Pensions and Other Post-retirement Benefits

The obligation and funded status of the Company’s pension and other post-retirement benefit plans are shown below. The Pension Benefits column aggregates defined benefit pension plans in the U.S., Germany and England and the U.S. supplemental retirement plans. The Other Benefits column includes the U.S. retiree medical and life insurance plan.



	Pension Benefits						Other Benefits
(Thousands)	2012			2011			2012			2011
Change in benefit obligation
Benefit obligation at beginning of year	$	210,996		$	180,673		$	33,209		$	32,374
Service cost	7,915			6,955			285			284
Interest cost	9,912			9,786			1,440			1,596
Plan amendments	117			430			—			—
Actuarial loss	32,595			21,280			1,493			1,419
Benefit payments from fund	(7,523		)	(7,512		)	—			—
Benefit payments directly by Company	(129		)	(127		)	(2,432		)	(2,735		)
Expenses paid from assets	(293		)	(479		)	—			—
Medicare Part D subsidy	—			—			299			271
Foreign currency exchange rate changes	249			(10		)	—			—
Benefit obligation at end of year	253,839			210,996			34,294			33,209
Change in plan assets
Fair value of plan assets at beginning of year	140,344			131,761			—			—
Actual return on plan assets	18,534			(5,215		)	—			—
Employer contributions	12,218			21,706			—			—
Benefit payments from fund	(7,523		)	(7,512		)	—			—
Expenses paid from assets	(293		)	(479		)	—			—
Foreign currency exchange rate changes	156			83			—			—
Fair value of plan assets at end of year	163,436			140,344			—			—
Funded status at end of year	$	(90,403	)	$	(70,652	)	$	(34,294	)	$	(33,209	)
Amounts recognized in the Consolidated Balance Sheets consist of:
Other assets	$	1,112		$	—		$	—		$	—
Other liabilities and accrued items	(475		)	—			(2,663		)	(2,788		)
Retirement and post-employment benefits	(91,040		)	(70,652		)	(31,631		)	(30,421		)
	$	(90,403	)	$	(70,652	)	$	(34,294	)	$	(33,209	)
Amounts recognized in other comprehensive income (before tax) consist of:
Net actuarial loss	$	127,027		$	106,583		$	2,472		$	978
Net prior service (credit) cost	(2,075		)	(2,527		)	115			202
	$	124,952		$	104,056		$	2,587		$	1,180
Amortizations expected to be recognized during next fiscal year (before tax):
Amortization of net loss	$	7,731		$	5,605		$	—		$	—
Amortization of prior service credit	(341		)	(335		)	115			87
	$	7,390		$	5,270		$	115		$	87
Additional information
Accumulated benefit obligation for all defined benefit pension plans	$	242,854		$	204,359		—			—
For defined benefit pension plans with benefit obligations in excess of plan assets:
Aggregate benefit obligation	249,075			206,800			—			—
Aggregate fair value of plan assets	157,560			135,505			—			—
For defined benefit pension plans with accumulated benefit obligations in excess of plan assets:
Aggregate accumulated benefit obligation	238,090			200,163			—			—
Aggregate fair value of plan assets	157,560			135,505			—			—

Components of net periodic benefit cost and other amounts recognized in other comprehensive income (OCI)



	Pension Benefits									Other Benefits
(Thousands)	2012			2011			2010			2012		2011			2010
Net periodic benefit cost
Service cost	$	7,915		$	6,955		$	5,135		$	285	$	284		$	273
Interest cost	9,912			9,786			9,156			1,440		1,596			1,738
Expected return on plan assets	(11,934		)	(11,050		)	(10,441		)	—		—			—
Amortization of prior service cost (benefit)	(335		)	(335		)	(530		)	86		(36		)	(36		)
Recognized net actuarial loss	5,605			3,920			2,834			—		—			—
Net periodic benefit cost	$	11,163		$	9,276		$	6,154		$	1,811	$	1,844		$	1,975



	Pension Benefits									Other Benefits
(Thousands)	2012			2011			2010			2012			2011			2010
Change in other comprehensive income
OCI at beginning of year	$	104,056		$	69,716		$	62,886		$	1,180		$	(275	)	$	(2,085	)
Increase (decrease) in OCI:
Recognized during year — prior service cost (credit)	335			335			530			(87		)	36			36
Recognized during year — net actuarial (losses)	(5,605		)	(3,920		)	(2,834		)	—			—			—
Occurring during year — prior service cost	117			430			739			—			—			—
Occurring during year — net actuarial losses	25,995			37,543			8,390			1,494			1,419			1,774
Other adjustments	—			—			—			—			—			—
Foreign currency exchange rate changes	57			(48		)	5			—			—			—
OCI at end of year	$	124,955		$	104,056		$	69,716		$	2,587		$	1,180		$	(275	)

Summary of key valuation assumptions



	Pension Benefits						Other Benefits
	2012		2011		2010		2012		2011		2010
Weighted-average assumptions used to determine benefit obligations at fiscal year end
Discount rate	3.99	%	4.78	%	N/A		3.75	%	4.50	%	N/A
Rate of compensation increase	4.44	%	4.46	%	N/A		4.50	%	4.50	%	N/A
Weighted-average assumptions used to determine net cost for the fiscal year
Discount rate	4.81	%	5.49	%	5.86	%	4.50	%	5.13	%	5.88	%
Expected long-term return on plan assets	7.65	%	7.88	%	8.18	%	N/A		N/A		N/A
Rate of compensation increase	4.43	%	3.97	%	2.99	%	4.50	%	4.00	%	3.00	%

The Company uses a December 31 measurement date for the above plans. The rates depicted in the pension benefits columns in the above table are the weighted-average assumptions of the U.S., German and U.K. defined benefit plans and the U.S. supplemental plan.

Effective January 1, 2013, the Company revised the expected long-term rate of return assumption used in calculating the annual expense for its domestic defined benefit pension plan, decreasing it to 7.50% from 7.75%. Effective January 1, 2012, this expected long-term rate of return assumption was decreased to 7.75% from 8.00%, and effective January 1, 2011, this assumption was decreased to 8.00% from 8.25%. In each instance, the impact was accounted for as a change in estimate.

Management establishes the domestic expected long-term rate of return assumption by reviewing its historical trends and analyzing the current and projected market conditions in relation to the plan’s asset allocation and risk management objectives. Consideration is given to both recent plan asset performance as well as plan asset performance over various long-term periods of time, with an emphasis on the assumption being a prospective, long-term rate of return. Management consults with and considers the opinions of its outside investment advisors and actuaries when establishing the rate and reviews its assumptions with the Board of Directors. Management believes that the 7.50% domestic expected long-term rate of return assumption is achievable and reasonable given current market conditions and forecasts, asset allocations, investment policies and investment risk objectives.

The domestic rate of compensation increase assumption was changed from a flat 4.5% to a graded assumption as of January 1, 2009. The graded assumption for the domestic rate of compensation increase is 2.0% for the 2009 fiscal year, 3.0% for the 2010 fiscal year, 4.0% for the 2011 fiscal year and 4.5% for the 2012 fiscal year and later.

In the second quarter 2012, the Company closed its domestic defined benefit pension plan to new entrants. Current plan participants will continue to accrue benefits under the existing formulas while new hires will be offered an enhanced defined contribution plan.

Assumptions for the defined benefit pension plans in Germany and England are determined separately from the U.S. plan assumptions, based on historical trends and current and projected market conditions in Germany and England. The plan in Germany is unfunded and the plan in England has assets that are approximately 4% of the Company’s aggregated total fair value of plan assets as of year-end 2012.



Assumed health care trend rates at fiscal year end	2012	2011
Health care trend rate assumed for next year	8.00%	8.00%
Rate that the trend rate gradually declines to (ultimate trend rate)	5.00%	5.00%
Year that the rate reaches the ultimate trend rate	2019	2019

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:



	1-Percentage- Point Increase				1-Percentage- Point Decrease
(Thousands)	2012		2011		2012			2011
Effect on total of service and interest cost components	$	35	$	33	$	(31	)	$	(30	)
Effect on post-retirement benefit obligation	827		806		(723		)	(711		)

Plan Assets

The following tables present the fair values of the Company’s defined benefit pension plan assets as of December 31, 2012 and 2011 by asset category. See Note H to the Consolidated Financial Statements for definitions of fair value hierarchy.



	December 31, 2012
	Total		Level 1		Level 2		Level 3
(Thousands)
Cash	$	7,388	$	7,388	$	—	$	—
Equity securities:
U.S. (a)	54,691		45,025		9,666		—
International (b)	22,683		19,650		3,033		—
Emerging markets (c)	14,786		14,535		251		—
Fixed income securities:
Intermediate-term bonds (d)	26,749		18,378		8,371		—
Short-term bonds (e)	11,656		11,656		—		—
Global bonds (f)	12,854		11,185		1,669		—
Other types of investments:
Real estate fund (g)	7,793		7,768		25		—
Multi-strategy hedge funds (h)	4,191		—		—		$	4,191
Private equity funds	645		—		—		645
Total	$	163,436	$	135,585	$	23,015	$	4,836

	December 31, 2011
	Total		Level 1		Level 2		Level 3
(Thousands)
Cash	$	9,280	$	9,280	$	—	$	—
Equity securities:
U.S. (a)	46,004		37,859		8,145		—
International (b)	19,096		9,355		9,741		—
Emerging markets (c)	10,784		10,569		215		—
Fixed income securities:
Intermediate-term bonds (d)(i)	22,684		14,673		8,011		—
Short-term bonds (e)	11,122		11,122		—		—
Global bonds (f)	10,999		10,353		646		—
Other types of investments:
Real estate fund (g)	5,704		5,704		—		—
Multi-strategy hedge funds (h)	3,989		—		—		$	3,989
Private equity funds	682		—		—		682
Total	$	140,344	$	108,915	$	26,758	$	4,671


(a)	Mutual funds that invest in various sectors of the U.S. market.


(b)	Mutual funds that invest in non-U.S. companies primarily in developed countries that are generally considered to be value stocks.


(c)	Mutual funds that invest in non-U.S. companies in emerging market countries.


(d)	Includes a mutual fund that employs a value-oriented approach to fixed income investment management and a mutual fund that invests primarily in investment-grade debt securities.


(e)	Includes a mutual fund that seeks a market rate of return for a fixed-income portfolio with low relative volatility of returns, investing generally in U.S. and foreign debt securities maturing in five years or less.


(f)	Mutual funds that invest in domestic and foreign sovereign securities, fixed income securities, mortgage-backed and asset-backed bonds, convertible bonds, high yield bonds and emerging market bonds.


(g)	Includes a mutual fund that typically invests at least 80% of its assets in equity and debt securities of companies in the real estate industry or related industries or in companies which own significant real estate assets at the time of investment.


(h)	Includes a hedge fund that employs multiple strategies to multiple asset classes with low correlations.


(i)	The portion of intermediate-term bonds shown as Level 2 had been shown as Level 1 in the previous year. The valuation method for these U.S. government securities and corporate bonds is better reflected as Level 2 assets.

The following table summarizes changes in the fair value of the Company’s defined benefit pension plan Level 3 assets measured using significant unobservable inputs during 2012 and 2011:



(Thousands)	Multi- strategy Hedge Funds			Private Equity Funds			Total
Balance as of January 1, 2011	$	3,851		$	546		$	4,397
Actual return:
On assets still held at reporting date	376			172			548
On assets sold during the period	—			5			5
Purchases, sales and settlements	(238		)	(41		)	(279		)
Balance as of December 31, 2011	$	3,989		$	682		$	4,671
Actual return:
On assets still held at reporting date	386			17			403
On assets sold during the period	(57		)	4			(53		)
Purchases, sales and settlements	(127		)	(58		)	(185		)
Balance as of December 31, 2012	$	4,191		$	645		$	4,836

Plan withdrawals from the multi-strategy hedge fund partnerships may be made up to 25% of the value of the capital account as of June 30 and December 31 of each calendar year upon written notice of at least thirty days. Any withdrawals in excess of 25% must have at least three months written notice. The plan may withdraw up to 100% of the capital account of all other partnerships upon at least thirty day written notice.

The Company’s domestic defined benefit pension plan investment strategy, as approved by the Governance and Organization Committee of the Board of Directors, is to employ an allocation of investments that will generate returns equal to or better than the projected long-term growth of pension liabilities so that the plan will be self-funding. The return objective is to maximize investment return to achieve and maintain a 100% funded status over time, taking into consideration required cash contributions. The allocation of investments is designed to maximize the advantages of diversification while mitigating the risk and overall portfolio volatility to achieve the return objective. Risk is defined as the annual variability in value and is measured in terms of the standard deviation of investment return. Under the Company’s investment policies, allowable investments include domestic equities, international equities, fixed income securities, cash equivalents and alternative securities (which include real estate, private venture capital investments and hedge funds). Ranges, in terms of a percentage of the total assets, are established for each allowable class of security. Derivatives may be used to hedge an existing security or as a risk reduction strategy. Current asset allocation guidelines are to invest 30% to 70% in equity securities, 20% to 50% in fixed income securities and cash and up to 20% in alternative securities. Management reviews the asset allocation on a quarterly or more frequent basis and makes revisions as deemed necessary.

None of the plan assets noted above are invested in the Company’s common stock.

Cash Flows

Employer Contributions

The Company expects to contribute $13.0 million to its domestic defined benefit pension plan and $2.3 million to its other benefit plans in 2013.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:



			Other Benefits
	Pension Benefits		Gross Benefit Payment		Net of Medicare Part D Subsidy
(Thousands)
2013	$	9,025	$	2,663	$	2,287
2014	9,375		2,700		2,302
2015	9,661		2,743		2,320
2016	10,344		2,755		2,309
2017	13,507		2,815		2,343
2018 through 2022	71,056		13,597		10,720

Other Benefit Plans

In addition to the plans shown above, the Company also has certain foreign subsidiaries with accrued unfunded pension and other post-employment arrangements. The liability for these arrangements was $2.6 million at December 31, 2012 and $3.2 million at December 31, 2011 and was included in retirement and post-employment benefits on the Consolidated Balance Sheets.

The Company also sponsors defined contribution plans available to substantially all U.S. employees. The Company’s annual defined contribution expense, including the expense for the enhanced defined contribution plan that was implemented in the second quarter 2012, was $2.5 million in 2012, $2.2 million in 2011 and $1.3 million in 2010.