mli-20230401

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly report ended April 1, 2023
			OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from ______ to ______
			Commission file number 1-6770

MUELLER INDUSTRIES INC.

(Exact name of registrant as specified in its charter)


Delaware			25-0790410
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)


150 Schilling Boulevard	Suite 100
Collierville	Tennessee	38017
(Address of principal executive offices)		(Zip Code)

(901) 753-3200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of exchange on which registered
Common Stock	MLI	NYSE

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares of the Registrant’s common stock outstanding as of April 21, 2023 was 56,995,486.

MUELLER INDUSTRIES, INC.

FORM 10-Q

For the Quarterly Period Ended April 1, 2023

As used in this report, the terms “Company,” “Mueller,” and “Registrant” mean Mueller Industries, Inc. and its consolidated subsidiaries taken as a whole, unless the context indicates otherwise.

INDEX


		Page Number
Part I. Financial Information

	Item 1. – Financial Statements (Unaudited)

	a.) Condensed Consolidated Statements of Income	3

	b.) Condensed Consolidated Statements of Comprehensive Income	4

	c.) Condensed Consolidated Balance Sheets	5

	d.) Condensed Consolidated Statements of Cash Flows	6

	e.) Condensed Consolidated Statements of Changes in Equity	8

	f.) Notes to Condensed Consolidated Financial Statements	10

	Item 2. – Management's Discussion and Analysis of Financial Condition and Results of Operations	23

	Item 3. – Quantitative and Qualitative Disclosures About Market Risk	31

	Item 4. – Controls and Procedures	32

Part II. Other Information

	Item 1. – Legal Proceedings	33

	Item 1A – Risk Factors	33

	Item 2. – Unregistered Sales of Equity Securities and Use of Proceeds	34

	Item 6. – Exhibits	35

Signatures		36

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	For the Quarter Ended
(In thousands, except per share data)	April 1, 2023		March 26, 2022

Net sales	$	971,192	$	1,010,002

Cost of goods sold	678,798		744,511
Depreciation and amortization	10,657		10,841
Selling, general, and administrative expense	52,631		47,456
Gain on sale of assets	—		(5,507)





Operating income	229,106		212,701

Interest expense	(143)		(158)
Interest income	6,235		160

Other income, net	2,236		620

Income before income taxes	237,434		213,323

Income tax expense	(61,357)		(54,199)
(Loss) income from unconsolidated affiliates, net of foreign tax	(984)		124

Consolidated net income	175,093		159,248

Net income attributable to noncontrolling interests	(1,854)		(932)

Net income attributable to Mueller Industries, Inc.	$	173,239	$	158,316

Weighted average shares for basic earnings per share	55,693		56,100
Effect of dilutive stock-based awards	707		810

Adjusted weighted average shares for diluted earnings per share	56,400		56,910

Basic earnings per share	$	3.11	$	2.82

Diluted earnings per share	$	3.07	$	2.78

Dividends per share	$	0.30	$	0.25

See accompanying notes to condensed consolidated financial statements.

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	For the Quarter Ended
(In thousands)	April 1, 2023		March 26, 2022

Consolidated net income	$	175,093	$	159,248

Other comprehensive income, net of tax:
Foreign currency translation	10,251		1,213
Net change with respect to derivative instruments and hedging activities, net of tax of $(272) and $(604)	954		2,091
Net change in pension and postretirement obligation adjustments, net of tax of $11 and $(134)	(8)		420
Attributable to unconsolidated affiliates, net of tax of $(373) and $(624)	1,285		2,148

Total other comprehensive income, net	12,482		5,872

Consolidated comprehensive income	187,575		165,120
Comprehensive income attributable to noncontrolling interests	(2,112)		(899)

Comprehensive income attributable to Mueller Industries, Inc.	$	185,463	$	164,221

See accompanying notes to condensed consolidated financial statements.

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	(Unaudited)
(In thousands, except share data)	April 1, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	611,399	$	461,018
Short-term investments	170,997		217,863
Accounts receivable, less allowance for doubtful accounts of $2,972 in 2023 and $2,687 in 2022	503,369		380,352
Inventories	452,826		448,919
Other current assets	28,420		26,501

Total current assets	1,767,011		1,534,653

Property, plant, and equipment, net	377,324		379,950
Operating lease right-of-use assets	29,897		22,892
Goodwill, net	158,172		157,588
Intangible assets, net	53,859		54,785
Investments in unconsolidated affiliates	72,395		72,364
Other assets	20,963		20,167

Total assets	$	2,479,621	$	2,242,399

Liabilities
Current liabilities:
Current portion of debt	$	1,108	$	811
Accounts payable	179,244		128,000
Accrued wages and other employee costs	36,689		61,915
Current portion of operating lease liabilities	6,249		4,942
Other current liabilities	183,455		152,627

Total current liabilities	406,745		348,295

Long-term debt, less current portion	1,251		1,218
Pension liabilities	2,115		4,078
Postretirement benefits other than pensions	9,145		8,977
Environmental reserves	16,060		16,380
Deferred income taxes	17,561		16,258
Noncurrent operating lease liabilities	22,773		16,880
Other noncurrent liabilities	16,502		16,349

Total liabilities	492,152		428,435

Equity
Mueller Industries, Inc. stockholders' equity:
Preferred stock - $1.00 par value; shares authorized 5,000,000; none outstanding	—		—
Common stock - $.01 par value; shares authorized 100,000,000; issued 80,183,004; outstanding 56,990,798 in 2023 and 57,001,617 in 2022	802		802
Additional paid-in capital	303,133		297,270
Retained earnings	2,215,939		2,059,796
Accumulated other comprehensive loss	(51,951)		(64,175)
Treasury common stock, at cost	(505,616)		(502,779)

Total Mueller Industries, Inc. stockholders' equity	1,962,307		1,790,914
Noncontrolling interests	25,162		23,050

Total equity	1,987,469		1,813,964

Commitments and contingencies	—		—

Total liabilities and equity	$	2,479,621	$	2,242,399

See accompanying notes to condensed consolidated financial statements.

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Quarter Ended
(In thousands)	April 1, 2023		March 26, 2022

Cash flows from operating activities
Consolidated net income	$	175,093	$	159,248
Reconciliation of consolidated net income to net cash provided by operating activities:
Depreciation and amortization	10,746		10,930
Stock-based compensation expense	5,637		2,573
Provision for doubtful accounts receivable	(15)		125
Loss (income) from unconsolidated affiliates	984		(124)


Gain on disposals of properties	(115)		(5,507)






Deferred income tax expense	372		258
Changes in assets and liabilities:
Receivables	(111,547)		(116,610)
Inventories	(581)		(40,803)
Other assets	(17,950)		314
Current liabilities	50,842		54,344
Other liabilities	(2,275)		(1,752)
Other, net	427		(137)

Net cash provided by operating activities	111,618		62,859

Cash flows from investing activities
Capital expenditures	(7,556)		(5,259)



Insurance proceeds - capital related	8,000		—
Proceeds from the maturity of short term investments	50,000		—

Proceeds from sales of assets	118		6,219
Dividends from unconsolidated affiliates	644		959

Net cash provided by investing activities	51,206		1,919

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Quarter Ended
(In thousands)	April 1, 2023		March 26, 2022

Cash flows from financing activities
Dividends paid to stockholders of Mueller Industries, Inc.	(16,729)		—

Repurchase of common stock	—		(3,972)


Repayments of debt	(56)		(56)
Issuance of debt by consolidated joint ventures, net	297		—
Net cash used to settle stock-based awards	(2,611)		(230)


Net cash used in financing activities	(19,099)		(4,258)

Effect of exchange rate changes on cash	2,573		301

Increase in cash, cash equivalents, and restricted cash	146,298		60,821
Cash, cash equivalents, and restricted cash at the beginning of the period	465,296		90,376

Cash, cash equivalents, and restricted cash at the end of the period	$	611,594	$	151,197

See accompanying notes to condensed consolidated financial statements.

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


	For the Quarter Ended
(In thousands)	April 1, 2023		March 26, 2022

Common stock:
Balance at beginning of period	$	802	$	802

Balance at end of period	$	802	$	802

Additional paid-in capital:
Balance at beginning of period	$	297,270	$	286,208
Acquisition (issuance) of shares under incentive stock option plans	226		21
Stock-based compensation expense	5,637		2,573


Balance at end of period	$	303,133	$	288,802

Retained earnings:
Balance at beginning of period	$	2,059,796	$	1,458,489
Net income attributable to Mueller Industries, Inc.	173,239		158,316
Dividends paid or payable to stockholders of Mueller Industries, Inc.	(17,096)		(14,309)



Balance at end of period	$	2,215,939	$	1,602,496

Accumulated other comprehensive loss:
Balance at beginning of period	$	(64,175)	$	(53,347)
Total other comprehensive income attributable to Mueller Industries, Inc.	12,224		5,905


Balance at end of period	$	(51,951)	$	(47,442)

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


	For the Quarter Ended
(In thousands)	April 1, 2023		March 26, 2022

Treasury stock:
Balance at beginning of period	$	(502,779)	$	(470,034)
(Acquisition) issuance of shares under incentive stock option plans	(2,837)		(252)
Repurchase of common stock	—		(3,972)


Balance at end of period	$	(505,616)	$	(474,258)

Noncontrolling interests:
Balance at beginning of period	$	23,050	$	34,845

Net income attributable to noncontrolling interests	1,854		932
Foreign currency translation	258		(33)

Balance at end of period	$	25,162	$	35,744

See accompanying notes to condensed consolidated financial statements.

MUELLER INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

General

Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) have been condensed or omitted. Results of operations for the interim periods presented are not necessarily indicative of results which may be expected for any other interim period or for the year as a whole. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K, including the annual financial statements incorporated therein.

The accompanying unaudited interim financial statements include all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented herein.

Note 1 – Recent Accounting Standards

Adopted

In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2021-08, Business Combinations (Topic 805): An Amendment of the FASB Accounting Standards Codification. The new guidance was issued to improve accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the (i) recognition of an acquired contract liability, and (ii) payment terms and their effect on subsequent revenue recognized by the acquirer. The ASU is effective for fiscal years beginning after December 15, 2022 for public entities. The updated guidance requires prospective adoption, and early adoption is permitted. The Company adopted the ASU during the first quarter of 2023. The adoption of the ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Issued

In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The new guidance was issued to clarify existing guidance measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduce new disclosure requirements for applicable equity securities. The ASU is effective for fiscal years beginning after December 15, 2023 for public entities. The updated guidance requires prospective adoption, and early adoption is permitted. The Company does not expect the adoption of the ASU to have a material impact on its Condensed Consolidated Financial Statements.

Note 2 – Earnings per Common Share

Basic per share amounts have been computed based on the average number of common shares outstanding. Diluted per share amounts reflect the increase in average common shares outstanding that would result from the assumed exercise of outstanding stock options and vesting of restricted stock awards, computed using the treasury stock method.

Note 3 – Segment Information

Each of the Company’s reportable segments is composed of certain operating segments that are aggregated primarily by the nature of products offered as follows:

Piping Systems

Piping Systems is composed of the following operating segments: Domestic Piping Systems Group, Great Lakes Copper, Heatlink Group, European Operations, Trading Group, Jungwoo-Mueller (the Company’s South Korean joint venture), and Mueller Middle East (the Company’s Bahraini joint venture). The Domestic Piping Systems Group manufactures and distributes copper tube, fittings, and line sets. These products are manufactured in the U.S., sold in the U.S., and exported to markets worldwide. Outside the U.S., Great Lakes Copper manufactures copper tube and line sets in Canada and sells the products primarily in the U.S. and Canada. Heatlink Group produces a complete line of products for PEX plumbing and radiant systems in Canada and sells these products in Canada and the U.S. European Operations manufactures copper tube in the U.K. which is sold primarily in Europe. The Trading Group manufactures pipe nipples and resells brass and plastic plumbing valves,

malleable iron fittings, faucets, and plumbing specialty products in the U.S. and Mexico. Jungwoo-Mueller manufactures copper-based joining products that are sold worldwide. Mueller Middle East manufactures copper tube and serves markets in the Middle East and Northern Africa. The Piping Systems segment’s products are sold primarily to plumbing, refrigeration, and air-conditioning wholesalers, hardware wholesalers and co-ops, building product retailers, and air-conditioning original equipment manufacturers (OEMs).

Industrial Metals

Industrial Metals is composed of the following operating segments: Brass Rod, Impacts & Micro Gauge, Brass Value-Added Products, and Precision Tube. These businesses manufacture brass rod, impact extrusions, and forgings, specialty copper, copper alloy, and aluminum tube, as well as a wide variety of end products including plumbing brass, automotive components, valves, fittings, and gas assemblies. These products are manufactured in the U.S. and sold primarily to OEMs in the U.S., many of which are in the industrial, transportation, construction, heating, ventilation, and air-conditioning, plumbing, refrigeration, and energy markets.

Climate

Climate is composed of the following operating segments: Refrigeration Products, Westermeyer, Turbotec, Flex Duct, and Linesets, Inc. The segment manufactures and sells refrigeration valves and fittings, high pressure components, coaxial heat exchangers, insulated HVAC flexible duct systems, and line sets primarily for the heating, ventilation, air-conditioning, and refrigeration markets in the U.S.

Summarized segment information is as follows:


	For the Quarter Ended April 1, 2023
(In thousands)	Piping Systems		Industrial Metals		Climate		Corporate and Eliminations		Total

Net sales	$	662,479	$	165,234	$	152,954	$	(9,475)	$	971,192

Cost of goods sold	467,610		133,170		88,812		(10,794)		678,798
Depreciation and amortization	5,558		1,772		2,153		1,174		10,657
Selling, general, and administrative expense	25,457		3,077		8,001		16,096		52,631






Operating income	163,854		27,215		53,988		(15,951)		229,106

Interest expense									(143)
Interest income									6,235

Other income, net									2,236

Income before income taxes									$	237,434

Segment information (continued):


	For the Quarter Ended March 26, 2022
(In thousands)	Piping Systems		Industrial Metals		Climate		Corporate and Eliminations		Total

Net sales	$	703,430	$	174,312	$	140,622	$	(8,362)	$	1,010,002

Cost of goods sold	514,187		145,710		93,957		(9,343)		744,511
Depreciation and amortization	5,400		1,944		2,352		1,145		10,841
Selling, general, and administrative expense	23,355		3,399		7,613		13,089		47,456
Gain on sale of assets	—		—		—		(5,507)		(5,507)




Operating income	160,488		23,259		36,700		(7,746)		212,701

Interest expense									(158)
Interest income									160
Other income, net									620

Income before income taxes									$	213,323

The following table presents total assets attributable to each segment:


(In thousands)	April 1, 2023		December 31, 2022

Segment assets:
Piping Systems	$	1,196,717	$	1,088,940
Industrial Metals	173,429		160,702
Climate	270,993		279,940
General Corporate	838,482		712,817

	$	2,479,621	$	2,242,399

The following tables represent a disaggregation of revenue from contracts with customers, along with the reportable segment for each category:


	For the Quarter Ended April 1, 2023
(In thousands)	Piping Systems		Industrial Metals		Climate		Total

Tube and fittings	$	544,228	$	—	$	—	$	544,228
Brass rod and forgings	—		130,340		—		130,340
OEM components, tube & assemblies	—		22,509		33,402		55,911
Valves and plumbing specialties	118,251		—		—		118,251
Flex duct and other HVAC components	—		—		119,552		119,552
Other	—		12,385		—		12,385

	662,479		165,234		152,954		980,667

Intersegment sales							(9,475)

Net sales							$	971,192


	For the Quarter Ended March 26, 2022
(In thousands)	Piping Systems		Industrial Metals		Climate		Total

Tube and fittings	$	571,510	$	—	$	—	$	571,510
Brass rod and forgings	—		136,533		—		136,533
OEM components, tube & assemblies	—		20,096		29,092		49,188
Valves and plumbing specialties	131,920		—		—		131,920
Flex duct and other HVAC components	—		—		111,530		111,530
Other	—		17,683		—		17,683

	703,430		174,312		140,622		1,018,364

Intersegment sales							(8,362)

Net sales							$	1,010,002

Note 4 – Cash, Cash Equivalents, and Restricted Cash


(In thousands)	April 1, 2023		December 31, 2022

Cash & cash equivalents	$	611,399	$	461,018
Restricted cash included within other current assets	93		4,176
Restricted cash included within other assets	102		102

Total cash, cash equivalents, and restricted cash	$	611,594	$	465,296

Amounts included in restricted cash relate to required deposits in brokerage accounts that facilitate the Company’s hedging activities as well as imprest funds for the Company’s self-insured workers’ compensation program.

Note 5 – Inventories


(In thousands)	April 1, 2023		December 31, 2022

Raw materials and supplies	$	135,231	$	133,189
Work-in-process	69,937		64,177
Finished goods	262,315		265,842
Valuation reserves	(14,657)		(14,289)

Inventories	$	452,826	$	448,919

Note 6 – Financial Instruments

Short-Term Investments

The fair value of short-term investments at April 1, 2023, consisting of U.S. treasury bills with maturities exceeding three months at the time of purchase, approximates the carrying value on that date. These treasury bills are stated at fair value and are classified as trading securities. The fair value of treasury bills is classified as level 1 within the fair value hierarchy. This classification is defined as a fair value determined using observable inputs that reflect quoted prices in active markets for identical assets.

Derivative Instruments and Hedging Activities

The Company’s earnings and cash flows are subject to fluctuations due to changes in commodity prices, foreign currency exchange rates, and interest rates. The Company uses derivative instruments such as commodity futures contracts, foreign currency forward contracts, and interest rate swaps to manage these exposures.

All derivatives are recognized in the Condensed Consolidated Balance Sheets at their fair values. On the date the derivative contract is entered into, it is either a) designated as a hedge of a forecasted transaction or the variability of cash flow to be paid (cash flow hedge) or b) not designated in a hedge accounting relationship, even though the derivative contract was executed to mitigate an economic exposure (economic hedge), as the Company does not enter into derivative contracts for trading purposes. Changes in the fair value of a derivative that is qualified, designated, and highly effective as a cash flow hedge are recorded in stockholders’ equity within AOCI, to the extent effective, until they are reclassified to earnings in the same period or periods during which the hedged transaction affects earnings. Changes in the fair value of undesignated derivatives executed as economic hedges are reported in current earnings.

The Company documents all relationships between derivative instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as fair value hedges to specific assets and liabilities in the Condensed Consolidated Balance Sheets and linking cash flow hedges to specific forecasted transactions or variability of cash flow.

The Company also assesses, both at the hedge’s inception and on an ongoing basis, whether the designated derivative instruments that are used in hedging transactions are highly effective in offsetting changes in cash flows or fair values of hedged items. When a derivative instrument is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable of occurring, hedge accounting is discontinued prospectively in accordance with the derecognition criteria for hedge accounting.

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 April 1, 2023, the Company held open futures contracts to purchase approximately $42.6 million of copper over the next nine months related to fixed price sales orders. The fair value of those futures contracts was a $3.0 million net gain position,

which was determined by obtaining quoted market prices (level 1 within the fair value hierarchy). In the next 12 months, the Company will reclassify into earnings realized gains or losses relating to cash flow hedges. At April 1, 2023, this amount was approximately $2.3 million of deferred net gains, net of tax.

The Company may also enter into futures contracts to protect the value of inventory against market fluctuations. At April 1, 2023, the Company held no open futures contracts to sell copper.

The Company presents its derivative assets and liabilities in the Condensed 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	April 1, 2023		December 31, 2022		Balance Sheet Location	April 1, 2023		December 31, 2022

Commodity contracts - gains	Other current assets	$	3,070	$	3,746	Other current liabilities	$	5	$	—
Commodity contracts - losses	Other current assets	(68)		(1,483)		Other current liabilities	(30)		—

Total derivatives (1)		$	3,002	$	2,263		$	(25)	$	—

(1) Does not include the impact of cash collateral provided to counterparties.

The following tables summarize the effects of derivative instruments on the Company’s Condensed Consolidated Statements of Income:

For the Quarter Ended

(In thousands)

Location

April 1,
2023

March 26, 2022

Undesignated derivatives:

(Loss) gain on commodity contracts (nonqualifying)

Cost of goods sold

(2,484)

3,425

The following tables summarize amounts recognized in and reclassified from AOCI during the period:


	For the Quarter Ended April 1, 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	$	2,969	Cost of goods sold	$	(1,989)
Other	(26)		Other	—

Total	$	2,943	Total	$	(1,989)

Amounts recognized in and reclassified from AOCI (continued):


	For the Quarter Ended March 26, 2022
(In thousands)	Gain 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	$	3,781	Cost of goods sold	$	(1,722)
Other	32		Other	—

Total	$	3,813	Total	$	(1,722)

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 a 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 April 1, 2023 and December 31, 2022, the Company had recorded restricted cash in other current assets of $0.1 million and $4.0 million, respectively, as collateral related to open derivative contracts under the master netting arrangements.

Long-Term Debt

The fair value of long-term debt at April 1, 2023 approximates the carrying value on that date. The estimated fair values were determined based on quoted market prices and the current rates offered for debt with similar terms and maturities. The fair value of long-term debt is classified as level 2 within the fair value hierarchy. This classification is defined as a fair value determined using market-based inputs other than quoted prices that are observable for the liability, either directly or indirectly.

Note 7 – Investments in Unconsolidated Affiliates

Tecumseh

The Company owns a 50 percent interest in an unconsolidated affiliate that acquired Tecumseh Products Company LLC (Tecumseh) and an entity that provides financing to Tecumseh. This investment is recorded using the equity method of accounting, as the Company can exercise significant influence but does not own a majority equity interest or otherwise control the entity. Under the equity method of accounting, this investment is stated at initial cost and is adjusted for subsequent additional investments and the Company’s proportionate share of earnings or losses and distributions.

The Company records its proportionate share of the investee’s net income or loss, net of foreign taxes, one quarter in arrears as income (loss) from unconsolidated affiliates, net of foreign tax, in the Condensed Consolidated Statements of Income and its proportionate share of the investee’s other comprehensive income (loss), net of income taxes, in the Condensed Consolidated Statements of Comprehensive Income and the Condensed Consolidated Statements of Changes in Equity. The U.S. tax effect of the Company’s proportionate share of Tecumseh’s income or loss is recorded in income tax expense in the Condensed Consolidated Statements of Income. In general, the equity investment in unconsolidated affiliates is equal to the current equity investment plus the investee’s net accumulated losses.

The following tables present summarized financial information derived from the Company’s equity method investee’s consolidated financial statements, which are prepared in accordance with U.S. GAAP.


(In thousands)	April 1, 2023		December 31, 2022

Current assets	$	217,674	$	248,808
Noncurrent assets	93,532		77,395
Current liabilities	175,645		190,746
Noncurrent liabilities	44,455		43,003


	For the Quarter Ended
(In thousands)	April 1, 2023		March 26, 2022

Net sales	$	113,418	$	125,967
Gross profit	19,816		18,775
Net loss	(4,717)		(1,206)

The Company’s loss from unconsolidated affiliates, net of foreign tax, for the quarter ended April 1, 2023 included net losses of $2.4 million for Tecumseh.

The Company’s income from unconsolidated affiliates, net of foreign tax, for the quarter ended March 26, 2022 included net losses of $0.6 million for Tecumseh.

Retail Distribution

The Company owns a 17 percent noncontrolling equity interest in a limited liability company in the retail distribution business. This investment is recorded using the equity method of accounting. The Company records its proportionate share of the investee’s net income or loss one month in arrears as income (loss) from unconsolidated affiliates in the Condensed Consolidated Statements of Income. The Company’s proportionate share of the investee’s other comprehensive income (loss), net of income taxes, is recorded in the Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Statement of Changes in Equity.

The Company’s loss from unconsolidated affiliates, net of foreign tax, for the quarter ended April 1, 2023 included net income of $1.4 million for the retail distribution business.

The Company’s income from unconsolidated affiliates, net of foreign tax, for the quarter ended March 26, 2022 included net income of $0.7 million for the retail distribution business.

Note 8 – Benefit Plans

The Company sponsors several qualified and nonqualified pension plans and other postretirement benefit plans for certain of its employees. The components of net periodic benefit cost (income) are as follows:


	For the Quarter Ended
(In thousands)	April 1, 2023		March 26, 2022

Pension benefits:

Interest cost	$	594	$	394
Expected return on plan assets	(841)		(967)
Amortization of net loss	—		244

Net periodic benefit income	$	(247)	$	(329)

Other benefits:
Service cost	$	51	$	72
Interest cost	128		103
Amortization of prior service credit	(1)		(118)
Amortization of net gain	(97)		(58)


Net periodic benefit cost (income)	$	81	$	(1)

The components of net periodic benefit cost (income) other than the service cost component are included in other income, net in the Condensed Consolidated Statements of Income.

Note 9 – Commitments and Contingencies

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. The Company may also realize the benefit of certain legal claims and litigation in the future; these gain contingencies are not recognized in the Condensed Consolidated Financial Statements.

Environmental

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 exploring 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 within 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 will also provide 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 December 2018, KDHE provided a draft agreement which contemplates the use of funds 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 expects the remediation to be conducted and paid for entirely by the other PRP, and for the other PRP to negotiate and enter into an agreement with 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. EPA issued an interim record of decision in 2017 and has been remediating properties at the site. According to EPA, 1,371 properties in total will be remediated, and the work will continue into 2023.

Shasta Area Mine Sites

Mining Remedial Recovery Company (MRRC), a wholly owned subsidiary, owns certain inactive mines in Shasta County, California. MRRC has continued a program, begun in the late 1980s, of implementing various remedial measures, including sealing mine portals with concrete plugs in portals that were discharging water. The sealing program achieved significant reductions in the metal load in discharges from these adits; however, additional reductions are required pursuant to an order issued by the California Regional Water Quality Control Board (QCB). In response to a 1996 QCB Order, MRRC completed a feasibility study in 1997 describing measures designed to mitigate the effects of acid rock drainage. In December 1998, the QCB modified the 1996 order extending MRRC’s time to comply with water quality standards. In September 2002, the QCB adopted a new order requiring MRRC to adopt Best Management Practices (BMP) to control discharges of acid mine drainage, and again extended the time to comply with water quality standards until September 2007. During that time, implementation of BMP further reduced impacts of acid rock drainage; however, full compliance has not been achieved. The QCB is presently renewing MRRC’s discharge permit and will concurrently issue a new order. It is expected that the new 10-year permit will include an order requiring continued implementation of BMP through 2033 to address residual discharges of acid rock drainage. The Company currently estimates that it will spend between approximately $14.1 million and $16.1 million for remediation at these sites over the next 30 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. Approximate costs to comply with the post-closure permit, including associated general and administrative costs, are estimated at between $1.6 million and $2.4 million over the next 14 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 has made a capital contribution to Lead Refinery to conduct the remedial investigation and feasibility study with respect to operable unit 2 and has provided financial assurance in the amount of $1.0 million. The remedial investigation and feasibility study remain ongoing. The EPA has also asserted its position that Mueller 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). Subsequent 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 then estimated it would 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, as well as the possibility of up to $0.7 million in further payments for ongoing work by those PRPs. As of April 1, 2023, the Company has made payments of approximately $7.6 million related to the aforementioned agreement with the other PRPs. The Company disputes that it was properly named in the UAOs. In March 2022, Lead Refinery entered into an administrative settlement agreement and order on consent with the EPA, along with the four 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 Company, 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 2021. In March 2018, a group of private plaintiffs sued the Company, Arava, MRRC, and Lead Refinery, along with other defendants, in civil tort action relating to the site. The Company, Arava, and MRRC have been voluntarily dismissed from that litigation without prejudice. Lead Refinery’s motion to dismiss the matter was granted without prejudice, but it has answered plaintiffs’ amended complaint. 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 site 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 $0.5 million to $0.7 million over the next three years. The Company has recorded a reserve at the low end of this range.

United States Department of Commerce Antidumping Review

On December 24, 2008, the Department of Commerce (DOC) initiated an antidumping administrative review of the antidumping duty order covering circular welded non-alloy steel pipe and tube from Mexico for the November 1, 2007 through October 31, 2008 period of review. The DOC selected Mueller Comercial as a respondent in the review. On April 19, 2010, the DOC published the final results of the review and assigned Mueller Comercial an antidumping duty rate of 48.33 percent. On May 25, 2010, the Company appealed the final results to the U.S. Court of International Trade (CIT). On December 16, 2011, the CIT issued a decision remanding the Department’s final results. While the matter was still pending, the Company and the United States reached an agreement to settle the appeal. Subject to the conditions of the agreement, the Company anticipated that certain of its subsidiaries would incur antidumping duties on subject imports made during the period of review and, as such, established a reserve for this matter. After the lapse of the statutory period of time during which U.S. Customs and Border Protection (CBP) was required, but failed, to liquidate the entries at the settled rate, the Company released the reserve. Between October 30, 2015 and November 27, 2015, CBP sent a series of invoices to Southland Pipe Nipples Co., Inc. (Southland), requesting payment of approximately $3.0 million in duties and interest in connection with 795 import entries made during the November 1, 2007 through October 31, 2008 period. On January 26, 2016 and January 27, 2016, Southland filed protests with CBP in connection with these invoices, noting that CBP’s asserted claims were not made in accordance with applicable law, including statutory provisions governing deemed liquidation. The Company believes in the merits of the legal objections raised in Southland’s protests, and CBP’s response to Southland’s protests is currently pending. Given the procedural posture and issues raised by this legal dispute, the Company cannot estimate the amount of potential duty liability, if any, that may result from CBP’s asserted claims.

Guarantees

Guarantees, in the form of letters of credit, are issued by the Company generally to assure the payment of insurance deductibles, certain retiree health benefits, and debt at certain unconsolidated affiliates. The terms of the guarantees are generally one year but are renewable annually as required. These letters are primarily backed by the Company’s revolving credit facility. The maximum payments that the Company could be required to make under its guarantees at April 1, 2023 were $28.6 million.

Note 10 – Income Taxes

The Company’s effective tax rate for the first quarter of 2023 was 26 percent compared with 25 percent for the same period last year. The primary items impacting the effective tax rate for the first quarter of 2023 were increases related to the provision for state income taxes, net of the federal benefit, of $7.8 million, the effect of foreign tax rates higher than statutory tax rates and other foreign adjustments of $2.1 million, and other items of $1.6 million.

The items impacting the effective tax rate for the first quarter of 2022 were increases related to the provision for state income taxes, net of the federal benefit, of $7.1 million, the effect of foreign tax rates higher than statutory tax rates and other foreign adjustments of $1.7 million, and other items of $0.6 million.

The Company files a consolidated U.S. federal income tax return and numerous consolidated and separate-company income tax returns in many state, local, and foreign jurisdictions. The statute of limitations is open for the Company’s federal tax return for 2019 and all subsequent years. The statutes of limitations for most state returns are open for 2019 and all subsequent years, 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.

Note 11 – 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 OPEB liabilities, and other comprehensive income attributable to unconsolidated affiliates.

The following tables provide changes in AOCI by component, net of taxes and noncontrolling interests (amounts in parentheses indicate debits to AOCI):


	For the Quarter Ended April 1, 2023
(In thousands)	Cumulative Translation Adjustment		Unrealized Gain (Loss) on Derivatives		Pension/OPEB Liability Adjustment		Attributable to Unconsol. Affiliates		Total

Balance as of December 31, 2022	$	(69,238)	$	1,486	$	1,222	$	2,355	$	(64,175)

Other comprehensive income before reclassifications	9,993		2,943		65		1,285		14,286
Amounts reclassified from AOCI	—		(1,989)		(73)		—		(2,062)

Net current-period other comprehensive income (loss)	9,993		954		(8)		1,285		12,224


Balance as of April 1, 2023	$	(59,245)	$	2,440	$	1,214	$	3,640	$	(51,951)


	For the Quarter Ended March 26, 2022
(In thousands)	Cumulative Translation Adjustment		Unrealized Gain (Loss) on Derivatives		Pension/OPEB Liability Adjustment		Attributable to Unconsol. Affiliates		Total

Balance as of December 25, 2021	$	(42,303)	$	803	$	(11,500)	$	(347)	$	(53,347)

Other comprehensive income before reclassifications	1,246		3,813		357		2,148		7,564
Amounts reclassified from AOCI	—		(1,722)		63		—		(