NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Description of Business
Ampco-Pittsburgh Corporation and its subsidiaries (the Corporation) manufacture and sell highly engineered, high performance specialty metal
products and customized equipment utilized by industry throughout the world. It operates in two business segments, the Forged and Cast Engineered Products segment and the Air and Liquid Processing segment.
The
Forged and Cast Engineered Products
segment historically consisted of Union Electric Steel Corporation (Union Electric Steel or
UES) and Union Electric Steel UK Limited (UES-UK). UES is a forged hardened steel roll producer headquartered in Carnegie, Pennsylvania, with three manufacturing facilities in Pennsylvania and one in Indiana. UES-UK is a cast
roll producer located in Gateshead, England. In March 2016, UES acquired the stock of Åkers AB and certain of its affiliated companies, including Åkers ABs 60% equity interest in a Chinese joint venture company (collectively,
Åkers). Headquartered in Styckebruk, Sweden, Åkers has been a leader in the production of forged and cast rolls since 1806. Collectively doing business as Union Electric Åkers, the group produces ingot and forged
products and cast products that service a wide variety of industries globally. They specialize in the production of forged hardened steel rolls used mainly for cold rolling by manufacturers of steel, aluminum and other metals and cast rolls for hot
and cold strip mills, medium/heavy section mills and plate mills in a variety of iron and steel qualities.
In addition, Union Electric Steel
produces ingot and open-die forged products (other forging products) which are used in the oil and gas industry and the aluminum and plastic extrusion industries. In July 2015, UES acquired the assets of Alloys Unlimited &
Processing, Inc. (AUP) and, in November 2016, the stock of ASW Steel Inc. (ASW). AUP is a supplier of specialty tool, alloy, and carbon steel round bar located in Ohio. ASW is a specialty steel producer based in Ontario,
Canada. Both acquisitions support the Corporations diversification efforts in the open-die forging market.
The segment primarily
competes with European, Asian and North and South American companies in both domestic and foreign markets and distributes a significant portion of its products through sales offices located throughout the world. The consolidated financial statements
of the Corporation include the financial position and results of operations of the acquired companies from their respective dates of acquisition.
The
Air and Liquid Processing
segment includes Aerofin, Buffalo Air Handling and Buffalo Pumps, all divisions of Air & Liquid Systems Corporation (Air and Liquid), a
wholly-owned subsidiary of the Corporation. Aerofin produces custom-engineered finned tube heat exchange coils and related heat transfer products for a variety of industries including OEM/Commercial, fossil fuel, nuclear power generation and
industrial process. Buffalo Air Handling produces large custom-designed air handling systems for institutional (e.g., hospital, university), pharmaceutical and general industrial building markets. Buffalo Pumps manufactures centrifugal pumps for the
fossil fuel power generation, marine defense and industrial refrigeration industries. The segment has operations in Virginia and New York with headquarters in Carnegie, Pennsylvania. The segment distributes a significant portion of its products
through a common independent group of sales offices located throughout the United States and Canada.
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 assessing the
carrying value of long-lived assets, determining the fair value of assets acquired and liabilities assumed in a business combination (including intangibles and goodwill and the recoverability thereof), valuing the assets and obligations related to
employee benefit plans, accounting for loss contingencies associated with claims and lawsuits, and accounting for income taxes. Actual results could differ from those estimates. A summary of the significant accounting policies followed by the
Corporation is presented below. Certain amounts for the preceding periods have been reclassified for comparative purposes.
Consolidation
The accompanying consolidated financial statements include the assets, liabilities, revenues and expenses of all majority owned
subsidiaries and joint ventures over which the Corporation exercises control and, when applicable, entities for which the Corporation
31
has a controlling financial interest or is the primary beneficiary. Investments in joint ventures where 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. Intercompany accounts and transactions are eliminated.
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 purchased new is 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. Property, plant and equipment acquired as part of a business combination is recorded at its estimated fair value
with depreciation computed using the straight-line method over the estimated remaining useful lives based in part on third party valuations. 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 at least annually, or whenever events or changes in 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). In addition, the remaining depreciation period for the impaired asset would be reassessed and, if necessary, revised. 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.
Intangible Assets
Intangible assets primarily consist of developed technology, customer
relationships and trade name. Intangible assets with definite lives are amortized using the straight-line method over their estimated useful life, which is determined by identifying the period over which most of the cash flows are expected to be
generated. Additionally, intangible assets, both definite and indefinite lived, are reviewed for impairment at least annually, as of October 1, or whenever events or changes in circumstances indicate the carrying amount of the asset may not be
recoverable. If the undiscounted cash flows attributable to 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. Also, if the estimate of an
intangible assets remaining useful life changes, the remaining carrying value of the intangible asset will be amortized prospectively over the revised remaining useful life.
Goodwill
Goodwill represents the consideration paid in a business combination in excess of the
values assigned to the net assets of the acquired entity. Goodwill is not amortized but is tested for impairment at the reporting unit level annually, as of October 1, or whenever events or changes in circumstances indicate the carrying amount
may not be recoverable. Goodwill is evaluated for impairment either
32
qualitatively or quantitatively using a two-step approach. Under step one, the fair value of the reporting unit is determined using both a market and income approach. If the fair value of the
reporting unit is less than the carrying value of the reporting unit, then goodwill may be impaired causing the second step of the analysis to be completed. Under step two, the fair value of the reporting is allocated to the assets and liabilities
of the reporting unit. The unallocated fair value (implied goodwill), if any, is compared to the recorded value of goodwill. If the implied goodwill exceeds the recorded value of goodwill, then goodwill is deemed not to be impaired. If
the implied goodwill is less than the recorded value of goodwill, then goodwill is deemed to be impaired by the amount that goodwill exceeds implied goodwill. Estimating the fair value of a reporting unit requires the use of significant unobservable
inputs, representative of a Level 3 fair value measurement, including market growth and market share, sales volumes and prices, costs to produce, discount rate and estimated capital needs. Management considers historical experience and all
available information at the time the fair value of the reporting unit is estimated. Assumptions used to estimate future cash flows are subject to a high degree of judgment and complexity.
Debt Issuance Costs
Debt issuance costs are amortized as interest expense over the scheduled
maturity period of the debt. The costs related to our line-of-credit arrangement are amortized over the term of the arrangement, regardless of whether there are any outstanding borrowings. Unamortized debt issuance costs are either recognized as a
direct deduction from the carrying amount of the related debt or, if related to a line-of-credit facility, as an other noncurrent asset.
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 the 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 loss.
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 plan. When the actuarial 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 (loss) or when a transaction no longer qualifies as a cash flow hedge. Foreign currency translation adjustments are
included in net income (loss) upon sale or upon complete or substantially
33
complete liquidation of an investment in a foreign entity. With respect to employee benefit plans, unamortized prior service costs are included in net income (loss) either immediately upon
curtailment of the employee benefit plan or over the average remaining service period of employees expected to receive benefits and unrecognized actuarial gains and losses are included in net income (loss) 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 (loss) when the underlying security is sold. Changes in the fair value of derivatives
are included in net income (loss) when the projected sale occurs or, if a foreign currency purchase contract, over the estimated useful life of the underlying asset.
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 loss until the entity is sold or substantially liquidated.
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.
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 and amortization). 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 (loss) and
instead are recorded as a liability until remitted to the government authority.
Stock-Based Compensation
Stock-based compensation, such as stock options, restricted stock units and performance shares, is recognized over the vesting period based upon the fair
value of the award at the date of grant. For stock options, the fair value is determined by the BlackScholes option pricing model and is expensed over the vesting period of three years. For restricted stock units, the fair value is equal to the
closing price of the Corporations common stock on the New York Stock Exchange (NYSE) on the date of grant and is expensed over the vesting period of three years. For performance share awards that vest subject to a performance
condition, the fair value is equal to the closing price of the Corporations stock on the NYSE on the date of grant. For performance share awards that vest subject to a market condition, fair value is determined using a Monte Carlo simulation
model. The fair value of performance share awards is expensed over the performance period when it is probable that the performance condition will be achieved.
34
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 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 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 loss is
reclassified to earnings (depreciation and amortization expense) over the life of the underlying assets. Upon settlement of a futures contract, the change in fair value deferred in accumulated other comprehensive loss is reclassified to earnings
(costs of products sold, excluding depreciation and amortization) 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.
Legal Costs
Legal costs expected to be incurred
in connection with loss contingencies are accrued when such costs are probable and estimable.
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-U.S. 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.
35
Earnings Per Common Share
Basic earnings per common share is computed by dividing net income (loss) 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 awards, calculated
using the treasury stock method. The computation of diluted earnings per share would not assume the exercise of an outstanding stock award if the effect on earnings per common share would be antidilutive. Similarly, the computation of diluted
earnings per share would not assume the exercise of outstanding stock awards if the Corporation incurred a net loss since the effect on earnings per common share would be antidilutive. The weighted average number of common shares outstanding
assuming exercise of dilutive stock awards was 11,951,181 for 2016, 10,447,066 for 2015 and 10,404,744 for 2014. Weighted-average outstanding stock awards excluded from the diluted earnings per common share calculation, since the effect would have
been antidilutive, were 1,163,396 for 2016, 1,138,287 for 2015 and 1,242,545 for 2014.
Recently Implemented Accounting Pronouncements
In September 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-16,
Simplifying the Accounting for
Measurement-Period Adjustments
, which simplifies the treatment of adjustments, identified during the measurement period, to provisional amounts recognized in connection with a business combination. The guidance requires the acquirer to record,
and disclose, the effect on earnings resulting from changes in depreciation, amortization, or other income effects due to changes to the provisional amounts, calculated as if the accounting had been completed as of the acquisition date. The amended
guidance became effective for the Corporation January 1, 2016. See Note 2.
In April 2015, the FASB issued ASU 2015-03,
Simplifying
the Presentation of Debt Issuance Costs
, which requires entities to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability. However, ASU 2015-03 did not address
presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. In August 2015, the FASB subsequently issued ASU 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with
Line-of-Credit Arrangements
, which permits an entity to defer and present debt issuance costs as an asset and amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any
outstanding borrowings on the line-of-credit arrangement. The amended guidance became effective for the Corporation January 1, 2016. See Note 8.
Recently Issued Accounting Pronouncements
In
August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
, which clarifies guidance on the classification of certain cash receipts and payments in the statement of
cash flows. The amended guidance will be effective for interim and annual periods beginning after December 15, 2017; however, early adoption is permitted if all provisions are adopted in the same period. The Corporation is currently evaluating
the impact the guidance will have on the presentation of its cash flow statement. It will not, however, affect the Corporations financial position or liquidity.
In May 2016, April 2016, March 2016 and May 2014, the FASB issued ASUs 2016-12, 2016-10, 2016-08 and 2014-09, respectively,
Revenue from Contracts with Customers
, which provides a common
revenue standard for U.S. GAAP and IFRS. The guidance establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a companys contracts with customers. It requires
companies to apply a five-step model when recognizing revenue relating to the transfer of goods or services to customers in an amount that reflects the consideration that the company expects to be entitled to receive for those goods and services. It
also requires comprehensive disclosures regarding revenue recognition. The guidance becomes effective for the Corporation January 1, 2018. While the Corporation is currently assessing the impact the guidance will have on its business processes,
business and accounting systems and consolidated financial statements and disclosures, it anticipates there will be some changes to revenue recognition for certain of its customer contracts. The Corporation currently expects to complete its
analysis, including implementing any necessary changes to existing business processes and systems to accommodate these new standards, during 2017.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which requires all income tax effects of awards to be recognized in the income statement when
the awards vest or are settled and will be applied on a prospective basis. The guidance also requires presentation of excess tax benefits as an operating activity on the statement of cash
36
flows rather than as a financing activity, and can be applied retroactively or prospectively. The amended guidance will be effective for the Corporation January 1, 2017. The Corporation does
not expect the guidance will have a significant impact on its financial position, operating results and liquidity.
In February 2016, the FASB
issued ASU 2016-02,
Leases
, which requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with a term of more than one year. Accounting by lessors will remain similar to
existing generally accepted accounting principles. The guidance becomes effective for the Corporation January 1, 2019. The Corporation is currently evaluating the impact the guidance will have on its financial position, operating results and
liquidity.
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory
, which revises the measurement of
inventory at the lower of cost or market. Currently, market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. In accordance with ASU 2015-11, an entity will measure inventory at the
lower of cost and net realizable value which is defined as the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. The amendment does not apply to inventory that is
measured using last-in, first out (LIFO). The guidance becomes effective for the Corporation January 1, 2017 and will not have a significant impact on its financial position, operating results and liquidity.
NOTE 2 ACQUISITIONS:
Acquisition of Åkers
On March 3, 2016, the Corporation acquired 100% of the voting equity interest of Åkers from Altor Fund II GP Limited. The
purchase price, after the post-closing purchase price adjustment made in accordance with the purchase agreement of $3,100, approximated $74,155 and was comprised of $29,399 in cash, $22,619 in the form of three-year promissory notes (Note 8), and
1,776,604 shares of common stock of the Corporation which, based on the closing price of the Corporations common stock as of the date of closing, had a fair value of $22,137.
The acquisition adds roll production facilities in Sweden, the United States, Slovenia, and China; a number of sales offices; and a service capability in the United States. It enables cast roll production
in the United States, forged roll production in Europe, and a low-cost product alternative for customers.
Operating results of the acquired
entities are included in the Forged and Cast Engineered Products segment from the date of acquisition. For the ten months ended December 31, 2016, net sales for Åkers approximated $121,079 and loss before income taxes, including the
effects of purchase accounting, approximated $10,130.
The Corporations financial position as of March 31, 2016, included the
acquired assets and assumed liabilities of Åkers at their provisional fair value estimates. Since the initial disclosure, adjustments have been made to the provisional fair value estimates as follows:
|
|
Recorded the post-closing purchase price adjustment which reduced the outstanding principal balance of the three-year promissory notes by $3,100;
|
|
|
Finalized the valuations of property, plant and equipment which increased the fair value of property, plant and equipment by $3,700;
|
|
|
Completed a separate valuation of the Chinese joint venture company which reduced the value of the noncontrolling interest by $9,600;
|
|
|
Finalized valuations of intangible assets, resolved pre-acquisition contingencies and recalculated deferred income taxes which, collectively,
approximated $7,400.
|
None of these adjustments had a material impact on the Corporations consolidated statement of
operations for 2016.
37
The resulting fair value of assets acquired and liabilities assumed as of the date of acquisition is as
follows:
|
|
|
|
|
Current assets (excluding inventories)
|
|
$
|
41,703
|
|
Inventories
|
|
|
30,332
|
|
Property, plant and equipment
|
|
|
71,871
|
|
Intangible assets
|
|
|
11,784
|
|
Other noncurrent assets
|
|
|
8,068
|
|
Current liabilities
|
|
|
(71,690
|
)
|
Noncurrent liabilities
|
|
|
(43,153
|
)
|
Net assets acquired
|
|
|
48,915
|
|
Noncontrolling interest
|
|
|
(2,019
|
)
|
Goodwill
|
|
|
27,259
|
|
Base purchase price
|
|
$
|
74,155
|
|
The fair values for property, plant and equipment, intangible assets and noncontrolling interest were based, in part, on
third party valuations which have been finalized as of December 31, 2016. The fair value of obligations assumed in connection with the employee benefit plans were actuarially determined. Intangible assets consist of $4,429 for developed
technology, $4,736 for customer relationships, and $2,619 for trade name. The economic life of the acquired intangible assets is estimated to be 5 years for developed technology, 20 years for customer relationships, and indefinite for the trade
name.
Included in current liabilities is a loan payable to the noncontrolling shareholder of the Chinese joint venture company which, with
accrued interest, approximated $7,468 as of the date of acquisition (see Note 8).
Goodwill is not amortized but is tested for impairment at
the reporting unit level annually, as of October 1, or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Based on the first step of the two-step quantitative goodwill impairment test performed as
of October 1, 2016, the Corporation determined that the carrying value of the Forged and Cast Engineered Products reporting unit was greater than its estimated fair value, and the second step of the two-step quantitative goodwill impairment
test was performed to determine the amount of the impairment charge.
For purposes of determining the goodwill impairment, the Corporation
estimated the fair value of each reporting unit using both market and income approaches, which includes the use of significant unobservable inputs, representative of a Level 3 fair value measurement, such as market growth and market share, sales
volumes and prices, costs to produce, discount rate and estimated capital needs. The market approach consists of the guideline public company method which is a valuation technique where the fair value is calculated based on market prices obtained
from a detailed market analysis of publicly traded companies that provide a reasonable basis of comparison for each reporting unit. The income approach is a valuation technique where the fair value is calculated based on forecasted future cash flows
within the projection period discounted to the present value with appropriate risk adjusted discount rates, which represent the weighted-average cost of capital for each reporting unit.
As a result of the second step evaluation, the Corporation determined that the goodwill reported in the Forged and Cast Engineered Products reporting unit was fully impaired, primarily due to depressed
market conditions and limitations inherent in its current market capitalization, and, accordingly, recorded a goodwill impairment charge of $26,261 for the year ended December 31, 2016. The goodwill impairment charge represents a full
impairment and differs from the amount recognized as of the acquisition date due to changes in foreign currency exchange rates used to translate goodwill from the entities local currency to the U.S. dollar.
38
Acquisition of ASW
On November 1, 2016, the Corporation acquired 100% of the voting equity interest of ASW from CK Pearl Fund, Ltd., CK Pearl Fund L.P. and White Oak Strategic Master Fund, L.P. The purchase price of
$13,116 consisted of $3,500 in cash and $9,616 in the assumption of outstanding indebtedness. The estimated fair value of assets acquired and liabilities assumed as of the date of the acquisition is summarized below.
|
|
|
|
|
Current assets (excluding inventories)
|
|
$
|
6,525
|
|
|
|
Inventories
|
|
|
6,956
|
|
|
|
Property, plant and equipment
|
|
|
10,310
|
|
|
|
Current liabilities
|
|
|
(10,675
|
)
|
|
|
Outstanding indebtedness
|
|
|
(9,616
|
)
|
|
|
Base purchase price
|
|
$
|
3,500
|
|
The estimated fair values primarily for property, plant and equipment and pre-acquisition contingencies are provisional
amounts based, in part, on third party valuations and are expected to be finalized by June 30, 2017. For the two months ended December 31, 2016, net sales for ASW approximated $7,523 and loss before income taxes approximated $1,781.
Acquisition-Related Transaction Costs
Acquisition-related transaction costs of $3,056 and $3,383 for the year ended December 31, 2016 and 2015, respectively, were incurred relating
principally to the purchase of Åkers and ASW and are included in selling and administrative costs.
Pro Forma Financial Information for the
Åkers and ASW Acquisitions (unaudited)
The following financial information presents the combination of the results of operations of
Ampco, Åkers and ASW as though the acquisition date for both of the business combinations had occurred as of January 1, 2015. Pro forma adjustments have been made to (1) include the net incremental depreciation and amortization
expense associated with recording property, plant and equipment and definite-lived intangible assets at fair value and (2) remove debt-related expenses associated with previous debt facilities not assumed by the Corporation. The following pro
forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition occurred at the beginning of 2015:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net sales
|
|
$
|
393,243
|
|
|
$
|
440,265
|
|
Loss before income taxes (includes noncontrolling interest)
|
|
$
|
(63,498
|
)
|
|
$
|
(11,945
|
)
|
Net loss attributable to Ampco-Pittsburgh
|
|
$
|
(85,778
|
)
|
|
$
|
(24,740
|
)
|
Net loss per common share (basic) attributable to Ampco-Pittsburgh
|
|
$
|
(6.94
|
)
|
|
$
|
(2.03
|
)
|
Other Acquisition
On July 29, 2015, the Corporation acquired the assets of AUP. The purchase price of $5 million was funded by available cash. The pro forma impact on
Corporations net sales and loss before income taxes was not significant to its consolidated results for 2015.
NOTE 3
INVESTMENTS IN JOINT VENTURES:
As of December 31, 2016, the Corporation has interests in three joint ventures:
|
|
|
Shanxi Åkers TISCO Roll Co., Ltd. (ATR) a cast roll joint venture in China for which the Corporation accounts using the
consolidated method of accounting. ATR principally manufactures and sells cast rolling mill rolls for the hot strip mill, steckel mill and medium plate mill.
|
|
|
|
Union Electric Steel MG Roll Co., Ltd (UES-MG) a forged roll joint venture in China for which the Corporation accounts using the
equity method of accounting. UES-MG principally manufactures and sells forged backup rolling mill rolls of a size and weight currently that UES is not currently able to produce.
|
39
|
|
|
Jiangsu Gongchang Roll Co., Ltd (Gongchang) a cast roll joint venture in China for which the Corporation accounts using the cost
method of accounting. Gongchang principally manufactures and sells cast rolling mill rolls for hot and cold strip mills, medium/heavy section mills and plate mills.
|
ATR
In 2007, Åkers AB entered into an agreement with Taiyuan Iron & Steel Co., Ltd.
(TISCO) to form ATR, with Åkers AB owning 59.88% and TISCO owning 40.12%. Since Åkers AB is the majority shareholder and has voting rights proportional to its ownership interest, Åkers AB is considered the primary
beneficiary and, accordingly, accounts for its investment in ATR on the consolidated method of accounting.
UES-MG
In 2007, a subsidiary of UES entered into an agreement with Maanshan Iron & Steel Company Limited (Maanshan) to form UES-MG, with UES owning 49%
and Maanshan owning 51%. Both companies contributed cash for their respective interests (which equated to $14,700 for UES). In November 2016, in connection with an equity restructuring of UES-MG, UES transferred 16% of its equity interest in UES-MG
to Gongchang for $2,400, payable in installments over the next three years.
UES has not guaranteed any of the obligations of the joint
venture; accordingly, its maximum exposure of loss is limited to its remaining investment. Since UES is a minority shareholder and allocation of earnings and voting rights is proportional to ownership interests, UES is not considered the primary
beneficiary and, accordingly, accounts for its interest in the joint venture under the equity method of accounting. Prior to the restructuring, the overall financial strength of the joint venture was weak with a significant reliance on the majority
shareholder or entities controlled by the majority shareholder to provide financing and working capital. In addition, a significant portion of its sales to date has been to the majority shareholder or entities controlled by the majority shareholder
and the majority of its raw materials purchases has been from the majority shareholder or entities controlled by the majority shareholder. The Corporation will continue to monitor the carrying value of the investment to determine if an impairment
charge is necessary. The carrying amount of the investment at December 31, 2016 was less than $700.
The Corporation recognizes its share
of earnings and losses of UES-MG in its consolidated statements of operations. As a result of the transfer of a portion of its equity interest in the joint venture, the Corporation recognized its share of earnings (49%) from October 1,
2015 through the date of transfer, November 2016, which approximated $111. Losses of the joint venture for the twelve-month period ended September 30, 2015 and 2014 approximated $(1,050) and $(2,165), respectively, Assets, liabilities and
shareholders equity of the joint venture as of November 30, 2016, and September 30, 2015 are summarized below. The 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 an impairment charge recognized in 2013 and elimination of intercompany profit on the sale of technology from UES to the joint venture in earlier years which will be recognized when realized outside of the
controlled group.
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Assets:
|
|
|
|
|
|
|
|
|
Current assets (includes receivables from related parties of $187 and $935, respectively)
|
|
$
|
7,856
|
|
|
$
|
8,332
|
|
Noncurrent assets
|
|
|
16,080
|
|
|
|
28,993
|
|
|
|
$
|
23,936
|
|
|
$
|
37,325
|
|
Liabilities and Shareholders Equity:
|
|
|
|
|
|
|
|
|
Current liabilities (includes liabilities to related parties of $3,651 and $17,230, respectively)
|
|
$
|
4,551
|
|
|
$
|
17,455
|
|
Noncurrent liabilities (includes liabilities to related parties of $813 and $0, respectively)
|
|
|
813
|
|
|
|
0
|
|
Shareholders equity
|
|
|
18,572
|
|
|
|
19,870
|
|
|
|
$
|
23,936
|
|
|
$
|
37,325
|
|
40
Gongchang
The Corporation has a 24% interest in Gongchang which is recorded at cost, or $1,340. The Corporation does not participate in the management or daily operation of Gongchang, 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 after allocation of after-tax profits to various funds equal to the minimum amount required under Chinese
law. Approximately $395 of dividends were declared and received in 2016. No dividends were declared or received in 2015 or 2014.
NOTE 4
INVENTORIES:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Raw materials
|
|
$
|
23,964
|
|
|
$
|
18,314
|
|
Work-in-progress
|
|
|
29,198
|
|
|
|
21,583
|
|
Finished goods
|
|
|
20,046
|
|
|
|
9,897
|
|
Supplies
|
|
|
10,371
|
|
|
|
9,940
|
|
|
|
$
|
83,579
|
|
|
$
|
59,734
|
|
At December 31, 2016 and 2015, approximately 45% and 60%, respectively, of the inventories were valued using the
LIFO method. The LIFO reserve approximated $(15,139) and $(24,647) at December 31, 2016 and 2015, respectively. During each of the years, inventory quantities decreased for various locations 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 and amortization) by approximately $936, $216 and $2,196 for 2016, 2015 and 2014, respectively, which reduced net loss by approximately
$936 or $0.08 per common share for 2016, increased net income by approximately $141 or $0.01 per common share for 2015, and reduced net loss by approximately $1,427 or $0.14 per common share for 2014.
|
|
|
|
|
|
|
|
|
|
NOTE 5 PROPERTY, PLANT AND EQUIPMENT:
|
|
|
|
2016
|
|
|
2015
|
|
Land and land improvements
|
|
$
|
11,747
|
|
|
$
|
5,223
|
|
Buildings
|
|
|
66,017
|
|
|
|
44,570
|
|
Machinery and equipment
|
|
|
323,684
|
|
|
|
266,358
|
|
Construction-in-process
|
|
|
2,595
|
|
|
|
3,566
|
|
Other
|
|
|
7,495
|
|
|
|
7,774
|
|
|
|
|
411,538
|
|
|
|
327,491
|
|
Accumulated depreciation and amortization
|
|
|
(197,130
|
)
|
|
|
(180,578
|
)
|
|
|
$
|
214,408
|
|
|
$
|
146,913
|
|
The majority of the assets of the Corporation, except real property including the land and building of UES-UK, is pledged
as collateral for the Corporations Revolving Credit and Security Agreement (see Note 8). Land and buildings of UES-UK, equal to approximately $2,556 (£2,072) at December 31, 2016, are held as collateral by the trustees of the
UES-UK defined benefit pension plan (see Note 9). The gross value of assets under capital lease and the related accumulated amortization as of December 31, 2016, approximated $3,610 and $691, respectively.
NOTE 6 INTANGIBLE ASSETS:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Customer relationships
|
|
$
|
6,244
|
|
|
$
|
1,245
|
|
Developed technology
|
|
|
4,248
|
|
|
|
0
|
|
Trade name
|
|
|
2,537
|
|
|
|
0
|
|
|
|
|
13,029
|
|
|
|
1,245
|
|
Accumulated amortization
|
|
|
(1,428
|
)
|
|
|
(52
|
)
|
|
|
$
|
11,601
|
|
|
$
|
1,193
|
|
41
The following summarizes changes in intangible assets for the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Balance at the beginning of the year
|
|
$
|
1,193
|
|
|
$
|
0
|
|
Changes in intangible assets
|
|
|
11,784
|
|
|
|
1,245
|
|
Amortization of intangible assets
|
|
|
(1,106
|
)
|
|
|
(52
|
)
|
Other, primarily impact from changes in foreign currency exchange rates
|
|
|
(270
|
)
|
|
|
0
|
|
Balance at the end of the year
|
|
$
|
11,601
|
|
|
$
|
1,193
|
|
Changes during the year primarily represent intangible assets identified as part of the Åkers acquisition.
Intangible assets include an indefinite-lived trade name of $2,537 as of December 31, 2016, that is not subject to amortization. The estimated future amortization expense of identifiable intangible assets is $1,150 for 2017, $1,150 for 2018,
$1,150 for 2019, $1,150 for 2020, $485 for 2021 and $3,979 thereafter.
|
|
|
|
|
|
|
|
|
NOTE 7 OTHER CURRENT LIABILITIES:
|
|
|
|
2016
|
|
|
2015
|
|
Customer-related liabilities
|
|
$
|
21,564
|
|
|
$
|
12,195
|
|
Accrued interest payable
|
|
|
2,274
|
|
|
|
3
|
|
Income taxes payable
|
|
|
0
|
|
|
|
3,256
|
|
Accrued sales commissions
|
|
|
1,693
|
|
|
|
1,506
|
|
Other
|
|
|
16,666
|
|
|
|
6,920
|
|
|
|
$
|
42,197
|
|
|
$
|
23,880
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance at the beginning of the year
|
|
$
|
6,358
|
|
|
$
|
6,672
|
|
|
$
|
6,899
|
|
Acquisitions opening balance sheet liability for warranty claims
|
|
|
7,130
|
|
|
|
0
|
|
|
|
0
|
|
Satisfaction of warranty claims
|
|
|
(4,297
|
)
|
|
|
(2,452
|
)
|
|
|
(2,335
|
)
|
Provision for warranty claims
|
|
|
3,282
|
|
|
|
2,293
|
|
|
|
2,300
|
|
Other, primarily impact from changes in foreign currency exchange rates
|
|
|
(952
|
)
|
|
|
(155
|
)
|
|
|
(192
|
)
|
Balance at the end of the year
|
|
$
|
11,521
|
|
|
$
|
6,358
|
|
|
$
|
6,672
|
|
NOTE 8 BORROWING ARRANGEMENTS:
In May 2016, the Corporation entered into a five-year Revolving Credit and Security Agreement (the Agreement) with a syndicate of banks. The Agreement provides for a senior secured asset-based
revolving credit facility that replaces the Corporations existing line of credit and letter of credit facilities. The Agreement provides for initial borrowings not to exceed $100,000 with an option to increase the credit facility by an
additional $50,000 at the request of the Corporation and with the approval of the banks. In October, 2016, the Corporation amended the Agreement to provide additional intercompany lending capacity to its Excluded Subsidiaries and expand available
currencies for its letters of credits. As amended to date, the Agreement includes sublimits for letters of credit, not to exceed $40,000, European borrowings not to exceed $15,000, and Canadian borrowings not to exceed $15,000. See Note 22.
Availability under the Agreement is based on eligible accounts receivable, inventory and fixed assets. Amounts outstanding under the credit
facility bear interest at the Corporations option at either (1) LIBOR plus an applicable margin ranging between 1.25% to 1.75% based on the quarterly average excess availability or (2) the Base Rate plus an applicable margin ranging
between 0.25% to 0.75% based on the quarterly average excess availability. Additionally, the Corporation is required to pay a commitment fee ranging between 0.25% and 0.375% based on the daily unused portion of the credit facility. As of
December 31, 2016, the Corporation had utilized a portion of the credit facility for letters of credit (Note 10) and had remaining availability of approximately $54,000. The Agreement is collateralized by a first priority perfected security
interest in substantially all of the assets of the Corporation and its subsidiaries (other than real property). Additionally, the Agreement contains customary affirmative and negative covenants and limitations
42
including but not limited to investments in Excluded Subsidiaries, payment of dividends, incurrence of additional indebtedness, upstreaming distributions from subsidiaries, and acquisitions and
divestures. The Corporation must also maintain a certain level of excess availability. If excess availability falls below the established threshold, or in an event of default, the Corporation will be required to maintain a minimum fixed charge
coverage ratio of not less than 1.00 to 1.00. The Corporation was in compliance with the applicable bank covenants as of December 31, 2016.
Outstanding borrowings of the Corporation as of December 31, 2016 and 2015 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Industrial Revenue Bonds
|
|
$
|
13,311
|
|
|
$
|
13,311
|
|
Promissory notes (and interest)
|
|
|
23,844
|
|
|
|
0
|
|
Minority shareholder loan
|
|
|
4,990
|
|
|
|
0
|
|
Credit facility
|
|
|
7,146
|
|
|
|
0
|
|
Term loan
|
|
|
762
|
|
|
|
0
|
|
Capital leases
|
|
|
2,161
|
|
|
|
0
|
|
|
|
|
52,214
|
|
|
|
13,311
|
|
Current portion
|
|
|
(26,825
|
)
|
|
|
(13,311
|
)
|
|
|
$
|
25,389
|
|
|
$
|
0
|
|
Future principal payments, assuming demand loans are called in 2017 and the Industrial Revenue Bonds are not able to be
remarketed, are $26,825 for 2017, $585 for 2018, $24,257 for 2019, $337 for 2020 and $210 for 2021. The Corporation also had short-term lines of credit of approximately $750 (£250 in the United Kingdom and 400 in Belgium). No amounts
were outstanding under these lines of credit as of December 31, 2016 and 2015. Deferred financing fees of approximately $1,250 have been incurred for the Agreement and are being amortized over the life of the Agreement.
Industrial Revenue Bonds
As of December 31,
2016, 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 0.50% during the current year; (2) $7,116 taxable IRB maturing in
2027, interest at a floating rate which averaged 0.65% during the current year; and (3) $2,075 tax-exempt IRB maturing in 2029, interest at a floating rate which averaged 0.59% during the current year. The IRBs are secured by letters of credit
of equivalent amounts and are remarketed periodically at which time interest rates are reset. If the IRBs are not able to be remarketed, although considered remote by the Corporation and its bankers, the bondholders can seek reimbursement from the
letters of credit which serve as collateral for the bonds.
Promissory Notes
In connection with the acquisition of Åkers, the Corporation issued three-year promissory notes amounting to $22,619. The notes bear interest at 6.5%, compounding annually, with principal and
interest payable at maturity on March 3, 2019. As of December 31, 2016, accrued interest approximated $1,225 which is included in long-term debt on the consolidated balance sheet.
Minority Shareholder Loan
ATR has a $4,990 (RMB 34,655) loan outstanding with its minority
shareholder. The loan originally matured in 2008 but has been renewed continually for one-year periods. Interest does not compound and has accrued on the outstanding balance, since inception, at the three-to-five-year loan interest rate set by the
Peoples Bank of China in effect at the time of renewal. The interest rate for 2016 approximated 4.90% and accrued interest as of December 31, 2016 approximated $2,265 (RMB 15,730), which is recorded in other current liabilities on the
consolidated balance sheet.
Credit Facility and Term Loan
ASW has a credit facility which provides for borrowings of up to $20,000, based on eligible accounts receivable and inventory, payable on demand. Amounts outstanding under the credit facility bear
interest at 4% plus the higher of LIBOR or 1% and a collateral fee of 1.20%. ASW is also required to pay a commitment fee of approximately 0.5% based on the daily unused portion of the credit
43
facility. The effective interest rate for the two months ended December 31, 2016 approximated 5.11%. As of December 31, 2016, ASW had borrowed $7,146, the maximum available under the
facility. Additionally, at December 31, 2016, ASW had $762 outstanding under a $5,000 fixed-rate term facility which bears interest at 7.25% plus the higher of LIBOR or 1%. The effective interest rate for the two months ended December 31,
2016 approximated 9.16%. The credit facility and term loan mature in June 2017. In the event of an early termination, the Corporation will incur a fee equal to 2% of the credit facility or $400. The agreements contain customary affirmative and
negative covenants and is collateralized by a first priority perfected security interest in substantially all of the assets of ASW. As of December 31, 2016, ASW was in compliance with the terms of the agreements and its amendments. See Note 22.
Capital Leases
The Corporation leases
equipment under various noncancelable lease agreements ending 2018 to 2021. Effective interest rates range between 1.20% and 5.30%.
NOTE 9
PENSION AND OTHER POSTRETIREMENT BENEFITS:
U.S. Pension Benefits
Historically, the Corporation had one qualified domestic defined benefit pension plan (legacy plan). As part of the Åkers acquisition, the Corporation assumed the obligations for two
additional U.S. plans (Åkers plans). Collectively, the plans cover substantially all of its U.S. employees. Effective June 1, 2016, the Åkers salary plan was amended to freeze benefit accruals and participation in the
plan and replace benefit accruals with employer non-elective contributions equaling 3% of compensation. The plan change resulted in remeasurement of the liability, reducing the liability by approximately $1,181 as of December 31, 2016, and a
curtailment gain of $887 for the year ended December 31, 2016. Additionally, effective July 1, 2015, the legacy plan was amended to freeze benefit accruals and participation in the plan for non-union hourly and salaried participants and,
effective January 1, 2016, for employees of the Union Electric Steel Carnegie Steelworkers Location. Benefits under the legacy plan were replaced with employer contributions of a 3% non-elective base contribution and a matching contribution of
up to 4% to the defined contribution plan. The plan changes resulted in a remeasurement of the plan liability, reducing the liability by approximately $10,306 as of December 31, 2015, and curtailment losses of $1,303 for the year ended
December 31, 2015. Additionally, the legacy plan was amended in both of the years to permit lump sum distributions to deferred vested participants and deferred beneficiaries who were not previously offered a lump sum. Employer contributions to
the defined contribution plans totaled $2,466 and $882 for 2016 and 2015, respectively, and are expected to approximate $2,810 in 2017.
The
U.S. defined benefit pension plans are covered by the Employee Retirement Income Security Act of 1974 (ERISA); accordingly, the Corporations policy is to fund at least the minimum actuarially computed annual contribution required
under ERISA. No minimum contributions were required for any of the three years for the legacy plan or, since the date of acquisition, for the Åkers plans. Additionally, no minimum contributions are required for any of the plans in 2017.
Estimated benefit payments for subsequent years are $13,206 for 2017, $13,535 for 2018, $13,944 for 2019, $14,195 for 2020, $14,485 for 2021 and $73,814 for 2022 2026. The fair value of the plan assets as of December 31, 2016 and 2015
approximated $188,722 and $139,376, respectively, in comparison to accumulated benefit obligations of $235,299 and $173,243 for the same periods.
The Corporation also maintains nonqualified defined benefit pension plans for selected executives in addition to the benefits provided under the Corporations qualified defined benefit pension plan.
The objectives of the nonqualified plans are to provide supplemental retirement benefits or restore benefits lost due to limitations set by the Internal Revenue Service. The assets of the nonqualified plans are held in a grantor tax trust known as a
Rabbi trust and are subject to claims of the Corporations creditors, but otherwise must be used only for purposes of providing benefits under the plans. No contributions were made to the trust in 2014 2016 and none are
expected in 2017. The fair market value of the trust at December 31, 2016 and 2015, which is included in other noncurrent assets, was $3,863 and $3,663, 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 $6,639 and $5,676 at December 31, 2016 and 2015, respectively. Estimated benefit
payments for subsequent years, which would represent employer contributions, are approximately $417 for 2017, $438 for 2018, $452 for 2019, $463 for 2020, $482 for 2020 and $2,548 for 2022-2026.
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
44
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 2015 plan year) provided by
I.A.M. National Pension Fund
indicates:
|
|
|
More than 1,650 employer locations contribute to the plan
|
|
|
|
Approximately 100,000 active employees participate in the plan
|
|
|
|
Assets of approximately $11.6 billion and a funded status of approximately 101%.
|
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 $237, $236 and $233 in 2016, 2015 and 2014, respectively, and represent less than five percent of total contributions to the plan by all contributing employers. Contributions are expected to approximate $259 in
2017.
Foreign Pension Benefits
Employees of UES-UK participate in a 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 at £1,123 annually
through October 2021, based on U.K. regulations, necessary to eliminate the funding deficit of the plan with such estimates subject to change based on the future investment performance of the plans assets. The U.S. dollar equivalent of
employer contributions to the defined benefit pension plan approximated $1,522, $1,715 and $1,849 in 2016, 2015 and 2014, respectively. The fair value of the plans assets as of December 31, 2016 and 2015 approximated $48,055
(£38,955) and $49,628 (£33,528), respectively, in comparison to accumulated benefit obligations of $61,277 (£49,673) and $63,750 (£43,069) for the same periods. Estimated benefit payments for subsequent years
for the UES-UK plan are $1,249 for 2017, $1,752 for 2018, $2,042 for 2019, $1,906 for 2020, $1,883 for 2021 and $11,679 for 2022-2026. Contributions to the defined contribution pension plan approximated $252, $382 and $407 in 2016, 2015 and 2014,
respectively, and are expected to approximate $276 in 2017.
As part of the Åkers acquisition, the Corporation assumed the obligations
of two foreign defined benefit pension plans. The plans are unfunded and not significant (projected benefit obligations approximate $5,633 at December 31, 2016). Estimated benefit payments for subsequent years, for both plans combined, are $189
for 2017, $224 for 2018, $274 for 2019, $274 for 2020, $306 for 2021 and $1,333 for 2022-2026.
Other Postretirement Benefits
The Corporation has historically provided postretirement health care benefits principally to the bargaining groups of one subsidiary (legacy OPEB
plan). The legacy OPEB 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. During 2015, the plan was amended to provide monthly reimbursement for a 5-year period, which reduced the plan liability by approximately $4,437. Retiree life insurance continues to be provided to
substantially all retirees.
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.
As part of the Åkers acquisition, the
Corporation assumed the obligations for two additional postretirement benefit plans (Åkers OPEB plans). The Åkers OPEB plans cover retiree medical and life insurance benefits. In August 2016, the Corporation modified the
Åkers OPEB plans effective January 1, 2017 whereby retiree health benefits for certain groups of pre-Medicare eligible employees will be replaced with a monthly stipend. The plan changes resulted in a reduction in prior service costs
decreasing plan liabilities by approximately $4,762, which will be amortized against other postretirement benefit costs over the expected remaining service periods of approximately 7.5 and 12 years, versus recognized immediately.
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 contributions, for the legacy and Åkers OPEB plans are approximately $1,289 for 2017, $1,331 for 2018, $1,358 for 2019, $1,455 for 2020, $1,279 for 2021 and $5,825
for 2022-2026.
45
Reconciliations
The following provides a reconciliation of projected benefit obligations (PBO), 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
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2016
|
|
|
|
2015
|
|
Change in projected benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PBO at January 1
|
|
$
|
181,803
|
|
|
$
|
205,399
|
|
|
$
|
63,750
|
|
|
$
|
70,523
|
|
|
$
|
8,117
|
|
|
$
|
13,739
|
|
Åkers acquisition PBO at March 3
|
|
|
68,081
|
|
|
|
0
|
|
|
|
5,393
|
|
|
|
0
|
|
|
|
17,467
|
|
|
|
0
|
|
Service cost
|
|
|
1,714
|
|
|
|
2,743
|
|
|
|
314
|
|
|
|
0
|
|
|
|
504
|
|
|
|
384
|
|
Interest cost
|
|
|
9,977
|
|
|
|
7,990
|
|
|
|
2,250
|
|
|
|
2,394
|
|
|
|
722
|
|
|
|
474
|
|
Plan amendments
|
|
|
0
|
|
|
|
447
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(4,762
|
)
|
|
|
(4,437
|
)
|
Plan settlements
(b)
|
|
|
(2,739
|
)
|
|
|
(5,494
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Plan curtailments
|
|
|
(1,181
|
)
|
|
|
(10,306
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Foreign currency exchange rate changes
|
|
|
0
|
|
|
|
0
|
|
|
|
(11,477
|
)
|
|
|
(3,413
|
)
|
|
|
0
|
|
|
|
0
|
|
Actuarial (gain) loss
|
|
|
(160
|
)
|
|
|
(9,880
|
)
|
|
|
8,869
|
|
|
|
(4,005
|
)
|
|
|
(1,598
|
)
|
|
|
(1,433
|
)
|
Participant contributions
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
80
|
|
|
|
79
|
|
Benefits paid from plan assets
|
|
|
(12,679
|
)
|
|
|
(8,772
|
)
|
|
|
(2,189
|
)
|
|
|
(1,749
|
)
|
|
|
0
|
|
|
|
0
|
|
Benefits paid by the Corporation
|
|
|
(376
|
)
|
|
|
(324
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(1,471
|
)
|
|
|
(689
|
)
|
PBO at December 31
|
|
$
|
244,440
|
|
|
$
|
181,803
|
|
|
$
|
66,910
|
|
|
$
|
63,750
|
|
|
$
|
19,059
|
|
|
$
|
8,117
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1
|
|
$
|
139,376
|
|
|
$
|
157,048
|
|
|
$
|
49,628
|
|
|
$
|
50,533
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Åkers acquisition fair value of plan assets at March 3
|
|
|
50,108
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Actual return on plan assets
|
|
|
14,656
|
|
|
|
(3,406
|
)
|
|
|
7,859
|
|
|
|
1,701
|
|
|
|
0
|
|
|
|
0
|
|
Foreign currency exchange rate changes
|
|
|
0
|
|
|
|
0
|
|
|
|
(8,930
|
)
|
|
|
(2,572
|
)
|
|
|
0
|
|
|
|
0
|
|
Corporate contributions
|
|
|
376
|
|
|
|
324
|
|
|
|
1,687
|
|
|
|
1,715
|
|
|
|
1,391
|
|
|
|
610
|
|
Participant contributions
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
80
|
|
|
|
79
|
|
Plan settlements
(b)
|
|
|
(2,739
|
)
|
|
|
(5,494
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Gross benefits paid
|
|
|
(13,055
|
)
|
|
|
(9,096
|
)
|
|
|
(2,189
|
)
|
|
|
(1,749
|
)
|
|
|
(1,471
|
)
|
|
|
(689
|
)
|
Fair value of plan assets at December 31
|
|
$
|
188,722
|
|
|
$
|
139,376
|
|
|
$
|
48,055
|
|
|
$
|
49,628
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Funded status of the plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
188,722
|
|
|
$
|
139,376
|
|
|
$
|
48,055
|
|
|
$
|
49,628
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Less benefit obligations
|
|
|
244,440
|
|
|
|
181,803
|
|
|
|
66,910
|
|
|
|
63,750
|
|
|
|
19,059
|
|
|
|
8,117
|
|
Funded status at December 31
|
|
$
|
(55,718
|
)
|
|
$
|
(42,427
|
)
|
|
$
|
(18,855
|
)
|
|
$
|
(14,122
|
)
|
|
$
|
(19,059
|
)
|
|
$
|
(8,117
|
)
|
(a)
|
Includes the nonqualified defined benefit pension plan.
|
(b)
|
Represents lump sum payments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
Benefits
|
|
|
Foreign Pension
Benefits
|
|
|
Other Postretirement
Benefits
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2016
|
|
|
|
2015
|
|
Recognized in the balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued payrolls and employee benefits
(a)
|
|
$
|
(409
|
)
|
|
$
|
(352
|
)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
(1,276
|
)
|
|
$
|
(612
|
)
|
Employee benefit obligations
(b)
|
|
|
(55,309
|
)
|
|
|
(42,075
|
)
|
|
|
(18,855
|
)
|
|
|
(14,122
|
)
|
|
|
(17,783
|
)
|
|
|
(7,505
|
)
|
|
|
$
|
(55,718
|
)
|
|
$
|
(42,427
|
)
|
|
$
|
(18,855
|
)
|
|
$
|
(14,122
|
)
|
|
$
|
(19,059
|
)
|
|
$
|
(8,117
|
)
|
Accumulated other comprehensive loss:
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
48,153
|
|
|
$
|
53,163
|
|
|
$
|
25,547
|
|
|
$
|
27,594
|
|
|
$
|
936
|
|
|
$
|
2,570
|
|
Prior service cost
|
|
|
209
|
|
|
|
237
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(15,581
|
)
|
|
|
(12,097
|
)
|
|
|
$
|
48,362
|
|
|
$
|
53,400
|
|
|
$
|
25,547
|
|
|
$
|
27,594
|
|
|
$
|
(14,645
|
)
|
|
$
|
(9,527
|
)
|
(a)
|
Recorded as a current liability in the consolidated balance sheet.
|
(b)
|
Recorded as a noncurrent liability in the consolidated balance sheet.
|
46
Amounts included in accumulated other comprehensive loss as of December 31, 2016 expected to be
recognized in net periodic pension and other postretirement costs in 2017 include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
Benefits
|
|
|
Foreign Pension
Benefits
|
|
|
Other Postretirement
Benefits
|
|
Net actuarial loss
|
|
$
|
1,212
|
|
|
$
|
790
|
|
|
$
|
67
|
|
Prior service cost (credit)
|
|
|
52
|
|
|
|
0
|
|
|
|
(1,620)
|
|
|
|
$
|
1,264
|
|
|
$
|
790
|
|
|
$
|
(1,553)
|
|
Investment Policies and Strategies
The investment policies and strategies are determined and monitored by the Board of Directors for the U.S. pension plans and by the Trustees (as appointed by UES-UK and the employees of UES-UK) for the
UES-UK pension plan, each of whom employ their own investment managers to manage the plans assets in accordance with the policy guidelines. The foreign pension plans of Åkers are unfunded. 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 Board of Directors or Trustees.
With respect to the U.S. pension plans, the following investments are prohibited unless otherwise approved by the Board of Directors: 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. In addition, for the legacy plan, the Corporation changed investment managers in December 2016; accordingly, there is temporarily a higher amount in cash and cash equivalents.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
|
|
|
Foreign Pension Benefits
|
|
|
|
Target
Allocation
|
|
|
Percentage of Plan
Assets
|
|
|
Target
Allocation
|
|
|
Percentage of Plan
Assets
|
|
|
Dec. 31, 2016
|
|
|
2016
|
|
|
2015
|
|
|
Dec. 31, 2016
|
|
|
2016
|
|
|
2015
|
|
Equity Securities
|
|
|
65
|
%
|
|
|
47
|
%
|
|
|
58
|
%
|
|
|
44
|
%
|
|
|
48
|
%
|
|
|
46
|
%
|
Fixed-Income Securities
|
|
|
15
|
%
|
|
|
21
|
%
|
|
|
19
|
%
|
|
|
35
|
%
|
|
|
34
|
%
|
|
|
33
|
%
|
Alternative Investments
|
|
|
15
|
%
|
|
|
8
|
%
|
|
|
13
|
%
|
|
|
21
|
%
|
|
|
18
|
%
|
|
|
21
|
%
|
Other (primarily cash and cash equivalents)
|
|
|
5
|
%
|
|
|
24
|
%
|
|
|
10
|
%
|
|
|
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.
47
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 market 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.
|
Various Fixed Income Funds
|
|
Invests primarily in a diversified portfolio of fixed-income securities of varying maturities or in
commingled funds which invest in a diversified portfolio of fixed-income securities of varying maturities.
|
|
For the U.S. Plans to outperform
either the Barclays Capital U.S. Aggregate Index or US Corporate High Yield Index, as applicable, over a prescribed period.
For the Foreign Plans to outperform the applicable FTSE index over a prescribed period.
|
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.
|
48
Categories of Plan Assets
Asset categories based on the nature and risks of the U.S. Pension Benefit Plans assets as of December 31, 2016 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank & financial services
|
|
$
|
631
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
631
|
|
Capital goods
|
|
|
75
|
|
|
|
0
|
|
|
|
0
|
|
|
|
75
|
|
Chemicals
|
|
|
20
|
|
|
|
0
|
|
|
|
0
|
|
|
|
20
|
|
Commercial services
|
|
|
16
|
|
|
|
0
|
|
|
|
0
|
|
|
|
16
|
|
Electronics
|
|
|
67
|
|
|
|
0
|
|
|
|
0
|
|
|
|
67
|
|
Health care
|
|
|
201
|
|
|
|
0
|
|
|
|
0
|
|
|
|
201
|
|
Mutual funds
|
|
|
72,571
|
|
|
|
0
|
|
|
|
0
|
|
|
|
72,571
|
|
Oil & gas
|
|
|
87
|
|
|
|
0
|
|
|
|
0
|
|
|
|
87
|
|
Retail
|
|
|
101
|
|
|
|
0
|
|
|
|
0
|
|
|
|
101
|
|
Technology
|
|
|
188
|
|
|
|
0
|
|
|
|
0
|
|
|
|
188
|
|
Transportation
|
|
|
18
|
|
|
|
0
|
|
|
|
0
|
|
|
|
18
|
|
Wholesale distribution
|
|
|
16
|
|
|
|
0
|
|
|
|
0
|
|
|
|
16
|
|
Other (represents 8 business sectors)
|
|
|
211
|
|
|
|
0
|
|
|
|
0
|
|
|
|
211
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
|
7
|
|
|
|
0
|
|
|
|
0
|
|
|
|
7
|
|
Technology
|
|
|
6
|
|
|
|
0
|
|
|
|
0
|
|
|
|
6
|
|
Total Equity Securities
|
|
|
74,215
|
|
|
|
0
|
|
|
|
0
|
|
|
|
74,215
|
|
Fixed Income Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
36,601
|
|
|
|
0
|
|
|
|
0
|
|
|
|
36,601
|
|
Total Fixed Income Securities
|
|
|
36,601
|
|
|
|
0
|
|
|
|
0
|
|
|
|
36,601
|
|
Alternative Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed funds
(a)
|
|
|
0
|
|
|
|
0
|
|
|
|
33,830
|
|
|
|
33,830
|
|
Total Alternative Investments
|
|
|
0
|
|
|
|
0
|
|
|
|
33,830
|
|
|
|
33,830
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual funds
|
|
|
27,902
|
|
|
|
0
|
|
|
|
0
|
|
|
|
27,902
|
|
Commingled funds
|
|
|
0
|
|
|
|
154
|
|
|
|
0
|
|
|
|
154
|
|
Other
(b)
|
|
|
16,020
|
|
|
|
0
|
|
|
|
0
|
|
|
|
16,020
|
|
Total Other
|
|
|
43,922
|
|
|
|
154
|
|
|
|
0
|
|
|
|
44,076
|
|
|
|
$
|
154,738
|
|
|
$
|
154
|
|
|
$
|
33,830
|
|
|
$
|
188,722
|
|
|
(a)
|
Includes approximately 45.9% in equity and equity-like asset securities, 44.5% in alternative investments (real assets, commodities and resources, absolute return
funds) and 7.4% in fixed income securities and 2.2% in other, primarily cash and cash equivalents.
|
|
(b)
|
Includes accrued receivables and pending broker settlements.
|
49
Asset categories based on the nature and risks of the U.S. Pension Benefit Plans assets as of
December 31, 2015 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
|
|
$
|
1,531
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,531
|
|
Chemicals
|
|
|
1,811
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,811
|
|
Commercial property
|
|
|
906
|
|
|
|
0
|
|
|
|
0
|
|
|
|
906
|
|
Commercial services
|
|
|
925
|
|
|
|
0
|
|
|
|
0
|
|
|
|
925
|
|
Common collective trust funds
|
|
|
0
|
|
|
|
31,291
|
|
|
|
0
|
|
|
|
31,291
|
|
Electronics
|
|
|
785
|
|
|
|
0
|
|
|
|
0
|
|
|
|
785
|
|
Food processing
|
|
|
2,856
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,856
|
|
Health care
|
|
|
1,815
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,815
|
|
Limited partnerships public equity
|
|
|
4,173
|
|
|
|
0
|
|
|
|
0
|
|
|
|
4,173
|
|
Manufacturing
|
|
|
1,536
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,536
|
|
Oil & gas
|
|
|
1,499
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,499
|
|
Retail
|
|
|
706
|
|
|
|
0
|
|
|
|
0
|
|
|
|
706
|
|
Technology
|
|
|
1,674
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,674
|
|
Transportation
|
|
|
484
|
|
|
|
0
|
|
|
|
0
|
|
|
|
484
|
|
Wholesale distribution
|
|
|
789
|
|
|
|
0
|
|
|
|
0
|
|
|
|
789
|
|
Other (represents 13 business sectors)
|
|
|
5,695
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank & financial services
|
|
|
1,525
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,525
|
|
Common collective trust funds
|
|
|
0
|
|
|
|
3,078
|
|
|
|
0
|
|
|
|
3,078
|
|
Engineering & construction
|
|
|
729
|
|
|
|
0
|
|
|
|
0
|
|
|
|
729
|
|
Oil & gas
|
|
|
807
|
|
|
|
0
|
|
|
|
0
|
|
|
|
807
|
|
Real estate
|
|
|
937
|
|
|
|
0
|
|
|
|
0
|
|
|
|
937
|
|
Technology
|
|
|
265
|
|
|
|
0
|
|
|
|
0
|
|
|
|
265
|
|
Other (represents 9 business sectors)
|
|
|
2,391
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,391
|
|
Total Equity Securities
|
|
|
33,839
|
|
|
|
34,369
|
|
|
|
0
|
|
|
|
68,208
|
|
Fixed-Income Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled funds
|
|
|
0
|
|
|
|
14,697
|
|
|
|
0
|
|
|
|
14,697
|
|
Preferred (represents 5 business sectors)
|
|
|
6,689
|
|
|
|
0
|
|
|
|
0
|
|
|
|
6,689
|
|
Other (represents 4 business sectors)
|
|
|
0
|
|
|
|
1,280
|
|
|
|
0
|
|
|
|
1,280
|
|
Total Fixed-Income Securities
|
|
|
6,689
|
|
|
|
15,977
|
|
|
|
0
|
|
|
|
22,666
|
|
Alternative Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed funds
(a)
|
|
|
0
|
|
|
|
0
|
|
|
|
32,210
|
|
|
|
32,210
|
|
Hedge and absolute return funds
|
|
|
0
|
|
|
|
0
|
|
|
|
4,967
|
|
|
|
4,967
|
|
Total Alternative Investments
|
|
|
0
|
|
|
|
0
|
|
|
|
37,177
|
|
|
|
37,177
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
1,836
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,836
|
|
Commingled funds
|
|
|
0
|
|
|
|
1,005
|
|
|
|
0
|
|
|
|
1,005
|
|
Other
(b)
|
|
|
8,484
|
|
|
|
0
|
|
|
|
0
|
|
|
|
8,484
|
|
Total Other
|
|
|
10,320
|
|
|
|
1,005
|
|
|
|
0
|
|
|
|
11,325
|
|
|
|
$
|
50,848
|
|
|
$
|
51,351
|
|
|
$
|
37,177
|
|
|
$
|
139,376
|
|
|
(a)
|
Includes approximately 38% in equity and equity-like asset securities, 43% in alternative investments (real assets, commodities and resources, absolute return funds)
and 19% in fixed income securities and cash and cash equivalents.
|
|
(b)
|
Includes accrued receivables and pending broker settlements.
|
50
Asset categories based on the nature and risks of the Foreign Pension Benefit Plans assets as of
December 31, 2016 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.)
|
|
$
|
0
|
|
|
$
|
3,716
|
|
|
$
|
0
|
|
|
$
|
3,716
|
|
Commingled Funds (International)
|
|
|
0
|
|
|
|
19,146
|
|
|
|
0
|
|
|
|
19,146
|
|
Total Equity Securities
|
|
|
0
|
|
|
|
22,862
|
|
|
|
0
|
|
|
|
22,862
|
|
Fixed-Income Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled Funds (U.K.)
|
|
|
0
|
|
|
|
16,426
|
|
|
|
0
|
|
|
|
16,426
|
|
Alternative Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge and Absolute Return Funds
|
|
|
0
|
|
|
|
0
|
|
|
|
8,593
|
|
|
|
8,593
|
|
Cash and cash equivalents
|
|
|
174
|
|
|
|
0
|
|
|
|
0
|
|
|
|
174
|
|
|
|
$
|
174
|
|
|
$
|
39,288
|
|
|
$
|
8,593
|
|
|
$
|
48,055
|
|
Asset categories based on the nature and risks of the Foreign Pension Benefit Plans assets as of December 31,
2015 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.)
|
|
$
|
0
|
|
|
$
|
3,697
|
|
|
$
|
0
|
|
|
$
|
3,697
|
|
Commingled Funds (International)
|
|
|
0
|
|
|
|
18,930
|
|
|
|
0
|
|
|
|
18,930
|
|
Total Equity Securities
|
|
|
0
|
|
|
|
22,627
|
|
|
|
0
|
|
|
|
22,627
|
|
Fixed-Income Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commingled Funds (U.K.)
|
|
|
0
|
|
|
|
16,298
|
|
|
|
0
|
|
|
|
16,298
|
|
Alternative Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge and Absolute Return Funds
|
|
|
0
|
|
|
|
0
|
|
|
|
10,571
|
|
|
|
10,571
|
|
Cash and cash equivalents
|
|
|
132
|
|
|
|
0
|
|
|
|
0
|
|
|
|
132
|
|
|
|
$
|
132
|
|
|
$
|
38,925
|
|
|
$
|
10,571
|
|
|
$
|
49,628
|
|
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, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative Investments
|
|
|
|
U.S. Pension
Benefits
|
|
|
Foreign Pension
Benefits
|
|
Fair value as of January 1, 2016
|
|
$
|
4,967
|
|
|
$
|
32,210
|
|
|
$
|
10,571
|
|
Contributions
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Withdrawals
|
|
|
(4,967
|
)
|
|
|
0
|
|
|
|
0
|
|
Realized gains (losses)
|
|
|
0
|
|
|
|
1,857
|
|
|
|
0
|
|
Change in net unrealized (losses) gains
|
|
|
0
|
|
|
|
(237
|
)
|
|
|
(280
|
)
|
Other, primarily impact from changes in foreign currency exchange rates
|
|
|
0
|
|
|
|
0
|
|
|
|
(1,698
|
)
|
Fair value as of December 31, 2016
|
|
$
|
0
|
|
|
$
|
33,830
|
|
|
$
|
8,593
|
|
51
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, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative Investments
|
|
|
|
U.S. Pension
Benefits
|
|
|
Foreign Pension
Benefits
|
|
Fair value as of January 1, 2015
|
|
$
|
8,592
|
|
|
$
|
33,602
|
|
|
$
|
10,799
|
|
Contributions
|
|
|
5,900
|
|
|
|
0
|
|
|
|
0
|
|
Withdrawals
|
|
|
(9,843
|
)
|
|
|
(2,424)
|
|
|
|
0
|
|
Realized gains (losses)
|
|
|
2,334
|
|
|
|
(19)
|
|
|
|
0
|
|
Change in net unrealized (losses) gains
|
|
|
(2,016
|
)
|
|
|
1,051
|
|
|
|
320
|
|
Other, primarily impact from changes in foreign currency exchange rates
|
|
|
0
|
|
|
|
0
|
|
|
|
(548
|
)
|
Fair value as of December 31, 2015
|
|
$
|
4,967
|
|
|
$
|
32,210
|
|
|
$
|
10,571
|
|
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 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
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Service cost
|
|
$
|
1,714
|
|
|
$
|
2,743
|
|
|
$
|
3,683
|
|
|
$
|
314
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
504
|
|
|
$
|
384
|
|
|
$
|
505
|
|
Interest cost
|
|
|
9,977
|
|
|
|
7,990
|
|
|
|
8,762
|
|
|
|
2,250
|
|
|
|
2,394
|
|
|
|
2,695
|
|
|
|
722
|
|
|
|
474
|
|
|
|
688
|
|
Expected return on plan assets
|
|
|
(13,424
|
)
|
|
|
(10,996
|
)
|
|
|
(10,747
|
)
|
|
|
(2,461
|
)
|
|
|
(2,681
|
)
|
|
|
(3,157
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
|
|
44
|
|
|
|
371
|
|
|
|
854
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(1,277
|
)
|
|
|
(672
|
)
|
|
|
(441
|
)
|
Actuarial loss
|
|
|
3,324
|
|
|
|
5,440
|
|
|
|
4,183
|
|
|
|
670
|
|
|
|
845
|
|
|
|
599
|
|
|
|
36
|
|
|
|
26
|
|
|
|
104
|
|
Curtailment (gain) loss
|
|
|
(887
|
)
|
|
|
1,303
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
$
|
748
|
|
|
$
|
6,851
|
|
|
$
|
6,735
|
|
|
$
|
773
|
|
|
$
|
558
|
|
|
$
|
137
|
|
|
$
|
(15
|
)
|
|
$
|
212
|
|
|
$
|
856
|
|
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.
52
The discount rates and weighted-average wage increases used to determine the benefit obligations as of
December 31, 2016 and 2015 are summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
Benefits
|
|
|
Foreign Pension
Benefits
|
|
|
Other Postretirement
Benefits
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Discount rate
|
|
|
4.02-4.25
|
%
|
|
|
4.40
|
%
|
|
|
2.50-2.65
|
%
|
|
|
3.65
|
%
|
|
|
3.90-4.13
|
%
|
|
|
4.20
|
%
|
Wage increases
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
In addition, the assumed health care cost trend rate at December 31, 2016 for other postretirement benefits is 6%
for 2017 gradually decreasing to 4.75% in 2020. 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 result in an inconsequential change to the postretirement benefit obligation at
December 31, 2016 and the annual benefit expense for 2016.
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
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Discount rate
|
|
|
4.20-4.40
|
%
|
|
|
4.00-4.10
|
%
|
|
5.00%
|
|
|
3.00-3.65
|
%
|
|
|
3.50
|
%
|
|
|
4.50
|
%
|
|
|
3.80-4.20
|
%
|
|
|
4.00
|
%
|
|
|
5.00
|
%
|
Expected long-term rate of return
|
|
|
6.90-7.75
|
%
|
|
|
8.00
|
%
|
|
8.00%
|
|
|
5.40
|
%
|
|
|
5.40
|
%
|
|
|
6.50
|
%
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Wages increases
|
|
|
3.00
|
%
|
|
|
4.00
|
%
|
|
4.00%
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
53
NOTE 10 COMMITMENTS AND CONTINGENT LIABILITIES:
Outstanding standby and commercial letters of credit as of December 31, 2016 approximated $22,305, of which approximately half serves as collateral for the IRB debt. In addition, in connection with
the acquisition of Åkers, the Corporation issued two surety bonds to PRI Pensionsgaranti, guaranteeing certain obligations of Åkers Sweden AB and Åkers AB under a credit insurance policy relating to pension commitments. The total
amount covered by the surety bonds is approximately $4,000 (SEK 33,900).
Approximately 38% of the Corporations employees are
covered by collective bargaining agreements that have expiration dates ranging from September 2017 to February 2020. Collective bargaining agreements expiring in 2017 (representing approximately 28% of covered employees) will be negotiated with the
intent to secure mutually beneficial, long-term arrangements.
See Note 13 regarding derivative instruments, Note 19 regarding litigation and
Note 20 for environmental matters.