Employee Benefit Plans

12 Months Ended

Dec. 31, 2012

Employee Benefit Plans

Note 10. Employee Benefit Plans

Supplemental Retirement Plans

We have three unfunded supplemental retirement plans. The first plan was suspended in 1986, but continues to cover certain former executives. The second plan was suspended in 1997, but continues to cover certain current and retired directors. The third plan covers certain current and retired employees from the LaBarge Acquisition (the “LaBarge Deferred Compensation Plan”). Further employee contributions to this plan were suspended on August 5, 2011. The liability for the LaBarge Deferred Compensation Plan and interest thereon is included in accrued employee compensation and long-term liabilities and was $0.3 million and $2.1 million, respectively, at December 31, 2012. The accumulated benefit obligations of the other two plans at December 31, 2012 and December 31, 2011 were $1.1 million and $1.2 million, respectively, which are included in accrued liabilities.

Defined Contribution 401(K) Plans

We sponsor, for all our employees, two 401(k) defined contribution plans. The first plan covers all employees, other than employees at our Miltec subsidiary, and allows the employees to make annual voluntary contributions not to exceed the lesser of an amount equal to 25% of their compensation or limits established by the Internal Revenue Code. Under this plan, we generally provide a match equal to 50% of the employee’s contributions up to the first 6% of compensation, except for union employees who are not eligible to receive the match. The second plan covers only the employees at our Miltec subsidiary and allows the employees to make annual voluntary contributions not to exceed the lesser of an amount equal to 100% of their compensation or limits established by the Internal Revenue Code. Under this plan, Miltec generally (i) provides a match equal to 100% of the employee’s contributions up to the first 5% of compensation, (ii) contributes 3% of an employee’s compensation annually, and (iii) contributes, at our discretion, 0% to 7% of an employee’s compensation annually. Our provision for matching and profit sharing contributions for the three years ended December 31, 2012, 2011 and 2010 was approximately $3.8 million, $3.4 million and $3.5 million, respectively.

Other Plans

We have a defined benefit pension plan covering certain hourly employees of a subsidiary (“Pension Plan”). Pension plan benefits are generally determined on the basis of the retiree’s age and length of service. Assets of this defined benefit pension plan are composed primarily of fixed income and equity securities. We also have a retirement plan covering certain current and retired employees from the LaBarge Acquisition (the “LaBarge Retirement Plan”).

The components of net periodic pension cost for both plans are as follows:

	(In thousands)
	Years Ended December 31,
	2012			2011			2010
Service cost	$	749		$	523		$	463
Interest cost		1,167			1,043			894
Expected return on plan assets		(1,060	)		(1,053	)		(932	)
Amortization of actuarial losses		1,147			430			371
Net periodic pension cost	$	2,003		$	943		$	796

The estimated net actuarial loss for both plans that will be amortized from accumulated other comprehensive loss into net periodic cost during 2013 is $1.1 million.

The obligations and funded status of both plans are as follows:

	(In thousands)
	December 31,
	2012			2011
Change in benefit obligation (1)
Beginning benefit obligation (January 1)	$	28,605		$	17,079
Benefit obligation related to the LaBarge Acquisition		—			5,589
Service cost		749			523
Interest cost		1,167			1,043
Actuarial loss		1,633			5,144
Benefits paid		(1,012	)		(773	)
Benefit obligation (December 31)	$	31,142		$	28,605
Change in plan assets
Beginning fair value of plan assets (January 1)	$	11,945		$	12,019
Return on assets		1,513			(959	)
Employer contribution		2,241			1,658
Benefits paid		(1,012	)		(773	)
Fair value of plan assets (December 31)	$	14,687		$	11,945
Funded status (under funded)	$	(16,455	)	$	(16,661	)
Amounts recognized in the consolidated balance sheet
Current liabilities	$	672		$	640
Non-current liabilities	$	15,783		$	16,021
Unrecognized loss included in accumulated other comprehensive loss
Unrecognized loss (January 1), before tax	$	11,902		$	5,176
Amortization		(1,147	)		(430	)
Liability loss		1,633			5,144
Asset (gain) loss		(454	)		2,012
Unrecognized loss (December 31), before tax	$	11,934		$	11,902
Tax impact		(4,466	)		(4,577	)
Unrecognized loss included in accumulated other comprehensive loss, net of tax	$	7,468		$	7,325
Prepaid benefit cost included in other assets	$	913		$	811
Accrued benefit cost included in other liabilities	$	5,433		$	5,569

⁽¹⁾  Projected benefit obligation equals the accumulated benefit obligation for the plans.

On December 31, 2012, our annual measurement date, the accumulated benefit obligation exceeded the fair value of the plans assets by $16.5 million. Such excess is referred to as an unfunded accumulated benefit obligation. We recognized a pension liability at December 31, 2012 and 2011 of $7.5 million and $7.3 million net of tax, respectively, which decreased shareholders’ equity and was included in other long-term liabilities. This charge to shareholders’ equity represents a net loss not yet recognized as pension expense. This charge did not affect reported earnings, and would be decreased or be eliminated if either interest rates increase or market performance and plan returns improve or contributions cause the Pension Plan to return to fully funded status.

Our Pension Plan asset allocations at December 31, 2012 and 2011, by asset category, were as follows:

	December 31,
	2012			2011
Equity securities		74	%		78	%
Cash and equivalents		20	%		15	%
Debt securities		6	%		7	%
Total(1)		100	%		100	%

⁽¹⁾  Our overall investment strategy is to achieve an asset allocation within the following ranges to achieve an appropriate rate of return relative to risk

Cash	0-25%
Fixed income securities	0-50%
Equities	50-95%

Pension Plan assets consist primarily of listed stocks and bonds and do not include any of the Company’s securities. The return on assets assumption reflects the average rate of return expected on funds invested or to be invested to provide for the benefits included in the projected benefit obligation. We select the return on asset assumption by considering our current and target asset allocation. We consider information from various external investment managers, forward-looking information regarding expected returns by asset class and our own judgment when determining the expected returns.

	(In thousands)
	Year Ended December 31, 2012
	Level 1		Level 2		Level 3		Total
Cash and other investments	$	2,905	$	—	$	—	$	2,905
Fixed income securities		—		860		—		860
Equities (1)		8,441		2,481		—		10,922
Total	$	11,346	$	3,341	$	—	$	14,687

	(In thousands)
	Year Ended December 31, 2011
	Level 1		Level 2		Level 3		Total
Cash and other investments	$	1,826	$	—	$	—	$	1,826
Fixed income securities		—		835		—		835
Equities (1)		7,145		2,139		—		9,284
Total	$	8,971	$	2,974	$	—	$	11,945

⁽¹⁾  Represents mutual funds and commingled accounts which invest primarily in equities, but may also hold fixed income securities, cash and other investments.

The valuation techniques used to determine fair value are as follows. Commingled funds with publicly quoted prices and active trading are classified as Level 1 investments. For commingled funds that are not publicly traded and have ongoing subscription and redemption activity, the fair value of the investment is the net asset value (“NAV”) per share, derived from the underlying securities’ quoted prices in active markets, and are classified as Level 2 investments.

The assumptions used to determine the benefit obligations and expense for our two plans are presented in the tables below. The expected long-term return on assets, noted below, represents an estimate of long-term returns on investment portfolios consisting of a mixture of fixed income and equity securities. We consider long-term rates of return in which we expect our two plans to be invested. The estimated cash flows from the plans for all future years are determined based on the plans’ population at the measurement date. Each year’s cash flow is discounted back to the measurement date based on the yield for the year of bonds in the published CitiGroup Pension Discount Curve. The discount rate chosen is the single rate that provides the same present value as the individually discounted cash flows.

The following weighted-average assumptions were used to determine the net periodic benefit cost under the two plans for:

	Years Ended December 31,
	2012			2011			2010
Discount rate used to determine pension expense
Pension Plan		4.30	%		5.50	%		6.00	%
LaBarge Retirement Plan		3.75	%		4.75	%		—

The following weighted-average assumptions were used to determine the benefit obligations under the two plans at:

	December 31,
	2012			2011			2010
Discount rate used to determine value of obligations
Pension Plan		4.00	%		4.30	%		5.50	%
LaBarge Retirement Plan		3.10	%		3.75	%		—
Long-term rate of return - Pension Plan only		8.50	%		8.50	%		8.50	%

The following benefit payments under both plans, which reflect expected future service, as appropriate, are expected to be paid:

	(In thousands)
			LaBarge
			Retirement
	Pension Plan		Plan
2013	$	920	$	672
2014		978		482
2015		1,054		482
2016		1,082		478
2017		1,119		472
Thereafter		6,590		2,145

Our funding policy is to contribute cash to our plans so that the minimum contribution requirements established by government funding and taxing authorities are met. We expect to make a contribution of $2.8 million to the plans in 2013.