NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Corporations accounting policies conform to accounting principles generally accepted in the United States of America. The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to estimates and assumptions include valuing the
assets and obligations related to employee benefit plans, assessing the carrying value of long-lived assets, accounting for loss contingencies associated with claims and lawsuits, accounting for income taxes and estimating the fair value of stock
options granted. Actual results could differ from those estimates. A summary of the significant accounting policies followed by the Corporation is presented below.
Consolidation
All subsidiaries are wholly owned and are included in the consolidated financial
statements of the Corporation. Intercompany accounts and transactions are eliminated. Investments in joint ventures whereby the Corporation owns 20% to 50% of the voting stock and has the ability to exercise significant influence over the operating
and financial policies of the joint venture are accounted for using the equity method of accounting. Investments in joint ventures whereby the Corporation does not have the ability to exercise significant influence over the operating and financial
policies of the joint venture are accounted for using the cost method of accounting. Investments in joint ventures are reviewed for impairment whenever events or circumstances indicate the carrying amount of the investment may not be recoverable. If
the estimated fair value of the investment is less than the carrying amount and such decline is determined to be other than temporary, then the investment may not be fully recoverable potentially resulting in a write-down of the
investment value.
Cash and Cash Equivalents
Securities with purchased original maturities of three months or less are considered to be cash equivalents. The Corporation maintains cash and cash equivalents at various financial institutions which may
exceed federally insured amounts.
Inventories
Inventories are valued at the lower of cost or market. Cost includes the cost of raw materials, direct labor and overhead for those items manufactured but not yet sold or for which title has not yet
transferred. Fixed production overhead is allocated to inventories based on normal capacity of the production facilities. In periods of abnormally high production, the amount of fixed overhead allocated to each unit of production is decreased so
that inventories are not measured above cost. The amount of fixed overhead allocated to inventories is not increased as a consequence of abnormally low production or idle plant. Costs for abnormal amounts of spoilage, handling costs and freight
costs are charged to expense when incurred. Cost of domestic raw materials, work-in-process and finished goods inventories is primarily determined by the last-in, first-out (LIFO) method. Cost of domestic supplies and foreign inventories is
determined primarily by the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost with depreciation computed using the straight-line method over the following estimated useful lives:
land improvements 15 to 20 years, buildings 25 to 50 years and machinery and equipment 3 to 25 years. Expenditures that extend economic useful lives are capitalized. Routine maintenance is charged to expense. Gains or losses are
recognized on retirements or disposals. Property, plant and equipment are reviewed for impairment whenever events or circumstances indicate the carrying amount of the asset may not be recoverable. If the undiscounted cash flows generated from the
use and eventual disposition of the assets are less than their carrying value, then the asset value may not be fully recoverable potentially resulting in a write-down of the asset value. Estimates of future cash flows are based on expected market
conditions over the remaining useful life of the primary asset(s). Proceeds from government grants are recorded as a reduction in the purchase price of the underlying assets and amortized against depreciation over the lives of the related assets.
30
Product Warranty
Provisions for product warranties are recognized at the time the underlying sale is recorded. The provision is based on historical experience as a percentage of sales adjusted for potential claims when a
liability is probable and for known claims.
Employee Benefit Plans
Funded Status
If the fair value of the plan assets exceeds the projected benefit
obligation, the over-funded projected benefit obligation is recognized as an asset (prepaid pensions) on the consolidated balance sheet. Conversely, if the projected benefit obligation exceeds the fair value of plan assets, the under-funded
projected benefit obligation is recognized as a liability (employee benefit obligations) on the consolidated balance sheet. Gains and losses arising from the difference between actuarial assumptions and actual experience and unamortized prior
service costs are recorded as a separate component of accumulated other comprehensive income (loss) and presented net of income tax.
Net
Periodic Pension and Other Postretirement Costs
Net periodic pension and other postretirement costs includes service cost, interest
cost, expected rate of return on the market-related value of plan assets, amortization of prior service costs and recognized actuarial gains or losses. When actuarial gains or losses exceed 10% of the greater of the projected benefit obligation or
the market-related value of plan assets, they are amortized to net periodic pension and other postretirement costs over the average remaining service period of employees expected to receive benefits under the plans. When the gains or losses are less
than 10% of the greater of the projected benefit obligation or the market-related value of plan assets, they are included in net periodic pension and other postretirement costs indirectly as a result of lower/higher interest costs arising from a
decrease/increase in the projected benefit obligation. The market-related value of plan assets is determined using a five-year moving average which recognizes 20% of unrealized gains and losses each year.
Other Comprehensive Income (Loss)
Other
comprehensive income (loss) includes changes in assets and liabilities from non-owner sources including foreign currency translation adjustments, unamortized prior service costs and unrecognized actuarial gains and losses associated with employee
benefit plans, unrealized holding gains and losses on securities designated as available for sale and changes in the fair value of derivatives designated and effective as cash flow hedges. Certain components of other comprehensive income (loss) are
presented net of income tax. Foreign currency translation adjustments exclude the effect of income tax since earnings of non-U.S. subsidiaries are deemed to be reinvested for an indefinite period of time.
Reclassification adjustments are amounts which are realized during the year and, accordingly, are deducted from other comprehensive income (loss) in the
period in which they are included in net income or when a transaction no longer qualifies as a cash flow hedge. Foreign currency translation adjustments are included in net income upon sale or upon complete or substantially complete liquidation of
an investment in a foreign entity. Unamortized prior service costs and unrecognized actuarial gains and losses associated with employee benefit plans are included in net income either over the average remaining service period of employees expected
to receive benefits under the plans or indirectly as a result of lower/higher interest costs arising from a decrease/increase in the projected benefit obligation. Unrealized holding gains and losses on securities are included in net income when the
underlying security is sold. Changes in the fair value of derivatives are included in net income when the projected sale occurs or, if a foreign currency purchase contract, over the estimated useful life of the underlying asset.
Revenue Recognition
Revenue from sales is
recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Persuasive evidence of an arrangement identifies the final understanding between
the parties as to the specific nature and terms of the agreed-upon transaction that creates enforceable obligations. It can be in the form of an executed purchase order from the customer, sales agreement issued by the Corporation or a similar
arrangement deemed to be normal and customary business practice for that particular customer or class of customer (collectively, a sales agreement).
Delivery and performance is considered to have occurred when the customer has taken title and assumed the risks and rewards of ownership of the product. Typically this occurs when the product is shipped
to the customer (i.e., FOB shipping point), delivered to the customer (i.e., FOB destination), or, for foreign sales, in accordance with trading guidelines known as Incoterms. Incoterms are standard trade definitions used in international contracts
and are developed, maintained and promoted by the ICC Commission on Commercial Law and Practice.
The sales price required to be paid by the
customer is fixed or determinable from the sales agreement. It is not subject to refund or adjustment except for a variable-index surcharge provision which increases or decreases, as applicable, the selling price of a rolling mill roll for
corresponding changes in the published index cost of certain raw materials. The variable-index surcharge is recognized as revenue when the corresponding revenue for the inventory is recognized. Likelihood of collectability is assessed prior to
acceptance of an order. There are no customer-acceptance provisions other than customer inspection and testing prior to shipment. Post-shipment obligations are insignificant.
31
Amounts billed to the customer for shipping and handling are recorded within net sales and the related costs
are recorded within costs of products sold (excluding depreciation). Amounts billed for taxes assessed by various government authorities (e.g. sales tax, value-added tax, etc.) are excluded from the determination of net income and instead are
recorded as a liability until remitted to the government authority.
Foreign Currency Translation
Assets and liabilities of the Corporations foreign operations are translated at year-end exchange rates and the statements of operations are
translated at the average exchange rates for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated as a separate component of accumulated other comprehensive income (loss) until the entity is sold
or substantially liquidated.
Derivative Instruments
Derivative instruments which include forward exchange (for foreign currency sales and purchases) and futures contracts are recorded on the consolidated balance sheet as either an asset or a liability
measured at their fair value. The accounting for changes in the fair value of a derivative depends on the use of the derivative. To the extent that a derivative is designated and effective as a cash flow hedge of an exposure to future changes in
value, the change in the fair value of the derivative is deferred in accumulated other comprehensive income (loss). Any portion considered to be ineffective, including that arising from the unlikelihood of an anticipated transaction to occur, is
reported as a component of earnings (other income/expense) immediately.
Upon occurrence of the anticipated sale, the foreign currency sales
contract designated and effective as a cash flow hedge is de-designated as a fair value hedge and the change in fair value previously deferred in accumulated other comprehensive income (loss) is reclassified to earnings (net sales) with subsequent
changes in fair value recorded as a component of earnings (other income/expense). Upon occurrence of the anticipated purchase, the foreign currency purchase contract is settled and the change in fair value deferred in accumulated other comprehensive
income (loss) is reclassified to earnings (depreciation expense) over the life of the underlying assets. Upon settlement of a futures contract, the change in fair value deferred in accumulated other comprehensive income (loss) is reclassified to
earnings (costs of products sold, excluding depreciation) when the corresponding inventory is sold and revenue is recognized. To the extent that a derivative is designated and effective as a hedge of an exposure to changes in fair value, the change
in the derivatives fair value will be offset in the statement of operations by the change in the fair value of the item being hedged and is recorded as a component of earnings (other income/expense). Cash flows associated with the derivative
instruments are recorded as a component of operating activities on the consolidated statement of cash flows.
The Corporation does not enter
into derivative transactions for speculative purposes and, therefore, holds no derivative instruments for trading purposes.
Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants as of the measurement date. A hierarchy of inputs is used to determine fair value measurements with three levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities and are considered
the most reliable evidence of fair value. Level 2 inputs are observable prices that are not quoted on active exchanges. Level 3 inputs are unobservable inputs used for measuring the fair value of assets or liabilities.
Stock-Based Compensation
Compensation expense is
recognized for stock-based compensation awards over the requisite service period based on the estimated fair value of the award as of the date of grant calculated using the Black-Scholes option-pricing model. Fair value is affected by the
Corporations stock price and various assumptions including assumptions about the expected term of the options, forfeitures, volatility, dividends and the risk-free interest rate. The expected life of the options is estimated by considering the
historical exercise experience of the employee group and the vesting period of the awards. The expected forfeiture rate is estimated based on the historical forfeiture rate of the employee group. The expected volatility is based on the historical
prices of the Corporations stock and dividend amounts over the expected life of the stock options. The expected dividend yield is based on a dividend amount giving consideration to the Corporations past pattern and future expectations of
dividends over the expected life of the options. The risk-free interest rate is equal to the yield available on U.S. Treasury zero-coupon issues at the date of grant with a remaining term equal to the expected life of the options.
Legal Costs
Legal costs expected to be incurred
in connection with loss contingencies are accrued when such costs are probable and estimable.
32
Income Taxes
Income taxes are recognized during the year in which transactions enter into the determination of financial statement income. Deferred income tax assets and liabilities are recognized for the future tax
consequences of temporary differences between the book carrying amount and the tax basis of assets and liabilities including net operating loss carryforwards. Unremitted earnings of the Corporations non-US subsidiaries and affiliates are
deemed to be permanently reinvested and, accordingly, no deferred income tax liability is recorded. A valuation allowance is provided against a deferred income tax asset when it is more likely than not the asset will not be realized.
Similarly, if a determination is made that it is more likely than not the deferred income tax asset will be realized, the related valuation allowance would be reduced and a benefit to earnings would be recorded. Penalties and interest
are recognized as a component of the income tax provision.
Tax benefits are recognized in the financial statements for tax positions taken or
expected to be taken in a tax return when it is more likely than not that the tax authorities will sustain the tax position solely on the basis of the positions technical merits. Consideration is given primarily to legislation and
statutes, legislative intent, regulations, rulings and case law as well as their applicability to the facts and circumstances of the tax position when assessing the sustainability of the tax position. In the event a tax position no longer meets the
more likely than not criteria, the tax benefit is reversed by recognizing a liability and recording a charge to earnings. Conversely, if a tax position subsequently meets the more likely than not criteria, a tax benefit would
be recognized by reducing the liability and recording a credit to earnings.
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding for the period. The
computation of diluted earnings per common share is similar to basic earnings per common share except that the denominator is increased to include the dilutive effect of the net additional common shares that would have been outstanding assuming
exercise of outstanding stock options, calculated using the treasury stock method. The weighted average number of common shares outstanding assuming exercise of the stock options was 10,406,478 for 2013, 10,389,678 for 2012 and 10,393,159 for 2011.
Weighted-average outstanding stock options excluded from the diluted earnings per common share calculation, since the effect would have been antidilutive, were 781,325 for 2013, 671,977 for 2012 and 544,342 for 2011.
Recently Implemented Accounting Pronouncements
In
December 2011, the Financial Accounting Standards Board (FASB) issued ASU 2011-11,
Disclosures about Offsetting Assets and Liabilities,
which requires expanded disclosures, including gross and net information, about financial and derivative
instruments that are either offset in the balance sheet or are subject to an enforceable master netting arrangement or similar agreement. The guidance became effective for reporting periods beginning on or after January 1, 2013 and is to be
applied retrospectively. The new guidance affects disclosures only and did not impact operating results, financial position or liquidity of the Corporation.
In February 2013, the FASB issued ASU 2013-02,
Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
, which requires entities to report the effect of
significant reclassifications out of accumulated other comprehensive income (loss) on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. Information may be reported
either on the face of the income statement or in the footnotes to the financial statements. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to
cross-reference to other required disclosures. The guidance became effective for reporting periods beginning on or after January 1, 2013. The guidance affects disclosures only. It does not change whether items are reported in net income or
other comprehensive income or when items in other comprehensive income are reclassified to net income; accordingly, ASU 2013-02 did not impact the operating results, financial position or liquidity of the Corporation. (See Note 10.)
Recently Issued Accounting Pronouncements
In July
2013, the FASB issued ASU 2013-11,
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,
which requires, under certain circumstances, an unrecognized tax
benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The guidance becomes
effective for reporting periods beginning on or after January 1, 2014. Currently, the Corporation records unrecognized tax benefits as a liability; accordingly, implementation of the guidance may affect balance sheet presentation but will not
impact operating results or liquidity of the Corporation.
33
NOTE 2 INVESTMENTS IN JOINT VENTURES:
In 2007, a subsidiary of UES entered into an agreement with Maanshan Iron & Steel Company Limited (Maanshan) to form a joint
venture company in China. UES owns 49% of the joint venture company and Maanshan owns 51%. Both companies contributed cash for their respective interests (which equated to $14,700 for UES). The joint venture company principally manufactures and
sells forged backup rolling mill rolls of a size and weight currently not able to be produced by UES. A significant portion of its sales have been to Maanshan or entities controlled by Maanshan. Additionally, the majority of its raw materials are
purchased from Maanshan or entities controlled by Maanshan. UES has exclusive marketing and sales rights and earned commissions of $74 and $191 during 2012 and 2011, respectively. Approximately $14 was outstanding as of December 31, 2012. UES
has not guaranteed any of the obligations of the joint venture; accordingly, its maximum exposure of loss is limited to its investment. Since UES is the minority shareholder and allocation of earnings and voting rights are proportional to ownership
interests, UES is not considered the primary beneficiary and, accordingly, accounts for its 49% interest in the joint venture under the equity method of accounting.
Losses of the joint venture approximated $(4,203), $(3,254) and $(1,024) for the twelve month period ended September 30, 2013, 2012 and 2011, respectively, of which the Corporation has recognized its
share (or 49%) in its consolidated statements of operations. Losses are expected to continue in 2014. The joint venture has been adversely impacted by the global economic slow-down, reduced demand and excess roll inventories of its potential
customer base in China, including Maanshan. Additionally, the overall financial strength of the joint venture continues to deteriorate with a greater reliance on Maanshan or entities controlled by Maanshan to provide financing and working capital.
In the fourth quarter of 2013, the Corporation, with the help of outside consultants and appraisers, concluded that the estimated fair value of its investment was less than its carrying amount and that the decline was other than
temporary. Accordingly, the Corporation recognized an impairment charge of $6,407 reducing the carrying amount of its investment to $3,670. The Corporation will continue to monitor the carrying value of this investment to determine if future
charges will be necessary.
Assets, liabilities and shareholders equity of the joint venture as of September 30, 2013 and 2012 are
summarized below. The remaining difference between the carrying amount of the investment and the value of the underlying equity in the net assets of the joint venture relates primarily to the elimination of 49% of the profit (intercompany
profit) for the sale of technology from UES to the joint venture in earlier years. The intercompany profit will be recognized when realized outside of the controlled group.
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Assets:
|
|
|
|
|
|
|
|
|
Current assets (includes receivables from related parties of $636 and $271, respectively)
|
|
$
|
9,431
|
|
|
$
|
17,356
|
|
Noncurrent assets
|
|
|
36,840
|
|
|
|
39,455
|
|
|
|
$
|
46,271
|
|
|
$
|
56,811
|
|
Liabilities and Shareholders Equity:
|
|
|
|
|
|
|
|
|
Current liabilities (include liabilities to related parties of $19,278 and $18,534, respectively)
|
|
$
|
22,498
|
|
|
$
|
18,621
|
|
Noncurrent liabilities
|
|
|
0
|
|
|
|
10,850
|
|
Shareholders equity
|
|
|
23,773
|
|
|
|
27,340
|
|
|
|
$
|
46,271
|
|
|
$
|
56,811
|
|
The Corporation also has a 25% investment in a Chinese cast roll joint venture company which is recorded at cost, or
$1,340. The Corporation does not participate in the management or daily operation of the joint venture company, has not guaranteed any of its obligations and has no ongoing responsibilities to it. Dividends may be declared by the Board of Directors
of the joint venture company after allocation of after-tax profits to various funds equal to the minimum amount required under Chinese law. No dividends were declared or received in 2013, 2012 or 2011.
NOTE 3 INVENTORIES:
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Raw materials
|
|
$
|
17,411
|
|
|
$
|
22,514
|
|
Work-in-progress
|
|
|
29,322
|
|
|
|
31,164
|
|
Finished goods
|
|
|
5,894
|
|
|
|
5,907
|
|
Supplies
|
|
|
11,502
|
|
|
|
11,084
|
|
|
|
$
|
64,129
|
|
|
$
|
70,669
|
|
34
At December 31, 2013 and 2012, approximately 56% and 68%, respectively, of the inventories was valued
using the LIFO method. The LIFO reserve approximated $(26,404) and $(27,911) at December 31, 2013 and 2012, respectively. During each of the years, inventory quantities decreased resulting in a liquidation of LIFO layers which were at lower
costs. The effect of the liquidations was to decrease costs of products sold (excluding depreciation) by approximately $1,803, $277 and $1,127 for 2013, 2012 and 2011, respectively, which increased net income by approximately $1,172 or $0.11 per
common share for 2013, $180 or $0.02 per common share for 2012 and $733 or $0.07 per common share for 2011.
NOTE 4 PROPERTY, PLANT AND EQUIPMENT:
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Land and land improvements
|
|
$
|
5,122
|
|
|
$
|
5,006
|
|
Buildings
|
|
|
44,116
|
|
|
|
43,411
|
|
Machinery and equipment
|
|
|
250,936
|
|
|
|
237,473
|
|
Construction-in-process
|
|
|
5,315
|
|
|
|
7,493
|
|
Other
|
|
|
8,711
|
|
|
|
8,674
|
|
|
|
|
314,200
|
|
|
|
302,057
|
|
Accumulated depreciation
|
|
|
(162,912
|
)
|
|
|
(151,760
|
)
|
|
|
$
|
151,288
|
|
|
$
|
150,297
|
|
Land and buildings of UES-UK equal to approximately $3,268 (£1,974) at December 31, 2013 are held as
collateral by the trustees of the UES-UK contributory defined benefit pension plan (see Note 7).
NOTE 5 OTHER CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Customer-related liabilities
|
|
$
|
10,610
|
|
|
$
|
13,444
|
|
Income taxes payable
|
|
|
1,063
|
|
|
|
70
|
|
Accrued sales commissions
|
|
|
1,648
|
|
|
|
2,146
|
|
Other
|
|
|
8,399
|
|
|
|
8,813
|
|
|
|
$
|
21,720
|
|
|
$
|
24,473
|
|
Customer-related liabilities include liabilities for product warranty claims and deposits received on future orders. The
following summarizes changes in the liability for product warranty claims for the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Balance at the beginning of the year
|
|
$
|
6,625
|
|
|
$
|
5,498
|
|
|
$
|
5,113
|
|
Satisfaction of warranty claims
|
|
|
(1,908
|
)
|
|
|
(2,411
|
)
|
|
|
(2,691
|
)
|
Provision for warranty claims
|
|
|
2,112
|
|
|
|
3,399
|
|
|
|
3,087
|
|
Other, primarily impact from changes in foreign currency exchange rates
|
|
|
70
|
|
|
|
139
|
|
|
|
(11
|
)
|
Balance at the end of the year
|
|
$
|
6,899
|
|
|
$
|
6,625
|
|
|
$
|
5,498
|
|
NOTE 6 BORROWING ARRANGEMENTS:
The Corporation maintains short-term lines of credit of approximately $9,500 (including £3,000 in the United Kingdom and
400 in Belgium). No amounts were outstanding under these lines of credit as of December 31, 2013 and 2012.
As of December 31,
2013, the Corporation had the following Industrial Revenue Bonds (IRBs) outstanding: (1) $4,120 tax-exempt IRB maturing in 2020, interest at a floating rate which averaged 0.16% during the current year; (2) $7,116 taxable IRB maturing in
2027, interest at a floating rate which averaged 0.20% during the current year and (3) $2,075 tax-exempt IRB maturing in 2029, interest at a floating rate which averaged 0.18% during the current year. The IRBs are remarketed periodically at
which time interest rates are reset. The IRBs are secured by letters of credit of equivalent amounts. The letter of credit agreements require, among other things, maintenance of a minimum net worth and prohibit a leverage ratio in excess of a
stipulated amount. The Corporation was in compliance with the applicable bank covenants as of December 31, 2013.
Despite principal not
beginning to become due until 2020, the IRBs can be put back to the Corporation on short notice if, although considered remote by the Corporation and its bankers, the bonds cannot be remarketed. At that time, the bondholders can seek reimbursement
from the letters of credit. As provided by a separate agreement with the Corporations bank, funding of the letters of credit, if so drawn against, would be satisfied with equal and immediate borrowings under a separate IRB Standby Letter of
Credit facility (the Facility). The Facility expires on August 1, 2015 and is expected to be renewed annually to provide for a continual term of greater than one year. However, the Facility includes language regarding material
adverse change to the Corporations business which could result in it being called or cancelled at the banks discretion; accordingly, the IRBs remain classified as a current liability. The availability under the Facility is $13,566,
equal to the letters of credit, and as of December 31, 2013 no amounts were outstanding.
35
NOTE 7 PENSION AND OTHER POSTRETIREMENT BENEFITS:
Pension Plans
The Corporation
has a qualified defined benefit pension plan covering substantially all of its U.S. employees. Generally, benefits are based on years of service multiplied by either a fixed amount or a percentage of compensation. For its U.S. pension plan covered
by the Employee Retirement Income Security Act of 1974 (ERISA), the Corporations policy is to fund at least the minimum actuarially computed annual contribution required under ERISA. Although no minimum contributions were required
for any of the three years, voluntary contributions of $5,000 and $7,000 were made in 2013 and 2011, respectively. Additionally, due to voluntary contributions and relief provided by
Moving Ahead for Progress in the 21st Century
(MAP-21), which reduces funding requirements for single-employer defined benefit plans, no minimum contributions are required for 2014; however, voluntary contributions may be made. Estimated benefit payments for subsequent years are
$8,746 for 2014, $9,220 for 2015, $9,666 for 2016, $10,125 for 2017, $10,603 for 2018 and $59,563 for 2019 2023. The fair value of the plans assets as of December 31, 2013 and 2012 approximated $164,085 and $140,218, respectively,
in comparison to accumulated benefit obligations of $167,723 and $180,737 for the same periods.
Employees of UES-UK participate in a
contributory defined benefit pension plan that was curtailed effective December 31, 2004 and replaced with a defined contribution pension plan. The UES-UK plans are non-U.S. plans and therefore are not covered by ERISA. Instead, the Trustees
and UES-UK have agreed to a recovery plan that estimates the amount of employer contributions, based on U.K. regulations, necessary to eliminate the funding deficit of the plan over an agreed period with such estimates subject to change based on the
future investment performance of the plans assets. Employer contributions to the contributory defined benefit pension plan approximated $1,764, $1,786 and $1,693 in 2013, 2012 and 2011, respectively, and are expected to approximate $1,859 in
2014. The fair value of the plans assets as of December 31, 2013 and 2012 approximated $48,536 (£29,315) and $41,875 (£25,774), respectively, in comparison to accumulated benefit obligations of $60,830
(£36,740) and $59,210 (£36,443) for the same periods. Estimated benefit payments for subsequent years are $1,193 for 2014, $1,565 for 2015, $1,475 for 2016, $2,178 for 2017, $1,593 for 2018 and $13,598 for 2019 2023.
Contributions to the defined contribution pension plan approximated $316, $311 and $415 in 2013, 2012 and 2011, respectively, and are expected to approximate $403 in 2014.
The Corporation also maintains a nonqualified defined benefit pension plan to provide supplemental retirement benefits for selected executives in addition to benefits provided under the
Corporate-sponsored pension plans. The assets are held in a grantor tax trust known as a Rabbi trust; accordingly, the assets are subject to claims of the Corporations creditors, but otherwise must be used only for purposes of
providing benefits under the plan. No contributions were made to the trust in 20112013 and none are expected in 2014. The fair market value of the trust at December 31, 2013 and 2012, which is included in other noncurrent assets, was
$4,092 and $3,358, respectively. Changes in the fair market value of the trust are recorded as a component of other comprehensive income (loss). The plan is treated as a non-funded pension plan for financial reporting purposes. Accumulated benefit
obligations approximated $2,794 and $2,082 at December 31, 2013 and 2012, respectively. Estimated benefit payments for subsequent years, which would represent employer contributions, are approximately $52 for 2014, $72 for 2015, $90 for 2016,
$112 for 2017, $330 for 2018 and $1,729 for 20192023.
Employees at one location participate in a multi-employer plan,
I.A.M.
National Pension Fund,
in lieu of the Corporations defined benefit pension plan. A multi-employer plan generally receives contributions from two or more unrelated employers pursuant to one or more collective-bargaining agreements. The
assets contributed by one employer may be used to fund the benefits provided to employees of other employers in the plan because the plan assets, once contributed, are not restricted to individual employers. The latest report of summary plan
information (for the 2012 plan year) provided by I.A.M. National Pension Fund indicates:
|
|
|
More than 1,750 employer locations contribute to the plan
|
|
|
|
In excess of 250,000 employees participate in the plan
|
|
|
|
Assets of nearly $9.3 billion and a funded status in excess of 100%.
|
Less than 100 of the Corporations employees participate in the plan and contributions are based on a rate per hour. The Corporations contributions to the plan equaled $230, $241 and $246 in
2013, 2012 and 2011, respectively, and represent less than five percent of total contributions to the plan by all contributing employers. Contributions are expected to approximate $261 in 2014.
Other Postretirement Benefits
The Corporation
provides postretirement health care benefits principally to the bargaining groups of one subsidiary. The plan covers participants and their spouses and/or dependents who retire under the existing pension plan on other than a deferred vested basis
and at the time of retirement have also rendered 15 or more years of continuous service irrespective of age. Other health care benefits are provided to retirees under plans no longer being offered by the Corporation. Retiree life insurance is
provided to substantially all retirees. Postretirement benefits with respect to health care are subject to certain Medicare offsets. The Corporation also provides health care and life insurance benefits to former employees of certain discontinued
operations. This obligation had been estimated and provided for at the time of disposal. The Corporations postretirement health care and life insurance plans are not funded or subject to any minimum regulatory funding requirements. Estimated
benefit payments for subsequent years, which would represent employer
36
contributions, are approximately $783 for 2014, $809 for 2015, $817 for 2016, $824 for 2017, $854 for 2018, and $5,251 for 2019 2023.
Reconciliations
The following provides a
reconciliation of projected benefit obligations, plan assets, the funded status of the plans and the amounts recognized in the consolidated balance sheets for the Corporations defined benefit plans calculated using a measurement date as of the
end of the respective years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
Benefits
(a)
|
|
|
Foreign Pension
Benefits
|
|
|
Other Postretirement
Benefits
|
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
2013
|
|
|
|
2012
|
|
Change in projected benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations at January 1
|
|
$
|
197,057
|
|
|
$
|
174,814
|
|
|
$
|
59,210
|
|
|
$
|
50,698
|
|
|
$
|
22,806
|
|
|
$
|
22,348
|
|
Service cost
|
|
|
4,424
|
|
|
|
3,943
|
|
|
|
0
|
|
|
|
0
|
|
|
|
943
|
|
|
|
804
|
|
Interest cost
|
|
|
8,070
|
|
|
|
8,514
|
|
|
|
2,551
|
|
|
|
2,506
|
|
|
|
926
|
|
|
|
919
|
|
Plan amendments
|
|
|
681
|
|
|
|
(42
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Foreign currency exchange rate changes
|
|
|
0
|
|
|
|
0
|
|
|
|
1,154
|
|
|
|
2,434
|
|
|
|
0
|
|
|
|
0
|
|
Actuarial (gain) loss
|
|
|
(20,806
|
)
|
|
|
17,289
|
|
|
|
(823
|
)
|
|
|
5,239
|
|
|
|
(3,949
|
)
|
|
|
(623
|
)
|
Participant contributions
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
423
|
|
|
|
428
|
|
Benefits paid from plan assets
|
|
|
(7,812
|
)
|
|
|
(7,425
|
)
|
|
|
(1,262
|
)
|
|
|
(1,667
|
)
|
|
|
0
|
|
|
|
0
|
|
Benefits paid by the Corporation
|
|
|
(8
|
)
|
|
|
(36
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(1,020
|
)
|
|
|
(1,070
|
)
|
Projected benefit obligations at December 31
|
|
$
|
181,606
|
|
|
$
|
197,057
|
|
|
$
|
60,830
|
|
|
$
|
59,210
|
|
|
$
|
20,129
|
|
|
$
|
22,806
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1
|
|
$
|
140,218
|
|
|
$
|
133,403
|
|
|
$
|
41,875
|
|
|
$
|
36,436
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Actual return on plan assets
|
|
|
26,679
|
|
|
|
14,240
|
|
|
|
5,061
|
|
|
|
3,586
|
|
|
|
0
|
|
|
|
0
|
|
Foreign currency exchange rate changes
|
|
|
0
|
|
|
|
0
|
|
|
|
1,098
|
|
|
|
1,734
|
|
|
|
0
|
|
|
|
0
|
|
Corporate contributions
|
|
|
5,008
|
|
|
|
36
|
|
|
|
1,764
|
|
|
|
1,786
|
|
|
|
597
|
|
|
|
642
|
|
Participant contributions
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
423
|
|
|
|
428
|
|
Gross benefits paid
|
|
|
(7,820
|
)
|
|
|
(7,461
|
)
|
|
|
(1,262
|
)
|
|
|
(1,667
|
)
|
|
|
(1,020
|
)
|
|
|
(1,070
|
)
|
Fair value of plan assets at December 31
|
|
$
|
164,085
|
|
|
$
|
140,218
|
|
|
$
|
48,536
|
|
|
$
|
41,875
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Funded status of the plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
164,085
|
|
|
$
|
140,218
|
|
|
$
|
48,536
|
|
|
$
|
41,875
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Less benefit obligations
|
|
|
181,606
|
|
|
|
197,057
|
|
|
|
60,830
|
|
|
|
59,210
|
|
|
|
20,129
|
|
|
|
22,806
|
|
Funded status at December 31
|
|
$
|
(17,521
|
)
|
|
$
|
(56,839
|
)
|
|
$
|
(12,294
|
)
|
|
$
|
(17,335
|
)
|
|
$
|
(20,129
|
)
|
|
$
|
(22,806
|
)
|
|
|
|
|
(a) Includes the nonqualified defined benefit pension plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
Benefits
|
|
|
Foreign Pension
Benefits
|
|
|
Other Postretirement
Benefits
|
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
2013
|
|
|
|
2012
|
|
Amounts recognized in the balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued payrolls and employee benefits (current)
|
|
$
|
(51
|
)
|
|
$
|
(25
|
)
|
|
$
|
0
|
|
|
$
|
(152
|
)
|
|
$
|
(752
|
)
|
|
$
|
(738
|
)
|
Employee benefit obligations (noncurrent)
|
|
|
(17,470
|
)
|
|
|
(56,814
|
)
|
|
|
(12,294
|
)
|
|
|
(17,183
|
)
|
|
|
(19,377
|
)
|
|
|
(22,068
|
)
|
|
|
$
|
(17,521
|
)
|
|
$
|
(56,839
|
)
|
|
$
|
(12,294
|
)
|
|
$
|
(17,335
|
)
|
|
$
|
(20,129
|
)
|
|
$
|
(22,806
|
)
|
Accumulated other comprehensive loss (pre-tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
39,562
|
|
|
$
|
84,825
|
|
|
$
|
24,386
|
|
|
$
|
28,155
|
|
|
$
|
2,213
|
|
|
$
|
6,403
|
|
Prior service cost
|
|
|
2,154
|
|
|
|
2,113
|
|
|
|
0
|
|
|
|
0
|
|
|
|
142
|
|
|
|
227
|
|
Total (pre-tax)
|
|
$
|
41,716
|
|
|
$
|
86,938
|
|
|
$
|
24,386
|
|
|
$
|
28,155
|
|
|
$
|
2,355
|
|
|
$
|
6,630
|
|
37
Amounts included in accumulated other comprehensive loss as of December 31, 2013 expected to be
recognized in net periodic pension and other postretirement costs in 2014 include:
|
|
|
|
|
|
|
|
|
U.S. Pension
Benefits
|
|
Foreign Pension
Benefits
|
|
Other Postretirement
Benefits
|
Net actuarial loss
|
|
$ 4,156
|
|
$ 602
|
|
$ 17
|
Prior service cost
|
|
826
|
|
0
|
|
19
|
|
|
$ 4,982
|
|
$ 602
|
|
$ 36
|
Investment Policies and Strategies
The investment policies and strategies are determined and monitored by the Investment Committee of the Board of Directors for the U.S. pension plan and by the Trustees (as appointed by UES-UK and the
employees of UES-UK) for the foreign pension plan, each of whom employ their own investment managers to manage the plans assets in accordance with the policy guidelines. Pension assets are invested with the objective of maximizing long-term
returns while minimizing material losses to meet future benefit obligations as they become due. Investments in equity securities are primarily in common stocks of publicly-traded U.S. and international companies across a broad spectrum of industry
sectors. Investments in fixed-income securities are principally A-rated or better bonds with maturities of less than ten years, preferred stocks and convertible bonds. The Corporation believes there are no significant concentrations of risk
associated with the Plans assets.
Attempts to minimize risk include allowing temporary changes to the allocation mix in response to
market conditions, diversifying investments among asset categories (e.g., equity securities, fixed-income securities, alternative investments, cash and cash equivalents) and within these asset categories (e.g., economic sector, industry, geographic
distribution, size) and consulting with independent financial and legal counsels to assure that the investments and their expected returns and risks are consistent with the goals of the Investment Committee or Trustees.
With respect to the U.S. pension plan, the following investments are prohibited unless otherwise approved by the Investment Committee: stock of the
Corporation, futures and options except for hedging purposes, unregistered or restricted stock, warrants, margin trading, short-selling, real estate excluding public or real estate partnerships, and commodities including art, jewelry and gold. The
foreign pension plan invests in specific funds. Any investments other than those specifically identified would be considered prohibited.
The
following summarizes target asset allocations (within +/-5% considered acceptable) and major asset categories. Certain investments are classified differently for target asset allocation purposes and external reporting purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
Foreign Pension Benefits
|
|
|
Target
Allocation
|
|
Percentage of Plan
Assets
|
|
Target
Allocation
|
|
Percentage of Plan
Assets
|
|
Dec. 31, 2013
|
|
2013
|
|
2012
|
|
Dec. 31, 2013
|
|
2013
|
|
2012
|
Equity Securities
|
|
65%
|
|
65%
|
|
66%
|
|
44%
|
|
46%
|
|
44%
|
Fixed-Income Securities
|
|
15%
|
|
19%
|
|
18%
|
|
35%
|
|
31%
|
|
34%
|
Alternative Investments
|
|
15%
|
|
15%
|
|
12%
|
|
21%
|
|
23%
|
|
22%
|
Other (primarily cash and cash equivalents)
|
|
5%
|
|
1%
|
|
4%
|
|
0%
|
|
0%
|
|
0%
|
Fair Value Measurement of Plan Assets
Equity securities and mutual funds are actively traded on exchanges and price quotes for these investments are readily available. Similarly, corporate debt and preferred securities consist of fixed-income
securities of U.S. and U.K. corporations and price quotes for these investments are readily available. Common collective trust and commingled funds are not traded publicly, but the underlying assets (such as stocks and bonds) held in these funds are
traded on active markets and the prices for the underlying assets are readily observable. For securities not actively traded, the fair value may be based on third-party appraisals, discounted cash flow analysis, benchmark yields and inputs that are
currently observable in markets for similar securities.
38
Investment Strategies
The significant investment strategies of the various funds are summarized below.
|
|
|
|
|
|
|
|
Fund
|
|
Investment Strategy
|
|
Primary Investment Objective
|
Temporary
Investment Funds
|
|
Invests primarily in a diversified portfolio of investment grade money market instruments.
|
|
Achieve a high level of current income while maintaining stability of principal and
liquidity.
|
Various
Equity
Funds
|
|
Each fund maintains a diversified holding in common stock of applicable companies (e.g. common stock of small
capitalization companies if a small-cap fund, common stock of medium capitalization companies if a mid-cap fund, common stock of foreign corporations if an international fund, etc.).
|
|
Outperform the funds related index.
|
Pooled Funds
|
|
Invests primarily in common stocks and other equity securities of issuers organized or conducting business in
countries other than the United States.
|
|
Exceed the return of the corresponding Morgan Stanley Index.
|
Various Growth
and
Value Funds
|
|
Invests primarily in common stocks and other equity securities generally traded on a major U.S. exchange or
the NASDAQ Stock Market.
|
|
Exceed the return of the Russell 2500 Growth Index or Value Index, as applicable, over a
market cycle.
|
Return Fund
|
|
Invests at least 65% of its assets in a diversified portfolio of fixed-income securities of varying
maturities.
|
|
Outperform the Barclays Capital U.S. Aggregate Index.
|
Alternative
Investments
Managed Funds
|
|
Invests in equities and equity-like asset classes and strategies, (such as public equities, venture capital,
private equity, real estate, natural resources and hedged strategies) and fixed-income securities.
|
|
Generate a minimum annual inflation adjusted return of 5% and outperform a traditional
70/30 equities/bond portfolio.
|
Alternative
Investments
Hedge and Absolute
Return Funds
|
|
Invests in a diversified portfolio of alternative investment styles and strategies.
|
|
Generate long-term capital appreciation while maintaining a low correlation with the
traditional global financial markets.
|
39
Categories of Plan Assets
Asset categories based on the nature and risks of the U.S. Pension Benefit Plans assets as of December 31, 2013 are summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
Active Markets for
Identical Inputs
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital goods
|
|
$
|
1,751
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,751
|
|
Chemicals
|
|
|
2,203
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,203
|
|
Commercial property
|
|
|
1,747
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,747
|
|
Commercial services
|
|
|
1,052
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,052
|
|
Common collective trust funds
|
|
|
0
|
|
|
|
37,495
|
|
|
|
0
|
|
|
|
37,495
|
|
Electronics
|
|
|
1,371
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,371
|
|
Engineering & construction
|
|
|
1,096
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,096
|
|
Food processing
|
|
|
3,339
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,339
|
|
Health care
|
|
|
1,216
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,216
|
|
Limited partnerships public equity
|
|
|
9,125
|
|
|
|
0
|
|
|
|
0
|
|
|
|
9,125
|
|
Manufacturing
|
|
|
2,653
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,653
|
|
Oil & gas
|
|
|
2,342
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,342
|
|
Retail
|
|
|
1,006
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,006
|
|
Technology
|
|
|
1,855
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,855
|
|
Other (represents 10 business sectors)
|
|
|
6,300
|
|
|
|
0
|
|
|
|
0
|
|
|
|
6,300
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank & financial services
|
|
|
1,808
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,808
|
|
Common collective trust funds
|
|
|
0
|
|
|
|
7,024
|
|
|
|
0
|
|
|
|
7,024
|
|
Engineering & construction
|
|
|
1,187
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,187
|
|
Oil & gas
|
|
|
1,969
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,969
|
|
Real estate
|
|
|
1,440
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,440
|
|
Technology
|
|
|
1,366
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,366
|
|
Other (represents 9 business sectors)
|
|
|
3,756
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,756
|
|
Total Equity Securities
|
|
|
48,582
|
|
|
|
44,519
|
|
|
|
0
|
|
|
|
93,101
|
|
Fixed-Income Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled funds
|
|
|
0
|
|
|
|
17,159
|
|
|
|
0
|
|
|
|
17,159
|
|
Preferred (represents 4 business sectors)
|
|
|
5,851
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,851
|
|
Other (represents 7 business sectors)
|
|
|
0
|
|
|
|
3,849
|
|
|
|
0
|
|
|
|
3,849
|
|
Total Fixed-Income Securities
|
|
|
5,851
|
|
|
|
21,008
|
|
|
|
0
|
|
|
|
26,859
|
|
Alternative Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed funds
(a)
|
|
|
0
|
|
|
|
0
|
|
|
|
32,433
|
|
|
|
32,433
|
|
Hedge and absolute return funds
|
|
|
0
|
|
|
|
0
|
|
|
|
8,389
|
|
|
|
8,389
|
|
Total Alternative Investments
|
|
|
0
|
|
|
|
0
|
|
|
|
40,822
|
|
|
|
40,822
|
|
Other (primarily cash and cash equivalents):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
64
|
|
|
|
0
|
|
|
|
0
|
|
|
|
64
|
|
Commingled funds
|
|
|
0
|
|
|
|
1,065
|
|
|
|
0
|
|
|
|
1,065
|
|
Other
(b)
|
|
|
2,174
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,174
|
|
Total Other
|
|
|
2,238
|
|
|
|
1,065
|
|
|
|
0
|
|
|
|
3,303
|
|
|
|
$
|
56,671
|
|
|
$
|
66,592
|
|
|
$
|
40,822
|
|
|
$
|
164,085
|
|
|
(a)
|
Includes approximately 43% in equity and equity-like asset securities, 50% in alternative investments (real assets, commodities and resources, absolute return funds)
and 7% in fixed income securities and cash and cash equivalents.
|
|
(b)
|
Includes accrued receivables and pending broker settlements.
|
40
Asset categories based on the nature and risks of the U.S. Pension Benefit Plans assets as of
December 31, 2012 are summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
Active Markets for
Identical Inputs
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital goods
|
|
$
|
1,269
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,269
|
|
Chemicals
|
|
|
1,864
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,864
|
|
Commercial property
|
|
|
1,919
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,919
|
|
Commercial services
|
|
|
1,192
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,192
|
|
Common collective trust funds
|
|
|
0
|
|
|
|
30,451
|
|
|
|
0
|
|
|
|
30,451
|
|
Electronics
|
|
|
1,208
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,208
|
|
Engineering & construction
|
|
|
794
|
|
|
|
0
|
|
|
|
0
|
|
|
|
794
|
|
Food processing
|
|
|
3,549
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,549
|
|
Health care
|
|
|
830
|
|
|
|
0
|
|
|
|
0
|
|
|
|
830
|
|
Limited partnerships public equity
|
|
|
7,251
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7,251
|
|
Manufacturing
|
|
|
1,868
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,868
|
|
Oil & gas
|
|
|
3,322
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,322
|
|
Retail
|
|
|
870
|
|
|
|
0
|
|
|
|
0
|
|
|
|
870
|
|
Technology
|
|
|
879
|
|
|
|
0
|
|
|
|
0
|
|
|
|
879
|
|
Other (represents 11 business sectors)
|
|
|
5,196
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,196
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank & financial services
|
|
|
1,255
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,255
|
|
Common collective trust funds
|
|
|
0
|
|
|
|
5,916
|
|
|
|
0
|
|
|
|
5,916
|
|
Energy
|
|
|
763
|
|
|
|
0
|
|
|
|
0
|
|
|
|
763
|
|
Real estate
|
|
|
1,929
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,929
|
|
Technology
|
|
|
1,004
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,004
|
|
Other (represents 10 business sectors)
|
|
|
3,751
|
|
|
|
0
|
|
|
|
0
|
|
|
|
3,751
|
|
Total Equity Securities
|
|
|
40,713
|
|
|
|
36,367
|
|
|
|
0
|
|
|
|
77,080
|
|
Fixed-Income Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled funds
|
|
|
0
|
|
|
|
14,482
|
|
|
|
0
|
|
|
|
14,482
|
|
Preferred (represents 3 business sectors)
|
|
|
5,755
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,755
|
|
Other (represents 1 business sector)
|
|
|
684
|
|
|
|
0
|
|
|
|
0
|
|
|
|
684
|
|
Total Fixed-Income Securities
|
|
|
6,439
|
|
|
|
14,482
|
|
|
|
0
|
|
|
|
20,921
|
|
Alternative Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed funds
(a)
|
|
|
0
|
|
|
|
0
|
|
|
|
30,064
|
|
|
|
30,064
|
|
Hedge and absolute return funds
|
|
|
0
|
|
|
|
0
|
|
|
|
6,490
|
|
|
|
6,490
|
|
Total Alternative Investments
|
|
|
0
|
|
|
|
0
|
|
|
|
36,554
|
|
|
|
36,554
|
|
Other (primarily cash and cash equivalents):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
2,944
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,944
|
|
Commingled funds
|
|
|
0
|
|
|
|
696
|
|
|
|
0
|
|
|
|
696
|
|
Other
(b)
|
|
|
2,023
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,023
|
|
Total Other
|
|
|
4,967
|
|
|
|
696
|
|
|
|
0
|
|
|
|
5,663
|
|
|
|
$
|
52,119
|
|
|
$
|
51,545
|
|
|
$
|
36,554
|
|
|
$
|
140,218
|
|
|
(a)
|
Includes approximately 57% in equity and equity-like asset securities, 32% in alternative investments (real assets, commodities and resources, absolute return
funds), 10% in fixed income securities and 1% in cash and cash equivalents.
|
|
(b)
|
Includes accrued receivables and pending broker settlements.
|
41
Asset categories based on the nature and risks of the Foreign Pension Benefit Plans assets as of
December 31, 2013 are summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
Active Markets for
Identical Inputs
(Level
1)
|
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled Funds (U.K.)
|
|
$
|
4,043
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
4,043
|
|
Commingled Funds (International)
|
|
|
18,086
|
|
|
|
0
|
|
|
|
0
|
|
|
|
18,086
|
|
Total Equity Securities
|
|
|
22,129
|
|
|
|
0
|
|
|
|
0
|
|
|
|
22,129
|
|
Fixed-Income Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled Funds (U.K.)
|
|
|
15,211
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,211
|
|
Alternative Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge and Absolute Return Funds
|
|
|
0
|
|
|
|
0
|
|
|
|
11,041
|
|
|
|
11,041
|
|
Cash and cash equivalents
|
|
|
155
|
|
|
|
0
|
|
|
|
0
|
|
|
|
155
|
|
|
|
$
|
37,495
|
|
|
$
|
0
|
|
|
$
|
11,041
|
|
|
$
|
48,536
|
|
Asset categories based on the nature and risks of the Foreign Pension Benefit Plans assets as of December 31,
2012 are summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
Active Markets for
Identical Inputs
(Level
1)
|
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled Funds (U.K.)
|
|
$
|
3,277
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
3,277
|
|
Commingled Funds (International)
|
|
|
15,140
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,140
|
|
Total Equity Securities
|
|
|
18,417
|
|
|
|
0
|
|
|
|
0
|
|
|
|
18,417
|
|
Fixed-Income Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled Funds (U.K.)
|
|
|
14,341
|
|
|
|
0
|
|
|
|
0
|
|
|
|
14,341
|
|
Alternative Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge and Absolute Return Funds
|
|
|
0
|
|
|
|
0
|
|
|
|
9,031
|
|
|
|
9,031
|
|
Cash and cash equivalents
|
|
|
86
|
|
|
|
0
|
|
|
|
0
|
|
|
|
86
|
|
|
|
$
|
32,844
|
|
|
$
|
0
|
|
|
$
|
9,031
|
|
|
$
|
41,875
|
|
The table below sets forth a summary of changes in the fair value of the Level 3 plan assets for U.S. and foreign pension
plans for the year ended December 31, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative Investments
|
|
|
|
U.S. Pension Benefits
|
|
|
Foreign Pension Benefits
|
|
Fair value as of January 1, 2013
|
|
$ 6,490
|
|
$
|
30,064
|
|
|
$
|
9,031
|
|
Acquisitions
|
|
2,225
|
|
|
0
|
|
|
|
1,100
|
|
Withdrawals
|
|
(1,320)
|
|
|
(2,070)
|
|
|
|
0
|
|
Realized gain
|
|
563
|
|
|
451
|
|
|
|
0
|
|
Change in net unrealized gain
|
|
431
|
|
|
3,988
|
|
|
|
644
|
|
Other, primarily impact from changes in foreign currency exchange rates
|
|
0
|
|
|
0
|
|
|
|
266
|
|
Fair value as of December 31, 2013
|
|
$ 8,389
|
|
$
|
32,433
|
|
|
$
|
11,041
|
|
The table below sets forth a summary of changes in the fair value of the Level 3 plan assets for U.S. and foreign pension
plans for the year ended December 31, 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative Investments
|
|
|
|
U.S. Pension Benefits
|
|
|
Foreign Pension Benefits
|
|
Fair value as of January 1, 2012
|
|
$
|
5,940
|
|
|
$
|
29,280
|
|
|
$
|
3,324
|
|
Acquisitions
|
|
|
0
|
|
|
|
0
|
|
|
|
5,191
|
|
Withdrawals
|
|
|
0
|
|
|
|
(1,919)
|
|
|
|
(87
|
)
|
Change in net unrealized gain
|
|
|
550
|
|
|
|
2,703
|
|
|
|
333
|
|
Other, primarily impact from changes in foreign currency exchange rates
|
|
|
0
|
|
|
|
0
|
|
|
|
270
|
|
Fair value as of December 31, 2012
|
|
$
|
6,490
|
|
|
$
|
30,064
|
|
|
$
|
9,031
|
|
42
Net Periodic Pension and Other Postretirement Benefit Costs
The actual return on the fair value of plan assets is included in determining the funded status of the plans. In determining net periodic pension costs,
the expected long-term rate of return on the market-related value of plan assets is used. Differences between the actual return on plan assets and the expected long-term rate of return on plan assets are classified as part of unrecognized actuarial
gains or losses and are recorded as a component of accumulated other comprehensive income (loss) on the consolidated balance sheet. When these gains or losses exceed 10% of the greater of the projected benefit obligation or the market-related value
of plan assets, they are amortized to net periodic pension and other postretirement costs over the average remaining service period of employees expected to receive benefits under the plans. When the gains or losses are less than 10% of the greater
of the projected benefit obligation or the market-related value of plan assets, they are included in net periodic pension and other postretirement costs indirectly as a result of lower/higher interest costs arising from a decrease/increase in the
projected benefit obligation.
Net periodic pension and other postretirement benefit costs include the following components for the year ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
Benefits
|
|
|
Foreign Pension
Benefits
|
|
|
Other Postretirement Benefits
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Service cost
|
|
$
|
4,424
|
|
|
$
|
3,943
|
|
|
$
|
3,115
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
943
|
|
|
$
|
804
|
|
|
$
|
643
|
|
Interest cost
|
|
|
8,070
|
|
|
|
8,514
|
|
|
|
8,867
|
|
|
|
2,551
|
|
|
|
2,506
|
|
|
|
2,589
|
|
|
|
926
|
|
|
|
919
|
|
|
|
1,020
|
|
Expected return on plan assets
|
|
|
(9,368
|
)
|
|
|
(9,556
|
)
|
|
|
(9,658
|
)
|
|
|
(2,485
|
)
|
|
|
(2,101
|
)
|
|
|
(2,311
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Amortization of prior service cost
|
|
|
640
|
|
|
|
668
|
|
|
|
656
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
85
|
|
|
|
85
|
|
|
|
86
|
|
Amortization of actuarial loss
|
|
|
7,146
|
|
|
|
6,087
|
|
|
|
4,236
|
|
|
|
687
|
|
|
|
598
|
|
|
|
496
|
|
|
|
241
|
|
|
|
71
|
|
|
|
256
|
|
Net cost
|
|
$
|
10,912
|
|
|
$
|
9,656
|
|
|
$
|
7,216
|
|
|
$
|
753
|
|
|
$
|
1,003
|
|
|
$
|
774
|
|
|
$
|
2,195
|
|
|
$
|
1,879
|
|
|
$
|
2,005
|
|
Assumptions
Assumptions are reviewed on an annual basis. The expected long-term rate of return on plan assets is an estimate of average rates of earnings expected to
be earned on funds invested or to be invested to provide for the benefits included in the projected benefit obligation. Since these benefits will be paid over many years, the expected long-term rate of return is reflective of current investment
returns and investment returns over a longer period. Consideration is also given to target and actual asset allocations, inflation and real risk-free return. The discount rates used in determining future pension obligations and other postretirement
benefits for each of the plans are based on rates of return on high-quality fixed-income investments currently available and expected to be available during the period to maturity of the pension and other postretirement benefits. High-quality
fixed-income investments are defined as those investments which have received one of the two highest ratings given by a recognized rating agency with maturities of 10+ years.
The following assumptions were used to determine the benefit obligations as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
Benefits
|
|
Foreign Pension
Benefits
|
|
|
|
|
Other Postretirement
Benefits
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
2013
|
|
|
2012
|
|
Discount rate
|
|
|
5.00
|
%
|
|
|
4.25
|
%
|
|
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
|
|
5.00
|
%
|
|
|
4.25
|
%
|
Weighted-average rate of increases in compensation
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
n/a
|
|
|
|
n/a
|
|
43
In addition, the assumed health care cost trend rate at December 31, 2013 for other postretirement
benefits is 6.50% for 2014 gradually decreasing to 4.75% in 2018. In selecting rates for current and long-term health care assumptions, the Corporation considers known health care cost increases, the design of the benefit programs, the demographics
of its active and retiree populations and expectations of inflation rates in the future. A one percentage point increase or decrease in the assumed health care cost trend rate would change the postretirement benefit obligation at December 31,
2013 and the annual benefit expense for 2013 by approximately $2,800 and $350, respectively.
The following assumptions were used to determine
net periodic pension and other postretirement benefit costs for the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
Benefits
|
|
Foreign Pension
Benefits
|
|
|
Other Postretirement
Benefits
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Discount rate
|
|
|
4.25
|
%
|
|
|
5.00
|
%
|
|
5.75%
|
|
|
4.50
|
%
|
|
|
4.90
|
%
|
|
|
5.40
|
%
|
|
|
4.25
|
%
|
|
|
5.00
|
%
|
|
|
5.75
|
%
|
Expected long-term rate of return on plan assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
8.00%
|
|
|
6.09
|
%
|
|
|
5.61
|
%
|
|
|
6.39
|
%
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Weighted-average rate of increases in compensation
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
4.00%
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
NOTE 8 COMMITMENTS AND CONTINGENT LIABILITIES:
Outstanding standby and commercial letters of credit as of December 31, 2013 approximated $17,906, the majority of which serves as
collateral for the IRBs.
In 2010, UES-UK was awarded a government grant of up to $1,325 (£850) toward the purchase and
installation of certain machinery and equipment. Approximately $1,083 (£680) has been received to date; the final portion is expected to be received in 2014. Under the agreement, the grant is repayable if certain conditions are not met
including achieving and maintaining a targeted level of employment through 2017. UES-UKs level of employment currently exceeds and is expected to continue to exceed the targeted level of employment; accordingly, no liability has been recorded.
Approximately 55% of the Corporations employees are covered by collective bargaining agreements. Of the six bargaining agreements, one
of the agreements, representing approximately 20% of the covered employees, expired in 2012; however, employees continue to work under the expired agreement while negotiations proceed. The remaining agreements have expiration dates ranging from May
2014 to October 2017. Collective bargaining agreements expiring in 2014 (representing approximately 62% of covered employees) will be negotiated with the intent to secure mutually beneficial, long-term arrangements.
See Note 17 regarding litigation and Note 18 for environmental matters.
NOTE 9 STOCK-BASED COMPENSATION:
In May 2011, the shareholders of the Corporation approved the adoption of the 2011 Omnibus Incentive Plan (Incentive Plan)
which authorizes the issuance of up to 1,000,000 shares of the Corporations common stock for grants of equity-based compensation. Awards under the Incentive Plan may include incentive non-qualified stock options, stock appreciation rights,
restricted shares and restricted stock units, performance awards, other stock-based awards or short-term cash incentive awards. Unexercised portions of terminated or forfeited awards are available for new awards. The Incentive Plan is administered
by the Compensation Committee of the Board of Directors who has the authority to determine, within the limits of the express provisions of the Incentive Plan, the individuals to whom the awards will be granted; the nature, amount and terms of such
awards; and the objectives and conditions for earning such awards.
The Compensation Committee granted non-qualified stock options in each of
the years as outlined below. Options granted under the Incentive Plan have a ten-year life and vest over a three-year period. Options previously granted under earlier incentive plans have a ten-year life with one-third vesting at the date of grant,
one-third vesting on the first anniversary date of the date of grant and one-third vesting on the second anniversary date of the date of grant. The exercise prices are equal to the closing prices of the Corporations common stock on the New
York Stock Exchange on the dates of grant.
The Incentive Plan also provides for annual grants of shares of the Corporations common
stock to non-employee directors following the Corporations annual shareholder meeting. Each annual director award will be for a number of shares having a fair market value equal to $25 and will fully vest as of the grant date. The number of
shares of common stock issued to non-employee directors was 11,656 shares in 2013, 11,320 shares in 2012 and 7,944 shares in 2011.
44
The fair value of the options as of the dates of grant was calculated using the Black-Scholes option-pricing
model based on the assumptions outlined below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Options granted
|
|
|
173,750
|
|
|
|
164,500
|
|
|
|
176,250
|
|
Exercise price
|
|
$
|
17.16
|
|
|
$
|
17.67
|
|
|
$
|
25.18
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected life in years
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
Risk-free interest rate
|
|
|
1.26%
|
|
|
|
0.76%
|
|
|
|
2.30%
|
|
Expected annual dividend yield
|
|
|
4.20%
|
|
|
|
3.01%
|
|
|
|
2.96%
|
|
Expected forfeiture rate
|
|
|
5.00%
|
|
|
|
0%
|
|
|
|
0%
|
|
Expected volatility
|
|
|
52.68%
|
|
|
|
53.46%
|
|
|
|
56.25%
|
|
Grant date fair value
|
|
$
|
5.82
|
|
|
$
|
6.68
|
|
|
$
|
10.53
|
|
Resulting stock-based compensation expense
|
|
$
|
961
|
|
|
$
|
1,099
|
|
|
$
|
1,857
|
|
Stock-based compensation expense, including expense for shares to be issued to non-employee directors, approximated
$1,196, $1,258 and $1,954 for 2013, 2012 and 2011, respectively. The related income tax benefit recognized in the consolidated statements of operations was $419, $440 and $684 for the respective years. Unrecognized stock-based compensation expense
equaled $1,348 at December 31, 2013 and is expected to be recognized over a weighted-average period of approximately 2 years.
A summary
of stock options outstanding and exercisable and activity for the year ended December 31, 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Under
Options
|
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Remaining
Contractual
Life In
Years
|
|
|
Intrinsic
Value
|
|
Outstanding at January 1, 2013
|
|
|
1,166,421
|
|
|
|
|
$
|
26.00
|
|
|
|
7.1
|
|
|
$
|
1,178
|
|
Granted
|
|
|
173,750
|
|
|
|
|
|
17.16
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(15,334
|
)
|
|
|
|
|
13.93
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(123,084
|
)
|
|
|
|
|
26.25
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
1,201,753
|
|
|
|
|
$
|
24.85
|
|
|
|
6.5
|
|
|
$
|
982
|
|
Exercisable at December 31, 2013
|
|
|
869,586
|
|
|
|
|
$
|
27.18
|
|
|
|
5.7
|
|
|
$
|
982
|
|
Vested or expected to vest at December 31, 2013
|
|
|
1,174,266
|
|
|
|
|
$
|
24.95
|
|
|
|
6.5
|
|
|
$
|
982
|
|
NOTE 10 ACCUMULATED OTHER COMPREHENSIVE LOSS:
Net change and ending balances for the various components of other comprehensive income (loss) and for accumulated other comprehensive
loss as of and for the year ended December 31, 2011, 2012 and 2013 are summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Unrecognized
Components
of
Employee
Benefit Plans
|
|
|
Unrealized
Holding Gains
(Losses) on
Securities
|
|
|
Derivatives
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Balance at January 1, 2011
|
|
$
|
(5,389
|
)
|
|
$
|
(55,861
|
)
|
|
$
|
577
|
|
|
$
|
1,199
|
|
|
$
|
(59,474
|
)
|
Net Change
|
|
|
653
|
|
|
|
(19,364
|
)
|
|
|
(15
|
)
|
|
|
(1,090
|
)
|
|
|
(19,816
|
)
|
Balance at December 31, 2011
|
|
|
(4,736
|
)
|
|
|
(75,225
|
)
|
|
|
562
|
|
|
|
109
|
|
|
|
(79,290
|
)
|
Net Change
|
|
|
3,193
|
|
|
|
(6,558
|
)
|
|
|
71
|
|
|
|
209
|
|
|
|
(3,085
|
)
|
Balance at December 31, 2012
|
|
|
(1,543
|
)
|
|
|
(81,783
|
)
|
|
|
633
|
|
|
|
318
|
|
|
|
(82,375
|
)
|
Net Change
|
|
|
1,820
|
|
|
|
34,321
|
|
|
|
374
|
|
|
|
(5
|
)
|
|
|
36,510
|
|
Balance at December 31, 2013
|
|
$
|
277
|
|
|
$
|
(47,462
|
)
|
|
$
|
1,007
|
|
|
$
|
313
|
|
|
$
|
(45,865
|
)
|
45
The following summarizes the line items affected on the consolidated statements of operations for components
reclassified from accumulated other comprehensive loss for each of the years ended December 31. Amounts in parentheses represent credits to net income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Amortization of unrecognized employee benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of products sold (excluding depreciation)
|
|
$
|
5,691
|
|
|
$
|
4,807
|
|
|
$
|
3,764
|
|
Selling and administrative
|
|
|
2,241
|
|
|
|
1,939
|
|
|
|
1,371
|
|
Other income (expense)
|
|
|
867
|
|
|
|
763
|
|
|
|
595
|
|
Total before income tax
|
|
|
8,799
|
|
|
|
7,509
|
|
|
|
5,730
|
|
Income tax provision
|
|
|
(3,156
|
)
|
|
|
(3,547
|
)
|
|
|
(2,066
|
)
|
Net of income tax
|
|
$
|
5,643
|
|
|
$
|
3,962
|
|
|
$
|
3,664
|
|
Realized gains/losses on sale of marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative
|
|
$
|
(87
|
)
|
|
$
|
(120
|
)
|
|
$
|
20
|
|
Income tax provision
|
|
|
30
|
|
|
|
42
|
|
|
|
(7
|
)
|
Net of income tax
|
|
$
|
(57
|
)
|
|
$
|
(78
|
)
|
|
$
|
13
|
|
Realized gains/losses from settlement of cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales (foreign currency sales contracts)
|
|
$
|
0
|
|
|
$
|
(197
|
)
|
|
$
|
(228
|
)
|
Depreciation (foreign currency purchase contracts)
|
|
|
(27
|
)
|
|
|
(27
|
)
|
|
|
(32
|
)
|
Costs of products sold (excluding depreciation) (futures contracts copper and
aluminum)
|
|
|
419
|
|
|
|
398
|
|
|
|
(353
|
)
|
Total before income tax
|
|
|
392
|
|
|
|
174
|
|
|
|
(613
|
)
|
Income tax provision
|
|
|
(146
|
)
|
|
|
(67
|
)
|
|
|
230
|
|
Net of income tax
|
|
$
|
246
|
|
|
$
|
107
|
|
|
$
|
(383
|
)
|
|
The income tax expense (benefit) associated with the various components of other comprehensive income (loss) for each of the years ended December 31 is summarized
below. Foreign currency translation adjustments exclude the effect of income taxes since earnings of non-U.S. subsidiaries are deemed to be reinvested for an indefinite period of time.
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Income tax expense (benefit) associated with changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized employee benefit costs
|
|
$
|
(15,890
|
)
|
|
$
|
5,256
|
|
|
$
|
12,958
|
|
Unrealized holding gains/losses on marketable securities
|
|
|
(232
|
)
|
|
|
(80
|
)
|
|
|
15
|
|
Fair value of cash flow hedges
|
|
|
149
|
|
|
|
(61
|
)
|
|
|
427
|
|
Income tax expense (benefit) associated with reclassification adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized employee benefit costs
|
|
|
(3,156
|
)
|
|
|
(3,547
|
)
|
|
|
(2,066
|
)
|
Realized gains/losses from sale of marketable securities
|
|
|
30
|
|
|
|
42
|
|
|
|
(7
|
)
|
Realized gains/losses from settlement of cash flow hedges
|
|
|
(146
|
)
|
|
|
(67
|
)
|
|
|
230
|
|
NOTE 11 DERIVATIVE INSTRUMENTS:
Certain of the Corporations operations are subject to risk from exchange rate fluctuations in connection with sales in foreign
currencies. To minimize this risk, foreign currency sales contracts are entered into which are designated as cash flow or fair value hedges. As of December, 2013, approximately $21,714 of anticipated foreign-denominated sales has been hedged which
are covered by fair value contracts settling at various dates through January 2015. The fair value of assets held as collateral for the fair value contracts as of December 31, 2013 approximated $828. As of December 31, 2013, there are no
cash flow contracts outstanding for future sales.
Additionally, certain of the divisions of the Air and Liquid Processing segment are subject
to risk from increases in the price of commodities (copper and aluminum) used in the production of inventory. To minimize this risk, futures contracts are entered into which are designated as cash flow hedges. The change in fair value of the
derivative is deferred in accumulated other comprehensive income (loss). Any portion considered to be ineffective, including that arising from the unlikelihood of an anticipated transaction to occur, is reported as a component of earnings (other
income/expense) immediately. Upon occurrence of the anticipated transaction, the futures contract is settled and the change in fair value previously deferred in accumulated other comprehensive income (loss) is reclassified to earnings (costs of
products sold, excluding depreciation) when the projected sales occur. At December 31, 2013, approximately 57% or $2,970 of anticipated copper purchases over the next nine months and 38% or $463 of anticipated aluminum purchases over the next
six months are hedged. The fair value of assets held as collateral as of December 31, 2013 equaled $400.
46
The Corporation previously entered into foreign currency purchase contracts to manage the volatility
associated with euro-denominated progress payments to be made for certain machinery and equipment. As of December 31, 2010, all contracts had been settled and the underlying fixed assets were placed in service. The change in the fair value is
included in accumulated other comprehensive income (loss) and is being amortized to pre-tax earnings (as an offset to depreciation expense) over the life of the underlying assets.
No portion of the existing cash flow or fair value hedges is considered to be ineffective, including any ineffectiveness arising from the unlikelihood of an anticipated transaction to occur. Additionally,
no amounts have been excluded from assessing the effectiveness of the hedge.
At December 31, 2013, the Corporation has purchase
commitments covering 53% or $4,329 of anticipated natural gas usage over the next two years at one of its subsidiaries. The commitments qualify as normal purchases and, accordingly, are not reflected on the consolidated balance sheet.
The Corporation does not enter into derivative transactions for speculative purposes and, therefore, holds no derivative instruments for trading
purposes.
The following summarizes location and fair value of the foreign currency sales contracts recorded on the consolidated balance
sheets as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
2013
|
|
|
2012
|
|
Cash flow hedge contracts
|
|
Other current assets
|
|
$
|
0
|
|
|
$
|
46
|
|
Fair value hedge contracts
|
|
Other current assets
|
|
|
426
|
|
|
|
218
|
|
|
|
Other noncurrent assets
|
|
|
17
|
|
|
|
0
|
|
Fair value hedged item
|
|
Accounts receivable
|
|
|
(36
|
)
|
|
|
(94
|
)
|
|
|
Other current liability
|
|
|
488
|
|
|
|
233
|
|
|
|
Other noncurrent liability
|
|
|
40
|
|
|
|
0
|
|
The change in the fair value of the cash flow contracts is recorded as a component of accumulated other comprehensive
income (loss). Amounts recognized as and reclassified from accumulated other comprehensive income (loss) are recorded as a component of other comprehensive income (loss) and are summarized below. All amounts are after-tax.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2013
|
|
Comprehensive
Income (Loss)
Beginning of
the Year
|
|
|
Recognized as
Comprehensive
Income (Loss)
|
|
|
Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive
Income
(Loss)
|
|
|
Comprehensive
Income (Loss)
End of
the
Year
|
|
Foreign currency sales contractscash flow hedges
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Foreign currency purchase contracts
|
|
|
292
|
|
|
|
0
|
|
|
|
17
|
|
|
|
275
|
|
Future contracts copper and aluminum
|
|
|
26
|
|
|
|
(251
|
)
|
|
|
(263
|
)
|
|
|
38
|
|
|
|
$
|
318
|
|
|
$
|
(251
|
)
|
|
$
|
(246
|
)
|
|
$
|
313
|
|
|
|
|
|
|
For the Year Ended December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency sales contractscash flow hedges
|
|
$
|
114
|
|
|
$
|
10
|
|
|
$
|
124
|
|
|
$
|
0
|
|
Foreign currency purchase contracts
|
|
|
309
|
|
|
|
0
|
|
|
|
17
|
|
|
|
292
|
|
Future contracts copper and aluminum
|
|
|
(314
|
)
|
|
|
92
|
|
|
|
(248
|
)
|
|
|
26
|
|
|
|
$
|
109
|
|
|
$
|
102
|
|
|
$
|
(107
|
)
|
|
$
|
318
|
|
|
|
|
|
|
For the Year Ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency sales contractscash flow hedges
|
|
$
|
281
|
|
|
$
|
(24
|
)
|
|
$
|
143
|
|
|
$
|
114
|
|
Foreign currency purchase contracts
|
|
|
329
|
|
|
|
0
|
|
|
|
20
|
|
|
|
309
|
|
Future contracts copper and aluminum
|
|
|
589
|
|
|
|
(683
|
)
|
|
|
220
|
|
|
|
(314
|
)
|
|
|
$
|
1,199
|
|
|
$
|
(707
|
)
|
|
$
|
383
|
|
|
$
|
109
|
|
47
The change in fair value reclassified or expected to be reclassified from accumulated other comprehensive
income (loss) to earnings is summarized below. All amounts are pre-tax.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of
Gain (Loss)
in Statements
|
|
Estimated to be
Reclassified in
the
Next
|
|
|
Year Ended December 31,
|
|
|
|
of Operations
|
|
12 Months
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Foreign currency sales contractscash flow hedges
|
|
Net sales
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
197
|
|
|
$
|
228
|
|
Foreign currency purchase contracts
|
|
Depreciation
|
|
|
27
|
|
|
|
27
|
|
|
|
27
|
|
|
|
32
|
|
Futures contracts copper and aluminum
|
|
Costs of products sold (excluding depreciation)
|
|
|
59
|
|
|
|
(419
|
)
|
|
|
(398
|
)
|
|
|
353
|
|
(Losses) gains on foreign exchange transactions included in other income (expense) approximated $(227), $107 and $(371)
for 2013, 2012 and 2011, respectively.
NOTE 12 FAIR VALUE:
The following summarizes financial assets and liabilities reported at fair value on a recurring basis in the accompanying consolidated
balance sheets at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
Quoted Prices
in Active
Markets
for
Identical Inputs
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
Total
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
$
|
4,092
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
4,092
|
|
Foreign currency exchange contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
0
|
|
|
|
426
|
|
|
|
0
|
|
|
|
426
|
|
Other noncurrent assets
|
|
|
0
|
|
|
|
17
|
|
|
|
0
|
|
|
|
17
|
|
Other current liabilities
|
|
|
0
|
|
|
|
488
|
|
|
|
0
|
|
|
|
488
|
|
Other noncurrent liabilities
|
|
|
0
|
|
|
|
40
|
|
|
|
0
|
|
|
|
40
|
|
2012
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
$
|
3,358
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
3,358
|
|
Foreign currency exchange contracts
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
0
|
|
|
|
264
|
|
|
|
0
|
|
|
|
264
|
|
Other current liabilities
|
|
|
0
|
|
|
|
223
|
|
|
|
0
|
|
|
|
223
|
|
The investments held as other noncurrent assets represent assets held in the Rabbi trust for the purpose of
providing benefits under the non-qualified defined benefit pension plan. The fair value of the investments is based on quoted prices of the investments in active markets. The fair value of foreign currency exchange contracts is determined based on
the fair value of similar contracts with similar terms and remaining maturities. The fair value of futures contracts is based on market quotations. The fair value of the variable-rate IRB debt approximates its carrying value. Additionally, the fair
value of trade receivables and trade payables approximates their carrying value.
During 2013, the Corporation recorded an impairment charge
of $6,407 to reduce the carrying amount of its investment in a forged roll joint venture company to its estimated fair value. The investment was measured at fair value on a nonrecurring basis and is considered a Level 3 measurement due to
significant inputs that are unobservable. The Corporation considered all relevant valuation approaches including the market, income and asset approaches and selected the asset approach as the most appropriate measure of fair value.
48
NOTE 13 INCOME TAXES:
Income before income taxes and equity losses in Chinese joint venture is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Domestic
|
|
$
|
25,269
|
|
|
$
|
14,754
|
|
|
$
|
30,629
|
|
Foreign
|
|
|
1,911
|
|
|
|
413
|
|
|
|
4,098
|
|
|
|
$
|
27,180
|
|
|
$
|
15,167
|
|
|
$
|
34,727
|
|
At December 31, 2013, the Corporation has state net operating loss carryforwards of $20,949 which begin to expire in
2018, foreign net operating loss carryforwards of $1,531 which begin to expire in 2014 and capital loss carryforwards of $1,003 which begin to expire in 2017.
The income tax provision consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
5,535
|
|
|
$
|
2,550
|
|
|
$
|
6,047
|
|
State
|
|
|
139
|
|
|
|
184
|
|
|
|
754
|
|
Foreign
|
|
|
28
|
|
|
|
(61
|
)
|
|
|
140
|
|
|
|
|
5,702
|
|
|
|
2,673
|
|
|
|
6,941
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(488
|
)
|
|
|
2,142
|
|
|
|
3,518
|
|
State
|
|
|
133
|
|
|
|
360
|
|
|
|
2
|
|
Foreign
|
|
|
622
|
|
|
|
175
|
|
|
|
2,633
|
|
Reversal of valuation allowance
|
|
|
(156
|
)
|
|
|
(132
|
)
|
|
|
(178
|
)
|
|
|
|
111
|
|
|
|
2,545
|
|
|
|
5,975
|
|
|
|
$
|
5,813
|
|
|
$
|
5,218
|
|
|
$
|
12,916
|
|
The income tax provision was affected by the reversal of valuation allowances previously provided against deferred income
tax assets associated with state net operating loss carryforwards for each of the years.
The difference between statutory U.S. federal income
tax and the Corporations effective income tax was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Computed at statutory rate
|
|
$
|
9,513
|
|
|
$
|
5,309
|
|
|
$
|
12,154
|
|
Tax differential on non-U.S. earnings
|
|
|
(223
|
)
|
|
|
(45
|
)
|
|
|
(358
|
)
|
State income taxes
|
|
|
152
|
|
|
|
403
|
|
|
|
1,296
|
|
Manufacturers deduction (I.R.C. Section 199)
|
|
|
(566
|
)
|
|
|
(257
|
)
|
|
|
(792
|
)
|
Meals and entertainment
|
|
|
205
|
|
|
|
198
|
|
|
|
220
|
|
Tax credits
|
|
|
(145
|
)
|
|
|
(64
|
)
|
|
|
(29
|
)
|
Chinese joint venture
|
|
|
(3,125
|
)
|
|
|
(558
|
)
|
|
|
(175
|
)
|
Reversal of valuation allowance
|
|
|
(156
|
)
|
|
|
(132
|
)
|
|
|
(178
|
)
|
Other net
|
|
|
158
|
|
|
|
364
|
|
|
|
778
|
|
|
|
$
|
5,813
|
|
|
$
|
5,218
|
|
|
$
|
12,916
|
|
49
Deferred income tax assets and liabilities as of December 31, 2013 and 2012 are summarized below. The
current portion of net deferred income tax assets is included in other current assets in the consolidated balance sheets. Unremitted earnings of the Corporations non-U.S. subsidiaries and affiliates are deemed to be permanently reinvested and,
accordingly, no deferred income tax liability has been recorded. It is not practical to estimate the income tax effect that might be incurred if cumulative prior year earnings not previously taxed in the United States were remitted to the United
States.
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Assets:
|
|
|
|
|
|
|
|
|
Employment related liabilities
|
|
$
|
11,946
|
|
|
$
|
12,814
|
|
Pension liability foreign
|
|
|
2,434
|
|
|
|
3,984
|
|
Pension liability domestic
|
|
|
5,137
|
|
|
|
19,574
|
|
Liabilities related to discontinued operations
|
|
|
959
|
|
|
|
1,155
|
|
Capital loss carryforwards
|
|
|
273
|
|
|
|
391
|
|
Asbestos-related liability
|
|
|
18,172
|
|
|
|
23,702
|
|
Net operating loss state
|
|
|
1,654
|
|
|
|
1,795
|
|
Inventory related
|
|
|
2,644
|
|
|
|
2,017
|
|
Impairment charge associated with investment in UES-MG
|
|
|
2,316
|
|
|
|
0
|
|
Other
|
|
|
3,939
|
|
|
|
3,803
|
|
Gross deferred income tax assets
|
|
|
49,474
|
|
|
|
69,235
|
|
Valuation allowance
|
|
|
(2,639
|
)
|
|
|
(2,887
|
)
|
|
|
|
46,835
|
|
|
|
66,348
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(31,918
|
)
|
|
|
(31,931
|
)
|
Mark-to-market adjustment derivatives
|
|
|
(73
|
)
|
|
|
(153
|
)
|
Other
|
|
|
(2,495
|
)
|
|
|
(2,353
|
)
|
Gross deferred income tax liabilities
|
|
|
(34,486
|
)
|
|
|
(34,437
|
)
|
Net deferred income tax assets
|
|
$
|
12,349
|
|
|
$
|
31,911
|
|
The following summarizes changes in unrecognized tax benefits for the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Balance at the beginning of the year
|
|
$
|
442
|
|
|
$
|
311
|
|
|
$
|
786
|
|
Gross increases for tax positions taken in the current year
|
|
|
8
|
|
|
|
233
|
|
|
|
81
|
|
Gross increases for tax positions taken in prior years
|
|
|
12
|
|
|
|
18
|
|
|
|
0
|
|
Gross decreases in tax positions due to lapse in statute of limitations
|
|
|
0
|
|
|
|
(120
|
)
|
|
|
(498
|
)
|
Gross decreases for tax positions taken in prior years
|
|
|
(192
|
)
|
|
|
0
|
|
|
|
(25
|
)
|
Gross decreases for tax settlements with taxing authorities
|
|
|
0
|
|
|
|
0
|
|
|
|
(33
|
)
|
Balance at the end of the year
|
|
$
|
270
|
|
|
$
|
442
|
|
|
$
|
311
|
|
If the unrecognized tax benefits were recognized, $175 would reduce the Corporations effective income tax rate. The
amount of penalties and interest recognized in the consolidated balance sheets as of December 31, 2013 and 2012 and in the consolidated statements of operations for 2013, 2012 and 2011 is insignificant. Unrecognized tax benefits of $52 are to
expire due to the lapse in the statute of limitations within the next 12 months.
The Corporation is subject to taxation in the United States,
various states and foreign jurisdictions, and remains subject to examination by tax authorities for tax years 2010-2013.
NOTE 14 OPERATING LEASES:
The Corporation leases certain factory and office space and certain office equipment. Operating lease expense was $945 in 2013, $1,013
in 2012 and $813 in 2011. Operating lease payments for subsequent years are $842 for 2014, $519 for 2015, $162 for 2016, $81 for 2017, $17 for 2018 and $0 thereafter.
NOTE 15 RESEARCH AND DEVELOPMENT COSTS:
Expenditures relating to the development of new products, identification of products or process alternatives and modifications and
improvements to existing products and processes are expensed as incurred. These expenses approximated $1,413 for 2013, $1,476 for 2012 and $1,698 for 2011.
50
NOTE 16 RELATED PARTIES:
In the ordinary course of business, the Corporation purchases industrial supplies from a subsidiary of The Louis Berkman Company
(LB Co) and the Chinese cast roll joint venture company, and earns a commission from the sale of forged backup rolling mill rolls for the Chinese forged roll joint venture company. Certain directors of the Corporation are either
officers, directors and/or shareholders of LB Co; UES-UK has a 25% interest in the cast roll joint venture company; and UES has a 49% interest in the Chinese forged roll joint venture company.
Purchases from LB Co approximated $1,489 in 2013, $1,538 in 2012 and $1,579 in 2011. In addition, LB Co paid the Corporation approximately $150 in 2013,
$253 in 2012 and $246 in 2011 for certain administrative services. At December 31, 2013 and 2012, the net amount payable to LB Co approximated $79 and $61, respectively. Purchases of industrial supplies from the Chinese cast roll joint venture
company approximated $38 in 2013, $455 in 2012 and $480 in 2011. At December 31, 2013 and 2012, no amounts were outstanding. Commissions earned from the sale of forged backup rolling mill rolls were $74 in 2012 and $191 in 2011. At
December 31, 2012, $14 was outstanding.
NOTE 17 LITIGATION:
The Corporation and its subsidiaries are involved in various claims and lawsuits incidental to their businesses. In addition, it is
also subject to asbestos litigation as described below.
Asbestos Litigation
Claims have been asserted alleging personal injury from exposure to asbestos-containing components historically used in some products of predecessors of the Corporations Air & Liquid
subsidiary (Asbestos Liability) and of an inactive subsidiary in dissolution. During 2013, all pending claims against the inactive subsidiary in dissolution were settled, dismissed or barred and the dissolution court issued a final order
thereby concluding the dissolution proceedings. Those subsidiaries, and in some cases the Corporation, are defendants (among a number of defendants, often in excess of 50) in cases filed in various state and federal courts.
Asbestos Claims
The following table reflects
approximate information about the claims for Asbestos Liability against the subsidiaries and the Corporation, along with certain asbestos claims asserted against the inactive subsidiary in dissolution, for the two years ended December 31, 2013
and 2012
:
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Total claims pending at the beginning of the period
|
|
|
8,007
|
|
|
|
8,145
|
|
New claims served
|
|
|
1,432
|
|
|
|
1,538
|
|
Claims dismissed
|
|
|
(803
|
)
|
|
|
(1,420
|
)
|
Claims settled
|
|
|
(317
|
)
|
|
|
(256
|
)
|
Total claims pending at the end of the period
(1)
|
|
|
8,319
|
|
|
|
8,007
|
|
Gross settlement and defense costs (in 000s)
|
|
$
|
22,618
|
|
|
$
|
23,589
|
|
Average gross settlement and defense costs per claim resolved (in
000s)
|
|
$
|
20.19
|
|
|
$
|
14.07
|
|
|
(1)
|
Included as open claims are approximately 1.636 claims and 1,632 claims in 2013 and 2012 respectively, classified in various jurisdictions as
inactive or transferred to a state or federal judicial panel on multi-district litigation, commonly referred to as the MDL.
|
A substantial majority of the settlement and defense costs reflected in the above table was reported and paid by insurers. Because claims are often filed and can be settled or dismissed in large groups,
the amount and timing of settlements, as well as the number of open claims, can fluctuate significantly from period to period.
Asbestos Insurance
The Corporation and its Air & Liquid subsidiary are parties to a series of settlement agreements (Settlement
Agreements) with insurers that have coverage obligations for Asbestos Liability (the Settling Insurers). Under the Settlement Agreements, the Settling Insurers accept financial responsibility, subject to the terms and conditions of
the respective agreements, including overall coverage limits, for pending and future claims for Asbestos Liability. The Settlement Agreements encompass the substantial majority of insurance policies that provide coverage for claims for Asbestos
Liability.
The Settlement Agreements include acknowledgements that Howden North America, Inc. (Howden) is entitled to coverage
under policies covering Asbestos Liability for claims arising out of the historical products manufactured or distributed by Buffalo Forge, a former subsidiary of the Corporation (the Products). The Settlement Agreements do not provide
for any prioritization on access to the applicable policies or any sublimits of liability as to Howden or the Corporation and Air & Liquid, and, accordingly, Howden may access the coverage afforded by the Settling Insurers for any covered
claim arising out of a Product. In general, access by Howden to the coverage afforded by the Settling Insurers for the Products will erode coverage under the Settlement Agreements available to the Corporation and Air & Liquid for Asbestos
Liability.
51
On February 24, 2011, the Corporation and Air & Liquid filed a lawsuit in the United States
District Court for the Western District of Pennsylvania against thirteen domestic insurance companies, certain underwriters at Lloyds, London and certain London market insurance companies, and Howden. The lawsuit seeks a declaratory judgment
regarding the respective rights and obligations of the parties under excess insurance policies that were issued to the Corporation from 1981 through 1984 as respects claims against the Corporation and its subsidiary for Asbestos Liability and as
respects asbestos bodily-injury claims against Howden arising from the Products. The Corporation and Air & Liquid have reached Settlement Agreements with all but two of the defendant insurers in the coverage action. Those Settlement
Agreements specify the terms and conditions upon which the insurer parties are to contribute to defense and indemnity costs for claims for Asbestos Liability. One of the Settlement Agreements entered into by the Corporation and Air & Liquid
also provided for the dismissal of claims, without prejudice, regarding two upper-level excess policies issued by one of the insurers. The Court has entered Orders dismissing all claims in the action filed against each other by the Corporation and
Air & Liquid, on the one hand, and by the settling insurers, on the other. Howden also reached an agreement with eight domestic insurers addressing asbestos-related bodily injury claims arising from the Products, and claims as to those
insurers and Howden have been dismissed. Various counterclaims, cross claims and third party claims have been filed in the litigation and remain pending although only two domestic insurers and Howden remain in the litigation as to the Corporation
and Air & Liquid. On September 27, 2013, the Court issued a memorandum opinion and order granting in part and denying in part cross motions for summary judgment filed by the Corporation and Air & Liquid, Howden, and the
insurer parties still in the litigation. The September 27, 2013 ruling is not a final ruling for appellate purposes, but when final it could be appealed by the parties to the litigation.
Asbestos Valuations
In 2006, the Corporation retained Hamilton, Rabinovitz & Associates,
Inc. (HR&A), a nationally recognized expert in the valuation of asbestos liabilities, to assist the Corporation in estimating the potential liability for pending and unasserted future claims for Asbestos Liability. HR&A was not
requested to estimate asbestos claims against the inactive subsidiary in dissolution, which the Corporation believes are immaterial. Based on this analysis, the Corporation recorded a reserve for Asbestos Liability claims pending or projected to be
asserted through 2013 as at December 31, 2006. HR&As analysis has been periodically updated since that time. Most recently, the HR&A analysis was updated in 2012, and additional reserves were established by the Corporation as at
December 31, 2012 for Asbestos Liability claims pending or projected to be asserted through 2022. The methodology used by HR&A in its projection in 2012 of the operating subsidiaries liability for pending and unasserted potential
future claims for Asbestos Liability, which is substantially the same as the methodology employed by HR&A in prior estimates, relied upon and included the following factors:
¡
|
|
HR&As interpretation of a widely accepted forecast of the population likely to have been exposed to asbestos;
|
¡
|
|
epidemiological studies estimating the number of people likely to develop asbestos-related diseases;
|
¡
|
|
HR&As analysis of the number of people likely to file an asbestos-related injury claim against the subsidiaries and the Corporation based on
such epidemiological data and relevant claims history from January 1, 2010 to December 20, 2012;
|
¡
|
|
an analysis of pending cases, by type of injury claimed and jurisdiction where the claim is filed;
|
¡
|
|
an analysis of claims resolution history from January 1, 2010 to December 20, 2012 to determine the average settlement value of claims, by
type of injury claimed and jurisdiction of filing; and
|
¡
|
|
an adjustment for inflation in the future average settlement value of claims, at an annual inflation rate based on the Congressional Budget
Offices ten year forecast of inflation.
|
Using this information, HR&A estimated in 2012 the number of future
claims for Asbestos Liability that would be filed through the year 2022, as well as the settlement or indemnity costs that would be incurred to resolve both pending and future unasserted claims through 2022. This methodology has been accepted by
numerous courts.
In conjunction with developing the aggregate liability estimate referenced above, the Corporation also developed an estimate
of probable insurance recoveries for its Asbestos Liabilities. In developing the estimate, the Corporation considered HR&As projection for settlement or indemnity costs for Asbestos Liability and managements projection of associated
defense costs (based on the current defense to indemnity cost ratio), as well as a number of additional factors. These additional factors included the Settlement Agreements then in effect, policy exclusions, policy limits, policy provisions
regarding coverage for defense costs, attachment points, prior impairment of policies and gaps in the coverage, policy exhaustions, insolvencies among certain of the insurance carriers, and the nature of the underlying claims for Asbestos Liability
asserted against the subsidiaries and the Corporation as reflected in the Corporations asbestos claims database, as well as estimated erosion of insurance limits on account of claims against Howden arising out of the Products. In addition to
consulting with the Corporations outside legal counsel on these insurance matters, the Corporation consulted with a nationally-recognized insurance consulting firm it retained to assist the Corporation with certain policy allocation matters
that also are among the several factors considered by the Corporation when analyzing potential recoveries from relevant historical insurance for Asbestos Liabilities. Based upon all of the factors considered by the Corporation, and taking into
account the Corporations analysis of publicly available information regarding the credit-worthiness of various insurers, the Corporation estimated the probable insurance recoveries for Asbestos Liability and defense costs through 2022.
Although the Corporation believes that the assumptions employed in the insurance valuation were reasonable and previously consulted with its outside legal counsel and insurance consultant regarding those assumptions, there are other assumptions that
could have been employed that would have resulted in materially lower insurance recovery projections.
52
Based on the analyses described above, the Corporations reserve at December 31, 2012 for the
total costs, including defense costs, for Asbestos Liability claims pending or projected to be asserted through 2022 was $181,022, of which approximately 73% was attributable to settlement costs for unasserted claims projected to be filed through
2022 and future defense costs. The reserve at December 31, 2013 was $158,293. While it is reasonably possible that the Corporation will incur additional charges for Asbestos Liability and defense costs in excess of the amounts currently
reserved, the Corporation believes that there is too much uncertainty to provide for reasonable estimation of the number of future claims, the nature of such claims and the cost to resolve them beyond 2022. Accordingly, no reserve has been recorded
for any costs that may be incurred after 2022.
The Corporations receivable at December 31, 2012 for insurance recoveries
attributable to the claims for which the Corporations Asbestos Liability reserve has been established, including the portion of incurred defense costs covered by the Settlement Agreements in effect through December 31, 2012, and the
probable payments and reimbursements relating to the estimated indemnity and defense costs for pending and unasserted future Asbestos Liability claims, was $118,115. The Corporation updated its receivable at September 30, 2013 to take into
account the effect of the Settlement Agreements reached in August 2013. The effect of these Settlement Agreements was to increase the Corporations receivable for insurance recoveries attributable to claims for which the Corporations
Asbestos Liability reserve has been established by $16,340.
The following table summarizes activity relating to insurance recoveries for each
of the years ended December 31, 2013 and 2012.
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Insurance receivable asbestos, beginning of the year
|
|
|
$118,115
|
|
|
|
$126,206
|
|
Settlement and defense costs paid by insurance carriers
|
|
|
(23,714
|
)
|
|
|
(15,468
|
)
|
Changes in estimated coverage
|
|
|
16,340
|
|
|
|
7,377
|
|
Insurance receivable asbestos, end of the
year
|
|
|
$110,741
|
|
|
|
$118,115
|
|
The insurance receivable recorded by the Corporation does not assume any recovery from insolvent carriers or carriers not
party to a Settlement Agreement, and a substantial majority of the insurance recoveries deemed probable was from insurance companies rated A (excellent) or better by A.M. Best Corporation. There can be no assurance, however, that there will
not be further insolvencies among the relevant insurance carriers, or that the assumed percentage recoveries for certain carriers will prove correct. The difference between insurance recoveries and projected costs is not due to exhaustion of all
insurance coverage for Asbestos Liability. The Corporation and the subsidiaries have substantial additional insurance coverage which the Corporation expects to be available for Asbestos Liability claims and defense costs that the subsidiaries and it
may incur after 2022. However, this insurance coverage also can be expected to have gaps creating significant shortfalls of insurance recoveries as against claims expense, which could be material in future years.
The amounts recorded by the Corporation for Asbestos Liabilities and insurance receivables rely on assumptions that are based on currently known facts
and strategy. The Corporations actual expenses or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Corporations or HR&As calculations vary significantly from actual
results. Key variables in these assumptions are identified above and include the number and type of new claims to be filed each year, the average cost of disposing of each such new claim, average annual defense costs, compliance by relevant parties
with the terms of the Settlement Agreements, the resolution of remaining coverage issues with insurance carriers, and the solvency risk with respect to the relevant insurance carriers. Other factors that may affect the Corporations Asbestos
Liability and ability to recover under its insurance policies include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms that may be made by state and federal courts, and the passage of
state or federal tort reform legislation.
The Corporation intends to evaluate its estimated Asbestos Liability and related insurance
receivables as well as the underlying assumptions on a regular basis to determine whether any adjustments to the estimates are required. Due to the uncertainties surrounding asbestos litigation and insurance, these regular reviews may result in the
Corporation incurring future charges; however, the Corporation is currently unable to estimate such future charges. Adjustments, if any, to the Corporations estimate of its recorded Asbestos Liability and/or insurance receivables could be
material to operating results for the periods in which the adjustments to the liability or receivable are recorded, and to the Corporations liquidity and consolidated financial position.
NOTE 18 ENVIRONMENTAL MATTERS:
The Corporation is currently performing certain remedial actions in connection with the sale of real estate previously owned.
Environmental exposures are difficult to assess and estimate for numerous reasons including lack of reliable data, the multiplicity of possible solutions, the years of remedial and monitoring activity required, and identification of new sites. In
the opinion of management and in consideration of advice from the Corporations consultants, the potential liability for all environmental proceedings of approximately $823 at December 31, 2013 is considered adequate based on information
known to date.
53
NOTE 19 BUSINESS SEGMENTS:
The Corporation organizes its business into two operating segmentsForged and Cast Rolls and Air and Liquid Processing. Summarized
financial information concerning the Corporations reportable segments is shown in the following tables. Corporate assets included under Identifiable Assets represent primarily cash and cash equivalents and other items not allocated to
reportable segments. Long-lived assets exclude deferred income tax assets. Corporate costs are comprised of operating costs of the corporate office and other costs not allocated to the segments.
The accounting policies are the same as those described in Note 1.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
Income Before Income Taxes and
Equity Losses in Chinese Joint
Venture
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Forged and Cast Rolls
|
|
$
|
187,286
|
|
|
$
|
189,470
|
|
|
$
|
248,380
|
|
|
$
|
13,936
|
|
|
$
|
18,415
|
|
|
$
|
38,761
|
|
Air and Liquid Processing
(1)
|
|
|
93,764
|
|
|
|
103,435
|
|
|
|
96,436
|
|
|
|
24,945
|
|
|
|
7,267
|
|
|
|
8,155
|
|
Total Reportable Segments
|
|
|
281,050
|
|
|
|
292,905
|
|
|
|
344,816
|
|
|
|
38,881
|
|
|
|
25,682
|
|
|
|
46,916
|
|
Corporate costs, including other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,701
|
)
|
|
|
(10,515
|
)
|
|
|
(12,189
|
)
|
|
|
$
|
281,050
|
|
|
$
|
292,905
|
|
|
$
|
344,816
|
|
|
$
|
27,180
|
|
|
$
|
15,167
|
|
|
$
|
34,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
Depreciation Expense
|
|
|
Identifiable Assets
(2)
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Forged and Cast Rolls
|
|
$
|
11,016
|
|
|
$
|
8,867
|
|
|
$
|
15,108
|
|
|
$
|
9,976
|
|
|
$
|
9,282
|
|
|
$
|
8,712
|
|
|
$
|
263,012
|
|
|
$
|
268,489
|
|
|
$
|
265,340
|
|
Air and Liquid Processing
|
|
|
757
|
|
|
|
798
|
|
|
|
610
|
|
|
|
1,300
|
|
|
|
1,311
|
|
|
|
1,374
|
|
|
|
168,977
|
|
|
|
186,340
|
|
|
|
195,463
|
|
Corporate
|
|
|
32
|
|
|
|
3
|
|
|
|
62
|
|
|
|
66
|
|
|
|
68
|
|
|
|
67
|
|
|
|
70,684
|
|
|
|
78,350
|
|
|
|
70,829
|
|
|
|
$
|
11,805
|
|
|
$
|
9,668
|
|
|
$
|
15,780
|
|
|
$
|
11,342
|
|
|
$
|
10,661
|
|
|
$
|
10,153
|
|
|
$
|
502,673
|
|
|
$
|
533,179
|
|
|
$
|
531,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
(3)
|
|
|
Long-Lived Assets
(4)
|
|
|
Income Before Income Taxes
and Equity Losses in
Chinese
Joint Venture
|
|
Geographic Areas:
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
United States
(1)
|
|
$
|
134,695
|
|
|
$
|
143,579
|
|
|
$
|
148,629
|
|
|
$
|
213,332
|
|
|
$
|
228,177
|
|
|
$
|
238,927
|
|
|
$
|
26,137
|
|
|
$
|
14,707
|
|
|
$
|
30,190
|
|
Foreign
|
|
|
146,355
|
|
|
|
149,326
|
|
|
|
196,187
|
|
|
|
35,723
|
|
|
|
41,620
|
|
|
|
40,536
|
|
|
|
1,043
|
|
|
|
460
|
|
|
|
4,537
|
|
|
|
$
|
281,050
|
|
|
$
|
292,905
|
|
|
$
|
344,816
|
|
|
$
|
249,055
|
|
|
$
|
269,797
|
|
|
$
|
279,463
|
|
|
$
|
27,180
|
|
|
$
|
15,167
|
|
|
$
|
34,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales by Product Line
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Forged and cast rolls
(5)
|
|
$
|
187,286
|
|
|
$
|
189,470
|
|
|
$
|
248,380
|
|
Heat exchange coils
|
|
|
42,364
|
|
|
|
44,477
|
|
|
|
41,845
|
|
Centrifugal pumps
|
|
|
32,341
|
|
|
|
30,551
|
|
|
|
28,602
|
|
Air handling systems
|
|
|
19,059
|
|
|
|
28,407
|
|
|
|
25,989
|
|
|
|
$
|
281,050
|
|
|
$
|
292,905
|
|
|
$
|
344,816
|
|
|
(1)
|
Income before income taxes and equity losses in Chinese joint venture for 2013 includes a pre-tax credit of $16,340 for estimated additional insurance recoveries
expected to be available to satisfy asbestos liabilities through 2022 resulting from settlement agreements reached with various insurance carriers. See Note 17.
|
|
(2)
|
Identifiable assets for the Forged and Cast Rolls segment include investments in joint ventures of $5,010, $13,319 and $14,872 at December 31, 2013, 2012 and
2011, respectively. The change in the identifiable assets of the Air and Liquid Processing segment relates primarily to the movement in asbestos-related insurance receivables, the balances of which equaled $110,741, $118,115 and $126,206 at
December 31, 2013, 2012 and 2011, respectively. See Note 17.
|
|
(3)
|
Net sales are attributed to countries based on location of the customer. Sales to individual countries were less than 10% of consolidated net sales each of the
years.
|
|
(4)
|
Foreign long-lived assets represent primarily investments in joint ventures of $5,010, $13,319 and $14,872 at December 31, 2013, 2012 and 2011, respectively,
and assets of the U.K. operations. Long-lived assets of the U.S. include noncurrent asbestos-related insurance receivables of $86,241, $99,715 and $108,206 for 2013, 2012 and 2011, respectively.
|
|
(5)
|
For the Forged and Cast Rolls segment, two customers accounted for 26% of its net sales for 2013, 23% of its net sales for 2012 and 22% of its net sales for 2011.
|
54
QUARTERLY INFORMATION UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$ 69,624
|
|
|
|
$ 69,938
|
|
|
|
$ 64,433
|
|
|
|
$ 77,055
|
|
Gross profit
(a)
|
|
|
14,534
|
|
|
|
14,628
|
|
|
|
16,256
|
|
|
|
18,290
|
|
Net income (loss)
(b)
|
|
|
126
|
|
|
|
1,106
|
|
|
|
12,705
|
|
|
|
(1,500
|
)
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(b)
|
|
|
0.01
|
|
|
|
0.11
|
|
|
|
1.23
|
|
|
|
(0.14
|
)
|
Diluted
(b)
|
|
|
0.01
|
|
|
|
0.11
|
|
|
|
1.22
|
|
|
|
(0.14
|
)
|
Comprehensive income (loss)
(c)
|
|
|
(1,326
|
)
|
|
|
2,387
|
|
|
|
17,478
|
|
|
|
30,408
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$ 73,605
|
|
|
|
$ 69,956
|
|
|
|
$ 72,190
|
|
|
|
$ 77,154
|
|
Gross profit
(a)
|
|
|
17,369
|
|
|
|
15,654
|
|
|
|
16,124
|
|
|
|
17,852
|
|
Net income
|
|
|
2,000
|
|
|
|
1,508
|
|
|
|
1,528
|
|
|
|
3,319
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.19
|
|
|
|
0.15
|
|
|
|
0.15
|
|
|
|
0.32
|
|
Diluted
|
|
|
0.19
|
|
|
|
0.15
|
|
|
|
0.15
|
|
|
|
0.32
|
|
Comprehensive income (loss)
(c)
|
|
|
5,445
|
|
|
|
1,278
|
|
|
|
4,362
|
|
|
|
(5,815
|
)
|
|
(a)
|
Gross profit excludes depreciation.
|
|
(b)
|
Third quarter includes an after-tax credit of $10,621 or $1.03 per common share for estimated additional insurance recoveries expected to be available to satisfy
asbestos liabilities through 2022 resulting from settlement agreements reached with various insurance carriers. Fourth quarter includes an after-tax charge of $4,165 or $0.40 per common share to recognize an other-than-temporary impairment of the
Corporations investment in a forged roll joint venture company.
|
|
(c)
|
Fourth quarter includes a net-of-tax adjustment to reflect the funded status of the various pension and other postretirement benefit plans of $29,080 and $(10,520)
for 2013 and 2012, respectively.
|
55