Paul Mueller Company

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Paul Mueller Company

1600 W. Phelps Street
Springfield, Missouri 65801
U.S.A.
Telephone: (417) 831-3000
Fax: (417) 831-3528
Web site: http://www.muel.com

Public Company
Incorporated: 1946
Employees: 966
Sales: $116.76 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: MUEL
NAIC: 332313 Plate Work Manufacturing

Based in Springfield, Missouri, Paul Mueller Company is a global manufacturer of stainless steel tanks and equipment used in the dairy, food, brewery, beverage, pure water, and pharmaceutical industries. In addition to a manufacturing facility in Springfield, the publicly traded company maintains a plant in Osceola, Iowa. Mueller's business is divided into four segments. Industrial equipment, the largest segment, custom designs and builds processing, biopharmaceutical, heat transfer, commercial refrigeration, and thermal-storage equipment. Generally, the dairy farm equipment segment has been Mueller's most profitable segment, producing milk-cooling equipment, storage equipment and accessories, refrigeration units, and heat-recovery equipment for dairy farmers. These products are sold around the world through approximately 270 independent dealers. The company's field fabrication segment assembles onsite large stainless tanks and vessels built and shipped from the factory. Finally, Mueller operates a trucking subsidiary through its transportation segment. With a fleet of 15 tractors and 40 specialized trailers, the company delivers industrial equipment and dairy farm equipment, as well as components to be installed by the field fabrication segment.

Incorporating the Company in 1946

Paul Mueller Company was founded by Paul K. Mueller in Springfield, Missouri, in 1940 and was incorporated in Missouri in 1946. The original facility was a 900-square-foot single-garage shop involved in general sheet metal work and heating, primarily serving the building industry. With the United States' entry into World War II in 1941, the company became involved in producing stainless steel components to help in the war effort. Then, to serve the population boom that followed the war, it branched out to become involved in the manufacture of stainless steel cheese-making vats used in dairy plants and poultry processing equipment. To support its growing business Mueller built a new 23,720-square-foot manufacturing plant in Springfield in 1950. The additional space would be sorely needed by mid-decade when the company started making stainless steel milk coolers for dairy farms. In 1960 the company began manufacturing stainless steel storage tanks. By now it was clear that Mueller's manufacturing operations were the key to its future and the original sheet metal business was discontinued.

Mueller went public in 1969, fueling further growth. By the end of the 1970s the company had outgrown its space, requiring that an addition of 14,000 square feet be made to the original plant. During this period, there was a change in leadership, as Paul Mueller, who stayed on as chairman, turned over the chief executive officer position to Lawrence P. Mueller in 1976. In April 1982 Lawrence Mueller resigned, citing personal reasons, and was replaced on an interim basis by Daniel C. Manna, vice-president of engineering. Instead of hiring someone else, however, the board of directors during its annual meeting several weeks later decided to retain Manna, who would remain at the helm into the mid-2000s.

Over the years, Mueller spawned a number of stainless steel fabricating companies, making Springfield in the eyes of some "Tank Town U.S.A." One of Paul Mueller's first employees, Milo Letsch, launched his own stainless steel company, Letsch Corp., in 1968. After selling that business he started another company in 1976 called Letco Inc. Art Rude, who worked for both Paul Mueller and Letsch, along with a pair of Letsch employees, launched Custom Metal Craft in 1976. Two Paul Mueller employees then bought Letsch in 1984, and renamed it Precision Stainless Inc. to compete with Mueller in the custom stainless steel business. Another Springfield company, Stainless Fabrication Inc., would compete with Mueller in the field fabrication market.

Having other stainless steel companies in the community proved beneficial to all concerned. Having Springfield so closely associated with stainless steel helped Mueller and the other companies in their marketing efforts. Springfield also attracted a pool of specialized craftsmen that would not have developed had it not been for so many potential employers. Moreover, the companies bought components and contracted out work to one another, taking advantage of each other's specialized equipment and personnel. During times of overload, they often shared each other's burden. By and large, Mueller and the other Springfield stainless steel companies did not conflict because each branched off into specialty areas.

Significant Changes in the Late 1980s and the 1990s

Mueller experienced a number of significant changes during the late 1980s. In January 1987 the company acquired a water purification product line. It was also in that year Mueller opened a plant in Osceola, Iowa, adding 200,000 square feet of manufacturing space. Yet 1987 also brought with it labor problems, as Mueller endured a 16-week strike by the Sheet Metal Workers' International Association, Local 208. As a result, the company lost money in 1987. During the early months of 1988 the company rebounded, due in large part to increased international demand for its products. Investors became attracted to the company, bidding up its stock price to more than $23, a remarkable rise given that the stock had posted a high of $22 before the October 1987 stock crash. Yet there was another factor to investor enthusiasm: Paul Mueller was now 72 years old, and many believed he was interested in selling his 20 percent stake in the company. A management-led buyout was a possibility, as was a takeover attempt. The book value of the company was approximately $22 a share, but Mueller also carried an overfunded pension plan worth another $4.75 a share. Mueller disappointed the speculators, however. He did not sell out and despite his advancing years stayed on as chairman for another 16 years.

In 1990 Mueller posted $77.8 million in annual sales, while earning more than $5.6 million. A recession cut into business over the next three years and revenues sagged, to $75 million in 1991, $74.6 million in 1992, and $73.8 million in 1993. Net income during this period bottomed out at $2.2 million in 1993. Business improved in 1994, with sales growing to $79.5 million and net income to $3.5 million. During this period, the company expanded its product offering. In 1992 it negotiated a license agreement for the rights to manufacture and market water distillation equipment, and in 1994, Mueller acquired the rights to make evaporator assemblies used in liquid-ice systems for gas turbines, HVAC (heating, ventilation, and air conditioning), the process cooling of food and chemicals, and concentration of milk, fruit juices, and acid solutions. Manufacturing and marketing for evaporator assemblies began in 1995. In addition, in 1994 Mueller extended a license agreement with a Dutch company to manufacture and sell its dairy farm equipment in Europe.

Mueller experienced another strike in 1995, after the labor contract with the Sheet Metal Workers expired in June 1994 and the two sides were unable to reach an agreement. A strike was launched in July 1995, with a varying number of workers out on strike at any particular time, as the union chose not to prevent nonstriking employees from working. Nevertheless, the company's level of production suffered, adversely impacting the balance sheet for the year. Revenues in 1995 declined to $78.4 million and net income fell to $1.96 million. Aside from the strike, the sale of dairy farm equipment was down, and it was becoming clear that this important part of the company's business had seen its best days and that if Mueller wanted to prosper in the future it would need to seek new opportunities.

In February 1997 Mueller acquired property in downtown Springfield to build a microbrewery and brewpub, which opened in December of that year as the Springfield Brewing Company. Although the operation was intended to succeed on its own, more important was that it served as a showcase for Mueller's brewing systems to show visiting customers how the system worked and to allow them to get a feel for what equipment might fulfill their needs. The showcase brewery soon drummed up business both in the United States and overseas. Great Lakes Brewing in Ohio contracted Mueller to develop a brewing system, and a Japanese brewer launched an $8 million project with the company to design, build, and install a brewing system. The Japanese contract was indicative of an increasing emphasis Mueller placed on its international business. In 1991 the international division accounted for $5 million in revenues. That amount would exceed $17 million in 1997. The company's top markets overseas were the United Kingdom, Japan, and Mexico.

Launching Field Operations in 1998

Another important development was the 1998 launch of a field operations subsidiary, part of an effort to transform Mueller from a manufacturer of components to one that offered systems using the components it manufactured. Essentially, the company had little choice but to change, because the industry began moving toward field fabrication to serve customers who no longer wanted to put together components themselves. In fact, because of consolidation in the beverage and dairy industries, and elsewhere, customers, to realize economies of scale, wanted to build much larger processing plants, which meant larger tanks. Because such equipment was too large to transport, it had to be fabricated in the field, meaning that Mueller in order to compete had to establish a field operation, as well as a trucking fleet, to economically transport the components to a job site. Aside from the necessity of expanding its operation in this way, Mueller also saw opportunity in its new approach. Because dairy farm equipment, the company's traditional product line, was a mature sector, much of Mueller's growth would have to come from its three other business segments.

Company Perspectives:

We are committed to meeting and exceeding our customer's expectations of value by providing quality equipment and excellent service.

As a result of transforming its business, Mueller enjoyed steady growth in the late 1990s, leading to an expansion of the Springfield manufacturing facility. In 1996 the company posted sales of nearly $84 million and net income of $4.4 million. Sales grew to $86.7 million in 1997, $89.7 million in 1998, and $95.2 million in 1999. Net income during this period ranged from $1.9 million to $3.1 million. In 2000 the company was once again at odds with the Sheet Metal Workers union. Owning 90 shares of stock, the union, with support from an institutional investor, attempted to elect a dissident member to the company's board of directors. It also attempted to have a shareholder rights plan, a "poison-pill provision" adopted in 1991, put to a vote. Although the union was defeated on both initiatives, it did make it clear to management that some investors desired to see an independent voice on the board. Management, on the other hand, expressed displeasure in the distraction of a proxy fight, which required spending money and time that could have been put to better use in running the business.

Mueller topped the $100 million mark in annual sales in 2000, totaling $105.3 million, while recording net income of $3.8 million. In 2001 the company finally reached a new agreement with the Sheet Metal Workers union, but because of a number of factors the company suffered a setback. A strong U.S. dollar and the effects of hoof-and-mouth disease in Europe were all key factors in a significant erosion in dairy farm equipment, resulting in a 22 percent decline domestically and 30 percent internationally. Sales of milk cooler units were also lower by 31 percent domestically and 34 percent internationally. As a result, revenues for the year fell to $94.3 million, and the company recorded a net loss of $1.4 million.

Mueller rebounded in 2002, due in large part to a jump in sales in the industrial equipment segment, in particular the biopharm systems product line, which enjoyed a 260 percent increase in orders over the previous year. Sales of dairy farm equipment also improved over 2001. As a consequence, sales grew to $114.1 million and net income improved to $1.9 million.

In 2003 the industrial equipment segment again led the way, with sales for the year approaching $92 million, a significant improvement over the $78.2 million recorded the prior year. Still, the sale of dairy farm equipment during this period fell from $20.3 million to $14.3 million, the lowest amount the company had achieved since 1987. The main factor was the low price of milk, the average of which from July 2002 through June 2003 was the lowest level in 25 years. Dairy farmers, therefore, simply could not afford to increase their milk-cooling and storage capacity.

Paul Mueller finally stepped down as chairman in January 2004, replaced by Director William R. Patterson. He assumed the position during a challenging period for the company. The biopharm product line, which had been so instrumental in the company's recent success, suffered a setback, as major customers refrained from launching major projects. In addition, the price of stainless steel was rising, which hurt profitability. More than likely these problems would prove temporary, and Mueller would continue its transformation from a stainless steel components manufacturer to one that provided total solutions.