In the fourth quarter of 2012, the Company took two actions related to its U.S. defined benefit pension plan that will reduce future expenses and contributions. First, the Company offered a one-time lump sum payment option to terminated vested participants that resulted in an additional $34 million pension fund contribution by the Company to fund these payouts as well as a settlement charge of $15.3 million. These contributions were made using excess cash from operations, positively influencing the funded status of the plan. Second, the Company made changes to its existing U.S. defined benefit plan which are effective beginning December 31, 2013, that freeze benefits provided to employees hired on or before June 1, 2004. This change is similar to the change made in 2004 for any new employees.
Finally, recognizing the ongoing weak global economic conditions, the Company took further aggressive actions to reduce its cost structure across all segments and geographies, resulting in a $10.1 million charge in the fourth quarter of 2012. Most of the costs were severance-related expenses associated with a reduction in over 200 positions.
The combination of the amendment to the pension plan and the restructuring actions will drive approximately $20 million in annual cost savings beginning immediately.
Cash Flow and LeverageCash flow generated from operations was $16 million compared to $113 million in the year ago quarter. The lower cash generation in the quarter was primarily due to a lower rate of working capital improvement achieved in the current quarter compared to the prior year quarter as well as the $34 million of additional pension plan contribution. Full year cash flow was $142 million; however, excluding the additional pension plan contribution, full year cash flow would have been $176 million, compared to $144 million in the prior year. “Our disciplined working capital and cash management processes give us the flexibility needed to manage through an uncertain economic environment. With a year-end cash balance of $89 million and an expectation of continuing positive cash flow, we constantly evaluate the optimal use of our funds,” commented Ted Dosch, Executive Vice-President and CFO. “Going forward, we will utilize future cash flows to invest in the growth of the business, capitalize on strategic acquisition opportunities, deleverage our balance sheet, and selectively return capital to shareholders through share repurchases and special dividends, as we did in 2012 with our 1 million share repurchase and $4.50 per share special dividend.”
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