MUELLER INDUSTRIES INC - Annual Report: 2009 (Form 10-K)
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
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For
the fiscal year ended December 26, 2009
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Commission
file number 1–6770
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MUELLER
INDUSTRIES, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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25-0790410
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(State
or other jurisdiction
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(I.R.S.
Employer
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of
incorporation or organization)
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Identification
No.)
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8285
Tournament Drive, Suite 150
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Memphis,
Tennessee
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38125
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (901) 753-3200
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which
registered
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Common
Stock, $0.01 Par Value
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New
York Stock Exchange
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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 S No £
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 £ No S
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 S No £
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 £ No £
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. S
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.
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Large
accelerated filer S
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Accelerated
filer £
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Non-accelerated
filer £
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Smaller
reporting company £
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Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes £ No S
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 $781,744,986.
The
number of shares of the Registrant’s common stock outstanding as of February 19,
2010 was 37,649,584 excluding 2,441,918 treasury shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the following document are incorporated by reference into this Report:
Registrant’s Definitive Proxy Statement for the 2010 Annual Meeting of
Stockholders, scheduled to be mailed on or about March 24, 2010 (Part
III).
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.
____________________
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Page
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Part
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Item
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Item
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Item
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Item
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Part
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Item
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Part
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Item
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Item
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Part
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F-1
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2
PART
I
Introduction
The Company is a leading manufacturer
of copper, brass, plastic, and aluminum 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 the Standard Products
Division (SPD), European Operations, and Mexican Operations. The OEM
segment is composed of the Industrial Products Division (IPD), Engineered
Products Division (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, 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 (heating,
ventilation, and air-conditioning), 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.
Information concerning segments and
geographic information appears under “Note 15 - Industry Segments” in the Notes
to Consolidated Financial Statements for the year ended December 26, 2009 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 2009
and 2008 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. The U.S. housing and residential construction market has been
adversely affected in the recent economic downturn. Per the U.S.
Census Bureau, new housing starts in the U.S. were 554 thousand in 2009, which
was a 39 percent decline compared with 906 thousand in 2008 and much lower than
the 2007 amount of 1.4 million. The December 2009 seasonally adjusted
annual rate of new housing starts was 557 thousand which is comparable with the
December 2008 rate of 556 thousand as new housing construction had already
declined significantly by that date. Mortgage rates have remained at
low levels during 2009 and 2008, as the average 30-year fixed mortgage rate was
4.93 percent in December 2009 and 5.33 percent in December 2008. The
U.S. federal government has also included tax credits for first-time homebuyers
in its stimulus programs. These are favorable conditions for the
housing market; however, they were not enough to offset the decline in overall
demand and have not yet resulted in increased residential construction activity
due to the large inventories created from home
foreclosures. Commercial construction has been more stable; however,
it also has begun to decline. According to the U.S. Census Bureau,
the December 2009 seasonally adjusted annual rate of Nonresidential Value of
Construction Put in Place was $332.5 billion, which was an 18 percent decrease
from the December 2008 rate of $404.3 billion. Business conditions in
the U.S. automotive industry have also been exceptionally difficult in the
recent economic downturn, which has affected the demand for various products in
the Company’s OEM segment. All of these conditions have significantly
affected the demand for virtually all of the Company’s core
products.
The Company is a Delaware corporation
incorporated on October 3, 1990.
Plumbing
& Refrigeration Segment
Mueller’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. Mueller is a market leader in the
air-conditioning and refrigeration service tube
markets. Additionally, Mueller 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 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 15, 2005, the Company
acquired 100 percent of the outstanding stock of KX Company Limited
(Brassware). Brassware, located in Witton, Birmingham, England, is an
import distributor of plumbing and residential heating products to plumbers’
merchants and builders’ merchants in the U.K. and
Ireland. Additionally, on August 27, 2004, the Company acquired 100
percent of the outstanding stock of Vemco Brasscapri Limited
(Vemco). Vemco, located in Wellington, Somerset, England, is an
import distributor of plumbing products to plumbers’ merchants and builders’
merchants throughout the U.K. and Ireland. At the beginning of 2007,
the operations of Brassware and Vemco were combined; these operations go to
market under the Mueller Primaflow brand name.
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 Mueller’s
products are customer service, availability, and price. The total
amount of order backlog for the Plumbing & Refrigeration segment as of
December 26, 2009 was not significant.
The Company competes with various
companies, depending on the product line. In the U.S. copper tubing
business, the domestic competition includes Cerro Flow Products, Inc.,
Cambridge-Lee Industries LLC (a subsidiary of Industrias Unidas S.A. de C.V.),
Wolverine Tube, Inc., KobeWieland Copper Products LLC, and Howell Metal Company
(a subsidiary of Commercial Metals Company), as well as many actual and
potential foreign competitors. In the European copper tubing
business, Mueller competes with several European-based manufacturers of copper
tubing as well as other foreign-based manufacturers. In the copper
fittings market, competitors include Elkhart Products Company (a subsidiary of
Aalberts Industries N.V.) and NIBCO, Inc., as well as 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
Mueller’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 26, 2009 was not
significant.
On February 27, 2007, the Company
acquired 100 percent of the outstanding stock of Extruded Metals, Inc.
(Extruded). Extruded, located in Belding, Michigan, manufactures
brass rod products, and during 2006 had annual net sales of approximately $360
million. The acquisition of Extruded complements the Company’s
existing brass rod product line.
In December 2005, two subsidiaries of
the Company received a business license from a Chinese industry and commerce
authority, establishing a joint venture with Jiangsu Xingrong Hi-Tech Co., Ltd.
and Jiangsu Baiyang Industries Ltd. The joint venture, in which the
Company holds a 50.5 percent interest, produces inner groove and smooth tube in
level-wound coils, pancake coils, and straight lengths, primarily to serve the
Chinese domestic OEM air-conditioning market as well as other copper
products. The joint venture, which is located primarily in Jintan
City, Jiangsu Province, China, is named Jiangsu Mueller-Xingrong Copper
Industries Limited (Mueller–Xingrong).
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,
Inc., and others both domestic and foreign. Outside of North America,
IPD and EPD sell products through various channels.
Labor
Relations
At December 26, 2009, the Company
employed approximately 3,300 employees, of which approximately 1,750 were
represented by various unions. Those union contracts will expire as
follows:
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Location
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Expiration Date
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Port
Huron, Michigan (Local 218 I.A.M.)
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May
1, 2010
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Port
Huron, Michigan (Local 44 U.A.W.)
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June
13, 2010
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Belding,
Michigan
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August
15, 2012
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Wynne,
Arkansas
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June
28, 2010
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Fulton,
Mississippi
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August
1, 2012
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North
Wales, Pennsylvania
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August
3, 2012
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Waynesboro,
Tennessee
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November
7, 2012
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Jacksboro,
Tennessee
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September
15, 2010
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The union agreements at the Company's
U.K. and Mexico operations are renewed annually. The Company expects
to renew these contacts without material disruption of its
operations.
As of December 26, 2009, less than 600
domestic employees were covered by collective bargaining or similar agreements
that will expire during 2010.
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 distribution 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 copper scrap as the primary feedstock. The Company has
commitments from refined copper producers for a portion of its metal
requirements for 2010. 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 $1.1 million
for 2009 and $15.4 million for 2008. The reserve for environmental
matters was $23.3 million in 2009 and $23.2 million in
2008. 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. The Company does not
anticipate that it will need to make material expenditures for compliance
activities related to operating properties during the remainder of the 2010
fiscal year, or for the next two fiscal years.
Mining
Remedial Recovery Company
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 1980’s,
of sealing mine portals with concrete plugs in mine adits which were discharging
water. The sealing program has 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 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 permit will include an order requiring continued implementation of BMP
through 2015 to address residual discharges of acid rock drainage. At
this site, MRRC spent approximately $0.5 million in 2009 and $0.5 million in
2008.
U.S.S.
Lead
U.S.S. Lead Refinery, Inc., (Lead
Refinery), a 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 January 22, 2008. On April 9, 2009,
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA), the U.S. Environmental Protection Agency (EPA) added the
Lead Refinery site to the National Priorities List (NPL). The NPL is
a list of priority sites where the EPA has determined that there has been a
release or threatened release of contaminants that warrant investigation and, if
appropriate, remedial action. The NPL does not assign liability to
any party or to the owner 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. 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 this site on the NPL. Lead Refinery lacks the
financial resources needed to undertake any investigations or remedial action
that may be required by EPA pursuant to CERCLA.
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 the site. By letter dated January 20, 2010,
ADEQ approved the SIWP as submitted, with changes acceptable to the
Company.
Mueller Brass EPA
Settlement
Effective September 30, 2008, Mueller
Brass Co., a wholly owned subsidiary of the Company, entered into a Consent
Agreement and Final Order (CAFO) with the EPA to resolve alleged violations of
certain federal and state regulations, including the Resource Conservation and
Recovery Act, relating to hazardous waste treatment, storage and disposal at the
Company’s facilities in Michigan. Under the CAFO, Mueller Brass
Co. paid a civil penalty of $0.1 million, and must submit a closure plan
for its steam cleaner tank system to the Michigan Department of Environmental
Quality, and implement and complete a Supplemental Environmental Project with a
capital expenditure of approximately $0.6 million. The penalty was
paid during the fourth quarter of 2008 and the Supplemental Environmental
Project has been implemented and completed.
Southeast Kansas
Sites
By letter dated October 10, 2006, the
Kansas Department of Health and Environment (KDHE) advised the Company that
environmental contamination has been identified at a former smelter site in
southeast Kansas. KDHE asserts that the Company is a corporate
successor to an entity that is alleged to have owned and operated the smelter
from 1915 to 1918. The Company has since been advised of possible
connection between that same entity and two other former smelter sites in
Kansas. KDHE has requested that the Company and another potentially
responsible party (PRP) negotiate a consent order with KDHE to address
contamination at these sites. The Company has participated in
preliminary discussions with KDHE and the other PRP. The Company
believes it is not liable for the contamination but as an alternative to
litigation, the Company has entered into settlement negotiations with the other
PRP. The negotiations are ongoing.
Eureka Mills
Site
In November 2008, the Company received
a general notice of liability and second request for information under CERCLA
from the EPA concerning the Eureka Mills Superfund Site (the Eureka Mills Site)
located in Juab County, Utah. The Eureka Mills Site is an area where
mining and milling of various metals occurred over the course of several
decades. The EPA has been investigating and remediating contamination
associated with these activities. The Company’s connection to the
Eureka Mills Site appears to be through land within the Eureka Mills Site that
was owned by Sharon Steel Corporation (Sharon), its predecessor and a 1979
transaction with UV Industries (UV) in which Sharon allegedly assumed certain of
UV’s liabilities. In 2001, the Company responded to an earlier
request for information concerning milling activities stating that it was not
responsible for any such activities at the Eureka Mills Site. The
recent request for information concerns historic mining
activities. In responding to EPA’s November 2008 letter and also to a
recent third request for information received in March 2009, the Company stated
that it does not believe it is liable for the contamination. The
Company has agreed to suspend temporarily the running of the time period during
which the EPA must bring a lawsuit in order to allow time for the Company and
the EPA to discuss this matter. The Company is continuing to evaluate this
matter and expects to participate in further discussions with
EPA. The Company’s counsel has written the EPA arguing that a 1990
litigation and global release of UV precludes any claims against the Company for
UV’s activities and has not yet received a response.
Other
In connection with acquisitions, the
Company established environmental reserves to fund the cost of remediation at
sites currently or formerly owned by various acquired entities. The
Company, through its acquired subsidiaries, is engaged in ongoing remediation
and site characterization studies.
Health
and Safety Matters
On January 25, 2010, the Company
received Citations and a Notification of Penalties from the Occupational Safety
and Health Administration (OSHA) proposing civil penalties totaling
approximately $0.7 million for various health and safety violations following
inspections in 2009 of certain plants operated by subsidiaries in Fulton,
Mississippi. The Company has worked closely with OSHA in the course
of its inspections and will continue to do so to resolve any issues at the
Fulton, Mississippi plants or at any other plants. The Company does
not anticipate any material adverse effect on its financial condition as a
result of the OSHA matters.
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 2009, 2008, or
2007. 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 Mueller Financials, 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.
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.
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.
The recent deterioration of the general
economic environment, distress in the financial markets and general uncertainty
about the economy is having a significant negative impact on businesses and
consumers around the world. 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. We are
unsure of the duration and severity of this economic crisis. However,
if the crisis persists or worsens and economic conditions remain weak over a
long period, the likelihood of the crisis having a significant impact on our
business increases.
Competitive
conditions including the impact of imports and substitute products could have a
material adverse effect on 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, and production costs. 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.
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 certain currencies such as the
euro and 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
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 26, 2009, approximately
one-half of our 3,300 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 produce our products resulting from increased labor
costs, strikes or other work stoppages could have an 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.
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 or financial position.
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 management's resources, availability of insurance
coverage and other factors.
None.
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
|
418,000
sq. ft.
52.37
acres
|
Copper
tube mill. Facility includes casting, extruding, and finishing
equipment to produce copper tubing, including tube feedstock for the
Company’s copper fittings plants and Precision Tube
factory.
|
|||||
|
Fulton,
MS
|
103,000
sq. ft.
11.9
acres
|
Casting
facility. Facility includes casting equipment to produce copper
billets used in the adjoining copper tube mill.
|
|||||
|
Wynne,
AR
|
682,000
sq. ft.
39.2
acres
|
(1)
|
Copper
tube mill and plastic fittings plant. Facility includes
casting, extruding, and finishing equipment to produce copper tubing and
copper tube line sets, and produces DWV fittings using injection molding
equipment.
|
||||
|
Fulton,
MS
|
58,500
sq. ft.
15.53
acres
|
Packaging
and bar coding facility for retail channel sales.
|
|||||
|
Fulton,
MS
|
70,000
sq. ft.
7.68
acres
|
(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.
10
acres
|
(3)
|
Distribution
center and plastics manufacturing plant. 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 pressure fittings using injection
molding equipment.
|
|||||
|
Monterrey,
Mexico
|
120,000
sq. ft.
3.4
acres
|
(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 tubing.
|
|||||
(continued)
ITEM
2. PROPERTIES
|
(continued)
|
||||||
|
Location
|
Approximate
Property Size
|
Description
|
||||
|
OEM Segment
|
||||||
|
Port
Huron, MI
|
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.
|
||||
|
Belding,
MI
|
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
|
81,500
sq. ft.
6.72
acres
|
Aluminum
and copper impacts plant. Produces made-to-order parts using
cold impact processes.
|
||||
|
Hartsville,
TN
|
78,000
sq. ft.
4.51
acres
|
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.
|
||||
|
Waynesboro,
TN
|
57,000
sq. ft.
5.0
acres
|
(4)
|
Gas
valve plant. Facility produces brass valves and assemblies for
the gas appliance industry.
|
|||
|
North
Wales, PA
|
174,000
sq. ft.
18.9
acres
|
Precision
Tube factory. Facility fabricates copper tubing, copper alloy
tubing, aluminum tubing, 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.
|
||||
|
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.
|
|||
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.
|
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.
Copper
Tube Antitrust Litigation
The Company has been named as a
defendant in several pending litigations (the Copper Tube Actions) brought by
direct and indirect purchasers of various forms of copper tube. The
Copper Tube Actions allege anticompetitive activities with respect to the sale
of copper plumbing tubes (copper plumbing tubes) and/or copper tubes used in,
among other things, the manufacturing of air-conditioning and refrigeration
units (ACR copper tubes). All of the Copper Tube Actions seek
monetary and other relief.
Carrier ACR Tube
Action
A Copper Tube Action (the Carrier ACR
Tube Action) was filed in March 2006 in the United States District Court for the
Western District of Tennessee by Carrier Corporation, Carrier S.A., and Carrier
Italia S.p.A. (collectively, Carrier). The Carrier ACR Tube Action
alleges anticompetitive activities with respect to the sale to Carrier of ACR
copper tubes. The Company and Mueller Europe Limited (Mueller Europe)
are named in the Carrier ACR Tube Action.
In July 2007, the Carrier ACR Tube
Action was dismissed in its entirety for lack of subject matter jurisdiction as
to all defendants. In August 2007, plaintiffs filed with the United
States Court of Appeals for the Sixth Circuit a notice of appeal from the
judgment and order dismissing the complaint in the Carrier ACR Tube
Action. The Company and Mueller Europe filed notices of cross-appeal
in August 2007.
In October 2007, Carrier filed with the
United States Court of Appeals for the Sixth Circuit a motion to dismiss the
cross-appeals, which the Court denied in December 2007. All appeals
in the Carrier ACR Tube Action remain pending. Briefing on the
appeals occurred in May 2009 and oral argument took place in October
2009.
Indirect-Purchaser ACR Tube
Action
Two Copper Tube Actions were filed in
June and August 2006 in the United States District Court for the Western
District of Tennessee and were consolidated to become the Indirect-Purchaser ACR
Tube Action. The Indirect-Purchaser ACR Tube Action is a purported
class action brought on behalf of indirect purchasers of ACR copper tubes in the
United States and alleges anticompetitive activities with respect to the sale of
ACR copper tubes. The Company and Mueller Europe are named in the
Indirect-Purchaser ACR Tube Action. The Company and Mueller Europe
have been served, but have not yet been required to respond, in the
Indirect-Purchaser ACR Tube Action.
Indirect-Purchaser Copper
Tube Action
A Copper Tube Action (the
Indirect-Purchaser Copper Tube Action) was filed in July 2006 in the United
States District Court for the Northern District of California. The
Indirect-Purchaser Copper Tube Action is a purported class action brought on
behalf of indirect purchasers of copper plumbing tubes and ACR copper tubes in
the United States and alleges anticompetitive activities with respect to the
sale of both copper plumbing tubes and ACR copper tubes.
The Company, Mueller Europe, WTC
Holding Company, Inc. (WTC Holding Company), Deno Holding Company, Inc. (Deno
Holding Company), and Deno Acquisition Eurl are named in the Indirect-Purchaser
Copper Tube Action. The Company, Mueller Europe, WTC Holding Company,
and Deno Holding Company have been served, but have not yet been required to
respond, in the Indirect-Purchaser Copper Tube Action. Deno
Acquisition Eurl has not been served with the complaint in the
Indirect-Purchaser Copper Tube Action.
Indirect-Purchaser Plumbing
Tube Action
Four Copper Tube Actions were filed in
October 2004 in state court in California and were consolidated to become the
Indirect-Purchaser Plumbing Tube Action. The Indirect-Purchaser
Plumbing Tube Action is a purported class action brought on behalf of indirect
purchasers of copper plumbing tubes in California and alleges anticompetitive
activities with respect to the sale of copper plumbing tubes. The
Company, Mueller Europe, WTC Holding Company, Deno Holding Company, and Deno
Acquisition Eurl are named in the Indirect-Purchaser Plumbing Tube
Action. Deno Acquisition Eurl has not been served with the complaint
in the Indirect-Purchaser Plumbing Tube Action.
The claims against WTC Holding Company
and Deno Holding Company have been dismissed without prejudice in the
Indirect-Purchaser Plumbing Tube Action. Mueller Europe has not yet
been required to respond in the Indirect-Purchaser Plumbing Tube
Action. The Company’s demurrer to the complaint has been filed in the
Indirect-Purchaser Plumbing Tube Action.
In February 2010, the court overseeing
the Indirect-Purchaser Plumbing Tube Action granted the plaintiffs’ motion for
final approval of a class-action settlement and entered judgment in accordance
therewith.
Although the Company believes that the
claims for relief in the Copper Tube Actions are without merit, due to the
procedural stage of the Copper Tube Actions, the Company is unable to determine
the likelihood of a material adverse outcome in the Copper Tube Actions or the
amount or range of a potential loss in the Copper Tube Actions.
Canadian
Dumping and Countervail Investigation
In June 2006, the Canada Border
Services Agency (CBSA) initiated an investigation into the alleged dumping of
certain copper pipe fittings from the United States and from South Korea, and
the dumping and subsidizing of these same goods from China. The
Company and certain affiliated companies were identified by the CBSA as
exporters and importers of these goods.
On January 18, 2007, the CBSA issued a
final determination in its investigation. The Company was found to
have dumped subject goods during the CBSA’s investigation period. On
February 19, 2007, the Canadian International Trade Tribunal (CITT) concluded
that the dumping of the subject goods from the United States had caused injury
to the Canadian industry.
As a result of these findings, exports
of subject goods to Canada by the Company made on or after October 20, 2006 have
been subject to antidumping measures. Under Canada’s system of
prospective antidumping enforcement, the CBSA has issued normal values to the
Company. Antidumping duties will be imposed on the Company’s Canadian
customers only to the extent that the Company’s future exports of copper pipe
fittings are made at net export prices which are below these normal
values. If net export prices for subject goods exceed normal values,
no antidumping duties will be payable. These measures will remain in
place for five years, at which time an expiry review will be conducted by
Canadian authorities to determine whether these measures should be maintained
for another five years or allowed to expire.
On August 27, 2008, the CBSA completed
a review process pursuant to which revised normal values were issued to
exporters of subject goods, including the Company. Given that these
normal values are calculated on the basis of sales and cost data provided by the
Company and given that the average cost of copper has declined significantly
since the issuance of the normal values in August 2008, the Company has
experienced a decrease in its sales volumes of copper pipe fittings subject to
the dumping order since the fourth quarter of 2008. However, 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
condition as a result of the antidumping case in Canada.
Mueller’s normal values are subject to
potential review and revision in the future. CBSA is currently
conducting such a review, which will result in the issuance of new normal values
on or before April 1, 2010. Depending on the level of these revised normal
values, the Company's ability to compete in Canada could be affected although,
as discussed above, export sales to Canada comprise only a small percentage of
the Company’s total sales. The “sunset review” process, pursuant to
which Canadian authorities will examine whether the dumping order should be
revoked or maintained for another five years, will initiate in April
2011.
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. The review
will determine the final antidumping duties owed, if any, on U.S. imports by
certain subsidiaries of the Company during the period November 1, 2007 through
October 31, 2008, pursuant to the existing antidumping duty
order. DOC has selected Mueller Comercial de Mexico, S. de R.L. de
C.V. (Mueller Comercial) as a respondent in this proceeding. On May
29, 2009, Mueller Comercial notified DOC that it would no longer participate in
the review. On December 7, 2009, DOC published the preliminary
results of this review. DOC’s preliminary determination was to assign
Mueller Comercial an antidumping duty rate of 48.33 percent. On
January 6, 2010, Mueller Comercial filed comments on the preliminary results
with DOC. The Company anticipates that certain of its subsidiaries
will incur additional antidumping duties on subject imports made during the
review period.
On
December 23, 2009, DOC initiated an antidumping administrative review for the
November 1, 2008 through October 31, 2009 period of review. DOC has
selected Mueller Comercial as a respondent for this period of
review.
United
States Department of Commerce and United States International Trade Commission
Antidumping Investigations
On September 30, 2009, two subsidiaries
of Mueller Industries, Inc., 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 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 21, 2009, the DOC announced its decision to
initiate antidumping investigations, corroborating Petitioners' allegations that
imports from China were being dumped at a rate of 60.5 percent, and that imports
from Mexico were being dumped at rates in the 76.5 to 85.7 percent
range. On November 13, 2009, the ITC announced its unanimous
determination that there is a reasonable indication that the domestic industry
is materially injured or threatened with material injury by reason of subject
imports.
As a result of these determinations,
the DOC has commenced antidumping investigations of Chinese and Mexican
producers, and it is expected to issue both preliminary and final determinations
later this year. If the DOC issues final affirmative determinations,
then the ITC will be required to issue a final determination of whether unfairly
traded imports from China and Mexico caused material injury (or threaten
material injury) to the domestic industry. If the final ITC decision
is affirmative, then antidumping orders are expected to be issued by the end of
2010, resulting in the imposition of antidumping duty deposits on subject
imports.
Employment
Litigation
On June 1, 2007, the Company filed a
lawsuit in the Circuit Court of Dupage County, Illinois against 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, relating to their
alleged breach of fiduciary duties and contractual obligations to the Company
through, among other things, their involvement with a supplier of B&K during
their employment with B&K. The lawsuit alleges appropriation of
corporate opportunities for personal benefit, failure to disclose competitive
interests or other conflicts of interest, and unfair competition, as well as
breach of employment agreements in connection with the foregoing. The
lawsuit seeks compensatory and punitive damages, and other appropriate
relief. In August 2007, the defendants filed an answer to the
complaint admitting Peter Berkman had not sought authorization to have an
ownership interest in a supplier, and a counterclaim against the Company,
B&K and certain of the Company’s officers and directors alleging defamation,
tortious interference with prospective economic relations, and conspiracy, and
seeking damages in unspecified amounts. In September 2007, Homewerks
Worldwide LLC, an entity formed by Peter Berkman, filed a complaint as an
intervenor based on substantially the same allegations included in the Berkmans’
counterclaim. In October 2007, the Company also filed a motion
seeking to have the Berkmans’ counterclaim dismissed as a matter of
law. On January 3, 2008, the Court overruled that motion and the case
proceeded to discovery of the relevant facts. Since that time,
depositions and document productions have been ongoing. However, on
September 5, 2008, Peter Berkman withdrew prior responses to discovery requests
and asserted the Fifth Amendment privilege against self-incrimination as to all
requests directed to him. By that assertion, he took the position
that his testimony about his actions would have the potential of exposing him to
a criminal charge or criminal charges. On October 3, 2008, in
response to a motion to compel filed by the Company, the Court held that Peter
Berkman could not withhold documents on Fifth Amendment grounds, amongst other
things. Peter Berkman moved for reconsideration of that order and his
request was denied on November 19, 2008. On December 10, 2008, Peter
Berkman moved for the opportunity to file an interlocutory appeal regarding the
Court’s ruling on the Company’s motion to compel. On January 7, 2009,
the motion for interlocutory appeal was granted, the Court found Peter Berkman
in contempt for resisting discovery, and Peter Berkman has since filed a notice
of appeal with the Illinois Appellate Court, Second Judicial
District. All appellate briefs were submitted, oral argument took
place on September 29, 2009, and the Company is currently awaiting a decision
regarding the issues that were appealed. On October 24, 2008, the
defendants filed a motion seeking leave to interpose an Amended Answer and
Amended Counterclaims. On December 19, 2008, the Company filed an
answer to the Amended Counterclaims that included a new affirmative defense
based on the assertion of the Fifth Amendment by Peter Berkman. On
December 15, 2009, the parties exchanged reports created by their respective
damages experts wherein the Company asserted a claim totaling $17.2 million and
defendants asserted a claim totaling $41.0 million. The Company
believes that the counterclaims are without merit and that defendants are not
entitled to the damages being sought. Consequently, the Company
intends to defend the counterclaims vigorously. The Company does not
anticipate any material adverse effect on its business or financial condition as
a result of this litigation.
None.
PART
II
As of February 19, 2010, the
number of holders of record of Mueller’s common stock was approximately
1,240. On February 19, 2010, the closing price for Mueller’s common
stock on the New York Stock Exchange was $23.42.
Issuer
Purchases of Equity Securities
The Company’s Board of Directors has
extended, until October 2010, 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 26,
2009, the Company had repurchased approximately 2.4 million shares under this
authorization. Below is a summary of the Company’s stock repurchases
for the period ended December 26, 2009.
|
(a)
|
(b)
|
(c)
|
(d)
|
|||||||||||||||
|
Total Number
of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Maximum
Number of Shares That May Yet Be Purchased Under the Plans or
Programs
|
|||||||||||||||
|
7,647,030
|
(1)
|
|||||||||||||||||
|
September
27 – October 24, 2009
|
-
|
$
|
-
|
|||||||||||||||
|
October
25 – November 21, 2009
|
8,068
|
(2)
|
26.01
|
|||||||||||||||
|
November
22 – December 26, 2009
|
9,879
|
(2)
|
24.67
|
|||||||||||||||
|
(1
|
)
|
Shares
available to be purchased under the Company's 10 million share repurchase
authorization until October 2010. The extension of the
authorization was announced on October 21, 2009.
|
||||||||||||||||
|
(2
|
)
|
Shares
tendered to the Company by employee stock option holders in payment of
purchase price and/or withholding taxes upon exercise.
|
||||||||||||||||
The Company’s Board of Directors
declared a regular quarterly dividend of 10 cents per share on its common stock
for each fiscal quarter of 2009 and 2008. 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's common stock on the New York Stock Exchange for each fiscal quarter of
2009 and 2008 were as follows:
|
High
|
Low
|
Close
|
||||||||||
|
2009
|
||||||||||||
|
Fourth
quarter
|
$ | 27.75 | $ | 22.55 | $ | 25.49 | ||||||
|
Third
quarter
|
25.80 | 19.48 | 24.47 | |||||||||
|
Second
quarter
|
24.84 | 20.01 | 21.52 | |||||||||
|
First
quarter
|
26.26 | 16.01 | 22.11 | |||||||||
|
2008
|
||||||||||||
|
Fourth
quarter
|
$ | 26.28 | $ | 15.69 | $ | 22.81 | ||||||
|
Third
quarter
|
33.33 | 24.85 | 26.83 | |||||||||
|
Second
quarter
|
36.73 | 28.49 | 32.29 | |||||||||
|
First
quarter
|
31.21 | 23.57 | 29.43 | |||||||||
PERFORMANCE
GRAPH
The following table compares total
stockholder return since December 25, 2004 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.
|
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
|
|
Mueller
Industries, Inc.
|
100
|
86
|
101
|
96
|
75
|
85
|
|
Dow
Jones U.S. Total Market Index
|
100
|
107
|
123
|
131
|
79
|
107
|
|
Dow
Jones U.S. Building Materials & Fixtures Index
|
100
|
106
|
122
|
118
|
78
|
93
|
|
(In
thousands, except per share data)
|
|||||||||||||||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||||||||||||
|
For
the fiscal year: (1)
|
|||||||||||||||||||||||||||||
|
Net
sales
|
$
|
1,547,225
|
$
|
2,558,448
|
$
|
2,697,845
|
$
|
2,510,912
|
$
|
1,729,923
|
|||||||||||||||||||
|
Operating
income
|
32,220
|
(7
|
)
|
126,096
|
(5
|
)
|
191,621
|
(4
|
)
|
218,885
|
(2
|
)
|
131,758
|
||||||||||||||||
|
|
|||||||||||||||||||||||||||||
|
Net
income from continuing operations attributable to Mueller Industries,
Inc.
|
4,675
|
80,814
|
(6
|
)
|
115,475
|
148,869
|
(3
|
)
|
89,218
|
||||||||||||||||||||
|
Diluted
earnings per share from continuing operations
|
0.12
|
2.17
|
3.10
|
4.00
|
2.40
|
||||||||||||||||||||||||
|
Cash
dividends per share
|
0.40
|
0.40
|
0.40
|
0.40
|
0.40
|
||||||||||||||||||||||||
|
At
year-end:
|
|||||||||||||||||||||||||||||
|
Total
assets
|
1,180,141
|
1,182,913
|
1,449,204
|
1,268,907
|
1,116,928
|
||||||||||||||||||||||||
|
Long-term
debt
|
158,226
|
158,726
|
281,738
|
308,154
|
312,070
|
||||||||||||||||||||||||
| (1 | ) |
|
Includes
activity of acquired businesses from the following purchase dates: (i)
Extruded, February 27, 2007, (ii) Mueller-Xingrong, December 2005, and
(iii) Brassware, August 15, 2005.
|
||||||||||||||||||||||||||
| (2 | ) |
|
In
2006, the Company recorded a pre-tax charge of $14.2 million to write down
inventories to the lower-of-cost-or-market.
|
||||||||||||||||||||||||||
| (3 | ) |
|
Includes
the net-of-tax effect of the inventory write-down described in (2) above,
plus a $7.7 million benefit for change in estimate regarding the future
utilization of various tax incentives in 2006.
|
||||||||||||||||||||||||||
| (4 | ) |
|
Includes
$10.0 million pre-tax gain from liquidation of LIFO layers plus a gain
from a copper litigation settlement of $8.9 million, less a goodwill
impairment charge of $2.8 million.
|
||||||||||||||||||||||||||
| (5 | ) |
|
Includes
$14.9 million pre-tax gain from liquidation of LIFO layers less a pre-tax
charge of $4.9 million to write down inventories to the
lower-of-cost-or-market and a goodwill impairment charge of $18.0
million.
|
||||||||||||||||||||||||||
| (6 | ) |
|
Includes
the net-of-tax effect of all of the items described in (5) above, plus a
provision of $15.4 million ($9.6 million after tax) related to
environmental settlements and obligations and a gain of $21.6 million
related to the early extinguishment of debt.
|
||||||||||||||||||||||||||
| (7 | ) |
|
Includes
impairment charges of $29.8 million, primarily related to
goodwill.
|
||||||||||||||||||||||||||
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.
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.
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.
None.
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 26,
2009. 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 26, 2009 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. Due to inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Further,
because of changes in conditions, effectiveness of internal control over
financial reporting may vary over time.
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 26, 2009 based on the control criteria
established in a report entitled Internal Control—Integrated
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 26, 2009.
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 26, 2009, that have materially affected, or are reasonably likely
to materially affect, the Company’s internal control over financial
reporting.
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 26, 2009, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (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.
In our
opinion, Mueller Industries, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 26, 2009,
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 26, 2009 and December 27, 2008, and the related
consolidated statements of income, changes in equity and cash flows for each of
the three years in the period ended December 26, 2009 and our report dated
February 23, 2010 expressed an unqualified opinion thereon.
| /S/ Ernst & Young LLP |
|
Memphis,
Tennessee
|
|
|
February
23, 2010
|
None.
PART
III
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 2010 Annual Meeting of Stockholders to be filed with the SEC
on or about March 24, 2010, 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.
The information required by Item 11 is
contained under the caption “Compensation Discussion and Analysis,” “Summary
Compensation Table for 2009,” “2009 Grants of Plan Based Awards Table,”
“Outstanding Equity Awards at Fiscal 2009 Year-End,” “2009 Option Exercises,”
“Employment and Consulting Agreements,” “Potential Payments Under Employment and
Consulting Agreements as of the End of 2009,” “2009 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 2010 Annual Meeting of Stockholders to be filed with the SEC on or about
March 24, 2010, which is incorporated herein by reference.
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 26, 2009 (shares in thousands):
|
(a)
|
(b)
|
(c)
|
||||||||||
|
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options, warrants,
and rights
|
Weighted
average exercise price of outstanding options, warrants, and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|||||||||
|
Equity
compensation plans approved by security holders
|
1,604 | $ | 27.56 | 992 | ||||||||
|
Equity
compensation plans not approved by security holders
|
— | — | — | |||||||||
|
Total
|
1,604 | $ | 27.56 | 992 | ||||||||
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 2010 Annual Meeting of
Stockholders to be filed with the SEC on or about March 24, 2010, which is
incorporated herein by reference.
The information required by Item 13 is
contained under the caption “Corporate Governance” in the Company’s Proxy
Statement for its 2010 Annual Meeting of Stockholders to be filed with the SEC
on or about March 24, 2010, which is incorporated herein by
reference.
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 2010 Annual Meeting of
Stockholders to be filed with the SEC on or about March 24, 2010, which is
incorporated herein by reference.
PART
IV
|
(a)
|
The
following documents are filed as part of this report:
|
|
|
1.
|
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.
|
|
|
2.
|
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.
|
|
|
3.
|
Exhibits:
|
|
|
3.1
|
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).
|
|
|
3.2
|
Amended
and Restated By-laws of the Registrant, adopted and effective as of July
30, 2009 (Incorporated herein by reference to Exhibit 3.1 of the
Registrant’s Current Report on Form 8 - K, dated July 30,
2009).
|
|
|
4.1
|
Indenture,
dated as of October 26, 2004, by and between Mueller Industries, Inc, and
SunTrust Bank, as trustee (Incorporated herein by reference to Exhibit 4.1
of the Registrant’s Current Report on Form 8-K, dated October 26,
2004).
|
|
|
4.2
|
Form
of 6% Subordinated Debenture due 2014 (Incorporated herein by reference to
Exhibit 4.2 of the Registrant’s Current Report on Form 8-K, dated October
26, 2004).
|
|
|
4.3
|
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.
|
|
|
10.1
|
Amended
and Restated Employment Agreement, effective as of September 17, 1997, by
and between the Registrant and Harvey L. Karp (Incorporated herein by
reference to Exhibit 10.8 of the Registrant’s Annual Report on Form 10-K,
dated March 24, 2003, for the fiscal year ended December 28,
2002).
|
|
|
10.2
|
Amendment,
dated June 21, 2004, to the Amended and Restated Employment Agreement
dated as of September 17, 1997, by and between the Registrant and Harvey
Karp (Incorporated herein by reference to Exhibit 10.3 of the Registrant’s
Quarterly Report on Form 10-Q, dated July 16, 2004, for the quarter ended
June 26, 2004).
|
|
|
10.3
|
Second
Amendment, dated February 17, 2005, to the Amended and Restated Employment
Agreement, dated as of September 17, 1997, 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 May 5,
2005).
|
|
|
10.4
|
Third
Amendment, dated October 25, 2007, to the Amended and Restated Employment
Agreement, dated as of September 17, 1997, by and between the Registrant
and Harvey Karp (Incorporated herein by reference to Exhibit 10.1 of the
Registrant’s Current Report on Form 8-K, dated October 25,
2007).
|
|
|
10.5
|
Fourth
Amendment, dated December 2, 2008, to the Amended and Restated Employment
Agreement, dated as of September 17, 1997, by and between the Registrant
and Harvey Karp (Incorporated herein by reference to Exhibit 10.5 of the
Registrant's Annual Report on Form 10-K, dated February 24, 2009, for the
fiscal year ended December 27, 2008).
|
|
|
10.6
|
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).
|
|
|
10.7
|
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).
|
|
|
10.8
|
Employment
Agreement, effective October 17, 2002, by and between the Registrant and
Kent A. McKee (Incorporated herein by reference to Exhibit 10.18 of the
Registrant’s Annual Report on Form 10-K, dated March 24, 2003, for the
fiscal year ended December 28, 2002).
|
|
|
10.9
|
Amendment
No. 1, dated December 10, 2008, to the Employment Agreement, effective
October 17, 2002, by and between the Registrant and Kent A. McKee
(Incorporated herein by reference to Exhibit 10.16 of the Registrant's
Annual Report on Form 10-K, dated February 24, 2009, for the fiscal year
ended December 27, 2008).
|
|
|
10.10
|
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).
|
|
|
10.11
|
Mueller
Industries, Inc. 1991 Incentive Stock Option Plan, as amended
(Incorporated herein by reference to Exhibit 10.6 of the Registrant’s
Annual Report on Form 10-K, dated March 24, 2003, for the fiscal year
ended December 28, 2002 and Exhibit 99.2 of the Registrant’s Current
Report on Form 8-K, dated August 31, 2004).
|
|
|
10.12
|
Mueller
Industries, Inc. 1994 Stock Option Plan, as amended (Incorporated herein
by reference to Exhibit 10.11 of the Registrant’s Annual Report on Form
10-K, dated March 24, 2003, for the fiscal year ended December 28, 2002
and Exhibit 99.3 of the Registrant’s Current Report on Form 8-K, dated
August 31, 2004).
|
|
|
10.13
|
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).
|
|
|
10.14
|
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).
|
|
|
10.15
|
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).
|
|
|
10.16
|
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).
|
|
|
10.17
|
Mueller
Industries, Inc. Annual Bonus Plan (Incorporated herein by reference to
Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, dated May 5,
2005).
|
|
|
10.18
|
Summary
description of the Registrant’s 2010 incentive plan for certain key
employees.
|
|
|
10.19
|
Credit
Agreement, dated as of December 1, 2006, among the Registrant (as
Borrower) and Lasalle Bank Midwest National Association (as agent), and
certain lenders named therein (Incorporated herein by reference to Exhibit
10.1 of the Registrant’s Current Report on Form 8-K, dated December 1,
2006).
|
|
|
10.20
|
Equity
Joint Venture Agreement, among Mueller Streamline China, LLC, Mueller
Streamline Holding, S.L., Jiangsu Xingrong Hi-Tech Co., Ltd. and Jiangsu
Baiyang Industries Ltd. (Incorporated herein by reference to Exhibit 10.1
of the Registrant’s Current Report on Form 8-K, dated December 5,
2005).
|
|
|
21.0
|
Subsidiaries
of the Registrant.
|
|
|
23.0
|
Consent
of Independent Registered Public Accounting Firm.
|
|
|
31.1
|
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.
|
|
|
31.2
|
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.
|
|
|
32.1
|
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.
|
|
|
32.2
|
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.
|
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 23, 2010.
MUELLER
INDUSTRIES, INC.
|
/S/
Harvey L.
Karp
|
||
|
Harvey
L. Karp, Chairman of the Board
|
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/ Harvey L
Karp
|
Chairman
of the Board, and Director
|
February 23,
2010
|
|
Harvey
L. Karp
|
||
|
/S/Alexander P.
Federbush
|
Director
|
February 23,
2010
|
|
Alexander
P. Federbush
|
||
|
/S/
Paul
J. Flaherty
|
Director
|
February
23, 2010
|
|
Paul
J. Flaherty
|
||
|
/S/ Gennaro J.
Fulvio
|
Director
|
February
23, 2010
|
|
Gennaro
J. Fulvio
|
||
|
/S/ Gary S.
Gladstein
|
Director
|
February
23, 2010
|
|
Gary
S. Gladstein
|
||
|
/S/ Scott J.
Goldman
|
Director
|
February
23, 2010
|
|
Scott
J. Goldman
|
||
|
/S/ Terry
Hermanson
|
Director
|
February
23, 2010
|
|
Terry
Hermanson
|
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/ Gregory L. Christopher
|
February
23, 2010
|
|
|
Gregory
L. Christopher
|
||
|
Chief
Executive Officer
|
||
|
(Principal
Executive Officer)
|
||
|
/S/ Kent A.
McKee
|
February
23, 2010
|
|
|
Kent
A. McKee
|
||
|
Executive
Vice President and Chief Financial Officer
|
||
|
(Principal
Financial and Accounting Officer)
|
||
|
/S/ Richard W.
Corman
|
February
23, 2010
|
|
|
Richard
W. Corman
|
||
|
Vice
President – Controller
|
|
F-
2
|
|
|
F-
12
|
|
|
F-
13
|
|
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F-
14
|
|
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F-
15
|
|
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F-
17
|
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F-
47
|
|
FINANCIAL
STATEMENT SCHEDULE
|
Schedule
for the years ended December 26, 2009, December 27, 2008, and December 29,
2007
|
|
|
F-
48
|
|
Overview
The Company is a leading manufacturer
of copper, brass, plastic, and aluminum 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 the Standard Products
Division (SPD), European Operations, and Mexican Operations. The OEM
segment is composed of the Industrial Products Division (IPD), Engineered
Products Division (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, 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 (heating,
ventilation, and air-conditioning), 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 2009
and 2008 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. The U.S. housing and residential construction market has been
adversely affected in the recent economic downturn. Per the U.S.
Census Bureau, new housing starts in the U.S. were 554 thousand in 2009, which
was a 39 percent decline compared with 906 thousand in 2008 and much lower than
the 2007 amount of 1.4 million. The December 2009 seasonally adjusted
annual rate of new housing starts was 557 thousand which is comparable with the
December 2008 rate of 556 thousand as new housing construction had already
declined significantly by that date. Mortgage rates have remained at
low levels during 2009 and 2008, as the average 30-year fixed mortgage rate was
4.93 percent in December 2009 and 5.33 percent in December 2008. The
U.S. federal government has also included tax credits for first-time homebuyers
in its stimulus programs. These are favorable conditions for the
housing market; however, they were not enough to offset the decline in overall
demand and have not yet resulted in increased residential construction activity
due to the large inventories created from home
foreclosures. Commercial construction has been more stable; however,
it also has begun to decline. According to the U.S. Census Bureau,
the December 2009 seasonally adjusted annual rate of Nonresidential Value of
Construction Put in Place was $332.5 billion, which was an 18 percent decrease
from the December 2008 rate of $404.3 billion. Business conditions in
the U.S. automotive industry have also been exceptionally difficult in the
recent economic downturn, which has affected the demand for various products in
the Company’s OEM segment. All of these conditions have significantly
affected the demand for virtually all of the Company’s core
products.
While the decline in residential
construction has been significant over the last several years, it appears that
activity has begun to increase. The seasonally adjusted annual rate
of new housing starts increased each month in the fourth quarter of 2009 and is
expected to further rise in 2010. The recovery in residential
construction is expected to be modest due to continuing high rates of
unemployment, the impact of mounting foreclosures, the tightening of lending
terms and the phase-out of governmental stimulus spending
programs. Commercial construction is expected to further decline in
2010 and recover in 2011. Most of the other markets served by the
Company are likely to improve in 2010 in pace with the overall U.S.
economy. After several quarters of negative GDP growth, the
seasonally adjusted annual rate of GDP growth was 2.2 percent in the third
quarter of 2009 and 5.7 percent in the fourth quarter of 2009. The
expected year-over-year GDP growth rate for 2010 is 2.7 percent.
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 completed products. The open
market prices for copper cathode and scrap, for example, influence the selling
price of copper tubing, 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 and imports, and market share. In 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. Plastic plumbing systems are
the primary substitute product; these products represent an increasing share of
consumption. U.S. consumption of copper tubing is still predominantly
supplied by U.S. manufacturers, although imports from Mexico are a significant
factor. Brass rod consumption in the U.S. has steadily declined over
the past five years, due to the outsourcing of many manufactured products from
offshore regions.
Results
of Operations
2009
Performance Compared with 2008
Consolidated net sales in 2009 were
$1.55 billion, a 40 percent decrease compared with net sales of $2.56 billion in
2008. The decrease was primarily attributable to lower unit sales
volumes in each of the Company’s primary product lines and the decline in base
metal prices, primarily copper. Net selling prices generally
fluctuate with changes in raw material costs. Changes in raw material
costs are generally passed through to customers by adjustment to selling
prices. The Comex average copper price in 2009 was approximately
$2.35 per pound, or approximately 25 percent lower than the 2008 average of
$3.13 per pound.
Cost of goods sold was $1.33 billion in
2009 compared with $2.23 billion in 2008. The year-over-year decrease
was due primarily to reduced sales volume in core product lines and the decline
in the market value of copper, the Company’s principal raw
material. Additionally, cost of goods sold for 2008 included two
non-cash items that were not present in 2009. During the fourth
quarter of 2008, the Company recognized a $14.9 million gain resulting from the
liquidation of last-in, first-out (LIFO) inventory layers. The LIFO
gain was partially offset by the impact of certain inventories valued using the
first-in, first-out (FIFO) method which were written down to the
lower-of-cost-or-market resulting in an increase to cost of goods sold of $4.9
million.
Depreciation and amortization expense
was $41.6 million in 2009 compared with $44.3 million in 2008. This
decrease was primarily due to reduced depreciation expense resulting from assets
written off following the fire in late 2008 at the Company’s European tube
operations and the impact of lower average exchange rates of the British pound
and the Mexico peso versus the U.S. dollar during 2009. Selling,
general, and administrative expenses decreased to $116.7 million in 2009; this
$20.2 million decrease was due to reduced employment costs, including incentive
compensation, and lower sales and distribution expenses associated with lower
shipment volume.
During 2009, the Company recognized
impairment charges of $29.8 million primarily related to impairment of goodwill
as a result of its annual assessment. For this assessment, the
projected operating results and cash flows for certain reporting units indicated
that their fair market value was less than their net carrying value, including
goodwill. During 2008, based upon its required annual assessment of
goodwill, the Company recognized an estimated impairment charge of $18.0 million
related to its Mexican Operations.
Interest expense decreased to $10.0
million in 2009 from $19.1 million in 2008. The decrease was due
primarily to reduced expense following the early extinguishment of $123.0
million of the Company’s 6% Subordinated Debentures in October
2008. Other income, net decreased to $0.9 million in 2009 from $13.9
million in 2008 due to several factors. First, interest income
decreased by $6.2 million due to lower interest rates. Additionally,
the Company extinguished a significant portion of its 6% Subordinated Debentures
in 2008 resulting in non-cash gains of $21.6 million, whereas in 2009 the
Company only extinguished a small portion of the Subordinated Debentures
resulting in a gain of $0.1 million. Additionally, other income, net
for 2008 included environmental expense of $15.4 million resulting from changes
in estimates for future remediation costs in 2008 related to certain
non-operating properties.
Income tax expense was $17.8 million,
for an effective rate of 77 percent. This rate was higher than what
would be computed using the U.S. statutory federal rate primarily due to the
impact of goodwill impairment charges related to nondeductible goodwill of $8.7
million and state tax expense, net of federal benefit, of $2.8
million. These increases were partially offset by a reduction in tax
contingencies of $1.0 million.
The Company’s employment was
approximately 3,300 at the end of 2009 compared with 3,900 at the end of
2008. The Company has reduced employment levels to adjust its
workforce size to correspond with lower production levels as a result of reduced
demand.
Plumbing
& Refrigeration Segment
Net sales by the Plumbing &
Refrigeration segment declined 36 percent to $892.1 million in 2009 from $1.40
billion in 2008. The decrease in net sales was due to lower unit
sales volumes resulting from weak demand in the majority of the segment’s core
product lines and from lower selling prices resulting from lower average prices
of raw materials. Of the $508.6 million decrease in net sales,
approximately $232.0 million was attributable to lower unit volume and
approximately $218.0 million was due to lower net selling prices in the
segment’s core product lines consisting primarily of copper tube, line sets, and
fittings. Cost of goods sold declined from $1.16 billion in 2008 to
$744.9 million in 2009 also due to lower sales volume and declining raw material
prices, primarily copper. Included in cost of goods sold for the
segment in 2008 was a gain resulting from the liquidation of LIFO inventory
layers of $14.9 million and charges to write down certain inventories using the
FIFO method to the lower-of-cost-or-market of $2.7
million. Depreciation and amortization decreased from $28.8 million
in 2008 to $26.3 million in 2009 due to reduced depreciation expense resulting
from assets written off following the fire in late 2008 at the Company’s
European tube operations and the impact of lower average exchange rates of the
British pound and the Mexico peso versus the U.S. dollar during
2009. Selling, general, and administrative expenses decreased from
$89.3 million in 2008 to $74.4 million in 2009. The decrease is
primarily due to decreased sales and distribution expenses resulting from lower
sales volume, and decreased employment costs, including incentive
compensation. During 2009 and 2008, the segment recorded non-cash
impairment charges of $19.5 million and $18.0 million, respectively, primarily
related to goodwill. Operating income for the segment declined from
$106.8 million to $27.0 million due to lower sales volume in the segment’s core
product lines, reduced spreads in core products especially in copper tube and
fittings, and higher per-unit conversion costs associated with lower production
volume.
OEM
Segment
The OEM segment’s net sales were $664.1
million in 2009 compared with $1.18 billion in 2008. The decrease was
due primarily to lower sales volume and lower net selling prices resulting from
lower average costs of raw materials. Of the $512.8 million decrease
in net sales, approximately $343.8 million was attributable to lower unit volume
and approximately $134.5 million was due to lower net selling prices in the
segment’s core product lines of brass rod, forgings, and commercial
tube. Cost of goods sold declined to $590.4 million in 2009 from
$1.09 billion in 2008, which was also due to the decline in sales volume and
average costs of raw material. Depreciation and amortization remained
relatively consistent. Selling, general, and administrative expenses
were $20.5 million in 2009 compared with $23.6 million in 2008. The
decrease is due primarily to reduced bad debt expense and decreased employment
costs associated with headcount reductions. Operating income
decreased from $45.3 million in 2008 to $28.7 million in 2009, due primarily to
lower sales volumes and increased impairment charges (primarily pertaining to
goodwill) of $10.3 million, partially offset by improved unit spreads at the
segment’s brass rod operations and reduced employment costs.
2008
Performance Compared with 2007
Consolidated net sales in 2008 were
$2.56 billion, a 5 percent decrease compared with net sales of $2.70 billion in
2007. The decrease was primarily attributable to lower unit sales
volumes in each of the Company’s primary product lines and the decline in base
metal prices, primarily copper. Net selling prices generally
fluctuate with changes in raw material costs. Changes in raw material
costs are generally passed through to customers by adjustment to selling
prices. The Comex average copper price in 2008 was approximately
$3.13 per pound, or approximately 3 percent lower than the 2007 average of
$3.22.
Cost of goods sold was $2.23 billion in
2008 compared with $2.32 billion in 2007. The year-over-year decrease
was due primarily to reduced sales volume in core product lines and the decline
in the market value of copper, the Company’s principal raw
material. During the fourth quarter of 2008, the Company recognized a
$14.9 million gain resulting from the liquidation of last-in, first-out (LIFO)
inventory layers compared with a LIFO gain of $10.0 million in the fourth
quarter of 2007. In addition, during the fourth quarter of 2008 and
2007, certain inventories valued using the first-in, first-out (FIFO) method
were written down to the lower-of-cost-or-market resulting in increases to cost
of goods sold of $4.9 million and $2.7 million, respectively.
Depreciation and amortization expense
was $44.3 million in 2008, which was relatively consistent with $44.2 million in
2007. Selling, general, and administrative expenses decreased to
$136.9 million in 2008; this $6.4 million decrease was due to reduced employment
costs, including incentive compensation, and lower sales and distribution
expenses associated with lower shipment volume. Additionally, during
2007, the Company recognized a gain of $8.9 million pursuant to a settlement
agreement terminating a lawsuit against J.P. Morgan Chase & Co. and Morgan
Guaranty Trust Company of New York (collectively Morgan).
During 2008, the Company recognized a
charge of $18.0 million for the impairment of goodwill as a result of its annual
assessment. The charge was related to the Company’s Mexican
Operations. The Company revised its projected operating results and
cash flows for the 2008 annual assessment which indicated that the fair market
value was less than the net carrying value, including
goodwill. During 2007, based upon its required annual assessment of
goodwill, the Company recognized an impairment charge of $2.8 million related to
its Mexican Operations.
Interest expense decreased to $19.1
million in 2008 from $22.1 million in 2007. The decrease was due
primarily to reduced expense following the early extinguishment of $149.0
million of the Company’s 6% Subordinated Debentures. Other income,
net was $13.9 million in 2008 compared with $14.3 million in
2007. The decrease is due to reduced interest income of $4.0 million
resulting from lower interest rates and lower average invested cash
balances. This decrease was partially offset by the net increase in
the other components included in other income of $2.4
million. Included in 2008 were gains of approximately $21.6 million
on early extinguishment of $149.0 million of the Company’s 6% Subordinated
Debentures and increased environmental expense related to estimated settlements
and obligations for non-operating properties to $15.4 million. In
2007, the Company recognized a gain of $3.1 million from a sale of a
non-operating natural resource property.
Income tax expense was $38.3 million,
for an effective rate of 32 percent. This rate was lower than what
would be computed using the U.S. statutory federal rate primarily due to the
effect of the early extinguishment of debt of $7.6 million, the effect of the
federal production activities deduction of $2.3 million, and a reduction in tax
contingencies of $1.7 million. These decreases were partially offset
by state income tax expense of $3.9 million and by the $6.3 million effect of a
goodwill impairment charge.
The Company’s employment was
approximately 3,900 at the end of 2008 compared with 4,400 at the end of
2007. The Company has reduced employment levels to adjust its
workforce size to correspond with lower production levels as a result of
declining demand.
Plumbing
& Refrigeration Segment
Net sales by the Plumbing &
Refrigeration segment declined 11 percent to $1.40 billion in 2008 from $1.57
billion in 2007. The decrease in net sales was due to lower unit
sales volumes resulting from weak demand in the majority of the segment’s core
product lines and from lower selling prices resulting from declining copper
prices. Cost of goods sold declined from $1.27 billion in 2007 to
$1.16 billion in 2008 also due to lower sales volume and declining copper
prices. Also included in cost of goods sold for the segment were
gains resulting from the liquidation of LIFO inventory layers of $14.9 million
and $10.0 million in 2008 and 2007, respectively, and charges to write down
certain inventories using the FIFO method to the lower-of-cost-or-market of $2.7
million in 2008 and in 2007. Depreciation and amortization decreased
from $29.8 million in 2007 to $28.8 million in 2008 due to certain assets
becoming fully depreciated late in 2007 and in 2008. Selling,
general, and administrative expenses decreased from $95.6 million in 2007 to
$89.3 million in 2008. The decrease was primarily due to decreased
sales and distribution expenses resulting from lower sales volume, and decreased
employment costs, including incentive compensation. The segment
recorded charges of $18.0 million in 2008 and $2.8 million in 2007 for
impairment of goodwill related to the Company’s Mexican
Operations. Also recorded in 2007 was an $8.9 million gain from the
monetary settlement on the Morgan copper litigation. Operating income
for the segment declined from $178.4 million to $106.8 million due to lower
sales volume in the segment’s core product lines, higher per-unit conversion
costs associated with lower production volume, an increased goodwill impairment
charge in 2008, and the gain from the monetary settlement on the Morgan copper
litigation in 2007.
OEM
Segment
The OEM segment’s net sales were $1.18
billion in 2008 compared with $1.14 billion in 2007. The increase was
primarily due to increased contributions resulting from the acquisition of
Extruded Metals, Inc. (Extruded) in the first quarter of 2007. This
increase was partially offset by decreased sales in the majority of the
segment’s businesses and declining raw material prices. Cost of goods
sold increased 2 percent to $1.09 billion in 2008 due to contributions from
Extruded, which was partially offset by lower volume and declining raw material
costs. Also included in cost of goods sold for 2008 was a $2.2
million charge to write down certain inventories using the FIFO method to the
lower-of-cost-or-market. Depreciation and amortization increased from
$13.3 million in 2007 to $14.5 million in 2008 due primarily to increased
depreciation expense from the assets acquired in the Extruded
acquisition. Selling, general, and administrative expenses were $23.6
million in 2008 compared with $22.9 million in 2007. The
increase was primarily attributable to additional expenses of Extruded in
2008 compared with 2007. Operating income increased from $38.2
million in 2007 to $45.3 million in 2008, due primarily to increased spreads in
our brass rod businesses, partially offset by reduced sales volumes and higher
per-unit conversion costs in the segment’s other businesses.
Liquidity
and Capital Resources
Cash and cash equivalents increased to
$346.0 million at December 26, 2009, from $278.9 million at December 27, 2008,
for a net increase of $67.1 million. Major components of the 2009
change included $77.4 million of cash provided by operating activities, $6.3
million of cash used in investing activities, $8.2 million of cash used in
financing activities, and favorable effects of changes in exchange rates of $4.2
million.
The primary components of cash provided
by operating activities were net income of $4.7 million, changes in working
capital, and non-cash adjustments primarily consisting of depreciation and
amortization of $41.8 million and impairment charges of $29.8
million. Major changes in working capital included a $7.0 million
increase in trade accounts receivable, $22.7 million decrease in inventories and
$13.8 million decrease in current liabilities.
The major components of net cash used
in investing activities during 2009 included $13.9 million used for capital
expenditures partially offset by $7.0 million of net withdrawals from restricted
cash balances. Net cash used in financing activities totaled $8.2
million, which consists primarily of $14.9 million used for payment of regular
quarterly
dividends to stockholders of the Company and $1.4 million used for the payment
of dividends to noncontrolling stockholders of
Mueller-Xingrong. These reductions were partially offset by proceeds
from the issuance of incentive stock options of $9.1 million. The
increase in cash resulting from exchange rates is primarily attributable to
functional currencies (U.K. pound sterling, Mexican peso) that increased in
value relative to the U.S. dollar during 2009.
The Company has a $200 million
unsecured line-of-credit (Credit Facility) which expires in December
2011. At year-end, the Company had no borrowings against the Credit
Facility. Approximately $9.9 million in letters of credit were backed
by the Credit Facility at the end of 2009. As of December 26, 2009,
the Company’s total debt was $182.6 million or 20 percent of its total
capitalization.
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 26, 2009, the Company was in compliance with
all of its debt covenants.
Contractual cash obligations of the
Company as of December 26, 2009 included the following:
|
Payments
Due by Year
|
|||||||||||||||||||||
|
(In
millions)
|
Total
|
2010
|
2011-2012
|
2013-2014
|
Thereafter
|
||||||||||||||||
|
Debt
|
$
|
182.6
|
$
|
24.3
|
$
|
1.8
|
$
|
150.2
|
$
|
6.3
|
|||||||||||
|
Interest
on fixed rate debt
|
44.5
|
8.9
|
17.8
|
17.8
|
—
|
||||||||||||||||
|
Consulting
Agreement (1)
|
6.7
|
1.3
|
2.7
|
2.0
|
0.7
|
||||||||||||||||
|
Operating
leases
|
31.6
|
6.3
|
9.6
|
5.9
|
9.8
|
||||||||||||||||
|
Purchase
commitments (2)
|
130.0
|
130.0
|
—
|
—
|
—
|
||||||||||||||||
|
Total
contractual cash obligations
|
$
|
395.4
|
$
|
170.8
|
$
|
31.9
|
$
|
175.9
|
$
|
16.8
|
|||||||||||
|
(1)
|
See
Note 10 to Consolidated Financial Statements. For the purposes
of this disclosure, the Company assumed the Consulting Agreement is
effective immediately.
|
||||||||||||||||||||
|
(2)
|
Purchase
commitments included $7.4 million of open fixed price purchases of raw
materials. Additionally, the Company has contractual supply
commitments for raw materials totaling $116.2 million at year end prices;
these contracts contain variable pricing based on Comex and the London
Metals Exchange (LME). These commitments are for purchases of
raw materials that are expected to be consumed in the ordinary course of
business.
|
||||||||||||||||||||
The above obligations will be satisfied
with existing cash, the Credit Facility, and cash generated by
operations. Cash flows to fund pension and other post-employment
benefit obligations were $4.4 million in 2009 and $3.7 million in
2008. Although the Company’s pension plan assets have recovered some
of the investment losses recognized by the plans in 2008 and early 2009,
contributions to these plans are expected to increase in the
future. 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 $3.22 per pound in 2007,
$3.13 in 2008, and $2.35 in 2009. During 2008, the price of copper
exceeded $4.00 per pound at certain times. During the fourth quarter
of 2008, the price of copper declined significantly to $1.27 per pound by the
end of 2008; however, the average price of copper increased each month during
2009 and was $3.27 per pound at the end of 2009.
The Company’s Board of Directors
declared a regular quarterly dividend of 10 cents per share on its common stock
during each quarter of 2009, 2008, and 2007. 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 Facility, and currently available cash of $346.0
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 4.4 to 1 as of December 26,
2009.
The Company’s Board of Directors has
extended, until October 2010, 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 26,
2009, the Company had repurchased approximately 2.4 million shares under this
authorization. In addition, the Company may repurchase portions of
its 6% Subordinated Debentures through open market transactions or through
privately negotiated transactions.
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 the 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 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 comprehensive income 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 $3.5 million of copper over the next twelve
months related to fixed-price sales orders and open contracts to sell $26.9
million of copper related to inventory.
Futures contracts may also be used to
manage price risk associated with natural gas purchases. The
effective portion of gains and losses with respect to these positions are
deferred in equity as a component of comprehensive income and reflected in
earnings upon consumption of natural gas. Periodic value fluctuations
of the contracts generally offset the value fluctuations of the underlying
natural gas prices. There were no open contracts to purchase natural
gas at December 26, 2009.
Interest
Rates
At December 26, 2009 and December 27,
2008, the fair value of the Company’s debt was estimated at $181.8 million and
$158.7 million, respectively, primarily using market yields and taking into
consideration the underlying terms of the debt. Such fair value was
less than the carrying value of debt at December 26, 2009 and December 27, 2008
by $0.7 million and $24.2 million, respectively. Market risk is
estimated as the potential change in fair value resulting from a hypothetical 10
percent decrease in interest rates and amounted to $3.4 million at December 26,
2009 and $18.3 million at December 27, 2008.
The Company had variable-rate debt
outstanding of $34.4 million at December 26, 2009 and $34.2 million at December
27, 2008. 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.
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 contracts to hedge foreign currency transactional
exposures. Gains and losses with respect to these positions are
deferred in equity as a component of comprehensive income and reflected in
earnings upon collection of receivables.
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 $150.9 million at December 26, 2009 and $199.0
million at December 27, 2008. 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
26, 2009 and December 27, 2008 amounted to $15.1 million and $19.9 million,
respectively. This change would be reflected in the foreign currency
translation component of accumulated other comprehensive income in the equity
section of the Company’s Consolidated Balance Sheets, until the foreign
subsidiaries are sold or otherwise disposed.
During 2009, exchange rates with
respect to many foreign currencies fluctuated significantly with respect to the
U.S. dollar. The Company has significant investments in foreign
operations whose functional currency is the British pound sterling and the
Mexican peso. The British pound sterling and the Mexican peso
increased approximately 9 percent and 5 percent, respectively, relative to
the U.S. dollar during 2009. The resulting foreign currency
translation gains are recorded as a component of accumulated other comprehensive
income.
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 LIFO
basis. Other manufactured inventories, including the non-material
components of U.S. copper tube and copper fittings, are valued on a 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.
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 (step two) 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.
Income
Taxes
Deferred 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.
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 clean-up costs, ongoing monitoring costs, and estimated legal fees;
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 certain 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 down-grading of credit ratings), it
records a reserve for bad debts 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 reserves
for bad debts 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, the absence of 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 impact of the recent
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.
MUELLER
INDUSTRIES, INC.
Years
Ended December 26, 2009, December 27, 2008, and December 29, 2007
|
(In
thousands, except per share data)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales
|
$
|
1,547,225
|
$
|
2,558,448
|
$
|
2,697,845
|
||||||
|
Cost
of goods sold
|
1,327,022
|
2,233,123
|
2,324,924
|
|||||||||
|
Depreciation
and amortization
|
41,568
|
44,345
|
44,153
|
|||||||||
|
Selling,
general, and administrative expense
|
116,660
|
136,884
|
143,284
|
|||||||||
|
Copper
litigation settlement
|
—
|
—
|
(8,893
|
)
|
||||||||
|
Impairment
charges
|
29,755
|
18,000
|
2,756
|
|||||||||
|
Operating
income
|
32,220
|
126,096
|
191,621
|
|||||||||
|
Interest
expense
|
(9,963
|
)
|
(19,050
|
)
|
(22,071
|
)
|
||||||
|
Other
income, net
|
872
|
13,896
|
14,313
|
|||||||||
|
Income
before income taxes
|
23,129
|
120,942
|
183,863
|
|||||||||
|
Income
tax expense
|
(17,792
|
)
|
(38,332
|
)
|
(67,806
|
)
|
||||||
|
Consolidated
net income
|
5,337
|
82,610
|
116,057
|
|||||||||
|
Less
net income attributable to noncontrolling interest
|
(662
|
)
|
(1,796
|
)
|
(582
|
)
|
||||||
|
Net
income attributable to Mueller Industries, Inc.
|
$
|
4,675
|
$
|
80,814
|
$
|
115,475
|
||||||
|
Weighted
average shares for basic earnings per share
|
37,336
|
37,123
|
37,060
|
|||||||||
|
Effect
of dilutive stock-based awards
|
88
|
186
|
163
|
|||||||||
|
Adjusted
weighted average shares for diluted earnings per share
|
37,424
|
37,309
|
37,223
|
|||||||||
|
Basic
earnings per share
|
$
|
0.13
|
$
|
2.18
|
$
|
3.12
|
||||||
|
Diluted
earnings per share
|
$
|
0.12
|
$
|
2.17
|
$
|
3.10
|
||||||
|
Dividends
per share
|
$
|
0.40
|
$
|
0.40
|
$
|
0.40
|
||||||
|
See
accompanying notes to consolidated financial statements.
|
||||||||||||
MUELLER
INDUSTRIES, INC.
As
of December 26, 2009 and December 27, 2008
|
(In
thousands, except share data)
|
2009
|
2008
|
||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$
|
346,001
|
$
|
278,860
|
||||
|
Accounts receivable, less allowance for doubtful accounts of $5,947 in
2009 and $6,690 in 2008
|
228,739
|
219,035
|
||||||
|
Inventories
|
191,262
|
210,609
|
||||||
|
Current
deferred income taxes
|
18,491
|
17,212
|
||||||
|
Other
current assets
|
24,350
|
29,110
|
||||||
|
Total
current assets
|
808,843
|
754,826
|
||||||
|
Property,
plant, and equipment, net
|
250,395
|
276,927
|
||||||
|
Goodwill
|
102,250
|
129,186
|
||||||
|
Other
assets
|
18,653
|
21,974
|
||||||
|
Total
Assets
|
$
|
1,180,141
|
$
|
1,182,913
|
||||
|
Liabilities
|
||||||||
|
Current
liabilities:
|
||||||||
|
Current
portion of debt
|
$
|
24,325
|
$
|
24,184
|
||||
|
Accounts
payable
|
73,837
|
63,732
|
||||||
|
Accrued
wages and other employee costs
|
24,829
|
35,079
|
||||||
|
Other
current liabilities
|
60,379
|
78,589
|
||||||
|
Total
current liabilities
|
183,370
|
201,584
|
||||||
|
Long-term
debt, less current portion
|
158,226
|
158,726
|
||||||
|
Pension
liabilities
|
20,715
|
13,903
|
||||||
|
Postretirement
benefits other than pensions
|
23,605
|
24,549
|
||||||
|
Environmental
reserves
|
23,268
|
23,248
|
||||||
|
Deferred
income taxes
|
31,128
|
33,940
|
||||||
|
Other
noncurrent liabilities
|
887
|
1,698
|
||||||
|
Total
liabilities
|
441,199
|
457,648
|
||||||
|
Equity
|
||||||||
|
Mueller
Industries, Inc. stockholders' equity:
|
||||||||
|
Preferred
stock - $1.00 par value; shares authorized 5,000,000; none
outstanding
|
—
|
—
|
||||||
|
Common stock - $.01 par value; shares authorized 100,000,000; issued
40,091,502; outstanding 37,649,584 in 2009 and 37,143,163 in
2008
|
401
|
401
|
||||||
|
Additional
paid-in capital
|
262,166
|
262,378
|
||||||
|
Retained
earnings
|
540,218
|
550,501
|
||||||
|
Accumulated
other comprehensive loss
|
(36,104
|
)
|
(48,113
|
)
|
||||
|
Treasury
common stock, at cost
|
(53,514
|
)
|
(64,484
|
)
|
||||
|
Total
Mueller Industries, Inc. stockholders' equity
|
713,167
|
700,683
|
||||||
|
Noncontrolling
interest
|
25,775
|
24,582
|
||||||
|
Total
equity
|
738,942
|
725,265
|
||||||
|
Commitments
and contingencies
|
—
|
—
|
||||||
|
Total
Liabilities and Equity
|
$
|
1,180,141
|
$
|
1,182,913
|
||||
|
See
accompanying notes to consolidated financial statements.
|
||||||||
MUELLER
INDUSTRIES, INC.
Years
Ended December 26, 2009, December 27, 2008, and December 29, 2007
|
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Operating
activities:
|
||||||||||||
|
Net
income attributable to Mueller Industries, Inc.
|
$
|
4,675
|
$
|
80,814
|
$
|
115,475
|
||||||
|
Reconciliation
of net income attributable to Mueller Industries, Inc. to net cash
provided by operating activities:
|
||||||||||||
|
Depreciation
|
40,867
|
43,666
|
43,605
|
|||||||||
|
Amortization
of intangibles
|
701
|
679
|
548
|
|||||||||
|
Amortization
of Subordinated Debenture costs
|
190
|
539
|
324
|
|||||||||
|
Stock-based
compensation expense
|
2,633
|
2,915
|
2,737
|
|||||||||
|
Income
tax benefit from exercise of stock options
|
(203
|
)
|
(92
|
)
|
(73
|
)
|
||||||
|
Impairment
charges
|
29,755
|
18,000
|
2,756
|
|||||||||
|
Deferred
income taxes
|
(2,554
|
)
|
(4,465
|
)
|
3,094
|
|||||||
|
Provision
for doubtful accounts receivable
|
506
|
2,654
|
(177
|
)
|
||||||||
|
Net
income attributable to noncontrolling interest
|
662
|
1,796
|
582
|
|||||||||
|
Gain
on early retirement of debt
|
(128
|
)
|
(21,575
|
)
|
—
|
|||||||
|
Loss
(gain) on disposal of properties
|
683
|
598
|
(2,468
|
)
|
||||||||
|
Changes
in assets and liabilities, net of business acquired:
|
||||||||||||
|
Receivables
|
(6,988
|
)
|
89,051
|
(7,937
|
)
|
|||||||
|
Inventories
|
22,699
|
44,591
|
20,411
|
|||||||||
|
Other
assets
|
(505
|
)
|
(3,027
|
)
|
(4,120
|
)
|
||||||
|
Current
liabilities
|
(13,823
|
)
|
(84,584
|
)
|
12,704
|
|||||||
|
Other
liabilities
|
(1,808
|
)
|
12,741
|
1,809
|
||||||||
|
Other,
net
|
26
|
1,459
|
(2,063
|
)
|
||||||||
|
Net
cash provided by operating activities
|
77,388
|
185,760
|
187,207
|
|||||||||
|
Investing
activities:
|
||||||||||||
|
Capital
expenditures
|
(13,942
|
)
|
(22,261
|
)
|
(29,870
|
)
|
||||||
|
Acquisition
of businesses, net of cash received
|
—
|
—
|
(32,243
|
)
|
||||||||
|
Proceeds
from sales of properties and equity investment
|
611
|
81
|
3,809
|
|||||||||
|
Net
withdrawals from (deposits into) restricted cash balances
|
7,013
|
(10,945
|
)
|
(4,194
|
)
|
|||||||
|
Net
cash used in investing activities
|
(6,318
|
)
|
(33,125
|
)
|
(62,498
|
)
|
||||||
|
Financing
activities:
|
||||||||||||
|
Repayments
of long-term debt
|
(370
|
)
|
(126,877
|
)
|
(18,765
|
)
|
||||||
|
Dividends
paid to stockholders of Mueller Industries, Inc.
|
(14,944
|
)
|
(14,847
|
)
|
(14,825
|
)
|
||||||
|
Dividends
paid to noncontrolling interests
|
(1,449
|
)
|
—
|
(1,363
|
)
|
|||||||
|
Issuance
(repayment) of debt by joint venture, net
|
131
|
(25,564
|
)
|
16,635
|
||||||||
|
Acquisition
of treasury stock
|
(870
|
)
|
(32
|
)
|
(54
|
)
|
||||||
|
Issuance
of shares under incentive stock option plans from treasury
|
9,145
|
1,167
|
1,124
|
|||||||||
|
Income
tax benefit from exercise of stock options
|
203
|
92
|
73
|
|||||||||
|
Net
cash used in financing activities
|
(8,154
|
)
|
(166,061
|
)
|
(17,175
|
)
|
||||||
|
Effect
of exchange rate changes on cash
|
4,225
|
(16,332
|
)
|
613
|
||||||||
|
Increase
(decrease) in cash and cash equivalents
|
67,141
|
(29,758
|
)
|
108,147
|
||||||||
|
Cash
and cash equivalents at the beginning of the year
|
278,860
|
308,618
|
200,471
|
|||||||||
|
Cash
and cash equivalents at the end of the year
|
$
|
346,001
|
$
|
278,860
|
$
|
308,618
|
||||||
|
For
supplemental disclosures of cash flow information, see Notes 1, 5, 7, and
14.
|
||||||||||||
|
See
accompanying notes to consolidated financial statements.
|
||||||||||||
MUELLER
INDUSTRIES, INC.
Years
Ended December 26, 2009, December 27, 2008, and December 29, 2007
|
2009
|
2008
|
2007
|
||||||||||||||||||||||
|
(In
thousands)
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
||||||||||||||||||
|
Common
stock:
|
||||||||||||||||||||||||
|
Balance
at beginning of year
|
40,092
|
$
|
401
|
40,092
|
$
|
401
|
40,092
|
$
|
401
|
|||||||||||||||
|
Balance
at end of year
|
40,092
|
$
|
401
|
40,092
|
$
|
401
|
40,092
|
$
|
401
|
|||||||||||||||
|
Additional
paid-in capital:
|
||||||||||||||||||||||||
|
Balance
at beginning of year
|
$
|
262,378
|
$
|
259,611
|
$
|
256,906
|
||||||||||||||||||
|
Issuance
of shares under incentive stock option plans
|
(1,295
|
)
|
(240
|
)
|
(105
|
)
|
||||||||||||||||||
|
Stock-based
compensation expense
|
2,633
|
2,915
|
2,737
|
|||||||||||||||||||||
|
Income
tax benefit from exercise of stock options
|
203
|
92
|
73
|
|||||||||||||||||||||
|
Write-off
of excess tax benefits arising from the exercise of stock
options
|
(353
|
)
|
—
|
—
|
||||||||||||||||||||
|
Issuance
of restricted stock
|
(1,400
|
)
|
—
|
—
|
||||||||||||||||||||
|
Balance
at end of year
|
$
|
262,166
|
$
|
262,378
|
$
|
259,611
|
||||||||||||||||||
|
Retained
earnings:
|
||||||||||||||||||||||||
|
Balance
at beginning of year
|
$
|
550,501
|
$
|
484,534
|
$
|
386,038
|
||||||||||||||||||
|
Adjustment
to retained earnings due to the adoption of the provisions for uncertain
tax positions codified in ASC 740
|
—
|
—
|
(2,154
|
)
|
||||||||||||||||||||
|
Net
income attributable to Mueller Industries, Inc.
|
4,675
|
80,814
|
115,475
|
|||||||||||||||||||||
|
Dividends
paid or payable to stockholders of Mueller Industries,
Inc.
|
(14,958
|
)
|
(14,847
|
)
|
(14,825
|
)
|
||||||||||||||||||
|
Balance
at end of year
|
$
|
540,218
|
$
|
550,501
|
$
|
484,534
|
||||||||||||||||||
|
Accumulated
other comprehensive (loss) income:
|
||||||||||||||||||||||||
|
Foreign
currency translation
|
$
|
13,278
|
$
|
(51,701
|
)
|
$
|
4,606
|
|||||||||||||||||
|
Net
change with respect to derivative instruments and hedging activities, net
of tax of $(1,794), $1,347, and $(166)
|
4,097
|
(3,819
|
)
|
285
|
||||||||||||||||||||
|
Net
actuarial (loss) gain on pension and postretirement obligations, net of
tax of $2,138, $14,867 and $(7,116)
|
(5,655
|
)
|
(26,542
|
)
|
14,170
|
|||||||||||||||||||
|
Other,
net
|
289
|
2,141
|
244
|
|||||||||||||||||||||
|
Total
other comprehensive income (loss) attributable to Mueller Industries,
Inc.
|
12,009
|
(79,921
|
)
|
19,305
|
||||||||||||||||||||
|
Balance
at beginning of year
|
(48,113
|
)
|
31,808
|
12,503
|
||||||||||||||||||||
|
Balance
at end of year
|
$
|
(36,104
|
)
|
$
|
(48,113
|
)
|
$
|
31,808
|
||||||||||||||||
|
|
||||||||||||||||||||||||
MUELLER
INDUSTRIES, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
(CONTINUED)
Years
Ended December 26, 2009, December 27, 2008, and December 29, 2007
|
2009
|
2008
|
2007
|
||||||||||||||||||||||
|
(In
thousands)
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
||||||||||||||||||
|
Treasury
stock:
|
||||||||||||||||||||||||
|
Balance
at beginning of year
|
2,949
|
$
|
(64,484
|
)
|
3,012
|
$
|
(65,859
|
)
|
3,067
|
$
|
(67,034
|
)
|
||||||||||||
|
Issuance
of shares under incentive stock option plans
|
(477
|
)
|
10,440
|
(65
|
)
|
1,407
|
(57
|
)
|
1,229
|
|||||||||||||||
|
Repurchase
of common stock
|
34
|
(870
|
)
|
2
|
(32
|
)
|
2
|
(54
|
)
|
|||||||||||||||
|
Issuance
of restricted stock
|
(64
|
)
|
1,400
|
—
|
—
|
—
|
—
|
|||||||||||||||||
|
Balance
at end of year
|
2,442
|
$
|
(53,514
|
)
|
2,949
|
$
|
(64,484
|
)
|
3,012
|
$
|
(65,859
|
)
|
||||||||||||
|
|
||||||||||||||||||||||||
|
Noncontrolling
interest:
|
||||||||||||||||||||||||
|
Balance
at beginning of year
|
$
|
24,582
|
$
|
22,765
|
$
|
22,300
|
||||||||||||||||||
|
Net
income attributable to noncontrolling interest
|
662
|
1,796
|
582
|
|||||||||||||||||||||
|
Sale
of noncontrolling interests
|
—
|
—
|
(77
|
)
|
||||||||||||||||||||
|
Dividends
paid to noncontrolling interests
|
(1,449
|
)
|
—
|
(1,363
|
)
|
|||||||||||||||||||
|
Net
change with respect to derivative instruments and hedging activities, net
of tax of $(279) and $279
|
1,952
|
(1,952
|
)
|
—
|
||||||||||||||||||||
|
Foreign
currency translation
|
28
|
1,973
|
1,323
|
|||||||||||||||||||||
|
Balance
at end of year
|
$
|
25,775
|
$
|
24,582
|
$
|
22,765
|
||||||||||||||||||
|
Comprehensive
income:
|
||||||||||||||||||||||||
|
Consolidated
net income
|
$
|
5,337
|
$
|
82,610
|
$
|
116,057
|
||||||||||||||||||
|
Consolidated
other comprehensive income (loss)
|
13,989
|
(79,900
|
)
|
20,628
|
||||||||||||||||||||
|
Consolidated
comprehensive income
|
19,326
|
2,710
|
136,685
|
|||||||||||||||||||||
|
Less:
comprehensive income attributable to noncontrolling
interest
|
(2,642
|
)
|
(1,817
|
)
|
(1,905
|
)
|
||||||||||||||||||
|
Comprehensive
income attributable to Mueller Industries, Inc.
|
$
|
16,684
|
$
|
893
|
$
|
134,780
|
||||||||||||||||||
|
See
accompanying 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; brass
and copper alloy rod, bar, and shapes; aluminum and brass forgings; aluminum and
copper impact extrusions; plastic pipe, fittings and valves; steel nipples;
refrigeration valves and fittings; fabricated tubular products; and gas valves
and assemblies. 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 intercompany accounts and transactions
have been eliminated in consolidation. The noncontrolling interest
represents a separate private ownership of 49.5 percent of Jiangsu
Mueller–Xingrong Copper Industries Limited (Mueller-Xingrong).
Revenue
Recognition
Revenue is recognized when title passes
to the customer either when products are shipped, provided collection is
determined to be probable and no significant obligations remain for the Company,
or upon the terms of the sale. 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 26, 2009 and December 27, 2008, temporary investments consisted of
money market mutual funds, commercial paper, bank repurchase agreements, and
U.S. and foreign government securities totaling $245.4 million and $258.9
million, respectively. Included in other current assets is restricted
cash of $9.3 million and $15.3 million at December 26, 2009 and December 27,
2008, 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 down-grading of credit ratings), it
records a reserve for bad debts 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 reserves
for bad debts 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.
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 in
finished goods inventory in addition to the cost of material include
depreciation, amortization, utilities, consumable production supplies,
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.
The Company evaluates the carrying
value of property, plant, and equipment whenever a change in circumstances
indicates that the carrying value may not be recoverable from the undiscounted
future cash flows from operations. If an impairment exists, the net
book values are reduced to fair values as warranted.
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 (step two) 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 4, impairment
charges were recognized in 2009, 2008 and 2007. There can be no assurance that
additional goodwill impairment will not occur in the future.
Self-Insurance
Accruals
The Company is primarily self-insured
for workers’ compensation claims and benefits paid under 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.
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 clean-up costs, ongoing monitoring costs, and estimated legal fees;
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 certain 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. Approximately 1.2
million, 1.3 million, and 0.7 million stock options were excluded from the
computation of diluted earnings per share in 2009, 2008, and 2007, respectively,
as the options' exercise price was higher than the average market price of the
Company's stock.
Income
Taxes
Deferred 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.
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.
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
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 has utilized futures
contracts to manage the volatility related to purchases of copper and natural
gas, and certain transactions denominated in foreign currencies. In
addition, the Company has, in the past, reduced its exposure to increases in
interest rates by entering into an interest rate swap contract. These
contracts have been designated as cash flow hedges. The Company has
also utilized futures contracts to protect the value of its copper inventory on
hand and firm commitments to purchase copper through fair value
hedges. The Company accounts for financial derivative instruments by
applying hedge accounting rules. These rules require the Company
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
accumulated other comprehensive income 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 accumulated other comprehensive income 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, 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
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. Primarily using
market yields, the fair value of the Company’s debt instruments were estimated
to be $181.8 million and $158.7 million at December 26, 2009 and December 27,
2008, respectively. Fair value estimates are made at a specific point
in time based on relevant market information about the financial instrument
(Level 2 hierarchy as defined by Accounting Standards Codification (ASC) 820,
Fair Value Measurements and Disclosures
(ASC 820)).
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 accumulated other comprehensive income. Included in the
Consolidated Statements of Income were transaction gains (losses) of $0.7
million in 2009, $(0.7) million for 2008 and $2.0 million in 2007.
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
Effective July 1, 2009, the
Company adopted the Financial Accounting Standards Board (FASB) ASC 105, Generally Accepted Accounting
Principles (ASC 105). ASC 105 establishes the FASB Accounting
Standards Codification (the Codification) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with U.S.
generally accepted accounting principles (GAAP). Rules and
interpretive releases of the Securities and Exchange Commission (SEC) under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. All guidance contained in the Codification
carries an equal level of authority. The Codification superseded all
existing non-SEC accounting and reporting standards. All other
non-grandfathered, non-SEC accounting literature not included in the
Codification is non-authoritative. The FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards
Updates (ASUs). The FASB will not consider ASUs as authoritative in
their own right. ASUs will serve only to update the Codification,
provide background information about the guidance and provide the bases for
conclusions on the change(s) in the Codification. References made to
FASB guidance throughout this document have been updated for the Codification.
In December 2007, the FASB issued
updated guidance for accounting and reporting of noncontrolling interests in
financial statements, which is included in ASC 810, Consolidation. The
updated guidance in ASC 810 requires (i) that noncontrolling (minority)
interests be reported as a component of equity, (ii) that net income
attributable to the parent and the noncontrolling interest be separately
identified in the Consolidated Statements of Income, (iii) that changes in a
parent’s ownership interest while the parent retains the controlling interest be
accounted for as equity transactions, (iv) that any retained noncontrolling
equity investment upon the deconsolidation of a subsidiary be initially measured
at fair value, and (v) that sufficient disclosures are provided that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. The Company adopted the updated
guidance in ASC 810 in the first quarter of 2009. As a result of the
adoption, the Company has reported noncontrolling interests as a component of
equity in the Consolidated Balance Sheets and the net income or loss
attributable to noncontrolling interests has been separately identified in the
Consolidated Statements of Income. Additionally, any dividends paid
to noncontrolling interests have been reported in financing activities in the
Consolidated Statements of Cash Flows. The prior periods presented
have also been reclassified to conform to the current classification required by
ASC 810.
In December 2008, the FASB issued
updated guidance related to employers’ disclosures regarding postretirement
benefit plan assets, which is included in ASC 715, Compensation - Retirement Beneifts (ASC
715). This
updated guidance was adopted by the Company during the fourth quarter of
2009. See Note 9 in the Notes to Consolidated Financial Statements
for more information.
During the second quarter of 2009, the
Company adopted FASB ASC 855, Subsequent Events (ASC
855). ASC 855 establishes standards for accounting for and disclosing
subsequent events (events which occur after the balance sheet date but before
financial statements are issued or are available to be issued). ASC
855 requires an entity to disclose the date subsequent events were evaluated and
whether that evaluation took place on the date financial statements were issued
or were available to be issued. The adoption of ASC 855 did not have
a material impact on the Company’s financial condition or results of
operations. The Company has evaluated subsequent events through
February 23, 2010, which is the date the Company’s Consolidated Financial
Statements were filed with the SEC on Form 10-K.
Note
2 – Inventories
|
(In
thousands)
|
2009
|
2008
|
||||||
|
Raw
materials and supplies
|
$
|
32,593
|
$
|
57,536
|
||||
|
Work-in-process
|
37,923
|
39,018
|
||||||
|
Finished
goods
|
126,184
|
122,756
|
||||||
|
Valuation
reserves
|
(5,438
|
)
|
(8,701
|
)
|
||||
|
Inventories
|
$
|
191,262
|
$
|
210,609
|
||||
Inventories valued using the LIFO
method totaled $21.9 million at December 26, 2009 and $20.9 million at December
27, 2008. At December 26, 2009 and December 27, 2008, the approximate
FIFO cost of such inventories was $98.1 million and $58.9 million,
respectively. Additionally, the Company records certain inventories
purchased for resale on an average cost basis. The values of those
inventories were $34.2 million and $47.1 million at the end of 2009 and 2008,
respectively.
During 2008 and 2007 inventory
quantities valued using the LIFO method declined which resulted in liquidation
of LIFO inventory layers. The effect of liquidation of LIFO layers decreased
cost of sales by approximately $14.9 million, or 25 cents per diluted share
after tax, in 2008 and $10.0 million, or 17 cents per diluted share after tax,
in 2007. During 2008 and 2007, certain inventories were written down
to the lower-of-cost-or-market. The write-down of approximately $4.9
million, or 8 cents per diluted share after tax, and $2.7 million, or 5 cents
per diluted share after tax, during 2008 and 2007, respectively, resulted from
the open market price of copper falling below the inventories’ net book
value.
At December 26, 2009, the FIFO value of
inventory consigned to others was $5.4 million compared with $7.0 million at the
end of 2008.
Note
3 – Property, Plant, and Equipment, Net
|
(In
thousands)
|
2009
|
2008
|
||||||
|
Land
and land improvements
|
$
|
12,492
|
$
|
12,569
|
||||
|
Buildings
|
112,677
|
110,541
|
||||||
|
Machinery
and equipment
|
577,595
|
563,984
|
||||||
|
Construction
in progress
|
2,643
|
4,678
|
||||||
|
705,407
|
691,772
|
|||||||
|
Less
accumulated depreciation
|
(455,012
|
)
|
(414,845
|
)
|
||||
|
Property,
plant, and equipment, net
|
$
|
250,395
|
$
|
276,927
|
||||
Note
4 – Goodwill
The changes in the carrying amount of
goodwill were as follows:
|
(In
thousands)
|
Plumbing
& Refrigeration Segment
|
OEM
Segment
|
Total
|
|||||||||
|
Balance
at December 29, 2007:
|
||||||||||||
|
Goodwill
|
$
|
146,048
|
$
|
9,971
|
$
|
156,019
|
||||||
|
Accumulated
impairment
|
(2,756
|
)
|
—
|
(2,756
|
)
|
|||||||
|
143,292
|
9,971
|
153,263
|
||||||||||
|
Foreign
currency translation adjustment
|
(6,077
|
)
|
—
|
(6,077
|
)
|
|||||||
|
Impairment
charge
|
(18,000
|
)
|
—
|
(18,000
|
)
|
|||||||
|
Balance
at December 27, 2008:
|
||||||||||||
|
Goodwill
|
139,971
|
9,971
|
149,942
|
|||||||||
|
Accumulated
impairment
|
(20,756
|
)
|
—
|
(20,756
|
)
|
|||||||
|
119,215
|
9,971
|
129,186
|
||||||||||
|
Foreign
currency translation adjustment
|
1,713
|
—
|
1,713
|
|||||||||
|
Impairment
charge
|
(18,678
|
)
|
(9,971
|
)
|
(28,649
|
)
|
||||||
|
Balance
at December 26, 2009:
|
||||||||||||
|
Goodwill
|
141,684
|
9,971
|
151,655
|
|||||||||
|
Accumulated
impairment
|
(39,434
|
)
|
(9,971
|
)
|
(49,405
|
)
|
||||||
|
$
|
102,250
|
$
|
—
|
$
|
102,250
|
|||||||
Because
there are no observable inputs available (Level 3 hierarchy as defined by ASC
820), the Company estimates fair value of reporting units based on a combination
of the market approach and income approach. 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 projection, applying a growth rate to future periods. 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.
The Company determined the goodwill of
four reporting units was fully impaired resulting in total impairment charges of
$28.6 million. The Company reviewed the long-lived assets contained
within the impaired reporting units, in accordance with the provisions of ASC
360, Property, Plant, and
Equipment. The Company determined that the undiscounted cash
flows related to these assets or asset groups were in excess of their carrying
value and therefore were not impaired.
The 2008 and 2007 impairment tests
resulted in total impairment of goodwill at the Company’s Mexican
Operations. All of the impairment charges discussed above resulted
from the reporting units’ operating results falling short of expectations made
at the time the businesses were acquired. As previously stated, the
projections used to assist in the determination of the fair value of the
reporting units were based on the Company’s annual operating plan, which is
completed in the fourth quarter. 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 construction market over the
past several years. The OEM segment is also impacted by the
residential construction market. Additionally, this segment is linked
to the automotive industry which has been adversely affected by the recent
economic downturn.
Note
5 – Debt
|
(In
thousands)
|
2009
|
2008
|
||||||
|
6%
Subordinated Debentures, due 2014
|
$
|
148,176
|
$
|
148,676
|
||||
|
2001
Series IRB’s with interest at 3.08%, due 2011 through 2021
|
10,000
|
10,000
|
||||||
|
Mueller-Xingrong
line of credit with interest at 3.96%, due 2010
|
24,325
|
24,184
|
||||||
|
Other
|
50
|
50
|
||||||
|
182,551
|
182,910
|
|||||||
|
Less
current portion of debt
|
(24,325
|
)
|
(24,184
|
)
|
||||
|
Long-term
debt
|
$
|
158,226
|
$
|
158,726
|
||||
On October 26, 2004, as part of a
Special Dividend, the Company issued $299.5 million in principal amount of its
6% Subordinated Debentures (the Debentures) due November 1,
2014. Interest on the Debentures is payable semi-annually on May 1
and November 1. The Company may repurchase the Debentures through
open market transactions or through privately negotiated
transactions. Since issuance of the Debentures, the Company has
repurchased and extinguished $151.3 million in principal amount of the
Debentures, of which $0.5 million and $149.0 million were repurchased in 2009
and 2008, respectively. The Debentures may be redeemed in whole at
any time or in part from time-to-time at the option of the
Company. The redemption price is 100 percent of the principal
amount.
On December 1, 2006, the Company
executed a Credit Agreement (the Agreement) with a syndicate of banks
establishing an unsecured $200 million revolving credit facility (the Credit
Facility) which matures December 1, 2011. Borrowings under the Credit
Facility bear interest, at the Company’s option, at LIBOR plus a variable
premium or the greater of Prime or the Federal Funds rate plus 0.5
percent. LIBOR advances may be based upon the one, two, three, or
six-month LIBOR. The variable premium over LIBOR is based on certain
financial ratios, and can range from 27.5 to 67.5 basis points. At
December 26, 2009, the premium was 27.5 basis points. Additionally, a
facility fee is payable quarterly on the total commitment and varies from 10.0
to 20.0 basis points based upon the Company’s capitalization
ratio. Availability of funds under the 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 $9.9 million at December 26,
2009. Terms of the letters of credit are generally one year but are
renewable annually. There were no borrowings outstanding as of
December 26, 2009.
On July 18, 2009,
Mueller-Xingrong entered into a credit agreement (the JV Credit Agreement) with
a syndicate of four banks establishing a secured RMB 267 million, or
approximately $39.1 million, revolving credit facility with a maturity date of
July 18, 2010. The JV Credit Agreement replaced the previous secured
RMB 425 million
financing agreement that matured on July 3, 2009. Borrowings
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 (approximately 3.96 percent at December 26,
2009).
Borrowings under the Agreement and the
JV Credit Agreement require, among other things, the satisfaction of certain
financial ratios. The JV Credit Agreement also requires lender
consent for the payment of dividends. At December 26, 2009, the
Company was in compliance with all debt covenants.
Aggregate annual maturities of the
Company’s debt are $24.3 million in 2010, $0.8 million in 2011,
$1.0 million in 2012, $1.0 million in 2013, $149.2 million in 2014, and
$6.3 million thereafter. Interest paid in 2009, 2008, and 2007 was
$10.1 million, $19.9 million, and $20.0 million, respectively. No
interest was capitalized in 2009, 2008, or 2007.
Note
6 –Equity
The Company’s Board of Directors has
authorized the repurchase, until October 2010, of up to 10 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 26,
2009, the Company had repurchased approximately 2.4 million shares under this
authorization.
Components
of accumulated other comprehensive loss (OCI) are as follows:
|
(In
thousands)
|
2009
|
2008
|
||||||
|
Cumulative
foreign currency translation adjustment
|
$
|
(8,503
|
)
|
$
|
(21,781
|
)
|
||
|
Unrecognized
prior service cost, net of income tax
|
(214
|
)
|
(408
|
)
|
||||
|
Unrecognized
actuarial net loss, net of income tax
|
(27,686
|
)
|
(22,101
|
)
|
||||
|
Unrecognized
derivative gains (losses), net of income tax
|
190
|
(3,907
|
)
|
|||||
|
Unrealized
gain on marketable securities, net of income tax
|
109
|
84
|
||||||
|
Accumulated
other comprehensive loss
|
$
|
(36,104
|
)
|
$
|
(48,113
|
)
|
||
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 2009, exchange rates between
the functional currencies of the Company’s foreign subsidiaries and the U.S.
dollar fluctuated significantly. The values of the British pound
sterling and the Mexican peso increased approximately 9 percent and 5
percent, respectively, relative to the U.S. dollar during 2009.
Note
7 – Income Taxes
The components of income before income
taxes were taxed under the following jurisdictions:
|
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Domestic
|
$
|
36,478
|
$
|
131,472
|
$
|
168,936
|
||||||
|
Foreign
|
(13,349
|
)
|
(10,530
|
)
|
14,927
|
|||||||
|
Income
before income taxes
|
$
|
23,129
|
$
|
120,942
|
$
|
183,863
|
||||||
Income tax expense consists of the
following:
|
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Current
tax expense (benefit):
|
||||||||||||
|
Federal
|
$
|
14,834
|
$
|
40,743
|
$
|
62,215
|
||||||
|
Foreign
|
3,248
|
3,356
|
3,735
|
|||||||||
|
State
and local
|
2,264
|
(1,302
|
)
|
(1,238
|
)
|
|||||||
|
Current
tax expense
|
20,346
|
42,797
|
64,712
|
|||||||||
|
Deferred
tax (benefit) expense:
|
||||||||||||
|
Federal
|
(4,321
|
)
|
(3,686
|
)
|
2,379
|
|||||||
|
Foreign
|
3,893
|
(3,204
|
)
|
7,061
|
||||||||
|
State
and local
|
(2,126
|
)
|
2,425
|
(6,346
|
)
|
|||||||
|
Deferred
tax (benefit) expense
|
(2,554
|
)
|
(4,465
|
)
|
3,094
|
|||||||
|
Income
tax expense
|
$
|
17,792
|
$
|
38,332
|
$
|
67,806
|
||||||
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 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)
|
2009
|
2008
|
2007
|
|||||||||
|
Expected
income tax expense
|
$
|
8,095
|
$
|
41,701
|
$
|
64,148
|
||||||
|
State
and local income tax, net of federal benefit
|
2,844
|
3,920
|
6,497
|
|||||||||
|
Effect
of foreign statutory rate different from U.S. and other foreign
adjustments
|
435
|
(1,015
|
)
|
603
|
||||||||
|
Valuation
allowance changes
|
52
|
(246
|
)
|
(1,920
|
)
|
|||||||
|
Adjustment
for the correction of prior year tax provision
|
—
|
—
|
2,239
|
|||||||||
|
U.S.
production activities deduction
|
(700
|
)
|
(2,275
|
)
|
(3,150
|
)
|
||||||
|
Gain
on early retirement of debt
|
(45
|
)
|
(7,551
|
)
|
—
|
|||||||
|
Goodwill
impairment
|
8,728
|
6,321
|
966
|
|||||||||
|
Tax
contingency changes
|
(973
|
)
|
(1,740
|
)
|
(1,449
|
)
|
||||||
|
Other,
net
|
(644
|
)
|
(783
|
)
|
(128
|
)
|
||||||
|
Income
tax expense
|
$
|
17,792
|
$
|
38,332
|
$
|
67,806
|
||||||
During 2009, the Company added
valuation allowances of $3.6 million, or 10 cents per diluted share, due to the
expectation that certain foreign deferred tax assets will not be
realized. This expense was partially offset by the reduction of a
valuation allowance of $2.6 million, or 7 cents per diluted share, due to an
increase in the expected future utilization of a state deferred tax asset and
the net reduction of a valuation allowance of $0.9 million, or 2 cents per
diluted share, related to a federal deferred tax asset. 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.
During 2008, the Company reduced
valuation allowances by $0.2 million due primarily to changes in estimates
regarding the expected future utilization of certain tax
attributes. During 2007, the Company reduced its total valuation
allowance by $1.9 million, or 5 cents per diluted share. This net
reduction included a reduction of $10.7 million primarily from a change in the
estimate of the utilization of various state income tax attributes in future
years, offset by increases in the valuation allowance related to the reduction
in anticipated utilization in future years of various other tax
attributes.
Included in income tax expense for 2007
is an adjustment of $2.2 million, or 6 cents per diluted share, resulting from a
correction of the prior years’ deferred income tax provision related to U.S.
pension plans.
At the beginning of fiscal 2007, the
Company adopted the accounting provisions relating to uncertain tax positions
primarily codified in ASC 740, Income
Taxes. These provisions clarify accounting for income taxes by
prescribing a minimum recognition threshold that a tax position must meet in
order for the position to be recognized in the financial
statements.
The following table summarizes the
activity related to the Company’s unrecognized tax benefits:
|
(In
thousands)
|
2009
|
2008
|
||||||
|
Beginning
balance
|
$
|
9,546
|
$
|
12,232
|
||||
|
Increases
related to prior year tax positions
|
4,824
|
1,356
|
||||||
|
Increases
related to current year tax positions
|
842
|
77
|
||||||
|
Decreases
related to prior year tax positions
|
(420
|
)
|
(2,677
|
)
|
||||
|
Decreases
related to settlements with taxing authorities
|
(226
|
)
|
(476
|
)
|
||||
|
Decreases
due to lapses in the statute of limitations
|
(3,284
|
)
|
(966
|
)
|
||||
|
Ending
balance
|
$
|
11,282
|
$
|
9,546
|
||||
Federal income tax benefits associated
with state tax uncertainties and interest on federal tax uncertainties are
recorded as a deferred tax asset. This asset totaled $0.8 million and
$1.2 million at December 26, 2009 and December 27, 2008,
respectively. Of the $11.3 million total unrecognized tax benefits
and $0.9 million of accrued interest, $4.5 million would affect the effective
tax rate, if recognized. Due to ongoing federal, state, and foreign
income tax audits and potential lapses of the statutes of limitations in various
taxing jurisdictions, it is reasonably possible that the Company’s unrecognized
tax benefits and accrued interest may decrease in the next twelve months by a
range of zero dollars to $3.0 million.
The Company includes interest and
penalties related to income tax matters as a component of income tax
expense. Cumulative potential interest and penalties accrued related
to unrecognized tax benefits totaled $0.9 million as of December 26, 2009 and
$1.6 million as of December 27, 2008, without consideration of any applicable
federal benefit. The net reduction to income tax expense related to
penalties and interest was $0.7 million in 2009, $0.3 million in 2008, and $1.3
million in 2007.
The Internal Revenue Service (IRS)
concluded audits of the Company’s 2005 and 2006 federal income tax returns
during 2009, the results of which were immaterial. The IRS
examination of the 2007 federal return is expected to conclude in
2010. The Company is also under audit in Mexico for its 2004 and 2005
tax years and is under audit in various state jurisdictions. The
statute of limitations is still open for the Company’s federal tax return and
most state income tax returns for the 2006 return and all subsequent
years. The statutes of limitations for some 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.
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)
|
2009
|
2008
|
||||||
|
Deferred
tax assets:
|
||||||||
|
Accounts
receivable
|
$
|
2,165
|
$
|
2,622
|
||||
|
Inventories
|
5,283
|
5,290
|
||||||
|
OPEB
and accrued items
|
14,126
|
14,816
|
||||||
|
Pension
|
13,753
|
13,438
|
||||||
|
Other
reserves
|
13,670
|
13,364
|
||||||
|
Interest
|
—
|
2,272
|
||||||
|
Federal
and foreign tax attributes
|
9,010
|
11,030
|
||||||
|
State
tax attributes, net of federal benefit
|
32,864
|
32,956
|
||||||
|
Other
|
2,105
|
1,902
|
||||||
|
Total
deferred tax assets
|
92,976
|
97,690
|
||||||
|
Less
valuation allowance
|
(33,812
|
)
|
(32,624
|
)
|
||||
|
Deferred
tax assets, net of valuation allowance
|
59,164
|
65,066
|
||||||
|
Deferred
tax liabilities:
|
||||||||
|
Property,
plant, and equipment
|
52,139
|
58,617
|
||||||
|
Foreign
withholding tax
|
606
|
1,652
|
||||||
|
Pension
|
8,357
|
7,855
|
||||||
|
Other
|
720
|
1,276
|
||||||
|
Total
deferred tax liabilities
|
61,822
|
69,400
|
||||||
|
Net
deferred tax liability
|
$
|
2,658
|
$
|
4,334
|
||||
As of December 26, 2009, after
consideration of the federal impact, the Company had state income tax credit
carryforwards of $1.4 million with various expirations through 2023, and other
state income tax credit carryforwards of $18.1 million with unlimited
lives. The Company had state NOL carryforwards with potential tax
benefits before any valuation allowance of $13.4 million expiring between 2010
and 2023. The state tax credit and NOL carryforwards are offset by
valuation allowances totaling $23.1 million.
As of December 26, 2009, the Company
had federal and foreign tax attributes with potential tax benefits before any
valuation allowance of $9.0 million, of which $3.2 million has an unlimited
life, $5.3 million expires from 2013 to 2015, and $0.5 million expires in
2018. These attributes were offset by valuation allowances of $6.3
million. Other foreign deferred tax assets were offset by valuation
allowances of $4.4 million.
Income taxes paid were approximately
$20.0 million in 2009, $48.0 million in 2008, and $62.3 million in
2007.
Note
8 – Other Current Liabilities
Included in other current liabilities
were accrued discounts and allowances of $26.8 million at December 26, 2009 and
$39.2 million at December 27, 2008, and taxes payable of $14.3 million at
December 26, 2009 and $9.1 million at December 27, 2008.
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 2009 and 2008, and a statement of the plans’
aggregate funded status as of December 26, 2009 and December 27,
2008:
|
(In
thousands)
|
Pension
Benefits
|
Other
Benefits
|
||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Change
in benefit obligation:
|
||||||||||||||||
|
Obligation
at beginning of year
|
$
|
146,505
|
$
|
180,231
|
$
|
21,969
|
$
|
19,438
|
||||||||
|
Service cost
|
865
|
1,783
|
235
|
310
|
||||||||||||
|
Interest
cost
|
8,907
|
11,472
|
1,824
|
1,379
|
||||||||||||
|
Participant
contributions
|
73
|
454
|
—
|
—
|
||||||||||||
|
Actuarial
loss (gain)
|
15,745
|
(19,254
|
)
|
(1,492
|
)
|
2,314
|
||||||||||
|
Benefit
payments
|
(12,281
|
)
|
(10,119
|
)
|
(1,152
|
)
|
(1,348
|
)
|
||||||||
|
Effect
of curtailments and settlements
|
—
|
—
|
(54
|
)
|
103
|
|||||||||||
|
Foreign
currency translation adjustment
|
4,830
|
(18,062
|
)
|
51
|
(227
|
)
|
||||||||||
|
Obligation
at end of year
|
164,644
|
146,505
|
21,381
|
21,969
|
||||||||||||
|
Change
in fair value of plan assets:
|
||||||||||||||||
|
Fair
value of plan assets at beginning of year
|
135,624
|
199,062
|
—
|
—
|
||||||||||||
|
Actual
return on plan assets
|
17,634
|
(42,933
|
)
|
—
|
—
|
|||||||||||
|
Employer contributions
|
3,244
|
2,387
|
1,152
|
1,348
|
||||||||||||
|
Participant contributions
|
73
|
454
|
—
|
—
|
||||||||||||
|
Benefit payments
|
(12,281
|
)
|
(10,119
|
)
|
(1,152
|
)
|
(1,348
|
)
|
||||||||
|
Foreign currency translation adjustment
|
3,409
|
(13,227
|
)
|
—
|
—
|
|||||||||||
|
Fair
value of plan assets at end of year
|
147,703
|
135,624
|
—
|
—
|
||||||||||||
|
Underfunded
status at end of year
|
$
|
(16,941
|
)
|
$
|
(10,881
|
)
|
$
|
(21,381
|
)
|
$
|
(21,969
|
)
|
||||
The following represents amounts
recognized in accumulated other comprehensive loss (before the effect of income
taxes) at December 26, 2009 and December 27, 2008:
|
(In
thousands)
|
Pension
Benefits
|
Other
Benefits
|
||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Unrecognized
net actuarial loss
|
$
|
38,565
|
$
|
29,265
|
$
|
2,472
|
$
|
4,117
|
||||||||
|
Unrecognized
prior service cost
|
298
|
604
|
42
|
44
|
||||||||||||
The Company sponsors one pension plan
in the U.K. which comprises 40 percent and 33 percent of the above benefit
obligation at December 26, 2009 and December 27, 2008, respectively, and 31
percent and 25 percent of the above plan assets at December 26, 2009 and
December 27, 2008, respectively.
As of December 26, 2009, $2.1 million
of the actuarial net loss and $0.3 million of the prior service cost will,
through amortization, be recognized as components of net periodic benefit cost
in 2010.
The
aggregate statuses of all overfunded plans are recognized as an asset and the
aggregate statuses of all underfunded plans are 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 exceed the
fair value of plan assets, with all remaining amounts being classified as
long-term. The total funded status of the plans was recognized in the
Consolidated Balance Sheets as follows as of December 26, 2009 and December 27,
2008:
|
(In
thousands)
|
Pension
Benefits
|
Other
Benefits
|
||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Long-term
asset
|
$
|
3,772
|
$
|
2,820
|
$
|
—
|
$
|
—
|
||||||||
|
Current
liability
|
—
|
—
|
(1,423
|
)
|
(1,452
|
)
|
||||||||||
|
Long-term
liability
|
(20,713
|
)
|
(13,701
|
)
|
(19,958
|
)
|
(20,517
|
)
|
||||||||
|
Total
underfunded status
|
$
|
(16,941
|
)
|
$
|
(10,881
|
)
|
$
|
(21,381
|
)
|
$
|
(21,969
|
)
|
||||
The projected benefit obligation,
accumulated benefit obligation, and fair value of plan assets for the pension
plans with benefit obligations in excess of plan assets were $65.9 million,
$65.9 million, and $45.2 million, respectively, as of December 26, 2009, and
were $47.9 million, $47.9 million, and $34.2 million, respectively, as of
December 27, 2008.
During 2008, the Company adopted the
measurement date provisions of ASC 715, which required the Company to use its
fiscal year-end as the measurement date for all its pension and postretirement
plans. Prior to 2008, the Company used November 30 as the measurement
date for the majority of the plans. The effect of the adoption was
not material.
The components of net periodic benefit
cost (income) are as follows:
|
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Pension
benefits:
|
||||||||||||
|
Service
cost
|
$
|
865
|
$
|
1,783
|
$
|
2,410
|
||||||
|
Interest
cost
|
8,907
|
11,472
|
9,775
|
|||||||||
|
Expected
return on plan assets
|
(10,732
|
)
|
(16,844
|
)
|
(13,672
|
)
|
||||||
|
Amortization
of prior service cost
|
305
|
332
|
311
|
|||||||||
|
Amortization
of net loss (gain)
|
833
|
(399
|
)
|
622
|
||||||||
|
Effect
of curtailment and settlements
|
—
|
—
|
59
|
|||||||||
|
Net
periodic benefit cost (income)
|
$
|
178
|
$
|
(3,656
|
)
|
$
|
(495
|
)
|
||||
|
Other
benefits:
|
||||||||||||
|
Service
cost
|
$
|
235
|
$
|
310
|
$
|
1,897
|
||||||
|
Interest
cost
|
1,824
|
1,379
|
1,129
|
|||||||||
|
Amortization
of prior service cost
|
2
|
3
|
2
|
|||||||||
|
Amortization
of net loss
|
156
|
222
|
175
|
|||||||||
|
Effect
of curtailments and settlements
|
28
|
100
|
(194
|
)
|
||||||||
|
Net
periodic benefit cost
|
$
|
2,245
|
$
|
2,014
|
$
|
3,009
|
||||||
During 2009, the Company executed a
Deed of Amendment (the Amendment) which froze the accrual of future benefits
related to its U.K. pension plan. Pursuant to U.K. law, past service
accruals are adjusted for the effects of inflation after the execution of the
Amendment. The Amendment had no material impact on the Company’s
results of operations. During 2007, the Company ceased postretirement
life insurance benefits for certain domestic employees, resulting in a
curtailment gain of $0.2 million.
Prior service costs are amortized on a
straight-line basis over the average remaining service period of active
participants. Gains and losses in excess of 10 percent of the greater
of the benefit obligation and the market-related value of assets are amortized
over the average remaining service period of active participants.
The
weighted average assumptions used in the measurement of the Company's benefit
obligations are as follows:
|
Pension
Benefits
|
Other
Benefits
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Discount
rate
|
5.77
|
% |
6.44
|
% |
6.08
|
% |
6.24
|
% | ||||||||
|
Expected
long-term return on plan assets
|
8.04
|
% |
8.12
|
% |
N/A
|
N/A
|
||||||||||
|
Rate
of compensation increases
|
N/A
|
2.75
|
% |
5.04
|
% |
5.04
|
% | |||||||||
|
Rate
of inflation
|
3.75
|
% |
N/A
|
N/A
|
N/A
|
|||||||||||
The
weighted average assumptions used in the measurement of the Company's net
periodic benefit cost are as follows:
|
Pension
Benefits
|
Other
Benefits
|
|||||||||||||||||||||||
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
|||||||||||||||||||
|
Discount
rate
|
6.44 | % | 6.18 | % | 5.40 | % | 6.24 | % | 6.21 | % | 5.75 | % | ||||||||||||
|
Expected
long-term return on plan assets
|
8.12 | % | 8.01 | % | 7.83 | % | N/A | N/A | N/A | |||||||||||||||
|
Rate
of compensation increases
|
2.75 | % | 4.43 | % | 4.00 | % | 5.04 | % | 5.04 | % | N/A | |||||||||||||
The Company’s Mexican postemployment
plans and the U.K. pension plan (prior to the execution of the Amendment) use
the rate of compensation increase in the benefit formulas. After
execution of the Amendment, past service on the U.K. pension plan will be
adjusted for the effects of inflation. All other pension plans are
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 7.08 to 8.00 percent for 2009, gradually decrease to 4.81
percent for 2018, 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 $1.7 million and the service and interest cost components
of net periodic postretirement benefit costs by $0.1 million for
2009. 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 2009 by $1.5 million and $0.1million,
respectively.
The weighted average asset allocation
of the Company’s pension fund assets are as follows:
|
Pension
Plan Assets
|
||||||||
|
Asset
category
|
2009
|
2008
|
||||||
|
Equity
securities (includes equity mutual funds)
|
59 | % | 49 | % | ||||
|
Fixed
income securities (includes fixed income mutual funds)
|
4 | 3 | ||||||
|
Cash
and equivalents (includes money market funds)
|
27 | 38 | ||||||
|
Alternative
investments
|
10 | 10 | ||||||
|
Total
|
100 | % | 100 | % | ||||
At December 26, 2009, 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 current asset
allocation for pension assets was outside of the target allocation percentages
due to the unusual economic conditions that existed during 2009 and
2008.
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.
Effective as of December 26, 2009, the
Company adopted the updated guidance related to employers’ disclosures regarding
postretirement benefit plan assets, which is included in ASC 715. The
updated guidance requires sponsors of postretirement plans to apply certain
provisions of the fair value disclosure requirements of ASC 820 to its plan
asset investments. The adoption of this updated guidance had no
impact on the Company’s financial statements, but the adoption did result in
additional required disclosures related to the assets of the Company’s defined
benefit pension plans as set forth below.
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 26, 2009
based upon quoted market prices.
Limited
partnerships – Limited partnerships
include investments in two 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 26, 2009:
|
(In
thousands)
|
Fair
Value Measurements at December 26, 2009
|
|||||||||||||||
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
|
Cash
and money market funds
|
$
|
39,522
|
$
|
—
|
$
|
—
|
$
|
39,522
|
||||||||
|
Common
stock (a)
|
50,611
|
—
|
—
|
50,611
|
||||||||||||
|
Mutual
funds (b)
|
42,998
|
—
|
—
|
42,998
|
||||||||||||
|
Limited
partnerships
|
—
|
—
|
14,572
|
14,572
|
||||||||||||
|
Total
|
$
|
133,131
|
$
|
—
|
$
|
14,572
|
$
|
147,703
|
||||||||
|
(a)
|
Approximately
80 percent of common stock represents investments in U.S. companies
primarily in the health care, utilities, financials, consumer staples,
industrials, information technology, and telecommunications
sectors. All investments in common stock are listed on U.S.
stock exchanges.
|
|
|
(b)
|
Approximately
41 percent of mutual funds are actively managed
funds. Additionally, 10 percent of the mutual funds' assets
are invested in U.S. equities, 76 percent in non-U.S. equities, and
14 percent in non-U.S. fixed income securities.
|
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 26,
2009:
|
(In
thousands)
|
||||
|
Limited
Partnerships
|
||||
|
Balance,
December 27, 2008
|
$
|
13,873
|
||
|
Net
appreciation in fair value
|
699
|
|||
|
Balance,
December 26, 2009
|
$
|
14,572
|
||
Redemption of the plans’ investments in
limited partnerships requires advance written notice. One of the
funds can be redeemed quarterly with 60 days notice, and the other fund requires
30 days notice monthly. There are no other restrictions on the
redemption of the investments.
The assets of the plans do not include
investments in securities issued by the Company. The Company expects
to contribute approximately $1.2 million to its pension plans and $1.4 million
to its other postretirement benefit plans in 2010. The Company
expects future benefits to be paid from the plans as follows:
|
(In
thousands)
|
Pension
Benefits
|
Other
Benefits
|
||||||
|
2010
|
$
|
9,724
|
$
|
1,444
|
||||
|
2011
|
9,740
|
1,403
|
||||||
|
2012
|
10,233
|
1,417
|
||||||
|
2013
|
10,295
|
1,424
|
||||||
|
2014
|
10,405
|
1,439
|
||||||
|
2015-2019
|
51,777
|
4,907
|
||||||
|
Total
|
$
|
102,174
|
$
|
12,034
|
||||
Effective January 1, 2008, the Company
merged several of its U.S. pension plans into one plan, the Mueller Pension
Plan. As part of the merger, the Company also consolidated all the
pension assets into one master trust. None of the benefits
historically provided by the plans were changed as a result of the
merger.
The Company makes contributions to
certain multiemployer defined benefit pension plan trusts that cover union
employees based on collective bargaining agreements. Contributions by
employees are not required nor are they permitted. Pension expense
under the multiemployer defined benefit pension plans was $1.4 million in 2009,
$1.0 million in 2008, and $1.0 million for 2007.
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 $2.4 million in 2009, $2.5 million in 2008, and $2.5
million in 2007. 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 offer 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. Nonetheless, the Company believes it
has an adequate reserve for this liability, which totaled $3.6 million in 2009
and $3.9 million in 2008.
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 $1.1 million in 2009, $15.4 million in 2008, and $0.7 million in 2007
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 $23.3 million in
2009 and $23.2 million in 2008. As of December 26, 2009, the Company
expects to spend $1.1 million in 2010, $1.0 million in 2011, $1.0 million in
2012, $1.1 million in 2013, $1.1 million in 2014, and $8.5 million
thereafter. The timing of a potential payment for a $9.5 million
settlement offer has not yet been determined.
Southeast Kansas
Sites
By letter dated October 10, 2006, the
Kansas Department of Health and Environment (KDHE) advised the Company that
environmental contamination has been identified at a former smelter site in
southeast Kansas. KDHE asserts that the Company is a corporate
successor to an entity that is alleged to have owned and operated the smelter
from 1915 to 1918. The Company has since been advised of possible
connection between that same entity and two other former smelter sites in
Kansas. KDHE has requested that the Company and another potentially
responsible party (PRP) negotiate a consent order with KDHE to address
contamination at these sites. The Company has participated in
preliminary discussions with KDHE and the other PRP. The Company
believes it is not liable for the contamination but as an alternative to
litigation, the Company has entered into settlement negotiations with the other
PRP. The negotiations are ongoing. In 2008, the Company
established a reserve of $9.5 million for this matter. Due to the
ongoing nature of negotiations, the timing of potential payment has not yet been
determined.
Eureka Mills
Site
In November 2008, the Company received
a general notice of liability and second request for information under the
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)
from the EPA concerning the Eureka Mills Superfund Site (the Eureka Mills Site)
located in Juab County, Utah. The Eureka Mills Site is an area where
mining and milling of various metals occurred over the course of several
decades. The EPA has been investigating and remediating contamination
associated with these activities. The Company’s connection to the
Eureka Mills Site appears to be through land within the Eureka Mills Site that
was owned by Sharon Steel Corporation (Sharon), its predecessor and a 1979
transaction with UV Industries (UV) in which Sharon allegedly assumed certain of
UV’s liabilities. In 2001, the Company responded to an earlier
request for information concerning milling activities stating that it was not
responsible for any such activities at the Eureka Mills Site. The
recent request for information concerns historic mining
activities. In responding to EPA’s November 2008 letter and also to a
recent third request for information received in March 2009, the Company stated
that it does not believe it is liable for the contamination. The
Company has agreed to suspend temporarily the running of the time period during
which the EPA must bring a lawsuit in order to allow time for the Company and
the EPA to discuss this matter. The Company is continuing to evaluate this
matter and expects to participate in further discussions with
EPA. The Company’s counsel has written the EPA arguing that a 1990
litigation and global release of UV precludes any claims against the Company for
UV’s activities and has not yet received a response.
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. The Company has made appropriate
adjustments to this reserve since the acquisition as additional information
regarding the estimated cost of remediation was obtained. 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 the site. By letter dated
January 20, 2010, ADEQ approved the SIWP as submitted, with changes acceptable
to the Company. Costs to implement the work plans, including
associated general and administrative costs, are approximately $0.7 million over
the next ten years.
Shasta Area Mine and Lead
Refinery 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 1980’s,
of sealing mine portals with concrete plugs in mine adits which were discharging
water. The sealing program has 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 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 permit will include an order requiring continued implementation of BMP
through 2015 to address residual discharges of acid rock drainage. At
this site, MRRC spent approximately $0.5 million in 2009, $0.5 million in 2008,
and $0.4 million in 2007, and estimates that it will spend between approximately
$10.8 million and $14.8 million over the next twenty years.
U.S.S. Lead Refinery, Inc., (Lead
Refinery), a 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 according to a Consent Order with EPA
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 January 22, 2008. Subsequent to the issuance of the
post-closure permit, EPA terminated the Consent Order. Lead Refinery
spent approximately $0.1 million in 2009, $0.1 million in 2008, and $0.2 million
in 2007 with respect to this site. Approximate costs to comply with
the post-closure permit, including associated general and administrative costs,
are between $2.2 million and $3.6 million over the next twenty
years.
On April 9, 2009, pursuant to CERCLA,
the EPA added the Lead Refinery site to the National Priorities List
(NPL). The NPL is a list of priority sites where EPA has determined
that there has been a release or threatened release of contaminants that warrant
investigation and, if appropriate, remedial action. The NPL does not
assign liability to any party or to the owner 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. 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 this site on the
NPL. Lead Refinery lacks the financial resources needed to undertake
any investigations or remedial action that may be required by EPA pursuant to
CERCLA.
During 2008, MRRC developed additional
remediation programs over several years to meet certain water quality standards
related to its Shasta Area Mine sites. Additionally, during 2008,
MRRC re-evaluated its long-term plans with respect to future costs pursuant to
the issuance of the post-closure permit at the Lead Refinery site. As
a result, the Company recognized additional expense of $2.4 million relating to
additional anticipated projects at Shasta Area Mine and Lead Refinery
remediation sites. Additionally, the Company recognized an expense of
$2.9 million, or 5 cents per diluted share after tax, for changes in estimates
with respect to future operations and maintenance costs at those
sites. During 2009, no significant changes were made to these
estimates.
The estimates contained in the
environmental reserves are based on assumptions that are highly
subjective. Many of the remedial activities performed by the Company
are pursuant to performance-based obligations imposed by various regulatory
bodies in which certain standards regarding levels of contaminants must be
met. The most subjective assumption that affects the estimates at
these sites is the assumed length of time to comply with the remedial
requirements set by the regulatory authorities. This assumption is
subject to change based on the regulatory environment, unanticipated delays and
events that could limit access to these sites, unforeseen negative sampling
results, and other factors. Changes in any of these factors could
have a material impact on future environmental expense.
Health
and Safety Matters
On January 25, 2010, the Company
received Citations and a Notification of Penalties from the Occupational Safety
and Health Administration (OSHA) proposing civil penalties totaling
approximately $0.7 million for various health and safety violations following
inspections in 2009 of certain plants operated by subsidiaries in Fulton,
Mississippi. The Company has worked closely with OSHA in the course
of its inspections and will continue to do so to resolve any issues at the
Fulton, Mississippi plants or at any other plants. The Company does
not anticipate any material adverse effect on its financial condition as a
result of the OSHA matters.
Copper
Tube Antitrust Litigation
The Company is named as a defendant in
several pending litigations (the Copper Tube Actions) brought by direct and
indirect purchasers of various forms of copper tube. The Copper Tube
Actions allege anticompetitive activities with respect to the sale of copper
plumbing tubes and/or copper tubes used in, among other things, the
manufacturing of air-conditioning and refrigeration units. All of the
Copper Tube Actions seek monetary and other relief. The Company
believes that the claims for relief in the Copper Tube Actions are without
merit. Due to the procedural stage of the Copper Tube Actions, the
Company is unable to determine the likelihood of a materially adverse outcome in
the Copper Tube Actions or the amount or range of a potential loss in the Copper
Tube Actions.
Employment
Litigation
On June 1, 2007, the Company filed a
lawsuit in the Circuit Court of Dupage County, Illinois against 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, relating to their
alleged breach of fiduciary duties and contractual obligations to the Company
through, among other things, their involvement with a supplier of B&K during
their employment with B&K. The
lawsuit alleges appropriation of corporate opportunities for personal benefit,
failure to disclose competitive interests or other conflicts of interest, and
unfair competition, as well as breach of employment agreements in connection
with the foregoing. The lawsuit seeks compensatory and punitive
damages, and other appropriate relief. In August 2007, the defendants
filed an answer to the complaint admitting Peter Berkman had not sought
authorization to have an ownership interest in a supplier, and a counterclaim
against the Company, B&K and certain of the Company’s officers and directors
alleging defamation, tortious interference with prospective economic relations,
and conspiracy, and seeking damages in unspecified amounts. In
September 2007, Homewerks Worldwide LLC, an entity formed by Peter Berkman,
filed a complaint as an intervenor based on substantially the same allegations
included in the Berkmans’ counterclaim. In October 2007, the Company
also filed a motion seeking to have the Berkmans’ counterclaim dismissed as a
matter of law. On January 3, 2008, the Court overruled that motion
and the case proceeded to discovery of the relevant facts. Since that
time, depositions and document productions have been
ongoing. However, on September 5, 2008, Peter Berkman withdrew prior
responses to discovery requests and asserted the Fifth Amendment privilege
against self-incrimination as to all requests directed to him. By
that assertion, he took the position that his testimony about his actions would
have the potential of exposing him to a criminal charge or criminal
charges. On October 3, 2008, in response to a motion to compel filed
by the Company, the Court held that Peter Berkman could not withhold documents
on Fifth Amendment grounds, amongst other things. Peter Berkman moved
for reconsideration of that order and his request was denied on November 19,
2008. On December 10, 2008, Peter Berkman moved for the opportunity
to file an interlocutory appeal regarding the Court’s ruling on the Company’s
motion to compel. On January 7, 2009, the motion for interlocutory
appeal was granted, the Court found Peter Berkman in contempt for resisting
discovery, and Peter Berkman has since filed a notice of appeal with the
Illinois Appellate Court, Second Judicial District. All appellate
briefs were submitted, oral argument took place on September 29, 2009, and the
Company is currently awaiting a decision regarding the issues that were
appealed. On October 24, 2008, the defendants filed a motion seeking
leave to interpose an Amended Answer and Amended Counterclaims. On
December 19, 2008, the Company filed an answer to the Amended Counterclaims that
included a new affirmative defense based on the assertion of the Fifth Amendment
by Peter Berkman. On December 15, 2009, the parties exchanged reports
created by their respective damages experts wherein the Company asserted a claim
totaling $17.2 million and defendants asserted a claim totaling $41.0
million. The Company believes that the counterclaims are without
merit and that defendants are not entitled to the damages being
sought. Consequently, the Company intends to defend the counterclaims
vigorously. The Company does not anticipate any material adverse
effect on its business or financial condition as a result of this
litigation.
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. The review will determine the final antidumping
duties owed, if any, on U.S. imports by certain subsidiaries of the Company
during the period November 1, 2007 through October 31, 2008, pursuant to the
existing antidumping duty order. DOC has selected Mueller Comercial
de Mexico, S. de R.L. de C.V. (Mueller Comercial) as a respondent in this
proceeding. On May 29, 2009, Mueller Comercial notified DOC that it
would no longer participate in the review. On December 7, 2009, DOC
published the preliminary results of this review. DOC’s preliminary
determination was to assign Mueller Comercial an antidumping duty rate of 48.33
percent. On January 6, 2010, Mueller Comercial filed comments on the
preliminary results with DOC. The Company anticipates that certain of
its subsidiaries will incur additional antidumping duties on subject imports
made during the review period. The Company has established a reserve
for approximately $3.8 million for this matter.
On December 23, 2009, DOC initiated an
antidumping administrative review for the November 1, 2008 through October 31,
2009 period of review. DOC has selected Mueller Comercial as a
respondent for this period of review. At this time, the Company is
unable to estimate the impact, if any, this matter will have on its financial
statements.
Leases
The Company leases certain facilities
and equipment under operating leases expiring on various dates through
2023. The lease payments under these agreements aggregate to
approximately $6.3 million in 2010, $5.8 million in 2011, $3.8 million in 2012,
$3.3 million in 2013, $2.6 million in 2014, and $9.8 million
thereafter. Total lease expense amounted to $8.6 million in 2009,
$9.3 million in 2008, and $10.4 million in 2007.
Consulting
Agreement
During 2004, the Company entered into a
consulting and non-compete agreement (the Consulting Agreement) with Harvey L.
Karp, 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) will be 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, the
executive agrees not to engage in Competitive Activity (as defined in the
Consulting Agreement) and will be entitled to receive certain other benefits
from the Company. The term of the Consulting Agreement will commence
upon the earliest of termination of employment by the Company without Cause,
upon termination of employment in connection with a change in control, or upon
voluntary resignation from employment with the Company for Good Reason, as
defined in the executive’s current employment agreement. In October
2007, Mr. Karp’s Consulting Agreement was amended to change the effective date
from December 31, 2007 to the date of termination of employment without
cause. 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.
Other
In November 2008, the Company’s
European copper tube operation was damaged by fire. Production was
curtailed for approximately four weeks to make necessary temporary
repairs. Certain production equipment and portions of building
structures were extensively damaged. The total value of the loss,
including business interruption, cannot be determined at this time, but is
expected to be covered by property and business interruption
insurance. In 2008, as a result of the fire, the Company wrote-off
certain fixed assets that were damaged which was offset by a
receivable. There have been no significant additional write-offs in
2009. Additionally, the Company received an advance of approximately
$5.0 million from the insurance company in 2008 and an additional $7.3 million
in 2009, primarily to cover cleanup costs. The Company recorded these
advances in other current liabilities net of cleanup and repair costs incurred
of approximately $6.2 million, $4.5 million of which was incurred in
2009.
In July 2009, there was an explosion at
the Company’s copper tube mill in Fulton, Mississippi. Production was
curtailed for approximately one week for cleanup and repairs to building
structures. Certain production equipment was also extensively
damaged. The total value of the loss, including business
interruption, cannot be determined at this time, but is expected to be covered
by property and business interruption insurance. During 2009, the
Company received $1.0 million from the insurer to cover incremental expenses
(net of the insurance deductible of $0.5 million). The Company
recorded this cash advance in other current liabilities net of cleanup and
repair costs of approximately $1.1 million.
The Company has not recognized
potential gains arising from property damage or business interruption insurance
in the Consolidated Statements of Income during 2009, and will not do so until
final settlement of the insurance claims.
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 or results of operations. 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)
|
2009
|
2008
|
2007
|
|||||||||
|
Interest
income
|
$
|
1,080
|
$
|
7,294
|
$
|
11,281
|
||||||
|
Gain
on early retirement of debt
|
128
|
21,575
|
—
|
|||||||||
|
(Loss)
gain on disposal of properties, net
|
(683
|
)
|
(598
|
)
|
2,468
|
|||||||
|
Environmental
expense, non-operating properties
|
(644
|
)
|
(15,432
|
)
|
(698
|
)
|
||||||
|
Other
|
991
|
1,057
|
1,262
|
|||||||||
|
Other
income, net
|
$
|
872
|
$
|
13,896
|
$
|
14,313
|
||||||
Note
12 – Stock-Based Compensation
In May 2009, the Company’s stockholders
approved the 2009 Stock Incentive Plan (2009 Plan). The 2009 Plan
authorizes the award of stock-based incentives to employees and non-employee
directors. Awards include restricted stock, stock appreciation
rights, and options to purchase stock at specified prices during specified time
periods. The 2009 Plan reserved 750 thousand shares of common
stock which may be issued or transferred upon exercise of stock
options.
During the years ended December 26,
2009, December 27, 2008, and December 29, 2007, the Company recognized
stock-based compensation, as a component of selling, general, and administrative
expense, in its Consolidated Statements of Income of $2.6 million, $2.9 million,
and $2.7 million, respectively. The related tax benefit was $0.6
million in 2009, $0.6 million in 2008, and $0.7 million in 2007.
The fair value of the restricted stock
awards equals the fair value of the Company’s stock on the grant
date. At December 26, 2009, 64 thousand restricted stock awards were
outstanding and unvested. The aggregate intrinsic value of these
awards was $1.6 million. Total compensation not yet recognized was
$1.3 million with an average recognition period of 2.9 years.
Under the 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. Generally, the
options vest annually in equal increments over a five-year period beginning one
year from the date of grant. Any unexercised options expire after not
more than ten years. The fair value of each grant is estimated as a
single award and amortized into compensation expense on a straight-line basis
over its vesting period. The weighted average grant-date fair value
of options granted during 2009, 2008, and 2007 were $7.60, $7.49, and $11.25,
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. The
forfeiture rate which was estimated at 17 percent, 10 percent, and 10 percent in
2009, 2008 and 2007, respectively, 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:
|
2009
|
2008
|
2007
|
||||||||||
|
Expected
term
|
6.3
years
|
6.2
years
|
6.4
years
|
|||||||||
|
Expected
price volatility
|
0.334 | 0.266 | 0.241 | |||||||||
|
Risk-free
interest rate
|
3.3 | % | 3.7 | % | 4.7 | % | ||||||
|
Dividend
yield
|
1.7 | % | 1.5 | % | 1.1 | % | ||||||
Expected term – This is the
period of time over which the options granted are expected to remain
outstanding. Prior to 2008, the Company used the "simplified" method
found in the SEC Staff Accounting Bulletin No. 107 to estimate the expected term
of stock option grants. For options granted in 2009 and 2008, the
expected term was estimated based on historical experience. 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 Company generally issues treasury
shares when options are exercised. A summary of the stock option
activity and related information follows:
|
(Shares
in thousands)
|
Options
|
Weighted
Average Exercise Price
|
||||||
|
Outstanding
at December 30, 2006
|
1,712
|
$
|
24.56
|
|||||
|
Granted
|
364
|
36.77
|
||||||
|
Exercised
|
(56
|
)
|
19.95
|
|||||
|
Cancelled
|
(17
|
)
|
31.89
|
|||||
|
Outstanding
at December 29, 2007
|
2,003
|
26.85
|
||||||
|
Granted
|
466
|
27.03
|
||||||
|
Exercised
|
(64
|
)
|
18.12
|
|||||
|
Cancelled
|
(321
|
)
|
31.60
|
|||||
|
Outstanding
at December 27, 2008
|
2,084
|
26.43
|
||||||
|
Granted
|
226
|
23.79
|
||||||
|
Exercised
|
(477
|
)
|
19.16
|
|||||
|
Cancelled
|
(80
|
)
|
28.42
|
|||||
|
Expired
|
(149
|
)
|
32.50
|
|||||
|
Outstanding
at December 26, 2009
|
1,604
|
27.56
|
||||||
At December 26, 2009, the aggregate
intrinsic value of all outstanding options was $2.7 million with a weighted
average remaining contractual term of 6.4 years. Of the outstanding
options, 873 thousand are currently exercisable with an aggregate intrinsic
value of $2.4 million, a weighted average exercise price of $26.45, and a
weighted average remaining contractual term of 4.9 years. The total
intrinsic value of options exercised was $1.4 million, $0.8 million, and $0.7
million in 2009, 2008, and 2007, respectively. The total compensation
expense not yet recognized related to non-vested awards at December 26, 2009 was
$5.3 million with an average expense recognition period of 3.1
years.
Under the Company’s 1994 Non-Employee
Director Stock Option Plan, each member of the Company’s Board of Directors who
is neither an employee nor an officer of the Company is automatically granted
each year on the date of the Company’s Annual Meeting of Stockholders, without
further action by the Board, an option to purchase two thousand shares of common
stock at the fair market value of the common stock on the date the option is
granted. As of December 26, 2009, options to purchase approximately
48 thousand shares of common stock were outstanding under this Plan and one
thousand options are available under the Plan for future issuance.
Approximately 992 thousand shares were
available for future stock incentive awards at December 26,
2009.
Note
13 – Derivative Instruments and Hedging Activities
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, Derivatives and Hedging (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 accumulated other comprehensive income 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 other comprehensive income into earnings. In the next
twelve months, the Company will reclassify into earnings realized gains or
losses of cash flow hedges; at December 26, 2009, the net fair value of these
contracts was approximately a $0.3 million gain.
At December 26, 2009, the Company held
open futures contracts to purchase approximately $3.5 million of copper over the
next twelve months related to fixed price sales orders. The fair
value of those futures contracts was a $0.4 million 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:
|
December
26, 2009
|
||||||
|
Location
|
Fair
value
|
|||||
|
(In
thousands)
|
||||||
|
Commodity
contracts
|
Other
current assets:
|
Gain
positions
|
$ | 374 | ||
The following tables summarize
activities related to the Company’s derivative instruments, classified as cash
flow hedges in accordance with ASC 815:
|
Gain
(Loss) Recognized in Accumulated OCI (Effective Portion), Net of
Tax
|
||||
|
For
the Year Ended
|
||||
|
|
December
26, 2009
|
|||
|
(In
thousands)
|
||||
|
Commodity
contracts (1)
|
$
|
4,083
|
||
|
(1)
Includes $0.9 million attributable to noncontrolling
interest.
|
||||
|
(Gain)
Loss Reclassified from Accumulated OCI into Income (Effective Portion),
Net of Tax
|
|||||
|
For
the Year Ended
|
|||||
|
|
Location
|
December
26, 2009
|
|||
|
(In
thousands)
|
|||||
|
Commodity
contracts
|
Cost
of goods sold
|
$
|
1,966
|
||
The Company enters into futures
contracts that closely match the terms of the underlying
transactions. As a result, the ineffective portion of the open hedge
contracts at December 26, 2009 is not material to the Consolidated Statements of
Income.
The Company also utilizes futures
contracts to protect the value of copper inventory on hand and to mitigate the
risk associated with firm commitments to purchase copper. At December
26, 2009, the Company held open futures contracts to sell 7.5 million pounds of
copper in the first quarter of 2010.
Derivative instruments designated as
fair value hedges under ASC 815 are reflected in the Consolidated Financial
Statements as follows:
|
Derivatives
in Fair Value Hedging Relationships
|
Location
of Gain (Loss) Recognized in income on Derivative
|
Amount
of Gain (Loss) recognized in Income on Derivative
|
|||
|
2009
|
|||||
| (In thousands) | |||||
|
Commodity
contracts (inventory)
|
Cost
of goods sold
|
$
|
(573
|
)
|
|
|
Commodity
contracts (firm
commitment)
|
Cost
of goods sold
|
(191
|
)
|
||
|
Hedged
Items in Fair Value Hedge Relationship
|
Location
of Gain (Loss) in Income on Related Hedged Item
|
Amount
of Gain (Loss) recognized in Income on Related Hedged
Item
|
|||
|
2009
|
|||||
| (In thousands) | |||||
|
Inventory
|
Cost
of goods sold
|
$
|
590
|
||
|
Firm
commitment
|
Cost
of goods sold
|
191
|
|||
Gains and losses related to the portion
of the derivatives in the fair value hedging relationships excluded from the
assessment of hedge effectiveness is not material to the Consolidated Statements
of Income.
The Company does not offset fair value
of amounts for derivative instruments and fair value amounts recognized for the
right to reclaim cash collateral. At December 26, 2009, the Company
had recorded restricted cash of $1.5 million related to open futures
contracts.
Note
14 – Acquisition
On February 27, 2007, the Company
acquired 100 percent of the outstanding stock of Extruded Metals, Inc.
(Extruded) for $32.8 million in cash, including transaction costs of $0.8
million. Extruded, located in Belding, Michigan, manufactures brass
rod products. The acquisition of Extruded complements the Company’s
existing brass rod product line. This acquisition was accounted for
using the purchase method of accounting. The total estimated fair
values of the assets acquired totaled $74.6 million, consisting primarily of
receivables of $29.5 million, inventories of $29.1 million, property, plant, and
equipment of $8.3 million, and prepaid pension asset of $6.9
million. The total estimated fair values of liabilities assumed
totaled $41.8 million, consisting primarily of a working capital debt facility
of $10.0 million, accounts payable and accrued expenses of $23.0 million, and
postretirement benefit obligations of $7.5 million. Immediately
following the acquisition, the Company extinguished the working capital debt
facility. The results of operations for Extruded are reported in the
Company’s OEM segment and have been included in the accompanying Consolidated
Financial Statements from the acquisition date.
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, barbecue grill markets and specialty copper, copper-alloy, and
aluminum tubing. Mueller-Xingrong manufactures engineered copper tube
primarily for air-conditioning applications. These products are sold
primarily to OEM customers.
Summarized product line, geographic,
and segment information is shown in 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.
Worldwide sales to one customer in the
Plumbing & Refrigeration segment totaled $175.1 million in 2009, $289.6
million in 2008, and $322.1 million in 2007, which represented 11 percent in
2009 and 2008, and 12 percent in 2007 of the Company's consolidated net
sales. No other customer accounted for more than 10 percent of
consolidated net sales.
Net
Sales by Major Product Line:
|
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Tube
and fittings
|
$
|
686,102
|
$
|
1,138,590
|
$
|
1,288,968
|
||||||
|
Brass
rod and forgings
|
418,376
|
788,843
|
733,325
|
|||||||||
|
OEM
components, tube & assemblies
|
213,905
|
328,868
|
339,227
|
|||||||||
|
Valves
and plumbing specialties
|
198,333
|
245,110
|
266,649
|
|||||||||
|
Other
|
30,509
|
57,037
|
69,676
|
|||||||||
|
$
|
1,547,225
|
$
|
2,558,448
|
$
|
2,697,845
|
|||||||
Geographic
Information:
|
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales:
|
||||||||||||
|
United
States
|
$
|
1,208,757
|
$
|
2,027,339
|
$
|
2,105,801
|
||||||
|
United
Kingdom
|
173,223
|
272,715
|
336,133
|
|||||||||
|
Other
|
165,245
|
258,394
|
255,911
|
|||||||||
|
$
|
1,547,225
|
$
|
2,558,448
|
$
|
2,697,845
|
|||||||
|
Long-lived
assets:
|
||||||||||||
|
United
States
|
$
|
309,986
|
$
|
346,192
|
$
|
375,061
|
||||||
|
United
Kingdom
|
27,312
|
44,794
|
67,705
|
|||||||||
|
Other
|
34,000
|
37,101
|
66,091
|
|||||||||
|
$
|
371,298
|
$
|
428,087
|
$
|
508,857
|
|||||||
Net assets of foreign operations at
December 26, 2009 included $83.9 million in the United Kingdom, $48.9 million in
Mexico, $36.0 million in Luxembourg, and $23.0 million in China.
Segment
Information:
|
(In
thousands)
|
For
the Year Ended December 26, 2009
|
|||||||||||||||
|
Plumbing
& Refrigeration Segment
|
OEM
Segment
|
Corporate
and Eliminations
|
Total
|
|||||||||||||
|
Net
sales
|
$
|
892,071
|
$
|
664,088
|
$
|
(8,934
|
)
|
$
|
1,547,225
|
|||||||
|
Cost
of goods sold
|
744,880
|
590,361
|
(8,219
|
)
|
1,327,022
|
|||||||||||
|
Depreciation
and amortization
|
26,289
|
14,208
|
1,071
|
41,568
|
||||||||||||
|
Selling,
general, and administrative expense
|
74,397
|
20,501
|
21,762
|
116,660
|
||||||||||||
|
Impairment
charge
|
19,462
|
10,293
|
—
|
29,755
|
||||||||||||
|
Operating
income
|
27,043
|
28,725
|
(23,548
|
)
|
32,220
|
|||||||||||
|
Interest
expense
|
(9,963
|
)
|
||||||||||||||
|
Other
income, net
|
872
|
|||||||||||||||
|
Income
before income taxes
|
$
|
23,129
|
||||||||||||||
Segment
Information (continued):
|
(In
thousands)
|
For
the Year Ended December 27, 2008
|
|||||||||||||||
|
Plumbing
& Refrigeration Segment
|
OEM
Segment
|
Corporate
and Eliminations
|
Total
|
|||||||||||||
|
Net
sales
|
$
|
1,400,682
|
$
|
1,176,892
|
$
|
(19,126
|
)
|
$
|
2,558,448
|
|||||||
|
Cost
of goods sold
|
1,157,896
|
1,093,504
|
(18,277
|
)
|
2,233,123
|
|||||||||||
|
Depreciation
and amortization
|
28,751
|
14,489
|
1,105
|
44,345
|
||||||||||||
|
Selling,
general, and administrative expense
|
89,250
|
23,621
|
24,013
|
136,884
|
||||||||||||
|
Impairment
charge
|
18,000
|
—
|
—
|
18,000
|
||||||||||||
|
Operating
income
|
106,785
|
45,278
|
(25,967
|
)
|
126,096
|
|||||||||||
|
Interest
expense
|
(19,050
|
)
|
||||||||||||||
|
Other
income, net
|
13,896
|
|||||||||||||||
|
Income
before income taxes
|
$
|
120,942
|
||||||||||||||
|
(In
thousands)
|
For
the Year Ended December 29, 2007
|
|||||||||||||||
|
Plumbing
& Refrigeration Segment
|
OEM
Segment
|
Corporate
and Eliminations
|
Total
|
|||||||||||||
|
Net
sales
|
$
|
1,572,565
|
$
|
1,144,302
|
$
|
(19,022
|
)
|
$
|
2,697,845
|
|||||||
|
Cost
of goods sold
|
1,274,989
|
1,069,890
|
(19,955
|
)
|
2,324,924
|
|||||||||||
|
Depreciation
and amortization
|
29,777
|
13,271
|
1,105
|
44,153
|
||||||||||||
|
Selling,
general, and administrative expense
|
95,569
|
22,926
|
24,789
|
143,284
|
||||||||||||
|
Copper
litigation settlement
|
(8,893
|
)
|
—
|
—
|
(8,893
|
)
|
||||||||||
|
Impairment
charge
|
2,756
|
—
|
—
|
2,756
|
||||||||||||
|
Operating
income
|
178,367
|
38,215
|
(24,961
|
)
|
191,621
|
|||||||||||
|
Interest
expense
|
(22,071
|
)
|
||||||||||||||
|
Other
income, net
|
14,313
|
|||||||||||||||
|
Income
before income taxes
|
$
|
183,863
|
||||||||||||||
|
(In
thousands)
|
2009
|
2008
|
2007 |
|
|||||||
|
Expenditures
for long-lived assets (including business acquisitions):
|
|||||||||||
|
Plumbing
& Refrigeration
|
$
|
7,876
|
$
|
15,770
|
$
|
22,229
|
|
||||
|
OEM
|
6,066
|
6,440
|
39,884
|
|
|||||||
|
$
|
13,942
|
$
|
22,210
|
$
|
62,113
|
|
|||||
|
Segment
assets:
|
|||||||||||
|
Plumbing
& Refrigeration
|
$
|
542,834
|
$
|
621,430
|
$
|
771,206
|
|
||||
|
OEM
|
284,480
|
300,969
|
364,154
|
|
|||||||
|
General
corporate
|
352,827
|
260,514
|
313,844
|
|
|||||||
|
$
|
1,180,141
|
$
|
1,182,913
|
$
|
1,449,204
|
|
|||||
Note
16 – Quarterly Financial Information (Unaudited)
|
First
|
Second
|
Third
|
Fourth
|
||||||||||||||
|
(In thousands, except per share
data)
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
|||||||||||||
|
2009
|
|||||||||||||||||
|
Net
sales
|
$
|
326,558
|
$
|
367,800
|
$
|
419,800
|
$
|
432,977
|
|||||||||
|
Gross
profit (1)
|
39,175
|
54,447
|
65,851
|
60,730
|
|||||||||||||
|
Consolidated
net (loss) income
|
(2,510
|
)
|
6,167
|
18,812
|
(17,132
|
)
|
(2)
|
||||||||||
|
Net
(loss) income attributable to Mueller Industries, Inc.
|
(2,492
|
)
|
6,028
|
18,666
|
(17,527
|
)
|
|||||||||||
|
Basic
earnings per share
|
(0.07
|
)
|
0.16
|
0.50
|
(0.47
|
)
|
|||||||||||
|
Diluted
earnings per share
|
(0.07
|
)
|
0.16
|
0.50
|
(0.47
|
)
|
|||||||||||
|
Dividends
per share
|
0.10
|
0.10
|
0.10
|
0.10
|
|||||||||||||
|
2008
|
|||||||||||||||||
|
Net
sales
|
$
|
704,108
|
$
|
753,471
|
$
|
665,496
|
$
|
435,373
|
|||||||||
|
Gross
profit (1)
|
92,311
|
92,262
|
77,027
|
63,725
|
(3)
|
||||||||||||
|
Consolidated
net income
|
27,907
|
28,024
|
18,925
|
7,754
|
(4)
|
||||||||||||
|
Net
income attributable to Mueller Industries, Inc.
|
27,355
|
27,014
|
18,671
|
7,774
|
|||||||||||||
|
Basic
earnings per share
|
0.74
|
0.73
|
0.50
|
0.21
|
|||||||||||||
|
Diluted
earnings per share
|
0.73
|
0.72
|
0.50
|
0.21
|
|||||||||||||
|
Dividends
per share
|
0.10
|
0.10
|
0.10
|
0.10
|
|||||||||||||
|
(1)
Gross profit is net sales less cost of goods sold, which excludes
depreciation and amortization.
|
|||||||||||||||||
|
(2)
Fourth quarter of 2009 includes impairment charges, primarily goodwill, of
$27.9 million after tax.
|
|||||||||||||||||
|
(3)
Fourth quarter of 2008 includes an adjustment to write down inventories to
the lower-of-cost-or-market of $4.9 million, and a gain of $14.9 million
resulting from the liquidation of LIFO layers.
|
|||||||||||||||||
|
(4)
Fourth quarter of 2008 includes the net-of-tax effect of both of the items
described in (3) above, plus a gain of $19.1 million related to the early
extinguishment of debt, environmental provisions of $15.0 million ($9.4
million after tax pertaining to estimated environmental settlements and
obligations, and a goodwill impairment charge of $18.0
million.
|
|||||||||||||||||
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 26, 2009 and December 27, 2008, and the related consolidated
statements of income, changes in equity and cash flows for each of the three
years in the period ended December 26, 2009. 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 26, 2009 and December 27, 2008, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 26, 2009, 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 26, 2009, based on criteria established
in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 23, 2010
expressed an unqualified opinion thereon.
| /S/ Ernst & Young LLP |
|
Memphis,
Tennessee
|
|
|
February
23, 2010
|
MUELLER
INDUSTRIES, INC.
Years
Ended December 26, 2009, December 27, 2008, and December 29, 2007
|
(In
thousands)
|
Additions
|
|||||||||||||||||||
|
Balance
at beginning of year
|
Charged
to costs and expenses
|
Other
additions
|
Deductions
|
Balance
at end of year
|
||||||||||||||||
|
|
||||||||||||||||||||
|
2009
|
||||||||||||||||||||
|
Allowance
for doubtful accounts
|
$
|
6,690
|
$
|
506
|
$
|
85
|
(1
|
)
|
$
|
1,334
|
$
|
5,947
|
||||||||
|
Environmental
reserves
|
$
|
23,248
|
$
|
1,087
|
$
|
5
|
$
|
1,072
|
|
$
|
23,268
|
|||||||||
|
Valuation
allowance for deferred tax assets
|
$
|
32,624
|
$
|
52
|
$
|
1,136
|
(2
|
)
|
$
|
—
|
$
|
33,812
|
||||||||
|
2008
|
||||||||||||||||||||
|
Allowance
for doubtful accounts
|
$
|
5,015
|
$
|
2,654
|
$
|
14
|
(1
|
)
|
$
|
993
|
$
|
6,690
|
||||||||
|
Environmental
reserves
|
$
|
8,897
|
$
|
15,432
|
$
|
—
|
|
$
|
1,081
|
|
$
|
23,248
|
||||||||
|
|
|
|||||||||||||||||||
|
Valuation
allowance for deferred tax assets
|
$
|
22,980
|
$
|
(246
|
)
|
$
|
12,943
|
(2
|
)
|
$
|
3,053
|
(4
|
)
|
$
|
32,624
|
|||||
|
2007
|
||||||||||||||||||||
|
Allowance
for doubtful accounts
|
$
|
6,806
|
$
|
(177
|
)
|
$
|
1,117
|
(1
|
)
|
$
|
2,731
|
$
|
5,015
|
|||||||
|
|
||||||||||||||||||||
|
Environmental
reserves
|
$
|
8,907
|
$
|
698
|
$
|
100
|
(3
|
)
|
$
|
808
|
$
|
8,897
|
||||||||
|
Valuation
allowance for deferred tax assets
|
$
|
24,900
|
$
|
(1,920
|
)
|
$
|
—
|
$
|
—
|
$
|
22,980
|
|||||||||
|
(1)
Other consists primarily of the opening balance related to the acquisition
of Extruded Metals, Inc. for 2007, and 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 during 2009 and 2008
in which previously unrecorded gross deferred tax assets and valuation
allowances were recognized.
|
||||||||||||||||||||
|
(3)
Other includes the opening balance related to the acquisition of Extruded
Metals, Inc. in 2007.
|
||||||||||||||||||||
|
(4)
Deductions include foreign currency translation adjustments and reductions
to valuation allowances relating to certain tax attributes in which the
carryforward period had expired.
|
||||||||||||||||||||
F-48
|
Exhibits
|
Description
|
|||
|
10.18
|
Summary
description of the Registrant’s 2010 incentive plan for certain key
employees.
|
|||
|
21.0
|
Subsidiaries
of the Registrant.
|
|||
|
23.0
|
Consent
of Independent Registered Public Accounting Firm.
|
|||
|
31.1
|
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.
|
|||
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31.2
|
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.
|
|||
|
32.1
|
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.
|
|||
|
32.2
|
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.
|