Note 8 – Pension Benefits

The Company has a non-contributory defined benefit pension plan covering substantially all employees who meet age and service requirements (the “Qualified Pension Plan”). The Company also has a supplemental non-contributory pension plan covering certain management employees (the “Nonqualified Pension Plan” and together with the Qualified Pension Plan, the “Pension Plans”).

Obligations and Funded Status for Both Pension Plans

The Company recognizes the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligation) of the Company’s Pension Plans in the accompanying balance sheets as either an asset or a liability and recognizes a corresponding adjustment to accumulated other comprehensive income, net of tax. The projected benefit obligation is the actuarial present value of the benefits earned to date by plan participants based on employee service and compensation including the effect of assumed future salary increases. The accumulated benefit obligation uses the same factors as the projected benefit obligation but excludes the effects of assumed future salary increases. The Company’s measurement date for plan assets and obligations is December 31.



	For the Years Ended December 31,
	2012			2011
	(in thousands)
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	29,480		$	23,867
Service cost	4,934			3,800
Interest cost	1,374			1,184
Plan amendments	—			170
Actuarial loss	5,467			1,957
Benefits paid	(1,018		)	(1,498		)
Projected benefit obligation at end of year	40,237			29,480

Change in plan assets:
Fair value of plan assets at beginning of year	13,940			10,332
Actual return on plan assets	1,952			(176		)
Employer contribution	5,380			5,260
Benefits paid	(1,018		)	(1,476		)
Fair value of plan assets at end of year	20,254			13,940
Funded status at end of year	$	(19,983	)	$	(15,540	)

The Company’s underfunded status for the Pension Plans for the years ended December 31, 2012 and 2011, is $20.0 million and $15.5 million, respectively, and is recognized in the accompanying balance sheets as a portion of other noncurrent liabilities. No plan assets of the Qualified Pension Plan were returned to the Company during the fiscal year ended December 31, 2012. There are no plan assets in the Nonqualified Pension Plan. The plan was amended in 2011 to increase the vesting percent to 40 percent after attaining two years of service and increasing by 20 percent per year until fully vested. The impact of this change in the vesting schedule is reflected in plan amendments in the table above.

Information for Pension Plan with Accumulated Benefit Obligation in Excess of Plan Assets for Both Plans



	As of December 31,
	2012			2011
	(in thousands)
Projected benefit obligation	$	40,237		$	29,480

Accumulated benefit obligation	$	29,437		$	21,697
Less: Fair value of plan assets	(20,254		)	(13,940		)
Underfunded accumulated benefit obligation	$	9,183		$	7,757

Pension expense is determined based upon the annual service cost of benefits (the actuarial cost of benefits earned during a period) and the interest cost on those liabilities, less the expected return on plan assets. The expected long-term rate of return on plan assets is applied to a calculated value of plan assets that recognizes changes in fair value over a five-year period. This practice is intended to reduce year-to-year volatility in pension expense, but it can have the effect of delaying recognition of differences between actual returns on assets and expected returns based on long-term rate of return assumptions. Amortization of unrecognized net gain or loss resulting from actual experience different from that assumed and from changes in assumptions (excluding asset gains and losses not yet reflected in market-related value) is included as a component of net periodic benefit cost for a year. If, as of the beginning of the year, the unrecognized net gain or loss exceeds 10 percent of the greater of the projected benefit obligation and the market-related value of plan assets, then the amortization is the excess divided by the average remaining service period of participating employees expected to receive benefits under the plan.

Pre-tax amounts not yet recognized in net periodic pension costs, but rather recognized in accumulated other comprehensive loss as of December 31, 2012, and 2011, consist of:



	As of December 31,
	2012		2011
	(in thousands)
Unrecognized actuarial losses	$	12,427	$	8,501
Unrecognized prior service costs	153		170
Unrecognized transition obligation	—		—
Accumulated other comprehensive loss	$	12,580	$	8,671

The estimated net loss that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $876,000.

Pre-tax changes recognized in other comprehensive income (loss) during 2012, 2011, and 2010, were as follows:



	For the Years Ended December 31,
	2012			2011			2010
	(in thousands)
Net actuarial gain (loss)	$	(4,680	)	$	(3,014	)	$	(1,937	)
Prior service cost	—			(170		)	—
Less: Amortization of:
Prior service cost	(17		)	—			—
Actuarial loss	(754		)	(405		)	(367		)
Total other comprehensive income (loss)	$	(3,909	)	$	(2,779	)	$	(1,570	)

Components of Net Periodic Benefit Cost for Both Pension Plans



	For the Years Ended December 31,
	2012			2011			2010
	(in thousands)
Components of net periodic benefit cost
Service cost	$	4,934		$	3,800		$	3,392
Interest cost	1,374			1,184			1,120
Expected return on plan assets that reduces periodic pension cost	(1,165		)	(880		)	(638		)
Amortization of prior service cost	17			—			—
Amortization of net actuarial loss	754			405			367
Net periodic benefit cost	$	5,914		$	4,509		$	4,241

Gains and losses in excess of 10 percent of the greater of the benefit obligation and the market-related value of assets are amortized over the average remaining service period of active participants.

Pension Plan Assumptions

Weighted-average assumptions to measure the Company’s projected benefit obligation and net periodic benefit cost are as follows:



	As of December 31,
	2012	2011	2010
Projected benefit obligation
Discount rate	3.9%	4.7%	5.3%
Rate of compensation increase	6.2%	6.2%	6.2%
Net periodic benefit cost
Discount rate	4.7%	5.3%	6.1%
Expected return on plan assets	7.5%	7.5%	7.5%
Rate of compensation increase	6.2%	6.2%	6.2%

The Company’s pension investment policy includes various guidelines and procedures designed to ensure that assets are prudently invested in a manner necessary to meet the future benefit obligation of the Pension Plans. The policy does not permit the direct investment of plan assets in the Company’s securities. The Qualified Pension Plan's investment horizon is long-term and accordingly the target asset allocations encompass a strategic, long-term perspective of capital markets, expected risk and return behavior and perceived future economic conditions. The key investment principles of diversification, assessment of risk, and targeting the optimal expected returns for given levels of risk are applied.

The Qualified Pension Plan's investment portfolio contains a diversified blend of investments, which may reflect varying rates of return. The investments are further diversified within each asset classification. This portfolio diversification provides protection against a single security or class of securities having a disproportionate impact on aggregate investment performance. The actual asset allocations are reviewed and rebalanced on a periodic basis to maintain the target allocations. The weighted-average asset allocation of the Qualified Pension Plan is as follows:



	Target		As of December 31,
Asset Category	2013		2012		2011
Equity securities	44.0	%	42.7	%	61.8	%
Debt securities	33.0	%	32.8	%	37.7	%
Other	23.0	%	24.5	%	0.5	%
Total	100.0	%	100.0	%	100.0	%

There is no asset allocation of the Nonqualified Pension Plan since there are no plan assets in that plan. An expected return on plan assets of 7.5 percent was used to calculate the Company’s obligation under the Qualified Pension Plan for 2012 and 2011. Factors considered in determining the expected rate of return include the long-term historical rate of return provided by the equity and debt securities markets and input from the investment consultants and trustees managing the plan assets. The difference in investment income using the projected rate of return compared to the actual rates of return for the past two years was not material and will not have a material effect on the accompanying statements of operations or cash flows from operating activities in future years.

Fair Value Assumptions

The fair value of the Company’s Qualified Pension Plan assets as of December 31, 2012, utilizing the fair value hierarchy discussed in Note 11 – Fair Value Measurements is as follows:



					Fair Value Measurements Using:
	Actual Asset Allocation		Total		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
					(in thousands)
Cash and Money Market Funds	3.8	%	$	778	$	778	$	—	$	—
Equity Securities
Domestic (1)	29.2	%	5,920		5,920		—		—
International (2)	13.5	%	2,740		2,740		—		—
Total Equity Securities	42.7	%	8,660		8,660		—		—
Fixed Income Securities
High-Yield Bonds (3)	6.1	%	1,240		1,240		—		—
Core Fixed Income (4)	20.8	%	4,204		4,204		—		—
Floating Rate Corp Loans (5)	5.9	%	1,186		1,186		—		—
Total Fixed Income Securities	32.8	%	6,630		6,630		—		—
Other Securities:
Commodities (6)	3.3	%	669		669		—		—
Real Estate (7)	3.9	%	783		—		—		783
Hedge Fund (8)	13.5	%	2,734		1,133		—		1,601
Total Other Securities	20.7	%	4,186		1,802		—		2,384
Total Investments	100.0	%	$	20,254	$	17,870	$	—	$	2,384


(1)	Equity securities of United States large and small capitalization companies, which are actively traded securities that can be sold upon demand.


(2)	International equity securities consists of a well-diversified portfolio of holdings of mostly large issuers organized in developed countries with liquid markets, commingled with investments in equity securities of issuers located in emerging markets and believed to have strong sustainable financial productivity at attractive valuations.


(3)	High-yield bonds consist of non-investment grade fixed income securities. The investment objective is to obtain high current income. Due to the increased level of default risk, security selection focuses on credit-risk analysis.


(4)	The objective is to achieve value added from sector or issue selection by constructing a portfolio to approximate the investment results of the Barclay's Capital Aggregate Bond Index with a modest amount of variability in duration around the index.


(5)	Investments consist of floating rate bank loans. The interest rates on these loans are typically reset on a periodic basis to account for changes in the level of interest rates.


(6)	Investments with exposure to commodity price movements, primarily through the use of futures, swaps and other commodity-linked securities.


(7)	The investment objective of direct real estate is to provide current income with the potential for long-term capital appreciation. Ownership in real estate entails a long-term time horizon, periodic valuations, and potentially low liquidity.


(8)	The hedge fund portfolio includes an investment in an actively traded global mutual fund that focuses on alternative investments and a hedge fund of funds that invests both long and short using a variety of investment strategies.

Included below is a summary of the changes in Level 3 plan assets (in thousands):



December 31, 2011	$	—
Purchases	2,329
Investment Returns	55
December 31, 2012	$	2,384

The fair value of the Company’s pension plan assets as of December 31, 2011, is as follows:



					Fair Value Measurements Using:
	Actual Asset Allocation		Total		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
					(in thousands)
Cash and Money Market Funds	0.5	%	$	66	$	66	$	—	$	—
Equity Securities (1)
Domestic (2)	47.1	%	6,568		6,568		—		—
International (3)	14.7	%	2,048		2,048		—		—
Total Equity Securities	61.8	%	8,616		8,616		—		—
Fixed Income Securities
Intermediate Term Bond (4)	37.7	%	5,258		5,258		—		—
Total Investments	100.0	%	$	13,940	$	13,940	$	—	$	—


(1)	Certain amounts have been reclassified to conform to current-year presentation.


(2)	United States equities are invested in companies that trade on active exchanges within the United States and are well diversified by industry sector and equity style, such as growth and value strategies, and passive management strategies are employed.


(3)	International equities are invested in companies that trade on active exchanges outside the United States and are well diversified among more developed markets. Active and passive strategies are employed.


(4)	Intermediate term bonds seek total return. At least 80% of this fund is invested in a diversified portfolio of bonds, which include all types of securities. It invests primarily in bonds of corporate and governmental issues located in the United States and foreign countries, including emerging markets, all of which trade on active exchanges.

Contributions

The Company contributed $5.4 million, $5.3 million, and $1.7 million, to the Pension Plans in the years ended December 31, 2012, 2011, and 2010, respectively. The Company is required to make a $373,000 contribution to the Pension Plans in 2013.

Benefit Payments

The Pension Plans made actual benefit payments of $1.0 million, $1.5 million, and $1.7 million in the years ended December 31, 2012, 2011, and 2010, respectively. Expected benefit payments over the next ten years are as follows (in thousands):



Years Ending December 31,
2013	$	2,631
2014	$	2,385
2015	$	2,715
2016	$	3,298
2017	$	3,885
2018 through 2022	$	29,884