NOTE 13 – PENSION, DEFERRED COMPENSATION AND POST-RETIREMENT BENEFIT PLANS

The Company maintains pension plans covering substantially all of its full-time employees for its U.S. operations and a majority of its international operations. Several plans provide pension benefits based primarily on years of service and employees’ earnings. In certain instances, the Company adjusts benefits in connection with international employee transfers.

Retirement Growth Account Plan (U.S.)

The Retirement Growth Account Plan is a trust-based, noncontributory qualified defined benefit pension plan. The Company seeks to maintain appropriate funded percentages. For contributions, the Company would seek to contribute an amount or amounts that would not be less than the minimum required by the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, and subsequent pension legislation, and would not be more than the maximum amount deductible for income tax purposes.

Restoration Plan (U.S.)

The Company also has an unfunded, non-qualified domestic noncontributory pension Restoration Plan to provide benefits in excess of Internal Revenue Code limitations.

International Pension Plans

The Company maintains international pension plans, the most significant of which are defined benefit pension plans. The Company’s funding policies for these plans are determined by local laws and regulations. The Company’s most significant defined benefit pension obligations are included in the plan summaries below.

Post-retirement Benefit Plans

The Company maintains a domestic post-retirement benefit plan which provides certain medical and dental benefits to eligible employees. Employees hired after January 1, 2002 are not eligible for retiree medical benefits when they retire. Certain retired employees who are receiving monthly pension benefits are eligible for participation in the plan. Contributions required and benefits received by retirees and eligible family members are dependent on the age of the retiree. It is the Company’s practice to fund a portion of these benefits as incurred and may provide discretionary funding for future liabilities up to the maximum amount deductible for income tax purposes.

Certain of the Company’s international subsidiaries and affiliates have post-retirement plans, although most participants are covered by government-sponsored or administered programs.

Plan Summaries

The significant components of the above mentioned plans as of and for the years ended June 30 are summarized as follows:

	Pension Plans												Other than Pension Plans
	U.S.						International						Post-retirement
(In millions)	2018			2017			2018			2017			2018			2017
Change in benefit obligation:
Benefit obligation at beginning of year	$	903		$	877		$	605		$	616		$	183		$	191
Service cost	37			37			30			28			3			3
Interest cost	33			30			13			11			7			7
Plan participant contributions	—			—			5			4			—			1
Actuarial loss (gain)	(26		)	(1		)	(22		)	(26		)	(16		)	(11		)
Foreign currency exchange rate impact	—			—			(2		)	(2		)	(1		)	—
Benefits, expenses, taxes and premiums paid	(51		)	(40		)	(34		)	(25		)	(6		)	(8		)
Plan amendments	—			—			(5		)	—			—			—
Settlements	—			—			(3		)	(3		)	—			—
Special termination benefits	—			—			1			2			—			—

Benefit obligation at end of year	$	896		$	903		$	588		$	605		$	170		$	183


Change in plan assets:
Fair value of plan assets at beginning of year	$	781		$	743		$	548		$	529		$	37		$	33
Actual return on plan assets	55			71			16			28			2			4
Foreign currency exchange rate impact	—			—			(2		)	(9		)	—			—
Employer contributions	53			7			31			24			1			7
Plan participant contributions	—			—			5			4			—			1
Settlements	—			—			(3		)	(3		)	—			—
Benefits, expenses, taxes and premiums paid from plan assets	(51		)	(40		)	(34		)	(25		)	(6		)	(8		)

Fair value of plan assets at end of year	$	838		$	781		$	561		$	548		$	34		$	37


Funded status	$	(58	)	$	(122	)	$	(27	)	$	(57	)	$	(136	)	$	(146	)


Amounts recognized in the Balance Sheet consist of:
Other assets	$	71		$	12		$	110		$	88		$	—		$	—
Other accrued liabilities	(23		)	(23		)	(4		)	(5		)	—			—
Other noncurrent liabilities	(106		)	(111		)	(133		)	(140		)	(136		)	(146		)

Funded status	(58		)	(122		)	(27		)	(57		)	(136		)	(146		)
Accumulated other comprehensive loss	190			232			40			72			4			21

Net amount recognized	$	132		$	110		$	13		$	15		$	(132	)	$	(125	)

	Pension Plans																		Other than Pension Plans
	U.S.									International									Post-retirement
($ in millions)	2018			2017			2016			2018			2017			2016			2018			2017			2016
Components of net periodic benefit cost:
Service cost	$	37		$	37		$	32		$	30		$	28		$	25		$	3		$	3		$	3
Interest cost	33			30			33			13			11			15			7			7			7
Expected return on assets	(53		)	(52		)	(49		)	(15		)	(16		)	(20		)	(3		)	(1		)	(2		)
Amortization of:
Actuarial loss	14			16			11			5			11			11			—			1			—
Prior service cost	—			1			1			—			2			2			1			—			1
Special termination benefits	—			—			—			1			2			1			—			—			—

Net periodic benefit cost	$	31		$	32		$	28		$	34		$	38		$	34		$	8		$	10		$	9


Weighted-average assumptions used to determine benefit obligations at June 30:
Discount rate	4.10 – 4.30		%	3.40 – 3.90		%	3.00 – 3.70		%	.50 – 7.50		%	.50 – 6.75		%	.25 – 6.00		%	3.75 – 9.75		%	3.70 – 9.75		%	3.50 – 9.50		%

Rate of compensation	2.50 –			3.00 –			3.00 –			1.00 –			1.00 –			0 –			N/A			N/A			N/A
increase	8.00		%	7.00		%	7.00		%	5.50		%	5.50		%	5.50		%

Weighted-average assumptions used to determine net periodic benefit cost for the year ended June 30:
Discount rate	3.40 –			3.00 –			3.70 –			.50 –			.25 –			.75 –			3.70 –			3.50 –			4.25 –
	3.90		%	3.70		%	4.40		%	6.75		%	6.00		%	7.00		%	9.75		%	9.50		%	9.00		%

Expected return on assets	7.00		%	7.00		%	7.00		%	1.75 –			1.50 –			2.00 –			7.00		%	7.00		%	7.00		%
										6.75		%	6.00		%	7.00		%

Rate of compensation	3.00 –			3.00 –			3.00 –			1.00 –			0 –			1.00 –			N/A			N/A			N/A
increase	7.00		%	7.00		%	7.00		%	5.50		%	5.50		%	5.50		%

The discount rate for each plan used for determining future net periodic benefit cost is based on a review of highly rated long-term bonds. The discount rate for the Company’s Domestic Plans is based on a bond portfolio that includes only long-term bonds with an Aa rating, or equivalent, from a major rating agency. The Company used an above-mean yield curve which represents an estimate of the effective settlement rate of the obligation, and the timing and amount of cash flows related to the bonds included in this portfolio are expected to match the estimated defined benefit payment streams of the Company’s Domestic Plans. For the Company’s international plans, the discount rate in a particular country was principally determined based on a yield curve constructed from high quality corporate bonds in each country, with the resulting portfolio having a duration matching that particular plan. In determining the long-term rate of return for a plan, the Company considers the historical rates of return, the nature of the plan’s investments and an expectation for the plan’s investment strategies.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The assumed weighted-average health care cost trend rate for the coming year is 6.66% while the weighted-average ultimate trend rate of 4.53% is expected to be reached in approximately 18 years.

A 100 basis-point change in assumed health care cost trend rates for fiscal 2018 would have had the following effects:

(In millions)	100 Basis-Point Increase		100 Basis-Point Decrease

Effect on total service and interest costs	$	1	$	(1	)

Effect on post-retirement benefit obligations	$	14	$	(12	)

Amounts recognized in AOCI (before tax) as of June 30, 2018 are as follows:

	Pension Plans						Other than Pension Plans
(In millions)	U.S.			International			Post-retirement			Total

Net actuarial losses, beginning of year	$	230		$	74		$	20		$	324
Actuarial gains recognized	(28		)	(23		)	(16		)	(67		)
Amortization included in net periodic benefit cost	(14		)	(5		)	—			(19		)
Translation adjustments	—			1			—			1

Net actuarial losses, end of year	188			47			4			239


Net prior service cost, beginning of year	2			(2		)	1			1
Prior service credit recognized	—			(5		)	—			(5		)
Amortization included in net periodic benefit cost	—			—			(1		)	(1		)

Net prior service cost, end of year	2			(7		)	—			(5		)


Total amounts recognized in AOCI	$	190		$	40		$	4		$	234

Amounts in AOCI expected to be amortized as components of net periodic benefit cost during fiscal 2019 are as follows:

	Pension Plans					Other than Pension Plans
(In millions)	U.S.		International			Post-retirement

Net prior service cost (credit)	$	1	$	(1	)	$	—

Net actuarial losses	$	10	$	3		$	—

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the Company’s pension plans at June 30 are as follows:

	Pension Plans
	Retirement Growth Account				Restoration				International
(In millions)	2018		2017		2018		2017		2018		2017

Projected benefit obligation	$	767	$	769	$	129	$	134	$	588	$	605

Accumulated benefit obligation	$	721	$	726	$	113	$	120	$	533	$	540

Fair value of plan assets	$	838	$	781	$	—	$	—	$	561	$	548

International pension plans with projected benefit obligations in excess of the plans’ assets had aggregate projected benefit obligations of $283 million and $281 million and aggregate fair value of plan assets of $146 million and $137 million at June 30, 2018 and 2017, respectively. International pension plans with accumulated benefit obligations in excess of the plans’ assets had aggregate accumulated benefit obligations of $221 million and $220 million and aggregate fair value of plan assets of $108 million and $103 million at June 30, 2018 and 2017, respectively.

The expected cash flows for the Company’s pension and post-retirement plans are as follows:

	Pension Plans				Other than Pension Plans
(In millions)	U.S.		International		Post-retirement

Expected employer contributions for year ending June 30, 2019	$	—	$	25	$	—
Expected benefit payments for year ending June 30,
2019	62		25		7
2020	50		24		8
2021	51		25		8
2022	51		27		9
2023	50		31		9
Years 2024 – 2028	281		151		54

Plan Assets

The Company’s investment strategy for its pension and post-retirement plan assets is to maintain a diversified portfolio of asset classes with the primary goal of meeting long-term cash requirements as they become due. Assets are primarily invested in diversified funds that hold equity or debt securities to maintain the security of the funds while maximizing the returns within each plan’s investment policy. The investment policy for each plan specifies the type of investment vehicles appropriate for the plan, asset allocation guidelines, criteria for selection of investment managers and procedures to monitor overall investment performance, as well as investment manager performance.

The Company’s target asset allocation at June 30, 2018 is as follows:

	Pension Plans				Other than Pension Plans
	U.S.		International		Post-retirement

Equity	44	%	13	%	44	%
Debt securities	39	%	65	%	39	%
Other	17	%	22	%	17	%

	100	%	100	%	100	%

The following is a description of the valuation methodologies used for plan assets measured at fair value:

Cash and Cash Equivalents – Cash and all highly-liquid securities with original maturities of three months or less are classified as cash and cash equivalents, primarily consisting of cash and time deposits. The carrying amount approximates fair value, primarily because of the short maturity of cash equivalent instruments.

Short-term investment funds – The fair values are determined using the Net Asset Value (“NAV”) provided by the administrator of the fund when the Company has the ability to redeem the assets at the measurement date. These assets are classified within Level 2 of the valuation hierarchy. For some assets the Company is utilizing the NAV as a practical expedient and those investments are not included in the valuation hierarchy.

Government and agency securities – The fair values are determined using third-party pricing services using market prices or prices derived from observable market inputs such as benchmark curves, broker/dealer quotes, and other industry and economic factors. These investments are classified within Level 2 of the valuation hierarchy.

Debt instruments – The fair values are determined using third-party pricing services using market prices or prices derived from observable market inputs such as credit spreads, broker/dealer quotes, benchmark curves and other industry and economic factors. These investments are classified within Level 2 of the valuation hierarchy.

Commingled funds – The fair values of publicly traded funds are based upon market quotes and are classified within Level 1 of the valuation hierarchy. The fair values for non-publicly traded funds are determined using the NAV provided by the administrator of the fund when the Company has the ability to redeem the assets at the measurement date. These assets are classified within Level 2 of the valuation hierarchy. When the Company is utilizing the NAV as a practical expedient those investments are not included in the valuation hierarchy. These investments have monthly redemption frequencies with redemption notice periods ranging from 10 to 30 days. There are no unfunded commitments related to these investments.

Insurance contracts – The fair values are based on negotiated value and the underlying investments held in separate account portfolios, as well as the consideration of the creditworthiness of the issuer. The underlying investments are primarily government, asset-backed and fixed income securities. Insurance contracts are generally classified as Level 3 as there are no quoted prices or other observable inputs for pricing.

Interests in limited partnerships and hedge fund investments – The fair values are determined using the NAV provided by the administrator as a practical expedient, and therefore these investments are not included in the valuation hierarchy. These investments have monthly and quarterly redemption frequencies with redemption notice periods ranging from 30 to 90 days. Unfunded commitments related to these investments are de minimis.

The following table presents the fair values of the Company’s pension and post-retirement plan assets by asset category as of June 30, 2018:

(In millions)	Level 1		Level 2		Level 3		Assets Measured at NAV		Total

Cash and cash equivalents	$	29	$	—	$	—	$	—	$	29
Short term investment funds	—		6		—		6		12
Government and agency securities	—		81		—		—		81
Debt instruments	—		25		—		—		25
Commingled funds	313		580		—		219		1,112
Insurance contracts	—		—		49		—		49
Limited partnerships and hedge fund investments	—		—		—		125		125

Total	$	342	$	692	$	49	$	350	$	1,433

The following table presents the fair values of the Company’s pension and post-retirement plan assets by asset category as of June 30, 2017:

(In millions)	Level 1		Level 2		Level 3		Assets Measured at NAV		Total

Cash and cash equivalents	$	3	$	—	$	—	$	—	$	3
Short term investment funds	—		17		—		6		23
Government and agency securities	—		37		—		—		37
Debt instruments	—		59		—		—		59
Commingled funds	147		761		—		194		1,102
Insurance contracts	—		—		48		—		48
Limited partnerships and hedge fund investments	—		—		—		94		94

Total	$	150	$	874	$	48	$	294	$	1,366

The following table presents the changes in Level 3 plan assets for fiscal 2018:

(In millions)	Insurance Contracts

Balance as of June 30, 2017	$	48
Actual return on plan assets:
Relating to assets still held at the reporting date	1
Purchases, sales, issuances and settlements, net	(1		)
Foreign exchange impact	1

Balance as of June 30, 2018	$	49

401(k) Savings Plan (U.S.)

The Company’s 401(k) Savings Plan (“Savings Plan”) is a contributory defined contribution plan covering substantially all regular U.S. employees who have completed the hours and service requirements, as defined by the plan document. Regular full-time employees are eligible to participate in the Savings Plan thirty days following their date of hire. The Savings Plan is subject to the applicable provisions of ERISA. The Company matches a portion of the participant’s contributions after one year of service under a predetermined formula based on the participant’s contribution level. The Company’s contributions were $41 million, $39 million and $37 million for fiscal 2018, 2017 and 2016, respectively. Shares of the Company’s Class A Common Stock are not an investment option in the Savings Plan and the Company does not use such shares to match participants’ contributions.

Deferred Compensation

The Company has agreements with certain employees and outside directors who defer compensation. The Company accrues for such compensation, and either interest thereon or for the change in the value of cash units. The amounts included in the accompanying consolidated balance sheets under these plans were $89 million and $75 million as of June 30, 2018 and 2017, respectively. The expense for fiscal 2018, 2017 and 2016 was $16 million, $6 million and $6 million, respectively.