Enerpac Tool Group Corp. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Employee Benefit Plans

Employee Benefit Plans

12 Months Ended

Aug. 31, 2014

Compensation and Retirement Disclosure [Abstract]

Defined Benefit Pension Plans

The Company has several defined benefit pension plans which cover certain existing and former employees of domestic businesses it acquired, that were entitled to those benefits prior to acquisition, or existing and former employees of foreign businesses. Most of the U.S. defined benefit pension plans are frozen, and as a result, the majority of the plan participants no longer earn additional benefits. The following table provides detail of changes in the projected benefit obligations, the fair value of plan assets and the funded status of the Company’s U.S. defined benefit pension plans as of the August 31 measurement date (in thousands):



	2014			2013
Reconciliation of benefit obligations:
Benefit obligation at beginning of year	$	45,046		$	50,870
Adjustment	—			(280		)
Interest cost	2,146			1,928
Actuarial (gain) loss	3,769			(4,983		)
Benefits paid	(3,416		)	(2,489		)
Benefit obligation at end of year	$	47,545		$	45,046
Reconciliation of plan assets:
Fair value of plan assets at beginning of year	$	34,054		$	33,695
Actual return on plan assets	5,180			2,252
Company contributions	8,824			596
Benefits paid from plan assets	(3,416		)	(2,489		)
Fair value of plan assets at end of year	44,642			34,054
Funded status of the plans (underfunded)	$	(2,903	)	$	(10,992	)

The following table provides detail on the Company’s net periodic benefit costs (in thousands):



	Year ended August 31,
	2014			2013			2012
Interest cost	$	2,146		$	1,928		$	2,162
Expected return on assets	(2,959		)	(2,468		)	(2,471		)
Amortization of actuarial loss	667			878			675
Net benefit cost (income)	$	(146	)	$	338		$	366

At August 31, 2014 and 2013, $12.6 million and $12.0 million, respectively, of pension plan actuarial losses, which have not yet been recognized in net periodic benefit cost, were included in accumulated other comprehensive loss, net of income taxes. During fiscal 2015, $0.5 million of these actuarial losses are expected to be recognized in net periodic benefit cost.

Weighted-average assumptions used to determine U.S. pension plan obligations as of August 31 and weighted-average assumptions used to determine net periodic benefit cost for the years ended August 31 are as follows:



	2014		2013		2012
Assumptions for benefit obligations:
Discount rate	4.15	%	4.90	%	3.90	%
Assumptions for net periodic benefit cost:
Discount rate	4.90	%	3.90	%	5.00	%
Expected return on plan assets	7.65	%	7.75	%	7.90	%

The Company employs a total return on investment approach for its pension plan assets whereby a mix of equity and fixed income investments are used to maximize the long-term return for plan assets, at a prudent level of risk. The investment portfolio contains a diversified blend of equity and fixed income investments. Within the equity allocation, a blend of growth and value investments are maintained in a variety of market capitalizations and diversified between U.S. and non-U.S. stocks. The Company’s targeted asset allocation as a percentage of total plan assets is 60% - 80% in equity securities, with the remainder invested in fixed income securities and cash. Cash balances are maintained at levels adequate to meet near-term plan expenses and benefit payments. Investment risk is measured and monitored on an ongoing basis. At August 31, 2014, Company’s overall expected long-term rate of return for assets in U.S. pension plans was 7.50%. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The target return is based on historical returns adjusted to reflect the current view of the long-term investment market.

The fair value of all U.S. pension plan assets are determined based on quoted market prices and therefore all plan assets are determined based on Level 1 inputs, except for fixed income securities which are valued based on Level 2 inputs, as defined in Note 6, “Fair Value Measurements.” The U.S. pension plan investment allocations by asset category were as follows (in thousands):



	Year Ended August 31,
	2014		%		2013		%
Cash and cash equivalents	$	—	—	%	$	348	1.0	%
Fixed income securities:
Corporate bonds	9,749		21.8		8,741		25.7
Mutual funds	4,474		10.0		3,464		10.2
	14,223		31.8		12,205		35.9
Equity securities:
Mutual funds	30,419		68.2		21,501		63.1
Total plan assets	$	44,642	100.0	%	$	34,054	100.0	%

Projected benefit payments from plan assets to participants in the Company’s U.S. pension plans are approximately $2.7 million per year for fiscal 2015 through 2019 and $15.0 million in aggregate for the following five years.

Non-U.S. Defined Benefit Pension Plans

The Company has several non-U.S. defined benefit pension plans which cover certain existing and former employees of businesses outside the U.S. Most of the non-U.S. defined benefit pension plans continue to earn additional benefits. The funded status of these plans is summarized as follows (in thousands):



	August 31,
	2014			2013
Benefit obligation	$	18,599		$	12,912
Fair value of plan assets	10,312			7,790
Funded status of plans (underfunded)	$	(8,287	)	$	(5,122	)

Net periodic benefit cost for these non-U.S. plans was $1.3 million, $0.8 million and $0.5 million in fiscal 2014, 2013 and 2012, respectively. The weighted average discount rate utilized for determining the benefit obligation at August 31, 2014 and 2013 was 3.2% and 4.3%, respectively. The plan assets of these non-U.S. pension plans consist primarily of participating units in fixed income securities and insurance contracts. The Company’s overall expected long-term rate of return on these investments is 4.6%. During fiscal 2015, the Company anticipates contributing $0.9 million in aggregate to these pension plans.

Other Postretirement Health Benefit Plans

The Company provides other postretirement health benefits (“OPEB”) to certain existing and former employees of domestic businesses it acquired, who were entitled to such benefits prior to acquisition. These unfunded plans had a benefit obligation of $3.1 million and $2.9 million at August 31, 2014 and 2013, respectively. These obligations are determined utilizing assumptions consistent with those used for U.S. pension plans and a health care cost trend rate of 8.0%, trending downward to 5.0% by the year 2022, and remaining level thereafter. Net periodic benefit costs for the other postretirement benefits was a benefit of approximately $0.2 million for each of the years ended August 31, 2014, 2013 and 2012. Benefit payments from the plan are funded through participant contributions and Company contributions, which are projected to be $0.3 million in fiscal 2015.

Defined Contribution Benefit Plans

The Company maintains a 401(k) Plan for substantially all full time U.S. employees (the “401(k) Plan”). Under plan provisions, the Company either funds cash or issues new shares of Class A common stock for its contributions. Amounts are allocated to accounts set aside for each employee’s retirement. Employees generally may contribute up to 50% of their compensation to individual accounts within the 401(k) Plan. While contributions vary, the Company generally makes core contributions to employee accounts equal to 3% of each employee’s eligible annual cash compensation, subject to IRS limitations. The Company also maintains a Restoration Plan that allows eligible highly compensated employees (as defined by the Internal Revenue Code) to receive a core contribution as if no IRS limits were in place. Company contributions to the Restoration Plan are made in the form of Actuant common stock and are contributed into each eligible participant’s Deferred Compensation Plan account. In addition, the Company matches approximately 25% of each employee’s contribution up to 6% of the employee’s eligible compensation. Expense recognized related to the 401(k) plan totaled approximately $4.5 million, $4.5 million and $5.1 million for the years ended August 31, 2014, 2013 and 2012, respectively.

In addition to the 401(k) Plan the Company sponsors a nonqualified supplemental executive retirement plan (“the SERP Plan”). The unfunded SERP Plan covers certain executive employees and has a benefit accrual formula based on age and years of service (with Company contributions ranging from 3% to 6% of eligible wages). This unfunded plan had a benefit obligation of $2.0 million and $1.7 million at August 31, 2014 and 2013, respectively. Expense recognized in fiscal 2014, 2013 and 2012 for the SERP Plan was $0.4 million, $0.6 million, and $0.7 million respectively.

Deferred Compensation Plan

The Company maintains a deferred compensation plan to allow eligible U.S. employees to defer receipt of current cash compensation in order to provide future savings benefits. Eligibility is limited to all employees that earn compensation that exceeds certain pre-defined levels. Participants have the option to invest their deferrals in a fixed income investment, in Company common stock, or a combination of the two. The fixed income portion of the plan is unfunded, and therefore all compensation deferred under the plan is held by the Company and commingled with its general assets. Liabilities of $22.8 million and $23.2 million are included in “Other current liabilities” and “Other long-term liabilities” on the consolidated balance sheets at August 31, 2014 and 2013, respectively, to reflect the unfunded portion of the deferred compensation liability. The Company recorded expense of $1.7 million, $1.6 million and $1.5 million for the years ended August 31, 2014, 2013 and 2012, respectively, for non-funded interest on participant deferrals in the fixed income investment option. Company common stock contributions to fund the plan are held in a rabbi trust, accounted for in a manner similar to treasury stock and are recorded at cost in “Stock held in trust” within shareholders’ equity with the corresponding deferred compensation liability also recorded within shareholders’ equity. Since no investment diversification is permitted within the trust, changes in fair value of Actuant common stock are not recognized. The shares held in the trust are included in both the basic and diluted earnings per share calculations. The cost of the shares held in the trust was $2.9 million and $1.9 million at August 31, 2014 and 2013, respectively.