Other information required by Item 12 is contained under the captions “Principal Stockholders” and “Ownership of Common Stock by Directors and Executive Officers and Information about Director Nominees” in the Company’s Proxy Statement for its
The information required by Item 13 is contained under the caption “Corporate Governance” in the Company’s Proxy Statement for its 20182023 Annual Meeting of Stockholders to be filed with the SEC on or about March 29, 2018,23, 2023, which is incorporated herein by reference.
The information required by Item 14 is contained under the caption “Appointment of Independent Registered Public Accounting Firm” in the Company’s Proxy Statement for its 20182023 Annual Meeting of Stockholders to be filed with the SEC on or about March 29, 2018,23, 2023, which is incorporated herein by reference.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 28, 2018.2023.
MUELLER INDUSTRIES, INC.
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| /s/Gregory L. Christopher | |
| Gregory L. Christopher, Chief Executive Officer (Principal Executive Officer) and Chairman of the Board
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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 date indicated.
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Signature | Title | Date |
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/s/Gregory L. Christopher Gregory L. Christopher | Chief Executive Officer (Principal Executive Officer) and Chairman of the Board | February 28, 20182023 |
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/s/Terry Hermanson | Lead Independent Director | February 28, 2023 |
Terry Hermanson | | |
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/s/Elizabeth Donovan | Director | February 28, 2023 |
Elizabeth Donovan | | |
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/s/William C. Drummond | Director | February 28, 2023 |
William C. Drummond | | |
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/s/Gary S. Gladstein | Lead Independent Director | February 28, 20182023 |
Gary S. Gladstein | | |
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/s/PaulScott J. FlahertyGoldman | Director | February 28, 20182023 |
PaulScott J. FlahertyGoldman | | |
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/s/Gennaro J. FulvioJohn B. Hansen | Director | February 28, 20182023 |
Gennaro J. FulvioJohn B. Hansen | | |
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/s/Scott J. Goldman | Director | February 28, 2018 |
Scott J. Goldman | | |
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/s/John B. Hansen
| Director | February 28, 2018 |
John B. Hansen | | |
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/s/Terry Hermanson
| Director | February 28, 2018 |
Terry Hermanson | | |
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/s/Charles P. Herzog, Jr.
| Director | February 28, 20182023 |
Charles P. Herzog, Jr. | | |
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 date indicated.
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| Signature and Title | Date |
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| /s/Jeffrey A. Martin | February 28, 20182023 |
| Jeffrey A. Martin | |
| Chief Financial Officer and Treasurer | |
| (Principal Financial and Accounting Officer) | |
| | |
| /s/Anthony J. Steinriede | February 28, 20182023 |
| Anthony J. Steinriede | |
| Vice President – Corporate Controller | |
MUELLER INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Consolidated Statements of Income for the years ended December 30, 2017,31, 2022, December 31, 2016,25, 2021, and December 26, 201526, 2020 | |
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Consolidated Statements of Comprehensive Income for the years ended December 30, 2017,31, 2022, December 31, 2016,25, 2021, and December 26, 201526, 2020 | |
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Consolidated Statements of Cash Flows for the years ended December 30, 2017,31, 2022, December 31, 2016,25, 2021, and December 26, 201526, 2020 | |
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Consolidated Statements of Changes in Equity for the years ended December 30, 2017,31, 2022, December 3, 2016,25, 2021, and December 26, 201526, 2020 | |
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FINANCIAL STATEMENT SCHEDULE
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Schedule for the years ended December 30, 2017,31, 2022, December 31, 2016,25, 2021, and December 26, 20152020 |
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FINANCIAL REVIEW
The Financial Review section of our Annual Report on Form 10-K consists of the following: Management’s Discussion and Analysis of Results of Operations and Financial Condition (MD&A), the Consolidated Financial Statements, and Other Financial Information, all of which include information about our significant accounting policies, practices, and the transactions that impact our financial results. The following MD&A describes the principal factors affecting the results of operations, liquidity and capital resources, contractual cash obligations, and the critical accounting estimates of the Company. The discussion in the Financial Review section should be read in conjunction with the other sections of this Annual Report, particularly “Item 1: Business” and our other detailed discussion of risk factors included in this MD&A.
OVERVIEW
We are a leading manufacturer of copper, brass, aluminum, and plastic products. The range of these products we manufacture is broad: copper tube and fittings; line sets; brass and copper alloy rod, bar, and shapes; aluminum and brass forgings; aluminum impact extrusions; PEX plastic tube;tube and fittings; refrigeration valves and fittings; fabricated tubular products;compressed gas valves; pressure vessels; steel nipples; and steel nipples.insulated flexible duct systems. We also resell brass and plastic plumbing valves, plastic fittings, malleable iron fittings, faucets and plumbing specialty products. Mueller’s operations are located throughout the United States and in Canada, Mexico, Great Britain, South Korea, the Middle East, and China.
Each of the reportable segments is composed of certain operating segments that are aggregated primarily by the nature of products offered as follows:
•Piping Systems: The Piping Systems segment is composed of Domestic Piping Systems Group, Great Lakes Copper, Heatlink Group, European Operations, Trading Group, and Jungwoo-Mueller (our South Korean joint venture), and Mueller Middle East (our Bahraini joint venture). The Domestic Piping Systems Group manufactures and distributes copper tube, and fittings, plastic fittings, and line sets. These products are manufactured in the U.S., sold in the U.S., and exported to markets worldwide. Great Lakes Copper manufactures copper tube and line sets in Canada and sells the products primarily in the U.S. and Canada. Heatlink Group manufactures a complete line of products for PEX plumbing and radiant systems in Canada and sells these products in Canada and the U.S. European Operations manufacture copper tube in the United Kingdom, which is sold throughout Europe. The Trading Group manufactures pipe nipples and sources products for import distribution in North America. Jungwoo-Mueller manufactures copper-based joining products that are sold worldwide. Mueller Middle East manufactures copper tube and serves markets in the Middle East and Northern Africa. The Piping Systems segment sells products to wholesalers in the plumbing and refrigeration markets, distributors to the manufactured housing and recreational vehicle industries, building material retailers, and air-conditioning original equipment manufacturers (OEMs).
The Company disposed of Mueller-Xingrong (the Company’s Chinese joint venture) on June 21, 2017. This business manufactured engineered copper tube primarily for air-conditioning applications in China.
•Industrial Metals: The Industrial Metals segment is composed of Brass Rod, & Copper Bar Products, Impacts & Micro Gauge, and Brass Value-Added Products.Products, and Precision Tube. The segment manufactures and sells brass and copper alloy rod, bar, and shapes; aluminum and brass forgings; aluminum impact extrusions; and gas valves and assemblies.assemblies; and specialty copper, copper alloy, and aluminum tube. The segment manufactures and sells its products primarily to domestic OEMs in the industrial, transportation, construction, heating, ventilation, and air-conditioning, plumbing, refrigeration, and energy markets.
•Climate: The Climate segment is composed of Refrigeration Products, Fabricated Tube Products, Westermeyer, Turbotec, Flex Duct (ATCO and Turbotec.H&C Flex), and Linesets, Inc. The segment manufactures and sells refrigeration valves and fittings, fabricated tubular products, high pressure components, and coaxial heat exchangers.exchangers, insulated HVAC flexible duct systems, and line sets. The segment sells its products primarily to the heating, ventilation, air-conditioning, and refrigeration markets in the U.S.
New housing starts and commercial construction are important determinants of our sales to the heating, ventilation, and air-conditioning, refrigeration, and plumbing markets because the principal end use of a significant portion of our products is in the construction of single and multi-family housing and commercial buildings. Repairs and remodeling projects are also important drivers of underlying demand for these products. In addition, our products are used in various transportation, automotive, and industrial applications.
Residential construction activity has shown improvement in recent years, but remains at levels below long-term historical averages. PerAccording to the U.S. Census Bureau, actual housing starts in the U.S. were 1.20 1.55 million in 2017,2022, which compares to 1.171.60 million in 20162021 and 1.11 million1.38 million in 2015. Mortgage rates remain at historically low levels, as the2020. The average 30-year fixed mortgage rate was approximately 3.995.34 percent in 20172022 and 3.652.96 percent in 2016.2021. The private nonresidential construction sector, which includes offices, industrial, health care, and retail projects, has also shown improvement in recent years. Perprojects. According to the U.S. Census Bureau, the
value of private nonresidential construction put in place was $434.8was $530.1 billion in 2017, $432.12022, $485.8 billion in 2021, and $479.0 billion in 2016, and $401.2 billion in 2015. We expect that most of these conditions will continue to improve.2020.
Profitability of certain of our product lines depends upon the “spreads” between the cost of raw material and the selling prices of our products. The open market prices for copper cathode and copper and brass scrap, for example, influence the selling price of copper tube and brass rod, two principal products manufactured by the Company. We attempt to minimize the effects on profitability from fluctuations in material costs by passing through these costs to our customers.customers; however margins of our businesses that account for inventory on a FIFO basis may be impacted in periods of significant fluctuations in material costs. Our earnings and cash flow are dependent upon these spreads that fluctuate based upon market conditions.
Earnings and profitability are also impacted by unit volumes that are subject to market trends, such as substitute products, imports, technologies, and market share. In our core product lines, weWe intensively manage our pricing structure while attempting to maximize profitability. From time-to-time, this practice results in lost sales opportunities and lower volume. For plumbing systems, plastics are the primary substitute product; these products represent an increasing share of consumption. U.S. consumption of copper tube is still predominantly supplied by U.S. manufacturers. For certain air-conditioning and refrigeration applications, aluminum basedaluminum-based systems are the primary substitution threat. We cannot predict the acceptance or the rate of switching that may occur. U.S. consumption of copper tube and brass rod is still predominantly supplied by U.S. manufacturers. In recent years, brass rod consumption in the U.S. has declined due to the outsourcing of many manufactured products fromto offshore regions.
RESULTS OF OPERATIONS
Consolidated Results
The following table compares summary operating results for 2017, 2016,2022, 2021, and 2015:2020:
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| | | | | | | | Percent Change |
(In thousands) | | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
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Net sales | | $ | 3,982,455 | | | $ | 3,769,345 | | | $ | 2,398,043 | | | 5.7 | % | | 57.2 | % |
Operating income | | 877,149 | | | 655,845 | | | 245,838 | | | 33.7 | | | 166.8 | |
Net income | | 658,316 | | | 468,520 | | | 139,493 | | | 40.5 | | | 235.9 | |
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| | | | | | | | Percent Change |
(In thousands) | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
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Net sales | | $ | 2,266,073 |
| | $ | 2,055,622 |
| | $ | 2,100,002 |
| | 10.2 | % | | (2.1 | )% |
Operating income | | 151,957 |
| | 152,713 |
| | 137,268 |
| | (0.5 | ) | | 11.3 |
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Net income | | 85,598 |
| | 99,727 |
| | 87,864 |
| | (14.2 | ) | | 13.5 |
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The following are components of changes in net sales compared to the prior year:
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| | 2022 vs. 2021 | | 2021 vs. 2020 |
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Net selling price in core product lines | | 6.1 | % | | 37.0 | % |
Unit sales volume in core product lines | | (5.9) | | | 6.4 | |
Acquisitions | | 1.9 | | | 8.6 | |
Dispositions | | (2.2) | | | (0.7) | |
Other | | 5.8 | | | 5.9 | |
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| | 5.7 | % | | 57.2 | % |
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| | 2017 vs. 2016 | | 2016 vs. 2015 |
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Net selling price in core product lines | | 13.0 | % | | (9.0 | )% |
Unit sales volume in core product lines | | (1.3 | ) | | (1.6 | ) |
Acquisitions and new products | | 1.5 |
| | 9.0 |
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Dispositions | | (2.6 | ) | | — |
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Other | | (0.4 | ) | | (0.5 | ) |
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| | 10.2 | % | | (2.1 | )% |
The increase in net sales in 20172022 was primarily due to (i) higher net selling prices of $266.9$228.5 million in our core product lines, primarily copper tube, (ii) an increase in sales of $217.0 million in our other product lines, (iii) incremental sales of $38.6 million recorded by Mueller Middle East, acquired in December 2021, and (iv) incremental sales of $33.3 million recorded by H&C Flex, acquired in January 2021. These increases were slightly offset by (i) lower unit sales volume of $222.0 million in our core product lines, primarily non-U.S. copper tube and brass rod, and (ii) a decrease in sales of $82.7 million as a result of the dispositions of Die-Mold, Copper Bar, FTP, and STI during 2021.
The increase in net sales in 2021 was primarily due to (i) higher net selling prices of $886.5 million in our core product lines, primarily copper tube and brass rod, (ii) $16.4 million of incremental sales recorded by Jungwoo-Mueller, acquired in April 2016, and (iii) $14.4 million of sales recorded by Pexcor Manufacturing Company Inc. and Heatlink Group Inc. (collectively, Heatlink Group), acquired in May 2017. These increases were partially offset by (i) the absence of sales of $54.2 million recorded by Mueller-Xingrong, a business we sold during June 2017, and (ii) lowerhigher unit sales volume of $27.3 million in our core product lines.
The decrease in net sales in 2016 was primarily due to (i) lower net selling prices of $189.0$154.4 million in our core product lines, primarily copper tube and brass rod, and (ii) lower unit(iii) incremental sales volume of $33.0$152.7 million recorded by Kessler, acquired in August 2020, (iv) an increase in sales of $140.6 million in our corenon-core product lines. Thelines, (v) sales of $48.9 million recorded by H&C Flex, and (vi) sales of $4.6 million recorded by Mueller Middle East. These increases were slightly offset by a decrease in net sales resulting from lower net selling prices also reflects the impact of translating net sales of $16.5 million as a result of the Company’s foreign operations to U.S. dollars, which was approximately $43.6 million. These decreases were partially offset by (i) $139.4 milliondispositions of incremental sales recorded by Great Lakes Copper Ltd. (Great Lakes), acquired in July 2015, (ii) $22.0 million of sales recorded by Jungwoo-Mueller, (iii) $19.2 million of incremental sales recorded by Sherwood Valve LLC (Sherwood), acquired in June 2015,Die-Mold, FTP, and (iv) $3.5 million of incremental sales recorded by Turbotec Products, Inc. (Turbotec), acquired in March 2015.STI during 2021.
Net selling prices generally fluctuate with changes in raw material costs. Changes in raw material costs are generally passed through to customers by adjustments to selling prices. The following graph shows the Comex average copper price per pound by quarter for the most recent three-year period:
The following tables compare cost of goods sold and operating expenses as dollar amounts and as a percent of net sales for 2017, 2016,2022, 2021, and 2015:2020:
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(In thousands) | | 2022 | | 2021 | | 2020 |
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Cost of goods sold | | $ | 2,864,862 | | | $ | 2,938,989 | | | $ | 1,966,161 | |
Depreciation and amortization | | 43,731 | | | 45,390 | | | 44,843 | |
Selling, general, and administrative expense | | 203,086 | | | 184,052 | | | 159,483 | |
Litigation settlement, net | | — | | | — | | | (22,053) | |
Gain on sale of businesses | | — | | | (57,760) | | | — | |
Gain on sale of assets, net | | (6,373) | | | — | | | — | |
Impairment charges | | — | | | 2,829 | | | 3,771 | |
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Operating expenses | | $ | 3,105,306 | | | $ | 3,113,500 | | | $ | 2,152,205 | |
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| | 2022 | | 2021 | | 2020 |
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Cost of goods sold | | 71.9 | % | | 78.0 | % | | 82.0 | % |
Depreciation and amortization | | 1.1 | | | 1.2 | | | 1.9 | |
Selling, general, and administrative expense | | 5.1 | | | 4.9 | | | 6.6 | |
Litigation settlement, net | | — | | | — | | | (0.9) | |
Gain on sale of businesses | | — | | | (1.5) | | | — | |
Gain on sale of assets, net | | (0.2) | | | — | | | — | |
Impairment charges | | — | | | — | | | 0.1 | |
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Operating expenses | | 77.9 | % | | 82.6 | % | | 89.7 | % |
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(In thousands) | | 2017 | | 2016 | | 2015 |
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Cost of goods sold | | $ | 1,940,617 |
| | $ | 1,723,499 |
| | $ | 1,809,702 |
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Depreciation and amortization | | 33,944 |
| | 35,133 |
| | 34,608 |
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Selling, general, and administrative expense | | 139,580 |
| | 137,499 |
| | 130,358 |
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Gain on sale of businesses | | (1,491 | ) | | — |
| | (15,376 | ) |
Impairment charges | | 1,466 |
| | 6,778 |
| | — |
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Severance | | — |
| | — |
| | 3,442 |
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Operating expenses | | $ | 2,114,116 |
| | $ | 1,902,909 |
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| $ | 1,962,734 |
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| | 2017 | | 2016 | | 2015 |
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Cost of goods sold | | 85.6 | % | | 83.9 | % | | 86.2 | % |
Depreciation and amortization | | 1.5 |
| | 1.7 |
| | 1.6 |
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Selling, general, and administrative expense | | 6.2 |
| | 6.7 |
| | 6.2 |
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Gain on sale of businesses | | (0.1 | ) | | — |
| | (0.7 | ) |
Impairment charges | | 0.1 |
| | 0.3 |
| | — |
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Severance | | — |
| | — |
| | 0.2 |
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Operating expenses | | 93.3 | % | | 92.6 | % | | 93.5 | % |
The decrease in cost of goods sold in 2022 was primarily due to a decrease in the average cost of copper and lower sales volume in certain core product lines. Gross margin as a percentage of sales was 28.1 percent compared with 22.0 percent in the prior year. The combination of strong demand for our products, inflationary pressures, and industry wide supply constraints contributed to an environment of higher selling prices and improved margins for the majority of our businesses. The increase in cost of goods sold in 20172021 was primarily due to the increase in the average cost of copper, our principal raw material. This was partially offset by the decreasean increase in sales volume across all product lines, and an increase in sales volume resulting from the saleacquisitions of Mueller-Xingrong. The decrease in cost of goods sold in 2016 was primarily due to the decrease in the average cost of copper, largely offset by the increase in sales volume related to businesses acquired during 2015Kessler, H&C Flex, and 2016.Mueller Middle East.
Depreciation and amortization decreased slightly in 2017 primarily due to several long-lived assets becoming fully depreciated and amortized, as well as the sale of long-lived assets at Mueller-Xingrong. Depreciation and amortization increased in 2016 primarily2022 as a result of depreciationlong-lived assets of businesses sold and amortizationincreased slightly in 2021 as a result of long-lived assets forof businesses acquired.
Selling, general, and administrative expenses increased in 2017,2022 primarily due to (i) an increase in employment costs, including incentive compensation, of $13.3 million, (ii) incremental expenses of $5.5$3.2 million associated with Heatlink GroupH&C Flex and Jungwoo-Mueller, (ii)Mueller Middle East, (iii) the absence of fees of $2.6 million received as a settlement of preexisting relationships recognized in the prior year, and (iv) higher environmental remediationtravel and product liability costsentertainment expense of $1.0 million, and (iii) an increase in foreign currency exchange losses of $0.6$1.2 million. These increases were partially offset by a reduction in employment coststhe absence of $4.6 million, including net periodic pension costsexpenses associated with FTP, STI, and Die-Mold of $3.0 million and incentive compensation of $1.1$2.9 million. The increase in selling, general, and administrative expenses in 20162021 was primarily due to (i) incremental expenses of $8.9 million associated with businesses acquired in 2015 and 2016 and (ii) an increase in employment costs, including incentive compensation, of $11.4 million, (ii) an increase in agent commissions of $8.7 million, (iii) incremental expenses of $6.1 million associated with Kessler and net periodic pension costs,H&C Flex, (iv) an increase of $1.6 million. This was$1.4 million in professional fees, and (v) expenses of $1.3 million associated with the write-off of vendor deposits. These increases were partially offset by (i) fees of $2.6 million received as a reduction in foreign currency exchange lossessettlement of $0.9preexisting relationships and (ii) the absence of expenses associated with FTP, STI, and Die-Mold of $1.8 million. In addition, there were $1.9
During 2022, we recognized gains of $6.4 million of equipment relocation costs and losses on the sale of assets related to the rationalization of Yorkshire Copper Tube (Yorkshire) in 2015. within Corporate and Eliminations.
During 2017,2021, we recognized fixed asset impairment charges for certain copper fittings manufacturing equipmentgains of $1.5 million and a gain of $1.5$46.6 million on the sale of our interest in Mueller-Xingrong.
During 2016, we recognized fixed asset impairment charges for certain manufacturing equipmentthe FTP and STI businesses, $4.7 million on the disposition of $6.8 million.
During 2015, our operating results were positively impacted by a net gain of $15.4the Die-Mold business, and $6.5 million recorded on the sale of certain assets. This was offset by $3.4the Copper Bar business, as well as asset impairment charges of $2.8 million of severance charges related to goodwill and fixed assets. The gain on the rationalizationsale of Yorkshire.FTP and STI and the deconsolidation of Die-Mold were reported within Corporate and Eliminations and the gain on the sale of Copper Bar was recorded in the Industrial Metals segment. Prior to the dispositions, the results of FTP and STI were included within the Climate segment, the results of Die-Mold were included within the Piping Systems segment, and the results of Copper Bar were included within the Industrial Metals segment.
During 2020, we recognized a gain of $22.1 million for the settlement of our claim under the Deepwater Horizon Economic and Property Damage Settlement Program and asset impairment charges of $3.8 million related to production equipment that was idled.
Interest expense increaseddecreased in 20172022 primarily as a result of interest associated withthe redemption of our 6% Subordinated Debentures issued during the firstsecond quarter as partof 2021 and there being no borrowings outstanding under the Credit Agreement during 2022. The decrease in 2021 was primarily a result of the redemption of our special dividend. The slight decrease in 2016 was primarily dueSubordinated Debentures during the second quarter of 2021.
During 2021, we recognized expense of $5.7 million for a redemption premium related to decreased borrowing costs at Mueller-Xingrong. This was offset by (i) increased borrowing costs and the amortization of debt issuance costs on our Credit Agreement, (ii) borrowing costs associated with revolving credit arrangements at Jungwoo-Mueller, and (iii) lower capitalized interest. Subordinated Debentures redeemed.
Environmental expense for our non-operating properties was significantly higherlower in 2017,2022 and 2021 than in 2020 primarily as a result of ongoinglower remediation activitiescosts.
During 2022, we recognized a $13.1 million expense related to the Lead Refinery site. It was slightly highercomplete withdrawal from a multiemployer pension plan. During 2020, we recognized a $17.8 million expense to terminate our U.S. defined benefit pension plan, which consisted of an $11.6 million non-cash charge and $6.2 million in 2016 duefederal excise tax on surplus assets returned to spending on special projects.the Company.
Other income, net, was consistent each period at $1.8 millionhigher in 2017, compared2022 primarily as a result of (i) higher interest income on short-term investments, (ii) a gain on the sale of securities, and (iii) a curtailment gain related to $2.0 millionour other postemployment benefit plans. It was lower in 2016 and $2.2 million in 2015.2021 primarily as a result of lower net periodic benefit income from our benefit plans.
Income tax expense was $37.9$223.3 million in 2017,2022, representing an effective tax rate of 29.825.5 percent. This rate was lowerhigher than what would be computed using the U.S. statutory federal rate primarily due to (i) reductionsthe provision for state and local income taxes, net of the federal benefit, of $32.2 million, (ii) the effect of lower foreign taxstatutory rates when compared todifferent from the U.S. statutoryfederal rate and other foreign adjustments of $6.0 million, (ii) the U.S. production activities deduction of $1.6 million, (iii) the benefit of stock-based compensation deductions of $2.2$7.4 million, and (iv)(iii) the impact of the changeinvestments in the federal tax rate under the Tax Cuts and Jobs Act (the Act) on deferred taxesunconsolidated affiliates of $12.1$0.2 million. These reductionsincreases were partially offset by (i) the accrual of federal tax on the Company’s accumulated foreign earnings under the Act of $12.9 million, (ii) the provision for state income taxes, net of federal benefit, of $1.1 million, and (iii) other adjustments of $1.2$0.5 million.
Income tax expense was $48.1$165.9 million in 2016,2021, representing an effective tax rate of 33.025.9 percent. This rate was lowerhigher than what would be computed using the U.S. statutory federal rate primarily due to reductions(i) the provision for state and local income taxes, net of the federal benefit, of $21.1 million and (ii) the effect of lower foreign taxstatutory rates when compared todifferent from the U.S. statutoryfederal rate and other foreign adjustments of $4.1 million and the U.S. production activities deduction of $3.1$11.2 million. These reductionsincreases were partially offset by (i) the provision for state income taxes, netimpact of federal benefit,investments in unconsolidated affiliates of $2.0$0.7 million and $2.2 million(ii) other adjustments of other adjustments.$0.4 million.
Income tax expense was $43.4$55.3 million in 2015,2020, representing an effective tax rate of 32.926.4 percent. This rate was lowerhigher than what would be computed using the U.S. statutory federal rate primarily due to reductions to(i) the Company’s deferred tax liabilitiesprovision for state and local income taxes, net of $4.2the federal benefit, of $5.9 million, resulting(ii) the effect of foreign statutory rates different from the acquisitionU.S. federal rate of a foreign subsidiary$2.8 million, and the U.S. production activities deduction(iii) other adjustments of $3.5$3.0 million. These reductionsincreases were partially offset by the provision for stateimpact of investments in unconsolidated affiliates of $0.4 million.
During 2022, we recognized income taxes,of $10.1 million on our investments in unconsolidated affiliates, net of federal benefit,foreign tax, compared to losses of $2.7$0.2 million in 2021. The income on these investments for 2022 included net gains of $5.2 million for Tecumseh and $2.3net gains of $4.9 million of other adjustments.for the retail distribution business.
During 2017,2021, we recognized losses of $2.1$0.2 million on our investmentinvestments in unconsolidated affiliates, which represents our 50 percent interestsnet of foreign tax, compared to losses of $10.2 million in Tecumseh Products Company and the entity that provides financing to Tecumseh. During 2016, we recognized $1.9 million of income2020. The loss on these investments whichfor 2021 included the gain that resulted from the allocationnet losses of the purchase price recorded by our equity method investees, but was$1.7 million for Tecumseh, partially offset by restructuringnet gains of $0.8 million for the retail distribution business and impairment chargesa gain on fair value recognition related to our investment in Mueller Middle East of $0.7 million.
During 2020, we recognized losses of $10.2 million on our investments in unconsolidated affiliates, net of foreign tax. The loss of these investments for 2020 included net losses of $10.4 million for Tecumseh and net losses during the year.gains of $0.2 million for Mueller Middle East.
Piping Systems Segment
The following table compares summary operating results for 2017, 2016,2022, 2021, and 20152020 for the businesses comprising our Piping Systems segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Percent Change |
(In thousands) | | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
| | | | | | | | | | |
Net sales | | $ | 2,730,084 | | | $ | 2,600,030 | | | $ | 1,583,002 | | | 5.0 | % | | 64.2 | % |
Operating income | | 671,062 | | | 486,287 | | | 165,719 | | | 38.0 | | | 193.4 | |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | Percent Change |
(In thousands) | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| | | | | | | | | | |
Net sales | | $ | 1,564,950 |
| | $ | 1,429,589 |
| | $ | 1,436,689 |
| | 9.5 | % | | (0.5 | )% |
Operating income | | 99,558 |
| | 103,886 |
| | 113,232 |
| | (4.2 | ) | | (8.3 | ) |
The following are components of changes in net sales compared to the prior year:
| | | | | | | | | | | | | | |
| | 2022 vs. 2021 | | 2021 vs. 2020 |
| | | | |
Net selling price in core product lines | | 8.4 | % | | 45.7 | % |
Unit sales volume in core product lines | | (6.6) | | | 6.8 | |
Acquisitions | | 1.5 | | | 10.0 | |
Dispositions | | (0.4) | | | (0.2) | |
Other | | 2.1 | | | 1.9 | |
| | | | |
| | 5.0 | % | | 64.2 | % |
|
| | | | | | |
| | 2017 vs. 2016 | | 2016 vs. 2015 |
| | | | |
Net selling price in core product lines | | 13.1 | % | | (10.0 | )% |
Unit sales volume in core product lines | | (2.3 | ) | | (1.3 | ) |
Acquisitions | | 2.2 |
| | 11.5 |
|
Dispositions | | (3.8 | ) | | — |
|
Other | | 0.3 |
| | (0.7 | ) |
| | | | |
| | 9.5 | % | | (0.5 | )% |
The increase in net sales in 20172022 was primarily attributable to (i) higher net selling prices of $186.5$219.6 million in the segment’s core product lines, primarily copper tube, (ii) $16.4an increase in sales of $61.1 million ofin the segment’s other product lines, and (iii) incremental sales of $38.6 million recorded by Jungwoo-Mueller and (iii) $14.4 million of sales recorded by Heatlink Group.Mueller Middle East. These increases were partially offset by (i) the absence of sales of $54.2 million recorded by Mueller-Xingrong and (ii) lower unit sales volume of $33.1$172.3 million in the segment’s core product lines.lines, primarily non-U.S. copper tube, and (ii) a decrease in sales of $10.9 million as a result of the disposition of Die-Mold.
The decreaseincrease in net sales in 20162021 was primarily attributable to (i) lowerhigher net selling prices of $144.4$719.0 million in the segment’s core product lines, primarily copper tube, (ii) lowerincremental sales of $152.7 million recorded by Kessler, (iii) higher unit sales volume of $18.8$107.6 million in the segment’s core product lines, and (iii) a decrease(iv) an increase in sales of $5.3$44.6 million in the segment’s non-core product lines. Thelines and (v) sales of $4.6 million recorded by Mueller Middle East. These increases were slightly offset by a decrease in net sales resulting from lower net selling prices also reflects the impact of translating net sales of $2.6 million as a result of the segment’s foreign operations to U.S. dollars, which was approximately $43.6 million. These decreases were partially offset by (i) $139.4 milliondisposition of incremental sales recorded by Great Lakes and (ii) $22.0 million of sales recorded by Jungwoo-Mueller.Die-Mold.
The following tables compare cost of goods sold and operating expenses as dollar amounts and as a percent of net sales for 2017, 2016,2022, 2021, and 2015:2020:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 | | 2020 |
| | | | | | |
Cost of goods sold | | $ | 1,943,174 | | | $ | 1,996,610 | | | $ | 1,311,697 | |
Depreciation and amortization | | 22,193 | | | 23,384 | | | 23,071 | |
Selling, general, and administrative expense | | 93,655 | | | 93,749 | | | 78,744 | |
| | | | | | |
Impairment charges | | — | | | — | | | 3,771 | |
| | | | | | |
| | | | | | |
Operating expenses | | $ | 2,059,022 | | | $ | 2,113,743 | | | $ | 1,417,283 | |
|
| | | | | | | | | | | | |
(In thousands) | | 2017 | | 2016 | | 2015 |
| | | | | | |
Cost of goods sold | | $ | 1,369,161 |
| | $ | 1,228,949 |
| | $ | 1,245,929 |
|
Depreciation and amortization | | 21,777 |
| | 22,421 |
| | 22,559 |
|
Selling, general, and administrative expense | | 74,479 |
| | 68,218 |
| | 66,903 |
|
Gain on sale of businesses | | (1,491 | ) | | — |
| | (15,376 | ) |
Impairment charges | | 1,466 |
| | 6,115 |
| | — |
|
Severance | | — |
| | — |
| | 3,442 |
|
| | | | | | |
Operating expenses | | $ | 1,465,392 |
| | $ | 1,325,703 |
| | $ | 1,323,457 |
|
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| | | | | | |
Cost of goods sold | | 71.2 | % | | 76.8 | % | | 82.9 | % |
Depreciation and amortization | | 0.8 | | | 0.9 | | | 1.5 | |
Selling, general, and administrative expense | | 3.4 | | | 3.6 | | | 4.9 | |
| | | | | | |
Impairment charges | | — | | | — | | | 0.2 | |
| | | | | | |
| | | | | | |
Operating expenses | | 75.4 | % | | 81.3 | % | | 89.5 | % |
|
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | | | | | |
Cost of goods sold | | 87.4 | % | | 86.0 | % | | 86.7 | % |
Depreciation and amortization | | 1.4 |
| | 1.5 |
| | 1.6 |
|
Selling, general, and administrative expense | | 4.8 |
| | 4.8 |
| | 4.7 |
|
Gain on sale of businesses | | (0.1 | ) | | — |
| | (1.1 | ) |
Impairment charges | | 0.1 |
| | 0.4 |
| | — |
|
Severance | | — |
| | — |
| | 0.2 |
|
| | | | | | |
Operating expenses | | 93.6 | % | | 92.7 | % | | 92.1 | % |
Gross margin as a percentage of sales was 28.8 percent compared with 23.2 percent in the prior year. The increase in gross margin percent reflects effective price management in response to significant inflation in wages, consumable, freight, and distribution costs, as well as fluctuating material costs. The decrease in cost of goods sold in 2022 was primarily due to a decrease in the average cost of copper and lower sales volume in certain core product lines. The increase in cost of goods sold in 20172021 was primarily due to the increase in the average cost of copper, and thean increase in sales volume related toin the acquisition of Jungwoo-Muellersegment’s core product lines, and Heatlink Group, partially offset by the decreasean increase in sales volume resulting from the saleacquisitions of Mueller-XingrongKessler and in certain other businesses. The decrease in cost of goods sold in 2016 was primarily due to the decrease in the average cost of copper, offset by the increase in sales volume related to businesses acquired during 2015 and 2016.Mueller Middle East.
Depreciation and amortization decreased slightly in 20172022 and 2016. This was2021, compared to 2020, as a result of the sale of long-lived assets at Mueller-Xingrong as well as several long-lived assets becoming fully depreciated and amortized,of businesses sold, partially offset by depreciation and amortization of the long-lived assets for businesses acquired.of Mueller Middle East.
Selling, general, and administrative expenses increasedexpense for 2017, primarily due to incremental expenses associated2022 was consistent with Jungwoo-Mueller and Heatlink Group of $5.5 million.2021. The increase in 20162021 was primarily due to incremental expenses associated with Great Lakes and Jungwoo-Mueller of $5.7 million. This was offset by a reduction in (i) foreign currency exchange losses of $0.8 million and (ii) a decrease inhigher employment costs, including incentive compensation, of $0.3 million. In addition, there was $1.9$6.1 million, (ii) incremental expenses of $4.3 million associated with Kessler, (iii) an increase in agent commissions of $2.0 million, (iv) expenses of $1.3 million associated with the write-off of vendor deposits, and (v) the absence of $1.3 million of equipment relocation costs and losses on the sale of assetsgovernment subsidies provided to certain businesses related to the rationalization of Yorkshire recognizedCOVID-19 pandemic recorded in 2015. 2020.
During 2017,2020, we recognized fixed asset impairment charges for certain copper fittings manufacturingof $3.8 million related to production equipment of $1.5 million and a gain of $1.5 million on the sale of our interest in Mueller-Xingrong.
During 2016, we recognized fixed asset impairment charges for certain manufacturing equipment of $6.1 million.
During 2015, our operating results were positively impacted by a net gain of $15.4 million recorded on the sale of certain assets. Thisthat was offset by $3.4 million of severance charges related to the rationalization of Yorkshire.idled.
Industrial Metals Segment
The following table compares summary operating results for 2017, 2016,2022, 2021, and 20152020 for the businesses comprising our Industrial Metals segment:
| | | | | | | | | | Percent Change | | | | | | | | | Percent Change |
(In thousands) | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 | (In thousands) | | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
| | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | 602,131 |
| | $ | 521,060 |
| | $ | 567,467 |
| | 15.6 | % | | (8.2 | )% | Net sales | | $ | 644,689 | | | $ | 703,363 | | | $ | 472,159 | | | (8.3) | % | | 49.0 | % |
Operating income | | 75,752 |
| | 78,168 |
| | 57,442 |
| | (3.1 | ) | | 36.1 |
| Operating income | | 82,464 | | | 85,475 | | | 54,065 | | | (3.5) | | | 58.1 | |
The following are components of changes in net sales compared to the prior year:
| | | | | | | | | | | | | | |
| | 2022 vs. 2021 | | 2021 vs. 2020 |
| | | | |
Net selling price in core product lines | | 1.3 | % | | 36.7 | % |
Unit sales volume in core product lines | | (7.3) | | | 10.3 | |
| | | | |
Dispositions | | (5.3) | | | — | |
Other | | 3.0 | | | 2.0 | |
| | | | |
| | (8.3) | % | | 49.0 | % |
|
| | | | | | |
| | 2017 vs. 2016 | | 2016 vs. 2015 |
| | | | |
Net selling price in core product lines | | 15.7 | % | | (8.0 | )% |
Unit sales volume in core product lines | | 1.1 |
| | (2.6 | ) |
Acquisitions & new products | | — |
| | 3.5 |
|
Other | | (1.2 | ) | | (1.1 | ) |
| | | | |
| | 15.6 | % | | (8.2 | )% |
The increasedecrease in net sales in 20172022 was primarily due to higher net selling prices(i) lower unit sales volume of $80.1$49.2 million in the segment’s core product lines, primarily brass rod.rod, (ii) a decrease in sales of $36.2 million as a result of the disposition of Copper Bar, and (iii) lower sales of $4.4 million in the segment’s non-core product lines. These decreases were slightly offset by higher net selling prices of $8.9 million in the segment’s core product lines.
The decreaseincrease in net sales during 2016in 2021 was primarily due to (i) lowerhigher net selling prices of $44.5$167.5 million in the segment’s core product lines, primarily brass rod, (ii) higher unit sales volume of $46.8 million in the segment’s core product lines, and (ii) lower unit(iii) higher sales volume of $14.2$8.4 million in the segment’s corenon-core product lines. These decreases were partially offset by $19.2 million of incremental sales recorded by Sherwood.
The following tables compare cost of goods sold and operating expenses as dollar amounts and as a percent of net sales for 2017, 2016,2022, 2021, and 2015:2020:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 | | 2020 |
| | | | | | |
Cost of goods sold | | $ | 543,004 | | | $ | 605,715 | | | $ | 398,000 | |
Depreciation and amortization | | 7,647 | | | 6,929 | | | 7,528 | |
Selling, general, and administrative expense | | 11,574 | | | 11,698 | | | 12,566 | |
Gain on sale of businesses | | — | | | (6,454) | | | — | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Operating expenses | | $ | 562,225 | | | $ | 617,888 | | | $ | 418,094 | |
|
| | | | | | | | | | | | |
(In thousands) | | 2017 | | 2016 | | 2015 |
| | | | | | |
Cost of goods sold | | $ | 506,973 |
| | $ | 420,905 |
| | $ | 491,567 |
|
Depreciation and amortization | | 7,516 |
| | 8,162 |
| | 7,503 |
|
Selling, general, and administrative expense | | 11,890 |
| | 13,162 |
| | 10,955 |
|
Impairment charges | | — |
| | 663 |
| | — |
|
| | | | | | |
Operating expenses | | $ | 526,379 |
| | $ | 442,892 |
| | $ | 510,025 |
|
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| | | | | | |
Cost of goods sold | | 84.2 | % | | 86.1 | % | | 84.3 | % |
Depreciation and amortization | | 1.2 | | | 1.0 | | | 1.6 | |
Selling, general, and administrative expense | | 1.8 | | | 1.6 | | | 2.6 | |
Gain on sale of businesses | | — | | | (0.9) | | | — | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Operating expenses | | 87.2 | % | | 87.8 | % | | 88.5 | % |
|
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | | | | | |
Cost of goods sold | | 84.2 | % | | 80.8 | % | | 86.6 | % |
Depreciation and amortization | | 1.2 |
| | 1.6 |
| | 1.3 |
|
Selling, general, and administrative expense | | 2.0 |
| | 2.5 |
| | 2.0 |
|
Impairment charges | | — |
| | 0.1 |
| | — |
|
| | | | | | |
Operating expenses | | 87.4 | % | | 85.0 | % | | 89.9 | % |
The increase in costGross margin as a percentage of goods sold in 2017sales was primarily due to the increase15.8 percent compared with 13.9 percent in the average cost of copper.prior year. The decrease in cost of goods sold in 20162022 was primarily relateddue to the decrease in the average cost of copper. brass scrap and lower sales volume in the segment’s core product lines and the disposition of Copper Bar. The increase in cost of goods sold in 2021 was primarily due to the increase in selling prices and sales volume in the segment’s core product lines.
Depreciation and amortization increased slightly in 2022 as a result of long-lived assets placed into service. Depreciation and amortization decreased slightly in 20172021 as a result of several long-lived assets becoming fully depreciated. Depreciation and amortization increased in 2016 as a result of depreciation and amortization of long-lived assets for the Sherwood business.
Selling, general, and administrative expenses decreasedexpense in 2017 primarily due to a reduction in employment costs, including incentive compensation2022 was consistent with 2021 and net periodic pension costs, of $1.1 million. The increase in 2016 was primarily a result of incremental expenses associated with Sherwood of $2.7 million, offset by a decrease in net periodic pension costs of $0.7 million.2020.
During 2016,2021, we recognized fixed asset impairment chargesa gain of $0.7$6.5 million on fixed assets related to the rationalizationsale of Sherwood.the Copper Bar business.
Climate Segment
The following table compares summary operating results for 2017, 2016,2022, 2021, and 20152020 for the businesses comprising our Climate segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Percent Change |
(In thousands) | | 2022 | | 2021 | | 2020 | | 2022 vs. 2021 | | 2021 vs. 2020 |
| | | | | | | | | | |
Net sales | | $ | 650,307 | | | $ | 495,414 | | | $ | 370,131 | | | 31.3 | % | | 33.8 | % |
Operating income | | 188,067 | | | 85,536 | | | 56,802 | | | 119.9 | | | 50.6 | |
|
| | | | | | | | | | | | | | | | | | |
| | | | | | | | Percent Change |
(In thousands) | | 2017 | | 2016 | | 2015 | | 2017 vs. 2016 | | 2016 vs. 2015 |
| | | | | | | | | | |
Net sales | | $ | 131,448 |
| | $ | 119,758 |
| | $ | 110,727 |
| | 9.8 | % | | 8.2 | % |
Operating income | | 20,325 |
| | 17,733 |
| | 12,459 |
| | 14.6 |
| | 42.3 |
|
Net sales for 20172022 increased primarily as a result of an increase in volume and improvedprice in certain product mix. lines, as well as incremental sales of $33.3 million recorded by H&C Flex. These increases were partially offset by a decrease in sales of $35.6 million as a result of the dispositions of FTP and STI in 2021. Net sales for 20162021 increased due to incremental sales recorded by Turbotecprimarily as a result of $3.5 million and an increase in volume and price in certain product lines, as well as sales of $48.9 million recorded by H&C Flex. These increases were partially offset by a decrease in sales of $13.8 million as a result of the segment’s other businesses.dispositions of FTP and STI in 2021.
The following tables compare cost of goods sold and operating expenses as dollar amounts and as a percent of net sales for 2017, 2016,2022, 2021, and 2015:2020:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 | | 2020 |
| | | | | | |
Cost of goods sold | | $ | 416,953 | | | $ | 367,343 | | | $ | 276,274 | |
Depreciation and amortization | | 9,174 | | | 10,379 | | | 10,249 | |
Selling, general, and administrative expense | | 36,113 | | | 29,327 | | | 26,806 | |
| | | | | | |
Impairment charges | | $ | — | | | $ | 2,829 | | | $ | — | |
| | | | | | |
| | | | | | |
Operating expenses | | $ | 462,240 | | | $ | 409,878 | | | $ | 313,329 | |
|
| | | | | | | | | | | | |
(In thousands) | | 2017 | | 2016 | | 2015 |
| | | | | | |
Cost of goods sold | | $ | 98,851 |
| | $ | 89,927 |
| | $ | 86,894 |
|
Depreciation and amortization | | 2,513 |
| | 2,437 |
| | 2,257 |
|
Selling, general, and administrative expense | | 9,759 |
| | 9,661 |
| | 9,117 |
|
| | | | | | |
Operating expenses | | $ | 111,123 |
| | $ | 102,025 |
| | $ | 98,268 |
|
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| | | | | | |
Cost of goods sold | | 64.1 | % | | 74.1 | % | | 74.6 | % |
Depreciation and amortization | | 1.4 | | | 2.1 | | | 2.8 | |
Selling, general, and administrative expense | | 5.6 | | | 6.0 | | | 7.3 | |
| | | | | | |
Impairment charges | | — | | | 0.6 | | | — | |
| | | | | | |
| | | | | | |
Operating expenses | | 71.1 | % | | 82.8 | % | | 84.7 | % |
|
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | | | | | |
Cost of goods sold | | 75.2 | % | | 75.1 | % | | 78.5 | % |
Depreciation and amortization | | 1.9 |
| | 2.0 |
| | 2.0 |
|
Selling, general, and administrative expense | | 7.4 |
| | 8.1 |
| | 8.2 |
|
| | | | | | |
Operating expenses | | 84.5 | % | | 85.2 | % | | 88.7 | % |
Cost of goods sold increased in 2022, consistent with the increase in net sales. Gross margin as a percentage of sales was 35.9 percent compared with 25.9 percent in the prior year. The increase in costgross margin percent reflects effective price management in response to significant inflation in wages, consumable, freight, and distribution costs, as well as fluctuations in material costs. Cost of goods sold increased in 2017 and 2016 was related to factors2021, consistent with those noted regarding changesthe increase in net sales. Depreciation and amortization decreased in 2022 as a result of long-lived assets of businesses sold. Depreciation and amortization in 2021 was consistent 2017, 2016, and 2015.with 2020. Selling, general, and administrative expenses were consistentincreased in 2017 and 2016, and increased slightly in 2016 primarily due to2022 as a result of (i) higher agent commissions of $4.6 million, (ii) incremental expenses associated with TurbotecH&C Flex of $0.5$2.1 million, and (iii) higher employment costs, including incentive compensation, of $1.8 million.
These were partially offset by the absence of expenses associated with FTP and STI of $2.4 million. Selling, general, and administrative expenses increased in 2021 as a result of (i) higher employment costs of $2.7
million and (ii) expenses associated with H&C Flex of $1.8 million. These were partially offset by the absence of expenses associated with FTP and STI of $1.4 million.
LIQUIDITYAND CAPITAL RESOURCES
During 2021, the segment recognized impairment charges on goodwill and long-lived assets of $2.8 million.
LIQUIDITYAND CAPITAL RESOURCES
The following table presents selected financial information for 2017, 2016,2022, 2021, and 2015:2020:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 | | 2020 |
| | | | | | |
Increase (decrease) in: | | | | | | |
Cash, cash equivalents, and restricted cash | | $ | 374,920 | | | $ | (37,000) | | | $ | 29,334 | |
Short-term investments | | 217,863 | | | — | | | — | |
Property, plant, and equipment, net | | (5,612) | | | 8,990 | | | 13,444 | |
Total debt | | 154 | | | (326,001) | | | (58,378) | |
Working capital, net of cash and current debt | | 176,700 | | | 141,525 | | | 38,855 | |
| | | | | | |
Net cash provided by operating activities | | 723,943 | | | 311,701 | | | 245,073 | |
Net cash (used in) provided by investing activities | | (242,003) | | | 29,073 | | | (125,622) | |
Net cash used in financing activities | | (102,655) | | | (376,722) | | | (92,264) | |
|
| | | | | | | | | | | | |
(In thousands) | | 2017 | | 2016 | | 2015 |
| | | | | | |
Increase (decrease) in: | | | | | | |
Cash and cash equivalents | | $ | (231,048 | ) | | $ | 76,473 |
| | $ | (77,290 | ) |
Property, plant, and equipment, net | | 9,090 |
| | 15,007 |
| | 34,314 |
|
Total debt | | 237,708 |
| | 11,354 |
| | (25,434 | ) |
Working capital, net of cash and current debt | | 55,405 |
| | 9,781 |
| | (59,316 | ) |
| | | | | | |
Net cash provided by operating activities | | 43,995 |
| | 157,777 |
| | 159,609 |
|
Net cash used in investing activities | | (33,422 | ) | | (53,057 | ) | | (190,807 | ) |
Net cash used in financing activities | | (244,566 | ) | | (22,561 | ) | | (41,258 | ) |
Cash Provided by Operating Activities
During 2017 ,2022, net cash provided by operating activities was primarily attributable to (i) consolidated net income of $87.0$662.8 million, (ii) a decrease in accounts receivable of $82.7 million, (iii) depreciation and amortization of $34.2$44.1 million, and (iii) an increase in current liabilities(iv) stock-based compensation expense of $10.7$17.8 million. These cash increases were partially offset by (i) a decrease in current liabilities of $26.6 million, (ii) an increase in inventories of $86.3$24.2 million, primarily driven by the(iii) an increase in the priceother assets of copper$9.0 million, and an excess inventory build(iv) income from unconsolidated affiliates of $38.9 million due to a casting outage in our brass rod mill that impaired our ability to melt scrap returns.$10.1 million.
During 2016, net cash provided by operating activities was primarily attributable to consolidated net income of $99.8 million plus the addition of non-cash charges to income.
During 2015,2021, net cash provided by operating activities was primarily attributable to (i) consolidated net income of $88.4$475.1 million, (ii) an increase in current liabilities of $73.8 million, (iii) depreciation and amortization of $35.0$45.7 million, and (iv) stock-based compensation expense of $9.8 million. These cash increases were partially offset by (i) an increase in accounts receivable of $124.7 million, (ii) an increase in inventories of $119.5 million, and (iii) gains of $57.8 million recorded on the sales of the FTP, STI, Die-Mold, and Copper Bar businesses. The fluctuations of accounts receivable, inventories, and current liabilities were primarily due to increased sales volume in certain businesses and higher material costs during 2021.
During 2020, net cash provided by operating activities was primarily attributable to (i) consolidated net income of $143.6 million, (ii) an increase in current liabilities of $74.1 million, (iii) depreciation and amortization of $45.2 million, (iv) a decrease in receivablesother assets of $51.7$20.6 million, (v) a non-cash charge related to the termination of the U.S. pension plan of $11.6 million, (vi) losses from unconsolidated affiliates of $10.2 million, (vii) stock-based compensation expense of $8.6 million, and (iv)(viii) a decrease in inventories of $41.1$5.2 million. These cash increases were partially offset by a decreasean increase in current liabilitiesaccounts receivable of $45.6$76.4 million. These changes were primarily due to decreases in the price of copper and an overall decrease in working capital needs.
Cash Used in(Used in) Provided by Investing Activities
The major components of net cash used in investing activities in 20172022 included (i) the purchase of short-term investments of $217.9 million and (ii) capital expenditures of $46.1 million, (ii) $18.4 million for the purchase of Heatlink Group, net of cash acquired, and (iii) investments in our joint venture in Bahrain of $3.3$37.6 million. These uses of cash were partially offset by (i) $17.5 million of proceeds from the sale of our 50.5 percent equity interestproperties of $7.9 million, (ii) insurance proceeds for property and equipment of $3.4 million, and (iii) dividends received from unconsolidated affiliates of $2.3 million.
The major components of net cash provided by investing activities in Mueller-Xingrong,2021 included (i) proceeds of $81.9 million from the sale of the FTP, STI, and Copper Bar businesses, net of cash sold, and (ii) proceeds from the salepayments received on notes receivable of assets$8.5 million. These sources were partially offset by (i) capital expenditures of $12.3 million, (iii) net withdrawals from restricted cash balances of $2.9$31.8 million and (iv) proceeds from(ii) $30.2 million for the salepurchases of securitiesH&C Flex and Mueller Middle East, net of $1.8 million.cash acquired.
The major components of net cash used in investing activities in 20162020 included (i) capital expenditures of $37.5 million, (ii) $20.5$72.6 million for the purchasepurchases of a 60.0 percent equity interest in Jungwoo-Mueller,Kessler and STI, net of cash acquired, and (iii) net deposits to restricted cash balances of $5.3 million. These uses were offset by $10.3 million in proceeds from the sale of assets.
The major components of net cash used in investing activities in 2015 included (i) $105.9 million for the acquisition of Turbotec, Sherwood, and Great Lakes, (ii) $65.9 million for our investment in MA Industrial JV LLC, the joint venture that acquired Tecumseh Products Company, and (iii) capital expenditures of $28.8 million. These cash decreases were offset by (i) $5.5$43.9 million, in proceeds fromand (iii) the saleissuance of certain assets and (ii) net withdrawals from restricted cash balancesnotes receivable of $4.3$9.3 million.
Cash Used in Financing Activities
For 2017,2022, net cash used in investingfinancing activities consisted primarily of (i) $196.9 million used for the payment of the special dividend and the regular quarterly dividends to stockholders of the Company, (ii) $110.0 million used to reduce the debt outstanding under our Credit Agreement, (iii) $3.4 million used for repayment of debt by Jungwoo-Mueller and Mueller-Xingrong, and (iv) $2.9 million used for the payment of dividends to noncontrolling interests. These uses were offset by the issuance of debt of $70.0 million under our Credit Agreement.
For 2016, net cash used in investing activities consisted primarily of (i) $21.2$55.8 million used for the payment of regular quarterly dividends to stockholders of the Company, and (ii) $3.8$38.1 million used for the repurchase of common stock, and (iii) $7.2 million used for the payment of dividends to noncontrolling interests. This was partially offset by the issuance of debt of $3.5 million.
For 2015,2021, net cash used in investingfinancing activities consisted primarily of (i) $23.6$630.0 million used to reduce the debt outstanding under our Credit Agreement, (ii) $290.2 million used for the repaymentredemption of debt by Mueller-Xingrong and (ii) $16.9the Subordinated Debentures, (iii) $29.1 million used for the payment of regular quarterly dividends to stockholders of the Company.Company, (iv) $9.7 million used for the payment of dividends to noncontrolling interests, (v) $5.1 million used for repayment of debt by Jungwoo-Mueller, and (vi) $4.9 million used to repurchase common stock. These uses of cash were partially offset by the issuance of debt under our Credit Agreement of $595.0 million.
For 2020, net cash used in financing activities consisted primarily of (i) $245.0 million used to reduce the debt outstanding under our Credit Agreement, (ii) $22.3 million used for the payment of regular quarterly dividends to stockholders of the Company, (iii) $7.0 million used for the payment of contingent consideration related to ATCO, and (iv) $5.6 million used to repurchase common stock. These uses of cash were partially offset by the issuance of debt under our Credit Agreement of $190.0 million.
Liquidity and Outlook
We believe that cash provided by operations, funds available under the Credit Agreement, and cash on hand will be adequate to meet our liquidity needs, including working capital, capital expenditures, and debt payment obligations. Our current ratio was 3.14.4 to 1 as of December 30, 2017.31, 2022.
As of December 30, 2017, $73.331, 2022, $82.0 million of our cash and cash equivalents were held by foreign subsidiaries. AllThe undistributed earnings of most of the foreign subsidiaries are considered to be permanently reinvested. These earnings could be remitted to the U.S. with a minimal tax cost. Accordingly, no additional income taxes havetax liability has been provided foraccrued with respect to these earnings or on any additional outside basis differences that may exist with respect to these entities or any taxes that may be due should these earnings be repatriated as the calculation of such taxes is not practicable.entities.
The Tax Cuts and Jobs Act (the Act) imposes a one-time transition tax based on our total post-1986 earnings and profits for which the accrual of U.S. income taxes has previously been deferred. We recorded a provisional amount for this one-time transition tax liability, resulting in an increase in income tax expense of $12.9 million. This amount will be paid over eight years beginning in 2018, with eight percent of the liability paid each year through 2022 and the remaining 60 percent paid in 2023 through 2025.
We expect the reduction in the U.S. federal tax rate from 35 percent to 21 percent under the Act to provide ongoing benefits to liquidity. For 2018, we expect our effective tax rate on consolidated earnings to be in the range of 22 to 26 percent. We believe that cash held domestically, funds available through the credit agreement,Credit Agreement, and cash generated from U.S. based operations will be adequate to meet the future needs of our U.S. based operations.
Fluctuations in the cost of copper and other raw materials affect the Company’s liquidity. Changes in material costs directly impact components of working capital, primarily inventories, accounts receivable, and accounts payable. The price of copper has fluctuated significantly and averaged approximately $4.01 in 2022, $4.24 in 2021, and $2.80 in 2017, $2.20 in 2016, and $2.51 in 2015.2020.
We have significant environmental remediation obligations which we expect to pay over future years. Approximately $1.4$8.3 million was spent during 20172022 for environmental matters. As of December 30, 2017,31, 2022, we expect to spend $4.3$4.0 million in 2018, $2.22023, $2.0 million in 2019, $2.12024, $0.8 million in 2020, $0.62025, $0.7 million in 2021, $0.62026, $0.7 million in 2022,2027, and $18.2$12.3 million thereafter for ongoing projects.
Cash used to fund pension and other postretirement benefit obligations was $3.2$0.5 million in 20172022 and $3.4$0.6 million in 2016.2021. We anticipate making contributions of approximately $2.2$1.1 million to these plans in 2018.2023.
The Company declared and paid a quarterly cash dividend of 10.0 cents per common share during each quarter of 2017 and the second, third, and fourth quarters of 2016, and 7.52020, 13.0 cents per common share for the first quarter of 2016 and induring each quarter of fiscal 2015. Additionally,2021, and 25.0 cents per common share during the firsteach quarter of 2017 the Company distributed a special dividend composed of $3.00 in cash and $5.00 in principal amount of the Company’s 6% Subordinated Debentures (Debentures) due 2027 for each share of common stock outstanding.2022. Payment of dividends in the future is dependent upon our financial condition, cash flows, capital requirements, and other factors.
Capital Expenditures
During 20172022 our capital expenditures were $46.1$37.6 million. We anticipate investing approximately $25.0$35.0 million to 30.0$40.0 million for capital expenditures in 20182023.
Long-Term Debt
The Company’s Credit Agreement provides for an unsecured $350.0$400.0 million revolving credit facility, which matures on December 6, 2021.March 31, 2026. Funds borrowed under the Credit Agreement may be used for working capital purposes and other general corporate purposes. In addition, the Credit Agreement provides a sublimit of $50.0 million for the issuance of letters of credit, a sublimit of $25.0$35.0 million for loans and letters of credit made in certain foreign currencies, and a swing line loan sublimit of $15.0$25.0 million. Outstanding letters of credit and foreign currency loans reduce borrowing availability under the Credit Agreement. TotalThere were no borrowings outstanding under the Credit Agreement were $160.0 million at December 30, 2017.31, 2022.
The Debentures distributed as part of our special dividend are subordinated to all other funded debt of the Company and are callable, in whole or in part, at any time at the option of the Company, subject to declining call premiums during the first five years. The Debentures also grant each holder the right to require the Company to repurchase such holder’s Debentures in the event of a change in control at declining repurchase premiums during the first five years. Interest is payable semiannually on September 1 and March 1, and commenced on September 1, 2017. Total Debentures outstanding as of December 30, 2017 were $284.5 million.
Jungwoo-Mueller has several secured revolving credit arrangements with a total borrowing capacity of KRW 29.920.0 billion (or approximately $27.5$15.0 million). Borrowings are secured by the real property and equipment of Jungwoo-Mueller andJungwoo-Mueller. There were bearing interestno borrowings outstanding at an average rate of 2.96 percentJungwoo-Mueller as of December 30, 2017. Total borrowings at Jungwoo-Mueller were $13.8 million as of December 30, 2017.31, 2022.
As of December 30, 2017,31, 2022, the Company’s total debt was $465.1$2.0 million or 46.50.1 percent of its total capitalization.
Covenants contained in the Company’s financing obligations require, among other things, the maintenance of minimum levels of tangible net worth and the satisfaction of certain minimum financial ratios. As of December 30, 2017,31, 2022, we were in compliance with all of our debt covenants.
Share Repurchase Program
The Company’s Board of Directors has extended, until August 2018,July 2023, its authorization to repurchase up to 20 million shares of the Company’s common stock through open market transactions or through privately negotiated transactions. We may cancel, suspend, or extend the time period for the repurchase of shares at any time. Any repurchases will be funded primarily through existing cash and cash from operations. The Company may hold any shares repurchased in treasury or use a portion of the repurchased shares for stock-based compensation plans, as well as for other corporate purposes. From its initial authorization in 1999 through December 30, 2017,31, 2022, the Company had repurchased approximately 4.77.2 million shares under this authorization.
Subsequent to year-end and as of February 23, 2018, the Company has repurchased an additional 250 thousand shares.
CONTRACTUAL CASH OBLIGATIONS
CONTRACTUAL CASH OBLIGATIONS
The following table presents payments due by the Company under contractual obligations with minimum firm commitments as of December 30, 2017:31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Payments Due by Year |
(In millions) | | Total | | 2023 | | 2024-2025 | | 2026-2027 | | Thereafter |
| | | | | | | | | | |
Total debt | | $ | 2.7 | | | $ | 0.8 | | | $ | 0.4 | | | $ | — | | | $ | 1.5 | |
Operating and capital leases | | 26.0 | | | 6.3 | | | 8.1 | | | 6.0 | | | 5.6 | |
Heavy machinery and equipment | | 12.5 | | | 12.5 | | | — | | | — | | | — | |
| | | | | | | | | | |
Purchase commitments (1) | | 984.5 | | | 984.5 | | | — | | | — | | | — | |
| | | | | | | | | | |
Transition tax on accumulated foreign earnings | | 1.9 | | | — | | | 1.9 | | | — | | | — | |
| | | | | | | | | | |
| | | | | | | | | | |
Total contractual cash obligations | | $ | 1,027.6 | | | $ | 1,004.1 | | | $ | 10.4 | | | $ | 6.0 | | | $ | 7.1 | |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Payments Due by Year |
(In millions) | | Total | | 2018 | | 2019-2020 | | 2021-2022 | | Thereafter |
| | | | | | | | | | |
Total debt | | $ | 466.2 |
| | $ | 16.5 |
| | $ | 2.4 |
| | $ | 160.7 |
| | $ | 286.6 |
|
Operating leases | | 40.5 |
| | 7.0 |
| | 9.6 |
| | 6.6 |
| | 17.3 |
|
Heavy machinery and equipment commitments | | 3.5 |
| | 3.5 |
| | — |
| | — |
| | — |
|
Purchase commitments (1) | | 829.9 |
| | 829.9 |
| | — |
| | — |
| | — |
|
Transition tax on accumulated foreign earnings | | 12.9 |
| | 1.0 |
| | 2.1 |
| | 2.1 |
| | 7.7 |
|
Interest payments (2) | | 180.6 |
| | 22.1 |
| | 45.7 |
| | 40.2 |
| | 72.6 |
|
| | | | | | | | | | |
Total contractual cash obligations | | $ | 1,533.6 |
| | $ | 880.0 |
| | $ | 59.8 |
| | $ | 209.6 |
| | $ | 384.2 |
|
| | | | | | | | | | |
(1)This includes contractual supply commitments totaling $916.1 million at year-end prices; these contracts contain variable pricing based on Comex and the London Metals Exchange quoted prices. These commitments are for purchases of raw materials, primarily copper cathode and brass scrap, that are expected to be consumed in the ordinary course of business. | |
(1)
| This includes contractual supply commitments totaling $788.2 million at year-end prices; these contracts contain variable pricing based on Comex and the London Metals Exchange. These commitments are for purchases of raw materials that are expected to be consumed in the ordinary course of business. |
| |
(2)
| These payments represent interest on long-term debt based on rates in effect at December 30, 2017. |
The above obligations will be satisfied with existing cash, funds available under the Credit Agreement, and cash generated by operations. The Company has no off-balance sheet financing arrangements except for the operating leases identified above.arrangements.
MARKET RISKS
MARKET RISKS
The Company is exposed to market risks from changes in raw material and energy costs, interest rates, and foreign currency exchange rates. To reduce such risks, we may periodically use financial instruments. Hedging transactions are authorized and executed pursuant to policies and procedures. Further, we do not buy or sell financial instruments for trading purposes. A discussion of the Company’s accounting for derivative instruments and hedging activities is included in “Note 1 - Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements.
Cost and Availability of Raw Materials and Energy
Raw materials, primarily copper and brass, represent the largest component of the Company’s variable costs of production. The cost of these materials is subject to global market fluctuations caused by factors beyond our control. Significant increases in the cost of metal, to the extent not reflected in prices for our finished products, or the lack of availability could materially and adversely affect our business, results of operations and financial condition.
The Company occasionally enters into forward fixed-price arrangements with certain customers. We may utilize futures contracts to hedge risks associated with these forward fixed-price arrangements. We may also utilize futures contracts to manage price risk associated with inventory. Depending on the nature of the hedge, changes in the fair value of the futures contracts will either be offset against the change in fair value of the inventory through earnings or recognized as a component of accumulated other comprehensive income (AOCI) in equity and reflected in earnings upon the sale of inventory. Periodic value fluctuations of the contracts generally offset the value fluctuations of the underlying fixed-price transactions or inventory. At December 30, 2017,31, 2022, we held open futures contracts to purchase approximately $19.6$91.8 million of copper over the next 12nine months related to fixed-price sales orders and to sell approximately $85.3$10.7 million of copper over the next five months related to copper inventory.
We may enter into futures contracts or forward fixed-price arrangements with certain vendors to manage price risk associated with natural gas purchases. The effective portion of gains and losses with respect to positions are deferred in equity as a component of AOCI and reflected in earnings upon consumption of natural gas. Periodic value fluctuations of the futures contracts generally offset the value fluctuations of the underlying natural gas prices. There were no open futures contracts to purchase natural gas at December 30, 2017.31, 2022.
Interest Rates
The CompanyCompany had no variable-rate debt outstanding of $169.9 million at December 30, 2017 and $212.0 million at December 31, 2016.2022 and December 25, 2021. At this borrowing level, a hypothetical 10 percent increase in interest rates would have had an insignificant unfavorable impact on our pre-tax earnings and cash flows. The primary interest rate exposure on variable-rate debt is based on LIBOR.the Secured Overnight Financing Rate (SOFR).
Foreign Currency Exchange Rates
Foreign currency exposures arising from transactions include firm commitments and anticipated transactions denominated in a currency other than an entity’s functional currency. The Company and its subsidiaries generally enter into transactions denominated in their respective functional currencies. We may utilize certain futures or forward contracts with financial institutions to hedge foreign currency transactional exposures. Gains and losses with respect to these positions are deferred in equity as a component of AOCI and reflected in earnings upon collection of receivables or payment of commitments. At December 30, 2017,31, 2022, we had open forward contracts with a financial institution to sell approximately 6.04.6 million euros, 24.736.4 million Swedish kronor, and 5.212.6 million Norwegian kroner through April 2018.2023.
The Company’s primary foreign currency exposure arises from foreign-denominated revenues and profits and their translation into U.S. dollars. The primary currencies to which we are exposed include the Canadian dollar, the British pound sterling, the Mexican peso, the South Korean won, and the Chinese renminbi.Bahraini dinar. The Company generally views its investments in foreign subsidiaries with a functional currency other than the U.S. dollar as long-term. As a result, we generally do not hedge these net investments. The net investment in foreign subsidiaries translated into U.S. dollars using the year-end exchange rates was $360.7 million at December 30, 2017 and $271.6$338.6 million at December 31, 2016.2022 and $362.1 million at December 25, 2021. The potential loss in value of the Company’s net investment in foreign subsidiaries resulting from a hypothetical 10 percent adverse change in quoted foreign currency exchange rates at December 30, 201731, 2022 and December 31, 201625, 2021 amounted to $36.1$33.9 million and $27.2$36.2 million, respectively. This change would be reflected in the foreign currency translation component of AOCI in the equity section of our Consolidated Balance Sheets until the foreign subsidiaries are sold or otherwise disposed.
We have significant investments in foreign operations whose functional currency is the British pound sterling, the Mexican peso, the Canadian dollar, the South Korean won, and the Chinese renminbi. During 2017,Bahraini dinar. In 2022, the value of the British pound increased
decreased approximately nineeleven percent, the Mexican peso increased approximately fivesix percent, the Canadian dollar increaseddecreased approximately sevensix percent, the South Korean won increaseddecreased approximately 13seven percent, and the Chinese renminbi increased approximately seven percent,Bahraini dinar remained consistent, relative to the U.S. dollar. The resulting net foreign currency translation gainslosses were included in calculating net other comprehensive loss for the year ended December 31, 2022 and were recorded as a component of AOCI.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company’s accounting policies are more fully described in “Note 1 - Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements. As disclosed in Note 1, the preparation of financial statements in conformity with general accepted accounting principles in the United States requires management to make estimates and assumptions about future events that affect amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. Management believes the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective, and complex judgments.
Inventory Valuation Reserves
Our inventories are valued at the lower-of-cost-or-market. The market price of copper cathode and scrap are subject to volatility. During periods when open market prices decline below net realizable value, the Company may need to provide an allowance to reduce the carrying value of its inventory. In addition, certain items in inventory may be considered excess or obsolete and, as such, we may establish an allowance to reduce the carrying value of those items to their net realizable value. Changes in these estimates related to the value of inventory, if any, may result in a materially adverse impact on our reported financial position or results of operations. The Company recognizes the impact of any changes in estimates, assumptions, and judgments in income in the period in which they are determined.
As of December 30, 201731, 2022 and December 31, 2016,25, 2021, our inventory valuation reserves were $6.8$14.3 million and $6.9$10.1 million, respectively. The expense recognized in each of these periods was immaterial to our Consolidated Financial Statements.
Impairment of Goodwill
As of December 30, 201731, 2022, we had $130.3$157.6 million of recorded goodwill from our business acquisitions, representing the excess of the purchase price over the fair value of the net assets we have acquired. During 2017 we recorded $4.1 million in additional goodwill associated with our Heatlink Group acquisition.
Goodwill is subject to impairment testing, which is performed annually as of the first day of the fourth quarter unless circumstances indicate the need to accelerate the timing of the tests. These circumstances include a significant change in the business climate, operating performance indicators, competition, or sale or disposition of a significant portion of one of our businesses. In our evaluation of goodwill impairment, we perform a qualitative assessment at the reporting unit level that requires management judgment and the use of estimates to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive, management compares the fair value of a reporting unit with its carrying amount and will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
We identify reporting units by evaluating components of our operating segments and combining those components with similar economic characteristics. Reporting units with significant recorded goodwill include Domestic Piping Systems, B&K LLC, Great Lakes, Heatlink Group, European Operations, Jungwoo-Mueller, Mueller Middle East, Westermeyer, and Turbotec.Flex Duct.
The fair value of each reporting unit is estimated using a combination of the income and market approaches, incorporating market participant considerations and management’s assumptions on revenue growth rates, operating margins, discount rates and expected capital expenditures. Estimates used by management can significantly affect the outcome of the impairment test. Changes in forecasted operating results and other assumptions could materially affect these estimates.
We evaluated each reporting unit during the fourth quarters of 20172022 and 2016,2021, as applicable. TheWith the exception of the Turbotec reporting unit, the estimated fair value of each of these reporting units exceeded its carrying values in 20172022 and 2016,2021, and we do not believe that any of these reporting units were at risk of impairment as of December 30, 2017.31, 2022. During the third quarter of 2021, the Company recognized an impairment charge of $2.1 million related to Turbotec, reported within the Climate segment.
Pension Benefit Plans
We sponsor several qualified and nonqualified pension benefit plans in certain foreign locations. We recognize the overfunded or underfunded status of the plans as an asset or liability in the Consolidated Balance Sheets with changes in the funded status recorded through comprehensive income in the year in which those changes occur. The obligations for these plans are actuarially determined and affected by assumptions, including discount rates, expected long-term return on plan assets for defined benefit pension plans, and certain employee-related factors, such as retirement age and mortality. We evaluate the assumptions periodically and makes adjustments as necessary.
The expected return on plan assets is determined using the market value of plan assets. Differences between assumed and actual returns are amortized to the market value of assets on a straight-line basis over the average remaining service period of the plan participants using the corridor approach. The corridor approach defers all actuarial gains and losses resulting from variances between actual results and actuarial assumptions. These unrecognized gains and losses are amortized when the net gains and losses exceed 10 percent of the greater of the market value of the plan assets or the projected benefit obligation. The amount in excess of the corridor is amortized over the average remaining service period of the plan participants. For 2022, the average remaining service period for the pension plans was 11.5 years.
We determine the discount rate (which is required to be the rate at which the projected benefit obligation could be effectively settled as of the measurement date) with the assistance of actuaries, who calculate the yield available on high quality corporate bonds of a term that reflects the maturity and duration of expected benefit payments.
Environmental Reserves
We recognize an environmental reserve when it is probable that a loss is likely to occur and the amount of the loss is reasonably estimable. We estimate the duration and extent of our remediation obligations based upon reports of outside consultants, internal
and third party estimates and analyses of cleanup costs and ongoing monitoring costs, communications with regulatory agencies, and changes in environmental law. If we were to determine that our estimates of the duration or extent of our environmental obligations were no longer accurate, we would adjust our environmental reserve accordingly in the period that such determination is made. Estimated future expenditures for environmental remediation are not discounted to their present value.
Environmental expenses that relate to ongoing operations are included as a component of cost of goods sold. Environmental expenses related to non-operating properties are presented below operating income in the Consolidated Statements of Income.
Income Taxes
We estimate total income tax expense based on domestic and international statutory income tax rates in the tax jurisdictions where we operate, permanent differences between financial reporting and tax reporting, and available credits and incentives.
Deferred income tax assets and liabilities are recognized for the future tax effects of temporary differences between the treatment of certain items for financial statement and tax purposes using tax rates in effect for the years in which the differences are expected to reverse. Realization of certain components of deferred tax assets is dependent upon the occurrence of future events.
Valuation allowances are recorded when, in the opinion of management, it is more likely than not that all or a portion of the deferred tax assets will not be realized. These valuation allowances can be impacted by changes in tax laws, changes to statutory tax rates, and future taxable income levels, and are based on our judgment, estimates, and assumptions. In the event we were to determine that we would not be able to realize all or a portion of the net deferred tax assets in the future, we would increase the valuation allowance through a charge to income tax expense in the period that such determination is made. Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future, in excess of the net carrying amounts, we would decrease the recorded valuation allowance through a decrease to income tax expense in the period that such determination is made.
We record liabilities for known or anticipated tax issues based on our analysis of whether, and the extent to which, additional taxes will be due. These unrecognized tax benefits are retained until the associated uncertainty is resolved. Tax benefits for uncertain tax positions that are recognized in the Consolidated Financial Statements are measured as the largest amount of benefit, determined on a cumulative probability basis, that is more likely than not to be realized upon ultimate settlement. To the extent we prevail in matters for which a liability for an uncertain tax position is established or are required to pay amounts in excess of the liability, our effective tax rate in a given period may be materially affected.
New Accounting Pronouncements
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Annual Report contains various forward-looking statements and includes assumptions concerning the Company’s operations, future results, and prospects. These forward-looking statements are based on current expectations and are subject to risk and uncertainties, and may be influenced by factors that could cause actual outcomes and results to be materially different from those predicted. The forward-looking statements reflect knowledge and information available as of the date of preparation of the Annual Report, and the Company undertakes no obligation to update these forward-looking statements. We identify the forward-looking statements by using the words “anticipates,” “believes,” “expects,” “intends” or similar expressions in such statements.
In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statement identifying important economic, political, and technological factors, among others, which could cause actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. In addition to those factors discussed under “Risk Factors” in this Annual Report on Form 10-K, such factors include: (i) the current and projected future business environment, including interest rates and capital and consumer spending; (ii) the domestic housing and commercial construction industry environment; (iii) availability and price fluctuations in commodities (including copper, natural gas, and other raw materials, including crude oil that indirectly affects plastic resins); (iv) competitive factors and competitor responses to the Company’s initiatives; (v) stability of government laws and regulations, including taxes; (vi) availability of financing; and (vii) continuation of the environment to make acquisitions, domestic and foreign, including regulatory requirements and market values of candidates.
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 30, 2017,31, 2022, December 31, 2016,25, 2021, and December 26, 20152020
| | (In thousands, except per share data) | | 2017 | | 2016 | | 2015 | (In thousands, except per share data) | | 2022 | | 2021 | | 2020 |
| | | | | | | | | | | | |
Net sales | | $ | 2,266,073 |
| | $ | 2,055,622 |
| | $ | 2,100,002 |
| Net sales | | $ | 3,982,455 | | | $ | 3,769,345 | | | $ | 2,398,043 | |
| | | | | | | |
Cost of goods sold | | 1,940,617 |
| | 1,723,499 |
| | 1,809,702 |
| Cost of goods sold | | 2,864,862 | | | 2,938,989 | | | 1,966,161 | |
Depreciation and amortization | | 33,944 |
| | 35,133 |
| | 34,608 |
| Depreciation and amortization | | 43,731 | | | 45,390 | | | 44,843 | |
Selling, general, and administrative expense | | 139,580 |
| | 137,499 |
| | 130,358 |
| Selling, general, and administrative expense | | 203,086 | | | 184,052 | | | 159,483 | |
Litigation settlement, net | | Litigation settlement, net | | — | | | — | | | (22,053) | |
Gain on sale of businesses | | (1,491 | ) | | — |
| | (15,376 | ) | Gain on sale of businesses | | — | | | (57,760) | | | — | |
Gain on sale of assets, net | | Gain on sale of assets, net | | (6,373) | | | — | | | — | |
Impairment charges | | 1,466 |
| | 6,778 |
| | — |
| Impairment charges | | — | | | 2,829 | | | 3,771 | |
Severance | | — |
| | — |
| | 3,442 |
| |
| | | | | | | | | | | | | |
Operating income | | 151,957 |
| | 152,713 |
| | 137,268 |
| Operating income | | 877,149 | | | 655,845 | | | 245,838 | |
| | | | | | | |
Interest expense | | (19,502 | ) | | (7,387 | ) | | (7,667 | ) | Interest expense | | (810) | | | (7,709) | | | (19,247) | |
Redemption premium | | Redemption premium | | — | | | (5,674) | | | — | |
Environmental expense | | (7,284 | ) | | (1,279 | ) | | (46 | ) | Environmental expense | | (1,298) | | | (5,053) | | | (4,454) | |
Pension plan termination expense | | Pension plan termination expense | | (13,100) | | | — | | | (17,835) | |
Other income, net | | 1,801 |
| | 1,983 |
| | 2,234 |
| Other income, net | | 14,090 | | | 3,730 | | | 4,887 | |
| | | | | | | | | | | | |
Income before income taxes | | 126,972 |
| | 146,030 |
| | 131,789 |
| Income before income taxes | | 876,031 | | | 641,139 | | | 209,189 | |
| | | | | | | |
Income tax expense | | (37,884 | ) | | (48,137 | ) | | (43,382 | ) | Income tax expense | | (223,322) | | | (165,858) | | | (55,321) | |
(Loss) income from unconsolidated affiliates, net of tax | | (2,077 | ) | | 1,861 |
| | — |
| |
Income (loss) from unconsolidated affiliates, net of foreign tax | | Income (loss) from unconsolidated affiliates, net of foreign tax | | 10,111 | | | (157) | | | (10,219) | |
| | | | | | | | | | | | |
Consolidated net income | | 87,011 |
| | 99,754 |
| | 88,407 |
| Consolidated net income | | 662,820 | | | 475,124 | | | 143,649 | |
| | | | | | | |
Net income attributable to noncontrolling interests | | (1,413 | ) | | (27 | ) | | (543 | ) | Net income attributable to noncontrolling interests | | (4,504) | | | (6,604) | | | (4,156) | |
| | | | | | | | | | | | |
Net income attributable to Mueller Industries, Inc. | | $ | 85,598 |
| | $ | 99,727 |
| | $ | 87,864 |
| Net income attributable to Mueller Industries, Inc. | | $ | 658,316 | | | $ | 468,520 | | | $ | 139,493 | |
| | | | | | | | | | | | |
Weighted average shares for basic earnings per share | | 56,925 |
| | 56,572 |
| | 56,316 |
| Weighted average shares for basic earnings per share | | 55,779 | | | 56,011 | | | 55,821 | |
Effect of dilutive stock-based awards | | 559 |
| | 597 |
| | 652 |
| Effect of dilutive stock-based awards | | 776 | | | 787 | | | 569 | |
| | | | | | | | | | | | |
Adjusted weighted average shares for diluted earnings per share | | 57,484 |
| | 57,169 |
| | 56,968 |
| Adjusted weighted average shares for diluted earnings per share | | 56,555 | | | 56,798 | | | 56,390 | |
| | | | | | | | | | | | |
Basic earnings per share | | $ | 1.50 |
| | $ | 1.76 |
| | $ | 1.56 |
| Basic earnings per share | | $ | 11.80 | | | $ | 8.36 | | | $ | 2.50 | |
| | | | | | | | | | | | |
Diluted earnings per share | | $ | 1.49 |
| | $ | 1.74 |
| | $ | 1.54 |
| Diluted earnings per share | | $ | 11.64 | | | $ | 8.25 | | | $ | 2.47 | |
| | | | | | | | | | | | |
Dividends per share | | $ | 8.400 |
| | $ | 0.375 |
| | $ | 0.300 |
| Dividends per share | | $ | 1.00 | | | $ | 0.52 | | | $ | 0.40 | |
See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 30, 2017,31, 2022, December 31, 2016,25, 2021, and December 26, 20152020
|
| | | | | | | | | | | | |
(In thousands) | | 2017 | | 2016 | | 2015 |
| | | | | | |
Consolidated net income | | $ | 87,011 |
| | $ | 99,754 |
| | $ | 88,407 |
|
| | | | | | |
Other comprehensive income (loss), net of tax: | | |
| | |
| | |
|
Foreign currency translation | | 13,174 |
| | (27,767 | ) | | (19,108 | ) |
Net change with respect to derivative instruments and hedging activities, net of tax of $(541), $(917), and $575 | | 1,147 |
| | 1,709 |
| | (1,056 | ) |
Net change in pension and postretirement obligation adjustments, net of tax of $(1,071), $(2,606), and $(3,221) | | 2,436 |
| | 5,383 |
| | 6,735 |
|
Attributable to unconsolidated affiliates, net of tax of $(505) and $(3,375) | | 895 |
| | 5,975 |
| | — |
|
Other, net | | (380 | ) | | 159 |
| | (49 | ) |
| | | | | | |
Total other comprehensive income (loss), net | | 17,272 |
| | (14,541 | ) | | (13,478 | ) |
| | | | | | |
Consolidated comprehensive income | | 104,283 |
| | 85,213 |
| | 74,929 |
|
Comprehensive (income) loss attributable to noncontrolling interests | | (2,785 | ) | | 2,548 |
| | 867 |
|
| | | | | | |
Comprehensive income attributable to Mueller Industries, Inc. | | $ | 101,498 |
| | $ | 87,761 |
| | $ | 75,796 |
|
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 | | 2020 |
| | | | | | |
Consolidated net income | | $ | 662,820 | | | $ | 475,124 | | | $ | 143,649 | |
| | | | | | |
Other comprehensive (loss) income, net of tax: | | | | | | |
Foreign currency translation | | (30,382) | | | (6,730) | | | 10,350 | |
Net change with respect to derivative instruments and hedging activities, net of tax of $(200), $47, and $(146) | | 683 | | | (181) | | | 508 | |
Net change in pension and postretirement obligation adjustments, net of tax of $(4,381), $(1,379), and $(1,560) | | 12,722 | | | 5,703 | | | 4,652 | |
Attributable to unconsolidated affiliates, net of tax of $(784), $(284), and $38 | | 2,702 | | | 978 | | | (132) | |
| | | | | | |
| | | | | | |
Total other comprehensive (loss) income, net | | (14,275) | | | (230) | | | 15,378 | |
| | | | | | |
Consolidated comprehensive income | | 648,545 | | | 474,894 | | | 159,027 | |
Comprehensive income attributable to noncontrolling interests | | (1,057) | | | (4,838) | | | (5,647) | |
| | | | | | |
Comprehensive income attributable to Mueller Industries, Inc. | | $ | 647,488 | | | $ | 470,056 | | | $ | 153,380 | |
See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 30, 201731, 2022 and December 31, 201625, 2021
| | (In thousands, except share data) | | 2017 | | 2016 | (In thousands, except share data) | | 2022 | | 2021 |
Assets | | | | | Assets | | | | |
Current assets: | | | | | Current assets: | | | | |
Cash and cash equivalents | | $ | 120,269 |
| | $ | 351,317 |
| Cash and cash equivalents | | $ | 461,018 | | | $ | 87,924 | |
Accounts receivable, less allowance for doubtful accounts of $980 in 2017 and $637 in 2016 | | 244,795 |
| | 256,291 |
| |
Short-term investments | | Short-term investments | | 217,863 | | | — | |
Accounts receivable, less allowance for doubtful accounts of $2,687 in 2022 and $2,590 in 2021 | | Accounts receivable, less allowance for doubtful accounts of $2,687 in 2022 and $2,590 in 2021 | | 380,352 | | | 471,859 | |
Inventories | | 327,901 |
| | 242,013 |
| Inventories | | 448,919 | | | 430,244 | |
Other current assets | | 46,150 |
| | 44,702 |
| Other current assets | | 26,501 | | | 28,976 | |
| | | | | | | | |
Total current assets | | 739,115 |
| | 894,323 |
| Total current assets | | 1,534,653 | | | 1,019,003 | |
| | | | | |
Property, plant, and equipment, net | | 304,321 |
| | 295,231 |
| Property, plant, and equipment, net | | 379,950 | | | 385,562 | |
Operating lease right-of-use assets | | Operating lease right-of-use assets | | 22,892 | | | 23,510 | |
Goodwill, net | | 130,293 |
| | 123,993 |
| Goodwill, net | | 157,588 | | | 171,330 | |
Intangible assets, net | | 42,008 |
| | 36,168 |
| Intangible assets, net | | 54,785 | | | 61,714 | |
Investment in unconsolidated affiliates | | 76,434 |
| | 77,110 |
| Investment in unconsolidated affiliates | | 72,364 | | | 61,133 | |
Other noncurrent assets | | 28,002 |
| | 20,651 |
| Other noncurrent assets | | 20,167 | | | 6,684 | |
| | | | | | | | |
Total Assets | | $ | 1,320,173 |
| | $ | 1,447,476 |
| Total Assets | | $ | 2,242,399 | | | $ | 1,728,936 | |
| | | | | | | | |
Liabilities | | | | | Liabilities | | | | |
Current liabilities: | | | | | Current liabilities: | | | | |
Current portion of debt | | $ | 16,480 |
| | $ | 13,655 |
| Current portion of debt | | $ | 811 | | | $ | 811 | |
Accounts payable | | 102,503 |
| | 103,175 |
| Accounts payable | | 128,000 | | | 180,793 | |
Accrued wages and other employee costs | | 33,546 |
| | 35,121 |
| Accrued wages and other employee costs | | 61,915 | | | 49,629 | |
Current portion of operating lease liabilities | | Current portion of operating lease liabilities | | 4,942 | | | 6,015 | |
Other current liabilities | | 89,723 |
| | 67,041 |
| Other current liabilities | | 152,627 | | | 145,191 | |
| | | | | | | | |
Total current liabilities | | 242,252 |
| | 218,992 |
| Total current liabilities | | 348,295 | | | 382,439 | |
| | | | | |
Long-term debt, less current portion | | 448,592 |
| | 213,709 |
| Long-term debt, less current portion | | 1,218 | | | 1,064 | |
Pension liabilities | | 11,606 |
| | 14,890 |
| Pension liabilities | | 4,078 | | | 5,572 | |
Postretirement benefits other than pensions | | 17,107 |
| | 16,383 |
| Postretirement benefits other than pensions | | 8,977 | | | 11,961 | |
Environmental reserves | | 23,699 |
| | 21,208 |
| Environmental reserves | | 16,380 | | | 17,678 | |
Deferred income taxes | | 19,403 |
| | 19,573 |
| Deferred income taxes | | 16,258 | | | 14,347 | |
Noncurrent operating lease liabilities | | Noncurrent operating lease liabilities | | 16,880 | | | 17,099 | |
Other noncurrent liabilities | | 21,486 |
| | 6,284 |
| Other noncurrent liabilities | | 16,349 | | | 21,813 | |
| | | | | | | | |
Total liabilities | | 784,145 |
| | 511,039 |
| Total liabilities | | 428,435 | | | 471,973 | |
| | | | | | | | |
Equity | | |
| | |
| Equity | | | | |
Mueller Industries, Inc. stockholders' equity: | | |
| | |
| Mueller Industries, Inc. stockholders' equity: | | | | |
Preferred stock - $1.00 par value; shares authorized 5,000,000; none outstanding | | — |
| | — |
| Preferred stock - $1.00 par value; shares authorized 5,000,000; none outstanding | | — | | | — | |
Common stock - $.01 par value; shares authorized 100,000,000; issued 80,183,004; outstanding 57,809,509 in 2017 and 57,395,209 in 2016 | | 802 |
| | 802 |
| |
Common stock - $.01 par value; shares authorized 100,000,000; issued 80,183,004; outstanding 57,001,617 in 2022 and 57,295,961 in 2021 | | Common stock - $.01 par value; shares authorized 100,000,000; issued 80,183,004; outstanding 57,001,617 in 2022 and 57,295,961 in 2021 | | 802 | | | 802 | |
Additional paid-in capital | | 274,585 |
| | 273,345 |
| Additional paid-in capital | | 297,270 | | | 286,208 | |
Retained earnings | | 743,503 |
| | 1,141,831 |
| Retained earnings | | 2,059,796 | | | 1,458,489 | |
Accumulated other comprehensive loss | | (51,056 | ) | | (66,956 | ) | Accumulated other comprehensive loss | | (64,175) | | | (53,347) | |
Treasury common stock, at cost | | (445,723 | ) | | (450,338 | ) | Treasury common stock, at cost | | (502,779) | | | (470,034) | |
| | | | | | | | |
Total Mueller Industries, Inc. stockholders' equity | | 522,111 |
| | 898,684 |
| Total Mueller Industries, Inc. stockholders' equity | | 1,790,914 | | | 1,222,118 | |
Noncontrolling interests | | 13,917 |
| | 37,753 |
| Noncontrolling interests | | 23,050 | | | 34,845 | |
| | | | | | | | |
Total equity | | 536,028 |
| | 936,437 |
| Total equity | | 1,813,964 | | | 1,256,963 | |
| | | | | | | | |
Commitments and contingencies | | — |
| | — |
| Commitments and contingencies | | — | | | — | |
| | | | | | | | |
Total Liabilities and Equity | | $ | 1,320,173 |
| | $ | 1,447,476 |
| Total Liabilities and Equity | | $ | 2,242,399 | | | $ | 1,728,936 | |
See accompanying notes to consolidated financial statements.
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 30, 2017,31, 2022, December 31, 2016,25, 2021, and December 26, 20152020
|
| | | | | | | | | | | | |
(In thousands) | | 2017 | | 2016 | | 2015 |
| | | | | | |
Operating activities: | | | | | | |
Consolidated net income | | $ | 87,011 |
| | $ | 99,754 |
| | $ | 88,407 |
|
Reconciliation of net income to net cash provided by operating activities: | | |
| | |
| | |
|
Depreciation | | 30,800 |
| | 30,827 |
| | 30,556 |
|
Amortization of intangibles | | 3,144 |
| | 4,306 |
| | 4,052 |
|
Amortization of debt issuance costs | | 303 |
| | 569 |
| | 432 |
|
Loss (income) from unconsolidated affiliates | | 2,077 |
| | (1,861 | ) | | — |
|
Insurance proceeds - noncapital related | | 500 |
| | — |
| | — |
|
Stock-based compensation expense | | 7,450 |
| | 6,387 |
| | 6,244 |
|
Gain on sale of businesses | | (1,491 | ) | | — |
| | (15,376 | ) |
(Gain) loss on disposal of assets | | (624 | ) | | (651 | ) | | 561 |
|
Impairment charges | | 1,466 |
| | 6,778 |
| | — |
|
Income tax benefit from exercise of stock options | | — |
| | — |
| | (972 | ) |
Deferred income tax (benefit) expense | | (3,160 | ) | | 6,998 |
| | (15,818 | ) |
Recovery of doubtful accounts receivable | | — |
| | (50 | ) | | (130 | ) |
Changes in assets and liabilities, net of businesses acquired and sold: | | |
| | |
| | |
|
Receivables | | (1,779 | ) | | (16,502 | ) | | 51,660 |
|
Inventories | | (86,286 | ) | | 6,662 |
| | 41,086 |
|
Other assets | | (5,325 | ) | | 5,808 |
| | 12,449 |
|
Current liabilities | | 10,678 |
| | 5,646 |
| | (45,585 | ) |
Other liabilities | | 64 |
| | 1,518 |
| | 436 |
|
Other, net | | (833 | ) | | 1,588 |
| | 1,607 |
|
| | | | | | |
Net cash provided by operating activities | | 43,995 |
| | 157,777 |
| | 159,609 |
|
| | | | | | |
Investing activities: | | |
| | |
| | |
|
Proceeds from sale of assets, net of cash transferred | | 31,564 |
| | 10,304 |
| | 5,538 |
|
Acquisition of businesses, net of cash acquired | | (18,396 | ) | | (20,533 | ) | | (105,944 | ) |
Capital expenditures | | (46,131 | ) | | (37,497 | ) | | (28,834 | ) |
Investment in unconsolidated affiliates | | (3,317 | ) | | — |
| | (65,900 | ) |
Net withdrawals from (deposits to) restricted cash balances | | 2,858 |
| | (5,331 | ) | | 4,333 |
|
| | | | | | |
Net cash used in investing activities | | (33,422 | ) | | (53,057 | ) | | (190,807 | ) |
| | | | | | |
Financing activities: | | |
| | |
| | |
|
Dividends paid to stockholders of Mueller Industries, Inc. | | (196,944 | ) | | (21,224 | ) | | (16,903 | ) |
Dividends paid to noncontrolling interests | | (2,909 | ) | | (3,765 | ) | | — |
|
Issuance of long-term debt | | 71,475 |
| | 3,500 |
| | — |
|
Repayments of long-term debt | | (111,224 | ) | | (1,074 | ) | | (1,000 | ) |
(Repayment) issuance of debt by consolidated joint ventures, net | | (3,369 | ) | | 2,265 |
| | (23,567 | ) |
Net cash used to settle stock-based awards | | (1,595 | ) | | (1,306 | ) | | (760 | ) |
Income tax benefit from exercise of stock options | | — |
| | — |
| | 972 |
|
Debt issuance costs | | — |
| | (957 | ) | | — |
|
| | | | | | |
Net cash used in financing activities | | (244,566 | ) | | (22,561 | ) | | (41,258 | ) |
| | | | | | |
Effect of exchange rate changes on cash | | 2,945 |
| | (5,686 | ) | | (4,834 | ) |
| | | | | | |
(Decrease) increase in cash and cash equivalents | | (231,048 | ) | | 76,473 |
| | (77,290 | ) |
Cash and cash equivalents at the beginning of the year | | 351,317 |
| | 274,844 |
| | 352,134 |
|
| | | | | | |
Cash and cash equivalents at the end of the year | | $ | 120,269 |
| | $ | 351,317 |
| | $ | 274,844 |
|
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 | | 2020 |
| | | | | | |
Operating activities: | | | | | | |
Consolidated net income | | $ | 662,820 | | | $ | 475,124 | | | $ | 143,649 | |
Reconciliation of consolidated net income to net cash provided by operating activities: | | | | | | |
Depreciation | | 38,157 | | | 39,120 | | | 38,715 | |
Amortization of intangibles | | 5,574 | | | 6,270 | | | 6,128 | |
Amortization of debt issuance costs | | 357 | | | 265 | | | 319 | |
(Income) loss from unconsolidated affiliates | | (10,111) | | | 157 | | | 10,219 | |
Insurance proceeds - noncapital related | | 1,646 | | | — | | | — | |
Redemption premium | | — | | | 5,674 | | | — | |
| | | | | | |
| | | | | | |
Stock-based compensation expense | | 17,801 | | | 9,822 | | | 8,570 | |
Provision for doubtful accounts receivable | | 323 | | | 1,216 | | | 1,208 | |
Non-cash pension plan termination expense | | — | | | — | | | 11,642 | |
(Gain) loss on disposals of assets | | (6,373) | | | (769) | | | 132 | |
Gain on sale of businesses | | — | | | (57,760) | | | — | |
Impairment charges | | — | | | 2,829 | | | 3,771 | |
Deferred income tax (benefit) expense | | (3,880) | | | 7,413 | | | (4,046) | |
| | | | | | |
Changes in assets and liabilities, net of effects of businesses acquired and sold: | | | | | | |
Receivables | | 82,713 | | | (124,708) | | | (76,404) | |
Inventories | | (24,189) | | | (119,514) | | | 5,207 | |
Other assets | | (8,971) | | | 919 | | | 20,609 | |
Current liabilities | | (26,633) | | | 73,755 | | | 74,097 | |
Other liabilities | | (7,564) | | | (5,467) | | | (1,142) | |
Other, net | | 2,273 | | | (2,645) | | | 2,399 | |
| | | | | | |
Net cash provided by operating activities | | 723,943 | | | 311,701 | | | 245,073 | |
See accompanying notes to consolidated financial statements. Refer to Note 11 for discussion of significant noncash financing activities.
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Years Ended December 31, 2022, December 25, 2021, and December 26, 2020
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 | | 2020 |
| | | | | | |
Investing activities: | | | | | | |
Proceeds from sale of assets, net of cash transferred | | 7,850 | | | 2,302 | | | 181 | |
Purchase of short-term investments | | (217,863) | | | — | | | — | |
Acquisition of businesses, net of cash acquired | | — | | | (30,206) | | | (72,648) | |
Proceeds from sale of business, net of cash sold | | — | | | 81,884 | | | — | |
Capital expenditures | | (37,639) | | | (31,833) | | | (43,885) | |
Payment received for (issuance of) notes receivable | | — | | | 8,539 | | | (9,270) | |
Insurance proceeds - capital related | | 3,354 | | | — | | | — | |
Dividends from unconsolidated affiliates | | 2,295 | | | — | | | — | |
Investments in unconsolidated affiliates | | — | | | (1,613) | | | — | |
| | | | | | |
Net cash (used in) provided by investing activities | | (242,003) | | | 29,073 | | | (125,622) | |
| | | | | | |
Financing activities: | | | | | | |
Dividends paid to stockholders of Mueller Industries, Inc. | | (55,787) | | | (29,137) | | | (22,341) | |
Dividends paid to noncontrolling interests | | (7,248) | | | (9,722) | | | — | |
Issuance of long-term debt | | — | | | 595,000 | | | 190,038 | |
Repayments of long-term debt | | (204) | | | (920,610) | | | (246,898) | |
Issuance (repayment) of debt by consolidated joint ventures, net | | 67 | | | (5,113) | | | (259) | |
Repurchase of common stock | | (38,054) | | | (4,864) | | | (5,574) | |
Payment of contingent consideration | | — | | | (1,250) | | | (7,000) | |
Net cash (used) received to settle stock-based awards | | (1,429) | | | 85 | | | (230) | |
Debt issuance costs | | — | | | (1,111) | | | — | |
| | | | | | |
Net cash used in financing activities | | (102,655) | | | (376,722) | | | (92,264) | |
| | | | | | |
Effect of exchange rate changes on cash | | (4,365) | | | (1,052) | | | 2,147 | |
| | | | | | |
Increase (decrease) in cash, cash equivalents, and restricted cash | | 374,920 | | | (37,000) | | | 29,334 | |
Cash, cash equivalents, and restricted cash at the beginning of the year | | 90,376 | | | 127,376 | | | 98,042 | |
| | | | | | |
Cash, cash equivalents, and restricted cash at the end of the year | | $ | 465,296 | | | $ | 90,376 | | | $ | 127,376 | |
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 30, 2017,31, 2022, December 31, 2016,25, 2021, and December 26, 20152020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
(In thousands) | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
Common stock: | | | | | | | | | | | | |
Balance at beginning of year | | 80,183 | | | $ | 802 | | | 80,183 | | | $ | 802 | | | 80,183 | | | $ | 802 | |
| | | | | | | | | | | | |
Balance at end of year | | 80,183 | | | $ | 802 | | | 80,183 | | | $ | 802 | | | 80,183 | | | $ | 802 | |
| | | | | | | | | | | | |
Additional paid-in capital: | | | | | | | | | | | | |
Balance at beginning of year | | | | $ | 286,208 | | | | | $ | 280,051 | | | | | $ | 278,609 | |
Acquisition (issuance) of shares under incentive stock option plans | | | | 830 | | | | | 720 | | | | | (745) | |
Stock-based compensation expense | | | | 17,801 | | | | | 9,822 | | | | | 8,570 | |
| | | | | | | | | | | | |
Issuance of restricted stock | | | | (7,569) | | | | | (4,385) | | | | | (6,383) | |
| | | | | | | | | | | | |
Balance at end of year | | | | $ | 297,270 | | | | | $ | 286,208 | | | | | $ | 280,051 | |
| | | | | | | | | | | | |
Retained earnings: | | | | | | | | | | | | |
Balance at beginning of year | | | | $ | 1,458,489 | | | | | $ | 1,019,694 | | | | | $ | 903,070 | |
Net income attributable to Mueller Industries, Inc. | | | | 658,316 | | | | | 468,520 | | | | | 139,493 | |
Dividends paid or payable to stockholders of Mueller Industries, Inc. | | | | (57,009) | | | | | (29,725) | | | | | (22,869) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Balance at end of year | | | | $ | 2,059,796 | | | | | $ | 1,458,489 | | | | | $ | 1,019,694 | |
| | | | | | | | | | | | |
Accumulated other comprehensive loss: | | | | | | | | | | | | |
Balance at beginning of year | | | | $ | (53,347) | | | | | $ | (54,883) | | | | | $ | (68,770) | |
Total other comprehensive (loss) income attributable to Mueller Industries, Inc. | | | | (10,828) | | | | | 1,536 | | | | | 13,887 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Balance at end of year | | | | $ | (64,175) | | | | | $ | (53,347) | | | | | $ | (54,883) | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
(In thousands) | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
Common stock: | | | | | | | | | | | | |
Balance at beginning of year | | 80,183 |
| | $ | 802 |
| | 80,183 |
| | $ | 802 |
| | 80,183 |
| | $ | 802 |
|
| | | | | | | | | | | | |
Balance at end of year | | 80,183 |
| | $ | 802 |
| | 80,183 |
| | $ | 802 |
| | 80,183 |
| | $ | 802 |
|
| | | | | | | | | | | | |
Additional paid-in capital: | | |
| | |
| | |
| | |
| | |
| | |
|
Balance at beginning of year | | |
| | $ | 273,345 |
| | |
| | $ | 271,158 |
| | |
| | $ | 268,575 |
|
Issuance of shares under incentive stock option plans | | |
| | (2,118 | ) | | |
| | (419 | ) | | |
| | (1,074 | ) |
Stock-based compensation expense | | |
| | 7,450 |
| | |
| | 6,387 |
| | |
| | 6,244 |
|
Income tax benefit from exercise of stock options | | |
| | — |
| | |
| | — |
| | |
| | 972 |
|
Issuance of restricted stock | | |
| | (4,092 | ) | | |
| | (3,781 | ) | | |
| | (3,559 | ) |
| | | | | | | | | | | | |
Balance at end of year | | |
| | $ | 274,585 |
| | |
| | $ | 273,345 |
| | |
| | $ | 271,158 |
|
| | | | | | | | | | | | |
Retained earnings: | | |
| | |
| | |
| | |
| | |
| | |
|
Balance at beginning of year | | |
| | $ | 1,141,831 |
| | |
| | $ | 1,063,543 |
| | |
| | $ | 992,798 |
|
Net income attributable to Mueller Industries, Inc. | | |
| | 85,598 |
| | |
| | 99,727 |
| | |
| | 87,864 |
|
Dividends paid or payable to stockholders of Mueller Industries, Inc. | | |
| | (483,926 | ) | | |
| | (21,439 | ) | | |
| | (17,119 | ) |
| | | | | | | | | | | | |
Balance at end of year | | |
| | $ | 743,503 |
| | |
| | $ | 1,141,831 |
| | |
| | $ | 1,063,543 |
|
| | | | | | | | | | | | |
Accumulated other comprehensive loss | | |
| | |
| | |
| | |
| | |
| | |
|
Balance at beginning of year | | |
| | $ | (66,956 | ) | | |
| | $ | (54,990 | ) | | |
| | $ | (42,923 | ) |
Total other comprehensive income (loss) attributable to Mueller Industries, Inc. | | |
| | 15,900 |
| | |
| | (11,966 | ) | | |
| | (12,067 | ) |
| | | | | | | | | | | | |
Balance at end of year | | |
| | $ | (51,056 | ) | | |
| | $ | (66,956 | ) | | |
| | $ | (54,990 | ) |
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(continued)
Years Ended December 30, 2017,31, 2022, December 31, 2016,25, 2021, and December 26, 20152020
| | | | 2017 | | 2016 | | 2015 | | | 2022 | | 2021 | | 2020 |
(In thousands) | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | (In thousands) | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
Treasury stock: | | | | | | | | | | | | | Treasury stock: | | | | | | | | | | | | |
Balance at beginning of year | | 22,788 |
| | $ | (450,338 | ) | | 23,024 |
| | $ | (453,228 | ) | | 23,282 |
| | $ | (457,102 | ) | Balance at beginning of year | | 22,887 | | | $ | (470,034) | | | 23,096 | | | $ | (468,919) | | | 23,234 | | | $ | (470,243) | |
Issuance of shares under incentive stock option plans | | (395 | ) | | 7,828 |
| | (178 | ) | | 3,499 |
| | (149 | ) | | 2,930 |
| Issuance of shares under incentive stock option plans | | (77) | | | (2,260) | | | (88) | | | (636) | | | (71) | | | 515 | |
Repurchase of common stock | | 188 |
| | (7,305 | ) | | 133 |
| | (4,389 | ) | | 84 |
| | (2,840 | ) | Repurchase of common stock | | 719 | | | (38,054) | | | 97 | | | (4,864) | | | 248 | | | (5,574) | |
Issuance of restricted stock | | (208 | ) | | 4,092 |
| | (191 | ) | | 3,780 |
| | (193 | ) | | 3,784 |
| Issuance of restricted stock | | (348) | | | 7,569 | | | (218) | | | 4,385 | | | (315) | | | 6,383 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance at end of year | | 22,373 |
| | $ | (445,723 | ) | | 22,788 |
| | $ | (450,338 | ) | | 23,024 |
| | $ | (453,228 | ) | Balance at end of year | | 23,181 | | | $ | (502,779) | | | 22,887 | | | $ | (470,034) | | | 23,096 | | | $ | (468,919) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Noncontrolling interests: | | |
| | |
| | |
| | |
| | |
| | |
| Noncontrolling interests: | | | | | | | | | | | | |
Balance at beginning of year | | |
| | $ | 37,753 |
| | |
| | $ | 32,417 |
| | |
| | $ | 33,284 |
| Balance at beginning of year | | | | $ | 34,845 | | | | | $ | 24,315 | | | | | $ | 18,668 | |
Sale of Mueller-Xingrong | | | | (23,712 | ) | | | | — |
| | | | — |
| |
Purchase of Jungwoo-Mueller | | |
| | — |
| | |
| | 11,649 |
| | |
| | — |
| |
Purchase of Mueller Middle East | | Purchase of Mueller Middle East | | (5,604) | | | 15,414 | | | — | |
| Dividends paid to noncontrolling interests | | |
| | (2,909 | ) | | |
| | (3,765 | ) | | |
| | — |
| Dividends paid to noncontrolling interests | | | | (7,248) | | | | | (9,722) | | | | | — | |
Net income attributable to noncontrolling interests | | |
| | 1,413 |
| | |
| | 27 |
| | |
| | 543 |
| Net income attributable to noncontrolling interests | | | | 4,504 | | | | | 6,604 | | | | | 4,156 | |
Foreign currency translation | | |
| | 1,372 |
| | |
| | (2,575 | ) | | |
| | (1,410 | ) | Foreign currency translation | | | | (3,447) | | | | | (1,766) | | | | | 1,491 | |
| | | | | | | | | | | | | | | | | | |
Balance at end of year | | |
| | $ | 13,917 |
| | |
| | $ | 37,753 |
| | |
| | $ | 32,417 |
| Balance at end of year | | | | $ | 23,050 | | | | | $ | 34,845 | | | | | $ | 24,315 | |
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Note 1 – Summary of Significant Accounting Policies
Nature of Operations
The principal business of Mueller Industries, Inc. is the manufacture and sale of copper tube and fittings; line sets; brassPEX plastic tube and copper alloyfittings; steel nipples; brass rod, bar, and shapes; aluminum and brass forgings; aluminum impact extrusions; plastic fittings andcompressed gas valves; refrigeration valves and fittings; fabricated tubular products;pressure vessels; coaxial heat exchangers; and steel nipples.insulated flexible duct systems. The Company also resells imported brass and plastic plumbing valves, plastic fittings, malleable iron fittings, faucets, and plumbing specialty products. The Company markets its products to the HVAC, plumbing, refrigeration, hardware, and other industries. Mueller’s operations are located throughout the United States and in Canada, Mexico, Great Britain, South Korea, the Middle East, and China.
Fiscal Years
The Company’s fiscal year ends on the last Saturday of December and consisted of 52 weeks in 2017, 53 weeks in 2016,2022 and 52 weeks in 2015.2021 and 2020. These dates were December 30, 2017,31, 2022, December 31, 2016,25, 2021, and December 26, 2015.2020.
Basis of Presentation
The Consolidated Financial Statements include the accounts of Mueller Industries, Inc. and its majority-owned subsidiaries. The noncontrolling interests represent separatea private ownership interestsinterest of 40 percent of Jungwoo Metal Ind. Co., LTD (Jungwoo-Mueller) and 49.545 percent of Jiangsu Mueller-Xingrong Copper Industries Limited (Mueller-Xingrong), which the Company sold during 2017. See “Note 2 – Acquisitions and Dispositions” for additional information.Mueller Middle East BSC (Mueller Middle East).
Revenue Recognition
RevenueGiven the nature of the Company’s business and product offerings, sales transactions with customers are generally comprised of a single performance obligation that involves delivery of the products identified in the contracts with customers. Performance obligations are generally satisfied at the point in time of shipment and payment is recognized when title and risk of loss pass to the customer, provided collectiongenerally due within 60 days. Variable consideration is determined to be probable and no significant obligations remain for the Company. Estimatesestimated for future rebates on certain product lines and product returns are recognizedreturns. The Company records variable consideration as an adjustment to the transaction price in the period in whichit is incurred. Since variable consideration is settled within a short period of time, the revenuetime value of money is recorded.not significant. The cost of shipping product to customers is expensed as incurred as a component of cost of goods sold.
The Company’s Domestic Piping Systems Group engages in certain transactions where it acts as an agent. Revenue from these transactions is recorded on a net basis.
Acquisitions
Accounting for acquisitions requires the Company to recognize separately from goodwill the assets acquired and liabilities assumed at their acquisition date fair values. Goodwill is measured as the excess of the purchase price over the net amount allocated to the identifiable assets acquired and liabilities assumed. While management uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. The operating results generated by the acquired businesses are included in the Consolidated Statements of Income from their respective dates of acquisition. Acquisition related costs are expensed as incurred. See “Note 2 – Acquisitions and& Dispositions” for additional information.
Cash Equivalents and Restricted Cash
Temporary investments with original maturities of three months or less are considered to be cash equivalents. These investments are stated at cost. At December 30, 201731, 2022 and December 31, 2016,25, 2021, temporary investments consisted of money market mutual funds, commercial paper, bank repurchase agreements, and U.S. and foreign government securities totaling $0.6approximately $329.4 million and $40.9$1.4 million, respectively. Included
Amounts included in other current assets is restricted cash of $6.2 million and $9.0 million at December 30, 2017 and December 31, 2016, respectively. These amounts representrelate to required deposits intoin brokerage accounts that facilitate the Company’s hedging activities and in 2016 included deposits that secured certain short-term notes issued under Mueller-Xingrong’s credit facility andas well as imprest funds received in conjunction withfor the New Markets Tax Credit transactions; seeCompany’s self-insured workers’ compensation program. See “Note 104 – New Markets Tax Credit TransactionCash, Cash Equivalents, and Restricted Cash” for additional information.
Short-Term Investments
The fair value of short-term investments at December 31, 2022, consisting of U.S. treasury bills with maturities exceeding three months at the time of purchase, approximates the carrying value on that date. These treasury bills are stated at fair value and are classified as trading securities. The fair value of treasury bills is classified as level 1 within the fair value hierarchy. This classification is defined as a fair value determined using observable inputs that reflect quoted prices in active markets for identical assets.
Allowance for Doubtful Accounts
The Company routinely grants credit to many of its customers without collateral. The risk of credit loss in trade receivables is substantially mitigated by the credit evaluation process. The Company provides an allowance for receivables that may not be fully collected. In circumstances where the Company is aware of a customer’s inability to meet their financial obligations (e.g., bankruptcy filings or substantial credit rating downgrades), it records an allowance for doubtful accounts against amounts due to reduce the net recognized receivable to the amount it believes
most likely will be collected. For all other customers, the Company recognizes an allowance for doubtful accounts based on its historical collection experience.experience and the impact of current economic conditions. If circumstances change (e.g., greater than expected defaults or an unexpected material change in a major customer’s ability to meet their financial obligations), the Company could change its estimate of the recoverability of amounts due by a material amount. Historically, credit losses have been within management’s expectations. The balance for uncollectible accounts was $2.7 million and $2.6 million as of December 31, 2022 and December 25, 2021, respectively.
Inventories
The Company’s inventories are valued at the lower-of-cost-or-market. The material component of its U.S. copper tube and copper fittings inventories is valued on a LIFO basis and the non-material components of U.S. copper tube and copper fittings inventories are valued on a FIFO basis. The material component of its U.K. and Canadian copper tube inventories are valued on a FIFO basis. The material component of its brass rod and forgings inventories are valued on a FIFO basis. Certain inventories purchased for resale are valued on an average cost basis. Elements of cost in finished goods inventory in addition to the cost of material include depreciation, amortization, utilities, maintenance, production wages, and transportation costs.
The market price of copper cathode and scrap is subject to volatility. During periods when open market prices decline below net book value, the Company may need to provide an allowance to reduce the carrying value of its inventory. In addition, certain items in inventory may be considered obsolete and, as such, the Company may establish an allowance to reduce the carrying value of those items to their net realizable value. Changes in these estimates related to the value of inventory, if any, may result in a materially adverse impact on the Company’s reported financial position or results of operations. The Company recognizes the impact of any changes in estimates, assumptions, and judgments in income in the period in which it is determined. See “Note 45 – Inventories” for additional information.
Leases
The Company leases certain manufacturing facilities, distribution centers, office space, and equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet; expense for these leases is recognized on a straight line-basis over the term of the lease. Most of the Company’s leases include one or more options to renew up to five years and have remaining terms of one to 15 years. These options are not included in the Company’s valuation of the right-of-use assets as the Company is not reasonably certain to exercise the options.
The Company has certain vehicle leases that are financing; however, these leases are deemed immaterial for disclosure. See “Note 8 – Leases” for additional information.
Property, Plant, and Equipment
Property, plant, and equipment is stated at cost less accumulated depreciation. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance, and repairs are charged to expense as incurred. Depreciation of buildings, machinery, and equipment is provided on the straight-line method over the estimated useful lives ranging from 20 to 40 years for buildings and five to 20 years for machinery and equipment. Leasehold improvements are amortized over the lesser of their useful life or the remaining lease term.
The Company continually evaluates these assets to determine whether events or changes in circumstances have occurred that may warrant revision of the estimated useful life or whether the remaining balance should be evaluated for possible impairment. See “Note 79 – Property, Plant, and Equipment, Net” for additional information.
Goodwill
Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of businesses acquired. Several factors give rise to goodwill in business acquisitions, such as the expected benefit from synergies of the combination and the existing workforce of the acquired business. Goodwill is evaluated annually for possible impairment as of the first day of the fourth quarter unless circumstances indicate the need to accelerate the timing of the evaluation. In the evaluation of goodwill impairment, management performs a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive, management compares the fair value of a reporting unit with its carrying amount and will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
Fair value for the Company’s reporting units is determined using a combination of the income and market approaches (level 3 within the fair value hierarchy), incorporating market participant considerations and management’s assumptions on revenue growth rates, operating margins, discount rates and expected capital expenditures. The market approach measures the fair value of a business through the analysis of publicly traded companies or recent sales of similar businesses. The income approach uses a discounted cash flow model to estimate the fair value of reporting units based on expected cash flows (adjusted for capital investment required to support operations) and a terminal value. This cash flow stream is discounted to its present value to arrive at a fair value for each reporting unit. Future earnings are estimated using the Company’s most recent annual projections, applying a growth rate to future periods. Those projections are directly impacted by the condition of the markets in which the Company’s businesses participate. The discount rate selected for the reporting units is generally based on rates of return available for comparable companies at the date of valuation. Fair value determinations may include both internal and third-party valuations. See “Note 810 – Goodwill and Other Intangible Assets” for additional information.
InvestmentInvestments in Unconsolidated Affiliates
Tecumseh
The Company owns a 50 percent interest in Tecumseh Products Holding LLC (Joint Venture), an unconsolidated affiliate that acquired Tecumseh Products Company (Tecumseh). The Company also owns a 50 percent interest in a second unconsolidated affiliate and an entity that provides financing to Tecumseh. These investments areThis investment is recorded using the equity method of accounting, as the Company can exercise significant influence but does not own a majority equity interest or otherwise control the respective entities. entity. Under the equity method of accounting, investments arethis investment is stated at initial cost and areis adjusted for subsequent additional investments and the Company’s proportionate share of earnings or losses and distributions.
The Company records its proportionate share of the investee’s net income or loss, net of foreign taxes, one quarter in arrears as income (loss) from unconsolidated affiliates, net of foreign tax, in the Consolidated Statements of Income. The Company’s proportionate share of the investee’s other comprehensive income (loss), net of income taxes, is recorded in the Consolidated Statements of Comprehensive Income and Consolidated Statements of Changes in Equity. The U.S. tax effect of the Company’s proportionate share of Tecumseh’s income or loss is recorded in income tax expense in the Consolidated Statements of Income. In general, the equity investment in unconsolidated affiliates is equal to the current equity investment less the investees’ net accumulated losses.
Retail Distribution
The Company acquired a 17 percent noncontrolling equity interest in a limited liability company in the retail distribution business by contributing the outstanding common stock of Die-Mold in exchange for the equity method interest. The transaction was recorded as a deconsolidation of a subsidiary and the recognition of an equity method investment at fair value,
as described in “Note 2 - Acquisitions and Dispositions.” This investment is recorded using the equity method of accounting. The Company records its proportionate share of the investees’ net income or loss one month in arrears as income (loss) from unconsolidated affiliates in the Consolidated Statements of Income. The Company’s proportionate share of the investees’ other comprehensive income (loss), net of income taxes, is recorded in the Consolidated Statements of Comprehensive Income and Consolidated Statements of Changes in Equity. In general, the equity investment in the unconsolidated affiliates is equal to the current equity investment plus the investees’ undistributed earnings.
Self-Insurance Accruals
The Company is primarily self-insured for workers’ compensation claims and benefits paid under certain employee health care programs. Accruals are primarily based on estimated undiscounted cost of claims, which includes incurred but not reported claims, and are classified as accrued wages and other employee costs.
Pension and Other Postretirement Benefit Plans
The Company sponsors several qualified and nonqualified pension and other postretirement benefit plans in the U.S. and certain foreign locations. The Company recognizes the overfunded or underfunded status of the plans as an asset or liability in the Consolidated Balance Sheets with changes in the funded status recorded through comprehensive income in the year in which those changes occur. The obligations for these plans are actuarially determined by actuaries and affected by the assumptions, including discount rates, expected long-term return on plan assets for defined benefit pension plans, and certain employee-related factors, such as retirement age and mortality. The Company evaluates its assumptions periodically and makes adjustments as necessary.
The expected return on plan assets is determined using the market value of plan assets. Differences between assumed and actual returns are amortized to the market value of assets on a straight-line basis over the average remaining service period of the plan participants using the corridor approach. The corridor approach defers all actuarial gains and losses resulting from variances between actual results and actuarial assumptions. These unrecognized gains and losses are amortized when the net gains and losses exceed 10 percent of the greater of the market value of the plan assets or the projected benefit obligation. The amount in excess of the corridor is amortized over the average remaining service period of the plan participants. For 2017,2022, the average remaining service period for the pension plans was nine11.5 years.
We determine the discount rate (which is required to be the rate at which the projected benefit obligation could be effectively settled as of the measurement date) with the assistance of actuaries, who calculate the yield available on high quality corporate bonds of a term that reflects the maturity and duration of expected benefit payments. See “Note 12 –Benefit13 – Benefit Plans” for additional information.
Environmental Reserves and Environmental Expenses
The Company recognizes an environmental liability when it is probable the liability exists and the amount is reasonably estimable. The Company estimates the duration and extent of its remediation obligations based upon reports of outside consultants, internal and third party estimates and analyses of cleanup costs and ongoing monitoring costs, communications with regulatory agencies, and changes in environmental law. If the Company were to determine that its estimates of the duration or extent of its environmental obligations were no longer accurate, it would adjust environmental liabilities accordingly in the period that such determination is made. Estimated future expenditures for environmental remediation are not discounted to their present value.
Environmental expenses that relate to ongoing operations are included as a component of cost of goods sold. Environmental expenses related to non-operating properties are presented below operating income in the Consolidated Statements of Income. See “Note 1314 – Commitments and Contingencies” for additional information.
Earnings Per Share
Basic earnings per share is computed based on the weighted average number of common shares outstanding. Diluted earnings per share reflects the increase in weighted average common shares outstanding that would result from the assumed exercise of outstanding stock options and vesting of restricted stock awards calculated using the treasury stock method. Approximately 20
thousand and 190 thousand stock-based awards were excluded from the computation of diluted earnings per share for the years ended December 30, 2017 and December 31, 2016, respectively, because they were antidilutive.
Income Taxes
Deferred income tax assets and liabilities are recognized when differences arise between the treatment of certain items for financial statement and tax purposes. Realization of certain components of deferred tax assets is dependent upon the occurrence of future events. The Company records valuation allowances to reduce its deferred tax assets to the amount it believes is more likely than not to be realized. These valuation allowances can be impacted by changes in tax laws, changes to statutory tax rates, and future taxable income levels and are based on the Company’s judgment, estimates, and assumptions regarding those future events. In the event the Company was to determine that it would not be able to realize all or a portion of the net deferred tax assets in the future, it would increase the valuation allowance through a charge to income tax expense in the period that such determination is made. Conversely, if it was to determine that it would be able to realize its deferred tax assets in the future, in excess of the net carrying amounts, the Company would decrease the recorded valuation allowance through a decrease to income tax expense in the period that such determination is made.
The Company provides for uncertain tax positions and the related interest and penalties, if any, based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. Tax benefits for uncertain tax positions that are recognized in the financial statements are measured as the largest amount of benefit, determined on a cumulative probability basis, that is more likely than not to be realized upon ultimate settlement. To the extent the Company prevails in matters for which a liability for an uncertain tax position is established or is required to pay amounts in excess of the liability, the Company’s effective tax rate in a given financial statement period may be affected.
These estimates are highly subjective and could be affected by changes in business conditions and other factors. Changes in any of these factors could have a material impact on future income tax expense. See “Note 1415 – Income Taxes” for additional information.
Taxes Collected from Customers and Remitted to Governmental Authorities
Taxes assessed by a governmental authority that are directly imposed on a revenue producing transaction between the Company and its customers, primarily value added taxes in foreign jurisdictions, are accounted for on a net (excluded from revenues and costs) basis.
Stock-Based Compensation
The Company has in effect stock incentive plans under which stock-based awards have been granted to certain employees and members of its Board of Directors. Stock-based compensation expense is recognized in the Consolidated Statements of Income as a component of selling, general, and administrative expense based on the grant date fair value of the awards. See “Note 1617 – Stock-Based Compensation” for additional information.
Concentrations of Credit and Market Risk
Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers comprising the Company’s customer base, and their dispersion across different geographic areas and different industries, including HVAC, plumbing, refrigeration, hardware, automotive, OEMs, and others.
The Company minimizes its exposure to base metal price fluctuations through various strategies. Generally, it prices an equivalent amount of copper raw material, under flexible pricing arrangements it maintains with its suppliers, at the time it determines the selling price of finished products to its customers.
Derivative Instruments and Hedging Activities
The Company’s earnings and cash flows are subject to fluctuations due to changes in commodity prices, foreign currency exchange rates, and interest rates. The Company uses derivative instruments such as commodity futures contracts, foreign currency forward contracts, and interest rate swaps to manage these exposures.
All derivatives are recognized in the Consolidated Balance Sheets at their fair value. On the date the derivative contract is entered into, it is either a) designated as a hedge of (i) a forecasted transaction or the variability of cash flow to be paid (cash flow hedge) or (ii) the fair value of a recognized asset or liability (fair value hedge), or b) not designated in a hedge accounting relationship,
even though the derivative contract was executed to mitigate an economic exposure (economic hedge), as the Company does not enter into derivative contracts for trading purposes. Changes in the fair value of a derivative that is qualified, designated, and highly effective as a cash flow hedge are recorded in stockholders’ equity within accumulated other
comprehensive income (AOCI), to the extent effective, until they are reclassified to earnings in the same period or periods during which the hedged transaction affects earnings. Changes in the fair value of a derivative that is qualified, designated, and highly effective as a fair value hedge, along with the gain or loss on the hedged recognized asset or liability that is attributable to the hedged risk, are recorded in current earnings. Changes in the fair value of undesignated derivative instruments executed as economic hedges and the ineffective portion of designated derivatives are reported in current earnings.
The Company documents all relationships between derivative instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as fair value hedges to specific assets and liabilities in the Consolidated Balance Sheets and linking cash flow hedges to specific forecasted transactions or variability of cash flow.
The Company also assesses, both at the hedge’s inception and on an ongoing basis, whether the designated derivative instruments that are used in hedging transactions are highly effective in offsetting changes in cash flow or fair values of hedged items. When a derivative instrument is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable of occurring, hedge accounting is discontinued prospectively in accordance with the derecognition criteria for hedge accounting.
The Company primarily executes derivative contracts with major financial institutions. These counterparties expose the Company to credit risk in the event of non-performance. The amount of such exposure is limited to the fair value of the contract plus the unpaid portion of amounts due to the Company pursuant to terms of the derivative instruments, if any. If a downgrade in the credit rating of these counterparties occurs, management believes that this exposure is mitigated by provisions in the derivative arrangements which allow for the legal right of offset of any amounts due to the Company from the counterparties with any amounts payable to the counterparties by the Company. As a result, management considers the risk of loss from counterparty default to be minimal. See “Note 67 – Derivative Instruments and Hedging Activities” for additional information.
Fair Value of Financial Instruments
The carrying amounts for cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to the short-term maturity of these instruments.
The fair value of long-term debt at December 30, 201731, 2022 approximates the carrying value on that date. The estimated fair values were determined based on quoted market prices and the current rates offered for debt with similar terms and maturities. The fair value of long-term debt is classified as level 2 within the fair value hierarchy. This classification is defined as a fair value determined using market-based inputs other than quoted prices that are observable for the liability, either directly or indirectly.
Foreign Currency Translation
For foreign subsidiaries infor which the functional currency is not the U.S. dollar, balance sheet accounts are translated at exchange rates in effect at the end of the year and income statement accounts are translated at average exchange rates for the year. Translation gains and losses are included in equity as a component of AOCI. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are recognized in selling, general, and administrative expense in the Consolidated Statements of Income. Included in the Consolidated Statements of Income were net transaction gains of $1.0 million in 2022, losses of $0.4$0.6 million in 2017, gains of $0.4 million in 2016,2021, and losses of $1.7$0.5 million in 2015.2020.
Use of and Changes in Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States (U.S. GAAP) requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Areas where the nature of the estimate makes it reasonably possible that actual results could materially differ from amounts estimated include but are not limited to: pension and other postretirement benefit plan obligations, tax liabilities, loss contingencies, litigation claims, environmental reserves, and impairment assessments onof long-lived assets (including goodwill).
Change in Segment Reporting
At the beginning of fiscal year 2016, the Company made changes to its management reporting structure as a result of a change in the way the Chief Executive Officer, who serves as the Chief Operating Decision Maker, manages and evaluates the business, makes key operating decisions, and allocates resources. Previously, the Company had two reportable segments: Plumbing & Refrigeration and OEM. During 2016, the Company realigned its operating segments into three reportable segments: Piping Systems, Industrial Metals, and Climate. Management has recast certain prior year amounts to conform to the current year presentation. See “Note 3 - Segment Information” for additional information.
Recently Adopted Accounting StandardStandards
In January 2017,2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-04, Intangibles – Goodwill2021-01, Reference Rate Reform (Topic 848): An Amendment of the FASB Accounting Standards Codification. The new guidance was issued in response to concerns about structural risks of interbank offered rates, and, Other (Topic 350): Simplifyingparticularly, the Test for Goodwill Impairmentrisk of cessation of the London Interbank Offered Rate (LIBOR). Regulators in numerous jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The Company adopted the ASU during the first quarter of 2022. The adoption of the ASU did not have a material impact on the Company’s Consolidated Financial Statements.
In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements: An Amendment of the FASB Accounting Standards Codification. The ASU eliminates step two fromfacilitates updates to the goodwill impairment testAccounting Standards Codification for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or structure of guidance, and instead requires an entityother minor improvements. The Company adopted the ASU during the first quarter of 2021 using a retrospective approach. The adoption of the ASU did not have a material impact on the Company’s Consolidated Financial Statements.
In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The new guidance addresses accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to perform its annual, or interim, goodwill impairment test by comparingacquire investments. The Company adopted the ASU during the first quarter of 2021 using a prospective approach. The adoption of the ASU did not have a material impact on the Company’s Consolidated Financial Statements.
Recently Issued Accounting Standards
In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The new guidance was issued to clarify existing guidance measuring the fair value of a reporting unit with its carrying amount. An entityan equity security subject to contractual restrictions that prohibit the sale of an equity security and introduce new disclosure requirements for applicable equity securities. The ASU is required to recognize an impairment chargeeffective for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit.fiscal years beginning after December 15, 2023 for public entities. The updated guidance requires a prospective adoption. The guidance is effective for the Company beginning in 2020adoption, and early adoption is permitted. The Company adopted the ASU during the fourth quarter of 2017 and the adoption had no impact on its Consolidated Financial Statements.
Recently Issued Accounting Standards
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The ASU permits entities to reclassify tax effects stranded in AOCI as a result of tax reform to retained earnings. The guidance is effective for the Company in interim and annual periods beginning in 2019. Early adoption is permitted and can be applied retrospectively or in the period of adoption. The Company does not expect the adoption of the standard to have a material impact on its Consolidated Financial Statements.
In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU requires employers that sponsor defined benefit pension and/or other postretirement benefit plans to present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period and other components of net periodic benefits cost separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. The guidance is effective for the Company in interim and annual periods beginning in 2018. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance. The Company does not expect the adoption of the standard to have a material impact on its Consolidated Financial Statements.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The ASU provides guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The updated guidance requires a prospective adoption. Early adoption is permitted. This update will be effective for the Company beginning in 2018. The Company does not expect the provisions of the ASU to have a material impact on its Consolidated Financial Statements.
In December 2016,October 2021, the FASB issued ASU No. 2016-20, Technical Corrections2021-08, Business Combinations (Topic 805): An Amendment of the FASB Accounting Standards Codification. The new guidance was issued to improve accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and Improvements to Topic 606, Revenue from Contracts with Customers. The ASU provides correction or improvementinconsistency related to the guidance previously issued in(i) recognition of an acquired contract liability and (ii) payment terms and their effect on subsequent revenue recognized by the acquirer. The ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under the ASU, an entity will recognize revenue to depict the transfer of promised goods or services to customers at an amount that reflects the consideration that it expects to receive in exchange for the goods or services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This guidance is effective for the Company at thefiscal years beginning of 2018.after December 15, 2022 for public entities. The standard permits the use of either the full retrospective or cumulative transition effect (modified retrospective) method. The ASUupdated guidance requires revenue to be recognized over time (i.e., throughout the production process) rather than at a point in time (generally upon shipment to the customer) if performance does not create an asset with an alternative use to the entityprospective adoption, and the entity has an enforceable right to payment for performance completed to date. The Company has evaluated specific contract terms, primarily within the Industrial Metals and Climate segments, related to the production of customized products and payment rights and determined that there will be no significant changes to the timing of revenue recognition under the ASU. As part of the overall evaluation of the standard, the Company has assessed changes to its accounting policies, practices, and internal controls over financial reporting to support the standard.early adoption is permitted. The Company does not expect the adoption of the standardASU to have a material impact on its Consolidated Financial Statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The ASU requires entities to show the changes in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance will be applied retrospectively and is effective for the Company beginning in 2018. Early adoption is permitted. The Company does not expect the adoption of the standard to have a material impact on its Consolidated Financial Statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The ASU requires companies to account for the income tax effects of intercompany transfers of assets other than inventory when the transfer occurs. Companies will still be required to defer the income tax effects of intercompany inventory transactions in an exception to the income tax accounting guidance. The guidance is effective for the Company beginning in 2018. Early adoption is permitted as of the beginning of an annual period. The Company is still evaluating the effects that the provisions of the ASU will have on its Consolidated Financial Statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The ASU requires an entity to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a financing or operating lease. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. The ASU will be effective for interim and fiscal periods beginning in 2018. Early adoption is permitted. Currently the guidance requires a modified retrospective adoption, but in January 2018 the FASB proposed ASU No. 2018-01, Leases (Topic 842), which if approved will allow entities to elect a simplified transition approach whereby they would apply the provisions of the new guidance at the effective date without adjusting the comparative periods presented. The Company is still evaluating the effects that the provision of ASU 2016-02 will have on its Consolidated Financial Statements.
Note 2 – Acquisitions and Dispositions
2017 Acquisition2021 Acquisitions
Mueller Middle East
On December 7, 2021, the Company entered into an agreement providing for the purchase of an additional 15 percent equity interest in Mueller Middle East for a total of 55 percent, for approximately $20.0 million. The total purchase price consisted of $15.8 million in cash paid at closing (net of cash acquired), a gain recognized on the settlement of preexisting relationships of $2.6 million, a contingent consideration arrangement of $1.0 million, and the fair value of the Company’s existing investment in the joint venture of $0.7 million. Mueller Middle East, which manufactures copper tube, is headquartered in Bahrain. This business complements the Company’s existing copper tube businesses in the Piping Systems segment. Prior to entering into this agreement, the Company was the technical and marketing lead with a 40 percent ownership in a joint venture with Cayan Ventures and Bahrain Mumtalakat Holding Company and accounted for this investment under the equity method of accounting. The Company began consolidating this business for financial reporting purposes in December 2021. Mueller Middle East manufactures and sells copper coils to certain Mueller subsidiaries. Total sales to Mueller subsidiaries were approximately $48.2 million for the period in 2021 prior to consolidation.
H&C Flex
On May 31, 2017,December 20, 2020, the Company entered into an asset purchase agreement with Hart & Cooley LLC. The transaction closed on January 29, 2021, whereby the Company purchased the Hart & Cooley flexible duct business, which included inventory, manufacturing equipment, and related assets for approximately $15.3 million. The total purchase price consisted of $14.0 million in cash paid at closing and a contingent consideration arrangement of $1.3 million, which was paid in Q3 2021. The Company treated this as a business combination. The acquired business, H&C Flex, is a manufacturer and distributor of insulated HVAC flexible duct systems. It is reported within and complements the Company’s existing businesses in the Climate segment.
2020 Acquisitions
Kessler
On August 3, 2020, the Company entered into an asset purchase agreement with Wieland-Kessler LLC, whereby the Company purchased the Kessler distribution business, which included inventory, manufacturing equipment, and related assets. The total purchase price was $57.2 million in cash paid at closing. The Company treated this as a business combination. The acquired business, Kessler Sales and Distribution, LLC (Kessler), is a distributor of residential and commercial plumbing products. It is reported within and complements the Company’s existing businesses in the Piping Systems segment.
Shoals
On January 17, 2020, the Company entered into a sharestock purchase agreement pursuant to which the Company acquired all of the outstanding sharesstock of Pexcor Manufacturing CompanyShoals Tubular, Inc. and Heatlink Group Inc. (collectively, Heatlink Group)(Shoals) for approximately $16.3$15.3 million in cash at closing, net of working capital adjustments. Heatlink Group, based outShoals is a manufacturer of Calgary, Alberta, Canada, producesbrazed manifolds, headers, and sells a complete linedistributor assemblies used primarily by manufacturers of products for PEX plumbingresidential heating and radiant systems.air conditioning units. The acquired business is reported within and complements the Company’s existing businesses withinin the Piping SystemsClimate segment.
2016 Acquisition
On April 26, 2016, the Company entered into an agreement providing for the purchase of a 60 percent equity interest in Jungwoo-Mueller for approximately $20.5 million in cash. Jungwoo-Mueller, which manufactures copper-based pipe joining products, is headquartered in Seoul, South Korea and serves markets worldwide. This business complements the Company’s existing copper fittings businesseswas sold in the Piping Systems segment and is reported in the Company’s Consolidated Financial Statements one month in arrears.Q3 2021.
2015 AcquisitionsPurchase Price Allocations
Great Lakes Copper
On July 31, 2015, the Company entered into a Share Purchase Agreement with Great Lakes Copper, Inc. providing for the purchase of all of the outstanding shares of Great Lakes Copper Ltd. (Great Lakes) for $70.0 million in cash, including a $1.5 million post-closing working capital adjustment. Great Lakes manufactures copper tube products in Canada. This acquisition complements the Company’s existing copper tube businesses in the Piping Systems segment.
Sherwood Valve Products
On June 18, 2015, the Company entered into a Membership Interest Purchase Agreement with Sherwood Valve Products Inc. providing for the purchase of all of the outstanding equity interests of Sherwood Valve LLC (Sherwood) for $21.8 million in cash, net of a post-closing working capital adjustment. Sherwood manufactures valves and fluid control solutions for the HVAC, refrigeration, and compressed gas markets. The acquisition of Sherwood complements our existing compressed gas business in the Industrial Metals segment.
Turbotec Products, Inc.
On March 30, 2015, the Company entered into a Stock Purchase Agreement with Turbotec Products PLC providing for the purchase of all of the outstanding capital stock of Turbotec Products, Inc. (Turbotec) for approximately $14.1 million in cash, net of a post-closing working capital adjustment. Turbotec manufactures coaxial heat exchangers and twisted tubes for the heating, ventilation, and air-conditioning (HVAC), geothermal, refrigeration, swimming pool heat pump, marine, ice machine, commercial boiler, and heat reclamation markets. The acquisition of Turbotec complements the Company’s existing refrigeration business, a component of the Climate segment.
These acquisitions were accounted for using the acquisition method of accounting whereby the total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on respective fair values.
The following table summarizes the allocation of the purchase price to acquire these businesses, which waswere financed by available cash balances, as well as the assets acquired and liabilities assumed at the respective acquisition dates. During the year, adjustments were made to the Mueller Middle East provisional purchase price allocation resulting in a decrease in goodwill of $11.2 million, a decrease in the noncontrolling interest of $5.6 million, an increase in property, plant, and equipment of $4.2 million, a decrease in liabilities of $0.9 million, and an increase in intangible assets of $0.5 million. The purchase price allocationallocations for Heatlink Group is provisionalall acquisitions have been finalized as of December 30, 2017 and subject to change upon completion of the final valuation of the long-lived assets during the measurement period. During 2017, the valuation of the Jungwoo-Mueller acquisition was finalized and changes to the purchase price allocation from the amounts presented in the Company’s 2016 Consolidated Financial Statements were immaterial.31, 2022.
| | (in thousands) | | Heatlink Group | | Jungwoo-Mueller | | Great Lakes | | Sherwood | | Turbotec | |
(In thousands) | | (In thousands) | | Mueller Middle East | | | H&C Flex | | Kessler | | Shoals | |
| | | | | | | | | | | | | | | | | | | | |
Total consideration | | $ | 16,317 |
| | $ | 20,533 |
| | $ | 70,011 |
| | $ | 21,795 |
| | $ | 14,138 |
| Total consideration | | $ | 20,017 | | | | $ | 15,279 | | $ | 57,233 | | $ | 15,321 | | |
| | | | | | | | | | | | | |
Allocated to: | | | | |
| | |
| | |
| | |
| Allocated to: | | | |
Accounts receivable | | 2,809 |
| | 5,551 |
| | 26,079 |
| | 6,490 |
| | 1,936 |
| Accounts receivable | | 10,652 | | | | — | | — | | 660 | | |
Inventories | | 4,648 |
| | 17,616 |
| | 15,233 |
| | 11,892 |
| | 3,247 |
| Inventories | | 4,727 | | | | 4,511 | | 25,106 | | 1,809 | | |
Other current assets | | 508 |
| | 1,437 |
| | 22 |
| | 260 |
| | 72 |
| Other current assets | | 1,744 | | | | — | | — | | 26 | | |
Property, plant, and equipment | | 2,024 |
| | 24,191 |
| | 22,771 |
| | 10,327 |
| | 9,080 |
| Property, plant, and equipment | | 26,664 | | | | 10,813 | | 2,211 | | 3,700 | | |
Operating lease right-of-use assets | | Operating lease right-of-use assets | | 935 | | | | — | | 10,526 | | — | | |
Goodwill | | 4,071 |
| | 223 |
| | 23,208 |
| (1) | — |
| | 2,088 |
| Goodwill | | 864 | | | | — | | 11,600 | (1) | 1,870 | | (1) |
Intangible assets | | 6,413 |
| | 756 |
| | 27,468 |
| | (38 | ) | | 880 |
| Intangible assets | | 452 | | | | — | | 16,600 | | 7,480 | | |
Other assets | | — |
| | 277 |
| | 1,413 |
| | — |
| | 59 |
| |
| Total assets acquired | | 20,473 |
| | 50,051 |
| | 116,194 |
| | 28,931 |
| | 17,362 |
| Total assets acquired | | 46,038 | | | | 15,324 | | 66,043 | | 15,545 | | |
| | | | | | | | | | | | | |
Accounts payable | | 3,633 |
| | 7,252 |
| | 36,026 |
| | 6,022 |
| | 1,603 |
| Accounts payable | | 4,593 | | | | — | | — | | 217 | | |
Accrued wages & other employee costs | | — |
| | — |
| | — |
| | 471 |
| | 356 |
| |
Current portion of operating lease liabilities | | Current portion of operating lease liabilities | | — | | | | — | | 1,692 | | — | | |
Other current liabilities | | 523 |
| | 577 |
| | 381 |
| | 487 |
| | 51 |
| Other current liabilities | | 10,941 | | | | 45 | | — | | 7 | | |
Long-term debt | | — |
| | 8,659 |
| | — |
| | — |
| | — |
| |
Pension and other postretirement liabilities | | — |
| | 799 |
| | 5,655 |
| | — |
| | — |
| |
| Noncurrent operating lease liabilities | | Noncurrent operating lease liabilities | | — | | | | — | | 7,118 | | — | | |
Other noncurrent liabilities | | — |
| | 582 |
| | 4,121 |
| | 156 |
| | 1,214 |
| Other noncurrent liabilities | | 692 | | | | — | | — | | — | | |
Total liabilities assumed | | 4,156 |
| | 17,869 |
| | 46,183 |
| | 7,136 |
| | 3,224 |
| Total liabilities assumed | | 16,226 | | | | 45 | | 8,810 | | 224 | | |
| | | | | | | | | | | | | |
Noncontrolling interest | | — |
| | 11,649 |
| | — |
| | — |
| | — |
| Noncontrolling interest | | 9,795 | | | | — | | — | | — | | |
| | | | | | | | | | | | | | | | | | | | |
Net assets acquired | | $ | 16,317 |
| | $ | 20,533 |
| | $ | 70,011 |
| | $ | 21,795 |
| | $ | 14,138 |
| Net assets acquired | | $ | 20,017 | | | | $ | 15,279 | | $ | 57,233 | | $ | 15,321 | | |
(1) Tax-deductible goodwill
The fair value of the noncontrolling interest at Jungwoo-Mueller was determined based on the proportionate share of consideration transferred and adjusted for lack of control and marketability based on the average of the classic put option model and the Finnerty Formula.
The following details the total intangible assets identified in the allocation of the purchase price at the respective acquisition dates:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Estimated Useful Life | | Mueller Middle East | | Kessler | | Shoals |
| | | | | | | | |
Intangible asset type: | | | | | | | | |
Customer relationships | | 20 years | | $ | 452 | | | $ | 12,640 | | | $ | 4,290 | |
Non-compete agreements | | 3-5 years | | — | | | — | | | 150 | |
Patents and technology | | 10-15 years | | — | | | — | | | 2,620 | |
Trade names, licenses, and other | | 5-10 years | | — | | | 3,960 | | | 420 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total intangible assets | | | | $ | 452 | | | $ | 16,600 | | | $ | 7,480 | |
|
| | | | | | | | | | | | | | | | | | |
(in thousands) | | Estimated Useful Life | | Heatlink Group | | Jungwoo-Mueller | | Great Lakes | | Turbotec |
| | | | | | | | | | |
Intangible asset type: | | | | | | | | | | |
Customer relationships | | 20 years | | $ | 4,265 |
| | $ | — |
| | $ | 20,273 |
| | $ | 350 |
|
Non-compete agreements | | 3-5 years | | 74 |
| | — |
| | 2,269 |
| | 90 |
|
Patents and technology | | 10-15 years | | 1,466 |
| | 756 |
| | 3,104 |
| | 220 |
|
Trade names, licenses, and other | | 5-10 years | | 608 |
| | — |
| | 1,822 |
| | 220 |
|
| | | | | | | | | | |
Total intangible assets | | | | $ | 6,413 |
| | $ | 756 |
| | $ | 27,468 |
| | $ | 880 |
|
2021 Dispositions
2017 DispositionCopper Bar
On June 21, 2017, the Company entered into a definitive equity transfer agreement with Jiangsu Xingrong Hi-Tech Co. Ltd. and Jiangsu Baiyang Industries Co. Ltd. (Baiyang), together, the minority partners in Mueller-Xingrong (the Company’s Chinese joint venture), pursuant to whichOctober 25, 2021, the Company sold its 50.5 percent equity interest in Mueller-Xingrong to BaiyangCopper Bar business for approximately $18.3$10.1 million. Mueller-XingrongThis business manufactured engineered copper tubebar products used primarily for air-conditioning applicationsby OEMs in Chinathe U.S. and was included in the Piping SystemsIndustrial Metals segment. Mueller-Xingrong reported net sales of $67.3 million and net losses of $9 thousand in 2017, compared to net sales of $121.5 million and net income of $62 thousand in 2016, and net sales of $155.9 million and net income of $555 thousand in 2015. The carrying value of the assets disposed totaled $56.8$3.6 million, consisting primarily of inventories and long-lived assets. As a result of the transaction, the Company recognized a pre-tax gain of $6.5 million on the sale of the business in the Consolidating Financial Statements in 2021.
Die-Mold
On September 2, 2021, the Company entered into a contribution agreement with a limited liability company in the retail distribution business, pursuant to which the Company exchanged the outstanding common stock of Die-Mold for a 17 percent equity interest in the limited liability company. Die-Mold manufactures PEX and other plumbing-related fittings and plastic injection tooling in Canada and sells these products in Canada and the U.S. and was included in the Piping Systems Segment. Die-Mold reported net sales of $10.9 million and operating income of $2.2 million for the year ended December 25, 2021 compared to net sales of $13.5 million and operating income of $2.3 million in the year ended December 26, 2020. As a result of the transaction, the Company recognized a gain of $4.7 million based on the excess of the fair value of the consideration received (the 17 percent equity interest) over the carrying value of Die-Mold in 2021. The Company utilized a combination of income and market comparable companies approaches using an EBITDA multiple to determine the fair value of the consideration received of $22.8 million, which is recognized within the Investments in unconsolidated affiliates line of the Consolidated Balance Sheet. The excess of the fair value of the deconsolidated subsidiary over its carrying value resulted in the gain.
Fabricated Tube Products and Shoals Tubular, Inc.
On July 28, 2021, the Company entered into a purchase agreement with J.W. Harris Co., Inc. and Lincoln Electric Holdings, Inc., pursuant to which the Company sold the assets of Fabricated Tube Products (FTP) and all of the outstanding stock of STI for approximately $75.7 million. These businesses manufacture and fabricate valves and assemblies, brazed manifolds, headers, and distributor assemblies used primarily by manufacturers of residential heating and air conditioning units in the U.S. and were included in the Climate segment. They reported combined net sales of $37.0 million and operating income of $5.5 million for the year ended December 25, 2021 compared to combined net sales of $51.5 million and operating income of $6.4 million in the year ended December 26, 2020. The carrying value of the assets disposed totaled $32.7 million, consisting primarily of accounts receivable, inventories, and long-lived assets. The carrying value of the liabilities disposed (consistingtotaled $3.6 million, consisting primarily of current debt and accounts payable), noncontrolling interest, and amounts recognized in accumulated other comprehensive income (AOCI) totaled $36.2 million. Since the disposal constituted a complete liquidation of the Company’s investment in a foreign entity, the Company removed from AOCI and recognized a cumulative translation gain of $3.8 million.payable. As a result of the disposal,transaction, the Company recognized a netpre-tax gain of $46.6 million on the sale of this business of $1.5 millionthese businesses in the ConsolidatedConsolidating Financial Statements.Statements in 2021.
2015 Disposition
On June 1, 2015, the Company sold certain assets. Simultaneously, the Company entered into a lease agreement with the purchaser of the assets for their continued use for a period of approximately 22 months (Lease Period).
The total sales price was $20.2 million, of which $5.0 million was received on June 1, 2015, $5.0 million was received on December 30, 2016, and $10.2 million was received on August 28, 2017. This transaction resulted in a pre-tax gain of $15.4 million in the second quarter of 2015, or 17 cents per diluted share after tax. This gain was recognized in the Piping Systems segment.
The net book value of the assets disposed was $2.3 million. For goodwill testing purposes, these assets were part of the Domestic Piping Systems (DPS) reporting unit, which is a component of the Company’s Piping Systems segment. Because these assets met the definition of a business, $2.4 million of the DPS reporting unit’s goodwill balance was allocated to the disposal group based on the relative fair values of the asset group that was disposed and the portion of the DPS reporting unit that was retained.
Note 3 –Segment Information
The Company’s reportable segments are Piping Systems, Industrial Metals, and Climate. Each of the reportable segments is composed of certain operating segments that are aggregated primarily by the nature of products offered as follows:
Piping Systems
Piping Systems is composed of the following operating segments: DPS,Domestic Piping Systems Group, Great Lakes Copper, Heatlink Group, European Operations, Trading Group, and Jungwoo-Mueller (the Company’s South Korean joint venture), and Mueller Middle East (our Bahraini joint venture). DPSThe Domestic Piping Systems Group manufactures and distributes copper tube, and fittings, plastic fittings, and line sets. These products are manufactured in the U.S., sold in the U.S., and exported to markets worldwide. Outside the U.S., Great Lakes Copper manufactures copper tube and line sets in Canada and sells the products primarily in the U.S. and Canada,Canada. Heatlink Group produces a complete line of products for PEX plumbing and radiant systems in Canada and sells these products in Canada and the U.S., and the European Operations manufacturemanufactures copper tube in the U.K. which is sold primarily in Europe. The Trading Group manufactures pipe nipples and imports and resells brass and plastic plumbing valves,
malleable iron fittings, faucets, and plumbing specialty products in the U.S. and Mexico. Jungwoo-Mueller manufactures copper-based joining products that are sold worldwide. Mueller Middle East manufactures copper tube and serves markets in the Middle East and Northern Africa. The Piping Systems segment’s products are sold primarily to plumbing, refrigeration, and air-conditioning wholesalers, hardware wholesalers and co-ops, building product retailers, and air-conditioning OEMs.
Beginning in fiscal year 2022, the results of Precision Tube are included in the Industrial Metals segment prospectively as the impact to prior periods was not material. The business was previously reported in the Piping Systems segment. This change was made to reflect the Company’s internal management reporting structure.
As disclosed in “Note 2 – Acquisitions & Dispositions,” during September 2021 the Company exchanged the outstanding common stock of Die-Mold for an equity interest in a limited liability company in the retail distribution business, resulting in the deconsolidation of Die-Mold and the recognition of a $4.7 million gain. This gain is reported within Corporate and Eliminations. The results of Die-Mold, prior to deconsolidation, were included within the Piping Systems segment.
During 2017,2020, the segment recognized a gain of $1.5 million on the sale of the Company’s interest in Mueller-Xingrong andfixed asset impairment charges for certain manufacturing equipment of $1.5 million on certain copper fittings manufacturing equipment.$3.8 million.
During 2016, the segment recognized impairment charges of $6.1 million on fixed assets used for product development.
During 2015, the segment recognized approximately $3.4 million of severance costs related to the reorganization of the European Operations as a result of the acquisition of Yorkshire Copper Tube in 2014.
Industrial Metals
Industrial Metals is composed of the following operating segments: Brass Rod, & Copper Bar Products, Impacts & Micro Gauge, and Brass Value-Added Products.Products, and Precision Tube. These businesses manufacture brass rod, impact extrusions and forgings, specialty copper, copper alloy, and aluminum tube, as well as a wide variety of end products including plumbing brass, automotive components, valves, fittings, and gas assemblies. These products are manufactured in the U.S. and sold primarily to OEMs in the U.S., many of which are in the industrial, transportation, construction, heating, ventilation, and air-conditioning, plumbing, refrigeration, and energy markets.
During 2016,2021, the segment recognized impairment chargesa gain of $0.7$6.5 million on fixed assets related to the rationalizationsale of Sherwood.the Copper Bar business.
Climate
Climate is composed of the following operating segments: Refrigeration Products, Fabricated Tube Products, Westermeyer, Turbotec, Flex Duct, and Turbotec.Linesets, Inc. These domestic businesses manufacture and fabricate valves, assemblies, high pressure components, and coaxial heat exchangers, insulated HVAC flexible duct systems, line sets, brazed manifolds, headers, and distributor assemblies primarily for the heating, ventilation, air-conditioning, and refrigeration markets in the U.S.
As disclosed in “Note 2 – Acquisitions & Dispositions,” during July 2021 the Company sold the assets of FTP and all of the outstanding stock of STI, resulting in a gain of $46.6 million. This gain is reported within Corporate and Eliminations. The results of FTP and STI, prior to the sale, were included within the Climate segment.
During 2021, the segment recognized impairment charges on goodwill and long-lived assets of $2.8 million.
Performance of segments is generally evaluated by their operating income. Summarized product line, geographic, and segment information is shown in the following tables. Geographic sales data indicates the location from which products are shipped. Unallocated expenses include general corporate expenses, plus certain charges or credits not included in segment activity.
During 2017, 2016,2022, 2021, and 2015,2020, no single customer exceeded 10 percent of worldwide sales.
Net Sales by Major Product Line:The following tables represent a disaggregation of revenue from contracts with customers, along with the reportable segment for each category:
| | | | | | | | | | | For the Year Ended December 31, 2022 |
(In thousands) | | 2017 | | 2016 | | 2015 | (In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Total |
| | | | | | | | | | | | | | |
Tube and fittings | | $ | 1,260,105 |
| | $ | 1,072,242 |
| | $ | 1,053,761 |
| Tube and fittings | | $ | 2,211,963 | | | $ | — | | | $ | — | | | $ | 2,211,963 | |
Brass rod and forgings | | 450,063 |
| | 371,237 |
| | 436,456 |
| Brass rod and forgings | | — | | | 510,865 | | | — | | | 510,865 | |
OEM components, tube & assemblies | | 272,567 |
| | 327,327 |
| | 342,651 |
| |
OEM components and valves | | OEM components and valves | | — | | | 74,647 | | | 121,004 | | | 195,651 | |
Valves and plumbing specialties | | 200,409 |
| | 209,217 |
| | 198,012 |
| Valves and plumbing specialties | | 518,121 | | | — | | | — | | | 518,121 | |
Flex duct and other HVAC components | | Flex duct and other HVAC components | | — | | | — | | | 529,303 | | | 529,303 | |
Other | | 82,929 |
| | 75,599 |
| | 69,122 |
| Other | | — | | | 59,177 | | | — | | | 59,177 | |
| | | | | | | | | | | | | | |
| | $ | 2,266,073 |
| | $ | 2,055,622 |
| | $ | 2,100,002 |
| | $ | 2,730,084 | | | $ | 644,689 | | | $ | 650,307 | | | $ | 4,025,080 | |
| Intersegment sales | | Intersegment sales | | (42,625) | |
| Net sales | | Net sales | | $ | 3,982,455 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 25, 2021 |
(In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Total |
| | | | | | | | |
Tube and fittings | | $ | 2,055,639 | | | $ | — | | | $ | — | | | $ | 2,055,639 | |
Brass rod and forgings | | — | | | 565,870 | | | — | | | 565,870 | |
OEM components, tube & assemblies | | 32,557 | | | 48,572 | | | 137,564 | | | 218,693 | |
Valves and plumbing specialties | | 511,834 | | | — | | | — | | | 511,834 | |
Flex duct and other HVAC components | | — | | | — | | | 357,850 | | | 357,850 | |
Other | | — | | | 88,921 | | | — | | | 88,921 | |
| | | | | | | | |
| | $ | 2,600,030 | | | $ | 703,363 | | | $ | 495,414 | | | $ | 3,798,807 | |
| | | | | | | | |
Intersegment sales | | | | | | | | (29,462) | |
| | | | | | | | |
Net sales | | | | | | | | $ | 3,769,345 | |
Disaggregation of revenue from contracts with customers (continued):
Geographic Information:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 26, 2020 |
(In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Total |
| | | | | | | | |
Tube and fittings | | $ | 1,232,724 | | | $ | — | | | $ | — | | | $ | 1,232,724 | |
Brass rod and forgings | | — | | | 356,547 | | | — | | | 356,547 | |
OEM components, tube & assemblies | | 56,176 | | | 42,127 | | | 138,551 | | | 236,854 | |
Valves and plumbing specialties | | 294,102 | | | — | | | — | | | 294,102 | |
Flex duct and other HVAC components | | — | | | — | | | 231,580 | | | 231,580 | |
Other | | — | | | 73,485 | | | — | | | 73,485 | |
| | | | | | | | |
| | $ | 1,583,002 | | | $ | 472,159 | | | $ | 370,131 | | | $ | 2,425,292 | |
| | | | | | | | |
Intersegment sales | | | | | | | | (27,249) | |
| | | | | | | | |
Net sales | | | | | | | | $ | 2,398,043 | |
|
| | | | | | | | | | | | |
(In thousands) | | 2017 | | 2016 | | 2015 |
| | | | | | |
Net sales: | | | | | | |
United States | | $ | 1,556,825 |
| | $ | 1,400,893 |
| | $ | 1,519,456 |
|
United Kingdom | | 231,039 |
| | 197,039 |
| | 240,823 |
|
Canada | | 280,140 |
| | 237,162 |
| | 97,967 |
|
Asia | | 121,295 |
| | 149,875 |
| | 162,664 |
|
Mexico | | 76,774 |
| | 70,653 |
| | 79,092 |
|
| | | | | | |
| | $ | 2,266,073 |
| | $ | 2,055,622 |
| | $ | 2,100,002 |
|
|
| | | | | | | | | | | | |
(In thousands) | | 2017 | | 2016 | | 2015 |
| | | | | | |
Long-lived assets: | | | | | | |
United States | | $ | 238,752 |
| | $ | 223,099 |
| | $ | 223,398 |
|
United Kingdom | | 17,661 |
| | 15,978 |
| | 19,982 |
|
Canada | | 21,327 |
| | 18,928 |
| | 20,460 |
|
Asia | | 25,973 |
| | 36,722 |
| | 15,863 |
|
Mexico | | 608 |
| | 504 |
| | 521 |
|
| | | | | | |
| | $ | 304,321 |
| | $ | 295,231 |
| | $ | 280,224 |
|
Summarized segment information is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2022 |
(In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
Net sales | | $ | 2,730,084 | | | $ | 644,689 | | | $ | 650,307 | | | $ | (42,625) | | | $ | 3,982,455 | |
| | | | | | | | | | |
Cost of goods sold | | 1,943,174 | | | 543,004 | | | 416,953 | | | (38,269) | | | 2,864,862 | |
Depreciation and amortization | | 22,193 | | | 7,647 | | | 9,174 | | | 4,717 | | | 43,731 | |
Selling, general, and administrative expense | | 93,655 | | | 11,574 | | | 36,113 | | | 61,744 | | | 203,086 | |
Gain on sale of assets | | — | | | — | | | — | | | (6,373) | | | (6,373) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Operating income | | 671,062 | | | 82,464 | | | 188,067 | | | (64,444) | | | 877,149 | |
| | | | | | | | | | |
Interest expense | | | | | | | | | | (810) | |
Pension plan termination expense | | | | | | | | | | (13,100) | |
| | | | | | | | | | |
Environmental expense | | | | | | | | | | (1,298) | |
Other income, net | | | | | | | | | | 14,090 | |
| | | | | | | | | | |
Income before income taxes | | | | | | | | | | $ | 876,031 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 30, 2017 |
(In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
Net sales | | $ | 1,564,950 |
| | $ | 602,131 |
| | $ | 131,448 |
| | $ | (32,456 | ) | | $ | 2,266,073 |
|
| | | | | | | | | | |
Cost of goods sold | | 1,369,161 |
| | 506,973 |
| | 98,851 |
| | (34,368 | ) | | 1,940,617 |
|
Depreciation and amortization | | 21,777 |
| | 7,516 |
| | 2,513 |
| | 2,138 |
| | 33,944 |
|
Selling, general, and administrative expense | | 74,479 |
| | 11,890 |
| | 9,759 |
| | 43,452 |
| | 139,580 |
|
Gain on sale of businesses | | (1,491 | ) | | — |
| | — |
| | — |
| | (1,491 | ) |
Impairment charges | | 1,466 |
| | — |
| | — |
| | — |
| | 1,466 |
|
| | | | | | | | | | |
Operating income | | 99,558 |
| | 75,752 |
| | 20,325 |
| | (43,678 | ) | | 151,957 |
|
| | | | | | | | | | |
Interest expense | | |
| | |
| | |
| | |
| | (19,502 | ) |
Environmental expense | | | | | | | | | | (7,284 | ) |
Other income, net | | |
| | |
| | |
| | |
| | 1,801 |
|
| | | | | | | | | | |
Income before income taxes | | |
| | |
| | |
| | |
| | $ | 126,972 |
|
Segment information (continued):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 25, 2021 |
(In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
Net sales | | $ | 2,600,030 | | | $ | 703,363 | | | $ | 495,414 | | | $ | (29,462) | | | $ | 3,769,345 | |
| | | | | | | | | | |
Cost of goods sold | | 1,996,610 | | | 605,715 | | | 367,343 | | | (30,679) | | | 2,938,989 | |
Depreciation and amortization | | 23,384 | | | 6,929 | | | 10,379 | | | 4,698 | | | 45,390 | |
Selling, general, and administrative expense | | 93,749 | | | 11,698 | | | 29,327 | | | 49,278 | | | 184,052 | |
| | | | | | | | | | |
| | | | | | | | | | |
Gain on sale of businesses | | — | | | (6,454) | | | — | | | (51,306) | | | (57,760) | |
Impairment charges | | — | | | — | | | 2,829 | | | — | | | 2,829 | |
| | | | | | | | | | |
| | | | | | | | | | |
Operating income | | 486,287 | | | 85,475 | | | 85,536 | | | (1,453) | | | 655,845 | |
| | | | | | | | | | |
Interest expense | | | | | | | | | | (7,709) | |
| | | | | | | | | | |
Redemption premium | | | | | | | | | | (5,674) | |
Environmental expense | | | | | | | | | | (5,053) | |
Other income, net | | | | | | | | | | 3,730 | |
| | | | | | | | | | |
Income before income taxes | | | | | | | | | | $ | 641,139 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 26, 2020 |
(In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
Net sales | | $ | 1,583,002 | | | $ | 472,159 | | | $ | 370,131 | | | $ | (27,249) | | | $ | 2,398,043 | |
| | | | | | | | | | |
Cost of goods sold | | 1,311,697 | | | 398,000 | | | 276,274 | | | (19,810) | | | 1,966,161 | |
Depreciation and amortization | | 23,071 | | | 7,528 | | | 10,249 | | | 3,995 | | | 44,843 | |
Selling, general, and administrative expense | | 78,744 | | | 12,566 | | | 26,806 | | | 41,367 | | | 159,483 | |
| | | | | | | | | | |
Litigation settlement, net | | — | | | — | | | — | | | (22,053) | | | (22,053) | |
Impairment charges | | 3,771 | | | — | | | — | | | — | | | 3,771 | |
| | | | | | | | | | |
| | | | | | | | | | |
Operating income | | 165,719 | | | 54,065 | | | 56,802 | | | (30,748) | | | 245,838 | |
| | | | | | | | | | |
Interest expense | | | | | | | | | | (19,247) | |
Pension plan termination expense | | | | | | | | | | (17,835) | |
Environmental expense | | | | | | | | | | (4,454) | |
Other income, net | | | | | | | | | | 4,887 | |
| | | | | | | | | | |
Income before income taxes | | | | | | | | | | $ | 209,189 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2016 |
(In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
Net sales | | $ | 1,429,589 |
| | $ | 521,060 |
| | $ | 119,758 |
| | $ | (14,785 | ) | | $ | 2,055,622 |
|
| | | | | | | | | | |
Cost of goods sold | | 1,228,949 |
| | 420,905 |
| | 89,927 |
| | (16,282 | ) | | 1,723,499 |
|
Depreciation and amortization | | 22,421 |
| | 8,162 |
| | 2,437 |
| | 2,113 |
| | 35,133 |
|
Selling, general, and administrative expense | | 68,218 |
| | 13,162 |
| | 9,661 |
| | 46,458 |
| | 137,499 |
|
Impairment charges | | 6,115 |
| | 663 |
| | — |
| | — |
| | 6,778 |
|
| | | | | | | | | | |
Operating income | | 103,886 |
| | 78,168 |
| | 17,733 |
| | (47,074 | ) | | 152,713 |
|
| | | | | | | | | | |
Interest expense | | |
| | |
| | |
| | |
| | (7,387 | ) |
Environmental expense | | | | | | | | | | (1,279 | ) |
Other income, net | | |
| | |
| | |
| | |
| | 1,983 |
|
| | | | | | | | | | |
Income before income taxes | | |
| | |
| | |
| | |
| | $ | 146,030 |
|
Summarized geographic information is as follows:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 | | 2020 |
| | | | | | |
Net sales: | | | | | | |
United States | | $ | 2,965,053 | | | $ | 2,791,571 | | | $ | 1,765,810 | |
United Kingdom | | 297,582 | | | 330,908 | | | 207,754 | |
Canada | | 410,679 | | | 469,652 | | | 293,776 | |
Asia and the Middle East | | 217,750 | | | 83,217 | | | 58,256 | |
Mexico | | 91,391 | | | 93,997 | | | 72,447 | |
| | | | | | |
| | $ | 3,982,455 | | | $ | 3,769,345 | | | $ | 2,398,043 | |
| | | | | | | | | | | | | | | | | | | | |
Long-lived assets: | | 2022 | | 2021 | | 2020 |
| | | | | | |
United States | | $ | 266,571 | | | $ | 272,903 | | | $ | 289,508 | |
United Kingdom | | 36,474 | | | 36,529 | | | 30,872 | |
Canada | | 23,354 | | | 26,422 | | | 29,582 | |
Asia and the Middle East | | 51,193 | | | 48,742 | | | 26,107 | |
Mexico | | 2,358 | | | 966 | | | 503 | |
| | | | | | |
| | $ | 379,950 | | | $ | 385,562 | | | $ | 376,572 | |
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 | | 2020 |
| | | | | | |
Expenditures for long-lived assets (including those resulting from business acquisitions): | | | | | | |
Piping Systems | | $ | 20,694 | | | $ | 43,429 | | | $ | 39,209 | |
Industrial Metals | | 6,905 | | | 5,744 | | | 5,968 | |
Climate | | 2,611 | | | 12,428 | | | 5,521 | |
General Corporate | | 7,429 | | | 3,521 | | | 448 | |
| | | | | | |
| | $ | 37,639 | | | $ | 65,122 | | | $ | 51,146 | |
| | | | | | | | | | | | | | | | | | | | |
Segment assets: | | | | | | |
Piping Systems | | $ | 1,088,940 | | | $ | 1,160,272 | | | $ | 977,937 | |
Industrial Metals | | 160,702 | | | 173,290 | | | 152,683 | |
Climate | | 279,940 | | | 250,107 | | | 258,668 | |
General Corporate | | 712,817 | | | 145,267 | | | 139,280 | |
| | | | | | |
| | $ | 2,242,399 | | | $ | 1,728,936 | | | $ | 1,528,568 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 26, 2015 |
(In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
Net sales | | $ | 1,436,689 |
| | $ | 567,467 |
| | $ | 110,727 |
| | $ | (14,881 | ) | | $ | 2,100,002 |
|
| | | | | | | | | | |
Cost of goods sold | | 1,245,929 |
| | 491,567 |
| | 86,894 |
| | (14,688 | ) | | 1,809,702 |
|
Depreciation and amortization | | 22,559 |
| | 7,503 |
| | 2,257 |
| | 2,289 |
| | 34,608 |
|
Selling, general, and administrative expense | | 66,903 |
| | 10,955 |
| | 9,117 |
| | 43,383 |
| | 130,358 |
|
Gain on sale of businesses | | (15,376 | ) | | — |
| | — |
| | — |
| | (15,376 | ) |
Severance | | 3,442 |
| | — |
| | — |
| | — |
| | 3,442 |
|
| | | | | | | | | | |
Operating income | | 113,232 |
| | 57,442 |
| | 12,459 |
| | (45,865 | ) | | 137,268 |
|
| | | | | | | | | | |
Interest expense | | |
| | |
| | |
| | |
| | (7,667 | ) |
Environmental expense | | | | | | | | | | (46 | ) |
Other income, net | | |
| | |
| | |
| | |
| | 2,234 |
|
| | | | | | | | | | |
Income before income taxes | | |
| | |
| | |
| | |
| | $ | 131,789 |
|
Segment information (continued):
|
| | | | | | | | | | | | |
(In thousands) | | 2017 | | 2016 | | 2015 |
Expenditures for long-lived assets (including those resulting from business acquisitions): | | | | | | |
Piping Systems | | $ | 18,124 |
| | $ | 56,286 |
| | $ | 41,900 |
|
Industrial Metals | | 5,322 |
| | 3,302 |
| | 16,603 |
|
Climate | | 2,191 |
| | 2,045 |
| | 12,373 |
|
General Corporate | | 22,518 |
| | 55 |
| | 136 |
|
| | | | | | |
| | $ | 48,155 |
| | $ | 61,688 |
| | $ | 71,012 |
|
During the fourth quarter of 2017, the Company took early delivery of a Corporate aircraft to replace its existing aircraft. Subsequent to year-end, the existing aircraft was taken out of service and classified as held-for-sale, and the Company expects to recognize an impairment charge of approximately $3.3 million in the first quarter of 2018. The Company expects to sell the aircraft in 2018.
|
| | | | | | | | | | | | |
Segment assets: | | |
| | |
| | |
|
Piping Systems | | $ | 801,468 |
| | $ | 826,663 |
| | $ | 811,343 |
|
Industrial Metals | | 212,638 |
| | 160,478 |
| | 153,102 |
|
Climate | | 73,458 |
| | 66,968 |
| | 61,672 |
|
General Corporate | | 232,609 |
| | 393,367 |
| | 312,684 |
|
| | | | | | |
| | $ | 1,320,173 |
| | $ | 1,447,476 |
| | $ | 1,338,801 |
|
Note 4 – Cash, Cash Equivalents, and Restricted Cash
| | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 |
| | | | |
Cash & cash equivalents | | $ | 461,018 | | | $ | 87,924 | |
Restricted cash included within other current assets | | 4,176 | | | 2,349 | |
Restricted cash included within other assets | | 102 | | | 103 | |
| | | | |
Total cash, cash equivalents, and restricted cash | | $ | 465,296 | | | $ | 90,376 | |
Note 5 – Inventories
| | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 |
| | | | |
Raw materials and supplies | | $ | 133,189 | | | $ | 130,133 | |
Work-in-process | | 64,177 | | | 64,989 | |
Finished goods | | 265,842 | | | 245,226 | |
Valuation reserves | | (14,289) | | | (10,104) | |
| | | | |
Inventories | | $ | 448,919 | | | $ | 430,244 | |
|
| | | | | | | | |
(In thousands) | | 2017 | | 2016 |
| | | | |
Raw materials and supplies | | $ | 108,397 |
| | $ | 57,387 |
|
Work-in-process | | 46,158 |
| | 42,227 |
|
Finished goods | | 180,143 |
| | 149,288 |
|
Valuation reserves | | (6,797 | ) | | (6,889 | ) |
| | | | |
Inventories | | $ | 327,901 |
| | $ | 242,013 |
|
Inventories valued using the LIFO method totaled $26.5 million at December 30, 2017 and $14.4$16.5 million at December 31, 2016.2022 and $18.5 million at December 25, 2021. At December 30, 201731, 2022 and December 31, 2016,25, 2021, the approximate FIFO cost of such inventories was $111.0$117.3 million and $76.6$140.4 million, respectively. Additionally, the Company values certain inventories purchased for resale on an average cost basis. The value of those inventories was $43.9 million at December 30, 2017 and $43.8 million at December 31, 2016.
During 2016, inventory quantities valued using the LIFO method declined, which resulted in liquidation of LIFO inventory layers. This liquidation resulted primarily from intercompany sales; therefore $2.5 million of the $3.3 million loss related to the LIFO liquidation was deferred at the end of 2016. The deferred loss increased cost of goods sold in the first quarter of 2017 when the inventory was sold to third parties.
During September 2017, the Company experienced a casting outage at its brass rod mill which impaired its ability to melt scrap returns, causing an excess build of $38.9 million in inventory.
At the end of 20172022 and 2016,2021, the FIFO value of inventory consigned to others was $4.4$14.3 million and $2.5$11.0 million, respectively.
Note 56 – Consolidated Financial Statement Details
Other Current Liabilities
Included in other current liabilities as of December 30, 201731, 2022 and December 31, 201625, 2021 were the following: (i) accrued discounts, allowances, and customer rebates of $39.5$82.3 million and $40.4$82.2 million, respectively, (ii) current taxes payable of $9.2$24.6 million and $4.6 million, respectively, (iii) accrued interest of $5.9 million and $0.3$35.7 million, respectively, and (iv)(iii) current environmental liabilities of $4.3$4.2 million and $0.8$9.7 million, respectively. Additionally, the balance at at December 31, 2022 includes a pension withdrawal liability of $13.1 million.
Other Income, Net
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 | | 2020 |
| | | | | | |
Net periodic benefit income | | $ | 3,168 | | | $ | 1,903 | | | $ | 3,013 | |
Interest income | | 6,457 | | | 353 | | | 1,101 | |
Gain on sale of securities | | 2,918 | | | — | | | — | |
Other | | 1,547 | | | 1,474 | | | 773 | |
| | | | | | |
Other income, net | | $ | 14,090 | | | $ | 3,730 | | | $ | 4,887 | |
|
| | | | | | | | | | | | |
(In thousands) | | 2017 | | 2016 | | 2015 |
| | | | | | |
Interest income | | $ | 684 |
| | $ | 1,185 |
| | $ | 1,029 |
|
Other | | 1,117 |
| | 798 |
| | 1,205 |
|
| | | | | | |
Other income, net | | $ | 1,801 |
| | $ | 1,983 |
| | $ | 2,234 |
|
Note 67 – Derivative Instruments and Hedging Activities
The Company’s earnings and cash flows are subject to fluctuations due to changes in commodity prices, foreign currency exchange rates, and interest rates. The Company uses derivative instruments such as commodity futures contracts, foreign currency forward contracts, and interest rate swaps to manage these exposures.
Commodity Futures Contracts
Copper and brass represent the largest component of the Company’s variable costs of production. The cost of these materials is subject to global market fluctuations caused by factors beyond the Company’s control. The Company occasionally enters into forward fixed-price arrangements with certain customers; the risk of these arrangements is generally managed with commodity futures contracts. These futures contracts have been designated as cash flow hedges.
At December 30, 2017,31, 2022, the Company held open futures contracts to purchase approximately $19.6$91.8 million of copper over the next 12nine months related to fixed price sales orders. The fair value of those futures contracts was a $1.0$1.9 million net gain position, which was determined by obtaining quoted market prices (level 1 within the fair value hierarchy). In the next twelve12 months, the Company will reclassify into earnings realized gains or losses relating to cash flow hedges. At December 30, 2017,31, 2022, this amount was approximately $0.7$1.3 million of deferred net gains, net of tax.
The Company may also enter into futures contracts to protect the value of inventory against market fluctuations. At December 30, 2017,31, 2022, the Company held open futures contracts to sell approximately $85.3$10.7 million of copper over the next five months related to copper inventory. The fair value of those futures contracts was a $3.2$0.4 million net lossgain position, which was determined by obtaining quoted market prices (level 1 within the fair value hierarchy).
The Company presents its derivative assets and liabilities in the Consolidated Balance Sheets on a net basis by counterparty. The following table summarizes the location and fair value of the derivative instruments and disaggregates the net derivative assets and liabilities into gross components on a contract-by-contract basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Asset Derivatives | | Liability Derivatives |
| | | | Fair Value | | | | Fair Value |
(In thousands) | | Balance Sheet Location | | 2022 | | 2021 | | Balance Sheet Location | | 2022 | | 2021 |
| | | | | | | | | | | | |
Commodity contracts - gains | | Other current assets | | $ | 3,746 | | | $ | 1,150 | | | Other current liabilities | | $ | — | | | $ | — | |
Commodity contracts - losses | | Other current assets | | (1,483) | | | (46) | | | Other current liabilities | | — | | | (353) | |
| | | | | | | | | | | | |
Total derivatives (1) | | | | $ | 2,263 | | | $ | 1,104 | | | | | $ | — | | | $ | (353) | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Asset Derivatives | | Liability Derivatives |
| | | | Fair Value | | | | Fair Value |
(In thousands) | | Balance Sheet Location | | 2017 | | 2016 | | Balance Sheet Location | | 2017 | | 2016 |
| | | | | | | | | | | | |
Commodity contracts - gains | | Other current assets | | $ | 1,014 |
| | $ | 1,013 |
| | Other current liabilities | | $ | 55 |
| | $ | 564 |
|
Commodity contracts - losses | | Other current assets | | (5 | ) | | (148 | ) | | Other current liabilities | | (3,210 | ) | | (920 | ) |
Interest rate swap | | Other current assets | | — |
| | — |
| | Other current liabilities | | — |
| | (787 | ) |
| | | | | | | | | | | | |
Total derivatives (1) | | | | $ | 1,009 |
| | $ | 865 |
| | | | $ | (3,155 | ) | | $ | (1,143 | ) |
(1) Does not include the impact of cash collateral provided to counterparties.
The following tables summarizetable summarizes the effects of derivative instruments on the Consolidated Statements of Income:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Location | | 2022 | | 2021 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Undesignated derivatives: | | | | | | |
Gain on commodity contracts (nonqualifying) | | Cost of goods sold | | $ | 20,659 | | | $ | 217 | |
|
| | | | | | | | | | |
(In thousands) | | Location | | 2017 | | 2016 |
Fair value hedges: | | | | | | |
Loss on commodity contracts (qualifying) | | Cost of goods sold | | $ | (724 | ) | | $ | (420 | ) |
Gain on hedged item - inventory | | Cost of goods sold | | 625 |
| | 382 |
|
| | | | | | |
Undesignated derivatives: | | | | | | |
(Loss) gain on commodity contracts (nonqualifying) | | Cost of goods sold | | $ | (6,078 | ) | | $ | 4,068 |
|
The following tables summarize amounts recognized in and reclassified from AOCI during the period:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 |
(In thousands) | | (Loss) Gain Recognized in AOCI (Effective Portion), Net of Tax | | Classification Gains (Losses) | | Loss Reclassified from AOCI (Effective Portion), Net of Tax |
Cash flow hedges: | | | | | | |
Commodity contracts | | $ | (7,066) | | | Cost of goods sold | | $ | 7,666 | |
| | | | | | |
Other | | 83 | | | Other | | — | |
| | | | | | |
Total | | $ | (6,983) | | | Total | | $ | 7,666 | |
|
| | | | | | | | | | |
| | Year Ended December 30, 2017 |
(In thousands) | | (Loss) Gain Recognized in AOCI (Effective Portion), Net of Tax | | Classification Gains (Losses) | | Loss Reclassified from AOCI (Effective Portion), Net of Tax |
Cash flow hedges: | | | | | | |
Commodity contracts | | $ | (574 | ) | | Cost of goods sold | | $ | 990 |
|
Interest rate swap | | — |
| | Interest expense | | 546 |
|
Other | | 185 |
| | Other | | — |
|
| | | | | | |
Total | | $ | (389 | ) | | Total | | $ | 1,536 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 25, 2021 |
(In thousands) | | Gain (Loss) Recognized in AOCI (Effective Portion), Net of Tax | | Classification Gains (Losses) | | Gain Reclassified from AOCI (Effective Portion), Net of Tax |
Cash flow hedges: | | | | | | |
Commodity contracts | | $ | 2,389 | | | Cost of goods sold | | $ | (2,542) | |
| | | | | | |
Other | | (28) | | | Other | | — | |
| | | | | | |
Total | | $ | 2,361 | | | Total | | $ | (2,542) | |
Derivative instruments and hedging activities (continued):
|
| | | | | | | | | | |
| | Year Ended December 31, 2016 |
(In thousands) | | Gain (Loss) Recognized in AOCI (Effective Portion), Net of Tax | | Classification Gains (Losses) | | Loss Reclassified from AOCI (Effective Portion), Net of Tax |
Cash flow hedges: | | | | | | |
Commodity contracts | | $ | 308 |
| | Cost of goods sold | | $ | 1,078 |
|
Interest rate swap | | 305 |
| | Interest expense | | 231 |
|
Other | | (213 | ) | | Other | | — |
|
| | | | | | |
Total | | $ | 400 |
| | Total | | $ | 1,309 |
|
The Company enters into futures and forward contracts that closely match the terms of the underlying transactions. As a result, the ineffective portion of the qualifying open hedge contracts through December 30, 2017 was not material to the Consolidated Statements of Income.
The Company primarily enters into International Swaps and Derivatives Association master netting agreements with major financial institutions that permit the net settlement of amounts owed under their respective derivative contracts. Under these master netting agreements, net settlement generally permits the Company or the counterparty to determine the net amount payable for contracts due on the same date and in the same currency for similar types of derivative transactions. The master netting agreements generally also provide for net settlement of all outstanding contracts with the counterparty in the case of an event of default or a termination event. The Company does not offset fair value amounts for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral. At December 30, 201731, 2022 and December 31, 2016,25, 2021, the Company had recorded restricted cash in other current assets of $5.3$4.0 million and $1.4$2.0 million, respectively, as collateral related to open derivative contracts under the master netting arrangements.
Note 8 – Leases
The Company leases certain facilities, vehicles, and equipment which expire on various dates through 2041. The following table includes supplemental information with regards to the Company’s operating leases:
| | | | | | | | | | | | | | |
(In thousands, except lease term and discount rate) | | December 31, 2022 | | December 25, 2021 |
| | | | |
Operating lease right-of-use assets | | $ | 22,892 | | | $ | 23,510 | |
| | | | |
Current portion of operating lease liabilities | | 4,942 | | | 6,015 | |
Noncurrent operating lease liabilities | | 16,880 | | | 17,099 | |
| | | | |
Total operating lease liabilities | | $ | 21,822 | | | $ | 23,114 | |
| | | | |
Weighted average discount rate | | 3.35 | % | | 3.67 | % |
Weighted average remaining lease term (in years) | | 6.03 | | 5.51 |
Some of the Company’s leases include variable lease costs such as taxes, insurance, etc. These costs are immaterial for disclosure.
The following table presents certain information related to operating lease costs and cash paid during the period:
| | | | | | | | | | | | | | |
| | For the Year Ended |
(In thousands) | | December 31, 2022 | | December 25, 2021 |
| | | | |
Operating lease costs | | $ | 8,220 | | | $ | 8,365 | |
Short term lease costs | | 4,086 | | | 4,607 | |
| | | | |
Total lease costs | | $ | 12,306 | | | $ | 12,972 | |
| | | | |
Cash paid for amounts included in the measurement of lease liabilities | | $ | 7,787 | | | $ | 7,869 | |
Maturities of the Company’s operating leases are as follows:
| | | | | | | | |
(In thousands) | | Amount |
| | |
2023 | | $ | 5,574 | |
2024 | | 4,130 | |
2025 | | 3,281 | |
2026 | | 3,111 | |
2027 | | 2,801 | |
2028 and thereafter | | 5,569 | |
| | |
Total lease payments | | 24,466 | |
Less imputed interest | | (2,644) | |
| | |
Total lease obligations | | 21,822 | |
Less current obligations | | (4,942) | |
| | |
Noncurrent lease obligations | | $ | 16,880 | |
Note 79 – Property, Plant, and Equipment, Net
| | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 |
| | | | |
Land and land improvements | | $ | 32,707 | | | $ | 34,050 | |
Buildings | | 234,480 | | | 238,033 | |
Machinery and equipment | | 653,997 | | | 657,673 | |
Construction in progress | | 54,748 | | | 34,311 | |
| | | | |
| | 975,932 | | | 964,067 | |
Less accumulated depreciation | | (595,982) | | | (578,505) | |
| | | | |
Property, plant, and equipment, net | | $ | 379,950 | | | $ | 385,562 | |
Depreciation expense for property, plant, and equipment was $38.2 million in 2022, $39.1 million in 2021, and $38.7 million in 2020.
|
| | | | | | | | |
(In thousands) | | 2017 | | 2016 |
| | | | |
Land and land improvements | | $ | 18,740 |
| | $ | 19,928 |
|
Buildings | | 144,527 |
| | 144,914 |
|
Machinery and equipment | | 649,667 |
| | 607,344 |
|
Construction in progress | | 9,274 |
| | 30,344 |
|
| | | | |
| | 822,208 |
| | 802,530 |
|
Less accumulated depreciation | | (517,887 | ) | | (507,299 | ) |
| | | | |
Property, plant, and equipment, net | | $ | 304,321 |
| | $ | 295,231 |
|
Note 810 – Goodwill and Other Intangible Assets
Goodwill
The changes in the carrying amount of goodwill by segment were as follows:
| | (In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Total | (In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Total |
| | | | | | | | | | | | | | | | |
Goodwill | | $ | 156,387 |
| | $ | 8,854 |
| | $ | 4,416 |
| | $ | 169,657 |
| Goodwill | | $ | 184,699 | | | $ | 8,854 | | | $ | 23,616 | | | $ | 217,169 | |
Accumulated impairment charges | | (40,552 | ) | | (8,853 | ) | | — |
| | (49,405 | ) | Accumulated impairment charges | | (40,552) | | | (8,853) | | | — | | | (49,405) | |
| | | | | | | | | | | | | | | | |
Balance at December 26, 2015: | | 115,835 |
| | 1 |
| | 4,416 |
| | 120,252 |
| |
Balance at December 26, 2020: | | Balance at December 26, 2020: | | 144,147 | | | 1 | | | 23,616 | | | 167,764 | |
| | | | | | | | | |
Additions (1) | | 4,601 |
| | — |
| | — |
| | 4,601 |
| |
Additions | | Additions | | 12,098 | | | — | | | — | | | 12,098 | |
Reductions (1) | | Reductions (1) | | (4,402) | | | — | | | (1,964) | | | (6,366) | |
Impairment charges | | Impairment charges | | $ | — | | | $ | — | | | $ | (2,087) | | | $ | (2,087) | |
Currency translation | | (860 | ) | | — |
| | — |
| | (860 | ) | Currency translation | | (79) | | | — | | | — | | | (79) | |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2016: | | 119,576 |
| | 1 |
| | 4,416 |
| | 123,993 |
| |
Balance at December 25, 2021: | | Balance at December 25, 2021: | | 151,764 | | | 1 | | | 19,565 | | | 171,330 | |
| | | | | | | | | |
Additions (2) | | 3,852 |
| | — |
| | — |
| | 3,852 |
| |
| Reductions (2) | | Reductions (2) | | (11,216) | | | — | | | — | | | (11,216) | |
| Currency translation | | 2,448 |
| | — |
| | — |
| | 2,448 |
| Currency translation | | (2,526) | | | — | | | — | | | (2,526) | |
| | | | | | | | | | | | | | | | |
Balance at December 30, 2017: | | |
| | |
| | |
| | |
| |
Balance at December 31, 2022: | | Balance at December 31, 2022: | | | | | | | | |
Goodwill | | 166,428 |
| | 8,854 |
| | 4,416 |
| | 179,698 |
| Goodwill | | 178,574 | | | 8,854 | | | 19,565 | | | 206,993 | |
Accumulated impairment charges | | (40,552 | ) | | (8,853 | ) | | — |
| | (49,405 | ) | Accumulated impairment charges | | (40,552) | | | (8,853) | | | — | | | (49,405) | |
| | | | | | | | | | | | | | | | |
Goodwill, net | | $ | 125,876 |
| | $ | 1 |
| | $ | 4,416 |
| | $ | 130,293 |
| Goodwill, net | | $ | 138,022 | | | $ | 1 | | | $ | 19,565 | | | $ | 157,588 | |
(1) Includes disposals of Die-Mold and STI businesses. | | (1) Includes disposals of Die-Mold and STI businesses. | |
(2) Includes finalization of the purchase price allocation adjustment for Mueller Middle East of $11.2 million. | | (2) Includes finalization of the purchase price allocation adjustment for Mueller Middle East of $11.2 million. |
(1) Includes finalization of the purchase price allocation adjustment for Great Lakes of $4.1 million.
(2) Includes finalization of the purchase price allocation adjustment for Jungwoo-Mueller of $0.2 million.
Reporting units with recorded goodwill include DPS,Domestic Piping Systems Group, B&K LLC, Great Lakes, Heatlink Group, European Operations, Jungwoo-Mueller, Mueller Middle East, Westermeyer, and TurbotecFlex Duct. Several factors give rise to goodwill in the Company’s acquisitions, such as the expected benefit from synergies of the combination and the existing workforce of the acquired businesses. ThereWith the exception of the Turbotec reporting unit, there were no impairment charges resulting from the 2017, 2016,2022, 2021, or 20152020 annual impairment tests as the estimated fair value of each of the reporting units exceeded its carrying value. During the third quarter of 2021, the Company recognized an impairment charge of $2.1 million related to Turbotec, reported within the Climate segment.
Other Intangible Assets
The carrying amount of intangible assets at December 30, 2017 was as follows:
|
| | | | | | | | | | | | |
(In thousands) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | | | | | |
Customer relationships | | $ | 36,518 |
| | $ | (4,644 | ) | | $ | 31,874 |
|
Non-compete agreements | | 2,834 |
| | (1,497 | ) | | 1,337 |
|
Patents and technology | | 7,673 |
| | (1,868 | ) | | 5,805 |
|
Trade names and licenses | | 4,977 |
| | (1,575 | ) | | 3,402 |
|
Other | | 213 |
| | (623 | ) | | (410 | ) |
| | | | | | |
Other intangible assets | | $ | 52,215 |
| | $ | (10,207 | ) | | $ | 42,008 |
|
The carrying amount of intangible assets at December 31, 20162022 was as follows:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | | | | | |
Customer relationships | | $ | 53,156 | | | $ | (15,658) | | | $ | 37,498 | |
Non-compete agreements | | 2,333 | | | (2,333) | | | — | |
Patents and technology | | 18,032 | | | (7,570) | | | 10,462 | |
Trade names and licenses | | 13,374 | | | (6,697) | | | 6,677 | |
Other | | 1,676 | | | (1,528) | | | 148 | |
| | | | | | |
Other intangible assets | | $ | 88,571 | | | $ | (33,786) | | | $ | 54,785 | |
|
| | | | | | | | | | | | |
(In thousands) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | | | | | |
Customer relationships | | $ | 29,833 |
| | $ | (2,845 | ) | | $ | 26,988 |
|
Non-compete agreements | | 5,926 |
| | (4,063 | ) | | 1,863 |
|
Patents and technology | | 5,922 |
| | (1,179 | ) | | 4,743 |
|
Trade names and licenses | | 4,087 |
| | (1,032 | ) | | 3,055 |
|
Other | | 213 |
| | (694 | ) | | (481 | ) |
| | | | | | |
Other intangible assets | | $ | 45,981 |
| | $ | (9,813 | ) | | $ | 36,168 |
|
The carrying amount of intangible assets at December 25, 2021 was as follows:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | | | | | |
Customer relationships | | $ | 55,108 | | | $ | (13,803) | | | $ | 41,305 | |
Non-compete agreements | | 2,474 | | | (2,458) | | | 16 | |
Patents and technology | | 18,396 | | | (6,501) | | | 11,895 | |
Trade names and licenses | | 13,654 | | | (5,598) | | | 8,056 | |
Other | | 1,676 | | | (1,234) | | | 442 | |
| | | | | | |
Other intangible assets | | $ | 91,308 | | | $ | (29,594) | | | $ | 61,714 | |
Amortization expense for intangible assets was $3.1$5.6 million in 2017, $4.32022, $6.3 million in 2016,2021, and $4.1$6.1 million in 2015.2020. Future amortization expense is estimated as follows:
| | | | | | | | |
(In thousands) | | Amount |
| | |
2023 | | $ | 5,145 | |
2024 | | 4,930 | |
2025 | | 4,808 | |
2026 | | 4,663 | |
2027 | | 4,662 | |
Thereafter | | 30,577 | |
| | |
Expected amortization expense | | $ | 54,785 | |
|
| | | | |
(In thousands) | | Amount |
| | |
2018 | | $ | 3,338 |
|
2019 | | 3,253 |
|
2020 | | 3,017 |
|
2021 | | 2,747 |
|
2022 | | 2,851 |
|
Thereafter | | 26,802 |
|
| | |
|
Expected amortization expense | | $ | 42,008 |
|
Note 911 – InvestmentInvestments in Unconsolidated Affiliates
Tecumseh
The Company owns a 50 percent interest in an unconsolidated affiliate that acquired Tecumseh. The Company also owns a 50 percent interest in a second unconsolidated affiliateTecumseh and an entity that provides financing to Tecumseh. Tecumseh is a global manufacturer of hermetically sealed compressors for residential and specialty air conditioning, household refrigerators and freezers, and commercial refrigeration applications, including air conditioning and refrigeration compressors, as well as condensing units, heat pumps, and complete refrigeration systems.
The following tables present summarized financial information derived from the Company’s equity method investees’ combinedinvestee’s consolidated financial statements, which are prepared in accordance with U.S. GAAP.
| | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 |
| | | | |
Current assets | | $ | 248,808 | | | $ | 214,550 | |
Noncurrent assets | | 77,395 | | | 76,406 | |
Current liabilities | | 190,746 | | | 169,155 | |
Noncurrent liabilities | | 43,003 | | | 46,059 | |
| | | | |
Net sales | | $ | 520,950 | | | $ | 452,917 | |
Gross profit | | 98,441 | | | 57,028 | |
Net income (loss) | | 10,338 | | | (3,330) | |
|
| | | | | | | | |
(In thousands) | | 2017 | | 2016 |
| | | | |
Current assets | | $ | 246,127 |
| | $ | 244,323 |
|
Noncurrent assets | | 139,200 |
| | 130,400 |
|
Current liabilities | | 174,710 |
| | 148,806 |
|
Noncurrent liabilities | | 58,334 |
| | 71,681 |
|
| | | | |
Net sales | | $ | 556,600 |
| | $ | 579,400 |
|
Gross profit | | 75,600 |
| | 79,600 |
|
Net (loss) income | | (4,153 | ) | | 3,720 |
|
Included in the equity method investees’The Company’s income (loss) from unconsolidated affiliates, net incomeof foreign tax, for 2016 is a gain2022 and 2021 included net gains of $17.1 million that resulted from the allocation of the purchase price, which was finalized during Tecumseh’s quarter ended December 31, 2015. That gain was offset by restructuring and impairment charges of $5.3$5.2 million and net losses of $8.1 million.$1.7 million, respectively, for Tecumseh.
Retail Distribution
On December 30, 2015,September 2, 2021, the Company acquired a 17 percent noncontrolling equity interest in a limited liability company in the retail distribution business by contributing the outstanding common stock of Die-Mold in exchange for the equity method interest.
The Company’s income (loss) from unconsolidated affiliates, net of foreign tax, for 2022 and 2021 included net gains of $4.9 million and $0.8 million, respectively, for the retail distribution business.
Note 12 – Debt
Credit Agreement
On March 31, 2021, the Company entered into a joint ventureCredit Agreement to replace its prior credit agreement with Cayan Ventures and Bahrain Mumtalakat Holding Company to build a copper tube mill in Bahrain.that would have matured on December 6, 2021. The business will operate and brand its productsCompany’s total borrowing capacity under the Mueller Industries family of brands.Credit Agreement is $500.0 million. The Company has invested approximately $3.9 million of cash to date and will be the technical and marketing lead in return for 40 percent ownership in the joint venture.
Note 10 – New Markets Tax Credit Transactions
On October 18, 2016, the Company entered into a financing transaction with Wells Fargo Community Investment Holdings, LLC (Wells Fargo) related to an equipment modernization project at the Company’s copper tube and line sets production facilities in Fulton, MS. Wells Fargo made a capital contribution and the Company made a loan to MCTC Investment Fund, LLC (Investment Fund) under a qualified New Markets Tax Credit (NMTC) program. The NMTC program was provided for in the Community Renewal Tax Relief Act of 2000 (CRTR Act) and is intended to induce capital investment in qualified lower income communities. The CRTR Act permits taxpayers to claim credits against their Federal income taxes for up to 39 percent of qualified investments in the equity of community development entities (CDEs). CDEs are privately managed investment institutions that are certified to make qualified low-income community investments.
In connection with the financing, the Company loaned $13.7 million aggregate principal amount of a one percent loan (Leverage Loan) due October 17, 2041, to the Investment Fund. Additionally, Wells Fargo contributed $6.6 million to the Investment Fund, and as such, Wells Fargo is entitled to substantially all of the benefits derived from the NMTCs. The Investment Fund then contributed the proceeds to certain CDEs, which, in turn, loaned the funds on similar terms as the Leverage Loan to Mueller Copper Tube Company, Inc. (MCTC), an indirect, wholly-owned subsidiary of the Company. The proceeds of the loans from the CDEs, including loans representing the capital contribution made by Wells Fargo, net of syndication fees, are restricted for use on the modernization project.
The NMTC is subject to 100 percent recapture for a period of seven years as provided in the Internal Revenue Code. The Company is required to comply with various regulations and contractual provisions that apply to the NMTC arrangement. Non-compliance with applicable requirements could result in projected tax benefits not being realized and, therefore, require the Company to indemnify Wells Fargo for any loss or recapture of NMTCs related to the financing until such time as the Company’s obligation to deliver tax benefits is relieved. The Company does not anticipate any credit recaptures will be required in connection with this arrangement. This transaction also includes a put/call provision whereby the Company may be obligated or entitled to repurchase Wells Fargo’s interest in the Investment Fund. The Company believes that Wells Fargo will exercise the put option in October 2023, at the end of the recapture period. The value attributed to the put/call is negligible.
The Company has determined that the financing arrangement with the Investment Fund and CDEs is a variable interest entity (VIE), and that it is the primary beneficiary of the VIE. This conclusion was reached based on the following:
The ongoing activities of the VIE, collecting and remitting interest and fees, and NMTC compliance were all considered in the initial design and are not expected to significantly affect economic performance throughout the life of the VIE;
Contractual arrangements obligate the Company to comply with NMTC rules and regulations and provide various other guarantees to the Investment Fund and CDEs;
Wells Fargo lacks a material interest in the underling economics of the project; and
The Company is obligated to absorb losses of the VIE.
Because the Company is the primary beneficiary of the VIE, it has been included in the Company’s Consolidated Financial Statements. Wells Fargo’s contribution of $6.6 million was initially recorded as restricted cash and its interest in the Investment Fund is included in other liabilities.
Note 11 – Debt
|
| | | | | | | | |
(In thousands) | | 2017 | | 2016 |
| | | | |
Subordinated Debentures with interest at 6.00%, due 2027 | | $ | 284,536 |
| | $ | — |
|
Revolving Credit Facility with interest at 3.06%, due 2021 | | 160,000 |
| | 200,000 |
|
Jungwoo-Mueller credit facility with interest at 2.72%, due 2018 | | 5,119 |
| | 4,724 |
|
Jungwoo-Mueller credit facility with interest at 3.19%, due 2017 | | 8,648 |
| | 7,990 |
|
2001 Series IRB's with interest at 2.22%, due 2021 | | 3,250 |
| | 4,250 |
|
Mueller-Xingrong credit facility | | — |
| | 3,048 |
|
Other | | 4,694 |
| | 8,309 |
|
| | 466,247 |
| | 228,321 |
|
| | | | |
Less debt issuance costs | | (1,175 | ) | | (957 | ) |
Less current portion of debt | | (16,480 | ) | | (13,655 | ) |
| | | | |
Long-term debt | | $ | 448,592 |
| | $ | 213,709 |
|
Subordinated Debentures
On March 9, 2017, the Company distributed a special dividend of $3.00 in cash and $5.00 in principal amount of the Company’s 6% Subordinated Debentures (Debentures) due March 1, 2027 for each share of common stock outstanding. Interest on the Debentures is payable semiannually on September 1 and March 1 and commenced on September 1, 2017. At issuance, the Debentures were recorded at their estimated fair value. The fair value of the Debentures was estimated based on quoted market prices for the same or similar issues, the current rates offered to the Company for debt of the same remaining maturities, or the use of market standard models.
The Debentures are subordinated to all other funded debt of the Company and are callable, in whole or in part, at any time at the option of the Company, subject to declining call premiums during the first five years. The Debentures also grant each holder the right to require the Company to repurchase such holder’s Debentures in the event of a change in control at declining repurchase premiums during the first five years. The Debentures may be redeemed, subject to the conditions set forth above, at the following redemption price (expressed as a percentage of principal amount) plus any accrued but unpaid interest to, but excluding, the redemption date:
If redeemed during the 12-month period beginning March 9:
|
| | |
Year | | Redemption Price |
| | |
2017 | | 106% |
2018 | | 105 |
2019 | | 104 |
2020 | | 103 |
2021 | | 102 |
2022 and thereafter | | 100 |
The effect of the special dividend was a decrease in stockholders’ equity of approximately $458.7 million, an increase in long-term debt of approximately $284.5 million, and a decrease in cash of approximately $174.2 million.
Revolving Credit Facility
The Company’s Credit Agreement provides for an unsecured $350.0$400.0 million revolving credit facility, (Revolving Credit Facility) thatwhich matures on March 31, 2026, and a term loan facility of $100.0 million, with an original maturity date of March 31, 2022. The term loan was fully repaid in 2021, reducing the total borrowing capacity under the Credit Agreement to $400.0 million. There were no borrowings outstanding under the Credit Agreement as of December 6,31, 2022 or December 25, 2021. Borrowings under the Revolving Credit Facility bear interest, at the Company’s option, at
LIBOR the Eurocurrency Rate which is determined by the underlying currency of the Credit Extension or the Base Rate as defined by the Credit Agreement, plus a variable premium. LIBOR advancesAdvances may be based upon the one, three, or six-month LIBOR.interest period. The variable premium is based upon the Company’s debt to total capitalization ratio, and can range from 112.5 to 162.5 basis points for LIBOR basedEurocurrency Rate loans and 12.5 to 62.5 basis points for Base Rate loans. At December 30, 2017,31, 2022, the premium was 150.0112.5 basis points for LIBOREurocurrency Rate loans and 50.012.5 basis points for Base Rate loans. Additionally, a commitment fee is payable quarterly on the total commitment less any outstanding loans or issued letters of credit, and varies from 15.0 to 30.0 basis points based upon the Company’s debt to total capitalization ratio. Availability of funds under the Revolving Credit Facility is reduced by the amount of certain outstanding letters of credit, which are used to secure the Company’s payment of insurance deductibles, and certain retiree health benefits, and other corporate obligations, totaling approximately $8.4$33.1 million at December 30, 2017.31, 2022. Terms of the letters of credit are generally renewable annually.
Subordinated Debentures
During the first quarter of 2021, the Company announced the redemption of its Subordinated Debentures due 2027. The full redemption of outstanding debentures occurred on April 15, 2021 for a total of $291.4 million in principal plus accrued interest and a redemption premium of $5.7 million that was expensed during the second quarter.
Jungwoo-Mueller
Jungwoo-Mueller has several secured revolving credit arrangements with a total borrowing capacity of KRW 29.920.0 billion (or approximately $27.5$15.0 million). Borrowings are secured by the real property and equipment of Jungwoo-Mueller.
Covenants contained in the Company’s financing obligations require, among other things, the maintenance of minimum levels of tangible net worth and the satisfaction of certain minimum financial ratios. At December 30, 2017,31, 2022, the Company was in compliance with all debt covenants.
Aggregate annual maturities of the Company’s debt are as follows:
| | | | | | | | |
(In thousands) | | Amount |
| | |
2023 | | $ | 811 | |
2024 | | 222 | |
2025 | | 204 | |
2026 | | — | |
2027 | | — | |
Thereafter | | 1,500 | |
| | |
Long-term debt | | $ | 2,737 | |
|
| | | | |
(In thousands) | | Amount |
| | |
2018 | | $ | 16,480 |
|
2019 | | 1,222 |
|
2020 | | 1,222 |
|
2021 | | 160,472 |
|
2022 | | 222 |
|
Thereafter | | 286,629 |
|
| | |
|
Long-term debt | | $ | 466,247 |
|
Net interest expense consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 | | 2020 |
| | | | | | |
Interest expense | | $ | 810 | | | $ | 8,096 | | | $ | 19,510 | |
Capitalized interest | | — | | | (387) | | | (263) | |
| | | | | | |
| | $ | 810 | | | $ | 7,709 | | | $ | 19,247 | |
|
| | | | | | | | | | | | |
(In thousands) | | 2017 | | 2016 | | 2015 |
| | | | | | |
Interest expense | | $ | 19,716 |
| | $ | 7,749 |
| | $ | 8,335 |
|
Capitalized interest | | (214 | ) | | (362 | ) | | (668 | ) |
| | | | | | |
| | $ | 19,502 |
| | $ | 7,387 |
| | $ | 7,667 |
|
There was no interest paid in 2022. Interest paid in 2017, 2016,2021 and 20152020 was $13.8 million, $7.1$13.9 million and $8.1$19.8 million, respectively.
Note 1213 – Benefit Plans
Pension and Other Postretirement Plans
The Company sponsors several qualified and nonqualified pension plans and other postretirement benefit plans for certain employees. The information disclosed below does not include the pension plan in South Korea, as it it immaterial to the Company’s Consolidated Financial Statements. The following tables provide a reconciliation of the changes in the most significant plans’ benefit obligations and the fair value of the plans’ assets for 20172022 and 2016,2021, and a statement of the plans’ aggregate funded status:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
(In thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
Change in benefit obligation: | | | | | | | | |
Obligation at beginning of year | | $ | 84,283 | | | $ | 90,809 | | | $ | 11,825 | | | $ | 12,782 | |
Service cost | | — | | | — | | | 291 | | | 258 | |
Interest cost | | 1,450 | | | 1,272 | | | 346 | | | 281 | |
Actuarial gain | | (24,154) | | | (4,062) | | | (2,604) | | | (812) | |
| | | | | | | | |
| | | | | | | | |
Benefit payments | | (2,512) | | | (2,832) | | | (547) | | | (634) | |
| | | | | | | | |
| | | | | | | | |
Foreign currency translation adjustment | | (8,306) | | | (904) | | | (71) | | | (50) | |
| | | | | | | | |
Obligation at end of year | | 50,761 | | | 84,283 | | | 9,240 | | | 11,825 | |
| | | | | | | | |
Change in fair value of plan assets: | | | | | | | | |
Fair value of plan assets at beginning of year | | 79,478 | | | 78,480 | | | — | | | — | |
Actual return on plan assets | | (6,371) | | | 4,791 | | | — | | | — | |
Employer contributions | | — | | | — | | | 547 | | | 634 | |
Benefit payments | | (2,512) | | | (2,832) | | | (547) | | | (634) | |
| | | | | | | | |
| | | | | | | | |
Foreign currency translation adjustment | | (8,297) | | | (961) | | | — | | | — | |
| | | | | | | | |
Fair value of plan assets at end of year | | 62,298 | | | 79,478 | | | — | | | — | |
| | | | | | | | |
Funded (underfunded) status at end of year | | $ | 11,537 | | | $ | (4,805) | | | $ | (9,240) | | | $ | (11,825) | |
|
| | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
(In thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
Change in benefit obligation: | | | | | | | | |
Obligation at beginning of year | | $ | 178,736 |
| | $ | 192,761 |
| | $ | 15,274 |
| | $ | 15,843 |
|
Service cost | | 128 |
| | 532 |
| | 235 |
| | 232 |
|
Interest cost | | 6,344 |
| | 7,553 |
| | 599 |
| | 594 |
|
Actuarial loss (gain) | | 4,688 |
| | 9,399 |
| | 923 |
| | (249 | ) |
Plan amendments | | — |
| | — |
| | — |
| | 43 |
|
Benefit payments | | (10,171 | ) | | (17,572 | ) | | (883 | ) | | (1,023 | ) |
Settlement charge | | — |
| | — |
| | (209 | ) | | — |
|
Foreign currency translation adjustment | | 7,041 |
| | (13,937 | ) | | 468 |
| | (166 | ) |
| | | | | | | | |
Obligation at end of year | | 186,766 |
| | 178,736 |
| | 16,407 |
| | 15,274 |
|
| | | | | | | | |
Change in fair value of plan assets: | | |
| | |
| | |
| | |
|
Fair value of plan assets at beginning of year | | 169,140 |
| | 176,077 |
| | — |
| | — |
|
Actual return on plan assets | | 19,175 |
| | 19,319 |
| | — |
| | — |
|
Employer contributions | | 2,271 |
| | 2,377 |
| | 883 |
| | 1,023 |
|
Benefit payments | | (10,171 | ) | | (17,572 | ) | | (883 | ) | | (1,023 | ) |
Foreign currency translation adjustment | | 5,921 |
| | (11,061 | ) | | — |
| | — |
|
| | | | | | | | |
Fair value of plan assets at end of year | | 186,336 |
| | 169,140 |
| | — |
| | — |
|
| | | | | | | | |
Underfunded status at end of year | | $ | (430 | ) | | $ | (9,596 | ) | | $ | (16,407 | ) | | $ | (15,274 | ) |
During 2016, the Company offered a lump sum window to certain inactive participants in one of its pension plans, resulting in incremental benefit payments of $7.0 million and a settlement charge of $1.2 million.
The following represents amounts recognized in AOCI (before the effect of income taxes):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
(In thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
Unrecognized net actuarial loss (gain) | | $ | 2,870 | | | $ | 19,629 | | | $ | (4,149) | | | $ | (1,893) | |
Unrecognized prior service credit | | — | | | — | | | (19) | | | (1,930) | |
|
| | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
(In thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
Unrecognized net actuarial loss | | $ | 34,627 |
| | $ | 39,986 |
| | $ | 1,540 |
| | $ | 614 |
|
Unrecognized prior service credit | | — |
| | — |
| | (7,289 | ) | | (8,180 | ) |
The Company sponsors one pension plan in the U.K. which comprised 44 and 42 percent of the above benefit obligation at December 30, 2017 and December 31, 2016, respectively, and 39 and 36 percent of the above plan assets at December 30, 2017 and December 31, 2016, respectively.
As of December 30, 2017, $1.531, 2022, $0.5 million of the actuarial net loss and $0.9 millionthe remainder of the prior service credit will, through amortization, be recognized as components of net periodic benefit cost in 2018.2023.
The aggregate status of all overfunded plans is recognized as an asset and the aggregate status of all underfunded plans is recognized as a liability in the Consolidated Balance Sheets. The amounts recognized as a liability are classified as current or long-term on a plan-by-plan basis. Liabilities are classified as current to the extent the actuarial present value of benefits payable within the next 12 months exceeds the fair value of plan assets, with all remaining amounts classified as long-term.
As of December 30, 201731, 2022 and December 31, 2016,25, 2021, the total funded status of the plans recognized in the Consolidated Balance Sheets was as follows:
| | | | Pension Benefits | | Other Benefits | | | Pension Benefits | | Other Benefits |
(In thousands) | | 2017 | | 2016 | | 2017 | | 2016 | (In thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | | | | | | | | | |
Long-term asset | | $ | 9,894 |
| | $ | 4,442 |
| | $ | — |
| | $ | — |
| Long-term asset | | $ | 11,537 | | | $ | — | | | $ | — | | | $ | — | |
Current liability | | — |
| | — |
| | (1,070 | ) | | (1,128 | ) | Current liability | | $ | — | | | $ | — | | | $ | (1,068) | | | $ | (962) | |
Long-term liability | | (10,324 | ) | | (14,038 | ) | | (15,337 | ) | | (14,146 | ) | Long-term liability | | — | | | (4,805) | | | (8,172) | | | (10,863) | |
| | | | | | | | | | | | | | | | |
Total underfunded status | | $ | (430 | ) | | $ | (9,596 | ) | | $ | (16,407 | ) | | $ | (15,274 | ) | |
Total (underfunded) funded status | | Total (underfunded) funded status | | $ | 11,537 | | | $ | (4,805) | | | $ | (9,240) | | | $ | (11,825) | |
The components of net periodic benefit cost (income) are as follows:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 | | 2020 |
Pension benefits: | | | | | | |
| | | | | | |
Interest cost | | $ | 1,450 | | | $ | 1,272 | | | $ | 3,260 | |
Expected return on plan assets | | (3,568) | | | (3,671) | | | (5,704) | |
| | | | | | |
Amortization of net loss | | 897 | | | 1,536 | | | 2,305 | |
Settlement charge | | — | | | — | | | 11,642 | |
| | | | | | |
Net periodic benefit (income) cost | | $ | (1,221) | | | $ | (863) | | | $ | 11,503 | |
| | | | | | |
Other benefits: | | | | | | |
Service cost | | $ | 291 | | | $ | 258 | | | $ | 212 | |
Interest cost | | 346 | | | 281 | | | 430 | |
Amortization of prior service credit | | (198) | | | (470) | | | (519) | |
Amortization of net gain | | (220) | | | (103) | | | (193) | |
Curtailment gain | | (1,756) | | | — | | | (2,591) | |
| | | | | | |
| | | | | | |
Net periodic benefit income | | $ | (1,537) | | | $ | (34) | | | $ | (2,661) | |
|
| | | | | | | | | | | | |
(In thousands) | | 2017 | | 2016 | | 2015 |
Pension benefits: | | | | | | |
Service cost | | $ | 128 |
| | $ | 532 |
| | $ | 803 |
|
Interest cost | | 6,344 |
| | 7,553 |
| | 8,032 |
|
Expected return on plan assets | | (9,374 | ) | | (9,615 | ) | | (10,289 | ) |
Amortization of net loss | | 2,206 |
| | 2,898 |
| | 2,710 |
|
Settlement charge | | — |
| | 1,214 |
| | — |
|
| | | | | | |
Net periodic benefit (income) cost | | $ | (696 | ) | | $ | 2,582 |
| | $ | 1,256 |
|
| | | | | | |
Other benefits: | | |
| | |
| | |
|
Service cost | | $ | 235 |
| | $ | 232 |
| | $ | 363 |
|
Interest cost | | 599 |
| | 594 |
| | 1,005 |
|
Amortization of prior service (credit) cost | | (901 | ) | | (896 | ) | | 6 |
|
Amortization of net gain | | (42 | ) | | (60 | ) | | (28 | ) |
Settlement charge | | 17 |
| | — |
| | — |
|
| | | | | | |
Net periodic benefit (income) cost | | $ | (92 | ) | | $ | (130 | ) | | $ | 1,346 |
|
During 2022 and 2020, the Company recognized curtailment gains of $1.8 million and $2.6 million, respectively, related to one of its postretirement benefit plans.
The components of net periodic benefit cost (income) other than the service cost component are included in other income, net in the Consolidated Statements of Income.
The weighted average assumptions used in the measurement of the Company’s benefit obligations are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
Discount rate | | 4.80 | % | | 1.90 | % | | 6.08 | % | | 3.73 | % |
Expected long-term return on plan assets | | 5.51 | % | | 4.96 | % | | N/A | | N/A |
Rate of compensation increases | | N/A | | N/A | | 5.00 | % | | 5.00 | % |
Rate of inflation | | 3.30 | % | | 3.70 | % | | N/A | | N/A |
|
| | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
Discount rate | | 3.22 | % | | 3.61 | % | | 3.89 | % | | 4.21 | % |
Expected long-term return on plan assets | | 5.27 | % | | 5.56 | % | | N/A |
| | N/A |
|
Rate of compensation increases | | N/A |
| | N/A |
| | 5.00 | % | | 5.00 | % |
Rate of inflation | | 3.30 | % | | 3.30 | % | | N/A |
| | N/A |
|
The weighted average assumptions used in the measurement of the Company’s net periodic benefit cost are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
| | | | | | | | | | | | |
Discount rate | | 1.90 | % | | 1.40 | % | | 1.93 | % | | 3.73 | % | | 2.92 | % | | 3.70 | % |
Expected long-term return on plan assets | | 4.96 | % | | 4.69 | % | | 3.84 | % | | N/A | | N/A | | N/A |
Rate of compensation increases | | N/A | | N/A | | N/A | | 5.00 | % | | 5.00 | % | | 5.00 | % |
Rate of inflation | | 3.70 | % | | 3.20 | % | | 3.20 | % | | N/A | | N/A | | N/A |
|
| | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| | | | | | | | | | | | |
Discount rate | | 3.61 | % | | 4.02 | % | | 4.03 | % | | 4.21 | % | | 4.25 | % | | 4.33 | % |
Expected long-term return on plan assets | | 5.56 | % | | 5.59 | % | | 5.58 | % | | N/A |
| | N/A |
| | N/A |
|
Rate of compensation increases | | N/A |
| | N/A |
| | N/A |
| | 5.00 | % | | 5.00 | % | | 5.00 | % |
Rate of inflation | | 3.30 | % | | 3.20 | % | | 3.10 | % | | N/A |
| | N/A |
| | N/A |
|
The Company’s Mexican postretirement plans use the rate of compensation increase in the benefit formulas. Past service in the U.K. pension plan will be adjusted for the effects of inflation. All other pension and postretirement plans use benefit formulas based on length of service.
The annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) is assumed to range from 6.64.7 to 10.17.2 percent for 2018,2023, gradually decrease to 3.04.1 percent through 2036,2040, and remain at that level thereafter. The health care cost trend rate assumption does not have a significant effect on the amounts reported.
Pension Assets
The weighted average asset allocation of the Company’s pension fund assets are as follows:
| | | | | | | | | | | | | | |
| | Pension Plan Assets |
Asset category | | 2022 | | 2021 |
| | | | |
| | | | |
Equity securities (includes equity mutual funds) | | 67 | % | | 66 | % |
Multi-asset securities | | 22 | | | 24 | |
Cash and equivalents (includes money market funds) | | 1 | | | — | |
Alternative investments | | 10 | | | 10 | |
| | | | |
Total | | 100 | % | | 100 | % |
|
| | | | | | |
| | Pension Plan Assets |
Asset category | | 2017 | | 2016 |
| | | | |
Equity securities (includes equity mutual funds) | | 46 | % | | 47 | % |
Fixed income securities (includes fixed income mutual funds) | | 48 |
| | 48 |
|
Cash and equivalents (includes money market funds) | | 3 |
| | 3 |
|
Alternative investments | | 3 |
| | 2 |
|
| | | | |
Total | | 100 | % | | 100 | % |
At December 30, 2017,31, 2022, the long-term target allocation, by asset category, of assets of the Company’s defined benefit pension plans was: (i) fixed incomeequity securities – at least 60 percent; (ii) equityand multi-asset securities, including equity index funds – not moreless than 3070 percent; and (iii)(ii) alternative investments – not more than 510 percent.
The pension plan obligations are long-term and, accordingly, the plan assets are invested for the long-term. Plan assets are monitored periodically. Based upon results, investment managers and/or asset classes are redeployed when considered necessary. None of the plans’ assets are expected to be returned to the Company during the next fiscal year. The assets of the plans do not include investments in securities issued by the Company.
The estimated rates of return on plan assets are the expected future long-term rates of earnings on plan assets and are forward-looking assumptions that materially affect pension cost. Establishing the expected future rates of return on pension assets is a judgmental matter. The Company reviews the expected long-term rates of return on an annual basis and revises as appropriate. The expected long-term rate of return on plan assets was 5.275.51 percent for 20172022 and 5.564.96 percent in 2016.2021.
The Company’s investments for its pension plans are reported at fair value. The following methods and assumptions were used to estimate the fair value of the Company’s plan asset investments:
Cash and money market funds – Valued at cost, which approximates fair value.
Common stock – Valued at the closing price reported on the active market on which the individual securities are traded.
Mutual funds – Valued at the net asset value of shares held by the plans at December 30, 201731, 2022 and December 31, 2016,25, 2021, respectively, based upon quoted market prices.
Limited partnerships – Limited partnerships includecomprise a diversified portfolio of real estate investments in various Cayman Island multi-strategy hedge funds. The plans’ investments in limited partnershipswhich are valuedclassified as Level 3 due to a lack of observable inputs existing at the estimated fair value of the class shares owned by the plans based upon the equity in the estimated fair value of those shares. The estimated fair values of the limited partnerships are determined by the investment managers. In determining fair value, the investment managers of the limited partnerships utilize the estimated net asset valuations of the underlying investment entities. The underlying investment entities value securities and other financial instruments on a mark-to-market or estimated fair value basis. The estimated fair value is determined by the investment managers based upon, among other things, the type of investments, purchase price, marketability, current financial condition, operating results, and other information. The estimated fair values of substantially all of the investments of the underlying investment entities, which may include securities for which prices are not readily available, are determined by the investment managers or management of the respective underlying investment entities and may not reflect amounts that could be realized upon immediate sale.measurement date. Accordingly, the estimated fair values may differ significantly from the values that would have been used had a ready market existed for these investments. Limited partnership investments are recorded at estimated fair value based on financial information received from the investment manager. The investment manager determines fair value based upon, among other things, property valuations received from valuation specialists at regular intervals.
The following table sets forth by level, within the fair value hierarchy, the assets of the plans at fair value:
| | | | Fair Value Measurements at December 30, 2017 | | | Fair Value Measurements at December 31, 2022 |
(In thousands) | | Level 1 | | Level 2 | | Level 3 | | Total | (In thousands) | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | | | | | | | | | |
Cash and money market funds | | $ | 5,364 |
| | $ | — |
| | $ | — |
| | $ | 5,364 |
| Cash and money market funds | | $ | 829 | | | $ | — | | | $ | — | | | $ | 829 | |
Common stock (1) | | 11,113 |
| | — |
| | — |
| | 11,113 |
| |
Mutual funds (2) | | 8,412 |
| | 156,442 |
| | — |
| | 164,854 |
| |
| Mutual funds (1) | | Mutual funds (1) | | — | | | 55,441 | | | — | | | 55,441 | |
Limited partnerships | | — |
| | — |
| | 5,005 |
| | 5,005 |
| Limited partnerships | | — | | | — | | | 6,028 | | | 6,028 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 24,889 |
| | $ | 156,442 |
| | $ | 5,005 |
| | $ | 186,336 |
| Total | | $ | 829 | | | $ | 55,441 | | | $ | 6,028 | | | $ | 62,298 | |
| | | | Fair Value Measurements at December 31, 2016 | | | Fair Value Measurements at December 25, 2021 |
(In thousands) | | Level 1 | | Level 2 | | Level 3 | | Total | (In thousands) | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | | | | | | | | | |
Cash and money market funds | | $ | 4,245 |
| | $ | — |
| | $ | — |
| | $ | 4,245 |
| Cash and money market funds | | $ | 292 | | | $ | — | | | $ | — | | | $ | 292 | |
Common stock (3) | | 18,601 |
| | — |
| | — |
| | 18,601 |
| |
Mutual funds (4) | | 5,572 |
| | 136,027 |
| | — |
| | 141,599 |
| |
| Mutual funds (2) | | Mutual funds (2) | | — | | | 71,465 | | | — | | | 71,465 | |
Limited partnerships | | — |
| | — |
| | 4,695 |
| | 4,695 |
| Limited partnerships | | — | | | — | | | 7,721 | | | 7,721 | |
| | | | | | | | | | | | | | | | |
Total | | $ | 28,418 |
| | $ | 136,027 |
| | $ | 4,695 |
| | $ | 169,140 |
| Total | | $ | 292 | | | $ | 71,465 | | | $ | 7,721 | | | $ | 79,478 | |
| |
(1)
| Approximately 91 percent of common stock represents investments in U.S. companies primarily in the health care, utilities, financials, consumer staples, industrials, and information technology sectors. All investments in common stock are listed on U.S. stock exchanges. |
| |
(2)
| Approximately 66 percent of mutual funds are actively managed funds and approximately 34 percent of mutual funds are index funds. Additionally, five percent of the mutual funds’ assets are invested in U.S. equities, 41 percent in non-U.S. equities, 52 percent in U.S. fixed income securities, and two percent in non-U.S. fixed income securities. |
| |
(3)
| Approximately 90 percent of common stock represents investments in U.S. companies primarily in the health care, utilities, financials, consumer staples, industrials, and information technology sectors. All investments in common stock are listed on U.S. stock exchanges. |
| |
(4)
| Approximately 68 percent of mutual funds are actively managed funds and approximately 32 percent of mutual funds are index funds. Additionally, five percent of the mutual funds’ assets are invested in U.S. equities, 38 percent in non-U.S. equities, 54 percent in U.S. fixed income securities, and three percent in non-U.S. fixed income securities. |
(1)Approximately 78 percent of mutual funds are actively managed funds and approximately 22 percent of mutual funds are index funds. Additionally, 24 percent of the mutual funds’ assets are invested in non-U.S. multi-asset securities and 76 percent in non-U.S. equities.
(2)Approximately 78 percent of mutual funds are actively managed funds and approximately 22 percent of mutual funds are index funds. Additionally, 27 percent of the mutual funds’ assets are invested in non-U.S. multi-asset securities and 73 percent in non-U.S. equities.
The table below reflects the changes in the assets of the plan measured at fair value on a recurring basis using significant unobservable inputs (level 3 of fair value hierarchy) during the year ended December 30, 2017:31, 2022:
| | | | | | | | |
(In thousands) | | Limited Partnerships |
| | |
Balance, December 25, 2021 | | $ | 7,721 | |
| | |
| | |
| | |
Net depreciation in fair value | | (1,693) | |
| | |
Balance, December 31, 2022 | | $ | 6,028 | |
|
| | | | |
(In thousands) | | Limited Partnerships |
| | |
Balance, December 31, 2016 | | $ | 4,695 |
|
Redemptions | | (283 | ) |
Subscriptions | | 273 |
|
Net appreciation in fair value | | 320 |
|
| | |
|
Balance, December 30, 2017 | | $ | 5,005 |
|
Contributions and Benefit Payments
The Company does not expect to contribute to the U.K. pension plan, other than to reimburse expenses, and expects to contribute approximately $1.0 million to its pension plans and $1.2$1.1 million to its other postretirement benefit plans in 2017.2023. The Company expects future benefits to be paid from the plans as follows:
| | | | | | | | | | | | | | |
(In thousands) | | Pension Benefits | | Other Benefits |
| | | | |
2023 | | $ | 2,525 | | | $ | 1,067 | |
2024 | | 2,616 | | | 862 | |
2025 | | 2,710 | | | 1,001 | |
2026 | | 2,807 | | | 1,014 | |
2027 | | 2,908 | | | 834 | |
2028-2032 | | 16,180 | | | 4,097 | |
| | | | |
Total | | $ | 29,746 | | | $ | 8,875 | |
|
| | | | | | | | |
(In thousands) | | Pension Benefits | | Other Benefits |
| | | | |
2018 | | $ | 10,423 |
| | $ | 1,177 |
|
2019 | | 10,398 |
| | 1,056 |
|
2020 | | 10,329 |
| | 1,277 |
|
2021 | | 10,246 |
| | 1,129 |
|
2022 | | 10,182 |
| | 1,157 |
|
2023-2027 | | 49,965 |
| | 6,154 |
|
| | | | |
Total | | $ | 101,543 |
| | $ | 11,950 |
|
Multiemployer Plan
The Company contributes to the IAM National Pension Fund, National Pension Plan (IAM Plan), a multiemployer defined benefit plan. Participation in the IAM Plan was negotiated under the terms of two collective bargaining agreements in Port Huron, Michigan, the Local 218 IAM and Local 44 UAW that expire on May 5, 20193, 2026 and July 21, 2019,May 4, 2025, respectively. The Employer Identification Number for this plan is 51-6031295.
The risks of participating in multiemployer plans are different from single-employer plans in the following aspects: (i) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; (ii) if a participating employer stops contributing to the plan, the underfunded obligations of the plan may be borne by the remaining participating employers; (iii) if the Company chooses to stop participating in the plan, the Company may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
The Company makes contributions to the IAM Plan trusts that cover certain union employees; contributions by employees are not permitted. Contributions to the IAM Plan were approximately $1.1$1.4 million each year in 2017, 2016,2022, $1.3 million in 2021, and 2015.$1.2 million in 2020. The Company’s contributions are less than five percent of total employer contributions made to the IAM Plan indicated in the most recently filed Form 5500.
Under the Pension Protection Act of 2006, the IAM Plan’s actuary must certify the plan’s zone status annually. Plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. If a plan is determined to be in endangered status, red zone or yellow zone, the plan’s trustees must develop a formal plan of corrective action, a Financial Improvement Plan and/or a Rehabilitation Plan. For 20172022 and 20162021 the IAM Plan was determinedwell funded over 80 percent; but remained in the red zone due to have green zone status; therefore, no formalthe trustees’ election to voluntarily place the fund in critical status in 2019 to strengthen its funding position. The fund has remained in critical status since that election and is not projected to emerge from critical status in the upcoming year. The plan seeks to strengthen its financial health by reducing and eliminating most adjustable benefits as allowed by federal law.
As of corrective action is either pending or has been implemented.December 31, 2022, the Company withdrew from the IAM Plan and recognized $13.1 million in related expenses, which represents the Company’s best estimate of probable loss for the related withdrawal liability.
401(k) Plans
The Company sponsors voluntary employee savings plans that qualify under Section 401(k) of the Internal Revenue Code of 1986. Compensation expense for the Company’s matching contribution to the 401(k) plans was $5.1$4.9 million in 2017, $5.22022, $4.5 million in 2016,2021, and $4.2$4.0 million in 2015.2020. The Company match is a cash contribution. Participants direct the investment of their account balances by allocating among a range of asset classes including mutual funds (equity, fixed income, and balanced funds) and money market funds. The plans do not allow direct investment in securities issued by the Company.
In October 1992, the Coal Industry Retiree Health Benefit Act of 1992 (1992 Act) was enacted. The 1992 Act mandates a method of providing for postretirement benefits to the United Mine Workers of America (UMWA) current and retired employees, including some retirees who were never employed by the Company. In October 1993, beneficiaries were assigned to the Company and the Company began its mandated contributions to the UMWA Combined Benefit Fund, a multiemployer trust. Beginning in 1994, the Company was required to make contributions for assigned beneficiaries under an additional multiemployer trust created by the 1992 Act, the UMWA 1992 Benefit Plan. The ultimate amount of the Company’s liability under the 1992 Act will vary due to factors which include, among other things, the validity, interpretation, and regulation of the 1992 Act, its joint and several obligation, the number of valid beneficiaries assigned, and the extent to which funding for this obligation will be satisfied by transfers of excess assets from the 1950 UMWA pension plan and transfers from the Abandoned Mine Reclamation Fund. Contributions to the plan were $182 thousand, $197 thousand, and $214 thousand for the years ended 2017, 2016, and 2015, respectively.
Note 1314 – Commitments and Contingencies
Environmental
The Company is subject to federal, state, local, and foreign environmental laws and regulations. For all properties, the Company has provided and charged to expense $7.5$1.4 million in 2017, $0.92022, $5.0 million in 2016,2021, and $0.1$4.2 million in 20152020 for pending environmental matters. Environmental reserves totaled $28.0 million at December 30, 2017 and $21.9$20.5 million at December 31, 2016.2022 and $27.4 million at December 25, 2021. As of December 30, 2017,31, 2022, the Company expects to spend $4.3$4.0 million in 2018, $2.22023, $2.0 million in 2019, $2.12024, $0.8 million in 2020, $0.62025, $0.7 million in 2021, $0.62026, $0.7 million in 2022,2027, and $18.2$12.3 million thereafter for ongoing projects.
Non-operating Properties
Southeast Kansas Sites
The Kansas Department of Health and Environment (KDHE) has contacted the Company regarding environmental contamination at three former smelter sites in Kansas (Altoona, East La Harpe, and Lanyon). The Company is not a successor to the companies that operated these smelter sites, but is exploringhas explored possible settlement with KDHE and other potentially responsible parties (PRP) in order to avoid litigation.
In February 2022, the Company reached a settlement with another PRP relating to these three sites.Under the terms of that agreement, the Company paid $5.6 million, which was previously reserved, in exchange for the other PRP’s agreement to conduct or fund any required remediation with the geographic boundaries of the three sites (namely, the parcel(s) on which the former smelters were located), plus coverage of certain off-site areas (namely, contamination that migrated by surface water runoff or air emissions from the Altoona or East La Harpe site, and smelter materials located within 50 feet of the geographic boundary of each site).The settlement does not cover certain matters, including potential liability related to the remediation of the town of Iola which is not estimable at this time. The other PRP has also provided an indemnity that would cover third-party cleanup claims for those sites, subject to a time limit and a cap.
Altoona. Another PRP conducted a site investigation of the Altoona site under a consent decree with KDHE and submitted a removal site evaluation report recommending a remedy. The remedial design plan, which covers both on-site and certain off-site cleanup costs, was approved by the KDHE in 2016. Construction of the remedy was completed in 2018. Under the terms of the settlement with the other PRP, the Company expects the operations and maintenance costs for this remedy to be paid for entirely by the other PRP.
East La Harpe.At the East La Harpe site, the Company and two other PRPs conducted a site study evaluation under KDHE supervision and prepared a site cleanup plan approved by KDHE. In 2016,December 2018, KDHE provided a draft agreement which contemplates the corporate parentuse of a third party thatfunds KDHE obtained from two other parties (Peabody Energy and Blue Tee) to fund part of the remediation, and removes Blue Tee from the PRPs’ agreement with KDHE. Pursuant to the terms of the settlement with the other PRP noted above, the Company understands may owe indemnification obligationsexpects the remediation to one ofbe conducted and paid for entirely by the other PRPs in connectionPRP, and for that other PRP to negotiate and enter into an agreement with the East La Harpe site filed for protection under Chapter 11 of the U.S. Bankruptcy Code. KDHE has extended the deadline for the PRPs to develop a repository design plan to allow for wetlands permitting to take place.KDHE.
Lanyon. With respect to the Lanyon Site, in 2016, the Company received a general notice letter from the United States Environmental Protection Agency (EPA) asserting that the Company is a PRP, which the Company has denied. The Company’s reserve for its proportionate shareEPA issued an interim record of decision in 2017 and has been remediating properties at the remediation costs associated withsite. According to EPA, 1,371 properties in total will be remediated, and the Southeast Kansas sites is $5.6 million.work will continue into 2023.
Shasta Area Mine Sites
Mining Remedial Recovery Company (MRRC), a wholly owned subsidiary, owns certain inactive mines in Shasta County, California. MRRC has continued a program, begun in the late 1980s, of implementing various remedial measures, including sealing mine portals with concrete plugs in portals that were discharging water. The sealing program achieved significant reductions in the metal load in discharges from these adits; however, additional reductions are required pursuant to an order issued by the California Regional Water Quality Control Board (QCB). In response to a 1996 QCB Order, MRRC completed a feasibility study in 1997 describing measures designed to mitigate the effects of acid rock drainage. In December 1998, the QCB modified the
1996 order extending MRRC’s time to comply with water quality standards. In September 2002, the QCB adopted a new order requiring MRRC to adopt Best Management Practices (BMP) to control discharges of acid mine drainage, and again extended the time to comply with water quality standards until September 2007. During that time, implementation of BMP further reduced impacts of acid rock drainage; however, full compliance has not been achieved. The QCB is presently
renewing MRRC’s discharge permit and will concurrently issue a new order. It is expected that the new 10-year permit will include an order requiring continued implementation of BMP through 20252033 to address residual discharges of acid rock drainage. At this site, MRRC spent approximately $1.2$1.3 million from 20152020 through 20172022 for remediation, and currently estimates that it will spend between approximately $12.8$14.1 million and $17.6$16.1 million over the next 30 years.years and has accrued a reserve at the low end of this range.
Lead Refinery Site
U.S.S. Lead Refinery, Inc. (Lead Refinery), a non-operating wholly owned subsidiary of MRRC, has conducted corrective action and interim remedial activities (collectively, Site Activities) at Lead Refinery’s East Chicago, Indiana site pursuant to the Resource Conservation and Recovery Act since December 1996. Although the Site Activities have been substantially concluded, Lead Refinery is required to perform monitoring and maintenance-related activities pursuant to a post-closure permit issued by the Indiana Department of Environmental Management effective as of March 2, 2013. Lead Refinery spent approximately $0.6$0.4 million from 20152020 through 20172022 with respect to this site. Approximate costs to comply with the post-closure permit, including associated general and administrative costs, are estimated at between $1.8$1.6 million and $3.0$2.4 million over the next 1914 years. The Company has recorded a reserve at the low end of this range.
On April 9, 2009, pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the U.S. Environmental Protection Agency (EPA) added the Lead Refinery site and surrounding properties to the National Priorities List (NPL). On July 17, 2009, Lead Refinery received a written notice from the EPA indicating that it may be a PRP under CERCLA due to the release or threat of release of hazardous substances including lead into properties surrounding the Lead Refinery NPL site. The EPA identified two other PRPs in connection with that matter. In November 2012, the EPA adopted a remedy for the surrounding properties and in September 2014, the EPA announced that it had entered into a settlement with the two other PRPs whereby they will pay approximately $26.0 million to fund the cleanup of approximately 300 properties surrounding the Lead Refinery NPL site (zones 1 and 3 of operable unit 1) and perform certain remedial action tasks.
On November 8, 2016, the Company, its subsidiary Arava Natural Resources Company, Inc. (Arava), and Arava’s subsidiary MRRC each received general notice letters from the EPA asserting that they may be PRPs in connection with the Lead Refinery NPL site. The Company, Arava, and MRRC have denied liability for any remedial action and response costs associated with the Lead Refinery NPL site. In June 2017, the EPA requested that Lead Refinery conduct, and the Company fund, a remedial investigation and feasibility study of operable unit 2 of the Lead Refinery NPL site pursuant to a proposed administrative settlement agreement and order on consent. The Company and Lead Refinery entered into that agreement in September 2017. The Company will makehas made a capital contribution to Lead Refinery to conduct the remedial investigation and feasibility study with respect to operable unit 2 and provide ahas provided financial guaranteeassurance in the amount of $1.0 million. The remedial investigation and feasibility study remain ongoing. The EPA has also asserted its position that Muellerthe Company is a responsible party for the Lead Refinery NPL site, and accordingly is responsible for a share of remedial action and response costs at the site and in the adjacent residential area.
In January 2018, the EPA issued two unilateral administrative orders (UAOs) directing the Company, Lead Refinery, and four other PRPs to conduct soil and interior remediation of certain residences at the Lead Refinery NPL site (zones 2 and 3 of operable unit 1). TheSubsequent thereto, the Company and Lead Refinery have reached agreement with the four other PRPs to implement these two UAOs, with the Company agreeing to pay, on an interim basis, (i) an estimated $4.5 million (subject to potential change through a future reallocation process) of the approximately $25.0 million the PRPs currently estimatethen estimated it willwould cost to implement the UAOs, which estimate is subject to change, and (ii) $2.0 million relating to past costs incurred by other PRPs for work conducted at the site. These amounts are includedsite, as well as the possibility of up to $0.7 million in further payments for ongoing work by those PRPs. As of year-end, the Company’s reserve for environmental liabilities asCompany has made payments of December 30, 2017.approximately $7.6 million related to the aforementioned agreement with the other PRPs. The Company disputes that it was properly named in the UAOs,UAOs. In March 2022, Lead Refinery entered into an administrative settlement agreement and has reserved its rights to petitionorder on consent with the EPA, for reimbursement of any costs incurred to complyalong with the UAOs uponfour other PRPs, which involves payment of certain past and future costs relating to operable unit 1, in exchange for certain releases and contribution protection for the completionCompany, Lead Refinery, and their respective affiliates relating to that operable unit. The settlement became effective in September 2022. The Company reserved $3.3 million for this settlement at the end of the work required therein. 2021. In October 2017,March 2018, a group of private plaintiffs sued the Company, Arava, MRRC, and Lead Refinery, along with other defendants, in a privatecivil tort action relating to the site. The Company, Arava, and MRRC have been voluntarily dismissed from that litigation without prejudice. Lead Refinery’s motion to dismiss the matter was granted without prejudice, but plaintiffs in that case have repled certain of their claims. At this juncture, the Company is unable to determine the likelihood of a material adverse outcome or the amount or range of a potential loss in excess of the current reserve with respect to any remedial action or litigation relating to the Lead Refinery NPL site, either at Lead Refinery’s former operating site (operable unit 2) or the adjacent
residential area (operable unit 1). , including, but not limited to, EPA oversight costs for which the EPA may attempt to seek reimbursement from the Company, and past costs for which other PRPs may attempt to seek contribution from the Company.
Bonita Peak Mining District
Following an August 2015 spill from the Gold King Mine into the Animas River near Silverton, Colorado, the EPA listed the Bonita Peak Mining District on the NPL. Said listing was finalized in September 2016. The Bonita Peak Mining District encompasses 48 mining sites within the Animas River watershed, including the Sunnyside Mine, the American Tunnel, and the Sunbank Group. On or about July 25, 2017, Washington Mining Company (Washington Mining) (a wholly-owned subsidiary of
the Company’s wholly-owned subsidiary, Arava), received a general notice letter from the EPA stating that Washington Mining may be a PRP under CERCLA in connection with the Bonita Peak Mining District site and therefore responsible for the remediation of certain portions of the site, along with related costs incurred by the EPA. Shortly thereafter, the Company received a substantively identical letter asserting that it may be a PRP at the Sitesite and similarly responsible for the cleanup of certain portions of the site. The general notice letters identify one other PRP at the site, and do not require specific action by Washington Mining or the Company at this time. At this juncture, the Company is unable to determine the likelihood of a materially adverse outcome or the amount or range of a potential loss with respect to any remedial action related to the Bonita Peak Mining District NPL site.
Operating Properties
Mueller Copper Tube Products, Inc.
In 1999, Mueller Copper Tube Products, Inc. (MCTP), a wholly owned subsidiary, commenced a cleanup and remediation of soil and groundwater at its Wynne, Arkansas plant to remove trichloroethylene, a cleaning solvent formerly used by MCTP. On August 30, 2000, MCTP received approval of its Final Comprehensive Investigation Report and Storm Water Drainage Investigation Report addressing the treatment of soils and groundwater from the Arkansas Department of Environmental Quality (ADEQ). The Company established a reserve for this project in connection with the acquisition of MCTP in 1998. Effective November 17, 2008, MCTP entered into a Settlement Agreement and Administrative Order by Consent to submit a Supplemental Investigation Work Plan (SIWP) and subsequent Final Remediation Work Plan (RWP) for the site. By letter dated January 20, 2010, ADEQ approved the SIWP as submitted, with changes acceptable to the Company. On December 16, 2011, MCTP entered into an amended Administrative Order by Consent to prepare and implement a revised RWP regarding final remediation for the Site. The remediation system was activated in February 2014. Costs to implement the work plans, including associated general and administrative costs, are estimated to approximate $0.8$0.5 million to $1.2$0.7 million over the next eightthree years. The Company has recorded a reserve at the low end of this range.
United States Department of Commerce Antidumping Review
On December 24, 2008, the Department of Commerce (DOC) initiated an antidumping administrative review of the antidumping duty order covering circular welded non-alloy steel pipe and tube from Mexico for the November 1, 2007 through October 31, 2008 period of review. The DOC selected Mueller Comercial as a respondent in the review. On April 19, 2010, the DOC published the final results of the review and assigned Mueller Comercial an antidumping duty rate of 48.33 percent. On May 25, 2010, the Company appealed the final results to the U.S. Court of International Trade (CIT). On December 16, 2011, the CIT issued a decision remanding the Department’s final results. While the matter was still pending, the Company and the United States reached an agreement to settle the appeal. Subject to the conditions of the agreement, the Company anticipated that certain of its subsidiaries would incur antidumping duties on subject imports made during the period of review and, as such, established a reserve for this matter. After the lapse of the statutory period of time during which U.S. Customs and Border Protection (CBP) was required, but failed, to liquidate the entries at the settled rate, the Company released the reserve. Between October 30, 2015 and November 27, 2015, CBP sent a series of invoices to Southland Pipe Nipples Co., Inc. (Southland), requesting payment of approximately $3.0 million in duties and interest in connection with 795 import entries made during the November 1, 2007 through October 31, 2008 period. On January 26, 2016 and January 27, 2016, Southland filed protests with CBP in connection with these invoices, noting that CBP’s asserted claims were not made in accordance with applicable law, including statutory provisions governing deemed liquidation. The Company believes in the merits of the legal objections raised in Southland’s protests, and CBP’s response to Southland’s protests is currently pending. Given the procedural posture and issues raised by this legal dispute, the Company cannot estimate the amount of potential duty liability, if any, that may result from CBP’s asserted claims.
Equal Employment Opportunity Commission Matter
On October 5, 2016,Deepwater Horizon Economic and Property Damage Claim
During 2020, Mueller Copper Tube Company, a wholly owned subsidiary of the Company, collected approximately $22.1 million related to its claim under the Deepwater Horizon Economic and Property Damage Settlement Program. The collected amount represent settlement proceeds received a demand letter fromafter the Los Angeles District Officepayment of fees and expenses.
Guarantees
Guarantees, in the form of letters of credit, are issued by the Company generally to assure the payment of insurance deductibles, certain retiree health benefits, and debt at certain unconsolidated affiliates. The terms of the United States Equal Employment Opportunity Commission (EEOC). The EEOC alleges that between May 2011 and April 2015, various Company employees were terminated in violation of the Americans with Disabilities Act, and that certain ofguarantees are generally one year but are renewable annually as required. These letters are primarily backed by the Company’s employee leave and attendance policies were discriminatory in nature. Onrevolving credit facility. The maximum payments that basis, the EEOC’s letter includes a demand for monetary relief on behalf of an identified class of 20 individuals, and an unidentified class of 150 individuals, in addition to injunctive relief.
The Company believes the EEOC’s allegations are without merit. Notwithstanding the Company’s position, in consultation with its liability insurers, the Company entered into a conciliation process with the EEOC for purposes of resolving the claims. On April 12, 2017, the Company received a letter from the EEOC stating that the conciliation process had concluded without a resolution of the claims, and that the matter wouldcould be referredrequired to make under its Legal Department for potential litigation. The Company and the EEOC have since engaged in mediation efforts. Due to the procedural stage of this matter, the Company is unable to determine the likelihood of a material adverse outcome in this matter, or the amount or range of a potential loss in excess of any available insurance coverage.guarantees at December 31, 2022 were $33.1 million.
Leases
The Company leases certain facilities, vehicles, and equipment under operating leases expiring on various dates through 2033. The lease payments under these agreements aggregate to approximately $7.0 million in 2018, $5.2 million in 2019, $4.4 million in 2020, $3.5 million in 2021, $3.1 million in 2022, and $17.3 million thereafter. Total lease expense amounted to $11.9 million in 2017, $11.6 million in 2016, and $9.7 million in 2015.
Other
The Company is involved in certain litigation as a result of claims that arose in the ordinary course of business, which management believes will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows. It may also realize the benefit of certain legal claims and litigation in the future; these gain contingencies are not recognized in the Consolidated Financial Statements.
Note 1415 – Income Taxes
The components of income before income taxes were taxed under the following jurisdictions:
| | (In thousands) | | 2017 | | 2016 | | 2015 | (In thousands) | | 2022 | | 2021 | | 2020 |
| | | | | | | | | | | | |
Domestic | | $ | 76,876 |
| | $ | 103,576 |
| | $ | 121,614 |
| Domestic | | $ | 737,538 | | | $ | 518,080 | | | $ | 144,770 | |
Foreign | | 50,096 |
| | 42,454 |
| | 10,175 |
| Foreign | | 138,493 | | | 123,059 | | | 64,419 | |
| | | | | | | | | | | | |
Income before income taxes | | $ | 126,972 |
| | $ | 146,030 |
| | $ | 131,789 |
| Income before income taxes | | $ | 876,031 | | | $ | 641,139 | | | $ | 209,189 | |
Income tax expense consists of the following:
| | (In thousands) | | 2017 | | 2016 | | 2015 | (In thousands) | | 2022 | | 2021 | | 2020 |
| | | | | | | | | | | | |
Current tax expense: | | | | | | | Current tax expense: | | | | | | |
Federal | | $ | 28,584 |
| | $ | 32,262 |
| | $ | 50,272 |
| Federal | | $ | 149,269 | | | $ | 107,804 | | | $ | 37,964 | |
Foreign | | 10,219 |
| | 5,667 |
| | 4,042 |
| Foreign | | 36,719 | | | 34,455 | | | 16,221 | |
State and local | | 2,241 |
| | 3,210 |
| | 4,886 |
| State and local | | 41,214 | | | 16,186 | | | 5,182 | |
| | | | | | | |
Current tax expense | | 41,044 |
| | 41,139 |
| | 59,200 |
| Current tax expense | | 227,202 | | | 158,445 | | | 59,367 | |
| | | | | | | | | | | | |
Deferred tax (benefit) expense: | | |
| | |
| | |
| Deferred tax (benefit) expense: | | | | | | |
Federal | | (1,764 | ) | | 2,004 |
| | (13,739 | ) | Federal | | (3,312) | | | (3,504) | | | (5,991) | |
Foreign | | 1,118 |
| | 5,099 |
| | (1,180 | ) | Foreign | | (192) | | | 2,572 | | | 90 | |
State and local | | (2,514 | ) | | (105 | ) | | (899 | ) | State and local | | (376) | | | 8,345 | | | 1,855 | |
| | | | | | | | | | | | |
Deferred tax (benefit) expense | | (3,160 | ) | | 6,998 |
| | (15,818 | ) | Deferred tax (benefit) expense | | (3,880) | | | 7,413 | | | (4,046) | |
| | | | | | | | | | | | |
Income tax expense | | $ | 37,884 |
| | $ | 48,137 |
| | $ | 43,382 |
| Income tax expense | | $ | 223,322 | | | $ | 165,858 | | | $ | 55,321 | |
The difference between the reported income tax expense and a tax determined by applying the applicable U.S. federal statutory income tax rate to income before income taxes is reconciled as follows:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 | | 2020 |
| | | | | | |
Expected income tax expense | | $ | 183,967 | | | $ | 134,639 | | | $ | 43,930 | |
State and local income tax, net of federal benefit | | 32,184 | | | 21,132 | | | 5,949 | |
Effect of foreign statutory rates different from U.S. and other foreign adjustments | | 7,443 | | | 11,185 | | | 2,783 | |
| | | | | | |
| | | | | | |
| | | | | | |
Investment in unconsolidated affiliates | | 206 | | | (679) | | | (387) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Other, net | | (478) | | | (419) | | | 3,046 | |
| | | | | | |
Income tax expense | | $ | 223,322 | | | $ | 165,858 | | | $ | 55,321 | |
|
| | | | | | | | | | | | |
(In thousands) | | 2017 | | 2016 | | 2015 |
| | | | | | |
Expected income tax expense | | $ | 44,440 |
| | $ | 51,110 |
| | $ | 46,126 |
|
State and local income tax, net of federal benefit | | 1,135 |
| | 1,982 |
| | 2,673 |
|
Effect of foreign statutory rate different from U.S. and other foreign adjustments | | (6,026 | ) | | (4,092 | ) | | (654 | ) |
U.S. production activities deduction | | (1,575 | ) | | (3,063 | ) | | (3,500 | ) |
Goodwill disposition | | — |
| | — |
| | 646 |
|
Investment in unconsolidated affiliates | | 216 |
| | 1,030 |
| | — |
|
Permanent adjustment to deferred tax liabilities | | — |
| | — |
| | (4,218 | ) |
Benefit of stock-based compensation deductions | | (2,160 | ) | | (656 | ) | | — |
|
Effect of tax on accumulated foreign earnings | | 12,893 |
| | — |
| | — |
|
Effect of tax rate change on net deferred tax liability balance | | (12,067 | ) | | — |
| | — |
|
Other, net | | 1,028 |
| | 1,826 |
| | 2,309 |
|
| | | | | | |
Income tax expense | | $ | 37,884 |
| | $ | 48,137 |
| | $ | 43,382 |
|
The Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35 percent to 21 percent, requires companies to pay a one-time transition tax on the accumulated earnings of certain foreign subsidiaries, and creates new taxes on certain foreign-sourced earnings. At December 30, 2017, the Company has not completed its accounting for the tax effects of enactment of the Act. However, the Company has made a reasonable estimate of the one-time transition tax on accumulated foreign earnings as well as the impact of the Act on its existing deferred tax balances.
The one-time transition tax is based on the Company’s total post-1986 earnings and profits (E&P) for which the accrual of U.S. income taxes has previously been deferred. The Company recorded a provisional amount for its one-time transition tax liability, resulting in an increase in income tax expense of $12.9 million, or 22 cents per diluted share. The Company has not yet completed its calculation of the total post-1986 foreign E&P for these foreign subsidiaries. Further, the transition tax is impacted in part by the amount of those earnings held in cash and other specified assets. Accordingly, the Company’s estimate of the one-time transition tax may change when it finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets. Consistent with prior years, the Company continues to assert that the undistributed earnings subject to the transition taxof most of its foreign subsidiaries are permanently reinvested. Accordingly, no additional incomeNo taxes have been provided for any additional outside basis differences that may existaccrued with respect to these entitiesundistributed earnings or any taxes that may be due upon the repatriation of these earnings. Determining the amount of unrecognized deferred tax liability related to any additional outside basis difference in these entities (i.e., basis differences other than those subject to the one-time transition tax) is not practicable due to the complexities of the hypothetical calculation in determining residual taxes on undistributed earnings, including the availability of foreign tax credits, applicability of any additional local withholding tax, and other indirect tax consequences that may arise due to the distribution of these earnings.
differences. The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expectedhas elected to reverse in the future, which is generally 21 percent. However, the Company is still analyzing certain aspects of the Act and refining its calculations, which could potentially affect the measurement of these balances. The provisional amount recorded related to the remeasurement of the deferred tax balance was an income tax benefit of $12.1 million, or 21 cents per diluted share.
The global intangible low-taxed income (GILTI) provisions of the Act impose a tax on the income of certain foreign subsidiaries in excess of a specified return on tangible assets used by the foreign companies. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTIglobal intangible low-taxed income (GILTI) in the year the tax is incurred. Given the complexity of the GILTI provisions, the Company is still evaluating the effects of these provisions and has not yet determined the new accounting policy. Accordingly, the Company is unable to make a reasonable estimate and has not reflected any adjustments related to GILTI in its Consolidated Financial Statements.
During 2015, the Company had an adjustment to a deferred tax liability of $4.2 million, or seven cents per diluted share, resulting from the acquisition of a foreign subsidiary.
The Company includes interest and penalties related to income tax matters as a component of income tax expense. The income tax expense, related to penaltiesnone of which was material in 2022, 2021, and interest was immaterial in 2017, 2016, and 2015.2020.
TheDuring 2021, the Internal Revenue Service completed its audit of the Company’s 20132015 and 2017 tax return during 2016,returns, the results of which were immaterial to the Consolidated Financial Statements. The Company is currently under audit in various other jurisdictions.
The statute of limitations is still open for the Company’s federal tax return and most state income tax returns for 20142019 and all subsequent years. The statutes of limitations for certainyears, and some state and foreign returns are also open for some earlier tax years due to differing statute periods. While the Company believes that it is adequately reserved for possible audit adjustments, the final resolution of these examinations cannot be determined with certainty and could result in final settlements that differ from current estimates.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
| | | | | | | | | | | | | | |
(In thousands) | | 2022 | | 2021 |
| | | | |
Deferred tax assets: | | | | |
Inventories | | $ | 16,829 | | | $ | 15,153 | |
Other postretirement benefits and accrued items | | 7,260 | | | 8,382 | |
| | | | |
Other reserves | | 8,046 | | | 9,962 | |
Foreign tax attributes | | 5,750 | | | 6,410 | |
State tax attributes, net of federal benefit | | 8,063 | | | 12,043 | |
Stock-based compensation | | 5,249 | | | 3,608 | |
Lease liability | | 4,540 | | | 4,988 | |
Basis difference in unconsolidated affiliates | | 6,881 | | | 7,690 | |
| | | | |
Total deferred tax assets | | 62,618 | | | 68,236 | |
Less valuation allowance | | (21,505) | | | (26,624) | |
| | | | |
Deferred tax assets, net of valuation allowance | | 41,113 | | | 41,612 | |
| | | | |
Deferred tax liabilities: | | | | |
Property, plant, and equipment | | 44,001 | | | 45,804 | |
| | | | |
Lease asset | | 4,970 | | | 5,099 | |
Other liabilities | | 2,918 | | | 1,765 | |
| | | | |
| | | | |
Total deferred tax liabilities | | 51,889 | | | 52,668 | |
| | | | |
Net deferred tax liabilities | | $ | (10,776) | | | $ | (11,056) | |
|
| | | | | | | | |
(In thousands) | | 2017 | | 2016 |
| | | | |
Deferred tax assets: | | | | |
Inventories | | $ | 10,598 |
| | $ | 15,483 |
|
Other postretirement benefits and accrued items | | 9,239 |
| | 13,180 |
|
Other reserves | | 9,029 |
| | 9,821 |
|
Federal and foreign tax attributes | | 11,936 |
| | 5,813 |
|
State tax attributes, net of federal benefit | | 29,720 |
| | 22,572 |
|
Stock-based compensation | | 2,102 |
| | 2,416 |
|
Basis difference in unconsolidated affiliates | | — |
| | 211 |
|
| | | | |
Total deferred tax assets | | 72,624 |
| | 69,496 |
|
Less valuation allowance | | (30,316 | ) | | (18,681 | ) |
| | | | |
Deferred tax assets, net of valuation allowance | | 42,308 |
| | 50,815 |
|
| | | | |
Deferred tax liabilities: | | |
| | |
|
Property, plant, and equipment | | 43,972 |
| | 52,319 |
|
Pension | | 3,841 |
| | 4,633 |
|
Basis difference in unconsolidated affiliates | | 203 |
| | — |
|
| | | | |
Total deferred tax liabilities | | 48,016 |
| | 56,952 |
|
| | | | |
Net deferred tax liabilities | | $ | (5,708 | ) | | $ | (6,137 | ) |
As of December 30, 2017,31, 2022, after consideration of the federal impact, the Company had state income tax credit carryforwards of $4.5$1.0 million, all of which expire by 2020,2024, and other state income tax credit carryforwards of $12.6 million with unlimited lives. The Company had state net operating loss (NOL) carryforwards with potential tax benefits of $13.5$7.1 million, after consideration of the federal impact, expiring between 20192023 and 2032.2041. The state tax credit and NOL carryforwards arewere fully offset by valuation allowances totaling $17.6 million.allowances.
As of December 30, 2017,31, 2022, the Company had foreign tax credits with potential tax benefits of $5.1 million, which were fully offset by a valuation allowance.
As of December 30, 2017, the Company hadother foreign tax attributes with potential tax benefits of $5.9$4.0 million, which have an unlimited life. Theselife, and attributes with potential benefits of $1.1 million that expire between 2034 and 2042; all of these foreign attributes were fully offset by a valuation allowance. The Company also had other foreign tax attributes of $0.7 million, which have limited lives expiring between 2031 and 2036, which are offset by a valuation allowance of $0.4 million. The Company has also recorded a valuation allowance against deferred tax assets related to the book-tax differences in investments in unconsolidated affiliates.
Income taxes paid were approximately $42.5$238.3 million in 2017, $40.12022, $132.9 million in 2016,2021, and $49.9$49.3 million in 2015.2020.
Note 1516 – Equity
The Company’s Board of Directors has extended, until August 2018,July 2023, its authorization to repurchase up to 20 million shares of the Company’s common stock through open market transactions or through privately negotiated transactions. The Company has no obligation to purchase any shares and may cancel, suspend, or extend the time period for the purchase of shares at any time. Any purchases will be funded primarily through existing cash and cash from operations. The Company may hold any shares purchased in treasury or use a portion of the repurchased shares for its stock-based compensation plans, as well as for other corporate purposes. From its initial authorization in 1999 through December 30, 2017,31, 2022, the Company has repurchased approximately 4.77.2 million shares under this authorization.
Note 1617 – Stock-Based Compensation
The Company has in effect stock incentive plans under which stock-based awards have been granted to certain employees and members of its Board of Directors. Under these existing plans, the Company may grant options to purchase shares of common stock at prices not less than the fair market value of the stock on the date of grant, as well asoptions, restricted stock awards, and performance stock awards. Generally, theApproximately 1.2 million shares were available for future stock incentive awards vest within five years from the date of grant. Any unexercised options expire after not more than ten years. at December 31, 2022.
During the years ended December 30, 2017,31, 2022, December 31, 2016,25, 2021, and December 26, 2015,2020, the Company recognized stock-based compensation, as a component of selling, general, and administrative expense, in its Consolidated Statements of Income of $7.5$17.8 million, $6.4$9.8 million, and $6.2$8.6 million, respectively.
The total compensation expense not yet recognized related to stock incentive awards at December 31, 2022 was $52.4 million, with an average expense recognition period of 3.2 years.
The Company generally issues treasury shares when stock options are exercised, or when restricted stock awards or performance stock awards are granted. A summary of the activity and related information follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stock Options | | Restricted Stock Awards | | Performance Stock Awards |
(Shares in thousands) | | Shares | | Weighted Average Exercise Price | | Shares | | Weighted Average Grant Date Fair Value | | Shares | | Weighted Average Grant Date Fair Value |
| | | | | | | | | | | | |
Beginning of period | | 615 | | | $ | 28.42 | | | 577 | | | $ | 32.40 | | | $ | 624 | | | $ | 33.46 | |
Granted | | — | | | N/A | | 66 | | | 63.80 | | | 287 | | | 65.48 | |
Exercised/Released | | (170) | | | 26.31 | | | (150) | | | 32.49 | | | (49) | | | 34.26 | |
Forfeited | | (3) | | | 32.28 | | | (2) | | | 38.07 | | | (1) | | | 29.61 | |
| | | | | | | | | | | | |
End of period | | 442 | | | $ | 29.20 | | | 491 | | | $ | 36.56 | | | 861 | | | $ | 44.07 | |
Restricted Stock Awards
The fair value of each restricted stock award equals the fair value of the Company’s stock on the grant date and is amortized into compensation expense on a straight-line or accrual basis over its vesting period based on its vesting schedule. The weighted average grant-date fair value of awards granted during 2022, 2021, and 2020 was $63.80, $44.08, and $29.00, respectively.
The aggregate intrinsic value of outstanding and unvested awards was $29.0 million at December 31, 2022. The total fair value of awards that vested was $4.9 million, $7.0 million, and $5.6 million in 2022, 2021, and 2020, respectively.
Performance Stock Awards
Performance stock awards require achievement of certain performance criteria which are predefined by the Compensation Committee of the Board of Directors at the time of grant.The fair value of each performance stock award equals the fair value of the Company’s stock on the grant date.Performance stock awards are vested and released at the end of the performance period if the predefined performance criteria are achieved.
For all performance stock awards, in the event the certified results equal the predefined performance criteria, the Company will grant the number of shares equal to the target award. In the event the certified results exceed the predefined performance criteria, additional shares up to the maximum award will be granted. In the event the certified results fall below the predefined performance criteria but above the minimum threshold, a reduced number of shares will be granted. If the certified results fall below the minimum threshold, no shares will be granted.
In the period it becomes probable that the minimum threshold specified in the award will be achieved, the Company recognizes expense for the proportionate share of the total fair value of the performance stock awards related to the vesting period that has
already lapsed for the shares expected to vest and be released. The remaining fair value of the shares expected to vest and be released is expensed on a straight-line basis over the balance of the vesting period. In the event the Company determines it is no longer probable that it will achieve the minimum threshold specified in the award, all of the previously recognized compensation expense is reversed in the period such a determination is made.
The weighted average grant-date fair value of awards granted during 2022, 2021, and 2020 was $65.48, $43.46, and $29.61, respectively.
The aggregate intrinsic value of outstanding and unvested awards was $50.8 million at December 31, 2022. The total fair value of awards that vested was $1.7 million in 2022.
Stock Options
Stock options are generally granted to purchase shares of common stock at an exercise price equal to the average of the high and low market price of the Company’s stock on the grant date. Generally, the awards vest within five years from the grant date. Any unexercised options expire after not more than ten years. The fair value of each option is estimated as a single award and amortized into compensation expense on a straight-line or accrual basis over its vesting period based on its vesting schedule. The weighted average grant-date fair value of options granted during 2017, 2016, and 2015 was $9.38, $7.87, and $7.58, respectively.
The Company estimates the fair value of all stock option awards as of the grant date by applying the Black-Scholes-Merton option pricing model. The use of this valuation model in the determination of compensation expense involves certain assumptions that are judgmental and/or highly sensitive including the expected life of the option, stock price volatility, risk-free interest rate, and dividend yield. Additionally, forfeitures are not estimated at the time of valuation; they are recognized as they occur. The weighted average of key assumptions used in determining the fair value of options granted and a discussion of the methodology used to develop each assumption are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| | | | | | |
Fair value of stock options on grant date | | N/A | | $ | 15.6 | | $ | 6.81 |
Expected term | | N/A | | 7.9 years | | 7.9 years |
Expected price volatility | | N/A | | 33.6 | % | | 31.9 | % |
Risk-free interest rate | | N/A | | 1.3 | % | | 0.6 | % |
Dividend yield | | N/A | | 1.1 | % | | 1.7 | % |
|
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | | | | | |
Expected term | | 7.7 years |
| | 6.7 years |
| | 5.5 years |
|
Expected price volatility | | 28.9 | % | | 25.6 | % | | 26.2 | % |
Risk-free interest rate | | 2.1 | % | | 1.6 | % | | 1.7 | % |
Dividend yield | | 1.3 | % | | 1.0 | % | | 0.9 | % |
Expected term – This is the period of time estimated based on historical experience over which the options granted are expected to remain outstanding. An increase in the expected term will increase compensation expense.
Expected price volatility – This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. The Company uses actual historical changes in the market value of its stock to calculate the volatility assumption. Daily market value changes from the grant date of grant over a past period representative of the expected term of the options are used. An increase in the expected price volatility rate will increase compensation expense.
Risk-free interest rate – This is the U.S. Treasury rate for the week of the grant, having a term representative of the expected term of the options. An increase in the risk-free rate will increase compensation expense.
Dividend yield – This rate is the annual dividends per share as a percentage of the Company’s stock price. An increase in the dividend yield will decrease compensation expense.
The total intrinsic value of options exercised was $10.2$5.9 million, $2.5$3.8 million, and $3.1$2.4 million in 2017, 2016,2022, 2021, and 2015,2020, respectively. The total fair value of options that vested was $1.0$1.1 million, $0.3$0.4 million, and $0.8$0.7 million in 2017, 2016,2022, 2021, and 2015, respectively.2020.
At December 30, 2017,31, 2022, the aggregate intrinsic value of all outstanding options was $12.4$13.2 million with a weighted average remaining contractual term of 6.24.3 years. Of the outstanding options, 476349 thousand are currently exercisable with an aggregate intrinsic value of $8.5$10.7 million, a weighted average exercise price of $17.57,$28.37, and a weighted average remaining contractual term of 4.53.9 years.
The total compensation expense not yet recognized related to unvested options at December 30, 2017 was $1.9 million with an average expense recognition period of 3.5 years.
Restricted Stock Awards
The fair value of each restricted stock award equals the fair value of the Company’s stock on the grant date and is amortized into compensation expense on a straight-line or accrual basis over its vesting period based on its vesting schedule. The weighted average grant-date fair value of awards granted during 2017, 2016, and 2015 was $30.97, $34.04, and $32.54, respectively.
The aggregate intrinsic value of outstanding and unvested awards was $27.7 million at December 30, 2017. Total compensation expense for restricted stock awards not yet recognized was $15.8 million with an average expense recognition period of 3.2 years. The total fair value of awards that vested was $3.5 million, $4.7 million, and $4.8 million in 2017, 2016, and 2015, respectively.
The Company generally issues treasury shares when options are exercised or restricted stock awards are granted. A summary of the activity and related information follows:
|
| | | | | | | | | | | | | | |
| | Stock Options | | Restricted Stock Awards |
(Shares in thousands) | | Shares | | Weighted Average Exercise Price | | Shares | | Weighted Average Grant Date Fair Value |
| | | | | | | | |
Outstanding at December 31, 2016 | | 1,034 |
| | $ | 21.24 |
| | 709 |
| | $ | 31.02 |
|
Granted | | 165 |
| | 31.04 |
| | 209 |
| | 30.97 |
|
Exercised | | (395 | ) | | 12.10 |
| | (135 | ) | | 26.22 |
|
Forfeited | | (10 | ) | | 26.68 |
| | (2 | ) | | 33.13 |
|
Equitable Adjustment (1) | | 153 |
| | | | — |
| |
|
|
| | | | | | | | |
Outstanding at December 30, 2017 | | 947 |
| | 22.31 |
| | 781 |
| | 31.83 |
|
(1) Represents the adjustment made in conjunction with the special dividend issued on March 9, 2017 to equalize the intrinsic value of stock options pre- and post-distribution.
Approximately 0.7 million shares were available for future stock incentive awards at December 30, 2017.
Note 1718 – Accumulated Other Comprehensive Income (Loss)
AOCI includes certain foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, net deferred gains and losses on certain derivative instruments accounted for as cash flow hedges, adjustments to pension and OPEBother post-employment benefit liabilities, unrealized gains and losses on marketable securities classified as available-for-sale, and other comprehensive income attributable to unconsolidated affiliates.
The following table provides changes in AOCI by component, net of taxes and noncontrolling interest (amounts in parentheses indicate debits to AOCI):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Cumulative Translation Adjustment | | Unrealized Gain (Loss) on Derivatives | | Pension/ OPEB Liability Adjustment | | | | Attributable to Unconsol. Affiliates | | Total |
| | | | | | | | | | | | |
Balance at December 26, 2020 | | $ | (37,339) | | | $ | 984 | | | $ | (17,203) | | | | | $ | (1,325) | | | $ | (54,883) | |
| | | | | | | | | | | | |
Other comprehensive (loss) income before reclassifications | | (4,964) | | | 2,361 | | | 4,899 | | | | | 978 | | | 3,274 | |
Amounts reclassified from AOCI | | — | | | (2,542) | | | 804 | | | | | — | | | (1,738) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Balance at December 25, 2021 | | (42,303) | | | 803 | | | (11,500) | | | | | (347) | | | (53,347) | |
| | | | | | | | | | | | |
Other comprehensive (loss) income before reclassifications | | (26,935) | | | (6,983) | | | 13,667 | | | | | 2,702 | | | (17,549) | |
Amounts reclassified from AOCI | | — | | | 7,666 | | | (945) | | | | | — | | | 6,721 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Balance at December 31, 2022 | | $ | (69,238) | | | $ | 1,486 | | | $ | 1,222 | | | | | $ | 2,355 | | | $ | (64,175) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Cumulative Translation Adjustment | | Unrealized (Loss) Gain on Derivatives | | Pension/ OPEB Liability Adjustment | | Unrealized Gain on Equity Securities | | Attributable to Unconsol. Affiliates | | Total |
| | | | | | | | | | | | |
Balance at December 26, 2015 | | $ | (24,773 | ) | | $ | (2,009 | ) | | $ | (28,429 | ) | | $ | 221 |
| | $ | — |
| | $ | (54,990 | ) |
| | | | | | | | | | | | |
Other comprehensive (loss) income before reclassifications | | (25,192 | ) | | 400 |
| | 3,962 |
| | 159 |
| | 5,975 |
| | (14,696 | ) |
Amounts reclassified from AOCI | | — |
| | 1,309 |
| | 1,421 |
| | — |
| | — |
| | 2,730 |
|
| | | | | | | | | | | | |
Balance at December 31, 2016 | | (49,965 | ) | | (300 | ) | | (23,046 | ) | | 380 |
| | 5,975 |
| | (66,956 | ) |
| | | | | | | | | | | | |
Other comprehensive income (loss) before reclassifications | | 15,579 |
| | (389 | ) | | 1,394 |
| | (1 | ) | | 895 |
| | 17,478 |
|
Amounts reclassified from AOCI | | (3,777 | ) | | 1,536 |
| | 1,042 |
| | (379 | ) | | — |
| | (1,578 | ) |
| | | | | | | | | | | | |
Balance at December 30, 2017 | | $ | (38,163 | ) | | $ | 847 |
| | $ | (20,610 | ) | | $ | — |
| | $ | 6,870 |
| | $ | (51,056 | ) |
Reclassification adjustments out of AOCI were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount reclassified from AOCI |
(In thousands) | | 2022 | | 2021 | | 2020 | | Affected Line Item |
| | | | | | | | |
Unrealized losses (gains) on derivatives: | | | | | | | | |
Commodity contracts | | $ | 9,891 | | | $ | (3,848) | | | $ | 6,337 | | | Cost of goods sold |
| | | | | | | | |
| | (2,225) | | | 1,306 | | | (1,246) | | | Income tax (benefit) expense |
| | | | | | | | |
| | $ | 7,666 | | | $ | (2,542) | | | $ | 5,091 | | | Net of tax and noncontrolling interests |
| | | | | | | | |
Amortization of net loss (gain) and prior service cost on employee benefit plans | | $ | — | | | $ | — | | | $ | 11,642 | | | Pension plan termination expense |
| | (1,277) | | | 963 | | | (998) | | | Other income, net |
| | 332 | | | (159) | | | (2,353) | | | Income tax expense (benefit) |
| | | | | | | | |
| | $ | (945) | | | $ | 804 | | | $ | 8,291 | | | Net of tax and noncontrolling interests |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | |
| | Amount reclassified from AOCI |
(In thousands) | | 2017 | | 2016 | | 2015 | | Affected Line Item |
| | | | | | | | |
Unrealized losses on derivatives: | | | | | | | | |
Commodity contracts | | $ | 1,309 |
| | $ | 1,061 |
| | $ | 4,486 |
| | Cost of goods sold |
Interest rate swap | | 851 |
| | 361 |
| | 372 |
| | Interest expense |
| | (624 | ) | | (113 | ) | | (1,310 | ) | | Income tax benefit |
| | | | | | | | |
| | $ | 1,536 |
| | $ | 1,309 |
| | $ | 3,548 |
| | Net of tax and noncontrolling interests |
| | | | | | | | |
Amortization of net loss and prior service cost on employee benefit plans | | $ | 1,263 |
| | $ | 1,942 |
| | $ | 2,688 |
| | Selling, general, and administrative expense |
| | (221 | ) | | (521 | ) | | (719 | ) | | Income tax benefit |
| | | | | | | | |
| | $ | 1,042 |
| | $ | 1,421 |
| | $ | 1,969 |
| | Net of tax and noncontrolling interests |
| | | | | | | | |
Gain recognized upon sale of business | | $ | (3,777 | ) | | $ | — |
| | $ | — |
| | Selling, general, and administrative expense |
| | — |
| | — |
| | — |
| | Income tax expense |
| | | | | | | | |
| | $ | (3,777 | ) | | $ | — |
| | $ | — |
| | Net of tax and noncontrolling interests |
| | | | | | | | |
Sale of available-for-sale securities | | $ | (611 | ) | | $ | — |
| | $ | — |
| | Other income |
| | 232 |
| | — |
| | — |
| | Income tax expense |
| | | | | | | | |
| | $ | (379 | ) | | $ | — |
| | $ | — |
| | Net of tax and noncontrolling interests |
| | | | | | | | |
Note 1819 – Quarterly Financial Information (Unaudited)(1)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except per share data) | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | |
| | | | | | | | | |
2022 | | | | | | | | | |
Net sales | | $ | 1,010,002 | | | $ | 1,150,042 | | | $ | 944,830 | | | $ | 877,581 | | |
Gross profit (2) | | 265,491 | | | 329,128 | | | 266,193 | | | 256,781 | | |
Consolidated net income | | 159,248 | | | 207,524 | | | 155,813 | | | 140,235 | | |
Net income attributable to Mueller Industries, Inc. | | 158,316 | | | 206,552 | | | 154,542 | | | 138,906 | | |
Basic earnings per share | | 2.82 | | | 3.70 | | | 2.78 | | | 2.50 | | |
Diluted earnings per share | | 2.78 | | | 3.65 | | | 2.74 | | | 2.46 | | |
Dividends per share | | 0.25 | | | 0.25 | | | 0.25 | | | 0.25 | | |
| | | | | | | | | |
2021 | | | | | | | | | |
Net sales | | $ | 818,148 | | | $ | 1,012,592 | | | $ | 982,248 | | | $ | 956,357 | | |
Gross profit (2) | | 149,730 | | | 212,880 | | | 237,983 | | | 229,763 | | |
Consolidated net income (3) | | 65,238 | | | 110,932 | | | 172,256 | | | 126,698 | | |
Net income attributable to Mueller Industries, Inc. | | 63,107 | | | 108,832 | | | 170,980 | | | 125,601 | | |
Basic earnings per share | | 1.13 | | | 1.95 | | | 3.05 | | | 2.24 | | |
Diluted earnings per share | | 1.11 | | | 1.92 | | | 3.01 | | | 2.21 | | |
Dividends per share | | 0.13 | | | 0.13 | | | 0.13 | | | 0.13 | | |
(1)The sum of quarterly amounts may not equal the annual amounts reported due to rounding. In addition, the earnings per share amounts are computed independently for each quarter, while the full year is based on the weighted average shares outstanding.
(2)Gross profit is net sales less cost of goods sold, which excludes depreciation and amortization.
(3)Includes income earned by H&C Flex, acquired during Q1 2021, and Mueller Middle East, acquired during Q4 2021.
Note 20 – Related Party Transactions
The non-controlling interest in the Company’s South Korean joint venture owns 100 percent of a copper tube mill which supplies Mueller affiliates. These affiliates purchased $22.2 million of product from the supplier in 2022. There were no payables related to these sales as of December 31, 2022.
|
| | | | | | | | | | | | | | | | | |
( In thousands, except per share data) | First Quarter | | Second Quarter | | Third Quarter | | | Fourth Quarter | |
| | | | | | | | | |
2017 | | | | | | | | |
Net sales | $ | 577,920 |
| | $ | 614,266 |
| | $ | 550,363 |
| | | $ | 523,524 |
| |
Gross profit (2) | 89,493 |
| | 89,955 |
| | 79,101 |
| | | 66,907 |
| |
Consolidated net income (3) | 30,455 |
| | 27,833 |
| | 22,754 |
| | | 5,969 |
| (4) |
Net income attributable to Mueller Industries, Inc. | 29,987 |
| | 27,633 |
| | 22,258 |
| | | 5,720 |
| |
Basic earnings per share | 0.53 |
| | 0.49 |
| | 0.39 |
| | | 0.10 |
| |
Diluted earnings per share | 0.52 |
| | 0.48 |
| | 0.39 |
| | | 0.10 |
| |
Dividends per share | 8.10 |
| | 0.10 |
| | 0.10 |
| | | 0.10 |
| |
| | | | | | | | | |
2016 | |
| | |
| | |
| | | |
| |
Net sales | $ | 532,809 |
| | $ | 544,071 |
| | $ | 506,584 |
| | | $ | 472,158 |
| |
Gross profit (2) | 86,167 |
| | 88,011 |
| | 81,916 |
| | | 76,029 |
| |
Consolidated net income (5) | 28,665 |
| | 28,259 |
| | 26,062 |
| (6) | | 16,768 |
| (7) |
Net income attributable to Mueller Industries, Inc. | 28,630 |
| | 27,797 |
| | 25,978 |
| | | 17,322 |
| |
Basic earnings per share | 0.51 |
| | 0.49 |
| | 0.46 |
| | | 0.31 |
| |
Diluted earnings per share | 0.50 |
| | 0.49 |
| | 0.45 |
| | | 0.30 |
| |
Dividends per share | 0.075 |
| | 0.100 |
| | 0.100 |
| | | 0.100 |
| |
| |
(1)
| The sum of quarterly amounts may not equal the annual amounts reported due to rounding. In addition, the earnings per share amounts are computed independently for each quarter, while the full year is based on the weighted average shares outstanding. |
| |
(2)
| Gross profit is net sales less cost of goods sold, which excludes depreciation and amortization. |
| |
(3)
| Includes income earned by Heatlink Group, acquired during Q2 2017. |
| |
(4)
| Includes $1.1 million of pre-tax charges related to asset impairments, $4.3 million of interest expense on the Company’s Subordinated Debentures, and pre-tax environmental expense for non-operating properties of $6.2 million. |
| |
(5)
| Includes income earned by Jungwoo-Mueller, acquired during Q2 2016. |
| |
(6)
| Includes $3.0 million of pre-tax charges related to asset impairments. |
| |
(7)
| Includes $3.8 million of pre-tax charges related to asset impairments. |
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Mueller Industries, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Mueller Industries, Inc. (the Company) as of December 30, 201731, 2022 and December 31, 2016,25, 2021, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 30, 2017,31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 30, 201731, 2022 and December 31, 2016,25, 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 30, 2017,31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 30, 2017,31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 20182023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.
| | | | | | | | |
| | Defined Benefit Pension Obligation |
Description of the Matter | | At December 31, 2022 the aggregate defined pension obligation was $50.8 million and the fair value of pension plan assets was $62.3 million, resulting in an overfunded defined pension obligation of $11.5 million. As disclosed in Notes 1 and 13 to the consolidated financial statements, the Company recognizes the overfunded or underfunded status of the plans as an asset or liability in the consolidated balance sheets with changes in the funded status recorded through comprehensive income in the year in which those changes occur. The obligations for these plans are actuarially determined and affected by assumptions, including discount rates, expected long-term return on plan assets, and certain employee-related factors such as mortality.
Auditing the defined benefit pension obligation is complex and required the involvement of our actuarial specialists due to the highly judgmental nature of actuarial assumptions (e.g., discount rate, mortality rate, and expected return on plan assets) used in the measurement process. These assumptions have a significant effect on the projected benefit obligation.
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| | |
How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that address the measurement and valuation of the defined benefit pension obligation. For example, we tested controls over management’s review of the defined benefit pension obligation, including the significant actuarial assumptions used by management and the related data inputs.
To test the defined benefit pension obligation, our audit procedures included, among others, evaluating the methodology used, the significant actuarial assumptions discussed above and testing the completeness and accuracy of the underlying data, including the participant data used by management. We involved our actuarial specialist to assist with our procedures. For example, we compared the actuarial assumptions used by management to historical trends and evaluated the change in the defined benefit pension obligation from prior year due to the change in service cost, interest cost, actuarial gains and losses, benefit payments, and contributions. In addition, we evaluated management’s methodology for determining the discount rate that reflects the maturity and duration of the benefit payments that is used to measure the defined benefit pension obligation. As part of this assessment, we compared management’s selected discount rate to an independently developed range of reasonable discount rates. To evaluate the mortality rate assumption, we assessed whether the information is consistent with publicly available information, and whether any market data adjusted for entity-specific factors were applied. Lastly, to evaluate the expected return on plan assets, we assessed whether management’s assumption was consistent with a range of returns for a portfolio of comparative investments.
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We have served as the Company’s auditor since 1991. | |
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Memphis, Tennessee | |
February 28, 20182023 | |
MUELLER INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 30, 2017,31, 2022, December 31, 2016,25, 2021, and December 26, 20152020
| | | | | | Additions | | | | | | | | | Additions | | | | |
(In thousands) | | Balance at beginning of year | | Charged to costs and expenses | | Other additions | | Deductions | | Balance at end of year | (In thousands) | | Balance at beginning of year | | Charged to costs and expenses | | Other additions | | Deductions | | Balance at end of year |
| | | | | | | | | | | | | | | | | | | | |
2017 | | | | | | | | | | | |
2022 | | 2022 | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 637 |
| | $ | 422 |
| | $ | (61 | ) | | $ | 18 |
| | $ | 980 |
| Allowance for doubtful accounts | | $ | 2,590 | | | $ | 323 | | | $ | — | | | $ | 226 | | | $ | 2,687 | |
| | | | | | | | | | | |
Environmental reserves | | $ | 21,864 |
| | $ | 7,491 |
| | $ | — |
| | $ | 1,351 |
| | $ | 28,004 |
| Environmental reserves | | $ | 27,426 | | | $ | 1,367 | | | $ | — | | | $ | 8,259 | | | $ | 20,534 | |
| | | | | | | | | | | |
Valuation allowance for deferred tax assets | | $ | 18,681 |
| | $ | 7 |
| | $ | 11,628 |
| (1) | $ | — |
| | $ | 30,316 |
| Valuation allowance for deferred tax assets | | $ | 26,624 | | | $ | (1,648) | | | $ | 509 | | | $ | 3,981 | | | $ | 21,504 | |
| | 2016 | | | | | | | | | | | |
2021 | | 2021 | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 623 |
| | $ | 160 |
| | $ | 2 |
| | $ | 148 |
| | $ | 637 |
| Allowance for doubtful accounts | | $ | 1,538 | | | $ | 1,216 | | | $ | — | | | $ | 164 | | | $ | 2,590 | |
| | | | | | | | | | | |
Environmental reserves | | $ | 21,667 |
| | $ | 894 |
| | $ | — |
| | $ | 697 |
| | $ | 21,864 |
| Environmental reserves | | $ | 24,001 | | | $ | 4,964 | | | $ | — | | | $ | 1,539 | | | $ | 27,426 | |
| | | | | | | | | | | |
Valuation allowance for deferred tax assets | | $ | 17,650 |
| | $ | 3 |
| | $ | 1,028 |
| | $ | — |
| | $ | 18,681 |
| Valuation allowance for deferred tax assets | | $ | 27,199 | | | $ | 108 | | | $ | 642 | | | $ | 1,325 | | | $ | 26,624 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2020 | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 770 | | | $ | 1,208 | | | $ | — | | | $ | 440 | | | $ | 1,538 | |
| | | | | | | | | | |
Environmental reserves | | $ | 20,866 | | | $ | 4,242 | | | $ | — | | | $ | 1,107 | | | $ | 24,001 | |
| | | | | | | | | | |
Valuation allowance for deferred tax assets | | $ | 23,130 | | | $ | 2,317 | | | $ | 1,898 | | | $ | 146 | | | $ | 27,199 | |
|
| | | | | | | | | | | | | | | | | | | | |
2015 | | |
| | |
| | |
| | |
| | |
|
Allowance for doubtful accounts | | $ | 666 |
| | $ | (130 | ) | | $ | 201 |
| | $ | 114 |
| | $ | 623 |
|
| | | | | | | | | | |
Environmental reserves | | $ | 22,661 |
| | $ | 76 |
| | $ | — |
| | $ | 1,070 |
| | $ | 21,667 |
|
| | | | | | | | | | |
Valuation allowance for deferred tax assets | | $ | 17,119 |
| | $ | (5 | ) | | $ | 536 |
| | $ | — |
| | $ | 17,650 |
|
(1) The valuation allowance increased by $11.6 million during 2017 to a balance of $30.3 million as of December 30, 2017. The change to the valuation allowance in 2017 was attributable to the recording of valuation allowances against tax attributes generated in 2017 primarily resulting from the Act and increased interest expense in state tax jurisdictions where the Company has no tax liability.