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EX-32.2 - EXHIBIT 32.2 - MUELLER INDUSTRIES INCq32017exhibit322.htm
EX-32.1 - EXHIBIT 32.1 - MUELLER INDUSTRIES INCq32017exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - MUELLER INDUSTRIES INCq32017exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - MUELLER INDUSTRIES INCq32017exhibit311.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
September 30, 2017
Commission file number 1–6770
mlia11.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 October 20, 2017 was 57,805,254.
 



MUELLER INDUSTRIES, INC.

FORM 10-Q

For the Quarterly Period Ended September 30, 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 Nine Months Ended
(In thousands, except per share data)
 
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
 
 
 
 
 
 
 
 
 
Net sales
 
$
550,363

 
$
506,584

 
$
1,742,549

 
$
1,583,464

 
 
 
 
 
 
 
 
 
Cost of goods sold
 
471,262

 
424,668

 
1,484,000

 
1,327,370

Depreciation and amortization
 
8,266

 
9,016

 
25,216

 
26,997

Selling, general, and administrative expense
 
33,276

 
32,413

 
102,953

 
102,707

Asset impairments
 

 
3,000

 
411

 
3,000

 
 
 
 
 
 
 
 
 
Operating income
 
37,559

 
37,487

 
129,969

 
123,390

 
 
 
 
 
 
 
 
 
Interest expense
 
(5,237
)
 
(1,830
)
 
(14,210
)
 
(5,370
)
Other (expense) income, net
 
(458
)
 
120

 
324

 
880

 
 
 
 
 
 
 
 
 
Income before income taxes
 
31,864

 
35,777

 
116,083

 
118,900

 
 
 
 
 
 
 
 
 
Income tax expense
 
(8,716
)
 
(10,837
)
 
(33,295
)
 
(38,963
)
(Loss) income from unconsolidated affiliates, net of tax
 
(394
)
 
1,122

 
(1,746
)
 
3,049

 
 
 
 
 
 
 
 
 
Consolidated net income
 
22,754

 
26,062

 
81,042

 
82,986

 
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
(496
)
 
(84
)
 
(1,164
)
 
(581
)
 
 
 
 
 
 
 
 
 
Net income attributable to Mueller Industries, Inc.
 
$
22,258

 
$
25,978

 
$
79,878

 
$
82,405

 
 
 
 
 
 
 
 
 
Weighted average shares for basic earnings per share
 
56,987

 
56,631

 
56,891

 
56,536

Effect of dilutive stock-based awards
 
456

 
586

 
542

 
589

 
 
 
 
 
 
 
 
 
Adjusted weighted average shares for diluted earnings per share
 
57,443

 
57,217

 
57,433

 
57,125

 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.39

 
$
0.46

 
$
1.40

 
$
1.46

 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
0.39

 
$
0.45

 
$
1.39

 
$
1.44

 
 
 
 
 
 
 
 
 
Dividends per share
 
$
0.100

 
$
0.100

 
$
8.300

 
$
0.275


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 Nine Months Ended
(In thousands)
 
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
 
 
 
 
 
 
 
 
 
Consolidated net income
 
$
22,754

 
$
26,062

 
$
81,042

 
$
82,986

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 

 
 

 
 

 
 

Foreign currency translation
 
7,154

 
(4,304
)
 
15,270

 
(15,601
)
Net change with respect to derivative instruments and hedging activities, net of tax of $23, $(119), $(162), $(606)
 
(132
)
 
(139
)
 
185

 
1,155

Net change in pension and postretirement obligation adjustments, net of tax of $102, $(255), $285, $(1,175)
 
(207
)
 
743

 
(572
)
 
3,445

Attributable to unconsolidated affiliates, net of tax of $415, $(2,888), $614, $(3,700)
 
(735
)
 
5,112

 
(1,086
)
 
6,550

Other, net
 

 
54

 
(380
)
 
77

 
 
 
 
 
 
 
 
 
Total other comprehensive income (loss), net
 
6,080

 
1,466

 
13,417

 
(4,374
)
 
 
 
 
 
 
 
 
 
Consolidated comprehensive income
 
28,834

 
27,528

 
94,459

 
78,612

Comprehensive (income) loss attributable to noncontrolling interests
 
(499
)
 
(480
)
 
(2,002
)
 
382

 
 
 
 
 
 
 
 
 
Comprehensive income attributable to Mueller Industries, Inc.
 
$
28,335

 
$
27,048

 
$
92,457

 
$
78,994


See accompanying notes to condensed consolidated financial statements.





4


MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
 
September 30,
2017
 
December 31, 2016
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
106,344

 
$
351,317

Accounts receivable, less allowance for doubtful accounts of $854 in 2017 and $637 in 2016
 
276,678

 
256,291

Inventories
 
284,114

 
242,013

Other current assets
 
25,692

 
44,702

 
 
 
 
 
Total current assets
 
692,828

 
894,323

 
 
 
 
 
Property, plant, and equipment, net
 
283,845

 
295,231

Goodwill, net
 
139,445

 
123,993

Intangible assets, net
 
36,943

 
36,168

Investment in unconsolidated affiliates
 
73,664

 
77,110

Other assets
 
22,499

 
20,651

 
 
 
 
 
Total assets
 
$
1,249,224

 
$
1,447,476

 
 
 
 
 
Liabilities
 
 

 
 

Current liabilities:
 
 

 
 

Current portion of debt
 
$
14,450

 
$
13,655

Accounts payable
 
125,032

 
103,175

Accrued wages and other employee costs
 
34,096

 
35,121

Other current liabilities
 
71,581

 
67,041

 
 
 
 
 
Total current liabilities
 
245,159

 
218,992

 
 
 
 
 
Long-term debt, less current portion
 
388,818

 
213,709

Pension liabilities
 
14,947

 
14,890

Postretirement benefits other than pensions
 
16,930

 
16,383

Environmental reserves
 
21,365

 
21,208

Deferred income taxes
 
19,963

 
19,573

Other noncurrent liabilities
 
12,005

 
6,284

 
 
 
 
 
Total liabilities
 
719,187

 
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 57,804,707 in 2017 and 57,395,209 in 2016
 
802

 
802

Additional paid-in capital
 
272,667

 
273,345

Retained earnings
 
743,560

 
1,141,831

Accumulated other comprehensive loss
 
(54,377
)
 
(66,956
)
Treasury common stock, at cost
 
(445,749
)
 
(450,338
)
 
 
 
 
 
Total Mueller Industries, Inc. stockholders' equity
 
516,903

 
898,684

Noncontrolling interests
 
13,134

 
37,753

 
 
 
 
 
Total equity
 
530,037

 
936,437

 
 
 
 
 
Commitments and contingencies
 

 

Total liabilities and equity
 
$
1,249,224

 
$
1,447,476

See accompanying notes to condensed consolidated financial statements.

5


MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
For the Nine Months Ended
(In thousands)
 
September 30, 2017
 
October 1,
2016
 
 
 
 
 
Cash flows from operating activities
 
 
 
 
Consolidated net income
 
$
81,042

 
$
82,986

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

 
 

Depreciation and amortization
 
25,439

 
27,267

Stock-based compensation expense
 
5,555

 
4,553

Loss (income) from unconsolidated affiliates
 
1,746

 
(3,049
)
Gain on sale of business
 
(1,491
)
 

Gain on disposals of properties
 
(26
)
 
(747
)
Gain on sales of securities
 
(611
)
 

Impairment charges
 
411

 
3,000

Deferred income taxes
 
624

 
6,491

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

 
 

Receivables
 
(33,359
)
 
(45,780
)
Inventories
 
(40,920
)
 
(914
)
Other assets
 
(3,372
)
 
14,428

Current liabilities
 
20,967

 
(15,998
)
Other liabilities
 
(1,498
)
 
(2,101
)
Other, net
 
(973
)
 
450

 
 
 
 
 
Net cash provided by operating activities
 
53,534

 
70,586

 
 
 
 
 
Cash flows from investing activities
 
 

 
 

Capital expenditures
 
(17,297
)
 
(15,632
)
Acquisition of businesses, net of cash acquired
 
(18,396
)
 
(20,533
)
Proceeds from sale of business, net of cash sold
 
17,483

 

Net withdrawals from restricted cash balances
 
5,197

 
1,177

Investment in unconsolidated affiliates
 
(3,317
)
 

Proceeds from sales of assets
 
11,732

 
5,301

Proceeds from sales of securities
 
1,787

 

 
 
 
 
 
Net cash used in investing activities
 
(2,811
)
 
(29,687
)
 
 
 
 
 
Cash flows from financing activities
 
 

 
 

Dividends paid to stockholders of Mueller Industries, Inc.
 
(191,241
)
 
(15,555
)
Dividends paid to noncontrolling interests
 
(2,909
)
 
(3,765
)
Issuance of long-term debt
 

 
2,000

(Repayment) issuance of debt by consolidated joint ventures, net
 
(3,451
)
 
5,006

Net cash used to settle stock-based awards
 
(1,644
)
 
(1,356
)
Repayments of long-term debt
 
(100,917
)
 
(769
)
 
 
 
 
 
Net cash used in financing activities
 
(300,162
)
 
(14,439
)
 
 
 
 
 
Effect of exchange rate changes on cash
 
4,466

 
(3,511
)
 
 
 
 
 
(Decrease) increase in cash and cash equivalents
 
(244,973
)
 
22,949

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

 
274,844

 
 
 
 
 
Cash and cash equivalents at the end of the period
 
$
106,344

 
$
297,793

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 nine months of 2017 contained 39 weeks, while the first nine months of 2016 contained 40 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 52 thousand and 218 thousand stock-based awards were excluded from the computation of diluted earnings per share for the quarters ended September 30, 2017 and October 1, 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 approximates fair value at September 30, 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 $10.4 million, consisting primarily of inventories of $4.5 million, accounts receivable of $2.8 million, property, plant, and equipment of $2.0 million, other current assets of $0.5 million, and other assets of $0.6 million. The fair value of the liabilities assumed totaled $4.3 million, consisting primarily of accounts payable of $3.6 million, other current liabilities of $0.4 million, and other liabilities of $0.3 million. Of the remaining purchase price, $12.4 million was allocated to non-deductible goodwill and intangible assets. The purchase price allocation is provisional as of September 30, 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 nine months of 2017 compared to net sales of $69.6 million and net income of $426 thousand in the first nine months 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 $1.5 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

8


Domestic Piping Systems Group manufactures copper tube and fittings, plastic fittings, and line sets.  These products are manufactured in the U.S., sold in the U.S, and exported to markets worldwide.   Outside the U.S., Great Lakes Copper manufactures copper tube and line sets 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 manufactured 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 September 30, 2017
(In thousands)
 
Piping Systems
 
Industrial Metals
 
Climate
 
Corporate and Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
384,078

 
$
147,578

 
$
32,488

 
$
(13,781
)
 
$
550,363

 
 
 
 
 
 
 
 
 
 
 
Cost of goods sold
 
340,191

 
120,021

 
24,111

 
(13,061
)
 
471,262

Depreciation and amortization
 
5,290

 
1,845

 
636

 
495

 
8,266

Selling, general, and administrative expense
 
17,873

 
2,667

 
2,312

 
10,424

 
33,276

 
 
 
 
 
 
 
 
 
 
 
Operating income
 
20,724

 
23,045

 
5,429

 
(11,639
)
 
37,559

 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 

 
 

 
 

 
 

 
(5,237
)
Other (expense) income, net
 
 

 
 

 
 

 
 

 
(458
)
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
 

 
 

 
 

 
 

 
$
31,864











9


Segment Information (continued):

 
 
For the Quarter Ended October 1, 2016
(In thousands)
 
Piping Systems
 
Industrial Metals
 
Climate
 
Corporate and Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
351,557

 
$
131,350

 
$
30,003

 
$
(6,326
)
 
$
506,584

 
 
 
 
 
 
 
 
 
 
 
Cost of goods sold
 
301,867

 
107,512

 
22,210

 
(6,921
)
 
424,668

Depreciation and amortization
 
5,905

 
1,964

 
612

 
535

 
9,016

Selling, general, and administrative expense
 
16,647

 
3,125

 
2,357

 
10,284

 
32,413

Asset impairments
 
3,000

 

 

 

 
3,000

 
 
 
 
 
 
 
 
 
 
 
Operating income
 
24,138

 
18,749

 
4,824

 
(10,224
)
 
37,487

 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 

 
 

 
 

 
 

 
(1,830
)
Other income, net
 
 

 
 

 
 

 
 

 
120

 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
 

 
 

 
 

 
 

 
$
35,777


 
 
For the Nine Months Ended September 30, 2017
( In thousands)
 
Piping Systems
 
Industrial Metals
 
Climate
 
Corporate and Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
1,205,697

 
$
451,919

 
$
103,403

 
$
(18,470
)
 
$
1,742,549

 
 
 
 
 
 
 
 
 
 
 
Cost of goods sold
 
1,049,098

 
377,036

 
77,124

 
(19,258
)
 
1,484,000

Depreciation and amortization
 
16,223

 
5,647

 
1,880

 
1,466

 
25,216

Selling, general, and administrative expense
 
54,293

 
8,761

 
7,244

 
32,655

 
102,953

Asset impairments
 
411

 

 

 

 
411

 
 
 
 
 
 
 
 
 
 
 
Operating income
 
85,672

 
60,475

 
17,155

 
(33,333
)
 
129,969

 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 

 
 

 
 

 
 

 
(14,210
)
Other income, net
 
 

 
 

 
 

 
 

 
324

 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
 

 
 

 
 

 
 

 
$
116,083

 














10


Segment Information (continued):

 
 
For the Nine Months Ended October 1, 2016
( In thousands)
 
Piping Systems
 
Industrial Metals
 
Climate
 
Corporate and Eliminations
 
Total
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
1,109,109

 
$
393,608

 
$
92,068

 
$
(11,321
)
 
$
1,583,464

 
 
 
 
 
 
 
 
 
 
 
Cost of goods sold
 
949,015

 
321,615

 
68,363

 
(11,623
)
 
1,327,370

Depreciation and amortization
 
17,341

 
6,219

 
1,829

 
1,608

 
26,997

Selling, general, and administrative expense
 
51,497

 
9,989

 
7,336

 
33,885

 
102,707

Asset impairments
 
3,000

 

 

 

 
3,000

 
 
 
 
 
 
 
 
 
 
 
Operating income
 
88,256

 
55,785

 
14,540

 
(35,191
)
 
123,390

 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 

 
 

 
 

 
 

 
(5,370
)
Other income, net
 
 

 
 

 
 

 
 

 
880

 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
 
 

 
 

 
 

 
 

 
$
118,900


Note 5 – Inventories

(In thousands)
 
September 30,
2017
 
December 31, 2016
 
 
 
 
 
Raw materials and supplies
 
$
77,743

 
$
57,387

Work-in-process
 
47,651

 
42,227

Finished goods
 
165,090

 
149,288

Valuation reserves
 
(6,370
)
 
(6,889
)
 
 
 
 
 
Inventories
 
$
284,114

 
$
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

11


are designated as fair value hedges to specific assets and liabilities in the Condensed Consolidated Balance Sheets and linking cash flow hedges to specific forecasted transactions or variability of cash flow.

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

Commodity Futures Contracts

Copper and brass represent the largest component of the Company’s variable costs of production.  The cost of these materials is subject to global market fluctuations caused by factors beyond the Company’s control.  The Company occasionally enters into 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 September 30, 2017, the Company held open futures contracts to purchase approximately $11.8 million of copper over the next 15 months related to fixed price sales orders.  The fair value of those futures contracts was a $165 thousand net loss position, which was determined by obtaining quoted market prices (level 1 within the fair value hierarchy).  In the next 12 months, the Company will reclassify into earnings realized gains or losses relating to cash flow hedges.  At September 30, 2017, this amount was approximately $133 thousand of deferred net losses, net of tax.

The Company may also enter into futures contracts to protect the value of inventory against market fluctuations.  At September 30, 2017, the Company held open futures contracts to sell approximately $57.7 million of copper over the next six months related to copper inventory.  The fair value of those futures contracts was a $726 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 2.98 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 $49 thousand loss position at September 30, 2017, and there was $107 thousand of deferred losses, net of tax, included in AOCI that are expected to be reclassified into interest expense over the remaining 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
 
September 30, 2017
 
December 31, 2016
 
Balance Sheet Location
 
September 30, 2017
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts - gains
 
Other current assets
 
$
203

 
$
1,013

 
Other current liabilities
 
$
796

 
$
564

Commodity contracts - losses
 
Other current assets
 
(120
)
 
(148
)
 
Other current liabilities
 
(1,770
)
 
(920
)
Interest rate swap
 
Other current assets
 

 

 
Other current liabilities
 
(49
)
 
(787
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Total derivatives (1)
 
 
 
$
83

 
$
865

 
 
 
$
(1,023
)
 
$
(1,143
)
(1) Does not include the impact of cash collateral provided to counterparties.
The following tables summarize the effects of derivative instruments on the Company’s Condensed Consolidated Statements of Income:
 
 
  
 
For the Quarter Ended
 
For the Nine Months Ended
(In thousands)
 
Location
 
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Fair value hedges:
 
 
 
 
 
 
 
 
 
 
Gain (loss) on commodity contracts (qualifying)
 
Cost of goods sold
 
$

 
$
(37
)
 
$

 
$
(420
)
Gain on hedged item - inventory
 
Cost of goods sold
 

 
32

 

 
382

 
 
 
 
 
 
 
 
 
 
 
Undesignated derivatives:
 
 
 
 
 
 
 
 
 
 
(Loss) gain on commodity contracts (nonqualifying)
 
Cost of goods sold
 
(3,083
)
 
855

 
(3,506
)
 
2,676


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

 
 
For the Quarter Ended September 30, 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
 
$
(541
)
 
Cost of goods sold
 
$
237

Interest rate swap
 

 
Interest expense
 
149

Other
 
23

 
Other
 

 
 
 
 
 
 
 
Total
 
$
(518
)
 
Total
 
$
386










13


Derivative Instruments and Hedging Activities (continued):

 
 
For the Quarter Ended October 1, 2016
(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
 
$
(1,434
)
 
Cost of goods sold
 
$
814

Interest rate swap
 
457

 
Interest expense
 
58

Other
 
(32
)
 
Other
 

 
 
 
 
 
 
 
Total
 
$
(1,009
)
 
Total
 
$
872

  
 
 
For the Nine Months Ended September 30, 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
 
$
(1,354
)
 
Cost of goods sold
 
$
913

Interest rate swap
 

 
Interest expense
 
447

Other
 
179

 
Other
 

 
 
 
 
 
 
 
Total
 
$
(1,175
)
 
Total
 
$
1,360


 
 
For the Nine Months Ended October 1, 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
 
$
1,903

 
Cost of goods sold
 
$
(477
)
Interest rate swap
 
(128
)
 
Interest expense
 
186

Other
 
(329
)
 
Other
 

 
 
 
 
 
 
 
Total
 
$
1,446

 
Total
 
$
(291
)

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 September 30, 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 September 30, 2017 and December 31, 2016, the Company had recorded restricted cash in other

14


current assets of $3.0 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.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
 
September 30,
2017
 
December 31, 2016
 
 
 
 
 
Current assets
 
$
251,188

 
$
244,323

Noncurrent assets
 
132,000

 
130,400

Current liabilities
 
177,110

 
148,806

Noncurrent liabilities
 
59,334

 
71,681


 
 
For the Quarter Ended
 
For the Nine Months Ended
(In thousands)
 
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
 
 
 
 
 
 
 
 
 
Net sales
 
$
148,400

 
$
146,700

 
$
407,300

 
$
437,200

Gross profit 
 
21,500

 
22,200

 
56,700

 
59,700

Net (loss) income
 
(788
)
 
2,244

 
(3,492
)
 
6,097


The Company’s income from unconsolidated affiliates, net of tax, for the nine months ended October 1, 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 $5.7 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 $3.9 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 Nine Months Ended
(In thousands) 
 
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
 
 
 
 
 
 
 
 
 
Pension benefits:
 
 
 
 
 
 
 
 
Service cost
 
$
35

 
$
180

 
$
106

 
$
540

Interest cost
 
1,659

 
1,973

 
4,977

 
5,917

Expected return on plan assets
 
(2,184
)
 
(2,466
)
 
(6,552
)
 
(7,398
)
Amortization of net loss
 
536

 
760

 
1,608

 
2,280

 
 
 
 
 
 
 
 
 
Net periodic benefit cost
 
$
46

 
$
447

 
$
139

 
$
1,339

 
 
 
 
 
 
 
 
 
Other benefits:
 
 

 
 

 
 

 
 

Service cost
 
$
54

 
$
61

 
$
163

 
$
183

Interest cost
 
147

 
153

 
442

 
458

Amortization of prior service credit
 
(225
)
 
(224
)
 
(676
)
 
(672
)
Amortization of net gain
 
(10
)
 
(9
)
 
(30
)
 
(27
)
 
 
 
 
 
 
 
 
 
Net periodic benefit income
 
$
(34
)
 
$
(19
)
 
$
(101
)
 
$
(58
)

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

16


investigation and feasibility study of the Lead Refinery NPL site pursuant to a proposed administrative settlement agreement and order on consent. The Company and Lead Refinery entered into that agreement in September 2017. The Company will make a capital contribution to Lead Refinery to conduct the remedial investigation and feasibility study and provide a financial guarantee in the amount of $1.0 million. The EPA has also informed the Company that the EPA’s position is that Mueller is a responsible party for the Lead Refinery NPL site, and accordingly is responsible for a share of remedial action and response costs at the site and in the adjacent residential area. 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 September 30, 2017 were $8.4 million.

Note 10 – Income Taxes

The Company’s effective tax rate for the third quarter of 2017 was 27 percent compared with 30 percent for the same period last year.  The items impacting the effective tax rate for the third quarter of 2017 were primarily attributable to reductions for the U.S. production activities deduction of $0.6 million, the effect of foreign tax rates lower than statutory tax rates of $1.6 million, and the tax benefit of equity compensation deductions of $0.5 million.

For the third 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 $0.6 million, the effect of foreign tax rates lower than statutory rates of $1.0 million, and the tax benefit of equity compensation deductions of $0.8 million. These items were partially offset by the provision for state income taxes, net of the federal benefit, of $0.6 million.

The Company’s effective tax rate for the first nine months of 2017 was 29 percent compared with 33 percent for the same period last year.  The items impacting the effective tax rate for the first nine months of 2017 were primarily attributable to reductions for the U.S. production activities deduction of $2.4 million, the effect of foreign tax rates lower than statutory tax rates of $4.6 million, the tax benefit of equity compensation deductions of $2.2 million, and the impact of investments in unconsolidated affiliates of $0.9 million.  These items were partially offset by the provision for state income taxes, net of the federal benefit, of $1.7 million.

For the first nine months 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 $2.5 million, the effect of foreign tax rates lower than statutory rates of $3.5 million, and the tax benefit of equity compensation deductions of $0.8 million.  These items were partially offset by the provision for state income taxes, net of the federal benefit, of $2.3 million and the impact of investments in unconsolidated affiliates of $1.2 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 2014 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

17


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.

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 Nine Months Ended September 30, 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
 
18,209

 
(1,175
)
 
(1,309
)
 
(1
)
 
(1,086
)
 
14,638

Amounts reclassified from AOCI
 
(3,777
)
 
1,360

 
737

 
(379
)
 

 
(2,059
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net current-period other comprehensive income (loss)
 
14,432

 
185

 
(572
)
 
(380
)
 
(1,086
)
 
12,579

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of September 30, 2017
 
$
(35,533
)
 
$
(115
)
 
$
(23,618
)
 

 
$
4,889

 
$
(54,377
)
  
 
 
For the Nine Months Ended October 1, 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
 
(14,638
)
 
1,446

 
2,258

 
77

 
6,550

 
(4,307
)
Amounts reclassified from AOCI
 

 
(291
)
 
1,187

 

 

 
896

 
 
 
 
 
 
 
 
 
 
 
 
 
Net current-period other comprehensive (loss) income
 
(14,638
)
 
1,155

 
3,445

 
77

 
6,550

 
(3,411
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of October 1, 2016
 
$
(39,411
)
 
$
(854
)
 
$
(24,984
)
 
298

 
$
6,550

 
$
(58,401
)









18


Reclassification adjustments out of AOCI were as follows:

 
 
Amount reclassified from AOCI
 
 
For the Quarter Ended
 
For the Nine Months Ended
 
 
( In thousands)
 
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
 
Affected line item
 
 
 
 
 
 
 
 
 
 
 
Unrealized losses (gains) on derivatives: 
 
 
 
 
 
 
 
 
 
   
Commodity contracts
 
$
223

 
$
848

 
$
1,247

 
$
(1,023
)
 
Cost of goods sold
Interest rate swap
 
232

 
91

 
696

 
291

 
Interest expense
 
 
(69
)
 
(67
)
 
(583
)
 
441

 
Income tax (benefit) expense
 
 
 
 
 
 
 
 
 
 
 
 
 
$
386

 
$
872

 
$
1,360

 
$
(291
)
 
Net of tax and noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
Amortization of net loss and prior service cost on employee benefit plans
 
$
301

 
$
527

 
$
902

 
$
1,581

 
Selling, general, and administrative
  expense
 
 
(55
)
 
(132
)
 
(165
)
 
(394
)
 
Income tax benefit
 
 
 
 
 
 
 
 
 
 
 
 
 
$
246

 
$
395

 
$
737

 
$
1,187

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

 
$

 
$
(611
)
 
$

 
Other income
 
 
$

 
$

 
$
232

 
$

 
Income tax expense