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 25, 2022July 1, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 1-6770
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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 July 15, 202221, 2023 was 56,683,718.56,778,790.



MUELLER INDUSTRIES, INC.

FORM 10-Q

For the Quarterly Period Ended June 25, 2022July 1, 2023
As used in this report, the terms “Company,” “Mueller,” and “Registrant” mean Mueller Industries, Inc. and its consolidated subsidiaries taken as a whole, unless the context indicates otherwise.

INDEX
  Page Number
 
   
  
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
   
2


PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

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

For the Quarter EndedFor the Six Months EndedFor the Quarter EndedFor the Six Months Ended
(In thousands, except per share data)(In thousands, except per share data)June 25, 2022June 26, 2021June 25, 2022June 26, 2021(In thousands, except per share data)July 1, 2023June 25, 2022July 1, 2023June 25, 2022
Net salesNet sales$1,150,042 $1,012,592 $2,160,044 $1,830,740 Net sales$896,984 $1,150,042 $1,868,176 $2,160,044 
Cost of goods soldCost of goods sold820,914 799,712 1,565,425 1,468,130 Cost of goods sold639,272 820,914 1,318,070 1,565,425 
Depreciation and amortizationDepreciation and amortization11,302 11,134 22,143 22,889 Depreciation and amortization10,416 11,302 21,073 22,143 
Selling, general, and administrative expenseSelling, general, and administrative expense48,956 43,932 96,412 89,367 Selling, general, and administrative expense56,062 48,956 108,693 96,412 
Gain on sale of assetsGain on sale of assets— — (5,507)— Gain on sale of assets— — — (5,507)
Gain on insurance settlementGain on insurance settlement(19,466)— (19,466)— 
Operating incomeOperating income268,870 157,814 481,571 250,354 Operating income210,700 268,870 439,806 481,571 
Interest expenseInterest expense(147)(1,866)(305)(6,335)Interest expense(135)(147)(278)(305)
Redemption premium— (5,674)— (5,674)
Interest incomeInterest income7,732 103 13,967 263 
Unrealized gain on short-term investmentsUnrealized gain on short-term investments20,820 — 20,820 — 
Other income, netOther income, net2,203 683 2,983 1,260 Other income, net1,841 2,100 4,077 2,720 
Income before income taxesIncome before income taxes270,926 150,957 484,249 239,605 Income before income taxes240,958 270,926 478,392 484,249 
Income tax expenseIncome tax expense(68,290)(39,006)(122,489)(60,767)Income tax expense(62,122)(68,290)(123,479)(122,489)
Income (loss) from unconsolidated affiliates, net of foreign taxIncome (loss) from unconsolidated affiliates, net of foreign tax4,888 (1,019)5,012 (2,668)Income (loss) from unconsolidated affiliates, net of foreign tax715 4,888 (269)5,012 
Consolidated net incomeConsolidated net income207,524 110,932 366,772 176,170 Consolidated net income179,551 207,524 354,644 366,772 
Net income attributable to noncontrolling interestsNet income attributable to noncontrolling interests(972)(2,100)(1,904)(4,231)Net income attributable to noncontrolling interests(1,840)(972)(3,694)(1,904)
Net income attributable to Mueller Industries, Inc.Net income attributable to Mueller Industries, Inc.$206,552 $108,832 $364,868 $171,939 Net income attributable to Mueller Industries, Inc.$177,711 $206,552 $350,950 $364,868 
Weighted average shares for basic earnings per shareWeighted average shares for basic earnings per share55,787 55,946 55,943 55,931 Weighted average shares for basic earnings per share55,660 55,787 55,677 55,943 
Effect of dilutive stock-based awardsEffect of dilutive stock-based awards741 866 776 811 Effect of dilutive stock-based awards1,340 741 1,023 776 
Adjusted weighted average shares for diluted earnings per shareAdjusted weighted average shares for diluted earnings per share56,528 56,812 56,719 56,742 Adjusted weighted average shares for diluted earnings per share57,000 56,528 56,700 56,719 
Basic earnings per shareBasic earnings per share$3.70 $1.95 $6.52 $3.07 Basic earnings per share$3.19 $3.70 $6.30 $6.52 
Diluted earnings per shareDiluted earnings per share$3.65 $1.92 $6.43 $3.03 Diluted earnings per share$3.12 $3.65 $6.19 $6.43 
Dividends per shareDividends per share$0.25 $0.13 $0.50 $0.26 Dividends per share$0.30 $0.25 $0.60 $0.50 

See accompanying notes to condensed consolidated financial statements.

3


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

 For the Quarter EndedFor the Six Months Ended
(In thousands)June 25, 2022June 26, 2021June 25, 2022June 26, 2021
Consolidated net income$207,524 $110,932 $366,772 $176,170 
Other comprehensive (loss) income, net of tax:    
Foreign currency translation(17,120)3,515 (15,907)7,902 
Net change with respect to derivative instruments and hedging activities, net of tax of $3,450, $961, $2,846, and $814(11,886)(3,337)(9,795)(2,844)
Net change in pension and postretirement obligation adjustments, net of tax of $31, $1, $(103), and $57(299)74 121 (17)
Attributable to unconsolidated affiliates, net of tax of $(656), $219, $(1,280), and $(358)2,261 (753)4,409 1,234 
Total other comprehensive (loss) income, net(27,044)(501)(21,172)6,275 
Consolidated comprehensive income180,480 110,431 345,600 182,445 
Comprehensive loss (income) attributable to noncontrolling interests584 (1,333)(315)(3,885)
Comprehensive income attributable to Mueller Industries, Inc.$181,064 $109,098 $345,285 $178,560 
 For the Quarter EndedFor the Six Months Ended
(In thousands)July 1, 2023June 25, 2022July 1, 2023June 25, 2022
Consolidated net income$179,551 $207,524 $354,644 $366,772 
Other comprehensive income (loss), net of tax:    
Foreign currency translation7,725 (17,120)17,976 (15,907)
Net change with respect to derivative instruments and hedging activities, net of tax of $775, $3,450, $503, and $2,846(2,679)(11,886)(1,725)(9,795)
Net change in pension and postretirement obligation adjustments, net of tax of $1, $31, $12, and $(103)(299)121 
Attributable to unconsolidated affiliates, net of tax of $(103), $(656), $(476), and $(1,280)353 2,261 1,638 4,409 
Total other comprehensive income (loss), net5,408 (27,044)17,890 (21,172)
Consolidated comprehensive income184,959 180,480 372,534 345,600 
Comprehensive (income) loss attributable to noncontrolling interests(1,546)584 (3,658)(315)
Comprehensive income attributable to Mueller Industries, Inc.$183,413 $181,064 $368,876 $345,285 

See accompanying notes to condensed consolidated financial statements.




4


MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)June 25,
2022
December 25,
2021
Assets  
Current assets:  
Cash and cash equivalents$202,501 $87,924 
Accounts receivable, less allowance for doubtful accounts of $2,577 in 2022 and $2,590 in 2021611,578 471,859 
Inventories475,951 430,244 
Other current assets45,726 28,976 
Total current assets1,335,756 1,019,003 
Property, plant, and equipment, net388,139 385,562 
Operating lease right-of-use assets22,870 23,510 
Goodwill, net162,630 171,330 
Intangible assets, net60,508 61,714 
Investments in unconsolidated affiliates70,225 61,133 
Other assets6,844 6,684 
Total assets$2,046,972 $1,728,936 
Liabilities  
Current liabilities:  
Current portion of debt$1,112 $811 
Accounts payable208,869 180,793 
Accrued wages and other employee costs43,586 49,629 
Current portion of operating lease liabilities5,725 6,015 
Other current liabilities159,479 145,191 
Total current liabilities418,771 382,439 
Long-term debt, less current portion1,131 1,064 
Pension liabilities4,684 5,572 
Postretirement benefits other than pensions11,924 11,961 
Environmental reserves16,300 17,678 
Deferred income taxes11,712 14,347 
Noncurrent operating lease liabilities15,899 17,099 
Other noncurrent liabilities20,928 21,813 
Total liabilities501,349 471,973 
Equity  
Mueller Industries, Inc. stockholders' equity:  
Preferred stock - $1.00 par value; shares authorized 5,000,000; none outstanding— — 
 Common stock - $.01 par value; shares authorized 100,000,000; issued 80,183,004; outstanding 56,730,133 in 2022 and 57,295,961 in 2021802 802 
Additional paid-in capital291,228 286,208 
Retained earnings1,794,811 1,458,489 
Accumulated other comprehensive loss(72,930)(53,347)
Treasury common stock, at cost(503,448)(470,034)
Total Mueller Industries, Inc. stockholders' equity1,510,463 1,222,118 
Noncontrolling interests35,160 34,845 
Total equity1,545,623 1,256,963 
Commitments and contingencies— — 
Total liabilities and equity$2,046,972 $1,728,936 

(Unaudited)
(In thousands, except share data)July 1,
2023
December 31,
2022
Assets  
Current assets:  
Cash and cash equivalents$771,317 $461,018 
Short-term investments127,051 217,863 
Accounts receivable, less allowance for doubtful accounts of $2,905 in 2023 and $2,687 in 2022459,467 380,352 
Inventories465,729 448,919 
Other current assets28,172 26,501 
Total current assets1,851,736 1,534,653 
Property, plant, and equipment, net386,928 379,950 
Operating lease right-of-use assets31,164 22,892 
Goodwill, net158,769 157,588 
Intangible assets, net52,926 54,785 
Investments in unconsolidated affiliates73,412 72,364 
Other assets21,485 20,167 
Total assets$2,576,420 $2,242,399 
Liabilities  
Current liabilities:  
Current portion of debt$670 $811 
Accounts payable155,096 128,000 
Accrued wages and other employee costs45,148 61,915 
Current portion of operating lease liabilities6,951 4,942 
Other current liabilities136,683 152,627 
Total current liabilities344,548 348,295 
Long-term debt, less current portion1,267 1,218 
Pension liabilities2,929 4,078 
Postretirement benefits other than pensions9,237 8,977 
Environmental reserves15,729 16,380 
Deferred income taxes18,821 16,258 
Noncurrent operating lease liabilities23,596 16,880 
Other noncurrent liabilities17,355 16,349 
Total liabilities433,482 428,435 
Equity  
Mueller Industries, Inc. stockholders' equity:  
Preferred stock - $1.00 par value; shares authorized 5,000,000; none outstanding— — 
 Common stock - $.01 par value; shares authorized 100,000,000; issued 80,183,004; outstanding 56,777,485 in 2023 and 57,001,617 in 2022802 802 
Additional paid-in capital309,705 297,270 
Retained earnings2,376,618 2,059,796 
Accumulated other comprehensive loss(46,249)(64,175)
Treasury common stock, at cost(524,646)(502,779)
Total Mueller Industries, Inc. stockholders' equity2,116,230 1,790,914 
Noncontrolling interests26,708 23,050 
Total equity2,142,938 1,813,964 
Commitments and contingencies— — 
Total liabilities and equity$2,576,420 $2,242,399 
See accompanying notes to condensed consolidated financial statements.
5


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

 For the Six Months Ended
(In thousands)June 25, 2022June 26, 2021
Cash flows from operating activities  
Consolidated net income$366,772 $176,170 
Reconciliation of consolidated net income to net cash provided by operating activities:  
Depreciation and amortization22,322 22,975 
Stock-based compensation expense5,171 4,817 
Provision for doubtful accounts receivable151 1,280 
(Income) loss from unconsolidated affiliates(5,012)2,668 
Redemption premium— 5,674 
Gain on disposals of properties(6,800)(819)
Deferred income tax (benefit) expense(373)3,252 
Changes in assets and liabilities, net of effects of businesses acquired and sold:  
Receivables(146,438)(190,944)
Inventories(49,354)(63,949)
Other assets(6,095)(5,482)
Current liabilities28,906 50,456 
Other liabilities(4,283)3,429 
Other, net(433)(247)
Net cash provided by operating activities204,534 9,280 
Cash flows from investing activities  
Capital expenditures(23,248)(17,978)
Acquisition of businesses, net of cash acquired— (13,935)
Payment received for (issuance of) notes receivable— 8,539 
Proceeds from sales of assets7,561 1,730 
Dividends from unconsolidated affiliates1,609 — 
Net cash used in investing activities(14,078)(21,644)



 For the Six Months Ended
(In thousands)July 1, 2023June 25, 2022
Cash flows from operating activities  
Consolidated net income$354,644 $366,772 
Reconciliation of consolidated net income to net cash provided by operating activities:  
Depreciation and amortization21,252 22,322 
Stock-based compensation expense12,459 5,171 
Provision for doubtful accounts receivable(80)151 
Loss (income) from unconsolidated affiliates269 (5,012)
Insurance proceeds - noncapital related9,854 — 
Gain on disposals of properties(141)(6,800)
Unrealized gain on short-term investments(20,820)— 
Gain on insurance settlement(19,466)— 
Deferred income tax expense (benefit)2,406 (373)
Changes in assets and liabilities:  
Receivables(77,701)(146,438)
Inventories(12,149)(49,354)
Other assets(5,571)(6,095)
Current liabilities(14,460)28,906 
Other liabilities(976)(4,283)
Other, net1,310 (433)
Net cash provided by operating activities250,830 204,534 
Cash flows from investing activities  
Capital expenditures(29,221)(23,248)
Insurance proceeds - capital related24,646 — 
Purchase of short-term investments(106,231)— 
Proceeds from the maturity of short-term investments217,863 — 
Proceeds from sales of assets142 7,561 
Dividends from unconsolidated affiliates797 1,609 
Net cash provided by (used in) investing activities107,996 (14,078)












6





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

For the Six Months EndedFor the Six Months Ended
(In thousands)(In thousands)June 25, 2022June 26, 2021(In thousands)July 1, 2023June 25, 2022
Cash flows from financing activitiesCash flows from financing activitiesCash flows from financing activities
Dividends paid to stockholders of Mueller Industries, Inc.Dividends paid to stockholders of Mueller Industries, Inc.(27,968)(14,546)Dividends paid to stockholders of Mueller Industries, Inc.(33,402)(27,968)
Repurchase of common stockRepurchase of common stock(33,469)— Repurchase of common stock(19,303)(33,469)
Issuance of debt— 425,000 
Repayments of debtRepayments of debt(111)(400,497)Repayments of debt(130)(111)
Issuance of debt by consolidated joint ventures, net360 463 
Net cash (used) received to settle stock-based awards(95)414 
Debt issuance costs(1,111)
(Repayment) issuance of debt by consolidated joint ventures, net(Repayment) issuance of debt by consolidated joint ventures, net(143)360 
Net cash used to settle stock-based awardsNet cash used to settle stock-based awards(2,588)(95)
Net cash (used in) provided by financing activities(61,283)9,723 
Net cash used in financing activitiesNet cash used in financing activities(55,566)(61,283)
Effect of exchange rate changes on cashEffect of exchange rate changes on cash(2,234)987 Effect of exchange rate changes on cash4,825 (2,234)
Increase (decrease) in cash, cash equivalents, and restricted cash126,939 (1,654)
Increase in cash, cash equivalents, and restricted cashIncrease in cash, cash equivalents, and restricted cash308,085 126,939 
Cash, cash equivalents, and restricted cash at the beginning of the periodCash, cash equivalents, and restricted cash at the beginning of the period90,376 127,376 Cash, cash equivalents, and restricted cash at the beginning of the period465,296 90,376 
Cash, cash equivalents, and restricted cash at the end of the periodCash, cash equivalents, and restricted cash at the end of the period$217,315 $125,722 Cash, cash equivalents, and restricted cash at the end of the period$773,381 $217,315 

See accompanying notes to condensed consolidated financial statements.
7


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

For the Quarter EndedFor the Six Months EndedFor the Quarter EndedFor the Six Months Ended
(In thousands)(In thousands)June 25, 2022June 26, 2021June 25, 2022June 26, 2021(In thousands)July 1, 2023June 25, 2022July 1, 2023June 25, 2022
Common stock:Common stock:    Common stock:    
Balance at beginning of periodBalance at beginning of period$802 $802 $802 $802 Balance at beginning of period$802 $802 $802 $802 
Balance at end of periodBalance at end of period$802 $802 $802 $802 Balance at end of period$802 $802 $802 $802 
Additional paid-in capital:Additional paid-in capital:    Additional paid-in capital:    
Balance at beginning of periodBalance at beginning of period$288,802 $282,713 $286,208 $280,051 Balance at beginning of period$303,133 $288,802 $297,270 $286,208 
Acquisition (issuance) of shares under incentive stock option plansAcquisition (issuance) of shares under incentive stock option plans272 12 293 565 Acquisition (issuance) of shares under incentive stock option plans208 272 434 293 
Stock-based compensation expenseStock-based compensation expense2,598 2,708 5,171 4,817 Stock-based compensation expense6,822 2,598 12,459 5,171 
Issuance of restricted stockIssuance of restricted stock(444)(285)(444)(285)Issuance of restricted stock(458)(444)(458)(444)
Balance at end of periodBalance at end of period$291,228 $285,148 $291,228 $285,148 Balance at end of period$309,705 $291,228 $309,705 $291,228 
Retained earnings: Retained earnings:     Retained earnings:     
Balance at beginning of periodBalance at beginning of period$1,602,496 $1,075,410 $1,458,489 $1,019,694 Balance at beginning of period$2,215,939 $1,602,496 $2,059,796 $1,458,489 
Net income attributable to Mueller Industries, Inc.Net income attributable to Mueller Industries, Inc.206,552 108,832 364,868 171,939 Net income attributable to Mueller Industries, Inc.177,711 206,552 350,950 364,868 
Dividends paid or payable to stockholders of Mueller Industries, Inc.Dividends paid or payable to stockholders of Mueller Industries, Inc.(14,237)(7,430)(28,546)(14,821)Dividends paid or payable to stockholders of Mueller Industries, Inc.(17,032)(14,237)(34,128)(28,546)
Balance at end of periodBalance at end of period$1,794,811 $1,176,812 $1,794,811 $1,176,812 Balance at end of period$2,376,618 $1,794,811 $2,376,618 $1,794,811 
Accumulated other comprehensive loss:Accumulated other comprehensive loss:    Accumulated other comprehensive loss:    
Balance at beginning of periodBalance at beginning of period$(47,442)$(48,528)$(53,347)$(54,883)Balance at beginning of period$(51,951)$(47,442)$(64,175)$(53,347)
Total other comprehensive (loss) income attributable to Mueller Industries, Inc.(25,488)266 (19,583)6,621 
Total other comprehensive income (loss) attributable to Mueller Industries, Inc.Total other comprehensive income (loss) attributable to Mueller Industries, Inc.5,702 (25,488)17,926 (19,583)
Balance at end of periodBalance at end of period$(72,930)$(48,262)$(72,930)$(48,262)Balance at end of period$(46,249)$(72,930)$(46,249)$(72,930)
8


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

For the Quarter EndedFor the Six Months EndedFor the Quarter EndedFor the Six Months Ended
(In thousands)(In thousands)June 25, 2022June 26, 2021June 25, 2022June 26, 2021(In thousands)July 1, 2023June 25, 2022July 1, 2023June 25, 2022
Treasury stock:Treasury stock:    Treasury stock:    
Balance at beginning of periodBalance at beginning of period$(474,258)$(469,251)$(470,034)$(468,919)Balance at beginning of period$(505,616)$(474,258)$(502,779)$(470,034)
(Acquisition) issuance of shares under incentive stock option plans(Acquisition) issuance of shares under incentive stock option plans(137)182 (389)(124)(Acquisition) issuance of shares under incentive stock option plans(185)(137)(3,022)(389)
Repurchase of common stockRepurchase of common stock(29,497)— (33,469)(26)Repurchase of common stock(19,303)(29,497)(19,303)(33,469)
Issuance of restricted stockIssuance of restricted stock444 285 444 285 Issuance of restricted stock458 444 458 444 
Balance at end of periodBalance at end of period$(503,448)$(468,784)$(503,448)$(468,784)Balance at end of period$(524,646)$(503,448)$(524,646)$(503,448)
Noncontrolling interests:Noncontrolling interests:    Noncontrolling interests:    
Balance at beginning of periodBalance at beginning of period$35,744 $26,867 $34,845 $24,315 Balance at beginning of period$25,162 $35,744 $23,050 $34,845 
Net income attributable to noncontrolling interestsNet income attributable to noncontrolling interests972 2,100 1,904 4,231 Net income attributable to noncontrolling interests1,840 972 3,694 1,904 
Foreign currency translationForeign currency translation(1,556)(767)(1,589)(346)Foreign currency translation(294)(1,556)(36)(1,589)
Balance at end of periodBalance at end of period$35,160 $28,200 $35,160 $28,200 Balance at end of period$26,708 $35,160 $26,708 $35,160 

See accompanying notes to condensed consolidated financial statements.

9


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

General

Certain information and footnotenote 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 JanuaryOctober 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 Company adopted the ASU during the first quarter of 2022. The adoption of the ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Issued

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): An Amendment of the FASB Accounting Standards Codification. The new guidance was issued to improve accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the (i) recognition of an acquired contract liability, and (ii) payment terms and their effect on subsequent revenue recognized by the acquirer. The ASU is effective for fiscal years beginning after December 5,15, 2022 for public entities. The updated guidance requires prospective adoption, and early adoption is permitted. The Company adopted the ASU during the first quarter of 2023. The adoption of the ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Issued

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

Note 2 – Earnings per Common Share

Basic per share amounts have been computed based on the average number of common shares outstanding.  Diluted per share amounts reflect the increase in average common shares outstanding that would result from the assumed exercise of outstanding stock options and vesting of restricted stock awards, computed using the treasury stock method. There were no stock-based awards excluded from the computation of diluted earnings per share for the quarter ended July 1, 2023 because they were antidilutive. Approximately 8 thousand and 5eight thousand stock-based awards were excluded from the computation of diluted earnings per share for the quartersquarter ended June 25, 2022 and June 26, 2021, respectively, because they were antidilutive.

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Note 3 – Acquisitions and Dispositions

Acquisitions

Mueller Middle East

On December 7, 2021 the Company entered into an agreement providing for the purchase of an additional 15 percent equity interest in Mueller Middle East for a total of 55 percent, for approximately $20.1 million. The total purchase price consisted of $15.8 million in cash paid at closing (net of cash acquired), a gain recognized on the settlement of preexisting relationships of $2.6 million, a contingent consideration arrangement of $1.0 million, and the fair value of the Company’s existing investment in the joint venture of $0.7 million. Mueller Middle East, which manufactures copper tube, is headquartered in Bahrain. This business complements the company’s existing copper tube business in the Piping Systems segment. Prior to entering into this agreement, the Company was the technical and marketing lead with a 40 percent ownership in a joint venture with Cayan Ventures and Bahrain Mumtalakat Holding Company and accounted for this investment under the equity method of accounting. The Company began consolidating this business for financial reporting purposes in December 2021. Mueller Middle East manufactures and sells copper coils to certain Mueller subsidiaries.

The provisional fair value of the assets acquired totaled $44.8 million, consisting primarily of property, plant, and equipment of $26.7 million, accounts receivable of $10.7 million, inventories of $4.7 million, and other assets of $2.7 million. The provisional fair value of the liabilities assumed totaled $15.6 million, consisting primarily of other liabilities of $11.0 million and accounts payable of $4.6 million. Of the remaining purchase price, $6.3 million was allocated to non-deductible goodwill and intangible assets. The noncontrolling interest in Mueller Middle East is $15.4 million. The purchase price allocation is provisional as of June 25, 2022 and subject to change upon completion of the final valuation of the long-lived assets and noncontrolling interest during the measurement period.

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 for approximately $15.3 million. The total purchase price consisted of $14.0 million in cash paid at closing and a contingent consideration arrangement of $1.3 million. 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 fair value of tangible assets acquired totaled $15.3 million, consisting primarily of property, plant, and equipment of $10.8 million and inventories of $4.5 million. 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 2021 Annual Report on Form 10-K.

Dispositions

Copper Bar

On October 25, 2021, the Company sold its Copper Bar business for approximately $10.1 million. This business manufactured copper bar products used primarily by original equipment manufacturers (OEMs) in the U.S. and was included in the Industrial Metals segment. The carrying value of the assets disposed totaled $3.6 million, consisting primarily of inventories and long-lived assets. Copper Bar reported net sales of $13.4 million and an operating loss of $0.1 million in the second quarter of 2021 and net sales of $24.8 million and an operating loss of $0.2 million in the first half of 2021.

Die-Mold

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. Die-Mold reported net sales of $4.0 million and operating income of $0.8 million in the second quarter of 2021 and net sales of $7.9 million and operating income of $1.4 million in the first half of 2021. As a result of the transaction, the Company recognized a gain of $4.7 million in the third quarter of 2021 based on the excess of the fair value of the consideration received (the 17 percent equity interest) over the carrying value of Die-Mold. The Company utilized a market comparable companies approach using an EBITDA multiple to determine the fair value of the consideration received of $22.8 million, which is
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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.

Fabricated Tube Products and Shoals Tubular, Inc.

On July 28, 2021, the Company entered into a purchase agreement with J.W. Harris Co., Inc. and Lincoln Electric Holdings, Inc., pursuant to which the Company sold the assets of Fabricated Tube Products (FTP) and all of the outstanding stock of Shoals Tubular, Inc. (STI) for approximately $75.7 million. These businesses manufacture and fabricate valves and assemblies, brazed manifolds, headers, and distributor assemblies used primarily by manufacturers of residential heating and air conditioning units in the U.S. and were included in the Climate segment. They reported combined net sales of $17.1 million and operating income of $2.8 million in the second quarter of 2021 and net sales of $31.8 million and operating income of $5.0 million in the first half of 2021. The carrying value of the assets disposed totaled $32.7 million, consisting primarily of accounts receivable, inventories, and long-lived assets. The carrying value of the liabilities disposed totaled $3.6 million, consisting primarily of accounts payable. As a result of the transaction, the Company recognized a pre-tax gain of $46.6 million during the third quarter of 2021 on the sale of these businesses in the Condensed Consolidated Financial Statements.

Note 43 – Segment Information

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

Piping Systems

Piping Systems is composed of the following operating segments: Domestic Piping Systems Group, Great Lakes Copper, Heatlink Group, European Operations, Trading Group, Jungwoo-Mueller (the Company’s South Korean joint venture), and Mueller Middle East (the Company’s Bahraini joint venture).  The Domestic Piping Systems Group manufactures and distributes copper tube, fittings, and line sets.  These products are manufactured in the U.S., sold in the U.S., and exported to markets worldwide.  Outside the U.S., Great Lakes Copper manufactures copper tube and line sets in Canada and sells the
10


products primarily in the U.S. and Canada. Heatlink Group produces a complete line of products for PEX plumbing and radiant systems in Canada and sells these products in Canada and the U.S. European Operations manufactures copper tube in the U.K. which is sold primarily in Europe.  The Trading Group manufactures pipe nipples and resells brass and plastic plumbing valves, malleable iron fittings, faucets, and plumbing specialty products in the U.S. and Mexico.  Jungwoo-Mueller manufactures copper-based joining products that are sold worldwide.  Mueller Middle East manufactures copper tube and serves markets in the Middle East and Northern Africa. The Piping Systems segment’s products are sold primarily to plumbing, refrigeration, and air-conditioning wholesalers, hardware wholesalers and co-ops, building product retailers, and air-conditioning OEMs.

Beginning in fiscal year 2022, the results of Precision Tube are included in the Industrial Metals segment prospectively as the impact to prior periods was not material. The business was previously reported in the Piping Systems segment. This change was made to reflect the Company’s internal management reporting structure.original equipment manufacturers (OEMs).

Industrial Metals

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

Climate

Climate is composed of the following operating segments: Refrigeration Products, Westermeyer, Turbotec, Flex Duct, and Linesets, Inc. These domestic businesses manufactureThe 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.

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Summarized segment information is as follows:

 For the Quarter Ended June 25, 2022
(In thousands)Piping SystemsIndustrial MetalsClimateCorporate and EliminationsTotal
Net sales$824,807 $179,175 $164,484 $(18,424)$1,150,042 
Cost of goods sold585,090 150,940 103,110 (18,226)820,914 
Depreciation and amortization5,930 1,846 2,348 1,178 11,302 
Selling, general, and administrative expense22,208 2,221 8,279 16,248 48,956 
Operating income211,579 24,168 50,747 (17,624)268,870 
Interest expense    (147)
Other income, net    2,203 
Income before income taxes    $270,926 

For the Quarter Ended June 26, 2021 For the Quarter Ended July 1, 2023
(In thousands)(In thousands)Piping SystemsIndustrial MetalsClimateCorporate and EliminationsTotal(In thousands)Piping SystemsIndustrial MetalsClimateCorporate and EliminationsTotal
Net salesNet sales$711,616 $180,040 $131,708 $(10,772)$1,012,592 Net sales$638,005 $146,266 $123,954 $(11,241)$896,984 
Cost of goods soldCost of goods sold558,278 155,399 96,303 (10,268)799,712 Cost of goods sold452,866 123,097 77,064 (13,755)639,272 
Depreciation and amortizationDepreciation and amortization5,515 1,694 2,753 1,172 11,134 Depreciation and amortization5,252 1,804 2,202 1,158 10,416 
Selling, general, and administrative expenseSelling, general, and administrative expense23,315 2,448 7,280 10,889 43,932 Selling, general, and administrative expense28,745 3,394 7,087 16,836 56,062 
Gain on insurance settlementGain on insurance settlement— — (19,466)— (19,466)
Operating incomeOperating income124,508 20,499 25,372 (12,565)157,814 Operating income151,142 17,971 57,067 (15,480)210,700 
Interest expenseInterest expense    (1,866)Interest expense    (135)
Redemption premium(5,674)
Interest incomeInterest income7,732 
Unrealized gain on short-term investmentsUnrealized gain on short-term investments20,820 
Other income, netOther income, net    683 Other income, net    1,841 
Income before income taxesIncome before income taxes    $150,957 Income before income taxes    $240,958 

1311


Segment information (continued):

For the Six Months Ended June 25, 2022 For the Quarter Ended June 25, 2022
(In thousands)(In thousands)Piping SystemsIndustrial MetalsClimateCorporate and EliminationsTotal(In thousands)Piping SystemsIndustrial MetalsClimateCorporate and EliminationsTotal
Net salesNet sales$1,528,237 $353,487 $305,106 $(26,786)$2,160,044 Net sales$824,807 $179,175 $164,484 $(18,424)$1,150,042 
Cost of goods soldCost of goods sold1,099,277 296,650 197,067 (27,569)1,565,425 Cost of goods sold585,090 150,940 103,110 (18,226)820,914 
Depreciation and amortizationDepreciation and amortization11,330 3,790 4,700 2,323 22,143 Depreciation and amortization5,930 1,846 2,348 1,178 11,302 
Selling, general, and administrative expenseSelling, general, and administrative expense45,563 5,620 15,892 29,337 96,412 Selling, general, and administrative expense22,208 2,221 8,279 16,248 48,956 
Gain on sale of assets— — — (5,507)(5,507)
Operating incomeOperating income372,067 47,427 87,447 (25,370)481,571 Operating income211,579 24,168 50,747 (17,624)268,870 
Interest expenseInterest expense(305)Interest expense    (147)
Interest incomeInterest income103 
Other income, netOther income, net2,983 Other income, net    2,100 
Income before income taxesIncome before income taxes$484,249 Income before income taxes    $270,926 

For the Six Months Ended June 26, 2021For the Six Months Ended July 1, 2023
(In thousands)(In thousands)Piping SystemsIndustrial MetalsClimateCorporate and EliminationsTotal(In thousands)Piping SystemsIndustrial MetalsClimateCorporate and EliminationsTotal
Net salesNet sales$1,259,364 $344,892 $242,734 $(16,250)$1,830,740 Net sales$1,300,484 $311,500 $276,908 $(20,716)$1,868,176 
Cost of goods soldCost of goods sold1,008,632 296,290 180,385 (17,177)1,468,130 Cost of goods sold920,476 256,267 165,876 (24,549)1,318,070 
Depreciation and amortizationDepreciation and amortization11,725 3,437 5,382 2,345 22,889 Depreciation and amortization10,810 3,576 4,355 2,332 21,073 
Selling, general, and administrative expenseSelling, general, and administrative expense47,401 5,819 14,260 21,887 89,367 Selling, general, and administrative expense54,202 6,471 15,088 32,932 108,693 
Gain on insurance settlementGain on insurance settlement— — (19,466)— (19,466)
Operating incomeOperating income191,606 39,346 42,707 (23,305)250,354 Operating income314,996 45,186 111,055 (31,431)439,806 
Interest expenseInterest expense(6,335)Interest expense(278)
Redemption premium(5,674)
Interest incomeInterest income13,967 
Unrealized gain on short-term investmentsUnrealized gain on short-term investments20,820 
Other income, netOther income, net1,260 Other income, net4,077 
Income before income taxesIncome before income taxes$239,605 Income before income taxes$478,392 

1412


Segment information (continued):

For the Six Months Ended June 25, 2022
( In thousands)Piping SystemsIndustrial MetalsClimateCorporate and EliminationsTotal
Net sales$1,528,237 $353,487 $305,106 $(26,786)$2,160,044 
Cost of goods sold1,099,277 296,650 197,067 (27,569)1,565,425 
Depreciation and amortization11,330 3,790 4,700 2,323 22,143 
Selling, general, and administrative expense45,563 5,620 15,892 29,337 96,412 
Gain on sale of assets— — — (5,507)(5,507)
Operating income372,067 47,427 87,447 (25,370)481,571 
Interest expense(305)
Interest income263 
Other income, net2,720 
Income before income taxes$484,249 

The following table presents total assets attributable to each segment:

(In thousands)(In thousands)June 25, 2022December 25, 2021(In thousands)July 1,
2023
December 31, 2022
Segment assets:Segment assets:Segment assets:
Piping SystemsPiping Systems$1,298,116 $1,160,272 Piping Systems$1,218,810 $1,088,940 
Industrial MetalsIndustrial Metals195,907 173,290 Industrial Metals165,534 160,702 
ClimateClimate288,776 250,107 Climate263,666 279,940 
General CorporateGeneral Corporate264,173 145,267 General Corporate928,410 712,817 
$2,046,972 $1,728,936 $2,576,420 $2,242,399 

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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 25, 2022For the Quarter Ended July 1, 2023
(In thousands)(In thousands)Piping SystemsIndustrial MetalsClimateTotal(In thousands)Piping SystemsIndustrial MetalsClimateTotal
Tube and fittingsTube and fittings$674,579 $— $— $674,579 Tube and fittings$518,712 $— $— $518,712 
Brass rod and forgingsBrass rod and forgings— 142,788 — 142,788 Brass rod and forgings— 113,563 — 113,563 
OEM components, tube & assembliesOEM components, tube & assemblies— 20,254 32,526 52,780 OEM components, tube & assemblies— 21,073 33,007 54,080 
Valves and plumbing specialtiesValves and plumbing specialties150,228 — — 150,228 Valves and plumbing specialties119,293 — — 119,293 
Flex duct and other HVAC componentsFlex duct and other HVAC components— — 131,958 131,958 Flex duct and other HVAC components— — 90,947 90,947 
OtherOther— 16,133 — 16,133 Other— 11,630 — 11,630 
824,807 179,175 164,484 1,168,466  638,005 146,266 123,954 908,225 
Intersegment salesIntersegment sales(18,424)Intersegment sales(11,241)
Net salesNet sales$1,150,042 Net sales$896,984 

For the Quarter Ended June 26, 2021
(In thousands)Piping SystemsIndustrial MetalsClimateTotal
Tube and fittings$567,092 $— $— $567,092 
Brass rod and forgings— 142,974 — 142,974 
OEM components, tube & assemblies8,456 12,710 43,449 64,615 
Valves and plumbing specialties136,068 — — 136,068 
Flex duct and other HVAC components— — 88,259 88,259 
Other— 24,356 — 24,356 
 711,616 180,040 131,708 1,023,364 
Intersegment sales(10,772)
Net sales$1,012,592 


For the Quarter Ended June 25, 2022
(In thousands)Piping SystemsIndustrial MetalsClimateTotal
Tube and fittings$674,579 $— $— $674,579 
Brass rod and forgings— 142,788 — 142,788 
OEM components, tube & assemblies— 20,254 32,526 52,780 
Valves and plumbing specialties150,228 — — 150,228 
Flex duct and other HVAC components— — 131,958 131,958 
Other— 16,133 — 16,133 
 824,807 179,175 164,484 1,168,466 
Intersegment sales(18,424)
Net sales$1,150,042 
1514


Disaggregation of revenue from contracts with customers (continued):

For the Six Months Ended June 25, 2022For the Six Months Ended July 1, 2023
(In thousands)(In thousands)Piping SystemsIndustrial MetalsClimateTotal(In thousands)Piping SystemsIndustrial MetalsClimateTotal
Tube and fittingsTube and fittings$1,246,089 $— $— $1,246,089 Tube and fittings$1,062,940 $— $— $1,062,940 
Brass rod and forgingsBrass rod and forgings— 279,321 — 279,321 Brass rod and forgings— 243,903 — 243,903 
OEM components, tube & assembliesOEM components, tube & assemblies— 40,350 61,618 101,968 OEM components, tube & assemblies— 43,582 66,409 109,991 
Valves and plumbing specialtiesValves and plumbing specialties282,148 — — 282,148 Valves and plumbing specialties237,544 — — 237,544 
Flex duct and other HVAC componentsFlex duct and other HVAC components— — 243,488 243,488 Flex duct and other HVAC components— — 210,499 210,499 
OtherOther— 33,816 — 33,816 Other— 24,015 — 24,015 
1,528,237 353,487 305,106 2,186,830  1,300,484 311,500 276,908 1,888,892 
Intersegment salesIntersegment sales(26,786)Intersegment sales(20,716)
Net salesNet sales$2,160,044 Net sales$1,868,176 

For the Six Months Ended June 26, 2021For the Six Months Ended June 25, 2022
(In thousands)(In thousands)Piping SystemsIndustrial MetalsClimateTotal(In thousands)Piping SystemsIndustrial MetalsClimateTotal
Tube and fittingsTube and fittings$993,231 $— $— $993,231 Tube and fittings1,246,089 — — 1,246,089 
Brass rod and forgingsBrass rod and forgings— 274,236 — 274,236 Brass rod and forgings— 279,321 — 279,321 
OEM components, tube & assembliesOEM components, tube & assemblies17,011 23,743 81,516 122,270 OEM components, tube & assemblies— 40,350 61,618 101,968 
Valves and plumbing specialtiesValves and plumbing specialties249,122 — — 249,122 Valves and plumbing specialties282,148 — — 282,148 
Flex duct and other HVAC componentsFlex duct and other HVAC components— — 161,218 161,218 Flex duct and other HVAC components— — 243,488 243,488 
OtherOther— 46,913 — 46,913 Other— 33,816 — 33,816 
1,259,364 344,892 242,734 1,846,990 1,528,237 353,487 305,106 2,186,830 
Intersegment salesIntersegment sales(16,250)Intersegment sales(26,786)
Net salesNet sales$1,830,740 Net sales$2,160,044 

Note 54 – Cash, Cash Equivalents, and Restricted Cash

(In thousands)(In thousands)June 25,
2022
December 25,
2021
(In thousands)July 1,
2023
December 31,
2022
Cash & cash equivalentsCash & cash equivalents$202,501 $87,924 Cash & cash equivalents$771,317 $461,018 
Restricted cash included within other current assetsRestricted cash included within other current assets14,712 2,349 Restricted cash included within other current assets1,962 4,176 
Restricted cash included within other assetsRestricted cash included within other assets102 103 Restricted cash included within other assets102 102 
Total cash, cash equivalents, and restricted cashTotal cash, cash equivalents, and restricted cash$217,315 $90,376 Total cash, cash equivalents, and restricted cash$773,381 $465,296 

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

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Note 65 – Inventories

(In thousands)(In thousands)June 25,
2022
December 25,
2021
(In thousands)July 1,
2023
December 31,
2022
Raw materials and suppliesRaw materials and supplies$149,270 $130,133 Raw materials and supplies$158,302 $133,189 
Work-in-processWork-in-process95,722 64,989 Work-in-process79,601 64,177 
Finished goodsFinished goods240,985 245,226 Finished goods239,635 265,842 
Valuation reservesValuation reserves(10,026)(10,104)Valuation reserves(11,809)(14,289)
InventoriesInventories$475,951 $430,244 Inventories$465,729 $448,919 

Note 76 – Financial Instruments

Short-Term Investments

The fair value of short-term investments at July 1, 2023, consisting of marketable securities, approximates the carrying value on that date. These marketable securities are stated at fair value and classified as level 1 within the fair value hierarchy. This classification is defined as a fair value determined using observable inputs that reflect quoted prices in active markets for identical assets.

The fair value of short-term investments at December 31, 2022, consisting of U.S. treasury bills with maturities exceeding three months at the time of purchase, approximates the carrying value on that date. These treasury bills are stated at fair value and are classified as trading securities. The fair value of treasury bills is classified as level 1 within the fair value hierarchy. This classification is defined as a fair value determined using observable inputs that reflect quoted prices in active markets for identical assets.

Derivative Instruments and Hedging Activities

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

All derivatives are recognized in the Condensed Consolidated Balance Sheets at their fair value.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
16


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 25, 2022,July 1, 2023, the Company held open futures contracts to purchase approximately $90.5$24.7 million of copper over the next 15nine months related to fixed price sales orders.  The fair value of those futures contracts was a $12.9$0.5 million 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 25, 2022,July 1, 2023, this amount was approximately $9.1$0.4 million 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 25, 2022,July 1, 2023, the Company held $0.5 million open futures contracts to sell approximately $27.0 million of copper over the next nine11 months related to copper inventory.  The fair value of those futures contracts was a $4.2 million$3 thousand net gain position, which was determined by obtaining quoted market prices (level 1 within the fair value hierarchy).
17



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 Asset DerivativesLiability Derivatives
  Fair Value Fair Value   Fair Value Fair Value
(In thousands)(In thousands)Balance Sheet LocationJune 25,
2022
December 25,
2021
Balance Sheet LocationJune 25,
2022
December 25,
2021
(In thousands)Balance Sheet LocationJuly 1,
2023
December 31,
2022
Balance Sheet LocationJuly 1,
2023
December 31,
2022
            
Commodity contracts - gainsCommodity contracts - gainsOther current assets$4,214 $1,150 Other current liabilities$— $— Commodity contracts - gainsOther current assets$74 $3,746 Other current liabilities$305 $— 
Commodity contracts - lossesCommodity contracts - lossesOther current assets— (46)Other current liabilities(12,864)(353)Commodity contracts - lossesOther current assets(9)(1,483)Other current liabilities(814)— 
Total derivatives (1)
Total derivatives (1)
 $4,214 $1,104  $(12,864)$(353)
Total derivatives (1)
 $65 $2,263  $(509)$— 
(1) Does not include the impact of cash collateral provided to counterparties.

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

  For the Quarter EndedFor the Six Months Ended   For the Quarter EndedFor the Six Months Ended
(In thousands)(In thousands)LocationJune 25, 2022June 26, 2021June 25, 2022June 26, 2021(In thousands)LocationJuly 1, 2023June 25, 2022July 1, 2023June 25, 2022
Undesignated derivatives:Undesignated derivatives: Undesignated derivatives: 
Gain (loss) on commodity contracts (nonqualifying)Gain (loss) on commodity contracts (nonqualifying)Cost of goods sold12,457 (1,893)15,882 (10,423)Gain (loss) on commodity contracts (nonqualifying)Cost of goods sold427 12,457 (2,057)15,882 

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

For the Quarter Ended June 25, 2022 For the Quarter Ended July 1, 2023
(In thousands)(In thousands)(Loss) Gain Recognized in AOCI (Effective Portion), Net of TaxClassification Gains (Losses)Gain Reclassified from AOCI (Effective Portion), Net of Tax(In thousands)(Loss) Gain Recognized in AOCI (Effective Portion), Net of TaxClassification Gains (Losses)Gain Reclassified from AOCI (Effective Portion), Net of Tax
Cash flow hedges:Cash flow hedges:   Cash flow hedges:   
Commodity contractsCommodity contracts$(11,107)Cost of goods sold$(792)Commodity contracts$(1,961)Cost of goods sold$(742)
OtherOther13 Other— Other24 Other— 
TotalTotal$(11,094)Total$(792)Total$(1,937)Total$(742)
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Amounts recognized in and reclassified from AOCI (continued):

For the Quarter Ended June 26, 2021 For the Quarter Ended June 25, 2022
(In thousands)(In thousands)Loss Recognized in AOCI (Effective Portion), Net of TaxClassification Gains (Losses)Gain Reclassified from AOCI (Effective Portion), Net of Tax(In thousands)(Loss) Gain Recognized in AOCI (Effective Portion), Net of TaxClassification Gains (Losses)Gain Reclassified from AOCI (Effective Portion), Net of Tax
Cash flow hedges:Cash flow hedges:   Cash flow hedges:   
Commodity contractsCommodity contracts$(1,475)Cost of goods sold$(1,853)Commodity contracts$(11,107)Cost of goods sold$(792)
OtherOther(9)Other— Other13 Other— 
TotalTotal$(1,484)Total$(1,853)Total$(11,094)Total$(792)

 For the Six Months Ended July 1, 2023
(In thousands)Gain (Loss) Recognized in AOCI (Effective Portion), Net of TaxClassification Gains (Losses)Gain Reclassified from AOCI (Effective Portion), Net of Tax
Cash flow hedges:   
Commodity contracts$1,008 Cost of goods sold$(2,731)
Other(2)Other— 
Total$1,006 Total$(2,731)

 For the Six Months Ended June 25, 2022
(In thousands)(Loss) Gain Recognized in AOCI (Effective Portion), Net of TaxClassification Gains (Losses)Gain Reclassified from AOCI (Effective Portion), Net of Tax
Cash flow hedges:   
Commodity contracts$(7,326)Cost of goods sold$(2,514)
Other45 Other— 
Total$(7,281)Total$(2,514)

For the Six Months Ended June 26, 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$16 Cost of goods sold$(2,849)
Other(12)Other
Total$Total$(2,848)

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 25, 2022July 1, 2023 and December 25, 2021,31, 2022, the Company had recorded restricted cash in other current assets of $14.5$1.9 million and $2.0$4.0 million, respectively, as collateral related to open derivative contracts under the master netting arrangements.

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Long-Term Debt

The fair value of long-term debt at June 25, 2022July 1, 2023 approximates the carrying value on that date.  The estimated fair values were determined based on quoted market prices and the current rates offered for debt with similar terms and maturities.  The fair
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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 87 – 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 and an entity that provides financing to Tecumseh.  These investments areThis 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 respective entities.entity.  Under the equity method of accounting, these investments arethis investment is stated at initial cost and areis 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’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 investees’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 investees’investee’s net accumulated losses. 

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

(In thousands)(In thousands)June 25,
2022
December 25,
2021
(In thousands)July 1,
2023
December 31,
2022
Current assetsCurrent assets$258,696 $214,550 Current assets$230,018 $248,808 
Noncurrent assetsNoncurrent assets83,692 76,406 Noncurrent assets94,763 77,395 
Current liabilitiesCurrent liabilities199,854 169,155 Current liabilities182,462 190,746 
Noncurrent liabilitiesNoncurrent liabilities50,648 46,059 Noncurrent liabilities51,391 43,003 

For the Quarter EndedFor the Six Months Ended For the Quarter EndedFor the Six Months Ended
(In thousands)(In thousands)June 25, 2022June 26, 2021June 25, 2022June 26, 2021(In thousands)July 1, 2023June 25, 2022July 1, 2023June 25, 2022
Net salesNet sales$126,337 $103,834 $252,304 $201,163 Net sales$111,741 $126,337 $225,159 $252,304 
Gross profit Gross profit 26,257 15,323 45,032 25,022 Gross profit 22,822 26,257 42,638 45,032 
Net income (loss)7,375 (2,038)6,169 (5,337)
Net (loss) incomeNet (loss) income(1,244)7,375 (5,961)6,169 

The Company’s income from unconsolidated affiliates, net of foreign tax, for the quarter ended July 1, 2023 included net losses of $0.6 million for Tecumseh. The Company’s loss from unconsolidated affiliates, net of foreign tax, for thesix months ended July 1, 2023 included net losses of $3.0 million for Tecumseh.

The Company’s income from unconsolidated affiliates, net of foreign tax, for the quarter and six months ended June 25, 2022 included net income of $3.7 million and $3.1 million, respectively, for Tecumseh.

The Company’s loss from unconsolidated affiliates, net of foreign tax, for the quarter and six months ended June 26, 2021 included net losses of $1.0 million and $2.7 million, respectively, for Tecumseh.

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Retail Distribution

On September 2, 2021, theThe Company acquiredowns a 17 percent noncontrolling equity interest in a limited liability company in the retail distribution business by contributing the outstanding common stock of Die-Mold in exchange for the equity method interest. The transaction was recorded as a deconsolidation of a subsidiary and the recognition of an equity method investment at fair value, as described in “Note 3 - Acquisitions and Dispositions.”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.

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The Company’s income from unconsolidated affiliates, net of foreign tax, for the quarter ended July 1, 2023 included net income of $1.3 million for the retail distribution business. The Company’s loss from unconsolidated affiliates, net of foreign tax, for thesix months ended July 1, 2023 included net income of $2.7 million for the retail distribution business.

The Company’s income from unconsolidated affiliates, net of foreign tax, for the quarter and six months ended June 25, 2022 included net income of $1.2 million and $1.9 million, respectively, for the retail distribution business.

Note 98 – Benefit Plans

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

For the Quarter EndedFor the Six Months Ended For the Quarter EndedFor the Six Months Ended
(In thousands) (In thousands) June 25, 2022June 26, 2021June 25, 2022June 26, 2021(In thousands) July 1, 2023June 25, 2022July 1, 2023June 25, 2022
Pension benefits:Pension benefits:    Pension benefits:    
Interest costInterest cost$393 $313 $787 $626 Interest cost$595 $393 $1,189 $787 
Expected return on plan assetsExpected return on plan assets(967)(904)(1,934)(1,808)Expected return on plan assets(842)(967)(1,683)(1,934)
Amortization of net lossAmortization of net loss243 379 487 757 Amortization of net loss— 243 — 487 
Net periodic benefit incomeNet periodic benefit income$(331)$(212)$(660)$(425)Net periodic benefit income$(247)$(331)$(494)$(660)
Other benefits:Other benefits:   Other benefits:   
Service costService cost$72 $65 $144 $130 Service cost$50 $72 $101 $144 
Interest costInterest cost103 87 206 174 Interest cost128 103 256 206 
Amortization of prior service credit(79)(117)(197)(235)
Amortization of prior service cost (credit)Amortization of prior service cost (credit)— (79)(1)(197)
Amortization of net gainAmortization of net gain(60)(33)(118)(64)Amortization of net gain(99)(60)(196)(118)
Curtailment gainCurtailment gain(1,756)$— (1,756)$— Curtailment gain— $(1,756)— $(1,756)
Net periodic benefit (income) cost$(1,720)$$(1,721)$
Net periodic benefit cost (income)Net periodic benefit cost (income)$79 $(1,720)$160 $(1,721)

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 109 – 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.

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Environmental

Non-operating Properties

Southeast Kansas Sites

The Kansas Department of Health and Environment (KDHE) has contacted the Company regarding environmental contamination at 3three 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. 

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In February 2022, the Company reached a settlement with another PRP relating to these three sites.Under the terms of that agreement, the Company paid $5.6 million, which was previously reserved, in exchange for the other PRP’s agreement to conduct or fund any required remediation within the geographic boundaries of the three sites (namely, the parcel(s) on which the former smelters were located), plus coverage of certain off-site areas (namely, contamination that migrated by surface water runoff or air emissions from the Altoona or East La Harpe site, and smelter materials located within 50 feet of the geographic boundary of each site).The settlement does not cover certain matters, including potential liability related to the remediation of the town of Iola which is not estimable at this time.The other PRP will also provide an indemnity that would cover third-party cleanup claims for those sites, subject to a time limit and a cap.

Altoona. Another PRP conducted a site investigation of the Altoona site under a consent decree with KDHE and submitted a removal site evaluation report recommending a remedy.  The remedial design plan, which covers both on-site and certain off-site cleanup costs, was approved by the KDHE in 2016.  Construction of the remedy was completed in 2018. Under the terms of the settlement with the other PRP, the Company expects the operations and maintenance costs for this remedy to be paid for entirely by the other PRP.

East La Harpe. At the East La Harpe site, the Company and 2two 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 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, but pursuantPursuant to the terms of the settlement with the other PRP noted above, the Company expects the remediation to be conducted and paid for entirely by the other PRP.PRP, and for the other PRP to negotiate and enter into an agreement with KDHE.

Lanyon. With respect to the Lanyon Site, in 2016, the Company received a general notice letter from the United States Environmental Protection Agency (EPA) asserting that the Company is a PRP, which the Company has denied.  EPA issued an interim record of decision in 2017 and has been remediating properties at the site. According to EPA, 1,371 properties in total will be remediated, and the work will be completed in the fall of 2022.continue into 2023.

Shasta Area Mine Sites

Mining Remedial Recovery Company (MRRC), a wholly owned subsidiary, owns certain inactive mines in Shasta County, California.  MRRC has continued a program, begun in the late 1980s, of implementing various remedial measures, including sealing mine portals with concrete plugs in portals that were discharging water.  The sealing program achieved significant reductions in the metal load in discharges from these adits; however, additional reductions are required pursuant to an order issued by the California Regional Water Quality Control Board (QCB).  In response to a 1996 QCB Order, MRRC completed a feasibility study in 1997 describing measures designed to mitigate the effects of acid rock drainage.  In December 1998, the QCB modified the 1996 order extending MRRC’s time to comply with water quality standards.  In September 2002, the QCB adopted a new order requiring MRRC to adopt Best Management Practices (BMP) to control discharges of acid mine drainage, and again extended the time to comply with water quality standards until September 2007.  During that time, implementation of BMP further reduced impacts of acid rock drainage; however, full compliance has not been achieved.  The QCB is presently renewing MRRC’s discharge permit and will concurrently issue a new order.  It is expected that the new 10-year permit will include an order requiring continued implementation of BMP through 20322033 to address residual discharges of acid rock drainage.  The Company currently estimates that it will spend between approximately $14.0$14.1 million and $16.0$16.1 million for remediation at these sites over the next 30 years and has accrued a reserve at the low end of this range.

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Lead Refinery Site

U.S.S. Lead Refinery, Inc. (Lead Refinery), a non-operating wholly owned subsidiary of MRRC, has conducted corrective action and interim remedial activities (collectively, Site Activities) at Lead Refinery’s East Chicago, Indiana site pursuant to the Resource Conservation and Recovery Act since December 1996.  Although the Site Activities have been substantially concluded, Lead Refinery is required to perform monitoring and maintenance-related activities pursuant to a post-closure permit issued by the Indiana Department of Environmental Management effective as of March 2, 2013.  Approximate costs to comply with the post-closure permit, including associated general and administrative costs, are estimated at between $1.6 million and $2.3$2.4 million over the next 1514 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 2two other PRPs in connection with that matter.  In November 2012, the EPA
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adopted a remedy for the surrounding properties and in September 2014, the EPA announced that it had entered into a settlement with the 2two other PRPs whereby they will pay approximately $26.0 million to fund the cleanup of approximately 300 properties surrounding the Lead Refinery NPL site (zones 1 and 3 of operable unit 1) and perform certain remedial action tasks.

On November 8, 2016, the Company, its subsidiary Arava Natural Resources Company, Inc. (Arava), and Arava’s subsidiary MRRC each received general notice letters from the EPA asserting that they may be PRPs in connection with the Lead Refinery NPL site.  The Company, Arava, and MRRC have denied liability for any remedial action and response costs associated with the Lead Refinery NPL site.  In June 2017, the EPA requested that Lead Refinery conduct, and the Company fund, a remedial investigation and feasibility study of operable unit 2 of the Lead Refinery NPL site pursuant to a proposed administrative settlement agreement and order on consent. The Company and Lead Refinery entered into that agreement in September 2017. The Company has made a capital contribution to Lead Refinery to conduct the remedial investigation and feasibility study with respect to operable unit 2 and has provided financial assurance in the amount of $1.0 million. The remedial investigation and feasibility study remain ongoing. The EPA has also asserted its position that Mueller is a responsible party for the Lead Refinery NPL site, and accordingly is responsible for a share of remedial action and response costs at the site and in the adjacent residential area.

In January 2018, the EPA issued 2two unilateral administrative orders (UAOs) directing the Company, Lead Refinery, and 4four 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). TheSubsequent thereto, the Company and Lead Refinery have reached agreement with the 4four other PRPs to implement these 2two 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 estimatethen estimated it willwould 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 June 25, 2022,July 1, 2023, the Company has made payments of approximately $7.6 million related to the aforementioned agreement with the other PRPs. The Company disputes that it was properly named in the UAOs, 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.UAOs. In March 2022, Lead Refinery entered into an administrative settlement agreement and order on consent with the EPA, along with the 4four other PRPs, which involves payment of certain past and future costs relating to operable unit 1, in exchange for certain releases and contribution protection for the Company, Lead Refinery, and their respective affiliates relating to that operable unit. The settlement became effective in September 2022. The Company reserved $3.3 million for this settlement inat the third quarterend of 2021. In March 2018, a group of private plaintiffs sued the Company, Arava, MRRC, and Lead Refinery, along with other defendants, in civil tort action relating to the site. The Company, Arava, and MRRC have been voluntarily dismissed from that litigation without prejudice. Lead Refinery’s motion to dismiss the matter was granted without prejudice, but plaintiffs in that case have sought to amend theirit has answered plaintiffs’ amended complaint.  At this juncture, the Company is unable to determine the likelihood of a material adverse outcome or the amount or range of a potential loss in excess of the current reserve with respect to any remedial action or litigation relating to the Lead Refinery NPL site, either at Lead Refinery’s former operating site (operable unit 2) or the adjacent residential area (operable unit 1), including, but not limited to, EPA oversight costs for which the EPA may attempt to seek reimbursement from the Company, and past costs for which other PRPs may attempt to seek contribution from the Company.

Bonita Peak Mining District

Following an August 2015 spill from the Gold King Mine into the Animas River near Silverton, Colorado, the EPA listed the Bonita Peak Mining District on the NPL.  Said listing was finalized in September 2016.  The Bonita Peak Mining District encompasses 48 mining sites within the Animas River watershed, including the Sunnyside Mine, the American Tunnel, and the
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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
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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 $0.7$0.5 million to $0.9$0.7 million over the next fourthree years. The Company has recorded a reserve at the low end of this range.

United States Department of Commerce Antidumping Review

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

Guarantees

Guarantees, in the form of letters of credit, are issued by the Company generally to assure the payment of insurance deductibles, certain retiree health benefits, and debt at certain unconsolidated affiliates.  The terms of the guarantees are generally one year but are renewable annually as required.  These letters are primarily backed by the Company’s revolving credit facility.  The maximum payments that the Company could be required to make under its guarantees at June 25, 2022July 1, 2023 were $32.6$28.9 million.

Note 1110 – Income Taxes

The Company’s effective tax rate for the second quarter of 20222023 was 2526 percent compared with 2625 percent for the same period last year.  The primary items impacting the effective tax rate for the second quarter of 20222023 were increases related to the
24


provision for state income taxes, net of the federal benefit, of $9.8$7.1 million and the effect of foreign tax rates higher than statutory tax rates and other foreign adjustments of $2.6 million.

The items impacting the effective tax rate for the second quarter of 2022 were increases related to the provision for state income taxes, net of the federal benefit, of $9.8 million and the effect of foreign tax rates higher than statutory tax rates and other foreign adjustments of $1.7 million.

The items impacting the effective tax rate for the second quarter of 2021 were the provision for state income taxes, net of the federal benefit, of $5.3 million and the effect of foreign tax rates higher than statutory tax rates and other foreign adjustments of $1.8 million.

The Company’s effective tax rate for the first half of 20222023 was 2526 percent compared with 25 percent for the same period last year. The items impacting the effective tax rate for the first half of 2023 were primarily attributable to the provision for state income taxes, net of the federal benefit, of $15.0 million and the effect of foreign tax rates higher than statutory tax rates and other foreign items of $4.6 million.

The items impacting the effective tax rate for the first half of 2022 were primarily attributablerelated to the provision for state income taxes, net of the federal benefit, of $16.9 million and the effect of foreign tax rates higher than statutory tax rates and other foreign adjustments of $3.4 million.

The items impacting the effective tax rate for the first half of 2021 were primarily related to the provision for state income taxes, net of the federal benefit, of $7.7 million and the effect of foreign tax rates higher than statutory tax rates and other foreign adjustments of $3.1 million.
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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 returnsreturn for 20182019 and all subsequent years. The statutes of limitations for most state returns are open for 20182019 and all subsequent years, and some state and foreign returns are also open for some earlier tax years due to differing statute periods. While the Company believes that it is adequately reserved for possible audit adjustments, the final resolution of these examinations cannot be determined with certainty and could result in final settlements that differ from current estimates.

Note 1211 – Accumulated Other Comprehensive Income (Loss)

AOCI includes certain foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, net deferred gains and losses on certain derivative instruments accounted for as cash flow hedges, adjustments to pension and OPEB liabilities, and other comprehensive income attributable to unconsolidated affiliates.

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

 For the Six Months Ended June 25, 2022
(In thousands)Cumulative Translation AdjustmentUnrealized Gain (Loss) on DerivativesPension/OPEB Liability AdjustmentAttributable to Unconsol. AffiliatesTotal
Balance as of December 25, 2021$(42,303)$803 $(11,500)$(347)$(53,347)
Other comprehensive (loss) income before reclassifications(14,318)(7,281)(31)4,409 (17,221)
Amounts reclassified from AOCI— (2,514)152 — (2,362)
Net current-period other comprehensive (loss) income(14,318)(9,795)121 4,409 (19,583)
Balance as of June 25, 2022$(56,621)$(8,992)$(11,379)$4,062 $(72,930)
 For the Six Months Ended July 1, 2023
(In thousands)Cumulative Translation AdjustmentUnrealized Gain (Loss) on DerivativesPension/OPEB Liability AdjustmentAttributable to Unconsol. AffiliatesTotal
Balance as of December 31, 2022$(69,238)$1,486 $1,222 $2,355 $(64,175)
Other comprehensive income before reclassifications18,012 1,006 148 1,638 20,804 
Amounts reclassified from AOCI— (2,731)(147)— (2,878)
Net current-period other comprehensive income (loss)18,012 (1,725)1,638 17,926 
Balance as of July 1, 2023$(51,226)$(239)$1,223 $3,993 $(46,249)

 For the Six Months Ended June 25, 2022
(In thousands)Cumulative Translation AdjustmentUnrealized Gain (Loss) on DerivativesPension/OPEB Liability AdjustmentAttributable to Unconsol. AffiliatesTotal
Balance as of December 25, 2021$(42,303)$803 $(11,500)$(347)$(53,347)
Other comprehensive (loss) income before reclassifications(14,318)(7,281)(31)4,409 (17,221)
Amounts reclassified from AOCI— (2,514)152 — (2,362)
Net current-period other comprehensive (loss) income(14,318)(9,795)121 4,409 (19,583)
Balance as of June 25, 2022$(56,621)$(8,992)$(11,379)$4,062 $(72,930)
25
24


 For the Six Months Ended June 26, 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)$(54,883)
Other comprehensive income (loss) before reclassifications8,248 (400)1,234 9,086 
Amounts reclassified from AOCI— (2,848)383 — (2,465)
Net current-period other comprehensive income (loss)8,248 (2,844)(17)1,234 6,621 
Balance as of June 26, 2021$(29,091)$(1,860)$(17,220)$(91)$(48,262)

Reclassification adjustments out of AOCI were as follows:

Amount reclassified from AOCI Amount reclassified from AOCI
For the Quarter EndedFor the Six Months Ended  For the Quarter EndedFor the Six Months Ended 
(In thousands)(In thousands)June 25, 2022June 26, 2021June 25, 2022June 26, 2021Affected line item(In thousands)July 1, 2023June 25, 2022July 1, 2023June 25, 2022Affected line item
Unrealized gains on derivative commodity contractsUnrealized gains on derivative commodity contracts$(1,021)$(2,390)$(3,245)$(3,689)Cost of goods soldUnrealized gains on derivative commodity contracts$(960)$(1,021)$(3,511)$(3,245)Cost of goods sold
229 537 731 841 Income tax expense 218 229 780 731 Income tax expense
$(792)$(1,853)$(2,514)$(2,848)Net of tax and noncontrolling interests $(742)$(792)$(2,731)$(2,514)Net of tax and noncontrolling interests
Amortization of net loss and prior service cost on employee benefit plansAmortization of net loss and prior service cost on employee benefit plans$104 $229 $172 $458 Other income, netAmortization of net loss and prior service cost on employee benefit plans$(99)$104 $(197)$172 Other income, net
(15)(38)(20)(75)Income tax benefit 25 (15)50 (20)Income tax expense (benefit)
$89 $191 $152 $383 Net of tax and noncontrolling interests $(74)$89 $(147)$152 Net of tax and noncontrolling interests

Note 12 – Insurance Claims

In August 2022, a portion of the Company’s Bluffs, Illinois manufacturing operation was damaged by fire. Certain inventories, production equipment, and building structures were extensively damaged. During the second quarter of 2023, the Company settled the claim with its insurer for total proceeds of $29.5 million, net of the deductible of $250 thousand. As a result of the settlement with the insurer, all proceeds received and all costs previously deferred (which were recorded as other current liabilities in prior periods) were recognized, resulting in a pre-tax gain of $19.5 million in the second quarter of 2023, or 26 cents per diluted share after tax. The Company received proceeds of $24.5 million and $5.0 million in 2023 and 2022, respectively.

In March 2023, a portion of the Company’s Covington, Tennessee manufacturing operation was damaged by a tornado. The extent of the damage to inventories, production equipment, and building structures is currently being assessed. The total value of the loss, including business interruption, cannot be determined at this time, but is expected to be covered by property and business interruption insurance subject to customary deductibles. Any gain resulting from insurance proceeds for property damage in excess of the net book value of the related property will be recognized in income upon settlement of the claim. In addition, the Company has deferred recognition of direct, identifiable costs associated with this matter. These costs will also be recognized upon settlement of the insurance claim. As of July 1, 2023, the Company has received advances totaling $10.0 million from the insurance company for this claim. These advances, net of the book value of damaged inventories, equipment, and buildings and direct cleanup and other out of pocket costs totaled $3.6 million, classified as other current liabilities on the Condensed Consolidated Balance Sheet at July 1, 2023.

Note 13 - Disposition

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. During the third quarter, the Company will measure the gain or loss on the disposition by measuring the fair value of the consideration received (the 11
25


percent equity interest) against the carrying value of Heatlink Group, in accordance with Accounting Standards Codification 810-10, Consolidation. Any resulting gain or loss is expected to be immaterial to the Company’s Condensed Consolidated Financial Statements.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

General Overview

We are a leading manufacturer of copper, brass, aluminum, and plastic products. The range of products we manufacture is broad: copper tube and fittings; line sets; brass and copper alloy rod, bar, and shapes; aluminum and brass forgings; aluminum impact extrusions; PEX plastic tube and fittings; refrigeration valves and fittings; compressed gas valves; pressure vessels; steel nipples; and insulated flexible duct systems. We also resell brass and plastic plumbing valves, plastic fittings, malleable iron fittings, faucets, and plumbing specialty products. Our operations are located throughout the United States and in Canada, Mexico, Great Britain, South Korea, the Middle East, and China.

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

Piping Systems: The Piping Systems segment is composed of Domestic Piping Systems Group, Great Lakes Copper, Heatlink Group, European Operations, Trading Group, Jungwoo-Mueller (our South Korean joint venture), and Mueller Middle East (our 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. Great Lakes Copper manufactures copper tube and line sets in Canada and sells the products primarily in the U.S. and Canada. Heatlink Group manufactures a complete line of products for PEX plumbing and radiant systems in Canada and sells these products in Canada and the U.S. European Operations manufactures copper tube in the United Kingdom, which is sold throughout Europe. The Trading Group manufactures pipe nipples and sources products for import distribution in North America. 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 sells products to wholesalers in the plumbing and refrigeration markets, distributors to the manufactured housing and recreational vehicle industries, building material retailers, and air-conditioning original equipment manufacturers (OEMs).

Industrial Metals: The Industrial Metals segment is composed of Brass Rod, Impacts & Micro Gauge, Brass Value-Added Products, and Precision Tube. The segment manufactures and sells brass rod, bar, and shapes; aluminum and brass forgings; aluminum impact extrusions; gas valves and assemblies; and specialty copper, copper alloy, and aluminum tube. The segment manufactures and sells its products primarily to domestic OEMs in the industrial, transportation, construction, heating, ventilation, and air-conditioning, plumbing, refrigeration, and energy markets.

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

New housing starts and commercial construction are important determinants of our sales to the heating, ventilation, and air-conditioning, refrigeration, and plumbing markets because the principal end use of a significant portion of our products is in the construction of single and multi-family housing and commercial buildings. Repairs and remodeling projects are also important drivers of underlying demand for these products. In addition, our products are used in various transportation, automotive, and industrial applications.

According to the U.S. Census Bureau, the June 20222023 seasonally adjusted annual rate of new housing starts was 1.561.43 million, compared to the June 20212022 rate of 1.66 1.56 million. The average 30-year fixed mortgage rate was 4.526.44 percent for the first half of 20222023 and 2.965.34 percent for the twelve months ended December 2021.2022. The private non-residential construction sector includes offices, industrial, health care, and retail projects. According to the U.S. Census Bureau, the seasonally adjusted annual value of private nonresidential construction put in place was $497.8$655.8 billion in May 20222023 compared to the May 20212022 rate of $480.2$544.1 billion.

Profitability of certain of our product lines depends upon the “spreads” between the cost of raw material and the selling prices of our products. The open market prices for copper cathode and copper and brass scrap, for example, influence the selling price
26


of copper tube and brass rod, two principal products manufactured by the Company. We attempt to minimize the effects on profitability from fluctuations in material costs by passing through these costs to our customers; however, margins of our businesses that account for inventory on a FIFO basis may be impacted in periods of significant fluctuations in material costs. Our earnings and cash flow are dependent upon these spreads that fluctuate based upon market conditions.

Earnings and profitability are also impacted by unit volumes that are subject to market trends, such as substitute products, imports, technologies, and market share. In our core product lines, weWe intensively manage our pricing structure while attempting to maximize profitability. From time-to-time, this practice results in lost sales opportunities and lower volume. For plumbing systems, plastics are the primary substitute product; these products represent an increasing share of consumption. For certain air-conditioning and refrigeration applications, aluminum-based systems are the primary substitution threat. We cannot predict the acceptance or the rate of switching that may occur. U.S. consumption of copper tube and brass rod is still predominantly supplied by U.S. manufacturers. In recent years, brass rod consumption in the U.S. has declined due to the outsourcing of many manufactured products to offshore regions.

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Results of Operations

Consolidated Results

The following table compares summary operating results for the first half of 20222023 and 2021:2022:

For the Quarter EndedPercent ChangeFor the Six Months EndedPercent ChangeFor the Quarter EndedPercent ChangeFor the Six Months EndedPercent Change
(In thousands)(In thousands)June 25, 2022June 26, 20212022 vs. 2021June 25, 2022June 26, 20212022 vs. 2021(In thousands)July 1, 2023June 25, 20222023 vs. 2022July 1, 2023June 25, 20222023 vs. 2022
Net salesNet sales$1,150,042 $1,012,592 13.6 %$2,160,044 $1,830,740 18.0 %Net sales$896,984 $1,150,042 (22.0)%$1,868,176 $2,160,044 (13.5)%
Operating incomeOperating income268,870 157,814 70.4 481,571 250,354 92.4 Operating income210,700 268,870 (21.6)439,806 481,571 (8.7)
Net incomeNet income206,552 108,832 89.8 364,868 171,939 112.2 Net income177,711 206,552 (14.0)350,950 364,868 (3.8)
 
The following are components of changes in net sales compared to the prior year:

Quarter-to-
Date
Year-to-
Date
Quarter-to-
Date
Year-to-
Date
Net selling price in core product linesNet selling price in core product lines11.4 %15.2 %Net selling price in core product lines(4.6)%(2.8)%
Unit sales volume in core product linesUnit sales volume in core product lines(3.8)(3.0)Unit sales volume in core product lines(11.8)(8.1)
Acquisitions1.1 2.2 
Dispositions(3.1)(3.2)
OtherOther8.0 6.8 Other(5.6)(2.6)
13.6 %18.0 % (22.0)%(13.5)%

The increasedecrease in net sales during the second quarter of 20222023 was primarily due to (i) higher net selling priceslower unit sales volume of $115.4$135.8 million in our core product lines, primarily copper tube, line sets, and brass rod, (ii) an increasea decrease in sales of $80.7$64.9 million in our non-core product lines, and (iii) saleslower net selling prices of $11.3 million recorded by Mueller Middle East (MME), acquired in December 2021. These increases were partially offset by (i) lower unit sales volume of $38.9$52.4 million in our core product lines and (ii) a decrease in sales of $31.0 million as a result of the dispositions of Copper Bar, Die-Mold, FTP, and STI in the second half of 2021.lines.

The increasedecrease in net sales during the first half of 20222023 was primarily due to (i) higher net selling priceslower unit sales volume of $277.6$174.6 million in our core product lines, (ii) an increase in saleslower net selling prices of $110.5 million in our non-core product lines, (iii) sales of $21.6 million recorded by MME, and (iv) incremental sales of $19.3 million recorded by H&C Flex (H&C). These increases were partially offset by (i) lower unit sales volume of $55.3$61.0 million in our core product lines, and (ii)(iii) a decrease in sales of $44.4$56.2 million as a result of the dispositions of Copper Bar, Die-Mold, FTP, and STI in the second half of 2021.our non-core product lines.

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Net selling prices generally fluctuate with changes in raw material costs.  Changes in raw material costs are generally passed through to customers by adjustments to selling prices.  The following graph shows the Comex average copper price per pound by quarter for the current and prior fiscal years:

mli-20220625_g2.jpg7103

The following tables compare cost of goods sold and operating expenses as dollar amounts and as a percent of net sales for the first half of 20222023 and 2021:2022:

For the Quarter EndedFor the Six Months Ended For the Quarter EndedFor the Six Months Ended
(In thousands)(In thousands)June 25, 2022June 26, 2021June 25, 2022June 26, 2021(In thousands)July 1, 2023June 25, 2022July 1, 2023June 25, 2022
Cost of goods soldCost of goods sold$820,914 $799,712 $1,565,425 $1,468,130 Cost of goods sold$639,272 $820,914 $1,318,070 $1,565,425 
Depreciation and amortizationDepreciation and amortization11,302 11,134 22,143 22,889 Depreciation and amortization10,416 11,302 21,073 22,143 
Selling, general, and administrative expenseSelling, general, and administrative expense48,956 43,932 96,412 89,367 Selling, general, and administrative expense56,062 48,956 108,693 96,412 
Gain on sale of assetsGain on sale of assets— — (5,507)— Gain on sale of assets— — — (5,507)
Gain on insurance settlementGain on insurance settlement(19,466)— (19,466)— 
Operating expensesOperating expenses$881,172 $854,778 $1,678,473 $1,580,386 Operating expenses$686,284 $881,172 $1,428,370 $1,678,473 

For the Quarter EndedFor the Six Months Ended For the Quarter EndedFor the Six Months Ended
June 25, 2022June 26, 2021June 25, 2022June 26, 2021 July 1, 2023June 25, 2022July 1, 2023June 25, 2022
Cost of goods soldCost of goods sold71.4 %79.0 %72.5 %80.2 %Cost of goods sold71.3 %71.4 %70.6 %72.5 %
Depreciation and amortizationDepreciation and amortization1.0 1.1 1.0 1.3 Depreciation and amortization1.2 1.0 1.1 1.0 
Selling, general, and administrative expenseSelling, general, and administrative expense4.3 4.3 4.6 4.9 Selling, general, and administrative expense6.3 4.2 5.9 4.6 
Gain on sale of assetsGain on sale of assets— — (0.3)— Gain on sale of assets— — — (0.3)
Gain on insurance settlementGain on insurance settlement(2.2)— (1.0)— 
Operating expensesOperating expenses76.6 %84.4 %77.8 %86.4 %Operating expenses76.5 %76.6 %76.6 %77.8 %
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Q2 20222023 compared to Q2 20212022

Cost of goods sold increaseddecreased in the second quarter of 20222023 primarily due to the factors noted above regarding the change in net sales. Gross margin as a percentage of sales was 28.628.7 percent compared with 21.028.6 percent in the prior year quarter. The increase in gross margin percent reflects effective price management in response to significant inflation in wages, and material, consumable, energy, freight, and distribution costs. Depreciation and amortization was consistent withdecreased in the second quarter of 2021.2023 primarily as a result of several long-lived assets becoming fully depreciated. Selling, general, and administrative expense increased in the second quarter of 20222023 primarily as a result of (i) higher foreign currency transaction losses of $2.6 million, (ii) higher employment costs, including incentive stock-based
28


compensation, of $7.0 million and (ii) incremental expenses of $0.3 million associated with MME. These increases were partially offset by (i) the absence of expenses associated with Die-Mold, FTP, and STI of $1.3 million, (iii) gains on the disposal of assets of $1.3 million recorded in the prior year quarter, (iv) higher legal and (ii) a decrease in bad debtprofessional fees of $0.9 million, (v) higher marketing and advertising costs of $0.5 million, and (vi) higher lease and rent expense of $1.2$0.4 million. In addition, during the second quarter of 2023, we settled the insurance claim related to the August 2022 fire at our Bluffs, Illinois manufacturing operation and recognized a $19.5 million gain.

Interest expense decreased forwas consistent with the second quarter of 20222022. Interest income was higher during the second quarter of 2023 primarily as a result of there being no borrowings outstanding under the Credit Agreement. In addition,purchase of short-term investments in the fourth quarter of 2022 and higher rates on deposits. During the second quarter of 2023, we recognized expensean unrealized gain on short-term investments of $5.7 million for a redemption premium related to our Subordinated Debentures redeemed$20.8 million. Other income, net, decreased during the second quarter of 2021. Other income, net, increased for2023 primarily as a result of a settlement charge related to one of our foreign benefit plans recognized during the second quarter of 2022 primarily due to a curtailment gain related to our benefit plans.2023.

Our effective tax rate for the second quarter of 20222023 was 2526 percent compared with 2625 percent for the same period last year.  The items impacting the effective tax rate were (i) increases related to the provision for state income taxes, net of the federal benefit, of $9.8$7.1 million and (ii) the effect of foreign tax rates higher than statutory tax rates and other foreign adjustmentsitems of $1.7$2.6 million.

For the second quarter of 2021,2022, the difference between the effective tax rate and the amount computed using the U.S. federal statutory rate was primarily attributable to (i) the provision for state income taxes, net of the federal benefit, of $5.3$9.8 million and (ii) the effect of foreign tax rates higher than statutory tax rates and other foreign adjustmentsitems of $1.8$1.7 million.

During the second quarter of 20222023 and the second quarter of 2021,2022, we recognized income of $4.9$0.7 million and losses of $1.0$4.9 million, respectively, on our investments in unconsolidated affiliates.

YTD 20222023 compared to YTD 20212022

Cost of goods sold increaseddecreased in the first half of 20222023 primarily due to the factors noted above regarding the change in net sales. Gross margin as a percentage of sales was 27.529.4 percent compared with 19.827.5 percent in the prior year. The combination of strong demand for our products, inflationary pressures, and industry wide supply constraints contributed to an environment of higher selling prices and improved margins for the majority of our businesses. Depreciation and amortization decreased slightly in the first half of 20222023 primarily as a result of several long-lived assets of businesses sold.becoming fully depreciated. Selling, general, and administrative expense increased in the first half of 20222023 primarily as a result of (i) higher employment costs, including incentivestock-based compensation, of $8.7$4.9 million, (ii) incremental expenses associated with H&Chigher foreign currency transaction losses of $3.4 million, (iii) gains on the disposal of assets of $1.3 million recorded in the prior year, (iv) higher marketing and MMEadvertising costs of $1.6$1.2 million, (v) higher legal and professional fees of $0.9 million, and (iii)(vi) higher travelrepairs and entertainment expensemaintenance costs of $1.1 million. These increases were partially offset by (i) the absence of expenses associated with Die-Mold, FTP, and STI of $2.6 million and (ii) a decrease in bad debt expense of $1.1$0.8 million. In addition, during the first half of 2023, we settled the insurance claim related to the August 2022 fire at our Bluffs, Illinois manufacturing operation and recognized a $19.5 million gain. During the first half of 2022 we recognized a gain of $5.5 million on the sale of a building.

Interest expense decreased forwas consistent with the first half of 20222022. Interest income was higher during the first half of 2023 primarily as a result of the redemptionpurchase of our Subordinated Debentures duringshort-term investments in the secondfourth quarter of 20212022 and there being no borrowings outstanding under the Credit Agreement in the second quarter of 2022. In addition, we recognized expense of $5.7 million for a redemption premium related to our Subordinated Debentures redeemed duringhigher rates on deposits. During the first half of 2021. We2023, we recognized otheran unrealized gain on short-term investments of $20.8 million. Other income, net, of $3.0 million in the first half of 2022 compared to $1.3 million the first half of 2021. This increase was primarily due to a curtailment gain related to our benefit plans recognized duringconsistent with the first half of 2022.

Our effective tax rate for the first half of 20222023 was 2526 percent compared with 25 percent for the same period last year.  The items impacting the effective tax rate are primarily related to (i) the provision for state income taxes, net of the federal benefit, of $15.0 million and (ii) the effect of foreign tax rates higher than statutory tax rates and other foreign items of $4.6 million.

For the first half of 2022, the items impacting the effective tax rate were primarily related to (i) the provision for state income taxes, net of the federal benefit, of $16.9 million and the effect of foreign tax rates higher than statutory tax rates and other foreign adjustments of $3.4 million.

For the first half of 2021, the items impacting the effective tax rate were primarily related to the provision for state income taxes, net of the federal benefit, of $7.7 million, and(ii) the effect of foreign tax rates higher than statutory tax rates and other foreign adjustments of $3.1$3.4 million.

During the first half of 20222023 and the first half of 2021,2022, we recognizedlosses of $0.3 million and income of $5.0 million and losses of $2.7 million, respectively, on our investments in unconsolidated affiliates.

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Piping Systems Segment

The following table compares summary operating results for the first half of 20222023 and 20212022 for the businesses comprising our Piping Systems segment:

For the Quarter EndedPercent ChangeFor the Six Months EndedPercent Change For the Quarter EndedPercent ChangeFor the Six Months EndedPercent Change
(In thousands)(In thousands)June 25, 2022June 26, 20212022 vs. 2021June 25, 2022June 26, 20212022 vs. 2021(In thousands)July 1, 2023June 25, 20222023 vs. 2022July 1, 2023June 25, 20222023 vs. 2022
Net salesNet sales$824,807 $711,616 15.9 %$1,528,237 $1,259,364 21.3 %Net sales$638,005 $824,807 (22.6)%$1,300,484 $1,528,237 (14.9)%
Operating incomeOperating income211,579 124,508 69.9 372,067 191,606 94.2 Operating income151,142 211,579 (28.6)314,996 372,067 (15.3)
 
The following are components of changes in net sales compared to the prior year:

Quarter-to-
Date
Year-to-
Date
Net selling price in core product lines15.3 %20.1 %
Unit sales volume in core product lines(4.8)(3.1)
Acquisitions1.6 1.7 
Dispositions(0.6)(0.6)
Other4.4 3.2 
 15.9 %21.3 %

The increase in net sales during the second quarter of 2022 was primarily attributable to (i) higher net selling prices in the segment’s core product lines, primarily copper tube, of $107.4 million, (ii) an increase in sales of $28.1 million in the segment’s non-core product lines, and (iii) sales of $11.3 million recorded by MME. These increases were partially offset by (i) lower unit sales volume of $33.7 million primarily in the segment’s non-U.S. core product lines and (ii) a decrease in sales of $4.0 million as a result of the disposition of Die-Mold in the third quarter of 2021.

Net sales during the first half of 2022 increased primarily as a result of (i) higher net selling prices in the segment’s core product lines of $250.4 million, (ii) an increase in sales of $43.3 million in the segment’s non-core product lines, and (iii) sales of $21.6 million recorded by MME. These increases were partially offset by (i) lower unit sales volume of $38.5 million in the segment’s non-U.S. core product lines and (ii) a decrease in sales of $7.9 million as a result of the disposition of Die-Mold in the third quarter of 2021.

The following tables compare cost of goods sold and operating expenses as dollar amounts and as a percent of net sales for the first half of 2022 and 2021:

 For the Quarter EndedFor the Six Months Ended
(In thousands)June 25, 2022June 26, 2021June 25, 2022June 26, 2021
Cost of goods sold$585,090 $558,278 $1,099,277 $1,008,632 
Depreciation and amortization5,930 5,515 11,330 11,725 
Selling, general, and administrative expense22,208 23,315 45,563 47,401 
Operating expenses$613,228 $587,108 $1,156,170 $1,067,758 
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 For the Quarter EndedFor the Six Months Ended
 June 25, 2022June 26, 2021June 25, 2022June 26, 2021
Cost of goods sold70.9 %78.5 %71.9 %80.1 %
Depreciation and amortization0.7 0.8 0.7 0.9 
Selling, general, and administrative expense2.6 3.3 3.0 3.9 
Operating expenses74.2 %82.6 %75.6 %84.9 %

The increase in cost of goods sold during the second quarter of 2022 was primarily due to the increase in the average cost of copper, our principal raw material.  Gross margin as a percentage of sales was 29.1 percent compared with 21.5 percent in the prior year quarter. The increase in gross margin percent reflects effective price management in response to significant inflation in wages, and material, consumable, freight, and distribution costs. Depreciation and amortization increased slightly in the second quarter of 2022 as a result of long-lived assets of MME. Selling, general, and administrative expense decreased for the second quarter of 2022 primarily as a result of (i) higher foreign currency transaction gains of $0.7 million and (ii) lower expenses of $0.3 million associated with businesses disposed. These decreases were partially offset by expenses associated with MME of $0.3 million.

The increase in cost of goods sold during the first half of 2022 was primarily due to the factors noted above regarding the change in net sales.  Gross margin as a percentage of sales was 28.1 percent compared with 19.9 percent in the prior year. Depreciation and amortization decreased slightly in the first half of 2022 primarily as a result of long-lived assets of businesses sold, partially offset by depreciation and amortization of the long-lived assets of MME. Selling, general, and administrative expense decreased for the first half of 2022 primarily as a result of (i) the absence of expenses of $1.3 million associated with the write-off of vendor deposits in the first half of 2021, (ii) lower foreign currency transaction losses of $0.6 million, and (iii) lower expenses of $0.5 million associated with businesses disposed. These decreases were partially offset by expenses associated with MME of $0.6 million.

Industrial Metals Segment

The following table compares summary operating results for the first half of 2022 and 2021 for the businesses comprising our Industrial Metals segment:

 For the Quarter EndedPercent ChangeFor the Six Months EndedPercent Change
(In thousands)June 25, 2022June 26, 20212022 vs. 2021June 25, 2022June 26, 20212022 vs. 2021
Net sales$179,175 $180,040 (0.5)%$353,487 $344,892 2.5 %
Operating income24,168 20,499 17.9 47,427 39,346 20.5 

The following are components of changes in net sales compared to the prior year:

Quarter-to-
Date
Year-to-
Date
Quarter-to-
Date
Year-to-
Date
Net selling price in core product linesNet selling price in core product lines4.4 %7.8 %Net selling price in core product lines(4.8)%(2.8)%
Unit sales volume in core product linesUnit sales volume in core product lines(2.9)(4.8)Unit sales volume in core product lines(14.8)(10.4)
Dispositions(5.8)(5.6)
OtherOther3.8 5.1 Other(3.0)(1.7)
(0.5)%2.5 % (22.6)%(14.9)%

The decrease in net sales during the second quarter of 20222023 was primarily dueattributable to (i) a decrease in sales of $10.5 million as a result of the disposition of Copper Bar in the fourth quarter of 2021 and (ii) lower unit sales volume of $5.2$120.0 million in the segment’s core product lines, primarily brass rodcopper tube and forgings. These decreases were partially offset by (i) higherline sets, (ii) lower net selling
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prices of $7.9 million in the segment’s core product lines of $38.9 million, and (ii) an increase(iii) a decrease in sales of $2.4$21.7 million in the segment’s non-core product lines.

The increase in netNet sales during the first half of 2022 was2023 decreased primarily due to higher net selling pricesas a result of $27.2(i) lower unit sales volume of $156.9 million in the segment’s core product lines, partially offset by (i)(ii) lower net selling prices in the segment’s core product lines of $42.5 million, and (iii) a decrease in sales of $19.5 million as a result of the disposition of Copper Bar in the fourth quarter of 2021 and (ii) lower unit sales volume of $16.8$26.0 million in the segment’s corenon-core product lines.

The following tables compare cost of goods sold and operating expenses as dollar amounts and as a percent of net sales for the first half of 20222023 and 2021:2022:

For the Quarter EndedFor the Six Months Ended For the Quarter EndedFor the Six Months Ended
(In thousands)(In thousands)June 25, 2022June 26, 2021June 25, 2022June 26, 2021(In thousands)July 1, 2023June 25, 2022July 1, 2023June 25, 2022
Cost of goods soldCost of goods sold$150,940 $155,399 $296,650 $296,290 Cost of goods sold$452,866 $585,090 $920,476 $1,099,277 
Depreciation and amortizationDepreciation and amortization1,846 1,694 3,790 3,437 Depreciation and amortization5,252 5,930 10,810 11,330 
Selling, general, and administrative expenseSelling, general, and administrative expense2,221 2,448 5,620 5,819 Selling, general, and administrative expense28,745 22,208 54,202 45,563 
Operating expensesOperating expenses$155,007 $159,541 $306,060 $305,546 Operating expenses$486,863 $613,228 $985,488 $1,156,170 

For the Quarter EndedFor the Six Months Ended For the Quarter EndedFor the Six Months Ended
June 25, 2022June 26, 2021June 25, 2022June 26, 2021 July 1, 2023June 25, 2022July 1, 2023June 25, 2022
Cost of goods soldCost of goods sold84.2 %86.3 %83.9 %85.9 %Cost of goods sold71.0 %70.9 %70.8 %71.9 %
Depreciation and amortizationDepreciation and amortization1.0 0.9 1.1 1.0 Depreciation and amortization0.8 0.7 0.8 0.7 
Selling, general, and administrative expenseSelling, general, and administrative expense1.3 1.4 1.6 1.7 Selling, general, and administrative expense4.5 2.6 4.2 3.0 
Operating expensesOperating expenses86.5 %88.6 %86.6 %88.6 %Operating expenses76.3 %74.2 %75.8 %75.6 %

The decrease in cost of goods sold during the second quarter of 20222023 was primarily due to the decrease in sales volume.  Gross margin as a percentage of sales was 29.0 percent compared with 29.1 percent in the prior year quarter. Depreciation and
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amortization decreased slightly in the second quarter of 2023 primarily as a result of long-lived assets becoming fully depreciated. Selling, general, and administrative expense increased for the second quarter of 2023 primarily as a result of (i) higher foreign currency transaction losses of $2.5 million, (ii) higher employment costs, including incentive compensation and healthcare, of $1.4 million, (iii) higher marketing and advertising costs of $0.7 million, (iv) higher legal and professional fees of $0.3 million, and (v) higher leases and rent of $0.3 million.

The decrease in cost of goods sold during the first half of 2023 was primarily due to the factors noted above regarding the change in net sales.  Gross margin as a percentage of sales was 15.829.2 percent compared with 13.7 percent in the prior year quarter. The increase in gross margin percent reflects effective price management in response to significant inflation in wages, and material, consumable, freight, and distribution costs. Depreciation and amortization and selling, general, and administrative expense were consistent with the second quarter of 2021.

The slight increase in cost of goods sold during the first half of 2022 was primarily due to the factors noted above regarding the change in net sales.  Gross margin as a percentage of sales was 16.1 percent compared with 14.128.1 percent in the prior year. Depreciation and amortization decreased slightly in the first half of 2023 primarily as a result of depreciation and selling,amortization of the long-lived assets becoming fully depreciated. Selling, general, and administrative expense were consistent withincreased for the first half of 2021.2023 primarily as a result of (i) higher foreign currency transaction losses of $3.0 million, (ii) higher employment costs, including incentive compensation and healthcare, of $1.9 million, (iii) higher marketing and advertising costs of $1.2 million, (iv) higher product liability expense of $0.7 million, (v) higher legal and professional fees of $0.6 million, and (vi) higher lease and rent expense of $0.4 million.

ClimateIndustrial Metals Segment

The following table compares summary operating results for the first half of 20222023 and 20212022 for the businesses comprising our ClimateIndustrial Metals segment:

For the Quarter EndedPercent ChangeFor the Six Months EndedPercent Change For the Quarter EndedPercent ChangeFor the Six Months EndedPercent Change
(In thousands)(In thousands)June 25, 2022June 26, 20212022 vs. 2021June 25, 2022June 26, 20212022 vs. 2021(In thousands)July 1, 2023June 25, 20222023 vs. 2022July 1, 2023June 25, 20222023 vs. 2022
Net salesNet sales$164,484 $131,708 24.9 %$305,106 $242,734 25.7 %Net sales$146,266 $179,175 (18.4)%$311,500 $353,487 (11.9)%
Operating incomeOperating income50,747 25,372 100.0 87,447 42,707 104.8 Operating income17,971 24,168 (25.6)45,186 47,427 (4.7)

Sales forThe following are components of changes in net sales compared to the prior year:

Quarter-to-
Date
Year-to-
Date
Net selling price in core product lines(7.7)%(5.4)%
Unit sales volume in core product lines(9.0)(5.2)
Other(1.7)(1.3)
 (18.4)%(11.9)%

The decrease in net sales during the second quarter of 2022 increased2023 was primarily as a resultdue to (i) lower unit sales volume of strong demand$15.8 million in the segment’s core product lines, primarily brass rod, and an increase(ii) lower net selling prices of $13.5 million in price in certainthe segment’s core product lines.  These increases were partially offset by a

The decrease in net sales of $16.5 million as a result of the dispositions of FTP and STI during the third quarterfirst half of 2021.2023 was primarily due to (i) lower net selling prices of $18.6 million in the segment’s core product lines and (ii) lower unit sales volume of $17.8 million in the segment’s core product lines.

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Sales for the first half of 2022 increased primarily as a result of a increase in volume and price in certain product lines, as well as incremental sales of $19.3 million recorded by H&C.  These increases were partially offset by a decrease in sales of $16.9 million as a result of the dispositions of FTP and STI during the third quarter of 2021.

The following tables compare cost of goods sold and operating expenses as dollar amounts and as a percent of net sales for the first half of 20222023 and 2021:2022:

For the Quarter EndedFor the Six Months Ended For the Quarter EndedFor the Six Months Ended
(In thousands)(In thousands)June 25, 2022June 26, 2021June 25, 2022June 26, 2021(In thousands)July 1, 2023June 25, 2022July 1, 2023June 25, 2022
Cost of goods soldCost of goods sold$103,110 $96,303 $197,067 $180,385 Cost of goods sold$123,097 $150,940 $256,267 $296,650 
Depreciation and amortizationDepreciation and amortization2,348 2,753 4,700 5,382 Depreciation and amortization1,804 1,846 3,576 3,790 
Selling, general and administrative expense8,279 7,280 15,892 14,260 
Selling, general, and administrative expenseSelling, general, and administrative expense3,394 2,221 6,471 5,620 
Operating expensesOperating expenses$113,737 $106,336 $217,659 $200,027 Operating expenses$128,295 $155,007 $266,314 $306,060 

For the Quarter EndedFor the Six Months Ended For the Quarter EndedFor the Six Months Ended
June 25, 2022June 26, 2021June 25, 2022June 26, 2021 July 1, 2023June 25, 2022July 1, 2023June 25, 2022
Cost of goods soldCost of goods sold62.7 %73.1 %64.6 %74.3 %Cost of goods sold84.2 %84.2 %82.3 %83.9 %
Depreciation and amortizationDepreciation and amortization1.4 2.1 1.5 2.2 Depreciation and amortization1.2 1.0 1.1 1.1 
Selling, general and administrative expense5.0 5.5 5.1 5.9 
Selling, general, and administrative expenseSelling, general, and administrative expense2.3 1.3 2.1 1.6 
Operating expensesOperating expenses69.1 %80.7 %71.3 %82.4 %Operating expenses87.7 %86.5 %85.5 %86.6 %

CostThe decrease in cost of goods sold increased during the second quarter of 2022, consistent with2023 was primarily due to the increasefactors noted above regarding the change in net sales.  Gross margin as a percentage of sales was 37.315.8 percent, unchanged from the prior year quarter. Depreciation and amortization was consistent with the second quarter of 2022. Selling, general, and administrative expense increased for the second quarter of 2023 primarily as a result of gains on the disposal of assets of $1.3 million recorded in the prior year quarter.

The decrease in cost of goods sold during the first half of 2023 was primarily due to the factors noted above regarding the change in net sales.  Gross margin as a percentage of sales was 17.7 percent compared with 26.916.1 percent in the prior year. Depreciation and amortization decreased slightly as a result of several long-lived assets becoming fully depreciated. Selling, general, and administrative expense increased during the first half of 2023 primarily as a result of gains on the disposal of assets of $1.3 million recorded in the prior year.

Climate Segment

The following table compares summary operating results for the first half of 2023 and 2022 for the businesses comprising our Climate segment:

 For the Quarter EndedPercent ChangeFor the Six Months EndedPercent Change
(In thousands)July 1, 2023June 25, 20222023 vs. 2022July 1, 2023June 25, 20222023 vs. 2022
Net sales$123,954 $164,484 (24.6)%$276,908 $305,106 (9.2)%
Operating income57,067 50,747 12.5 111,055 87,447 27.0 

Sales for the second quarter and first half of 2023 decreased primarily as a result of declining demand and a decrease in volume and price in certain product lines.

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The following tables compare cost of goods sold and operating expenses as dollar amounts and as a percent of net sales for the first half of 2023 and 2022:

 For the Quarter EndedFor the Six Months Ended
(In thousands)July 1, 2023June 25, 2022July 1, 2023June 25, 2022
Cost of goods sold$77,064 $103,110 $165,876 $197,067 
Depreciation and amortization2,202 2,348 4,355 4,700 
Selling, general and administrative expense7,087 8,279 15,088 15,892 
Gain on insurance settlement(19,466)— (19,466)— 
Operating expenses$66,887 $113,737 $165,853 $217,659 

 For the Quarter EndedFor the Six Months Ended
 July 1, 2023June 25, 2022July 1, 2023June 25, 2022
Cost of goods sold62.2 %62.7 %59.9 %64.6 %
Depreciation and��amortization1.8 1.4 1.6 1.5 
Selling, general and administrative expense5.7 5.0 5.4 5.2 
Gain on insurance settlement(15.7)— (7.0)— 
Operating expenses54.0 %69.1 %59.9 %71.3 %

Gross margin as a percentage of sales was 37.8 percent compared with 37.3 percent in the prior year quarter. The increase in gross margin percent reflects effective price management in response to significant inflation in wages, and material, consumable, freight, and distribution costs. Depreciation and amortization decreased by $0.4 million as a resultwas consistent with the second quarter of long-lived assets of businesses sold.2022. Selling, general, and administrative expense increaseddecreased for the second quarter of 2023 primarily due to higher employment costs, including incentive compensation,lower agent commissions of $2.2$1.2 million. These increases were partially offset byIn addition, during the absencesecond quarter of expenses associated with FTP2023, we settled the insurance claim related to the August 2022 fire at our Bluffs, Illinois manufacturing operation and STI of $1.0 million.recognized a $19.5 million gain.

Cost of goods sold increaseddecreased during the first half of 20222023 primarily due to factors noted above regarding the change in net sales.  Gross margin as a percentage of sales was 35.440.1 percent compared with 25.735.4 percent in the prior year. Depreciation and amortization decreased as a resultwas consistent with the first half of long-lived assets of businesses sold.2022. Selling, general, and administrative expense increaseddecreased slightly for the first half of 20222023 primarily as a result of (i) higherlower agent commissions of $1.8$1.4 million. In addition, during the first half of 2023, we settled the insurance claim related to the August 2022 fire at our Bluffs, Illinois manufacturing operation and recognized a $19.5 million (ii) higher employment costs, including incentive compensation, of $0.9 million, and (iii) incremental expenses associated with H&C of $1.0 million. These increases were partially offset by the absence of expenses associated with FTP and STI of $2.1 million.gain.

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Liquidity and Capital Resources

The following table presents selected financial information for the first half of 20222023 and 2021:2022:

(In thousands)(In thousands)20222021(In thousands)20232022
Increase (decrease) in:Increase (decrease) in:  Increase (decrease) in:  
Cash, cash equivalents, and restricted cashCash, cash equivalents, and restricted cash$126,939 $(1,654)Cash, cash equivalents, and restricted cash$308,085 $126,939 
Short-term investmentsShort-term investments(90,812)— 
Property, plant, and equipment, netProperty, plant, and equipment, net2,577 8,674 Property, plant, and equipment, net6,978 2,577 
Total debtTotal debt368 29,548 Total debt(92)368 
Working capital, net of cash and current debtWorking capital, net of cash and current debt166,145 207,387 Working capital, net of cash and current debt10,390 166,145 
Net cash provided by operating activitiesNet cash provided by operating activities204,534 9,280 Net cash provided by operating activities250,830 204,534 
Net cash used in investing activities(14,078)(21,644)
Net cash (used in) provided by financing activities(61,283)9,723 
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities107,996 (14,078)
Net cash used in financing activitiesNet cash used in financing activities(55,566)(61,283)

Cash Flows from Operating Activities

During the six months ended July 1, 2023, net cash provided by operating activities was primarily attributable to consolidated net income of $354.6 million. There were also increases due to non-cash adjustments primarily consisting of (i) depreciation and amortization of $21.3 million and (ii) stock-based compensation expense of $12.5 million, as well as (iii) non-capital related insurance proceeds of $9.9 million for the August 2022 fire in Bluffs, Illinois. These increases were largely offset by (i) an increase in accounts receivable of $77.7 million, (ii) the unrealized gain on short-term investments of $20.8 million, (iii) the gain related to the settlement of the insurance claim for the August 2022 fire in Bluffs, Illinois of $19.5 million, (iv) a decrease in current liabilities of $14.5 million, (v) an increase in inventories of $12.1 million, and (vi) an increase in other assets of $5.6 million.

During the six months ended June 25, 2022, net cash provided by operating activities was primarily attributable to (i) consolidated net income of $366.8 million, (ii) an increase in current liabilities of $28.9 million, (iii) depreciation and amortization of $22.3 million, and (iv) stock-based compensation expense of $5.2 million. These increases were largely offset by (i) an increase in accounts receivable of $146.4 million, (ii) an increase in inventories of $49.4 million, (iii) thea gain of $6.8 million recognized on the sale of a building, (iv) an increase in other assets of $6.1 million, and (v) equity in earnings of unconsolidated affiliates of $5.0 million.

During the six months ended June 26, 2021, net cash provided by operating activities was primarily attributable to (i) consolidated net income of $176.2 million, (ii) an increase in current liabilities of $50.5 million, (iii) depreciation and amortization of $23.0 million, (iv) the redemption premium of $5.7 million related to our Subordinated Debentures, and (v) stock-based compensation expense of $4.8 million. These increases were largely offset by (i) an increase in accounts receivable of $190.9 million and (ii) an increase in inventories of $63.9 million. The fluctuations of accounts receivable, inventories, and current liabilities were primarily due to increased sales volume in certain businesses and higher material costs during the first half of 2021.

Cash Flows from Investing Activities

The major components of net cash provided by investing activities during the six months ended July 1, 2023 included (i) proceeds from the maturity of short-term investments of $217.9 million and (ii) insurance proceeds of $24.6 million for property and equipment related to the fire at our Bluffs, Illinois and the tornado at our Covington, Tennessee manufacturing operations. These sources were partially offset by (i) the purchase of short-term investments of $106.2 million and (ii) capital expenditures of $29.2 million.

The major component of net cash used in investing activities during the six months ended June 25, 2022 included capital expenditures of $23.2 million. This use was partially offset by proceeds from the sale of properties of $7.6 million.

The major components ofCash Flows from Financing Activities

For the six months ended July 1, 2023, net cash used in investingfinancing activities duringconsisted primarily of (i) $33.4 million used for the six months ended June 26, 2021 included (i) capital expenditurespayment of $18.0regular quarterly dividends to stockholders of the Company, (ii) $19.3 million used to repurchase common stock, and (ii) $13.9$2.6 million for the purchase of H&C, net of cash acquired. These uses were partially offset by (i) payments received on notes receivable of $8.5 million and (ii) proceeds from the sale of properties of $1.7 million.

Cash Flows from Financing Activitiesused to settle stock-based awards.

For the six months ended June 25, 2022, net cash used in financing activities consisted primarily of (i) $33.5 million used to repurchase common stock and (ii) $28.0 million used for the payment of regular quarterly dividends to stockholders of the Compny.Company.

For the six months ended June 26, 2021, net cash provided by financing activities consisted of the issuance of debt under our Credit Agreement of $425.0 million. This source was largely offset by (i) $290.2 million used for the redemption of the Subordinated Debentures, (ii) $110.0 million used to reduce the debt outstanding under our Credit Agreement, and (iii) $14.5 million used for the payment of regular quarterly dividends to stockholders of the Company.
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Liquidity and Outlook

We believe that cash provided by operations, funds available under the Credit Agreement, and cash on hand will be adequate to meet our liquidity needs, including working capital, capital expenditures, and debt payment obligations.
35



As of June 25, 2022,July 1, 2023, we had $202.5$898.4 million of cash and short-term investments on hand and $367.4$371.1 million available to be drawn under the Credit Agreement. Our current ratio was 3.25.4 to 1.

We have significant environmental remediation obligations which we expect to pay over future years.  Cash used for environmental remediation activities was approximately $6.5$0.4 million during the first half of 2022, which included a $5.6 million settlement related to the Southeast Kansas Sites.2023.  We expect to spend approximately $5.2$4.7 million over the next twelve months for ongoing environmental remediation activities.

The Company declared a quarterly cash dividend of 30.0 cents per common share during the first and second quarters of 2023 and 25.0 cents per common share during the first and second quarters of 2022, and 13.0 cents per common share during the first and second quarters of 2021, respectively.  Payment of dividends in the future is dependent upon our financial condition, cash flows, capital requirements, earnings, and other factors.  

Long-Term Debt

As of June 25, 2022,July 1, 2023, the Company’s total debt was $2.2$1.9 million or 0.1 percent of its total capitalization.

The Company’s Credit Agreement provides for an unsecured $400.0 million revolving credit facility, which matures March 31, 2026.  There were no borrowings outstanding under the Credit Agreement as of June 25, 2022.July 1, 2023. The Credit Agreement backed approximately $32.6$28.9 million in letters of credit at the end of the second quarter of 2022.2023.  

Covenants contained in the Company’s financing obligations require, among other things, the maintenance of minimum levels of tangible net worth and the satisfaction of certain minimum financial ratios.  As of June 25, 2022,July 1, 2023, the Company was in compliance with all of its debt covenants.

Share Repurchase Program

The Board of Directors has extended, until July 2022,2023, the authorization to repurchase up to 20 million shares of the Company’s common stock through open market transactions or through privately negotiated transactions.  We may cancel, suspend, or extend the time period for the repurchase of shares at any time.  Any repurchases will be funded primarily through existing cash and cash from operations.  We may hold any shares repurchased in treasury or use a portion of the repurchased shares for our stock-based compensation plans, as well as for other corporate purposes.  From its initial authorization in 1999 through June 25, 2022,July 1, 2023, the Company has repurchased approximately 7.2 7.5 million shares under this authorization.  

Contractual Cash Obligations

There have been no significant changes in our contractual cash obligations reported at December 25, 2021.31, 2022.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk from changes in raw material and energy costs, interest rates, and foreign currency exchange rates.  To reduce such risks, we may periodically use financial instruments.  Hedging transactions are authorized and executed pursuant to policies and procedures.  Further, we do not buy or sell financial instruments for trading purposes.

Cost and Availability of Raw Materials and Energy

Raw materials, primarily 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 our control.  Significant increases in the cost of metal, to the extent not reflected in prices for our finished products, or the lack of availability could materially and adversely affect our business, results of operations, and financial condition.

The Company occasionally enters into future fixed-price arrangements with certain customers.  We may utilize futures contracts to hedge risks associated with these forward fixed-price arrangements.  We may also utilize futures contracts to manage price risk associated with inventory.  Depending on the nature of the hedge, changes in the fair value of the futures contracts will either be offset against the change in fair value of the inventory through earnings or recognized as a component of accumulated other comprehensive income (AOCI) in equity and reflected in earnings upon the sale of inventory.  Periodic value fluctuations
35


of the contracts generally offset the value fluctuations of the underlying fixed-price transactions or inventory.  At June 25, 2022,July 1, 2023, we held open futures contracts to purchase approximately $90.5$24.7 million of copper over the next 15nine months related to fixed-price sales orders and to sell approximately $27.0$0.5 million of copper over the next nine11 months related to copper inventory.
36



We may enter into futures contracts or forward fixed-price arrangements with certain vendors to manage price risk associated with natural gas purchases.  The effective portion of gains and losses with respect to these positions are deferred in equity as a component of AOCI and reflected in earnings upon consumption of natural gas.  Periodic value fluctuations of the futures contracts generally offset the value fluctuations of the underlying natural gas prices.  As of June 25, 2022,July 1, 2023, we held no open futures contracts to purchase natural gas.

Interest Rates

At June 25, 2022,July 1, 2023, we had no variable-rate debt outstanding.  At this borrowing level, a hypothetical 10 percent increase in interest rates would have had an insignificant unfavorable impact on our pretax earnings and cash flows.  The primary interest rate exposure on variable-rate debt is based on the Secured Overnight Financing Rate (SOFR).  

Foreign Currency Exchange Rates

Foreign currency exposures arising from transactions include firm commitments and anticipated transactions denominated in a currency other than an entity’s functional currency.  The Company and its subsidiaries generally enter into transactions denominated in their respective functional currencies.  We may utilize certain futures or forward contracts with financial institutions to hedge foreign currency transactional exposures.  Gains and losses with respect to these positions are deferred in equity as a component of AOCI and reflected in earnings upon collection of receivables or payment of commitments.  At June 25, 2022,July 1, 2023, we had open forward contracts with a financial institution to sell approximately 7.44.3 million euros, 20.032.6 million Swedish kronor, and 14.38.5 million Norwegian kroner through October 2022.2023.  

The Company’s primary foreign currency exposure arises from foreign-denominated revenues and profits and their translation into U.S. dollars.  The primary currencies to which we are exposed include the Canadian dollar, the British pound sterling, the Mexican peso, the South Korean won, and the Bahraini dinar.  The Company generally views its investments in foreign subsidiaries with a functional currency other than the U.S. dollar as long-term.  As a result, we generally do not hedge these net investments.

Cautionary Statement Regarding Forward Looking Information

This Quarterly Report contains various forward-looking statements and includes assumptions concerning the Company’s operations, future results, and prospects.  These forward-looking statements are based on current expectations and are subject to risk and uncertainties, and may be influenced by factors that could cause actual outcomes and results to be materially different from those predicted.  The forward-looking statements reflect knowledge and information available as of the date of preparation of the Quarterly Report, and the Company undertakes no obligation to update these forward-looking statements.  We identify the forward-looking statements by using the words “anticipates,” “believes,” “expects,” “intends” or similar expressions in such statements.

In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statement identifying important economic, political, and technological factors, among others, which could cause actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.  In addition to those factors discussed under “Risk Factors” in the Annual Report on Form 10-K for the year ended December 25, 2021,31, 2022, such factors include: (i) the current and projected future business environment, including interest rates capital and consumer spending, and the impact of the COVID-19 pandemic; (ii) the domestic housing and commercial construction industry environment; (iii) availability and price fluctuations in commodities (including copper, natural gas, and other raw materials, including crude oil that indirectly affects plastic resins); (iv) competitive factors and competitor responses to the Company’s initiatives; (v) stability of government laws and regulations, including taxes; (vi) availability of financing; and (vii) continuation of the environment to make acquisitions, domestic and foreign, including regulatory requirements and market values of candidates.

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Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure information required to be disclosed in Company reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(e) of the Exchange Act as of June 25, 2022.July 1, 2023.  Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective as of June 25, 2022July 1, 2023 to ensure that information required to be disclosed in Company reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ending June 25, 2022,July 1, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.  OTHER INFORMATION
 
Item 1.  Legal Proceedings

General

The Company is involved in certain litigation as a result of claims that arose in the ordinary course of business.  Additionally, the Company may realize the benefit of certain legal claims and litigation in the future; these gain contingencies are not recognized in the Condensed Consolidated Financial Statements. For a description of material pending legal proceedings, see “Note 109 - Commitments and Contingencies” in the Notes to the Condensed Consolidated Financial Statements, which is incorporated herein by reference.

Item 1A.  Risk Factors

The Company is exposed to risk as it operates its businesses.  To provide a framework to understand the operating environment of the Company, we have provided a brief explanation of the more significant risks associated with our businesses in our 20212022 Annual Report on Form 10-K.  There have been no material changes in risk factors that were previously disclosed in our 20212022 Annual Report on Form 10-K. Additionally, the operating results of the Company’s unconsolidated affiliates may be adversely affected by unfavorable economic and market conditions.

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

Issuer Purchases of Equity Securities

The Company’s Board of Directors has extended, until July 2022,2023, the authorization to repurchase up to 20 million shares of the Company’s common stock through open market transactions or through privately negotiated transactions.  The Company may cancel, suspend, or extend the time period for the repurchase of shares at any time.  Any repurchases will be funded primarily through existing cash and cash from operations.  The Company may hold any shares repurchased in treasury or use a portion of the repurchased shares for its stock-based compensation plans, as well as for other corporate purposes.  From its initial authorization in 1999 through June 25, 2022,July 1, 2023, the Company had repurchased approximately 6.67.5 million shares under this authorization.  Below is a summary of the Company’s stock repurchases for the period ended June 25, 2022.July 1, 2023.

(a)
Total Number
of Shares Purchased (1)
(b)
Average Price Paid per Share
(c)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(d)
Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (2)
March 27, 2022 - April 23, 2022341,129 $53.67 341,129 13,065,342 
April 24, 2022 - May 21, 202223,502 $53.07 400 13,064,942 
May 22, 2022 - June 25, 2022216,736 $51.53 216,736 12,848,206 
Total581,367 558,265 
(a)
Total Number
of Shares Purchased (1)
(b)
Average Price Paid per Share
(c)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(d)
Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (2)
April 2 - April 29, 20231,641 $63.80 — 12,759,795 
April 30 - May 27, 2023269,263 $74.95 257,891 12,501,904 
May 28 - July 1, 2023185 $83.57 — 12,501,904 
Total271,089 257,891 
(1) Includes shares tendered to the Company by holders of stock-based awards in payment of the purchase price and/or withholding taxes upon exercise and/or vesting. Also includes shares resulting from restricted stock forfeitures at the average cost of treasury stock.
(2) Shares available to be purchased under the Company’s 20 million share repurchase authorization until July 2022.2023. The extension of the authorization was announced on October 20, 2021.19, 2022.

Item 5.  Other Information

On May 8, 2023, Steffen Sigloch, Chief Manufacturing Officer, entered into a 10b5-1 sales plan (the Sales Plan) intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. The Sales Plan provides for the sale of up to an aggregate of 83,703 shares of the Company’s common stock beneficially owned by Mr. Sigloch during the term of the Sales Plan and will be in effect until the earlier of (1) February 7, 2025 and (2) the date on which an aggregate of 83,703 shares of the Company’s common stock have been sold under the Sales Plan.
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Item 6.  Exhibits
10.1
31.1
  
31.2
  
32.1
  
32.2
  
101.CALInline XBRL Taxonomy Extension Calculation Linkbase
  
101.DEFInline XBRL Taxonomy Extension Definition Linkbase 
  
101.INSInline XBRL Instance Document
  
101.LABInline XBRL Taxonomy Extension Label Linkbase 
  
101.PREInline XBRL Presentation Linkbase Document
  
101.SCHInline XBRL Taxonomy Extension Schema 
104Cover Page Interactive Data File (embedded within the Inline XBRL document and included in exhibit 101)

Items 3 4, and 54 are not applicable and have been omitted.
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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 MUELLER INDUSTRIES, INC.
  
  
 
/s/ Jeffrey A. Martin                             
 Jeffrey A. Martin
July 20, 202226, 2023Chief Financial Officer and Treasurer
Date(Principal Financial and Accounting Officer)
  
  
 /s/ Anthony J. Steinriede
July 20, 202226, 2023Anthony J. Steinriede
DateVice President – Corporate Controller
  





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