NOTE 12 – EMPLOYEE BENEFIT PLANS

Defined Benefit Plan

In connection with the Zetex acquisition, we adopted a contributory defined benefit plan that covers certain employees in the U.K. The defined benefit plan is closed to new entrants and frozen with respect to future benefit accruals. The retirement benefit is based on the final average compensation and service of each eligible employee. We determined the fair value of the defined benefit plan assets and utilizes an annual measurement date of December 31. At subsequent measurement dates, defined benefit plan assets will be determined based on fair value. Defined benefit plan assets consist primarily of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. The net pension and supplemental retirement benefit obligations and the related periodic costs are based on, among other things, assumptions of the discount rate, estimated return on plan assets and mortality rates. These obligations and related periodic costs are measured using actuarial techniques and assumptions. The projected unit credit method is the actuarial cost method used to compute the pension liabilities and related expenses.

Net period benefit costs associated with the defined benefit were approximately $1 million and less than $1 million for the years ended December 31, 2014 and 2013, respectively. All unrecognized actuarial gains and losses, prior service costs and accumulated other comprehensive income are eliminated and the balance sheet liability is set equal to the funded status of the defined benefit plan at acquisition date.

The following table summarizes the net periodic benefit costs of the plan for the years ended December 31, 2014 and 2013:

	Defined Benefit Plan

	2014			2013
Components of net periodic benefit cost:
Service cost	$	329		$	313
Interest cost		6,733			5,384
Recognized actuarial loss		1,036			239
Expected return on plan assets		(6,781	)		(5,556	)
Net periodic benefit cost	$	1,317		$	380

The following tables set forth the benefit obligation, the fair value of plan assets, and the funded status as of December 31:

	Defined Benefit Plan

	2014			2013
Change in benefit obligation:
Beginning balance	$	149,316		$	124,751
Acquisition		-			-
Service cost		329			313
Interest cost		6,733			5,384
Actuarial gain (loss)		17,650			21,765
Benefits paid		(4,511	)		(6,719	)
Settlements		-			240
Currency changes		(9,802	)		3,582
Benefit obligation at December 31	$	159,715		$	149,316

Change in plan assets:

Beginning balance - fair value	$	116,567		$	106,898
Employer contribution		2,569			2,960
Actual return on plan assets		15,701			10,987
Benefits paid		(4,511	)		(6,719	)
Currency changes		(7,546	)		2,441
Fair value of plan assets at December 31	$	122,780		$	116,567
Underfunded status at December 31	$	(36,935	)	$	(32,749	)

Based on an actuarial study performed as of December 31, 2014, the plan is underfunded by approximately $37 million and the liability is reflected in our consolidated balance sheets as a noncurrent liability and the amount recognized in accumulated other comprehensive loss was approximately $36 million. The majority of the increase of the underfunded status in 2014 was caused by the change in discount rates, and partially offset by the better than expected investment returns and a decrease in future inflation expectations.

We apply the “10% corridor” approach to amortize unrecognized actuarial gains (losses). Under this approach, only actuarial gains (losses) that exceed 10% of the greater of the projected benefit obligation or the market-related value of the plan assets are amortized. For the year ended December 31, 2014, the plan’s total recognized loss increased by approximately $7 million. The variance between the actual and expected return to plan assets during 2014 increased the total unrecognized net loss by approximately $9 million. The total unrecognized net loss is more than 10% of the projected benefit obligation and 10% of the plan assets. Therefore, the excess amount will be amortized over the average term to retirement of plan participants not yet in receipt of pension, which as of December 31, 2014 the average term was approximately 13 years. The following weighted-average assumptions were used to determine net periodic benefit costs for the year ended December 31:

	2014		2013
Discount rate		3.7%		4.6%
Expected long-term return on plan assets		5.2%		5.9%

The following weighted-average assumption was used to determine the benefit obligations for the year ended December 31:

	2014				2013
Discount rate		3.7%				4.6%

The expected long-term return on plan assets was determined based on historical and expected future returns of the various asset classes. The plan’s investment policy includes a mandate to diversify assets and invest in a variety of asset classes to achieve its expected long-term return and is currently invested in a variety of funds representing most standard equity and debt security classes. Trustees of the plan may make changes at any time. The following summarizes the plan asset allocations of the assets in the plan and expected long-term return by asset category:

Asset category	Expected long-term return			Assets allocation
Cash		0.5	%		2	%
Equity securities		7.2	%		42	%
Gilt securities		2.4	%		19	%
Corporate bond securities		3.4	%		25	%
Target return funds		7.2	%		12	%
Total		5.2	%		100	%

Benefit plan payments are primarily made from funded benefit plan trusts and current assets. The following summarizes the expected future benefit payments, including future benefit accrual, as of December 31, 2014:

Year
2015	$	3,727
2016		4,273
2017		4,327
2018		4,475
2019		4,756
2020-2024		31,070

We adopted a payment plan with the trustees of the defined benefit plan, in which we will pay approximately GBP2 million every year from 2012 through 2019. We are currently in negotiations with the trustees related to a new payment plan.

Our overall defined benefit plan investment strategy is to achieve a mix of investments for long-term growth and for near-term benefit payments with a wide diversification of asset types and fund strategies. The target allocations for plan assets are 48% equity securities, 40% corporate bonds and government securities, and 12% to absolute return funds. Equity securities primarily include investments in large-cap and mid-cap companies primarily located in the U.K. Fixed income securities include corporate bonds of companies from diversified industries, and U.K. government bonds. The absolute return fund is mainly invested in a mixture of equities and bonds.

The plan’s trustees appoint fund managers to carry out all the day-to-day functions relating to the management of the fund and its administration. The fund managers must invest their portion of the plan’s assets in accordance with their investment manager agreement agreed by the trustees. The trustees are responsible for agreeing these investment manager agreements and for deciding on the portion of the plan’s assets that will be invested with each fund manager. When making decisions, the trustees take advice from experts including the plan’s actuary and also consult with us.

The following table summarizes the major categories of the plan assets:

December 31, 2014
Assets Category	Level 1		Level 2		Level 3		Total

Cash	$	2,534	$	-	$	-	$	2,534
Equity securities:
U.K.		25,236		-		-		25,236
North America		9,623		-		-		9,623
Europe (excluding U.K.)		8,621		-		-		8,621
Japan		3,872		-		-		3,872
Pacific Basin (excluding Japan)		3,259		-		-		3,259
Emerging markets		950		-		-		950
Fixed income securities:
Corporate bonds		-		31,035		-		31,035
Index linked securities:
U.K. Treasuries		23,669		-		-		23,669
Other types of investments:
Absolute return funds		13,981		-		-		13,981
Total	$	91,745	$	31,035	$	-	$	122,780

Fair value is taken to mean the bid value of securities, as supplied by the fund managers. All the plan’s securities are publically traded and highly liquid. Therefore, the majority of the securities are valued using Level 1 Inputs and one security is valued using Level 2 Inputs using quoted prices for identical or similar securities. The plan does not hold any Level 3 securities. See Note 2 for additional information regarding fair value and Levels 1, 2 and 3.

The investment manager agreements require the fund managers to invest in a diverse range of stocks and bonds across each particular asset class. The stocks held by the plan in a particular asset class should therefore match closely the underlying stocks in the relevant index. We believe that this leads to minimal concentration of risk within each asset class; although we recognize that some asset classes are inherently more risky than others.

We also have pension plans in Asia for which the benefit obligation, fair value of the plan assets and the funded status amounts are deemed immaterial and therefore, not included in the amounts or assumptions above.

401(k) Retirement Plan

We maintain a 401(k) retirement plan (“the Plan”) for the benefit of qualified employees at our U.S. locations. Employees who participate may elect to make salary deferral contributions to the Plan up to 100% of the employees’ eligible payroll subject to annual Internal Revenue Code maximum limitations. We currently makes a matching contribution of $1 for every $2 contributed by the participant up to 6% (3% maximum matching) of the participant’s eligible payroll, which vests over four years. In addition, we may make a discretionary contribution to the entire qualified employee pool, in accordance with the Plan.

As stipulated by the regulations of China, we maintain a retirement plan pursuant to the local municipal government for the employees in China. We are required to make contributions to the retirement plan at a rate between 10% and 22% of the employee’s eligible payroll. Pursuant to the Taiwan Labor Standard Law and Factory Law, we maintain a retirement plan for the employees in Taiwan, whereby we make contributions at a rate of 6% of the employee’s eligible payroll.

For the years ended December 31, 2014, 2013 and 2012, total amounts expensed under these plans were approximately $13 million, $6 million and $5 million, respectively.

Deferred Compensation Plan

We maintain a Non-Qualified Deferred Compensation Plan (the “Deferred Compensation Plan”) for executive officers, key employees and members of the Board of Directors (the “Board”). The Deferred Compensation Plan allows eligible participants to defer the receipt of eligible compensation, including equity awards, until designated future dates. We offset our obligations under the Deferred Compensation Plan by investing in the actual underlying investments. These investments are classified as trading securities and are carried at fair value. At December 31, 2014, these investments totaled approximately $5 million. All gains and losses in these investments are materially offset by corresponding gains and losses in the deferred compensation plan liabilities.

Share-Based Plans

We maintain share-based compensation plans for our Board, officers and key employees, which provide for stock options and stock awards under our equity incentive plans.