XML 46 R28.htm IDEA: XBRL DOCUMENT

Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2012

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its majority and wholly owned subsidiaries. Upon consolidation, all significant intercompany accounts and transactions are eliminated.

Cash Equivalents

Cash Equivalents

Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase and consist primarily of certificates of deposit and money market funds, for which the carrying amount is a reasonable estimate of fair value.

Investment Securities

Investment Securities

Investment securities at December 31, 2012 and 2011 consisted of certificates of deposit with original maturities of greater than three months.

Trading securities are recorded at fair value. The Company determines the fair value by obtaining market value when available from quoted prices in active markets. In the absence of quoted prices, the Company uses other inputs to determine the fair value of the investments. All changes in the fair value as well as any realized gains and losses from the sale of the securities are recorded when incurred to the consolidated statements of operations as other income or expense.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

Allowance for doubtful accounts includes reserves for bad debts, sales returns and allowances and cash discounts. The Company analyzes the aging of accounts receivable, individual accounts receivable, historical bad debts, concentration of receivables by customer, customer credit worthiness, current economic trends, and changes in customer payment terms. The Company specifically analyzes individual accounts receivable and establishes specific reserves against financially troubled customers. In addition, factors are developed in certain regions utilizing historical trends of sales and returns and allowances and cash discount activities to derive a reserve for returns and allowances and cash discounts.

Concentration of Credit

Concentration of Credit

The Company sells products to a diversified customer base and, therefore, has no significant concentrations of credit risk. In 2012 and 2011, no customer accounted for 10% or more of the Company's total sales.

Inventories

Inventories

Inventories are stated at the lower of cost (using primarily the first-in, first-out method) or market. Market value is determined by replacement cost or net realizable value. Historical usage is used as the basis for determining the reserve for excess or obsolete inventories.

Assets Held for Sale

Assets Held for Sale

The Company accounts for assets held for sale when management has committed to a plan to sell the asset or group of assets, is actively marketing the asset or group of assets, the asset or group of assets can be sold in its current condition in a reasonable period of time and the plan is not expected to change. As of December 31, 2012, the Company had completed the disposition of the assets held for sale. In connection with the disposal, one of the assets held for sale was classified as discontinued operations (see Note 3). In 2012 and 2010, the Company recorded estimated losses of $1.6 million and $1.0 million, respectively, to reduce these assets to their estimated fair value, less any costs to sell. These amounts are recorded as a component of goodwill and other long-lived asset impairment charges in the consolidated statements of operations.

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

Goodwill is recorded when the consideration paid for acquisitions exceeds the fair value of net tangible and intangible assets acquired. Goodwill and other intangible assets with indefinite useful lives are not amortized, but rather are tested at least annually for impairment. The test was performed as of October 28, 2012.

Impairment of Goodwill and Long-Lived Assets

Impairment of Goodwill and Long-Lived Assets

The changes in the carrying amount of goodwill by geographic segment are as follows:

	Year Ended December 31, 2012

	Gross Balance								Accumulated Impairment Losses									Net Goodwill
	Balance January 1, 2012		Acquired During the Period		Foreign Currency Translation and Other		Balance December 31, 2012		Balance January 1, 2012			Impairment Loss During the Period			Balance December 31, 2012			December 31, 2012
	(in millions)
North America	$	213.8	$	11.7	$	0.1	$	225.6	$	(23.2	)	$	(1.0	)	$	(24.2	)	$	201.4
Europe, Middle East and Africa (EMEA)		285.3		—		8.6		293.9		—			—			—			293.9
Asia		12.7		—		0.2		12.9		—			—			—			12.9

Total	$	511.8	$	11.7	$	8.9	$	532.4	$	(23.2	)	$	(1.0	)	$	(24.2	)	$	508.2

	Year Ended December 31, 2011

	Gross Balance									Accumulated Impairment Losses									Net Goodwill
	Balance January 1, 2011		Acquired During the Period		Foreign Currency Translation and Other			Balance December 31, 2011		Balance January 1, 2011			Impairment Loss During the Period			Balance December 31, 2011			December 31, 2011
	(in millions)
North America	$	213.8	$	—	$	—		$	213.8	$	(22.0	)	$	(1.2	)	$	(23.2	)	$	190.6
EMEA		228.1		72.8		(15.6	)		285.3		—			—			—			285.3
Asia		8.1		4.2		0.4			12.7		—			—			—			12.7

Total	$	450.0	$	77.0	$	(15.2	)	$	511.8	$	(22.0	)	$	(1.2	)	$	(23.2	)	$	488.6

Goodwill is tested for impairment at least annually or more frequently if events or circumstances indicate that it is "more likely than not" that goodwill might be impaired, such as a change in business conditions. The Company performs its annual goodwill impairment assessment in the fourth quarter of each year.

On January 31, 2012, the Company completed the acquisition of tekmar Control Systems (tekmar) in a share purchase transaction. The initial purchase price paid was CAD $18.0 million, with post-closing adjustments related to working capital and an earnout based on the attainment of certain future earnings levels. The initial purchase price paid was equal to approximately $17.8 million based on the exchange rate of Canadian dollar to U.S. dollar as of January 31, 2012. The total purchase price will not exceed CAD $26.2 million. The Company is accounting for the transaction as a business combination. The Company completed a purchase price allocation that resulted in the recognition of $11.7 million in goodwill and $10.1 million in intangible assets.

Operating results for the EMEA reporting unit had been hindered by the downturn in the economic environment in Europe and continued to fall below expectations during the six months ended July 1, 2012, triggering the decision to update the impairment analysis during the second quarter. As a result of the updated fair value assessment, it was determined that the fair value of the EMEA reporting unit continued to exceed its carrying value, a result of a decrease in discount rate and a reduction of net debt offset by lower short-term projections.

The Company determined that the future prospects for its Blue Ridge Atlantic Enterprises, Inc. (BRAE) reporting unit in North America were lower than originally estimated as future sales growth expectations had been reduced since the 2010 acquisition of BRAE. The Company recorded pre-tax goodwill impairment charges of $1.0 million and $1.2 million in 2012 and 2011, respectively, for that reporting unit. The impairment charges were offset by the reduction in anticipated earnout payments of equal amounts. The Company estimated the fair value of the reporting unit using the expected present value of future cash flows.

Intangible assets with estimable lives and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of intangible assets with estimable lives and other long-lived assets is measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted pretax cash flows expected to be generated by the asset or asset group. If these comparisons indicate that an asset is not recoverable, the impairment loss recognized is the amount by which the carrying amount of the asset or asset group exceeds the related estimated fair value. Estimated fair value is based on either discounted future pretax operating cash flows or appraised values, depending on the nature of the asset. The Company determines the discount rate for this analysis based on the weighted average cost of capital based on the market and guideline public companies for the related businesses and does not allocate interest charges to the asset or asset group being measured. Judgment is required to estimate future operating cash flows.

Intangible assets include the following:

	December 31,

	2012							2011
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(in millions)
Patents	$	16.5	$	(11.7	)	$	4.8	$	16.5	$	(10.8	)	$	5.7
Customer relationships		134.3		(68.7	)		65.6		133.0		(57.5	)		75.5
Technology		28.5		(9.3	)		19.2		19.8		(7.1	)		12.7
Trade names		13.9		(1.9	)		12.0		12.4		(0.8	)		11.6
Other		8.7		(5.5	)		3.2		8.5		(5.4	)		3.1

Total amortizable intangibles		201.9		(97.1	)		104.8		190.2		(81.6	)		108.6
Indefinite-lived intangible assets		41.8		—			41.8		42.4		—			42.4

Total	$	243.7	$	(97.1	)	$	146.6	$	232.6	$	(81.6	)	$	151.0

Aggregate amortization expense for amortized intangible assets for 2012, 2011 and 2010 was $15.6 million, $17.9 million and $14.3 million, respectively. Additionally, future amortization expense on amortizable intangible assets is expected to be $14.9 million for 2013, $14.8 million for 2014, $14.6 million for 2015, $14.0 million for 2016, and $13.7 million for 2017. Amortization expense is provided on a straight-line basis over the estimated useful lives of the intangible assets. The weighted-average remaining life of total amortizable intangible assets is 9.2 years. Patents, customer relationships, technology, trade names and other amortizable intangibles have weighted-average remaining lives of 6.4 years, 6.5 years, 11.8 years, 11.6 years and 41.6 years, respectively. Indefinite-lived intangible assets primarily include trade names and trademarks.

In 2011, the Company determined that the prospects for Austroflex Rohr-Isoliersysteme GmbH (Austroflex), part of our EMEA segment, were lower than originally estimated due to current operating profits being below plan and tempered future growth expectations. Accordingly, the Company performed an evaluation of the asset group utilizing the undiscounted cash flows and determined the carrying value of the assets was no longer recoverable. The Company performed a fair value assessment and, as a result, wrote down the long-lived assets, including customer relationships, trade names, and property, plant and equipment, by $14.8 million. Fair value was based on discounted cash flows using market participant assumptions and utilized an estimated weighted average cost of capital.

Adjustments to indefinite-lived intangible assets during the year ended December 31, 2012 relate primarily to an impairment charge of $0.4 million for a trade name in the North America segment and the concurrent reclassification to amortizable intangibles.

Property, Plant and Equipment

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets, which range from 10 to 40 years for buildings and improvements and 3 to 15 years for machinery and equipment.

Taxes, Other than Income Taxes

Taxes, Other than Income Taxes

Taxes assessed by governmental authorities on sale transactions are recorded on a net basis and excluded from sales, in the Company's consolidated statements of operations.

Income Taxes

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company recognizes tax benefits when the item in question meets the more-likely-than-not (greater than 50% likelihood of being sustained upon examination by the taxing authorities) threshold. During 2012, unrecognized tax benefits of the Company increased by a net amount of $2.8 million. As a result of the ongoing federal audit, unrecognized tax benefits increased by approximately $4.0 million because of an adjustment to temporary differences that did not impact overall income tax expense. The Company decreased unrecognized tax benefits by approximately $1.2 million, of which $0.6 million related to reduced exposures in the U.S. and $0.6 million associated with settlements in Europe. The Company estimates that it is reasonably possible that approximately $3.6 million of the currently remaining unrecognized tax benefit may be recognized by the end of 2013 as a result of the conclusion of the federal income tax audit. The amount of expense accrued for penalties and interest is $0.7 million worldwide.

As of December 31, 2012, the Company had gross unrecognized tax benefits of approximately $4.6 million, approximately $0.6 million of which, if recognized, would affect the effective tax rate. The difference between the amount of unrecognized tax benefits and the amount that would affect the effective tax rate consists of both the federal tax benefit of state income tax items and the temporary differences resulting from the federal audit.

A reconciliation of the beginning and ending amount of unrecognized tax benefits and accrued interest related to the unrecognized tax benefits is as follows:

	(in millions)

Balance at January 1, 2012	$	1.8
Increases related to prior year tax positions		4.0
Decreases related to prior year tax positions		(0.6	)
Settlements		(0.6	)

Balance at December 31, 2012	$	4.6

In February 2012, the United States Internal Revenue Service commenced an audit of the Company's 2009, 2010 and 2011 tax years. The Company does not anticipate any material adjustments other than those mentioned above as a result of this audit. The Company conducts business in a variety of locations throughout the world resulting in tax filings in numerous domestic and foreign jurisdictions. The Company is subject to tax examinations regularly as part of the normal course of business. The Company's major jurisdictions are the U.S., Canada, China, Netherlands, U.K., Germany, Italy and France. With few exceptions the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2006. The statute of limitations in our major jurisdictions is open in the U.S. for the year 2009 and later; in Canada for 2008 and later; and in the Netherlands for 2007 and later.

The Company accounts for interest and penalties related to uncertain tax positions as a component of income tax expense.

Foreign Currency Translation

Foreign Currency Translation

The financial statements of subsidiaries located outside the United States generally are measured using the local currency as the functional currency. Balance sheet accounts, including goodwill, of foreign subsidiaries are translated into United States dollars at year-end exchange rates. Income and expense items are translated at weighted average exchange rates for each period. Net translation gains or losses are included in other comprehensive income, a separate component of stockholders' equity. The Company does not provide for U.S. income taxes on foreign currency translation adjustments since it does not provide for such taxes on undistributed earnings of foreign subsidiaries. Gains and losses from foreign currency transactions of these subsidiaries are included in net earnings.

Stock-Based Compensation, Former Chief Executive Officer Separation Costs and Former Chief Financial Officer Retention Costs

Stock-Based Compensation, Former Chief Executive Officer Separation Costs and Former Chief Financial Officer Retention Costs

The Company records compensation expense in the financial statements for share-based awards based on the grant date fair value of those awards. Stock-based compensation expense includes an estimate for pre-vesting forfeitures and is recognized over the requisite service periods of the awards on a straight-line basis, which is generally commensurate with the vesting term. The benefits associated with tax deductions in excess of recognized compensation cost are reported as a financing cash flow.

At December 31, 2012, the Company had three stock-based compensation plans with total unrecognized compensation costs related to unvested stock-based compensation arrangements of approximately $15.6 million and a total weighted average remaining term of 2.6 years. For 2012, 2011 and 2010, the Company recognized compensation costs related to stock-based programs of approximately $5.8 million, $5.3 million and $4.7 million, respectively, in selling, general and administrative expenses. The Company recorded approximately $0.7 million of tax benefits during 2012, 2011 and 2010 for the compensation expense relating to its stock options. For 2012, 2011 and 2010, the Company recorded approximately $1.4 million, $1.5 million and $1.2 million, respectively, of tax benefit for its other stock-based plans. For 2012, 2011 and 2010, the recognition of total stock-based compensation expense impacted both basic and diluted net income per common share by $0.10, $0.09 and $0.08, respectively.

On May 23, 2012, William C. McCartney provided notice of his intention to retire as Chief Financial Officer of the Company. On June 14, 2012, the Company entered into a retention agreement with Mr. McCartney. Pursuant to the retention agreement, Mr. McCartney continued employment with the Company until December 14, 2012, and assisted in transitioning his responsibilities and duties to the new Chief Financial Officer. The Company recorded a pre-tax charge of approximately $1.5 million over the retention period, consisting of expected cash payments of $0.7 million and a non-cash charge of $0.8 million for the modification of stock options and restricted stock awards

On January 26, 2011, Patrick S. O'Keefe resigned from his positions as Chief Executive Officer, President and Director. Pursuant to a separation agreement, the Company recorded a charge of $6.3 million consisting of $3.3 million in expected cash severance and a non-cash charge of $3.0 million for the modification of stock options and restricted stock awards.

Net Income Per Common Share

Net Income Per Common Share

Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding. The calculation of diluted income per share assumes the conversion of all dilutive securities (see Note 12).

Net income and number of shares used to compute net income per share, basic and assuming full dilution, are reconciled below:

	Years Ended December 31,

	2012						2011						2010
	Net Income		Shares		Per Share Amount		Net Income		Shares		Per Share Amount		Net Income		Shares		Per Share Amount
	(Amounts in millions, except per share information)
Basic EPS	$	68.4		36.0	$	1.90	$	66.4		37.3	$	1.78	$	58.8		37.3	$	1.58
Dilutive securities, principally common stock options		—		0.1		—		—		0.2		—		—		0.1		(0.1	)

Diluted EPS	$	68.4		36.1	$	1.90	$	66.4		37.5	$	1.78	$	58.8		37.4	$	1.57

The computation of diluted net income per share for the years ended December 31, 2012, 2011 and 2010 excludes the effect of the potential exercise of options to purchase approximately 0.2 million, 0.7 million and 0.5 million shares, respectively, because the exercise price of the option was greater than the average market price of the Class A Common Stock and the effect would have been anti-dilutive.

On May 16, 2012, the Board of Directors authorized a stock repurchase program of up to two million shares of the Company's Class A Common Stock. The stock repurchase program was completed in July 2012, as the Company repurchased the entire two million shares of Class A common stock at a cost of approximately $65.8 million.

On August 2, 2011 the Board of Directors authorized a stock repurchase program. Under the program, the Company was authorized to repurchase up to one million shares of our Class A Common Stock. During the three months ended October 2, 2011, the Company repurchased the entire one million shares at a cost of $27.2 million.

Financial Instruments

Financial Instruments

In the normal course of business, the Company manages risks associated with commodity prices, foreign exchange rates and interest rates through a variety of strategies, including the use of hedging transactions, executed in accordance with the Company's policies. The Company's hedging transactions include, but are not limited to, the use of various derivative financial and commodity instruments. As a matter of policy, the Company does not use derivative instruments unless there is an underlying exposure. Any change in value of the derivative instruments would be substantially offset by an opposite change in the value of the underlying hedged items. The Company does not use derivative instruments for trading or speculative purposes.

Derivative instruments may be designated and accounted for as either a hedge of a recognized asset or liability (fair value hedge) or a hedge of a forecasted transaction (cash flow hedge). For a fair value hedge, both the effective and ineffective portions of the change in fair value of the derivative instrument, along with an adjustment to the carrying amount of the hedged item for fair value changes attributable to the hedged risk, are recognized in earnings. For a cash flow hedge, changes in the fair value of the derivative instrument that are highly effective are deferred in accumulated other comprehensive income or loss until the underlying hedged item is recognized in earnings. There were no cash flow hedges as of December 31, 2012 or December 31, 2011.

If a fair value or cash flow hedge were to cease to qualify for hedge accounting or be terminated, it would continue to be carried on the balance sheet at fair value until settled, but hedge accounting would be discontinued prospectively. If a forecasted transaction were no longer probable of occurring, amounts previously deferred in accumulated other comprehensive income would be recognized immediately in earnings. On occasion, the Company may enter into a derivative instrument that does not qualify for hedge accounting because it is entered into to offset changes in the fair value of an underlying transaction which is required to be recognized in earnings (natural hedge). These instruments are reflected in the Consolidated Balance Sheets at fair value with changes in fair value recognized in earnings.

Foreign currency derivatives include forward foreign exchange contracts primarily for Canadian dollars. Metal derivatives included commodity swaps for copper.

Portions of the Company's outstanding debt are exposed to interest rate risks. The Company monitors its interest rate exposures on an ongoing basis to maximize the overall effectiveness of its interest rates.

Fair value Measurements

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. An entity is required to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

The Company has certain financial assets and liabilities that are measured at fair value on a recurring basis and certain nonfinancial assets and liabilities that may be measured at fair value on a nonrecurring basis. The fair value disclosures of these assets and liabilities are based on a three-level hierarchy, which is defined as follows:


Level 1		Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.
Level 2		Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities subject to this hierarchy are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Shipping and Handling

Shipping and Handling

Shipping and handling costs included in selling, general and administrative expense amounted to $38.0 million, $38.1 million and $33.5 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Research and Development

Research and Development

Research and development costs included in selling, general, and administrative expense amounted to $20.7 million, $20.9 million and $18.6 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Revenue Recognition

Revenue Recognition

The Company recognizes revenue when all of the following criteria have been met: the Company has entered into a binding agreement, the product has been shipped and title passes, the sales price to the customer is fixed or is determinable, and collectability is reasonably assured. Provisions for estimated returns and allowances are made at the time of sale, and are recorded as a reduction of sales and included in the allowance for doubtful accounts in the Consolidated Balance Sheets. The Company records provisions for sales incentives (primarily volume rebates), as an adjustment to net sales, at the time of sale based on estimated purchase targets.

Basis of Presentation

Basis of Presentation

Certain amounts in the 2011 and 2010 consolidated financial statements have been reclassified to permit comparison with the 2012 presentation. These reclassifications had no effect on reported results of operations or stockholders' equity.

Estimates

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

New Accounting Standards

New Accounting Standards

In July 2012, the FASB issued an amendment to the requirements for indefinite-lived intangible asset impairment testing. The Company has 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 an indefinite-lived intangible asset is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is more likely than not that the fair value of an indefinite-lived intangible asset is greater than its carrying amount, then performing the impairment test is unnecessary. The Company adopted this new standard effective with its annual impairment testing date of October 28, for the year ending December 31, 2012.