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,
	2013			2012
	(in thousands)
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	40,237		$	29,480
Service cost	6,291			4,934
Interest cost	1,627			1,374
Plan amendments	—			—
Actuarial loss (gain)	(1,577		)	5,467
Benefits paid	(3,293		)	(1,018		)
Projected benefit obligation at end of year	43,285			40,237

Change in plan assets:
Fair value of plan assets at beginning of year	20,254			13,940
Actual return on plan assets	2,726			1,952
Employer contribution	4,971			5,380
Benefits paid	(3,293		)	(1,018		)
Fair value of plan assets at end of year	24,658			20,254
Funded status at end of year	$	(18,627	)	$	(19,983	)

The Company’s underfunded status for the Pension Plans for the years ended December 31, 2013 and 2012, is $18.6 million and $20.0 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, 2013. 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.

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



	As of December 31,
	2013			2012
	(in thousands)
Projected benefit obligation	$	43,285		$	40,237

Accumulated benefit obligation	$	32,396		$	29,437
Less: Fair value of plan assets	(24,658		)	(20,254		)
Underfunded accumulated benefit obligation	$	7,738		$	9,183

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, 2013 and 2012, consist of:



	As of December 31,
	2013		2012
	(in thousands)
Unrecognized actuarial losses	$	8,439	$	12,427
Unrecognized prior service costs	136		153
Unrecognized transition obligation	—		—
Accumulated other comprehensive loss	$	8,575	$	12,580

The estimated net loss that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $436,000.

Pre-tax changes recognized in other comprehensive income (loss) during 2013, 2012, and 2011, were as follows:



	For the Years Ended December 31,
	2013			2012			2011
	(in thousands)
Net actuarial gain (loss)	$	2,766		$	(4,680	)	$	(3,014	)
Prior service cost	—			—			(170		)
Less: Amortization of:
Prior service cost	(17		)	(17		)	—
Actuarial loss	(1,222		)	(754		)	(405		)
Total other comprehensive income (loss)	$	4,005		$	(3,909	)	$	(2,779	)

Components of Net Periodic Benefit Cost for Both Pension Plans



	For the Years Ended December 31,
	2013			2012			2011
	(in thousands)
Components of net periodic benefit cost:
Service cost	$	6,291		$	4,934		$	3,800
Interest cost	1,627			1,374			1,184
Expected return on plan assets that reduces periodic pension cost	(1,538		)	(1,165		)	(880		)
Amortization of prior service cost	17			17			—
Amortization of net actuarial loss	1,222			754			405
Net periodic benefit cost	$	7,619		$	5,914		$	4,509

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,
	2013	2012	2011
Projected benefit obligation
Discount rate	5.0%	3.9%	4.7%
Rate of compensation increase	6.2%	6.2%	6.2%
Net periodic benefit cost
Discount rate	3.9%	4.7%	5.3%
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	2014		2013		2012
Equity securities	44.0	%	43.6	%	42.7	%
Debt securities	33.0	%	32.2	%	32.8	%
Other	23.0	%	24.2	%	24.5	%
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 2013 and 2012. 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 is not expected to 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, 2013, 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	—	%	$	—	$	—	$	—	$	—
Equity Securities
Domestic ⁽¹⁾	29.9	%	7,371		4,888		2,483		—
International ⁽²⁾	13.7	%	3,373		3,373		—		—
Total Equity Securities	43.6	%	10,744		8,261		2,483		—
Fixed Income Securities
High-Yield Bonds ⁽³⁾	5.9	%	1,448		1,448		—		—
Core Fixed Income ⁽⁴⁾	20.3	%	5,006		5,006		—		—
Floating Rate Corp Loans ⁽⁵⁾	6.0	%	1,483		1,483		—		—
Total Fixed Income Securities	32.2	%	7,937		7,937		—		—
Other Securities:
Commodities ⁽⁶⁾	3.8	%	945		945		—		—
Real Estate ⁽⁷⁾	3.5	%	859		—		—		859
Hedge Fund ⁽⁸⁾	14.3	%	3,517		955		—		2,562
Collective Investment Trusts ⁽⁹⁾	2.6	%	656		—		656		—
Total Other Securities	24.2	%	5,977		1,900		656		3,421
Total Investments	100.0	%	$	24,658	$	18,098	$	3,139	$	3,421

(1)

Level 1 equity securities consist of United States large and small capitalization companies, which are actively traded securities that can be sold upon demand. Level 2 equity securities are investments in a collective investment fund that is valued at net asset value based on the value of the underlying investments and total units outstanding on a daily basis. The objective of this fund is to approximate the S&P 500 by investing in one or more collective investment funds.


(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.


(9)	Collective investment trusts invest in short-term investments and are valued at the net asset value of the collective investment trust. The net asset value, as provided by the trustee, is used as a practical expedient to estimate fair value. The net asset value is based on the fair value of the underlying investments held by the fund less its liabilities.

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



December 31, 2012	$	2,384
Purchases	742
Realized gain on assets	161
Unrealized gain on assets	134
December 31, 2013	$	3,421

The fair value of the Company’s pension plan assets as of December 31, 2012, 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

Contributions

The Company contributed $5.0 million, $5.4 million, and $5.3 million, to the Pension Plans in the years ended December 31, 2013, 2012, and 2011, respectively. The Company is expected to make a $4.3 million contribution to the Pension Plans in 2014.

Benefit Payments

The Pension Plans made actual benefit payments of $3.3 million, $1.0 million, and $1.5 million in the years ended December 31, 2013, 2012, and 2011, respectively. Expected benefit payments over the next 10 years are as follows:



Years Ending December 31,	(in thousands)
2014	$	2,120
2015	$	2,837
2016	$	3,287
2017	$	3,993
2018	$	4,407
2019 through 2023	$	33,031