Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2013 |
Summary of Significant Accounting Policies | ' |
Use of Estimates | ' |
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Use of Estimates |
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The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Actual results could differ from these estimates, and changes in these estimates are recorded when known. Significant management judgment is required in determining the accounting for, among other things, pension and postretirement benefits, retained insurable risks, reserves for sales discounts and allowances, purchase price allocations, useful lives for depreciation and amortization, future cash flows associated with impairment testing for tangible and intangible long-lived assets, income taxes, contingencies, inventory obsolescence and market reserves and the valuation of stock-based compensation. |
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Revenue Recognition | ' |
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Revenue Recognition |
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The Company recognizes sales revenue when all of the following have occurred: (1) delivery has occurred, (2) persuasive evidence of an agreement exists, (3) pricing is fixed or determinable, and (4) collection is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership. The timing of revenue recognition is largely dependent on shipping terms. Sales are reported net of allowable discounts and estimated returns. Reserves for cash discounts, trade allowances and sales returns are estimated using historical experience. |
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The Company's businesses manage seasonal peaks in inventory demand by providing certain customers with finished goods inventory on consignment. The Company accounts for such inventory as finished goods until title to the inventory is transferred and the customer assumes the risks and rewards of ownership at which time the Company recognizes sales revenue. |
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Earnings per Share ("EPS") | ' |
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Earnings per Share ("EPS") |
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The Company computes basic earnings per share ("EPS") in accordance with Accounting Standards Codification ("ASC") Topic 260, Earnings Per Share ("ASC Topic 260"). In accordance with ASC Topic 260, share-based awards with non-forfeitable dividends are classified as participating securities. In calculating basic earnings per share, this method requires net income to be reduced by the amount of dividends declared in the current period for each participating security and by the contractual amount of dividends or other participation payments that are paid or accumulated for the current period. Undistributed earnings for the period are allocated to participating securities based on the contractual participation rights of the security to share in those current earnings assuming all earnings for the period are distributed. Holders of restricted stock and restricted stock units ("RSUs") have contractual participation rights that are equivalent to those of common stockholders. Therefore, the Company allocates undistributed earnings to restricted stock, RSUs and common stockholders based on their respective ownership percentage, as of the end of the period. |
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ASC Topic 260 also requires companies with participating securities to calculate diluted earnings per share using the "Two Class" method. The "Two Class" method requires first calculating diluted earnings per share using a denominator that includes the weighted average share equivalents from the assumed conversion of dilutive securities. Diluted earnings per share is then calculated using net income reduced by the amount of distributed and undistributed earnings allocated to participating securities calculated using the "Treasury Stock" method and a denominator that includes the weighted average share equivalents from the assumed conversion of dilutive securities excluding participating securities. Companies are required to report the lowest diluted earnings per share amount under the two calculations subject to the anti-dilution provisions of ASC Topic 260. |
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Diluted EPS was calculated to give effect to all potentially dilutive non-participating common share equivalents using the "Treasury Stock" method. Outstanding stock options, stock appreciation rights ("SARs") and target awards of RSUs with performance conditions ("Performance Units") represent the only potentially dilutive non-participating security effects on the Company's weighted-average shares. For the years ended December 31, 2013, 2012 and 2011, approximately 450,000, 1,015,000 and 1,365,000 potentially dilutive options, respectively, were excluded from the computation of dilutive common shares because the exercise price of such options exceeded the average market price of the Company's common stock for the period the options were outstanding. |
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The following table presents the computation of basic and diluted shares of common stock used in the calculation of EPS (amounts in millions, except share and per share amounts): |
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Earnings per basic common share |
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| | Year Ended December 31, | | | | | | | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | | |
Income from continuing operations | | $ | 49.4 | | $ | 39.9 | | $ | 29.3 | | | | | | | | | | | | | | | | |
Distributed and undistributed amounts allocated to participating securities | | | (0.8 | ) | | (1.2 | ) | | (0.7 | ) | | | | | | | | | | | | | | | |
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Income from continuing operations available to common stockholders | | | 48.6 | | | 38.7 | | | 28.6 | | | | | | | | | | | | | | | | |
Income (loss) from discontinued operations, net of income taxes | | | 2.6 | | | 4.4 | | | (0.2 | ) | | | | | | | | | | | | | | | |
Distributed and undistributed amounts allocated to participating securities | | | — | | | (0.1 | ) | | — | | | | | | | | | | | | | | | | |
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Net income available to common stockholders | | $ | 51.2 | | $ | 43 | | $ | 28.4 | | | | | | | | | | | | | | | | |
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Weighted-average basic shares outstanding | | | 16,072 | | | 15,752 | | | 14,974 | | | | | | | | | | | | | | | | |
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Basic earnings (loss) per share | | | | | | | | | | | | | | | | | | | | | | | | | |
Continuing operations | | $ | 3.02 | | $ | 2.46 | | $ | 1.91 | | | | | | | | | | | | | | | | |
Discontinued operations | | | 0.16 | | | 0.27 | | | (0.01 | ) | | | | | | | | | | | | | | | |
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| | $ | 3.18 | | $ | 2.73 | | $ | 1.9 | | | | | | | | | | | | | | | | |
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Earnings per diluted common share |
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| | Year Ended December 31, | | | | | | | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | | |
Income from continuing operations | | $ | 49.4 | | $ | 39.9 | | $ | 29.3 | | | | | | | | | | | | | | | | |
Distributed and undistributed amounts allocated to participating securities | | | (0.8 | ) | | (1.1 | ) | | (0.8 | ) | | | | | | | | | | | | | | | |
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Income from continuing operations available to common stockholders | | | 48.6 | | | 38.8 | | | 28.5 | | | | | | | | | | | | | | | | |
Income (loss) from discontinued operations, net of income taxes | | | 2.6 | | | 4.4 | | | (0.2 | ) | | | | | | | | | | | | | | | |
Distributed and undistributed amounts allocated to participating securities | | | — | | | (0.1 | ) | | — | | | | | | | | | | | | | | | | |
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Net income available to common stockholders | | $ | 51.2 | | $ | 43.1 | | $ | 28.3 | | | | | | | | | | | | | | | | |
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Weighted-average basic shares outstanding | | | 16,072 | | | 15,752 | | | 14,974 | | | | | | | | | | | | | | | | |
Add: Assumed incremental shares under stock-based compensation plans | | | 331 | | | 320 | | | 675 | | | | | | | | | | | | | | | | |
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Weighted average diluted shares | | | 16,403 | | | 16,072 | | | 15,649 | | | | | | | | | | | | | | | | |
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Earnings Per Common Share | | | | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings (loss) per share | | | | | | | | | | | | | | | | | | | | | | | | | |
Continuing operations | | $ | 2.96 | | $ | 2.41 | | $ | 1.82 | | | | | | | | | | | | | | | | |
Discontinued operations | | | 0.16 | | | 0.27 | | | (0.01 | ) | | | | | | | | | | | | | | | |
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| | $ | 3.12 | | $ | 2.68 | | $ | 1.81 | | | | | | | | | | | | | | | | |
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Cash and Cash Equivalents | ' |
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Cash and Cash Equivalents |
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Cash and cash equivalents include all cash balances and highly liquid investments with an initial maturity of three months or less. The Company places its temporary cash investments with high credit quality financial institutions. As of December 31, 2013 and 2012, $0.5 million and $0.7 million, respectively, of the Company's cash and cash equivalent is restricted to the payment of postretirement benefits for certain former Fox River executives. |
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Inventories | ' |
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Inventories |
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U.S. inventories are valued at the lower of cost, using the Last-In, First-Out (LIFO) method for financial reporting purposes, or market. German inventories are valued at the lower of cost, using a weighted-average cost method, or market. Cost includes labor, materials and production overhead. |
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Foreign Currency | ' |
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Foreign Currency |
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Balance sheet accounts of Neenah Germany and Neenah Canada are translated from Euros and Canadian dollars, respectively, into U.S. dollars at period-end exchange rates, and income and expense accounts are translated at average exchange rates during the period. Translation gains or losses related to net assets located in Germany and Canada are recorded as unrealized foreign currency translation adjustments within accumulated other comprehensive income (loss) in stockholders' equity. Gains and losses resulting from foreign currency transactions (transactions denominated in a currency other than the entity's functional currency) are included in other (income) expense — net in the consolidated statements of operations. |
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Property and Depreciation | ' |
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Property and Depreciation |
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Property, plant and equipment are stated at cost, less accumulated depreciation. Certain costs of software developed or obtained for internal use are capitalized. When property, plant and equipment is sold or retired, the costs and the related accumulated depreciation are removed from the accounts, and the gains or losses are recorded in other (income) expense — net. For financial reporting purposes, depreciation is principally computed on the straight-line method over estimated useful asset lives. The weighted average remaining useful lives for buildings, land improvements and machinery and equipment are approximately 18 years, 13 years and 10 years, respectively. For income tax purposes, accelerated methods of depreciation are used. |
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Estimated useful lives are periodically reviewed and changed when warranted. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their cost may not be recoverable. An impairment loss would be recognized when estimated undiscounted future pre-tax cash flows from the use of an asset are less than its carrying amount. Measurement of an impairment loss is based on the excess of the carrying amount of the asset over its fair value. Fair value is generally measured using discounted cash flows. |
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The costs of major rebuilds and replacements of plant and equipment are capitalized, and the cost of maintenance performed on manufacturing facilities, composed of labor, materials and other incremental costs, is charged to operations as incurred. Start-up costs for new or expanded facilities, including costs related to trial production, are expensed as incurred. |
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The Company accounts for asset retirement obligations ("AROs") in accordance with ASC Topic 410, Asset Retirements and Environmental Obligations, which requires companies to make estimates regarding future events in order to record a liability for AROs in the period in which a legal obligation is created. Such liabilities are recorded at fair value, with an offsetting increase to the carrying value of the related long-lived asset. As of December 31, 2013, the Company is unable to estimate its AROs for environmental liabilities at its manufacturing facilities. |
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Goodwill and Other Intangible Assets | ' |
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Goodwill and Other Intangible Assets |
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The Company follows the guidance of ASC Topic 805, Business Combinations ("ASC Topic 805"), in recording goodwill arising from a business combination as the excess of purchase price and related costs over the fair value of identifiable assets acquired and liabilities assumed. |
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Under ASC Topic 350, Intangibles — Goodwill and Other ("ASC Topic 350"), goodwill is subject to impairment testing at least annually. ASC Topic 350 provides an entity with the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. If the two-step impairment test is necessary, a fair-value-based test is applied at the reporting unit level, which is generally one level below the operating segment level. The test compares the fair value of an entity's reporting units to the carrying value of those reporting units. This test requires various judgments and estimates. The Company estimates the fair value of the reporting unit using a market approach in combination with a discounted operating cash flow approach. Impairment of goodwill is measured as the excess of the carrying amount of goodwill over the fair values of recognized and unrecognized assets and liabilities of the reporting unit. An adjustment to goodwill will be recorded for any goodwill that is determined to be impaired. The Company tests goodwill for impairment at least annually on November 30 in conjunction with preparation of its annual business plan, or more frequently if events or circumstances indicate it might be impaired. |
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The Company tested goodwill for impairment as of November 30, 2013. In the Company's testing of goodwill for impairment, it estimated the fair value of the reporting unit using a market approach in combination with a discounted operating cash flow approach. Significant assumptions used in developing the discounted operating cash flow approach were revenue growth rates and pricing, costs for manufacturing inputs, levels of capital investment and estimated cost of capital for high, medium and low growth environments. As of November 30, 2013 no impairment was indicated. |
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Intangible assets with finite useful lives are amortized on a straight-line basis over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with ASC Topic 360, Property, Plant, and Equipment. Intangible assets consist primarily of customer relationships, trade names and acquired intellectual property. Such intangible assets are amortized using the straight-line method over estimated useful lives of between 10 and 15 years. Certain trade names are estimated to have indefinite useful lives and as such are not amortized. Intangible assets with indefinite lives are reviewed for impairment at least annually. See Note 4, "Goodwill and Other Intangible Assets." |
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Research and Development Expense | ' |
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Research and Development Expense |
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Research and development costs are charged to expense as incurred and are recorded in "Selling, general and administrative expenses" on the consolidated statement of operations. See Note 14, "Supplemental Data — Supplemental Statement of Operations Data." |
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Fair Value Measurements | ' |
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Fair Value Measurements |
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The Company measures the fair value of pension plan assets in accordance with ASC Topic 820, Fair Value Measurements and Disclosures ("ASC Topic 820") which establishes a framework for measuring fair value. ASC Topic 820 provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC Topic 820 are described below: |
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Level 1 — Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the plan has the ability to access. |
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Level 2 — Inputs to the valuation methodology include: |
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Quoted prices for similar assets or liabilities in active markets; |
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Quoted prices for identical or similar assets or liabilities in inactive markets; |
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Inputs other than quoted prices that are observable for the asset or liability; |
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Inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
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If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. |
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Level 3 — Inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
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The asset's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques attempt to maximize the use of observable inputs and minimize the use of unobservable inputs. |
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The following table sets forth by level, within the fair value hierarchy, the fair value of the Company's pension plan assets: |
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| | Assets at Fair Value at December 31, | |
| | Level 1 | | Level 2 (a) | | Level 3 | | Total | |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 | |
Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | |
Domestic | | $ | — | | $ | — | | $ | 49.4 | | $ | 53.2 | | $ | — | | $ | — | | $ | 49.4 | | $ | 53.2 | |
International | | | — | | | — | | | 42.4 | | | 43.2 | | | — | | | — | | | 42.4 | | | 43.2 | |
Fixed income | | | — | | | — | | | 168.4 | | | 141.9 | | | — | | | — | | | 168.4 | | | 141.9 | |
Cash and equivalents | | | 1.1 | | | 1 | | | — | | | — | | | — | | | — | | | 1.1 | | | 1 | |
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Total assets at fair value | | $ | 1.1 | | $ | 1 | | $ | 260.2 | | $ | 238.3 | | $ | — | | $ | — | | $ | 261.3 | | $ | 239.3 | |
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Pension plan assets are invested in a master collective trust (the "Master Trust") which holds mutual funds and common stock. Shares of mutual funds and common stock owned by the Master Trust are valued at quoted market prices. Pension plan assets invested in the Master Trust are presented at fair value, which has been determined based on the fair value of the underlying investments of the Master Trust. |
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Fair Value of Financial Instruments | ' |
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Fair Value of Financial Instruments |
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The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short maturities. The fair value of short and long-term debt is estimated using current market prices for the Company's publicly traded debt or rates currently available to the Company for debt of the same remaining maturities. The following table presents the carrying value and the fair value of the Company's debt at December 31, 2013 and 2012. |
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| | December 31, 2013 | | December 31, 2012 | | | | | | | | | | | | | |
| | Carrying | | Fair Value | | Carrying | | Fair Value (a) | | | | | | | | | | | | | |
Value | Value | | | | | | | | | | | | |
2021 Senior Notes (5.25% fixed rate) | | $ | 175 | | $ | 163.7 | | $ | — | | $ | — | | | | | | | | | | | | | |
2014 Senior Notes (7.375% fixed rate) | | | — | | | — | | | 90 | | | 90 | | | | | | | | | | | | | |
Revolving bank credit facility (variable rates) | | | — | | | — | | | 55.7 | | | 55.7 | | | | | | | | | | | | | |
Term Loan (variable rates) | | | — | | | — | | | 30 | | | 30 | | | | | | | | | | | | | |
Neenah Germany revolving line of credit (variable rates) | | | 19.3 | | | 19.3 | | | — | | | — | | | | | | | | | | | | | |
Neenah Germany project financing (3.8% fixed rate) | | | 5.2 | | | 5.1 | | | 6.6 | | | 6.9 | | | | | | | | | | | | | |
Second German Loan Agreement (2.5% fixed rate) | | | 12.4 | | | 10.9 | | | — | | | — | | | | | | | | | | | | | |
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Total Debt | | $ | 211.9 | | $ | 199 | | $ | 182.3 | | $ | 182.6 | | | | | | | | | | | | | |
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(a) |
Fair value for the 2014 Senior Notes was estimated from Level 1 measurements, the fair value for all other debt instruments was estimated from Level 2 measurements. |
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The Company's investments in marketable securities are accounted for as "available-for-sale securities" in accordance with ASC Topic 320, Investments — Debt and Equity Securities ("ASC Topic 320"). Pursuant to ASC Topic 320, marketable securities are reported at fair value on the consolidated balance sheet and unrealized holding gains and losses are reported in other comprehensive income until realized upon sale. At December 31, 2013, the Company had $2.6 million in marketable securities classified as "Other Assets" on the consolidated balance sheet. The cost of such marketable securities was $2.5 million. Fair value for the Company's marketable securities was estimated from Level 2 measurements. The Company's marketable securities are restricted to the payment of benefits under its supplemental retirement contribution plan (the "SERP"). |
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Other Comprehensive Income (Loss) | ' |
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Other Comprehensive Income (Loss) |
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Comprehensive income (loss) includes, in addition to net income (loss), gains and losses recorded directly into stockholders' equity on the consolidated balance sheet. These gains and losses are referred to as other comprehensive income items. Accumulated other comprehensive income (loss) consists of foreign currency translation gains and (losses), deferred gains and (losses) on "available-for-sale" securities, and adjustments related to pensions and other post-retirement benefits. The Company does not provide income taxes for foreign currency translation adjustments related to indefinite investments in foreign subsidiaries. |
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The components of accumulated other comprehensive income (loss), net of applicable income taxes are as follows: |
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| | December 31, | | | | | | | | | | | | | | | | | | | |
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Unrealized foreign currency translation gains | | $ | 17.9 | | $ | 9.2 | | | | | | | | | | | | | | | | | | | |
Net loss from pension and other postretirement benefit liabilities (net of income tax benefits of $26.3 million and $34.9 million, respectively) | | | (45.2 | ) | | (59.1 | ) | | | | | | | | | | | | | | | | | | |
Unrealized gain on "available-for-sale" securities | | | — | | | 0.1 | | | | | | | | | | | | | | | | | | | |
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Accumulated other comprehensive loss | | $ | (27.3 | ) | $ | (49.8 | ) | | | | | | | | | | | | | | | | | | |
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Accounting Standards Changes | ' |
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Accounting Standards Changes |
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As of December 31, 2013, no amendments to the ASC had been issued that will have or are reasonably likely to have a material effect on the Company's financial position, results of operations or cash flows. |
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