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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
mlilogocoppera04.jpg
MUELLER INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
Delaware25-0790410
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
150 Schilling BoulevardSuite 100 
ColliervilleTennessee38017
(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 classTrading SymbolName of exchange on which registered
Common StockMLINYSE
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 filerAccelerated filer
Non-accelerated filerSmaller 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
  Page Number
 
   
  
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
   
2


PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

For the Quarter EndedFor the Nine Months Ended
(In thousands, except per share data)September 30, 2023September 24, 2022September 30, 2023September 24, 2022
Net sales$819,792 $944,830 $2,687,968 $3,104,874 
Cost of goods sold579,058 678,637 1,897,128 2,244,062 
Depreciation and amortization9,631 10,850 30,704 32,993 
Selling, general, and administrative expense48,295 50,178 156,988 146,590 
Gain on sale of assets   (5,507)
Gain on sale of business(4,137) (4,137) 
Asset impairments5,934  5,934  
Gain on insurance settlement  (19,466) 
Operating income181,011 205,165 620,817 686,736 
Interest expense(230)(361)(508)(666)
Interest income10,599 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 taxes188,965 205,834 667,357 690,083 
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 income135,709 155,813 490,353 522,585 
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.

3


MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 For the Quarter EndedFor the Nine Months Ended
(In thousands)September 30, 2023September 24, 2022September 30, 2023September 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 income127,177 127,872 499,711 473,472 
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.




4


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 investments124,680 217,863 
Accounts receivable, less allowance for doubtful accounts of $2,918 in 2023 and $2,687 in 2022
409,187 380,352 
Inventories391,740 448,919 
Other current assets
31,373 26,501 
Total current assets1,936,770 1,534,653 
Property, plant, and equipment, net376,678 379,950 
Operating lease right-of-use assets33,898 22,892 
Goodwill, net150,921 157,588 
Intangible assets, net46,798 54,785 
Investments in unconsolidated affiliates97,025 72,364 
Other assets21,651 20,167 
Total assets$2,663,741 $2,242,399 
5


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 liabilities322,505 348,295 
Long-term debt, less current portion1,301 1,218 
Pension liabilities3,797 4,078 
Postretirement benefits other than pensions9,131 8,977 
Environmental reserves15,420 16,380 
Deferred income taxes18,502 16,258 
Noncurrent operating lease liabilities25,793 16,880 
Other noncurrent liabilities16,063 16,349 
Total liabilities412,512 428,435 
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 capital313,647 297,270 
Retained earnings2,492,157 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' equity2,221,241 1,790,914 
Noncontrolling interests29,988 23,050 
Total equity2,251,229 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.
6


MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 For the Nine Months Ended
(In thousands)September 30, 2023September 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 amortization31,053 33,261 
Stock-based compensation expense17,268 12,254 
Provision for doubtful accounts receivable(63)327 
Loss (income) from unconsolidated affiliates2,682 (6,026)
Insurance proceeds - noncapital related9,854 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 charges5,934  
Gain on insurance settlement(19,466) 
Deferred income tax expense3,803 226 
Changes in assets and liabilities, net of effects of business sold:  
Receivables(36,855)15,741 
Inventories53,372 (33,768)
Other assets(12,897)(8,574)
Current liabilities(25,503)(5,331)
Other liabilities(1,828)(7,399)
Other, net3,475 (923)
Net cash provided by operating activities498,490 516,912 
Cash flows from investing activities  
Capital expenditures(39,469)(29,555)
Investments in unconsolidated affiliates(3,999) 
Insurance proceeds - capital related24,646 3,354 
Purchase of short-term investments(106,231) 
Proceeds from the maturity of short-term investments217,863  
Proceeds from sales of assets214 7,841 
Dividends from unconsolidated affiliates1,093 2,091 
Net cash provided by (used in) investing activities94,117 (16,269)







7


MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

For the Nine Months Ended
(In thousands)September 30, 2023September 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 cash2,312 (10,310)
Increase in cash, cash equivalents, and restricted cash515,920 409,042 
Cash, cash equivalents, and restricted cash at the beginning of the period465,296 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.
8


MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)

For the Quarter EndedFor the Nine Months Ended
(In thousands)September 30, 2023September 24, 2022September 30, 2023September 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 plans254 560 688 853 
Stock-based compensation expense4,809 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)
9


MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)

For the Quarter EndedFor the Nine Months Ended
(In thousands)September 30, 2023September 24, 2022September 30, 2023September 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 stock1,121 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 interests3,000 1,271 6,694 3,175 
Foreign currency translation280 (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.

10


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
11


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.

12


Summarized segment information is as follows:

 For the Quarter Ended September 30, 2023
(In thousands)Piping SystemsIndustrial MetalsClimateCorporate and EliminationsTotal
Net sales$568,151 $141,012 $119,949 $(9,320)$819,792 
Cost of goods sold394,736 119,108 76,133 (10,919)579,058 
Depreciation and amortization5,025 1,835 1,618 1,153 9,631 
Selling, general, and administrative expense21,847 3,848 7,352 15,248 48,295 
Gain on sale of business   (4,137)(4,137)
Asset impairments5,934    5,934 
Operating income140,609 16,221 34,846 (10,665)181,011 
Interest expense    (230)
Interest income10,599 
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 SystemsIndustrial MetalsClimateCorporate and EliminationsTotal
Net sales$634,808 $144,880 $174,650 $(9,508)$944,830 
Cost of goods sold440,216 128,152 114,850 (4,581)678,637 
Depreciation and amortization5,516 1,846 2,289 1,199 10,850 
Selling, general, and administrative expense21,137 2,805 10,049 16,187 50,178 
Operating income167,939 12,077 47,462 (22,313)205,165 
Interest expense    (361)
Interest income1,356 
Other expense, net    (326)
Income before income taxes    $205,834 

13


Segment information (continued):

For the Nine Months Ended September 30, 2023
(In thousands)Piping SystemsIndustrial MetalsClimateCorporate and EliminationsTotal
Net sales$1,868,635 $452,512 $396,857 $(30,036)$2,687,968 
Cost of goods sold1,315,212 375,375 242,009 (35,468)1,897,128 
Depreciation and amortization15,835 5,411 5,973 3,485 30,704 
Selling, general, and administrative expense76,049 10,319 22,440 48,180 156,988 
Gain on sale of business   (4,137)(4,137)
Asset impairments5,934    5,934 
Gain on insurance settlement  (19,466) (19,466)
Operating income455,605 61,407 145,901 (42,096)620,817 
Interest expense(508)
Interest income24,566 
Unrealized gain on short-term investments18,449 
Other income, net4,033 
Income before income taxes$667,357 

For the Nine Months Ended September 24, 2022
( In thousands)Piping SystemsIndustrial MetalsClimateCorporate and EliminationsTotal
Net sales$2,163,045 $498,367 $479,756 $(36,294)$3,104,874 
Cost of goods sold1,539,493 424,802 311,917 (32,150)2,244,062 
Depreciation and amortization16,846 5,636 6,989 3,522 32,993 
Selling, general, and administrative expense66,700 8,425 25,941 45,524 146,590 
Gain on sale of assets   (5,507)(5,507)
Operating income540,006 59,504 134,909 (47,683)686,736 
Interest expense(666)
Interest income1,619 
Other income, net2,394 
Income before income taxes$690,083 
14


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 Metals168,608 160,702 
Climate257,832 279,940 
General Corporate1,153,413 712,817 
$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 SystemsIndustrial MetalsClimateTotal
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 specialties110,987   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 SystemsIndustrial MetalsClimateTotal
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 specialties113,966   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 
15


Disaggregation of revenue from contracts with customers (continued):

For the Nine Months Ended September 30, 2023
(In thousands)Piping SystemsIndustrial MetalsClimateTotal
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 specialties348,531   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 SystemsIndustrial MetalsClimateTotal
Tube and fittings1,766,931   1,766,931 
Brass rod and forgings 394,277  394,277 
OEM components, tube & assemblies 57,169 91,798 148,967 
Valves and plumbing specialties396,114   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 assets1,324 4,176 
Restricted cash included within other assets102 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.

16


Note 6 – Inventories

(In thousands)September 30,
2023
December 31,
2022
Raw materials and supplies$107,081 $133,189 
Work-in-process68,737 64,177 
Finished goods226,255 265,842 
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
17


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 DerivativesLiability Derivatives
   Fair Value Fair Value
(In thousands)Balance Sheet LocationSeptember 30,
2023
December 31,
2022
Balance Sheet LocationSeptember 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 EndedFor the Nine Months Ended
(In thousands)LocationSeptember 30, 2023September 24, 2022September 30, 2023September 24, 2022
Undesignated derivatives: 
Gain (loss) on commodity contracts (nonqualifying)Cost of goods sold1,102 5,125 (955)21,007 

18


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 TaxClassification Gains (Losses)Loss Reclassified from AOCI (Effective Portion), Net of Tax
Cash flow hedges:   
Commodity contracts$132 Cost of goods sold$183 
Other9 Other 
Total$141 Total$183 

 For the Quarter Ended September 24, 2022
(In thousands)(Loss) Gain Recognized in AOCI (Effective Portion), Net of TaxClassification Gains (Losses)Loss Reclassified from AOCI (Effective Portion), Net of Tax
Cash flow hedges:   
Commodity contracts$(5,984)Cost of goods sold$4,767 
Other38 Other 
Total$(5,946)Total$4,767 

 For the Nine Months Ended September 30, 2023
(In thousands)Gain Recognized in AOCI (Effective Portion), Net of TaxClassification Gains (Losses)Gain Reclassified from AOCI (Effective Portion), Net of Tax
Cash flow hedges:   
Commodity contracts$1,140 Cost of goods sold$(2,548)
Other7 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 TaxClassification Gains (Losses)Loss Reclassified from AOCI (Effective Portion), Net of Tax
Cash flow hedges:   
Commodity contracts$(13,310)Cost of goods sold$2,253 
Other83 Other 
Total$(13,227)Total$2,253 
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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.

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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 EndedFor the Nine Months Ended
(In thousands) September 30, 2023September 24, 2022September 30, 2023September 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 $