Retirement Benefits | 12 Months Ended |
Sep. 30, 2013 |
Retirement Benefits - General | ' |
Retirement Benefits | ' |
Note 18. Retirement benefits |
Woodward provides various benefits to eligible members of the Company, including contributions to various defined contribution plans, pension benefits associated with defined benefit plans, postretirement medical benefits and postretirement life insurance benefits. Eligibility requirements and benefit levels vary depending on employee location. |
Defined contribution plans |
Most of the Company’s U.S. employees are eligible to participate in the U.S. defined contribution plan. The U.S. defined contribution plan allows employees to defer part of their annual income for income tax purposes into their personal 401(k) accounts. The Company makes contributions to eligible employee accounts, which are also deferred for employee personal income tax purposes. Certain foreign employees are also eligible to participate in foreign plans. |
Most U.S. employees with at least two years of service receive an annual contribution of Woodward stock, equal to 5% of their eligible prior year wages, to their personal Woodward Retirement Savings Plan accounts. In the second quarter of fiscal years 2013 and 2012, Woodward fulfilled the annual Woodward stock contribution using shares held in treasury stock by issuing 250 shares of common stock for a total value of $9,780 and 209 shares of common stock for a total value of $9,335, respectively. In the second quarter of fiscal year 2011, the annual Woodward stock contribution totaling $9,107 was funded by way of a cash contribution to the Woodward Retirement Savings Plan, which then purchased shares of Woodward stock on the open market. |
The amount of expense associated with defined contribution plans was as follows: |
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| | | Year Ended September 30, | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | | | | |
Company costs | | $ | 20,012 | | $ | 18,296 | | $ | 16,646 | | | | | | | | | | | | | | | | | | |
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Defined benefit plans |
Woodward has defined benefit plans that provide pension benefits for certain retired employees in the United States, the United Kingdom, Japan, and Switzerland. Woodward also provides other postretirement benefits to its employees including postretirement medical benefits and life insurance benefits. Postretirement medical benefits are provided to certain current and retired employees and their covered dependants and beneficiaries in the United States and the United Kingdom. Life insurance benefits are provided to certain retirees in the United States under frozen plans, which are no longer available to current employees. A September 30 measurement date is utilized to value plan assets and obligations for all of Woodward’s defined benefit pension and other postretirement benefit plans. |
In connection with the acquisition of the Duarte Business (see Note 4, Business acquisitions), Woodward did not assume the Seller’s postretirement benefit obligations under the Duarte Business’ defined benefit pension plan as they existed at the time of closing of the transaction. Under the terms of the Asset Purchase Agreement, Woodward established a new defined benefit pension plan for the Duarte Business employees who were beneficiaries of the Seller’s defined benefit pension plan (the “Duarte Pension Plan”). Subsequently, Woodward and the Duarte Union agreed that, effective as of the close of business on July 31, 2013, the Duarte Pension Plan was amended to cease all future benefit accruals to current participants in the plan. In addition, the Duarte Pension Plan was frozen to new entrants as of July 31, 2013. The Duarte Pension Plan had expenses of $208 and Woodward made $50 of contributions to the plan during of fiscal year 2013. |
In connection with the acquisition of IDS in the third quarter of fiscal year 2011 (see Note 4, Business acquisitions), Woodward assumed pension benefit obligations for the fiscal year ended September 30, 2011. |
In addition to the Duarte Pension Plan, excluding the Woodward HRT Plan, the defined benefit plans in the United States were frozen in fiscal year 2007 and no additional employees may participate in the U.S. plans and no additional service costs will be incurred. |
Pension plans |
The actuarial assumptions used in measuring the net periodic benefit cost and plan obligations of retirement pension benefits were as follows: |
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| 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | | | | | |
United States: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted-average assumptions to determine benefit obligation at September 30: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | 5.15 | % | | 4.10 | % | | 5.55 | % | | | | | | | | | | | | | | | | | | | |
Rate of compensation increase | 3.50 | | | 3.50 | | | 4.00 | | | | | | | | | | | | | | | | | | | | |
Weighted-average assumptions to determine periodic benefit costs for years ended September 30: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | 4.10 | | | 5.55 | | | 5.85 | | | | | | | | | | | | | | | | | | | | |
Rate of compensation increase | 3.50 | | | 4.00 | | | 4.00 | | | | | | | | | | | | | | | | | | | | |
Long-term rate of return on plan assets | 7.59 | | | 7.89 | | | 7.90 | | | | | | | | | | | | | | | | | | | | |
United Kingdom: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted-average assumptions to determine benefit obligation at September 30: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | 4.50 | % | | 4.60 | % | | 5.10 | % | | | | | | | | | | | | | | | | | | | |
Rate of compensation increase | 3.50 | | | 3.90 | | | 4.30 | | | | | | | | | | | | | | | | | | | | |
Weighted-average assumptions to determine periodic benefit costs for years ended September 30: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | 4.60 | | | 5.10 | | | 4.90 | | | | | | | | | | | | | | | | | | | | |
Rate of compensation increase | 3.90 | | | 4.30 | | | 4.30 | | | | | | | | | | | | | | | | | | | | |
Long-term rate of return on plan assets | 5.50 | | | 6.00 | | | 6.00 | | | | | | | | | | | | | | | | | | | | |
Japan: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted-average assumptions to determine benefit obligation at September 30: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | 1.25 | % | | 1.50 | % | | 1.50 | % | | | | | | | | | | | | | | | | | | | |
Rate of compensation increase | 2.00 | | | 2.00 | | | 2.00 | | | | | | | | | | | | | | | | | | | | |
Weighted-average assumptions to determine periodic benefit costs for years ended September 30: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | 1.50 | | | 1.50 | | | 1.25 | | | | | | | | | | | | | | | | | | | | |
Rate of compensation increase | 2.00 | | | 2.00 | | | 2.00 | | | | | | | | | | | | | | | | | | | | |
Long-term rate of return on plan assets | 2.80 | | | 2.80 | | | 3.00 | | | | | | | | | | | | | | | | | | | | |
Switzerland: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted-average assumptions to determine benefit obligation at September 30: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | 2.25 | % | | 1.75 | % | | 2.50 | % | | | | | | | | | | | | | | | | | | | |
Rate of compensation increase | 2.00 | | | 2.00 | | | 2.00 | | | | | | | | | | | | | | | | | | | | |
Weighted-average assumptions to determine periodic benefit costs for years ended September 30: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | 1.75 | | | 2.50 | | | 3.00 | | | | | | | | | | | | | | | | | | | | |
Rate of compensation increase | 2.00 | | | 2.00 | | | 2.00 | | | | | | | | | | | | | | | | | | | | |
Long-term rate of return on plan assets | 1.75 | | | 2.50 | | | 3.00 | | | | | | | | | | | | | | | | | | | | |
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The discount rate assumption is intended to reflect the rate at which the retirement benefits could be effectively settled based upon the assumed timing of the benefit payments. In the United States, Woodward used a bond portfolio matching analysis based on recently traded, non-callable bonds rated AA or better that have at least $50 million outstanding. Beginning in fiscal year 2012, Woodward refined its existing estimation process for determining the discount rates in the United Kingdom and Japan and used cash flow matching to develop a single rate equivalent for a theoretical portfolio of non-callable, AA-rated bonds for each jurisdiction. In fiscal year 2011, Woodward used the iBoxx AA-rated corporate bond index (applicable for bonds over 15 years) to determine a blended rate to use as the benchmark in the United Kingdom, and Woodward used Standard & Poors AA-rated corporate bond yields (applicable for bonds over 10 years) as the benchmark in Japan. In Switzerland, Woodward used high quality swap rates plus a credit spread of 0.20%, 0.46% and 0.36%, in fiscal years 2013, 2012 and 2011, respectively, as high quality swaps are available in Switzerland at various durations and trade at higher volumes than bonds. Woodward’s assumed rates do not differ significantly from any of these benchmarks. |
Compensation increase assumptions are based upon historical experience and anticipated future management actions. |
In determining the long-term rate of return on plan assets, Woodward assumes that the historical long-term compound growth rates of equity and fixed-income securities will predict the future returns of similar investments in the plan portfolio. Investment management and other fees paid out of the plan assets are factored into the determination of asset return assumptions. |
Net periodic benefit costs consist of the following components reflected as expense in Woodward’s Consolidated Statements of Earnings: |
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| | Year Ended September 30, |
| | United States | | Other Countries | | Total |
| | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
Service cost | | $ | 4,608 | | $ | 3,530 | | $ | 3,433 | | $ | 1,052 | | $ | 1,136 | | $ | 992 | | $ | 5,660 | | $ | 4,666 | | $ | 4,425 |
Interest cost | | | 5,569 | | | 5,816 | | | 5,646 | | | 2,113 | | | 2,280 | | | 2,284 | | | 7,682 | | | 8,096 | | | 7,930 |
Expected return on plan assets | | | -8,183 | | | -7,008 | | | -6,693 | | | -2,610 | | | -2,584 | | | -2,541 | | | -10,793 | | | -9,592 | | | -9,234 |
Amortization of: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net (gains) losses | | | 1,374 | | | 524 | | | 312 | | | 465 | | | 665 | | | 900 | | | 1,839 | | | 1,189 | | | 1,212 |
Net prior service (benefit) cost | | | 75 | | | 75 | | | 75 | | | -8 | | | -9 | | | -9 | | | 67 | | | 66 | | | 66 |
Settlement costs | | | - | | | - | | | - | | | 37 | | | 56 | | | - | | | 37 | | | 56 | | | - |
Net periodic (benefit) cost | | $ | 3,443 | | $ | 2,937 | | $ | 2,773 | | $ | 1,049 | | $ | 1,544 | | $ | 1,626 | | $ | 4,492 | | $ | 4,481 | | $ | 4,399 |
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Settlement costs were expensed in fiscal years 2013 and 2012 as a result of normal attrition among participants in the Company's defined benefit plan in Switzerland. Woodward did not have any settlement costs in fiscal year 2011. |
The following tables provide a reconciliation of the changes in the projected benefit obligation and fair value of assets for the defined benefit pension plans: |
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| | At or for the Year Ended September 30, | | | | | | | | | |
| | United States | | Other Countries | | Total | | | | | | | | | |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 | | | | | | | | | |
Changes in projected benefit obligation: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Projected benefit obligation at beginning of year | | $ | 137,639 | | $ | 106,341 | | $ | 60,837 | | $ | 57,355 | | $ | 198,476 | | $ | 163,696 | | | | | | | | | |
Service cost | | | 4,608 | | | 3,530 | | | 1,052 | | | 1,136 | | | 5,660 | | | 4,666 | | | | | | | | | |
Interest cost | | | 5,569 | | | 5,816 | | | 2,113 | | | 2,280 | | | 7,682 | | | 8,096 | | | | | | | | | |
Net actuarial (gains) losses | | | -18,165 | | | 24,689 | | | 5,550 | | | 1,636 | | | -12,615 | | | 26,325 | | | | | | | | | |
Contribution by participants | | | 12 | | | - | | | 241 | | | 249 | | | 253 | | | 249 | | | | | | | | | |
Benefits paid | | | -3,131 | | | -2,737 | | | -2,605 | | | -2,525 | | | -5,736 | | | -5,262 | | | | | | | | | |
Amounts paid by Company for Pension Protection Fund levy | | | - | | | - | | | -2 | | | -20 | | | -2 | | | -20 | | | | | | | | | |
Settlements | | | - | | | - | | | -406 | | | -330 | | | -406 | | | -330 | | | | | | | | | |
Curtailments | | | - | | | - | | | -271 | | | - | | | -271 | | | - | | | | | | | | | |
Foreign currency exchange rate changes | | | - | | | - | | | -2,618 | | | 1,056 | | | -2,618 | | | 1,056 | | | | | | | | | |
Projected benefit obligation at end of year | | $ | 126,532 | | $ | 137,639 | | $ | 63,891 | | $ | 60,837 | | $ | 190,423 | | $ | 198,476 | | | | | | | | | |
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Changes in fair value of plan assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets at beginning of year | | $ | 105,966 | | $ | 89,980 | | $ | 55,537 | | $ | 48,367 | | $ | 161,503 | | $ | 138,347 | | | | | | | | | |
Actual return on plan assets | | | 10,621 | | | 18,123 | | | 6,541 | | | 5,246 | | | 17,162 | | | 23,369 | | | | | | | | | |
Contributions by the company | | | 16,050 | | | 600 | | | 3,187 | | | 3,359 | | | 19,237 | | | 3,959 | | | | | | | | | |
Contributions by plan participants | | | 12 | | | - | | | 241 | | | 249 | | | 253 | | | 249 | | | | | | | | | |
Benefits paid | | | -3,131 | | | -2,737 | | | -2,605 | | | -2,525 | | | -5,736 | | | -5,262 | | | | | | | | | |
Settlements | | | - | | | - | | | -406 | | | -330 | | | -406 | | | -330 | | | | | | | | | |
Foreign currency exchange rate changes | | | - | | | - | | | -1,838 | | | 1,171 | | | -1,838 | | | 1,171 | | | | | | | | | |
Fair value of plan assets at end of year | | $ | 129,518 | | $ | 105,966 | | $ | 60,657 | | $ | 55,537 | | $ | 190,175 | | $ | 161,503 | | | | | | | | | |
Net over/(under)funded status at end of year | | $ | 2,986 | | $ | -31,673 | | $ | -3,234 | | $ | -5,300 | | $ | -248 | | $ | -36,973 | | | | | | | | | |
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The Company’s defined benefit pension plans in the United Kingdom, Japan and Switzerland represented $49,027, $11,824 and $3,040, respectively, of the total projected benefit obligation at September 30, 2013 and $48,381, $10,300 and $1,976, respectively, of the total fair value of plan assets at September 30, 2013. |
The following tables provide the amounts recognized in the statement of financial position and accumulated comprehensive income for the defined benefit pension plans: |
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| | At or for the Year Ended September 30, | | | | | | | | | |
| | United States | | Other Countries | | Total | | | | | | | | | |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 | | | | | | | | | |
Amounts recognized in statement of financial position | | | | | | | | | | | | | | | | | | | | | | | | | | | |
consist of: | | | | | | | | | |
Other non-current assets | | $ | 4,154 | | $ | - | | $ | - | | $ | 718 | | $ | 4,154 | | $ | 718 | | | | | | | | | |
Other non-current liabilities | | | -1,168 | | | -31,673 | | | -3,234 | | | -6,018 | | | -4,402 | | | -37,691 | | | | | | | | | |
Net over/(under)funded status at end of year | | $ | 2,986 | | $ | -31,673 | | $ | -3,234 | | $ | -5,300 | | $ | -248 | | $ | -36,973 | | | | | | | | | |
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Amounts recognized in accumulated other | | | | | | | | | | | | | | | | | | | | | | | | | | | |
comprehensive income consist of: | | | | | | | | | |
Unrecognized net prior service (benefit) cost | | $ | 1,367 | | $ | 1,442 | | $ | -4 | | $ | -14 | | $ | 1,363 | | $ | 1,428 | | | | | | | | | |
Unrecognized net (gains) losses | | | 7,841 | | | 29,819 | | | 12,371 | | | 12,198 | | | 20,212 | | | 42,017 | | | | | | | | | |
Total amounts recognized | | | 9,208 | | | 31,261 | | | 12,367 | | | 12,184 | | | 21,575 | | | 43,445 | | | | | | | | | |
Deferred taxes | | | -3,499 | | | -11,879 | | | -4,203 | | | -4,081 | | | -7,702 | | | -15,960 | | | | | | | | | |
Amounts recognized in accumulated other comprehensive income | | $ | 5,709 | | $ | 19,382 | | $ | 8,164 | | $ | 8,103 | | $ | 13,873 | | $ | 27,485 | | | | | | | | | |
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The accumulated benefit obligations of the Company’s defined benefit pension plans in the United States and Other Countries were $116,061 and $60,701, respectively, at September 30, 2013 and $123,869 and $57,494, respectively, at September 30, 2012. |
Other changes in plan assets and benefit obligations recorded in accumulated other comprehensive income were as follows: |
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| | Year Ended September 30, | | | | | | | | | |
| | United States | | Other Countries | | Total | | | | | | | | | |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 | | | | | | | | | |
Net (gain) loss | | $ | -20,604 | | $ | 13,574 | | $ | 1,349 | | $ | -1,026 | | $ | -19,255 | | $ | 12,548 | | | | | | | | | |
Settlement loss | | | - | | | - | | | -36 | | | -56 | | | -36 | | | -56 | | | | | | | | | |
Amortization of: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net gains (losses) | | | -1,374 | | | -524 | | | -464 | | | -665 | | | -1,838 | | | -1,189 | | | | | | | | | |
Prior service benefit (cost) | | | -75 | | | -75 | | | 7 | | | 9 | | | -68 | | | -66 | | | | | | | | | |
Foreign currency exchange rate changes | | | - | | | - | | | -673 | | | 167 | | | -673 | | | 167 | | | | | | | | | |
Total recorded in accumulated other comprehensive loss (income) | | $ | -22,053 | | $ | 12,975 | | $ | 183 | | $ | -1,571 | | $ | -21,870 | | $ | 11,404 | | | | | | | | | |
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The amounts expected to be amortized from Accumulated Other Comprehensive Income and reported as a component of net periodic benefit cost during fiscal year 2014 are as follows: |
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| | United States | | Other Countries | | Total | | | | | | | | | | | | | | | | | | |
Prior service (benefit) cost | | $ | 75 | | $ | -4 | | $ | 71 | | | | | | | | | | | | | | | | | | |
Net actuarial (gains) losses | | | 330 | | | 642 | | | 972 | | | | | | | | | | | | | | | | | | |
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Pension benefit payments are made from the assets of the pension plans. Using foreign exchange rates as of September 30, 2013 and expected future service assumptions, it is anticipated that the future benefit payments will be as follows: |
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Year Ending September 30, | | United States | | Other Countries | | Total | | | | | | | | | | | | | | | | | | |
2014 | | $ | 4,137 | | $ | 2,434 | | $ | 6,571 | | | | | | | | | | | | | | | | | | |
2015 | | | 4,770 | | | 2,504 | | | 7,274 | | | | | | | | | | | | | | | | | | |
2016 | | | 5,285 | | | 2,574 | | | 7,859 | | | | | | | | | | | | | | | | | | |
2017 | | | 5,929 | | | 2,786 | | | 8,715 | | | | | | | | | | | | | | | | | | |
2018 | | | 6,572 | | | 2,816 | | | 9,388 | | | | | | | | | | | | | | | | | | |
2019 – 2023 | | | 43,320 | | | 16,232 | | | 59,552 | | | | | | | | | | | | | | | | | | |
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Woodward expects its pension plan contributions in fiscal year 2014 will be $500 in the United States, $1,867 in the United Kingdom, $1,108 in Japan and $187 in Switzerland. |
Pension plan assets |
The overall investment objective of the pension plan assets is to earn a rate of return over time which, when combined with Company contributions, satisfies the benefit obligations of the pension plans and maintains sufficient liquidity to pay benefits. |
As the timing and nature of the plan obligations varies for each Company sponsored pension plan, investment strategies have been individually designed for each pension plan with a common focus on maintaining diversified investment portfolios that provide for long-term growth while minimizing the risk to principal associated with short-term market behavior. The strategy for each of the plans balances the requirements to generate returns, using investments expected to produce higher returns, such as equity securities, with the need to control risk within the pension plans using less volatile investment assets, such as debt securities. A strategy of more equity-oriented allocation is adopted for those plans which have a longer-term investment plan based on the timing of the associated benefit obligations. |
A pension oversight committee is assigned by the Company to each pension plan, excluding the pension plan in Switzerland which is a statutory plan. Among other responsibilities, each committee is responsible for all asset class allocation decisions. Asset class allocations, which are reviewed by the respective pension committee on at least an annual basis, are designed to meet or exceed certain market benchmarks which align with each plan’s investment objectives. In evaluating the asset allocation choices, consideration is given to the proper long-term level of risk for each plan, particularly with respect to the long-term nature of each plan’s liabilities, the impact of asset allocation on investment results and the corresponding impact on the volatility and magnitude of plan contributions and expense and the impact certain actuarial techniques may have on the plans’ recognition of investment experience. From time to time, the plans may move outside the prescribed asset class allocation in order to meet significant liabilities with respect to one or more individuals approaching retirement. |
Risks associated with the plan assets include interest rate fluctuation risk, market fluctuation risk, risk of default by debt issuers and liquidity risk. To manage these risks, the assets are managed by established, professional investment firms and performance is evaluated regularly by the Company’s pension oversight committee against specific benchmarks and each plan’s investment objectives. Liability management and asset class diversification are central to the Company’s risk management approach and overall investment strategy. |
The assets of the U.S. plans are invested in actively managed mutual funds. The assets of the plan in Japan and the plan in the United Kingdom are invested in actively managed pooled investment funds. Each individual mutual fund or pooled investment fund has been selected based on the investment strategy of the related plan, which mirrors a specific asset class within the associated target allocation. The assets of the plan in Switzerland are insured through an insurance contract that guarantees a federally mandated annual rate of return. Pension plan assets at September 30, 2013 and 2012 do not include any direct investment in Woodward’s common stock. |
The asset allocations are monitored and rebalanced regularly by investment managers assigned to the individual pension plans. The actual allocations of pension plan assets and target allocation ranges by asset class, are as follows: |
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| | At September 30, | | | | | | | | | | | | | | | |
| | 2013 | | 2012 | | | | | | | | | | | | | | | |
| | Percentage of Plan Assets | | Target Allocation Ranges | | Percentage of Plan Assets | | Target Allocation Ranges | | | | | | | | | | | | | | | |
United States: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Asset Class | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Securities | | 61.7% | | 40.70% | - | 80.70% | | 60.9% | | 39.80% | - | 79.80% | | | | | | | | | | | | | | | |
Debt Securities | | 38.1% | | 29.30% | - | 49.30% | | 38.9% | | 30.20% | - | 50.20% | | | | | | | | | | | | | | | |
Other | | 0.2% | | 0.00% | | 0.2% | | 0.00% | | | | | | | | | | | | | | | |
| | 100.0% | | | | | | 100.0% | | | | | | | | | | | | | | | | | | | |
United Kingdom: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Asset Class | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Securities | | 48.4% | | 40.00% | - | 70.00% | | 39.4% | | 30.00% | - | 50.00% | | | | | | | | | | | | | | | |
Debt Securities | | 51.5% | | 35.00% | - | 65.00% | | 60.6% | | 45.00% | - | 75.00% | | | | | | | | | | | | | | | |
Other | | 0.1% | | 0.00% | | 0.0% | | 0.00% | | | | | | | | | | | | | | | |
| | 100.0% | | | | | | 100.0% | | | | | | | | | | | | | | | | | | | |
Japan: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Asset Class | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Securities | | 41.3% | | 36.00% | - | 44.00% | | 40.5% | | 36.00% | - | 44.00% | | | | | | | | | | | | | | | |
Debt Securities | | 57.8% | | 55.00% | - | 63.00% | | 58.6% | | 55.00% | - | 63.00% | | | | | | | | | | | | | | | |
Other | | 0.9% | | 0.00% | - | 2.00% | | 0.9% | | 0.00% | - | 2.00% | | | | | | | | | | | | | | | |
| | 100.0% | | | | | | 100.0% | | | | | | | | | | | | | | | | | | | |
Switzerland: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Asset Class | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Securities | | 0.0% | | 0.00% | | 0.0% | | 0.00% | | | | | | | | | | | | | | | |
Debt Securities | | 0.0% | | 0.00% | | 0.0% | | 0.00% | | | | | | | | | | | | | | | |
Other | | 100.0% | | 100.00% | | 100.0% | | 100.00% | | | | | | | | | | | | | | | |
| | 100.0% | | | | | | 100.0% | | | | | | | | | | | | | | | | | | | |
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Actual allocations to each asset class can vary from target allocations due to periodic market value fluctuations, investment strategy changes, and the timing of benefit payments and contributions. |
The following table presents Woodward’s pension plan assets using the fair value hierarchy established by U.S. GAAP as of September 30, 2013. |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At September 30, 2013 | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | | | | | | | | |
| | United States | | Other Countries | | United States | | Other Countries | | United States | | Other Countries | | Total | | | | | | |
Asset Category: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 273 | | $ | 149 | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 422 | | | | | | |
Mutual funds: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. corporate bond fund | | | 49,328 | | | - | | | - | | | - | | | - | | | - | | | 49,328 | | | | | | |
U.S. equity large cap fund | | | 44,140 | | | - | | | - | | | - | | | - | | | - | | | 44,140 | | | | | | |
International equity large cap growth fund | | | 35,777 | | | - | | | - | | | - | | | - | | | - | | | 35,777 | | | | | | |
Pooled funds: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Japanese equity securities | | | - | | | - | | | - | | | 2,269 | | | - | | | - | | | 2,269 | | | | | | |
International equity securities | | | - | | | - | | | - | | | 1,989 | | | - | | | - | | | 1,989 | | | | | | |
Japanese fixed income securities | | | - | | | - | | | - | | | 4,414 | | | - | | | - | | | 4,414 | | | | | | |
International fixed income securities | | | - | | | - | | | - | | | 1,535 | | | - | | | - | | | 1,535 | | | | | | |
Global target return equity/bond fund | | | | | | | | | | | | 11,324 | | | | | | | | | 11,324 | | | | | | |
Index linked U.K. equity fund | | | - | | | - | | | - | | | 6,060 | | | - | | | - | | | 6,060 | | | | | | |
Index linked international equity fund | | | - | | | - | | | - | | | 6,047 | | | - | | | - | | | 6,047 | | | | | | |
Index linked U.K. corporate bonds fund | | | - | | | - | | | - | | | 15,810 | | | - | | | - | | | 15,810 | | | | | | |
Index linked U.K. government securities fund | | | - | | | - | | | - | | | 4,176 | | | - | | | - | | | 4,176 | | | | | | |
Index linked U.K. long-term government securities fund | | | - | | | - | | | - | | | 4,908 | | | - | | | - | | | 4,908 | | | | | | |
Insurance backed assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Insurance backed assets | | | - | | | - | | | - | | | - | | | - | | | 1,976 | | | 1,976 | | | | | | |
Total assets | | $ | 129,518 | | $ | 149 | | $ | - | | $ | 58,532 | | $ | - | | $ | 1,976 | | $ | 190,175 | | | | | | |
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Cash and cash equivalents: Cash and cash equivalents held by the Company's pension plans are held on deposit with creditworthy financial institutions. The fair value of the cash and cash equivalents are based on the quoted market price of the respective currency in which the cash is maintained. |
Pension assets invested in mutual funds: The assets of the Company’s U.S. pension plans are invested in various mutual funds which invest in both equity and debt securities. The fair value of the mutual funds is determined based on the quoted market price of each fund. |
Pension assets invested in pooled funds: The assets of the Company’s Japan and United Kingdom pension plans are invested in pooled investment funds, which include both equity and debt securities. The assets of the United Kingdom pension plan are invested in index-linked pooled funds which aim to replicate the movements of an underlying market index to which the fund is linked. Fair value of the pooled funds is based on the net asset value of shares held by the plan as reported by the fund sponsors. All pooled funds held by plans outside of the United States are considered to be invested in international equity and debt securities. Although the underlying securities may be largely domestic to the plan holding the investment assets, the underlying assets are considered international from the perspective of the Company. |
Pension assets invested in insurance backed assets: A reputable Swiss insurer insures the assets of the Company’s Swiss pension plan. The insurance contract guarantees a federally mandated annual rate of return. The value of the plan assets is effectively the value of the insurance contract. The performance of the underlying assets held by the insurance company has no direct impact on the surrender value of the insurance contract. The insurance backed assets are not traded and therefore have no active market. |
Changes in Level 3 pension plan assets consisted of the following: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 30-Sep-13 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Level 3 Assets | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of Level 3 plan assets at beginning of year | $ | 1,862 | | | | | | | | | | | | | | | | | | | | | | | | | |
Actual return on plan assets | | 25 | | | | | | | | | | | | | | | | | | | | | | | | | |
Contributions by the Company | | 205 | | | | | | | | | | | | | | | | | | | | | | | | | |
Contributions by plan participants | | 214 | | | | | | | | | | | | | | | | | | | | | | | | | |
Settlements | | -406 | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency exchange rate changes | | 76 | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of Level 3 plan assets at end of year | $ | 1,976 | | | | | | | | | | | | | | | | | | | | | | | | | |
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There were no transfers into or out of Level 3 assets in fiscal year 2013. |
Other postretirement benefit plans |
Woodward provides other postretirement benefits to its employees including postretirement medical benefits and life insurance benefits. Postretirement medical benefits are provided to certain current and retired employees and their covered dependants and beneficiaries in the United States and the United Kingdom. Benefits include the option to elect company provided medical insurance coverage to age 65 and a Medicare supplemental plan after age 65. Life insurance benefits are provided to certain retirees in the United States under frozen plans which are no longer available to current employees. A September 30 measurement date is utilized to value plan assets and obligations for Woodward’s other postretirement benefit plans. |
The postretirement medical benefit plans, other than the plan assumed in the acquisition of HRT in fiscal year 2009, were frozen in fiscal year 2006 and no additional employees may participate in the plans. Generally, employees who had attained age 55 and had rendered 10 or more years of service before the plans were frozen were eligible for these postretirement medical benefits. |
Certain participating retirees are required to contribute to the plans in order to maintain coverage. The plans provide postretirement medical benefits for approximately 900 retired employees and their covered dependants and beneficiaries and may provide future benefits to approximately 60 active employees and their covered dependants and beneficiaries, upon retirement, if the employees elect to participate. As the result of a plan amendment in fiscal year 2009, all the postretirement medical plans are fully insured for retirees who have attained age 65. |
The actuarial assumptions used in measuring the net periodic benefit cost and plan obligations of postretirement benefits were as follows: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | | | | | |
Weighted-average discount rate used to determine benefit obligation at September 30 | 5.14 | % | | 4.11 | % | | 5.54 | % | | | | | | | | | | | | | | | | | | | |
Weighted-average discount rate used to determine net periodic benefit cost for years ended September 30 | 4.11 | | | 5.54 | | | 5.84 | | | | | | | | | | | | | | | | | | | | |
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The discount rate assumption is intended to reflect the rate at which the postretirement benefits could be effectively settled based upon the assumed timing of the benefit payments. In the United States, Woodward used a bond portfolio matching analysis based on recently traded, non-callable bonds rated AA or better that have at least $50 million outstanding. Beginning in fiscal year 2012, Woodward refined its existing estimation process for determining the discount rates in the United Kingdom and used cash flow matching to develop a single rate equivalent for a theoretical portfolio of non-callable, AA-rated bonds. In fiscal year 2011, Woodward used the iBoxx AA-rated corporate bond index (applicable for bonds over 15 years) to determine a blended rate to use as the benchmark in the United Kingdom. Woodward’s assumed rate did not differ significantly from this benchmark. |
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Assumed healthcare cost trend rates at September 30, were as follows: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 2013 | | 2012 | | | | | | | | | | | | | | | | | | | |
Health care cost trend rate assumed for next year | | | | 7.00 | % | | 7.50 | % | | | | | | | | | | | | | | | | | | | |
Rate to which the cost trend rate is assumed to decline | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(the ultimate trend rate) | | | | 5.00 | % | | 5.00 | % | | | | | | | | | | | | | | | | | | | |
Year that the rate reaches the ultimate trend rate | | | | 2022 | | | 2018 | | | | | | | | | | | | | | | | | | | | |
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Healthcare costs have generally trended upward in recent years, sometimes by amounts greater than 5%. Assumed health care cost trend rates have a significant effect on the amounts reported for postretirement medical plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 1% increase | | 1% decrease | | | | | | | | | | | | | | | | | | | | | |
Effect on projected fiscal year 2014 service and interest cost | | $ | 141 | | $ | -124 | | | | | | | | | | | | | | | | | | | | | |
Effect on accumulated postretirement benefit obligation at September 30, 2013 | | | 2,620 | | | -2,303 | | | | | | | | | | | | | | | | | | | | | |
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Net periodic benefit costs consist of the following components reflected as expense in Woodward’s Consolidated Statements of Earnings: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 71 | | $ | 70 | | $ | 92 | | | | | | | | | | | | | | | | | | |
Interest cost | | | 1,244 | | | 1,798 | | | 1,974 | | | | | | | | | | | | | | | | | | |
Amortization of: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net (gains) losses | | | -68 | | | 91 | | | 128 | | | | | | | | | | | | | | | | | | |
Net prior service (benefit) cost | | | -158 | | | -550 | | | -871 | | | | | | | | | | | | | | | | | | |
Net periodic (benefit) cost | | $ | 1,089 | | $ | 1,409 | | $ | 1,323 | | | | | | | | | | | | | | | | | | |
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The following table provides a reconciliation of the changes in the accumulated postretirement benefit obligation and fair value of assets for the postretirement benefits for the fiscal years ended September 30: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, | | | | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2012 | | | | | | | | | | | | | | | | | | | | | |
Changes in accumulated postretirement benefit obligation: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accumulated postretirement benefit obligation at beginning of year | | $ | 37,550 | | $ | 32,923 | | | | | | | | | | | | | | | | | | | | | |
Service cost | | | 71 | | | 70 | | | | | | | | | | | | | | | | | | | | | |
Interest cost | | | 1,244 | | | 1,798 | | | | | | | | | | | | | | | | | | | | | |
Premiums paid by plan participants | | | 1,837 | | | 2,176 | | | | | | | | | | | | | | | | | | | | | |
Net actuarial (gains) losses | | | -7,501 | | | 5,412 | | | | | | | | | | | | | | | | | | | | | |
Benefits paid | | | -4,206 | | | -4,846 | | | | | | | | | | | | | | | | | | | | | |
Foreign currency exchange rate changes | | | 1 | | | 17 | | | | | | | | | | | | | | | | | | | | | |
Accumulated postretirement benefit obligation at end of year | | $ | 28,996 | | $ | 37,550 | | | | | | | | | | | | | | | | | | | | | |
Changes in fair value of plan assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets at beginning of year | | $ | - | | $ | - | | | | | | | | | | | | | | | | | | | | | |
Contributions by the company | | | 2,369 | | | 2,670 | | | | | | | | | | | | | | | | | | | | | |
Premiums paid by plan participants | | | 1,837 | | | 2,176 | | | | | | | | | | | | | | | | | | | | | |
Benefits paid | | | -4,206 | | | -4,846 | | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets at end of year | | $ | - | | $ | - | | | | | | | | | | | | | | | | | | | | | |
Funded status at end of year | | $ | -28,996 | | $ | -37,550 | | | | | | | | | | | | | | | | | | | | | |
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The Company’s postretirement medical plan in the United Kingdom represents $543 of the total benefit obligation at September 30, 2013. The Company paid $18 in medical benefits to participants of the United Kingdom postretirement medical plan in fiscal year 2013. |
The following tables provide the amounts recognized in the statement of financial position and accumulated comprehensive loss (income) for the postretirement plans: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, | | | | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2012 | | | | | | | | | | | | | | | | | | | | | |
Amounts recognized in statement of financial position consist of: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accrued liabilities | | $ | -2,231 | | $ | -2,639 | | | | | | | | | | | | | | | | | | | | | |
Other non-current liabilities | | | -26,765 | | | -34,911 | | | | | | | | | | | | | | | | | | | | | |
Funded status at end of year | | $ | -28,996 | | $ | -37,550 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts recognized in accumulated other comprehensive loss (income) consist of: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unrecognized net prior service (benefit) cost | | $ | -794 | | $ | -951 | | | | | | | | | | | | | | | | | | | | | |
Unrecognized net (gains) losses | | | -4,379 | | | 3,053 | | | | | | | | | | | | | | | | | | | | | |
Total amounts recognized | | | -5,173 | | | 2,102 | | | | | | | | | | | | | | | | | | | | | |
Deferred taxes | | | 1,970 | | | -794 | | | | | | | | | | | | | | | | | | | | | |
Amounts recognized in accumulated other comprehensive loss (income) | | $ | -3,203 | | $ | 1,308 | | | | | | | | | | | | | | | | | | | | | |
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Woodward pays plan benefits from its general funds; therefore, there are no segregated plan assets as of September 30, 2013 or September 30, 2012. |
The accumulated benefit obligations of the Company’s postretirement plans were $28,996 and $37,550 at September 30, 2013 and 2012, respectively. |
Other changes in plan assets and benefit obligations recorded in accumulated other comprehensive income were as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, | | | | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2012 | | | | | | | | | | | | | | | | | | | | | |
Net (gain) loss | | $ | -7,501 | | $ | 5,412 | | | | | | | | | | | | | | | | | | | | | |
Amortization of: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net gains (losses) | | | 68 | | | -91 | | | | | | | | | | | | | | | | | | | | | |
Prior service benefit (cost) | | | 158 | | | 550 | | | | | | | | | | | | | | | | | | | | | |
Foreign currency exchange rate changes | | | - | | | 4 | | | | | | | | | | | | | | | | | | | | | |
Total recorded in accumulated other comprehensive loss (income) | | $ | -7,275 | | $ | 5,875 | | | | | | | | | | | | | | | | | | | | | |
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Using foreign currency exchange rates as of September 30, 2013 and expected future service, it is anticipated that the future Company contributions to pay benefits, excluding participate contributions, will be as follows: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ending September 30, | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2014 | | $ | 3,954 | | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | | 4,028 | | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | | 4,026 | | | | | | | | | | | | | | | | | | | | | | | | |
2017 | | | 3,956 | | | | | | | | | | | | | | | | | | | | | | | | |
2018 | | | 3,886 | | | | | | | | | | | | | | | | | | | | | | | | |
2019 – 2023 | | | 18,462 | | | | | | | | | | | | | | | | | | | | | | | | |
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Multiemployer defined benefit plans |
Woodward operates two multiemployer defined benefit plans for certain employees in the Netherlands and Japan. The amounts of contributions associated with the multiemployer plans were as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended September 30, | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | | | | |
Company contributions | | $ | 797 | | $ | 792 | | $ | 757 | | | | | | | | | | | | | | | | | | |
The plan in the Netherlands is a quasi-mandatory plan that covers all of our employees in the Netherlands and is part of the Dutch national pension system. |
The Company may elect to withdraw from its multiemployer plan in Japan, although it has no plans to do so. If the Company elects to withdraw from the Japanese plan, it would incur a one-time contribution cost of between $1,500 and $2,000. Changes in Japanese regulations could trigger reorganization of or abolishment of the Japanese multiemployer plan, which could impact future funding levels. |
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