2013
ANNUAL REPORT
8285 TOURNAMENT DRIVE, SUITE 150 • MEMPHIS, TN 38125
wwww.muellerindustries.com
5-YEAR REVIEW
(Dollars in thousands except per share data)
2013
2012
2011
2010
2009
SUMMARY OF OPERATIONS
Net sales
Operating income
Net income
Diluted earnings per share
Dividends per share
SIGNIFICANT YEAR-END DATA
Cash and cash equivalents
Ratio of current assets to current liabilities
Book value per share
$ 2,158,541
270,937
$
172,600
$
6.11
$
0.50
$
$ 2,189,938
126,705
$
82,395
$
2.31
$
0.425
$
$ 2,417,797
139,802
$
86,321
$
2.26
$
0.40
$
$ 2,059,797
136,147
$
86,171
$
2.28
$
0.40
$
$ 1,547,225
32,220
$
4,675
$
0.12
$
0.40
$
$
$
311,800
4.0 to 1
24.85
$
$
198,934
2.9 to 1
18.04
$
$
514,162
4.8 to 1
22.38
$
$
394,139
4.7 to 1
20.84
$
$
346,001
4.4 to 1
18.94
BOARD OF DIRECTORS
EXECUTIVE LEADERSHIP TEAM
Gary S. Gladstein
Chairman of the Board,
Mueller Industries, Inc.
Independent Investor & Consultant
Gregory L. Christopher
Chief Executive Officer
Mueller Industries, Inc.
Paul J. Flaherty
Advisory Board Member,
AON Risk Services, Inc.
Gennaro J. Fulvio
Member,
Fulvio & Associates, LLP
Scott J. Goldman
CEO and Co-Founder,
TextPower, Inc.
Terry Hermanson
President,
Mr. Christmas Incorporated
Harvey L. Karp
Chairman Emeritus,
Mueller Industries, Inc.
Gregory L. Christopher
Chief Executive Officer
Daniel R. Corbin
Vice President,
Corporate Manufacturing Engineering
John B. Hansen
Executive Vice President
Jeffrey A. Martin
Chief Financial Officer
and Treasurer
Mark Millerchip
Executive Director,
European Operations
Nicholas W. Moss
President,
Retail Business
Douglas J. Murdock
President,
Fabricated Products
Steffen Sigloch
President,
Extruded Products
Gary C. Wilkerson
Vice President,
General Counsel and Secretary
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 2013
Commission file number 1–6770
MUELLER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
8285 Tournament Drive, Suite 150
Memphis, Tennessee
(Address of principal executive offices)
25-0790410
(I.R.S. Employer
Identification No.)
38125
(Zip Code)
Registrant’s telephone number, including area code: (901) 753-3200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, $0.01 Par Value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:2)
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:3)
No (cid:3)
No (cid:2)
Indicate by a 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 (cid:2)
No (cid:3)
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be
submitted and posted 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 and post such files). Yes (cid:2)
No (cid:3)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. (cid:3)
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:2)
Non-accelerated filer (cid:3)
Accelerated filer (cid:3)
Smaller reporting company (cid:3)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:3)
No (cid:2)
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal
quarter was $1,409,029,613.
The number of shares of the Registrant’s common stock outstanding as of February 24, 2014 was 28,334,746 excluding 11,756,756 treasury shares.
Portions of the following document are incorporated by reference into this Report: Registrant’s Definitive Proxy Statement for the 2014 Annual Meeting of
Stockholders, scheduled to be mailed on or about March 19, 2014 (Part III).
DOCUMENTS INCORPORATED BY REFERENCE
MUELLER INDUSTRIES, INC.
_____________________
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.
____________________
TABLE OF CONTENTS
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
Signatures
Index to Consolidated Financial Statements
Page
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14
16
17
20
20
21
21
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24
25
25
25
26
29
F-1
2
ITEM 1.
BUSINESS
Introduction
PART I
The Company is a leading manufacturer of copper, brass, aluminum, and plastic products. The range of these
products is broad: copper tube and fittings; brass and copper alloy rod, bar, and shapes; aluminum and brass forgings;
aluminum and copper impact extrusions; plastic pipe, fittings and valves; refrigeration valves and fittings; fabricated
tubular products; and steel nipples. The Company also resells imported brass and plastic plumbing valves, malleable
iron fittings, faucets and plumbing specialty products. Mueller’s operations are located throughout the United States
and in Canada, Mexico, Great Britain, and China.
The Company’s businesses are aggregated into two reportable segments: the Plumbing & Refrigeration
segment and the Original Equipment Manufacturers (OEM) segment. For disclosure purposes, as permitted under
Accounting Standards Codification (ASC) 280, Segment Reporting, certain operating segments are aggregated into
reportable segments. The Plumbing & Refrigeration segment is composed of Standard Products (SPD), European
Operations, and Mexican Operations. The OEM segment is composed of Industrial Products (IPD), Engineered
Products (EPD), and Jiangsu Mueller–Xingrong Copper Industries Limited (Mueller-Xingrong), the Company’s
Chinese joint venture. Certain administrative expenses and expenses related primarily to retiree benefits at inactive
operations are combined into the Corporate and Eliminations classification. These reportable segments are described
in more detail below.
SPD manufactures and sells copper tube, copper and plastic fittings, line sets, plastic pipe, and valves in
North America and sources products for import distribution in North America. European Operations manufacture
copper tube in Europe, which is sold in Europe and the Middle East; activities also include import distribution in the
U.K. and Ireland. Mexican Operations consist of pipe nipple manufacturing and import distribution businesses
including product lines of malleable iron fittings and other plumbing specialties. The Plumbing & Refrigeration
segment sells products to wholesalers in the heating, ventilation, and air-conditioning (HVAC), plumbing, and
refrigeration markets, to distributors to the manufactured housing and recreational vehicle industries, and to building
material retailers.
The OEM segment manufactures and sells brass and copper alloy rod, bar, and shapes; aluminum and brass
forgings; aluminum and copper impact extrusions; refrigeration valves and fittings; fabricated tubular products; and
gas valves and assemblies. Mueller-Xingrong manufactures engineered copper tube primarily for air-conditioning
applications; these products are sold primarily to OEMs located in China. The OEM segment sells its products
primarily to original equipment manufacturers, many of which are in the HVAC, plumbing, and refrigeration markets.
New housing starts and commercial construction are important determinants of the Company’s sales to the
HVAC, refrigeration, and plumbing markets because the principal end use of a significant portion of the Company’s
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.
Information concerning segments and geographic information appears under “Note 15 - Industry Segments”
in the Notes to Consolidated Financial Statements for the year ended December 28, 2013 in Item 8 of this Report,
which is incorporated herein by reference.
The majority of the Company’s manufacturing facilities operated at significantly below capacity during 2012
and 2013 due to the reduced demand for the Company’s products arising from the general economic conditions in the
U.S. and foreign markets that the Company serves. These conditions have significantly affected the demand for
virtually all of the Company’s core products in recent years.
3
Residential construction activity improved in 2012 and the improvement continued in 2013, but is still at
levels below long-term historical averages. Continued recovery in the near-term is expected, but may be tempered by
continuing high rates of unemployment, tighter lending standards, and rising mortgage rates. According to the U.S.
Census Bureau, actual housing starts in the U.S. were 923 thousand in 2013, which compares to 781 thousand in 2012
and 609 thousand in 2011. While mortgage rates have risen in 2013, they remain at historically low levels, as the
average 30-year fixed mortgage rate was approximately 3.98 percent in 2013 and 3.66 percent in 2012.
The private nonresidential construction sector, which includes offices, industrial, health care and retail
projects, began showing modest improvement in 2012 after declining each year from 2009 to 2011. However, the
pace of the improvement appears to have slowed through the end of 2013. According to the U.S. Census Bureau, at
December 2013, the seasonally adjusted annual rate of private nonresidential value of construction put in place was
$311.3 billion compared to $316.8 billion at December 2012. The actual private nonresidential value of construction
put in place was $296.5 billion in 2013, $297.7 billion in 2012, and $257.5 billion in 2011. The Company expects
that most of these conditions will gradually improve, but at an irregular pace.
The Company is a Delaware corporation incorporated on October 3, 1990.
Plumbing & Refrigeration Segment
The Company’s Plumbing & Refrigeration segment includes SPD, which manufactures a broad line of
copper tube, in sizes ranging from 1/8 inch to 8 inch diameter, which are sold in various straight lengths and coils. The
Company is a market leader in the air-conditioning and refrigeration service tube markets. Additionally, the Company
supplies a variety of water tube in straight lengths and coils used for plumbing applications in virtually every type of
construction project. SPD also manufactures copper and plastic fittings, line sets, and related components for the
plumbing and heating industry that are used in water distribution systems, heating systems, air-conditioning, and
refrigeration applications, and drainage, waste, and vent systems. A major portion of SPD’s products are ultimately
used in the domestic residential and commercial construction markets.
The Plumbing & Refrigeration segment also fabricates steel pipe nipples and resells imported brass and
plastic plumbing valves, malleable iron fittings, faucets, and plumbing specialty products to plumbing wholesalers,
distributors to the manufactured housing and recreational vehicle industries and building materials retailers.
On August 6, 2010, the Company expanded its existing line sets business by purchasing certain assets from
Linesets, Inc., a manufacturer of assembled line sets with operations in Phoenix, Arizona and Atlanta, Georgia.
On October 17, 2013, the Company closed on the acquisition of Howell Metal Company (Howell), and on
October 18, 2013 entered into a definitive agreement to acquire KME Yorkshire Limited (Yorkshire), which received
regulatory approval in the United Kingdom on February 11, 2014. Howell manufactures copper tube and line sets for
U.S. distribution while Yorkshire produces European standard copper distribution tubes.
The Plumbing & Refrigeration segment markets primarily through its own sales and distribution
organization, which maintains sales offices and distribution centers throughout the United States and in Canada,
Mexico, and Europe. Additionally, products are sold and marketed through a network of agents, which, when
combined with the Company’s sales organization, provide the Company broad geographic market representation.
These businesses are highly competitive. The principal methods of competition for the Company’s products
are customer service, availability, and price. The total amount of order backlog for the Plumbing & Refrigeration
segment as of December 28, 2013 was not significant.
The Company competes with various companies, depending on the product line. In the U.S. copper tube
business, the domestic competition includes Cerro Flow Products, Inc., Cambridge-Lee Industries LLC (a subsidiary
of Industrias Unidas S.A. de C.V.), and KobeWieland Copper Products LLC, as well as many actual and potential
foreign competitors. In the European copper tube business, Mueller competes with several European-based
manufacturers of copper tube as well as other foreign-based manufacturers. In the copper fittings market, domestic
competitors include Elkhart Products Company (a subsidiary of Aalberts Industries N.V.) and NIBCO, Inc., as well as
4
several foreign manufacturers. Additionally, the Company’s copper tube and fittings businesses compete with a large
number of manufacturers of substitute products made from other metals and plastic. The plastic fittings competitors
include NIBCO, Inc., Charlotte Pipe & Foundry, and other companies. Management believes that no single
competitor offers such a wide-ranging product line as Mueller and that this is a competitive advantage in some
markets.
OEM Segment
The Company’s OEM segment includes IPD, which manufactures brass rod, nonferrous forgings, and impact
extrusions that are sold primarily to OEMs in the plumbing, refrigeration, fluid power, and automotive industries, as
well as to other manufacturers and distributors. The Company extrudes brass, bronze, and copper alloy rod in sizes
ranging from 3/8 inches to 4 inches in diameter. These alloys are used in applications that require a high degree of
machinability, wear and corrosion resistance, as well as electrical conductivity. IPD also manufactures brass and
aluminum forgings, which are used in a wide variety of products, including automotive components, brass fittings,
industrial machinery, valve bodies, gear blanks, and computer hardware. IPD also serves the automotive, military
ordnance, aerospace, and general manufacturing industries with cold-formed aluminum and copper impact
extrusions. Typical applications for impacts are high strength ordnance, high-conductivity electrical components,
builders’ hardware, hydraulic systems, automotive parts, and other uses where toughness must be combined with
varying complexities of design and finish. The OEM segment also includes EPD, which manufactures and fabricates
valves and custom OEM products for refrigeration and air-conditioning, gas appliance, and barbecue grill
applications. Additionally EPD manufactures shaped and formed tube, produced to tight tolerances, for baseboard
heating, appliances, and medical instruments. The total amount of order backlog for the OEM segment as of
December 28, 2013 was not significant.
On December 28, 2010, the Company purchased certain assets from Tube Forming, L.P. (TFI). TFI had
operations in Carrollton, Texas, and Guadalupe, Mexico, where it produced precision copper return bends and
crossovers, and custom-made tube components and brazed assemblies, including manifolds and headers.
On August 16, 2012, the Company acquired 100 percent of the outstanding stock of Westermeyer Industries,
Inc. (Westermeyer), located in Bluffs, Illinois. Westermeyer designs, manufactures, and distributes high-pressure
components and accessories for the air-conditioning and refrigeration markets. The acquisition of Westermeyer
complements the Company’s existing refrigeration business.
IPD and EPD primarily sell directly to OEM customers. Competitors, primarily in the brass rod market,
include Chase Brass and Copper Company, a subsidiary of Global Brass and Copper Holdings, Inc., and others both
domestic and foreign. Outside of North America, IPD and EPD sell products through various channels.
Labor Relations
At December 28, 2013, the Company employed approximately 3,925 employees, of which approximately
2,010 were represented by various unions. Those union contracts will expire as follows:
Location
Port Huron, Michigan (Local 218 IAM)
Port Huron, Michigan (Local 44 UAW)
Belding, Michigan
Wynne, Arkansas
Fulton, Mississippi
North Wales, Pennsylvania
Waynesboro, Tennessee
Expiration Date
May 1, 2016
July 20, 2016
September 12, 2015
June 28, 2015
October 31, 2017
July 31, 2015
November 7, 2015
The union agreements at the Company’s U.K. and Mexico operations are renewed annually. The Company
expects to renew its union contracts without material disruption of its operations.
5
Raw Material and Energy Availability
The major portion of Mueller’s base metal requirements (primarily copper) is normally obtained through
short-term supply contracts with competitive pricing provisions (for cathode) and the open market (for scrap). Other
raw materials used in the production of brass, including brass scrap, zinc, tin, and lead, are obtained from zinc and lead
producers, open-market dealers, and customers with brass process scrap. Raw materials used in the fabrication of
aluminum and plastic products are purchased in the open market from major producers.
Adequate supplies of raw material have historically been available to the Company from primary producers,
metal brokers, and scrap dealers. Sufficient energy in the form of natural gas, fuel oils, and electricity is available to
operate the Company’s production facilities. While temporary shortages of raw material and fuels may occur
occasionally, to date they have not materially hampered the Company’s operations.
During recent years, an increasing demand for copper and copper alloy primarily from China had an effect on
the global usage of such commodities. The increased demand for copper (cathode and scrap) and copper alloy
products from the export market, from time-to-time may cause a tightening in the domestic raw materials
market. Mueller’s copper tube facilities can accommodate both refined copper and certain grades of copper scrap as
the primary feedstock. The Company has commitments from refined copper producers for a portion of its metal
requirements for 2014. Adequate quantities of copper are currently available. While the Company will continue to
react to market developments, resulting pricing volatility or supply disruptions, if any, could nonetheless adversely
affect the Company.
Environmental Proceedings
Compliance with environmental laws and regulations is a matter of high priority for the Company. Mueller’s
provision for environmental matters related to all properties was $1.0 million for 2013, $3.1 million for 2012, and $0.4
million for 2011. The reserve for environmental matters was $23.6 million at December 28, 2013 and $24.6 million at
December 29, 2012. Environmental costs related to non-operating properties are classified as a component of other
income, net and costs related to operating properties are included in cost of goods sold. The Company does not
anticipate that it will need to make material expenditures for compliance activities related to existing environmental
matters during the remainder of the 2014 fiscal year, or for the next two fiscal years.
Non-operating Properties
Southeast Kansas Sites
The Kansas Department of Health and Environment (KDHE) has contacted the Company regarding
environmental contamination at three former smelter sites in Kansas (Altoona, Iola and East La Harpe). While the
Company believes that legally it is not a successor to the companies that operated these smelter sites, it is discussing
possible settlement with KDHE and other potentially responsible parties (PRP) in order to avoid litigation. In 2008,
the Company established a reserve of $9.5 million for this matter. Another PRP has conducted a site investigation of
the Altoona site under a consent decree with KDHE. The Company and two other PRPs have conducted a site study
evaluation of the East La Harpe site under KDHE supervision, and are now discussing sharing the costs of a possible
cleanup. Federal Environmental Protection Agency (EPA) is in the early stages of study and remediation of the Iola
site, which it added to the National Priority List (NPL) in May, 2013 as the “Former United Zinc & Associated
Smelters” site.
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 sealing mine portals with
concrete plugs in mine adits, which 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 Order issued by the QCB,
MRRC completed a feasibility study in 1997 describing measures designed to mitigate the effects of acid rock
6
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. That order 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 ten-year permit will include an order
requiring continued implementation of BMP through 2025 to address residual discharges of acid rock drainage. At
this site, MRRC spent approximately $1.7 million from 2011 through 2013 and estimates that it will spend between
approximately $10.0 million and $13.6 million over the next 20 years.
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 and studies (collectively, Site Activities) at Lead
Refinery’s East Chicago, Indiana site pursuant to the Resource Conservation and Recovery Act. Site Activities,
which began in December 1996, have been substantially concluded. Lead Refinery is required to perform monitoring
and maintenance activities with respect to Site Activities pursuant to a post-closure permit issued by the Indiana
Department of Environmental Management (IDEM) effective as of March 2, 2013. Lead Refinery spent
approximately $0.1 million annually in 2013, 2012, and 2011 with respect to this site. Approximate costs to comply
with the post-closure permit, including associated general and administrative costs, are between $2.1 million and $2.9
million over the next 20 years.
On April 9, 2009, pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA), the EPA added the Lead Refinery site, and properties adjacent to the Lead Refinery site, to the NPL. The
NPL is a list of priority sites where the EPA has determined that there has been a release or threatened release of
hazardous substances that warrant investigation and, if appropriate, remedial action. The NPL does not assign
liability to any party including the owner or operator of a property placed on the NPL. The placement of a site on the
NPL does not necessarily mean that remedial action must be taken. On July 17, 2009, Lead Refinery received a
written notice from the EPA that the agency is of the view that Lead Refinery may be a PRP under CERCLA in
connection with the release or threaten of release of hazardous substances including lead into properties located
adjacent to the Lead Refinery site. There are at least two other PRPs. PRPs under CERCLA include current and
former owners and operators of a site, persons who arranged for disposal or treatment of hazardous substances at a site,
or persons who accepted hazardous substances for transport to a site. In November 2012, the EPA adopted a remedy
in connection with properties located adjacent to the Lead Refinery site. The EPA has estimated that the cost to
implement the November 2012 remedy will be $30.0 million.
The Company monitors EPA releases and periodically communicates with the EPA to inquire of the status of
the investigation and cleanup of the Lead Refinery site. As of December 28, 2013, the EPA has not conducted an
investigation of the Lead Refinery site, proposed remedies for the Lead Refinery site, or informed Lead Refinery that
it is a PRP at the Lead Refinery site. Until the extent of remedial action is determined for the Lead Refinery site, the
Company is unable to determine the likelihood of a material adverse outcome or the amount or range of a potential loss
with respect to placement of the Lead Refinery site and adjacent properties on the NPL. Lead Refinery lacks the
financial resources needed to undertake any investigations or remedial action that may be required by the EPA
pursuant to CERCLA.
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. MCTP is currently removing
trichloroethylene, a cleaning solvent formerly used by MCTP, from the soil and groundwater. On August 30, 2000,
MCTP received approval of its Final Comprehensive Investigation Report and Storm Water Drainage Investigation
Report addressing the treatment of soils and groundwater from the Arkansas Department of Environmental Quality
(ADEQ). The Company established a reserve for this project in connection with the acquisition of MCTP in
1998. Effective November 17, 2008, MCTP entered into a Settlement Agreement and Administrative Order by
7
Consent to submit a Supplemental Investigation Work Plan (SIWP) and subsequent Final Remediation Work Plan 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 Remediation Work Plan regarding final remediation for the Site. Construction and installation of
the remediation system is under way. The remediation system was activated in February 2014. Costs to implement
the work plans, including associated general and administrative costs, are approximately $1.9 million over the next ten
years.
Other Business Factors
The Registrant’s business is not materially dependent on patents, trademarks, licenses, franchises, or
concessions held. In addition, expenditures for company-sponsored research and development activities were not
material during 2013, 2012, or 2011. No material portion of the Registrant’s business involves governmental
contracts. Seasonality of the Company’s sales is not significant.
SEC Filings
We make available through our internet website our Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission (SEC). To retrieve any of this information, you may access our
internet home page at www.muellerindustries.com, select Investors, and then select SEC Filings.
Reports filed with the SEC may also be viewed or obtained at the SEC Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. Information on the operation of the SEC Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC; the website
address is www.sec.gov.
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 are providing a brief explanation of the more significant risks associated
with our businesses. Although we have tried to identify and discuss key risk factors, others could emerge in the
future. These risk factors should be considered carefully when evaluating the Company and its businesses.
Increases in costs and the availability of energy and raw materials used in our products could impact our cost
of goods sold and our distribution expenses, which could have a material adverse impact on our operating
margins.
Both the costs of raw materials used in our manufactured products (copper, brass, zinc, aluminum, and PVC
and ABS resins) and energy costs (electricity, natural gas and fuel) have been volatile during the last several years,
which has resulted in changes in production and distribution costs. For example, recent and pending climate change
regulation and initiatives on the state, regional, federal, and international levels that have focused on reducing
greenhouse gas (GHG) emissions from the energy and utility sectors may affect energy availability and costs in the
near future. While we typically attempt to pass costs through to our customers or to modify or adapt our activities to
mitigate the impact of increases, we may not be able to do so successfully. Failure to fully pass increases to our
customers or to modify or adapt our activities to mitigate the impact could have a material adverse impact on our
operating margins. Additionally, if we are for any reason unable to obtain raw materials or energy, our ability to
manufacture our finished goods would be impacted which could have a material adverse impact on our operating
margins.
8
The unplanned departure of key personnel could disrupt our business.
We depend on the continued efforts of our senior management. The unplanned loss of key personnel, or the
inability to hire and retain qualified executives, could negatively impact our ability to manage our business.
Economic conditions in the housing and commercial construction industries as well as changes in interest rates
could have a material adverse impact on our business, financial condition, and results of operations.
Our businesses are sensitive to changes in general economic conditions, including, in particular, conditions in
the housing and commercial construction industries. Prices for our products are affected by overall supply and
demand in the market for our products and for our competitors’ products. In particular, market prices of building
products historically have been volatile and cyclical, and we may be unable to control the timing and amount of
pricing changes for our products. Prolonged periods of weak demand or excess supply in any of our businesses could
negatively affect our revenues and margins and could result in a material adverse impact on our business, financial
condition, and results of operations.
The markets that we serve, including, in particular, the housing and commercial construction industries, are
significantly affected by movements in interest rates and the availability of credit. Significantly higher interest rates
could have a material adverse effect on our business, financial condition, and results of operations. Our businesses are
also affected by a variety of other factors beyond our control, including, but not limited to, employment levels, foreign
currency exchange rates, unforeseen inflationary pressures, and consumer confidence. Since we operate in a variety
of geographic areas, our businesses are subject to the economic conditions in each such area. General economic
downturns or localized downturns in the regions where we have operations could have a material adverse effect on our
business, financial condition, and results of operations.
Although conditions improved in 2012 and continued to improve in 2013, the deterioration of the general
economic environment has had a significant negative impact on businesses and consumers around the world since the
crisis began in 2008. The well-publicized downturn in the construction markets, both residential and commercial,
including construction lending, may result in protracted decreased demand for our products. In addition, the impact of
the economy on the operations or liquidity of any party with which we conduct our business, including our suppliers
and customers, may adversely impact our business.
Competitive conditions including the impact of imports and substitute products and technologies could have a
material adverse effect on the demand for our products as well as our margins and profitability.
The markets we serve are competitive across all product lines. Some consolidation of customers has
occurred and may continue, which could shift buying power to customers. In some cases, customers have moved
production to low-cost countries such as China, or sourced components from there, which has reduced demand in
North America for some of the products we produce. These conditions could have a material adverse impact on our
ability to maintain margins and profitability. The potential threat of imports and substitute products is based upon
many factors including raw material prices, distribution costs, foreign exchange rates, production costs, and the
development of emerging technologies and applications. The end use of alternative import and/or substitute products
could have a material adverse effect on our business, financial condition, and results of operations. Likewise, the
development of new technologies and applications could result in lower demand for our products and have a material
adverse effect on our business.
Our exposure to exchange rate fluctuations on cross border transactions and the translation of local currency
results into U.S. dollars could have an adverse impact on our results of operations or financial position.
We conduct our business through subsidiaries in several different countries and export our products to many
countries. Fluctuations in currency exchange rates could have a significant impact on the competitiveness of our
products as well as the reported results of our operations, which are presented in U.S. dollars. A significant and
growing portion of our products are manufactured in, or acquired from suppliers located in, lower cost regions. Cross
border transactions, both with external parties and intercompany relationships, result in increased exposure to foreign
exchange fluctuations. The strengthening of the U.S. dollar could expose our U.S. based businesses to competitive
threats from lower cost producers in other countries such as China. Lastly, our sales are translated into U.S. dollars for
9
reporting purposes. The strengthening of the U.S. dollar could result in unfavorable translation effects when the
results of foreign operations are translated into U.S. dollars. Accordingly, significant changes in exchange rates,
particularly the U.K. pound sterling, Mexican peso, and the Chinese renminbi, could have an adverse impact on our
results of operations or financial position.
We are subject to claims, litigation, and regulatory proceedings that could have a material adverse effect on us.
We are, from time–to-time, involved in various claims, litigation matters, and regulatory proceedings. These
matters may include, among other things, contract disputes, personal injury claims, environmental claims, OSHA
inspections or proceedings, other tort claims, employment and tax matters and other litigation including class actions
that arise in the ordinary course of our business. Although we intend to defend these matters vigorously, we cannot
predict with certainty the outcome or effect of any claim or other litigation matter, and there can be no assurance as to
the ultimate outcome of any litigation or regulatory proceeding. Litigation and regulatory proceedings may have a
material adverse effect on us because of potential adverse outcomes, defense costs, the diversion of our management’s
resources, availability of insurance coverage and other factors.
A strike, other work stoppage or business interruption, or our inability to renew collective bargaining
agreements on favorable terms, could impact our cost structure and our ability to operate our facilities and
produce our products, which could have an adverse effect on our results of operations.
As of December 28, 2013, approximately 2,010 of our 3,925 employees were covered by collective
bargaining or similar agreements. If we are unable to negotiate acceptable new agreements with the unions
representing our employees upon expiration of existing contracts, we could experience strikes or other work
stoppages. Strikes or other work stoppages could cause a significant disruption of operations at our facilities, which
could have an adverse impact on us. New or renewal agreements with unions representing our employees could call
for higher wages or benefits paid to union members, which would increase our operating costs and could adversely
affect our profitability. Higher costs and/or limitations on our ability to operate our facilities and manufacture our
products resulting from increased labor costs, strikes or other work stoppages could have a material adverse effect on
our results of operations.
In addition, unexpected interruptions in our operations or those of our customers or suppliers due to such
causes as weather-related events or acts of God, such as earthquakes, could have an adverse effect on our results of
operations. For example, the EPA has recently found that global climate change would be expected to increase the
severity and possibly the frequency of severe weather patterns such as hurricanes. Although the financial impact of
such is not reasonably estimable at this time, should such occur, our operations in certain coastal and flood-prone areas
or operations of our customers and suppliers could be adversely affected. As a result of a fire at our Wynne, Arkansas,
location, our copper tube casting operations were destroyed and consequently a significant portion of our redundant
casting capacity is no longer available. If our remaining copper tube casting operations were to become inoperable,
for any reason, our domestic copper tube production could be significantly impaired and have a material adverse effect
on our results of operations.
We are subject to environmental and health and safety laws and regulations and future compliance may have a
material adverse effect on our results of operations, financial position, or cash flows.
The nature of our operations exposes us to the risk of liabilities and claims with respect to environmental
matters and health and safety matters. While we have established accruals intended to cover the cost of environmental
remediation at contaminated sites, the actual cost is difficult to determine and may exceed our estimated
reserves. Further, changes to, or more rigorous enforcement or stringent interpretation of environmental or health and
safety laws could require significant incremental costs to maintain compliance. Recent and pending climate change
regulation and initiatives on the state, regional, federal, and international levels may require certain of our facilities to
reduce GHG emissions. While not reasonably estimable at this time, this could require capital expenditures for
environmental control facilities and/or the purchase of GHG emissions credits in the coming years. In addition, with
respect to environmental matters, future claims may be asserted against us for, among other things, past acts or
omissions at locations operated by predecessor entities, or alleging damage or injury or seeking other relief in
connection with environmental matters associated with our operations. Future liabilities, claims and compliance costs
may have a material adverse effect on us because of potential adverse outcomes, defense costs, the diversion of our
10
management(cid:2)s resources, availability of insurance coverage and other factors. The overall impact of these
requirements on our operations could increase our costs and diminish our ability to compete with products that are
produced in countries without such rigorous standards; the long run impact could negatively impact our results and
have a material adverse effect on our business.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Information pertaining to the Registrant’s major operating facilities is included below. Except as noted, the
Registrant owns all of its principal properties. The Registrant’s plants are in satisfactory condition and are suitable for
the purpose for which they were designed and are now being used.
Location
Approximate
Property Size
Description
Plumbing & Refrigeration Segment
Fulton, MS
Fulton, MS
Wynne, AR
Fulton, MS
Fulton, MS
418,000 sq. ft.
52.37 acres
Copper tube mill. Facility includes extruding, and finishing
equipment to produce copper tube, including tube feedstock for
the Company’s copper fittings plants and Precision Tube factory.
103,000 sq. ft.
11.9 acres
400,000 sq. ft.
39.2 acres
58,500 sq. ft.
15.53 acres
70,000 sq. ft.
7.68 acres
Casting facility. Facility includes casting equipment to produce
copper billets used in the adjoining copper tube mill.
(1) Copper tube mill. Facility includes extrusion and finishing
equipment to produce copper tube and line sets.
Packaging and bar coding facility for retail channel sales.
(2) Copper fittings plant. High-volume facility that produces copper
fittings using tube feedstock from the Company’s adjacent copper
tube mill.
Covington, TN
159,500 sq. ft.
40.88 acres
Copper fittings plant. Facility produces copper fittings using tube
feedstock from the Company’s copper tube mills.
Ontario, CA
211,000 sq. ft. (3) Plastics manufacturing plant and distribution center. Produces
DWV fittings using injection molding equipment and ABS plastic
pipe using pipe extruders.
Fort Pierce, FL
69,875 sq. ft.
5.60 acres
Plastic fittings plant. Produces DWV and pressure fittings using
injection molding equipment.
Monterrey, Mexico
152,000 sq. ft. (3) Pipe nipples plant. Produces pipe nipples, cut pipe and merchant
couplings.
Bilston, England, United
Kingdom
402,500 sq. ft.
14.95 acres
Copper tube mill. Facility includes casting, extruding, and
finishing equipment to produce copper tube.
(continued)(cid:2)
11
(cid:2)
ITEM 2.
(continued)
PROPERTIES
Location
Approximate
Property Size
Description
Phoenix, AZ
61,000 sq. ft. (3) Line sets plant. Produces standard and custom-made line sets for
HVAC markets.
Atlanta, GA
56,000 sq. ft. (3) Line sets plant. Produces standard and custom-made line sets for
HVAC markets.
New Market, VA
OEM Segment
Port Huron, MI
Belding, MI
413,120 sq. ft.
36.15 acres
Copper Tube Mill. Facility includes casting, extruding, and
finishing equipment to produce copper tube and line sets.
322,500 sq. ft.
71.5 acres
Brass rod mill. Facility includes casting, extruding, and finishing
equipment to produce brass rods and bars, in various shapes and
sizes.
293,068 sq. ft.
17.64 acres
Brass rod mill. Facility includes casting, extruding, and finishing
equipment to produce brass rods and bars, in various shapes and
sizes.
Port Huron, MI
127,500 sq. ft. Forgings plant. Produces brass and aluminum forgings.
Marysville, MI
Hartsville, TN
81,500 sq. ft.
6.72 acres
78,000 sq. ft.
4.51 acres
Aluminum and copper impacts plant. Produces made-to-order
parts using cold impact processes.
Refrigeration products plant. Produces products used
in
refrigeration applications such as ball valves, line valves, and
compressor valves.
Carthage, TN
67,520 sq. ft.
10.98 acres
Fabrication facility. Produces precision tubular components and
assemblies.
Gordonsville, TN
54,000 sq. ft. (3) Fabrication facility. Produces precision tubular components and
assemblies.
Waynesboro, TN
57,000 sq. ft.
5.0 acres
(4) Gas valve plant. Facility produces brass and aluminum valves
and assemblies for the gas appliance industry.
North Wales, PA
174,000 sq. ft.
18.9 acres
Precision Tube factory. Facility fabricates copper tube, copper
alloy tube, aluminum tube, and fabricated tubular products.
Brighton, MI
65,000 sq. ft. (3) Machining operation. Facility machines component parts for
supply to automotive industry.
Middletown, OH
55,000 sq. ft.
2.0 acres
Fabricating facility. Produces burner systems and manifolds for
the gas appliance industry.
(continued)
12
ITEM 2.
(continued)
PROPERTIES
Location
Approximate
Property Size
Description
Jintan City, Jiangsu
Province, China
322,580 sq. ft.
33.0 acres
(5) Copper tube mill. Facility includes casting, and finishing
equipment to produce engineered copper tube primarily for
OEMs.
Xinbei District,
Changzhou, China
33,940 sq. ft. (3) Refrigeration products plant. Produces products used
in
refrigeration applications such as ball valves, line valves, and
compressor valves.
Bluffs, IL
70,000 sq. ft.
10 acres
Fabrication facility. Produces products used in refrigeration
applications such as oil separators, accumulators, and heat
exchangers.
Guadalupe, MX
70,782 sq. ft. (3) Fabrication facility. Produces tubular components, assemblies,
and return bends for refrigeration and HVAC markets.
Guadalupe, MX
59,331 sq. ft. (3) Gas valve plant. Facility produces brass and aluminum valves
and assemblies for the gas appliance industry.
Farmers Branch, TX
54,000 sq. ft. (3) Fabrication facility. Produces tubular components, assemblies,
and return bends for refrigeration and HVAC markets.
In addition, the Company owns and/or leases other properties used as distribution centers and corporate offices.
(1)
Facility, or some portion thereof, is located on land leased from a local municipality, with an option to
purchase at nominal cost.
(2)
Facility is leased under a long-term lease agreement, with an option to purchase at nominal cost.
(3)
Facility is leased under an operating lease.
(4)
Facility is leased from a local municipality for a nominal amount.
(5)
Facility is located on land that is under a long-term land use rights agreement.
(cid:2)
(cid:2)
13
ITEM 3.
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 Consolidated Financial Statements.
Environmental Proceedings
Reference is made to “Environmental Matters” in Item 1 of this Report, which is incorporated herein by
reference, for a description of environmental proceedings.
United States Department of Commerce Antidumping Review
On December 24, 2008, the United States 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 to determine the final antidumping duties owed on U.S. imports during the period November 1, 2007 through
October 31, 2008, by certain subsidiaries of the Company. On April 19, 2010, the DOC published the final results of
this review and assigned Mueller Comercial de Mexico, S. de R.L. de C.V. (Mueller Comercial) an antidumping duty
rate of 48.3 percent. The Company appealed the final determination to the U.S. Court of International Trade
(CIT). The Company and the United States have reached an agreement to settle the appeal. As a result, the DOC
published on March 22, 2013 the amended final results of the review and assigned Mueller Comercial an antidumping
duty rate of 40.5 percent. U.S. Customs and Border Protection has assessed antidumping duties on subject imports
during the period of review. The Company has established a reserve of approximately $3.1 million for these duties.
On December 23, 2009, the 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, 2008 through October
31, 2009 period of review. The DOC selected Mueller Comercial as a respondent in the review. On June 21, 2011,
the DOC published the final results of the review and assigned Mueller Comercial an antidumping duty rate of 19.8
percent. On August 22, 2011, the Company appealed the final results to the CIT. On December 21, 2012, the CIT
issued a decision upholding the Department’s final results in part. The CIT issued its final judgment on May 2,
2013. On May 6, 2013, the Company appealed the CIT decision to the U.S. Court of Appeals for the Federal Circuit
(Federal Circuit). On January 10, 2014, the Federal Circuit held oral argument in the appeal. The Company
anticipates that certain of its subsidiaries will incur antidumping duties on subject imports made during the period of
review and, as such, established a reserve of approximately $1.1 million for this matter.
Subsequent to October 31, 2009, Mueller Comercial did not ship subject merchandise to the United States.
Therefore, there is zero antidumping duty liability for periods of review after October 31, 2009.
United States Department of Commerce and United States International Trade Commission Antidumping
Investigations
On September 30, 2009, two subsidiaries of the Company, along with Cerro Flow Products, Inc. and
KobeWieland Copper Products LLC (collectively, Petitioners), jointly filed antidumping petitions with the DOC and
the U.S. International Trade Commission (ITC) alleging that imports of seamless refined copper pipe and tube from
China and Mexico (subject imports) were being sold at less than fair value and were causing material injury (and
threatening material injury) to the domestic industry. On October 1, 2010, the DOC published its final affirmative
determinations, finding antidumping rates from 24.89 percent to 28.16 percent for Mexico (as subsequently amended),
and from 11.25 percent to 60.85 percent for China.
Since November 22, 2010, as a result of the imposition of the antidumping duty orders on seamless refined
copper pipe and tube from Mexico and China, importers have been required to post cash deposits at rates up to 28.16
percent (for Mexico) and up to 60.85 percent (for China).
14
Over the last two years, the DOC conducted a “new shipper review” of a new Golden Dragon plant in
Mexico, followed by the first administrative reviews of imports from Mexico and China (for the period November 22,
2010 through October 31, 2011). Although Golden Dragon was found to be dumping in the “new shipper review,” the
impact of the more recent administrative reviews is that imports from certain companies (i.e., Golden Dragon in
China, and Golden Dragon and Nacobre in Mexico) will not be subject to cash deposits requirements until completion
of the ongoing second administrative reviews in 2014. These decisions are currently on appeal, during which time no
importers may receive any duty refunds. Furthermore, all companies in China and Mexico remain subject to the
disciplines of the antidumping duty orders and future administrative reviews, and imports from other companies
remain subject to cash deposit requirements, including IUSA (24.89 percent) and Luvata (28.16 percent) in Mexico, as
well as Hailiang (60.85 percent) and Luvata (36.05 percent) in China.
On December 30, 2013, the DOC initiated the third administrative review of several Chinese and Mexican
copper tube producers and/or exporters to the United States in order to establish company-specific dumping rates
based on the period November 1, 2012 through October 31, 2013. The reviews are expected to be completed
sometime in 2015. At this time, the Company is unable to know the final disposition of these administrative reviews.
Supplier Litigation
On May 6, 2011, the Company and two of its subsidiaries, Mueller Streamline Co. and B&K Industries, Inc.
(B&K)(Plaintiffs), filed a civil lawsuit in federal district court in Los Angeles, California against a former supplier,
Xiamen Lota International Co., Ltd (Xiamen Lota), its U.S. sales representative (Lota USA), and certain other persons
(Defendants). The lawsuit alleged, among other things, that the Defendants gave Peter D. Berkman, a former
executive of the Company and B&K, an undisclosed interest in Lota USA, and made payments and promises of
payments to him, in return for Peter Berkman maintaining the Company as a customer, increasing purchasing levels,
and acquiescing to non-competitive and excessive pricing for Xiamen Lota products. The lawsuit alleged violations
of federal statutes 18 U.S.C. Sections 1962(c) and (d) (RICO claims) and California state law unfair competition. The
lawsuit sought compensatory, treble and punitive damages, and other appropriate relief including an award of
reasonable attorneys’ fees and costs of suit. In October 2012, the lawsuit, together with certain related proceedings in
Illinois and Tennessee, were settled on mutually agreeable terms and, in connection therewith, the Company received
a $5.8 million cash payment.
Extruded Metals Class Action
A purported class action was filed in Michigan Circuit Court by Gaylord L. Miller, and all others similarly
situated, against Extruded Metals, Inc. (Extruded) in March 2012 under nuisance, negligence, and gross negligence
theories. It is brought on behalf of all persons in the City of Belding, Michigan, whose property rights have allegedly
been interfered with by fallout and/or dust and/or noxious odors, allegedly attributable to Extruded’s
operations. Plaintiffs allege that they have suffered interference with the use and enjoyment of their properties. They
seek compensatory and exemplary damages and injunctive relief. The Company reached a settlement that was
approved by the court on September 26, 2013, and the case has been dismissed. The settlement involves class-wide
(the settlement class consist of all current and former residents of Belding, Michigan) release of certain property
damage claims, certain commitments by Extruded regarding emissions controls, and a payment of certain fees and
costs.
U.K. Actions Relating to the European Commission’s 2004 Copper Tubes Decision and 2006 Copper Fittings
Decision
Mueller Industries, Inc., WTC Holding Company, Inc., DENO Holding Company, Inc., Mueller Europe,
Limited, and DENO Acquisition EURL (the five Mueller entities) have received letters from counsel for IMI plc and
IMI Kynoch Limited (IMI) and from counsel for Boliden AB (Boliden) concerning contribution proceedings by IMI
and Boliden against the five Mueller entities regarding copper tube. In the Competition Appeal Tribunal (the CAT) in
the United Kingdom, IMI and Boliden have been served with claims by 21 claimants, all companies within the Travis
Perkins Group (TP and the TP Claimants). The TP Claimants are seeking follow-on damages arising out of conduct
described in the European Commission’s September 3, 2004, decision regarding copper tube. The claims purport to
arise from the findings of the European Commission as set forth in that decision. IMI and Boliden have commenced
legal proceedings against the five Mueller entities, and in those proceedings are claiming a contribution for any
15
follow-on damages. IMI and Boliden have formally served their claims on the five Mueller entities.
Mueller Industries, Inc., Mueller Europe, Limited, and WTC Holding Company, Inc. (the three Mueller
entities) also have received a letter from counsel for IMI concerning contribution proceedings by IMI against those
three Mueller entities regarding copper fittings. In the High Court, IMI has been served with claims by 21 TP
Claimants. The TP Claimants are seeking follow-on damages arising out of conduct described in the European
Commission’s September 20, 2006, decision regarding copper fittings. The claims similarly purport to arise from the
findings of the European Commission as set forth in that decision. IMI has commenced legal proceedings against the
three Mueller entities, and in those proceedings are claiming a contribution for any follow-on damages. IMI has
formally served its claims on the three Mueller entities.
While the TP Claimants have provided their preliminary calculations of aggregate claimed damages for the
copper tube claim and the copper fittings claim, Mueller does not believe these matters will have a material affect on
the Consolidated Financial Statements for the contribution claims.
As to the claims arising from the Copper Tube Decision brought in the CAT, following the CAT’s grant of
approval, the case has now been transferred to the High Court. Mueller’s defenses in response to the contribution
claims brought by IMI and Boliden were served on March 15, 2013. A case management conference is to be held in
May 2014.
As to the claims arising from the Copper Fittings Decision, these proceedings have been stayed until the next
case management conference which is to take place in April 2014.
At this time, the Company does not believe that this matter will have a material impact on its financial
position, results of operations, or cash flows.
Canadian Dumping and Countervail Investigation
In 2007, the Canada Border Services Agency (CBSA) determined that the Company and certain affiliated
companies, as exporters and importers of copper fittings (subject goods) from the U.S. to Canada, had dumped the
subject goods during the investigation period. In 2007, the Canadian International Trade Tribunal concluded that the
dumping had caused injury to the Canadian industry. As a result of these findings, exports of subject goods to Canada
made on or after October 20, 2006 have been subject to antidumping measures. Antidumping duties will be imposed
on the Company only to the extent that the Company’s future exports of copper pipe fittings are made at net export
prices that are below normal values set by the CBSA. The measures remain in place for five years at which time
Canadian authorities determine whether to maintain the measures for an additional five years or allow them to
expire. Canadian authorities conducted such a sunset review and on February 17, 2012 found that the dumping order
should be maintained for another five years.
On February 8, 2013, the CBSA completed a review process to revise the normal values issued to the
Company. Another review process to revise the normal values was initiated on January 15, 2014 and is scheduled to
conclude on May 30, 2014. Given the small percentage of its products that are sold for export to Canada, the
Company does not anticipate any material adverse effect on its financial position, results of operations or cash flows as
a result of the antidumping case in Canada.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
16
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
As of February 24, 2014, the number of holders of record of Mueller’s common stock was approximately
910. On February 24, 2014, the closing price for Mueller’s common stock on the New York Stock Exchange was
$61.28.
Issuer Purchases of Equity Securities
The Company’s Board of Directors has extended, until October 2014, the authorization to repurchase up to
ten million shares of the Company’s common stock through open market transactions or through privately negotiated
transactions. The Company has no obligation to purchase any shares and may cancel, suspend, or extend the time
period for the purchase of shares at any time. Any purchases will be funded primarily through existing cash and cash
from operations. The Company may hold any shares purchased 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 December 28, 2013, the Company had repurchased approximately 2.4 million shares under this
authorization. The Company’s repurchase transaction with Leucadia National Corporation in September 2012 was
completed outside of this authorization. Below is a summary of the Company’s stock repurchases for the quarter
ended December 28, 2013.
(a)
(b)
Total Number
of Shares
Purchased
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
7,644,530(1)
September 29 – October 26, 2013
—(2) $
October 27 – November 23, 2013
12,887(2)
November 24 – December 28, 2013
492(2)
—
60.17
60.58
—
—
—
(1) Shares available to be purchased under the Company’s ten million share repurchase authorization until
October 2014. The extension of the authorization was announced on October 28, 2013.
(2) Shares tendered to the Company by holders of stock based awards in payment of purchase price and/or
withholding taxes upon exercise. In addition, includes restricted stock forfeitures.
The Company’s Board of Directors declared a regular quarterly dividend of 12.5 cents for each fiscal quarter
of 2013 and in the fourth quarter of 2012, and 10 cents per share on its common stock for the first three quarters of
2012. Payment of dividends in the future is dependent upon the Company’s financial condition, cash flows, capital
requirements, earnings, and other factors.
17
The high, low, and closing prices of Mueller’s common stock on the New York Stock Exchange for each
fiscal quarter of 2013 and 2012 were as follows:
2013
Fourth quarter
Third quarter
Second quarter
First quarter
2012
Fourth quarter
Third quarter
Second quarter
First quarter
$
$
High
Low
Close
63.28 $
58.15
54.99
55.53
53.96 $
50.33
48.10
48.95
62.74
55.82
50.43
53.29
51.41 $
48.48
47.28
49.86
42.43 $
39.72
39.89
38.16
49.26
45.47
42.59
45.45
18
PERFORMANCE GRAPH
The following table compares total stockholder return since December 27, 2008 to the Dow Jones U.S. Total
Market Index (Total Market Index) and the Dow Jones U.S. Building Materials & Fixtures Index (Building Materials
Index). Total return values for the Total Market Index, the Building Materials Index and the Company were
calculated based on cumulative total return values assuming reinvestment of dividends. The common stock is traded
on the New York Stock Exchange under the symbol MLI.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Mueller Industries, Inc., the Dow Jones US Total Return Index,
and the Dow Jones US Building Materials & Fixtures Index
$350
$300
$250
$200
$150
$100
$50
$0
12/27/08
12/26/09
12/25/10
12/31/11
12/29/12
12/28/13
Mueller Industries, Inc.
Dow Jones US Total Return
Dow Jones US Building Materials & Fixtures
*$100 invested on 12/27/08 in stock or 12/31/08 in index, including reinvestment of dividends.
Indexes calculated on month-end basis.
Copyright© 2014 Dow Jones & Co. All rights reserved.
Mueller Industries, Inc.
Dow Jones U.S. Total Market
Index
Dow Jones U.S. Building
2008
100.00
2009
113.83
2010
149.86
2011
176.13
2012
2013
227.96
292.96
100.00
128.79
150.24
152.26
177.11
235.51
Materials & Fixtures Index
100.00
112.54
131.33
135.48
206.22
264.38
(cid:2)
(cid:2)
19
ITEM 6.
SELECTED FINANCIAL DATA
(In thousands, except per share data)
2013
2012
2011
2010
2009
For the fiscal year: (1)
Net sales
$2,158,541 $2,189,938 $2,417,797 $ 2,059,797 $1,547,225
Operating income
270,937(2) 126,705(3) 139,802(4) 136,147(5)
32,220(6)
Net income attributable to Mueller Industries,
Inc.
172,600
82,395
86,321
86,171
4,675
Diluted earnings per share
6.11
2.31(7)
2.26
2.28
0.12
Cash dividends per share
0.50
0.425
0.40
0.40
0.40
At year-end:
Total assets
Long-term debt
1,247,767 1,104,155 1,347,604 1,258,996 1,180,141
206,250 207,300 156,476 158,226 158,226
(1) Includes activity of acquired businesses from the following purchase dates: Howell Metal Company, October 17,
2013, Westermeyer Industries, Inc., August 16, 2012, Tube Forming L.P., December 28, 2010, and Linesets,
Inc., August 6, 2010.
(2)
Includes $106.3 million pre-tax gain from settlement of insurance claims, $39.8 million pre-tax gain from the
sale of the Company’s Schedule 40 pressure plastic fittings business along with the sale of certain other
plastic fittings manufacturing assets, and pre-tax impairment charges of $4.3 million primarily related to
real property associated with the aforementioned plastics sale transaction.
(3) Includes deferred recognition of $8.0 million gain from liquidation of LIFO inventory layers, $4.1 million net
gain from settlement of litigation, $1.5 million gain from settlement of insurance claims, and severance
charges of $3.4 million.
(4) Includes $10.5 million gain from settlement of litigation.
(5) Includes $22.7 million gain from settlement of insurance claims.
(6) Includes impairment charges of $29.8 million, primarily related to goodwill.
(7) Includes the impact of 10.4 million shares repurchased from Leucadia National Corporation in September 2012.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management’s discussion and analysis of financial condition and results of operations is contained under the
caption “Financial Review” submitted as a separate section of this Annual Report on Form 10-K commencing on page
F-2.
20
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are contained under the caption “Financial
Review” submitted as a separate section of this Annual Report on Form 10-K commencing on page F-2.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements required by this item are contained in a separate section of this Annual Report on Form
10-K commencing on page F-1.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
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 December 28, 2013. 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 December 28, 2013 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.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. Pursuant to the rules and
regulations of the SEC, internal control over financial reporting is a process designed by, or under the supervision of,
the Company’s principal executive and principal financial officers, and effected by the Company’s board of directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with accounting principles generally
accepted in the United States and includes those policies and procedures that (i) pertain to the maintenance of records
that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being
made only in accordance with authorizations of the Company’s management and directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the financial statements. Due to inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Further, because of changes in conditions,
21
effectiveness of internal control over financial reporting may vary over time.
The Company acquired Howell Metal Company (Howell) during October 2013, and has excluded that
business from management’s assessment of internal controls. The total value of assets of Howell at year-end was
$58.1 million, which represents five percent of the Company’s consolidated total assets at December 28, 2013. Net
sales and net income of Howell from the date of acquisition represents less than one percent of the consolidated net
sales and net income of the Company for 2013. Accordingly, these acquired businesses are not included in the scope
of this report.
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 internal control over financial reporting as of
December 28, 2013 based on the control criteria established in a report entitled Internal Control—Integrated
Framework, (1992 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on such evaluation management has concluded that our internal control over financial reporting is
effective as of December 28, 2013.
Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s financial
statements included in this Annual Report on Form 10-K, has issued an attestation report on the Company’s internal
control over financial reporting, which is included herein.
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 ended December 28, 2013, that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
22
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Mueller Industries, Inc.
We have audited Mueller Industries, Inc.’s internal control over financial reporting as of December 28, 2013, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (1992 Framework) (the COSO criteria). Mueller Industries, Inc.’s management is
responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the
internal controls of Howell Metal Company, which is included in the 2013 consolidated financial statements of
Mueller Industries, Inc. and constituted $58.1 million and $54.3 million of total and net assets, respectively, as of
December 28, 2013, and $17.1 million and $1.0 million of net sales and net loss, respectively, for the year then ended.
Our audit of internal control over financial reporting of Mueller Industries, Inc. also did not include an evaluation of
the internal control over financial reporting of Howell Metal Company.
In our opinion, Mueller Industries, Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 28, 2013, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Mueller Industries, Inc. as of December 28, 2013 and December 29, 2012,
and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each
of the three years in the period ended December 28, 2013 and our report dated February 26, 2014 expressed an
unqualified opinion thereon.
Memphis, Tennessee
February 26, 2014
23
ITEM 9B.
OTHER INFORMATION
None.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by Item 10 is contained under the captions “Ownership of Common Stock by
Directors and Executive Officers and Information about Director Nominees,” “Corporate Governance,” “Report of the
Audit Committee of the Board of Directors,” and “Section 16(a) Beneficial Ownership Compliance Reporting” in the
Company’s Proxy Statement for its 2014 Annual Meeting of Stockholders to be filed with the SEC on or about March
19, 2014, which is incorporated herein by reference.
The Company intends to disclose any amendments to its Code of Business Conduct and Ethics by posting
such information to the Company’s website at www.muellerindustries.com.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by Item 11 is contained under the caption “Compensation Discussion and
Analysis,” “Summary Compensation Table for 2013,” “2013 Grants of Plan Based Awards Table,” “Outstanding
Equity Awards at Fiscal 2013 Year-End,” “2013 Option Exercises and Stock Vested,” “Potential Payments Upon
Termination of Employment or Change in Control as of the End of 2013,” “2013 Director Compensation,” “Report of
the Compensation Committee of the Board of Directors on Executive Compensation” and “Corporate Governance” in
the Company’s Proxy Statement for its 2014 Annual Meeting of Stockholders to be filed with the SEC on or about
March 19, 2014, which is incorporated herein by reference.
(cid:2)
(cid:2)
24
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table discloses information regarding the securities to be issued and the securities remaining
available for issuance under the Registrant’s stock-based incentive plans as of December 28, 2013 (shares in
thousands):
(a)
(b)
Number of securities
to be issued upon
exercise of
outstanding options,
warrants, and rights
Weighted average
exercise price of
outstanding options,
warrants, and rights
(c)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))
589 $
29.34
195(1)
—
589 $
—
29.34
—
195
Plan category
Equity compensation plans approved by
security holders
Equity compensation plans not approved
by security holders
Total
(1) Of the 195 thousand securities remaining available for issuance under the equity compensation plans, 177
thousand are available under the Company’s 2009 Stock Incentive Plan for issuance of restricted stock,
stock appreciation rights, or stock options. The remaining securities are available for issuance of stock
options to the Board of Directors only.
Other information required by Item 12 is contained under the captions “Principal Stockholders” and
“Ownership of Common Stock by Directors and Executive Officers and Information about Director Nominees” in the
Company’s Proxy Statement for its 2014 Annual Meeting of Stockholders to be filed with the SEC on or about
March 19, 2014, which is incorporated herein by reference.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by Item 13 is contained under the caption “Corporate Governance” in the
Company’s Proxy Statement for its 2014 Annual Meeting of Stockholders to be filed with the SEC on or about March
19, 2014, which is incorporated herein by reference.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 is contained under the caption “Appointment of Independent Registered
Public Accounting Firm” in the Company’s Proxy Statement for its 2014 Annual Meeting of Stockholders to be filed
with the SEC on or about March 19, 2014, which is incorporated herein by reference.
25
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
1.
2.
3.
The following documents are filed as part of this report:
Financial Statements: the financial statements, notes, and report of independent registered public
accounting firm described in Item 8 of this Annual Report on Form 10-K are contained in a separate
section of this Annual Report on Form 10-K commencing on page F-1.
Financial Statement Schedule: the financial statement schedule described in Item 8 of this report is
contained in a separate section of this Annual Report on Form 10-K commencing on page F-1.
Exhibits:
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
Restated Certificate of Incorporation of the Registrant dated February 8, 2007 (Incorporated
herein by reference to Exhibit 3.1 of the Registrant’s Annual Report on Form 10-K, dated
February 28, 2007, for the fiscal year ended December 30, 2006).
Amended and Restated By-laws of the Registrant, effective as of November 8, 2013
(Incorporated herein by reference to Exhibit 3.1 of the Registrant’s Current Report on
Form 8-K, dated November 8, 2013).
Certain instruments with respect to long-term debt of the Registrant have not been filed as
Exhibits to this Report since the total amount of securities authorized under any such
instruments does not exceed 10 percent of the total assets of the Registrant and its subsidiaries
on a consolidated basis. The Registrant agrees to furnish a copy of each such instrument
upon request of the SEC.
Amended and Restated Consulting Agreement, dated October 25, 2007, by and between the
Registrant and Harvey Karp (Incorporated herein by reference to Exhibit 10.2 of the
Registrant’s Current Report on Form 8-K, dated October 25, 2007).
Amendment No. 1, dated December 2, 2008, to the Amended and Restated Consulting
Agreement, dated October 25, 2007, by and between the Registrant and Harvey Karp
(Incorporated herein by reference to Exhibit 10.7 of the Registrant’s Annual Report on
Form 10-K, dated February 24, 2009, for the fiscal year ended December 27, 2008).
Letter Agreement with Harvey Karp, dated as of May 11, 2011 (Incorporated herein by
reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, dated
May 16 2011).
Amended and Restated Employment Agreement, effective October 30, 2008, by and between
the Registrant and Gregory L. Christopher (Incorporated herein by reference to Exhibit 10.1
of the Registrant’s Current Report on Form 8-K, dated December 26, 2008).
Mueller Industries, Inc. 1994 Non-Employee Director Stock Option Plan, as amended
(Incorporated herein by reference to Exhibit 10.12 of the Registrant’s Annual Report on
Form 10-K, dated March 24, 2003, for the fiscal year ended December 28, 2002 and
Exhibit 99.6 of the Registrant’s Current Report on Form 8-K, dated August 31, 2004).
Mueller Industries, Inc. 1998 Stock Option Plan, as amended (Incorporated herein by
reference to Exhibit 10.14 of the Registrant’s Annual Report on Form 10-K, dated
March 24, 2003, for the fiscal year ended December 28, 2002 and Exhibit 99.4 of the
Registrant’s Current Report on Form 8-K, dated August 31, 2004).
26
10.7
10.8
10.9
10.10
10.11
Mueller Industries, Inc. 2002 Stock Option Plan Amended and Restated as of February 16,
2006 (Incorporated herein by reference to Exhibit 10.20 of the Registrant’s Annual Report on
Form 10-K, dated February 28, 2007, for the fiscal year ended December 30, 2006).
Mueller Industries, Inc. 2009 Stock Incentive Plan (Incorporated by reference from Appendix
I to the Company’s 2009 Definitive Proxy Statement with respect to the Company’s 2009
Annual Meeting of Stockholders, as filed with the Securities and Exchange Commission on
March 26, 2009).
Amendment to the Mueller Industries, Inc. 2002 Stock Option Plan, dated July 11, 2011
(Incorporated herein by reference to Exhibit 10.16 of the Registrant’s Annual Report on Form
10-K, dated February 28, 2012, for the fiscal year ended December 31, 2011).
Amendment to the Mueller Industries, Inc. 2009 Stock Incentive Plan, dated July 11, 2011
(Incorporated herein by reference to Exhibit 10.17 of the Registrant’s Annual Report on Form
10-K, dated February 28, 2012, for the fiscal year ended December 31, 2011).
Mueller Industries, Inc. 2011 Annual Bonus Plan (Incorporated herein by reference to Exhibit
10.18 of the Registrant’s Annual Report on Form 10-K, dated February 28, 2012, for the
fiscal year ended December 31, 2011).
10.12
Summary description of the Registrant’s 2014 incentive plan for certain key employees.
10.13
10.14
10.15
10.16
10.17
10.18
10.19
Amended Credit Agreement, dated as of March 7, 2011, among the Registrant (as Borrower)
and Bank of America, N.A. (as agent), and certain lenders named therein, following adoption
of Amendment No. 2 dated December 11, 2012 (Incorporated herein by reference to Exhibit
10.20 of the Registrant’s Annual Report on Form 10-K, dated February 27, 2013, for the
fiscal year ended December 29, 2012).
Amendment No. 1 to Credit Agreement among the Registrant (as borrower), Bank of
America, N.A. (as agent), and certain lenders named therein dated August 12, 2011
(Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on
Form 10-Q, for the Quarterly period ended October 1, 2011, dated October 27, 2011).
Amendment No. 2 to Credit Agreement among the Registrant (as borrower), Bank of
America, N.A. (as agent), and certain lenders named therein dated December 11, 2012
(Incorporated herein by reference to Exhibit 10.22 of the Registrant’s Annual Report on Form
10-K, dated February 27, 2013, for the fiscal year ended December 29, 2012).
Share Repurchase Agreement, dated as of September 23, 2012, by and among Mueller
Industries, Inc., Leucadia National Corporation and BEI-Longhorn, LLC. (Incorporated by
reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, dated September
24, 2012).
Amended and Restated Letter Agreement, dated as of September 23, 2012, by and between
Mueller Industries, Inc. and Leucadia National Corporation (Incorporated by reference to
Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, dated September 24, 2012).
Separation Agreement by and between the Registrant and Kent A. McKee, dated
November 7, 2012 (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current
Report on Form 8-K, dated November 9, 2012).
Amendment No. 1 to Amended and Restated Employment Agreement by and between the
Registrant and Gregory L. Christopher, dated February 14, 2013 (Incorporated by reference
to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, dated February 14, 2013).
27
10.20
10.21
Asset Purchase Agreement, dated August 9, 2013, by and among Boat Equipment, LLC,
MCTP, LLC, Mueller Plastics Corporation, Inc. and Mueller Industries, Inc. (Incorporated
herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, dated
August 9, 2013).
Stock Purchase Agreement by and among Commercial Metals Company, Howell Metal
Company and Mueller Copper Tube Products, Inc. dated as of October 17, 2013
(Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form
8-K, dated October 17, 2013).
21.0
Subsidiaries of the Registrant.
23.0
Consent of Independent Registered Public Accounting Firm.
31.1
31.2
32.1
32.2
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended.
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.INS XBRL Instance Document
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Presentation Linkbase Document
101.SCH XBRL Taxonomy Extension Schema
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on
February 26, 2014.
MUELLER INDUSTRIES, INC.
/s/ GREGORY L. CHRISTOPHER
Gregory L. Christopher, Chief Executive Officer
(Principal Executive Officer), and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature
Title
Date
/s/ GARY S. GLADSTEIN
Gary S. Gladstein
Chairman of the Board, and Director
February 26, 2014
/s/ GREGORY L. CHRISTOPHER
Gregory L. Christopher
Chief Executive Officer
February 26, 2014
(Principal Executive Officer), and Director
/s/ PAUL J. FLAHERTY
Paul J. Flaherty
/s/ GENNARO J. FULVIO
Gennaro J. Fulvio
/s/ SCOTT J. GOLDMAN
Scott J. Goldman
/s/ TERRY HERMANSON
Terry Hermanson
Director
Director
Director
Director
February 26, 2014
February 26, 2014
February 26, 2014
February 26, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature and Title
Date
/s/ JEFFREY A. MARTIN
Jeffrey A. Martin
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
/s/ RICHARD W. CORMAN
Richard W. Corman
Vice President – Controller
February 26, 2014
February 26, 2014
29
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30
MUELLER INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Review
Consolidated Statements of Income
for the years ended December 28, 2013, December 29, 2012, and December 31, 2011
Consolidated Statements of Comprehensive Income
for the years ended December 28, 2013, December 29, 2012, and December 31, 2011
Consolidated Balance Sheets
as of December 28, 2013 and December 29, 2012
Consolidated Statements of Cash Flows
for the years ended December 28, 2013, December 29, 2012, and December 31, 2011
Consolidated Statements of Changes in Equity
for the years ended December 28, 2013, December 29, 2012, and December 31, 2011
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
F- 2
F- 12
F- 13
F- 14
F- 15
F- 16
F- 18
F- 52
FINANCIAL STATEMENT SCHEDULE
Schedule for the years ended December 28, 2013, December 29, 2012, and December 31, 2011
Valuation and Qualifying Accounts (Schedule II)
F- 53
F-1
FINANCIAL REVIEW
Overview
The Company is a leading manufacturer of copper, brass, aluminum, and plastic products. The range of these
products is broad: copper tube and fittings; brass and copper alloy rod, bar, and shapes; aluminum and brass forgings;
aluminum and copper impact extrusions; plastic pipe, fittings and valves; refrigeration valves and fittings; fabricated
tubular products; and steel nipples. The Company also resells imported brass and plastic plumbing valves, malleable
iron fittings, faucets and plumbing specialty products. Mueller’s operations are located throughout the United States
and in Canada, Mexico, Great Britain, and China.
The Company’s businesses are aggregated into two reportable segments: the Plumbing & Refrigeration
segment and the OEM segment. For disclosure purposes, as permitted under ASC 280, Segment Reporting, certain
operating segments are aggregated into reportable segments. The Plumbing & Refrigeration segment is composed of
the SPD, European Operations, and Mexican Operations. The OEM segment is composed of the IPD, EPD, and
Mueller-Xingrong, the Company’s Chinese joint venture. Certain administrative expenses and expenses related
primarily to retiree benefits at inactive operations are combined into the Corporate and Eliminations
classification. These reportable segments are described in more detail below.
SPD manufactures and sells copper tube, copper and plastic fittings, line sets, plastic pipe, and valves in
North America and sources products for import distribution in North America. European Operations manufacture
copper tube in Europe, which is sold in Europe and the Middle East; activities also include import distribution in the
U.K. and Ireland. Mexican Operations consist of pipe nipple manufacturing and import distribution businesses
including product lines of malleable iron fittings and other plumbing specialties. The Plumbing & Refrigeration
segment sells products to wholesalers in the HVAC, plumbing, and refrigeration markets, to distributors to the
manufactured housing and recreational vehicle industries, and to building material retailers.
The OEM segment manufactures and sells brass and copper alloy rod, bar, and shapes; aluminum and brass
forgings; aluminum and copper impact extrusions; refrigeration valves and fittings; fabricated tubular products; and
gas valves and assemblies. Mueller–Xingrong manufactures engineered copper tube primarily for air-conditioning
applications; these products are sold primarily to OEM’s located in China. The OEM segment sells its products
primarily to original equipment manufacturers, many of which are in the HVAC, plumbing, and refrigeration markets.
New housing starts and commercial construction are important determinants of the Company’s sales to the
HVAC, refrigeration, and plumbing markets because the principal end use of a significant portion of the Company’s
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.
The majority of the Company’s manufacturing facilities operated at significantly below capacity during 2012
and 2013 due to the reduced demand for the Company’s products arising from the general economic conditions in the
U.S. and foreign markets that the Company serves. These conditions have significantly affected the demand for
virtually all of the Company’s core products in recent years.
Residential construction activity improved in 2012 and the improvement continued in 2013, but is still at
levels below long-term historical averages. Continued recovery in the near-term is expected, but may be tempered by
continuing high rates of unemployment, tighter lending standards, and rising mortgage rates. According to the U.S.
Census Bureau, actual housing starts in the U.S. were 923 thousand in 2013, which compares to 781 thousand in 2012
and 609 thousand in 2011. While mortgage rates have risen in 2013, they remain at historically low levels, as the
average 30-year fixed mortgage rate was approximately 3.98 percent in 2013 and 3.66 percent in 2012.
The private non-residential construction sector, which includes offices, industrial, health care and retail
projects, began showing modest improvement in 2012 after declining each year from 2009 to 2011. However, the
pace of the improvement appears to have slowed through the end of 2013. According to the U.S. Census Bureau, at
December 2013, the seasonally adjusted annual rate of private nonresidential value construction was $311.3 billion
compared to $316.8 billion at December 2012. The actual private nonresidential value of construction put in place
was $296.5 billion in 2013, $297.7 billion in 2012, and $257.5 billion in 2011. The Company expects that most of
F-2
these conditions will gradually improve, but at an irregular pace.
Profitability of certain of the Company’s product lines depends upon the “spreads” between the cost of raw
material and the selling prices of its products. The open market prices for copper cathode and scrap, for example,
influence the selling price of copper tube, a principal product manufactured by the Company. The Company attempts
to minimize the effects on profitability from fluctuations in material costs by passing through these costs to its
customers. The Company’s 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 its core product lines, the Company intensively
manages its pricing structure while attempting to maximize its 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. U.S. consumption of copper tube is still predominantly
supplied by U.S. manufacturers. For certain air-conditioning and refrigeration applications, aluminum based systems
are the primary substitution threat. The Company cannot predict the acceptance or the rate of switching that may
occur. In recent years, brass rod consumption in the U.S. has declined due to the outsourcing of many manufactured
products from offshore regions.
The fiscal years ended December 28, 2013 and December 29, 2012 contained 52 weeks, while the year ended
December 31, 2011 contained 53 weeks.
RESULTS OF OPERATIONS
2013 Performance Compared with 2012
Consolidated net sales in 2013 were $2.16 billion, a one percent decrease compared with net sales of $2.19
billion in 2012. Of the $31.4 million decrease, approximately $58.6 million was due to lower net selling prices in the
Company’s core product lines and approximately $12.7 million was due to lower unit sales volume in the OEM
segment. This was partially offset by a $28.0 million increase in unit sales volume in the Plumbing and Refrigeration
segment, of which $14.3 million was related to the sales recorded for Howell Metal Company (Howell), acquired in
October 2013, and an $11.1 million increase in the OEM segment related to the sales recorded for Westermeyer,
acquired in August 2012. 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 Comex average copper
price in 2013 was approximately $3.34 per pound, or seven percent lower than the 2012 average of $3.61 per pound.
Cost of goods sold was $1.86 billion in 2013 compared with $1.90 billion in 2012. The year-over-year
decrease was due primarily to the decrease in the price of copper, the Company’s principal raw material, offset by the
recognition of a gain from LIFO liquidation that resulted in a reduction of approximately $8.0 million to cost of sales
in 2012.
Depreciation and amortization increased from $31.5 million in 2012 to $32.4 million in 2013 due to an
increase in capital spending in 2012 and 2013. Selling, general, and administrative expenses increased to $134.9
million in 2013; this $5.4 million increase was primarily due to increased legal fees of $3.0 million, increased bad debt
expense of $1.0 million, and increased software purchases of $0.7 million.
During 2013, the Company settled the insurance claim related to the September 2011 fire at its Wynne,
Arkansas manufacturing operation and recognized a $106.3 million gain. The Company also sold certain of its
plastic fittings manufacturing assets and recognized a pre-tax gain of $39.8 million, or 81 cents per diluted share after
tax, and recognized fixed asset impairment charges of $4.3 million.
During 2012, the Company recorded a net gain of $4.1 million upon receipt of payment related to the October
2012 settlement of a lawsuit against Xiamen Lota International Co., Ltd. The Company also settled the business
interruption portion of its insurance claim related to the July 2009 explosion at the copper tube facility in Fulton,
Mississippi and recorded a $1.5 million gain. The gain was offset by $3.4 million in severance charges.
F-3
Interest expense decreased to $4.0 million in 2013 from $6.9 million in 2012. This decrease was related to the
redemption of the 6% Subordinated Debentures during the second quarter of 2012. In addition, during 2013 the
Company capitalized interest expense related to certain capital projects. Other income, net was $4.5 million in 2013
compared with $0.5 million for 2012. This increase was primarily due to a $3.0 million gain on the sale of a
non-operating property and a $0.3 million decrease in the provision for environmental remediation.
Income tax expense was $98.1 million, for an effective rate of 36 percent. This rate was higher than what
would be computed using the U.S. statutory federal rate primarily due to state tax expense, net of federal benefit, of
$6.4 million, and the impact of goodwill disposition of $1.8 million. These increases were partially offset by the U.S.
production activities deduction benefit of $4.4 million and the effect of lower foreign tax rates and other foreign
adjustments of $1.0 million.
The Company’s employment was approximately 3,925 at the end of 2013 compared with 3,775 at the end of
2012.
Plumbing & Refrigeration Segment
Net sales by the Plumbing & Refrigeration segment decreased one percent to $1.23 billion in 2013 from
$1.24 billion in 2012. Of the $12.9 million decrease in net sales, approximately $40.0 million was attributable to
lower net selling prices in the segment’s core product lines consisting primarily of copper tube, line sets, and fittings,
which was partially offset by an increase of $28.0 million attributable to higher unit sales volume, of which $14.3
million was related to the sales recorded for Howell, acquired in October 2013. Cost of goods sold decreased from
$1.06 billion in 2012 to $1.04 billion in 2013, which was also due to decreasing raw material prices, primarily copper,
offset by higher unit sales volume. In addition, the Company recognized a deferred gain from LIFO liquidation that
resulted in a reduction of approximately $8.0 million to cost of sales for the segment in 2012. Depreciation and
amortization increased from $16.5 million in 2012 to $17.1 million in 2013 due to increases in capital spending in
2012 and 2013. Selling, general, and administrative expense increased from $75.4 million in 2012 to $85.5 million in
2013. The increase is primarily due to higher employment costs, including incentive compensation, of $5.4 million,
an increase in legal fees of $1.3 million, and an increase in bad debt expense of $1.0 million. During 2013, the
segment recognized a $103.9 million gain related to the settlement of the insurance claim for the September 2011 fire
at the Wynne, Arkansas manufacturing operation. It also sold certain of its plastic fittings manufacturing assets and
recognized a pre-tax gain of $39.8 million, and recognized fixed asset impairment charges of $4.2 million. In 2012, the
Company settled the business interruption portion of its insurance claim related to the July 2009 explosion at its
copper tube facility in Fulton, Mississippi and recorded a $1.5 million gain.
OEM Segment
The OEM segment’s net sales were $947.8 million in 2013 compared with $974.6 million in 2012. Of the
$26.8 million decrease in net sales, approximately $18.6 million was due to lower net selling prices in the segment’s
core product lines of brass rod, forgings, and commercial tube and approximately $12.7 million was due to lower unit
sales volume. This was partially offset by an $11.1 million increase related to the sales recorded for Westermeyer,
acquired in August 2012. Cost of goods sold decreased to $833.5 million in 2013 from $866.4 million in 2012, which
was also due to the decrease in the average costs of raw materials and lower unit sales volume. Depreciation and
amortization remained relatively consistent. Selling, general, and administrative expenses were $24.5 million in 2013
compared with $27.7 million in 2012. The decrease is due primarily to decreased employment costs, including
incentive compensation, of $1.0 million, and losses on fixed asset impairments recorded in 2012. Operating income
increased from $67.1 million in 2012 to $76.6 million in 2013 primarily as a result of higher margins.
2012 Performance Compared with 2011
Consolidated net sales in 2012 were $2.19 billion, a 10 percent decrease compared with net sales of $2.42
billion in 2011. The decrease was largely attributable to the decrease in base metal prices, primarily copper, and
slightly lower unit volumes in many of the Company’s core products. 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 Comex average copper price in 2012 was approximately $3.61 per pound, or 10
percent lower than the 2011 average of $4.01 per pound.
F-4
Cost of goods sold was $1.90 billion in 2012 compared with $2.12 billion in 2011. The year-over-year
decrease was due primarily to the decrease in the price of copper, the Company’s principal raw material, and slightly
lower sales volume in its core product lines. In addition, the Company recognized a deferred gain from LIFO
liquidation that resulted in a reduction of approximately $8.0 million to cost of sales.
Depreciation and amortization decreased from $36.9 million in 2011 to $31.5 million in 2012 due to certain
assets becoming fully depreciated. Selling, general, and administrative expenses decreased to $129.5 million in 2012;
this $6.5 million decrease was primarily due to decreased employment costs, including incentive compensation, of
$5.9 million. These decreases were partially offset by increased professional fees of $2.5 million.
During 2012, the Company recorded a net gain of $4.1 million upon receipt of payment related to the October
2012 settlement of a lawsuit against Xiamen Lota International Co., Ltd. The Company also settled the business
interruption portion of its insurance claim related to the July 2009 explosion at the copper tube facility in Fulton,
Mississippi and recorded a $1.5 million gain. The gain was offset by $3.4 million in severance charges.
During 2011, the Company recorded a gain of $10.5 million upon receipt of payment related to the December
10, 2010, settlement of a lawsuit against Peter D. Berkman, Jeffrey A. Berkman, and Homewerks Worldwide LLC.
Interest expense decreased to $6.9 million in 2012 from $11.6 million in 2011. This decrease was related to
the redemption of the 6% Subordinated Debentures during the second quarter of 2012 and decreased borrowings by
Mueller Xingrong. Other income, net was $0.5 million in 2012 compared with $1.9 million for 2011. This decrease
was primarily due to a $0.8 million increase in the provision for environmental remediation and a loss on the disposal
of certain long-lived assets.
Income tax expense was $36.7 million, for an effective rate of 30 percent. This rate was lower than what
would be computed using the U.S. statutory federal rate primarily due to the U.S. production activities deduction
benefit of $3.0 million, effect of lower foreign tax rates and other foreign adjustments of $2.6 million, and reductions
in tax contingencies of $3.2 million. These decreases were partially offset by state tax expense, net of federal benefit,
of $3.2 million.
The Company’s employment was approximately 3,775 at the end of 2012 compared with 3,750 at the end of
2011.
Plumbing & Refrigeration Segment
Net sales by the Plumbing & Refrigeration segment decreased seven percent to $1.24 billion in 2012 from
$1.33 billion in 2011. Of the $92.2 million decrease in net sales, approximately $86.2 million was attributable to
lower net selling prices and approximately $12.2 million was due to lower volume in Europe. Cost of goods sold
decreased from $1.14 billion in 2011 to $1.06 billion in 2012, which was also due to decreasing raw material prices,
primarily copper, and lower sales volume. In addition, the Company recognized a deferred gain from LIFO
liquidation that resulted in a reduction of approximately $8.0 million to cost of sales for the segment. Depreciation
and amortization decreased from $20.9 million in 2011 to $16.5 million in 2012 due to reduced depreciation expense
resulting from certain assets becoming fully depreciated. Selling, general, and administrative expenses decreased
from $84.8 million in 2011 to $75.4 million in 2012. The decrease is primarily due to lower employment costs,
including incentive compensation, of $5.7 million. The Company also settled the business interruption portion of its
insurance claim related to the July 2009 explosion at the copper tube facility in Fulton, Mississippi and recorded a $1.5
million gain. Operating income for the segment increased from $84.8 million in 2011 to $87.0 million in 2012.
During 2011, a portion of the Wynne, Arkansas manufacturing operation was extensively damaged by fire,
which impacted a portion of the segment’s copper tube, line sets, and DWV plastic fittings operations. Direct,
incremental property damage and cleanup costs have been deferred as a receivable, while the impact of lost sales and
other extra expenses associated with business interruption have been recognized as incurred in the Consolidated
Statement of Income for 2011 and 2012.
F-5
OEM Segment
The OEM segment’s net sales were $974.6 million in 2012 compared with $1.12 billion in 2011. Of the
$145.2 million decrease in net sales, approximately $66.0 million was due to lower net selling prices and
approximately $66.1 million was due to lower unit volume in the segment’s core product lines of brass rod, forgings,
and commercial tube. Cost of goods sold decreased to $866.4 million in 2012 from $1.01 billion in 2011, which was
also due to the decrease in the average costs of raw materials and lower sales volume. Depreciation and amortization
remained relatively consistent. Selling, general, and administrative expenses were $27.7 million in 2012 compared
with $24.8 million in 2011. The increase is due primarily to losses on fixed asset impairments of $1.5 million,
increased bad debt expense of $0.8 million, and increased selling and distribution expenses of $0.5 million. Operating
income decreased from $72.7 million in 2011 to $67.1 million in 2012, due primarily to lower unit volume and net
spreads and increased per-unit conversion costs in core products.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased to $311.8 million at December 28, 2013, from $198.9 million at
December 29, 2012, a net increase of $112.9 million. Major components of the change included $128.5 million of
cash provided by operating activities, $3.0 million of cash used in investing activities and $13.6 million of cash used in
financing activities.
Of the cash and cash equivalents held at December 28, 2013, $123.8 million was held by foreign
subsidiaries. The Company expects to repatriate $1.5 million of this cash and has accrued deferred tax on these
earnings. All other earnings of the foreign subsidiaries are considered to be permanently reinvested, and it is not
practicable to compute the potential deferred tax liability associated with these undistributed foreign earnings. The
Company believes that cash held domestically, funds available through the credit agreement, and cash generated from
U.S. based operations will be adequate to meet the future needs of the U.S. based operations.
The primary components of cash provided by operating activities were consolidated net income of $173.3
million, partially offset by the gain related to the settlement of the insurance claim for the September 2011 fire in
Wynne, Arkansas of $106.3 million and the $39.8 million gain on the sale of the plastic fittings manufacturing assets.(cid:2) (cid:2)
There were also increases due to the non-capital related insurance proceeds of $32.4 million, changes in working
capital, and non-cash adjustments primarily consisting of depreciation and amortization of $30.9 million and deferred
income taxes of $19.2 million. Major changes in working capital included a $19.4 million decrease in trade accounts
receivable and a $14.1 million decrease in current liabilities. Changes in the components of working capital are
heavily driven by the changes in raw material prices, primarily copper.
The major components of net cash used in investing activities in 2013 included $55.3 million for the
acquisition of Howell Metal Company and $41.3 million used for capital expenditures. These decreases were partially
offset by $65.1 million for proceeds from the sale of assets, including certain plastic fittings manufacturing assets, and
$29.9 million for insurance proceeds for property and equipment related to the fire at our Wynne, Arkansas
manufacturing operation.
Net cash used in financing activities totaled $13.6 million, which consisted primarily of $13.9 million for
payment of regular quarterly dividends to stockholders of the Company.
The Company spent approximately $2.0 million during 2013 for environmental matters. As of December 28,
2013, the Company expects to spend $1.4 million in 2014, $0.9 million in 2015, $0.8 million in 2016, $0.8 million in
2017, $0.8 million in 2018, and $9.4 million thereafter for ongoing projects. The timing of a potential payment for a
$9.5 million settlement offer related to the Southeast Kansas Sites has not yet been determined.
The Company’s Credit Agreement provides for an unsecured $350.0 million revolving credit facility (the
Revolving Credit Facility) and a $200.0 million Term Loan Facility, both maturing on December 11, 2017. The
Revolving Credit Facility backed approximately $10.0 million in letters of credit at the end of 2013. As of December
28, 2013, the Company’s total debt was $235.3 million or 24.2 percent of its total capitalization.
F-6
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 December 28,
2013, the Company was in compliance with all of its debt covenants.
Contractual cash obligations of the Company as of December 28, 2013 included the following:
(In millions)
Total
2014
2015-2016 2017-2018 Thereafter
Payments Due by Year
Debt
Consulting agreement (1)
Operating leases
Heavy machinery and equipment
commitments
Purchase commitments (2)
Interest payments (3)
$
235.3 $
4.0
24.0
13.1
524.5
19.8
29.1 $
1.3
6.7
11.7
524.5
3.2
2.0 $
2.0
10.3
1.4
—
11.1
202.0 $
0.7
5.6
—
—
5.5
Total contractual cash obligations
$
820.7 $
576.5 $
26.8 $
213.8 $
2.2
—
1.4
—
—
—
3.6
(1) See Note 10 to Consolidated Financial Statements.
(2) The Company has contractual supply commitments for raw materials totaling $491.3 million at year-end prices;
these contracts contain variable pricing based on Comex and the London Metals Exchange. These
commitments are for purchases of raw materials that are expected to be consumed in the ordinary course of
business.
(3) These payments represent interest on variable rate debt based on rates in effect at December 28, 2013. The
Company has entered into an interest rate swap, effective January 12, 2015, which will fix the interest rate
associated with the majority of its variable rate debt.
The above obligations will be satisfied with existing cash, the credit agreement, and cash generated by
operations. Cash used to fund pension and other postretirement benefit obligations was $2.8 million in 2013 and $4.3
million in 2012. The Company has no off-balance sheet financing arrangements except for the operating leases
identified above.
Fluctuations in the cost of copper and other raw materials affect the Company’s liquidity. Changes in
material costs directly impact components of working capital, primarily inventories and accounts receivable. The
price of copper has fluctuated significantly and averaged approximately $3.34 in 2013, $3.61 in 2012, and $4.01 in
2011.
The Company’s Board of Directors declared a regular quarterly dividend of 12.5 cents for each fiscal quarter
of 2013 and in the fourth quarter of 2012, and 10 cents per share on its common stock for the first three quarters of
2012. Payment of dividends in the future is dependent upon the Company’s financial condition, cash flows, capital
requirements, earnings, and other factors.
Management believes that cash provided by operations, the credit agreement, and currently available cash of
$311.8 million will be adequate to meet the Company’s normal future capital expenditure and operational needs. The
Company’s current ratio (current assets divided by current liabilities) was 4.0 to 1 as of December 28, 2013.
The Company’s Board of Directors has extended, until October 2014, its authorization to repurchase up to ten
million shares of the Company’s common stock through open market transactions or through privately negotiated
transactions. The Company has no obligation to repurchase any shares and 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
F-7
shares for stock-based compensation plans, as well as for other corporate purposes. From its initial authorization in
1999 through December 28, 2013, the Company had repurchased approximately 2.4 million shares under this
authorization. The Company’s repurchase transaction with Leucadia National Corporation in September 2012 was
completed outside of this authorization.
On October 17, 2013, the Company announced the acquisition of Howell. The purchase price of $55.3
million was funded by cash on-hand.
On October 18, 2013, the Company entered into a definitive agreement with KME Yorksire Limited (KME)
to acquire certain assets and assume certain liabilities of KME for purposes of acquiring KME’s Yorkshire Copper
Tube business. This transaction received regulatory approval in the United Kingdom on February 11, 2014. The
Company expects to fund the £18.0 million, or approximately $29.7 million, acquisition of Yorkshire with cash
on-hand.
Market Risks
The Company is exposed to market risks from changes in raw material and energy costs, interest rates, and
foreign currency exchange rates. To reduce such risks,
the Company may periodically use financial
instruments. Hedging transactions are authorized and executed pursuant to policies and procedures. Further, the
Company does not buy or sell financial instruments for trading purposes. A discussion of the Company’s accounting
for derivative instruments and hedging activities is included in “Note 1 - Summary of Significant Accounting
Policies” in the Notes to Consolidated Financial Statements.
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 the
Company’s control. Significant increases in the cost of metal, to the extent not reflected in prices for the Company’s
finished products, or the lack of availability could materially and adversely affect the Company’s business, results of
operations and financial condition.
The Company occasionally enters into forward fixed-price arrangements with certain customers. The
Company may utilize futures contracts to hedge risks associated with these forward fixed-price arrangements. The
Company 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 (OCI) and
reflected in earnings upon the sale of inventory. Periodic value fluctuations of the contracts generally offset the value
fluctuations of the underlying fixed-price transactions or inventory. At year-end, the Company held open futures
contracts to purchase approximately $15.9 million of copper over the next 15 months related to fixed-price sales
orders and to sell approximately $70.6 million of copper over the next five months related to copper inventory.
The Company 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
futures positions are deferred in equity as a component of OCI 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. There were no open futures contracts to purchase natural gas at December 28, 2013.
Interest Rates
The Company had variable-rate debt outstanding of $235.3 million at December 28, 2013 and $234.9 million
at December 29, 2012. At these borrowing levels, a hypothetical 10 percent increase in interest rates would have had
an insignificant unfavorable impact on the Company’s pre-tax earnings and cash flows. The primary interest rate
exposures on floating-rate debt are based on LIBOR and the base-lending rate published by the People’s Bank of
China. There was no fixed-rate debt outstanding as of December 28, 2013 or December 29, 2012.
F-8
The Company has reduced its exposure to increases in LIBOR by entering into interest rate swap contracts.
These contracts have been designated as cash flow hedges. The fair value of these contracts has been recorded in the
Condensed Consolidated Balance Sheets, and the related gains and losses on the contracts are deferred in
stockholders’ equity as a component of other comprehensive income. Deferred gains or losses on the contracts will be
recognized in interest expense in the period in which the related interest payment being hedged is expensed. The
interest rate swap agreement has an effective date of January 12, 2015.
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. The Company 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 accumulated OCI and reflected in
earnings upon collection of receivables or payment of commitments. At December 28, 2013, the Company had open
forward contracts with a financial institution to sell approximately 1.5 million Canadian dollars and 0.7 million euros
through March 2014. It also held open futures contracts to buy approximately 10.5 million euros through March 2015.
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 the Company is exposed include the Canadian
dollar, the British pound sterling, the euro, the Mexican peso, and the Chinese renminbi. The Company generally
views as long-term its investments in foreign subsidiaries with a functional currency other than the U.S. dollar. As a
result, the Company generally does not hedge these net investments. The net investment in foreign subsidiaries
translated into U.S. dollars using the year-end exchange rates was $174.8 million at December 28, 2013 and $168.0
million at December 29, 2012. The potential loss in value of the Company’s net investment in foreign subsidiaries
resulting from a hypothetical 10 percent adverse change in quoted foreign currency exchange rates at December 28,
2013 and December 29, 2012 amounted to $17.5 million and $16.8 million, respectively. This change would be
reflected in the foreign currency translation component of accumulated OCI in the equity section of the Company’s
Consolidated Balance Sheets, until the foreign subsidiaries are sold or otherwise disposed.
The Company has significant investments in foreign operations whose functional currency is the British
pound sterling and the Mexican peso. During 2013, the value of the Mexican peso decreased approximately one
percent and the British pound increased approximately two percent relative to the U.S. dollar, respectively. The
resulting foreign currency translation gains were recorded as a component of OCI.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company’s Consolidated Financial Statements are prepared in accordance with accounting principles
generally accepted in the United States. Application of these principles requires the Company to make estimates,
assumptions, and judgments that affect the amounts reported in the Consolidated Financial Statements. Management
believes the most complex and sensitive judgments, because of their significance to the Consolidated Financial
Statements, result primarily from the need to make estimates about the effects of matters which are inherently
uncertain. The accounting policies and estimates that are most critical to aid in understanding and evaluating the
results of operations and financial position of the Company include the following:
Inventory Valuation
The Company’s inventories are valued at the lower-of-cost-or-market. The material component of its U.S.
copper tube and copper fittings inventories is valued on a last-in, first-out (LIFO) basis. Other manufactured
inventories, including the non-material components of U.S. copper tube and copper fittings, are valued on a first-in,
first-out (FIFO) basis. Certain inventories purchased for resale are valued on an average cost basis. Elements of cost
in finished goods inventory in addition to the cost of material include depreciation, amortization, utilities, consumable
production supplies, maintenance, production wages, and transportation costs.
F-9
The market price of copper cathode and scrap are subject to volatility. During periods when open market
prices decline below net book value, the Company may need to provide an allowance to reduce the carrying value of
its inventory. In addition, certain items in inventory may be considered obsolete and, as such, the Company may
establish an allowance to reduce the carrying value of those items to their net realizable value. Changes in these
estimates related to the value of inventory, if any, may result in a materially adverse impact on the Company’s reported
financial position or results of operations. The Company recognizes the impact of any changes in estimates,
assumptions, and judgments in income in the period in which it is determined.
Goodwill
Goodwill represents cost in excess of fair values assigned to the underlying net assets of acquired
businesses. Goodwill is subject to impairment testing, which is performed by the Company as of the first day of the
fourth quarter of each fiscal year, unless circumstances dictate more frequent testing. For testing purposes, the
Company uses components of its operating segments; components of a segment having similar economic
characteristics are combined. The annual impairment test is a two-step process. The first step is the estimation of fair
value of reporting units that have goodwill. If this estimate indicates that impairment potentially exists, the second
step is performed. Step two, used to measure the amount of goodwill impairment loss, compares the implied fair value
of goodwill to the carrying value. In step two the Company is required to allocate the fair value of each reporting unit,
as determined in step one, to the fair value of the reporting unit’s assets and liabilities, including unrecognized
intangible assets and corporate allocation where applicable, in a hypothetical purchase price allocation as if the
reporting unit had been purchased on that date. If the implied fair value of goodwill is less than the carrying value, an
impairment charge is recorded. Inputs to that model include various estimates, including cash flow projections and
assumptions. Some of the inputs are highly subjective and are affected by changes in business conditions and other
factors. Changes in any of the inputs could have an effect on future tests and result in material impairment charges.
The Company has two reporting units with goodwill. One of these reporting units is included in the Plumbing
and Refrigeration segment, and one is included in the OEM segment.
Income Taxes
Deferred income tax assets and liabilities are recognized when differences arise between the treatment of
certain items for financial statement and tax purposes. Realization of certain components of deferred tax assets is
dependent upon the occurrence of future events. The Company records valuation allowances to reduce its deferred tax
assets to the amount it believes is more likely than not to be realized. These valuation allowances can be impacted by
changes in tax laws, changes to statutory tax rates, and future taxable income levels and are based on the Company’s
judgment, estimates, and assumptions. In the event the Company were to determine that it would not be able to realize
all or a portion of the net deferred tax assets in the future, the Company would increase the valuation allowance
through a charge to income tax expense in the period that such determination is made. Conversely, if the Company
were to determine that it would be able to realize its deferred tax assets in the future, in excess of the net carrying
amounts, the Company would decrease the recorded valuation allowance through a decrease to income tax expense in
the period that such determination is made.
The Company provides for uncertain tax positions and the related interest and penalties, if any, based upon
management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax
authorities. Tax benefits for uncertain tax positions that are recognized in the financial statements are measured as the
largest amount of benefit, determined on a cumulative probability basis, that is more likely than not to be realized upon
ultimate settlement. To the extent the Company prevails in matters for which a liability for an uncertain tax position is
established or is required to pay amounts in excess of the liability, the Company’s effective tax rate in a given financial
statement period may be affected.
F-10
Environmental Reserves
The Company recognizes an environmental liability when it is probable the liability exists and the amount is
reasonably estimable. The Company estimates the duration and extent of its remediation obligations based upon
reports of outside consultants; internal analyses of cleanup costs, and ongoing monitoring costs; communications with
regulatory agencies; and changes in environmental law. If the Company were to determine that its estimates of the
duration or extent of its environmental obligations were no longer accurate, the Company would adjust its
environmental liabilities accordingly in the period that such determination is made. Estimated future expenditures for
environmental remediation are not discounted to their present value. Accrued environmental liabilities are not
reduced by potential insurance reimbursements.
Environmental expenses that relate to ongoing operations are included as a component of cost of goods
sold. Environmental expenses related to non-operating properties are included in other income, net in the
Consolidated Statements of Income.
Allowance for Doubtful Accounts
The Company provides an allowance for receivables that may not be fully collected. In circumstances where
the Company is aware of a customer’s inability to meet its financial obligations (e.g., bankruptcy filings or substantial
downgrading of credit ratings), it records an allowance for doubtful accounts against amounts due to reduce the net
recognized receivable to the amount it believes most likely will be collected. For all other customers, the Company
recognizes an allowance for doubtful accounts based on its historical collection experience. If circumstances change
(e.g., greater than expected defaults or an unexpected material change in a major customer’s ability to meet its
financial obligations), the Company’s estimate of the recoverability of amounts due could be changed by a material
amount.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Annual 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. 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 this Annual Report on Form 10-K, such factors
include: (i) the current and projected future business environment, including interest rates and capital and consumer
spending; (ii) the domestic housing and commercial construction industry environment; (iii) the extent and duration of
the recovery from the 2008 through 2010 economic decline; (iv) availability and price fluctuations in commodities
(including copper, natural gas, and other raw materials, including crude oil that indirectly affects plastic resins); (v)
competitive factors and competitor responses to the Company’s initiatives; (vi) stability of government laws and
regulations, including taxes; (vii) availability of financing; and (viii) continuation of the environment to make
acquisitions, domestic and foreign, including regulatory requirements and market values of candidates.
F-11
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 28, 2013, December 29, 2012, and December 31, 2011
(In thousands, except per share data)
2013
2012
2011
Net sales
$2,158,541 $2,189,938 $2,417,797
Cost of goods sold
Depreciation and amortization
Selling, general, and administrative expense
Insurance settlements
Gain on sale of plastic fittings manufacturing assets
Impairment charges
Litigation settlements
Severance
Operating income
Interest expense
Other income, net
Income before income taxes
Income tax expense
Consolidated net income
1,862,089 1,904,463 2,115,677
36,865
31,495
129,456 135,953
—
—
—
32,394
134,914
(106,332)
(39,765)
4,304
(1,500)
—
—
(4,050)
3,369
(10,500)
—
—
—
270,937
126,705 139,802
(3,990)
4,451
(6,890)
539
(11,553)
1,912
271,398
120,354 130,161
(98,109)
(36,681)
(43,075)
173,289
83,673
87,086
Less net income attributable to noncontrolling interest
(689)
(1,278)
(765)
Net income attributable to Mueller Industries, Inc.
$ 172,600 $
82,395 $
86,321
Weighted average shares for basic earnings per share
Effect of dilutive stock-based awards
27,871
371
35,332
414
37,835
361
Adjusted weighted average shares for diluted earnings per share
28,242
35,746
38,196
Basic earnings per share
Diluted earnings per share
Dividends per share
$
$
$
6.19 $
2.33 $
2.28
6.11 $
2.31 $
2.26
0.50 $
0.425 $
0.40
See accompanying notes to consolidated financial statements.
F-12
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 28, 2013, December 29, 2012, and December 31, 2011
(In thousands)
2013
2012
2011
Consolidated net income
$ 173,289 $
83,673 $
87,086
Other comprehensive income (loss), net of tax:
Foreign currency translation
Net change with respect to derivative instruments and hedging
activities (1)
Net actuarial gain (loss) on pension and postretirement
obligations (2)
Other, net
3,285
8,070
232
1,713
255
(988)
27,369
151
(847)
14
(10,378)
(81)
Total other comprehensive income (loss)
32,518
7,492
(11,215)
Comprehensive income
Less comprehensive income attributable to noncontrolling interest
205,807
(1,404)
91,165
(1,984)
75,871
(1,913)
Comprehensive income attributable to Mueller Industries, Inc.
$ 204,403 $
89,181 $
73,958
See accompanying notes to consolidated financial statements.
(1) Net of taxes of $(962) in 2013, $(162) in 2012, and $559 in 2011
(2) Net of taxes of $(15,015) in 2013, $94 in 2012, and $4,786 in 2011
F-13
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 28, 2013 and December 29, 2012
(In thousands, except share data)
Assets
Current assets:
2013
2012
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $2,391 in 2013 and
$ 311,800 $ 198,934
$1,644 in 2012
Inventories
Current deferred income taxes
Other current assets
Total current assets
Property, plant, and equipment, net
Goodwill, net
Other assets
Total Assets
Liabilities
Current liabilities:
Current portion of debt
Accounts payable
Accrued wages and other employee costs
Other current liabilities
Total current liabilities
Long-term debt, less current portion
Pension liabilities
Postretirement benefits other than pensions
Environmental reserves
Deferred income taxes
Other noncurrent liabilities
Total liabilities
Equity
Mueller Industries, Inc. stockholders’ equity:
271,847 271,093
251,716 229,434
26,438
21,295
8,106
31,248
874,717 747,194
244,457 233,263
94,357 104,579
19,119
34,236
$1,247,767 $1,104,155
$
27,570
29,083 $
87,574
80,897
37,109
34,378
72,167 109,174
219,256 258,696
206,250 207,300
35,187
10,645
19,832
16,781
22,597
22,144
20,910
35,975
1,667
849
511,900 566,189
Preferred stock - $1.00 par value; shares authorized 5,000,000; none outstanding
Common stock - $.01 par value; shares authorized 100,000,000; issued
40,091,502; outstanding 28,302,337 in 2013 and 28,099,635 in 2012
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury common stock, at cost
Total Mueller Industries, Inc. stockholders’ equity
—
—
401
401
267,142 267,826
908,274 749,777
(42,623)
(10,819 )
(461,593 ) (468,473)
703,405 506,908
31,058
32,462
735,867 537,966
—
—
$1,247,767 $1,104,155
Noncontrolling interest
Total equity
Commitments and contingencies
Total Liabilities and Equity
See accompanying notes to consolidated financial statements.
F-14
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 28, 2013, December 29, 2012, and December 31, 2011
(In thousands)
Operating activities:
Consolidated net income
Reconciliation of net income to net cash provided by operating activities:
$ 173,289 $
2013
2012
2011
Depreciation
Amortization of intangibles
Amortization of debt issuance costs
Stock-based compensation expense
Insurance settlements
Gain on sale of plastic fittings manufacturing assets
Insurance proceeds – noncapital related
Impairment charges
Income tax benefit from exercise of stock options
Deferred income taxes
(Recovery of) provision for doubtful accounts receivable
(Gain) loss on disposal of properties
Changes in assets and liabilities, net of businesses acquired:
30,946
1,448
299
5,704
(106,332)
(39,765)
32,395
4,304
(719)
19,213
(273)
(2,535)
83,673 $
87,086
30,326
1,169
438
6,136
(1,500)
—
14,250
—
(2,528)
(1,284)
837
1,411
35,966
899
397
3,482
—
—
10,000
—
(853)
(4,190)
(229)
(202)
Receivables
Inventories
Other assets
Current liabilities
Other liabilities
Other, net
19,383
5,963
562
(14,139)
(1,935)
705
(23,690)
(4,834)
(14,985)
8,368
9,345
1,165
28,716
(15,678)
460
7,966
(1,593)
1,522
Net cash provided by operating activities
128,513
108,297 153,749
Investing activities:
Proceeds from sales of assets
Acquisition of businesses
Capital expenditures
Insurance proceeds
Net (deposits into) withdrawals from restricted cash balances
Net cash used in investing activities
Financing activities:
Dividends paid to stockholders of Mueller Industries, Inc.
Repurchase of common stock
Repayments of long-term debt
(Repayment) issuance of debt by joint venture, net
Issuance of long-term debt
Net cash (used) received to settle stock-based awards
Income tax benefit from exercise of stock options
Debt issuance costs
Net cash used in financing activities
Effect of exchange rate changes on cash
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
65,147
(55,276)
(41,349)
29,910
(1,417)
517
(11,561)
(56,825)
42,250
9,243
1,984
(6,882)
(18,751)
—
(3,055)
(2,985)
(16,376)
(26,704)
(13,941)
—
(1,000)
857
—
(228)
719
(50)
(14,891)
(427,446)
(149,176)
(14,429)
200,000
(4,181)
2,528
(1,053)
(15,146)
—
(750)
6,162
—
3,879
853
(1,942)
(13,643)
(408,648)
(6,944)
981
1,499
(78)
112,866
198,934
(315,228) 120,023
514,162 394,139
Cash and cash equivalents at the end of the year
$ 311,800 $ 198,934 $ 514,162
For supplemental disclosures of cash flow information, see Notes 1, 5, 7, and 14.
See accompanying notes to consolidated financial statements.
F-15
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 28, 2013, December 29, 2012, and December 31, 2011
(In thousands)
Common stock:
Balance at beginning of year
Balance at end of year
Additional paid-in capital:
Balance at beginning of year
Issuance of shares under
incentive stock option
plans
Stock-based compensation
expense
Income tax benefit from
exercise of stock options
Issuance of restricted stock
2013
2012
2011
Shares
Amount
Shares
Amount
Shares
Amount
40,092 $
40,092 $
401
401
40,092 $
40,092 $
401
401
40,092 $
40,092 $
401
401
$ 267,826
$ 266,936
$ 263,233
(1,205)
5,704
719
(5,902)
(4,303)
6,136
2,528
(3,471)
2,340
3,482
853
(2,972)
Balance at end of year
$ 267,142
$ 267,826
$ 266,936
Retained earnings:
Balance at beginning of year
Net income attributable to
Mueller Industries, Inc.
Dividends paid or payable to
stockholders of Mueller
Industries, Inc.
$ 749,777
$ 682,380
$ 611,279
172,600
82,395
86,321
(14,103)
(14,998)
(15,220)
Balance at end of year
$ 908,274
$ 749,777
$ 682,380
Accumulated other
comprehensive (loss) income:
Balance at beginning of year
Total other comprehensive
income (loss) attributable
to Mueller Industries, Inc.
$ (42,623)
$ (49,409)
$ (37,046)
31,804
6,786
(12,363)
Balance at end of year
$ (10,819)
$ (42,623)
$ (49,409)
F-16
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(continued)
Years Ended December 28, 2013, December 29, 2012, and December 31, 2011
(In thousands)
Treasury stock:
Balance at beginning of year
Issuance of shares under
incentive stock option
plans
Repurchase of common stock
Issuance of restricted stock
2013
2012
2011
Shares
Amount
Shares
Amount
Shares
Amount
11,992 $ (468,473)
1,855 $ (44,620)
2,237 $ (49,131)
(122)
70
(151)
4,716
(3,738)
5,902
(576)
10,855
(142)
20,881
(448,205)
3,471
(464)
214
(132)
10,637
(9,098)
2,972
Balance at end of year
11,789 $ (461,593)
11,992 $ (468,473)
1,855 $ (44,620)
Noncontrolling interest:
Balance at beginning of year
Net income attributable to
noncontrolling interest
Foreign currency translation
$
31,058
$
29,074
$
27,161
689
715
1,278
706
765
1,148
Balance at end of year
$
32,462
$
31,058
$
29,074
See accompanying notes to consolidated financial statements.
F-17
Notes to Consolidated Financial Statements
Note 1 – Summary of Significant Accounting Policies
Nature of Operations
The principal business of Mueller Industries, Inc. is the manufacture and sale of copper tube and fittings; line
sets; brass and copper alloy rod, bar, and shapes; aluminum and brass forgings; aluminum and copper impact
extrusions; plastic pipe, fittings and valves; refrigeration valves and fittings; fabricated tubular products; and steel
nipples. The Company also resells imported brass and plastic plumbing valves, malleable iron fittings, faucets, and
plumbing specialty products. The Company markets its products to the HVAC, plumbing, refrigeration, hardware,
and other industries. Mueller’s operations are located throughout the United States and in Canada, Mexico, Great
Britain, and China.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Mueller Industries, Inc. and its majority
owned subsidiaries. All significant
in
interest represents a separate private ownership of 49.5 percent of
consolidation. The noncontrolling
Mueller-Xingrong. The years ended December 28, 2013 and December 29, 2012 contained 52 weeks, while the year
ended December 31, 2011 contained 53 weeks.
transactions have been eliminated
intercompany accounts and
Revenue Recognition
Revenue is recognized when title and risk of loss pass to the customer, provided collection is determined to
be probable and no significant obligations remain for the Company. Estimates for future rebates on certain product
lines and product returns are recognized in the period which the revenue is recorded. The cost of shipping product to
customers is expensed as incurred as a component of cost of goods sold.
Cash Equivalents
Temporary investments with original maturities of three months or less are considered to be cash
equivalents. These investments are stated at cost. At December 28, 2013 and December 29, 2012, temporary
investments consisted of money market mutual funds, commercial paper, bank repurchase agreements, and U.S. and
foreign government securities totaling $179.2 million and $86.0 million, respectively. Included in other current assets
is restricted cash of $5.2 million and $3.7 million at December 28, 2013 and December 29, 2012, respectively. These
amounts represent required deposits into brokerage accounts that facilitate the Company’s hedging activities and
deposits that secure certain short-term notes issued under Mueller-Xingrong’s credit facility.
Allowance for Doubtful Accounts
The Company provides an allowance for receivables that may not be fully collected. In circumstances where
the Company is aware of a customer’s inability to meet its financial obligations (e.g., bankruptcy filings or substantial
downgrading of credit ratings), it records an allowance for doubtful accounts against amounts due to reduce the net
recognized receivable to the amount it believes most likely will be collected. For all other customers, the Company
recognizes an allowance for doubtful accounts based on its historical collection experience. If circumstances change
(e.g., greater than expected defaults or an unexpected material change in a major customer’s ability to meet its
financial obligations), the Company could change its estimate of the recoverability of amounts due by a material
amount.
Inventories
The Company’s inventories are valued at the lower-of-cost-or-market. The material component of its U.S.
copper tube and copper fittings inventories is valued on a last-in, first-out (LIFO) basis. Other manufactured
inventories, including the non-material components of U.S. copper tube and copper fittings, are valued on a first-in,
first-out (FIFO) basis. Certain inventories purchased for resale are valued on an average cost basis. Elements of cost
F-18
in finished goods inventory in addition to the cost of material include depreciation, amortization, utilities,
maintenance, production wages, and transportation costs.
The market price of copper cathode and scrap is subject to volatility. During periods when open market
prices decline below net book value, the Company may need to provide an allowance to reduce the carrying value of
its inventory. In addition, certain items in inventory may be considered obsolete and, as such, the Company may
establish an allowance to reduce the carrying value of those items to their net realizable value. Changes in these
estimates related to the value of inventory, if any, may result in a materially adverse impact on the Company’s reported
financial position or results of operations. The Company recognizes the impact of any changes in estimates,
assumptions, and judgments in income in the period in which it is determined.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation of buildings, machinery, and equipment is
provided on the straight-line method over the estimated useful lives ranging from 20 to 40 years for buildings and five
to 20 years for machinery and equipment. Leasehold improvements are amortized over the lesser of their useful life or
the remaining lease term. Repairs and maintenance are expensed as incurred.
Goodwill
Goodwill represents cost in excess of fair values assigned to the underlying net assets of acquired
businesses. Goodwill is subject to impairment testing, which is performed by the Company as of the first day of the
fourth quarter of each fiscal year, unless circumstances dictate more frequent testing. For testing purposes, the
Company defines reporting units as components of its operating segments; components of a segment having similar
economic characteristics are combined. The annual impairment test is a two-step process. The first step is the
estimation of fair value of reporting units that have goodwill. If this estimate indicates that impairment potentially
exists, the second step is performed. Step two, used to measure the amount of goodwill impairment loss, compares the
implied fair value of goodwill to the carrying value. In step two the Company is required to allocate the fair value of
each reporting unit, as determined in step one, to the fair value of the reporting unit’s assets and liabilities, including
unrecognized intangible assets and corporate allocation where applicable, in a hypothetical purchase price allocation
as if the reporting unit had been purchased on that date. If the implied fair value of goodwill is less than the carrying
value, an impairment charge is recorded. As discussed in Note 14, goodwill was disposed of in 2013 in conjunction
with the sale of a business. The Company has two reporting units with goodwill. One of these reporting units is
included in the Plumbing and Refrigeration segment, and one is included in the OEM segment. There can be no
assurance that additional goodwill impairment will not occur in the future.
Because there are no observable inputs available, the Company estimates fair value of reporting units based
on a combination of the market approach and income approach (Level 3 hierarchy as defined by ASC 820 Fair Value
Measurements and Disclosures (ASC 820)). The market approach measures the fair value of a business through the
analysis of publicly traded companies or recent sales of similar businesses. The income approach uses a discounted
cash flow model to estimate the fair value of reporting units based on expected cash flows (adjusted for capital
investment required to support operations) and a terminal value. This cash flow stream is discounted to its present
value to arrive at a fair value for each reporting unit. Future earnings are estimated using the Company’s most recent
annual projections, applying a growth rate to future periods. Those projections are directly impacted by the condition
of the markets in which the Company’s businesses participate. For the reporting units included in the Plumbing &
Refrigeration segment, the projections reflect, among other things, the decline of the residential and non-residential
construction markets over the past several years. The OEM segment is also impacted by the residential and
non-residential construction markets. The discount rate selected for the reporting units is generally based on rates of
return available from alternative investments of similar type and quality at the date of valuation.
Self-Insurance Accruals
The Company is primarily self-insured for workers’ compensation claims and benefits paid under certain
employee health care programs. Accruals are primarily based on estimated undiscounted cost of claims, which
includes incurred but not reported claims, and are classified as accrued wages and other employee costs.
F-19
Environmental Reserves and Environmental Expenses
The Company recognizes an environmental liability when it is probable the liability exists and the amount is
reasonably estimable. The Company estimates the duration and extent of its remediation obligations based upon
reports of outside consultants; internal analyses of cleanup costs and ongoing monitoring costs; communications with
regulatory agencies; and changes in environmental law. If the Company were to determine that its estimates of the
duration or extent of its environmental obligations were no longer accurate, the Company would adjust its
environmental liabilities accordingly in the period that such determination is made. Estimated future expenditures for
environmental remediation are not discounted to their present value. Accrued environmental liabilities are not
reduced by potential insurance reimbursements.
Environmental expenses that relate to ongoing operations are included as a component of cost of goods
sold. Environmental expenses related to non-operating properties are included in other income, net on the
Consolidated Statements of Income.
Earnings Per Share
Basic earnings per share is computed based on the weighted average number of common shares
outstanding. Diluted earnings per share reflects the increase in weighted average common shares outstanding that
would result from the assumed exercise of outstanding stock options and vesting of restricted stock awards calculated
using the treasury stock method.
Income Taxes
Deferred income tax assets and liabilities are recognized when differences arise between the treatment of
certain items for financial statement and tax purposes. Realization of certain components of deferred tax assets is
dependent upon the occurrence of future events. The Company records valuation allowances to reduce its deferred tax
assets to the amount it believes is more likely than not to be realized. These valuation allowances can be impacted by
changes in tax laws, changes to statutory tax rates, and future taxable income levels and are based on the Company’s
judgment, estimates, and assumptions regarding those future events. In the event the Company were to determine that
it would not be able to realize all or a portion of the net deferred tax assets in the future, the Company would increase
the valuation allowance through a charge to income tax expense in the period that such determination is
made. Conversely, if the Company were to determine that it would be able to realize its deferred tax assets in the
future, in excess of the net carrying amounts, the Company would decrease the recorded valuation allowance through
a decrease to income tax expense in the period that such determination is made.
The Company provides for uncertain tax positions and the related interest and penalties, if any, based upon
management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax
authorities. Tax benefits for uncertain tax positions that are recognized in the financial statements are measured as the
largest amount of benefit, determined on a cumulative probability basis, that is more likely than not to be realized upon
ultimate settlement. To the extent the Company prevails in matters for which a liability for an uncertain tax position is
established or is required to pay amounts in excess of the liability, the Company’s effective tax rate in a given financial
statement period may be affected.
These estimates are highly subjective and could be affected by changes in business conditions and other
factors. Changes in any of these factors could have a material impact on future income tax expense.
Taxes Collected from Customers and Remitted to Governmental Authorities
Taxes assessed by a governmental authority that are directly imposed on a revenue producing transaction
between the Company and its customers, primarily value added taxes in foreign jurisdictions, are accounted for on a
net (excluded from revenues and costs) basis.
F-20
Employee Benefits
The Company sponsors several qualified and nonqualified pension and other postretirement benefit plans in
the U.S. and certain foreign locations. We recognize the overfunded or underfunded status of the plans as an asset or
liability in the Consolidated Balance Sheet with changes in the funded status recorded through comprehensive income
in the year in which those changes occur. The obligations for these plans are actuarially determined and affected by
assumptions, including discount rates, expected long-term return on plan assets for defined benefit pension plans, and
certain employee-related factors, such as retirement age and mortality. The Company evaluates its assumptions
periodically and makes adjustments as necessary.
The expected return on plan assets is determined using the market value of plan assets. Differences between
assumed and actual returns are amortized to the market value of assets on a straight-line basis over the average
remaining service period of the plan participants using the corridor approach. The corridor approach defers all
actuarial gains and losses resulting from variances between actual results and actuarial assumptions. These
unrecognized gains and losses are amortized when the net gains and losses exceed 10 percent of the greater of the
market value of the plan assets or the projected benefit obligation. The amount in excess of the corridor is amortized
over the average remaining service period of the plan participants. For 2013, the average remaining service period
for the pension plans was 10 years.
Stock-Based Compensation
The Company has in effect stock incentive plans under which stock-based awards have been granted to
certain employees and members of its board of directors. Stock-based compensation expense is recognized in the
Consolidated Statements of Income as a component of selling, general, and administrative expense based on the grant
date fair value of the awards.
Concentrations of Credit and Market Risk
Concentrations of credit risk with respect to accounts receivable are limited due to the large number of
customers comprising the Company’s customer base, and their dispersion across different geographic areas and
different industries, including HVAC, plumbing, refrigeration, hardware, automotive, OEMs, and others.
The Company minimizes its exposure to base metal price fluctuations through various strategies. Generally,
it prices an equivalent amount of copper raw material, under flexible pricing arrangements it maintains with its
suppliers, at the time it determines the selling price of finished products to its customers.
Derivative Instruments and Hedging Activities
The Company utilizes futures contracts to manage the volatility related to purchases of copper through cash
flow hedges. The Company also utilizes futures contracts to protect the value of its copper inventory on hand and firm
commitments to purchase copper through fair value hedges. The Company may elect to utilize futures contracts as
economic hedges that do not qualify for hedge accounting in accordance with ASC 815 Derivatives and Hedging
(ASC 815). In addition, the Company may elect to use foreign currency forward contracts to reduce the risk from
exchange rate fluctuations on future purchases and intercompany transactions denominated in foreign currencies. The
Company accounts for financial derivative instruments by applying hedge accounting rules. These rules require the
Company to recognize all derivatives, as defined, as either assets or liabilities measured at fair value. If the derivative
is designated as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be
offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or
recognized as a component of OCI until the hedged item is recognized in earnings. The ineffective portion of a
derivative’s change in fair value will be immediately recognized in earnings. Gains and losses recognized by the
Company related to the ineffective portion of its hedging instruments, as well as gains and losses related to the portion
of the hedging instruments excluded from the assessment of hedge effectiveness, were not material to the Company’s
Consolidated Financial Statements. Should these contracts no longer meet hedge criteria either through lack of
effectiveness or because the hedged transaction is not probable of occurring, all deferred gains and losses related to the
hedge will be immediately reclassified from OCI into earnings. Depending on position, the unrealized gain or loss on
futures contracts are classified as other current assets or other current liabilities in the Consolidated Balance Sheets,
F-21
and any changes thereto are recorded in changes in assets and liabilities in the Consolidated Statements of Cash Flows.
The Company primarily executes derivative contracts with major financial institutions. These counterparties
expose the Company to credit risk in the event of non-performance. The amount of such exposure is limited to the fair
value of the contract plus the unpaid portion of amounts due to the Company pursuant to terms of the derivative
instruments, if any. If a downgrade in the credit rating of these counterparties occurs, management believes that this
exposure is mitigated by provisions in the derivative arrangements which allow for the legal right of offset of any
amounts due to the Company from the counterparties with any amounts payable to the counterparties by the
Company. As a result, management considers the risk of loss from counterparty default to be minimal.
Fair Value of Financial Instruments
The carrying amounts for cash and cash equivalents, accounts receivable, and accounts payable approximate
fair value due to the short-term maturity of these instruments.
The fair value of long-term debt at December 28, 2013 approximates the carrying value on that date. The
estimated fair values were determined based on quoted market prices and the current rates offered for debt with similar
terms and maturities. The fair value of our 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.(cid:2) (cid:2) Outstanding borrowings have variable interest rates that
re-price frequently at current market rates.
Foreign Currency Translation
For foreign subsidiaries in which the functional currency is other than the U.S. dollar, balance sheet accounts
are translated at exchange rates in effect at the end of the year and income statement accounts are translated at average
exchange rates for the year. Translation gains and losses are included in equity as a component of OCI. Included in
the Consolidated Statements of Income were transaction losses of $0.1 million in 2013, gains of $0.3 million in 2012,
and losses of $0.7 million in 2011.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates, assumptions, and judgments that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ from those estimates.
Recently Issued Accounting Standards
In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (ASU)
No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02).
Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of accumulated
OCI by component. In addition, an entity is required to present, either on the face of the financial statements or in the
notes, significant amounts reclassified out of accumulated OCI by the respective line items of net income, but only if
the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are
not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other
disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current
requirements for reporting net income or other comprehensive income in the financial statements. ASU 2013-02 was
effective for the Company in the reporting period beginning December 30, 2012.
F-22
Note 2 – Inventories
(In thousands)
Raw materials and supplies
Work-in-process
Finished goods
Valuation reserves
Inventories
2013
2012
$
46,114
54,613 $
43,796
40,951
159,422 148,014
(5,645)
(6,115)
$ 251,716 $ 229,434
Inventories valued using the LIFO method totaled $34.9 million at December 28, 2013 and $19.9 million at
December 29, 2012. At December 28, 2013 and December 29, 2012, the approximate FIFO cost of such inventories
was $117.9 million and $109.8 million, respectively. Additionally, the Company valued certain inventories
purchased for resale on an average cost basis. The value of those inventories was $54.7 million at December 28, 2013
and $51.4 million at December 29, 2012.
During 2011, inventory quantities valued using the LIFO method declined which resulted in liquidation of
LIFO inventory layers. This liquidation resulted from intercompany sales; therefore, the gain from the LIFO
liquidation of approximately $8.0 million was deferred.(cid:2) (cid:2) During the first quarter of 2012, the Company sold this
inventory to third parties and recognized the gain. This recognition resulted in a reduction of approximately $8.0
million to cost of sales, or $0.13 per diluted share after tax.
At December 28, 2013, the FIFO value of inventory consigned to others was $4.3 million compared with $4.5
million at the end of 2012.
Note 3 – Property, Plant, and Equipment, Net
(In thousands)
Land and land improvements
Buildings
Machinery and equipment
Construction in progress
Less accumulated depreciation
Property, plant, and equipment, net
2013
2012
$
13,153 $
11,066
132,331 113,854
561,005 571,435
24,527
25,691
732,180 720,882
(487,723) (487,619)
$ 244,457 $ 233,263
F-23
Note 4 – Goodwill, Net
The changes in the carrying amount of goodwill were as follows:
(In thousands)
Balance at December 31, 2011:
Goodwill
Accumulated impairment and amortization
Additions
Balance at December 29, 2012:
Goodwill
Accumulated impairment and amortization
Additions
Disposition
Balance at December 28, 2013:
Goodwill
Accumulated impairment and amortization
Plumbing &
Refrigeration
Segment
OEM
Segment
Total
$
141,684 $
(39,434)
9,971 $
(9,971)
151,655
(49,405)
102,250
—
102,250
—
2,329
2,329
141,684
(39,434)
12,300
(9,971)
153,984
(49,405)
102,250
2,329
104,579
310
(10,532)
—
—
310
(10,532)
131,462
(39,434)
12,300
(9,971)
143,762
(49,405)
Goodwill, net
$
92,028 $
2,329 $
94,357
In 2012, the Company acquired Westermeyer Industries, Inc. Of the $11.6 million purchase price, $2.3
million was allocated to goodwill. In 2013, the Company acquired Howell Metal Company (Howell). Of the $55.3
million purchase price, $0.3 million was allocated to goodwill based on a preliminary allocation of the purchase price.
(cid:2)
in conjunction with the sale of a business.
As discussed in Note 14, $10.5 million of goodwill relating to the SPD reporting unit was disposed of in 2013
There were no impairment charges resulting from the 2013, 2012, or 2011 impairment tests since the
estimated fair value of the reporting units substantially exceeded their carrying value.
Note 5 – Debt
(In thousands)
Term Loan Facility with interest at 1.54%, due 2017
Mueller-Xingrong credit facility with interest at 5.88%, due 2014
2001 Series IRB’s with interest at 1.16%, due through 2021
Other
Less current portion of debt
Long-term debt
2013
2012
$ 200,000 $ 200,000
26,570
8,250
50
28,033
7,250
50
235,333 234,870
(27,570)
(29,083)
$ 206,250 $ 207,300
F-24
On September 24, 2012, the Company entered into an agreement with Leucadia National Corporation
(Leucadia) to repurchase 10.4 million shares of the Company’s common stock at a total cost of $427.3 million. The
Company funded the purchase price with available cash on hand and borrowings of $200.0 million under its $350.0
revolving credit facility (the Revolving Credit Facility) provided by its credit agreement (the Agreement) dated March
7, 2011. On December 11, 2012, the Company amended the Agreement to add a $200.0 million term loan facility (the
Term Loan Facility), after which the total borrowing capacity under the Agreement was increased to $550.0
million. The Company used the borrowings under the Term Loan Facility to replace the amounts previously advanced
under the Revolving Credit Facility. The amendment also adjusted the pricing and extended the maturity date to
December 11, 2017 for all borrowings under the Agreement. Borrowings under the Agreement bear interest, at the
Company’s option, at LIBOR or Base Rate as defined by the Agreement, plus a variable premium. LIBOR advances
may be based upon the one, three, or six-month LIBOR. The variable premium is based upon the Company’s debt to
total capitalization ratio, and can range from 112.5 to 162.5 basis points for LIBOR based loans and 12.5 to 62.5 basis
points for Base Rate loans. At December 28, 2013, the premium was 137.5 basis points for LIBOR loans and 37.5
basis points for Base Rate loans. Additionally, a facility fee is payable quarterly on the total commitment and varies
from 25.0 to 37.5 basis points based upon the Company’s debt to total capitalization ratio. Availability of funds under
the Revolving Credit Facility is reduced by the amount of certain outstanding letters of credit, which are used to secure
the Company’s payment of insurance deductibles and certain retiree health benefits, totaling approximately $10.0
million at December 28, 2013. Terms of the letters of credit are generally one year but are renewable annually.
On September 24, 2013, Mueller-Xingrong entered into a credit agreement (the JV Credit Agreement) with a
syndicate of four banks establishing a secured RMB 450 million, or approximately $74.0 million, revolving credit
facility with a maturity date of September 24, 2014. The JV Credit Agreement replaced the previous secured RMB
350 million financing agreement that matured during the year. Borrowings outstanding under the JV Credit
Agreement are secured by the real property and equipment of Mueller-Xingrong and bear interest at the latest
base-lending rate published by the People’s Bank of China, which was 5.88 percent at December 28, 2013. The JV
Credit Agreement requires lender consent for the payment of dividends.
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. At December 28,
2013, the Company was in compliance with all debt covenants.
Aggregate annual maturities of the Company’s debt are $29.1 million in 2014, $1.0 million in 2015, $1.0
million in 2016, $201.0 million in 2017, $1.0 million in 2018, and $2.2 million thereafter. Interest paid in 2013, 2012,
and 2011 was $4.9 million, $8.4 million, and $10.8 million, respectively. In 2013, $1.2 million of interest was
capitalized. No interest was capitalized in 2012 or 2011.
Note 6 –Equity
The Company’s Board of Directors has extended, until October 2014, its authorization to repurchase up to ten
million shares of the Company’s common stock through open market transactions or through privately negotiated
transactions. The Company has no obligation to purchase any shares and may cancel, suspend, or extend the time
period for the purchase of shares at any time. Any purchases will be funded primarily through existing cash and cash
from operations. The Company may hold any shares purchased 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 December 28, 2013, the Company had repurchased approximately 2.4 million shares under this authorization.
The Company entered into an agreement with Leucadia pursuant to which the Company repurchased from
Leucadia 10.4 million shares of the Company’s common stock on September 24, 2012 at a total cost of $427.3 million.
The Company’s repurchase transaction with Leucadia was completed outside of the repurchase authorization
previously approved by the Board of Directors.
F-25
During the first quarter of 2013, the Company adopted ASU No. 2013-02, Reporting of Amounts Reclassified
Out of Accumulated Other Comprehensive Income (ASU 2013-02). Under ASU 2013-02, an entity is required to
provide information about the amounts reclassified out of accumulated OCI by component. In addition, an entity is
required to present significant amounts reclassified out of accumulated OCI by the respective line items of net income.
Changes in accumulated OCI by component, net of taxes and noncontrolling interest, were as follows:
(In thousands)
Cumulative
Translation
Adjustment
Unrealized
(Losses)/ Gains
on Derivatives
Minimum
Pension/OPEB
Liability Adjustment
Unrealized Gains
on Equity
Investments
Total
December 29, 2012
$
(3,032) $
(167) $
(39,527)
$
103 $(42,623)
Other comprehensive
income before
reclassifications
Amounts reclassified
from accumulated
OCI
Net current-period
other comprehensive
income
2,570
(2,102)
24,851
152
25,471
—
3,815
2,518
— 6,333
2,570
1,713
27,369
152
31,804
December 28, 2013
$
(462) $
1,546 $
(12,158)
$
255 $(10,819)
Reclassification adjustments out of accumulated OCI were as follows:
(cid:2)
(In thousands)
Amount reclassified from Accumulated OCI
For the Year Ended
December 28, 2013
Affected Line Item
Unrealized losses on derivatives:
Closed positions, commodity contracts $
Amortization of employee benefit items:
Amortization of net loss
$
$
5,672 Cost of goods sold
(1,857) Income tax expense
3,815 Net of tax
— Noncontrolling interest
3,815 Net of tax and noncontrolling interest
3,844 Selling, general, and administrative expense
(1,326) Income tax expense
2,518 Net of tax
— Noncontrolling interest
$
2,518 Net of tax and noncontrolling interest
The change in cumulative foreign currency translation adjustment primarily relates to the Company’s
investment in foreign subsidiaries and fluctuations in exchange rates between their local currencies and the U.S.
dollar. During 2013, the value of the Mexican peso decreased approximately one percent and the British pound
increased two percent relative to the U.S. dollar, respectively.
F-26
Note 7 – Income Taxes
The components of income before income taxes were taxed under the following jurisdictions:
(In thousands)
Domestic
Foreign
2013
2012
2011
$ 262,220 $ 105,945 $ 118,208
11,953
14,409
9,178
Income before income taxes
$ 271,398 $ 120,354 $ 130,161
Income tax expense consists of the following:
(In thousands)
Current tax expense:
Federal
Foreign
State and local
Current tax expense
Deferred tax expense (benefit):
Federal
Foreign
State and local
2013
2012
2011
$
69,565 $
2,608
6,723
33,152 $
1,764
3,049
43,127
1,740
2,398
78,896
37,965
47,265
17,694
(376)
1,895
570
(2,015)
161
(6,480)
344
1,946
Deferred tax expense (benefit)
19,213
(1,284)
(4,190)
Income tax expense
$
98,109 $
36,681 $
43,075
No provision is made for U.S. income taxes applicable to undistributed earnings of foreign subsidiaries that
are indefinitely reinvested in foreign operations. It is not practicable to compute the potential deferred tax liability
associated with these undistributed foreign earnings. The Company has approximately $100 million of undistributed
foreign earnings for which it has not recorded deferred tax liabilities.
The difference between the reported income tax expense and a tax determined by applying the applicable
U.S. federal statutory income tax rate to income before income taxes is reconciled as follows:
(In thousands)
2013
2012
2011
Expected income tax expense
State and local income tax, net of federal benefit
Effect of foreign statutory rate different from U.S. and other foreign
$
94,989 $
6,405
42,124 $
3,178
45,556
4,267
adjustments
Valuation allowance changes
U.S. production activities deduction
Goodwill disposition
Tax contingency changes
Other, net
(1,026)
—
(4,445)
1,790
(140)
536
(2,637)
(1,224)
(2,975)
—
(3,224)
1,439
(560)
(443)
(3,850)
—
(1,934)
39
Income tax expense
$
98,109 $
36,681 $
43,075
F-27
During 2012 and 2011, the Company released a valuation allowance of $1.2 million, or three cents per
diluted share, and $0.4 million, or one cent per diluted share, respectively, due to the expectation that certain state tax
attributes will be utilized.
The following summarizes the activity related to the Company’s unrecognized tax benefits:
(In thousands)
Beginning balance
Increases related to prior year tax positions
Increases related to current year tax positions
Decreases related to prior year tax positions
Decreases related to settlements with taxing authorities
Decreases due to lapses in the statute of limitations
Ending balance
2013
2012
$
3,259 $
—
—
—
(431)
—
6,572
—
—
—
—
(3,313)
$
2,828 $
3,259
It is reasonably possible that the $2.8 million of unrecognized tax benefits will decrease by the full amount
over the next twelve months, none of which will impact the effective tax rate, if recognized.
The Company includes interest and penalties related to income tax matters as a component of income tax
expense. The net reduction to income tax expense related to penalties and interest was immaterial in 2013 and in
2012, and $0.5 million in 2011.
The Internal Revenue Service (IRS) concluded its audit of the Company’s 2009 and 2010 federal income tax
returns during 2012, the results of which were immaterial to the consolidated financial statements. The IRS is
currently auditing the 2012 federal income tax return, and the Company is currently under audit in various state and
foreign jurisdictions.
The statute of limitations is still open for the Company’s federal tax return and most state income tax returns
for 2010 and all subsequent years. The statutes of limitations for certain state and foreign returns are also open for
some earlier tax years due to ongoing audits and 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.
F-28
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities are presented below:
(In thousands)
Deferred tax assets:
Accounts receivable
Inventories
Other postretirement benefits and accrued items
Pension
Other reserves
Federal and foreign tax attributes
State tax attributes, net of federal benefit
Insurance Claim Receivable
Share-based Compensation
Total deferred tax assets
Less valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Property, plant, and equipment
Pension
Other
Total deferred tax liabilities
Net deferred tax (liability) asset
$
2013
2012
490 $
11,136
13,548
—
12,441
5,913
24,663
—
2,486
447
7,829
14,767
10,489
14,905
9,829
29,880
8,048
1,493
70,677
(22,544)
97,687
(30,394)
48,133
67,293
60,425
4,507
2,209
49,531
—
983
67,141
50,514
$ (19,008) $
16,779
As of December 28, 2013, after consideration of the federal impact, the Company had state income tax credit
carryforwards of $2.0 million, all of which expire by 2016, and other state income tax credit carryforwards of $11.9
million with unlimited lives. The Company had state net operating loss (NOL) carryforwards with potential tax
benefits of $10.7 million expiring between 2014 and 2028. The state tax credit and NOL carryforwards are offset by
valuation allowances totaling $19.4 million.
As of December 28, 2013, the Company had federal and foreign tax attributes with potential tax benefits of
$5.9 million, of which $4.5 million has an unlimited life and $1.4 million expire from 2014 to 2018. These attributes
were offset by valuation allowances of $3.2 million.
The change in the valuation allowance was primarily related to deferred assets that are fully reserved, such
that the change had no material impact on the effective tax rate.
Income taxes paid were approximately $80.1 million in 2013, $38.4 million in 2012, and $45.9 million in
2011.
Note 8 – Other Current Liabilities
Included in other current liabilities were accrued discounts and allowances of $43.2 million at December 28,
2013 and $41.7 million at December 29, 2012, taxes payable of $7.3 million at December 28, 2013 and $6.2 million at
December 29, 2012, and deferred costs related to the fire at the Wynne, Arkansas facility of $44.6 million at December
29, 2012.
F-29
Note 9 – Employee Benefits
The Company sponsors several qualified and nonqualified pension plans and other postretirement benefit
plans for certain of its employees. The following tables provide a reconciliation of the changes in the plans’ benefit
obligations and the fair value of the plans’ assets for 2013 and 2012, and a statement of the plans’ aggregate funded
status as of December 28, 2013 and December 29, 2012:
(In thousands)
Change in benefit obligation:
Obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefit payments
Foreign currency translation adjustment
Pension Benefits
2012
2013
Other Benefits
2013
2012
$ 196,167 $ 180,341 $
884
8,472
14,458
(10,583)
2,595
948
7,774
(11,635)
(10,668)
1,472
18,096 $
413
647
(2,554)
(1,211)
(10)
19,945
380
635
(1,838)
(1,131)
105
Obligation at end of year
184,058
196,167
15,381
18,096
Change in fair value of plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Benefit payments
Foreign currency translation adjustment
160,980
35,578
1,551
(10,668)
1,429
147,502
18,964
3,216
(10,583)
1,881
—
—
1,211
(1,211)
—
—
—
1,131
(1,131)
—
Fair value of plan assets at end of year
188,870
160,980
—
—
Funded (underfunded) status at end of year
$
4,812 $ (35,187) $ (15,381) $ (18,096)
The following represents amounts recognized in accumulated OCI (before the effect of income taxes) at
December 28, 2013 and December 29, 2012:
(In thousands)
Pension Benefits
2012
2013
Other Benefits
2013
2012
Unrecognized net actuarial loss (gain)
Unrecognized prior service cost
$
21,128 $
1
61,125 $
2
(4,016) $
20
(1,630)
19
The Company sponsors one pension plan in the U.K. which comprised 40 percent and 36 percent of the above
benefit obligation at December 28, 2013 and December 29, 2012, and 34 percent and 35 percent of the above plan
assets at December 28, 2013 and December 29, 2012, respectively.
As of December 28, 2013, $0.5 million of the actuarial net loss will, through amortization, be recognized as
components of net periodic benefit cost in 2014.
The aggregate status of all overfunded plans is recognized as an asset and the aggregate status of all
underfunded plans is recognized as a liability in the Consolidated Balance Sheets. The amounts recognized as a
liability are classified as current or long-term on a plan-by-plan basis. Liabilities are classified as current to the extent
the actuarial present value of benefits payable within the next 12 months exceeds the fair value of plan assets, with all
remaining amounts being classified as long-term. As of December 28, 2013 and December 29, 2012, the total funded
status of the plans recognized in the Consolidated Balance Sheets was as follows:
F-30
(In thousands)
Long-term asset
Current liability
Long-term liability
Pension Benefits
2012
2013
Other Benefits
2013
2012
$
15,457 $
—
(10,645)
— $
—
(35,187)
— $
(1,033)
(14,348)
—
(1,187)
(16,909)
Total funded (underfunded) status
$
4,812 $ (35,187) $ (15,381) $ (18,096)
The components of net periodic benefit cost are as follows:
(In thousands)
Pension benefits:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of net loss
2013
2012
2011
$
948 $
7,774
(11,059)
1
4,005
884 $
8,472
(10,263)
1
3,883
1,394
9,051
(11,569)
2
2,346
Net periodic benefit cost
$
1,669 $
2,977 $
1,224
Other benefits:
Service cost
Interest cost
Amortization of prior service credit
Amortization of net gain
$
413 $
647
(2)
(160)
380 $
635
(2)
(73)
344
993
(3)
(2)
Net periodic benefit cost
$
898 $
940 $
1,332
The weighted average assumptions used in the measurement of the Company’s benefit obligations are as
follows:
Discount rate
Expected long-term return on plan assets
Rate of compensation increases
Rate of inflation
Pension Benefits
2012
2013
Other Benefits
2013
2012
4.82%
7.40%
N/A
3.40%
4.13%
7.15%
N/A
2.70%
4.89%
N/A
5.50%
N/A
4.06%
N/A
5.04%
N/A
The weighted average assumptions used in the measurement of the Company’s net periodic benefit cost are
as follows:
2013
Pension Benefits
2012
2011
2013
Other Benefits
2012
2011
Discount rate
Expected long-term return on
plan assets
Rate of compensation increases
Rate of inflation
4.13%
4.80%
5.25%
4.06%
4.97%
5.39%
7.15%
N/A
2.70%
7.11%
N/A
3.00%
7.51%
N/A
3.40%
N/A
5.04%
N/A
N/A
5.04%
N/A
N/A
5.04%
N/A
F-31
The Company’s Mexican postretirement plans use the rate of compensation increase in the benefit formulas.
Past service on the U.K. pension plan will be adjusted for the effects of inflation. All other pension and
postretirement plans use benefit formulas based on length of service.
The annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate)
is assumed to range from 5.4 to 9.3 percent for 2014, gradually decrease to 4.5 percent through 2022, and remain at
that level thereafter. The health care cost trend rate assumption could have a significant effect on the amounts
reported. For example, increasing the assumed health care cost trend rates by one percentage point would increase
the accumulated postretirement benefit obligation by $1.3 million and the service and interest cost components of net
periodic postretirement benefit costs by $0.1 million for 2014. Decreasing the assumed health care cost trend rates by
one percentage point in each year would decrease the accumulated postretirement benefit obligation and the service
and interest cost components of net periodic postretirement benefit costs for 2014 by $1.1 million and $0.1 million,
respectively.
The weighted average asset allocation of the Company’s pension fund assets are as follows:
Asset category
Equity securities (includes equity mutual funds)
Fixed income securities (includes fixed income mutual funds)
Cash and equivalents (includes money market funds)
Alternative investments
Total
Pension Plan Assets
2013
2012
86%
4
7
3
84%
5
9
2
100%
100%
At December 28, 2013, the Company’s target allocation, by asset category, of assets of its defined benefit
pension plans was: (i) equity securities, including equity index funds – at least 60 percent; (ii) fixed income
securities – not more than 25 percent; and (iii) alternative investments – not more than 20 percent.
The Company’s pension plan obligations are long-term and, accordingly, the plan assets are invested for the
long-term. The Company believes that a diversified portfolio of equity securities (both actively managed and index
funds) and private equity funds have an acceptable risk-return profile that, over the long-term, is better than fixed
income securities. Consequently, the pension plan assets are heavily weighted to equity investments. Plan assets are
monitored periodically. Based upon results, investment managers and/or asset classes are redeployed when
considered necessary. Expected rates of return on plan assets were determined based on historical market returns
giving consideration to the targeted composition of each plan’s portfolio. None of the plans’ assets are expected to be
returned to the Company during the next fiscal year.
The Company’s investments for its pension plans are reported at fair value. The following methods and
assumptions were used to estimate the fair value of the Company’s plan asset investments:
Cash and money market funds – Valued at cost, which approximates fair value.
Common stock – Valued at the closing price reported on the active market on which the individual securities are
traded.
Mutual funds – Valued at the net asset value of shares held by the plans at December 28, 2013 and December 29, 2012,
respectively, based upon quoted market prices.
F-32
Limited partnerships – Limited partnerships include investments in various Cayman Island multi-strategy hedge
funds. The plans’ investments in limited partnerships are valued at the estimated fair value of the class shares owned
by the plans based upon the equity in the estimated fair value of those shares. The estimated fair values of the limited
partnerships are determined by the investment managers. In determining fair value, the investment managers of the
limited partnerships utilize the estimated net asset valuations of the underlying investment entities. The
underlying investment entities value securities and other financial instruments on a mark-to-market or estimated fair
value basis. The estimated fair value is determined by the investment managers based upon, among other things, the
type of investments, purchase price, marketability, current financial condition, operating results, and other
information. The estimated fair values of substantially all of the investments of the underlying investment entities,
which may include securities for which prices are not readily available, are determined by the investment managers or
management of the respective underlying investment entities and may not reflect amounts that could be realized upon
immediate sale. Accordingly, the estimated fair values may differ significantly from the values that would have been
used had a ready market existed for these investments.
The following table sets forth by level, within the fair value hierarchy, the assets of the plans at fair value as
of December 28, 2013, and December 29, 2012, respectively:
(In thousands)
Cash and money market funds
Common stock (1)
Mutual funds (2)
Limited partnerships
Fair Value Measurements at December 28, 2013
Level 1 Level 2 Level 3 Total
$
13,992 $
79,497
27,166
—
— $
—
63,435
—
— $
—
—
4,780
13,992
79,497
90,601
4,780
Total
$ 120,655 $
63,435 $
4,780 $ 188,870
(In thousands)
Cash and money market funds
Common stock (3)
Mutual funds (4)
Limited partnerships
Fair Value Measurements at December 29, 2012
Level 1 Level 2 Level 3 Total
$
13,691 $
65,604
21,497
—
— $
—
55,695
—
— $
—
—
4,493
13,691
65,604
77,192
4,493
Total
$ 100,792 $
55,695 $
4,493 $ 160,980
(1) Approximately 84 percent of common stock represents investments in U.S. companies primarily in the
health care, utilities, financials, consumer staples, industrials, and information technology
sectors. All investments in common stock are listed on U.S. stock exchanges.
(2) Approximately 32 percent of mutual funds are actively managed funds and approximately 68 percent of
mutual funds are index funds. Additionally, 33 percent of the mutual funds’ assets are invested in U.S.
equities, 58 percent in non-U.S. equities, and 9 percent in non-U.S. fixed income securities.
(3) Approximately 90 percent of common stock represents investments in U.S. companies primarily in the
health care, utilities, financials, consumer staples, industrials, and information technology
sectors. All investments in common stock are listed on U.S. stock exchanges.
(4) Approximately 32 percent of mutual funds are actively managed funds and approximately 68 percent of
mutual funds are index funds. Additionally, 31 percent of the mutual funds’ assets are invested in U.S.
equities, 59 percent in non-U.S. equities, and 10 percent in non-U.S. fixed income securities.
F-33
The table below reflects the changes in the assets of the plan measured at fair value on a recurring basis using
significant unobservable inputs (Level 3 hierarchy as defined by ASC 820) during the year ended December 28, 2013:
(In thousands)
Balance, December 29, 2012
Redemptions
Subscriptions
Net appreciation in fair value
Balance, December 28, 2013
Limited
Partnerships
$
4,493
(1,133)
900
520
$
4,780
The assets of the plans do not include investments in securities issued by the Company. The Company
expects to contribute approximately $1.6 million to its pension plans and $1.0 million to its other postretirement
benefit plans in 2014. The Company expects future benefits to be paid from the plans as follows:
(In thousands)
2014
2015
2016
2017
2018
2019-2023
Total
Pension
Benefits
Other
Benefits
$
11,187 $
11,382
11,524
11,651
11,780
61,040
1,033
1,022
1,005
985
973
4,864
$ 118,564 $
9,882
The Company contributes to the IAM National Pension Fund, National Pension Plan (IAM Plan), a
multiemployer defined benefit plan. Participation in the IAM Plan was negotiated under the terms of two collective
bargaining agreements in Port Huron, Michigan, the Local 218 IAM and Local 44 UAW that expire on May 1, 2016
and July 20, 2016, respectively. The Employer Identification Number for this plan is 51-6031295.
The risks of participating in multiemployer plans are different from single-employer plans in the following
aspects: (i) Assets contributed to the multiemployer plan by one employer may be used to provide benefits to
employees of other participating employers; (ii) if a participating employer stops contributing to the plan, the
underfunded obligations of the plan may be borne by the remaining participating employers; (iii) if the Company
chooses to stop participating in the plan, the Company may be required to pay the plan an amount based on the
underfunded status of the plan, referred to as a withdrawal liability.
The Company makes contributions to the IAM Plan trusts that cover certain union employees; contributions
by employees are not required nor are they permitted. Contributions to the IAM Plan were $0.9 million in 2013, $1.0
million in 2012, and $0.9 million in 2011. The Company’s contributions are less than five percent of total employer
contributions made to the IAM Plan indicated in the most recently filed Form 5500.
Under the Pension Protection Act of 2006, the IAM Plan’s actuary must certify the plan’s zone status
annually. Plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80
percent funded, and plans in the green zone are at least 80 percent funded. If a plan is determined to be in endangered
status, red zone or yellow zone, the plan’s trustees must develop a formal plan of corrective action, a Financial
Improvement Plan and/or a Rehabilitation Plan. For 2013 and 2012 the IAM Plan was determined to have green zone
status; therefore, no formal plan of corrective action is either pending or has been implemented.
The Company sponsors voluntary employee savings plans that qualify under Section 401(k) of the Internal
Revenue Code of 1986. Compensation expense for the Company’s matching contribution to the 401(k) plans was
F-34
$3.2 million in 2013, $2.9 million in 2012, and $3.0 million in 2011. The Company’s match is a cash
contribution. Participants direct the investment of their account balances by allocating among a range of asset classes
including mutual funds (equity, fixed income, and balanced funds), and money market funds. The plans do not allow
direct investment in securities issued by the Company.
In October 1992, the Coal Industry Retiree Health Benefit Act of 1992 (the Act) was enacted. The Act
mandates a method of providing for postretirement benefits to the United Mine Workers of America (UMWA) current
and retired employees, including some retirees who were never employed by the Company. In October 1993,
beneficiaries were assigned to the Company and the Company began its mandated contributions to the UMWA
Combined Benefit Fund, a multiemployer trust. Beginning in 1994, the Company was required to make contributions
for assigned beneficiaries under an additional multiemployer trust created by the Act, the UMWA 1992 Benefit
Plan. The ultimate amount of the Company’s liability under the Act will vary due to factors which include, among
other things, the validity, interpretation, and regulation of the Act, its joint and several obligation, the number of valid
beneficiaries assigned, and the extent to which funding for this obligation will be satisfied by transfers of excess assets
from the 1950 UMWA pension plan and transfers from the Abandoned Mine Reclamation Fund. Contributions to the
plan were $290 thousand, $315 thousand, and $338 thousand for the years ended December 28, 2013, December 29,
2012, and December 31, 2011, respectively.
Note 10 – Commitments and Contingencies
Environmental
The Company is subject to environmental standards imposed by federal, state, local, and foreign
environmental laws and regulations. For all properties, the Company has provided and charged to expense $1.0
million in 2013, $3.1 million in 2012, and $0.4 million in 2011 for pending environmental matters. Environmental
costs related to non-operating properties are classified as a component of other income, net and costs related to
operating properties are classified as cost of goods sold. Environmental reserves totaled $23.6 million at December
28, 2013 and $24.6 million at December 29, 2012. As of December 28, 2013, the Company expects to spend on
existing environmental matters $1.4 million in 2014, $0.9 million in 2015, $0.8 million in 2016, $0.8 million in 2017,
$0.8 million in 2018, and $9.4 million thereafter. The timing of a potential payment for a $9.5 million settlement offer
has not yet been determined.
Non-operating Properties
Southeast Kansas Sites
The Kansas Department of Health and Environment (KDHE) has contacted the Company regarding
environmental contamination at three former smelter sites in Kansas (Altoona, Iola and East La Harpe). While the
Company believes that legally it is not a successor to the companies that operated these smelter sites, it is discussing
possible settlement with KDHE and other potentially responsible parties (PRP) in order to avoid litigation. In 2008,
the Company established a reserve of $9.5 million for this matter. Another PRP has conducted a site investigation of
the Altoona site under a consent decree with KDHE. The Company and two other PRPs have conducted a site study
evaluation of the East La Harpe site under KDHE supervision, and are now discussing sharing the costs of a possible
cleanup. Federal EPA is in the early stages of study and remediation of the Iola site, which it added to the National
Priority List (NPL) in May, 2013 as the “Former United Zinc & Associated Smelters” site.
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 sealing mine portals with
concrete plugs in mine adits, which 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 Order issued by the QCB,
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
F-35
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. That order 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 ten-year permit will include an order
requiring continued implementation of BMP through 2025 to address residual discharges of acid rock drainage. At
this site, MRRC spent approximately $1.7 million from 2011 through 2013 and estimates that it will spend between
approximately $10.0 million and $13.6 million over the next 20 years.
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 and studies (collectively, Site Activities) at Lead
Refinery’s East Chicago, Indiana site pursuant to the Resource Conservation and Recovery Act. Site Activities,
which began in December 1996, have been substantially concluded. Lead Refinery is required to perform monitoring
and maintenance activities with respect to Site Activities pursuant to a post-closure permit issued by the Indiana
Department of Environmental Management (IDEM) effective as of March 2, 2013. Lead Refinery spent
approximately $0.1 million annually in 2013, 2012, and 2011 with respect to this site. Approximate costs to comply
with the post-closure permit, including associated general and administrative costs, are between $2.1 million and $2.9
million over the next 20 years.
On April 9, 2009, pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA), the EPA added the Lead Refinery site, and properties adjacent to the Lead Refinery site, to the NPL. The
NPL is a list of priority sites where the EPA has determined that there has been a release or threatened release of
hazardous substances that warrant investigation and, if appropriate, remedial action. The NPL does not assign
liability to any party including the owner or operator of a property placed on the NPL. The placement of a site on the
NPL does not necessarily mean that remedial action must be taken. On July 17, 2009, Lead Refinery received a
written notice from the EPA that the agency is of the view that Lead Refinery may be a PRP under CERCLA in
connection with the release or threaten of release of hazardous substances including lead into properties located
adjacent to the Lead Refinery site. There are at least two other PRPs. PRPs under CERCLA include current and
former owners and operators of a site, persons who arranged for disposal or treatment of hazardous substances at a site,
or persons who accepted hazardous substances for transport to a site. In November 2012, the EPA adopted a remedy
in connection with properties located adjacent to the Lead Refinery site. The EPA has estimated that the cost to
implement the November 2012 remedy will be $30.0 million.
The Company monitors EPA releases and periodically communicates with the EPA to inquire of the status of
the investigation and cleanup of the Lead Refinery site. As of December 28, 2013, the EPA has not conducted an
investigation of the Lead Refinery site, proposed remedies for the Lead Refinery site, or informed Lead Refinery that
it is a PRP at the Lead Refinery site. Until the extent of remedial action is determined for the Lead Refinery site, the
Company is unable to determine the likelihood of a material adverse outcome or the amount or range of a potential loss
with respect to placement of the Lead Refinery site and adjacent properties on the NPL. Lead Refinery lacks the
financial resources needed to undertake any investigations or remedial action that may be required by the EPA
pursuant to CERCLA.
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. MCTP is currently removing
trichloroethylene, a cleaning solvent formerly used by MCTP, from the soil and groundwater. On August 30, 2000,
MCTP received approval of its Final Comprehensive Investigation Report and Storm Water Drainage Investigation
Report addressing the treatment of soils and groundwater from the Arkansas Department of Environmental Quality
(ADEQ). The Company established a reserve for this project in connection with the acquisition of MCTP in
1998. Effective November 17, 2008, MCTP entered into a Settlement Agreement and Administrative Order by
Consent to submit a Supplemental Investigation Work Plan (SIWP) and subsequent Final Remediation Work Plan for
F-36
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 Remediation Work Plan regarding final remediation for the Site. Construction and installation of
the remediation system is under way. The remediation system was activated in February 2014. Costs to implement
the work plans, including associated general and administrative costs, are approximately $1.9 million over the next ten
years.
United States Department of Commerce Antidumping Review
On December 24, 2008, the United States 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 to determine the final antidumping duties owed on U.S. imports during the period November 1, 2007 through
October 31, 2008, by certain subsidiaries of the Company. On April 19, 2010, the DOC published the final results of
this review and assigned Mueller Comercial de Mexico, S. de R.L. de C.V. (Mueller Comercial) an antidumping duty
rate of 48.3 percent. The Company appealed the final determination to the U.S. Court of International Trade
(CIT). The Company and the United States have reached an agreement to settle the appeal. As a result, the DOC
published on March 22, 2013 the amended final results of the review and assigned Mueller Comercial an antidumping
duty rate of 40.5 percent. U.S. Customs and Border Protection has assessed antidumping duties on subject imports
during the period of review. The Company has established a reserve of approximately $3.1 million for these duties.
On December 23, 2009, the 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, 2008 through October
31, 2009 period of review. The DOC selected Mueller Comercial as a respondent in the review. On June 21, 2011,
the DOC published the final results of the review and assigned Mueller Comercial an antidumping duty rate of 19.8
percent. On August 22, 2011, the Company appealed the final results to the CIT. On December 21, 2012, the CIT
issued a decision upholding the Department’s final results in part. The CIT issued its final judgment on May 2,
2013. On May 6, 2013, the Company appealed the CIT decision to the U.S. Court of Appeals for the Federal Circuit
(Federal Circuit). On January 10, 2014, the Federal Circuit held oral argument in the appeal. The Company
anticipates that certain of its subsidiaries will incur antidumping duties on subject imports made during the period of
review and, as such, established a reserve of approximately $1.1 million for this matter.
Subsequent to October 31, 2009, Mueller Comercial did not ship subject merchandise to the United States.
Therefore, there is no antidumping duty liability for periods of review after October 31, 2009.
United States Department of Commerce and United States International Trade Commission Antidumping
Investigations
On September 30, 2009, two subsidiaries of the Company, along with Cerro Flow Products, Inc. and
KobeWieland Copper Products LLC (collectively, Petitioners), jointly filed antidumping petitions with the DOC and
the U.S. International Trade Commission (ITC) alleging that imports of seamless refined copper pipe and tube from
China and Mexico (subject imports) were being sold at less than fair value and were causing material injury (and
threatening material injury) to the domestic industry. On October 1, 2010, the DOC published its final affirmative
determinations, finding antidumping rates from 24.89 percent to 28.16 percent for Mexico (as subsequently amended),
and from 11.25 percent to 60.85 percent for China.
Since November 22, 2010, as a result of the imposition of the antidumping duty orders on seamless refined
copper pipe and tube from Mexico and China, importers have been required to post cash deposits at rates up to 28.16
percent (for Mexico) and up to 60.85 percent (for China).
Over the last two years, the DOC conducted a “new shipper review” of a new Golden Dragon plant in
Mexico, followed by the first administrative reviews of imports from Mexico and China (for the period November 22,
2010 through October 31, 2011). Although Golden Dragon was found to be dumping in the “new shipper review,” the
impact of the more recent administrative reviews is that imports from certain companies (i.e., Golden Dragon in
China, and Golden Dragon and Nacobre in Mexico) will not be subject to cash deposits requirements until completion
of the ongoing second administrative reviews in 2014. These decisions are currently on appeal, during which time no
importers may receive any duty refunds. Furthermore, all companies in China and Mexico remain subject to the
F-37
disciplines of the antidumping duty orders and future administrative reviews, and imports from other companies
remain subject to cash deposit requirements, including IUSA (24.89 percent) and Luvata (28.16 percent) in Mexico, as
well as Hailiang (60.85 percent) and Luvata (36.05 percent) in China.
On December 30, 2013, the DOC initiated the third administrative review of several Chinese and Mexican
copper tube producers and/or exporters to the United States in order to establish company-specific dumping rates
based on the period November 1, 2012 through October 31, 2013. The reviews are expected to be completed
sometime in 2015. At this time, the Company is unable to know the final disposition of these administrative reviews.
Supplier Litigation
On May 6, 2011, the Company and two of its subsidiaries, Mueller Streamline Co. and B&K Industries, Inc.
(B&K)(Plaintiffs), filed a civil lawsuit in federal district court in Los Angeles, California against a former supplier,
Xiamen Lota International Co., Ltd (Xiamen Lota), its U.S. sales representative (Lota USA), and certain other persons
(Defendants). The lawsuit alleged, among other things, that the Defendants gave Peter D. Berkman, a former
executive of the Company and B&K, an undisclosed interest in Lota USA, and made payments and promises of
payments to him, in return for Peter Berkman maintaining the Company as a customer, increasing purchasing levels,
and acquiescing to non-competitive and excessive pricing for Xiamen Lota products. The lawsuit alleged violations
of federal statutes 18 U.S.C. Sections 1962(c) and (d) (RICO claims) and California state law unfair competition. The
lawsuit sought compensatory, treble and punitive damages, and other appropriate relief including an award of
reasonable attorneys’ fees and costs of suit. In October 2012, the lawsuit, together with certain related proceedings in
Illinois and Tennessee, were settled on mutually agreeable terms and, in connection therewith, the Company received
a $5.8 million cash payment. The amount recorded in the Consolidated Statement of Income is net of legal costs.
Litigation Settlement
The Company negotiated a settlement with Peter D. Berkman and Jeffrey A. Berkman, former executives of
the Company and B&K Industries, Inc. (B&K), a wholly owned subsidiary of the Company, that required the payment
of $10.5 million in cash by Peter Berkman, Jeffrey Berkman, and Homewerks Worldwide LLC to the
Company. During 2011, the Company recorded a gain of $10.5 million upon receipt of the settlement proceeds.
U.K. Actions Relating to the European Commission’s 2004 Copper Tubes Decision and 2006 Copper Fittings
Decision
Mueller Industries, Inc., WTC Holding Company, Inc., DENO Holding Company, Inc., Mueller Europe,
Limited, and DENO Acquisition EURL (the five Mueller entities) have received letters from counsel for IMI plc and
IMI Kynoch Limited (IMI) and from counsel for Boliden AB (Boliden) concerning contribution proceedings by IMI
and Boliden against the five Mueller entities regarding copper tube. In the Competition Appeal Tribunal (the CAT) in
the United Kingdom, IMI and Boliden have been served with claims by 21 claimants, all companies within the Travis
Perkins Group (TP and the TP Claimants). The TP Claimants are seeking follow-on damages arising out of conduct
described in the European Commission’s September 3, 2004, decision regarding copper tube. The claims purport to
arise from the findings of the European Commission as set forth in that decision. IMI and Boliden have commenced
legal proceedings against the five Mueller entities, and in those proceedings are claiming a contribution for any
follow-on damages. IMI and Boliden have formally served their claims on the five Mueller entities.
Mueller Industries, Inc., Mueller Europe, Limited, and WTC Holding Company, Inc. (the three Mueller
entities) also have received a letter from counsel for IMI concerning contribution proceedings by IMI against those
three Mueller entities regarding copper fittings. In the High Court, IMI has been served with claims by 21 TP
Claimants. The TP Claimants are seeking follow-on damages arising out of conduct described in the European
Commission’s September 20, 2006, decision regarding copper fittings. The claims similarly purport to arise from the
findings of the European Commission as set forth in that decision. IMI has commenced legal proceedings against the
three Mueller entities, and in those proceedings are claiming a contribution for any follow-on damages. IMI has
formally served its claims on the three Mueller entities.
While the TP Claimants have provided their preliminary calculations of aggregate claimed damages for the
copper tube claim and the copper fittings claim, Mueller does not believe these matters will have a material affect on
F-38
the Consolidated Financial Statements for the contribution claims.
As to the claims arising from the Copper Tube Decision brought in the CAT, following the CAT’s grant of
approval, the case has now been transferred to the High Court. Mueller’s defenses in response to the contribution
claims brought by IMI and Boliden were served on March 15, 2013. A case management conference is to be held in
May 2014.
As to the claims arising from the Copper Fittings Decision, these proceedings have been stayed until the next
case management conference which is to take place in April 2014.
At this time, the Company does not believe that this matter will have a material impact on its financial
position, results of operations, or cash flows.
Canadian Dumping and Countervail Investigation
In 2007, the Canada Border Services Agency (CBSA) determined that the Company and certain affiliated
companies, as exporters and importers of copper fittings (subject goods) from the U.S. to Canada, had dumped the
subject goods during the investigation period. In 2007, the Canadian International Trade Tribunal concluded that the
dumping had caused injury to the Canadian industry. As a result of these findings, exports of subject goods to Canada
made on or after October 20, 2006 have been subject to antidumping measures. Antidumping duties will be imposed
on the Company only to the extent that the Company’s future exports of copper pipe fittings are made at net export
prices that are below normal values set by the CBSA. The measures remain in place for five years at which time
Canadian authorities determine whether to maintain the measures for an additional five years or allow them to
expire. Canadian authorities conducted such a sunset review and on February 17, 2012 found that the dumping order
should be maintained for another five years.
On February 8, 2013, the CBSA completed a review process to revise the normal values issued to the
Company. Another review process to revise the normal values was initiated on January 15, 2014 and is scheduled to
conclude on May 30, 2014. Given the small percentage of its products that are sold for export to Canada, the
Company does not anticipate any material adverse effect on its financial position, results of operations or cash flows as
a result of the antidumping case in Canada.
Leases
The Company leases certain facilities, vehicles, and equipment under operating leases expiring on various
dates through 2024. The lease payments under these agreements aggregate to approximately $6.7 million in 2014,
$5.7 million in 2015, $4.5 million in 2016, $3.3 million in 2017, $2.3 million in 2018, and $1.5 million
thereafter. Total lease expense amounted to $9.1 million in 2013, $8.5 million in 2012, and $8.8 million in 2011.
Consulting Agreement
During 2004, the Company entered into a consulting and non-compete agreement (the Consulting
Agreement) with Mr. Harvey L. Karp, at that time Chairman of the Board. The Consulting Agreement provides for
post-employment services to be provided by Mr. Karp for a six-year period. During the first four years of the
Consulting Agreement, an annual fee equal to two-thirds of the executive’s Final Base Compensation (as defined in
the Consulting Agreement) is payable. During the final two years, the annual fee is set at one-third of the executive’s
Final Base Compensation. During the term of the Consulting Agreement, Mr. Karp agrees not to engage in
Competitive Activity (as defined in the Consulting Agreement) and is entitled to receive certain other benefits from
the Company.
On November 3, 2011, Mr. Karp notified the Company that he would resign as Chairman of the Company
and as a member of the Board of Directors of the Company effective as of December 31, 2011. Following his
resignation, on January 1, 2012, the Consulting Agreement commenced. Based upon the value of the non-compete
provisions of the Consulting Agreement, the Company will expense the value of the Consulting Agreement over its
term. The maximum amount payable under the remaining term of the Consulting Agreement is $4.0 million.
F-39
Other
In July 2009, there was an explosion at the Company’s copper tube facility in Fulton, Mississippi, resulting in
damage to certain production equipment. In 2010, the Company recorded a gain of $1.5 million related to the property
damage claim. In the first quarter of 2012, the Company settled the business interruption portion of this claim and
recognized a $1.5 million gain.
In September 2011, a portion of the Company’s Wynne, Arkansas manufacturing operation was damaged by
fire. Certain inventories, production equipment, and building structures were extensively damaged. During the
second quarter of 2013, the Company settled the claim with its insurer for total proceeds of $127.3 million, net of the
deductible of $0.5 million. As a result of the settlement with its 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 $106.3 million in the second quarter of 2013, or $2.33 per diluted share after tax. The Company received proceeds
of $62.3 million, $55.0 million, and $10.0 million in 2013, 2012, and 2011, respectively.
Additionally, 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 Consolidated Financial Statements.
Note 11 – Other Income, Net
(In thousands)
Gain on the sale of non-operating property
Interest income
Environmental expense, non-operating properties
Other
2013
2012
2011
$
3,000 $
906
(823)
1,368
— $
847
(1,128)
820
—
711
(330)
1,531
Other income, net
$
4,451 $
539 $
1,912
Note 12 – Stock-Based Compensation
During the years ended December 28, 2013, December 29, 2012, and December 31, 2011, the Company
recognized stock-based compensation, as a component of selling, general, and administrative expense, in its
Consolidated Statements of Income of $5.7 million, $4.0 million, and $3.5 million, respectively. The tax benefit from
exercise of share-based awards was $0.7 million in 2013, $2.6 million in 2012, and $0.9 million in 2011.
On October 26, 2012, the Company’s Chief Financial Officer (CFO) resigned. In connection with the
resignation, on November 7, 2012, the Company entered into a separation agreement with its former CFO. Included
in the separation agreement, were provisions to allow (i) continued vesting of options to purchase shares of the
Company’s common stock and unvested shares of restricted stock previously granted and (ii) continued exercisability
of vested options through the later of the original expiration date or October 30, 2015 without regard to service. This
modification to remove the service condition resulted in recognition of $2.1 million of compensation cost on the
modification date. This is included in severance expense.
Under existing plans, the Company may grant options to purchase shares of common stock at prices not less
than the fair market value of the stock on the date of grant, as well as restricted stock awards. Generally, the awards
vest annually over a five-year period beginning one year from the date of grant. Any unexercised options expire after
not more than ten years.
F-40
Stock Options
The fair value of each option is estimated as a single award and amortized into compensation expense on a
straight-line or accrual basis over its vesting period based on its vesting schedule. The weighted average grant-date
fair value of options granted during 2013, 2012, and 2011 were $17.54, $14.89, and $12.53, respectively.
The Company estimates the fair value of all stock option awards as of the grant date by applying the
Black-Scholes-Merton option pricing model. The use of this valuation model in the determination of compensation
expense involves certain assumptions that are judgmental and/or highly sensitive including the expected life of the
option, stock price volatility, risk-free interest rate, and dividend yield. Additionally, forfeitures are estimated at the
time of valuation and reduce expense ratably over the vesting period. Due to the nature of the awards granted in 2013,
a forfeiture rate was not considered necessary. The forfeiture rate was 16.5 percent and 17.0 percent for 2012 and
2011, respectively, and is adjusted periodically based on actual forfeitures. The weighted average of key assumptions
used in determining the fair value of options granted and a discussion of the methodology used to develop each
assumption are as follows:
2013
2012
2011
Expected term
Expected price volatility
Risk-free interest rate
Dividend yield
5.9 years 6.5 years 6.3 years
0.358
1.7%
1.1%
0.375
0.7%
0.9%
0.397
0.7%
0.9%
Expected term – This is the period of time estimated based on historical experience over which the options granted are
expected to remain outstanding. An increase in the expected term will increase compensation expense.
Expected price volatility – This is a measure of the amount by which a price has fluctuated or is expected to
fluctuate. The Company uses actual historical changes in the market value of its stock to calculate the volatility
assumption. Daily market value changes from the date of grant over a past period representative of the expected term
of the options are used. An increase in the expected price volatility rate will increase compensation expense.
Risk-free interest rate – This is the U.S. Treasury rate for the week of the grant, having a term representative of the
expected term of the options. An increase in the risk-free rate will increase compensation expense.
Dividend yield – This rate is the annual dividends per share as a percentage of the Company’s stock price. An increase
in the dividend yield will decrease compensation expense.
The total intrinsic value of options exercised was $2.9 million, $12.1 million, and $6.6 million in 2013, 2012,
and 2011, respectively. The total fair value of options that vested was $1.1 million, $1.7 million, and $2.1 million in
2013, 2012, and 2011, respectively.
At December 28, 2013, the aggregate intrinsic value of all outstanding options was $18.7 million with a
weighted average remaining contractual term of 4.9 years. Of the outstanding options, 419 thousand are currently
exercisable with an aggregate intrinsic value of $13.8 million, a weighted average exercise price of $29.74, and a
weighted average remaining contractual term of 4.3 years.
The total compensation expense not yet recognized related to unvested options at December 28, 2013 was
$0.7 million with an average expense recognition period of 1.9 years.
Restricted Stock Awards
The fair value of the each restricted stock award equals the fair value of the Company’s stock on the grant
date and is amortized into compensation expense on a straight-line or accrual basis over its vesting period based on its
vesting schedule. The weighted average grant-date fair value of awards granted during 2013, 2012, and 2011 were
$56.63, $42.83, and $37.87, respectively.
F-41
The aggregate intrinsic value of outstanding and unvested awards was $22.9 million at December 28,
2013. Total compensation expense for restricted stock awards not yet recognized was $12.8 million with an average
expense recognition period of 3.7 years. The total fair value of awards that vested was $1.8 million, $1.7 million, and
$0.7 million in 2013, 2012, and 2011, respectively.
The Company generally issues treasury shares when options are exercised or restricted stock awards are
granted. A summary of the activity and related information follows:
Stock Options
Restricted Stock
Awards
(Shares in thousands)
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Grant
Date Fair
Value
Shares
Outstanding at December 29, 2012
Granted
Exercised
694 $
10
(115)
28.93
50.21
28.69
285 $
151
(70)
32.36
56.63
26.42
Outstanding at December 28, 2013
589
29.34
366
43.49
Approximately 195 thousand shares were available for future stock incentive awards at December 28, 2013.
Note 13 – Derivative Instruments and Hedging Activities
Cash Flow Hedges
Copper and brass represent the largest component of the Company’s variable costs of production. The cost
of these materials is subject to global market fluctuations caused by factors beyond the Company’s control. The
Company occasionally enters into forward fixed-price arrangements with certain customers; the risk of these
arrangements is generally managed with commodity futures contracts. The Company accounts for these futures
contracts in accordance with ASC 815. These futures contracts have been designated as cash flow hedges. The fair
value of open futures contracts are recognized as a component of OCI until the position is closed which corresponds to
the period when the related hedged transaction is recognized in earnings. Should these contracts no longer meet hedge
criteria in accordance with ASC 815, either through lack of effectiveness or because the hedged transaction is no
longer probable of occurring, all deferred gains and losses related to the hedge would be immediately reclassified from
accumulated OCI into earnings. In the next twelve months, the Company will reclassify into earnings realized gains
or losses of cash flow hedges; at December 28, 2013, this amount was a $408 thousand gain position.
At December 28, 2013, the Company held open futures contracts to purchase approximately $15.9 million of
copper over the next 15 months related to fixed price sales orders. The fair value of those futures contracts was a $438
thousand gain position, which was determined by obtaining quoted market prices (Level 1 hierarchy as defined by
ASC 820).
Derivative instruments designated as cash flow hedges under ASC 815 are reflected in the Consolidated
Financial Statements as follows:
(In thousands)
Commodity contracts
Other current assets:
December 28, 2013
Location
Gain positions
Loss positions
Fair value
$
448
(10)
F-42
(In thousands)
Commodity contracts
December 29, 2012
Location
Other current liabilities: Gain positions
Loss positions
Fair value
$
172
(420 )
The following tables summarize activities related to the Company’s derivative instruments classified as cash
flow hedges in accordance with ASC 815:
(In thousands)
Commodity contracts
Loss Recognized in Accumulated OCI (Effective Portion), Net
of Tax
For the Year Ended
December 28,
2013
December 29,
2012
$
(3,904) $
(214)
Loss Reclassified from Accumulated OCI into Income (Effective
Portion), Net of Tax
(In thousands)
Location
For the Year Ended
December 28,
2013
December 29,
2012
Commodity contracts
Cost of goods sold
$
3,781 $
469
Inventory Fair Value Hedges
The Company enters into futures contracts in order to protect the value of inventory against market
fluctuations. These futures contracts are assessed and designated as fair value hedges in accordance with ASC 815.
At December 28, 2013, the Company held open futures contracts to sell approximately $70.6 million of
copper over the next five months related to copper inventory. The fair value of those futures contracts was a $1.8
million loss position, which was determined by obtaining quoted market prices (Level 1 hierarchy as defined by ASC
820). During the fourth quarter of 2013, the Company dedesignated previous hedges on its inventory because the
hedging relationship was no longer deemed to be highly effective. These contracts no longer qualify as hedging
instruments.
Derivative commodity instruments are reflected in the Consolidated Financial Statements as follows:
(In thousands)
Commodity contracts - Nonqualifying Other current liabilities:
Commodity contracts - Qualifying
Other current liabilities:
(In thousands)
Commodity contracts - Qualifying
Other current assets:
December 28, 2013
Location
Gain positions
Loss positions
Gain positions
Loss positions
December 29, 2012
Location
Gain positions
Loss positions
Fair Value
$
318
(2,057)
22
(50)
Fair Value
$
1,047
(548 )
F-43
Gains and losses related to the change in the value of the commodity contracts, the change in the value of the
inventory being hedged, and hedge ineffectiveness are recorded in cost of goods sold. During 2013 and 2012, gains of
$0.3 million and losses of $0.1 million, respectively, were recorded. Also, as a result of the Company’s dedesignation
of previous hedges on its inventory during the fourth quarter of 2013, a net loss of $0.6 million was recorded in current
earnings to record these contracts at fair value at the end of 2013.
The following tables summarize the gains (losses) on the Company’s inventory fair value hedges:
(In thousands)
Gains (Losses) on Fair Value Hedges for
the Year Ended December 28, 2013
Location
Amount
Gain on the derivatives designated and qualifying as fair value
hedges:
Commodity Contracts
Cost of goods sold
$
5,115
(Loss) on the hedged items designated and qualifying as fair value
hedges:
Inventory
Cost of goods sold
(4,827)
(In thousands)
(Losses) Gains on Fair Value Hedges for
the Year Ended December 29, 2012
Location
Amount
(Loss) on the derivatives in designated and qualifying fair value
hedges:
Commodity Contracts
Cost of goods sold
$
(301)
Gain on the hedged item in designated and qualifying fair value
hedges:
Inventory
Foreign Currency Hedges
Cost of goods sold
182
During 2012 and 2013, the Company entered into contracts to purchase heavy machinery and equipment.
These contracts are denominated in euros. In anticipation of entering into these contracts, the Company has entered
into forward contracts to purchase euros to protect itself against adverse exchange rate fluctuations. The fair value of
open contracts are recognized as a component of OCI until the position is closed which corresponds to the period when
the related hedged transaction is recognized in earnings. Should these contracts no longer meet hedge criteria in
accordance with ASC 815, either through lack of effectiveness or because the hedged transaction is no longer probable
of occurring, all deferred gains and losses related to the hedge would be immediately reclassified from accumulated
OCI into earnings.
At December 28, 2013, the Company held open forward contracts to purchase approximately 10.5 million
euros over the next 15 months. The fair value of these contracts, which was determined by obtaining quoted market
prices (Level 1 hierarchy as defined by ASC 820), was an $836 thousand gain position recorded in other current assets
at December 28, 2013.
F-44
The following tables summarize activities related to the Company’s derivative instruments classified as
foreign currency hedges in accordance with ASC 815:
(In thousands)
Loss Recognized in Accumulated OCI (Effective Portion), Net
of Tax
For the Year Ended
December 28,
2013
December 29,
2012
Foreign currency contracts
$
(484) $
—
(In thousands)
Location
For the Year Ended
December 28,
2013
December 29,
2012
Loss Reclassified from Accumulated OCI into Income (Effective
Portion), Net of Tax
Commodity contracts
Cost of goods sold
$
34 $
—
Interest Rate Swap
On February 20, 2013, the Company entered into a two-year forward-starting interest rate swap agreement
with an effective date of January 12, 2015, and an underlying notional amount of $200.0 million, pursuant to which the
Company receives variable interest payments based on one-month LIBOR and pays fixed interest at a rate of 1.4
percent. Based on the Company’s current variable premium pricing on its Term Loan Facility, the all-in fixed rate on
the effective date is 2.7 percent. The interest rate swap will mature on December 11, 2017, and is structured to offset
the interest rate risk associated with the Company’s floating-rate, LIBOR-based Term Loan Facility Agreement. The
swap was designated and accounted for as a cash flow hedge from inception.
The fair value of the interest rate swap is estimated based on the present value of the difference between
expected cash flows calculated at the contracted interest rate and the expected cash flows at the current market interest
rate using observable benchmarks for LIBOR forward rates at the end of the period (Level 2 hierarchy as defined by
ASC 820). The effective portion of the mark-to-market gain or loss is reported as a component of accumulated OCI
and subsequently reclassified into earnings when the hedged transactions occur and affect earnings. Interest payable
and receivable under the swap agreement will be accrued and recorded as an adjustment to interest expense. The fair
value of the interest rate swap was a $1.3 million gain position and was recorded in other assets at December 28, 2013.
The following tables summarize the activity related to the interest rate swap:
(In thousands)
Interest rate swap
Gain Recognized in Accumulated OCI (Effective Portion), Net
of Tax
For the Year Ended
December 28,
2013
December 29,
2012
$
834 $
—
The Company enters into futures and forward contracts that generally closely match the terms of the
underlying transactions. As a result, the ineffective portion of the open cash flow and fair value hedge contracts
through December 28, 2013 was not material to the Consolidated Statements of Income.
The Company does not offset the fair value of amounts for derivative instruments and the fair value amounts
recognized for the right to reclaim cash collateral. At December 28, 2013, the Company had recorded restricted cash
of $2.1 million related to open futures contracts.
F-45
Note 14 – Acquisitions and Dispositions
On October 18, 2013, the Company entered into a definitive agreement with KME Yorkshire Limited
(Yorkshire) to acquire certain assets and assume certain liabilities of Yorkshire for purposes of acquiring its copper
tube business. This transaction received regulatory approval in the United Kingdom on February 11, 2014.
Yorkshire produces European standard copper distribution tubes. The purchase price will be approximately $29.7
million. In 2012, Yorkshire had annual revenue of approximately $196.1 million.
On October 17, 2013, the Company entered into a Stock Purchase Agreement with Commercial Metals
Company and Howell Metal Company (Howell) providing for the purchase of all of the outstanding capital stock of
Howell for approximately $55.3 million in cash, net of working capital adjustments. Howell manufactures copper
tube and line sets for U.S. distribution. The acquisition of Howell complements the Company’s copper tube and line
sets businesses, both components of the Plumbing and Refrigeration segment. For the twelve months ended August
31, 2013, Howell’s net sales for copper tube and line sets were $156.3 million. The total estimated fair value of the
assets acquired totaled $64.4 million, consisting primarily of receivables of $14.6 million, inventories of $27.6
million, property, plant, and equipment of $21.6 million, and other current assets of $0.6 million. The total estimated
fair value of the liabilities assumed totaled $11.4 million, consisting primarily of accounts payable and accrued
expenses of $9.9 million and other current liabilities of $1.5 million. Of the remaining purchase price, $2.0 million
was allocated to other intangible assets and $0.3 million to tax-deductible goodwill. The allocation of the purchase
price to long-lived assets is provisional as of December 28, 2013 and subject to change upon completion of the final
valuation of these assets. The results of operations for Howell have been included in the accompanying Consolidated
Financial Statements from the acquisition date.(cid:2) (cid:2)
On August 16, 2012, the Company acquired 100 percent of the outstanding stock of Westermeyer Industries,
Inc. (Westermeyer) for approximately $11.6 million in cash. Westermeyer, located in Bluffs, Illinois, designs,
manufactures, and distributes high-pressure components and accessories for the air-conditioning and refrigeration
markets. The acquisition of Westermeyer complements the Company’s existing refrigeration business, a component
of the OEM segment. The fair values of the assets acquired totaled $7.5 million, consisting of receivables of $2.0
million, inventories of $1.9 million, and property, plant, and equipment of $3.6 million. These assets were partially
offset by current liabilities of approximately $1.0 million. Of the remaining purchase price, $2.3 million was allocated
to tax-deductible goodwill and $2.7 million to other intangible assets.
On December 28, 2010, the Company purchased certain assets of Tube Forming, L.P. (TFI). TFI primarily
serves the HVAC market in North America. The acquired assets include inventories, production equipment as well as
factory leaseholds. TFI had operations in Carrollton, Texas, and Guadalupe, Mexico, where it produced precision
copper return bends and crossovers, and custom-made tube components and brazed assemblies, including manifolds
and headers. TFI’s estimated net sales for 2010 were approximately $35.0 million. The Company paid
approximately $6.9 million for the assets subject to certain adjustments, which was funded with existing cash on
hand. The acquisition of TFI extends the Company’s product offering within the OEM segment.
These acquisitions were accounted for using the acquisition method of accounting. Therefore, the results of
operations of the acquired businesses were included in the Company’s Consolidated Financial Statements from their
respective acquisition dates. The purchase price for these acquisitions, which was financed by available cash
balances, has been allocated to the assets and liabilities of the acquired businesses based on their respective fair market
values.
On August 9, 2013, the Company sold certain of its plastic fittings manufacturing assets located in Portage,
Michigan and Ft. Pierce, Florida. Simultaneously, the Company entered into a lease agreement with the purchaser of
the assets to continue to manufacture and distribute Schedule 40 plastic fittings utilizing the Ft. Pierce assets for a
period of approximately eight to 14 months (Transition Period). The total sales price was $66.2 million, of which
$61.2 million was received on August 9, 2013; the remaining $5.0 million will be received at the end of the Transition
Period. This transaction resulted in a pre-tax gain of $39.8 million in the third quarter of 2013, or 81 cents per diluted
share after tax.
The net book value of assets disposed was $15.9 million. For goodwill testing purposes, these assets were
part of the SPD reporting unit which is a component of the Company’s Plumbing & Refrigeration operating segment.
F-46
Because these assets met the definition of a business in accordance with ASC 805 Business Combinations, $10.5
million of the SPD reporting unit’s goodwill balance was allocated to the disposal group. The amount of goodwill
allocated was based on the relative fair values of the asset group which was disposed and the portion of the SPD
reporting unit which was retained.
The Company will continue to manufacture and supply plastic drain, waste, and vent (DWV) fittings. The
Company extended its third party supply agreement to complement its product offering with purchased products the
Company does not competitively manufacture with its remaining assets. This supply agreement was originally
entered into after the majority of the Company’s plastic manufacturing assets were destroyed in the 2011 fire at its
Wynne, Arkansas facility. The extended supply agreement has an initial five-year term.
With the decision to cease the Company’s manufacturing operations in Portage, there was an evaluation of
the remaining long-lived assets for impairment, and it was determined that the carrying value of the land and building
were no longer recoverable. An impairment charge of $3.2 million was recognized during the third quarter of 2013 to
adjust the carrying value of the land and building to their estimated fair value. The fair value estimate was
determined by obtaining and evaluating recent sales data for similar assets (Level 2 hierarchy as defined by ASC 820).
Note 15 – Industry Segments
The Company’s reportable segments are Plumbing & Refrigeration and OEM. For disclosure purposes, as
permitted under ASC 280, Segment Reporting, certain operating segments are aggregated into reportable
segments. The Plumbing & Refrigeration segment is composed of Standard Products (SPD), European Operations,
and Mexican Operations. The OEM segment is composed of Industrial Products (IPD), Engineered Products (EPD),
and Mueller-Xingrong. These segments are classified primarily by the markets for their products. Performance of
segments is generally evaluated by their operating income. Intersegment transactions are generally conducted on an
arms-length basis.
SPD manufactures copper tube and fittings, plastic fittings, plastic pipe, and line sets. These products are
manufactured in the U.S. Outside the U.S., the Company’s European Operations manufacture copper tube, which is
sold in Europe and the Middle East. SPD also imports and resells brass and plastic plumbing valves, malleable iron
fittings, faucets, and plumbing specialty products. Mexican Operations consist of pipe nipple manufacturing and
import distribution businesses including product lines of malleable iron fittings and other plumbing specialties. The
European Operations consist of copper tube manufacturing and the import distribution of fittings, valves, and
plumbing specialties primarily in the U.K. and Ireland. The Plumbing & Refrigeration segment’s products are sold
primarily to plumbing, refrigeration, and air-conditioning wholesalers, hardware wholesalers and co-ops, and building
product retailers.
IPD manufactures brass rod, impact extrusions, and forgings as well as a variety of end products including
plumbing brass, automotive components, valves, and fittings. EPD manufactures and fabricates valves and
assemblies for the refrigeration, air-conditioning, gas appliance, and barbecue grill markets and specialty copper,
copper-alloy, and aluminum tube. Mueller-Xingrong manufactures engineered copper tube primarily for
air-conditioning applications. These products are sold primarily to OEM customers.
Summarized product
the following
tables. Geographic sales data indicates the location from which products are shipped. Unallocated expenses include
general corporate expenses, plus certain charges or credits not included in segment activity.
line, geographic, and segment
information
is shown
in
During 2013, 2012, and 2011, no single customer exceeded 10 percent of worldwide sales.
F-47
Net Sales by Major Product Line:
(In thousands)
2013
2012
2011
Tube and fittings
Brass rod and forgings
OEM components, tube & assemblies
Valves and plumbing specialties
Other
Geographic Information:
(In thousands)
Net sales:
United States
United Kingdom
Other
(In thousands)
Long-lived assets:
United States
United Kingdom
Other
$ 972,107 $ 986,825 $1,082,150
583,940 662,369
335,461 401,623
231,278 217,985
53,670
553,896
337,772
239,822
54,944
52,434
$2,158,541 $2,189,938 $2,417,797
2013
2012
2011
$1,676,385 $1,696,589 $1,830,001
234,684 272,809
258,665 314,987
229,659
252,497
$2,158,541 $2,189,938 $2,417,797
2013
2012
2011
$ 325,667 $ 306,023 $ 267,060
23,962
29,883
23,496
27,442
22,159
25,224
Net assets of foreign operations at December 28, 2013 included $108.2 million in the United Kingdom, $45.5
million in Mexico, $59.5 million in Luxembourg, and $22.7 million in China.
$ 373,050 $ 356,961 $ 320,905
F-48
Segment Information:
(In thousands)
Net sales
For the Year Ended December 28, 2013
Plumbing &
Refrigeration
Segment
OEM
Segment
Corporate
and
Eliminations Total
$
1,225,306 $ 947,784 $
(14,549) $2,158,541
Cost of goods sold
Depreciation and amortization
Selling, general, and administrative expense
Insurance settlement
Gain on sale of plastic fittings manufacturing assets
Impairment charges
1,043,059 833,518
13,025
24,479
—
—
131
17,117
85,471
(103,895)
(39,765)
4,173
(14,488) 1,862,089
2,252
32,394
24,964 134,914
(2,437) (106,332)
(39,765)
4,304
—
—
Operating income
219,146
76,631
(24,840) 270,937
Interest expense
Other expense, net
Income before income taxes
(In thousands)
Net sales
(3,990)
4,451
$ 271,398
For the Year Ended December 29, 2012
Plumbing &
Refrigeration
Segment
OEM
Segment
Corporate
and
Eliminations Total
$
1,238,230 $ 974,606 $
(22,898) $2,189,938
Cost of goods sold
Depreciation and amortization
Selling, general, and administrative expense
Litigation settlement
Insurance settlement
Severance
1,060,755 866,404
13,435
27,680
—
—
—
16,513
75,448
—
(1,500)
—
(22,696) 1,904,463
1,547
31,495
26,328 129,456
(4,050)
(4,050)
(1,500)
—
3,369
3,369
Operating income
87,014
67,087
(27,396) 126,705
Interest expense
Other expense, net
Income before income taxes
(6,890)
539
$ 120,354
F-49
(In thousands)
Net sales
For the Year Ended December 31, 2011
Plumbing &
Refrigeration
Segment
OEM
Segment
Corporate
and
Eliminations Total
$
1,330,435 $1,119,796 $
(32,434) $2,417,797
Cost of goods sold
Depreciation and amortization
Selling, general, and administrative expense
Litigation settlement
1,139,932 1,007,654
14,634
24,838
—
20,947
84,795
—
(31,909) 2,115,677
1,284
36,865
26,320 135,953
(10,500)
(10,500)
Operating income
84,761
72,670
(17,629) 139,802
Interest expense
Other expense, net
Income before income taxes
(11,553)
1,912
$ 130,161
(In thousands)
2013
2012
2011
Expenditures for long-lived assets (including business acquisitions):
Plumbing & Refrigeration
OEM
General corporate
Segment assets:
Plumbing & Refrigeration
OEM
General corporate
$
47,222 $
14,845
3,253
24,030 $
24,137
17,290
12,686
12,586
361
$
65,320 $
65,457 $
25,633
$ 625,371 $ 531,429 $ 532,458
290,058 296,997
282,668 518,149
305,052
317,344
$1,247,767 $1,104,155 $1,347,604
F-50
Note 16 – Quarterly Financial Information (Unaudited)
(In thousands, except per share data)
2013
Net sales
Gross profit (1)
Consolidated net income
Net income attributable to Mueller Industries, Inc.
Basic earnings per share (2)
Diluted earnings per share (2)
Dividends per share
2012
Net sales
Gross profit (1)
Consolidated net income
Net income attributable to Mueller Industries, Inc.
Basic earnings per share
Diluted earnings per share
Dividends per share
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 559,690 $ 582,282 $ 528,854
72,552
76,840
26,434
26,202
0.94
0.93
0.125
81,157
91,842(4) 39,993(5)
91,150
3.27
3.23
0.125
39,864
1.43
1.41
0.125
$ 487,715
65,903
15,020
15,384
0.55
0.54
0.125
$ 577,668 $ 594,099 $ 514,165
64,447
15,570
15,511
0.41
0.41
0.10
84,493
32,817 (3)
32,599
0.86
0.85
0.10
71,248
18,540
17,917
0.47
0.47
0.10
$ 504,006
65,287
16,746 (6)
16,368
0.59 (2)
0.58 (2)
0.125
(1) Gross profit is net sales less cost of goods sold, which excludes depreciation and amortization.
(2) Includes the repurchase of 10.4 million shares from Leucadia in September 2012
(3) Includes pre-tax gain of $8.0 million from liquidation of LIFO inventory layers and $1.5 million from
settlement of insurance claims.
(4) Includes $106.3 million pre-tax gain from settlement of insurance claims.
(5) Includes $39.8 million pre-tax gain on sale of manufacturing assets and pre-tax impairment charges of $4.3
million primarily related to real property associated with the aforementioned plastics sale transaction.
(6) Includes $4.1 million net gain from settlement of litigation.
F-51
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Mueller Industries, Inc.
We have audited the accompanying consolidated balance sheets of Mueller Industries, Inc. as of December 28, 2013
and December 29, 2012, and the related consolidated statements of income, comprehensive income, changes in equity
and cash flows for each of the three years in the period ended December 28, 2013. Our audits also included the
financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements
and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Mueller Industries, Inc. at December 28, 2013 and December 29, 2012, and the consolidated
results of its operations and its cash flows for each of the three years in the period ended December 28, 2013, in
conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Mueller Industries, Inc.’s internal control over financial reporting as of December 28, 2013, based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (1992 Framework) and our report dated February 26, 2014 expressed an unqualified opinion
thereon.
Memphis, Tennessee
February 26, 2014
F-52
MUELLER INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 28, 2013, December 29, 2012, and December 31, 2011
Additions
(In thousands)
of year
Balance at Charged to
beginning costs and Other
Balance
at end
expenses additions Deductions of year
2013
Allowance for doubtful accounts
Environmental reserves
$
$
1,644 $
273 $
812
$
338 $
2,391
24,635 $
986 $
— $
1,984 $
23,637
Valuation allowance for deferred tax assets $
30,394 $
332 $
— $
8,182 $
22,544
2012
Allowance for doubtful accounts
Environmental reserves
$
$
1,564 $
867 $
109 (1) $
896 $
1,644
22,892 $
3,056 $
— $
1,313 $
24,635
Valuation allowance for deferred tax assets $
29,705 $
(1,224) $
1,913 $
— $
30,394
2011
Allowance for doubtful accounts
Environmental reserves
$
$
5,447 $
(229) $
(2) (1) $
3,652 $
1,564
23,902 $
392 $
— $
1,402 $
22,892
Valuation allowance for deferred tax assets $
28,714 $
(443) $
1,434 (2) $
— $
29,705
(1) Other consists primarily of bad debt recoveries as well as the effect of fluctuating foreign currency exchange
rates in all years presented.
(2) Other includes the additions to valuation allowances in which previously unrecorded gross deferred tax
assets and valuation allowances were recognized.
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F-54
CAPITAL STOCK INFORMATION
The Company’s Board of Directors declared a regular quarterly dividend on its common stock of 12.5 cents
per share during each quarter of 2013 and the fourth quarter of 2012, and 10 cents per share for each of
the first three quarters of 2012. Payment of dividends in the future is dependent upon the Company’s financial
condition, cash flows, capital requirements, earnings, and other factors.
The high, low, and closing prices of Mueller Industries’ common stock on the New York Stock Exchange for each
fiscal quarter of 2013 and 2012 were as follows:
2013
Fourth quarter
Third quarter
Second quarter
First quarter
2012
Fourth quarter
Third quarter
Second quarter
First quarter
High
Low
Close
$ 63.28
58.15
54.99
55.53
$ 53.96
50.33
48.10
48.95
$ 62.74
55.82
50.43
53.29
$ 51.41
48.48
47.28
49.86
$ 42.43
39.72
39.89
38.16
$ 49.26
45.47
42.59
45.45
As of February 24, 2014, the number
of holders of record of Mueller Industries’
common stock was approximately 910.
On February 24, 2014, the closing
price for Mueller Industries’ common
stock on the New York Stock Exchange
was $61.28.
SECURITY HOLDER INFORMATION
Annual Meeting
The annual meeting of stockholders will be held at
the Company’s headquarters at Suite 150, 8285
Tournament Drive, Memphis, TN 38125, 10:00 a.m.
local time, May 1, 2014.
Form 10-K
The Company’s Annual Report on Form 10-K is available
on the Company’s website at www.muellerindustries.com
or upon written request:
c/o Mueller Industries, Inc.
Attention: Investor Relations
Suite 150
8285 Tournament Drive
Memphis, TN 38125
Market for Mueller Securities
Common stock is traded on the NYSE–Symbol MLI.
Transfer Agent, Registrar and Paying Agent
To notify the Company of address changes, lost
certificates, dividend payments, or account
consolidations, security holders should contact:
American Stock Transfer & Trust Company, LLC
Shareholder Services Department
6201 15th Avenue
Brooklyn, NY 11219
Toll Free: (800) 937-5449
Local & International: (718) 921-8124
Email: info@amstock.com
Web site: www.amstock.com
NYSE Certifications
The Company submitted an unqualified Section 12(a)
CEO Certification to the NYSE in 2013. The Company
filed with the SEC the CEO/CFO Certifications
required under Section 302 of the Sarbanes-Oxley
Act as an exhibit to the Company’s Annual Report on
Form 10-K for 2013 and 2012.
Independent Registered Public Accounting Firm
Ernst & Young LLP
Memphis, Tennessee
8285 TOURNAMENT DRIVE, SUITE 150 • MEMPHIS, TN 38125
wwww.muellerindustries.com