Changes in the discount rate, rate of compensation increase and cash balance accumulation/conversion rates also have an
effect on our annual operating income. Based on the factors noted above, the discount rate is adjusted at each remeasurement
date while other assumptions are reviewed annually. For our U.S. plans, one-quarter-percentage-point increase or decrease in
the discount rate increases or decreases our pension cost by approximately $0.1 million and $0.3 million, respectively. The
discount rate used to determine pension cost for our U.S. pension plans was 4.05%, 5.06% and 5.72% for 2012, 2011 and 2010,
respectively. For 2013, we decreased the discount rate to 3.54% from 4.05% for all our U.S. pension plans.
Differences between the assumptions stated above and actual experience could affect our pension and other
postretirement benefit costs. When actual plan experience differs from the assumptions used, actuarial gains or losses arise.
These gains and losses are aggregated and amortized generally over the average future service periods or life expectancy of
plan participants to the extent that such gains or losses exceed a “corridor.” The purpose of the corridor is to reduce the
volatility caused by the difference between actual experience and the pension-related assumptions noted above, on a plan-byplan basis. For all of our pension plans, total actuarial losses that have not been recognized in our pension costs as of
December 31, 2012 and 2011 were $1,171.6 million and $1,093.8 million, respectively, of which $913.3 million and $879.9
million, respectively, were attributable to the U.S. Qualified Plan, $127.9 million and $120.2 million, respectively, were
attributable to the U.S. Non-Qualified Plans, and the remainder was attributable to the non-U.S. pension plans. See discussion
in Note 10 to our consolidated financial statements included in Item 8. of this Annual Report on Form 10-K. We expect to
recognize a portion of such losses in our 2013 net periodic pension cost of $32.8 million, $7.2 million and $3.8 million for the
U.S. Qualified Plan, U.S. Non-Qualified Plans and non-U.S. plans, respectively, compared to $26.6 million, $6.7 million and
$2.3 million, respectively, in 2012. The higher amortization of actuarial loss in 2013 for the U.S. Qualified plan, which will be
included in our pension cost in 2013, is primarily due to a lower discount rate and higher unrecognized actuarial loss subject to
amortization in 2013 resulting from investment losses from 2008.
Differences between the expected long-term rate of return assumption and actual experience could affect our net periodic
pension cost. For our pension plans, we recorded net periodic pension cost of $17.7 million, $7.1 million and $5.8 million for
the years ended December 31, 2012, 2011 and 2010, respectively. A major component of the net periodic pension cost is the
expected return on plan assets, which was $99.3 million, $110.4 million and $113.4 million for the years ended December 31,
2012, 2011 and 2010, respectively. The expected return on plan assets was determined by multiplying the expected long-term
rate of return assumption by the market-related value of plan assets. The market-related value of plan assets recognizes asset
gains and losses over five years to reduce the effects of short-term market fluctuations on net periodic cost. For our pension
plans we recorded: (i) for the year ended December 31, 2012, a total investment gain of $128.1 million which was comprised of
a gain of $113.4 million in our U.S. Qualified Plan and a gain of $14.7 million in our non-U.S. plans; (ii) for the year ended
December 31, 2011, a total investment gain of $39.3 million which was comprised of a gain of $27.7 million in our U.S.
Qualified Plan and a gain of $11.6 million in our non-U.S. plans; and (iii) for the year ended December 31, 2010, a total
investment gain of $138.5 million which was comprised of a gain of $126.3 million in our U.S. Qualified Plan and a gain of
$12.2 million in our non-U.S. plans. At January 1, 2013, the market-related value of plan assets of our U.S. Qualified Plan and
the non-U.S. plans was $1,097.0 million and $217.0 million, respectively, compared with the fair value of its plan assets of
$1,166.4 million and $194.5 million, respectively.
Changes in the funded status of our pension plans could result in fluctuation in our shareholders' equity (deficit). We are
required to recognize the funded status of our benefit plans as a liability or an asset, on a plan-by-plan basis with an offsetting
adjustment to Accumulated Other Comprehensive Income (“AOCI”), in our shareholders' equity (deficit), net of tax.
Accordingly, the amounts recognized in equity represent unrecognized gains/losses and prior service costs. These unrecognized
gains/losses and prior service costs are amortized out of equity (deficit) based on an actuarial calculation each period. Gains/
losses and prior service costs that arise during the year are recognized as a component of Other Comprehensive Income
(“OCI”) which is then reflected in AOCI. As a result, we recorded a net loss of $62.6 million and $122.4 million in OCI, net of
applicable tax, in the years ended December 31, 2012 and 2011, respectively. The losses in 2012 and 2011 were both as a result
of the deterioration of the funded status for all the plans. The decrease of the loss in 2012 was primarily due to improvement in
plan asset performance in 2012 for our U.S. Qualified Plan. Funded status for our pension plans was a deficit of $653.3 million
at December 31, 2012 compared to $589.4 million at December 31, 2011. The funded status for our U.S. Qualified Plan was a
deficit of $315.7 million at December 31, 2012 compared to a deficit of $290.0 million at December 31, 2011. The increase in
deficit was driven by the impact of assumption changes for our U.S. Qualified Plan, U.S. Non-Qualified Plans and the non-U.S.
plans, partially offset by better asset performance for our U.S. Qualified Plan.
For information on pension and postretirement benefit plan contribution requirements, please see “Future LiquiditySources and Uses of Funds-Pension Plan and Postretirement Benefit Plan Contribution Requirements.” See Note 10 to our
consolidated financial statements included in Item 8. of this Annual Report on Form 10-K for more information regarding costs
of, and assumptions for, our pension and postretirement benefit obligations and costs.
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