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 June 27, 2015April 2, 2016Commission file number 1–6770

Mueller Industries, Inc. Logo
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’sRegistrant'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.
Yesx  Noo☐

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).   Yesx  Noo☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large"large accelerated filer”filer", “accelerated filer”"accelerated filer", and “smaller"smaller reporting company”company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer   x☒
Accelerated filer   o☐
Non-accelerated filer   o☐
Smaller reporting company   o☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YesoNox☒

The number of shares of the Registrant’sRegistrant's common stock outstanding as of July 20, 2015,April 25, 2016, was 56,986,702.57,126,707.


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MUELLER INDUSTRIES, INC.

FORM 10-Q

For the Quarterly Period Ended June 27, 2015April 2, 2016

__________________________

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

__________________________

INDEX


  
Page
Number
Part I.  Financial Information
Item 1.  – Financial Statements (Unaudited)
 
   
 
a.)  Condensed ConsolidatedItem 1.  – Financial Statements of Income(Unaudited)
3
   
 
b.a.)  Condensed Consolidated Statements of Comprehensive Income
4
3
   
 
c.b.)  CondensedConsolidated Balance Sheets Consolidated Statements of Comprehensive Income
5
4
   
 
d.c.)  Condensed Consolidated Statements of Cash FlowsBalance Sheets
6
5
   
 
d.)  Condensed Consolidated Statements of Cash Flows
6
e.)  Notes to Condensed Consolidated Financial Statements
7
   
 
Item 2.  – Management's Discussion and Analysis of Financial Condition and Results of Operations
18
16
  
Item 3.  – Quantitative and Qualitative Disclosures About Market Risk
28
24
  
Item 4.  – Controls and Procedures
29
26
   
Part II.  Other Information
 
   
 
Item 1.  – Legal Proceedings
29
26
   
 
Item 1A. – Risk Factors
30
27
  
Item 2.  – Unregistered Sales of Equity Securities and Use of Proceeds
30
27
   
 
Item 6.  – Exhibits
31
28
 
Signatures
32
29


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PART I.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  For the Quarter Ended 
(In thousands, except per share data) June 27, 2015 June 28, 2014 June 27, 2015 June 28, 2014  April 2, 2016  March 28, 2015 
               
Net sales $555,593 $649,691 $1,092,835 $1,224,065  $532,809  $537,242 
                 
Cost of goods sold 470,365 557,775 931,199 1,053,552   446,642   460,834 
Depreciation and amortization 8,188 8,592 16,041 16,699   8,920   7,853 
Selling, general, and administrative expense 33,420 33,367 66,251 66,508   35,780   32,831 
Gain on sale of assets (15,376) — (15,376) (1,417) 
Severance  3,442  1,753  3,442  2,212 
                 
Operating income 55,554 48,204 91,278 86,511   41,467   35,724 
                 
Interest expense (2,219) (1,457) (4,295) (2,483)   (1,848)  (2,076)
Other income, net  265  127  370  215   245   105 
                 
Income before income taxes 53,600 46,874 87,353 84,243   39,864   33,753 
                 
Income tax expense  (19,738)  (11,665)  (31,151)  (24,080)   (14,121)  (11,413)
Income from unconsolidated affiliates  2,922   — 
                 
Consolidated net income 33,862 35,209 56,202 60,163   28,665   22,340 
                 
Net income attributable to noncontrolling interest  (211)  (164)  (573)  (412)   (35)  (362)
                 
Net income attributable to Mueller Industries, Inc. $33,651 $35,045 $55,629 $59,751  $28,630  $21,978 
                 
Weighted average shares for basic earnings per share 56,247 55,973 56,220 55,946   56,467   56,193 
Effect of dilutive stock-based awards  743  747  737  800   495   731 
                 
Adjusted weighted average shares for diluted earnings per share  56,990  56,720  56,957  56,746   56,962   56,924 
                 
Basic earnings per share $0.60 $0.63 $0.99 $1.07  $0.51  $0.39 
                 
Diluted earnings per share $0.59 $0.62 $0.98 $1.05  $0.50  $0.39 
                 
Dividends per share $0.075 $0.075 $0.150 $0.150  $0.075  $0.075 
                 
See accompanying notes to condensed consolidated financial statements.See accompanying notes to condensed consolidated financial statements. See accompanying notes to condensed consolidated financial statements. 
 

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

 For the Quarter Ended For the Six Months Ended   For the Quarter Ended 
(In thousands) June 27, 2015 June 28, 2014 June 27, 2015 June 28, 2014   April 2, 2016  March 28, 2015 
          
Consolidated net income $33,862 $  35,209 $56,202 $60,163   $28,665  $22,340 
                  
Other comprehensive income (loss), net of tax:                  
Foreign currency translation 7,056 1,795  (1,348) 2,962    (1,111)  (8,404)
Net change with respect to derivative instruments and hedging activities (903)(1) (360)(2) (1,101)(3) (1,476)(4)
Net actuarial (gain) loss on pension and postretirement obligations (647)(5) (159)(6) 769 (7) (156)(8)
Net change with respect to derivative instruments and hedging activities, net of tax of $(221) in 2016 and $274 in 2015  594   (198)
Net actuarial loss on pension and postretirement obligations, net of tax of $(398) in 2016 and $(501) in 2015  1,172   1,416 
Other, net  34  24  7  9    14   (27)
                  
Total other comprehensive income (loss)  5,540  1,300   (1,673)  1,339    669   (7,213)
                  
Consolidated comprehensive income 39,402 36,509 54,529 61,502  
Comprehensive income attributable to noncontrolling interest  520   594   175   341  
Comprehensive income  29,334   15,127 
Comprehensive loss attributable to noncontrolling interest  739   345 
                  
Comprehensive income attributable to Mueller Industries, Inc. $39,922 $37,103 $54,704 $61,843   $30,073  $15,472 
                  
See accompanying notes to condensed consolidated financial statements.See accompanying notes to condensed consolidated financial statements. See accompanying notes to condensed consolidated financial statements. 
 


_______________________________________ 
(1)4 Net of tax of $166
(2) Net of tax of $275
(3) Net of tax of $440
(4) Net of tax of $865
(5) Net of tax of $216
(6) Net of tax of $94
(7) Net of tax of $(286)
(8) Net of tax of $123

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MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data) 
June 27,
  2015
 
December 27,
 2014
  April 2, 2016  December 26, 2015 
     
Assets           
Current assets:           
Cash and cash equivalents $299,147 $352,134  $270,149  $274,844 
Accounts receivable, less allowance for doubtful accounts of $762 in 2015 and $666 in 2014 307,008 275,065 
Accounts receivable, less allowance for doubtful accounts of $496 in 2016 and $623 in 2015  275,881   251,571 
Inventories 278,937 256,585   240,608   239,378 
Other current assets  45,680  57,429   34,123   34,608 
             
Total current assets 930,772 941,213   820,761   800,401 
             
Property, plant, and equipment, net 261,149 245,910   278,481   280,224 
Goodwill 101,453 102,909 
Goodwill, net  121,112   120,252 
Intangible assets, net  40,617   40,636 
Investment in unconsolidated affiliates  68,822   65,900 
Other assets  51,584  38,064   31,227   31,388 
             
Total assets $1,344,958 $1,328,096  $1,361,020  $1,338,801 
             
Liabilities          
Current liabilities:          
Current portion of debt $18,014 $36,194  $4,583  $11,760 
Accounts payable 89,715 100,735   98,324   88,051 
Accrued wages and other employee costs 34,654 41,595   27,974   35,636 
Other current liabilities  67,118  59,545   71,727   73,982 
             
Total current liabilities 209,501 238,069   202,608   209,429 
             
Long-term debt, less current portion 204,750 205,250   206,000   204,250 
Pension liabilities 18,728 20,070   16,319   17,449 
Postretirement benefits other than pensions 21,331 21,486   17,396   17,427 
Environmental reserves 21,657 21,842   20,932   20,943 
Deferred income taxes 21,542 24,556   8,310   7,161 
Other noncurrent liabilities  2,790  1,389   2,973   2,440 
             
Total liabilities  500,299  532,662   474,538   479,099 
             
Equity             
Mueller Industries, Inc. stockholders’ 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 56,986,344 in 2015 and 56,901,445 in 2014 802 802 
Common stock - $.01 par value; shares authorized 100,000,000; issued 80,183,004; outstanding 57,126,707 in 2016 and 57,158,608 in 2015  802   802 
Additional paid-in capital 270,784 268,575   273,576   271,158 
Retained earnings 1,039,882 992,798   1,087,927   1,063,543 
Accumulated other comprehensive loss (44,195) (42,923)  (53,547)  (54,990)
Treasury common stock, at cost  (456,073)  (457,102)  (453,954)  (453,228)
             
Total Mueller Industries, Inc. stockholders’ equity 811,200 762,150 
Total Mueller Industries, Inc. stockholders' equity  854,804   827,285 
Noncontrolling interest  33,459  33,284   31,678   32,417 
             
Total equity  844,659  795,434   886,482   859,702 
             
Commitments and contingencies  —  —   —   — 
             
Total liabilities and equity $1,344,958 $1,328,096  $1,361,020  $1,338,801 
         
See accompanying notes to condensed consolidated financial statements.See accompanying notes to condensed consolidated financial statements. See accompanying notes to condensed consolidated financial statements. 
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MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

  For the Six Months Ended 
 (In thousands) June 27, 2015  June 28, 2014 
     
Cash flows from operating activities        
    Consolidated net income $56,202  $60,163 
    Reconciliation of consolidated net income to net cash provided by (used in) operating activities:        
Depreciation and amortization  16,293   16,840 
Stock-based compensation expense  2,966   3,526 
Gain on disposal of assets  (15,392)  (1,225)
Impairment charges  570   — 
Deferred income taxes  (1,445)  (6,523)
Income tax benefit from exercise of stock options  (146)  (316)
Changes in assets and liabilities, net of businesses acquired:        
Receivables  (24,304)  (100,413)
Inventories  (5,252)  (20,619)
Other assets  6,963   (8,886)
Current liabilities  (19,629)  7,373 
Other liabilities  (415)  (893)
Other, net  739   92 
         
Net cash provided by (used in) operating activities  17,150   (50,881)
         
Cash flows from investing activities        
Capital expenditures  (15,969)  (18,833)
Acquisition of businesses, net of cash acquired  (35,978)  (30,137)
Net withdrawals from restricted cash balances  3,486   1,815 
Proceeds from the sale of assets  5,518   4,874 
         
Net cash used in investing activities  (42,943)  (42,281)
         
Cash flows from financing activities        
Repayments of long-term debt  (500)  (500)
Dividends paid to stockholders of Mueller Industries, Inc.  (8,435)  (8,394)
(Repayment) issuance of debt by joint venture, net  (17,750)  8,903 
   Issuance of debt  —   22,635 
   Net cash received to settle stock-based awards  125   296 
   Repurchase of common stock  —   (58)
   Income tax benefit from exercise of stock options  146   316 
         
Net cash (used in) provided by financing activities  (26,414)  23,198 
         
Effect of exchange rate changes on cash  (780)  363 
         
Decrease in cash and cash equivalents  (52,987)  (69,601)
Cash and cash equivalents at the beginning of the period  352,134   311,800 
         
Cash and cash equivalents at the end of the period $299,147  $242,199 
         
See accompanying notes to condensed consolidated financial statements.


  For the Quarter Ended 
 (In thousands) April 2, 2016  March 28, 2015 
    
Cash flows from operating activities      
Consolidated net income $28,665  $22,340 
Reconciliation of consolidated net income to net cash provided by operating activities:        
Depreciation and amortization  9,011   8,015 
Stock-based compensation expense  1,236   1,349 
Equity in earnings of unconsolidated affiliates  (2,922)  — 
(Gain) loss on disposal of properties  (23)  1 
Deferred income taxes  1,895   (570)
Income tax benefit from exercise of stock options  (96)  (69)
Changes in assets and liabilities:        
Receivables  (25,089)  (36,692)
Inventories  (1,631)  7,534 
Other assets  (370)  9,257 
Current liabilities  655   (7,389)
Other liabilities  (704)  (131)
Other, net  (291)  245 
         
Net cash provided by operating activities  10,336   3,890 
         
Cash flows from investing activities        
Capital expenditures  (5,892)  (7,392)
Net withdrawals from (deposits into) restricted cash  84   (12,593)
Proceeds from the sale of assets  1   492 
         
Net cash used in investing activities  (5,807)  (19,493)
         
Cash flows from financing activities        
Repayments of long-term debt  (250)  (250)
Dividends paid to stockholders of Mueller Industries, Inc.  (4,236)  (4,216)
Repayment of debt by joint venture, net  (7,024)  (3,817)
Issuance of debt  2,000   — 
Net cash received to settle stock-based awards  361   93 
Income tax benefit from exercise of stock options  96   69 
         
Net cash used in financing activities  (9,053)  (8,121)
         
Effect of exchange rate changes on cash  (171)  (1,516)
         
Decrease in cash and cash equivalents  (4,695)  (25,240)
Cash and cash equivalents at the beginning of the period ��274,844   352,134 
         
Cash and cash equivalents at the end of the period $270,149  $326,894 
         
See accompanying notes to condensed consolidated financial statements. 
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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 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’sCompany'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.  included herein.  The fiscal quarter ended April 2, 2016 contained 14 weeks, while the fiscal quarter ended March 28, 2015 contained 13 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 24579 thousand stock optionsand 180 thousand stock-based awards were excluded from the computation of diluted earnings per share for the quarterquarters ended June 27,April 2, 2016 and March 28, 2015, respectively, because they were antidilutive.

Note 2 – Commitments and Contingencies–Segment Information

TheDuring the first quarter of 2016, the Company is involved in certain litigationmade changes to its management reporting structure as a result of claims that arosea change in the ordinary course ofway the Chief Executive Officer, who serves as the Chief Operating Decision Maker, manages and evaluates the 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 claimsmakes key operating decisions, and litigation in the future; these gain contingencies are not recognized in the Condensed Consolidated Financial Statements.

Guarantees

Guarantees, in the form of letters of credit, are issued byallocates resources.  Previously, the Company generally to assure the payment of insurance deductibles and certain retiree health benefits.  The terms of the Company’s 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 June 27, 2015 were $8.8 million.

Note 3 – Inventories

(In thousands) 
June 27,
2015
  
December 27,
2014
 
        
Raw materials and supplies $70,487  $53,586 
Work-in-process  51,978   39,707 
Finished goods  163,497   168,481 
Valuation reserves  (7,025)  (5,189)
         
Inventories $278,937  $256,585 
         

Note 4 – Industry Segments

The Company’shad two reportable segments aresegments: Plumbing & Refrigeration and Original Equipment Manufacturers (OEM).  For disclosure purposes, as permitted under Accounting Standards Codification (ASC) 280, Segment ReportingOEM.  During the quarter, the Company realigned its operating segments into three reportable segments: Piping Systems, Industrial Metals, and Climate.  ,Management has recast certain prior period amounts to conform the current period presentation. Each of the reportable segments is composed of certain operating segments that are aggregated into reportable segments.  The Plumbing & Refrigeration segmentprimarily by the nature of products offered as follows:

Piping Systems

Piping Systems is composed of Standard Products (SPD),the following operating segments: Domestic Piping Systems Group, Canadian Operations, European Operations, Trading Group, and Mexican Operations.Mueller-Xingrong, the Company's Chinese joint venture.  The OEM segment is composed of Industrial Products (IPD), Engineered Products (EPD), and Jiangsu Mueller–Xingrong Copper Industries Limited (Mueller-Xingrong).  These segments are classified primarily by the markets for their products.  Performance of segments is generally evaluated by their operating income.  

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SPDDomestic Piping Systems Group manufactures copper tube and fittings, plastic fittings, and line sets.  These products are manufactured in the U.S.   SPD alsoOutside the U.S., the Canadian Operations manufacture copper tube and line sets in Canada and sell the products primarily in the U.S. and Canada, and the European Operations manufacture copper tube, 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.  Outsideproducts in the U.S., the Company’s European Operations manufacture and Mexico.  Mueller-Xingrong manufactures engineered copper tube which is sold primarily for air-conditioning applications in Europe.  Mexican Operations consist of pipe nipple manufacturing and import distribution businesses including product lines of malleable iron fittings and other plumbing specialties.China.  The Plumbing & Refrigeration segment’sPiping System segment's products are sold primarily to plumbing, refrigeration, and air-conditioning wholesalers, hardware wholesalers and co-ops, and building product retailers.  For the six months ended June 28, 2014, cost of goods sold included a decrease in accruals related to import duties of $3.1 million.retailers, and air-conditioning OEMs.

IPD manufacturesIndustrial 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 fittings.  EPD manufacturesgas assemblies.  These products are manufactured in the U.S. and fabricatessold primarily to OEMs in the U.S, many of which are in the industrial, construction, heating, ventilation, and air-conditioning, plumbing, and refrigeration markets.

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Climate

Climate is composed of the following operating segments: Refrigeration Products, Fabricated Tube Products, Westermeyer, and Turbotec.  These domestic businesses manufacture and fabricate valves and assemblies primarily for the heating, ventilation, air-conditioning, and refrigeration air-conditioning, gas appliance, and barbecue grill markets and specialty copper, copper-alloy, and aluminum tube.  Mueller-Xingrong manufactures engineered copper tube primarily for air-conditioning applications.  These products are sold primarily to OEM customers.in the U.S.

Summarized segment information is as follows:

 For the Quarter Ended June 27, 2015 
    For the Quarter Ended April 2, 2016 
(In thousands) Plumbing & Refrigeration Segment 
OEM
Segment
 Corporate and Eliminations Total  Piping Systems  Industrial Metals  Climate  Corporate and Eliminations  Total 
         
                        
Net sales $327,336 $230,380 $(2,123) $555,593  $368,890  $134,521  $30,706  $(1,308) $532,809 
                             
Cost of goods sold 278,237 194,207 (2,079) 470,365   313,792   109,229   23,705   (84)  446,642 
Depreciation and amortization 4,577 3,133 478 8,188   5,649   2,135   599   537   8,920 
Selling, general, and administrative expense 20,473  6,239 6,708 33,420   18,290   3,245   2,523   11,722   35,780 
Gain on sale of assets (15,376) — — (15,376)
Severance  3,442  —  —  3,442 
                             
Operating income 35,983 26,801 (7,230) 55,554   31,159   19,912   3,879   (13,483)  41,467 
                             
Interest expense       (2,219)                  (1,848)
Other income, net        265                   245 
                             
Income before income taxes       $53,600 
Income before taxes                 $39,864 

  For the Quarter Ended March 28, 2015 
(In thousands) Piping Systems  Industrial Metals  Climate  Corporate and Eliminations  Total 
                
Net sales $361,482  $151,036  $25,811  $(1,087) $537,242 
   ��                 
Cost of goods sold  312,690   127,724   21,267   (847)  460,834 
Depreciation and amortization  5,187   1,655   425   586   7,853 
Selling, general, and administrative expense  17,346   2,698   1,854   10,933   32,831 
                     
Operating income  26,259   18,959   2,265   (11,759)  35,724 
                     
Interest expense                  (2,076)
Other income, net                  105 
                     
Income before taxes                 $33,753 



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Segment information (continued):

  For the Quarter Ended June 28, 2014 
    
(In thousands) Plumbing & Refrigeration Segment  
OEM
Segment
  Corporate and Eliminations  Total 
             
             
Net sales $397,190  $255,409  $(2,908) $649,691 
                 
Cost of goods sold  336,256   224,392   (2,873)  557,775 
Depreciation and amortization  5,096   2,892   604   8,592 
Selling, general, and administrative expense  21,755   4,909   6,703   33,367 
Severance  1,753   —   —   1,753 
                 
Operating income    32,330   23,216   (7,342)  48,204 
                 
Interest expense              (1,457)
Other income, net              127 
                 
Income before income taxes             $46,874 

  For the Six Months Ended June 27, 2015 
    
(In thousands) Plumbing & Refrigeration Segment  
OEM
Segment
  Corporate and Eliminations  Total 
             
             
Net sales $632,353  $465,697  $(5,215) $1,092,835 
                 
Cost of goods sold  538,700   397,640   (5,141)  931,199 
Depreciation and amortization  9,100   5,988   953   16,041 
Selling, general, and administrative expense  41,013   12,720   12,518   66,251 
Gain on sale of assets  (15,376)  —   —   (15,376)
Severance  3,442   —   —   3,442 
                 
Operating income  55,474   49,349   (13,545)  91,278 
                 
Interest expense              (4,295)
Other income, net              370 
                 
Income before income taxes             $87,353 




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(In thousands) April 2, 2016  December 26, 2015 
       
Segment assets:      
Piping Systems $815,400  $811,343 
Industrial Metals  193,662   174,897 
Climate  41,172   39,876 
General Corporate  310,786   312,685 
         
  $1,361,020  $1,338,801 
Note 3 – Inventories

(In thousands) April 2, 2016  December 26, 2015 
       
Raw materials and supplies $53,983  $58,987 
Work-in-process  37,656   25,161 
Finished goods  154,592   161,410 
Valuation reserves  (5,623)  (6,180)
         
Inventories $240,608  $239,378 
         

Note 4 – 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 (i) a hedge of a forecasted transaction or the variability of cash flow to be paid (cash flow hedge), or (ii) a hedge of 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, as the Company does not enter into derivative contracts for trading purposes (economic hedge).  Changes in the fair value of a derivative instrument that is qualified, designated and highly effective as a cash flow hedge are recorded in accumulated other comprehensive income (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 instrument 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 derivative instruments and the ineffective portion of designated derivative instruments are reported in current earnings.

The Company documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions.  This process includes linking all derivatives 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.

The Company also assesses, both at the hedge's inception and on an ongoing basis, whether the designated derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flow or fair values of hedged items.  When a derivative 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 April 2, 2016, the Company held open futures contracts to purchase approximately $23.7 million of copper over the next nine months related to fixed price sales orders.  The fair value of those futures contracts was a $21 thousand net gain position, which was determined by obtaining quoted market prices (level 1 within the fair value hierarchy).  In the next twelve months, the Company will reclassify into earnings realized gains or losses relating to cash flow hedges.  At April 2, 2016, this amount was approximately $105 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 April 2, 2016, the Company held open futures contracts to sell approximately $21.0 million of copper over the next four months related to copper inventory. The fair value of those futures contracts was a $307 thousand loss position, which was determined by obtaining quoted market prices (level 1 within the fair value hierarchy).  

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Foreign Currency Forward Contracts

The Company has entered into certain contracts to purchase heavy machinery and equipment denominated in euros.
In anticipation of entering into these contracts, the Company entered into forward contracts to purchase euros to protect itself against adverse foreign exchange rate fluctuations.  

At April 2, 2016, the Company held open forward contracts to purchase approximately 2.7 million euros over the next eight months.  The fair value of these contracts, which was determined by obtaining quoted market prices (level 1 within the fair value hierarchy), was an $88 thousand gain position. At April 2, 2016, there was $184 thousand of deferred net gains, net of tax, included in AOCI that are expected to be reclassified into depreciation expense over the useful life of the heavy machinery and equipment.

Interest Rate Swap

On February 20, 2013, the Company entered into a two-year forward-starting interest rate swap agreement with an effective date of January 12, 2015, and an underlying notional amount of $200.0 million, pursuant to which the Company receives variable interest payments based on one-month LIBOR and pays fixed interest at a rate of 1.4 percent.  Based on the Company's current variable premium pricing on its Term Loan Facility, the all-in fixed rate as of the effective date is 2.7 percent.  The interest rate swap will mature on December 11, 2017, and is structured to offset the interest rate risk associated with the Company's floating-rate, LIBOR-based Term Loan Facility Agreement.  The swap was designated and accounted for as a cash flow hedge from inception.

The fair value of the interest rate swap is estimated based on the present value of the difference between expected cash flows calculated at the contracted interest rate and the expected cash flows at the current market interest rate using observable benchmarks for LIBOR forward rates at the end of the period (level 2 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 $2.3 million loss position at April 2, 2016, and there was $1.5 million of deferred net losses, net of tax, included in AOCI that are expected to be reclassified into interest expense over the term of the hedged item.



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The Company presents its derivative assets and liabilities in our 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 our net derivative assets and liabilities into gross components on a contract-by-contract basis:

 Asset Derivatives Liability Derivatives 
    Fair Value   Fair Value 
(In thousands)Balance Sheet Location April 2, 2016  December 26, 2015 Balance Sheet Location April 2, 2016  December 26, 2015 
Hedging instrument:              
  Commodity contracts - gainsOther current assets $654  $60 Other current liabilities $122  $238 
  Commodity contracts - lossesOther current assets  (82)  — Other current liabilities  (979)  (1,864)
  Foreign currency contracts - gainsOther current assets  88   — Other current liabilities  —   34 
  Foreign currency contracts - lossesOther current assets  —   — Other current liabilities  —   (75)
  Interest rate swapOther assets  —   — Other liabilities  (2,319)  (1,692)
                   
Total derivatives (1)
  $660  $60   $(3,176) $(3,359)
                   
(1) Does not include the impact of cash collateral provided to counterparties.
 

The following tables summarize the effects of derivative instruments in our Condensed Consolidated Statements of Income:
    Three Months Ended 
(In thousands)Location April 2, 2016 March 28, 2015 
Fair value hedges:      
  (Loss) gain on commodity contracts (qualifying)Cost of goods sold $(50) $213 
  Gain (loss) on hedged item - InventoryCost of goods sold  62   (247)
          
Undesignated derivatives:         
  Gain on commodity contracts (nonqualifying)Cost of goods sold $494  $234 

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

  Three Months Ended April 2, 2016 
(In thousands) Gain (Loss) Recognized in AOCI (Effective Portion), Net of Tax Classification Gains (Losses) 
Loss (Gain)
Reclassified from AOCI (Effective Portion), Net of Tax
 
Cash flow hedges:       
Commodity contracts $873 Cost of goods sold $68 
Foreign currency contracts  66 Depreciation expense  — 
Interest rate swap  (470)Interest expense  69 
Other  (12)Other  — 
Total $457 Total $137 

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INDEX
 
 
Segment information (continued):
  Three Months Ended March 28, 2015 
(In thousands) Gain (Loss) Recognized in AOCI (Effective Portion), Net of Tax Classification Gains (Losses) 
Loss (Gain)
Reclassified from AOCI (Effective Portion), Net of Tax
 
Cash flow hedges:       
Commodity contracts $274 Cost of goods sold $571 
Foreign currency contracts  (55)Depreciation expense  — 
Interest rate swap  (1,032)Interest expense  68 
Other  (24)Other  — 
Total $(837)Total $639 

  For the Six Months Ended June 28, 2014 
(In thousands) Plumbing & Refrigeration Segment  
OEM
Segment
  Corporate and Eliminations  Total 
             
Net sales $735,217  $495,439  $(6,591) $1,224,065 
                 
Cost of goods sold  625,281   434,795   (6,524)  1,053,552 
Depreciation and amortization  9,516   5,975   1,208   16,699 
Selling, general, and administrative expense  43,410   10,167   12,931   66,508 
Gain on sale of assets  (1,417)  —   —   (1,417)
Severance  2,212   —   —   2,212 
                 
Operating income  56,215   44,502   (14,206)  86,511 
                 
Interest expense              (2,483)
Other income, net              215 
                 
Income before income taxes             $84,243 
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 April 2, 2016 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 April 2, 2016 and December 26, 2015, the Company had recorded restricted cash in other current assets of $2.7 million and $2.6 million, respectively, as collateral related to open derivative contracts under the master netting arrangements.

Note 5 –Benefit– 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 2015.  The Company also owns 50 percent interest in a second unconsolidated affiliate that provided financing to Tecumseh in conjunction with the acquisition.  These investments are accounted for 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 repective 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 investee's net income or loss one quarter in arrears as income (loss) from unconsolidated affiliates in the Condensed Consolidated Statements of Income.   

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.  

(In thousands) December 31, 2015 September 30, 2015 
      
Current assets $225,500  $251,389 
Noncurrent assets  118,600   112,156 
Current liabilities  138,781   178,784 
Noncurrent liabilities  71,700   63,643 
         
 
 
 
 
        
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INDEX
       
       
 For the Quarter Ended 
(In thousands)December 31, 2015 September 30, 2015 
       
Net sales $151,600  $— 
Gross profit  18,000   — 
Net income  5,843   — 

Included in the equity method investees' net income for the quarter ended December 31, 2015 is a gain of $17.1 million that resulted from the allocation of the purchase price, which was finalized during the quarter.  That gain was offset by restructuring and impairment charges of $5.3 million and operating losses of $6.0 million.

Note 6 – Benefits 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  For the Quarter Ended 
(In thousands) June 27, 2015 June 28, 2014 June 27, 2015 June 28, 2014  April 2, 2016  March 28, 2015 
      
Pension benefits:               
Service cost $228 $175 $500 $397  $195  $272 
Interest cost 2,027 2,059 4,081 4,127   1,975   2,054 
Expected return on plan assets (2,655) (3,201) (5,309) (6,402)  (2,466)  (2,654)
Amortization of net loss  656  189  1,370  377   774   714 
                 
Net periodic benefit cost (income) $256  $(778) $642  $(1,501)
Net periodic benefit cost $478  $386 
                 
Other benefits:                 
Service cost $84 $87 $180 $176  $62  $96 
Interest cost 190 186 386 363   156   196 
Amortization of prior service cost (credit) 1  (1) 3  (1)
Amortization of net gain  (16)  (45)  (13)  (109)
Amortization of prior service (credit) cost  (224)  2 
Amortization of net loss  2   3 
                 
Net periodic benefit cost $259 $227 $556 $429 
Net periodic benefit (income) cost $(4) $297 
        

Note 6 – Income Taxes

The Company’s effective tax rate for the second quarter of 2015 was 37 percent compared with 25 percent for the same period last year.  The difference between the effective tax rate and the amount computed using the U.S. federal statutory tax rate for the second quarter of 2015 was primarily attributable to state income taxes of $1.4 million and other miscellaneous items totaling $0.6 million, which were partially offset by the reduction for the U.S. production activities deduction of $1.2 million.

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Index
For the second quarter of 2014, the difference between the effective tax rate and the amount that would be computed using the U.S. federal statutory tax rate was attributable to reductions related to the U.S. production activities deduction of $1.4 million and decreases in valuation allowances of $4.8 million. These items were partially offset by the provision for state income taxes of $1.2 million.

The Company’s effective tax rate for the first half of 2015 was 36 percent compared with 29 percent for the same period last year.  The difference between the effective tax rate and what would be computed using the U.S. federal statutory tax rate was attributable to state income taxes of $2.2 million and miscellaneous other items totaling $1.0 million.  These items were partially offset by reductions for the U.S. production activities deduction of $2.2 million and the effect of foreign tax rates lower than statutory tax rates and other foreign adjustments of $0.4 million.

For the first half of 2014, the difference between the effective tax rate and what would be computed using the U.S. federal statutory tax rate was attributable to reductions for: (i) the U.S. production activities deduction of $2.6 million; (ii) decreases in valuation allowances of $5.7 million; and (iii) the effect of foreign tax rates lower than statutory tax rates and other foreign adjustments of $0.3 million. These items were partially offset by the provision for state income taxes of $2.5 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 2011 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.  The Internal Revenue Service has audited the 2012 federal income tax return, the results of which were immaterial to the Company’s financial position, results of operations, and cash flows.  The Internal Revenue Service is currently auditing the 2013 federal tax return.  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.

Note 7 – Derivative InstrumentsCommitments and Hedging ActivitiesContingencies

The Company’s earningsCompany 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.  It may also realize the benefit of certain legal claims and cash flowslitigation in the future; these gain contingencies 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 arenot recognized in the Condensed Consolidated Balance Sheets at their fair value. OnFinancial Statements.

Guarantees

Guarantees, in the dateform of letters of credit, are issued by the derivative contract is entered into, it is designated as (i) a hedgeCompany generally to assure the payment of a forecasted transaction or the variability of cash flow to be paid (cash flow hedge), or (ii) a hedgeinsurance deductibles and certain retiree health benefits.  The terms of the fair valueguarantees 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 April 2, 2016 were $6.6 million.

Note 8 – Income Taxes

The Company's effective tax rate for the first quarter of a recognized asset or liability (fair value hedge). Changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge are recorded in accumulated other comprehensive income (AOCI), to the extent effective, until they are reclassified to earnings in2016 was 35 percent compared with 34 percent for the same period or periods during whichlast year.  The items impacting the hedged transaction affects earnings. Changes ineffective tax rate for the fair valuefirst quarter 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 is2016 were primarily attributable to reductions for the hedged risk, are recorded in current earnings.  Changes in the fair valueU.S. production activities deduction of undesignated derivative instruments$0.9 million and the ineffective portioneffect of designated derivative instruments are reportedforeign tax rates lower than statutory tax rates of $1.1 million.  These items were partially offset by the provision for state income taxes, net of the federal benefit, of $0.8 million and the recording of the basis difference in  current earnings.unconsolidated affiliates of $1.0 million.

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INDEX
The difference between the effective tax rate and the amount computed using the U.S. federal statutory tax rate for the first quarter of 2015 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 tax rates of $0.5 million.  These items were partially offset by the provision for state income taxes, net of the federal benefit, of $0.8 million.

The Company documentsfiles 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 2012 and all relationships between hedging instrumentssubsequent years and hedged items, as well asis open for certain state and foreign returns for earlier tax years due to ongoing audits and differing statute periods.  The Internal Revenue Service is currently auditing the risk-management objectiveCompany's 2013 federal tax return.  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 strategy for undertaking various hedge transactions. This process includes linking all derivativescould result in final settlements 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.differ from current estimates.

The Company also assesses, both at the hedge’s inception and on an ongoing basis, whether the designated derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flow or fair values of hedged items.  When a derivative 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.

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Index
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 June 27, 2015, the Company held open futures contracts to purchase approximately $26.8 million of copper over the next 13 months related to fixed price sales orders.  The fair value of those futures contracts was a $1.3 million net loss position, which was determined by obtaining quoted market prices (Level 1 hierarchy as defined by ASC 820, Fair Value Measurements and Disclosures (ASC 820)). In the next twelve months, the Company will reclassify into earnings realized gains or losses relating to cash flow hedges. At June 27, 2015, this amount was approximately $919 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.   These futures contracts have been designated as fair value hedges.  

At June 27, 2015, the Company held open futures contracts to sell approximately $28.1 million of copper over the next six months related to copper inventory. The fair value of those futures contracts was a $1.3 million net gain position, which was determined by obtaining quoted market prices (Level 1 hierarchy as defined by ASC 820).  

Foreign Currency Forward Contracts

The Company has entered into certain contracts to purchase heavy machinery and equipment denominated in euros. In anticipation of entering into these contracts, the Company entered into forward contracts to purchase euros to protect itself against adverse foreign exchange rate fluctuations.  

At June 27, 2015, the Company held open forward contracts to purchase approximately 3.4 million euros over the next five months.  The fair value of these contracts, which was determined by obtaining quoted market prices (Level 1 hierarchy as defined by ASC 820), was a $34 thousand net loss position. At June 27, 2015, there was $104 thousand of deferred net gains, net of tax, included in AOCI that are expected to be reclassified into depreciation expense over the useful life of the heavy machinery and equipment.

Interest Rate Swap

On February 20, 2013, the Company entered into a two-year forward-starting interest rate swap agreement with an effective date of January 12, 2015, and an underlying notional amount of $200.0 million, pursuant to which the Company receives variable interest payments based on one-month LIBOR and pays fixed interest at a rate of 1.4 percent.  Based on the Company’s current variable premium pricing on its Term Loan Facility, the all-in fixed rate on the effective date was 2.7 percent.  The interest rate swap will mature on December 11, 2017, and is structured to offset the interest rate risk associated with the Company’s floating-rate, LIBOR-based Term Loan Facility Agreement.  The swap was designated and accounted for as a cash flow hedge from inception.

The fair value of the interest rate swap is estimated based on the present value of the difference between expected cash flows calculated at the contracted interest rate and the expected cash flows at the current market interest rate using observable benchmarks for LIBOR forward rates at the end of the period (Level 2 hierarchy as defined by ASC 820).  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 $1.9 million net loss position at June 27, 2015, and there was $1.2 million of deferred net losses, net of tax, included in AOCI that are expected to be reclassified into interest expense over the term of the hedged item.

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Index
Derivative assets and liabilities are presented in our 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 our net derivative assets and liabilities into gross components on a contract-by-contract basis:

 Asset Derivatives Liability Derivatives 
   Fair Value   Fair Value 
(In thousands)Balance Sheet Location 
June 27,
 2015
  
December 27,
 2014
 Balance Sheet Location 
June 27,
2015
  
December 27,
2014
 
Hedging instrument:              
  Commodity contracts - gainsOther current assets $1,361  $99 Other current liabilities $40  $15 
  Commodity contracts - lossesOther current assets  —   (4)Other current liabilities  (1,319)  (832)
  Foreign currency contractsOther current assets  —   — Other current liabilities  (34)  (81)
  Interest rate swapOther assets  —   — Other liabilities  (1,921)  (927)
Total derivatives (1)
  $1,361  $95   $(3,234) $(1,825)
                   
(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 our Condensed Consolidated Statements of Income:

   Three Months Ended  Six Months Ended 
(In thousands)Location June 27, 2015  June 28, 2014  June 27, 2015  June 28, 2014 
Fair value hedges:             
  Gain (loss) on commodity contracts (qualifying)Cost of goods sold $1,256  $(20) $1,468  $6,271 
  (Loss) gain on hedged item - InventoryCost of goods sold  (1,403)  20   (1,650)  (5,780)
                  
Undesignated derivatives:                 
  Gain (loss) on commodity contracts (nonqualifying)Cost of goods sold  1,046   (72)  1,279   1,466 

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

          Three Months Ended June 27, 2015
(In thousands) Gain (Loss) Recognized in AOCI (Effective Portion), Net of Tax   Classification Gains (Losses) Loss (Gain) Reclassified from AOCI (Effective Portion), Net of Tax
Cash flow hedges:           
Commodity contracts  $(1,159)   Cost of goods sold  $ (81 )
Foreign currency contracts  3   Depreciation expense     — 
Interest rate swap  267   Interest expense     63 


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Index

          Three Months Ended June 28, 2014 
(In thousands) Gain (Loss) Recognized in AOCI (Effective Portion), Net of Tax   Classification Gains (Losses) Loss (Gain) Reclassified from AOCI (Effective Portion), Net of Tax 
Cash flow hedges:          
Commodity contracts  $578   Cost of goods sold  $  168 
Foreign currency contracts  (25)  Depreciation expense     (63)
Interest rate swap  (1,022)  Interest expense     — 
                  Six Months Ended June 27, 2015  
(In thousands) Gain (Loss) Recognized in AOCI (Effective Portion), Net of Tax   Classification Gains (Losses) Loss (Gain) Reclassified from AOCI (Effective Portion), Net of Tax 
Cash flow hedges:          
Commodity contracts $(885)  Cost of goods sold  $490 
Foreign currency contracts  (52)  Depreciation expense   — 
Interest rate swap  (765)  Interest expense   131 
        Other  (19  )   Other   —  

             Six Months Ended June 28, 2014 
(In thousands) Gain (Loss) Recognized in AOCI (Effective Portion), Net of Tax   Classification Gains (Losses) Loss (Gain) Reclassified from AOCI (Effective Portion), Net of Tax 
Cash flow hedges:          
Commodity contracts $(432)  Cost of goods sold  $459 
Foreign currency contracts  (3)  Depreciation expense   (237)
Interest rate swap  (1,267)  Interest expense   — 
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 June 27, 2015 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 June 27, 2015 and December 27, 2014, the Company had recorded restricted cash in other current assets of $1.5 million and $0.5 million, respectively, as collateral related to open derivative contracts under the master netting arrangements.


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Note 89 – 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, and unrealized gains and losses on marketable securities classified as available-for-sale.

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

 For the Six Months Ended June 27, 2015 
(In thousands) Cumulative Translation Adjustment  Unrealized (Losses)/Gains on Derivatives  Minimum Pension/OPEB Liability Adjustment  Unrealized Gains on Equity Investments  Total 
                 
Balance at December 27, 2014  $ (7,076) $(953) $(35,164) $270  $(42,923)
                     
Other comprehensive income (loss) before reclassifications  (947)  (1,722)  (229)  7   (2,891)
Amounts reclassified from AOCI  —   621   998   —   1,619 
                     
Net current-period other comprehensive income  (947)  (1,101)  769   7   (1,272)
                     
Balance at June 27, 2015  $(8,023) $ (2,054) $ (34,395)  $277   $(44,195)
  For the Quarter Ended April 2, 2016 
(In thousands) Cumulative Translation Adjustment  Unrealized (Losses)/Gains on Derivatives  Minimum Pension/OPEB Liability Adjustment  Unrealized Gains on Equity Investments  Total 
                
Balance at December 26, 2015 $(24,773) $(2,009) $(28,429) $221  $(54,990)
                     
Other comprehensive income (loss) before reclassifications  (337)  457   760   14   894 
Amounts reclassified from accumulated OCI  —   137   412   —   549 
                     
Net current-period other comprehensive income  (337)  594   1,172   14   1,443 
                     
Balance at April 2, 2016 $(25,110) $(1,415) $(27,257) $235  $(53,547)

 For the Six Months Ended June 28, 2014 
(In thousands) Cumulative Translation Adjustment  Unrealized (Losses)/Gains on Derivatives  Minimum Pension/OPEB Liability Adjustment  Unrealized Gains on Equity Investments  Total 
                 
Balance at December 28, 2013  $ (462) $1,546  $(12,158) $255  $(10,819)
                     
Other comprehensive income (loss) before reclassifications  3,713   (1,698)  (388)  9   1,636 
Amounts reclassified from AOCI  —   222   232   —   454 
                     
Net current-period other comprehensive income  3,713   (1,476)  (156)  9   2,090 
                     
Balance at June 28, 2014  $3,251  $ 70  $ (12,314)  $264   $(8,729)




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  For the Quarter Ended March 28, 2015 
(In thousands) Cumulative Translation Adjustment  Unrealized (Losses)/Gains on Derivatives  Minimum Pension/OPEB Liability Adjustment  Unrealized Gains on Equity Investments  Total 
                
Balance at December 27, 2014 $(7,076) $(953) $(35,164) $270  $(42,923)
                     
Other comprehensive income (loss) before reclassifications  (7,697)  (837)  895   (27)  (7,666)
Amounts reclassified from accumulated OCI  —   639   521   —   1,160 
                     
Net current-period other comprehensive income  (7,697)  (198)  1,416   (27)  (6,506)
                     
Balance at March 28, 2015 $(14,773) $(1,151) $(33,748) $243  $(49,429)

Reclassification adjustments out of AOCI were as follows:

  Amount reclassified from AOCI
  For the Three Months Ended  
(In thousands) June 27, 2015  June 28, 2014 Affected line item
      
Unrealized losses/(gains) on derivatives:        
  Commodity contracts $(111)  $208 Cost of goods sold
  Foreign currency contracts  —   (99)Depreciation expense
 Interest rate swap  98   — Interest expense
   (5)  (4)Income tax expense
   (18)   105 Net of tax
   —   — Noncontrolling interest
          
  $(18)  $105 
Net of tax and noncontrolling
  interest
          
  Amortization of net loss and prior service cost on employee benefit plans $641  $143 
Selling, general, and administrative
  expense
   (164)  (22)Income tax expense
   477   121 Net of tax
   —   — Noncontrolling interest
          
  $477  $121 Net of tax and noncontrolling  interest

  Amount reclassified from AOCI
  For the Six Months Ended  
(In thousands) June 27, 2015  June 28, 2014 Affected line item
      
Unrealized losses/(gains) on derivatives:        
  Commodity contracts $651  $565 Cost of goods sold
  Foreign currency contracts  —   (375)Depreciation expense
 Interest rate swap  204   — Interest expense
   (234)  32 Income tax (expense) benefit
   621   222 Net of tax
   —   — Noncontrolling interest
          
  $621  $222 Net of tax and noncontrolling  interest
          
  Amortization of net loss and prior service cost on employee benefit plans $1,360  $267 Selling, general, and administrative expense
   (362)  (35)Income tax expense
   998   232 Net of tax
   —   — Noncontrolling interest
          
  $998  $232 Net of tax and noncontrolling  interest
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Note 9 – Acquisitions and Dispositions
  Amount reclassified from AOCI
  For the Quarter Ended  
(In thousands) April 2, 2016  March 28, 2015 Affected line item
      
Unrealized losses/(gains) on derivatives:          
Commodity contracts $237  $762 Cost of goods sold
Interest rate swap  108   106 Interest expense
   (208)  (229)Income tax expense
   137   639 Net of tax
   —   — Noncontrolling interest
               
  $137  $639 
Net of tax and noncontrolling
  interest
               
Amortization of net loss and prior service cost on employee benefit plans $552  $719 
Selling, general, and administrative
  expense
   (140)  (198)Income tax expense
   412   521 Net of tax
   —   — Noncontrolling interest
               
  $412  $521 
Net of tax and noncontrolling
  interest

Acquisitions

On October 18, 2013, the Company entered into a definitive agreement with KME Yorkshire Limited to acquire certain assets and assume certain liabilities of its copper tube business.  Yorkshire Copper Tube (Yorkshire) produces European standard copper distribution tubes.  This transaction received regulatory approval in the United Kingdom on February 11, 2014 and closed on February 28, 2014.  The purchase price was approximately $30.1 million, paid in cash.  The acquisition of Yorkshire complements the Company’s existing copper tube businesses in the Plumbing & Refrigeration segment.  In 2012, Yorkshire had annual revenue of approximately $196.1 million.  During the third quarter of 2014, the purchase price allocation, including all fair value measurements, was finalized.  The fair value of the assets acquired totaled $20.7 million, consisting primarily of inventories of $17.6 million, property, plant, and equipment of $2.1 million, and other current assets of $1.0 million.  The fair value of the liabilities assumed totaled $15.6 million, consisting primarily of accounts payable and accrued expenses of $15.2 million and other current liabilities of $0.4 million.  Of the remaining purchase price, $8.1 million was allocated to tax-deductible goodwill and $16.9 million was allocated to other intangible assets.

The Company recognized approximately $3.4 million of severance costs related to the reorganization of Yorkshire during the second quarter 2015.

On March 30, 2015, the Company entered into a Stock Purchase Agreement with Turbotec Products, Inc. (Turbotec) providing for the purchase of all of the outstanding capital stock of Turbotec for approximately $14.2 million in cash, net of working capital adjustments. Turbotec manufactures coaxial heat exchangers and twisted tubes for the heating, ventilation, and air-conditioning (HVAC), geothermal, refrigeration, swimming pool heat pump, marine, ice machine, commercial boiler, and heat reclamation markets.  The acquisition of Turbotec complements the Company’s existing refrigeration business, a component of the OEM segment.  For the twelve months ended March 31, 2015, Turbotec’s net sales were approximately $21.8 million.  The fair value of the assets acquired totaled $14.4 million, consisting primarily of property, plant, and equipment of $9.1 million, inventories of $3.2 million, accounts receivable of $1.9 million, other current assets of $0.1 million, and other assets of $0.1 million.  The fair value of the liabilities assumed totaled $2.0 million, consisting primarily of accounts payable of $1.6 million and accrued expenses of $0.4 million.  Of the remaining purchase price, $0.9 million was allocated to nontax-deductible goodwill and $0.9 million was allocated to other intangible assets.  The allocation of the purchase price to long-lived assets is provisional as of June 27, 2015 and subject to change upon completion of the final valuation of the assets.  The results of operations for Turbotec have been included in the accompanying Condensed Consolidated Financial Statements from the acquisition date.

On June 18, 2015, the Company entered into a Membership Interest Purchase Agreement with Sherwood Valve Products, LLC (Sherwood) providing for the purchase of all of the outstanding equity interests of Sherwood for $21.8 million in cash, subject to working capital adjustments.  Sherwood manufactures valves and fluid control solutions for the HVAC, refrigeration, and compressed gas markets.  The acquisition of Sherwood complements the Company’s existing refrigeration business, a component of the OEM segment.  In 2014, Sherwood had net sales of approximately $49.1 million.  The fair value of the assets acquired totaled $28.7 million, consisting primarily of inventories of $14.8 million, property, plant, and equipment of $7.5 million, accounts receivable of $6.2 million, and other current assets of $0.2 million.  The fair value of the liabilities assumed totaled $6.9 million, consisting primarily of accounts payable of $6.5 million, accrued wages of $0.3 million, and other current liabilities of $0.1 million.  The allocation of the purchase price and review of working capital is provisional as of June 27, 2015 and subject to change upon completion of the final valuation of the assets.

Dispositions

On June 1, 2015, the Company sold certain assets.  Simultaneously, the Company entered into a lease agreement with the purchaser of the assets for their continued use for a period of approximately 22 months (Lease Period).

The total sales price was $20.2 million, of which $5.0 million was received on June 1, 2015; the Company will receive $5.0 million on December 30, 2016 and the remaining $10.2 million will be received at the end of the Lease Period.  This transaction resulted in a pre-tax gain of $15.4 million in the second quarter of 2015, or 17 cents per diluted share after tax.  This gain was recognized in the Plumbing & Refrigeration segment.

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The net book value of the assets disposed was $2.3 million.  For goodwill testing purposes, these assets were part of the SPD reporting unit which is a component of the Company’s Plumbing & Refrigeration segment.  Because these assets met the definition of a business in accordance with ASC 805, Business Combinations, $2.4 million of the SPD reporting unit’s goodwill balance was allocated to the disposal group.  The amount of goodwill allocated was based on the relative fair values of the asset group which was disposed and the portion of the SPD reporting unit which was retained.

Note 10 – Recently Issued Accounting Standards

In May 2014,March 2016, the Financial Accounting Standards Board (FASB) issued ASU (Accounting Standards Update) No. 2015-09, Compensation – Stock Compensation (Topic 718): Improvement to Employee Share-Based Payment Accounting Standards Update (ASU)(ASU 2016-09).  The ASU requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled.  It will also allow a company to make a policy election to account for forfeitures as they occur.  The guidance is effective for public business entities in interim and fiscal periods beginning after December 15, 2016.  Early adoption is permitted, but all of the guidance must be adopted in the same period.  The Company is in the process of evaluating the impact of ASU 2016-09 on its Condensed Consolidated Financial Statements.

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In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02).  ASU 2016-02 requires an entity to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months.  Recognition, measurement and presentation of expenses will depend on classification as a financing or operating lease.  The amendments also require certain quantitative and qualitative disclosures about leasing arrangements.  The ASU will be effective for interim and fiscal periods beginning after December 15, 2018.  Early adoption is permitted.  The updated guidance requires a modified retrospective adoption.  The Company is still evaluating the effects that the provision of ASU 2016-02 will have on its Condensed Consolidated Financial Statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Topic 835-30): Simplifying the Presentation of Debt Issue Costs (ASU 2015-03).  The ASU simplifies the presentation of debt issuance costs by requiring debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability rather than as a separate asset.  In circumstances in which there is not an associated debt liability amount recorded in the financial statements when the debt issuance costs are incurred, they will be reported on the balance sheet as an asset until the debt liability is recorded.  The guidance is effective for public business entities in interim and fiscal periods beginning after December 15, 2015.  Retrospective application is required.  The Company adopted ASU 2015-03 effective December 27, 2015.  The adoption of the ASU did not have a material impact on the Company's Condensed Consolidated Financial Statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09).  The ASU will supersede virtually all existing revenue recognition guidance under U.S. GAAP and will be effective for annual reporting periods beginning after December 15, 2016.2017.  The fundamental principles of the new guidance are that companies should recognize revenue in a manner that reflects the timing of the transfer of services to customers and the amount of revenue recognized reflects the consideration that a company expects to receive for the goods and services provided.  The new guidance establishes a five-step approach for the recognition of revenue.  The Company is in the process of evaluating the impact of ASU 2014-09 on its Condensed Consolidated Financial Statements.

Note 11 – Subsequent Event

In April 2015,February 2016, the FASB issued ASU No. 2015-04, Compensation – Retirement Benefits (Topic 715): Practical ExpedientCompany entered into an agreement providing for the Measurement Datepurchase of an Employers’ Defined Benefit Obligationa 60 percent equity interest in Jungwoo Metal Ind. Co., LTD (Jungwoo) for KRW 25 billion or approximately $22.0 million.  Jungwoo is a manufacturer of copper-based pipe joining products headquartered in Seoul, South Korea and Plan Assets (ASU 2015-04).serves markets worldwide.  The ASU allows employers with fiscal year-ends that do not coincide with a calendar month-endtransaction was subject to make an accounting policy election to measure defined benefit plan assetscertain closing conditions, including Korean regulatory approval, and obligations as of the end of the month closest to their fiscal year-ends.  The new guidance is effective for public business entities in interim and fiscal periods beginning after December 15, 2015.  Prospective application is required, and early adoption is permitted.  The Company will continue to measure its defined benefit plan assets and obligation at fiscal year-end and will not elect to change the measurement date to a calendar month-end.was completed on April 26, 2016.

Item 2.Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations

General Overview

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

The Company’s businesses
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During the first quarter of 2016, the Company made changes to its management reporting structure as a result of a change in the way the Chief Executive Officer, who serves as the Chief Operating Decision Maker, manages and evaluates the business, makes key operating decisions, and allocates resources.  Previously, the Company had two reportable segments: Plumbing & Refrigeration and OEM.  During the quarter, the Company realigned its operating segments into three reportable segments: Piping Systems, Industrial Metals, and Climate.  Management has recast certain prior period amounts to conform to the current period presentation. Each of the reportable segments is composed of certain operating segments that are aggregated into two reportable segments:primarily by the nature of products offered as follows:

·Plumbing & Refrigeration:
Piping Systems:  The Plumbing & RefrigerationPiping Systems segment is composed of SPD,Domestic Piping Systems Group, Canadian Operations, European Operations, Trading Group, and Mexican Operations.  SPDMueller-Xingrong, our Chinese joint venture.  The Domestic Piping Systems Group manufactures and sells copper tube, copper and plastic fittings, line sets, and valves in North AmericaAmerica.  The Canadian Operations manufacture copper tube and sourcesline sets in Canada and sells the products for import distributionprimarily in North America.the U.S. and Canada. European Operations manufacture copper tube in the United Kingdom, which is sold throughout Europe.  Mexican Operations consist ofThe Trading Group manufactures pipe nipple manufacturingnipples and sources products for import distribution businesses including product lines of malleable iron fittings and other plumbing specialties.in North America.  Mueller-Xingrong manufactures engineered copper tube primarily for air-conditioning applications; these products are sold primarily to OEMs located in China.  The Plumbing & RefrigerationPiping Systems segment sells products to wholesalers in the HVAC, plumbing and refrigeration markets, to distributors to the manufactured housing and recreational vehicle industries, and to building material retailers.retailers, and air-conditioning OEMs.

·OEM:Industrial Metals:  The OEMIndustrial Metals segment is composed of IPD, EPD,Brass Rod & Copper Bar Products, Impacts & Micro Gauge, and Mueller-Xingrong, the Company’s Chinese joint venture.Brass-Value Added Products.  The OEM segment manufactures and sells brass and copper alloy rod, bar, and shapes; aluminum and brass forgings; aluminum and copper impact extrusions; refrigeration valves and fittings; fabricated tubular products; and gas valves and assemblies.   Mueller-XingrongThe segment manufactures engineered copper tube primarily for air-conditioning applications; these products are sold primarily to OEMs located in China.  The OEM segmentand sells its products primarily to original equipment manufacturers, many of which aredomestic OEMs in the HVAC,industrial, construction, heating, ventilation, and air-conditioning, plumbing, and refrigeration markets.

·Climate: The Climate segment is composed of Refrigeration Products, Fabricated Tube Products, Westermeyer, and Turbotec.  The segment manufactures and sells refrigeration valves and fittings and fabricated tubular products.  The segment sells its products primarily to the heating, ventilation, air-conditioning, and refrigeration markets in the U.S.
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New housing starts and commercial construction are important determinants of the Company’sCompany's sales to the HVAC,heating, ventilation, and air-conditioning, refrigeration, and plumbing markets because the principal end use of a significant portion of our products is in the construction of single and multi-family housing and commercial buildings.  Repairs and remodeling projects are also important drivers of underlying demand for these products.  

Residential construction activity has shown improvement in 2014 and into the first half of 2015,recent years, but remains at levels below long-term historical averages.  Continued improvement is expected, but may be tempered by continuing low labor participation rates, the pace of household formations, higher interest rates, and tighter lending standards.  Per the U.S. Census Bureau, the June 2015March 2016 seasonally adjusted annual rate of new housing starts was 1.21.1 million compared with the June 2014March 2015 rate of 927 thousand.  While mortgage1.0 million.  Mortgage rates have risen in 2015 and 2014, they remain at historically low levels, as the average 30-year fixed mortgage rate was 3.773.74 percent for the first sixthree months of 20152016 and 4.173.85 percent for the twelve months ended December 2014.2015. 

The private non-residential construction sector, which includes offices, industrial, health care and retail projects, began showing improvement in 2016 and 2015 and 2014 fromafter declines in previous years.  Per the U.S. Census Bureau, the actual (not seasonally adjusted) value of private nonresidentialnon-residential construction put in place was $389.0 billion in 2015 compared to $347.7 billion in 2014 compared to $312.3 billion in 2013.2014.  The seasonally adjusted annual value of private non-residential value of construction put in place was $392.8$398.3 billion in May 2015February 2016 compared to the December 20142015 rate of $352.7$392.8 billion and the May 2014February 2015 rate of $348.5$360.2 billion.  The Company expectsWe expect that most of these conditions will graduallycontinue to improve.

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

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

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Results of Operations

Consolidated Results

The following table compares summary operating results for the secondfirst quarter of 20152016 and 2014:2015:

 Three Months Ended   Percent Change Six Months Ended    Percent Change  Three Months Ended Percent Change 
(In thousands) June 27, 2015 June 28, 2014   2015 vs. 2014 June 27, 2015 June 28, 2014   2015 vs. 2014  April 2, 2016 March 28, 2015 2016 vs. 2015 
                    
Net sales $555,593  $649,691��(14.5)% $1,092,835 $1,224,065 (10.7)%  $532,809  $537,242   (0.8)%
Operating income 55,554  48,204 15.2 91,278  86,511 5.5   41,467   35,724   16.1 
Net income 33,651  35,045 (4.0) 55,629  59,751 (6.9)   28,630   21,978   30.3 
             

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

    Quarter-to-Date  Year-to-Date   
    2015 vs. 2014   2015 vs. 2014  
Net selling price in core product lines  (5.6)% (7.1)% 
Unit sales volume in core product lines  (7.1)  (1.3)  
Acquisitions & new products  1.2   0.8   
Dispositions   (2.5)  (2.7)  
Other  (0.5)  (0.4)  
           
   (14.5)% (10.7)% 
           
2016 vs. 2015
Net selling price in core product lines(14.0)% 
Unit sales volume in core product lines(1.1)
Acquisitions14.0
Other0.3
(0.8)% 

The decreaseincrease in net sales during the second quarter of 2015 was primarily due to (i) lower unit sales volume of $44.1$57.3 million in our core product lines, primarily copper tube and brass rod, as well as our plastic drain, waste, and vent (DWV) fittings product line, (ii) lower net selling prices of $36.6 million in our core product lines, and (iii) the absence of sales of $15.0 million recorded by Primaflow, a business we sold during November 2014.  These decreases were offsetGreat Lakes Copper Ltd. (Great Lakes), acquired in July 2015, $12.3 million of sales recorded by $5.7Sherwood Valve Products, LLC (Sherwood), acquired in June 2015, and $5.6 million of sales recorded by Turbotec Products, Inc. (Turbotec), acquired in March 2015.

The decrease in net sales during the first half of 2015 was primarily due to (i) These increases were offset by lower net selling prices of $87.5$75.4 million in our core products.  In addition, we had an increase in unit sales volume in the core product lines primarily copper tube and brass rod, (ii) the absence of sales of $31.0 million recordedin our domestic Piping Systems segment that was offset by Primaflow, and (iii) lower unit sales volume of $11.1 million in our core product lines as well as our plastic DWV fittings product line.  These decreases were offset by $5.7 million of sales recorded by Turbotec.the Industrial Metals segment and at Mueller-Xingrong.

Net selling prices generally fluctuate with changes in raw material costs.  Changes in raw material costs are generally passed through to customers by adjustments to selling prices.  The following graph shows the Comex average copper price per pound by quarter for the current and prior fiscal years:

Average Copper Price Per Pound












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The following tables compare cost of goods sold and operating expenses as dollar amounts and as a percent of net sales for the secondfirst quarter of 20152016 and 2014:2015:

  Three Months Ended  Six Months Ended 
(In thousands) June 27, 2015  June 28, 2014  June 27, 2015  June 28, 2014 
             
Cost of goods sold $470,365  $557,775  $931,199  $1,053,552 
Depreciation and
  amortization
  8,188   8,592   16,041   16,699 
Selling, general and administrative expense  33,420   33,367   66,251   66,508 
Gain on sale of assets  (15,376)  —   (15,376)  (1,417)
Severance  3,442   1,753   3,442   2,212 
                 
Operating expenses $500,039  $601,487  $1,001,557  $1,137,554 

  Three Months Ended  Six Months Ended 
  June 27, 2015  June 28, 2014  June 27, 2015  June 28, 2014 
             
Cost of goods sold  84.7%  85.9%  85.2%  86.0%
Depreciation and
  amortization
  1.5   1.3   1.5   1.4 
Selling, general and administrative expense  6.0   5.1   6.0   5.4 
Gain on sale of assets  (2.8)  —   (1.4)  (0.1)
Severance  0.6   0.3   0.3   0.2 
                 
Operating expenses  90.0%  92.6%  91.6%  92.9%
  Three Months Ended 
(In thousands) April 2, 2016  March 28, 2015 
       
Cost of goods sold $446,642  $460,834 
Depreciation and amortization  8,920   7,853 
Selling, general, and administrative expense  35,780   32,831 
         
Operating expenses $491,342  $501,518 

Q2 2015 compared to Q2 2014
  Three Months Ended 
  April 2, 2016  March 28, 2015 
         
Cost of goods sold  83.8%  85.8%
Depreciation and amortization  1.7   1.5 
Selling, general, and administrative expense  6.7   6.1 
         
Operating expenses  92.2%  93.4%

The decrease in cost of goods sold during the second quarter of 2015 was primarily due to the decrease in sales volume and the decrease in the average cost of copper, our principal raw material.material, partially offset by the increase in volume related to the businesses acquired.  Depreciation and amortization forincreased in the secondfirst quarter of 2015 was consistent with the expense recorded2016 primarily as a result of depreciation and amortization of long-lived assets for the second quarter of 2014.businesses acquired.  Selling, general, and administrative expenses increased slightly for the secondfirst quarter of 2015, primarily due to higher net periodic pension costs of $1.3 million.  In addition, there was $1.0 million of equipment relocation costs and fixed asset impairment charges related to the rationalization of Yorkshire Copper Tube (Yorkshire), acquired in February 2014.  Lastly, during the second quarter of 2014 there was a reduction in accruals related to legal matters of $0.5 million.  This was offset by a decrease of $2.7 million in selling, general, and administrative expenses relating to the sale of Primaflow.
During the second quarter of 2015, our operating results were positively impacted by a net gain of $15.4 million recorded on the sale of certain assets. This was offset by $3.4 million of severance charges related to the rationalization of Yorkshire. The second quarter of 2014 also included $1.8 million of severance charges related to the rationalization of Yorkshire.

Interest expense increased in the second quarter of 20152016 primarily as a result of (i) additional costsincremental expenses associated with businesses acquired during 2015.

Interest expense decreased slightly in the first quarter of $0.6 million due to the terms2016 primarily as a result of our interest rate swap agreements that became effective in January 2015, and (ii) increaseddecreased borrowing costs of $0.2 million at Mueller-Xingrong to fund working capital.Mueller-Xingrong.  Other income, net, for the secondfirst quarter of 20152016 was consistent with the secondfirst quarter of 2014.2015.

Our effective tax rate for the secondfirst quarter of 20152016 was 3735 percent compared with 2534 percent for the same period last year.  The difference between the effective tax rate and the amount computed using the U.S. federal statutory tax rate for the secondfirst quarter of 20152016 was primarily attributable to state income taxes of $1.4 million and other miscellaneous items totaling $0.6 million, which were partially offset by the reductionreductions for the U.S. production activities deduction of $1.2 million.

For the second quarter of 2014, the difference between the effective tax rate$0.9 million and the amount that would be computed using the U.S. federaleffect of foreign tax rates lower than statutory tax rate was attributable to reductions related to the U.S. production activities deductionrates of $1.4 million and decreases in valuation allowances of $4.8$1.1 million.  These items were partially offset by the provision for state income taxes, net of the federal benefit, of $1.2$0.8 million and the recording of the basis difference in  unconsolidated affiliates of $1.0 million.

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Q2 2015 YTD compared to Q2 2014 YTD

The decrease in cost of goods sold during the first half of 2015 was primarily due to the decrease in the average cost of copper and the decrease in sales volume.  In addition, during the first half of 2014 we recognized a decrease in accruals related to import duties of $3.1 million that positively impacted cost of goods sold.  Depreciation and amortization for the first half of 2015 was consistent with the expense recorded for the first half of 2014.Selling, general, and administrative expenses decreased slightly for the first half of 2015, primarily due to a decrease in employment costs of $3.5 million primarily related to the sale of Primaflow and lower incentive compensation costs of $0.5 million.  This was offset by higher net periodic pension costs of $1.9 million.  In addition, there was $1.3 million of equipment relocation costs and fixed asset impairment charges related to the rationalization of Yorkshire.  Lastly, during the second quarter of 2014 there was a reduction in accruals related to legal matters of $0.5 million.  

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

Our operating income in the first half of 2014 was positively impacted by a $1.4 million gain recorded on the sale of the land and building in Portage, Michigan.  The first half of 2014 also included $2.2 million of severance charges related to the rationalization of Yorkshire.

Interest expense increased in the first half of 2015 primarily as a result of (i) additional costs of $1.1 million due to the terms of our interest rate swap agreements that became effective in January 2015, and (ii) increased borrowing costs of $0.7 million at Mueller-Xingrong to fund working capital.  Other income, net, for the first half of 2015 was consistent with the second quarter of 2014.

Our effective tax rate for the first half of 2015 was 36 percent compared with 29 percent for the same period last year.  The difference between the effective tax rate and what would bethe amount computed using the U.S. federal statutory tax rate for the first quarter of 2015 was primarily attributable to state income taxes of $2.2 million and miscellaneous other items totaling $1.0 million.  These items were partially offset by reductions for the U.S. production activities deduction of $2.2$1.0 million and the effect of foreign tax rates lower than statutory tax rates and other foreign adjustments of $0.4 million.

For the first half of 2014, the difference between the effective tax rate and what would be computed using the U.S. federal statutory tax rate was attributable to reductions for: (i) the U.S. production activities deduction of $2.6 million; (ii) decreases in valuation allowances of $5.7 million; and (iii) the effect of foreign tax rates lower than statutory tax rates and other foreign adjustments of $0.3$0.5 million.  These items were partially offset by the provision for state income taxes, net of the federal benefit, of $2.5$0.8 million.

Plumbing & RefrigerationWe own a 50 percent interest in Tecumseh Products Holdings LLC, an unconsolidated affiliate that acquired Tecumseh Products Company (Tecumseh) during the third quarter of 2015.  We also own a 50 percent interest in a second unconsolidated affiliate that provided financing to Tecumseh in conjunction with the acquisition.  We account for these investments using the equity method of accounting.  For the first quarter of 2016, we recognized $2.9 million of income on these investments.  Included in income from unconsolidated affiliates is a gain that resulted from the allocation of purchase price, which was finalized during the quarter.  That gain was offset by restructuring and impairment charges and operating losses.


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Piping Systems Segment

The following table compares summary operating results for the secondfirst quarter of 20152016 and 20142015 for the businesses comprising our Plumbing & RefrigerationPiping Systems segment:

 Three Months Ended   Percent Change Six Months Ended    Percent Change Three Months Ended Percent Change 
(In thousands) June 27, 2015 June 28, 2014   2015 vs. 2014 June 27, 2015 June 28, 2014   2015 vs. 2014 April 2, 2016 March 28, 2015 2016 vs. 2015 
                    
Net sales $327,336  $397,190 (17.6)% $632,353 $735,217 (14.0)%  $368,890  $361,482   2.0%
Operating income 35,983  32,330 11.3 55,474  56,215 (1.3)   31,159   26,259   18.7 
             

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

   Quarter-to-Date   Year-to-Date    
   2015 vs. 2014    2015 vs. 2014   
Net selling price in core product lines (6.2)% (7.8)% 
Unit sales volume in core product lines (6.9)  (1.2)  
Dispositions  (4.1)  (4.6)  
Other (0.4)  (0.4)  
          
  (17.6)% (14.0)% 
          
The decrease in net sales during the second quarter of 2015 was primarily due to (i) lower unit sales volume of $27.0 million in the segment’s core product lines, primarily copper tube, as well as our plastic DWV fittings product line, (ii) lower net selling prices of $24.4 million in the segment’s core product lines, and (iii) the absence of sales of $15.0 million recorded by Primaflow.

The decrease in net sales during the first half of 2015 was primarily due to (i) lower net selling prices of $57.2 million in the segment’s core product lines, primarily copper tube, (ii) the absence of sales of $31.0 million recorded by Primaflow, and (iii) lower unit sales volume of $8.9 million in the segment’s core product lines, as well as the plastic DWV fittings product line.

The following tables compare operating expenses as dollar amounts and as a percent of net sales for the second quarter of 2015 and 2014:

  Three Months Ended  Six Months Ended   
(In thousands) June 27, 2015  June 28, 2014  June 27, 2015  June 28, 2014   
               
Cost of goods sold $278,237  $336,256  $538,700  $625,281   
Depreciation and  amortization  4,577   5,096   9,100   9,516   
Selling, general and administrative expense  20,473   21,755   41,013   43,410   
Gain on sale of assets  (15,376)  —   (15,376)  (1,417)  
Severance  3,442   1,753   3,442   2,212   
                   
Operating expenses $291,353  $364,860  $576,879  $679,002   



  Three Months Ended  Six Months Ended   
  June 27, 2015  June 28, 2014  June 27, 2015  June 28, 2014   
               
Cost of goods sold  85.0%  84.7%  85.2%  85.0%  
Depreciation and  amortization  1.4   1.3   1.4   1.3   
Selling, general and administrative expense  6.2   5.5   6.5   5.9   
Gain on sale of assets  (4.7)  —   (2.4)  (0.2)  
Severance  1.1   0.4   0.5   0.3   
                   
Operating expenses  89.0%  91.9%  91.2%  92.3%  



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Q2 2015 compared to Q2 2014

The decrease in cost of goods sold during the second quarter of 2015 was primarily due to the decrease sales volume and the decrease in the average cost of copper.  Depreciation and amortization for the second quarter of 2015 was consistent with the expense recorded for the second quarter of 2014.  Selling, general, and administrative expenses decreased slightly for the second quarter of 2015, primarily due to a decrease of $2.7 million in selling, general, and administrative expenses relating to the sale of Primaflow. This was offset by (i) equipment relocation costs and fixed asset impairment charges related to the rationalization of Yorkshire of $1.0 million and (ii) higher net periodic pension costs of $0.3 million.  Lastly, during the second quarter of 2014 there was a reduction in accruals related to legal matters of $0.5 million.

During the second quarter of 2015, the segment’s operating results were positively impacted by a net gain of $15.4 million recorded on the sale of certain assets. This was offset by $3.4 million of severance charges related to the rationalization of Yorkshire. The second quarter of 2014 also included $1.8 million of severance charges related to the rationalization of Yorkshire.

Q2 2015 YTD compared to Q2 2014 YTD

The decrease in cost of goods sold during the first half of 2015 was primarily due to the decrease in the average cost of copper and the decrease in sales volume.  In addition, during the first half of 2014 we recognized a decrease in accruals related to import duties of $3.1 million that positively impacted cost of goods sold.  Depreciation and amortization for the first half of 2015 was consistent with the expense recorded for the first half of 2014.  Selling, general, and administrative expenses decreased slightly for the first half of 2015, primarily due to a decrease of $2.7 million in selling, general, and administrative expenses relating to the sale of Primaflow.  This was offset by (i) equipment relocation costs and fixed asset impairment charges related to the rationalization of Yorkshire of $1.3 million and (ii) higher net periodic pension costs of $0.4 million.  Lastly, during the second quarter of 2014 there was a reduction in accruals related to legal matters of $0.5 million.

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

The segment’s operating income in the first half of 2014 was positively impacted by a $1.4 million gain recorded on the sale of the land and building in Portage, Michigan.  The first half of 2014 also included $2.2 million of severance charges related to the rationalization of Yorkshire.

OEM Segment

The following table compares summary operating results for the second quarter of 2015 and 2014 for the businesses comprising our OEM segment:

  Three Months  Ended   Percent Change   Six Months Ended    Percent Change   
(In thousands) June 27, 2015  June 28, 2014   2015 vs. 2014   June 27, 2015  June 28, 2014   2015 vs. 2014   
                    
Net sales $230,380  $255,409 (9.8)% $465,697  $495,439 (6.0)% 
Operating income  26,801   23,216 15.4    49,349   44,502 10.9   
                        



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

   Quarter-to-Date   Year-to-Date    
   2015 vs. 2014    2015 vs. 2014   
Net selling price in core product lines (4.8)% (6.1)% 
Unit sales volume in core product lines (7.6)  (1.4)  
Acquisitions & new products 3.1   2.1   
Other (0.5)  (0.6)  
          
  (9.8)% (6.0)% 
          
2016 vs. 2015
Net selling price in core product lines(14.7)% 
Unit sales volume in core product lines0.9
Acquisitions15.9
Other(0.1)
2.0% 
The decreaseincrease in net sales during the second quarter of 2015 was primarily due to (i) lower unit sales volume of $17.0 million in the segment’s core product lines, primarily brass rod, and (ii) lower net selling prices of $12.2 million in the segment’s core product lines.  These decreases were offset by $5.7$57.3 million of sales recorded by Turbotec.

The decreaseGreat Lakes and (ii) higher unit sales volume in net sales during the first half of 2015 wassegment's domestic core product lines, primarily due tocopper tube.  These increases were offset by (i) lower net selling prices of $30.2$53.0 million in the segment’ssegment's core product lines primarily brass rod and commercial tube, and (ii) lower unita decrease in sales volume of $2.2 million inby the segment’s coresegment's other product lines.  These decreases were offset by $5.7 million of sales recorded by Turbotec.lines, primarily Mueller-Xingrong.

The following tables compare cost of goods sold and operating expenses as dollar amounts and as a percent of net sales for the secondfirst quarter of 20152016 and 2014:2015:

  Three Months Ended  Six Months Ended   
(In thousands) June 27, 2015  June 28, 2014  June 27, 2015  June 28, 2014   
               
Cost of goods sold $194,207  $224,392  $397,640  $434,795   
Depreciation and  amortization  3,133   2,892   5,988   5,975   
Selling, general and administrative expense  6,239   4,909   12,720   10,167   
                   
Operating expenses $203,579  $232,193  $416,348  $450,937   

 Three Months Ended Six Months Ended  Three Months Ended 
 June 27, 2015 June 28, 2014 June 27, 2015 June 28, 2014 
(In thousands) April 2, 2016  March 28, 2015 
               
Cost of goods sold 84.3% 87.9% 85.4%  87.8%  $313,792  $312,690 
Depreciation and amortization 1.4 1.1 1.3 1.2   5,649   5,187 
Selling, general and administrative expense  2.7  1.9  2.7  2.0 
Selling, general, and administrative expense  18,290   17,346 
                 
Operating expenses  88.4%  90.9%  89.4%  91.0%  $337,731  $335,223 

Q2 2015 compared to Q2 2014
  Three Months Ended 
  April 2, 2016  March 28, 2015 
         
Cost of goods sold  85.1%  86.5%
Depreciation and amortization  1.5   1.4 
Selling, general, and administrative expense  5.0   4.8 
         
Operating expenses  91.6%  92.7%

The decreaseincrease in cost of goods sold during the second quarter of 2015 was primarily due to the decreaseincrease in sales volume andrelated to Great Lakes, largely offset by the decrease in the average cost of copper.  Depreciation and amortization forincreased slightly as a result of depreciation and amortization of the second quarter of 2015 was consistent with the expense recorded for the second quarter of 2014.long-lived assets acquired at Great Lakes.Selling, general, and administrative expenses increased for the secondfirst quarter of 2016 primarily as a result of incremental expenses associated with Great Lakes of $1.6 million.  This was offset by a reduction of $0.4 million of equipment relocation costs related to the rationalization of Yorkshire Copper Tube in 2015 as well as foreign currency transaction gains of $0.5 million in the current quarter. 

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Industrial Metals Segment

The following table compares summary operating results for the first quarter of 2016 and 2015 for the businesses comprising our Industrial Metals segment:

 Three Months Ended Percent Change 
(In thousands)April 2, 2016 March 28, 2015 2016 vs. 2015 
        
Net sales $134,521  $151,036   (10.9)%
Operating income  19,912   18,959   5.0 

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

2016 vs. 2015
Net selling price in core product lines(14.7)% 
Unit sales volume in core product lines(6.0)
Acquisitions8.1
Other1.7
(10.9)% 
The decrease in net sales was primarily due to higher(i) lower net periodic pension costsselling prices of $1.0 million.  $22.2 million and (ii) lower unit sales volume of $9.1 million in the segment's core product lines, primarily brass rod. This was offset by $12.3 million of sales recorded by Sherwood.

The following tables compare cost of goods sold and operating expenses as dollar amounts and as a percent of net sales for the first quarter of 2016 and 2015:

  Three Months Ended 
(In thousands) April 2, 2016  March 28, 2015 
       
Cost of goods sold $109,229  $127,724 
Depreciation and amortization  2,135   1,655 
Selling, general, and administrative expense  3,245   2,698 
         
Operating expenses $114,609  $132,077 

  Three Months Ended 
  April 2, 2016  March 28, 2015 
         
Cost of goods sold  81.2%  84.6%
Depreciation and amortization  1.6   1.1 
Selling, general, and administrative expense  2.4   1.7 
         
Operating expenses  85.2%  87.4%
 
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Q2 2015 YTD compared to Q2 2014 YTD

The decrease in cost of goods sold during the first half of 2015 was primarily duerelated to the decreasefactors consistent with those noted regarding changes in the average cost of copper and the decrease in sales volume.net sales.  Depreciation and amortization forincreased as a result of depreciation and amortization of the first half of 2015 was consistent with the expense recorded for the first half of 2014.long-lived assets acquired at Sherwood and recent capital expenditures.Selling, general, and administrative expenses increased slightly for the first halfprimarily as a result of 2015, primarily due to higherincremental expenses associated with Sherwood of $0.7 million.  This was offset by lower net periodic pension costs of $1.5 million$0.2 million. 

Climate Segment

The following table compares summary operating results for the first quarter of 2016 and 2015 for the businesses comprising our Climate segment:

 Three Months Ended Percent Change 
(In thousands)April 2, 2016 March 28, 2015 2016 vs. 2015 
        
Net sales $30,706  $25,811   19.0%
Operating income  3,879   2,265   71.3 

The increase in net sales was primarily due to additional sales recorded by Turbotec, acquired in June 2015.

The following tables compare cost of goods sold and operating expenses as welldollar amounts and as additional employment costsa percent of $0.4 millionnet sales for the first quarter of 2016 and 2015:

  Three Months Ended 
(In thousands) April 2, 2016  March 28, 2015 
       
Cost of goods sold $23,705  $21,267 
Depreciation and amortization  599   425 
Selling, general, and administrative expense  2,523   1,854 
         
Operating expenses $26,827  $23,546 

  Three Months Ended 
  April 2, 2016  March 28, 2015 
         
Cost of goods sold  77.2%  82.4%
Depreciation and amortization  2.0   1.6 
Selling, general, and administrative expense  8.2   7.2 
         
Operating expenses  87.4%  91.2%

The increase in cost of goods sold was related to the increase in volume, offset by improved margins and product mix within the segment.  Depreciation and amortization increased slightly as a result of depreciation and amortization of the long-lived assets acquired at Turbotec.  Selling, general, and administrative expenses increased primarily as a result of incremental expenses associated with Turbotec of $0.6 million. 




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Liquidity and Capital Resources

The following table presents selected financial information for the first halfquarter of 2016 and 2015:

(In thousands) 2016  2015 
       
Cash and cash equivalents $270,149  $326,894 
Property, plant, and equipment, net  278,481   244,909 
Total debt  210,583   236,676 
Working capital, net of cash and current debt  352,587   421,753 
         
Cash provided by operating activities  10,336   3,890 
Cash used in investing activities  (5,807)  (19,493)
Cash used in financing activities  (9,053)  (8,121)

Cash Provided by Operating Activities

During the three months ended April 2, 2016, cash provided by operating activities was primarily attributable to consolidated net income of $28.7 million and depreciation and amortization of $9.0 million.  This was partially offset by increased receivables of $25.1 million primarily due to a net increase in working capital needs related to higher sales at the end of the first quarter.

During the three months ended March 28, 2015, cash provided by operating activities was primarily attributable to consolidated net income of $22.3 million, depreciation and amortization of $8.0 million, decreased other assets of $9.3 million, and decreased inventories of $7.5 million, partially offset by increased receivables of $36.7 million and decreased current liabilities of $7.4 million.  These fluctuations are primarily due to a net increase in working capital needs related to higher sales at the end of the first quarter.

Cash Used in Investing Activities

Net cash used in investing activities in the first three months of 2016 was primarily related to capital expenditures of $5.9 million.

The major components of net cash used in investing activities in the first three months of 2015 included net deposits into restricted cash balances of $12.6 million and 2014:capital expenditures of $7.4 million.

(In thousands) 2015  2014 
         
Cash and cash equivalents $299,147  $242,199 
Property, plant, and equipment, net  261,149   245,441 
Total debt  222,764   266,078 
Working capital, net of cash and current debt  440,138   496,022 
         
Cash provided by (used in) operating activities  17,150   (50,881)
Cash used in investing activities  (42,943)  (42,281)
Cash (used in) provided by financing activities  (26,414)  23,198 
Cash Used in Financing Activities

For the first quarter of 2016, net cash used in financing activities consisted primarily of repayment of debt by Mueller-Xingrong of $7.0 million and payment of regular quarterly dividends to stockholders of the Company of $4.2 million, offset by issuance of debt of $2.0 million.

For the first quarter of 2015, net cash used in financing activities consisted primarily of $4.2 million used for payment of regular quarterly dividends to stockholders of the Company and $3.8 million used for the repayment of debt by Mueller-Xingrong.

Liquidity and Outlook

Management believes that cash provided by operations, funds available under the credit agreement, and cash and cash equivalents on hand of $299.1 million will be adequate to meet the Company’s normal futureour liquidity needs, including working capital, expenditurecapital expenditures, and operational needs.debt payment obligations.  Our current ratio (current assets divided by current liabilities) was 4.44.1 to 1 as of June 27, 2015.April 2, 2016.

The Company hasWe have significant environmental remediation obligations expectedwhich we expect to occurpay over future years.  Cash used for environmental remediation activities was approximately $0.7$0.2 million during the first sixthree months of 2015.2016.  We expect to spend approximately $0.4$0.5 million for the remainder of 20152016 for ongoing environmental remediation activities.  The timing of a potential payment for a $9.5 million settlement offer related to the Southeast Kansas Sites has not yet been determined.

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The Company declared and paid a quarterly cash dividend of 7.5 cents per common share in the first quarter of 2016 and second quarters of 2015 and 2014.2015.  Payment of dividends in the future is dependent upon the Company’sour financial condition, cash flows, capital requirements, earnings, and other factors.  

On March 30, 2015,In February 2016, the Company entered into a Stock Purchase Agreement with Turbotecan agreement providing for the purchase of alla 60 percent equity interest in Jungwoo Metal Ind. Co., LTD (Jungwoo) for KRN 25 billion or approximately $22.0 million.  Jungwoo is a manufacturer of the outstanding capital stock of Turbotec for approximately $14.1 millioncopper-based pipe joining products headquartered in cash, net of working capital adjustments.Seoul, South Korea and serves markets worldwide.  The transaction was subject to certain closing conditions, including Korean regulatory approval, and was completed on April 26, 2016.

On June 18, 2015, the Company entered into a Membership Interest Purchase Agreement with Sherwood Valve Products, Inc. (Sherwood) providing for the purchase of all of the outstanding equity interests of Sherwood for $21.8 million in cash, subject to working capital adjustments.

Cash Provided by Operating Activities

During the six months ended June 27, 2015, cash provided by operating activities was primarily attributable to consolidated net income of $56.2 million and depreciation and amortization of $16.3 million. These cash increases were partially offset by increased receivables of $24.3 million, decreased current liabilities of $19.6 million, and the $15.4 million gain on the sale of certain assets.  These fluctuations are primarily due to a net increase in working capital needs.

During the six months ended June 28, 2014, cash used in operating activities was primarily attributable to increased receivables of $100.4 million, inventories of $20.6 million, and other assets of $8.9 million, partially offset by consolidated net income of $60.2 million plus depreciation and amortization of $16.8 million.  The fluctuations in receivables and inventories are primarily due to increased sales volume in certain businesses and additional working capital needs in the first half of 2014.

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Cash Used in Investing ActivitiesLong-Term Debt

The major components of net cash used in investing activities in the first six months of 2015 included $36.0 million for the acquisition of Turbotec and Sherwood and capital expenditures of $16.0 million. These cash decreases were offset by $5.5 million in proceeds from the sale of certain assets and net deposits into restricted cash of $3.5 million.

The major components of net cash used in investing activities in the first six months of 2014 included $30.1 million for the acquisition of Yorkshire and capital expenditures of $18.8 million, offset by $4.9 million in proceeds from the sale of properties and net withdrawals from restricted cash balances of $1.8 million.

Cash Used in Financing Activities

For the first half of 2015, net cash used in financing activities consisted primarily of $17.8 million used for the repayment of debt by Mueller-Xingrong and $8.4 million used for payment of regular quarterly dividends to stockholders of the Company.

For the first half of 2014, net cash provided by financing activities consisted primarily of $22.6 million received from the issuance of debt by Mueller Europe, Limited and $8.9 million received from the issuance of debt by Mueller-Xingrong, partially offset by $8.4 million used for payment of regular quarterly dividends to stockholders of the Company.

Debt

The Company’sCompany's credit agreement provides for an unsecured $200.0 million revolving credit facility (the Revolving Credit Facility) and a $200.0 million Term Loan Facility, both maturingof which mature on December 11, 2017.  The Revolving Credit Facility backed approximately $8.8$6.6 million in letters of credit at the end of the quarter.  

On February 2, 2015,March 23, 2016, Mueller-Xingrong entered into a new secured revolving credit agreementarrangement with a total borrowing capacity of RMB 230150 million (or approximately $37.1$24.1 million).  In addition, Mueller-Xingrong occasionally finances working capital through various accounts receivable and bank draft discount arrangements.  Borrowings are secured by the real property and equipment and bank draft receivables of Mueller-Xingrong and bear interest at the latest base-lending rate published by the People's Bank of China, which was 4.35 percent as of April 2, 2016.  Total borrowings at Mueller-Xingrong were $17.0$3.6 million as of June 27, 2015.April 2, 2016.

As of June 27, 2015,April 2, 2016, the Company’sCompany's total debt was $222.8$210.6 million or 20.919.2 percent of its total capitalization.

Covenants contained in the Company’sCompany's financing obligations require, among other things, the maintenance of minimum levels of tangible net worth and the satisfaction of certain minimum financial ratios.  As of June 27, 2015,April 2, 2016, the Company was in compliance with all of its debt covenants.

Share Repurchase Program

The Company’sOur Board of Directors has extended, until October 2015,2016, its authorization to repurchase up to 20 million shares of the Company’sCompany's common stock through open market transactions or through privately negotiated transactions.  The Company has no obligation to repurchase any shares and may cancel, suspend, or extend the time period for the repurchase of shares at any time.  Any repurchases will be funded primarily through existing cash and cash from operations.  The Company may hold any shares repurchased in treasury or use a portion of the repurchased shares for employee benefit plans, as well as for other corporate purposes.  From its initial authorization in 1999 through June 27, 2015,April 2, 2016, the Company hadhas repurchased approximately 4.7 million shares under this authorization.  

Contractual Cash Obligations

There have been no significant changes in the Company’sCompany's contractual cash obligations reported at December 27, 2014.26, 2015 other than the aforementioned commitment to purchase Jungwoo for $22.0 million, which was funded during the second quarter of 2016.

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Item 3.
3.		Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk from changes in raw material and energy costs, interest rates, and foreign currency exchange rates.  To reduce such risks, the Company may periodically use financial instruments.  Hedging transactions are authorized and executed pursuant to policies and procedures.  Further, the Company does not buy or sell financial instruments for trading purposes.

Cost and Availability of Raw Materials and Energy

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

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The Company occasionally enters into forward fixed-price arrangements with certain customers.  We may utilize futures contracts to hedge risks associated with these forward fixed-price arrangements.  The CompanyWe may also utilize futures contracts to manage price risk associated with inventory.  Depending on the nature of the hedge, changes in the fair value of the futures contracts will either be offset against the change in fair value of the inventory through earnings or recognized as a component of accumulated other comprehensive income (AOCI) and reflected in earnings upon the sale of inventory.  Periodic value fluctuations of the contracts generally offset the value fluctuations of the underlying fixed-price transactions or inventory.  At June 27, 2015, the Companyquarter-end, we held open futures contracts to purchase approximately $26.8$23.7 million of copper over the next 13nine months related to fixed-price sales orders and to sell approximately $28.1$20.8 million of copper over the next sixfour months related to copper inventory.

We may enter into futures contracts or forward fixed-price arrangements with certain vendors to manage price risk associated with natural gas purchases.  The effective portion of gains and losses with respect to thesefutures positions are deferred in stockholders’ equity as a component of AOCI and reflected in earnings upon consumption of natural gas.  Periodic value fluctuations of the futures contracts generally offset the value fluctuations of the underlying natural gas prices.  There were no open futures contracts to purchase natural gas at June 27, 2015.April 2, 2016.

Interest Rates

At June 27, 2015,April 2, 2016, the Company had variable-rate debt outstanding of $222.8$210.6 million.  At these borrowing levels, a hypothetical 10 percent increase in interest rates would have had an insignificant unfavorable impact on the Company’sCompany's pretax earnings and cash flows.  The primary interest rate exposures on floating-rate debt are based on LIBOR and the base-lending rate published by the People’sPeople's Bank of China.  There was no fixed rate debt outstanding as of June 27, 2015.April 2, 2016.

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

Foreign Currency Exchange Rates

Foreign currency exposures arising from transactions include firm commitments and anticipated transactions denominated in a currency other than an entity’sentity's functional currency.  The Company and its subsidiaries generally enter into transactions denominated in their respective functional currencies.  The CompanyWe may utilize certain futures or forward contracts with financial institutions to hedge foreign currency transactional exposures.  Gains and losses with respect to these positions are deferred in stockholders’ equity as a component of AOCI and reflected in earnings upon collection of receivables or payment of commitments.  At June 27, 2015,April 2, 2016, the Company had open futuresforward contracts with a financial institution to sell approximately 3.42.7 million euros, 15.48.1 million Swedish kronor, and 10.79.0 million Norwegian kroner through October 2015.July 2016.  It also held open futuresforward contracts to buy approximately 3.42.7 million euros over the next five months.through November 2016.

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The Company’sCompany's primary foreign currency exposure arises from foreign-denominated revenues and profits and their translation into U.S. dollars.  The primary currencies to which we are exposed include the Canadian dollar, the British pound sterling, the euro, the Mexican peso, and the Chinese renminbi.  The Company generally views as long-term its investments in foreign subsidiaries with a functional currency other than the U.S. dollar.dollar as long-term.  As a result, we generally do not hedge these net investments.

Cautionary Statement Regarding Forward Looking Information

Statements in thisThis Quarterly Report contains various forward-looking statements and includes assumptions concerning the Company's operations, future results, and prospects.  These forward-looking statements are based on Form 10-Q thatcurrent expectations and are not strictly historicalsubject to risk and uncertainties, and may be “forward-looking” statements, which involve risksinfluenced by factors that could cause actual outcomes and uncertainties.  These include economic and currency conditions, continued availability of raw materials and energy, market demand, pricing, competitive and technological factors, and the availability of financing, among others, as set forth in the Company’s filings with the Securities and Exchange Commission (SEC).results to be materially different from those predicted.  The words “pro forma,” “outlook,” “estimate,” “project,” “intend,” “expect,” “believe,” “target,” “encourage,” “anticipate,” and similar expressions are intended to identify forward-looking statements.  The reader should not place undue reliance on forward-looking statements which speak onlyreflect knowledge and information available as of the date of this report.  Thepreparation of the Quarterly Report, and the Company hasundertakes no obligation to publicly update or revise anythese forward-looking statements.  We identify the forward-looking statements by using the words "anticipates," "believes," "expects," "intends" or similar expressions in such statements.

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

Item 4.
Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure information required to be disclosed in Company reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the time periods specified in the SEC’sSEC's rules and forms.  Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’sCompany's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company’sCompany's management, with the participation of the Company’sCompany's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’sCompany's disclosure controls and procedures pursuant to Rule 13a-15(e) of the Exchange Act as of June 27, 2015.April 2, 2016.  Based on that evaluation, the Company’sCompany's Chief Executive Officer and Chief Financial Officer have concluded that the Company’sCompany's disclosure controls and procedures are effective as of June 27, 2015April 2, 2016 to ensure that information required to be disclosed in Company reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to management, including the Company’sCompany's principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’sCompany's internal control over financial reporting during the Company’sits fiscal quarter ending June 27, 2015,April 2, 2016, that have materially affected, or are reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting.

PART II
OTHER INFORMATION
Item 1.
Legal Proceedings

General

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


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Item 1A.1A.
Risk Factors

The Company is exposed to risk as it operates its businesses.  To provide a framework to understand the operating environment of the Company, we have provided a brief explanation of the more significant risks associated with our businesses in our 20142015 Annual Report on Form 10-K.  There have been no material changes in risk factors that were previously disclosed in our 20142015 Annual Report on Form 10-K.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The Company’sCompany's Board of Directors has extended, until October 2015,2016, its authorization to repurchase up to 20 million shares of the Company’sCompany's common stock through open market transactions or through privately negotiated transactions.  The Company has no obligation to repurchase any shares and may cancel, suspend, or extend the time period for the repurchase of shares at any time.  Any repurchases will be funded primarily through existing cash and cash from operations.  The Company may hold any shares repurchased in treasury or use a portion of the repurchased shares for employee benefit plans, as well as for other corporate purposes.  From its initial authorization in 1999 through June 27, 2015,April 2, 2016, the Company had repurchased approximately 4.7 million shares under this authorization.   Below is a summary of the Company’sCompany's stock repurchases for the period ended June 27, 2015.April 2, 2016.

  (a)  (b)  (c) (d) 
  
Total Number
of Shares Purchased
  
Average Price
Paid per Share
 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs 
           
           15,287,060
(1)
             
March 29 – April 25, 2015 16,551(2) $ 35.91 —    
             
April 26 – May 23, 2015 5,425(2)  35.46 —    
             
May 24 – June 27, 2015 —(2)  — —    
             
(1) Shares available to be purchased under the Company’s 20 million share repurchase authorization until October 2015.  The extension of the authorization was announced on October 24, 2014.
            
(2) Shares tendered to the Company by holders of stock-based awards in payment of the purchase price and/or withholding taxes upon exercise and/or vesting.
  (a)   (b)  (c)  (d)  
  Total Number of Shares Purchased   Average Price Paid per Share  Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs  Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs  
               
             15,287,060 
(1) 
                
December 27, 2015 – January 30, 2016  — 
(2) 
 $—   —      
                   
January 31 – February 27, 2016  1,013 
(2) 
 $26.16   —      
                   
February 28 – April 2, 2016  83,290 
(2) 
 $20.77   —      
                   
 Total  84,303                
                   
(1) Shares available to be purchased under the Company's 20 million share repurchase authorization until October 2016. The extension of the authorization was announced on October 21, 2015. 
                   
(2) Shares tendered to the Company by holders of stock-based awards in payment of the purchase price and/or withholding taxes upon exercise and/or vesting. Also includes shares resulting from restricted stock forfeitures. 




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Item 6.6.
Exhibits
Exhibits
 10.1Membership Interest PurchaseSeparation and Release Agreement, by and between Sherwood Valve Products, Inc.the Company and Taylor-Wharton International LLC,Douglas J. Murdock, dated as of June 18, 2015March 11, 2016 (Incorporated herein by reference to Exhibit 10.1 of the Registrant’sRegristrant's Current Report on Form 8-K, dated June 19, 2015)March 15, 2016). 
    
 31.1Certification of Chief Executive Officer pursuant to Section 302Rule 13a-14(a) and Rule 15d-14(a) of the Sarbanes-OxleySecurities Exchange Act of 2002.1934, as amended. 
    
 31.2Certification of Chief Financial Officer pursuant to Section 302Rule 13a-14(a) and Rule 15d-14(a) of the Sarbanes-OxleySecurities Exchange Act of 2002.1934, as amended. 
    
 32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 
    
 32.2Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 
    
 101.CALXBRL Taxonomy Extension Calculation Linkbase 
    
 101.DEFXBRL Taxonomy Extension Definition Linkbase  
    
 101.INSXBRL Instance Document 
    
 101.LABXBRL Taxonomy Extension Label Linkbase  
    
 101.PREXBRL Presentation Linkbase Document 
    
 101.SCHXBRL Taxonomy Extension Schema  

Items 3, 4, and 5 are not applicable and have been omitted.


 
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SIGNATURESSIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



 MUELLER INDUSTRIES, INC.
  
  
 
/s/ Jeffrey A. Martin
 Jeffrey A. Martin
July 22, 2015
April 27, 2016
Chief Financial Officer and Treasurer
Date(Principal Financial and Accounting Officer)
  
  
 
/s/ Anthony J. Steinriede
July 22, 2015
April 27, 2016
Anthony J. Steinriede
DateVice President – Corporate Controller
  
  
  
  
  
  
  
  
  
  


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Exhibits
Description
  
31.1Certification of Chief Executive Officer pursuant to Section 302Rule 13a-14(a) and Rule 15d-14(a) of the Sarbanes-OxleySecurities Exchange Act of 2002.1934, as amended.
  
31.2Certification of Chief Financial Officer pursuant to Section 302Rule 13a-14(a) and Rule 15d-14(a) of the Sarbanes-OxleySecurities Exchange Act of 2002.1934, as amended.
  
32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
32.2Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
101.CALXBRL Taxonomy Extension Calculation Linkbase
  
101.DEFXBRL Taxonomy Extension Definition Linkbase 
  
101.INSXBRL Instance Document
  
101.LABXBRL Taxonomy Extension Label Linkbase 
  
101.PREXBRL Presentation Linkbase Document
  
101.SCHXBRL Taxonomy Extension Schema