MUELLER INDUSTRIES INC [MLI] Filings

10-Q 1 mli-20240629.htm 10-Q mli-20240629

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 June 29, 2024
			OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from ______ to ______
			Commission file number 1-6770

MUELLER INDUSTRIES INC.

(Exact name of registrant as specified in its charter)


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


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

(901) 753-3200

(Registrant’s telephone number, including area code)

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


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

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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


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

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

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

Yes ☐ No ☒

The number of shares of the Registrant’s common stock outstanding as of July 19, 2024 was 113,324,148.

MUELLER INDUSTRIES, INC.

FORM 10-Q

For the Quarterly Period Ended June 29, 2024

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

INDEX


		Page Number
Part I. Financial Information

	Item 1. – Financial Statements (Unaudited)

	a.) Condensed Consolidated Statements of Income	3

	b.) Condensed Consolidated Statements of Comprehensive Income	4

	c.) Condensed Consolidated Balance Sheets	5

	d.) Condensed Consolidated Statements of Cash Flows	7

	e.) Condensed Consolidated Statements of Changes in Equity	9

	f.) Notes to Condensed Consolidated Financial Statements	11

	Item 2. – Management's Discussion and Analysis of Financial Condition and Results of Operations	27

	Item 3. – Quantitative and Qualitative Disclosures About Market Risk	37

	Item 4. – Controls and Procedures	39

Part II. Other Information

	Item 1. – Legal Proceedings	39

	Item 1A. – Risk Factors	39

	Item 2. – Unregistered Sales of Equity Securities and Use of Proceeds	40

	Item 5. – Other Information	40

	Item 6. – Exhibits	41

Signatures		42

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	For the Quarter Ended				For the Six Months Ended
(In thousands, except per share data)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023

Net sales	$	997,745	$	896,984	$	1,847,399	$	1,868,176

Cost of goods sold	724,990		639,272		1,333,693		1,318,070
Depreciation and amortization	10,018		10,416		19,187		21,073
Selling, general, and administrative expense	52,731		56,062		101,088		108,693




Gain on insurance settlement	—		(19,466)		—		(19,466)

Operating income	210,006		210,700		393,431		439,806

Interest expense	(107)		(135)		(222)		(278)
Interest income	14,383		7,732		31,628		13,967
Realized and unrealized gains on short-term investments	—		20,820		365		22,730
Other (expense) income, net	(1,356)		1,841		(726)		2,167

Income before income taxes	222,926		240,958		424,476		478,392

Income tax expense	(58,384)		(62,122)		(110,218)		(123,479)
(Loss) income from unconsolidated affiliates, net of foreign tax	(1,095)		715		(9,102)		(269)

Consolidated net income	163,447		179,551		305,156		354,644
Net income attributable to noncontrolling interests	(3,282)		(1,840)		(6,628)		(3,694)

Net income attributable to Mueller Industries, Inc.	$	160,165	$	177,711	$	298,528	$	350,950

Weighted average shares for basic earnings per share (1)	111,216		111,320		111,316		111,354
Effect of dilutive stock-based awards (1)	2,763		2,680		2,746		2,046

Adjusted weighted average shares for diluted earnings per share (1)	113,979		114,000		114,062		113,400

Basic earnings per share (1)	$	1.44	$	1.60	$	2.68	$	3.15

Diluted earnings per share (1)	$	1.41	$	1.56	$	2.62	$	3.09

Dividends per share (1)	$	0.20	$	0.15	$	0.40	$	0.30

See accompanying notes to condensed consolidated financial statements.

(1) Adjusted retroactively to reflect the two-for-one stock split that occurred on October 20, 2023. Refer to Note 2 - Earnings per Common Share for additional information.

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	For the Quarter Ended				For the Six Months Ended
(In thousands)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023

Consolidated net income	$	163,447	$	179,551	$	305,156	$	354,644

Other comprehensive (loss) income, net of tax:
Foreign currency translation	(7,871)		7,725		(12,026)		17,976
Net change with respect to derivative instruments and hedging activities, net of tax of $214, $775, $121 and $503	(746)		(2,679)		(419)		(1,725)
Net change in pension and postretirement obligation adjustments, net of tax of $38, $1, $21 and $12	(93)		9		(57)		1
Attributable to unconsolidated affiliates, net of tax of $65, $(103), $460 and $(476)	(221)		353		(1,583)		1,638

Total other comprehensive (loss) income, net	(8,931)		5,408		(14,085)		17,890

Consolidated comprehensive income	154,516		184,959		291,071		372,534
Comprehensive income attributable to noncontrolling interests	(2,759)		(1,546)		(5,484)		(3,658)

Comprehensive income attributable to Mueller Industries, Inc.	$	151,757	$	183,413	$	285,587	$	368,876

See accompanying notes to condensed consolidated financial statements.

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	(Unaudited)
(In thousands, except share data)	June 29, 2024		December 30, 2023

Assets

Current assets:
Cash and cash equivalents	$	825,655	$	1,170,893
Short-term investments	—		98,146
Accounts receivable, less allowance for doubtful accounts of $2,549 in 2024 and $2,830 in 2023	522,572		351,561
Inventories	406,217		380,248
Other current assets	50,347		39,173

Total current assets	1,804,791		2,040,021

Property, plant, and equipment, net	471,443		385,165
Operating lease right-of-use assets	34,534		35,170
Goodwill, net	608,919		151,820
Intangible assets, net	43,466		46,208
Investments in unconsolidated affiliates	77,450		83,436
Other assets	25,582		17,481

Total assets	$	3,066,185	$	2,759,301


MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
(In thousands, except share data)	June 29, 2024		December 30, 2023

Liabilities

Current liabilities:
Current portion of debt	$	785	$	796
Accounts payable	198,537		120,485
Accrued wages and other employee costs	42,259		55,644
Current portion of operating lease liabilities	8,000		7,893
Other current liabilities	137,647		132,320

Total current liabilities	387,228		317,138

Long-term debt, less current portion	74		185
Pension liabilities	2,708		2,832
Postretirement benefits other than pensions	8,988		9,230
Environmental reserves	14,808		15,030
Deferred income taxes	20,023		19,134
Noncurrent operating lease liabilities	26,330		26,683
Other noncurrent liabilities	33,168		10,353

Total liabilities	493,327		400,585

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; issued 160,366,008; outstanding 113,403,336 in 2024 and 114,157,918 in 2023	1,604		1,604
Additional paid-in capital	325,763		312,171
Retained earnings	2,847,420		2,594,300
Accumulated other comprehensive loss	(60,162)		(47,221)
Treasury common stock, at cost	(568,522)		(523,409)

Total Mueller Industries, Inc. stockholders' equity	2,546,103		2,337,445
Noncontrolling interests	26,755		21,271

Total equity	2,572,858		2,358,716

Commitments and contingencies	—		—

Total liabilities and equity	$	3,066,185	$	2,759,301

See accompanying notes to condensed consolidated financial statements.

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Six Months Ended
(In thousands)	June 29, 2024		July 1, 2023

Cash flows from operating activities
Consolidated net income	$	305,156	$	354,644
Reconciliation of consolidated net income to net cash provided by operating activities:
Depreciation and amortization	19,349		21,252
Stock-based compensation expense	13,476		12,459
Provision for doubtful accounts receivable	(67)		(80)
Loss from unconsolidated affiliates	9,102		269
Dividends from unconsolidated affiliates	3,541		—
Insurance proceeds - noncapital related	15,000		9,854

Gain on disposals of properties	(1,286)		(141)

Unrealized gain on short-term investments	—		(20,820)
Gain on sales of securities	(365)		—

Gain on insurance settlement	—		(19,466)

Deferred income tax (benefit) expense	(1,509)		2,406
Changes in assets and liabilities, net of effects of businesses acquired:
Receivables	(132,012)		(77,701)
Inventories	6,706		(12,149)
Other assets	8,511		(5,571)
Current liabilities	30,276		(14,460)
Other liabilities	(2,375)		(976)
Other, net	872		1,310

Net cash provided by operating activities	$	274,375	$	250,830

Cash flows from investing activities
Capital expenditures	$	(25,603)	$	(29,221)
Acquisition of businesses, net of cash acquired	(566,577)		—

Investments in unconsolidated affiliates	(8,700)		—
Insurance proceeds - capital related	—		24,646
Purchase of short-term investments	—		(106,231)
Purchase of long-term investments	(7,976)		—
Proceeds from the maturity of short-term investments	—		217,863
Proceeds from the sale of securities	96,465		—
Issuance of notes receivable	(3,800)		—
Proceeds from sales of assets	3,976		142
Dividends from unconsolidated affiliates	—		797

Net cash (used in) provided by investing activities	$	(512,215)	$	107,996

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Six Months Ended
(In thousands)	June 29, 2024		July 1, 2023

Cash flows from financing activities
Dividends paid to stockholders of Mueller Industries, Inc.	$	(44,488)	$	(33,402)

Repurchase of common stock	(42,994)		(19,303)


Repayments of debt	(111)		(130)
Issuance (repayment) of debt by consolidated joint ventures, net	11		(143)
Net cash used to settle stock-based awards	(2,002)		(2,588)


Net cash used in financing activities	$	(89,584)	$	(55,566)

Effect of exchange rate changes on cash	(4,784)		4,825

(Decrease) increase in cash, cash equivalents, and restricted cash	(332,208)		308,085
Cash, cash equivalents, and restricted cash at the beginning of the period	1,174,223		465,296

Cash, cash equivalents, and restricted cash at the end of the period	$	842,015	$	773,381

See accompanying notes to condensed consolidated financial statements.

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


	For the Quarter Ended				For the Six Months Ended
(In thousands)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023

Common stock:
Balance at beginning of period	$	1,604	$	802	$	1,604	$	802

Balance at end of period	$	1,604	$	802	$	1,604	$	802

Additional paid-in capital:
Balance at beginning of period	$	318,684	$	303,133	$	312,171	$	297,270
Acquisition of shares under incentive stock option plans	61		208		343		434
Stock-based compensation expense	7,245		6,822		13,476		12,459
Issuance of restricted stock	(227)		(458)		(227)		(458)

Balance at end of period	$	325,763	$	309,705	$	325,763	$	309,705

Retained earnings:
Balance at beginning of period	$	2,709,950	$	2,215,939	$	2,594,300	$	2,059,796
Net income attributable to Mueller Industries, Inc.	160,165		177,711		298,528		350,950
Dividends paid or payable to stockholders of Mueller Industries, Inc.	(22,695)		(17,032)		(45,408)		(34,128)



Balance at end of period	$	2,847,420	$	2,376,618	$	2,847,420	$	2,376,618

Accumulated other comprehensive loss:
Balance at beginning of period	$	(51,754)	$	(51,951)	$	(47,221)	$	(64,175)
Total other comprehensive (loss) income attributable to Mueller Industries, Inc.	(8,408)		5,702		(12,941)		17,926


Balance at end of period	$	(60,162)	$	(46,249)	$	(60,162)	$	(46,249)

MUELLER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


	For the Quarter Ended				For the Six Months Ended
(In thousands)	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023

Treasury stock:
Balance at beginning of period	$	(554,110)	$	(505,616)	$	(523,409)	$	(502,779)
Issuance (acquisition) of shares under incentive stock option plans	425		(185)		(2,346)		(3,022)
Repurchase of common stock	(15,064)		(19,303)		(42,994)		(19,303)
Issuance of restricted stock	227		458		227		458

Balance at end of period	$	(568,522)	$	(524,646)	$	(568,522)	$	(524,646)

Noncontrolling interests:
Balance at beginning of period	$	23,996	$	25,162	$	21,271	$	23,050


Net income attributable to noncontrolling interests	3,282		1,840		6,628		3,694
Foreign currency translation	(523)		(294)		(1,144)		(36)

Balance at end of period	$	26,755	$	26,708	$	26,755	$	26,708

See accompanying notes to condensed consolidated financial statements.

MUELLER INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

General

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

The accompanying unaudited interim financial statements include all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented herein. Certain prior year balances have been reclassified to conform to current year presentation.

Note 1 – Recent Accounting Standards

Adopted

In June 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 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 was effective for fiscal years beginning after December 15, 2023 for public entities. The guidance requires prospective adoption, and early adoption was permitted. The Company adopted the ASU during the first quarter of 2024. The adoption of the ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Issued

In March 2024, the Securities and Exchange Commission issued final rules on the enhancement and standardization of climate-related disclosures. The rules require disclosure of, among other things: material climate-related risks, activities to mitigate or adapt to such risks, governance and management of such risks, and material greenhouse gas (GHG) emissions from operations owned or controlled (Scope 1) and/or indirect emissions from purchased energy consumed in operations (Scope 2). Additionally, the rules require disclosure in the notes to the financial statements of the effects of severe weather events and other natural conditions, subject to certain materiality thresholds. The rules will become effective on a phased-in timeline in fiscal years beginning in 2025. The Company is in the process of analyzing the impact of the rules on its disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The new guidance primarily enhances and expands both the income tax rate reconciliation disclosure and the income taxes paid disclosure. The ASU is effective for annual periods beginning after December 15, 2024 for public entities on a prospective basis. Early adoption is permitted. The Company is in the process of analyzing the impact of the standard on its disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new guidance requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. The ASU applies to all public entities and is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. The guidance requires retrospective adoption, and early adoption is permitted. The Company is in the process of analyzing the impact of the standard on its disclosures.

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 and performance 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. All 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 – Acquisitions and Dispositions

Acquisition

Nehring Electrical Works Company

On April 19, 2024, the Company entered into an equity purchase agreement to acquire Nehring Electrical Works Company and certain of its affiliated companies (collectively, “Nehring”). The transaction closed on May 28, 2024, whereby the Company purchased all of the outstanding equity of Nehring for approximately $594.6 million, net of working capital adjustments. The total purchase price consisted of $566.6 million in cash on hand at closing and a contingent consideration arrangement which requires the Company to pay the sellers up to $25.0 million based on EBITDA growth of the acquired business. Nehring produces high-quality wire and cable solutions for the utility, telecommunication, electrical distribution, and OEM markets. Nehring provides the Company a substantial platform for expansion in the energy infrastructure space. The acquired business is reported in the Company’s Industrial Metals segment.

The provisional fair value of the assets acquired totaled $164.5 million, consisting primarily of property, plant, and equipment of $82.4 million, accounts receivable of $44.2 million, inventories of $36.1 million, and other current assets of $1.8 million. The fair value of the liabilities assumed totaled $27.8 million, consisting primarily of accounts payable of $19.6 million and other current liabilities of $8.2 million. Of the remaining purchase price, $457.9 million was allocated to tax-deductible goodwill and intangible assets. The purchase price allocation is provisional as of June 29, 2024 and subject to change upon the completion of the final valuation of the long-lived assets, working capital, and contingent consideration during the measurement period.

For the twelve months ended December 31, 2023, Nehring’s annual net sales were approximately $400.0 million.

The following table presents condensed pro forma consolidated results of operations as if the Nehring acquisition had occurred at the beginning of the periods presented. The pro forma information does not purport to be indicative of the results that would have been obtained if the operations had actually been combined during the periods presented, and is not necessarily indicative of operating results to be expected in future periods. The most significant pro forma adjustments to the historical results of operations relate to the application of purchase accounting, the financing structure, and estimated income taxes.


	For the Six Months Ended
(In thousands, except per share data)	June 29, 2024		July 1, 2023

Net sales	$	1,981,861	$	2,081,325
Net income	306,525		371,445

Basic earnings per share	$	2.75	$	3.34
Diluted earnings per share	2.69		3.28

Disposition

Heatlink Group

On September 2, 2021, the Company entered into a contribution agreement with a limited liability company in the retail distribution business, pursuant to which the Company exchanged the outstanding common stock of Die-Mold for a 17 percent equity interest in the limited liability company. Die-Mold manufactures PEX and other plumbing-related fittings and plastic injection tooling in Canada and sells these products in Canada and the U.S. and was included in the Piping Systems segment.

Effective July 3, 2023, the Company transferred 100 percent of the outstanding shares of Heatlink Group, Inc. and Heatlink Group USA, LLC for an additional 11 percent equity interest in the limited liability company. Heatlink Group produces a complete line of products for PEX plumbing and radiant systems in Canada and sells these products in Canada and the U.S. and was included in the Piping Systems segment. Heatlink Group reported net sales of $15.6 million and operating income of $1.7 million in the first half of 2023. 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 discounted cash flow approach 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, Precision Tube, and Nehring (acquired in fiscal June 2024). These businesses manufacture brass rod, impact extrusions, forgings, specialty copper, copper alloy, and aluminum tube, as well as a wide variety of end products including plumbing brass, automotive components, valves, fittings, gas assemblies, and high-quality wire and cable solutions. These products are manufactured in the U.S. and sold primarily to OEMs and utilities in the U.S., many of which are in the industrial, transportation, construction, heating, ventilation, and air-conditioning, plumbing, refrigeration, energy, telecommunication, and electrical transmission and distribution markets.

Climate

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

Summarized segment information is as follows:


	For the Quarter Ended June 29, 2024
(In thousands)	Piping Systems		Industrial Metals		Climate		Corporate and Eliminations		Total

Net sales	$	688,469	$	195,341	$	130,532	$	(16,597)	$	997,745

Cost of goods sold	500,826		159,265		82,291		(17,392)		724,990
Depreciation and amortization	4,932		2,368		1,646		1,072		10,018
Selling, general, and administrative expense	20,453		4,015		7,602		20,661		52,731






Operating income	162,258		29,693		38,993		(20,938)		210,006

Interest expense									(107)
Interest income									14,383

Other expense, net									(1,356)

Income before income taxes									$	222,926


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

Net sales	$	638,005	$	146,266	$	123,954	$	(11,241)	$	896,984

Cost of goods sold	452,866		123,097		77,064		(13,755)		639,272
Depreciation and amortization	5,252		1,804		2,202		1,158		10,416
Selling, general, and administrative expense	28,745		3,394		7,087		16,836		56,062



Gain on insurance settlement	—		—		(19,466)		—		(19,466)

Operating income	151,142		17,971		57,067		(15,480)		210,700

Interest expense									(135)
Interest income									7,732
Realized and unrealized gains on short-term investments									20,820
Other income, net									1,841

Income before income taxes									$	240,958

Segment information (continued):


	For the Six Months Ended June 29, 2024
(In thousands)	Piping Systems		Industrial Metals		Climate		Corporate and Eliminations		Total

Net sales	$	1,278,637	$	351,408	$	247,342	$	(29,988)	$	1,847,399

Cost of goods sold	921,767		285,869		157,882		(31,825)		1,333,693
Depreciation and amortization	9,492		4,288		3,241		2,166		19,187
Selling, general, and administrative expense	42,440		7,287		14,651		36,710		101,088






Operating income	304,938		53,964		71,568		(37,039)		393,431

Interest expense									(222)
Interest income									31,628
Realized and unrealized gains on short-term investments									365
Other expense, net									(726)

Income before income taxes									$	424,476


	For the Six Months Ended July 1, 2023
( In thousands)	Piping Systems		Industrial Metals		Climate		Corporate and Eliminations		Total

Net sales	$	1,300,484	$	311,500	$	276,908	$	(20,716)	$	1,868,176

Cost of goods sold	920,476		256,267		165,876		(24,549)		1,318,070
Depreciation and amortization	10,810		3,576		4,355		2,332		21,073
Selling, general, and administrative expense	54,202		6,471		15,088		32,932		108,693



Gain on insurance settlement	—		—		(19,466)		—		(19,466)

Operating income	314,996		45,186		111,055		(31,431)		439,806

Interest expense									(278)
Interest income									13,967
Realized and unrealized gains on short-term investments									22,730
Other income, net									2,167

Income before income taxes									$	478,392

The following table presents total assets attributable to each segment:


(In thousands)	June 29, 2024		December 30, 2023

Segment assets:
Piping Systems	$	1,112,550	$	1,029,821
Industrial Metals	821,011		157,761
Climate	275,872		252,561
General Corporate	856,752		1,319,158

	$	3,066,185	$	2,759,301

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


	For the Quarter Ended June 29, 2024
(In thousands)	Piping Systems		Industrial Metals		Climate		Total

Tube and fittings	$	568,849	$	—	$	—	$	568,849
Brass rod and forgings	—		131,709		—		131,709
OEM components, tube & assemblies	—		20,418		30,569		50,987
Valves and plumbing specialties	119,620		—		—		119,620
Flex duct and other HVAC components	—		—		99,963		99,963
Other	—		43,214		—		43,214

	688,469		195,341		130,532		1,014,342

Intersegment sales							(16,597)

Net sales							$	997,745


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

Tube and fittings	$	518,712	$	—	$	—	$	518,712
Brass rod and forgings	—		113,563		—		113,563
OEM components, tube & assemblies	—		21,073		33,007		54,080
Valves and plumbing specialties	119,293		—		—		119,293
Flex duct and other HVAC components	—		—		90,947		90,947
Other	—		11,630		—		11,630

	638,005		146,266		123,954		908,225

Intersegment sales							(11,241)

Net sales							$	896,984

Disaggregation of revenue from contracts with customers (continued):


	For the Six Months Ended June 29, 2024
(In thousands)	Piping Systems		Industrial Metals		Climate		Total

Tube and fittings	$	1,047,325	$	—	$	—	$	1,047,325
Brass rod and forgings	—		255,768		—		255,768
OEM components, tube & assemblies	—		39,375		60,586		99,961
Valves and plumbing specialties	231,312		—		—		231,312
Flex duct and other HVAC components	—		—		186,756		186,756
Other	—		56,265		—		56,265

	1,278,637		351,408		247,342		1,877,387

Intersegment sales							(29,988)

Net sales							$	1,847,399


	For the Six Months Ended July 1, 2023
(In thousands)	Piping Systems		Industrial Metals		Climate		Total

Tube and fittings	$	1,062,940	$	—	$	—	$	1,062,940
Brass rod and forgings	—		243,903		—		243,903
OEM components, tube & assemblies	—		43,582		66,409		109,991
Valves and plumbing specialties	237,544		—		—		237,544
Flex duct and other HVAC components	—		—		210,499		210,499
Other	—		24,015		—		24,015

	1,300,484		311,500		276,908		1,888,892

Intersegment sales							(20,716)

Net sales							$	1,868,176

Note 5 – Cash, Cash Equivalents, and Restricted Cash


(In thousands)	June 29, 2024		December 30, 2023

Cash & cash equivalents	$	825,655	$	1,170,893
Restricted cash included within other current assets	16,258		3,228
Restricted cash included within other assets	102		102

Total cash, cash equivalents, and restricted cash	$	842,015	$	1,174,223

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)	June 29, 2024		December 30, 2023

Raw materials and supplies	$	115,258	$	111,843
Work-in-process	80,599		61,793
Finished goods	222,501		220,629
Valuation reserves	(12,141)		(14,017)

Inventories	$	406,217	$	380,248

Note 7 – Financial Instruments

Short-Term Investments

The fair value of short-term investments at December 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.

Derivative Instruments and Hedging Activities

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

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

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

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

Commodity Futures Contracts

Copper and brass represent the largest component of the Company’s variable costs of production. The cost of these materials is subject to global market fluctuations caused by factors beyond the Company’s control. The Company occasionally enters into forward fixed-price arrangements with certain customers; the risk of these arrangements is generally managed with commodity futures contracts. These futures contracts have been designated as cash flow hedges.

At June 29, 2024, the Company held open futures contracts to purchase approximately $18.5 million of copper over the next 13 months related to fixed price sales orders. The fair value of those futures contracts was a $453 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 June 29, 2024, this amount was approximately $348 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 June 29, 2024, the Company held $123.4 million open futures contracts to sell copper over the next six months related to copper inventory. The fair value of those futures contracts was a $7.3 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 Derivatives					Liability Derivatives
		Fair Value					Fair Value
(In thousands)	Balance Sheet Location	June 29, 2024		December 30, 2023		Balance Sheet Location	June 29, 2024		December 30, 2023

Commodity contracts - gains	Other current assets	$	—	$	589	Other current liabilities	$	2,131	$	16
Commodity contracts - losses	Other current assets	—		(281)		Other current liabilities	(9,919)		(383)

Total derivatives (1)		$	—	$	308		$	(7,788)	$	(367)

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

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


		For the Quarter Ended				For the Six Months Ended
(In thousands)	Location	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023





Undesignated derivatives:
(Loss) gain on commodity contracts (nonqualifying)	Cost of goods sold	$	(7,146)	$	427	$	(6,658)	$	(2,057)

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


	For the Quarter Ended June 29, 2024
(In thousands)	Gain (Loss) Recognized in AOCI (Effective Portion), Net of Tax		Classification Gains (Losses)	Gain Reclassified from AOCI (Effective Portion), Net of Tax

Cash flow hedges:
Commodity contracts	$	462	Cost of goods sold	$	(1,197)
Other	(11)		Other	—

Total	$	451	Total	$	(1,197)

Amounts recognized in and reclassified from AOCI (continued):


	For the Quarter Ended July 1, 2023
(In thousands)	(Loss) Gain Recognized in AOCI (Effective Portion), Net of Tax		Classification Gains (Losses)	Gain Reclassified from AOCI (Effective Portion), Net of Tax

Cash flow hedges:
Commodity contracts	$	(1,961)	Cost of goods sold	$	(742)
Other	24		Other	—

Total	$	(1,937)	Total	$	(742)


	For the Six Months Ended June 29, 2024
(In thousands)	Gain Recognized in AOCI (Effective Portion), Net of Tax		Classification Gains (Losses)	Gain Reclassified from AOCI (Effective Portion), Net of Tax

Cash flow hedges:
Commodity contracts	$	1,129	Cost of goods sold	$	(1,570)
Other	22		Other	—

Total	$	1,151	Total	$	(1,570)


	For the Six Months Ended July 1, 2023
(In thousands)	Gain (Loss) Recognized in AOCI (Effective Portion), Net of Tax		Classification Gains (Losses)	Gain Reclassified from AOCI (Effective Portion), Net of Tax

Cash flow hedges:
Commodity contracts	$	1,008	Cost of goods sold	$	(2,731)
Other	(2)		Other	—

Total	$	1,006	Total	$	(2,731)

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 June 29, 2024 and December 30, 2023, the Company had recorded restricted cash in other current assets of $16.1 million and $3.2 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 June 29, 2024 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 net loss from unconsolidated affiliates, net of foreign tax, for the quarter ended June 29, 2024 included losses of $4.0 million for Tecumseh. The Company’s net income from unconsolidated affiliates, net of foreign tax, for the quarter ended July 1, 2023 included losses of $0.6 million for Tecumseh.

The Company’s net loss from unconsolidated affiliates, net of foreign tax, for the six months ended June 29, 2024 and July 1, 2023 included losses of $14.3 million and $3.0 million, respectively, for Tecumseh.

During the first half of 2024, the Company advanced Tecumseh $12.5 million, which was comprised of a capital contribution of $8.7 million and a note receivable of $3.8 million. These advances did not change the Company’s proportionate ownership of 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 net loss from unconsolidated affiliates, net of foreign tax, for the quarter ended June 29, 2024 included income of $2.9 million for the retail distribution business. The Company’s net income from unconsolidated affiliates, net of foreign tax, for the quarter ended July 1, 2023 included income of $1.3 million for the retail distribution business.

The Company’s net loss from unconsolidated affiliates, net of foreign tax, for the six months ended June 29, 2024 and July 1, 2023 included income of $5.2 million and $2.7 million, respectively, for the retail distribution business.