PENSION BENEFITS AND RETIREMENT HEALTH AND LIFE INSURANCE BENEFITS

We have two qualified noncontributory defined benefit pension plans. One plan covers our U.S. unionized hourly employees and the other plan covers all other U.S. employees hired through December 30, 2007. We also have established a nonqualified unfunded noncontributory defined benefit pension plan to restore certain retirement benefits that might otherwise be lost due to limitations imposed by federal law on qualified pension plans, as well as to provide supplemental retirement benefits, for certain senior executives of the Company.

In addition, we sponsor multiple fully insured or self-funded medical plans and a fully insured life insurance plan for retirees. The measurement date for all plans is December 31 for each respective plan year.

We are required, as an employer, to: (a) recognize in our statement of financial position an asset for a plan's overfunded status or a liability for a plan's underfunded status; (b) measure a plan's assets and our obligations that determine our funded status as of the end of the fiscal year; and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur and report these changes in accumulated other comprehensive income. In addition, actuarial gains and losses that are not immediately recognized as net periodic pension cost are recognized as a component of accumulated other comprehensive income and amortized into net periodic pension cost in future periods.

Defined Benefit Pension Plan and Retiree Medical Plan Amendments

On July 16, 2007, we announced to our employees and retirees that the defined benefit pension plan for non-union employees and the retiree medical plans would be amended effective January 1, 2008. As of January 1, 2008, newly hired and rehired employees were no longer eligible to participate in the defined benefit pension plan. However, the amendment to the defined benefit pension plan did not impact the benefits to existing plan participants as of December 30, 2007. The amendment to the retiree medical plan did not impact the benefits for employees who were age 50 or older as of December 30, 2007, as long as they met certain eligibility requirements. However, employees who were less than age 50 as of December 30, 2007 were no longer eligible to participate in the retiree medical plan. This plan amendment resulted in a reduction to the accumulated benefit obligation, which is accounted for as a reduction to prior service cost based on a plan amendment and amortized over the expected remaining service period of the ongoing active plan participants until they became fully eligible, beginning in the third quarter of 2007.

Obligations and Funded Status



(Dollars in thousands)	Pension Benefits						Retirement Health and Life Insurance Benefits
Change in benefit obligation:	2012			2011			2012			2011

Benefit obligation at beginning of year	$	193,715		$	157,340		$	10,495		$	9,149
Service cost	4,596			3,922			630			693
Interest cost	8,420			8,535			364			413
Actuarial (gain) loss	16,636			30,616			(395		)	1,117
Benefit payments	(6,800		)	(6,874		)	(795		)	(877		)
Settlement charge	(6,723		)	—			—			—
Special termination benefit	—			176			1,592			—
Benefit obligation at end of year	$	209,844		$	193,715		$	11,891		$	10,495



Change in plan assets:

Fair value of plan assets at the beginning of the year	$	120,565		$	125,261		$	—		$	—
Actual return on plan assets	13,775			(2,849		)	—			—
Employer contributions	22,723			5,027			795			877
Benefit payments	(6,800		)	(6,874		)	(795		)	(877		)
Settlement charge	(6,723		)	—			—			—
Fair value of plan assets at the end of the year	143,540			120,565			—			—
Funded status	$	(66,304	)	$	(73,150	)	$	(11,891	)	$	(10,495	)

Amounts recognized in the consolidated balance sheet consist of:



(Dollars in thousands)	Pension Benefits						Retirement Health and Life Insurance Benefits
	2012			2011			2012			2011
Noncurrent assets	$	—		$	—		$	—		$	—
Current liabilities	(362		)	(4,279		)	(1,237		)	(1,009		)
Noncurrent liabilities	(65,942		)	(68,871		)	(10,654		)	(9,486		)
Net amount recognized at end of year	$	(66,304	)	$	(73,150	)	$	(11,891	)	$	(10,495	)



(Dollars in thousands)	Pension Benefits		Retirement Health and Life Insurance Benefits
	2012		2012
Net actuarial loss	$	87,911	$	3,187
Prior service cost	1,660		(229		)
Net amount recognized at end of year	$	89,571	$	2,958

The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with an accumulated benefit obligation in excess of plan assets were $209.8 million, $186.1 million and $143.5 million, respectively, as of December 31, 2012 and $193.7 million, $172.4 million and $120.6 million, respectively, as of December 31, 2011.

Components of Net Periodic Benefit Cost



(Dollars in thousands)	Pension Benefits									Postretirement Health and Life Insurance Benefits
	2012			2011			2010			2012			2011			2010

Service cost	$	4,596		$	3,922		$	3,563		$	630		$	693		$	661
Interest cost	8,420			8,535			8,345			364			413			398
Expected return of plan assets	(9,892		)	(10,559		)	(9,628		)	—			—			—
Amortization of prior service cost	463			597			600			(451		)	(627		)	(626		)
Amortization of net loss	5,471			2,331			1,824			313			421			329
Settlement charge/(credit)	2,073			—			372			—			—			—
Special termination benefit	—			176			—			1,592			—			—
Net periodic benefit cost	$	11,131		$	5,002		$	5,076		$	2,448		$	900		$	762

In the first quarter of 2012, we implemented an early retirement program for certain eligible employees. As a result of this program, we incurred $1.6 million in charges in 2012 related to a special termination benefit associated with the retirement health and life insurance benefits program, as we extended eligibility benefits to certain individuals who chose to participate in the program.

Early in the third quarter of 2012, we made a one-time cash payment to our former President and Chief Executive Officer of approximately $6.3 million in accordance with the provisions of his retirement contract as part of his Pension Restoration Plan. This payment resulted in a settlement charge of approximately $2.1 million, which was recognized in the third quarter of 2012.

The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from other comprehensive income into net periodic benefit cost over the next fiscal year is $5.9 million and $0.4 million, respectively. The estimated net loss (gain) and prior service cost for the defined benefit postretirement plans that will be amortized from other comprehensive income into net periodic benefit cost over the next fiscal year are $0.5 million and $(0.5) million.

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



	Pension Benefits				Retirement Health and Life Insurance Benefits
	2012		2011		2012		2011

Discount rate	4.00	%	4.50	%	2.50	%	3.50	%
Rate of compensation increase	4.00	%	4.00	%	—		—
Expected long-term rate of return on plan assets	7.50	%	7.75	%	—		—

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



	Pension Benefits				Retirement Health and Life Insurance Benefits
	2012		2011		2012		2011

Discount rate	4.50	%	5.50	%	3.50	%	4.50	%
Expected long-term rate of return on plan assets	7.75	%	8.50	%	—		—
Rate of compensation increase	4.00	%	4.00	%	—		—

Long-term rate of return on assets - To determine the expected long-term rate of return on plan assets, we review historical and projected portfolio performance, the historical long-term rate of return, and how any change in the allocation of the assets could affect the anticipated returns. Adjustments are made to the projected rate of return if it is deemed necessary based on those factors and other current market trends.

Discount rate - To determine the discount rate, we review current market indices, particularly the Citigroup bond index, to ensure that the rate used in our calculations is consistent and within an acceptable range based on these indices, which reflect current market conditions. At December 31, 2012, this analysis resulted in a 50 basis point decrease to the discount rate from 4.5% at December 31, 2011 to 4.0% at December 31, 2012.

Health care cost trend rates - For measurement purposes as of December 31, 2012, we assumed annual health care cost trend rates of 8.0% and 7.5% for covered health care benefits for retirees pre-age 65 and post-age 65, respectively. The rates were assumed to decrease gradually to 5.0% and 5.5%, respectively, in 2015 and remain at those levels thereafter. For measurement purposes as of December 31, 2011, we assumed annual health care cost trend rates of 7.0% and 8.5% for covered health care benefits for retirees pre-age 65 and post-age 65, respectively. 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:



(Dollars in thousands)	One Percentage Point
	Increase		Decrease

Effect on total service and interest cost	$	82	$	(70	)
Effect on other postretirement benefit obligations	695		(647		)

Plan Assets

Our defined benefit pension assets are invested with the objective of achieving a total rate of return over the long-term that is sufficient to fund future pension obligations. In managing these assets and our investment strategy, we take into consideration future cash contributions to the plans, as well as the potential of the portfolio underperforming the market, which is partially mitigated by maintaining a diversified portfolio of assets.

In order to meet our investment objectives, we set asset allocation target ranges based on current funding status and future projections in order to mitigate the risk in the plan while maintaining its funded status. At December 31, 2012, we held approximately 57% equity securities and 43% debt securities in our portfolio, which is consistent with our allocation targets. In order to further mitigate risk, in the future we plan to migrate to a portfolio more heavily weighted toward debt securities as our plan assets approach the projected benefit obligation.

In determining our investment strategy and calculating our plan liability and related expense, we utilize an expected long-term rate of return on plan assets. This rate is developed based on several factors, including the plans' asset allocation targets, the historical and projected performance on those asset classes, and on the plans' current asset composition. To justify our assumptions, we analyze certain data points related to portfolio performance. For example, we analyze the actual historical performance of our total plan assets, which has generated a return of approximately 8.6% over the past 16 year period (earliest data available for our analysis was 1996). Also, we analyze hypothetical rates of return for plan assets based on our current asset allocation mix, which we estimate would have generated a return of approximately 10.2% over the last 30 years, 8.1% over the last 20 years, and 8.0% over the last 10 years. Further, based on the hypothetical historic returns, we estimated the potential return associated with the plan asset portfolio over the next 10 to 15 year period based on the portfolio mix, which we determined to be approximately 7.3% to 7.8% (approximately 9.5% to 11.0% on equity securities and 3.50% to 4.50% on fixed income securities).

Investments are stated at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).

Securities traded on a national securities exchange are valued at the last reported sales price on the last business day of the plan year. The fair value of the guaranteed deposit account is determined through discounting expected future investment cash flow from both investment income and repayment of principal for each investment purchased.

The estimated fair values of the participation units owned by the Plan in pooled separate accounts are based on quoted redemption values and adjusted for management fees and asset charges, as determined by the record keeper, on the last business day of the Plan year. Pooled separate accounts are accounts established solely for the purpose of investing the assets of one or more plans. Funds in a separate account are not commingled with other assets of the Company for investment purposes.

The following table presents the fair value of the net assets by asset category at December 31, 2012 and 2011:



(Dollars in thousands)	2012		2011

Pooled separate accounts	$	29,869	$	32,072
Mutual funds	98,269		47,255
Common stock	—		27,804
Guaranteed deposit account	15,402		13,266
Interest bearing cash	—		168
Total investments at fair value	$	143,540	$	120,565

The following tables set forth by level, within the fair value hierarchy, the assetscarried at fair value as of December 31, 2012 and 2011.



	Assets at Fair Value as of December 31, 2012
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Pooled separate accounts	$	—	$	29,869	$	—	$	29,869
Mutual funds	98,269		—		—		98,269
Common stock	—		—		—		—
Guaranteed deposit account	—		—		15,402		15,402
Interest bearing cash	—		—		—		—
Total assets at fair value	$	98,269	$	29,869	$	15,402	$	143,540

	Assets at Fair Value as of December 31, 2011
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Pooled separate accounts	$	—	$	32,072	$	—	$	32,072
Mutual funds	47,255		—		—		47,255
Common stock	27,804		—		—		27,804
Guaranteed deposit account	—		—		13,266		13,266
Interest bearing cash	168		—		—		168
Total assets at fair value	$	75,227	$	32,072	$	13,266	$	120,565

The table below sets forth a summary of changes in the fair value of the guaranteed deposit account's Level 3 assetsfor the year ended December 31, 2012.



(Dollars in thousands)	Guaranteed Deposit Account

Balance at beginning of year	$	13,266
Realized gains (losses)	—
Unrealized gains relating to instruments still held at the reporting date	1,256
Purchases, sales, issuances and settlements (net)	880
Transfers in and/or out of Level 3	—
Balance at end of year	$	15,402

Cash Flows

Contributions

At December 31, 2012, we have met the minimum funding requirements for our qualified defined benefit pension plans and were therefore not required to make a contribution to the plans in 2012 for any past years. In 2012 and 2011, we made voluntary contributions of $16.0 million and $5.0 million, respectively. As there is no funding requirement for the nonqualified defined benefit pension plans and the Retiree Health and Life Insurance benefit plans, we fund the amount of benefit payments made during the year, which is consistent with past practices. We currently estimate that we will make voluntary contributions of approximately $13.0 million in 2013 towards our qualified defined benefit pension plans.

Estimated Future Payments

The following pension benefit payments, which reflect expected future employee service, as appropriate, are expected to be paid through the utilization of plan assets for the funded plans and from operating cash flows for the unfunded plans. The Retiree Health and Life Insurance benefits, for which no funding has been made, are expected to be paid from operating cash flows. The benefit payments are based on the same assumptions used to measure our benefit obligation at the end of fiscal 2012.



	Pension Benefits		Retiree Health and Life Insurance Benefits

2013	$	7,687	$	1,238
2014	7,467		1,229
2015	7,753		1,218
2016	8,060		1,183
2017	8,548		1,118
2018-2022	52,571		6,155