NOTE 6: Retirement Benefits

Approximately 39% of U.S. employees have a defined benefit earned under the Esterline pension plan.

Under the Esterline plan, pension benefits are based on years of service and five-year average compensation or the highest five consecutive years’ compensation during the last ten years of employment. Esterline amended its defined benefit plan to add the cash balance formula with annual pay credits ranging from 2% to 6% effective January 1, 2003. Participants elected either to continue earning benefits under the current plan formula or to earn benefits under the cash balance formula. Effective January 1, 2003, all new participants are enrolled in the cash balance formula. Esterline also has an unfunded supplemental retirement plan for key executives providing for periodic payments upon retirement.

CMC sponsors defined benefit pension plans and other retirement benefit plans for its non-U.S. employees. Pension benefits are based upon years of service and final average salary. Other retirement benefit plans are non-contributory health care and life insurance plans.

The Company accounts for pension expense using the end of the fiscal year as its measurement date. In addition, the Company makes actuarially computed contributions to these plans as necessary to adequately fund benefits. The Company’s funding policy is consistent with the minimum funding requirements of ERISA. The accumulated benefit obligation and projected benefit obligation for the Esterline plans are $266,745,000 and $275,746,000, respectively, with plan assets of $259,924,000 as of October 25, 2013. The underfunded status for the Esterline plans is $15,822,000 at October 25, 2013. Contributions to the Esterline plans totaled $16,174,000 and $17,097,000 in fiscal years 2013 and 2012, respectively. The expected funding requirement for fiscal 2014 for the U.S. pension plans maintained by Esterline is $12,000,000. The accumulated benefit obligation and projected benefit obligation for the CMC plans are $137,954,000 and $139,109,000, respectively, with plan assets of $126,117,000 as of October 25, 2013. The underfunded status for these CMC plans is $12,992,000 at October 25, 2013. Contributions to the CMC plans totaled $10,859,000 and $10,241,000 in fiscal 2013 and 2012, respectively. The expected funding requirement for fiscal 2014 for the CMC plans is $10,593,000.

Principal assumptions of the Esterline and CMC plans are as follows:


	Esterline Defined Benefit Pension Plans		CMC Defined Benefit Pension Plans
	2013	2012	2013	2012

Principal assumptions as of fiscal year end:
Discount Rate	4.7%	3.85%	4.5%	4.35%
Rate of increase in future compensation levels	4.5%	4.5%	3.0%	3.1%
Assumed long-term rate of return on plan assets	7.0%	7.0%	6.34%	6.5 – 6.75%

	Esterline Post-Retirement Benefit Plans		CMC Post-Retirement Pension Plans
	2013	2012	2013	2012

Principal assumptions as of fiscal year end:
Discount Rate	4.7%	3.85%	4.5%	4.35%
Initial weighted average health care trend rate	6.0%	6.0%	6.3%	3.7%
Ultimate weighted average health care trend rate	6.0%	6.0%	4.2%	3.2%

The Company uses a discount rate for expected returns that is a spot rate developed from a yield curve established from high-quality corporate bonds and matched to plan-specific projected benefit payments. Although future changes to the discount rate are unknown, had the discount rate increased or decreased by 25 basis points, pension liabilities in total would have decreased $11.8 million or increased $12.3 million, respectively. If all other assumptions are held constant, the estimated effect on fiscal 2013 pension expense from a hypothetical 25 basis points increase or decrease in both the discount rate and expected long-term rate of return on plan assets would not have a material effect on our pension expense. Management is not aware of any legislative or other initiatives or circumstances that will significantly impact the Company’s pension obligations in fiscal 2014.

The assumed health care trend rate has a significant impact on the Company’s post-retirement benefit obligations. The Company’s health care trend rate was based on the experience of its plan and expectations for the future. A 100 basis points increase in the health care trend rate would increase the post-retirement benefit obligation by $1.9 million. A 100 basis points decrease in the health care trend rate would decrease the post-retirement benefit obligation by $0.5 million. Assuming all other assumptions are held constant, the estimated effect on fiscal 2013 post-retirement benefit expense from a hypothetical 100 basis points increase or decrease in the health care trend rate would not have a material effect on our post-retirement benefit expense.

Plan assets are invested in a diversified portfolio of equity and debt securities, consisting primarily of common stocks, bonds and government securities. The objective of these investments is to maintain sufficient liquidity to fund current benefit payments and achieve targeted risk-adjusted returns. Management periodically reviews allocations of plan assets by investment type and evaluates external sources of information regarding the long-term historical returns and expected future returns for each investment type, and accordingly, the 6.34% to 7.0% assumed long-term rate of return on plan assets is considered to be appropriate. Allocations by investment type are as follows:


		Actual
	Target		2013		2012

Plan assets allocation as of fiscal year end:
Equity securities	55 – 75%		63.9	%	58.8%
Debt securities	25 – 45%		33.6	%	38.7%
Cash	0%		2.5	%	2.5%

Total			100.0	%	100.0%

The following table presents the fair value of the Company’s Pension Plan assets as of October 25, 2013, by asset category segregated by level within the fair value hierarchy, as described in Note 7.


In Thousands	Fair Value Hierarchy
	Level 1		Level 2		Total
Asset category:
Equity Funds
Registered Investments Company Funds – U.S. Equity	$	106,436	$	0	$	106,436
Commingled Trust Funds – U.S. Equity		0		26,923		26,923
U.S. Equity Securities		37,280		0		37,280
Non-U.S. Equity Securities		25,584		0		25,584
Commingled Trust Fund – Non-U.S. Securities		0		53,347		53,347
Fixed Income Securities
Registered Investments Company Funds – Fixed Income		33,494		0		33,494
Commingled Trust Fund – Fixed Income		0		41,428		41,428
Non-U.S. Foreign Commercial and Government Bonds		56,351		0		56,351
Cash and Cash Equivalents		9,966		0		9,966

Total	$	269,111	$	121,698	$	390,809

The following table presents the fair value of the Company’s Pension Plan assets as of October 26, 2012, by asset category segregated by level within the fair value hierarchy, as described in Note 7.


In Thousands	Fair Value Hierarchy
	Level 1		Level 2		Total
Asset category:
Equity Funds
Registered Investments Company Funds – U.S. Equity	$	61,634	$	0	$	61,634
Commingled Trust Funds – U.S. Equity		0		18,751		18,751
U.S. Equity Securities		46,140		0		46,140
Non-U.S. Equity Securities		24,986		0		24,986
Commingled Trust Fund – Non-U.S. Securities		0		45,213		45,213
Fixed Income Securities
Registered Investments Company Funds – Fixed Income		35,528		0		35,528
Commingled Trust Fund – Fixed Income		0		44,194		44,194
Non-U.S. Foreign Commercial and
Government Bonds		49,749		0		49,749
Cash and Cash Equivalents		8,427		0		8,427

Total	$	226,464	$	108,158	$	334,622

Valuation Techniques

Level 1 Equity Securities are actively traded on U.S. and non-U.S. exchanges and are either valued using the market approach at quoted market prices on the measurement date or at the net asset value of the shares held by the plan on the measurement date based on quoted market prices.

Level 1 fixed income securities are primarily valued using the market approach at either quoted market prices, pricing models that use observable market data, or bids provided by independent investment brokerage firms.

Level 2 primarily consists of commingled trust funds that are primarily valued at the net asset value provided by the fund manager. Net asset value is based on the fair value of the underlying investments.

Cash and cash equivalents include cash which is used to pay benefits and cash invested in a short-term investment fund that holds securities with values based on quoted market prices, but for which the funds are not valued on quoted market basis.

Net periodic pension cost for the Company’s defined benefit plans at the end of each fiscal year consisted of the following:


In Thousands	Defined Benefit Pension Plans									Post-Retirement Benefit Plans
		2013			2012			2011			2013			2012			2011

Components of Net Periodic Cost
Service cost	$	11,848		$	9,393		$	8,583		$	508		$	436		$	447
Interest cost		17,893			19,403			19,044			674			715			754
Expected return on plan assets		(22,476	)		(21,508	)		(20,354	)		0			0			0
Amortization of prior service cost		384			41			21			(150	)		(69	)		0
Amortization of actuarial (gain) loss		14,255			10,551			8,450			103			41			(17	)

Net periodic cost	$	21,904		$	17,880		$	15,744		$	1,135		$	1,123		$	1,184

The funded status of the defined benefit pension and post-retirement plans at the end of fiscal 2013 and 2012 were as follows:


In Thousands	Defined Benefit Pension Plans						Post-Retirement Benefit Plans
	2013			2012			2013			2012
Benefit Obligations
Beginning balance	$	456,861		$	401,579		$	17,040		$	14,392
Currency translation adjustment		(4,948	)		(2,623	)		(559	)		(175	)
Service cost		11,848			9,393			508			436
Interest cost		17,893			19,403			674			715
Plan participants contributions		156			44			0			0
Amendment		273			416			0			546
Actuarial (gain) loss		(16,905	)		50,116			14			1,918
Other adjustment		287			0			(252	)		0
Benefits paid		(22,332	)		(21,467	)		(712	)		(792	)

Ending balance	$	443,133		$	456,861		$	16,713		$	17,040


Plan Assets – Fair Value
Beginning balance	$	334,622		$	300,826		$	0		$	0
Currency translation adjustment		(5,377	)		(838	)		0			0
Realized and unrealized gain (loss) on plan assets		55,730			27,918			0			0
Plan participants contributions		156			44			0			0
Company contribution		28,927			29,014			712			792
Other adjustment		92			0			0			0
Expenses paid		(1,009	)		(875	)		0			0
Benefits paid		(22,332	)		(21,467	)		(712	)		(792	)

Ending balance	$	390,809		$	334,622		$	0		$	0


Funded Status
Fair value of plan assets	$	390,809		$	334,622		$	0		$	0
Benefit obligations		(443,133	)		(456,861	)		(16,713	)		(17,040	)

Net amount recognized	$	(52,324	)	$	(122,239	)	$	(16,713	)	$	(17,040	)


Amount Recognized in the Consolidated Balance Sheet
Non-current asset	$	2,201		$	0		$	0		$	0
Current liability		(2,351	)		(6,145	)		(785	)		(1,060	)
Non-current liability		(52,174	)		(116,094	)		(15,928	)		(15,980	)

Net amount recognized	$	(52,324	)	$	(122,239	)	$	(16,713	)	$	(17,040	)


Amounts Recognized in Accumulated Other Comprehensive Income
Net actuarial loss (gain)	$	82,796		$	148,758		$	768		$	759
Prior service cost		490			589			161			0

Ending balance	$	83,286		$	149,347		$	929		$	759

The accumulated benefit obligation for all pension plans was $427,625,000 at October 25, 2013, and $442,165,000 at October 26, 2012.

Estimated future benefit payments expected to be paid from the plan or from the Company’s assets are as follows:

In Thousands


Fiscal Year

2014	$	26,856
2015		27,085
2016		28,655
2017		29,975
2018		31,895
2019 – 2023		169,548

Employees may participate in certain defined contribution plans. The Company’s contribution expense under these plans totaled $9,421,000, $8,900,000, and $8,203,000 in fiscal 2013, 2012, and 2011, respectively.