PENSION PLANS

Most of our employees participate in defined contribution pension plans. We provide a contribution to an individual retirement contribution account maintained with the CEOP primarily equal to 5% of the employee’s eligible compensation if such employee is less than age 45, and 7.5% of the employee’s eligible compensation if such employee is age 45 or older. The defined contribution pension plans expense was $16.1 million, $14.6 million and $13.3 million for 2012, 2011 and 2010, respectively.

A portion of our bargaining hourly employees continue to participate in our domestic defined benefit pension plans under a flat-benefit formula. Our funding policy for the defined benefit pension plans is consistent with the requirements of federal laws and regulations. Our foreign subsidiaries maintain pension and other benefit plans, which are consistent with statutory practices. Our defined benefit pension plan provides that if, within three years following a change of control of Olin, any corporate action is taken or filing made in contemplation of, among other things, a plan termination or merger or other transfer of assets or liabilities of the plan, and such termination, merger or transfer thereafter takes place, plan benefits would automatically be increased for affected participants (and retired participants) to absorb any plan surplus (subject to applicable collective bargaining requirements).

During the third quarter of 2012, the “Moving Ahead for Progress in the 21st Century Act” became law. The new law changes the mechanism for determining interest rates to be used for calculating minimum defined benefit pension plan funding requirements. Interest rates are determined using an average of rates of a 25-year period, which can have the effect of increasing the annual discount rate, reducing the defined benefit pension plan obligation, and potentially reducing or eliminating the minimum annual funding requirement. The new law also increased premiums paid to the PBGC. Based on our plan assumptions and estimates, we will not be required to make any cash contributions to the domestic defined benefit pension plan at least through 2013 and under the new law may not be required to make any additional contributions for at least the next five years.

As part of the acquisition of KA Steel, as of December 31, 2012, we have recorded a preliminary contingent liability of $10.0 million for the withdrawal from a multi-employer defined benefit pension plan.

Pension Obligations and Funded Status

Changes in the benefit obligation and plan assets were as follows:



	December 31, 2012									December 31, 2011
	($ in millions)									($ in millions)
Change in Benefit Obligation	U.S.			Foreign			Total			U.S.			Foreign			Total
Benefit obligation at beginning of year	$	1,884.9		$	64.5		$	1,949.4		$	1,790.0		$	55.6		$	1,845.6
Service cost	2.8			0.7			3.5			2.9			0.6			3.5
Interest cost	89.2			2.8			92.0			91.2			3.0			94.2
Actuarial loss	220.8			2.3			223.1			126.2			10.1			136.3
Benefits paid	(126.9		)	(3.3		)	(130.2		)	(126.5		)	(3.3		)	(129.8		)
Curtailment	—			—			—			1.1			—			1.1
Currency translation adjustments	—			1.4			1.4			—			(1.5		)	(1.5		)
Benefit obligation at end of year	$	2,070.8		$	68.4		$	2,139.2		$	1,884.9		$	64.5		$	1,949.4



	December 31, 2012									December 31, 2011
	($ in millions)									($ in millions)
Change in Plan Assets	U.S.			Foreign			Total			U.S.			Foreign			Total
Fair value of plans’ assets at beginning of year	$	1,842.6		$	64.3		$	1,906.9		$	1,734.9		$	65.5		$	1,800.4
Actual return on plans’ assets	193.0			5.1			198.1			229.6			2.5			232.1
Employer contributions	3.8			1.0			4.8			4.6			1.1			5.7
Benefits paid	(126.9		)	(3.3		)	(130.2		)	(126.5		)	(3.3		)	(129.8		)
Currency translation adjustments	—			1.4			1.4			—			(1.5		)	(1.5		)
Fair value of plans’ assets at end of year	$	1,912.5		$	68.5		$	1,981.0		$	1,842.6		$	64.3		$	1,906.9



	December 31, 2012									December 31, 2011
	($ in millions)									($ in millions)
Funded Status	U.S.			Foreign			Total			U.S.			Foreign			Total
Qualified plans	$	(93.5	)	$	2.1		$	(91.4	)	$	17.4		$	1.8		$	19.2
Non-qualified plans	(64.8		)	(2.0		)	(66.8		)	(59.7		)	(2.0		)	(61.7		)
Total funded status	$	(158.3	)	$	0.1		$	(158.2	)	$	(42.3	)	$	(0.2	)	$	(42.5	)

Under ASC 715 we recorded a $99.0 million after-tax charge ($162.0 million pretax) to shareholders’ equity as of December 31, 2012 for our pension plans. This charge reflected a 100-basis point decrease in the plans’ discount rate, partially offset by the favorable performance on plan assets during 2012. In 2011, we recorded a $25.9 million after-tax charge ($41.8 million pretax) to shareholders’ equity as of December 31, 2011 for our pension plans. This charge reflected a 40-basis point decrease in the plans’ discount rate and an unfavorable actuarial assumption change related to mortality tables, partially offset by the favorable performance on plan assets during 2011.

The $223.1 million actuarial loss for 2012 was primarily due to a 100-basis point decrease in the plans’ discount rate and an unfavorable actuarial assumption charge related to mortality tables. The $136.3 million actuarial loss for 2011 was primarily due to a 40-basis point decrease in the plans’ discount rate and an unfavorable actuarial assumption charge related to mortality tables.

Amounts recognized in the consolidated balance sheets consisted of:



	December 31, 2012									December 31, 2011
	($ in millions)									($ in millions)
	U.S.			Foreign			Total			U.S.			Foreign			Total
Prepaid benefit cost	$	—		$	2.1		$	2.1		$	17.4		$	1.8		$	19.2
Accrued benefit in current liabilities	(6.0		)	(0.1		)	(6.1		)	(3.9		)	(0.2		)	(4.1		)
Accrued benefit in noncurrent liabilities	(152.3		)	(1.9		)	(154.2		)	(55.8		)	(1.8		)	(57.6		)
Accumulated other comprehensive loss	557.0			19.9			576.9			415.4			19.8			435.2
Net balance sheet impact	$	398.7		$	20.0		$	418.7		$	373.1		$	19.6		$	392.7

At December 31, 2012 and 2011, the benefit obligation of non-qualified pension plans was $66.8 million and $61.7 million, respectively, and was included in the above pension benefit obligation. There were no plan assets for these non-qualified pension plans. Benefit payments for the non-qualified pension plans are expected to be as follows: 2013—$6.2 million; 2014—$14.5 million; 2015—$3.3 million; 2016—$5.5 million; and 2017—$4.7 million. Benefit payments for the qualified plans are projected to be as follows: 2013—$121.8 million; 2014—$117.3 million; 2015—$113.8 million; 2016—$110.6 million; and 2017—$107.5 million.



	December 31,
	2012		2011
	($ in millions)
Projected benefit obligation	$	2,139.2	$	1,949.4
Accumulated benefit obligation	2,125.8		1,941.2
Fair value of plan assets	1,981.0		1,906.9



	Years Ended December 31,
Components of Net Periodic Benefit Income	2012			2011			2010
	($ in millions)
Service cost	$	6.1		$	6.1		$	6.0
Interest cost	92.0			94.2			98.6
Expected return on plans’ assets	(139.5		)	(139.5		)	(138.8		)
Amortization of prior service cost	2.2			0.8			0.7
Recognized actuarial loss	18.1			14.8			12.6
Curtailments	—			1.1			3.2
Net periodic benefit income	$	(21.1	)	$	(22.5	)	$	(17.7	)

Included in Other Comprehensive Loss (Pretax)
Liability adjustment	$	162.0		$	41.8		$	38.7
Amortization of prior service costs and actuarial losses	(20.3		)	(16.7		)	(16.5		)

The defined benefit pension plans’ actuarial loss that will be recognized from accumulated other comprehensive loss into net periodic benefit income in 2013 will be approximately $30 million.

In June 2011, we recorded a curtailment charge of $1.1 million related to the ratification of a new five and one half year Winchester, East Alton, IL union labor agreement. In December 2010, we recorded a curtailment charge of $3.2 million associated with our ongoing relocation of our Winchester centerfire ammunition manufacturing operations from East Alton, IL to Oxford, MS. These curtailment charges were included in restructuring charges.

In March 2010, we recorded a charge of $1.3 million associated with an agreement to withdraw our Henderson, NV chlor alkali hourly workforce from a multi-employer defined benefit pension plan.

The service cost and the amortization of prior service cost components of pension expense related to the employees of the operating segments are allocated to the operating segments based on their respective estimated census data.

Pension Plan Assumptions

Certain actuarial assumptions, such as discount rate and long-term rate of return on plan assets, have a significant effect on the amounts reported for net periodic benefit cost and accrued benefit obligation amounts. We use a measurement date of December 31 for our pension plans.



	U.S. Pension Benefits						Foreign Pension Benefits
Weighted Average Assumptions:	2012		2011		2010		2012		2011		2010
Discount rate—periodic benefit cost	4.9	%	5.3	%	5.75	%	4.4	%	5.5	%	6.5	%
Expected return on assets	8.0	%	8.25	%	8.5	%	8.0	%	8.0	%	7.5	%
Rate of compensation increase	3.0	%	3.0	%	3.0	%	3.5	%	3.5	%	3.5	%
Discount rate—benefit obligation	3.9	%	4.9	%	5.3	%	4.2	%	4.4	%	5.5	%

The discount rate is based on a hypothetical yield curve represented by a series of annualized individual zero-coupon bond spot rates for maturities ranging from one-half to thirty years. The bonds used in the yield curve must have a rating of AA or better per Standard & Poor’s, be non-callable, and have at least $250 million par outstanding. The yield curve is then applied to the projected benefit payments from the plan. Based on these bonds and the projected benefit payment streams, the single rate that produces the same yield as the matching bond portfolio, rounded to the nearest quarter point, is used as the discount rate.

The long-term expected rate of return on plan assets represents an estimate of the long-term rate of returns on the investment portfolio consisting of equities, fixed income, and alternative investments. We use long-term historical actual return information, the allocation mix of investments that comprise plan assets, and forecast estimates of long-term investment returns, including inflation rates, by reference to external sources. The historic rate of return on plan assets has been 9.5% for the last 5 years, 12.3% for the last 10 years, and 9.0% for the last 15 years. The following rates of return by asset class were considered in setting the long-term rate of return assumption:



U.S. equities	9%	to	13%
Non-U.S. equities	10%	to	14%
Fixed income/cash	5%	to	9%
Alternative investments	5%	to	15%
Absolute return strategies	8%	to	12%

Plan Assets

Our pension plan asset allocation at December 31, 2012 and 2011, by asset class was as follows:



	Percentage of Plan Assets
Asset Class	2012		2011
U.S. equities	6	%	5	%
Non-U.S. equities	7	%	8	%
Fixed income/cash	53	%	56	%
Alternative investments	18	%	16	%
Absolute return strategies	16	%	15	%
Total	100	%	100	%

The Alternative Investments asset class includes hedge funds, real estate, and private equity investments. The Alternative Investment class is intended to help diversify risk and increase returns by utilizing a broader group of assets.

Absolute Return Strategies further diversify the plan’s assets through the use of asset allocations that seek to provide a targeted rate of return over inflation. The investment managers allocate funds within asset classes that they consider to be undervalued in an effort to preserve gains in overvalued asset classes and to find opportunities in undervalued asset classes.

A master trust was established by our pension plan to accumulate funds required to meet benefit payments of our plan and is administered solely in the interest of our plan’s participants and their beneficiaries. The master trust’s investment horizon is long term. Its assets are managed by professional investment managers or invested in professionally managed investment vehicles.

Our pension plan maintains a portfolio of assets designed to achieve an appropriate risk adjusted return. The portfolio of assets is also structured to protect the funding level from the negative impacts of interest rate changes on the asset and liability values. This is accomplished by investing in a portfolio of assets with a maturity duration that approximately matches the duration of the plan liabilities. Risk is managed by diversifying assets across asset classes whose return patterns are not highly correlated, investing in passively and actively managed strategies and in value and growth styles, and by periodic rebalancing of asset classes, strategies and investment styles to objectively set targets.

As of December 31, 2012, the following target allocation and ranges have been set for each asset class:



Asset Class	Target Allocation		Target Range
U.S. equities	6	%	0-14
Non-U.S. equities	6	%	0-14
Fixed income/cash	61	%	44-76
Alternative investments	7	%	0-28
Absolute return strategies	20	%	10-30

We do have a small Canadian qualified pension plan to which we made $0.9 million of cash contributions in 2012 and 2011 and we anticipate less than $5 million of cash contributions in 2013.

Determining which hierarchical level an asset or liability falls within requires significant judgment. The following table summarizes our domestic and foreign defined benefit pension plan assets measured at fair value as of December 31, 2012:



Asset class	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	($ in millions)
Equity securities
U.S. equities	$	94.8	$	16.9	$	—	$	111.7
Non-U.S. equities	42.9		105.6		—		148.5
Fixed income / cash
Cash	38.2		—		—		38.2
Government treasuries	—		501.7		5.6		507.3
Corporate debt instruments	1.8		358.0		12.2		372.0
Asset-backed securities	—		141.9		—		141.9
Alternative investments
Hedge fund of funds	—		—		286.9		286.9
Real estate funds	—		—		38.2		38.2
Private equity funds	—		—		18.5		18.5
Absolute return strategies	—		277.0		40.8		317.8
Total assets	$	177.7	$	1,401.1	$	402.2	$	1,981.0

The following table summarizes our domestic and foreign defined benefit pension plan assets measured at fair value as of December 31, 2011:



Asset class	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	($ in millions)
Equity securities
U.S. equities	$	78.8	$	14.9	$	—	$	93.7
Non-U.S. equities	51.4		107.6		—		159.0
Fixed income / cash
Cash	50.1		—		—		50.1
Government treasuries	—		476.2		5.5		481.7
Corporate debt instruments	3.1		395.5		2.9		401.5
Asset-backed securities	—		122.2		—		122.2
Alternative investments
Hedge fund of funds	—		—		258.3		258.3
Real estate funds	—		—		33.9		33.9
Private equity funds	—		—		16.8		16.8
Absolute return strategies	—		254.5		35.2		289.7
Total assets	$	183.4	$	1,370.9	$	352.6	$	1,906.9

U.S. equities—This class included actively and passively managed equity investments in common stock and commingled funds comprised primarily of large-capitalization stocks with value, core and growth strategies.

Non-U.S. equities—This class included actively managed equity investments in commingled funds comprised primarily of international large-capitalization stocks from both developed and emerging markets.

Fixed income and cash—This class included commingled funds comprised of debt instruments issued by the U.S. and Canadian Treasuries, U.S. Agencies, corporate debt instruments, asset- and mortgage-backed securities and cash.

Hedge fund of funds – This class included a hedge fund which invests in the following types of hedge funds:

Event driven hedge funds—This class included hedge funds that invest in securities to capture excess returns that are driven by market or specific company events including activist investment philosophies and the arbitrage of equity and private and public debt securities.

Market neutral hedge funds—This class included investments in U.S. and international equities and fixed income securities while maintaining a market neutral position in those markets.

Other hedge funds—This class primarily included long-short equity strategies and a global macro fund which invested in fixed income, equity, currency, commodity and related derivative markets.

At December 31, 2012 and 2011, the asset allocation included investment in approximately 20% event driven hedge funds, 35% market neutral hedge funds, and 45% other hedge funds.

Real estate funds—This class included several funds that invest primarily in U.S. commercial real estate.

Private equity funds—This class included several private equity funds that invest primarily in infrastructure and U.S. power generation and transmission assets.

Absolute return strategies—This class included multiple strategies which use asset allocations that seek to provide a targeted rate of return over inflation. The investment managers allocate funds within asset classes that they consider to be undervalued in an effort to preserve gains in overvalued asset classes and to find opportunities in undervalued asset classes. At December 31, 2012, the asset allocation included investment in approximately 25% equities, 65% cash and fixed income, and 10% alternative investments. At December 31, 2011, the asset allocation included investments in approximately 25% equities, 60% cash and fixed income, and 15% alternative investments.

U.S. equities and non-U.S. equities are primarily valued at the net asset value provided by the independent administrator or custodian of the commingled fund. The net asset value is based on the value of the underlying equities, which are traded on an active market. U.S. equities are also valued at the closing price reported in an active market on which the individual securities are traded. Fixed income investments are primarily valued at the net asset value provided by the independent administrator or custodian of the fund. The net asset value is based on the underlying assets, which are valued using inputs such as the closing price reported, if traded on an active market, values derived from comparable securities of issuers with similar credit ratings, or under a discounted cash flow approach that utilizes observable inputs, such as current yields of similar instruments, but includes adjustments for risks that may not be observable such as certain credit and liquidity risks. Alternative investments are primarily valued at the net asset value as determined by the independent administrator or custodian of the fund. The net asset value is based on the underlying investments, which are valued using inputs such as quoted market prices of identical instruments, discounted future cash flows, independent appraisals, and market-based comparable data. Absolute return strategies are commingled funds which reflect the fair value of our ownership interest in these funds. The investments in these commingled funds include some or all of the above asset classes and are primarily valued at net asset values based on the underlying investments, which are valued consistent with the methodologies described above for each asset class.

The following table summarizes the activity for our defined benefit pension plans level 3 assets for the year ended December 31, 2012:



	December 31, 2011		Realized Gain/(Loss)		Unrealized Gain/(Loss) Relating to Assets Held at Period End		Purchases, Sales, and Settlements			Transfers In/(Out)		December 31, 2012
	($ in millions)
Fixed income / cash
Government treasuries	$	5.5	$	—	$	0.5	$	(0.4	)	$	—	$	5.6
Corporate debt instruments	2.9		0.3		0.1		8.9			—		12.2
Alternative investments
Hedge fund of funds	258.3		—		25.6		3.0			—		286.9
Real estate funds	33.9		0.8		2.4		1.1			—		38.2
Private equity funds	16.8		—		1.3		0.4			—		18.5
Absolute return strategies	35.2		—		3.0		2.6			—		40.8
Total level 3 assets	$	352.6	$	1.1	$	32.9	$	15.6		$	—	$	402.2

The following table summarizes the activity for our defined benefit pension plans level 3 assets for the year ended December 31, 2011:



	December 31, 2010		Realized Gain/(Loss)		Unrealized Gain/(Loss) Relating to Assets Held at Period End			Purchases, Sales, and Settlements			Transfers In/(Out)		December 31, 2011
	($ in millions)
Fixed income / cash
Government treasuries	$	5.5	$	—	$	(0.2	)	$	0.2		$	—	$	5.5
Corporate debt instruments	2.2		0.3		(0.6		)	1.0			—		2.9
Alternative investments
Hedge fund of funds	251.6		—		6.7			—			—		258.3
Real estate funds	23.8		—		3.7			6.4			—		33.9
Private equity funds	15.7		—		1.1			—			—		16.8
Absolute return strategies	53.9		—		0.6			(19.3		)	—		35.2
Total level 3 assets	$	352.7	$	0.3	$	11.3		$	(11.7	)	$	—	$	352.6