Note 12 - 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 $12,003, $12,522 and $12,510 for 2012, 2013 and 2014, 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 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:


	2013									2014
	Pension Benefits									Pension Benefits									Other Postretirement Benefits
	Domestic			International			Total			Domestic			International			Total			2013			2014

Change in benefit obligation:
Projected Benefit Obligation at January 1	$	1,064,070		$	374,925		$	1,438,995		$	973,276		$	431,146		$	1,404,422		$	308,226		$	252,866
Service cost - employer		11,879			8			11,887			9,760			8			9,768			3,813			2,404
Interest cost		38,751			15,661			54,412			42,842			19,620			62,462			10,791			11,305
Actuarial (gain)/loss		(82,219	)		47,613			(34,606	)		137,217			47,015			184,232			(59,898	)		24,294
Benefits paid		(59,205	)		(14,362	)		(73,567	)		(57,995	)		(14,631	)		(72,626	)		(10,066	)		(12,002	)
Foreign currency translation effect		—			7,301			7,301			—			(25,926	)		(25,926	)		—			—

Projected Benefit Obligation at December 31	$	973,276		$	431,146		$	1,404,422		$	1,105,100		$	457,232		$	1,562,332		$	252,866		$	278,867

Change in plans’ assets:
Fair value of plans’ assets at January 1	$	745,871		$	259,703		$	1,005,574		$	823,790		$	288,524		$	1,112,314		$	—		$	—
Actual return on plans’ assets		101,400			28,371			129,771			56,284			65,128			121,412			—			—
Employer contribution		35,724			8,485			44,209			35,746			12,454			48,200			—			—
Benefits paid		(59,205	)		(14,362	)		(73,567	)		(57,995	)		(14,631	)		(72,626	)		—			—
Foreign currency translation effect		—			6,327			6,327			—			(20,627	)		(20,627	)		—			—

Fair value of plans’ assets at December 31	$	823,790		$	288,524		$	1,112,314		$	857,825		$	330,848		$	1,188,673		$	—		$	—

Funded status	$	(149,486	)	$	(142,622	)	$	(292,108	)	$	(247,275	)	$	(126,384	)	$	(373,659	)	$	(252,866	)	$	(278,867	)

Amounts recognized in the balance sheets:
Accrued liabilities	$	(300	)	$	—		$	(300	)	$	(300	)	$	—		$	(300	)	$	(14,213	)	$	(14,562	)
Postretirement benefits other than pensions		—			—			—			—			—			—			(238,653	)		(264,305	)
Pension benefits		(149,186	)		(142,622	)		(291,808	)		(246,975	)		(126,384	)	$	(373,359	)		—			—

Included in cumulative other comprehensive loss at December 31, 2013 are the following amounts that have not yet been recognized in net periodic benefit cost: unrecognized prior service credits of ($3,301) (($2,427) net of tax) and unrecognized actuarial losses of $526,501 ($473,723 net of tax).

Included in cumulative other comprehensive loss at December 31, 2014 are the following amounts that have not yet been recognized in net periodic benefit cost: unrecognized prior service credits of ($2,736) (($2,078) net of tax) and unrecognized actuarial losses of $647,115 ($546,502 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, 2015 are ($566) and $46,876, respectively.

The accumulated benefit obligation for all defined benefit pension plans was $1,401,109 and $1,558,908 at December 31, 2013 and 2014, respectively.

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


	Pension Benefits						Other Postretirement Benefits
	2013			2014			2013			2014
All plans
Discount rate		4.53	%		3.70	%		4.60	%		3.80	%

Domestic plans
Discount rate		4.55	%		3.75	%		4.60	%		3.80	%

Foreign plans
Discount rate		4.49	%		3.59	%		—			—

At December 31, 2014, the weighted average assumed annual rate of increase in the cost of medical benefits was 7.00 percent for 2015 trending linearly to 4.50 percent per annum in 2023.


	Pension Benefits - Domestic									Pension Benefits - International
	2012			2013			2014			2012			2013			2014
Components of net periodic benefit cost:
Service cost	$	9,415		$	11,879		$	9,760		$	725		$	8		$	8
Interest cost		43,005			38,751			42,842			17,106			15,661			19,620
Expected return on plan assets		(43,269	)		(51,284	)		(56,661	)		(15,323	)		(14,981	)		(19,977	)
Amortization of prior service cost		—			—			—			(185	)		—			—
Amortization of actuarial loss		36,818			44,370			28,021			6,818			6,564			8,452
Cooper Avon curtailment gain		—			—			—			(7,460	)		—			—

Net periodic benefit cost	$	45,969		$	43,716		$	23,962		$	1,681		$	7,252		$	8,103


	Other Post Retirement Benefits
	2012			2013			2014
Components of net periodic benefit cost:
Service cost	$	4,161		$	3,813		$	2,404
Interest cost		12,532			10,791			11,305
Amortization of prior service cost		(688	)		(566	)		(566	)
Amortization of actuarial loss		3,076			1,915			—

Net periodic benefit cost	$	19,081		$	15,953		$	13,143

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
	2012			2013			2014			2012			2013			2014
All plans
Discount rate		4.83	%		3.92	%		4.53	%		4.15	%		3.60	%		4.60	%
Expected return on plan assets		6.86	%		6.75	%		6.91	%		—			—			—
Rate of compensation increase		0.86	%		0.00	%		0.00	%		—			—			—

Domestic plans
Discount rate		4.80	%		3.75	%		4.55	%		4.15	%		3.60	%		4.60	%
Expected return on plan assets		7.00	%		7.00	%		7.00	%		—			—			—

Foreign plans
Discount rate		4.92	%		4.39	%		4.49	%		—			—			—
Expected return on plan assets		6.43	%		6.01	%		6.66	%		—			—			—
Rate of compensation increase		3.17	%		0.00	%		0.00	%		—			—			—

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, 2013 and 2014:


	2013				2014
	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	$	1,404,422	$	1,404,422	$	1,562,333	$	1,562,333
Accumulated benefit obligation		1,401,109		1,401,109		1,558,908		1,558,908
Fair value of plan assets		1,112,314		1,112,314		1,188,673		1,188,673

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	$	72	$	(63	)

Increase (decrease) in the postretirement benefit obligation		1,889		(1,665	)

The table below presents the Company’s weighted average asset allocations for its domestic and U.K. pension plans’ assets at December 31, 2013 and December 31, 2014 by asset category. Certain amounts for 2013 have been reclassified to conform to the current year presentation.


	U.S. Plans						U.K. Plan
Asset Category	2013			2014			2013			2014

Equity securities		59	%		53	%		51	%		20	%
Debt securities		41			47			40			72
Other investments		0			0			5			8
Cash		0			0			4			0

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 $823,790 and $857,825 at December 31, 2013 and 2014, respectively. The fair market value of the U.K. plan assets was $286,158 and $328,802 at December 31, 2013 and 2014, respectively. The fair market value of the German pension plan assets was $2,366 and $2,046 at December 31, 2013 and 2014, respectively.

The table below classifies the assets of the U.S. and U.K. plans using the Fair Value Hierarchy described in Note 12 – Fair Value of Financial Instruments. Certain amounts for 2013 have been reclassified to conform to the current year presentation including reclassifying $31,458 from Level 1 Cash and Cash Equivalents to Level 2 Fixed income securities.


			Fair Value Hierarchy
	Total		Level 1		Level 2		Level 3
December 31, 2013
United States plans
Cash & Cash Equivalents	$	775	$	775	$	—	$	—
Equity securities		484,822		187,685		297,137		—
Fixed income securities		338,193		123,776		214,417		—

	$	823,790	$	312,236	$	511,554	$	—


United Kingdom plan
Cash & Cash Equivalents	$	12,418	$	12,418	$	—	$	—
Equity securities		146,575		146,575		—		—
Fixed income securities		113,250		113,250		—		—
Other investments		13,915		—		—		13,915

	$	286,158	$	272,243	$	—	$	13,915


December 31, 2014
United States plans
Cash & Cash Equivalents	$	770	$	770	$	—	$	—
Equity securities		451,893		153,129		298,764		—
Fixed income securities		405,162		137,693		267,469		—

	$	857,825	$	291,592	$	566,233	$	—


United Kingdom plan
Cash & Cash Equivalents	$	935	$	935	$	—	$	—
Equity securities		67,224		67,224		—		—
Fixed income securities		234,775		234,775		—		—
Other investments		25,868		—		12,775		13,093

	$	328,802	$	302,934	$	12,775	$	13,093

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, 2013 and 2014:


	2013			2014

Balance at January 1	$	13,822		$	13,915

Contributions		642			133
Disbursements		(642	)		(133	)
Change in fair value		(170	)		—
Foreign currency translation effect		263			(822	)


Balance at December 31	$	13,915		$	13,093

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 2014, the Company contributed $48,200 to its domestic and foreign pension plans, and during 2015, the Company expects to contribute between $45,000 and $55,000 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

2015	$	80,300	$	14,600
2016		78,400		15,000
2017		79,700		15,400
2018		80,600		15,600
2019		81,700		16,000
2020 through 2024		425,800		82,900