 4) [ ] The definition of Pay in this Item M shall apply on and after the first Yearly Date in 1994. The definition of Pay on any date before the first Yearly Date in 1994 shall be deter- mined in accordance with the provisions of the Prior Plan. Pay shall include elective contributions. Elective contributions are amounts excludable from the gross income of the Employee under Code Sections 125, 402(a)(8), 402(h) or 403(b), and contributed by us, at the Employee's election, to a Code Section 401(k) arrange- ment, a simplified employee pension, cafeteria plan or tax-sheltered annuity. Elective contributions also include Pay deferred under a Code Section 457 plan maintained by us and Employee contributions "picked up" by a governmental entity and, pursuant to Code Section 414(h)(2), treated as our contributions. 5) For purposes of Elective Deferral Contributions only, Pay shall not include reimbursements or other expense allowances, fringe benefits (cash or noncash), moving expenses, deferred compensa- tion, and welfare benefits, unless otherwise specified in (a) below. a) [ ] Pay for all purposes under the Plan shall not include reimbursements or other expense allowances, fringe benefits (cash or noncash), moving expenses, deferred compensation, and welfare benefits. 6) ANNUAL PAY is, on any given date, an Employee's Pay for the latest Pay Year ending on or before that date. 7) The PLAN YEAR is the one-year period ending on the last day of each Plan Year, unless a different Pay Year is specified in (a) below. a) [ ] The one-year period ending on each ______________ (month and day). Pay is modified as follows: 8) [ ] An Employee's Annual Pay over $_________ shall be excluded. 37 7 9) [ ] If a Member's Entry Date occurs after _______________, 19__, Pay before such Entry Date shall be excluded. Item (10) shall apply to the Pay used for purposes of determining the allocation or amount of specified Contributions. Item (10) shall NOT apply to the Pay used for purposes of determining the allocation of Contributions if an Integration Level is used to determine the allocation of Contributions. 10) [ ] Pay for purposes of determining the allocation or amount of a) [ ] All Employer Contributions b) [ ] Elective Deferral Contributions c) [ ] Additional Contributions d) [ ] Discretionary Contributions EXCLUDES e) [ ] bonuses f) [ ] commissions g) [ ] overtime pay h) [ ] other special pay _____________________________________ Item (11) shall ONLY apply to the Pay used for purposes of deter- mining excess amounts under Plan Section 3.07. 11) [X] Pay shall include only amounts received while an Active Member of the Plan for the period described in Plan Section 3.07. N. ELECTIVE DEFERRAL CONTRIBUTIONS for a Member are equal to a portion of Pay as specified in the written elective deferral agreement. An Employee who is eligible to participate in the Plan may file an elective deferral agreement with us. The elective deferral agree- ment to start Elective Deferral Contributions may be effective on a Member's Entry Date (Reentry Date, if applicable) or any following Semi-yearly Date, unless otherwise specified in (1) below. 1) [X] Following a Member's Entry Date (Reentry Date, if appli- cable), a Member's elective deferral agreement may become effective on any a) [ ] Monthly Date. b) [ ] Quarterly Date. c) [ ] Yearly Date. 38 8 d) [X] date. The Member shall make any change or terminate the elective deferral agreement by filing a new elective deferral agreement. A Member's elective deferral agreement making a change may be effective on any date an elective deferral agreement to start Elective Deferral Contributions could be effective. A Member's elective deferral agreement to stop Elective Deferral Contributions may be effective on any date. The elective deferral agreement must be in writing and effective before the beginning of the pay period in which Elective Deferral Contributions are to start, change or stop. A Member may not defer more than 20% of Pay for the Plan Year. Elective Deferral Contributions shall be limited as needed to meet nondiscrimination tests. 2) [X] 1% of Pay is the minimum Elective Deferral Contribution. 3) [X] Elective Deferral Contributions must be a whole percentage of Pay. 4) [ ] ___% of Pay is the maximum Elective Deferral Contribution. O. [X] We shall make MATCHING CONTRIBUTIONS. 1) The percentage of Elective Deferral Contributions matched is a) [X] 25%. b) [ ] determined by us, but won't be more than 100%. i) [ ] ___% is the minimum percentage. ii) [ ] ___% is the maximum percentage. 2) [X] Elective Deferral Contributions which are over the percen- tage of Pay below won't be matched. a) [X] 6%. b) [ ] A percentage determined by us. i) [ ] ___% is the minimum percentage. ii) [ ] ___% is the maximum percentage. 3) Matching Contributions are made a) [X] as Elective Deferral Contributions are made. b) [ ] at the end of the Plan Year for Members meeting the requirements in Item Q. 39 9 4) [X] At the end of the Plan Year we may make more Matching Con- tributions for Members who made Elective Deferral Contributions. Our total Matching Contributions for the Plan Year shall be made as specified below. a) [X] The Matching Contributions made at the end of the Plan Year shall only be made for those meeting the requirements in Item Q. b) The percentage of Elective Deferral Contributions matched is i) [ ] ___%. ii) [X] determined by us, but won't be more than 100%. A. [ ] ___% is the minimum percentage. B. [ ] ___% is the maximum percentage. c) [X] Elective Deferral Contributions which are over the percentage of Pay below won't be matched. i) [X] 6%. ii) [ ] A percentage determined by us. A. [ ] ___% is the minimum percentage. B. [ ] ___% is the maximum percentage. 5) [ ] Matching Contributions are Qualified Matching Contributions. Qualified Matching Contributions are 100% vested and subject to the withdrawal restrictions of Code Section 401(k). a) [ ] Qualified Matching Contributions shall be made only for Nonhighly Compensated Employees. 6) [ ] Our Matching Contributions for a Member during any Plan Year shall not be more than $_________. 7) Forfeitures of Matching Contributions which relate to excess amounts as provided in Plan Section 3.07 shall be used to offset our first Contribution after the Forfeiture occurs, unless otherwise specified in (a) below. a) [ ] Forfeitures of Matching Contributions which relate to excess amounts as provided in Plan Section 3.07 shall be allocated to those meeting the requirements in Item Q who do not have an excess amount using the allocation formula in P(3)(a) and shall be deemed to be Matching Contributions. 40 10 P. OTHER EMPLOYER CONTRIBUTIONS AND FORFEITURES 1) [ ] QUALIFIED NONELECTIVE CONTRIBUTIONS. Qualified Nonelective Contributions are 100% vested and subject to the withdrawal restrictions of Code Section 401(k). a) [ ] We shall make Qualified Nonelective Contributions equal to the following: i) [ ] PAY FORMULA. An amount equal to A. [ ] ___% of Pay for the pay period for each Member who is an Active Member on the last day of that period. B. [ ] ___% of Annual Pay at the end of the Plan Year for Members who meet the requirements in Item Q. ii) [ ] SERVICE FORMULA. An amount equal to A. [ ] $_________ for the pay period for each Member who is an Active Member on the last day of that period. B. [ ] $_________ at the end of the Plan Year for Members who meet the requirements in Item Q. b) [ ] Qualified Nonelective Contributions may be made for each Plan Year in an amount determined by us. Our Qualified Nonelective Contributions shall be allocated to those meeting the requirements in Item Q using the allocation formula in P(3)(a). c) [ ] Qualified Nonelective Contributions shall be made only for or allocated only to Nonhighly Compensated Employees. 2) [ ] We shall make ADDITIONAL CONTRIBUTIONS equal to the fol- lowing: a) [ ] PAY FORMULA. An amount equal to i) [ ] ___% of Pay for the pay period for each Member who is an Active Member on the last day of that period. ii) [ ] ___% of Annual Pay at the end of the Plan Year for Members who meet the requirements in Item Q. b) [ ] SERVICE FORMULA. An amount equal to i) [ ] $_________ for the pay period for each Member who is an Active Member on the last day of that period. ii) [ ] $_________ at the end of the Plan Year for Members who meet the requirements in Item Q. 41 11 iii) [ ] $_________ for each Hour of Service he has PERFORMED during the pay period for each Member who is an Active Member during the pay period. iv) [ ] $_________ for each Hour of Service CREDITED during the pay period for each Member who is an Active Member during the pay period. 3) [ ] DISCRETIONARY CONTRIBUTIONS may be made for each Plan Year in an amount determined by us. The amount of our Discretionary Contributions and Forfeitures, if applicable, allocated to a person meeting the requirements in Item Q shall be equal to the following: a) [ ] PAY FORMULA. An amount equal to our Discretionary Contributions and Forfeitures, if applicable, multiplied by the ratio of such person's Annual Pay to the total Annual Pay of all such persons. b) [ ] INTEGRATED FORMULA. An amount equal to a percentage of the person's Annual Pay up to the Integration Level plus a percentage (equal to 2 times the first percentage) of his Annual Pay over the Integration Level. The first percentage shall be the Maximum Integration Rate, unless otherwise specified in (i) below. i) [ ] ____% (If this percentage exceeds the Maximum Inte- gration Rate, the Maximum Integration Rate shall apply.) If our Discretionary Contributions and Forfeitures, if applicable, are not great enough to provide this allocation, the percentage above shall be proportionally reduced. If our Discretionary Contributions and Forfeitures, if applicable, are more than enough to provide the allocation above, any amount remaining shall be allocated in the same manner as provided in the Pay Formula, Item P(3)(a). ii) The MAXIMUM INTEGRATION RATE shall be determined according to the following schedule: INTEGRATION INTEGRATION LEVEL RATE --------------------------------------- ----------- 100% of TWB 5.7% Less than 100%, but more than 80% of TWB 5.4% More than the greater of $10,000 or 20% of TWB, but not more than 80% of TWB 4.3% Not more than the greater of $10,000 or 20% of TWB 5.7% "TWB" means the taxable wage base as in effect on the latest Yearly Date. "Taxable wage base" means the 42 12 maximum amount of earnings which may be considered for wages for a year under Code Section 3121(a)(1). On any date the portion of the rate of tax under Code Section 3111(a) (in effect on the latest Yearly Date), which is attributable to old age insurance, exceeds 5.7%, such rate shall be substituted for 5.7%, and 5.4% and 4.3% shall be increased proportionately. iii) The INTEGRATION LEVEL is the taxable wage base (as de- fined in (ii) above) as in effect on the latest Yearly Date, unless otherwise specified in A. or B. below. A. [ ] $_________. B. [ ] ____% of such taxable wage base. 4) If P(3) is selected, FORFEITURES shall be reallocated to re- maining Members, and if P(3) is not selected, Forfeitures shall be used to offset our first Contribution made after the Forfei- ture is determined, unless otherwise specified in (a) or (b) below. If P(3) is selected, Forfeitures shall be allocated with our Discretionary Contributions and deemed to be Discretionary Contributions. (See Plan Section 3.05.) a) [ ] Forfeitures shall not be allocated with our Discretion- ary Contributions, but shall be used to offset our first Contribution made after the Forfeiture is determined. b) [ ] Forfeitures shall not be used to offset our first Con- tribution, but shall be allocated to those meeting the requirements in Item Q using the allocation formula in P(3)(a) and shall be deemed to be Additional Contributions. Q. NET PROFITS AND CONTRIBUTION REQUIREMENTS 1) Our Contributions shall be made out of our current or accumu- lated NET PROFITS unless otherwise specified below. a) [X] Our Contributions may be made without regard to our current or accumulated Net Profits. 2) REQUIREMENTS FOR CONTRIBUTIONS. The allocation of our Contri- butions is subject to the provisions of Article III and Article X of the Plan. Our Contributions which are subject to the requirements of this Item Q and Forfeitures shall be allocated as of the last day of the Plan Year to each a) [ ] person who was an Active Member at any time during the Plan Year. b) [X] Active Member on that date. 43 14 c) [ ] person who was an Active Member at any time during the Plan Year and who has at least 1,000 Hours of Service during the latest Accrual Service Period ending on or before that date, unless a lesser number is specified in (i) below. i) [ ] ____ Hours of Service. d) [ ] Active Member on that date who has at least 1,000 Hours of Service during the latest Accrual Service Period ending on or before that date, unless a lesser number is specified in (i) below. i) [ ] ____ Hours of Service. The allocation requirements in (b), (c) or (d) are modified as follows: e) [X] Our Contributions shall also be allocated to each person who was an Active Member at any time during the Plan Year and who has retired, become Totally Disabled, or died. 3) The ACCRUAL SERVICE PERIOD is the 12-consecutive month period ending on the last day of each Plan Year, unless a different period is specified in (a) below. a) [ ] The 12-consecutive month period ending on each ________ (month and day). R. CONTRIBUTION MODIFICATIONS CONTRIBUTION LIMITATIONS: The Annual Additions for a Member during a Limitation Year shall NOT be more than the Maximum Permissible Amount. (See Plan Sections 3.06 and 10.05.) 1) For Limitations Years beginning after December 31, 1991, for purposes of applying the limitations of Plan Section 3.06, Compensation for a Limitation Year is the Compensation actually paid or made available during such Limitation Year. 2) The LIMITATION YEAR is the 12-consecutive month period ending on each December 31. 3) If the Member is covered under another qualified defined con- tribution plan maintained by the Employer, as defined in Plan Section 3.06, other than a Master or Prototype Plan: a) [ ] The provisions of (f) through (k) of Plan Section 3.06 will apply as if the other plan were a Master or Prototype Plan. b) [ ] The method described on the attached page shall be used to limit total Annual Additions to the Maximum Permissible 44 14 Amount, and will properly reduce the Excess Amounts, in a manner which precludes Employer discretion. 4) If the Member is or has ever been a member in a defined benefit plan maintained by the Employer, as defined in Plan Section 3.06, the method described on the attached page shall be used to satisfy the 1.0 limitation of Code Section 415, in a manner which precludes Employer discretion. 5) [ ] The amount of our Contributions for any a) [ ] Plan Year b) [ ] Limitation Year allocated to a person meeting the requirements in Item Q shall not be more than (the lessor of) c) [ ] $_________ (or) d) [ ] ____% of his Annual Pay (Compensation for the Limitation Year if (b) above is selected). TOP-HEAVY PLAN REQUIREMENTS: The amount and allocation of Contribu- tions shall be subject to the provisions of Article X of the Plan in Years when this is a Top-heavy Plan. 6) [X] Key Employees who are Employees on the last day of the Year shall also receive the minimum allocation required in Years when this is a Top-heavy Plan. 7) [ ] A ____% (not less than 3%) minimum allocation shall apply in Years when this is a Top-heavy Plan. 8) [ ] The minimum allocation in (6) and (7) above and in Article X shall apply in all Years without regard to whether or not this is a Top-heavy Plan or to the requirements in Item Q. 9) [ ] The method described on the attached page shall be used to meet the minimum allocation and benefit requirements in Years when this is a Top-heavy Plan, in a manner which precludes Employer discretion. PRESENT VALUE: For purposes of establishing Present Value to com- pute the Top-heavy Ratio, any benefit shall be discounted only for 7 1/2% interest and mortality according to the 1971 Group Annuity Table (Male) without the 7% margin but with projection by Scale E from 1971 to the later of (a) 1974, or (b) the year determined by adding the age to 1920, and wherein for females the male age six years younger is used, unless otherwise specified in (10) and (11) below: 10) [ ] Interest rate ____%. 45 15 11) [ ] Mortality table: __________________________________________ S. VOLUNTARY CONTRIBUTIONS are NOT permitted, unless otherwise speci- fied in (1) below. 1) [ ] Voluntary Contributions are permitted. T. INVESTMENT 1) [X] The Plan is trusteed. Plan assets may be invested in an Annuity Contract and other funding vehicle(s). We have named the following person(s) to act as TRUSTEE under the Trust: DONALD E. GOLIK GERALD S. MILLER MICHAEL W. YOUNG a) LIFE INSURANCE i) [ ] With the Trustee's consent and subject to the limits and provisions of Article IV of the Plan, an Active Member may elect to have his Account applied to purchase life insurance coverage on his life. ii) [X] Life insurance coverage is not provided under this Plan. b) LOANS i) [ ] The Trustee shall NOT make a loan to a Member. ii) [X] The Trustee may make a loan to a Member from the Trust Fund, subject to the provisions of Plan Section 5.06. iii) GERALD S. MILLER is the Loan Administrator. iv) [X] The minimum amount of any loan is $1,000. v) [ ] The maximum amount of any loan is the lesser of 50% of the Member's Vested Account or $_________, reduced by any outstanding loan balance. vi) The number of outstanding loans shall be limited to one, unless otherwise specified in A. or B. below. A. [ ] The number shall be limited to ____. B. [ ] The number shall not be limited. 46 16 vii) The number of loans approved in a 12-month period shall be limited to one, unless otherwise specified in A. or B. below. A. [ ] The number shall be limited to ____. B. [X] The number shall not be limited. 2) [ ] The Plan is NOT trusteed. Plan assets shall be invested only in an Annuity Contract. 3) Subject to the provisions of Articles IV and VIIIA of the Plan and the Annuity Contract, the investment of that part of a Member's Account resulting from a) our Contributions other than Elective Deferral Contributions shall be directed by i) [ ] the Member with the Trustee's consent (our consent, if not trusteed). ii) [X] the Member. iii) [ ] the Trustee (us, if not trusteed). b) Elective Deferral Contributions shall be directed by i) [ ] the Member with the Trustee's consent (our consent, if not trusteed). ii) [X] the Member. iii) [ ] the Trustee (us, if not trusteed). c) Member Contributions and Rollover Contributions shall be directed by i) [ ] the Member with the Trustee's consent (our consent, if not trusteed). ii) [X] the Member. iii) [ ] the Trustee (us, if not trusteed). U. VESTING PERCENTAGE is used to determine the nonforfeitable percen- tage of a Member's Account resulting from our Contributions. The Vesting Percentage for a Member who is an Employee on the date he reaches Normal Retirement Age, meets the requirement(s) for Early Retirement Date, becomes Totally Disabled or dies, whichever occurs first, shall be 100% on such date. 47 17 1) Fully Vested Contributions. Elective Deferral Contributions are 100% vested. Qualified Matching Contributions and Qualified Nonelective Contributions are 100% vested. The following Employer Contributions are also 100% vested at all times. a) [ ] All other Employer Contributions. b) [ ] Additional Contributions. c) [ ] Matching Contributions. d) [ ] Discretionary Contributions. 2) A Member's Account resulting from our Contributions which are not 100% vested is subject to the Vesting Percentage determined below. Vesting Service Vesting Percentage ------- --------------------------------------------------- (a) (b) (c) (d) (e) [ ] [ ] [ ] [X] [ ] Less than 1 0 0 0 0 ___ 1 0 0 0 0 ___ 2 0 20 0 0 ___ 3 100 40 0 20 ___ 4 60 0 40 ___ 5 80 100 60 ___ 6 100 80 ___ 7 100 ___ A Member's Vesting Percentage determined above shall never be reduced in later years. If this Plan is or ever has been a Top- heavy Plan, the minimum vesting provisions of Article X shall apply. V. VESTING SERVICE, subject to the provisions of Plan Section 1.02, shall be determined as follows: 1) [ ] ELAPSED TIME METHOD. Vesting Service is the total of an Employee's countable Periods of Service without regard to Hours of Service. a) [ ] The Elapsed Time Method is used to determine service on and after _______________, 19__. b) [ ] The Elapsed Time Method is used to determine service before _______________, 19__. 2) [X] HOURS METHOD. A year of Vesting Service is a Vesting Service Period in which an employee has 1,000 Hours of Service, unless a lesser number is specified in (a) below. 48 18 a) [X] 500 Hours of Service. b) A VESTING SERVICE PERIOD is the 12-consecutive month period ending on the last day of each Plan Year, unless otherwise specified in (i) or (ii) below. i) [ ] The 12-consecutive month period ending on each ________ (month and day). ii) [ ] The 12-consecutive month period ending on A. each _______________ (month and day) through B. _______________, 19__ and C. each following _______________ (month and day). c) A VESTING BREAK in service, when the Hours Method is used, is a Vesting Service Period in which an Employee is credited with not more than one-half of the Hours of Service required for a year of Vesting Service, unless otherwise specified in (i) below. i) [ ] ____ or fewer Hours of Service. d) [ ] The Hours Method is used to determine service on and after _______________, 19__. e) [ ] The Hours Method is used to determine service before ____________, 19__. Vesting Service is modified as follows: 3) [ ] Service before _______________, 19__ a) [ ] is the total of an Employee's countable service with us, expressed in whole years and fractional parts of a year (counting a partial month as a complete month). b) [ ] shall be determined under the provisions of the Plan in effect on the day before that date. 4) [ ] Service before _______________, 19__ shall NOT be counted. 5) [ ] Service before an Employee attains age ____ shall NOT be counted. (If the Hours Method is used, service during the Vesting Service Period in which he attains this age shall not be excluded because of this item.) 49 19 W. WITHDRAWAL BENEFITS 1) A Member may withdraw, in a single sum, any part of his Vested Account resulting from Voluntary Contributions. A Member may make only two such withdrawals in any twelve-month period, unless otherwise specified in (a) below. a) [ ] A Member may make i) [ ] such a withdrawal at any time. ii) [ ] only ____ such withdrawal(s) in any twelve-month period. 2) [X] Unless otherwise specified in (a) below, a Member may with- draw any part of his Vested Account which does not result from Voluntary Contributions, Qualified Matching Contributions or Qualified Nonelective Contributions in the event of undue financial hardship. Withdrawals from the Member's Account resulting from Elective Deferral Contributions shall be limited to the amount of the Member's Elective Deferral Contributions (and earnings thereon accrued as of December 31, 1988). The withdrawal is subject to the provisions of Plan Section 5.05. a) [X] Such withdrawal shall be limited to the amount of the Member's Elective Deferral Contributions (and earnings thereon accrued as of December 31, 1988). 3) [ ] A Member may withdraw any part of his Vested Account which does not result from voluntary Contributions at any time after he attains age 59 1/2. A Member may make only two such with- drawals in any twelve-month period, unless otherwise specified in (a) below. a) [ ] A Member may make i) [ ] such a withdrawal at any time. ii) [ ] only ____ such withdrawal(s) in any twelve-month period. 4) [ ] A percentage of a Member's Vested Account which does not result from Voluntary Contributions, Elective Deferral Con- tributions, Qualified Matching Contributions or Qualified Nonelective Contributions may be withdrawn after he has been an Active Member for at least five (5) years. The percentage which may be withdrawn is a) [ ] 25%. b) [ ] 25% or 50%, as he requests. c) [ ] 25%, 50% or 75%, as he requests. 50 20 d) [ ] any percentage up to ____%, as he requests. A Member shall not make another withdrawal under this item until he has been an Active Member for at least five (5) years since his last withdrawal. NOTE: Withdrawals are subject to the qualified election procedures of Article VI. X. RETIREMENT AND THE START OF BENEFITS 1) NORMAL RETIREMENT AGE is the age at which the Member's Account shall become nonforfeitable if he is an Employee. A Member's Normal Retirement Age is age 65, unless otherwise specified in (a) or (b) below. a) [ ] Age ____. b) [ ] The older of age ____ or his age on the i) [ ] date ____ years after the first day of the Plan Year in which his Entry Date occurred. ii) [ ] earlier of the date ____ years after his Hire Date or the date 5 years after the first day of the Plan Year in which his Entry Date occurred. iii) [ ] A Member's Normal Retirement Age shall NOT be older than age ____. c) [ ] A Member's Normal Retirement Age shall NOT be older than normal retirement age under the Plan on the day before any change in the Normal Retirement Age provisions, if he was a Member on such date. 2) EARLY RETIREMENT DATE a) [X] Early Retirement Date is the first day of the month before a Member's Normal Retirement Date which he selects for the start of retirement benefits. This day shall be on or after the date the Member ceases to be an Employee and the date the following requirement(s) are met: i) [X] He is age 55. ii) [X] He has 7 years of Vesting Service. iii) [ ] He is within ____ years of Normal Retirement Date. iv) [ ] He has been an Active Member ____ years. b) [ ] Early retirement is NOT permitted. 51 21 3) Section 5.03 permits an Employee to elect to start benefits after he ceases to be an Employee. The start of benefits is modified as follows: a) [ ] Benefit payments from that part of a Member's Vested Account resulting from our contributions shall not begin before the Member retires, becomes Totally Disabled or dies. A small Vested Account may be paid earlier in a single sum. (See Plan Section 9.10.) i) [ ] Such restriction shall not apply to that part of a Member's Vested Account resulting from Elective Deferral contributions. b) [ ] The Member may elect to receive his Member Contributions in a single sum. Any other benefit payment under Plan Section 5.03 shall not begin before the Member has ceased to be an Employee for a period of time. Payment of a small Vested Account will also be delayed. (See Plan Section 9.10.) The period of time is i) [ ] ____ month(s). ii) [ ] ____ year(s). Y. FORMS OF DISTRIBUTION 1) [ ] A Member may not receive a SINGLE SUM payment of that part of his Vested Account resulting from our Contributions a) [ ] at any time. b) [ ] before the Member retires or becomes Totally Disabled. A small Vested Account may be paid in a single sum. (See Plan Section 9.10.) By executing this Adoption Agreement, we, the Employer adopt "The Principal Financial Group Prototype for Savings Plan" for the exclusive benefit of our employees. Our selections and specifications contained in this Adoption Agreement and the terms, provisions and conditions provided in The Principal Financial Group Prototype Basic Savings Plan constitute our PLAN. No other basic plan may be used with this Adoption Agreement. It is understood that Principal Mutual Life Insurance Company is not a party to our Plan and shall not be responsible for any tax or legal aspects of our Plan. We assume responsibility for these matters. We acknowledge that we have counseled, to the extent necessary, with selected legal and tax advisors. The obligations of Principal Mutual Life Insurance Company shall be governed solely by the provisions of its contracts and policies. Principal Mutual Life Insurance Company shall not be required to look into any action taken by the Plan Adminis- trator, Named Fiduciary, Trustee or us and shall be fully protected in taking, permitting or omitting any action on the basis of our actions. Principal Mutual Life Insurance Company shall incur no liability or 52 22 responsibility for carrying out actions as directed by the Plan Adminis- trator, Named Fiduciary, Trustee or us. - ------------------------------------------------------------------------ This Plan is an important legal document. It may not fit your situation. You will want to consult with your lawyer on whether it does or not and on its tax and legal implica- tions, for which neither Principal Mutual Life Insurance Company nor its agents can assume responsibility. Failure to properly fill out this Adoption Agreement may result in disqualification of this Plan. Principal Mutual Life Insurance Company will inform you of any amendments made to the Plan or of the abandonment of the Plan. The address of Principal Mutual Life Insurance Company is 711 High Street, Des Moines, Iowa 50392-0001. When you first adopt the prototype, Principal Mutual will assign a contact person and give you a toll-free number. If you have not been assigned a contact person, call 1-800-543-4015, Extension 75397, for assistance. The opinion letter issued by the National Office of the Internal Revenue Service applies to the prototype form. You may not rely on it as evidence that your Plan is quali- fied under Code Section 401. In order to obtain reliance with respect to the qualification of your plan, you must apply to your Key District Office for a determination letter. - ------------------------------------------------------------------------ This Adoption Agreement is executed August 14, 1997. FOR THE EMPLOYER By /S/ DONALD E. GOLIK ------------------------------- (signature) SENIOR VICE PRESIDENT & CFO ------------------------------- (title) [ ] By my signature above, I hereby execute this Adoption Agreement on behalf of each Adopting Employer identified in Item Z. ACKNOWLEDGMENT BY THE NAMED FIDU- CIARY (IF OTHER THAN THE EMPLOYER OR TRUSTEE). By ------------------------------- (signature) 53 23 Z. ADOPTING EMPLOYERS There are no Adopting Employers under this Plan. FOR THE TRUSTEE(S) By /S/ DONALD E. GOLIK -------------------------------------------------------------- (signature) Title: SENIOR VICE PRESIDENT AND CFO DONALD E. GOLIK -------------------------------------------------------------- Address: PAUL MUELLER COMPANY -------------------------------------------------------------- P O BOX 828 -------------------------------------------------------------- SPRINGFIELD MO 65801-0828 -------------------------------------------------------------- By /S/ GERALD S. MILLER -------------------------------------------------------------- (signature) Title: RISK AND BENEFITS MANAGER GERALD S. MILLER -------------------------------------------------------------- Address: PAUL MUELLER COMPANY -------------------------------------------------------------- P O BOX 828 -------------------------------------------------------------- SPRINGFIELD MO 65801-0828 -------------------------------------------------------------- By /S/ MICHAEL W. YOUNG -------------------------------------------------------------- (signature) Title: DIRECTOR OF HUMAN RESOURCES MICHAEL W. YOUNG -------------------------------------------------------------- Address: PAUL MUELLER COMPANY -------------------------------------------------------------- P O BOX 828 -------------------------------------------------------------- SPRINGFIELD MO 65801-0828 -------------------------------------------------------------- Item R(3)(b) The method used to limit Annual Additions to the Maximum Permissible Amount: Item R(4) The method used to satisfy the 1.0 limitation of Code Section 415: The Projected Annual Benefit shall be limited first. If the Mem- ber's annual benefit(s) equal his Projected Annual Benefit, as limited, then Annual Additions to the defined contribution plan(s) shall be limited to the extent needed to reduce the sum to 1.0. First, the voluntary contributions the Member may make for the Limitation Year shall be limited. Next, any forfeitures reallocated to the Member shall be reallocated to remaining Members to the ex- tent necessary to reduce the decimal to 1.0. Last, to the extent necessary, employer contributions for the Limitation Year shall be reallocated or limited, and any required and optional employee con- tributions to which such employer contributions were geared shall be reduced in proportion. If, for the Limitation Year, the Member has an Annual Addition under more than one defined contribution plan or welfare benefit fund or individual medical account maintained by the Employer, as defined in Plan Section 3.06, any reduction above shall be made using the same method used to limit Annual Additions to the Maximum Permissible Amount. 54 24 Item R(9) The method used to meet the minimum contribution and alloca- tion requirements in Years when this is a Top-heavy Plan: Amend No. 1, Effective SEPTEMBER 1, 1997 Annuity Contract No.: GA84373 55 EX-10 3 EXHIBIT 21 FOR 1996 FORM 10-K 1 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT Mueller International Sales Corporation, a Foreign Sales Corporation, was organized December 18, 1984, and incorporated under the laws of the Virgin Islands of the United States, and became active in 1985. This is a wholly owned subsidiary and its accounts have been included in the consolidated financial statements filed herein. Mueller Transportation, Inc., a Missouri Corporation, was incorporated on October 15, 1996. This is a wholly owned subsidiary that began operations effective January 1, 1997. Its accounts have been included in the consolidated financial statements filed herein. 56 EX-27 4 ARTICLE 5 FDS FOR 1997 FORM 10-K
5 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 $ 3,402 8,347 16,673 559 8,032 36,369 54,313 37,658 56,547 15,770 161 0 0 1,342 40,889 56,547 86,693 86,693 66,826 66,826 0 (17) 16 3,948 1,003 2,945 0 0 0 2,945 2.52 2.52
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