The following details the total intangible assets identified in the allocation of the purchase price at the respective acquisition dates:
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:
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.
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.
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.
|
| | | | | | | | | | | | | | | | | | | | |
| | 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) | |
Interest income | | | | | | | | | | 353 | |
Redemption premium | | | | | | | | | | (5,674) | |
| | | | | | | | | | |
Environmental expense | | | | | | | | | | (5,053) | |
Other income, net | | | | | | | | | | 3,377 | |
| | | | | | | | | | |
Income before income taxes | | | | | | | | | | $ | 641,139 | |
Summarized geographic information is as follows:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2023 | | 2022 | | 2021 |
| | | | | | |
Net sales: | | | | | | |
United States | | $ | 2,572,141 | | | $ | 2,965,053 | | | $ | 2,791,571 | |
United Kingdom | | 270,128 | | | 297,582 | | | 330,908 | |
Canada | | 339,682 | | | 410,679 | | | 469,652 | |
Asia and the Middle East | | 153,816 | | | 217,750 | | | 83,217 | |
Mexico | | 84,578 | | | 91,391 | | | 93,997 | |
| | | | | | |
| | $ | 3,420,345 | | | $ | 3,982,455 | | | $ | 3,769,345 | |
| | | | | | | | | | | | | | | | | | | | |
Long-lived assets: | | 2023 | | 2022 | | 2021 |
| | | | | | |
United States | | $ | 273,604 | | | $ | 266,571 | | | $ | 272,903 | |
United Kingdom | | 40,045 | | | 36,474 | | | 36,529 | |
Canada | | 18,152 | | | 23,354 | | | 26,422 | |
Asia and the Middle East | | 50,725 | | | 51,193 | | | 48,742 | |
Mexico | | 2,639 | | | 2,358 | | | 966 | |
| | | | | | |
| | $ | 385,165 | | | $ | 379,950 | | | $ | 385,562 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2023 | | 2022 | | 2021 |
| | | | | | |
Expenditures for long-lived assets (including those resulting from business acquisitions): | | | | | | |
Piping Systems | | $ | 19,118 | | | $ | 20,694 | | | $ | 43,429 | |
Industrial Metals | | 9,406 | | | 6,905 | | | 5,744 | |
Climate | | 15,407 | | | 2,611 | | | 12,428 | |
General Corporate | | 10,094 | | | 7,429 | | | 3,521 | |
| | | | | | |
| | $ | 54,025 | | | $ | 37,639 | | | $ | 65,122 | |
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2023 | | 2022 | | 2021 |
| | | | | | |
Segment assets: | | | | | | |
Piping Systems | | $ | 1,029,821 | | | $ | 1,088,940 | | | $ | 1,160,272 | |
Industrial Metals | | 157,761 | | | 160,702 | | | 173,290 | |
Climate | | 252,561 | | | 279,940 | | | 250,107 | |
General Corporate | | 1,319,158 | | | 712,817 | | | 145,267 | |
| | | | | | |
| | $ | 2,759,301 | | | $ | 2,242,399 | | | $ | 1,728,936 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | 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) | | 2023 | | 2022 |
| | | | |
Cash & cash equivalents | | $ | 1,170,893 | | | $ | 461,018 | |
Restricted cash included within other current assets | | 3,228 | | | 4,176 | |
Restricted cash included within other assets | | 102 | | | 102 | |
| | | | |
Total cash, cash equivalents, and restricted cash | | $ | 1,174,223 | | | $ | 465,296 | |
Note 5 – Inventories
| | | | | | | | | | | | | | |
(In thousands) | | 2023 | | 2022 |
| | | | |
Raw materials and supplies | | $ | 111,843 | | | $ | 133,189 | |
Work-in-process | | 61,793 | | | 64,177 | |
Finished goods | | 220,629 | | | 265,842 | |
Valuation reserves | | (14,017) | | | (14,289) | |
| | | | |
Inventories | | $ | 380,248 | | | $ | 448,919 | |
|
| | | | | | | | |
(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$20.2 million at December 30, 20172023 and $14.4$16.5 million at December 31, 2016.2022. At December 30, 20172023 and December 31, 2016,2022, the approximate FIFO cost of such inventories was $111.0$122.9 million and $76.6$117.3 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 20172023 and 2016,2022, the FIFO value of inventory consigned to others was $4.4$19.8 million and $2.5$14.3 million, respectively.
Note 56 – Consolidated Financial Statement Details
Other Current Liabilities
Included in other current liabilities as of December 30, 20172023 and December 31, 20162022 were the following: (i) accrued discounts, allowances, and customer rebates of $39.5$78.8 million and $40.4$82.3 million, respectively, (ii) current taxes payable of $9.2$22.8 million and $4.6 million, respectively, (iii) accrued interest of $5.9 million and $0.3$24.6 million, respectively, and (iv)(iii) current environmental liabilities of $4.3$3.9 million and $0.8$4.2 million, respectively. Additionally, the balance at December 31, 2022 includes a pension withdrawal liability of $13.1 million that was paid in 2023.
Other Income, Net
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2023 | | 2022 | | 2021 |
| | | | | | |
Net periodic benefit income | | $ | 765 | | | $ | 3,168 | | | $ | 1,903 | |
Accounts payable discounts | | 1,502 | | | 1,609 | | | 1,385 | |
Other | | 1,351 | | | (62) | | | 89 | |
| | | | | | |
Other income, net | | $ | 3,618 | | | $ | 4,715 | | | $ | 3,377 | |
|
| | | | | | | | | | | | |
(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, 2017,2023, the Company held open futures contracts to purchase approximately $19.6$5.8 million of copper over the next 12twelve months related to fixed price sales orders. The fair value of those futures contracts was a $1.0$0.1 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, 2017,2023, this amount was approximately $0.7$0.1 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, 2017,2023, the Company held open futures contracts to sell approximately $85.3$61.3 million of copper over the next fivetwelve months related to copper inventory. The fair value of those futures contracts was a $3.2$0.2 million net loss 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 | | 2023 | | 2022 | | Balance Sheet Location | | 2023 | | 2022 |
| | | | | | | | | | | | |
Commodity contracts - gains | | Other current assets | | $ | 589 | | | $ | 3,746 | | | Other current liabilities | | $ | 16 | | | $ | — | |
Commodity contracts - losses | | Other current assets | | (281) | | | (1,483) | | | Other current liabilities | | (383) | | | — | |
| | | | | | | | | | | | |
Total derivatives (1) | | | | $ | 308 | | | $ | 2,263 | | | | | $ | (367) | | | $ | — | |
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 | | 2023 | | 2022 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Undesignated derivatives: | | | | | | |
(Loss) gain on commodity contracts (nonqualifying) | | Cost of goods sold | | $ | (1,071) | | | $ | 20,659 | |
|
| | | | | | | | | | |
(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:
| | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 30, 2023 |
(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 | | $ | 1,180 | | | Cost of goods sold | | $ | (2,419) | |
| | | | | | |
Other | | (34) | | | Other | | — | |
| | | | | | |
Total | | $ | 1,146 | | | Total | | $ | (2,419) | |
| | | | | | | | | | | | | | | | | | | | |
| | For the 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 |
|
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, 20172023 and December 31, 2016,2022, the Company had recorded restricted cash in other current assets of $5.3$3.2 million and $1.4$4.0 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) | | 2023 | | 2022 |
| | | | |
Operating lease right-of-use assets | | $ | 35,170 | | $ | 22,892 |
| | | | |
Current portion of operating lease liabilities | | 7,893 | | 4,942 |
Noncurrent operating lease liabilities | | 26,683 | | 16,880 |
| | | | |
Total operating lease liabilities | | $ | 34,576 | | $ | 21,822 |
| | | | |
Weighted average discount rate | | 3.55 | % | | 3.35 | % |
Weighted average remaining lease term (in years) | | 5.24 | | 6.03 |
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 30, 2023 | | December 31, 2022 |
| | | | |
Operating lease costs | | $ | 9,705 | | | $ | 8,220 | |
Short term lease costs | | 3,843 | | | 4,086 | |
| | | | |
Total lease costs | | $ | 13,548 | | | $ | 12,306 | |
| | | | |
Cash paid for amounts included in the measurement of lease liabilities | | $ | 9,276 | | | $ | 7,787 | |
Maturities of the Company’s operating leases are as follows:
| | | | | | | | |
(In thousands) | | Amount |
| | |
2024 | | $ | 8,909 | |
2025 | | 8,124 | |
2026 | | 7,110 | |
2027 | | 6,210 | |
2028 | | 3,222 | |
2029 and thereafter | | 4,646 | |
| | |
Total lease payments | | 38,221 | |
Less imputed interest | | (3,645) | |
| | |
Total lease obligations | | 34,576 | |
Less current obligations | | (7,893) | |
| | |
Noncurrent lease obligations | | $ | 26,683 | |
Note 79 – Property, Plant, and Equipment, Net
| | | | | | | | | | | | | | |
(In thousands) | | 2023 | | 2022 |
| | | | |
Land and land improvements | | $ | 33,127 | | | $ | 32,707 | |
Buildings | | 232,169 | | | 234,480 | |
Machinery and equipment | | 654,079 | | | 653,997 | |
Construction in progress | | 82,552 | | | 54,748 | |
| | | | |
| | 1,001,927 | | | 975,932 | |
Less accumulated depreciation | | (616,762) | | | (595,982) | |
| | | | |
Property, plant, and equipment, net | | $ | 385,165 | | | $ | 379,950 | |
Depreciation expense for property, plant, and equipment was $34.9 million in 2023, $38.2 million in 2022, and $39.1 million in 2021.
|
| | | | | | | | |
(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 | |
Goodwill | |
Accumulated impairment charges | | (40,552 | ) | | (8,853 | ) | | — |
| | (49,405 | ) |
| | | | | | | | |
Balance at December 26, 2015: | | 115,835 |
| | 1 |
| | 4,416 |
| | 120,252 |
|
Balance at December 25, 2021: | |
Balance at December 25, 2021: | |
Balance at December 25, 2021: | |
| | | | | | | | |
Additions (1) | | 4,601 |
| | — |
| | — |
| | 4,601 |
|
| Reductions (1) | |
| Reductions (1) | |
| Reductions (1) | |
| Currency translation | |
Currency translation | |
Currency translation | | (860 | ) | | — |
| | — |
| | (860 | ) |
| | | | | | | | |
Balance at December 31, 2016: | | 119,576 |
| | 1 |
| | 4,416 |
| | 123,993 |
|
Balance at December 31, 2022: | |
Balance at December 31, 2022: | |
Balance at December 31, 2022: | |
| | | | | | | | |
Additions (2) | | 3,852 |
| | — |
| | — |
| | 3,852 |
|
| Reductions (2) | |
| Reductions (2) | |
| Reductions (2) | |
| Currency translation | |
Currency translation | |
Currency translation | | 2,448 |
| | — |
| | — |
| | 2,448 |
|
| | | | | | | | |
Balance at December 30, 2017: | | |
| | |
| | |
| | |
|
Balance at December 30, 2023: | |
Balance at December 30, 2023: | |
Balance at December 30, 2023: | | | |
Goodwill | | 166,428 |
| | 8,854 |
| | 4,416 |
| | 179,698 |
|
Accumulated impairment charges | | (40,552 | ) | | (8,853 | ) | | — |
| | (49,405 | ) |
| | | | | | | | |
Goodwill, net | | $ | 125,876 |
| | $ | 1 |
| | $ | 4,416 |
| | $ | 130,293 |
|
Goodwill, net | |
Goodwill, net | |
(1) 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 Mueller Middle East of $11.2 million. |
(2) Includes disposal of Heatlink Group business. | |
(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, 2016,2023, 2022, or 20152021 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, 20172023 was as follows:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| | | | | | |
Customer relationships | | $ | 50,009 | | | $ | (17,535) | | | $ | 32,474 | |
Non-compete agreements | | 2,325 | | | (2,325) | | | — | |
Patents and technology | | 16,681 | | | (8,119) | | | 8,562 | |
Trade names and licenses | | 12,092 | | | (6,920) | | | 5,172 | |
Other | | 1,715 | | | (1,715) | | | — | |
| | | | | | |
Other intangible assets | | $ | 82,822 | | | $ | (36,614) | | | $ | 46,208 | |
|
| | | | | | | | | | | | |
(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 |
|
Amortization expense for intangible assets was $3.1$5.0 million in 2017, $4.32023, $5.6 million in 2016,2022, and $4.1$6.3 million in 2015.2021. Future amortization expense is estimated as follows:
| | | | | | | | |
(In thousands) | | Amount |
| | |
2024 | | $ | 4,623 | |
2025 | | 4,505 | |
2026 | | 4,357 | |
2027 | | 4,356 | |
2028 | | 4,117 | |
Thereafter | | 24,250 | |
| | |
Expected amortization expense | | $ | 46,208 | |
|
| | | | |
(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’ combined consolidated financial statements, which are prepared in accordance with U.S. GAAP.
|
| | | | | | | | |
(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 gain2023, 2022, and 2021 included net losses of $17.1$22.7 million, that resulted from the allocationnet gains 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$1.7 million, respectively, for Tecumseh.
Retail Distribution
The Company owns a 28 percent noncontrolling equity interest in a limited liability company in the retail distribution business.
The Company’s income (loss) from unconsolidated affiliates, net of foreign tax, for 2023, 2022, and 2021 included net gains of $7.9 million, $4.9 million, and $0.8 million, respectively, for the retail distribution business.
Note 12 – Debt
Credit Agreement
The Company’s Credit Agreement provides for an unsecured $400.0 million revolving credit facility that matures on March 31, 2026. There were no borrowings outstanding under the Credit Agreement as of December 30, 2023 or December 31, 2022. Borrowings under the Revolving Credit Facility bear interest, at the Company’s option, at 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. Advances may be based upon the one, three, or six-month 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 Eurocurrency Rate loans and 12.5 to 62.5 basis points for Base Rate loans. At December 30, 2023, the premium was 112.5 basis points for Eurocurrency Rate loans and 12.5 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, certain retiree health benefits, and other corporate obligations, totaling approximately $28.7 million at December 30, 2023. 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 20.0 billion (or approximately $15.3 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, 2023, the Company was in compliance with all debt covenants.
There was no interest paid in 2023 or 2022. Interest paid in 2021 was $13.9 million.
On December 30, 2015, the Company entered into a joint venture agreement with Cayan Ventures and Bahrain Mumtalakat Holding Company to build a copper tube mill in Bahrain. The business will operate and brand its products under the Mueller Industries family of brands. 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 1013 – 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 iswas 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 includesincluded 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 haspreviously 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 onVIE and has included 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. In December 2023, Wells Fargo exercised the put option, and as such the Company recognized a gain on the extinguishment of the liability representing 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.of $7.5 million.
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 million revolving credit facility (Revolving Credit Facility) that matures on December 6, 2021. Borrowings under the Revolving Credit Facility bear interest, at the Company’s option, at
LIBOR or Base Rate as defined by the Credit Agreement, plus a variable premium. LIBOR advances may be based upon the one, three, or six-month LIBOR. 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 based loans and 12.5 to 62.5 basis points for Base Rate loans. At December 30, 2017, the premium was 150.0 basis points for LIBOR loans and 50.0 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, totaling approximately $8.4 million at December 30, 2017. Terms of the letters of credit are generally renewable annually.
Jungwoo-Mueller
Jungwoo-Mueller has several secured revolving credit arrangements with a total borrowing capacity of KRW 29.9 billion (or approximately $27.5 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, the Company was in compliance with all debt covenants.
Aggregate annual maturities of the Company’s debt are as follows:
|
| | | | |
(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) | | 2017 | | 2016 | | 2015 |
| | | | | | |
Interest expense | | $ | 19,716 |
| | $ | 7,749 |
| | $ | 8,335 |
|
Capitalized interest | | (214 | ) | | (362 | ) | | (668 | ) |
| | | | | | |
| | $ | 19,502 |
| | $ | 7,387 |
| | $ | 7,667 |
|
Interest paid in 2017, 2016, and 2015 was $13.8 million, $7.1 million, and $8.1 million, respectively.
Note 1214 – 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 20172023 and 2016,2022, and a statement of the plans’ aggregate funded status:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
(In thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | | |
Change in benefit obligation: | | | | | | | | |
Obligation at beginning of year | | $ | 50,761 | | | $ | 84,283 | | | $ | 9,240 | | | $ | 11,825 | |
Service cost | | — | | | — | | | 183 | | | 291 | |
Interest cost | | 2,454 | | | 1,450 | | | 439 | | | 346 | |
Actuarial loss (gain) | | 1,508 | | | (24,154) | | | (105) | | | (2,604) | |
Plan amendments/transference | | — | | | — | | | 101 | | | — | |
| | | | | | | | |
Benefit payments | | (3,582) | | | (2,512) | | | (686) | | | (547) | |
| | | | | | | | |
| | | | | | | | |
Foreign currency translation adjustment | | 3,294 | | | (8,306) | | | 385 | | | (71) | |
| | | | | | | | |
Obligation at end of year | | 54,435 | | | 50,761 | | | 9,557 | | | 9,240 | |
| | | | | | | | |
Change in fair value of plan assets: | | | | | | | | |
Fair value of plan assets at beginning of year | | 62,298 | | | 79,478 | | | — | | | — | |
Actual return on plan assets | | 410 | | | (6,371) | | | — | | | — | |
Employer contributions | | — | | | — | | | 686 | | | 547 | |
Benefit payments | | (3,582) | | | (2,512) | | | (686) | | | (547) | |
| | | | | | | | |
| | | | | | | | |
Foreign currency translation adjustment | | 3,745 | | | (8,297) | | | — | | | — | |
| | | | | | | | |
Fair value of plan assets at end of year | | 62,871 | | | 62,298 | | | — | | | — | |
| | | | | | | | |
Funded (underfunded) status at end of year | | $ | 8,436 | | | $ | 11,537 | | | $ | (9,557) | | | $ | (9,240) | |
|
| | | | | | | | | | | | | | | | |
| | 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) | | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | | |
Unrecognized net actuarial loss (gain) | | $ | 7,728 | | | $ | 2,870 | | | $ | (3,863) | | | $ | (4,149) | |
Unrecognized prior service credit | | — | | | — | | | (5) | | | (19) | |
|
| | | | | | | | | | | | | | | | |
| | 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, $1.52023, $0.2 million of the actuarial net lossgain and $0.9 millionthe remainder of the prior service credit will, through amortization, be recognized as components of net periodic benefit cost in 2018.2024.
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, 20172023 and December 31, 2016,2022, the total funded status of the plans recognized in the Consolidated Balance Sheets was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
(In thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | | |
Long-term asset | | $ | 8,436 | | | $ | 11,537 | | | $ | — | | | $ | — | |
Current liability | | $ | — | | | $ | — | | | $ | (1,041) | | | $ | (1,068) | |
Long-term liability | | — | | | — | | | (8,516) | | | (8,172) | |
| | | | | | | | |
Total funded (underfunded) status | | $ | 8,436 | | | $ | 11,537 | | | $ | (9,557) | | | $ | (9,240) | |
|
| | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
(In thousands) | | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | | | | |
Long-term asset | | $ | 9,894 |
| | $ | 4,442 |
| | $ | — |
| | $ | — |
|
Current liability | | — |
| | — |
| | (1,070 | ) | | (1,128 | ) |
Long-term liability | | (10,324 | ) | | (14,038 | ) | | (15,337 | ) | | (14,146 | ) |
| | | | | | | | |
Total underfunded status | | $ | (430 | ) | | $ | (9,596 | ) | | $ | (16,407 | ) | | $ | (15,274 | ) |
The components of net periodic benefit cost (income) are as follows:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2023 | | 2022 | | 2021 |
Pension benefits: | | | | | | |
| | | | | | |
Interest cost | | $ | 2,454 | | | $ | 1,450 | | | $ | 1,272 | |
Expected return on plan assets | | (3,260) | | | (3,568) | | | (3,671) | |
| | | | | | |
Amortization of net loss | | — | | | 897 | | | 1,536 | |
Settlement charge | | — | | | — | | | — | |
| | | | | | |
Net periodic benefit income | | $ | (806) | | | $ | (1,221) | | | $ | (863) | |
| | | | | | |
Other benefits: | | | | | | |
Service cost | | $ | 183 | | | $ | 291 | | | $ | 258 | |
Interest cost | | 439 | | | 346 | | | 281 | |
Amortization of prior service credit | | (2) | | | (198) | | | (470) | |
Amortization of net gain | | (449) | | | (220) | | | (103) | |
Curtailment gain | | — | | | (1,756) | | | — | |
| | | | | | |
| | | | | | |
Net periodic benefit cost (income) | | $ | 171 | | | $ | (1,537) | | | $ | (34) | |
During 2022, the Company recognized a curtailment gain of $1.8 million related to one of its postretirement benefit plans.
|
| | | | | | | | | | | | |
(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 |
|
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 |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | | |
Discount rate | | 4.40 | % | | 4.80 | % | | 5.96 | % | | 6.08 | % |
Expected long-term return on plan assets | | 4.30 | % | | 5.51 | % | | N/A | | N/A |
Rate of compensation increases | | N/A | | N/A | | 5.00 | % | | 5.00 | % |
Rate of inflation | | 3.20 | % | | 3.30 | % | | 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 |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| | | | | | | | | | | | |
Discount rate | | 4.80 | % | | 1.90 | % | | 1.40 | % | | 6.08 | % | | 3.73 | % | | 2.92 | % |
Expected long-term return on plan assets | | 5.51 | % | | 4.96 | % | | 4.69 | % | | 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 | % | | 3.70 | % | | 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 6.64.9 to 10.18.2 percent for 2018,2024, 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 | | 2023 | | 2022 |
| | | | |
Pooled liability investments | | 99 | % | | — | % |
Equity securities (includes equity mutual funds) | | — | | | 67 | |
Multi-asset securities | | — | | | 22 | |
Cash and equivalents (includes money market funds) | | 1 | | | 1 | |
Alternative investments | | — | | | 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, the long-term target allocation, by asset category, of assets of the Company’s defined benefit pension plans was: (i) fixed income securities – at least 60 percent; (ii) equity securities, including equity index funds – not more than 30 percent; and (iii) alternative investments – not more than 5 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 5.274.30 percent for 20172023 and 5.565.51 percent in 2016.2022.
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 stockPooled liability investments – Valued at These funds are primarily invested in U.K. government bonds and highly rated corporate bonds. The level 2 fair value is determined utilizing observable inputs of the closing price reported on the active market on which the individual securities are traded.underlying assets.
Mutual funds – Valued at the net asset value of shares held by the plans, at December 30, 2017 and December 31, 2016, 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, 2023 |
(In thousands) | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | |
Cash and money market funds | | $ | 502 | | | $ | — | | | $ | — | | | $ | 502 | |
| | | | | | | | |
Pooled liability investments | | — | | | 62,369 | | | — | | | 62,369 | |
| | | | | | | | |
| | | | | | | | |
Total | | $ | 502 | | | $ | 62,369 | | | $ | — | | | $ | 62,871 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2022 |
(In thousands) | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | |
Cash and money market funds | | $ | 829 | | | $ | — | | | $ | — | | | $ | 829 | |
| | | | | | | | |
Mutual funds (1) | | — | | | 55,441 | | | — | | | 55,441 | |
Limited partnerships | | — | | | — | | | 6,028 | | | 6,028 | |
| | | | | | | | |
Total | | $ | 829 | | | $ | 55,441 | | | $ | 6,028 | | | $ | 62,298 | |
(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.
|
| | | | | | | | | | | | | | | | |
| | Fair Value Measurements at December 30, 2017 |
(In thousands) | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | |
Cash and money market funds | | $ | 5,364 |
| | $ | — |
| | $ | — |
| | $ | 5,364 |
|
Common stock (1) | | 11,113 |
| | — |
| | — |
| | 11,113 |
|
Mutual funds (2) | | 8,412 |
| | 156,442 |
| | — |
| | 164,854 |
|
Limited partnerships | | — |
| | — |
| | 5,005 |
| | 5,005 |
|
| | | | | | | | |
Total | | $ | 24,889 |
| | $ | 156,442 |
| | $ | 5,005 |
| | $ | 186,336 |
|
|
| | | | | | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2016 |
(In thousands) | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | |
Cash and money market funds | | $ | 4,245 |
| | $ | — |
| | $ | — |
| | $ | 4,245 |
|
Common stock (3) | | 18,601 |
| | — |
| | — |
| | 18,601 |
|
Mutual funds (4) | | 5,572 |
| | 136,027 |
| | — |
| | 141,599 |
|
Limited partnerships | | — |
| | — |
| | 4,695 |
| | 4,695 |
|
| | | | | | | | |
Total | | $ | 28,418 |
| | $ | 136,027 |
| | $ | 4,695 |
| | $ | 169,140 |
|
| |
(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. |
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, 2017:2023:
| | | | | | | | |
(In thousands) | | Limited Partnerships |
| | |
Balance, December 31, 2022 | | $ | 6,028 | |
| | |
| | |
| | |
Liquidation | | (6,028) | |
| | |
Balance, December 30, 2023 | | $ | — | |
|
| | | | |
(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 million to its other postretirement benefit plans in 2017.2024. The Company expects future benefits to be paid from the plans as follows:
| | | | | | | | | | | | | | |
(In thousands) | | Pension Benefits | | Other Benefits |
| | | | |
2024 | | $ | 3,418 | | | $ | 1,042 | |
2025 | | 3,540 | | | 1,045 | |
2026 | | 3,667 | | | 1,080 | |
2027 | | 3,798 | | | 877 | |
2028 | | 3,934 | | | 922 | |
2028-2032 | | 21,886 | | | 4,146 | |
| | | | |
Total | | $ | 40,243 | | | $ | 9,112 | |
|
| | | | | | | | |
(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, 2019 and July 21, 2019, 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 million each year in 2017, 2016, and 2015. 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 2017 and 2016 the IAM Plan was determined to have green zone status; therefore, no formal plan of corrective action is either pending or has been implemented.
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, $5.22023, $4.9 million in 2016,2022, and $4.2$4.5 million in 2015.2021. 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.
UMWA Benefit PlansU. K. Pension Plan
In October 1992,During 2023, a United Kingdom High Court issued a ruling involving another U.K. company’s defined benefit pension scheme regarding the Coal Industry Retiree Health Benefitimpact of not obtaining certain documentation under section 37 of the Pension Scheme Act of 1992 (1992 Act) was enacted. The 1992 Act mandates a method of providing for postretirement benefits2003 could have on plan amendments in relation to the United Mine Workerscontracting out of America (UMWA) current and retired employees, including some retirees who were never employed by the Company. In October 1993, beneficiaries were assignedstate benefit pension. The ruling is subject to the Companyappeal and the Company began its mandated contributionswill continue to evaluate this matter. The Company continues to account for it U.K. pension scheme in accordance with all relevant plan agreements and amendments, as they represent 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 createdterms that are mutually understood 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,employer 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.participants.
Note 1315 – 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$0.7 million in 2017, $0.92023, $1.4 million in 2016,2022, and $0.1$5.0 million in 20152021 for pending environmental matters. Environmental reserves totaled $28.0$18.9 million at December 30, 20172023 and $21.9$20.5 million at December 31, 2016.2022. As of December 30, 2017,2023, the Company expects to spend $4.3$3.8 million in 2018, $2.22024, $0.8 million in 2019, $2.1 million in 2020,2025, $0.6 million in 2021, $0.62026, $0.7 million in 2022,2027, $0.7 million in 2028, 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 reserveEPA issued an interim record of decision in 2017 and has been remediating properties at the site. According to EPA, 1,371 properties were to be remediated. In August 2023, EPA issued a five-year review indicating that the cleanup of approximately 300 remaining residential properties would be completed in 2026. A record of decision concerning the cleanup is scheduled for its proportionate share of the remediation costs associated with the Southeast Kansas sites is $5.6 million.May 2025.
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 20252034 to address residual discharges of acid rock drainage. At this site, MRRC spent approximately $1.2 million from 20152021 through 20172023 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 million from 20152021 through 20172023 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$2.2 million over the next 1913 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 subsequently answered plaintiffs’ amended complaint, but has filed a motion for partial judgment on the pleadings which remains pending. 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 million to $1.2$0.4 million over the next eighttwo years.
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 MatterGuarantees
On October 5, 2016,Guarantees, in the form of letters of credit, are issued by the Company received a demand letter fromgenerally to assure the Los Angeles District Officepayment of insurance deductibles, certain retiree health benefits, and debt at certain unconsolidated affiliates. The terms of the United States Equal Employment Opportunity Commission (EEOC).guarantees are generally one year but are renewable annually as required. These letters are primarily backed by the Company’s revolving credit facility. The EEOC allegesmaximum payments that between May 2011 and April 2015, variousthe Company employeescould be required to make under its guarantees at December 30, 2023 were terminated in violation of the Americans with Disabilities Act, and that certain$28.7 million.
Insurance Claims
In August 2022, a portion of the Company’s employee leaveBluffs, Illinois manufacturing operation was damaged by fire. Certain inventories, production equipment, and attendance policiesbuilding structures were discriminatoryextensively damaged. During the second quarter of 2023, the Company settled the claim with its insurer for total proceeds of $29.5 million, net of the deductible of $250 thousand. As a result of the settlement with the insurer, all proceeds received and all costs previously deferred (which were recorded as other current liabilities in nature. On that basis,prior periods) were recognized, resulting in a pre-tax gain of $19.5 million in the EEOC’s letter includes a demand for monetary relief on behalfsecond quarter of an identified class of 20 individuals, and an unidentified class of 150 individuals, in addition to injunctive relief.
2023, or 13 cents per diluted share after tax. The Company believes the EEOC’s allegations are without merit. Notwithstandingreceived proceeds of $24.5 million and $5.0 million in 2023 and 2022, respectively.
In March 2023, a portion of the Company’s position, in consultation with its liability insurers, the Company entered intoCovington, Tennessee manufacturing operation was damaged by 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 resolutiontornado. The extent of the claims,damage to inventories, production equipment, and thatbuilding structures is currently being assessed. The total value of the matter wouldloss, including business interruption, cannot be referreddetermined at this time, but is expected to its Legal Departmentbe covered by property and business interruption insurance subject to customary deductibles. Any gain resulting from insurance proceeds 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 lossproperty damage in excess of any availablethe net book value of the related property will be recognized in income upon settlement of the claim. In addition, the Company has deferred recognition of direct, identifiable costs associated with this matter. These costs will also be recognized upon settlement of the insurance coverage.claim. As of December 30, 2023, the Company has received advances totaling $10.0 million from the insurance company for this claim.
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 1416 – Income Taxes
The components of income before income taxes were taxed under the following jurisdictions:
| | | | | | | | | | | | | | | | | | | | |
(In thousands) | | 2023 | | 2022 | | 2021 |
| | | | | | |
Domestic | | $ | 722,153 | | | $ | 737,538 | | | $ | 518,080 | |
Foreign | | 123,079 | | | 138,493 | | | 123,059 | |
| | | | | | |
Income before income taxes | | $ | 845,232 | | | $ | 876,031 | | | $ | 641,139 | |
|
| | | | | | | | | | | | |
(In thousands) | | 2017 | | 2016 | | 2015 |
| | | | | | |
Domestic | | $ | 76,876 |
| | $ | 103,576 |
| | $ | 121,614 |
|
Foreign | | 50,096 |
| | 42,454 |
| | 10,175 |
|
| | | | | | |
Income before income taxes | | $ | 126,972 |
| | $ | 146,030 |
| | $ | 131,789 |
|
Income tax expense consists of the following:
| | (In thousands) | | 2017 | | 2016 | | 2015 | (In thousands) | | 2023 | | 2022 | | 2021 |
| | | | | | |
Current tax expense: | |
Current tax expense: | |
Current tax expense: | | | | | | | | |
Federal | | $ | 28,584 |
| | $ | 32,262 |
| | $ | 50,272 |
|
Foreign | | 10,219 |
| | 5,667 |
| | 4,042 |
|
State and local | | 2,241 |
| | 3,210 |
| | 4,886 |
|
| | | | | | |
Current tax expense | | 41,044 |
| | 41,139 |
| | 59,200 |
|
Current tax expense | |
Current tax expense | |
| | | | | | |
Deferred tax (benefit) expense: | | |
| | |
| | |
|
Deferred tax expense (benefit): | |
Deferred tax expense (benefit): | |
Deferred tax expense (benefit): | | | |
Federal | | (1,764 | ) | | 2,004 |
| | (13,739 | ) |
Foreign | | 1,118 |
| | 5,099 |
| | (1,180 | ) |
State and local | | (2,514 | ) | | (105 | ) | | (899 | ) |
| | | | | | |
Deferred tax (benefit) expense | | (3,160 | ) | | 6,998 |
| | (15,818 | ) |
Deferred tax expense (benefit) | |
Deferred tax expense (benefit) | |
Deferred tax expense (benefit) | |
| | | | | | |
Income tax expense | | $ | 37,884 |
| | $ | 48,137 |
| | $ | 43,382 |
|
Income tax expense | |
Income tax expense | |
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) | | 2023 | | 2022 | | 2021 |
| | | | | | |
Expected income tax expense | | $ | 177,499 | | | $ | 183,967 | | | $ | 134,639 | |
State and local income tax, net of federal benefit | | 25,542 | | | 32,184 | | | 21,132 | |
Effect of foreign statutory rates different from U.S. and other foreign adjustments | | 14,519 | | | 7,443 | | | 11,185 | |
| | | | | | |
| | | | | | |
| | | | | | |
Investment in unconsolidated affiliates | | 1,226 | | | 206 | | | (679) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Other, net | | 1,976 | | | (478) | | | (419) | |
| | | | | | |
Income tax expense | | $ | 220,762 | | | $ | 223,322 | | | $ | 165,858 | |
|
| | | | | | | | | | | | |
(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 a portion of the undistributed earnings subject to the transition taxof 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 residualdifferences. The Company has accrued appropriate taxes onfor any 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.
are not considered permanently reinvested. 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 2023, 2022, and interest was immaterial in 2017, 2016, and 2015.2021.
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 20142020 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) | | 2023 | | 2022 |
| | | | |
Deferred tax assets: | | | | |
Inventories | | $ | 19,162 | | | $ | 16,829 | |
Other postretirement benefits and accrued items | | 10,174 | | | 7,260 | |
| | | | |
Other reserves | | 6,956 | | | 8,046 | |
Foreign tax attributes | | 4,862 | | | 5,750 | |
State tax attributes, net of federal benefit | | 6,728 | | | 8,063 | |
Stock-based compensation | | 4,502 | | | 5,249 | |
Lease liability | | 7,354 | | | 4,540 | |
Basis difference in unconsolidated affiliates | | 11,509 | | | 6,881 | |
| | | | |
Total deferred tax assets | | 71,247 | | | 62,618 | |
Less valuation allowance | | (23,078) | | | (21,505) | |
| | | | |
Deferred tax assets, net of valuation allowance | | 48,169 | | | 41,113 | |
| | | | |
Deferred tax liabilities: | | | | |
Property, plant, and equipment | | 42,980 | | | 44,001 | |
| | | | |
Lease asset | | 7,776 | | | 4,970 | |
Other liabilities | | 10,884 | | | 2,918 | |
| | | | |
| | | | |
Total deferred tax liabilities | | 61,640 | | | 51,889 | |
| | | | |
Net deferred tax liabilities | | $ | (13,471) | | | $ | (10,776) | |
|
| | | | | | | | |
(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, 2017,2023, after consideration of the federal impact, the Company had state income tax credit carryforwards of $4.5$1.3 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$5.6 million, after consideration of the federal impact, expiring between 20192027 and 2032.2036. The state tax credit and NOL carryforwards arewere fully offset by valuation allowances totaling $17.6 million.allowances.
As of December 30, 2017,2023, 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$3.8 million, which have an unlimited life. Theselife, and attributes with potential benefits of $1.0 million that expire between 2035 and 2039; all of these foreign attributes were fully offset by a valuation allowance. 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$219.6 million in 2017, $40.12023, $238.3 million in 2016,2022, and $49.9$132.9 million in 2015.2021.
Note 1517 – Equity
The Company’s Board of Directors has extended, until August 2018,July 2024, its authorization to repurchase up to 2040 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, 2017,2023, the Company has repurchased approximately 4.715.0 million shares under this authorization.
Note 1618 – 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,Approximately 1.1 million shares were available for future stock incentive awards at December 30, 2023, comprised of 564 thousand and 561 thousand shares available under the awards vest within five years from the date of grant. Any unexercised options expire after not more than ten years. 2019 Incentive Plan and 2014 Stock Incentive Plan, respectively.
During the years ended December 30, 2017,2023, December 31, 2016,2022, and December 26, 2015,25, 2021, the Company recognized stock-based compensation, as a component of selling, general, and administrative expense, in its Consolidated Statements of Income of $7.5$23.1 million, $6.4$17.8 million, and $6.2$9.8 million, respectively.
The total compensation expense not yet recognized related to stock incentive awards at December 30, 2023 was $52.9 million, with an average expense recognition period of 2.8 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 | | 884 | | | $ | 14.60 | | | 982 | | | $ | 18.29 | | | 1,722 | | | $ | 22.04 | |
Granted | | — | | | N/A | | 93 | | | 36.88 | | | 535 | | (2) | 37.64 | |
Added by Performance Factor | | — | | | N/A | | — | | | N/A | | 100 | | | 14.81 | |
Exercised/Released | | (258) | | | 14.16 | | | (410) | | | 18.89 | | | (455) | | | 15.40 | |
Forfeited | | — | | | N/A | | (1) | | | 33.80 | | | — | | | N/A |
| | | | | | | | | | | | |
End of period | | 626 | | | $ | 14.78 | | | 664 | | | $ | 20.51 | | | 1,902 | | (1) | $ | 27.63 | |
(1) Of the performance stock awards outstanding, there are 856 thousand awards granted in 2021 and 2022 that have the potential to vest at maximum, up to 200% of target.These awards are represented at 100% target and would increase the performance awards outstanding by 856 thousand if they vest at maximum.
(2) Performance awards granted in 2023 are represented at 200% target.
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 2023, 2022, and 2021 was $36.88, $31.90, and $22.04, respectively.
The aggregate intrinsic value of outstanding and unvested awards was $31.3 million at December 30, 2023. The total fair value of awards that vested was $7.7 million, $4.9 million, and $7.0 million in 2023, 2022, and 2021, 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 2023, 2022, and 2021 was $37.63, $32.74, and $21.73, respectively.
The aggregate intrinsic value of outstanding and unvested awards was $89.7 million at December 30, 2023. The total fair value of awards that vested was $7.0 million and $1.7 million in 2023 and 2022, respectively.
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:
| | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| | | | | | |
Fair value of stock options on grant date | | N/A | | N/A | | $ | 15.6 |
Expected term | | N/A | | N/A | | 7.9 years |
Expected price volatility | | N/A | | N/A | | 33.6 | % |
Risk-free interest rate | | N/A | | N/A | | 1.3 | % |
Dividend yield | | N/A | | N/A | | 1.1 | % |
|
| | | | | | | | | |
| | 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$6.5 million, $2.5$5.9 million, and $3.1$3.8 million in 2017, 2016,2023, 2022, and 2015,2021, respectively. The total fair value of options that vested was $1.0 million, $0.3$1.1 million, and $0.8$0.4 million in 2017, 2016,2023, 2022, and 2015, respectively.2021.
At December 30, 2017,2023, the aggregate intrinsic value of all outstanding and currently exercisable options was $12.4$20.3 million with a weighted average remaining contractual term of 6.2 years. Of the outstanding options, 476 thousand are currently exercisable with an aggregate intrinsic value of $8.5 million,3.5 years and a weighted average exercise price of $17.57, and a weighted average remaining contractual term of 4.5 years.$14.78.
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 1719 – 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 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) | |
| | | | | | | | | | | | |
Other comprehensive income (loss) before reclassifications | | 21,162 | | | 1,146 | | | (3,499) | | | | | 917 | | | 19,726 | |
Amounts reclassified from AOCI | | — | | | (2,419) | | | (353) | | | | | — | | | (2,772) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Balance at December 30, 2023 | | $ | (48,076) | | | $ | 213 | | | $ | (2,630) | | | | | $ | 3,272 | | | $ | (47,221) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(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) | | 2023 | | 2022 | | 2021 | | Affected Line Item |
| | | | | | | | |
Unrealized losses (gains) on derivatives: | | | | | | | | |
Commodity contracts | | $ | (3,109) | | | $ | 9,891 | | | $ | (3,848) | | | Cost of goods sold |
| | | | | | | | |
| | 690 | | | (2,225) | | | 1,306 | | | Income tax expense (benefit) |
| | | | | | | | |
| | $ | (2,419) | | | $ | 7,666 | | | $ | (2,542) | | | Net of tax and noncontrolling interests |
| | | | | | | | |
| | | | | | | | |
Amortization of net loss (gain) and prior service cost on employee benefit plans | | $ | (451) | | | $ | (1,277) | | | $ | 963 | | | Other income, net |
| | 98 | | | 332 | | | (159) | | | Income tax expense (benefit) |
| | | | | | | | |
| | $ | (353) | | | $ | (945) | | | $ | 804 | | | Net of tax and noncontrolling interests |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
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To the Stockholders and the Board of Directors of Mueller Industries, Inc.
We have audited the accompanying consolidated balance sheets of Mueller Industries, Inc. (the Company) as of December 30, 20172023 and December 31, 2016,2022, 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, 2017,2023, 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, 20172023 and December 31, 2016,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 30, 2017,2023, 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, 2017,2023, 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, 20182024 expressed an unqualified opinion thereon.
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.
MUELLER INDUSTRIES, INC.