Note 11 - Pensions and Postretirement Benefits Other than Pensions

The Company and its subsidiaries have a number of plans providing pension, retirement or profit-sharing benefits. These plans include defined benefit and defined contribution plans. The plans cover substantially all U.S. domestic employees. There are also plans that cover a significant number of employees in the U.K. and Germany. The Company has an unfunded, nonqualified supplemental retirement benefit plan in the U.S. covering certain employees whose participation in the qualified plan is limited by provisions of the Internal Revenue Code.

For defined benefit plans, benefits are generally based on compensation and length of service for salaried employees and length of service for hourly employees. In the U.S., the Company froze the pension benefits in its Spectrum (salaried employees) Plan in 2009. In 2012, the Company closed the U.S. pension plans for the bargaining units to new participants. Certain grandfathered participants in the bargaining unit plans continue to accrue pension benefits. Employees of certain of the Company’s foreign operations are covered by either contributory or non-contributory trusteed pension plans. In 2012, the Company froze the benefits in the U.K. pension plan.

Participation in the Company’s defined contribution plans is voluntary. The Company matches certain plan participants’ contributions up to various limits. Participants’ contributions are limited based on their compensation and, for certain supplemental contributions which are not eligible for company matching, based on their age. Expense for those plans was $12,827, $14,311 and $12,003 for 2010, 2011 and 2012, respectively.

The Company currently provides retiree health care and life insurance benefits to a significant percentage of its U.S. salaried and hourly employees. U.S. salaried and non-bargained hourly employees hired on or after January 1, 2003 are not eligible for retiree health care or life insurance coverage. The Company has reserved the right to modify or terminate certain of these salaried benefits at any time.

The Company has implemented household caps on the amounts of retiree medical benefits it will provide to certain retirees. The caps do not apply to individuals who retired prior to certain specified dates. Costs in excess of these caps will be paid by plan participants. The Company implemented increased cost sharing in 2004 in the retiree medical coverage provided to certain eligible current and future retirees. Since then cost sharing has expanded such that nearly all covered retirees pay a charge to be enrolled.

In accordance with U.S. GAAP, the Company recognizes the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligation) of its pension and other postretirement benefit (“OPEB”) plans and the net unrecognized actuarial losses and unrecognized prior service costs in the Consolidated Balance Sheets. The unrecognized actuarial losses and unrecognized prior service costs (components of cumulative other comprehensive loss in the stockholders’ equity section of the balance sheet) will be subsequently recognized as net periodic pension cost pursuant to the Company’s historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic benefit costs in the same periods will be recognized as a component of other comprehensive income.

The following table reflects changes in the projected obligations and fair market values of assets in all defined benefit pension and other postretirement benefit plans of the Company:


	2011									2012
	Pension Benefits									Pension Benefits									Other Postretirement Benefits
	Domestic			International			Total			Domestic			International			Total			2011			2012

Change in benefit obligation:
Projected Benefit Obligation at January 1	$	865,982		$	320,618		$	1,186,600		$	924,544		$	343,219		$	1,267,763		$	275,348		$	311,069
Service cost - employer		7,700			2,497			10,197			9,415			725			10,140			3,103			4,161
Service cost - employee		—			2,308			2,308			—			533			533			—			—
Interest cost		45,260			18,009			63,269			43,005			17,106			60,111			13,846			12,532
Plan curtailment		—			—			—			—			(9,933	)		(9,933	)		—			—
Actuarial (gain)/loss		54,022			13,846			67,868			137,141			20,331			157,472			27,928			(10,945	)
Benefits paid		(48,420	)		(12,506	)		(60,926	)		(50,035	)		(12,700	)		(62,735	)		(9,156	)		(8,591	)
Foreign currency translation effect		—			(1,553	)		(1,553	)		—			15,644			15,644			—			—

Projected Benefit Obligation at December 31	$	924,544		$	343,219		$	1,267,763		$	1,064,070		$	374,925		$	1,438,995		$	311,069		$	308,226

Change in plans’ assets:
Fair value of plans’ assets at January 1	$	698,827		$	229,496		$	928,323		$	680,217		$	226,914		$	907,131		$	—		$	—
Actual return on plans’ assets		3,375			30			3,405			80,339			25,960			106,299			—			—
Employer contribution		26,435			8,420			34,855			35,350			8,215			43,565			—			—
Employee contribution		—			2,308			2,308			—			533			533			—			—
Benefits paid		(48,420	)		(12,506	)		(60,926	)		(50,035	)		(12,700	)		(62,735	)		—			—
Foreign currency translation effect		—			(834	)		(834	)		—			10,781			10,781			—			—

Fair value of plans’ assets at December 31	$	680,217		$	226,914		$	907,131		$	745,871		$	259,703		$	1,005,574		$	—		$	—

Funded status	$	(244,327	)	$	(116,305	)	$	(360,632	)	$	(318,199	)	$	(115,222	)	$	(433,421	)	$	(311,069	)	$	(308,226	)

Amounts recognized in the balance sheets:
Other assets	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Accrued liabilities		—			—			—			(500	)		—			(500	)		(17,802	)		(16,680	)
Postretirement benefits other than pensions		—			—			—			—			—			—			(293,267	)		(291,546	)
Pension benefits		(244,327	)		(116,305	)		(360,632	)		(317,699	)		(115,222	)		(432,921	)

Included in cumulative other comprehensive loss at December 31, 2011 are the following amounts that have not yet been recognized in net periodic benefit cost: unrecognized prior service credits of ($12,002) (($8,501) net of tax) and unrecognized actuarial losses of $684,717 ($567,278 net of tax).

Included in cumulative other comprehensive loss at December 31, 2012 are the following amounts that have not yet been recognized in net periodic benefit cost: unrecognized prior service credits of ($3,867) (($2,777) net of tax) and unrecognized actuarial losses of $735,976 ($598,865 net of tax). The prior service credit and actuarial loss included in cumulative other comprehensive loss that are expected to be recognized in net periodic benefit cost during the fiscal year-ended December 31, 2013 are ($566) and $50,112, respectively.

The accumulated benefit obligation for all defined benefit pension plans was $1,264,377 and $1,435,193 at December 31, 2011 and 2012, respectively.

Weighted average assumptions used to determine benefit obligations at December 31:


							Other
	Pension Benefits						Postretirement Benefits
	2011			2012			2011			2012
All plans
Discount rate		4.81	%		3.92	%		4.15	%		3.60	%
Rate of compensation increase		0.81	%		0.75	%		—			—

Domestic plans
Discount rate		4.80	%		3.75	%		4.15	%		3.60	%

Foreign plans
Discount rate		4.85	%		4.39	%		—			—
Rate of compensation increase		2.99	%		2.89	%		—			—

At December 31, 2012, the weighted average assumed annual rate of increase in the cost of medical benefits was 7.80 percent for 2013 trending linearly to 5.00 percent per annum in 2020.


	Pension Benefits - Domestic									Pension Benefits - International
	2010			2011			2012			2010			2011			2012
Components of net periodic benefit cost:
Service cost	$	4,316		$	7,700		$	9,415		$	2,327		$	2,497		$	725
Interest cost		45,653			45,260			43,005			16,923			18,009			17,106
Expected return on plan assets		(50,457	)		(50,206	)		(43,269	)		(15,249	)		(16,646	)		(15,323	)
Amortization of prior service cost		—			—			—			(600	)		(747	)		(185	)
Amortization of actuarial loss		27,741			30,300			36,818			5,924			5,772			6,818
Cooper Avon curtailment gain		—			—			—			—			—			(7,460	)
Recognized actuarial loss (gain)		4,323			—			—			(673	)		—			—

Net periodic benefit cost	$	31,576		$	33,054		$	45,969		$	8,652		$	8,885		$	1,681


	Other Post Retirement Benefits
	2010			2011			2012
Components of net periodic benefit cost:
Service cost	$	3,160		$	3,103		$	4,161
Interest cost		14,115			13,846			12,532
Amortization of prior service cost		(542	)		(688	)		(688	)
Amortization of actuarial loss		—			1,261			3,076

Net periodic benefit cost	$	16,733		$	17,522		$	19,081

Effective April 6, 2012, the Company amended the Cooper Avon Pension Plan to freeze all future pension benefits. As a result of this amendment, the Company recognized a pre-tax pension curtailment gain of $7,460 which was credited to cost of goods sold in the second quarter of 2012. This curtailment gain represents the prior service credit from a previous plan amendment.

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:


	Pension Benefits									Other Postretirement Benefits
	2010			2011			2012			2010			2011			2012
All plans
Discount rate		5.74	%		5.39	%		4.83	%		5.75	%		5.20	%		4.15	%
Expected return on plan assets		8.24	%		7.58	%		6.86	%		—			—			—
Rate of compensation increase		1.03	%		0.92	%		0.86	%		—			—			—

Domestic plans
Discount rate		5.75	%		5.35	%		4.80	%		5.75	%		5.20	%		4.15	%
Expected return on plan assets		8.50	%		7.75	%		7.00	%		—			—			—

Foreign plans
Discount rate		5.70	%		5.50	%		4.92	%		—			—			—
Expected return on plan assets		7.44	%		7.05	%		6.43	%		—			—			—
Rate of compensation increase		3.74	%		3.39	%		3.17	%		—			—			—

The weighted-average assumptions for foreign plans includes the U.K. and German plans. The U.K. plan assumptions are blended rates including one rate from January 1, 2012 through April 6, 2012 when the plan was re-measured due to the plan freeze and one rate from April 7, 2012 through December 31, 2012. The 2012 Discount rate for foreign plans includes a rate of 5.10% for the German plan and a blended rate of 4.92% for the U.K. plan. The 2012 Expected return on plan assets for foreign plans consists of a return on German plan assets of 2.00% and a blended return on U.K. plans assets of 6.48%. The 2012 Rate of compensation increase consists of a rate for the German plan of 2.00% and a blended U.K. plan rate of 3.18%.

The following table lists the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with projected benefit obligations and accumulated benefit obligations in excess of plan assets at December 31, 2011 and 2012:


	2011				2012
	Projected benefit obligation exceeds plan assets		Accumulated benefit obligation exceeds plan assets		Projected benefit obligation exceeds plan assets		Accumulated benefit obligation exceeds plan assets

Projected benefit obligation	$	1,267,763	$	1,267,763	$	1,438,995	$	1,438,995
Accumulated benefit obligation		1,264,377		1,264,377		1,435,193		1,435,193
Fair value of plan assets		907,131		907,131		1,005,574		1,005,574

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


	Percentage Point
	Increase		Decrease
Increase (decrease) in total service and interest cost components	$	202	$	(172	)

Increase (decrease) in the postretirement benefit obligation		4,963		(4,169	)

The Company’s weighted average asset allocations for its domestic and U.K. pension plans’ assets at December 31, 2011 and December 31, 2012 by asset category were as follows:


	U.S. Plans						U.K. Plan
Asset Category	2011			2012			2011			2012

Equity securities		61	%		58	%		56	%		59	%
Debt securities		37			40			29			28
Other investments		0			0			14			12
Cash		2			2			1			1

Total		100	%		100	%		100	%		100	%

The Company’s asset allocation strategy is based on a combination of factors, including the profile of the pension liability, the timing of future cash requirements, and the level of invested assets available to meet plan obligations. The goal is to manage the assets in such a way that the cost and risk are managed through portfolio diversification which is designed to maximize returns consistent with levels of liquidity and investment risk that are prudent and reasonable. Rebalancing of asset portfolios occurs periodically if the mix differs from the target allocation. Equity security investments are structured to achieve a balance between growth and value stocks. The Company also has a pension plan in Germany and the assets of that plan consist of investments in German insurance contracts.

The fair market value of U.S. plan assets was $680,217 and $745,871 at December 31, 2011 and 2012, respectively. The fair market value of the U.K. plan assets was $224,626 and $257,398 at December 31, 2011 and 2012, respectively. The fair market value of the German pension plan assets was $2,288 and $2,305 at December 31, 2011 and 2012, respectively.

The table below classifies the assets of the U.S. and U.K. plans using the Fair Value Hierarchy described in Note 10 – Fair Value of Financial Instruments:


			Fair Value Heirarchy
	Total		Level 1		Level 2		Level 3
December 31, 2011
United States plans
Cash & Cash Equivalents	$	16,106	$	16,106	$	—	$	—
Equity securities		412,809		168,240		244,569		—
Fixed income securities		251,302		83,274		168,028		—

	$	680,217	$	267,620	$	412,597	$	—


United Kingdom plan
Cash & Cash Equivalents	$	796	$	796	$	—	$	—
Equity securities		126,126		126,126		—		—
Fixed income securities		66,491		66,491		—		—
Other investments		31,213		18,379		—		12,834

	$	224,626	$	211,792	$	—	$	12,834


December 31, 2012
United States plans
Cash & Cash Equivalents	$	18,487	$	18,487	$	—	$	—
Equity securities		431,383		147,397		283,986		—
Fixed income securities		296,001		97,974		198,027		—

	$	745,871	$	263,858	$	482,013	$	—


United Kingdom plan
Cash & Cash Equivalents	$	2,231	$	2,231	$	—	$	—
Equity securities		152,434		152,434		—		—
Fixed income securities		72,251		72,251		—		—
Other investments		30,482		16,660		—		13,822

	$	257,398	$	243,576	$	—	$	13,822

Plan assets are measured at fair value. While the Company believes its valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The Company’s valuation methodologies used for the plan assets measured at fair value are as follows:

Cash and cash equivalents – Cash and cash equivalents include cash on deposit and investments in money market mutual funds that invest mainly in short-term instruments and cash, both of which are valued using a market approach.

Equity securities – Common, preferred, and foreign stocks are valued using a market approach at the closing price on their principal exchange and are included in Level 1 of the fair value hierarchy.

Fixed Income Securities – Corporate and foreign bonds are valued using a market approach at the closing price reported on the active market on which the individual securities are traded and are included in Level 1 of the fair value hierarchy.

Common/Commingled Trust Funds – Common/Commingled trust funds are valued at the net asset value of units held at year end and are included in Level 2 of the fair value hierarchy. The various funds consist of either equity or fixed income investment portfolios with underlying investments held in U.S. and non-U.S. securities.

The Level 3 asset in the U.K. plan is an investment in a European Infrastructure fund. The fair market value is determined by the fund manager using a discounted cash flow methodology. The future cash flows expected to be generated by the assets of the fund and made available to investors are estimated and then discounted back to the valuation data. The discount rate is derived by adding a risk premium to the risk-free interest rate applicable to the country in which the asset is located.

The following table details the activity in this investment for the year ended December 31, 2011 and 2012:


	2011			2012

Balance at January 1	$	10,814		$	12,834

Contributions		1,668			175
Disbursements		(150	)		(175	)
Change in fair value		538			473
Foreign currency translation effect		(36	)		515


Balance at December 31	$	12,834		$	13,822

The Company determines the annual expected rates of return on pension assets by first analyzing the composition of its asset portfolio. Historical rates of return are applied to the portfolio. These computed rates of return are reviewed by the Company’s investment advisors and actuaries. Industry comparables and other outside guidance are also considered in the annual selection of the expected rates of return on pension assets.

During 2012, the Company contributed $44,000 to its domestic and foreign pension plans, and during 2013, the Company expects to contribute between $40,000 and $50,000 to its domestic and foreign pension plans.

The Company estimates its benefit payments for its domestic and foreign pension plans and other postretirement benefit plans during the next ten years to be as follows:


	Pension Benefits		Other Postretirement Benefits

2013	$	75,000	$	17,000
2014		72,000		17,000
2015		75,000		18,000
2016		75,000		18,000
2017		77,000		18,000
2018 through 2022		412,000		94,000