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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 September 30, 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 October 22, 2023 was 113,529,410.
MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Quarterly Period Ended September 30, 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
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended | | For the Nine Months Ended |
| (In thousands, except per share data) | | September 30, 2023 | | September 24, 2022 | | September 30, 2023 | | September 24, 2022 |
| | | | | | | | |
| Net sales | | $ | 819,792 | | | $ | 944,830 | | | $ | 2,687,968 | | | $ | 3,104,874 | |
| | | | | | | | |
| Cost of goods sold | | 579,058 | | | 678,637 | | | 1,897,128 | | | 2,244,062 | |
| Depreciation and amortization | | 9,631 | | | 10,850 | | | 30,704 | | | 32,993 | |
| Selling, general, and administrative expense | | 48,295 | | | 50,178 | | | 156,988 | | | 146,590 | |
| Gain on sale of assets | | — | | | — | | | — | | | (5,507) | |
| Gain on sale of business | | (4,137) | | | — | | | (4,137) | | | — | |
| Asset impairments | | 5,934 | | | — | | | 5,934 | | | — | |
| | | | | | | | |
| Gain on insurance settlement | | — | | | — | | | (19,466) | | | — | |
| | | | | | | | |
| Operating income | | 181,011 | | | 205,165 | | | 620,817 | | | 686,736 | |
| | | | | | | | |
| Interest expense | | (230) | | | (361) | | | (508) | | | (666) | |
| Interest income | | 10,599 | | | 1,356 | | | 24,566 | | | 1,619 | |
| Unrealized (loss) gain on short-term investments | | (2,371) | | | — | | | 18,449 | | | — | |
| Other (expense) income, net | | (44) | | | (326) | | | 4,033 | | | 2,394 | |
| | | | | | | | |
| Income before income taxes | | 188,965 | | | 205,834 | | | 667,357 | | | 690,083 | |
| | | | | | | | |
| Income tax expense | | (50,843) | | | (51,035) | | | (174,322) | | | (173,524) | |
| (Loss) income from unconsolidated affiliates, net of foreign tax | | (2,413) | | | 1,014 | | | (2,682) | | | 6,026 | |
| | | | | | | | |
| Consolidated net income | | 135,709 | | | 155,813 | | | 490,353 | | | 522,585 | |
| Net income attributable to noncontrolling interests | | (3,000) | | | (1,271) | | | (6,694) | | | (3,175) | |
| | | | | | | | |
| Net income attributable to Mueller Industries, Inc. | | $ | 132,709 | | | $ | 154,542 | | | $ | 483,659 | | | $ | 519,410 | |
| | | | | | | | |
Weighted average shares for basic earnings per share (1) | | 111,416 | | | 111,178 | | | 111,374 | | | 111,650 | |
Effect of dilutive stock-based awards (1) | | 2,452 | | | 1,670 | | | 2,182 | | | 1,592 | |
| | | | | | | | |
Adjusted weighted average shares for diluted earnings per share (1) | | 113,868 | | | 112,848 | | | 113,556 | | | 113,242 | |
| | | | | | | | |
Basic earnings per share (1) | | $ | 1.19 | | | $ | 1.39 | | | $ | 4.34 | | | $ | 4.65 | |
| | | | | | | | |
Diluted earnings per share (1) | | $ | 1.17 | | | $ | 1.37 | | | $ | 4.26 | | | $ | 4.59 | |
| | | | | | | | |
Dividends per share (1) | | $ | 0.150 | | | $ | 0.125 | | | $ | 0.450 | | | $ | 0.375 | |
See accompanying notes to condensed consolidated financial statements.
(1) Adjusted retroactively to reflect the two-for-one stock split that occurred on October 20, 2023. Refer to Note 2 - Earnings per Common Share for additional information.
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Quarter Ended | | For the Nine Months Ended |
| (In thousands) | | September 30, 2023 | | September 24, 2022 | | September 30, 2023 | | September 24, 2022 |
| | | | | | | | |
| Consolidated net income | | $ | 135,709 | | | $ | 155,813 | | | $ | 490,353 | | | $ | 522,585 | |
| | | | | | | | |
| Other comprehensive (loss) income, net of tax: | | | | | | | | |
| Foreign currency translation | | (9,078) | | | (28,179) | | | 8,898 | | | (44,086) | |
Net change with respect to derivative instruments and hedging activities, net of tax of $(93), $352, $410, and $3,198 | | 324 | | | (1,179) | | | (1,401) | | | (10,974) | |
Net change in pension and postretirement obligation adjustments, net of tax of $(15), $(573), $(3), and $(676) | | — | | | 1,608 | | | 1 | | | 1,729 | |
Attributable to unconsolidated affiliates, net of tax of $(64), $56, $(540), and $(1,224) | | 222 | | | (191) | | | 1,860 | | | 4,218 | |
| | | | | | | | |
| Total other comprehensive (loss) income, net | | (8,532) | | | (27,941) | | | 9,358 | | | (49,113) | |
| | | | | | | | |
| Consolidated comprehensive income | | 127,177 | | | 127,872 | | | 499,711 | | | 473,472 | |
| Comprehensive (income) loss attributable to noncontrolling interests | | (3,280) | | | 148 | | | (6,938) | | | (167) | |
| | | | | | | | |
| Comprehensive income attributable to Mueller Industries, Inc. | | $ | 123,897 | | | $ | 128,020 | | | $ | 492,773 | | | $ | 473,305 | |
See accompanying notes to condensed consolidated financial statements.
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| | (Unaudited) | | |
| (In thousands, except share data) | | September 30,
2023 | | December 31,
2022 |
| | | | |
| Assets | | | | |
| Current assets: | | | | |
Cash and cash equivalents | | $ | 979,790 | | | $ | 461,018 | |
| Short-term investments | | 124,680 | | | 217,863 | |
Accounts receivable, less allowance for doubtful accounts of $2,918 in 2023 and $2,687 in 2022 | | 409,187 | | | 380,352 | |
| Inventories | | 391,740 | | | 448,919 | |
Other current assets | | 31,373 | | | 26,501 | |
| | | | |
| Total current assets | | 1,936,770 | | | 1,534,653 | |
| | | | |
| Property, plant, and equipment, net | | 376,678 | | | 379,950 | |
| Operating lease right-of-use assets | | 33,898 | | | 22,892 | |
| Goodwill, net | | 150,921 | | | 157,588 | |
| Intangible assets, net | | 46,798 | | | 54,785 | |
| Investments in unconsolidated affiliates | | 97,025 | | | 72,364 | |
| Other assets | | 21,651 | | | 20,167 | |
| | | | |
| Total assets | | $ | 2,663,741 | | | $ | 2,242,399 | |
| | | | |
| | | | | | | | | | | | | | |
| MUELLER INDUSTRIES, INC. |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| | | | |
| | (Unaudited) | | |
| (In thousands, except share data) | | September 30,
2023 | | December 31,
2022 |
| Liabilities | | | | |
| Current liabilities: | | | | |
Current portion of debt | | $ | 556 | | | $ | 811 | |
Accounts payable | | 141,930 | | | 128,000 | |
Accrued wages and other employee costs | | 49,065 | | | 61,915 | |
Current portion of operating lease liabilities | | 7,431 | | | 4,942 | |
Other current liabilities | | 123,523 | | | 152,627 | |
| | | | |
| Total current liabilities | | 322,505 | | | 348,295 | |
| | | | |
| Long-term debt, less current portion | | 1,301 | | | 1,218 | |
| Pension liabilities | | 3,797 | | | 4,078 | |
| Postretirement benefits other than pensions | | 9,131 | | | 8,977 | |
| Environmental reserves | | 15,420 | | | 16,380 | |
| Deferred income taxes | | 18,502 | | | 16,258 | |
| Noncurrent operating lease liabilities | | 25,793 | | | 16,880 | |
| Other noncurrent liabilities | | 16,063 | | | 16,349 | |
| | | | |
| Total liabilities | | 412,512 | | | 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 250,000,000 in 2023 and 100,000,000 in 2022; issued 160,366,008; outstanding 113,528,010 in 2023 and 114,003,234 in 2022 (1) | | 802 | | | 802 | |
| Additional paid-in capital | | 313,647 | | | 297,270 | |
| Retained earnings | | 2,492,157 | | | 2,059,796 | |
| Accumulated other comprehensive loss | | (55,061) | | | (64,175) | |
| Treasury common stock, at cost | | (530,304) | | | (502,779) | |
| | | | |
| Total Mueller Industries, Inc. stockholders' equity | | 2,221,241 | | | 1,790,914 | |
| Noncontrolling interests | | 29,988 | | | 23,050 | |
| | | | |
| Total equity | | 2,251,229 | | | 1,813,964 | |
| | | | |
| Commitments and contingencies | | — | | | — | |
| | | | |
| Total liabilities and equity | | $ | 2,663,741 | | | $ | 2,242,399 | |
See accompanying notes to condensed consolidated financial statements.
(1) Adjusted retroactively to reflect the two-for-one stock split that occurred on October 20, 2023. Refer to Note 2 - Earnings per Common Share for additional information.
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | | | | |
| | | For the Nine Months Ended |
| (In thousands) | | September 30, 2023 | | September 24, 2022 |
| | | | |
| Cash flows from operating activities | | | | |
| Consolidated net income | | $ | 490,353 | | | $ | 522,585 | |
| Reconciliation of consolidated net income to net cash provided by operating activities: | | | | |
| Depreciation and amortization | | 31,053 | | | 33,261 | |
| Stock-based compensation expense | | 17,268 | | | 12,254 | |
| Provision for doubtful accounts receivable | | (63) | | | 327 | |
| Loss (income) from unconsolidated affiliates | | 2,682 | | | (6,026) | |
| Insurance proceeds - noncapital related | | 9,854 | | | 1,646 | |
| | | | |
| Gain on disposals of properties | | (106) | | | (7,107) | |
| Gain on sale of business | | (4,137) | | | — | |
| Unrealized gain on short-term investments | | (18,449) | | | — | |
| | | | |
| Impairment charges | | 5,934 | | | — | |
| Gain on insurance settlement | | (19,466) | | | — | |
| | | | |
| Deferred income tax expense | | 3,803 | | | 226 | |
| Changes in assets and liabilities, net of effects of business sold: | | | | |
| Receivables | | (36,855) | | | 15,741 | |
| Inventories | | 53,372 | | | (33,768) | |
| Other assets | | (12,897) | | | (8,574) | |
| Current liabilities | | (25,503) | | | (5,331) | |
| Other liabilities | | (1,828) | | | (7,399) | |
| Other, net | | 3,475 | | | (923) | |
| | | | |
| Net cash provided by operating activities | | 498,490 | | | 516,912 | |
| | | | |
| Cash flows from investing activities | | | | |
| Capital expenditures | | (39,469) | | | (29,555) | |
| | | | |
| | | | |
| Investments in unconsolidated affiliates | | (3,999) | | | — | |
| Insurance proceeds - capital related | | 24,646 | | | 3,354 | |
| Purchase of short-term investments | | (106,231) | | | — | |
| Proceeds from the maturity of short-term investments | | 217,863 | | | — | |
| | | | |
| Proceeds from sales of assets | | 214 | | | 7,841 | |
| Dividends from unconsolidated affiliates | | 1,093 | | | 2,091 | |
| | | | |
| Net cash provided by (used in) investing activities | | 94,117 | | | (16,269) | |
| | | | |
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | | | | |
| | For the Nine Months Ended |
| (In thousands) | | September 30, 2023 | | September 24, 2022 |
| | | | |
| Cash flows from financing activities | | | | |
| Dividends paid to stockholders of Mueller Industries, Inc. | | (50,133) | | | (41,876) | |
| | | | |
| Repurchase of common stock | | (19,303) | | | (38,054) | |
| | | | |
| | | | |
| Repayments of debt | | (185) | | | (148) | |
| (Repayment) issuance of debt by consolidated joint ventures, net | | (265) | | | 406 | |
| Net cash used to settle stock-based awards | | (9,113) | | | (1,619) | |
| | | | |
| | | | |
| Net cash used in financing activities | | (78,999) | | | (81,291) | |
| | | | |
| Effect of exchange rate changes on cash | | 2,312 | | | (10,310) | |
| | | | |
| Increase in cash, cash equivalents, and restricted cash | | 515,920 | | | 409,042 | |
| 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 | | $ | 981,216 | | | $ | 499,418 | |
See accompanying notes to condensed consolidated financial statements.
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended | | For the Nine Months Ended |
| (In thousands) | | September 30, 2023 | | September 24, 2022 | | September 30, 2023 | | September 24, 2022 |
| | | | | | | | |
| Common stock: | | | | | | | | |
| Balance at beginning of period | | $ | 802 | | | $ | 802 | | | $ | 802 | | | $ | 802 | |
| | | | | | | | |
| Balance at end of period | | $ | 802 | | | $ | 802 | | | $ | 802 | | | $ | 802 | |
| | | | | | | | |
| Additional paid-in capital: | | | | | | | | |
| Balance at beginning of period | | $ | 309,705 | | | $ | 291,228 | | | $ | 297,270 | | | $ | 286,208 | |
| Acquisition of shares under incentive stock option plans | | 254 | | | 560 | | | 688 | | | 853 | |
| Stock-based compensation expense | | 4,809 | | | 7,083 | | | 17,268 | | | 12,254 | |
| Issuance of restricted stock | | (1,121) | | | (4,469) | | | (1,579) | | | (4,913) | |
| | | | | | | | |
| Balance at end of period | | $ | 313,647 | | | $ | 294,402 | | | $ | 313,647 | | | $ | 294,402 | |
| | | | | | | | |
| Retained earnings: | | | | | | | | |
| Balance at beginning of period | | $ | 2,376,618 | | | $ | 1,794,811 | | | $ | 2,059,796 | | | $ | 1,458,489 | |
| Net income attributable to Mueller Industries, Inc. | | 132,709 | | | 154,542 | | | 483,659 | | | 519,410 | |
| Dividends paid or payable to stockholders of Mueller Industries, Inc. | | (17,170) | | | (14,216) | | | (51,298) | | | (42,762) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Balance at end of period | | $ | 2,492,157 | | | $ | 1,935,137 | | | $ | 2,492,157 | | | $ | 1,935,137 | |
| | | | | | | | |
| Accumulated other comprehensive loss: | | | | | | | | |
| Balance at beginning of period | | $ | (46,249) | | | $ | (72,930) | | | $ | (64,175) | | | $ | (53,347) | |
| Total other comprehensive (loss) income attributable to Mueller Industries, Inc. | | (8,812) | | | (26,522) | | | 9,114 | | | (46,105) | |
| | | | | | | | |
| | | | | | | | |
| Balance at end of period | | $ | (55,061) | | | $ | (99,452) | | | $ | (55,061) | | | $ | (99,452) | |
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended | | For the Nine Months Ended |
| (In thousands) | | September 30, 2023 | | September 24, 2022 | | September 30, 2023 | | September 24, 2022 |
| | | | | | | | |
| Treasury stock: | | | | | | | | |
| Balance at beginning of period | | $ | (524,646) | | | $ | (503,448) | | | $ | (502,779) | | | $ | (470,034) | |
| Acquisition of shares under incentive stock option plans | | (6,779) | | | (2,083) | | | (9,801) | | | (2,472) | |
| Repurchase of common stock | | — | | | (4,585) | | | (19,303) | | | (38,054) | |
| Issuance of restricted stock | | 1,121 | | | 4,469 | | | 1,579 | | | 4,913 | |
| | | | | | | | |
| Balance at end of period | | $ | (530,304) | | | $ | (505,647) | | | $ | (530,304) | | | $ | (505,647) | |
| | | | | | | | |
| Noncontrolling interests: | | | | | | | | |
| Balance at beginning of period | | $ | 26,708 | | | $ | 35,160 | | | $ | 23,050 | | | $ | 34,845 | |
| Purchase of Mueller Middle East | | — | | | (5,605) | | | — | | | (5,605) | |
| | | | | | | | |
| Net income attributable to noncontrolling interests | | 3,000 | | | 1,271 | | | 6,694 | | | 3,175 | |
| Foreign currency translation | | 280 | | | (1,419) | | | 244 | | | (3,008) | |
| | | | | | | | |
| Balance at end of period | | $ | 29,988 | | | $ | 29,407 | | | $ | 29,988 | | | $ | 29,407 | |
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.
On September 26, 2023, the Company’s shareholders approved an amendment to the Company’s Restated Certificate of Incorporation to increase the total number of authorized shares of Common Stock from 100,000,000 to 250,000,000. Subsequently, the Company’s Board of Directors announced a two-for-one stock split of its common stock effected in the form of a stock dividend of one share for each outstanding share. The record date for the stock split was October 6, 2023, and the additional shares were distributed on October 20, 2023. Shares authorized in prior periods are not adjusted. All other references to share and per share amounts presented in the Condensed Consolidated Financial Statements and this Quarterly Report on Form 10-Q have been adjusted retroactively to reflect the stock split.
Note 3 – Disposition
Heatlink Group
On September 2, 2021, the Company entered into a contribution agreement with a limited liability company in the retail distribution business, pursuant to which the Company exchanged the outstanding common stock of Die-Mold for a 17 percent
equity interest in the limited liability company. Die-Mold manufactures PEX and other plumbing-related fittings and plastic injection tooling in Canada and sells these products in Canada and the U.S. and was included in the Piping Systems segment.
Effective July 3, 2023, the Company transferred 100 percent of the outstanding shares of Heatlink Group, Inc. and Heatlink Group USA, LLC for an additional 11 percent equity interest in the limited liability company. Heatlink Group produces a complete line of products for PEX plumbing and radiant systems in Canada and sells these products in Canada and the U.S. and was included in the Piping Systems segment. Heatlink Group reported net sales of $15.6 million and operating income of $1.7 million in the first nine months of 2023 compared to net sales of $29.6 million and operating income of $5.2 million for the first nine months of 2022. As a result of the transaction, the Company recognized a gain of $4.1 million in the third quarter of 2023 based on the excess of the fair value of the consideration received (the 11 percent equity interest) over the carrying value of Heatlink Group. The Company equally weighted an income and market comparable companies approach using an EBITDA multiple to determine the fair value of the consideration received of $26.0 million, which is recognized within the Investments in unconsolidated affiliates line of the Condensed Consolidated Balance Sheet. The excess of the fair value of the deconsolidated subsidiary over its carrying value resulted in the gain.
Note 4 – 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, 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. 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 September 30, 2023 |
| (In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
| Net sales | | $ | 568,151 | | | $ | 141,012 | | | $ | 119,949 | | | $ | (9,320) | | | $ | 819,792 | |
| | | | | | | | | | |
| Cost of goods sold | | 394,736 | | | 119,108 | | | 76,133 | | | (10,919) | | | 579,058 | |
| Depreciation and amortization | | 5,025 | | | 1,835 | | | 1,618 | | | 1,153 | | | 9,631 | |
| Selling, general, and administrative expense | | 21,847 | | | 3,848 | | | 7,352 | | | 15,248 | | | 48,295 | |
| | | | | | | | | | |
| Gain on sale of business | | — | | | — | | | — | | | (4,137) | | | (4,137) | |
| Asset impairments | | 5,934 | | | — | | | — | | | — | | | 5,934 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Operating income | | 140,609 | | | 16,221 | | | 34,846 | | | (10,665) | | | 181,011 | |
| | | | | | | | | | |
| Interest expense | | | | | | | | | | (230) | |
| Interest income | | | | | | | | | | 10,599 | |
| Unrealized loss on short-term investments | | | | | | | | | | (2,371) | |
| Other expense, net | | | | | | | | | | (44) | |
| | | | | | | | | | |
| Income before income taxes | | | | | | | | | | $ | 188,965 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Quarter Ended September 24, 2022 |
| (In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
| Net sales | | $ | 634,808 | | | $ | 144,880 | | | $ | 174,650 | | | $ | (9,508) | | | $ | 944,830 | |
| | | | | | | | | | |
| Cost of goods sold | | 440,216 | | | 128,152 | | | 114,850 | | | (4,581) | | | 678,637 | |
| Depreciation and amortization | | 5,516 | | | 1,846 | | | 2,289 | | | 1,199 | | | 10,850 | |
| Selling, general, and administrative expense | | 21,137 | | | 2,805 | | | 10,049 | | | 16,187 | | | 50,178 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Operating income | | 167,939 | | | 12,077 | | | 47,462 | | | (22,313) | | | 205,165 | |
| | | | | | | | | | |
| Interest expense | | | | | | | | | | (361) | |
| Interest income | | | | | | | | | | 1,356 | |
| Other expense, net | | | | | | | | | | (326) | |
| | | | | | | | | | |
| Income before income taxes | | | | | | | | | | $ | 205,834 | |
Segment information (continued):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, 2023 |
| (In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
| Net sales | | $ | 1,868,635 | | | $ | 452,512 | | | $ | 396,857 | | | $ | (30,036) | | | $ | 2,687,968 | |
| | | | | | | | | | |
| Cost of goods sold | | 1,315,212 | | | 375,375 | | | 242,009 | | | (35,468) | | | 1,897,128 | |
| Depreciation and amortization | | 15,835 | | | 5,411 | | | 5,973 | | | 3,485 | | | 30,704 | |
| Selling, general, and administrative expense | | 76,049 | | | 10,319 | | | 22,440 | | | 48,180 | | | 156,988 | |
| | | | | | | | | | |
| Gain on sale of business | | — | | | — | | | — | | | (4,137) | | | (4,137) | |
| Asset impairments | | 5,934 | | | — | | | — | | | — | | | 5,934 | |
| | | | | | | | | | |
| Gain on insurance settlement | | — | | | — | | | (19,466) | | | — | | | (19,466) | |
| | | | | | | | | | |
| Operating income | | 455,605 | | | 61,407 | | | 145,901 | | | (42,096) | | | 620,817 | |
| | | | | | | | | | |
| Interest expense | | | | | | | | | | (508) | |
| Interest income | | | | | | | | | | 24,566 | |
| Unrealized gain on short-term investments | | | | | | | | | | 18,449 | |
| Other income, net | | | | | | | | | | 4,033 | |
| | | | | | | | | | |
| Income before income taxes | | | | | | | | | | $ | 667,357 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 24, 2022 |
| ( In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Corporate and Eliminations | | Total |
| | | | | | | | | | |
| Net sales | | $ | 2,163,045 | | | $ | 498,367 | | | $ | 479,756 | | | $ | (36,294) | | | $ | 3,104,874 | |
| | | | | | | | | | |
| Cost of goods sold | | 1,539,493 | | | 424,802 | | | 311,917 | | | (32,150) | | | 2,244,062 | |
| Depreciation and amortization | | 16,846 | | | 5,636 | | | 6,989 | | | 3,522 | | | 32,993 | |
| Selling, general, and administrative expense | | 66,700 | | | 8,425 | | | 25,941 | | | 45,524 | | | 146,590 | |
| Gain on sale of assets | | — | | | — | | | — | | | (5,507) | | | (5,507) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Operating income | | 540,006 | | | 59,504 | | | 134,909 | | | (47,683) | | | 686,736 | |
| | | | | | | | | | |
| Interest expense | | | | | | | | | | (666) | |
| Interest income | | | | | | | | | | 1,619 | |
| Other income, net | | | | | | | | | | 2,394 | |
| | | | | | | | | | |
| Income before income taxes | | | | | | | | | | $ | 690,083 | |
The following table presents total assets attributable to each segment:
| | | | | | | | | | | | | | |
| (In thousands) | | September 30,
2023 | | December 31, 2022 |
| | | | |
| Segment assets: | | | | |
| Piping Systems | | $ | 1,083,888 | | | $ | 1,088,940 | |
| Industrial Metals | | 168,608 | | | 160,702 | |
| Climate | | 257,832 | | | 279,940 | |
| General Corporate | | 1,153,413 | | | 712,817 | |
| | | | |
| | $ | 2,663,741 | | | $ | 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 September 30, 2023 |
| (In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Total |
| | | | | | | | |
| Tube and fittings | | $ | 457,164 | | | $ | — | | | $ | — | | | $ | 457,164 | |
| Brass rod and forgings | | — | | | 112,164 | | | — | | | 112,164 | |
| OEM components, tube & assemblies | | — | | | 18,823 | | | 29,293 | | | 48,116 | |
| Valves and plumbing specialties | | 110,987 | | | — | | | — | | | 110,987 | |
| Flex duct and other HVAC components | | — | | | — | | | 90,656 | | | 90,656 | |
| Other | | — | | | 10,025 | | | — | | | 10,025 | |
| | | | | | | | |
| | | 568,151 | | | 141,012 | | | 119,949 | | | 829,112 | |
| | | | | | | | |
| Intersegment sales | | | | | | | | (9,320) | |
| | | | | | | | |
| Net sales | | | | | | | | $ | 819,792 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended September 24, 2022 |
| (In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Total |
| | | | | | | | |
| Tube and fittings | | $ | 520,842 | | | $ | — | | | $ | — | | | $ | 520,842 | |
| Brass rod and forgings | | — | | | 114,956 | | | — | | | 114,956 | |
| OEM components, tube & assemblies | | — | | | 16,819 | | | 30,180 | | | 46,999 | |
| Valves and plumbing specialties | | 113,966 | | | — | | | — | | | 113,966 | |
| Flex duct and other HVAC components | | — | | | — | | | 144,470 | | | 144,470 | |
| Other | | — | | | 13,105 | | | — | | | 13,105 | |
| | | | | | | | |
| | | 634,808 | | | 144,880 | | | 174,650 | | | 954,338 | |
| | | | | | | | |
| Intersegment sales | | | | | | | | (9,508) | |
| | | | | | | | |
| Net sales | | | | | | | | $ | 944,830 | |
Disaggregation of revenue from contracts with customers (continued):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, 2023 |
| (In thousands) | | Piping Systems | | Industrial Metals | | Climate | | Total |
| | | | | | | | |
| Tube and fittings | | $ | 1,520,104 | | | $ | — | | | $ | — | | | $ | 1,520,104 | |
| Brass rod and forgings | | — | | | 356,067 | | | — | | | 356,067 | |
| OEM components, tube & assemblies | | — | | | 62,405 | | | 95,702 | | | 158,107 | |
| Valves and plumbing specialties | | 348,531 | | | — | | | — | | | 348,531 | |
| Flex duct and other HVAC components | | — | | | — | | | 301,155 | | | 301,155 | |
| Other | | — | | | 34,040 | | | — | | | 34,040 | |
| | | | | | | | |
| | | 1,868,635 | | | 452,512 | | | 396,857 | | | 2,718,004 | |
| | | | | | | | |
| Intersegment sales | | | | | | | | (30,036) | |
| | | | | | | | |
| Net sales | | | | | | | | $ | 2,687,968 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 24, 2022 |
| (In thousands) | | Piping Systems | | Industrial Metals | | Climate | | | | Total |
| | | | | | | | | | |
| Tube and fittings | | 1,766,931 | | | — | | | — | | | | | 1,766,931 | |
| Brass rod and forgings | | — | | | 394,277 | | | — | | | | | 394,277 | |
| OEM components, tube & assemblies | | — | | | 57,169 | | | 91,798 | | | | | 148,967 | |
| Valves and plumbing specialties | | 396,114 | | | — | | | — | | | | | 396,114 | |
| Flex duct and other HVAC components | | — | | | — | | | 387,958 | | | | | 387,958 | |
| Other | | — | | | 46,921 | | | — | | | | | 46,921 | |
| | | | | | | | | | |
| | 2,163,045 | | | 498,367 | | | 479,756 | | | | | 3,141,168 | |
| | | | | | | | | | |
| Intersegment sales | | | | | | | | | | (36,294) | |
| | | | | | | | | | |
| Net sales | | | | | | | | | | $ | 3,104,874 | |
Note 5 – Cash, Cash Equivalents, and Restricted Cash
| | | | | | | | | | | | | | |
| (In thousands) | | September 30,
2023 | | December 31,
2022 |
| | | | |
| Cash & cash equivalents | | $ | 979,790 | | | $ | 461,018 | |
| Restricted cash included within other current assets | | 1,324 | | | 4,176 | |
| Restricted cash included within other assets | | 102 | | | 102 | |
| | | | |
| Total cash, cash equivalents, and restricted cash | | $ | 981,216 | | | $ | 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 6 – Inventories
| | | | | | | | | | | | | | |
| (In thousands) | | September 30,
2023 | | December 31,
2022 |
| | | | |
| Raw materials and supplies | | $ | 107,081 | | | $ | 133,189 | |
| Work-in-process | | 68,737 | | | 64,177 | |
| Finished goods | | 226,255 | | | 265,842 | |
| Valuation reserves | | (10,333) | | | (14,289) | |
| | | | |
| Inventories | | $ | 391,740 | | | $ | 448,919 | |
Note 7 – Financial Instruments
Short-Term Investments
The fair value of short-term investments at September 30, 2023, consisting of marketable securities, approximates the carrying value on that date. These marketable securities are stated at fair value and 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.
The fair value of short-term investments at December 31, 2022, consisting of U.S. treasury bills with maturities exceeding three months at the time of purchase, approximates the carrying value on that date. These treasury bills are stated at fair value and are classified as trading securities. The fair value of treasury bills is classified as level 1 within the fair value hierarchy. This classification is defined as a fair value determined using observable inputs that reflect quoted prices in active markets for identical assets.
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 September 30, 2023, the Company held open futures contracts to purchase approximately $18.2 million of copper over the next 10 months related to fixed price sales orders. The fair value of those futures contracts was a $37 thousand net loss 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 September 30, 2023, this amount was approximately $80 thousand of deferred net losses, net of tax.
The Company may also enter into futures contracts to protect the value of inventory against market fluctuations. At September 30, 2023, the Company held $6.8 million open futures contracts to sell copper over the next eight months related to copper inventory. The fair value of those futures contracts was a $97 thousand net gain 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 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 | | September 30,
2023 | | December 31,
2022 | | Balance Sheet Location | | September 30,
2023 | | December 31,
2022 |
| | | | | | | | | | | | |
Commodity contracts - gains | | Other current assets | | $ | 186 | | | $ | 3,746 | | | Other current liabilities | | $ | 45 | | | $ | — | |
Commodity contracts - losses | | Other current assets | | (23) | | | (1,483) | | | Other current liabilities | | (148) | | | — | |
| | | | | | | | | | | | |
Total derivatives (1) | | | | $ | 163 | | | $ | 2,263 | | | | | $ | (103) | | | $ | — | |
(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 | | For the Nine Months Ended |
| (In thousands) | | Location | | September 30, 2023 | | September 24, 2022 | | September 30, 2023 | | September 24, 2022 |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Undesignated derivatives: | | | | | | | | | | |
| Gain (loss) on commodity contracts (nonqualifying) | | Cost of goods sold | | 1,102 | | | 5,125 | | | (955) | | | 21,007 | |
The following tables summarize amounts recognized in and reclassified from AOCI during the period:
| | | | | | | | | | | | | | | | | | | | |
| | | For the Quarter Ended September 30, 2023 |
| (In thousands) | | 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 | | $ | 132 | | | Cost of goods sold | | $ | 183 | |
| Other | | 9 | | | Other | | — | |
| | | | | | |
| Total | | $ | 141 | | | Total | | $ | 183 | |
| | | | | | | | | | | | | | | | | | | | |
| | | For the Quarter Ended September 24, 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 | | $ | (5,984) | | | Cost of goods sold | | $ | 4,767 | |
| Other | | 38 | | | Other | | — | |
| | | | | | |
| Total | | $ | (5,946) | | | Total | | $ | 4,767 | |
| | | | | | | | | | | | | | | | | | | | |
| | | For the Nine Months Ended September 30, 2023 |
| (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 | | $ | 1,140 | | | Cost of goods sold | | $ | (2,548) | |
| Other | | 7 | | | Other | | — | |
| | | | | | |
| Total | | $ | 1,147 | | | Total | | $ | (2,548) | |
| | | | | | | | | | | | | | | | | | | | |
| | | For the Nine Months Ended September 24, 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 | | $ | (13,310) | | | Cost of goods sold | | $ | 2,253 | |
| Other | | 83 | | | Other | | — | |
| | | | | | |
| Total | | $ | (13,227) | | | Total | | $ | 2,253 | |
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 September 30, 2023 and December 31, 2022, the Company had recorded restricted cash in other current assets of $1.3 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 September 30, 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 8 – 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 Company’s loss from unconsolidated affiliates, net of foreign tax, for the quarter and nine months ended September 30, 2023 included net losses of $4.9 million and $7.9 million, respectively, for Tecumseh.
The Company’s income from unconsolidated affiliates, net of foreign tax, for the quarter and nine months ended September 24, 2022 included net losses of $0.3 million and net income of $2.8 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. 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 and nine months ended September 30, 2023 included net income of $2.5 million and $5.2 million, respectively, for the retail distribution business.
The Company’s income from unconsolidated affiliates, net of foreign tax, for the quarter and nine months ended September 24, 2022 included net income of $1.3 million and $3.2 million, respectively, for the retail distribution business.
Note 9 – 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 | | For the Nine Months Ended |
| (In thousands) | | September 30, 2023 | | September 24, 2022 | | September 30, 2023 | | September 24, 2022 |
| | | | | | | | |
| Pension benefits: | | | | | | | | |
| | | | | | | | |
| Interest cost | | $ | 594 | | | $ | 394 | | | $ | 1,783 | | | $ | 1,181 | |
| Expected return on plan assets | | (841) | | | (967) | | | (2,524) | | | (2,901) | |
| Amortization of net loss | | — | | | 244 | | | — | | | 731 | |
| | | | | | | | |
| Net periodic benefit income | | $ | (247) | | | $ | (329) | | | $ | (741) | | | $ | (989) | |
| | | | | | | | |
| Other benefits: | | | | | | | | |
| Service cost | | $ | 51 | | | $ | 72 | | | $ | |
