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Post-Retirement and Other Long-Term Employees Benefits
 12 Months Ended
Dec. 31, 2011
Post-Retirement and Other Long-Term Employees Benefits [Abstract]  
POST-RETIREMENT AND OTHER LONG-TERM EMPLOYEES BENEFITS

15. POST-RETIREMENT AND OTHER LONG-TERM EMPLOYEES BENEFITS

The Company and its subsidiaries have a number of defined benefit pension plans, mainly unfunded, and other long-term employees’ benefits covering employees in various countries. The defined benefit plans provide pension benefits based on years of service and employee compensation levels. The other long-term employees’ plans provide benefits due during the employees’ period of service after certain seniority levels. The Company uses a December 31 measurement date for its plans. Eligibility is generally determined in accordance with local statutory requirements. For Italian termination indemnity plan (“TFR”), generated before July 1, 2007, the Company continues to measure the vested benefits to which Italian employees are entitled as if they retired immediately as of December 31, 2011, in compliance with U.S. GAAP guidance on determining vested benefit obligations for defined benefit pension plans.

The changes in benefit obligation and plan assets were as follows:

 

                                 
    Pension Benefits     Other Long-Term Benefits  
    December 31,
2011		     December 31,
2010		     December 31,
2011		     December 31,
2010		  

Change in benefit obligation:

                                

Benefit obligation at beginning of year

     701       654       50       43  

Service cost

     34       25       8       8  

Interest cost

     33       26       3       2  

Employee contributions

     7       5       —         —    

Benefits paid

     (20 )      (12 )      (2 )      (3 ) 

Effect of settlement

     (18 )      (18 )              —    

Effect of curtailment

     —         (2 )      —         (1 ) 

Actuarial (gain) loss

     73       19       (5 )      4  

Transfer in

     3       —         1       —    

Transfer out

     (3 )      (2 )      (1 )      —    

Plan amendment

     —         12       —         —    

Foreign currency translation adjustment

     (16 )      (6 )      (2 )      (3 ) 

Benefit obligation at end of year

     794       701       52       50  
         

Change in plan assets:

                                
         

Plan assets at fair value at beginning of year

     372       339       —         —    

Expected return on plan assets

     20       18       —         —    

Employer contributions

     30       24       —         —    

Employee contributions

     7       5       —         —    

Benefits paid

     (8 )      (4 )      —         —    

Effect of settlement

     (16 )      (18 )      —         —    

Actuarial gain (loss)

     (25 )      1       —         —    

Transfer in

     1       —         —         —    

Transfer out

     (1 )      —         —         —    

Foreign currency translation adjustments

     (2 )      7       —         —    
         

Plan assets at fair value at end of year

     378       372       —         —    
         

Funded status

     (416 )      (329 )      (52 )      (50 ) 
         

Net amount recognized in the balance sheet consisted of the following:

                                
         

Non-current assets

     1       4       —         —    

Current liabilities

     (16 )      (18 )      (3 )      (3 ) 

Long-term liabilities

     (401 )      (315 )      (49 )      (47 ) 

Net amount recognized

     (416 )      (329 )      (52 )      (50 ) 

 

The components of accumulated other comprehensive income (loss) before tax effects were as follows:

 

 

                         
    Actuarial
(gains)/losses		     Prior service
cost		     Total  

Other comprehensive loss as at December 31, 2009

     72       4       76  

Net amount generated/arising in current year

     21       12       33  

Amortization

     (9 )      (5 )      (14 ) 

Foreign currency translation adjustment

     2       —         2  

Other comprehensive loss as at December 31, 2010

     86       11       97  

Net amount generated/arising in current year

     98       —         98  

Amortization

     (6 )      (1 )      (7 ) 

Foreign currency translation adjustment

     (3 )      —         (3 ) 

Other comprehensive loss as at December 31, 2011

     175       10       185  

In 2012, the Company expects to amortize $11 million of actuarial losses and $1 million of past service cost.

The components of the net periodic benefit cost included the following:

 

 

                                                 
    Pension Benefits     Other Long-term Benefits  
    Year ended
December 31,
2011		     Year ended
December 31,
2010		     Year ended
December 31,
2009		     Year ended
December 31,
2011		     Year ended
December 31,
2010		     Year ended
December 31,
2009		  

Service cost

     34       25       22       8       8       4  

Interest cost

     33       26       25       3       2       2  

Expected return on plan assets

     (20 )      (18 )      (16 )      —         —         —    

Amortization of actuarial net loss (gain)

     6       4       6       (5 )      3       (1 ) 

Amortization of prior service cost

     1       1       2       —         1       —    

Effect of settlement

     (1 )      5       2               —         —    

Effect of curtailment

     —         (2 )      (2 )      —         (1 )      —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net periodic benefit cost

     53       41       39       6       13       5  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

The weighted average assumptions used in the determination of the benefit obligation and the plan asset for the pension plans and the other long-term benefits were as follows:

 

 

                         

Assumptions

   December 31,
2011		     December 31,
2010		     December 31,
2009		  

Discount rate

     4.14 %      4.68 %      5.11 % 

Salary increase rate

     2.99 %      3.13 %      3.08 % 

Expected long-term rate of return on funds for the pension expense of the year

     4.57 %      4.99 %      5.28 % 

The discount rate was determined by comparison against long-term corporate bond rates applicable to the respective country of each plan. In developing the expected long-term rate of return on assets, the Company modelled the expected long-term rates of return for broad categories of investments held by the plan against a number of various potential economic scenarios.

The Company’s pension plan asset allocation at December 31, 2011 and at December 31, 2010 are as follows:

 

 

                 
   

Percentage of Plan

Assets at December

  

Asset Category

     2011       2010  

Equity securities

     31 %      39 % 

Bonds securities remunerating interest

     44 %      32 % 

Real estate

     7 %      7 % 

Other

     18 %      22 % 

Total

     100 %      100 % 

 

The Company’s detailed pension plan asset allocation including the fair-value measurements of those plan assets as at December 31, 2011 is as follows:

 

 

                                 
    Total     Quoted Prices in
Active Markets
for Identical
Assets (Level 1)		    

Significant Other
Observable Inputs

(Level 2)

    

Significant
Unobservable
Inputs

(Level 3)

  

Cash and cash equivalents

     10       10       —         —    

Equity securities

     118       72       46       —    

Government debt securities

     59       14       45       —    

Corporate debt securities

     105       64       41       —    

Derivatives

     20       16       4       —    

Investment funds

     33       1       30       2  

Real estate

     28       3       21       4  

Other (mainly insurance assets — contracts and reserves)

     5       1       —         4  

TOTAL

     378       181       187       10  

The Company’s detailed pension plan asset allocation including the fair-value measurements of those plan assets as at December 31, 2010 is as follows:

 

                                 
    Total     Quoted Prices in
Active Markets
for Identical
Assets (Level 1)		    

Significant Other
Observable Inputs

(Level 2)

    

Significant
Unobservable
Inputs

(Level 3)

  

Cash and cash equivalents

     24       24       —         —    

Equity securities

     144       106       38       —    

Government debt securities

     68       28       40       —    

Corporate debt securities

     50       17       33       —    

Derivatives

     30       25       5       —    

Investment funds

     23       1       20       2  

Real estate

     27       3       19       5  

Other (mainly insurance assets — contracts and reserves)

     6       1       —         5  

TOTAL

     372       205       155       12  

In 2010, the Company reclassified $54 million plan assets, including equity securities, government debt securities, corporate debt securities and real estate, from Level 1 to Level 2. Fair value measurement is further described in Note 24.

For plan assets measured at fair value using significant unobservable inputs (Level 3), the reconciliation between January 1, 2011 and December 31, 2011 is presented as follows:

 

         

In millions of U.S. dollars

   Fair Value Measurements using Significant
Unobservable Inputs (Level 3)		  

January 1, 2011

     12  

Reclassification to Level 2

     (2 ) 
   

 

 

  

December 31, 2011

     10  
   

 

 

  

For plan assets measured at fair value using significant unobservable inputs (Level 3), the reconciliation between January 1, 2010 and December 31, 2010 is presented as follows:

 

         

In millions of U.S. dollars

   Fair Value Measurements using Significant
Unobservable Inputs (Level 3)		  

January 1, 2010

     12  

Actual return on plan assets mainly due to real estate

     (2 ) 

Reclassification from Level 2

     2  
   

 

 

  

December 31, 2010

     12  
   

 

 

  

The Company’s investment strategy for its pension plans is to maximize the long-term rate of return on plan assets with an acceptable level of risk in order to minimize the cost of providing pension benefits while maintaining adequate funding levels. The Company’s practice is to periodically conduct a review in each subsidiary of its asset allocation strategy. A portion of the fixed income allocation is reserved in short-term cash to provide for expected benefits to be paid. The Company’s equity portfolios are managed in such a way as to achieve optimal diversity and in certain jurisdictions they are entirely managed by the multi-employer funds. The Company does not manage any assets internally.

 

After considering the funded status of the Company’s defined benefit plans, movements in the discount rate, investment performance and related tax consequences, the Company may choose to make contributions to its pension plans in any given year in excess of required amounts. The Company contributions to plan assets were $30 million and $24 million in 2011 and 2010 respectively and the Company expects to contribute cash of $21 million in 2012.

The Company’s estimated future benefit payments as of December 2011 are as follows:

 

 

                 
Years   Pension Benefits     Other Long-term Benefits  

2012

     30       3  

2013

     25       3  

2014

     34       10  

2015

     30       4  

2016

     33       4  

From 2017 to 2021

     206       31  

The Company has certain defined contribution plans, which accrue benefits for employees on a pro-rata basis during their employment period based on their individual salaries. The Company accrued benefits related to defined contribution pension plans of $17 million and $14 million as of December 31, 2011 and 2010 respectively. The annual cost of these plans amounted to approximately $98 million, $89 million and $81 million in 2011, 2010 and 2009, respectively. The benefits accrued to employees on a pro-rata basis, during their employment period, are based on the individuals’ salaries.