Pension and Other Postretirement Benefits

Pensions. The Company sponsors various pension plans covering certain U.S. and non-U.S. employees, and participates in certain multi-employer pension plans. The benefits under the Company plans are based primarily on years of service and either the employees’ remuneration near retirement or a fixed dollar multiple.

A measurement date of December 31 was used for all plans presented below.

The components of pension expense were as follows:



U.S. Plans	2012			2011			2010
Service cost	$	12		$	11		$	9
Interest cost	69			72			72
Expected return on plan assets	(94		)	(80		)	(80		)
Amortization of actuarial loss	56			47			66
Amortization of prior service cost	—			3			2
Net periodic cost	$	43		$	53		$	69



Non-U.S. Plans	2012			2011			2010
Service cost	$	26		$	27		$	26
Interest cost	153			161			155
Expected return on plan assets	(186		)	(196		)	(179		)
Amortization of actuarial loss	61			50			47
Amortization of prior service cost/(credit)	—			2			(6		)
Net periodic cost	$	54		$	44		$	43

The non-U.S. pension expense excludes $10 of cost attributable to plan curtailments and settlements that was recorded in restructuring expense in 2010.

Additional pension expense of $5, $5 and $4 was recognized in 2012, 2011 and 2010 for multi-employer plans.

The projected benefit obligations, accumulated benefit obligations, plan assets and funded status of the Company's U.S. and Non-U.S. plans is as follows:



	U.S. Plans						Non-U.S. Plans
	2012			2011			2012			2011
Projected Benefit Obligations
Benefit obligations at January 1	$	1,502		$	1,477		$	3,256		$	2,982
Service cost	12			11			26			27
Interest cost	69			72			153			161
Plan participants’ contributions	1			1			5			5
Amendments	2			(4		)	(108		)	3
Actuarial loss	131			54			279			290
Benefits paid	(108		)	(109		)	(181		)	(177		)
Foreign currency translation	—			—			142			(35		)
Benefit obligations at December 31	$	1,609		$	1,502		$	3,572		$	3,256
Plan Assets
Fair value of plan assets at January 1	$	1,172		$	978		$	2,894		$	2,729
Actual return on plan assets	195			(9		)	201			271
Employer contributions	32			311			70			93
Plan participants’ contributions	1			1			5			5
Benefits paid	(108		)	(109		)	(181		)	(177		)
Foreign currency translation	—			—			127			(27		)
Fair value of plan assets at December 31	$	1,292		$	1,172		$	3,116		$	2,894

Funded Status	$	(317	)	$	(330	)	$	(456	)	$	(362	)

Accumulated benefit obligations at December 31	$	1,575		$	1,474		$	3,427		$	3,106

During 2012, the Company eliminated discretionary enhanced early retirement benefits for certain active employees participating in its U.K. plan.

Information for pension plans with accumulated benefit obligations in excess of plan assets is as follows:



U.S.	2012		2011
Projected benefit obligations	$	1,609	$	1,502
Accumulated benefit obligations	1,575		1,474
Fair value of plan assets	1,292		1,172



Non-U.S.	2012		2011
Projected benefit obligations	$	3,559	$	3,247
Accumulated benefit obligations	3,427		3,106
Fair value of plan assets	3,104		2,884

The Company’s investment strategy in its U.S. plan is designed to generate returns that are consistent with providing benefits to plan participants within the risk tolerance of the plan. Asset allocation is the primary determinant of return levels and investment risk exposure. The assets of the plan are broadly diversified in terms of securities and security types in order to limit the potential of large losses from any one security.

The strategic ranges for asset allocation in the U.S. plan are as follows:



U.S. equities	30	%	to	40	%
International equities	10	%	to	15	%
Fixed income	13	%	to	23	%
Balanced funds	15	%	to	25	%
Real estate	3	%	to	7	%
Private equity	3	%	to	7	%
Hedge funds	2	%	to	7	%

The Company’s investment strategy in its U.K. plan, the largest non-U.S. plan, is designed to achieve a funding level of 100% within the next 15 years by targeting an expected return (net of fees) of 2.0% annually in excess of the expected growth in the liabilities. The company seeks to achieve this return with a risk level commensurate with a 5% chance of the funding level falling between 5% and 9% in any one year. The strategic ranges for asset allocation in the U.K. plan are as follows:



Investment grade credit	40	%	to	80	%
Equities	0	%	to	30	%
Hedge funds	0	%	to	10	%
Real estate	0	%	to	5	%
Private equity	0	%	to	15	%
Emerging market wealth	0	%	to	15	%
Alternative credit	0	%	to	15	%
Other	0	%	to	5	%

Pension assets are classified into three levels. Level 1 asset values are derived from quoted prices which are available in active markets as of the report date. Level 2 asset values are derived from other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the report date. Level 3 asset values are derived from unobservable pricing inputs that are not corroborated by market data or other objective sources.

Equity securities are valued at the latest quoted prices taken from the primary exchange on which the security trades. Mutual funds are valued at the net asset value (NAV) of shares held at year-end. Fixed income securities, including government issued debt, corporate debt, asset-backed and structured debt securities are valued using market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and other reference data including market research publications. Derivatives, which consist mainly of interest rate swaps, are valued using a discounted cash flow pricing model based on observable market data. Investment funds, hedge funds and private equity funds are valued at the NAV at year-end. The values assigned to private equity funds are based upon assessments of each underlying investment, incorporating valuations that consider the evaluation of financing and sale transactions with third parties, expected cash flows and market-based information, including comparable transactions, and performance multiples among other factors. Real estate investments are based on third party appraisals as of year-end.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair value. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in different fair value measurements at the reporting date.

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and their placement within the fair value hierarchy.

The levels assigned to the defined benefit plan assets as of December 31, 2012 and 2011 are summarized in the tables below:



	2012
	U.S. plan assets		Non-U.S. plan assets		Total
Level 1
Cash and cash equivalents	$	92	$	158	$	250
Global large cap equity	—		62		62
U.S. large cap equity	146		37		183
U.S. mid/small cap equity	246		14		260
Mutual funds – global equity	183		—		183
Mutual funds – U.S. equity	88		—		88
Mutual funds – fixed income	138		—		138
	893		271		1,164
Level 2
Government issued debt securities	59		542		601
Corporate debt securities	95		162		257
Asset backed securities	3		4		7
Structured debt	7		628		635
Insurance contracts	—		13		13
Derivatives	—		98		98
Investment funds – fixed income	14		404		418
Investment funds – global equity	—		257		257
Investment funds – emerging markets	43		174		217
	221		2,282		2,503
Level 3
Investment funds – real estate	42		88		130
Hedge funds	70		144		214
Private equity	48		321		369
Real estate – direct	16		5		21
	176		558		734
Total	$	1,290	$	3,111	$	4,401



	2011
	U.S. plan assets		Non-U.S. plan assets		Total
Level 1
Cash and cash equivalents	$	152	$	86	$	238
Global large cap equity	—		56		56
U.S. large cap equity	163		36		199
U.S. mid/small cap equity	174		12		186
Mutual funds – global equity	98		—		98
Mutual funds – U.S. equity	84		—		84
Mutual funds – fixed income	62		—		62
	733		190		923
Level 2
Government issued debt securities	56		374		430
Corporate debt securities	87		343		430
Asset backed securities	1		14		15
Structured debt	11		547		558
Insurance contracts	—		11		11
Derivatives	—		96		96
Investment funds – fixed income	6		335		341
Investment funds – global equity	44		231		275
Investment funds – emerging markets	39		162		201
	244		2,113		2,357
Level 3
Investment funds – real estate	—		84		84
Hedge funds	121		163		284
Private equity	53		332		385
Real estate – direct	19		5		24
	193		584		777
Total	$	1,170	$	2,887	$	4,057

Accrued income excluded from the table above is as follows:



	2012	2011
U.S. plan assets	2	2
Non-U.S. plan assets	5	7

Plan assets include $124 and $113 of the Company’s common stock at December 31, 2012 and 2011, respectively.

The following tables reconcile the beginning and ending balances of plan assets measured using significant unobservable inputs (Level 3).



	Hedge funds			Private equity			Real Estate			Total
Balance at January 1, 2011	$	315		$	387		$	110		$	812
Foreign currency translation	(1		)	(2		)	—			(3		)
Asset returns – assets held at reporting date	(10		)	(6		)	—			(16		)
Asset returns – assets sold during the period	9			38			—			47
Purchases, sales and settlements, net	(29		)	(32		)	(2		)	(63		)
Balance at December 31, 2011	284			385			108			777
Foreign currency translation	7			14			4			25
Asset returns – assets held at reporting date	6			(39		)	14			(19		)
Asset returns – assets sold during the period	18			49			4			71
Purchases, sales and settlements, net	(101		)	(40		)	21			(120		)
Balance at December 31, 2012	$	214		$	369		$	151		$	734

Pension assets/(liabilities) included in the Consolidated Balance Sheets were:



	2012			2011
Non-current assets	$	—		$	1
Current liabilities	(9		)	(8		)
Non-current liabilities	(764		)	(685		)

The Company’s current liability at December 31, 2012, represents the expected required payments to be made for unfunded plans over the next twelve months. Total estimated 2013 employer contributions are $85 for the Company’s pension plans.

Changes in the net loss and prior service cost/(credit) for the Company’s pension plans were:



	2012						2011						2010
	Net loss			Prior service			Net loss			Prior service			Net loss			Prior service
Balance at January 1	$	2,382		$	4		$	2,135		$	9		$	1,991		$	3
Reclassification to net periodic benefit cost	(117		)	—			(97		)	(5		)	(118		)	4
Current year loss	295			—			358			—			281			—
Amendments	—			(106		)	—			(1		)	—			3
Foreign currency translation	59			—			(14		)	1			(19		)	(1		)
Balance at December 31	$	2,619		$	(102	)	$	2,382		$	4		$	2,135		$	9

The estimated portions of the net losses and net prior service that are expected to be recognized as components of net periodic benefit cost in 2013 are $127 and $(14).

Expected future benefit payments as of December 31, 2012 were:



	U.S. plans		Non-U.S. plans
2013	$	112	$	184
2014	110		189
2015	143		194
2016	107		199
2017	111		203
2018 - 2022	515		1,045

The weighted average actuarial assumptions used to calculate the benefit obligations at December 31 were:



U.S.	2012		2011		2010
Discount rate	4.0	%	4.8	%	5.1	%
Compensation increase	3.0	%	3.0	%	3.0	%



Non-U.S.	2012		2011		2010
Discount rate	4.1	%	4.7	%	5.4	%
Compensation increase	2.8	%	3.3	%	3.3	%

The weighted average actuarial assumptions used to calculate pension expense for each year were:



U.S.	2012		2011		2010
Discount rate	4.8	%	5.1	%	5.7	%
Compensation increase	3.0	%	3.0	%	3.0	%
Long-term rate of return	8.00	%	8.75	%	8.75	%



Non-U.S.	2012		2011		2010
Discount rate	4.7	%	5.4	%	5.9	%
Compensation increase	3.3	%	3.3	%	3.3	%
Long-term rate of return	6.4	%	7.0	%	7.2	%

The expected long-term rates of return are determined at each measurement date based on a review of the actual plan assets, the target allocation, and the historical returns of the capital markets.

The U.S. plan’s 2012 assumed asset rate of return was based on a calculation using underlying assumed rates of return of 9.9% for equity securities and alternative investments, and 5.1% for debt securities and real estate. The rate of return used for equity securities and alternative investments was based on the total return of the S&P 500 for the 25 year period ended December 31, 2011. The Company believes that the equity securities included in the S&P 500 are representative of the equity securities and alternative investments held by its U.S. plan, and that this period provides a sufficient time horizon as a basis for estimating future returns. The rate of return used for debt securities is consistent with the U.S. plan discount rate and the return on AA corporate bonds with duration equal to the plan’s liabilities. The underlying debt securities in the plan are primarily invested in various corporate and government agency securities and are benchmarked against returns on AA corporate bonds.

The U.K. plan’s 2012 assumed asset rate of return was based on a calculation using underlying assumed rates of return of 10.4% for equity securities and alternative investments, and 5.5% for debt securities and real estate. Equity securities in the U.K. plan as of December 31, 2011 were allocated approximately 43% to U.S. securities, 29% to securities in developed European countries, and 28% to securities in emerging markets. The assumed rate of return for equity securities and alternative investments represents the weighted average 25 year return of equity securities in these markets. The Company believes that the equity securities included in the related market indexes are representative of the equity securities and alternative investments held by its U.K. plan, and that this period provides a sufficient time horizon as a basis for estimating future returns.

Other Postretirement Benefit Plans. The Company sponsors unfunded plans to provide health care and life insurance benefits to pensioners and survivors. Generally, the medical plans pay a stated percentage of medical expenses reduced by deductibles and other coverages. Life insurance benefits are generally provided by insurance contracts. The Company reserves the right, subject to existing agreements, to change, modify or discontinue the plans. A measurement date of December 31 was used for the plans presented below.

The components of net postretirement benefits cost were as follows:



Other Postretirement Benefits	2012			2011			2010
Service cost	$	3		$	8		$	9
Interest cost	16			20			26
Amortization of prior service credit	(44		)	(36		)	(25		)
Amortization of actuarial loss	14			13			9
Net periodic (benefit) / cost	$	(11	)	$	5		$	19

Changes in the benefit obligations were:



	2012			2011
Benefit obligations at January 1	$	337		$	445
Service cost	3			8
Interest cost	16			20
Amendments	—			(107		)
Actuarial loss	16			(3		)
Benefits paid	(22		)	(24		)
Foreign currency translation	2			(2		)
Benefit obligations at December 31	$	352		$	337

Changes in the net loss and prior service credit for the Company’s postretirement benefit plans were:



	2012						2011						2010
	Net loss			Prior service			Net loss			Prior service			Net loss			Prior service
Balance at January 1	$	157		$	(313	)	$	174		$	(242	)	$	147		$	(159	)
Reclassification to net periodic benefit cost	(14		)	44			(13		)	36			(9		)	25
Current year (gain)/loss	16			—			(3		)	—			34			—
Amendments	—			—			—			(107		)	—			(108		)
Foreign currency translation	(2		)	—			(1		)	—			2			—
Balance at December 31	$	157		$	(269	)	$	157		$	(313	)	$	174		$	(242	)

The estimated portions of the net losses and prior service credits that are expected to be recognized as components of net periodic benefit cost/(credit) in 2013 are $16 and $(39).

In 2011, the U.S. plans were amended to, among other things, eliminate health coverage for retirees who are not yet eligible for Medicare. In 2010, the U.S. plans were amended to, among other things, require additional retiree contributions for medical and prescription drug costs.

Expected future benefit payments, as of December 31, 2012, net of expected Medicare Part D subsidies of $5 in the aggregate were:



	Benefit Payments
2013	$	27
2014	23
2015	23
2016	23
2017	22
2018 - 2022	105

The assumed health care cost trend rates at December 31, 2012 are as follows:



Health care cost trend rate assumed for next year	5.9	%
Rate that the cost trend rate gradually declines to	4.4	%
Year that the rate reaches the rate it is assumed to remain	2018

A one-percentage-point change in assumed health care cost trend rates would have the following effects:



	One percentage point
	Increase		Decrease
Effect on total service and interest cost	$	1	$	1
Effect on postretirement benefit obligation	$	30	$	25

Weighted average discount rates used to calculate the benefit obligations at the end of each year and the cost for each year are presented below.



	2012		2011		2010
Benefit obligations	4.1	%	4.9	%	5.1	%
Cost	4.9	%	5.1	%	5.8	%

Other Comprehensive Income. Amounts recorded in other comprehensive income were net of tax as follows:



	2012		2011		2010
Amortization of net loss and prior service cost	$	19	$	18	$	25
Net loss and prior service cost adjustments arising in the current year	60		52		45

Employee Savings Plan. The Company sponsors the Savings Investment Plan which covers substantially all domestic salaried employees who are at least 21 years of age. The Company matches up to 50% of 3% of a participant’s compensation and the total Company contributions were $2 in each of the last three years.

Employee Stock Purchase Plan. The Company sponsors an Employee Stock Purchase Plan which covers all domestic employees with one or more years of service who are non-officers and non-highly compensated as defined by the Internal Revenue Code. Eligible participants contribute 85% of the quarter-ending market price towards the purchase of each common share. The Company’s contribution is equivalent to 15% of the quarter-ending market price. Total shares purchased under the plan in 2012 and 2011 were 31,598 and 30,600, respectively, and the Company’s contributions were less than $1 in both years.