Notes to Consolidated Financial Statements
(Amounts in tables in thousands of dollars)
Note A – Summary of Significant Accounting Policies
General Information and Basis of Presentation
The Gorman-Rupp Company is a leading designer, manufacturer and international marketer of pumps and pump systems for use in diverse water,
wastewater, construction, dewatering, industrial, petroleum, original equipment, agriculture, fire protection, heating, ventilating and air conditioning (HVAC), military and other liquid-handling applications.
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and include the
accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Earnings per share are calculated based on the weighted-average number of Common Shares outstanding.
Cash Equivalents and Short-Term Investments
The Company considers highly liquid instruments with maturities of 90 days or less to be cash equivalents. The Company periodically makes
short-term investments for which cost approximates fair value. Short-term investments at December 31, 2016 and 2015 consist primarily of certificates of deposit, and are classified as prepaid and other on the Consolidated Balance Sheets.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at the historical carrying amount net of allowance for doubtful accounts. The Company maintains an allowance
for doubtful accounts for estimated losses from the failure of its customers to make required payments for products delivered. The Company estimates this allowance based on knowledge of the financial condition of customers, review of historical
receivables and reserve trends and other relevant information.
Inventories
Inventories are stated at the lower of cost or market. The costs for approximately 72% of inventories at December 31, 2016 and 73% of
inventories at December 31, 2015 are determined using the
last-in,
first-out
(LIFO) method, with the remainder determined using the
first-in,
first-out
(FIFO) method. Cost components include materials, inbound freight costs, labor and allocations of fixed and variable overheads on an absorption
costing basis.
Property, plant and equipment
Property, plant and equipment are stated on the basis of cost. Repairs and maintenance costs are expensed as incurred. Depreciation for
property, plant and equipment assets is computed using the straight-line method over the estimated useful lives of the assets and is included in cost of products sold and selling, general and administrative expenses based on the use of the assets.
Depreciation expense was $13.8 million during each of the years 2016 and 2015 and was $13.2 million during 2014.
Depreciation
of property, plant and equipment is determined based on the following lives:
|
|
|
|
|
|
|
Buildings
|
|
|
20-50 years
|
|
|
Machinery and equipment
|
|
|
5-15 years
|
|
|
Software
|
|
|
3-5
years
|
|
30
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Land
|
|
$
|
4,099
|
|
|
$
|
3,736
|
|
|
Buildings
|
|
|
104,952
|
|
|
|
104,128
|
|
|
Machinery and equipment
|
|
|
165,157
|
|
|
|
163,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
274,208
|
|
|
|
271,739
|
|
|
Less accumulated depreciation
|
|
|
(152,141)
|
|
|
|
(141,852)
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
122,067
|
|
|
$
|
129,887
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment are evaluated for impairment whenever events or changes in circumstances
indicate the carrying amount may not be recovered through future net cash flows generated by the assets. Impairment losses may be recorded when the undiscounted cash flows estimated to be generated by those assets are less than the assets’
carrying amounts based on the excess of the carrying amounts over the estimated fair value of the assets.
Goodwill and Identifiable Intangible Assets
Goodwill
Goodwill represents
the excess of the cost of acquired businesses over the fair value of tangible assets and identifiable intangible assets purchased and liabilities assumed.
Goodwill is reviewed annually for impairment as of October 1 or whenever events or changes in circumstances indicate there may be a
possible permanent loss of value using either a quantitative or qualitative analysis. The Company uses a market-based approach to estimate the fair value of our reporting units and performs a quantitative analysis using a discounted cash flow model
and other valuation techniques. This process requires significant judgements, including estimation of future cash flows, which is dependent on internal forecasts. The Company may otherwise elect to perform a qualitative analysis when deemed
appropriate. A qualitative analysis may be performed by assessing certain trends and factors, including projected market outlook and growth rates, forecasted and actual sales and operating profit margins, discount rates, industry data and other
relevant qualitative factors. These trends and factors are compared to, and based on, the assumptions used in the most recent quantitative assessment.
In 2016, due to the prolonged downturn in the oil and gas industry, the Bayou City Pump Company (“Bayou”) reporting unit recorded a
pre-tax
non-cash
goodwill impairment charge of $1.8 million. There was no goodwill impairment charge recorded in 2015 or 2014. See Note H, Goodwill and Other Intangible
Assets.
Identifiable intangible assets
The Company’s primary identifiable intangible assets include customer relationships, technology and drawings, and trade names and
trademarks. Identifiable intangible assets with finite lives are amortized and those identifiable intangible assets with indefinite lives are not amortized. Amortization for finite-lived intangible assets is computed using the straight-line method
over the estimated useful lives of the assets and is included in cost of products sold and selling, general and administrative expenses based on the use of the assets. Amortization of finite-lived intangible assets is determined based on the
following lives:
|
|
|
|
|
|
|
Technology and drawings
|
|
|
13-20 years
|
|
|
Customer relationships
|
|
|
9-15 years
|
|
|
Other intangibles
|
|
|
2-18 years
|
|
31
Identifiable intangible assets that are subject to amortization are evaluated for impairment
whenever events or changes in circumstances indicate the carrying amount may not be recovered through future net cash flows generated by the assets. Impairment losses may be recorded when the undiscounted cash flows estimated to be generated by
those assets are less than the assets’ carrying amounts based on the excess of the carrying amounts over the estimated fair value of the assets.
Identifiable intangible assets not subject to amortization are tested for impairment annually or more frequently if events warrant. The fair
value of these assets is determined using a royalty relief methodology similar to that employed when the associated assets were acquired, but using updated estimates of future sales, cash flows and profitability. For 2016 and 2015, the fair value of
indefinite lived intangible assets exceeded their carrying value.
For additional information about goodwill and other intangible assets,
see Note H, Goodwill and Other Intangible Assets, and Note J, Acquisitions.
Revenue Recognition
The Company’s revenues from product sales are recognized when all of the following criteria are met: persuasive evidence of a sale
arrangement exists, the price is fixed or determinable, product delivery has occurred or services have been rendered, there are no further obligations to customers and collectability is probable. Product delivery occurs when the risks and rewards of
ownership and title pass, which normally occurs upon shipment to the customer.
Income Taxes
Income tax expense includes United States, state, local and international income taxes. Deferred tax assets and liabilities are recognized for
the tax consequences of temporary differences between the financial reporting and the tax basis of existing assets and liabilities and for loss carryforwards. The tax rate used to determine the deferred tax assets and liabilities is the enacted tax
rate for the year and manner in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized.
Pension and Other Postretirement Benefits
The Company sponsors a defined benefit pension plan covering certain domestic employees. Additionally, the Company sponsors defined
contribution pension plans made available to all domestic and Canadian employees.
The Company also sponsors a
non-contributory
defined benefit postretirement health care plan that provides health benefits to certain domestic and Canadian retirees and their spouses. The Company funds the cost of these benefits as incurred.
The determination of the Company’s obligation and expense for pension and other postretirement benefits is dependent on its
selection of certain assumptions used by actuaries in calculating such amounts, which are described in Note G, Pensions and Other Postretirement Benefits. The Company recognizes the funded status of its defined benefit pension plan as an asset or
liability in the Consolidated Balance Sheets and recognizes the change in the funded status in the year in which the change occurs through accumulated other comprehensive loss in the Consolidated Balance Sheets.
Concentration of Credit Risk
The
Company generally does not require collateral from its customers and has a very good collection history. There were no sales to a single customer that exceeded 10% of total net sales for the years ended December 31, 2016, 2015 or 2014.
32
Shipping and Handling Costs
The Company classifies all amounts billed to customers for shipping and handling as revenue and reflects related shipping and handling costs
in cost of products sold.
Advertising
The Company expenses all advertising costs as incurred, which for the years ended December 31, 2016, 2015 and 2014 totaled
$2.8 million, $3.2 million, and $3.5 million, respectively.
Product Warranties
A liability is established for estimated future warranty and service claims based on historical claims experience and specific product
failures. The Company expenses warranty costs directly to cost of products sold. Changes in the Company’s product warranty liability are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Balance at beginning of year
|
|
$
|
1,380
|
|
|
$
|
1,166
|
|
|
$
|
1,170
|
|
|
Provision
|
|
|
1,991
|
|
|
|
1,732
|
|
|
|
1,607
|
|
|
Claims
|
|
|
(1,936)
|
|
|
|
(1,518)
|
|
|
|
(1,611)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
1,435
|
|
|
$
|
1,380
|
|
|
$
|
1,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation
Assets and liabilities of the Company’s operations outside the United States which are accounted for in a functional currency other than
U.S. dollars are translated into U.S. dollars using
year-end
exchange rates. Revenues and expenses are translated at weighted-average exchange rates effective during the year. Foreign currency translation
gains and losses are included as a component of accumulated other comprehensive loss within equity.
Gains and losses resulting from
foreign currency transactions, the amounts of which are not material, are included in other income and other expense.
Fair Value
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximates fair value based on
the short-term nature of these instruments.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
New Accounting Pronouncements
The
Company considers the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s
consolidated financial statements.
In February 2016, the FASB issued ASU
2016-02,
“Leases
(Topic 842),” 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
33
than one year. Accounting by lessors will remain similar to existing generally accepted accounting principles. The guidance is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2018. The Company currently does not expect the adoption of ASU
2016-02
will have a material impact on its consolidated financial statements as its future minimum lease
payments are not material.
In July 2015, the FASB issued ASU
2015-11,
“Simplifying the
Measurement of Inventory (Topic 330),” 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 approximate 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 is effective for fiscal years,
and interim periods within those years, beginning after December 15, 2016; however, early adoption is permitted. The Company currently does not expect the adoption of ASU
2015-11
will have a material
impact on its consolidated financial statements.
In May 2014, the FASB issued ASU
2014-09,
“Revenue from Contracts with Customers (Topic 606),” which supersedes most current revenue recognition guidance, including industry-specific guidance, and requires entities to recognize revenue in a way that depicts the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The guidance is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2016; however, in July 2015, the FASB approved a
one-year
deferral of this standard, with a new effective date for fiscal years beginning after December 15, 2017.
The Company has developed an implementation plan and has determined it will use the modified retrospective method as its transition method in the adoption of the new revenue standard. The Company is currently evaluating its significant contracts and
assessing the impact the adoption of ASU
2014-09
will have on its consolidated financial statements and related disclosures. The Company will continue its evaluation of the standards update through the date of
adoption.
Note B – Allowance for Doubtful Accounts
The allowance for doubtful accounts was $1.0 million and $917,000 at December 31, 2016 and 2015, respectively.
Note C – Inventories
Inventories
are stated at the lower of cost or market. Replacement cost approximates current cost and the excess over LIFO cost is approximately $58.4 million and $59.1 million at December 31, 2016 and 2015, respectively. Some inventory
quantities were reduced during 2016, resulting in liquidation of some LIFO quantities carried at lower costs from earlier years versus current year costs. The related effect increased net income by $801,000. Allowances for excess and obsolete
inventory totaled $4.5 million and $5.0 million at December 31, 2016 and 2015, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Inventories, net:
|
|
|
|
|
|
|
|
|
|
Raw materials and
in-process
|
|
|
$17,986
|
|
|
|
$25,652
|
|
|
Finished parts
|
|
|
43,423
|
|
|
|
46,270
|
|
|
Finished products
|
|
|
7,640
|
|
|
|
10,896
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net inventories
|
|
|
$69,049
|
|
|
|
$82,818
|
|
|
|
|
|
|
|
|
|
|
|
Note D – Financing Arrangements
The Company may borrow up to $20.0 million with interest at LIBOR plus 0.75% or at alternative rates as selected by the Company under an
unsecured bank line of credit which matures in November 2018. At December 31, 2016 and 2015, $20.0 million was available for borrowing after giving consideration to immaterial amounts of letters of credit.
34
The Company also has an $8.0 million unsecured bank line of credit with interest at LIBOR
plus 0.75% payable monthly which matures in May 2017. At December 31, 2016 and 2015, $3.2 million and $3.9 million, respectively, was available for borrowing after deducting $4.8 million and $4.1 million in outstanding
letters of credit, respectively.
The Company also has a $3.0 million bank guarantee with interest at 1.75% in an agreement dated
June 2016. At December 31, 2016, $0.6 million was available for borrowing after deducting $2.4 million in outstanding letters of credit.
The financing arrangements described above contain standard restrictive covenants, including limits on additional borrowings and maintenance
of certain operating and financial ratios. At December 31, 2016 and 2015, the Company was in compliance with all requirements.
Interest expense, which approximates interest paid, was $20,000, $122,000 and $134,000 in 2016, 2015 and 2014, respectively.
The Company has operating leases for certain offices, manufacturing facilities, land, office equipment and automobiles. Rental expense
relating to operating leases was $1.1 million, $1.0 million and $1.1 million in 2016, 2015 and 2014, respectively.
The
future minimum lease payments due under these operating leases as of December 31, 2016 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2018
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
|
Total
|
|
|
$747
|
|
$601
|
|
|
$266
|
|
|
|
$56
|
|
|
|
$-
|
|
|
|
$10
|
|
|
$
|
1,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note E – Accumulated Other Comprehensive Loss
The reclassifications out of accumulated other comprehensive loss as reported in the Consolidated Statements of Income are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2014
|
|
|
Pension and other postretirement benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized actuarial loss (a)
|
|
$
|
1,402
|
|
|
$
|
1,581
|
|
|
$
|
483
|
|
|
Settlement loss (b)
|
|
|
-
|
|
|
|
2,584
|
|
|
|
-
|
|
|
Settlement loss (c)
|
|
|
-
|
|
|
|
1,199
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total before income tax
|
|
|
1,402
|
|
|
|
5,364
|
|
|
|
483
|
|
|
Income tax
|
|
|
(446)
|
|
|
|
(1,749)
|
|
|
|
(177)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of income tax
|
|
$
|
956
|
|
|
$
|
3,615
|
|
|
$
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The recognized actuarial loss is included in the computation of net periodic benefit cost. See Note G, Pensions and Other Postretirement Benefits.
|
|
(b)
|
This portion of the settlement loss is included in cost of products sold in the Consolidated Statements of Income.
|
|
(c)
|
This portion of the settlement loss is included in selling, general and administrative expenses in the Consolidated Statements of Income.
|
35
The components of accumulated other comprehensive loss as reported in the Consolidated Balance
Sheets are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
Translation
Adjustments
|
|
|
Pension and
OPEB
Adjustments
|
|
|
Accumulated
Other
Comprehensive
(Loss)
Income
|
|
|
Balance at January 1, 2014
|
|
|
$(1,062)
|
|
|
|
$ (7,399)
|
|
|
|
$ (8,461)
|
|
|
Reclassifications adjustments
|
|
|
-
|
|
|
|
483
|
|
|
|
483
|
|
|
Current period charge
|
|
|
(3,276)
|
|
|
|
(9,294)
|
|
|
|
(12,570)
|
|
|
Income tax benefit
|
|
|
-
|
|
|
|
3,222
|
|
|
|
3,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
(4,338)
|
|
|
|
(12,988)
|
|
|
|
(17,326)
|
|
|
Reclassification adjustments
|
|
|
-
|
|
|
|
5,364
|
|
|
|
5,364
|
|
|
Current period charge
|
|
|
(4,719)
|
|
|
|
(6,038)
|
|
|
|
(10,757)
|
|
|
Income tax benefit
|
|
|
-
|
|
|
|
304
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
(9,057)
|
|
|
|
(13,358)
|
|
|
|
(22,415)
|
|
|
Reclassifications adjustments
|
|
|
-
|
|
|
|
1,402
|
|
|
|
1,402
|
|
|
Current period benefit
|
|
|
215
|
|
|
|
1,357
|
|
|
|
1,572
|
|
|
Income tax charge
|
|
|
-
|
|
|
|
(1,024)
|
|
|
|
(1,024)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
$(8,842)
|
|
|
|
$(11,623)
|
|
|
|
$(20,465)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note F – Income Taxes
The components of income before income taxes are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
United States
|
|
|
$33,101
|
|
|
|
$35,391
|
|
|
|
$49,692
|
|
|
Foreign countries
|
|
|
3,381
|
|
|
|
1,875
|
|
|
|
4,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$36,482
|
|
|
|
$37,266
|
|
|
|
$53,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of income tax expense are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Current expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
$ 6,960
|
|
|
|
$11,465
|
|
|
|
$16,638
|
|
|
Foreign
|
|
|
547
|
|
|
|
292
|
|
|
|
946
|
|
|
State and local
|
|
|
581
|
|
|
|
963
|
|
|
|
1,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,088
|
|
|
|
12,720
|
|
|
|
18,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
3,429
|
|
|
|
(443)
|
|
|
|
(1,181)
|
|
|
Foreign
|
|
|
(184)
|
|
|
|
(112)
|
|
|
|
(114)
|
|
|
State and local
|
|
|
266
|
|
|
|
(8)
|
|
|
|
(72)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,511
|
|
|
|
(563)
|
|
|
|
(1,367)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
$11,599
|
|
|
|
$12,157
|
|
|
|
$17,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
The reconciliation between income tax expense and the amount computed by applying the statutory
federal income tax rate of 35% to income before income taxes is:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Income taxes at statutory rate
|
|
|
$12,769
|
|
|
|
$13,043
|
|
|
|
$18,807
|
|
|
State and local income taxes, net of federal tax benefit
|
|
|
576
|
|
|
|
680
|
|
|
|
674
|
|
|
Research and development tax credits
|
|
|
(371)
|
|
|
|
(380)
|
|
|
|
(371)
|
|
|
Domestic production activities deduction
|
|
|
(822)
|
|
|
|
(964)
|
|
|
|
(1,324)
|
|
|
Lower foreign taxes differential
|
|
|
(820)
|
|
|
|
(476)
|
|
|
|
(583)
|
|
|
Uncertain tax positions
|
|
|
(93)
|
|
|
|
26
|
|
|
|
53
|
|
|
Valuation allowance
|
|
|
-
|
|
|
|
(59)
|
|
|
|
174
|
|
|
Other
|
|
|
360
|
|
|
|
287
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
$11,599
|
|
|
|
$12,157
|
|
|
|
$17,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company made income tax payments of $7.8 million, $13.5 million, and $19.4 million in 2016,
2015, and 2014, respectively.
Deferred income tax assets and liabilities consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
$ 721
|
|
|
|
$ 1,664
|
|
|
|
$ 1,030
|
|
|
Accrued liabilities
|
|
|
3,139
|
|
|
|
2,450
|
|
|
|
2,538
|
|
|
Postretirement health benefits obligation
|
|
|
7,449
|
|
|
|
7,547
|
|
|
|
7,602
|
|
|
Pension
|
|
|
-
|
|
|
|
3,443
|
|
|
|
1,649
|
|
|
Deferred revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
1,267
|
|
|
Other
|
|
|
879
|
|
|
|
292
|
|
|
|
550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
12,188
|
|
|
|
15,396
|
|
|
|
14,636
|
|
|
Valuation allowance
|
|
|
(277)
|
|
|
|
(277)
|
|
|
|
(336)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
$ 11,911
|
|
|
|
$ 15,119
|
|
|
|
$ 14,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(16,119)
|
|
|
|
(18,059)
|
|
|
|
(17,711)
|
|
|
Pension
|
|
|
(3,017)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(19,136)
|
|
|
|
(18,059)
|
|
|
|
(17,711)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
|
$ (7,225)
|
|
|
|
$ (2,940)
|
|
|
|
$ (3,411)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has a valuation allowance of $277,000 as of December 31, 2016 and 2015 against certain of its
deferred tax assets. ASC 740 requires that a valuation allowance be recorded against deferred tax assets when it is more likely than not that some or all of a Company’s deferred tax assets will not be realized based on available positive and
negative evidence.
Total unrecognized tax benefits were $492,000 and $567,000 at December 31, 2016 and 2015, respectively. The total
amount of unrecognized tax benefits that, if ultimately recognized, would reduce the Company’s annual effective tax rate were $397,000 and $447,000 at December 31, 2016 and 2015, respectively.
37
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Balance at beginning of year
|
|
|
$ 567
|
|
|
|
$ 576
|
|
|
|
$516
|
|
|
Additions based on tax positions related to the current year
|
|
|
101
|
|
|
|
113
|
|
|
|
158
|
|
|
Reductions due to lapse of applicable statute of limitations
|
|
|
(108)
|
|
|
|
(101)
|
|
|
|
(98)
|
|
|
Settlements
|
|
|
(68)
|
|
|
|
(21)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
$ 492
|
|
|
|
$ 567
|
|
|
|
$576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is subject to income taxes in the U.S. federal and various state, local and foreign jurisdictions.
Income tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and
local, or
non-U.S.
income tax examinations by tax authorities for the years before 2012. The Company has $56,000 of unrecognized tax benefits recorded for periods for which the relevant statutes of limitations
expire in the next 12 months.
The Company is currently under examination by the Internal Revenue Service for its tax year ending
December 31, 2013. Any adjustment from this examination is not expected to have a material impact on the consolidated financial position or results of operations of the Company. Management anticipates this examination will be resolved within
the next six months.
The Company has state tax credit carryforwards of $518,000 and $533,000 as of December 31, 2016 and 2015,
respectively, set to expire between 2019 and 2026. The Company has foreign net operating losses of $222,000 of which the majority have no expiration.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense for all periods presented. The
Company accrued approximately $98,000, $116,000 and $99,000 for the payment of interest and penalties at December 31, 2016, 2015 and 2014, respectively.
The Company did not provide taxes with respect to $23.9 million of undistributed foreign earnings at December 31, 2016, since the
earnings are considered by the Company to be permanently reinvested. In an unanticipated future event where these earnings are distributed or deemed distributed in a taxable transaction, the Company may be subject to United States income tax and
foreign withholding taxes, the net tax liability of which is estimated to be $1.9 million.
Note G – Pensions and Other Postretirement
Benefits
The Company sponsors a defined benefit pension plan (“Plan”) covering certain domestic employees. Benefits are
based on each covered employee’s years of service and compensation. The Plan is funded in conformity with the funding requirements of applicable U.S. regulations. The Plan was closed to new participants effective January 1, 2008. Employees
hired after this date, in eligible locations, participate in an enhanced 401(k) plan instead of the defined benefit pension plan. Employees hired prior to this date continue to accrue benefits.
Additionally, the Company sponsors defined contribution pension plans made available to all domestic and Canadian employees. Total
contributions to the plans were $1.6 million in each of the years 2016, 2015 and 2014.
The Company also sponsors a
non-contributory
defined benefit postretirement health care plan that provides health benefits to certain domestic and Canadian retirees and their spouses. The Company funds the cost of these benefits as incurred.
For measurement purposes, and based on maximum benefits as defined by the plan, a zero percent annual rate of increase in the per capita cost of covered health care benefits for domestic retirees age 65 and over was assumed for 2016 and is expected
to remain constant going forward. A 5% rate of increase for all employees under age 65 and Canadian retirees over age 65 was assumed.
38
The Company recognizes the obligations associated with its defined benefit pension plan and
defined benefit postretirement health care plan in its consolidated financial statements. The following table presents the plans’ funded status as of the measurement date reconciled with amounts recognized in the Company’s consolidated
balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
Postretirement Plan
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Accumulated benefit
obligation at end of year
|
|
|
$64,033
|
|
|
|
$63,830
|
|
|
|
$22,340
|
|
|
|
$22,430
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at
beginning of year
|
|
|
$77,600
|
|
|
|
$80,069
|
|
|
|
$22,430
|
|
|
|
$22,813
|
|
|
Service cost
|
|
|
2,837
|
|
|
|
3,064
|
|
|
|
1,192
|
|
|
|
1,194
|
|
|
Interest cost
|
|
|
2,643
|
|
|
|
2,640
|
|
|
|
842
|
|
|
|
790
|
|
|
Settlement
|
|
|
-
|
|
|
|
1,431
|
|
|
|
-
|
|
|
|
–
|
|
|
Benefits paid
|
|
|
(5,510)
|
|
|
|
(10,069)
|
|
|
|
(1,637)
|
|
|
|
(1,094)
|
|
|
Effect of foreign exchange
|
|
|
-
|
|
|
|
–
|
|
|
|
7
|
|
|
|
(94)
|
|
|
Actuarial (gain) loss
|
|
|
(463)
|
|
|
|
465
|
|
|
|
(494)
|
|
|
|
(1,179)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
$77,107
|
|
|
|
$77,600
|
|
|
|
$22,340
|
|
|
|
$22,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at beginning of year
|
|
|
$68,291
|
|
|
|
$75,573
|
|
|
|
$-
|
|
|
|
$-
|
|
|
Actual return on plan assets
|
|
|
4,537
|
|
|
|
(1,213)
|
|
|
|
-
|
|
|
|
–
|
|
|
Employer contributions
|
|
|
16,000
|
|
|
|
4,000
|
|
|
|
1,637
|
|
|
|
1,094
|
|
|
Benefits paid
|
|
|
(5,510)
|
|
|
|
(10,069)
|
|
|
|
(1,637)
|
|
|
|
(1,094)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets at end of year
|
|
|
$83,318
|
|
|
|
$68,291
|
|
|
|
$-
|
|
|
|
$–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
|
$6,211
|
|
|
|
$(9,309)
|
|
|
|
$(22,340)
|
|
|
|
$(22,430)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated
Balance Sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
|
$6,211
|
|
|
|
$-
|
|
|
|
$-
|
|
|
|
$-
|
|
|
Current liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,631)
|
|
|
|
(1,646)
|
|
|
Noncurrent liabilities
|
|
|
-
|
|
|
|
(9,309)
|
|
|
|
(20,709)
|
|
|
|
(20,784)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (liabilities)
|
|
|
$6,211
|
|
|
|
$(9,309)
|
|
|
|
$(22,340)
|
|
|
|
$(22,430)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other
comprehensive loss consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
|
$27,041
|
|
|
|
$29,992
|
|
|
|
$(7,890)
|
|
|
|
$(8,082)
|
|
|
Deferred tax (benefit) expense
|
|
|
(10,506)
|
|
|
|
(11,590)
|
|
|
|
2,978
|
|
|
|
3,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After tax actuarial loss (gain)
|
|
|
$16,535
|
|
|
|
$18,402
|
|
|
|
$(4,912)
|
|
|
|
$(5,044)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Pension Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
$2,837
|
|
|
|
$3,064
|
|
|
|
$2,904
|
|
|
|
|
|
|
Interest cost
|
|
|
2,643
|
|
|
|
2,640
|
|
|
|
2,895
|
|
|
|
|
|
|
Expected return on plan assets
|
|
|
(4,150)
|
|
|
|
(4,060)
|
|
|
|
(4,755)
|
|
|
|
|
|
|
Recognized actuarial loss
|
|
|
2,101
|
|
|
|
2,230
|
|
|
|
1,664
|
|
|
|
|
|
|
Settlement loss
|
|
|
-
|
|
|
|
3,783
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
$3,431
|
|
|
|
$7,657
|
|
|
|
$2,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Other changes in pension plan assets and benefit
obligations recognized in other comprehensive loss:
|
|
|
|
|
|
|
Net (gain) loss
|
|
|
$(2,952)
|
|
|
|
$1,156
|
|
|
|
$4,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense recognized in net periodic benefit cost and other comprehensive income
|
|
|
$479
|
|
|
|
$8,813
|
|
|
|
$7,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
$1,192
|
|
|
|
$1,194
|
|
|
|
$907
|
|
|
|
|
|
|
Interest cost
|
|
|
842
|
|
|
|
790
|
|
|
|
845
|
|
|
|
|
|
|
Recognized actuarial gain
|
|
|
(699)
|
|
|
|
(649)
|
|
|
|
(1,181)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
$1,335
|
|
|
|
$1,335
|
|
|
|
$571
|
|
|
|
|
|
|
|
|
|
Other changes in postretirement plan assets and benefit
obligations recognized in other comprehensive loss:
|
|
|
|
|
|
|
Net gain (loss)
|
|
|
$205
|
|
|
|
$(529)
|
|
|
|
$4,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense recognized in net periodic benefit cost and other comprehensive income
|
|
|
$1,540
|
|
|
|
$806
|
|
|
|
$4,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2015, the Company recorded a settlement loss relating
to retirees that received
lump-sum
distributions from the Company’s defined benefit pension plan totaling $3.8 million. This charge was the result of
lump-sum
payments to retirees which exceeded the Plan’s actuarial service and interest cost thresholds in 2015. No settlement loss was incurred in 2016 or 2014.
The prior service cost is amortized on a straight-line basis over the average estimated remaining service period of active participants. The
unrecognized actuarial gain or loss in excess of the greater of 10% of the benefit obligation or the market value of plan assets is also amortized on a straight-line basis over the average estimated remaining service period of active participants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
Postretirement Plan
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Weighted-average assumptions used to determine
benefit obligations at December 31:
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.60%
|
|
|
|
3.70%
|
|
|
|
3.77%
|
|
|
|
3.90%
|
|
|
Rate of compensation increase
|
|
|
3.50%
|
|
|
|
3.50%
|
|
|
|
-
|
|
|
|
|
|
|
Weighted-average assumptions used to determine
net periodic benefit cost for years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.70%
|
|
|
|
3.67%
|
|
|
|
3.90%
|
|
|
|
3.60%
|
|
|
Expected long-term rate
of return on plan assets
|
|
|
6.00%
|
|
|
|
6.00%
|
|
|
|
-
|
|
|
|
-
|
|
|
Rate of compensation
increase
|
|
|
3.50%
|
|
|
|
3.50%
|
|
|
|
-
|
|
|
|
-
|
|
To enhance the Company’s efforts to mitigate the impact of the defined benefit pension plan on its
financial statements, in 2014 the Company moved towards a liability driven investing model to more closely align assets with liabilities based on when the liabilities are expected to come due. Currently, based on 2016 funding levels, equities may
comprise between 14% and 34% of the Plan’s market value. Fixed income investments may
40
comprise between 60% and 80% of the Plan’s market value. Alternative investments may comprise between 0% and 12% of the Plan’s market value. Cash and cash equivalents (including all
senior debt securities with less than one year to maturity) may comprise between 0% and 10% of the Plan’s market value.
Financial
instruments included in pension plan assets are categorized into a fair value hierarchy of three levels, based on the degree of subjectivity inherent in the valuation methodology. Level 1 assets are based on unadjusted quoted prices in active
markets that are accessible to the reporting entity at the measurement date for identical assets. Level 2 assets are valued at inputs other than quoted prices in active markets for identical assets that are observable either directly or
indirectly for substantially the full term of the assets. Level 3 assets are valued based on unobservable inputs for the asset (i.e., supported by little or no market activity). These inputs include management’s own assessments about the
assumptions that market participants would use in pricing assets (including assumptions about risk). The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the lowest level input that is
significant to the fair value measure in its entirety.
All of the Plan’s assets in the following table sets forth by asset class the
Plan’s fair value of assets.
Plan fair value asset allocation by category:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
$19,752
|
|
|
|
24%
|
|
|
|
|
|
|
Fixed income
|
|
|
11,805
|
|
|
|
14%
|
|
|
Mutual funds
|
|
|
-
|
|
|
|
-
|
|
|
Money funds and cash
|
|
|
11,134
|
|
|
|
13%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 1
|
|
|
42,691
|
|
|
|
51%
|
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
Fixed income
|
|
|
40,597
|
|
|
|
49%
|
|
|
Money fund
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 2
|
|
|
40,597
|
|
|
|
49%
|
|
|
Level 3:
Equity
|
|
|
30
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 3
|
|
|
30
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of Plan assets
|
|
|
$83,318
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
$16,908
|
|
|
|
25%
|
|
|
Fixed income
|
|
|
1,468
|
|
|
|
2%
|
|
|
Mutual funds
|
|
|
3,476
|
|
|
|
5%
|
|
|
Money funds and cash
|
|
|
1,011
|
|
|
|
1%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 1
|
|
|
22,863
|
|
|
|
33%
|
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
Fixed income
|
|
|
41,984
|
|
|
|
62%
|
|
|
Money fund
|
|
|
3,428
|
|
|
|
5%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 2
|
|
|
45,412
|
|
|
|
67%
|
|
|
Level 3:
|
|
|
|
|
|
|
|
|
|
Total Level 3
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of Plan assets
|
|
|
$68,275
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
41
Contributions
The Company may contribute $2 million to $6 million to its defined benefit pension plan in 2017.
Expected future benefit payments
The
following benefit payments are expected to be paid as follows based on actuarial calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
|
Pension
|
|
$
|
6,611
|
|
|
$
|
5,420
|
|
|
$
|
6,029
|
|
|
$
|
6,617
|
|
|
$
|
6,345
|
|
|
$
|
29,054
|
|
|
Postretirement
|
|
|
1,660
|
|
|
|
1,678
|
|
|
|
1,662
|
|
|
|
1,690
|
|
|
|
1,694
|
|
|
|
8,878
|
|
A one percentage point increase in the assumed health care trend rate would increase postretirement expense by
approximately $270,000, changing the benefit obligation by approximately $2.0 million; while a one percentage point decrease in the assumed health care trend rate would decrease postretirement health care expense by approximately $231,000,
changing the benefit obligation by approximately $1.7 million. The assumed trend rates for healthcare costs are a 5% increase per year for retirees prior to the age 65 and 0% for retirees post age 65. A 5% rate of increase for all employees
under age 65 and Canadian retirees over age 65 was assumed.
A one percentage point change in the assumed rate of return on the defined
benefit pension plan assets is estimated to have an approximate $692,000 effect on pension expense. Additionally, a one percentage point increase in the discount rate is estimated to have a $1.4 million decrease in pension expense, while a one
percentage point decrease in the discount rate is estimated to have a $1.7 million increase in pension expense.
Note H – Goodwill and Other
Intangible Assets
The major components of goodwill and other intangible assets are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Historical
Cost
|
|
|
Accumulated
Amortization
|
|
|
Historical
Cost
|
|
|
Accumulated
Amortization
|
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
$11,885
|
|
|
|
$4,650
|
|
|
|
$12,706
|
|
|
|
$4,430
|
|
|
Technology and drawings
|
|
|
6,741
|
|
|
|
2,804
|
|
|
|
6,745
|
|
|
|
2,412
|
|
|
Other intangibles
|
|
|
1,723
|
|
|
|
942
|
|
|
|
2,406
|
|
|
|
1,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finite-lived intangible assets
|
|
|
20,349
|
|
|
|
8,396
|
|
|
|
21,857
|
|
|
|
8,419
|
|
|
Goodwill
|
|
|
28,030
|
|
|
|
-
|
|
|
|
24,559
|
|
|
|
-
|
|
|
Trade names and trademarks
|
|
|
2,888
|
|
|
|
-
|
|
|
|
3,066
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$51,267
|
|
|
|
$8,396
|
|
|
|
$49,482
|
|
|
|
$8,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets was $1.7 million, $1.5 million and $1.4 million in 2016, 2015
and 2014, respectively. Amortization of these intangible assets for 2017 through 2021 is expected to approximate $1.4 million per year.
42
Changes in the carrying value of goodwill during the years ended December 31, 2016 and 2015
are as follows:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
Balance at January 1, 2015
|
|
|
$22,615
|
|
|
Acquisitions
|
|
|
2,428
|
|
|
Foreign currency
|
|
|
(484)
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
24,559
|
|
|
Acquisitions
|
|
|
5,187
|
|
|
Impairment
|
|
|
(1,800)
|
|
|
Foreign currency
|
|
|
84
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
$28,030
|
|
|
|
|
|
|
|
During the fourth quarter of 2016, concurrent with its annual planning process, the Company concluded that it
would be appropriate to evaluate the National Pump Company reporting unit as two separate reporting units on a prospective basis, National Pump (“National”) and Bayou based on the economic characteristics of each components. Accordingly,
the Company applied the provisions of ASC
350-20-35-45
and allocated goodwill between these affected reporting units on a
relative fair value basis. The Company performed a goodwill impairment assessment of the National Pump Company reporting unit, inclusive of National and Bayou, prior to reallocating the goodwill on a relative fair value basis. No impairment was
indicated as a result of this assessment.
For 2016, the Company used a quantitative analysis for the annual goodwill impairment testing
as of October 1 for its National and Bayou reporting units. The fair value for these reporting units was estimated using a discounted cash flow model, which considered forecasted cash flows discounted at an estimated weighted-average cost of
capital. The forecasted cash flows were based on the Company’s long-term operating plan and a terminal value was used to estimate the cash flows beyond the period covered by the operating plan. The weighted-average cost of capital is an
estimate of the overall
after-tax
rate of return required by equity and debt market holders of a business enterprise. These analyses require the exercise of significant judgments, including judgments about
appropriate discount rates, perpetual growth rates and the timing of expected future cash flows. Sensitivity analyses were performed around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair
values.
The result of this step one goodwill impairment test indicated that no impairment existed at National. Goodwill relating to the
National reporting unit represents 3.5% of the Company’s December 31, 2016 total assets. The Company’s annual impairment analysis performed as of October 1, 2016 concluded that National’s fair value was within 9% of its
carrying value. If recently depressed U.S. agricultural conditions continue for an extended time, this market’s related growth and profitability assumptions may reduce National’s indicated fair value to require a potential future
impairment charge.
The prolonged downturn in the oil and gas industry has negatively affected the Bayou reporting unit, leading
management to reconsider its estimates for future profitability of this reporting unit and thereby increasing the likelihood that the associated goodwill could be impaired. As such, the Company concluded that a step two fair value assessment was
required during the fourth quarter of 2016. As a result, the Company performed the step two test and concluded the goodwill of Bayou was impaired. As a result, a
pre-tax
non-cash
goodwill impairment charge, determined using level 3 inputs in the fair value hierarchy, of $1.8 million for the year ended December 31, 2016 was recorded. The impairment charge is included
in Impairment of goodwill in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss). The remaining value of goodwill relating to the Bayou reporting unit represents 0.2% of the Company’s December 31, 2016
total assets. There was no impairment charge recorded in 2015 or 2014 for goodwill.
43
For 2016, for all other reporting units, the Company used a qualitative analysis for goodwill
impairment testing as of October 1. This qualitative assessment included consideration of current industry and market conditions and circumstances as well as any mitigating factors that would most affect the fair value of the Company and these
reporting units. Based on the assessment and consideration of the totality of the facts and circumstances, including the business environment in the fourth quarter of 2016, the Company determined that it was not more likely than not that the fair
value of the Company or these reporting units is less than their respective carrying amounts. As such, no goodwill impairments for these reporting units were recorded for the year ended December 31, 2016.
Indefinite lived intangible assets primarily consist of trademarks and trade names. The fair value of these assets is determined using a
royalty relief methodology similar to that employed when the associated assets were acquired, but using updated estimates of future sales, cash flows and profitability. For 2016 and 2015 the fair value of indefinite lived intangible assets exceeded
the respective carrying values.
Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate
the carrying amount may not be recovered through future net cash flows generated by the assets.
Note I – Business Segment Information
The Company operates in one business segment comprising the design, manufacture and sale of pumps and pump systems. The Company’s
products are used in water, wastewater, construction, industrial, petroleum, original equipment, agriculture, fire protection, heating, ventilation and air conditioning (HVAC), military and other liquid-handling applications.
The pumps and pump systems are marketed in the United States and worldwide through a network of more than 1,000 distributors, through
manufacturers’ representatives (for sales to many original equipment manufacturers), through third-party distributor catalogs, and by direct sales. International sales are made primarily through foreign distributors and representatives.
The Company sells to approximately 140 countries around the world. The components of customer sales, determined based on the location of
customers are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2016
|
|
|
%
|
|
|
2015
|
|
|
%
|
|
|
2014
|
|
|
%
|
|
|
United States
|
|
$
|
250,872
|
|
|
|
66
|
|
|
$
|
269,628
|
|
|
|
66
|
|
|
$
|
298,338
|
|
|
|
69
|
|
|
Foreign countries
|
|
|
131,199
|
|
|
|
34
|
|
|
|
136,522
|
|
|
|
34
|
|
|
|
136,587
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
382,071
|
|
|
|
100
|
|
|
$
|
406,150
|
|
|
|
100
|
|
|
$
|
434,925
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales from external customers by product category are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Pumps and pump systems
|
|
$
|
328,973
|
|
|
$
|
352,652
|
|
|
$
|
379,626
|
|
|
Repairs of pumps and pump systems and other
|
|
|
53,098
|
|
|
|
53,498
|
|
|
|
55,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
382,071
|
|
|
$
|
406,150
|
|
|
$
|
434,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016 and 2015, 92% and 94% of the Company’s long-lived assets were located in the
United States, respectively.
Note J – Acquisitions
As of October 2016, the Company, through its wholly-owned subsidiary Patterson Pump Company (“Patterson”), acquired substantially
all of the assets and certain liabilities of Morrison Pump Company
44
(“Morrison”). The purchase price consisted of cash and deferred payments. The deferred payments represent the estimated fair value of the additional variable cash consideration payable
in connection with the acquisition that is contingent upon the achievement of certain performance milestones. The Company estimated the fair value using expected future cash flows over the period in which the obligation is expected to be settled,
which are considered to be level 3 inputs. Founded in 1999, Morrison is a growing manufacturer of and service provider for large capacity pumping systems primarily for the municipal flood control and water management markets. Morrison has steadily
expanded its product designs and service capabilities in recent years to become a notable provider in North America and South America, the Middle East and Asia. Morrison also has developed and manufactures some innovative components that should
benefit from its integration with Patterson. Morrison’s sales for the full year 2016 were approximately $5.0 million.
The
allocation of the purchase price of Morrison to the business acquired is preliminary and will be finalized pending completion of purchase accounting matters. Based on the preliminary purchase price allocation for this acquisition, goodwill of
$5.2 million was recorded.
The results of operations of Morrison have been included in Gorman-Rupp’s consolidated results since
October 2016. Supplemental pro forma information has not been provided as the acquisition did not have a material impact on the Company’s consolidated results of operations.
As of August 2015, the Company’s subsidiary, Gorman-Rupp Europe B.V., acquired substantially all of the assets and certain liabilities of
Hydro+ SA (“Hydro”) and Hydro+ Rental SPRL (“Hydro Rental”), subsequently renamed Gorman-Rupp Rental SPRL, based near Namur, Belgium. The Company assumed $1.9 million in bank debt, which was subsequently paid off in 2015.
Hydro has been the Company’s Belgian pump and pump systems distributor since 1998, and in 2011 formed Hydro Rental to expand pump and pump system rentals in the same region. Hydro’s principal products are centrifugal pumps supplied by the
Company, and Hydro has begun converting some of these pumps into packaged pump station systems tailored for its European market.
The
Company recognized customer relationships of $748,000, technology and drawings of $130,000, tradenames and trademarks of $70,000 and goodwill of $2.4 million related to the asset acquisition of Hydro and Hydro Rental.
The results of operations of both Hydro companies have been included in Gorman-Rupp’s consolidated results since August 2015.
In June 2014, the Company, through a newly established entity, Bayou City Pump Company (“Bayou”), acquired substantially all of the
assets and certain liabilities of Bayou City Pump, Inc. (“BCP”). Founded in 1973, Bayou is a leading manufacturer of and service provider for highly-reliable and energy-efficient vertical turbine pumping systems primarily for the inland
and coastal marine liquid petroleum and chemical transportation market.
The Company recognized customer relationships of
$4.1 million, technology and drawings of $830,000, tradenames and trademarks of $370,000 and goodwill of $4.7 million related to the asset acquisition of BCP.
The results of operations of Bayou have been included in Gorman-Rupp’s consolidated results since June 2014.