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EX-32.2 - EXHIBIT 32.2 - MUELLER INDUSTRIES INCcopyofexhibit322.htm
EX-32.1 - EXHIBIT 32.1 - MUELLER INDUSTRIES INCcopyofexhibit321.htm
EX-31.2 - EXHIBIT 31.2 - MUELLER INDUSTRIES INCcopyofexhibit312.htm
EX-31.1 - EXHIBIT 31.1 - MUELLER INDUSTRIES INCcopyofexhibit311.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
July 1, 2017
Commission file number 1–6770
mlia03.jpg
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)

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes   ☒    No   ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer    ☒
Accelerated filer    ☐
Non-accelerated filer    ☐
Smaller reporting company    ☐
 
Emerging growth company    ☐

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

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

The number of shares of the Registrant’s common stock outstanding as of July 21, 2017 was 57,627,171.
 



MUELLER INDUSTRIES, INC.

FORM 10-Q

For the Quarterly Period Ended July 1, 2017

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


INDEX
 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I. FINANCIAL INFORMATION
Item 1.  Financial Statements

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

 
 
For the Quarter Ended
 
For the Six Months Ended
(In thousands, except per share data)
 
July 1, 2017
 
July 2, 2016
 
July 1, 2017
 
July 2, 2016
 
 
 
 
 
 
 
 
 
Net sales
 
$
614,266

 
$
544,071

 
$
1,192,186

 
$
1,076,880

 
 
 
 
 
 
 
 
 
Cost of goods sold
 
524,311

 
456,060

 
1,012,738

 
902,702

Depreciation and amortization
 
8,595

 
9,061

 
16,950

 
17,981

Selling, general, and administrative expense
 
34,557

 
34,514

 
70,088

 
70,294

 
 
 
 
 
 
 
 
 
Operating income
 
46,803

 
44,436

 
92,410

 
85,903

 
 
 
 
 
 
 
 
 
Interest expense
 
(6,442
)
 
(1,692
)
 
(8,973
)
 
(3,540
)
Other income, net
 
231

 
515

 
782

 
760

 
 
 
 
 
 
 
 
 
Income before income taxes
 
40,592

 
43,259

 
84,219

 
83,123

 
 
 
 
 
 
 
 
 
Income tax expense
 
(12,650
)
 
(14,005
)
 
(24,579
)
 
(28,126
)
(Loss) income from unconsolidated affiliates, net of tax
 
(109
)
 
(995
)
 
(1,352
)
 
1,927

 
 
 
 
 
 
 
 
 
Consolidated net income
 
27,833

 
28,259

 
58,288

 
56,924

 
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
(200
)
 
(462
)
 
(668
)
 
(497
)
 
 
 
 
 
 
 
 
 
Net income attributable to Mueller Industries, Inc.
 
$
27,633

 
$
27,797

 
$
57,620

 
$
56,427

 
 
 
 
 
 
 
 
 
Weighted average shares for basic earnings per share
 
56,906

 
56,511

 
56,843

 
56,489

Effect of dilutive stock-based awards
 
511

 
418

 
585

 
456

 
 
 
 
 
 
 
 
 
Adjusted weighted average shares for diluted earnings per share
 
57,417

 
56,929

 
57,428

 
56,945

 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.49

 
$
0.49

 
$
1.01

 
$
1.00

 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
0.48

 
$
0.49

 
$
1.00

 
$
0.99

 
 
 
 
 
 
 
 
 
Dividends per share
 
$
0.100

 
$
0.100

 
$
8.200

 
$
0.175


See accompanying notes to condensed consolidated financial statements.


3


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

 
 
For the Quarter Ended
 
For the Six Months Ended
(In thousands)
 
July 1, 2017
 
July 2, 2016
 
July 1, 2017
 
July 2, 2016
 
 
 
 
 
 
 
 
 
Consolidated net income
 
$
27,833

 
$
28,259

 
$
58,288

 
$
56,924

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 

 
 

 
 

 
 

Foreign currency translation
 
906

 
(10,186
)
 
8,116

 
(11,297
)
Net change with respect to derivative instruments and hedging activities, net of tax of $(89), $(266), $(185), $(487)
 
261

 
700

 
317

 
1,294

Net change in pension and postretirement obligation adjustments, net of tax of $172, $(522), $183, $(920)
 
(405
)
 
1,530

 
(365
)
 
2,702

Attributable to unconsolidated affiliates, net of tax of $(704), $(812), $199, $(812)
 
1,247

 
1,438

 
(351
)
 
1,438

Other, net
 
(236
)
 
9

 
(380
)
 
23

 
 
 
 
 
 
 
 
 
Total other comprehensive income (loss), net
 
1,773

 
(6,509
)
 
7,337

 
(5,840
)
 
 
 
 
 
 
 
 
 
Consolidated comprehensive income
 
29,606

 
21,750

 
65,625

 
51,084

Comprehensive (income) loss attributable to noncontrolling interests
 
(386
)
 
123

 
(1,503
)
 
862

 
 
 
 
 
 
 
 
 
Comprehensive income attributable to Mueller Industries, Inc.
 
$
29,220

 
$
21,873

 
$
64,122

 
$
51,946


See accompanying notes to condensed consolidated financial statements.





4


MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
 
July 1,
2017
 
December 31, 2016
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
167,555

 
$
351,317

Accounts receivable, less allowance for doubtful accounts of $834 in 2017 and $637 in 2016
 
287,829

 
256,291

Inventories
 
252,799

 
242,013

Other current assets
 
35,568

 
44,702

 
 
 
 
 
Total current assets
 
743,751

 
894,323

 
 
 
 
 
Property, plant, and equipment, net
 
284,594

 
295,231

Goodwill, net
 
137,085

 
123,993

Intangible assets, net
 
36,332

 
36,168

Investment in unconsolidated affiliates
 
75,208

 
77,110

Other assets
 
20,294

 
20,651

 
 
 
 
 
Total assets
 
$
1,297,264

 
$
1,447,476

 
 
 
 
 
Liabilities
 
 

 
 

Current liabilities:
 
 

 
 

Current portion of debt
 
$
14,583

 
$
13,655

Accounts payable
 
105,880

 
103,175

Accrued wages and other employee costs
 
30,894

 
35,121

Other current liabilities
 
67,841

 
67,041

 
 
 
 
 
Total current liabilities
 
219,198

 
218,992

 
 
 
 
 
Long-term debt, less current portion
 
489,043

 
213,709

Pension liabilities
 
14,823

 
14,890

Postretirement benefits other than pensions
 
16,793

 
16,383

Environmental reserves
 
20,859

 
21,208

Deferred income taxes
 
19,351

 
19,573

Other noncurrent liabilities
 
11,191

 
6,284

 
 
 
 
 
Total liabilities
 
791,258

 
511,039

 
 
 
 
 
Equity
 
 

 
 

Mueller Industries, Inc. stockholders' equity:
 
 

 
 

Preferred stock - $1.00 par value; shares authorized 5,000,000; none outstanding
 

 

Common stock - $.01 par value; shares authorized 100,000,000; issued 80,183,004; outstanding 57,624,926 in 2017 and 57,395,209 in 2016
 
802

 
802

Additional paid-in capital
 
274,750

 
273,345

Retained earnings
 
727,110

 
1,141,831

Accumulated other comprehensive loss
 
(60,454
)
 
(66,956
)
Treasury common stock, at cost
 
(448,837
)
 
(450,338
)
 
 
 
 
 
Total Mueller Industries, Inc. stockholders' equity
 
493,371

 
898,684

Noncontrolling interests
 
12,635

 
37,753

 
 
 
 
 
Total equity
 
506,006

 
936,437

 
 
 
 
 
Commitments and contingencies
 

 

Total liabilities and equity
 
$
1,297,264

 
$
1,447,476

See accompanying notes to condensed consolidated financial statements.

5


MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
For the Six Months Ended
(In thousands)
 
July 1, 2017
 
July 2, 2016
 
 
 
 
 
Cash flows from operating activities
 
 
 
 
Consolidated net income
 
$
58,288

 
$
56,924

Reconciliation of consolidated net income to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
17,093

 
18,162

Stock-based compensation expense
 
3,692

 
2,874

Loss (income) from unconsolidated affiliates
 
1,352

 
(1,927
)
Gain on sale of business
 
(1,631
)
 

Loss (gain) on disposals of assets
 
81

 
(555
)
Gain on sales of securities
 
(611
)
 

Impairment charges
 
411

 

Deferred income taxes
 
3

 
3,548

Income tax benefit from exercise of stock options
 

 
(186
)
Changes in assets and liabilities, net of businesses acquired and sold:
 
 

 
 

Receivables
 
(47,108
)
 
(52,334
)
Inventories
 
(10,874
)
 
1,176

Other assets
 
(4,723
)
 
17,009

Current liabilities
 
(1,262
)
 
(1,314
)
Other liabilities
 
(1,086
)
 
(1,440
)
Other, net
 
(1,078
)
 
(72
)
 
 
 
 
 
Net cash provided by operating activities
 
12,547

 
41,865

 
 
 
 
 
Cash flows from investing activities
 
 

 
 

Capital expenditures
 
(11,908
)
 
(10,248
)
Acquisition of businesses, net of cash acquired
 
(18,419
)
 
(20,533
)
Proceeds from sale of business, net of cash sold
 
17,483

 

Net withdrawals from restricted cash balances
 
4,650

 
1,508

Investment in unconsolidated affiliates
 
(1,617
)
 

Proceeds from sales of assets
 
1,363

 
1,482

Proceeds from sales of securities
 
1,787

 

 
 
 
 
 
Net cash used in investing activities
 
(6,661
)
 
(27,791
)
 
 
 
 
 
Cash flows from financing activities
 
 

 
 

Dividends paid to stockholders of Mueller Industries, Inc.
 
(185,539
)
 
(9,887
)
Dividends paid to noncontrolling interests
 
(2,909
)
 

Issuance of long-term debt
 

 
2,000

(Repayment) issuance of debt by consolidated joint ventures, net
 
(3,320
)
 
4,426

Net cash (used) received to settle stock-based awards
 
(785
)
 
326

Repayments of long-term debt
 
(611
)
 
(500
)
Income tax benefit from exercise of stock options
 

 
186

 
 
 
 
 
Net cash used in financing activities
 
(193,164
)
 
(3,449
)
 
 
 
 
 
Effect of exchange rate changes on cash
 
3,516

 
(2,308
)
 
 
 
 
 
(Decrease) increase in cash and cash equivalents
 
(183,762
)
 
8,317

Cash and cash equivalents at the beginning of the period
 
351,317

 
274,844

 
 
 
 
 
Cash and cash equivalents at the end of the period
 
$
167,555

 
$
283,161

See accompanying notes to condensed consolidated financial statements. Refer to Note 2 for discussion of significant noncash financing activities.

6


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

General

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

The accompanying unaudited interim financial statements include all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented herein.  The first half of 2017 contained 26 weeks, while the first half of 2016 contained 27 weeks.

Note 1 – Earnings per Common Share

Basic per share amounts have been computed based on the average number of common shares outstanding.  Diluted per share amounts reflect the increase in average common shares outstanding that would result from the assumed exercise of outstanding stock options and vesting of restricted stock awards, computed using the treasury stock method.  Approximately four thousand and 418 thousand stock-based awards were excluded from the computation of diluted earnings per share for the quarters ended July 1, 2017 and July 2, 2016, respectively, because they were antidilutive.

Note 2 – Special Dividend

On March 9, 2017, the Company distributed a special dividend of $3.00 in cash and $5.00 in principal amount of the Company’s 6% Subordinated Debentures (Debentures) due March 1, 2027 for each share of common stock outstanding. Interest on the Debentures is payable semiannually on September 1 and March 1, commencing September 1, 2017. At issuance, the Debentures were recorded at their estimated fair value.  The fair value of the Debentures was estimated based on quoted market prices for the same or similar issues, the current rates offered to the Company for debt of the same remaining maturities, or the use of market standard models.  The carrying value of the Debentures approximate fair value at July 1, 2017.

The Debentures are subordinated to all other funded debt of the Company and are callable, in whole or in part, at any time at the option of the Company, subject to declining call premiums during the first five years. The Debentures also grant each holder the right to require the Company to repurchase such holder’s Debentures in the event of a change in control at declining repurchase premiums during the first five years. The Debentures may be redeemed, subject to the conditions set forth above, at the following redemption price (expressed as a percentage of principal amount) plus any accrued but unpaid interest to, but excluding, the redemption date:

If redeemed during the 12-month period beginning March 9:

Year
 
Redemption Price
 
 
 
2017
 
106%
2018
 
105
2019
 
104
2020
 
103
2021
 
102
2022 and thereafter
 
100

The effect of the special dividend was a decrease in stockholders’ equity of approximately $458.7 million, an increase in long-term debt of approximately $284.5 million, and a decrease in cash of approximately $174.2 million.




7


Note 3 – Acquisitions and Dispositions

Acquisitions

On May 31, 2017, the Company entered into a share purchase agreement pursuant to which the Company acquired all of the outstanding shares of Pexcor Manufacturing Company Inc. (Pexcor) and Heatlink Group Inc. (Heatlink) for approximately $18.5 million, net of working capital adjustments. The total purchase price consisted of $16.3 million in cash at closing and a contingent consideration arrangement which requires the Company to pay the former owners up to $2.2 million based on EBITDA growth of the acquired companies. Pexcor and Heatlink, based out of Calgary, Canada, produce and sell a complete line of products for PEX plumbing and radiant systems. These businesses complement the Company’s existing businesses within the Piping Systems segment.

The fair value of the assets acquired totaled $10.6 million, consisting primarily of inventories of $4.7 million, accounts receivable of $2.9 million, property, plant, and equipment of $2.0 million, other current assets of $0.5 million, and other assets of $0.5 million. The fair value of the liabilities assumed totaled $3.9 million, consisting primarily of accounts payable of $3.6 million and other liabilities of $0.3 million. Of the remaining purchase price, $11.8 million was allocated to non-deductible goodwill and intangible assets. The purchase price allocation is provisional as of July 1, 2017 and subject to change upon completion of the final valuation of the long-lived assets, working capital, and contingent consideration during the measurement period.

On April 26, 2016, the Company entered into an agreement pursuant to which the Company acquired a 60 percent equity interest in Jungwoo Metal Ind. Co., LTD (Jungwoo-Mueller) for approximately $20.5 million in cash.  Jungwoo-Mueller, which manufactures copper-based pipe joining products, is headquartered in Seoul, South Korea and serves markets worldwide.  This business complements the Company’s existing copper fittings business in the Piping Systems segment and is reported in the Company’s Condensed Consolidated Financial Statements one month in arrears.

The fair value of the assets acquired totaled $49.0 million, consisting primarily of property, plant, and equipment of $24.2 million, inventories of $17.6 million, accounts receivable of $5.6 million, other current assets of $1.4 million, and deferred tax assets of $0.2 million.  The fair value of the liabilities assumed totaled $17.9 million, consisting primarily of long-term debt of $8.7 million, accounts payable of $7.3 million, pension liabilities of $0.8 million, other current liabilities of $0.5 million, and other liabilities of $0.6 million.  Of the remaining purchase price, $1.0 million was allocated to non-deductible goodwill and intangible assets.  The noncontrolling interest in Jungwoo-Mueller is $11.6 million.  The valuation of the business has been finalized. Changes to the purchase price allocation from the amounts presented in the Company’s 2016 Annual Report on Form 10-K were immaterial.

Dispositions

On June 21, 2017, the Company entered into a definitive equity transfer agreement with Jiangsu Xingrong Hi-Tech Co. Ltd. and Jiangsu Baiyang Industries Co. Ltd. (Baiyang), together, the minority partners in Mueller-Xingrong (the Company’s Chinese joint venture), pursuant to which the Company sold its 50.5 percent equity interest in Mueller-Xingrong to Baiyang for approximately $18.3 million. Mueller-Xingrong manufactures engineered copper tube primarily for air-conditioning applications in China and was included in the Piping Systems segment. Mueller-Xingrong reported net sales of $67.3 million and net losses of $9 thousand in the first half of 2017 compared to net sales of $69.6 million and net income of $426 thousand in the first half of 2016. The carrying value of the assets disposed totaled $56.7 million, consisting primarily of accounts receivable, inventories, and long-lived assets. The carrying value of the liabilities disposed (consisting primarily of current debt and accounts payable), noncontrolling interest, and amounts recognized in accumulated other comprehensive income (AOCI) totaled $36.2 million. Since the disposal constituted a complete liquidation of the Company’s investment in a foreign entity, the Company removed from AOCI and recognized a cumulative translation gain of $3.8 million. As a result of the disposal, the Company recognized a net gain on the sale of this business of $1.6 million as a reduction of selling, general, and administrative expense in the Condensed Consolidated Financial Statements.

Note 4 –Segment Information

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

Piping Systems

Piping Systems is composed of the following operating segments: Domestic Piping Systems Group, Great Lakes Copper, Pexcor & Heatlink, European Operations, Trading Group, and Jungwoo-Mueller (the Company’s South Korean joint venture).  The Domestic Piping Systems Group manufactures copper tube and fittings, plastic fittings, and line sets.  These products are

8


manufactured in the U.S., sold in the U.S, and exported to markets worldwide.   Outside the U.S., Great Lakes Copper manufactures copper tube and line sets and sells the products primarily in the U.S. and Canada, Pexcor & Heatlink produce a complete line of products for PEX plumbing and radiant systems in Canada, and the European Operations manufacture copper tube in the U.K. which is sold primarily in Europe.  The Trading Group manufactures pipe nipples and imports and resells brass and plastic plumbing valves, malleable iron fittings, faucets, and plumbing specialty products in the U.S. and Mexico.  Jungwoo-Mueller manufactures copper-based joining products that are sold worldwide.  The Piping Systems segment’s products are sold primarily to plumbing, refrigeration, and air-conditioning wholesalers, hardware wholesalers and co-ops, building product retailers, and air-conditioning original equipment manufacturers (OEMs).

The Company disposed of Mueller-Xingrong (the Company’s Chinese joint venture) on June 21, 2017. This business manufactures engineered copper tube primarily for air-conditioning applications in China.

Industrial Metals

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

Climate

Climate is composed of the following operating segments: Refrigeration Products, Fabricated Tube Products, Westermeyer, and Turbotec.  These domestic businesses manufacture and fabricate valves, assemblies, high pressure components, and coaxial heat exchangers primarily for the heating, ventilation, air-conditioning, and refrigeration markets in the U.S.

Summarized segment information is as follows:

 
 
For the Quarter Ended July 1, 2017
(In thousands)
 
Piping Systems
 
Industrial Metals
 
Climate
 
Corporate and Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
422,844

 
$
154,504

 
$
36,636

 
$
282

 
$
614,266

 
 
 
 
 
 
 
 
 
 
 
Cost of goods sold
 
364,261

 
132,972

 
27,449

 
(371
)
 
524,311

Depreciation and amortization
 
5,591

 
1,904

 
615

 
485

 
8,595

Selling, general, and administrative expense
 
18,410

 
2,864

 
2,456

 
10,827

 
34,557

 
 
 
 
 
 
 
 
 
 
 
Operating income
 
34,582

 
16,764

 
6,116

 
(10,659
)
 
46,803

 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 

 
 

 
 

 
 

 
(6,442
)
Other income, net
 
 

 
 

 
 

 
 

 
231

 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
 

 
 

 
 

 
 

 
$
40,592












9


Segment information (continued):

 
 
For the Quarter Ended July 2, 2016
(In thousands)
 
Piping Systems
 
Industrial Metals
 
Climate
 
Corporate and Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
388,662

 
$
127,737

 
$
31,359

 
$
(3,687
)
 
$
544,071

 
 
 
 
 
 
 
 
 
 
 
Cost of goods sold
 
333,356

 
104,874

 
22,448

 
(4,618
)
 
456,060

Depreciation and amortization
 
5,787

 
2,120

 
618

 
536

 
9,061

Selling, general, and administrative expense
 
16,560

 
3,619

 
2,456

 
11,879

 
34,514

 
 
 
 
 
 
 
 
 
 
 
Operating income
 
32,959

 
17,124

 
5,837

 
(11,484
)
 
44,436

 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 

 
 

 
 

 
 

 
(1,692
)
Other income, net
 
 

 
 

 
 

 
 

 
515

 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
 

 
 

 
 

 
 

 
$
43,259


 
 
For the Six Months Ended July 1, 2017
( In thousands)
 
Piping Systems
 
Industrial Metals
 
Climate
 
Corporate and Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
821,619

 
$
304,341

 
$
70,915

 
$
(4,689
)
 
$
1,192,186

 
 
 
 
 
 
 
 
 
 
 
Cost of goods sold
 
708,907

 
257,015

 
53,013

 
(6,197
)
 
1,012,738

Depreciation and amortization
 
10,933

 
3,802

 
1,244

 
971

 
16,950

Selling, general, and administrative expense
 
36,831

 
6,094

 
4,932

 
22,231

 
70,088

 
 
 
 
 
 
 
 
 
 
 
Operating income
 
64,948

 
37,430

 
11,726

 
(21,694
)
 
92,410

 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 

 
 

 
 

 
 

 
(8,973
)
Other income, net
 
 

 
 

 
 

 
 

 
782

 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
 

 
 

 
 

 
 

 
$
84,219

 
















10


Segment information (continued):

 
 
For the Six Months Ended July 2, 2016
( In thousands)
 
Piping Systems
 
Industrial Metals
 
Climate
 
Corporate and Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
757,552

 
$
262,258

 
$
62,065

 
$
(4,995
)
 
$
1,076,880

 
 
 
 
 
 
 
 
 
 
 
Cost of goods sold
 
647,148

 
214,103

 
46,153

 
(4,702
)
 
902,702

Depreciation and amortization
 
11,436

 
4,255

 
1,217

 
1,073

 
17,981

Selling, general, and administrative expense
 
34,850

 
6,864

 
4,979

 
23,601

 
70,294

 
 
 
 
 
 
 
 
 
 
 
Operating income
 
64,118

 
37,036

 
9,716

 
(24,967
)
 
85,903

 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 

 
 

 
 

 
 

 
(3,540
)
Other income, net
 
 

 
 

 
 

 
 

 
760

 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
 

 
 

 
 

 
 

 
$
83,123


Note 5 – Inventories

(In thousands)
 
July 1,
2017
 
December 31, 2016
 
 
 
 
 
Raw materials and supplies
 
$
65,739

 
$
57,387

Work-in-process
 
30,677

 
42,227

Finished goods
 
162,789

 
149,288

Valuation reserves
 
(6,406
)
 
(6,889
)
 
 
 
 
 
Inventories
 
$
252,799

 
$
242,013

 
Note 6 – Derivative Instruments and Hedging Activities

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

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

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

11



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

Commodity Futures Contracts

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

At July 1, 2017, the Company held open futures contracts to purchase approximately $14.3 million of copper over the next 11 months related to fixed price sales orders.  The fair value of those futures contracts was a $254 thousand net gain position, which was determined by obtaining quoted market prices (level 1 within the fair value hierarchy).  In the next 12 months, the Company will reclassify into earnings realized gains or losses relating to cash flow hedges.  At July 1, 2017, this amount was approximately $169 thousand of deferred net gains, net of tax.

The Company may also enter into futures contracts to protect the value of inventory against market fluctuations.  At July 1, 2017, the Company held open futures contracts to sell approximately $31.8 million of copper over the next six months related to copper inventory.  The fair value of those futures contracts was a $457 thousand net loss position, which was determined by obtaining quoted market prices (level 1 within the fair value hierarchy).

Interest Rate Swap

On February 20, 2013, the Company entered into a two-year forward-starting interest rate swap agreement with an effective date of January 12, 2015, and an underlying notional amount of $200.0 million, pursuant to which the Company receives variable interest payments based on one-month LIBOR and pays fixed interest at a rate of 1.4 percent.   Based on the Company’s current variable premium pricing on its revolving credit facility, the all-in fixed rate is 2.95 percent.  The interest rate swap will mature on December 11, 2017, and is structured to offset the interest rate risk associated with the Company’s floating-rate, LIBOR-based Credit Agreement.   The swap was designated and accounted for as a cash flow hedge at inception. During the fourth quarter of 2016, the Company discontinued hedge accounting prospectively.

The fair value of the interest rate swap is estimated based on the present value of the difference between expected cash flows calculated at the contracted interest rate and the expected cash flows at the current market interest rate using observable benchmarks for LIBOR forward rates at the end of the period (level 2 within the fair value hierarchy).  Interest payable and receivable under the swap agreement is accrued and recorded as an adjustment to interest expense.  The fair value of the interest rate swap was a $99 thousand loss position at July 1, 2017, and there was $256 thousand of deferred losses, net of tax, included in AOCI that are expected to be reclassified into interest expense over the term of the interest rate swap.

The Company presents its derivative assets and liabilities in the Condensed Consolidated Balance Sheets on a net basis by counterparty.  The following table summarizes the location and fair value of the derivative instruments and disaggregates the net derivative assets and liabilities into gross components on a contract-by-contract basis:


12


 
 
Asset Derivatives
 
Liability Derivatives
 
 
  
 
Fair Value
 
 
 
Fair Value
(In thousands)
 
Balance Sheet Location
 
July 1, 2017
 
December 31, 2016
 
Balance Sheet Location
 
July 1, 2017
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts - gains
 
Other current assets
 
$
372

 
$
1,013

 
Other current liabilities
 
$

 
$
564

Commodity contracts - losses
 
Other current assets
 
(118
)
 
(148
)
 
Other current liabilities
 
(457
)
 
(920
)
Interest rate swap
 
Other current assets
 

 

 
Other current liabilities
 
(99
)
 
(787
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Total derivatives (1)
 
 
 
$
254

 
$
865

 
 
 
$
(556
)
 
$
(1,143
)
(1) Does not include the impact of cash collateral received from or provided to counterparties.
The following tables summarize the effects of derivative instruments on the Company’s Condensed Consolidated Statements of Income:
 
 
  
 
For the Quarter Ended
 
For the Six Months Ended
(In thousands)
 
Location
 
July 1, 2017
 
July 2, 2016
 
July 1, 2017
 
July 2, 2016
Fair value hedges:
 
 
 
 
 
 
 
 
 
 
Gain (loss) on commodity contracts (qualifying)
 
Cost of goods sold
 
$

 
$
(332
)
 
$

 
$
(383
)
Gain on hedged item - inventory
 
Cost of goods sold
 

 
288

 

 
350

 
 
 
 
 
 
 
 
 
 
 
Undesignated derivatives:
 
 
 
 
 
 
 
 
 
 
Gain on commodity contracts (nonqualifying)
 
Cost of goods sold
 
672

 
1,326

 
(423
)
 
1,820


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

 
 
For the Quarter Ended July 1, 2017
(In thousands)
 
(Loss) Gain Recognized in AOCI (Effective Portion), Net of Tax
 
Classification Gains (Losses)
 
Loss Reclassified from AOCI (Effective Portion), Net of Tax
Cash flow hedges:
 
 
 
 
 
 
Commodity contracts
 
$
(250
)
 
Cost of goods sold
 
$
324

Interest rate swap
 

 
Interest expense
 
149

Other
 
38

 
Other
 

 
 
 
 
 
 
 
Total
 
$
(212
)
 
Total
 
$
473










13


Derivative Instruments and Hedging Activities (continued):

 
 
For the Quarter Ended July 2, 2016
(In thousands)
 
Gain (Loss) Recognized in AOCI (Effective Portion), Net of Tax
 
Classification Gains (Losses)
 
(Gain) Loss Reclassified from AOCI (Effective Portion), Net of Tax
Cash flow hedges:
 
 
 
 
 
 
Commodity contracts
 
$
2,464

 
Cost of goods sold
 
$
(1,359
)
Interest rate swap
 
(115
)
 
Interest expense
 
59

Other
 
(349
)
 
Other
 

 
 
 
 
 
 
 
Total
 
$
2,000

 
Total
 
$
(1,300
)
  
 
 
For the Six Months Ended July 1, 2017
( In thousands)
 
(Loss) Gain Recognized in AOCI (Effective Portion), Net of Tax
 
Classification Gains (Losses)
 
Loss Reclassified from AOCI (Effective Portion), Net of Tax
Cash flow hedges:
 
 
 
 
 
 
Commodity contracts
 
$
(813
)
 
Cost of goods sold
 
$
676

Interest rate swap
 

 
Interest expense
 
298

Other
 
156

 
Other
 

 
 
 
 
 
 
 
Total
 
$
(657
)
 
Total
 
$
974


 
 
For the Six Months Ended July 2, 2016
( In thousands)
 
Gain (Loss) Recognized in AOCI (Effective Portion), Net of Tax
 
Classification Gains (Losses)
 
(Gain) Loss Reclassified from AOCI (Effective Portion), Net of Tax
Cash flow hedges:
 
 
 
 
 
 
Commodity contracts
 
$
3,337

 
Cost of goods sold
 
$
(1,291
)
Interest rate swap
 
(585
)
 
Interest expense
 
128

Other
 
(295
)
 
Other
 

 
 
 
 
 
 
 
Total
 
$
2,457

 
Total
 
$
(1,163
)

The Company enters into futures and forward contracts that closely match the terms of the underlying transactions.  As a result, the ineffective portion of the open hedge contracts through July 1, 2017 was not material to the Condensed Consolidated Statements of Income.

The Company primarily enters into International Swaps and Derivatives Association master netting agreements with major financial institutions that permit the net settlement of amounts owed under their respective derivative contracts.  Under these master netting agreements, net settlement generally permits the Company or the counterparty to determine the net amount payable for contracts due on the same date and in the same currency for similar types of derivative transactions.  The master netting agreements generally also provide for net settlement of all outstanding contracts with a counterparty in the case of an event of default or a termination event.  The Company does not offset fair value amounts for derivative instruments and fair value amounts recognized for the right to reclaim cash collateral.  At July 1, 2017 and December 31, 2016, the Company had recorded restricted cash in other current

14


assets of $1.2 million and $1.4 million, respectively, as collateral related to open derivative contracts under the master netting arrangements.

Note 7 – Investment in Unconsolidated Affiliates

The Company owns a 50 percent interest in Tecumseh Products Holdings LLC (Joint Venture), an unconsolidated affiliate that acquired Tecumseh Products Company (Tecumseh) during the third quarter of 2015.  The Company also owns a 50 percent interest in a second unconsolidated affiliate that provided financing to Tecumseh in conjunction with the acquisition.  These investments are recorded using the equity method of accounting, as the Company can exercise significant influence but does not own a majority equity interest or otherwise control the respective entities.  Under the equity method of accounting, these investments are stated at initial cost and are adjusted for subsequent additional investments and the Company’s proportionate share of earnings or losses and distributions.

The Company records its proportionate share of the investees’ net income or loss one quarter in arrears as income (loss) from unconsolidated affiliates, net of tax, in the Condensed Consolidated Statements of Income and its proportionate share of the investees’ other comprehensive income (loss), net of income taxes, in the Condensed Consolidated Statements of Comprehensive Income. In general, the equity investment in unconsolidated affiliates is equal to the current equity investment plus the entities’ undistributed earnings. 

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

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
 
July 1,
2017
 
December 31, 2016
 
 
 
 
 
Current assets
 
$
247,006

 
$
244,323

Noncurrent assets
 
132,800

 
130,400

Current liabilities
 
168,610

 
148,806

Noncurrent liabilities
 
61,364

 
71,681


 
 
For the Quarter Ended
 
For the Six Months Ended
(In thousands)
 
July 1, 2017

 
July 2, 2016

 
July 1, 2017
 
July 2, 2016
 
 
 
 
 
 
 
 
 
Net sales
 
$
132,600

 
$
138,900

 
$
258,900

 
$
290,500

Gross profit 
 
19,600

 
19,500

 
35,200

 
37,500

Net (loss) income
 
(217
)
 
(1,990
)
 
(2,704
)
 
3,854


The Company’s income from unconsolidated affiliates, net of tax, for the six months ended July 2, 2016 included a gain of $17.1 million that resulted from the allocation of the purchase price, which was partially offset by restructuring and impairment charges of $5.3 million and net losses of $8.0 million.

On December 30, 2015, the Company entered into a joint venture agreement with Cayan Ventures and Bahrain Mumtalakat Holding Company to build a copper tube mill in Bahrain. The business will operate and brand its products under the Mueller Industries family of brands. The Company has invested approximately $2.2 million of cash to date and will be the technical and marketing lead in return for 40 percent ownership in the joint venture.










15


Note 8 – Benefit Plans

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

 
 
For the Quarter Ended
 
For the Six Months Ended
(In thousands) 
 
July 1, 2017
 
July 2, 2016
 
July 1, 2017
 
July 2, 2016
 
 
 
 
 
 
 
 
 
Pension benefits:
 
 
 
 
 
 
 
 
Service cost
 
$
36

 
$
165

 
$
71

 
$
360

Interest cost
 
1,653

 
1,969

 
3,318

 
3,944

Expected return on plan assets
 
(2,186
)
 
(2,466
)
 
(4,368
)
 
(4,932
)
Amortization of net loss
 
516

 
746

 
1,072

 
1,520

 
 
 
 
 
 
 
 
 
Net periodic benefit cost
 
$
19

 
$
414

 
$
93

 
$
892

 
 
 
 
 
 
 
 
 
Other benefits:
 
 

 
 

 
 

 
 

Service cost
 
$
53

 
$
60

 
$
109

 
$
122

Interest cost
 
146

 
149

 
295

 
305

Amortization of prior service credit
 
(226
)
 
(224
)
 
(451
)
 
(448
)
Amortization of net gain
 
(15
)
 
(20
)
 
(20
)
 
(18
)
 
 
 
 
 
 
 
 
 
Net periodic benefit income
 
$
(42
)
 
$
(35
)
 
$
(67
)
 
$
(39
)

Note 9 – Commitments and Contingencies

The Company is involved in certain litigation as a result of claims that arose in the ordinary course of business, which management believes will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.  The Company may also realize the benefit of certain legal claims and litigation in the future; these gain contingencies are not recognized in the Condensed Consolidated Financial Statements.

Lead Refinery Site
 
U.S.S. Lead Refinery, Inc. (Lead Refinery), a non-operating wholly owned subsidiary of MRRC, has conducted corrective action and interim remedial activities (collectively, Site Activities) at Lead Refinery’s East Chicago, Indiana site pursuant to the Resource Conservation and Recovery Act since December 1996. Although the Site Activities have been substantially concluded, Lead Refinery is required to perform monitoring and maintenance-related activities pursuant to a post-closure permit issued by the Indiana Department of Environmental Management effective as of March 2, 2013.  Approximate costs to comply with the post-closure permit, including associated general and administrative costs, are estimated at between $2.1 million and $4.7 million over the next 20 years.
 
On April 9, 2009, pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the U.S. Environmental Protection Agency (EPA) added the Lead Refinery site and surrounding properties to the National Priorities List (NPL).  On July 17, 2009, Lead Refinery received a written notice from the EPA indicating that it may be a PRP under CERCLA due to the release or threat of release of hazardous substances including lead into properties surrounding the Lead Refinery site.  The EPA identified two other PRPs in connection with that matter.  In November 2012, the EPA adopted a remedy for the surrounding properties and in September 2014, the EPA announced that it had entered into a settlement with the two other PRPs whereby they will pay approximately $26.0 million to fund the cleanup of approximately 300 properties surrounding the Lead Refinery site and perform certain remedial action tasks.

On November 8, 2016, the Company, its subsidiary Arava Natural Resources Company, Inc. (Arava), and Arava’s subsidiary MRRC each received general notice letters from the EPA asserting that they may be PRPs in connection with the Lead Refinery NPL site. The Company, Arava, and MRRC have denied liability for any remedial action and response costs associated with the Lead Refinery NPL site. In June 2017, the EPA requested that Lead Refinery conduct, and the Company fund, a remedial investigation and feasibility study of the Lead Refinery NPL site pursuant to a proposed administrative settlement agreement and

16


order on consent. The Company is evaluating the request. At this juncture, the Company is unable to determine the likelihood of a material adverse outcome or the amount or range of a potential loss with respect to any remedial action related to the Lead Refinery NPL site.

Equal Employment Opportunity Commission Matter

On October 5, 2016, the Company received a demand letter from the Los Angeles District Office of the United States Equal Employment Opportunity Commission (EEOC). The EEOC alleges that between May 2011 and April 2015, various Company employees were terminated in violation of the Americans with Disabilities Act, and that certain of the Company’s employee leave and attendance policies were discriminatory in nature. On that basis, the EEOC’s letter includes a demand for monetary relief on behalf of an identified class of 20 individuals, and an unidentified class of 150 individuals, in addition to injunctive relief.

The Company believes the EEOC’s allegations are without merit. Notwithstanding the Company’s position, in consultation with its liability insurers, the Company entered into a conciliation process with the EEOC for purposes of resolving the claims. On April 12, 2017, the Company received a letter from the EEOC stating that the conciliation process had concluded without a resolution of the claims, and that the matter would be referred to its Legal Department for potential litigation. Due to the procedural stage of this matter, the Company is unable to determine the likelihood of a material adverse outcome in this matter, or the amount or range of a potential loss in excess of any available insurance coverage.

Guarantees

Guarantees, in the form of letters of credit, are issued by the Company generally to assure the payment of insurance deductibles and certain retiree health benefits.  The terms of the guarantees are generally one year but are renewable annually as required.  These letters are primarily backed by the Company’s revolving credit facility.  The maximum payments that the Company could be required to make under its guarantees at July 1, 2017 were $8.3 million.

Note 10 – Income Taxes

The Company’s effective tax rate for the second quarter of 2017 was 31 percent compared with 32 percent for the same period last year.  The items impacting the effective tax rate for the second quarter of 2017 were primarily attributable to reductions for the U.S. production activities deduction of $0.9 million and the effect of foreign tax rates lower than statutory tax rates of $1.6 million. These items were partially offset by the provision for state income taxes, net of the federal benefit, of $0.8 million and miscellaneous items totaling $0.2 million.

For the second quarter of 2016, the difference between the effective tax rate and the amount computed using the U.S. federal statutory rate was primarily attributable to reductions for the U.S. production activities deduction of $1.0 million and the effect of foreign tax rates lower than statutory rates of $1.4 million. These items were partially offset by the provision for state income taxes, net of the federal benefit, of $0.8 million and miscellaneous items totaling $0.5 million.

The Company’s effective tax rate for the first half of 2017 was 29 percent compared with 34 percent for the same period last year.  The items impacting the effective tax rate for the first half of 2017 were primarily attributable to reductions for the U.S. production activities deduction of $1.8 million; the effect of foreign tax rates lower than statutory tax rates of $3.0 million; the tax benefit of equity compensation deductions of $1.7 million; and the impact of investments in unconsolidated affiliates of $0.8 million.  These items were partially offset by the provision for state income taxes, net of the federal benefit, of $1.7 million and miscellaneous items totaling $0.7 million.

For the first half of 2016, the difference between the effective tax rate and the amount computed using the U.S. federal statutory tax rate was primarily attributable to reductions for the U.S. production activities deduction of $1.9 million and the effect of foreign tax rates lower than statutory rates of $2.5 million.  These items were partially offset by the provision for state income taxes, net of the federal benefit, of $1.7 million and miscellaneous items totaling $1.7 million.

The Company files a consolidated U.S. federal income tax return and numerous consolidated and separate-company income tax returns in many state, local, and foreign jurisdictions.  The statute of limitations is open for the Company’s federal tax return and most state income tax returns for 2013 and all subsequent years and is open for certain state and foreign returns for earlier tax years due to ongoing audits and differing statute periods.  While the Company believes that it is adequately reserved for possible future audit adjustments, the final resolution of these examinations cannot be determined with certainty and could result in final settlements that differ from current estimates.



17


Note 11 – Accumulated Other Comprehensive Income

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

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

 
 
For the Six Months Ended July 1, 2017
(In thousands)
 
Cumulative Translation Adjustment
 
Unrealized (Loss) Gain on Derivatives
 
Pension/OPEB Liability Adjustment
 
Unrealized Gain (Loss) on Equity Securities
 
Attributable to Unconsol. Affiliates
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2016
 
$
(49,965
)
 
$
(300
)
 
$
(23,046
)
 
380

 
$
5,975

 
$
(66,956
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications
 
11,058

 
(657
)
 
(856
)
 
(1
)
 
(351
)
 
9,193

Amounts reclassified from AOCI
 
(3,777
)
 
974

 
491

 
(379
)
 

 
(2,691
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net current-period other comprehensive income (loss)
 
7,281

 
317

 
(365
)
 
(380
)
 
(351
)
 
6,502

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of July 1, 2017
 
$
(42,684
)
 
$
17

 
$
(23,411
)
 

 
$
5,624

 
$
(60,454
)
  
 
 
For the Six Months Ended July 2, 2016
(In thousands)
 
Cumulative Translation Adjustment
 
Unrealized (Loss) Gain on Derivatives
 
Pension/OPEB Liability Adjustment
 
Unrealized Gain on Equity Securities
 
Attributable to Unconsol. Affiliates
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 26, 2015
 
$
(24,773
)
 
$
(2,009
)
 
$
(28,429
)
 
221

 
$

 
$
(54,990
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive (loss) income before reclassifications
 
(9,939
)
 
2,457

 
1,910

 
23

 
1,438

 
(4,111
)
Amounts reclassified from AOCI
 

 
(1,163
)
 
792

 

 

 
(371
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net current-period other comprehensive (loss) income
 
(9,939
)
 
1,294

 
2,702

 
23

 
1,438

 
(4,482
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of July 2, 2016
 
$
(34,712
)
 
$
(715
)
 
$
(25,727
)
 
244

 
$
1,438

 
$
(59,472
)












18


Reclassification adjustments out of AOCI were as follows:

 
 
Amount reclassified from AOCI
 
 
For the Quarter Ended
 
For the Six Months Ended
 
 
( In thousands)
 
July 1, 2017
 
July 2, 2016
 
July 1, 2017
 
July 2, 2016
 
Affected line item
 
 
 
 
 
 
 
 
 
 
 
Unrealized losses (gains) on derivatives: 
 
 
 
 
 
 
 
 
 
   
Commodity contracts
 
$
602

 
$
(2,108
)
 
$
1,024

 
$
(1,871
)
 
Cost of goods sold
Interest rate swap
 
232

 
92

 
464

 
200

 
Interest expense
 
 
(361
)
 
716

 
(514
)
 
508

 
Income tax (benefit) expense
 
 
 
 
 
 
 
 
 
 
 
 
 
$
473

 
$
(1,300
)
 
$
974

 
$
(1,163
)
 
Net of tax and noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
Amortization of net loss and prior service cost on employee benefit plans
 
$
275

 
$
502

 
$
601

 
$
1,054

 
Selling, general, and administrative
  expense
 
 
(46
)
 
(122
)
 
(110
)
 
(262
)
 
Income tax benefit
 
 
 
 
 
 
 
 
 
 
 
 
 
$
229

 
$
380

 
$
491

 
$
792

 
Net of tax and noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
Sale of available-for-sale securities
 
$
(357
)
 
$

 
$
(611
)
 
$

 
Other income
 
 
$
138

 
$

 
$
232

 
$

 
Income tax expense
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(219
)
 
$

 
$
(379
)
 
$

 
Net of tax and noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
Gain recognized upon sale of business
 
$
(3,777
)