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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 March 27, 2021
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)
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 April 16, 2021 was 57,127,506.



MUELLER INDUSTRIES, INC.

FORM 10-Q

For the Quarterly Period Ended March 27, 2021
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 Ended
(In thousands, except per share data)March 27, 2021March 28, 2020
Net sales$818,148 $602,919 
Cost of goods sold668,418 508,715 
Depreciation and amortization11,755 11,039 
Selling, general, and administrative expense45,435 42,752 
Asset impairments 3,035 
Litigation settlement, net (21,933)
Operating income92,540 59,311 
Interest expense(4,469)(5,379)
Other income, net577 278 
Income before income taxes88,648 54,210 
Income tax expense(21,761)(14,144)
Loss from unconsolidated affiliates, net of foreign tax(1,649)(6,115)
Consolidated net income65,238 33,951 
Net income attributable to noncontrolling interests(2,131)(1,536)
Net income attributable to Mueller Industries, Inc.$63,107 $32,415 
Weighted average shares for basic earnings per share55,916 55,875 
Effect of dilutive stock-based awards756 583 
Adjusted weighted average shares for diluted earnings per share
56,672 56,458 
Basic earnings per share$1.13 $0.58 
Diluted earnings per share$1.11 $0.57 
Dividends per share$0.13 $0.10 

See accompanying notes to condensed consolidated financial statements.


3


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

 For the Quarter Ended
(In thousands)March 27, 2021March 28, 2020
Consolidated net income$65,238 $33,951 
Other comprehensive income (loss), net of tax:  
Foreign currency translation4,387 (21,255)
Net change with respect to derivative instruments and hedging activities, net of tax of $(147) and $960
493 (3,357)
Net change in pension and postretirement obligation adjustments, net of tax of $56 and $(243)
(91)739 
Attributable to unconsolidated affiliates, net of tax of $(577) and $(548)
1,987 1,887 
Total other comprehensive income (loss), net6,776 (21,986)
Consolidated comprehensive income72,014 11,965 
Comprehensive income attributable to noncontrolling interests(2,552)(945)
Comprehensive income attributable to Mueller Industries, Inc.$69,462 $11,020 

See accompanying notes to condensed consolidated financial statements.




4


MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)March 27,
2021
December 26,
2020
Assets  
Current assets:  
Cash and cash equivalents
$129,876 $119,075 
Accounts receivable, less allowance for doubtful accounts of $3,168 in 2021 and $1,538 in 2020
447,492 357,532 
Inventories
365,457 315,002 
Other current assets
43,710 33,752 
Total current assets986,535 825,361 
Property, plant, and equipment, net384,853 376,572 
Operating lease right-of-use assets28,494 29,301 
Goodwill, net168,207 167,764 
Intangible assets, net77,784 77,207 
Investments in unconsolidated affiliates38,891 37,976 
Other assets13,565 14,387 
Total assets$1,698,329 $1,528,568 
Liabilities  
Current liabilities:  
Current portion of debt
$106,164 $41,283 
Accounts payable
177,174 147,741 
Accrued wages and other employee costs
39,426 46,299 
Current portion of operating lease liabilities
6,567 6,259 
Other current liabilities
115,157 98,061 
Total current liabilities444,488 339,643 
Long-term debt, less current portion286,576 286,593 
Pension liabilities12,183 13,552 
Postretirement benefits other than pensions13,285 13,289 
Environmental reserves21,322 21,256 
Deferred income taxes17,127 16,842 
Noncurrent operating lease liabilities20,832 21,602 
Other noncurrent liabilities14,503 14,731 
Total liabilities830,316 727,508 
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 57,122,617 in 2021 and 57,087,432 in 2020
802 802 
Additional paid-in capital282,713 280,051 
Retained earnings1,075,410 1,019,694 
Accumulated other comprehensive loss(48,528)(54,883)
Treasury common stock, at cost(469,251)(468,919)
Total Mueller Industries, Inc. stockholders' equity841,146 776,745 
Noncontrolling interests26,867 24,315 
Total equity868,013 801,060 
Total liabilities and equity$1,698,329 $1,528,568 

See accompanying notes to condensed consolidated financial statements.
5


MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 For the Quarter Ended
(In thousands)March 27, 2021March 28, 2020
Cash flows from operating activities  
Consolidated net income$65,238 $33,951 
Reconciliation of consolidated net income to net cash (used in) provided by operating activities:  
Depreciation and amortization11,775 11,119 
Stock-based compensation expense2,109 1,985 
Provision for doubtful accounts receivable1,631 1,100 
Loss from unconsolidated affiliates1,649 6,115 
(Gain) loss on disposals of properties(936)32 
Impairment charges 3,035 
Deferred income tax expense142 213 
Changes in assets and liabilities, net of effects of businesses acquired:  
Receivables(89,972)(46,291)
Inventories(45,590)17,450 
Other assets1,230 8,010 
Current liabilities33,941 (10,821)
Other liabilities(3,703)(1,643)
Other, net(95)3,796 
Net cash (used in) provided by operating activities(22,581)28,051 
Cash flows from investing activities  
Capital expenditures(9,227)(17,094)
Acquisition of businesses, net of cash acquired(14,029)(15,407)
Proceeds from sales of assets1,730  
Net cash used in investing activities(21,526)(32,501)
Cash flows from financing activities  
Repurchase of common stock (5,574)
Issuance of debt100,000 110,000 
Repayments of debt(35,288)(20,572)
Issuance of debt by consolidated joint ventures, net45 189 
Net cash received to settle stock-based awards221 464 
Net cash provided by financing activities64,978 84,507 
Effect of exchange rate changes on cash784 (6,135)
Increase in cash, cash equivalents, and restricted cash21,655 73,922 
Cash, cash equivalents, and restricted cash at the beginning of the period127,376 98,042 
Cash, cash equivalents, and restricted cash at the end of the period$149,031 $171,964 

See accompanying notes to condensed consolidated financial statements.
6


MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
For the Quarter Ended
(In thousands)March 27, 2021March 28, 2020
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$280,051 $278,609 
Acquisition (issuance) of shares under incentive stock option plans553 (397)
Stock-based compensation expense2,109 1,985 
Balance at end of period$282,713 $280,197 
Retained earnings:   
Balance at beginning of period$1,019,694 $903,070 
Net income attributable to Mueller Industries, Inc.63,107 32,415 
Dividends paid or payable to stockholders of Mueller Industries, Inc.(7,391)(5,675)
Balance at end of period$1,075,410 $929,810 
Accumulated other comprehensive loss:  
Balance at beginning of period$(54,883)$(68,770)
Total other comprehensive income (loss) attributable to Mueller Industries, Inc.6,355 (21,395)
Balance at end of period$(48,528)$(90,165)
7


MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(In thousands)For the Quarter Ended
March 27, 2021March 28, 2020
Treasury stock:  
Balance at beginning of period$(468,919)$(470,243)
(Acquisition) issuance of shares under incentive stock option plans(306)860 
Repurchase of common stock(26)(5,574)
Balance at end of period$(469,251)$(474,957)
Noncontrolling interests:  
Balance at beginning of period$24,315 $18,668 
Net income attributable to noncontrolling interests2,131 1,536 
Foreign currency translation421 (591)
Balance at end of period$26,867 $19,613 

See accompanying notes to condensed consolidated financial statements.

8


MUELLER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

General

Certain information and footnote 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 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-10, Codification Improvements: An Amendment of the FASB Accounting Standards Codification. The ASU facilitates updates to the Accounting Standards Codification for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements. The Company adopted the ASU during the first quarter of 2021 using a retrospective approach. The adoption of the ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The new guidance addresses accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The Company adopted the ASU during the first quarter of 2021 using a prospective approach. The adoption of the ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes. The new guidance affects general principles within Topic 740, Income Taxes. The amendments of ASU 2019-12 are meant to simplify and reduce the cost of accounting for income taxes. The Company adopted the ASU during the first quarter of 2021 using a prospective approach. The adoption of the ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Issued

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): An Amendment of the FASB Accounting Standards Codification. The new guidance was issued in response to concerns about structural risks of interbank offered rates, and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR). Regulators in numerous jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The ASU is effective in 2021 but can be applied through December 31, 2022. The updated guidance requires retrospective 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.

9


Note 3 – Acquisitions

H&C Flex

On December 20, 2020, the Company entered into an asset purchase agreement with Hart & Cooley LLC. The transaction closed on January 29, 2021, whereby the Company purchased the Hart & Cooley flexible duct business, which included inventory, manufacturing equipment, and related assets. The total purchase price was $14.0 million in cash paid at closing. The Company treated this as a business combination. The acquired business, H&C Flex, is a manufacturer and distributor of insulated HVAC flexible duct systems. It is reported within and complements the Company’s existing businesses in the Climate segment.

The provisional fair value of tangible assets acquired totaled $12.9 million, consisting primarily of property, plant, and equipment of $8.4 million and inventory of $4.5 million. Of the remaining purchase price, $1.1 million was allocated to tax-deductible goodwill. The purchase price allocation is provisional as of March 27, 2021 and subject to change upon completion of the final valuation of the long-lived assets during the measurement period.

Kessler Sales and Distribution, LLC

On August 3, 2020, the Company entered into an asset purchase agreement with Wieland-Kessler LLC, whereby the Company purchased the Kessler distribution business, which included inventory, manufacturing equipment, and related assets. The total purchase price was $57.2 million in cash paid at closing. The Company treated this as a business combination. The acquired business, Kessler Sales and Distribution, LLC, is a distributor of residential and commercial plumbing products. It is reported within and complements the Company’s existing businesses in the Piping Systems segment.

The provisional fair value of tangible assets acquired totaled $28.7 million, consisting primarily of inventory. Of the remaining purchase price, $28.5 million was allocated to tax-deductible goodwill and intangible assets. During the first quarter of 2021, there was a change in the valuation that resulted in a decrease in goodwill and an increase in intangible assets of $1.5 million. The purchase price allocation is provisional as of March 27, 2021 and subject to change upon completion of the final valuation of the long-lived assets during the measurement period.

Shoals Tubular, Inc.

On January 17, 2020, the Company entered into a stock purchase agreement pursuant to which the Company acquired all of the outstanding stock of Shoals Tubular, Inc. (STI) for approximately $15.3 million, net of working capital adjustments. The total purchase price consisted of $15.3 million in cash at closing. STI is a manufacturer of brazed manifolds, headers, and distributor assemblies used primarily by manufacturers of residential heating and air conditioning units. The acquired business is reported within and complements the Company’s existing businesses in the Climate segment.

The fair value of the tangible assets acquired totaled $6.2 million, consisting primarily of property, plant, and equipment of $3.7 million, inventories of $1.8 million, and accounts receivable of $0.7 million. The fair value of the liabilities assumed totaled $0.2 million, consisting primarily of accounts payable. Of the remaining purchase price, $9.3 million was allocated to tax-deductible goodwill and intangible assets. The valuation of the business has been finalized. There were no material changes to the purchase price allocation from the amounts presented in the Company’s 2020 Annual Report on Form 10-K.

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:

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Piping Systems

Piping Systems is composed of the following operating segments: Domestic Piping Systems Group, Great Lakes Copper, Heatlink Group, Die-Mold, European Operations, Trading Group, and Jungwoo-Mueller (the Company’s South Korean 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. 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. 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.  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 & Copper Bar Products, Impacts & Micro Gauge, and Brass Value-Added Products.  These businesses manufacture brass rod, impact extrusions, and forgings, 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, Fabricated Tube Products, Westermeyer, Turbotec, Flex Duct, Linesets, Inc., and STI.  These domestic businesses manufacture and fabricate valves, assemblies, high pressure components, coaxial heat exchangers, insulated HVAC flexible duct systems, line sets, brazed manifolds, headers, and distributor assemblies primarily for the heating, ventilation, air-conditioning, and refrigeration markets in the U.S.

Summarized segment information is as follows:

 For the Quarter Ended March 27, 2021
(In thousands)Piping SystemsIndustrial MetalsClimateCorporate and EliminationsTotal
Net sales$547,748 $164,852 $111,026 $(5,478)$818,148 
Cost of goods sold450,354 140,891 84,082 (6,909)668,418 
Depreciation and amortization6,210 1,743 2,629 1,173 11,755 
Selling, general, and administrative expense24,086 3,371 6,980 10,998 45,435 
Operating income67,098 18,847 17,335 (10,740)92,540 
Interest expense    (4,469)
Other income, net    577 
Income before income taxes    $88,648 






11


Segment information (continued):

 For the Quarter Ended March 28, 2020
(In thousands)Piping SystemsIndustrial MetalsClimateCorporate and EliminationsTotal
Net sales$385,013 $131,202 $93,272 $(6,568)$602,919 
Cost of goods sold319,164 114,797 71,093 3,661 508,715 
Depreciation and amortization5,699 2,002 2,466 872 11,039 
Selling, general, and administrative expense20,439 3,221 6,699 12,393 42,752 
Asset impairments3,035    3,035 
Litigation settlement, net   (21,933)(21,933)
Operating income36,676 11,182 13,014 (1,561)59,311 
Interest expense    (5,379)
Other income, net    278 
Income before income taxes    $54,210 

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

For the Quarter Ended March 27, 2021
(In thousands)Piping SystemsIndustrial MetalsClimateTotal
Tube and fittings$426,139 $ $ $426,139 
Brass rod and forgings 131,262  131,262 
OEM components, tube & assemblies8,555 11,033 38,067 57,655 
Valves and plumbing specialties113,054   113,054 
Other 22,557 72,959 95,516 
 547,748 164,852 111,026 823,626 
Intersegment sales(5,478)
Net sales$818,148 
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Disaggregation of revenue from contracts with customers (continued):

For the Quarter Ended March 28, 2020
(In thousands)Piping SystemsIndustrial MetalsClimateTotal
Tube and fittings$302,129 $ $ $302,129 
Brass rod and forgings 99,670  99,670 
OEM components, tube & assemblies25,295 10,882 36,573 72,750 
Valves and plumbing specialties57,589   57,589 
Other 20,650 56,699 77,349 
 385,013 131,202 93,272 609,487 
Intersegment sales(6,568)
Net sales$602,919 

Note 5 – Cash, Cash Equivalents, and Restricted Cash

(In thousands)March 27,
2021
December 26,
2020
Cash & cash equivalents$129,876 $119,075 
Restricted cash included within other current assets19,052 8,198 
Restricted cash included within other assets103 103 
Total cash, cash equivalents, and restricted cash$149,031 $127,376 

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)March 27,
2021
December 26,
2020
Raw materials and supplies$119,196 $85,927 
Work-in-process52,803 49,361 
Finished goods201,748 186,785 
Valuation reserves(8,290)(7,071)
Inventories$365,457 $315,002 

Note 7 – Financial Instruments

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.

13


All derivatives are recognized in the Condensed Consolidated Balance Sheets at their fair value.  On the date the derivative contract is entered into, it is either a) designated as a hedge of 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 March 27, 2021, the Company held open futures contracts to purchase approximately $21.2 million of copper over the next 14 months related to fixed price sales orders.  The fair value of those futures contracts was a $1.9 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 March 27, 2021, this amount was approximately $1.3 million of deferred net gains, net of tax.

The Company may also enter into futures contracts to protect the value of inventory against market fluctuations.  At March 27, 2021, the Company held open futures contracts to sell approximately $70.8 million of copper over the next six months related to copper inventory.  The fair value of those futures contracts was a $14.6 million net loss position, which was determined by obtaining quoted market prices (level 1 within the fair value hierarchy).

The Company presents its derivative assets and liabilities in the 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 LocationMarch 27,
2021
December 26,
2020
Balance Sheet LocationMarch 27,
2021
December 26,
2020
      
Commodity contracts - gains
Other current assets
$1,965 $1,213 
Other current liabilities
$ $68 
Commodity contracts - losses
Other current assets
(55)(8)
Other current liabilities
(14,667)(5,863)
Total derivatives (1)
 $1,910 $1,205  $(14,667)$(5,795)
(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:
14



   For the Quarter Ended
(In thousands)LocationMarch 27, 2021March 28, 2020
Undesignated derivatives: 
Loss on commodity contracts (nonqualifying)Cost of goods sold(8,530)(9,476)

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

 For the Quarter Ended March 27, 2021
(In thousands)Gain (Loss) Recognized in AOCI (Effective Portion), Net of TaxClassification Gains (Losses)(Gain) Loss Reclassified from AOCI (Effective Portion), Net of Tax
Cash flow hedges:   
Commodity contracts$1,491 Cost of goods sold$(996)
Other(3)Other1 
Total$1,488 Total$(995)

 For the Quarter Ended March 28, 2020
(In thousands)Loss Recognized in AOCI (Effective Portion), Net of TaxClassification Gains (Losses)Loss Reclassified from AOCI (Effective Portion), Net of Tax
Cash flow hedges:   
Commodity contracts$(3,706)Cost of goods sold$378 
Other(29)Other 
Total$(3,735)Total$378 

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 March 27, 2021 and December 26, 2020, the Company had recorded restricted cash in other current assets of $18.6 million and $7.6 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 March 27, 2021 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.  

15


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).  The Company also owns a 50 percent interest in a second unconsolidated affiliate that provides financing to Tecumseh.  These investments are recorded using the equity method of accounting, as the Company can exercise significant influence but does not own a majority equity interest or otherwise control the respective entities.  Under the equity method of accounting, these investments are stated at initial cost and are 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 investees’ 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 investees’ 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 investees’ net accumulated losses. 

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

(In thousands)March 27,
2021
December 26,
2020
Current assets$171,907 $167,451 
Noncurrent assets82,198 78,241 
Current liabilities127,317 120,202 
Noncurrent liabilities49,463 50,020 


 For the Quarter Ended
(In thousands)March 27, 2021March 28, 2020
Net sales$97,329 $106,998 
Gross profit 9,699 13,486 
Net loss(3,299)(12,685)

The Company’s loss from unconsolidated affiliates, net of foreign tax, for the quarters ended March 27, 2021 and March 28, 2020 included net losses of $1.6 million and $6.3 million, respectively, for Tecumseh.

Mueller Middle East

On December 30, 2015, the Company entered into a joint venture agreement with Cayan Ventures and Bahrain Mumtalakat Holding Company to build a copper tube mill in Bahrain. The business operates and brands its products under the Mueller Industries family of brands. The Company has invested approximately $5.0 million of cash to date and is the technical and marketing lead with a 40 percent ownership in the joint venture.

16


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
(In thousands) March 27, 2021March 28, 2020
Pension benefits:  
Interest cost$313 $858 
Expected return on plan assets(904)(1,495)
Amortization of net loss378 460 
Net periodic benefit income$(213)$(177)
Other benefits:  
Service cost$65 $61 
Interest cost87 109 
Amortization of prior service credit(118)(226)
Amortization of net gain(31)(53)
Net periodic benefit cost (income)$3 $(109)

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 10 – 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. 

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.

East La Harpe. At the East La Harpe site, the Company and two other PRPs conducted a site study evaluation under KDHE supervision and prepared a site cleanup plan approved by KDHE.  In 2016, the corporate parent (Peabody Energy) of a third party that the Company understands may owe indemnification obligations to one of the other PRPs (Blue Tee) in connection with the East La Harpe site filed for protection under Chapter 11 of the U.S. Bankruptcy Code.  KDHE has extended the deadline for the PRPs to develop a repository design plan to allow for wetlands permitting to take place.  In December 2018, KDHE provided a draft agreement which contemplates the use of funds KDHE obtained from two other parties (Peabody
17


Energy and Blue Tee) to fund part of the remediation, and removes Blue Tee from the PRPs’ agreement with KDHE. The Company is currently negotiating the terms of that draft agreement.

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.

The Company’s reserve for its proportionate share of the remediation costs associated with these three Southeast Kansas sites is $5.6 million.

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 2030 to address residual discharges of acid rock drainage.  The Company currently estimates that it will spend between approximately $13.9 million and $18.0 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 $1.7 million and $2.4 million over the next 16 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.

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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). The Company and Lead Refinery have reached agreement with the four other PRPs to implement these two UAOs, with the Company agreeing to pay, on an interim basis, (i) an estimated $4.5 million (subject to potential change through a future reallocation process) of the approximately $25.0 million the PRPs currently estimate it will 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 March 27, 2021, the Company has made payments of approximately $7.5 million related to the aforementioned agreement with the other PRPs. The Company disputes that it was properly named in the UAOs, and has reserved its rights to petition the EPA for reimbursement of any costs incurred to comply with the UAOs upon the completion of the work required therein.  In October 2017 and March 2018, separate groups of private plaintiffs sued the Company, Arava, MRRC, and Lead Refinery, along with other defendants, in two civil tort actions relating to the site. The Company, Arava, and MRRC have been voluntarily dismissed from both litigations without prejudice, but Lead Refinery remains a party to each.  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 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 $0.9 million to $1.1 million over the next five 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
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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.

Deepwater Horizon Economic and Property Damage Claim

During 2020, Mueller Copper Tube Company, a wholly owned subsidiary of the Company, collected approximately $22.1 million related to its claim under the Deepwater Horizon Economic and Property Damage Settlement Program. The collected amount represents settlement proceeds received after the payment of fees and expenses.

Guarantees

Guarantees, in the form of letters of credit, are issued by the Company generally to assure the payment of insurance deductibles, certain retiree health benefits, and debt at certain unconsolidated affiliates.  The terms of the 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 March 27, 2021 were $19.3 million.

Note 11 – Income Taxes

The Company’s effective tax rate for the first quarter of 2021 was 25 percent compared with 26 percent for the same period last year.  The items impacting the effective tax rate for the first quarter of 2021 are primarily related to the provision for state income taxes, net of the federal benefit, of $2.4 million, and other items totaling $0.7 million.

The Company’s effective tax rate for the first quarter of 2020 was 26 percent. The items impacting the effective tax rate for the first quarter of 2020 were primarily attributable to the provision for state income taxes, net of the federal benefit, of $2.2 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 2015 and 2017 and all subsequent years. The statutes of limitations for most state returns are open for 2017 and all subsequent years, and some state and foreign returns are also open for some earlier tax years due to differing statute periods. The Internal Revenue Service is auditing the Company’s 2015 and 2017 federal consolidated returns. 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 12 – 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.

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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 March 27, 2021
(In thousands)Cumulative Translation AdjustmentUnrealized Gain (Loss) on DerivativesPension/OPEB Liability AdjustmentAttributable to Unconsol. AffiliatesTotal
Balance as of December 26, 2020$(37,339)$984 $(17,203)$(1,325)$(54,883)
Other comprehensive income (loss) before reclassifications3,966 1,488 (283)1,987 7,158 
Amounts reclassified from AOCI
 (995)192  (803)
Net current-period other comprehensive income (loss)3,966 493 (91)1,987 6,355 
Balance as of March 27, 2021$(33,373)$1,477 $(17,294)$662 $(48,528)

 For the Quarter Ended March 28, 2020
(In thousands)Cumulative Translation AdjustmentUnrealized Gain (Loss) on DerivativesPension/OPEB Liability AdjustmentAttributable to Unconsol. AffiliatesTotal
Balance as of December 28, 2019$(46,198)$476 $(21,855)$(1,193)$(68,770)
Other comprehensive (loss) income before reclassifications(20,664)(3,735)587 1,887 (21,925)
Amounts reclassified from AOCI 378 152  530 
Net current-period other comprehensive (loss) income(20,664)(3,357)739 1,887 (21,395)
Balance as of March 28, 2020$(66,862)$(2,881)$(21,116)$694 $(90,165)
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Reclassification adjustments out of AOCI were as follows:

 Amount reclassified from AOCI
 For the Quarter Ended 
(In thousands)March 27, 2021March 28, 2020Affected line item
Unrealized (gains) losses on derivative commodity contracts$(1,299)$468 Cost of goods sold
 304 (90)Income tax expense (benefit)
 $(995)$378 Net of tax and noncontrolling interests
Amortization of net loss and prior service cost on employee benefit plans$229