DEFINED BENEFIT PENSION PLANS

We sponsor defined benefit pension plans covering certain international employees in the UK, Japan, Germany and Austria, with such benefits accounted for on an accrual basis using actuarial assumptions. For our pension plans, we use a measurement date matching the end of our fiscal years.

The following tables provide information regarding our pension plans:

Obligation and Funded Status at End of Fiscal Year:



(In millions)	January 31, 2015			February 1, 2014
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	137		$	128
Service cost	5			5
Interest cost	5			5
Employee contributions	—			1
Benefits paid	(6		)	(2		)
Actuarial loss (gain)	52			(1		)
Foreign currency impact	(19		)	1
Projected benefit obligation at end of year	$	174		$	137



(In millions)	January 31, 2015			February 1, 2014
Change in fair value of plan assets:
Fair value of plan assets at beginning of year	$	118		$	105
Actual return on plan assets	17			5
Employer contributions	7			7
Employee contributions	—			1
Benefits paid	(6		)	(2		)
Foreign currency impact	(13		)	2
Fair value of plan assets at end of year	$	123		$	118



(In millions)	January 31, 2015			February 1, 2014
Reconciliation of funded status to total amount recognized:
Funded status	$	(51	)	$	(19	)
Amounts recognized in Consolidated Balance Sheets:
Other non-current liabilities	$	(51	)	$	(19	)
Amounts recognized in Accumulated other comprehensive loss:
Unrecognized actuarial losses, net of tax	$	42		$	9

Of the $42 million of unrecognized actuarial losses, net of tax in Accumulated other comprehensive loss as of January 31, 2015, $2 million is expected to be amortized into net periodic benefit cost in fiscal 2015.

Information for Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets:



(In millions)	January 31, 2015		February 1, 2014
Projected benefit obligation	$	174	$	137
Accumulated benefit obligation	150		118
Fair value of plan assets	123		118

Components of Net Periodic Benefit Cost During Each Fiscal Year:



	Fiscal Years Ended
(In millions)	January 31, 2015			February 1, 2014			February 2, 2013
Service cost	$	5		$	5		$	5
Interest cost	5			5			5
Expected return on plan assets	(5		)	(5		)	(4		)
Net periodic benefit cost	$	5		$	5		$	6

Contributions

For fiscal 2015, we expect to contribute $6 million to our pension plans.

Estimated Future Payments

Pension benefit payments, including amounts to be paid from our assets, and reflecting expected future service, as appropriate, are expected to be paid as follows:



(In millions)	Pension Benefits
2015	$	2
2016	2
2017	2
2018	2
2019	2
2020 through 2024	9

Weighted-average Assumptions Used to Determine Net Periodic Benefit Costs at Fiscal Year End:



	January 31, 2015		February 1, 2014		February 2, 2013
Discount rate	3.7	%	4.1	%	4.0	%
Expected rate of return on plan assets	4.5	%	4.9	%	4.6	%
Rate of compensation increase	2.6	%	2.7	%	2.8	%

Weighted-average Assumptions Used to Determine Benefit Obligations at Fiscal Year End:



	Fiscal Years Ended
	January 31, 2015		February 1, 2014
Discount rate	2.7	%	3.9	%
Rate of compensation increase	2.6	%	2.6	%

Determination of Discount Rate

The discount rate used to determine benefit obligations for our pension plans has been developed based on the AA corporate bond yield curve.

Determination of Expected Return on Assets

The expected return on assets is the rate of return expected to be achieved on pension fund assets in the long term, net of investment expenses. More than 90% of the plan assets relate to the UK and Japan pension plans. The UK and Japan pension plans expected return on assets assumption for fiscal 2015 has been determined by considering the return on the actual asset classes held as of the measurement date and our expectations of future rates of return on each asset class. For the UK and Japan pension plans, we determine the expected rate of return by utilizing the current return available on stocks, and government and corporate bonds and applying suitable risk premiums that consider historical market returns and current market expectations. The estimate of the expected rate of return is based on a long term view and considers the impact of economic conditions in the evaluation of historical market returns.

Plan Assets

Investment policies and strategies

Our overall investment policy and strategic management of the plan assets are the responsibility of the trustees (acting based on advice as they deem appropriate) and are driven by investment objectives as set out below. The remaining elements of our investment policy are part of the day-to-day management of the assets, which is delegated to a professional investment manager. The trustees of our defined benefit pension plans are guided by an overall objective of achieving, over the long-term, a return on the investments, which is consistent with the long-term assumptions made by the actuaries in determining funding of the plans.

The investment returns that the trustees expect to achieve are those that are broadly in line with or above the returns of the respective market indices and performance targets against which the investment manager is benchmarked. Over the longer term, the trustees expect to achieve an investment return in excess of the consumer price index.

Weighted-average asset allocation by asset category

The primary investment goal for our plans’ assets is to maximize total asset returns while ensuring the plans’ assets are available to fund the plans’ liabilities as they become due. A change in the overall investment strategy could significantly impact the expected rate of return on plan assets.

The following represents our pension plan target asset allocations for fiscal 2015, as well as the actual asset allocations as of January 31, 2015 and February 1, 2014:



	2015 Target Allocation		January 31, 2015		February 1, 2014
Equity securities	28.3	%	28.3	%	27.7	%
Debt securities	58.3	%	58.3	%	56.6	%
Insurance contracts	7.3	%	7.3	%	8.3	%
Cash and cash equivalents	6.1	%	6.1	%	7.4	%
Total	100	%	100	%	100	%

Risk management

In managing the Company’s plan assets, our investment managers evaluate and manage risk associated with funded status risk, interest rate risk, market risk, counterparty risk, liquidity risk and operational risk. Cash flow management and asset class diversification are central to our risk management strategy and are critical to the overall investment strategy of our pension plan assets.

Fair value of plan assets

The following tables present our plan assets by fair value hierarchy in accordance with ASC Topic 820, “Fair Value Measurements and Disclosures” as of January 31, 2015 and February 1, 2014. The fair value hierarchy is comprised of three levels based on the reliability of inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, while Level 3 includes fair values estimated using significant unobservable inputs. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement of the instrument. There have been no changes in valuation technique or related inputs for the fiscal years ended January 31, 2015 and February 1, 2014.

Fiscal 2014



(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Total
Equity Securities: (1)
Domestic	$	—	$	11	$	11
International	—		24		24
Fixed Income: (2)
Domestic	—		4		4
International	—		68		68
Insurance Contracts (3)	—		9		9
Cash and cash equivalents (4)	7		—		7
Total	$	7	$	116	$	123

Fiscal 2013



(In millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Total
Equity Securities: (1)
Domestic	$	—	$	12	$	12
International	—		21		21
Fixed Income: (2)
Domestic	—		2		2
International	—		64		64
Insurance Contracts (3)	—		10		10
Cash and cash equivalents (4)	9		—		9
Total	$	9	$	109	$	118


(1)	Domestic and international equity securities categorized as Level 2 are valued using the Net Asset Value (“NAV”) per fund share, which is derived from quoted prices in active markets of the underlying securities.


(2)	Domestic and international fixed-income securities categorized as Level 2 are valued using the NAV per fund share, which is derived using a market approach with inputs that include broker quotes, benchmark yields, base spreads and reported trades.

(3)

Insurance contracts contain a minimum guaranteed return and are categorized as Level 2 as the fair value of the assets is equal to the total amount of all individual technical reserves plus the non allocated employer’s financing fund reserves at the valuation date. The individual technical and financing fund reserves are equal to the accumulated paid contributions taking into account the insurance ratification and any allocated profit sharing return.


(4)	Cash and cash equivalents include highly liquid investments with original maturities of three months or less at acquisition. Due to the short-term nature of these investments, their carrying amounts approximate fair value. Therefore, we have determined that our cash and cash equivalents in their entirety are classified as Level 1 within the fair value hierarchy.