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EX-31.2 - SECTION 302 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER - MUELLER INDUSTRIES INCex312.htm
EX-21.0 - SUBSIDIARIES OF THE REGISTRANT - MUELLER INDUSTRIES INCex21.htm
EX-23.0 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - MUELLER INDUSTRIES INCex23.htm
EX-31.1 - SECTION 302 CERTIFICAITON OF THE CHIEF EXECUTIVE OFFICER - MUELLER INDUSTRIES INCex311.htm
EX-32.1 - SECTION 906 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER - MUELLER INDUSTRIES INCex321.htm
EX-32.2 - SECTION 906 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER - MUELLER INDUSTRIES INCex322.htm
EX-10.12 - SUMMARY DESCRIPTION OF THE REGISTRANT'S 2016 INCENTIVE PLAN FOR CERTAIN KEY EMPLOYEES - MUELLER INDUSTRIES INCex10_12.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 26, 2015
Commission file number 1–6770
MUELLER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
25-0790410
(State or other jurisdiction
(I.R.S. Employer
of incorporation or organization)
Identification No.)

8285 Tournament Drive, Suite 150
 
Memphis, Tennessee
38125
(Address of principal executive offices)
(Zip Code)

Registrant's telephone number, including area code: (901) 753-3200

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

Title of each class
Name of each exchange on which registered
 
 
Common Stock, $0.01 Par Value
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒  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  ☒

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 ☒  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.  ☒

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
   
Large accelerated filer    ☒ 
Accelerated filer   ☐
Non-accelerated filer  ☐
Smaller reporting company   £

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant's most recently completed second fiscal quarter was $1,997,772,278.

The number of shares of the Registrant's common stock outstanding as of February 19, 2016 was 57,158,608 excluding 23,024,396 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 2016 Annual Meeting of Stockholders, scheduled to be mailed on or about March 24, 2016 (Part III).


MUELLER INDUSTRIES, INC.
_____________________

As used in this report, the terms "we," "us," "our," "Company," "Mueller," and "Registrant" mean Mueller Industries, Inc. and its consolidated subsidiaries taken as a whole, unless the context indicates otherwise.
____________________

TABLE OF CONTENTS

 
 
 
Page
Part I
 
 
 
 
 
 
 
 
 
 
 
Part II
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part III
 
 
 
 
 
 
 
 
 
 
 
Part IV
 
 
 
 
 
 
 
 
 
 
 
 

2

 
ITEM 1.
BUSINESS
 
Introduction

Mueller Industries, Inc. (the Company) is a leading manufacturer of copper, brass, aluminum, and plastic products.  The range of these products is broad:  copper tube and fittings; line sets; brass and copper alloy rod, bar, and shapes; aluminum and brass forgings; aluminum and copper impact extrusions; plastic fittings and valves; refrigeration valves and fittings; fabricated tubular products; and steel nipples.  We also resell imported brass and plastic plumbing valves, malleable iron fittings, faucets, and plumbing specialty products.  Our operations are located throughout the United States and in Canada, Mexico, Great Britain, and China.

Our businesses are aggregated into two reportable segments:

·
Plumbing & Refrigeration:  The Plumbing & Refrigeration segment is composed of Standard Products (SPD), Great Lakes Copper Ltd. (Great Lakes), European Operations, and Mexican Operations.  SPD manufactures and sells copper tube, copper and plastic fittings, line sets, and valves in North America and sources products for import distribution in North America.  Great Lakes manufactures copper tube and line sets in Canada and sells its products primarily in the U.S. and Canada. European Operations manufacture copper tube in the United Kingdom, which is sold throughout Europe.  Mexican Operations consist of pipe nipple manufacturing and import distribution businesses including product lines of malleable iron fittings and other plumbing specialties.  The Plumbing & Refrigeration segment sells products to wholesalers in the heating, ventilation, and air conditioning (HVAC), plumbing, and refrigeration markets, to distributors to the manufactured housing and recreational vehicle industries, and to building material retailers.

·
Original Equipment Manufacturers (OEM):  The OEM segment is composed of Industrial Products (IPD), Engineered Products (EPD), and Jiangsu Mueller–Xingrong Copper Industries Limited (Mueller-Xingrong), the Company's Chinese joint venture.  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, refrigeration, and industrial markets.

Certain administrative expenses and expenses related primarily to retiree benefits at inactive operations are combined into the Corporate and Eliminations classification.  

Financial information concerning segments and geographic information appears under "Note 16 - Industry Segments" in the Notes to Consolidated Financial Statements, which is incorporated herein by reference.

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 our products is in the construction of single and multi-family housing and commercial buildings.  Repairs and remodeling projects are also important drivers of underlying demand for these products.  

Mueller was incorporated in Delaware on October 3, 1990.

Plumbing & Refrigeration Segment

The Plumbing & Refrigeration segment includes SPD, which manufactures a broad line of copper tube in sizes ranging from 1/8 inch to 8 inch diameter that is sold in various straight lengths and coils.  We are a market leader in the air-conditioning and refrigeration service tube markets and we also supply a variety of water tube in straight lengths and coils used for plumbing applications in virtually every type of construction project.  Additionally, SPD manufactures copper and plastic fittings, line sets, and related components for the plumbing and heating industry that are used in water distribution systems, heating systems, air-conditioning, and refrigeration applications, and drainage, waste, and vent systems.  Lastly, SPD imports and redistributes residential and commercial plumbing products.  A major portion of SPD's products are ultimately used in the domestic residential and commercial construction markets.

3

This segment also includes Great Lakes, which manufactures copper tube and line sets in Canada, European Operations, which manufacture copper tube for distribution in Europe, and Mexican Operations, which 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.

We acquired Howell Metal Company (Howell) on October 17, 2013, Yorkshire Copper Tube (Yorkshire) on February 28, 2014, and Great Lakes Copper (Great Lakes) on July 31, 2015.  Howell manufactures copper tube and line sets for U.S. distribution while Yorkshire produces European standard copper distribution tubes.  Great Lakes manufactures copper tube and line sets for distribution in Canada and the U.S.  These acquisitions complement our existing copper tube businesses in the Plumbing & Refrigeration segment.

We disposed of Mueller Primaflow Limited (Primaflow), our U.K. based plumbing and heating systems import distribution business, on November 21, 2014.  This business was part of European Operations in the Plumbing & Refrigeration segment.
 
This 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 complement of agents, which, when combined with our sales organization, provide the Company broad geographic market representation.

The total amount of order backlog for the Plumbing & Refrigeration segment as of December 26, 2015 was not significant.

We compete with various companies, depending on the product line.  In the U.S. copper tube business, domestic competition includes Cerro Flow Products LLC, Cambridge-Lee Industries LLC (a subsidiary of Industrias Unidas S.A. de C.V.), and KobeWieland Copper Products LLC, as well as many actual and potential foreign competitors.  In the European copper tube business, we compete with several European-based manufacturers of copper tube as well as other foreign-based manufacturers.  In the Canadian copper tube business, our competitors include Wolseley plc and Crane Plumbing, as well as other foreign-based manufacturers.  In the copper fittings market, our domestic competitors include Elkhart Products Company (a subsidiary of Aalberts Industries N.V.) and NIBCO, Inc.  We also compete with several foreign manufacturers.  Additionally, our 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.  

OEM Segment

The 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.  We extrude 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.  Lastly, IPD 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.  

This segment also includes EPD and Mueller-Xingrong.  EPD manufactures and fabricates valves and custom OEM products for refrigeration, air-conditioning, gas appliance, and barbecue grill applications, Mueller-Xingrong manufactures engineered copper tube primarily for air-conditioning applications.   The total amount of order backlog for the OEM segment as of December 26, 2015 was not significant.

4

On August 16, 2012, we acquired 100 percent of the outstanding stock of Westermeyer Industries, Inc. (Westermeyer), located in Bluffs, Illinois.  Westermeyer designs, manufactures, and distributes high-pressure components and accessories for the air-conditioning and refrigeration markets.  

On March 30, 2015, we acquired 100 percent of the outstanding stock of Turbotec Products, Inc. (Turbotec) with locations in Hickory, North Carolina and Bloomfield, Connecticut.  Turbotec manufactures coaxial heat exchangers and twisted tubes for the HVAC, geothermal, refrigeration, swimming pool heat pump, marine, ice machine, commercial boiler, and heat reclamation markets.

On June 18, 2015, we acquired all of the outstanding membership interests of Sherwood Valve Products, LLC (Sherwood) with locations in Washington, Pennsylvania, Valley View, Ohio, and Brooklyn, Ohio.  Sherwood manufactures valves and fluid control solutions for the HVAC, refrigeration, and compressed gas markets.

The acquisitions of Westermeyer, Turbotec, and Sherwood complement our existing refrigeration business.  
  
IPD and EPD primarily sell directly to OEM customers.  Competitors, primarily in the brass rod market, include Chase Brass and Copper Company, a subsidiary of Global Brass and Copper Holdings, Inc., and others, both domestic and foreign.  Outside of North America, IPD and EPD sell products through various channels.

Labor Relations

At December 26, 2015, the Company employed approximately 4,104 employees, of which approximately 1,865 were represented by various unions.  Those union contracts will expire as follows:

Location
Expiration Date
Port Huron, Michigan (Local 218 IAM)
May 1, 2016
Port Huron, Michigan (Local 44 UAW)
July 20, 2016
Port Huron, Michigan (Local 119 SPFPA)
April 1, 2016
Belding, Michigan
September 14, 2018
Wynne, Arkansas
June 28, 2018
Fulton, Mississippi
September 30, 2018
North Wales, Pennsylvania
July 31, 2018
Washington, Pennsylvania
July 25, 2016
Waynesboro, Tennessee
November 2, 2018

The union agreements at the Company's U.K. and Mexico operations are renewed annually.  The Company expects to renew its union contracts without material disruption of its operations.

Raw Material and Energy Availability

A substantial portion of our 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 us from primary producers, metal brokers, and scrap dealers.  Sufficient energy in the form of natural gas, fuel oils, and electricity is available to operate our production facilities.  While temporary shortages of raw material and fuels may occur occasionally, to date they have not materially hampered our operations.

Our copper tube facilities can accommodate both refined copper and certain grades of copper scrap as the primary feedstock.  The Company has commitments from refined copper producers for a portion of its metal requirements for 2016.  Adequate quantities of copper are currently available.  While we will continue to react to market developments, resulting pricing volatility or supply disruptions, if any, could nonetheless adversely affect the Company.

5

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 $0.1 million for 2015, $1.2 million for 2014, and $1.0 million for 2013.  The reserve for environmental matters was $21.7 million at December 26, 2015 and $22.7 million at December 27, 2014.  Environmental costs related to non-operating properties are classified as a component of other income, net and costs related to operating properties are included in cost of goods sold.  We do not currently anticipate that we will need to make material expenditures for compliance activities related to existing environmental matters during the 2016 fiscal year, or for the next two fiscal years.

For a description of material pending environmental proceedings, see "Note 9 – Commitments and Contingencies" in the Notes to Consolidated Financial Statements, which is incorporated herein by reference.

Other Business Factors

Our 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 2015, 2014, or 2013.  No material portion of our business involves governmental contracts.  Seasonality of the Company's sales is not significant.

SEC Filings

We make available through our internet website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).  To retrieve any of this information, you may access our internet home page at www.muellerindustries.com, select Investors, and then select SEC Filings.


ITEM 1A.
RISK FACTORS

The Company is exposed to risk as it operates its businesses.  To provide a framework to understand our operating environment, 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 products 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.

6

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 business is sensitive to changes in general economic conditions, particularly 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 extent of pricing changes for our products.  Prolonged periods of weak demand or excess supply in any of our businesses could negatively affect our revenues and margins and could result in a material adverse impact on our business, financial condition, and results of operations.

The markets that we serve, including, in particular, the housing and commercial construction industries, are significantly affected by movements in interest rates and the availability of credit.  Significantly higher interest rates could have a material adverse effect on our business, financial condition, and results of operations.  Our businesses are also affected by a variety of other factors beyond our control, including, but not limited to, employment levels, foreign currency exchange rates, unforeseen inflationary pressures, and consumer confidence.  Since we operate in a variety of geographic areas, our businesses are subject to the economic conditions in each such area.  General economic downturns or localized downturns in the regions where we have operations could have a material adverse effect on our business, financial condition, and results of operations.

Although conditions improved in 2013 and continued to improve in 2014 and 2015, the deterioration of the general economic environment has had a significant negative impact on businesses and consumers around the world since the crisis began in 2008.  In addition, the impact of the economy on the operations or liquidity of any party with which we conduct our business, including our suppliers and customers, may adversely impact our business.
 
Competitive conditions, including the impact of imports and substitute products and technologies, could have a material adverse effect on the demand for our products as well as our margins and profitability.

The markets we serve are competitive across all product lines.  Some consolidation of customers has occurred and may continue, which could shift buying power to customers.  In some cases, customers have moved production to low-cost countries such as China, or sourced components from there, which has reduced demand in North America for some of the products we manufacture.  These conditions could have a material adverse impact on our ability to maintain margins and profitability.  The potential threat of imports and substitute products is based upon many factors, including raw material prices, distribution costs, foreign exchange rates, production costs, and the development of emerging technologies and applications.  The end use of alternative import and/or substitute products could have a material adverse effect on our business, financial condition, and results of operations.  Likewise, the development of new technologies and applications could result in lower demand for our products and have a material adverse effect on our business.

Our exposure to exchange rate fluctuations on cross border transactions and the translation of local currency results into U.S. dollars could have an adverse impact on our results of operations or financial position.

We conduct our business through subsidiaries in several different countries and export our products to many countries.  Fluctuations in currency exchange rates could have a significant impact on the competitiveness of our products as well as the reported results of our operations, which are presented in U.S. dollars.  A significant and growing portion of our products are manufactured in or acquired from suppliers located in lower cost regions.  Cross border transactions, both with external parties and intercompany relationships, result in increased exposure to foreign exchange fluctuations.  The strengthening of the U.S. dollar could expose our U.S. based businesses to competitive threats from lower cost producers in other countries such as China.  Lastly, our sales are translated into U.S. dollars for 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 British pound sterling, Mexican peso, Canadian dollar, and Chinese renminbi, could have an adverse impact on our results of operations or financial position.
 
7

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 contract disputes, personal injury claims, environmental claims, Occupational Safety and Health Administration 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, 2015, approximately 1,865 of our 4,104 employees were covered by collective bargaining or similar agreements.  If we are unable to negotiate acceptable new agreements with the unions representing our employees upon expiration of existing contracts, we could experience strikes or other work stoppages.  Strikes or other work stoppages could cause a significant disruption of operations at our facilities, which could have an adverse impact on us.  New or renewal agreements with unions representing our employees could call for higher wages or benefits paid to union members, which would increase our operating costs and could adversely affect our profitability.  Higher costs and/or limitations on our ability to operate our facilities and manufacture our products resulting from increased labor costs, strikes or other work stoppages could have a material adverse effect on our results of operations.
   
In addition, unexpected interruptions in our operations or those of our customers or suppliers due to such causes as weather-related events or acts of God, such as earthquakes, could have an adverse effect on our results of operations.  For example, the Environmental Protection Agency (EPA) has 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 future events is not reasonably estimable at this time, should they 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, health, and safety laws and regulations and future compliance may have a material adverse effect on our results of operations, financial position, or cash flows.

The nature of our operations exposes us to the risk of liabilities and claims with respect to environmental, 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, diversion of our resources, availability of insurance coverage, and other factors.  The overall impact of these requirements on our operations could increase our costs and diminish our ability to compete with products that are produced in countries without such rigorous standards; the long run impact could negatively impact our results and have a material adverse effect on our business.


8

If we do not successfully execute or effectively operate, integrate, leverage and grow acquired businesses, our financial results may suffer.

Our strategy for long-term growth, productivity and profitability depends in part on our ability to make prudent strategic acquisitions and to realize the benefits we expect when we make those acquisitions. In furtherance of this strategy, over the past several years, we have acquired businesses in Europe, Canada, and the United States.
While we currently anticipate that our past and future acquisitions will enhance our value proposition to customers and improve our long-term profitability, there can be no assurance that we will realize our expectations within the time frame we have established, if at all, or that we can continue to support the value we allocate to these acquired businesses, including their goodwill or other intangible assets.

ITEM 1B.
UNRESOLVED STAFF COMMENTS

None.


ITEM 2.
PROPERTIES

Information pertaining to our major operating facilities is included below.  Except as noted, we own all of the principal properties.  In addition, we own and/or lease other properties used as distribution centers and corporate offices.  Our plants are in satisfactory condition and are suitable for the purpose for which they were designed and are now being used.
 
Location of Facility
 
Building Space (Sq. Ft.)
 
Primary Use
 
Owned or Leased
 
Plumbing & Refrigeration Segment
Fulton, MS
 
649,500
 
Manufacturing & Packaging
 
579,500 Owned; 70,000 Leased
New Market, VA
 
413,120
 
Manufacturing
 
Owned
Wynne, AR
 
400,000
 
Manufacturing & Distribution
 
Owned
Ontario, CA
 
211,000
 
Manufacturing & Distribution
 
Leased
Covington, TN
 
159,500
 
Manufacturing
 
Owned
Phoenix, AZ
 
61,000
 
Manufacturing
 
Leased
Lawrenceville, GA
 
56,000
 
Manufacturing
 
Leased
Bilston, England
 
402,500
 
Manufacturing
 
Owned
London, Ontario, Canada
 
200,400
 
Manufacturing
 
Leased
Monterrey, Mexico
 
152,000
 
Manufacturing
 
Leased
             
OEM Segment
Port Huron, MI
 
450,000
 
Manufacturing
 
Owned
Belding, MI
 
293,068
 
Manufacturing
 
Owned
North Wales, PA
 
174,000
 
Manufacturing
 
Owned
Washington, PA
 
108,275
 
Manufacturing
 
Owned
Bluffs, IL
 
107,000
 
Manufacturing
 
Owned
Hickory, NC
 
100,000
 
Manufacturing
 
Owned
Marysville, MI
 
81,500
 
Manufacturing
 
Owned
 
 
9

             
Location of Facility
 
Building Space (Sq. Ft.)
 
Primary Use
 
Owned or Leased
             
OEM Segment (cont.)
           
Hartsville, TN
 
78,000
 
Manufacturing
 
Owned
Brooklyn, OH
 
75,000
 
Manufacturing
 
Leased
Carthage, TN
 
67,520
 
Manufacturing
 
Owned
Valley View, OH
 
65,400
 
Manufacturing & Distribution
 
Leased
Brighton, MI
 
65,000
 
Machining
 
Leased
Waynesboro, TN
 
57,000
 
Manufacturing
 
Leased
Middleton, OH
 
55,000
 
Manufacturing
 
Owned
Gordonsville, TN
 
54,000
 
Manufacturing
 
Leased
Bloomfield, CT
 
26,900
 
Manufacturing
 
Leased
Carrolton, TX
 
9,230
 
Manufacturing
 
Leased
Jintan City, Jiangsu Province,
China
 
322,580
 
Manufacturing
 
Owned
Xinbei District, Changzhou,
China
 
33,940
 
Manufacturing
 
Leased
Guadalupe, Mexico
 
130,110
 
Manufacturing
 
Leased


ITEM 3.
LEGAL PROCEEDINGS

The Company is involved in certain litigation as a result of claims that arose in the ordinary course of business.  Additionally, we may realize the benefit of certain legal claims and litigation in the future; these gain contingencies are not recognized in the Consolidated Financial Statements.

For a description of material pending legal proceedings, see "Note 9 – Commitments and Contingencies" in the Notes to Consolidated Financial Statements, which is incorporated herein by reference.


ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.


10


ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the New York Stock Exchange (NYSE) under the symbol "MLI."  As of February 19, 2016, the number of holders of record of Mueller's common stock was approximately 810.  The following table sets forth, for the periods indicated, the high and low sales prices as reported by the NYSE and the cash dividends paid per share of common stock.

   
Sales Prices
     
 
 
High
   
Low
   
Dividend
 
2015
 
   
   
 
 
 
   
   
 
Fourth quarter
 
$
33.04
   
$
26.86
   
$
0.075
 
Third quarter
   
35.65
     
28.94
     
0.075
 
Second quarter
   
37.18
     
34.57
     
0.075
 
First quarter
   
36.47
     
31.34
     
0.075
 
 
                       
2014
                       
 
                       
Fourth quarter
 
$
34.39
   
$
27.10
   
$
0.075
 
Third quarter
   
30.35
     
27.71
     
0.075
 
Second quarter
   
30.99
     
27.47
     
0.075
 
First quarter
   
32.13
     
27.38
     
0.075
 
 
Payment of dividends in the future is dependent upon the Company's financial condition, cash flows, capital requirements, earnings, and other factors.



11

Issuer Purchases of Equity Securities

The Company's Board of Directors has extended, until October 2016, the authorization to repurchase up to 20 million shares of the Company's common stock through open market transactions or through privately negotiated transactions.  The Company 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, 2015, the Company had repurchased approximately 4.7 million shares under this authorization.  Below is a summary of the Company's stock repurchases for the quarter ended December 26, 2015.


 
 
(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
   
 
 
 
   
 
   
     
15,287,060
 ( 1)
 
  September 27 – October 24, 2015 
 
1,036
 ( 2)     
$
31.85
     
               
 
                                         
  October 25 – November 21, 2015 
 
155
 ( 2)       
31.53
     
               
 
                                         
  November 22 – December 26, 2015 
 
         
     
               
 
                                         
 (1)
Shares available to be purchased under the Company's 20 million share repurchase authorization until October 2016. The extension of  the authorization was announced on October 21, 2015.
 
 
 (2)
Shares tendered to the Company by holders of stock-based awards in payment of purchase price and/or withholding taxes upon exercise. In addition, includes restricted stock forfeitures.  






12

Company Stock Performance

The following graph compares total stockholder return since December 25, 2010 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. 
 
 
      
                                
 
 
 
 
2010
 
 
2011
 
 
2012
 
 
2013
 
 
2014
 
 
2015
 
Mueller Industries, Inc.
 
 
100.00
     
117.53
     
152.12
     
195.49
     
215.09
     
177.80
 
Dow Jones U.S. Total Return Index
 
 
100.00
     
101.34
     
117.89
     
156.76
     
177.06
     
178.18
 
Dow Jones U.S. Building Materials & Fixtures Index
 
 
100.00
     
103.16
     
157.03
     
201.31
     
222.58
     
254.55
 
 
13

ITEM 6.
SELECTED FINANCIAL DATA

(In thousands, except per share data)
 
2015
   
   
2014
   
   
2013
   
   
2012
   
   
2011
   
 
 
 
 
   
   
   
   
   
   
   
   
   
 
For the fiscal year: (1)
 
   
   
   
   
   
   
   
   
   
 
 
 
 
   
   
   
   
   
   
   
   
   
 
 
Net sales
 
$
2,100,002
   
   
$
2,364,227
   
   
$
2,158,541
   
   
$
2,189,938
   
   
$
2,417,797
   
 
 
 
         
           
           
           
           
 
 
Operating income
   
137,268
         
153,996
         
270,937
     
(5
)
   
126,705
     
(6
)
   
139,802
     
(7
)
 
 
         
           
                                                 
 
Net income attributable to Mueller Industries, Inc.
   
87,864
     
(3
)
   
101,560
     
(4
)
   
172,600
             
82,395
             
86,321
         
 
 
                                                                               
 
Diluted earnings per share (2)
   
1.54
             
1.79
             
3.06
             
1.16
     
(8
)
   
1.13
         
 
 
                                                                               
 
Cash dividends per share (2)
   
0.30
             
0.30
             
0.25
             
0.2125
             
0.20
         
 
 
                                                                               
At year-end:
                                                                               
 
 
                                                                               
 
Total assets
   
1,338,801
             
1,328,096
             
1,247,767
             
1,104,155
             
1,347,604
         
 
 
                                                                               
 
Long-term debt
   
204,250
             
205,250
             
206,250
             
207,300
             
156,476
         
 
 
                                                                               
 
 
                                                                               
   
(1)
 
Includes activity of acquired businesses from the following purchase dates: Great Lakes Copper Ltd., July 31, 2015; Sherwood Valve Products, LLC, June 18, 2015; Turbotec Products, Inc., March 30, 2015; Yorkshire Copper Tube, February 28, 2014; Howell Metal Company, October 17, 2013; and Westermeyer Industries, Inc., August 16, 2012.
 
       
 
   
(2)
 
Adjusted retroactively to reflect the two-for-one stock split that occurred on March 14, 2014.
 
         
   
(3)
 
Includes $15.4 million pre-tax gain from the sale of certain assets, severance charges of $3.4 million and a permanent adjustment to a deferred tax liability of $4.2 million.
 
         
   
(4)
 
Includes $6.3 million pre-tax gain on sale of assets, reversal of valuation allowance of $5.7 million, and $7.3 million of pre-tax charges related to severance.
 
         
   
(5)
 
Includes $106.3 million pre-tax gain from settlement of insurance claims, $39.8 million pre-tax gain from the sale of the Company's Schedule 40 pressure plastic fittings business along with the sale of certain other plastic fittings manufacturing assets, and pre-tax impairment charges of $4.3 million primarily related to real property associated with the aforementioned plastics sale transaction.
 
       
 
   
(6)
 
Includes deferred recognition of $8.0 million gain from liquidation of LIFO inventory layers, $4.1 million net gain from settlement of litigation, $1.5 million gain from settlement of insurance claims, and severance charges of $3.4 million.
 
       
 
   
(7)
 
Includes $10.5 million gain from settlement of litigation.
 
       
 
   
(8
)
Includes the impact of 10.4 million shares repurchased from Leucadia National Corporation in September 2012.
 
         

ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's discussion and analysis of financial condition and results of operations is contained under the caption "Financial Review" submitted as a separate section of this Annual Report on Form 10-K commencing on page F-2.
 
 
14

ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and qualitative disclosures about market risk are contained under the caption "Financial Review" submitted as a separate section of this Annual Report on Form 10-K commencing on page F-2.


ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements required by this item are contained in a separate section of this Annual Report on Form 10-K commencing on page F-16.


ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.
 
 
ITEM 9A.
CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure information required to be disclosed in Company reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms.  Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
 
The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures pursuant to Rule 13a-15(e) of the Exchange Act as of December 26, 2015.  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, 2015 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) and 15d-15(f) under the Securities Exchange Act of 1934.  Pursuant to the rules and regulations of the SEC, internal control over financial reporting is a process designed by, or under the supervision of, the Company's principal executive and principal financial officers, and effected by the Company's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the  Company's assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of the Company's management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.  Due to inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time.
 
15

The Company acquired Turbotec Products, Inc., Sherwood Valve Products, LLC, and Great Lakes Copper Ltd. during 2015 and has excluded these businesses from management's assessment of internal controls.  The total value of assets for these businesses at year-end was $152.8 million, which represents 11.4 percent of the Company's consolidated total assets at December 26, 2015.  Net sales from the dates of acquisition represents 6.1 percent of the consolidated net sales of the Company for 2015.  Operating income from the date of acquisitions represents 4.3 percent of the consolidated operating income of the Company for 2015.  Accordingly, these acquired businesses are not included in the scope of this report.

As required by Rule 13a-15(c) under the Exchange Act, 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, 2015 based on the control criteria established in a report entitled Internal Control—Integrated Framework, (2013 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 was effective as of December 26, 2015.
 
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, 2015, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
 
16

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, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). Mueller Industries, Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Management's Report on Internal Control over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Turbotec Products, Inc., Sherwood Valve Products, LLC, or Great Lakes Copper Ltd., which are included in the 2015 consolidated financial statements of Mueller Industries, Inc. and constituted $152.8 million and $106.9 million of total and net assets, respectively, as of December 26, 2015, and $128.0 million and $5.9 million of net sales and operating income, respectively, for the year then ended.  Our audit of internal control over financial reporting of Mueller Industries, Inc. also did not include an evaluation of the internal control over financial reporting of Turbotec Products, Inc., Sherwood Valve Products, LLC, or Great Lakes Copper Ltd.

In our opinion, Mueller Industries, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 26, 2015, 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, 2015 and December 27, 2014, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 26, 2015 and our report dated February 24, 2016 expressed an unqualified opinion thereon.
 
 
                                                                                    

 
Memphis, Tennessee
 
 
February 24, 2016
 
 
17

ITEM 9B.
OTHER INFORMATION

None.


PART III

ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The information required by Item 10 is contained under the captions "Ownership of Common Stock by Directors and Executive Officers and Information about Director Nominees," "Corporate Governance," "Report of the Audit Committee of the Board of Directors," and "Section 16(a) Beneficial Ownership Compliance Reporting" in the Company's Proxy Statement for its 2016 Annual Meeting of Stockholders to be filed with the SEC on or about March 24, 2016, which is incorporated herein by reference.

The Company has adopted a Code of Business Conduct and Ethics that applies to its chief executive officer, chief financial officer, and other financial executives.  We have also made the Code of Business Conduct and Ethics available on the Company's website at www.muellerindustries.com.
 

ITEM 11.
EXECUTIVE COMPENSATION
 
The information required by Item 11 is contained under the caption "Compensation Discussion and Analysis," "Summary Compensation Table for 2015," "2015 Grants of Plan Based Awards Table," "Outstanding Equity Awards at Fiscal 2015 Year-End," "2015 Option Exercises and Stock Vested," "Potential Payments Upon Termination of Employment or Change in Control as of the End of 2015," "2015 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 2016 Annual Meeting of Stockholders to be filed with the SEC on or about March 24, 2016, which is incorporated herein by reference.
 
18

ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information

The following table discloses information regarding the securities to be issued and the securities remaining available for issuance under the Registrant's stock-based incentive plans as of December 26, 2015 (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
   
1,198
   
$
20.59
     
1,146
 
 
                       
Equity compensation plans not approved by security holders
   
     
     
 
 
                       
Total
   
1,198
   
$
20.59
     
1,146
 
 
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 2016 Annual Meeting of Stockholders to be filed with the SEC on or about March 24, 2016, which is incorporated herein by reference.


ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 13 is contained under the caption "Corporate Governance" in the Company's Proxy Statement for its 2016 Annual Meeting of Stockholders to be filed with the SEC on or about March 24, 2016, which is incorporated herein by reference.
 
 
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
       
The information required by Item 14 is contained under the caption "Appointment of Independent Registered Public Accounting Firm" in the Company's Proxy Statement for its 2016 Annual Meeting of Stockholders to be filed with the SEC on or about March 24, 2016, which is incorporated herein by reference.
 
19

PART IV


ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(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, effective as of January 15, 2016 (Incorporated herein by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K, dated January 19, 2016).
 
 
 
 
 
 
4.1
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 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).
 
 
 
 
 
 
10.2
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).
 
 
 
 
 
 
10.3
Letter Agreement with Harvey Karp, dated as of May 11, 2011 (Incorporated herein by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K, dated May 16, 2011).
 
 
 
 
 
 
10.4
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).
 
 
 
 
 
 
10.5
Amendment No. 1 to Amended and Restated Employment Agreement by and between the Registrant and Gregory L. Christopher, dated February 14, 2013 (Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K, dated February 14, 2013).
 
 
 
 
 
 
10.6
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).
 
 
 
 
 
 
10.7
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).
 
20

 
 
 
 
 
10.8
Mueller Industries, Inc. 2014 Stock Incentive Plan (Incorporated by reference from Appendix I to the Company's 2014 Definitive Proxy Statement with respect to the Company's 2014 Annual Meeting of Stockholders, as filed with the Securities and Exchange Commission on March 19, 2014).
 
 
 
 
 
 
10.9
Amendment to the Mueller Industries, Inc. 2002 Stock Option Plan, dated July 11, 2011 (Incorporated herein by reference to Exhibit 10.16 of the Registrant's Annual Report on Form 10-K, dated February 28, 2012, for the fiscal year ended December 31, 2011).
 
       
 
10.10
Amendment to the Mueller Industries, Inc. 2009 Stock Incentive Plan, dated July 11, 2011 (Incorporated herein by reference to Exhibit 10.17 of the Registrant's Annual Report on Form 10-K, dated February 28, 2012, for the fiscal year ended December 31, 2011).
 
 
 
 
 
 
10.11
Mueller Industries, Inc. 2011 Annual Bonus Plan (Incorporated herein by reference to Exhibit 10.18 of the Registrant's Annual Report on Form 10-K, dated February 28, 2012, for the fiscal year ended December 31, 2011).
 
 
 
 
 
 
10.12
Summary description of the Registrant's 2016 incentive plan for certain key employees.
 
 
 
 
 
 
10.13
Amended Credit Agreement, dated as of March 7, 2011, among the Registrant (as Borrower) and Bank of America, N.A. (as agent), and certain lenders named therein, following adoption of Amendment No. 2 dated December 11, 2012 (Incorporated herein by reference to Exhibit 10.20 of the Registrant's Annual Report on Form 10-K, dated February 27, 2013, for the fiscal year ended December 29, 2012).
 
 
 
 
 
 
10.14
Amendment No. 1 to Credit Agreement among the Registrant (as borrower), Bank of America, N.A. (as agent), and certain lenders named therein dated August 12, 2011 (Incorporated herein by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q, for the Quarterly period ended October 1, 2011, dated October 27, 2011).
 
 
 
 
 
 
10.15
Amendment No. 2 to Credit Agreement among the Registrant (as borrower), Bank of America, N.A. (as agent), and certain lenders named therein dated December 11, 2012  (Incorporated herein by reference to Exhibit 10.22 of the Registrant's Annual Report on Form 10-K, dated February 27, 2013, for the fiscal year ended December 29, 2012).
 
 
 
 
 
 
10.16
Membership Interest Purchase Agreement by and between Sherwood Valve Products, Inc. and Taylor-Wharton International LLC, dated as of June 18, 2015 (Incorporated herein by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K, dated June 19, 2015).
 
       
 
10.18
Share Purchase Agreement among Great Lakes Copper Inc. and Mueller Copper Tube Products, Inc. dated July 31, 2015.  (Incorporated herein by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q, dated October 21, 2015 for the period ended September 26, 2015).
 
       
 
10.19
Agreement and Plan of Merger, dated as of August 5, 2015, by and among Tecumseh Products Company, MA Industrial JV LLC and MA Industrial Sub Inc. (Incorporated herein by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K, dated August 7, 2015).
 
       
 
21.0
Subsidiaries of the Registrant.
 
 
 
 
 
 
23.0
Consent of Independent Registered Public Accounting Firm.
 
 
21

 
 
 
 
 
 
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.
 
 
 
 
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
 
 
 
 
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase 
 
 
 
 
 
 
101.INS
XBRL Instance Document
 
 
 
 
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase 
 
 
 
 
 
 
101.PRE
XBRL Presentation Linkbase Document
 
 
 
 
 
 
101.SCH
XBRL Taxonomy Extension Schema 
 
 
22

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 24, 2016.

MUELLER INDUSTRIES, INC.

 
/s/ Gregory L. Christopher
 
 
Gregory L. Christopher, Chief Executive Officer
(Principal Executive Officer) and 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/ Gregory L. Christopher
    Gregory L. Christopher
Chief Executive Officer (Principal Executive Officer) and Chairman of the Board
February 24, 2016
   
 
 
 
 
/s/ Gary S. Gladstein
Lead Independent Director
February 24, 2016
Gary S. Gladstein
 
 
 
 
 
/s/ Paul J. Flaherty
Director
February 24, 2016
Paul J. Flaherty
 
 
 
 
 
/s/ Gennaro J. Fulvio
Director
February 24, 2016
Gennaro J. Fulvio
 
 
 
 
 
/s/ Scott J. Goldman
Director
February 24, 2016
Scott J. Goldman
 
 
 
 
 
/s/ John B. Hansen
Director
February 24, 2016
John B. Hansen
   
     
/s/ Terry Hermanson
Director
February 24, 2016
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/ Jeffrey A. Martin
February 24, 2016
 
Jeffrey A. Martin
 
 
Chief Financial Officer and Treasurer
 
 
(Principal Financial and Accounting Officer)
 
 
 
 
 
/s/ Anthony J. Steinriede
February 24, 2016
 
Anthony J. Steinriede
 
 
Vice President – Corporate Controller
 


23

MUELLER INDUSTRIES, INC.






FINANCIAL STATEMENT SCHEDULE

 
Schedule for the years ended December 26, 2015, December 27, 2014, and December 28, 2013
 
 
 
 
 
F - 1

FINANCIAL REVIEW

The Financial Review section of our Annual Report on Form 10-K consists of the following: Management's Discussion and Analysis of Results of Operations and Financial Condition (MD&A), the Consolidated Financial Statements, and Other Financial Information, all of which include information about our significant accounting policies, practices, and the transactions that impact our financial results.  The following MD&A describes the principal factors affecting the results of operations, liquidity and capital resources, contractual cash obligations and the critical accounting estimates of the Company.  The discussion in the Financial Review section should be read in conjunction with the other sections of this Annual Report, particularly "Item 1: Business" and our other detailed discussion of risk factors included in this MD&A.

Overview

We are a leading manufacturer of copper, brass, aluminum, and plastic products.  The range of these products is broad:  copper tube and fittings; line sets; brass and copper alloy rod, bar, and shapes; aluminum and brass forgings; aluminum and copper impact extrusions; plastic fittings and valves; refrigeration valves and fittings; fabricated tubular products; and steel nipples.  We also resell 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:

·
Plumbing & Refrigeration:  The Plumbing & Refrigeration segment is composed of Standard Products (SPD), Great Lakes Copper Ltd. (Great Lakes), European Operations, and Mexican Operations.  SPD manufactures and sells copper tube, copper and plastic fittings, line sets, and valves in North America and sources products for import distribution in North America.  Great Lakes manufactures copper tube and line sets in Canada and sells its products primarily in the U.S. and Canada. European Operations manufacture copper tube in the United Kingdom, which is sold throughout Europe.  Mexican Operations consist of pipe nipple manufacturing and import distribution businesses including product lines of malleable iron fittings and other plumbing specialties.  The Plumbing & Refrigeration segment sells products to wholesalers in the HVAC, plumbing, and refrigeration markets, to distributors to the manufactured housing and recreational vehicle industries, and to building material retailers.

·
OEM:  The OEM segment is composed of Industrial Products, (IPD), Engineered Products (EPD), and Jiangsu Mueller–Xingrong Copper Industries Limited (Mueller-Xingrong), the Company's Chinese joint venture.  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, refrigeration, and industrial 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 our products is in the construction of single and multi-family housing and commercial buildings.  Repairs and remodeling projects are also important drivers of underlying demand for these products.  

Residential construction activity has shown improvement in recent years, but remains at levels below long-term historical averages.  Continued improvement is expected, but may be tempered by continuing low labor participation rates, the pace of household formations, higher interest rates, and tighter lending standards.  Per the U.S. Census Bureau, actual housing starts in the U.S. were 1.1 million in 2015, which compares to 1.0 million in 2014 and 925 thousand in 2013.  Mortgage rates remain at historically low levels, as the average 30-year fixed mortgage rate was approximately 3.85 percent in 2015 and 4.17 percent in 2014.  

F - 2

The private nonresidential construction sector, which includes offices, industrial, health care, and retail projects, began showing improvement in 2015, 2014, and 2013 after declines in previous years.  Per the U.S. Census Bureau, the actual (not seasonally adjusted) value of private nonresidential construction put in place was $389.3 billion in 2015, $347.7 billion in 2014, and $312.3 billion in 2013.  We expect that most of these conditions will continue to improve.

Profitability of certain of the Company's product lines depends upon the "spreads" between the cost of raw material and the selling prices of its products.  The open market prices for copper cathode and scrap, for example, influence the selling price of copper tube, a principal product manufactured by the Company.  We attempt to minimize the effects on profitability from fluctuations in material costs by passing through these costs to our customers.  Our earnings and cash flow are dependent upon these spreads that fluctuate based upon market conditions.

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

Results of Operations

Consolidated Results

The following table compares summary operating results for 2015, 2014, and 2013:

 
 
 
 
 
Percent Change
 
(In thousands)
 
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
 
 
 
 
 
 
 
 
Net sales
 
$
2,100,002
   
$
2,364,227
   
$
2,158,541
     
(11.2
)%
   
9.5
%
Operating income
   
137,268
     
153,996
     
270,937
     
(10.9
)
   
(43.2
)
Net income
   
87,864
     
101,560
     
172,600
     
(13.5
)
   
(41.2
)

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

 
 
2015 vs. 2014
 
 
2014 vs. 2013
 
 
 
 
 
 
 
 
 
 
Net selling price in core product lines
 
(9.4
)
 
 
(3.1
)
%
Unit sales volume in core product lines
 
  (4.3
)
 
 
 
2.1
 
 
Acquisitions & new products
 
  5.8
 
 
 
 
9.5
 
 
Dispositions
 
(2.6
)
     
   
Other
 
  (0.7
)
 
 
 
1.0
 
 
 
 
 
 
 
 
 
   
 
 
 
  (11.2
)
 
 
9.5
 
%

The decrease in net sales in 2015 was primarily due to (i) lower net selling prices of $221.5 million in our core product lines, primarily copper tube and brass rod, (ii) lower unit sales volume of $102.3 million in our core product lines, primarily in the OEM segment, and (iii) the absence of sales of $57.5 million recorded by Primaflow, a business we sold during November 2014.  These decreases were offset by $90.5 million of sales recorded by Great Lakes Copper Ltd. (Great Lakes), acquired in July 2015, $20.8 million of sales recorded by Sherwood Valve Products, LLC (Sherwood), acquired in June 2015, and $16.8 million of sales recorded by Turbotec Products, Inc. (Turbotec), acquired in March 2015.

The increase in net sales in 2014 was primarily due to (i) incremental sales of $91.7 million contributed by Yorkshire Copper Tube (Yorkshire), acquired in February 2014, (ii) $109.1 million of sales contributed by Howell Metals Company (Howell), acquired in October 2013, (iii) an increase in unit sales in our other core product lines of $49.9 million, and (iv) an increase in net sales of $20.3 million from our non-core product lines.  These increases were offset by lower selling prices of $65.4 million in our core products.
 
F - 3

Net selling prices generally fluctuate with changes in raw material costs.  Changes in raw material costs are generally passed through to customers by adjustments to selling prices.  The following graph shows the Comex average copper price per pound by quarter for the most recent three-year period:


The following tables compare cost of goods sold and operating expenses as dollar amounts and as a percent of net sales for 2015, 2014, and 2013:

(In thousands)
 
2015
   
2014
   
2013
 
 
 
   
   
 
Cost of goods sold
 
$
1,809,702
   
$
2,043,719
   
$
1,862,089
 
Depreciation and amortization
   
34,608
     
33,735
     
32,394
 
Selling, general, and administrative expense
   
130,358
     
131,740
     
134,914
 
Insurance settlements
   
     
     
(106,332
)
Gain on sale of assets
   
(15,376
)
   
(6,259
)
   
(39,765
)
Impairment charges
   
     
     
4,304
 
Severance
   
3,442
     
7,296
     
 
 
                       
Operating expenses
 
$
1,962,734
   
$
2,210,231
   
$
1,887,604
 

 
 
Percent of Net Sales
 
 
 
2015
   
2014
   
2013
 
 
 
   
   
 
Cost of goods sold
   
86.2
%
   
86.4
%
   
86.3
%
Depreciation and amortization
   
1.6
     
1.4
     
1.5
 
Selling, general, and administrative expense
   
6.2
     
5.7
     
6.1
 
Insurance settlements
   
     
     
(4.9
)
Gain on sale of assets
   
(0.7
)
   
(0.3
)
   
(1.8
)
Impairment charges
   
     
     
0.2
 
Severance
   
0.2
     
0.3
     
 
 
                       
Operating expenses
   
93.5
%
   
93.5
%
   
87.4
%

The decrease in cost of goods sold in 2015 was primarily due to the decrease in the average cost of copper, our principal raw material, and the decrease in sales volume.  The increase in 2014 as compared to 2013 was largely related to the increase in sales volume.  Depreciation and amortization increased in 2015 and 2014 as a result of depreciation and amortization of long-lived assets for businesses acquired.
 
F - 4


Selling, general, and administrative expenses decreased slightly in 2015, primarily due to (i) lower employment costs, including incentive compensation, of $5.4 million, (ii) a decrease of $10.2 million in selling, general, and administrative expenses related to the sale of Primaflow, and (iii) a decrease of $1.6 million in agent commissions as a result of lower sales.  These decreases were offset by (i) selling, general, and administrative expenses of $6.6 million associated with businesses acquired in 2015, (ii) higher net periodic pension costs of $5.1 million, and (iii) increased professional fees of $1.6 million related to the upgrade of our ERP system.  In addition, there was $1.9 million of equipment relocation costs and losses on the sale of assets related to the rationalization of Yorkshire in in 2015.  Lastly, during 2014 there was a reduction in accruals related to legal matters of $0.5 million.  The decrease in 2014 was a result of a decrease in legal fees of $4.8 million and lower net periodic pension costs of $5.0 million, offset by incremental costs associated with Howell and Yorkshire. 

During 2015, our operating results were positively impacted by a net gain of $15.4 million recorded on the sale of certain assets.  This was offset by $3.4 million of severance charges related to the rationalization of Yorkshire.

Our operating results in 2014 were positively impacted by a net gain of $6.3 million recorded for the sale of our plastic pipe manufacturing assets, the land and building in Portage, Michigan, and our United Kingdom based import distribution business.  This was offset by $7.3 million in severance charges related to the rationalization of Yorkshire.
  
During 2013, our operating results were positively impacted by a $106.3 million gain recognized in the settlement of our insurance claim related to the September 2011 fire at the Wynne, Arkansas manufacturing operation.  In addition, we sold certain of our plastic fittings manufacturing assets and recognized a pre-tax gain of $39.8 million, or 41 cents per diluted share after tax, and recognized fixed asset impairment charges of $4.3 million.

Interest expense increased $1.9 million in 2015 primarily as a result of additional costs of $2.3 million due to the terms of our interest rate swap agreements that became effective in January 2015, offset by decreased borrowing costs of $0.3 million at Mueller-Xingrong to fund working capital.  The increase of $1.8 million in 2014 was related to increased borrowings by MEL and higher borrowing costs at Mueller-Xingrong to fund working capital.

Other income, net, was $2.2 million in 2015 compared to other expense, net, of $0.2 million in 2014 and other income, net, of $4.5 million in 2013.  The change in 2015 was primarily related to lower postretirement benefit costs of $1.4 million, lower environmental costs of $0.8 million, and higher interest income of $0.5 million.  The income in 2013 resulted primarily from a $3.0 million gain on the sale of a non-operating property.

Income tax expense was $43.4 million in 2015, for an effective tax rate of 32.9 percent.  This rate was lower than what would be computed using the U.S. statutory federal rate primarily attributable to reductions to the Company's deferred tax liabilities of $4.2 million resulting from the acquisition of a foreign subsidiary and the U.S. production activities deduction of $3.5 million.  These reductions were partially offset by state tax expense (net of federal benefit) of $2.7 million and $2.3 million of other adjustments.

Income tax expense was $45.5 million in 2014, for an effective tax rate of 31 percent.  This rate was lower than what would be computed using the U.S. statutory federal rate primarily due to decreases in valuation allowances of $5.7 million; the U.S. production activities deduction benefit of $4.0 million; and the effect of lower foreign tax rates and other foreign adjustments of $1.1 million.  These decreases were partially offset by state tax expense (net of federal benefit) of $3.3 million and $1.2 million of other adjustments.

Income tax expense was $98.1 million in 2013, for an effective rate of 36 percent.  This rate was higher than what would be computed using the U.S. statutory federal rate primarily due to state tax expense, net of federal benefit, of $6.4 million, and the impact of goodwill disposition of $1.8 million.  These increases were partially offset by the U.S. production activities deduction benefit of $4.4 million and the effect of lower foreign tax rates and other foreign adjustments of $1.0 million. 

F - 5

Plumbing & Refrigeration Segment

The following table compares summary operating results for 2015, 2014, and 2013 for the businesses comprising our Plumbing & Refrigeration segment:

 
 
 
 
Percent Change
 
(In thousands)
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
 
 
 
 
 
 
 
 
Net sales
 
$
1,260,273
   
$
1,416,701
   
$
1,225,306
     
(11.0
)%
   
15.6
%
Operating income
   
90,072
     
93,230
     
219,146
     
(3.4
)
   
(57.5
)

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

 
 
2015 vs. 2014
 
 
2014 vs. 2013
 
 
 
 
 
 
 
 
 
 
Net selling price in core product lines
 
(10.1
)
 
 
(2.8
)
%
Unit sales volume in core product lines
 
  (2.3
)
 
 
 
(0.1
)
 
Acquisitions & new products
 
  6.4
 
 
 
 
17.0
 
 
Dispositions
 
(4.4
)
     
   
Other
 
  (0.6
)
 
 
 
1.5
 
 
 
 
 
 
 
 
 
   
 
 
 
  (11.0
)
%
 
 
15.6
 
%

The decrease in net sales during 2015 was primarily due to (i) lower net selling prices of $142.2 million in the segment's core product lines, primarily copper tube, (ii) the absence of sales of $57.5 million recorded by Primaflow, and (iii) lower unit sales volume of $32.7 million in the segment's core product lines.  These decreases were offset by $90.5 million of sales recorded by Great Lakes.

The increase in net sales in 2014 was primarily due to (i) incremental sales of $91.7 million contributed by Yorkshire, (ii) $109.1 million of sales contributed by Howell, and (iii) an increase in net sales of $23.2 million from the segment's non-core product lines.

The following tables compare cost of goods sold and operating expenses as dollar amounts and as a percent of net sales for 2015, 2014, and 2013:

(In thousands)
 
2015
   
2014
   
2013
 
 
 
   
   
 
Cost of goods sold
 
$
1,082,493
   
$
1,215,282
   
$
1,043,059
 
Depreciation and amortization
   
19,237
     
19,613
     
17,117
 
Selling, general, and administrative expense
   
80,405
     
87,539
     
85,471
 
Insurance settlements
   
     
     
(103,895
)
Gain on sale of assets
   
(15,376
)
   
(6,259
)
   
(39,765
)
Impairment charges
   
     
     
4,173
 
Severance
   
3,442
     
7,296
     
 
 
                       
Operating expenses
 
$
1,170,201
   
$
1,323,471
   
$
1,006,160
 




F - 6

 
 
Percent of Net Sales
 
 
 
2015
 
 
2014
 
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of goods sold
 
 
85.9
%
 
 
85.8
%
 
 
85.1
%
Depreciation and amortization
 
 
1.5
 
 
 
1.4
 
 
 
1.4
 
Selling, general, and administrative expense
 
 
6.4
 
 
 
6.2
 
 
 
7.0
 
Insurance settlements
 
 
 
 
 
 
 
 
(8.5
)
Gain on sale of assets
 
 
(1.2
)
 
 
(0.4
)
 
 
(3.2
Impairment charges
 
 
 
 
 
 
 
 
0.3
 
Severance
 
 
0.3
 
 
 
0.4
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
92.9
%
 
 
93.4
%
 
 
82.1
%

The decrease in cost of goods sold in 2015 was primarily due to the decrease in the average cost of copper.  The increase in 2014 was primarily due to the increase in net sales related to acquisitions.  Depreciation and amortization for 2015 was consistent with the expense recorded for 2014.  The increase in 2014 was related to depreciation and amortization of businesses acquired.  

Selling, general, and administrative expenses decreased in 2015, primarily due to (i) a decrease of $10.2 million in selling, general, and administrative expenses related to the sale of Primaflow, (ii) lower employment costs, including incentive compensation, of $3.3 million, and (iii) a decrease of $1.5 million in agent commissions as a result of lower sales.  These decreases were offset by (i) selling, general, and administrative expenses of $3.6 million associated with Great Lakes, (ii) increased professional fees of $1.2 million related to the upgrade of our ERP system, and (iii) higher net periodic pension costs of $1.7 million.  In addition, there was $1.9 million of equipment relocation costs and losses on the sale of assets related to the rationalization of Yorkshire.  Lastly, during 2014 there was a reduction in accruals related to legal matters of $0.5 million.  The increase in 2014 was primarily a result of higher employment costs, including incentive compensation, of $2.8 million and incremental costs associated with Howell and Yorkshire.  This was offset by a reduction in expense related to legal matters of $3.0 million. 

During 2015, our operating results were positively impacted by a net gain of $15.4 million recorded on the sale of certain assets.  This was offset by $3.4 million of severance charges related to the rationalization of Yorkshire.

Our operating results in 2014 were positively impacted by a net gain of $6.3 million recorded for the sale of our plastic pipe manufacturing assets, the land and building in Portage, Michigan, and our United Kingdom based import distribution business.  This was offset by $7.3 million in severance charges related to the rationalization of Yorkshire.
  
During 2013, our operating results were positively impacted by a $106.3 million gain recognized in the settlement of our insurance claim related to the September 2011 fire at the Wynne, Arkansas manufacturing operation.  In addition, we sold certain of our plastic fittings manufacturing assets and recognized a pre-tax gain of $39.8 million, or 41 cents per diluted share after tax, and recognized fixed asset impairment charges of $4.3 million.

OEM Segment

The following table compares summary operating results for 2015, 2014, and 2013 for the businesses comprising our OEM segment:

 
 
 
 
Percent Change
 
(In thousands)
2015
 
2014
 
2013
 
2015 vs. 2014
 
2014 vs. 2013
 
 
 
 
 
 
 
 
Net sales
 
$
849,538
   
$
959,914
   
$
947,784
     
(11.5
)%
   
1.3
%
Operating income
   
72,648
     
85,714
     
76,631
     
(15.2
)
   
11.9
 


F - 7

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

 
 
2015 vs. 2014
 
 
2014 vs. 2013
 
 
 
 
 
 
 
 
 
 
Net selling price in core product lines
 
(8.3
)
%
 
 
(3.3
)
%
Unit sales volume in core product lines
 
  (7.3
)
 
 
 
4.9
 
 
Acquisitions & new products
 
  4.9
 
 
 
 
 
 
Other
 
  (0.8
)
 
 
 
(0.3
)
 
 
 
 
 
 
 
 
   
 
 
 
  (11.5
)
 
 
1.3
 
%

The decrease in net sales in 2015 was primarily due to lower net selling prices of $79.3 million in the segment's core product lines, primarily brass rod, forgings, and commercial tube, and lower unit sales volume of $69.6 million in the segment's core product lines.  These decreases were offset by $16.8 million of sales recorded by Turbotec and $20.8 million of sales recorded by Sherwood.

The increase in net sales in 2014 was primarily due to an increase in unit sales volume of $46.2 million, offset by a decrease of $31.4 million due to lower net selling prices in the segment's core product lines.

The following tables compare cost of goods sold and operating expenses as dollar amounts and as a percent of net sales for 2015, 2014, and 2013:

(In thousands)
 
2015
   
2014
   
2013
 
 
 
   
   
 
Cost of goods sold
 
$
736,878
   
$
840,823
   
$
833,518
 
Depreciation and amortization
   
13,535
     
11,919
     
13,025
 
Selling, general, and administrative expense
   
26,477
     
21,458
     
24,479
 
Impairment charges
   
     
     
131
 
 
                       
Operating expenses
 
$
776,890
   
$
874,200
   
$
871,153
 

 
 
Percent of Net Sales
 
 
 
2015
 
 
2014
 
 
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of goods sold
 
 
86.7
%
 
 
87.6
%
 
 
87.9
%
Depreciation and amortization
 
 
1.6
 
 
 
1.2
 
 
 
1.4
 
Selling, general, and administrative expense
 
 
3.1
 
 
 
2.3
 
 
 
2.6
 
Impairment charges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
91.4
%
 
 
91.1
%
 
 
91.9
%

The decrease in cost of goods sold in 2015 and the increase in 2014 were related to factors consistent with those noted regarding changes in net sales.  Depreciation and amortization increased in 2015 as a result of depreciation and amortization of long-lived assets for businesses acquired.  The decrease in 2014 was a result of several assets becoming fully depreciated.  Selling, general, and administrative expenses increased in 2015 primarily as a result of higher net periodic pension costs of $3.2 million, as well as additional selling, general, and administrative expenses of $3.0 million for Turbotec and Sherwood.  This was offset by lower employment costs, including incentive compensation, of $0.8 million.  The decrease in 2014 was due to lower net periodic pension costs of $3.5 million.

F - 8

Liquidity and Capital Resources

The following table presents selected financial information and statistics for 2015, 2014, and 2013:

(In thousands)
 
2015
   
2014
   
2013
 
 
 
   
   
 
Cash and cash equivalents
 
$
274,844
   
$
352,134
   
$
311,800
 
Property, plant, and equipment, net
   
280,224
     
245,910
     
244,457
 
Total debt
   
216,010
     
241,444
     
235,333
 
Working capital, net of cash and current debt
   
327,888
     
387,204
     
372,744
 
                         
Cash provided by operating activities
   
159,609
     
90,605
     
128,513
 
Cash used in investing activities
   
(190,807
)
   
(38,424
)
   
(2,985
)
Cash used in financing activities
   
(41,258
)
   
(10,551
)
   
(13,643
)

Cash Provided by Operating Activities

During 2015, cash provided by operating activities was primarily attributable to consolidated net income of $88.4 million, depreciation and amortization of $34.6 million, a decrease in receivables of $51.7 million, and a decrease in inventories of $41.1 million.  These cash increases were offset by a decrease in current liabilities of $54.2 million.  These changes were primarily due to decreases in the price of copper and an overall decrease in working capital needs.

During 2014, cash provided by operating activities was primarily attributable to consolidated net income of $102.5 million and depreciation and amortization of $34.1 million.  These cash increases were offset by increased receivables of $21.4 million, an increase in other assets of $23.7 million, and a decrease in other liabilities of $2.2 million.  These changes were primarily due to increased sales volume in certain businesses and additional working capital needs of acquired businesses.

Cash Used in Investing Activities

The major components of net cash used in investing activities in 2015 included $105.9 million for the acquisition of Turbotec, Sherwood, and Great Lakes, $65.9 million for our investment in MA Industrial JV LLC, the joint venture that acquired Tecumseh Products Company, and capital expenditures of $28.8 million. These cash decreases were offset by $5.5 million in proceeds from the sale of certain assets and net withdrawals from restricted cash balances of $4.3 million.

The major components of net cash used in investing activities in 2014 included $30.1 million for the acquisition of Yorkshire, capital expenditures of $39.2 million, and deposits into restricted cash of $2.9 million.  These decreases were partially offset by $33.8 million proceeds from the sales of assets.

Cash Used in Financing Activities

For 2015, net cash used in financing activities consisted primarily of $23.6 million used for the repayment of debt by Mueller-Xingrong and $16.9 million used for payment of regular quarterly dividends to stockholders of the Company.

For 2014, net cash used in financing activities consisted primarily of $16.8 million for payment of regular quarterly dividends to stockholders of the Company, offset by $7.3 million received for the issuance of debt by Mueller-Xingrong.  

Liquidity and Outlook

Management believes that cash provided by operations, funds available under the credit agreement, and cash and cash equivalents on hand, which totaled $274.8 million at December 26, 2015, will be adequate to meet our liquidity needs, including working capital, capital expenditures, and debt payment obligations.  Our current ratio was 3.8 to 1 as of December 26, 2015.

F - 9

As of December 26, 2015, $79.4 million of our cash and cash equivalents were held by foreign subsidiaries.  We expect to repatriate $2.5 million of this cash and have accrued deferred tax on these earnings.  All other earnings of the foreign subsidiaries are considered to be permanently reinvested, and it is not practicable to compute the potential deferred tax liability associated with these undistributed foreign earnings.  We believe that cash held domestically, funds available through the credit agreement, and cash generated from U.S. based operations will be adequate to meet the future needs of our U.S. based operations.

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 $2.51 in 2015, $3.12 in 2014, and $3.34 in 2013.

We have significant environmental remediation obligations which we expect to pay over future years.  Approximately $1.1 million was spent during 2015 for environmental matters.  As of December 26, 2015, we expect to spend $0.6 million in 2016, $0.6 million in 2017, $0.6 million in 2018, $0.7 million in 2019, $0.7 million in 2020, and $18.5 million thereafter for ongoing projects.  

Cash used to fund pension and other postretirement benefit obligations was $2.6 million in 2015 and $4.4 million in 2014.  For 2016, we anticipate making contributions of approximately $2.7 million to these plans.

The Company declared a regular quarterly dividend of 7.5 cents per share for each quarter of fiscal 2015 and 2014, and 6.25 cents per share on our common stock for each fiscal quarter of 2013.  Payment of dividends in the future is dependent upon our financial condition, cash flows, capital requirements, and other factors.

Capital Expenditures

During 2015 our capital expenditures were $28.8 million and related primarily to upgrading equipment and implementing new manufacturing technologies in our copper tube and brass rod mills.  We anticipate investing approximately $30.0 million for capital expenditures in 2016.

Long-Term Debt
The Company's credit agreement provides for an unsecured $200.0 million revolving credit facility (the Revolving Credit Facility) and a $200.0 million Term Loan Facility, both of which mature on December 11, 2017.  The Revolving Credit Facility backed approximately $8.8 million in letters of credit at the end of 2015.  

On February 2, 2015, Mueller-Xingrong entered into a secured revolving credit agreement with a total borrowing capacity of RMB 230 million (or approximately $36.0 million).  In addition, Mueller-Xingrong occasionally finances working capital through various accounts receivable and bank draft discount arrangements.  Total borrowings at Mueller-Xingrong were $10.8 million at December 26, 2015.

As of December 26, 2015, the Company's total debt was $216.0 million or 20.1 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, 2015, we were in compliance with all of our debt covenants.

Share Repurchase Program
The Company's Board of Directors has extended, until October 2016, its authorization to repurchase up to 20 million shares of the Company's common stock through open market transactions or through privately negotiated transactions.  The Company has no obligation to repurchase any shares and may cancel, suspend, or extend the time period for the repurchase of shares at any time.  Any repurchases will be funded primarily through existing cash and cash from operations.  The Company may hold any shares repurchased in treasury or use a portion of the repurchased shares for stock-based compensation plans, as well as for other corporate purposes.  From its initial authorization in 1999 through December 26, 2015, the Company had repurchased approximately 4.7 million shares under this authorization.  
 
 
F - 10

Contractual Cash Obligations

The following table presents payments due by the Company under contractual obligations with minimum firm commitments as of December 26, 2015:

 
   
Payments Due by Year
 
(In millions)
 
Total
   
2016
     
2017-2018
     
2019-2020
   
Thereafter
 
 
   
                   
 
Total debt
   
$
216.0
   
$
11.8
   
$
202.0
   
$
2.0
   
$
0.2
 
Consulting agreement (1)
     
1.3
     
0.7
     
0.6
     
     
 
Operating leases
     
28.8
     
7.8
     
10.4
     
3.7
     
6.9
 
Heavy machinery and equipment commitments
     
6.9
     
6.9
     
     
     
 
Purchase commitments (2)
     
560.6
     
560.4
     
0.1
     
0.1
     
 
Interest payments (3)
     
11.1
     
5.5
     
5.5
     
0.1
     
 
                                         
Total contractual cash obligations
   
$
824.7
   
$
593.1
   
$
218.6
   
$
5.9
   
$
7.1
 
                                         
 
 
 
 
(1
)
See Note 9 to Consolidated Financial Statements.
 
     
 
 
(2
)
The Company has contractual supply commitments for raw materials totaling $529.9 million at year-end prices; these contracts contain variable pricing based on Comex and the London Metals Exchange. These commitments are for purchases of raw materials that are expected to be consumed in the ordinary course of business.
 
     
 
 
(3
)
These payments represent interest on variable rate debt based on rates in effect at December 26, 2015. The Company entered into an interest rate swap, effective January 12, 2015, which fixed the interest rate associated with the majority of its variable rate debt.
 

The above obligations will be satisfied with existing cash, funds available under the credit agreement, and cash generated by operations.  The Company has no off-balance sheet financing arrangements except for the operating leases identified above.

Market Risks

The Company is exposed to market risks from changes in raw material and energy costs, interest rates, and foreign currency exchange rates.  To reduce such risks, the Company may periodically use financial instruments.  Hedging transactions are authorized and executed pursuant to policies and procedures.  Further, the Company does not buy or sell financial instruments for trading purposes.  A discussion of the Company's accounting for derivative instruments and hedging activities is included in "Note 1 - Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements.

Cost and Availability of Raw Materials and Energy

Raw materials, primarily copper and brass, represent the largest component of the Company's variable costs of production.  The cost of these materials is subject to global market fluctuations caused by factors beyond our control.  Significant increases in the cost of metal, to the extent not reflected in prices for our finished products, or the lack of availability could materially and adversely affect our business, results of operations and financial condition.

The Company occasionally enters into forward fixed-price arrangements with certain customers.  We may utilize futures contracts to hedge risks associated with these forward fixed-price arrangements.  We may also utilize futures contracts to manage price risk associated with inventory.  Depending on the nature of the hedge, changes in the fair value of the futures contracts will either be offset against the change in fair value of the inventory through earnings or recognized as a component of accumulated other comprehensive income (AOCI) 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, we held open futures contracts to purchase approximately $33.9 million of copper over the next 12 months related to fixed-price sales orders and to sell approximately $13.6 million of copper over the next three months related to copper inventory.
 
F - 11

We may enter into futures contracts or forward fixed-price arrangements with certain vendors to manage price risk associated with natural gas purchases.  The effective portion of gains and losses with respect to futures positions are deferred in equity as a component of AOCI and reflected in earnings upon consumption of natural gas.  Periodic value fluctuations of the futures contracts generally offset the value fluctuations of the underlying natural gas prices.  There were no open futures contracts to purchase natural gas at December 26, 2015.

Interest Rates

The Company had variable-rate debt outstanding of $216.0 million at December 26, 2015 and $241.4 million at December 27, 2014.  At these borrowing levels, a hypothetical 10 percent increase in interest rates would have had an insignificant unfavorable impact on our pre-tax earnings and cash flows.  The primary interest rate exposures on floating-rate debt are based on LIBOR and the base-lending rate published by the People's Bank of China.  There was no fixed-rate debt outstanding as of December 26, 2015 or December 27, 2014.

Included in the variable-rate debt outstanding is the Company's $200.0 million Term Loan Facility which bears interest based on LIBOR.  We have reduced our exposure to increases in LIBOR by entering into interest rate swap contracts.  These contracts have been designated as cash flow hedges.  The fair value of these contracts has been recorded in the Consolidated Balance Sheets, and the related gains and losses on the contracts are deferred in stockholders' equity as a component of AOCI.  Deferred gains or losses on the contracts will be recognized in interest expense in the period in which the related interest payment being hedged is expensed.  The interest rate swap agreement had an effective date of January 12, 2015.

Foreign Currency Exchange Rates

Foreign currency exposures arising from transactions include firm commitments and anticipated transactions denominated in a currency other than an entity's functional currency.  The Company and its subsidiaries generally enter into transactions denominated in their respective functional currencies.  We may utilize certain futures or forward contracts with financial institutions to hedge foreign currency transactional exposures.  Gains and losses with respect to these positions are deferred in equity as a component of AOCI and reflected in earnings upon collection of receivables or payment of commitments.  At December 26, 2015, the Company had open forward contracts with a financial institution to sell approximately 1.5 million euros, 8.6 million Swedish kronor, and 3.5 million Norwegian kroner through March 2016.  It also held open futures contracts to buy approximately 4.8 million euros through November 2016.

The Company's primary foreign currency exposure arises from foreign-denominated revenues and profits and their translation into U.S. dollars.  The primary currencies to which we are exposed include the Canadian dollar, the British pound sterling, the Mexican peso, and the Chinese renminbi.  The Company generally views its investments in foreign subsidiaries with a functional currency other than the U.S. dollar as long-term.  As a result, we generally do not hedge these net investments.  The net investment in foreign subsidiaries translated into U.S. dollars using the year-end exchange rates was $249.5 million at December 26, 2015 and $185.6 million at December 27, 2014.  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, 2015 and December 27, 2014 amounted to $25.0 million and $18.6 million, respectively.  This change would be reflected in the foreign currency translation component of AOCI in the equity section of our Consolidated Balance Sheets until the foreign subsidiaries are sold or otherwise disposed.

We have significant investments in foreign operations whose functional currency is the British pound sterling, the Mexican peso, and the Canadian dollar.  During 2015, the value of the British pound decreased approximately five percent, the Mexican peso decreased approximately 15 percent, and the Canadian dollar decreased approximately 16 percent relative to the U.S. dollar.  The resulting foreign currency translation losses were recorded as a component of AOCI.
 
F - 12

Critical Accounting Policies and Estimates

The Company's accounting policies are more fully described in "Note 1 - Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements.  As disclosed in Note 1, the preparation of financial statements in conformity with general accepted accounting principles in the United States requires management to make estimates and assumptions about future events that affect amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates.  Management believes the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of the Company's financial condition and results of operations and require management's most difficult, subjective, and complex judgments.

Inventory Valuation Reserves

Our inventories are valued at the lower-of-cost-or-market.  The market price of copper cathode and scrap are subject to volatility.  During periods when open market prices decline below net realizable 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 excess or obsolete and, as such, we 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 our 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 they are determined.
 
As of December 26, 2015 and December 27, 2014, our inventory valuation reserves were $6.2 million and $5.2 million, respectively. The expense recognized in each of these periods was immaterial to our Consolidated Financial Statements.

Impairment of Goodwill

As of December 26, 2015, we had $120.3 million of recorded goodwill from our business acquisitions, representing the excess of the purchase price over the fair value of the net assets we have acquired.  During 2015 we recorded $21.2 million in additional goodwill associated with our Great Lakes and Turbotec acquisitions.
Goodwill is subject to impairment testing, which is performed annually as of the first day of the fourth quarter unless circumstances indicate the need to accelerate the timing of the tests.  These circumstances include a significant change in the business climate, operating performance indicators, competition, or sale or disposition of a significant portion of one of our businesses.  In our evaluation of goodwill impairment, we perform a qualitative assessment at the reporting unit level that requires management judgment and the use of estimates to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount.  If the qualitative assessment is not conclusive, we proceed to a two-step process to test goodwill for impairment.  The first step is to compare the fair value of the reporting unit to its carrying value (including attributable goodwill).  If this process indicates that the fair value is less than the carrying value, a second step of impairment testing is performed to measure the potential amount of goodwill impairment loss.  In step two, we allocate the fair value of the reporting unit determined in step one to its assets and liabilities as if it had just been acquired in a business combination and the purchase price was equivalent to the fair value of the reporting unit.  The excess of the fair value of the reporting unit over the amount assigned to its assets and liabilities is referred to as the implied fair value of goodwill.  The implied fair value of goodwill is then compared to the actual carrying value of goodwill.  If the implied fair value is less than the carrying value, we would be required to recognize an impairment loss for that excess.
We identify reporting units by evaluating components of our operating segments and combining those components with similar economic characteristics.  Reporting units with significant recorded goodwill include SPD, Great Lakes, European Operations, Westermeyer (reported in the EPD operating segment), and Turbotec, (reported in the EPD operating segment).
The fair value of each reporting unit is estimated using a combination of the income and market approaches, incorporating market participant considerations and management's assumptions on revenue growth rates, operating margins, discount rates and expected capital expenditures. Estimates used by management can significantly affect the outcome of the impairment test.  Changes in forecasted operating results and other assumptions could materially affect these estimates.
 
F - 13

We evaluated each reporting unit during the fourth quarters of 2015 and 2014, as applicable. The estimated fair value of each of these reporting units exceeded its carrying values in 2015 and 2014, and we do not believe that any of these reporting units were at risk of impairment as of December 26, 2015.

Environmental Reserves

We recognize an environmental reserve when it is probable that a loss is likely to occur and the amount of the loss is reasonably estimable.  We estimate the duration and extent of our remediation obligations based upon reports of outside consultants; internal analyses of cleanup costs; communications with regulatory agencies; and changes in environmental law.  If we were to determine that our estimates of the duration or extent of our environmental obligations were no longer accurate, we would adjust our environmental reserve accordingly in the period that such determination is made.  Estimated future expenditures for environmental remediation are not discounted to their present value.  Accrued environmental liabilities are not reduced by potential insurance reimbursements.

Environmental expenses that relate to ongoing operations are included as a component of cost of goods sold.  Environmental expenses related to non-operating properties are included in other income, net in the Consolidated Statements of Income.

Income Taxes

We estimate total income tax expense based on domestic and international statutory income tax rates in the tax jurisdictions where we operate, permanent differences between financial reporting and tax reporting, and available credits and incentives.

Deferred income tax assets and liabilities are recognized for the future tax effects of temporary differences between the treatment of certain items for financial statement and tax purposes using tax rates in effect for the years in which the differences are expected to reverse.  Realization of certain components of deferred tax assets is dependent upon the occurrence of future events.  

Valuation allowances are recorded when, in the opinion of management, it is more likely than not that all or a portion of the deferred tax assets will not 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 our judgment, estimates, and assumptions.  In the event we were to determine that we would not be able to realize all or a portion of the net deferred tax assets in the future, we would increase the valuation allowance through a charge to income tax expense in the period that such determination is made.  Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future, in excess of the net carrying amounts, we would decrease the recorded valuation allowance through a decrease to income tax expense in the period that such determination is made.

We record liabilities for known or anticipated tax issues based on our analysis of whether, and the extent to which, additional taxes will be due.  These unrecognized tax benefits are retained until the associated uncertainty is resolved.  Tax benefits for uncertain tax positions that are recognized in the Consolidated 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 we prevail in matters for which a liability for an uncertain tax position is established or are required to pay amounts in excess of the liability, our effective tax rate in a given period may be materially affected.

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, and may be influenced by factors that could cause actual outcomes and results to be materially different from those predicted.  The forward-looking statements reflect knowledge and information available as of the date of preparation of the Annual Report, and the Company undertakes no obligation to update these forward-looking statements.  We identify the forward-looking statements by using the words "anticipates," "believes," "expects," "intends" or similar expressions in such statements.
 
F - 14

In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statement identifying important economic, political, and technological factors, among others, which could cause actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.  In addition to those factors discussed under "Risk Factors" in this Annual Report on Form 10-K, such factors include: (i) the current and projected future business environment, including interest rates and capital and consumer spending; (ii) the domestic housing and commercial construction industry environment; (iii) availability and price fluctuations in commodities (including copper, natural gas, and other raw materials, including crude oil that indirectly affects plastic resins); (iv) competitive factors and competitor responses to the Company's initiatives; (v) stability of government laws and regulations, including taxes; (vi) availability of financing; and (vii) continuation of the environment to make acquisitions, domestic and foreign, including regulatory requirements and market values of candidates.
 
F - 15

MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 26, 2015, December 27, 2014, and December 28, 2013

(In thousands, except per share data)
 
2015
   
2014
   
2013
 
 
 
   
   
 
Net sales
 
$
2,100,002
   
$
2,364,227
   
$
2,158,541
 
 
                       
Cost of goods sold
   
1,809,702
     
2,043,719
     
1,862,089
 
Depreciation and amortization
   
34,608
     
33,735
     
32,394
 
Selling, general, and administrative expense
   
130,358
     
131,740
     
134,914
 
Insurance settlements
   
     
     
(106,332
)
Gain on sale of assets
   
(15,376
)
   
(6,259
)
   
(39,765
)
Impairment charges
   
     
     
4,304
 
Severance
   
3,442
     
7,296
     
 
 
                       
Operating income
   
137,268
     
153,996
     
270,937
 
 
                       
Interest expense
   
(7,667
)
   
(5,740
)
   
(3,990
)
Other income (expense), net
   
2,188
     
(243
)
   
4,451
 
 
                       
Income before income taxes
   
131,789
     
148,013
     
271,398
 
 
                       
Income tax expense
   
(43,382
)
   
(45,479
)
   
(98,109
)
 
                       
Consolidated net income
   
88,407
     
102,534
     
173,289
 
 
                       
Less net income attributable to noncontrolling interest
   
(543
)
   
(974
)
   
(689
)
 
                       
Net income attributable to Mueller Industries, Inc.
 
$
87,864
   
$
101,560
   
$
172,600
 
 
                       
Weighted average shares for basic earnings per share
   
56,316
     
56,042
     
55,742
 
Effect of dilutive stock-based awards
   
652
     
726
     
742
 
 
                       
Adjusted weighted average shares for diluted earnings per share
   
56,968
     
56,768
     
56,484
 
 
                       
Basic earnings per share
 
$
1.56
   
$
1.81
   
$
3.10
 
 
                       
Diluted earnings per share
 
$
1.54
   
$
1.79
   
$
3.06
 
 
                       
Dividends per share
 
$
0.30
   
$
0.30
   
$
0.25
 
 
                       
See accompanying notes to consolidated financial statements.
 
 
F - 16

MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 26, 2015, December 27, 2014, and December 28, 2013


(In thousands)
 
2015
   
2014
   
2013
 
 
 
   
   
 
Consolidated net income
 
$
88,407
   
$
102,534
   
$
173,289
 
 
                       
Other comprehensive (loss) income, net of tax:
                       
Foreign currency translation
   
(19,108
)
   
(6,766
)
   
3,285
 
Net change with respect to derivative instruments and hedging activities(1)
   
(1,056
)
   
(2,499
)
   
1,713
 
Net actuarial gain (loss) on pension and postretirement
obligations(2)
   
6,735
     
(23,006
)
   
27,369
 
Other, net
   
(49
)
   
15
     
151
 
 
                       
Total other comprehensive (loss) income
   
(13,478
)
   
(32,256
)
   
32,518
 
 
                       
Comprehensive income
   
74,929
     
70,278
     
205,807
 
Comprehensive loss (income) attributable to noncontrolling interest
   
867
     
(822
)
   
(1,404
)
 
                       
Comprehensive income attributable to Mueller Industries, Inc.
 
$
75,796
   
$
69,456
   
$
204,403
 
 
                       
See accompanying notes to consolidated financial statements.
 
 
(1) Net of taxes of $575 in 2015, $1,362 in 2014, and $(962) in 2013
 
 
(2) Net of taxes of $(3,221) in 2015, $10,180 in 2014, and $(15,015) in 2013
 

 
F - 17

MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
As of December 26, 2015 and December 27, 2014

(In thousands, except share data)
 
2015
   
2014
 
Assets
 
   
 
Current assets:
 
   
 
Cash and cash equivalents
 
$
274,844
   
$
352,134
 
Accounts receivable, less allowance for doubtful accounts of  $623 in 2015 and $666 in 2014
   
251,571
     
275,065
 
Inventories
   
239,378
     
256,585
 
Other current assets
   
34,608
     
57,429
 
 
               
Total current assets
   
800,401
     
941,213
 
 
               
Property, plant, and equipment, net
   
280,224
     
245,910
 
Goodwill, net
   
120,252
     
102,909
 
Intangible assets
   
40,636
     
18,464