NOTE L — PENSION PLANS

We sponsor several pension plans for our employees, including our principal plan (the “Retirement Plan”), which is a non-contributory defined benefit pension plan covering substantially all domestic non-union employees. Pension benefits are provided for certain domestic union employees through separate plans. Employees of our foreign subsidiaries receive pension coverage, to the extent deemed appropriate, through plans that are governed by local statutory requirements.

The Retirement Plan provides benefits that are based upon years of service and average compensation with accrued benefits vesting after five years. Benefits for union employees are generally based upon years of service, or a combination of years of service and average compensation. Our pension funding policy is to contribute an amount on an annual basis that can be deducted for federal income tax purposes, using a different actuarial cost method and different assumptions from those used for financial reporting. For the fiscal year ending May 31, 2017, we expect to contribute approximately $54.1 million to the retirement plans in the U.S. and approximately $6.0 million to our foreign plans.

Historically, we estimated the service and interest cost components of net periodic pension and postretirement benefit cost by applying a single weighted-average discount rate, derived from the yield curve used to measure the benefit obligation at the beginning of the period. During the first quarter of fiscal 2016, we elected to change our approach in estimating service and interest cost by applying the split discount rate approach. Under the split discount rate approach, we estimate service and interest cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. We made this change in order to more precisely measure our service and interest costs, and the split discount rate approach achieves this by improving the correlation between projected benefit cash flows and the corresponding spot yield curve rates. This change will not affect the measurement of our total benefit obligation at our annual measurement date, as the change in service and interest cost is completely offset by deferred actuarial (gains)/losses that will arise at the next annual measurement date. As this change is treated as a change in estimate, the impact was reflected in the first quarter of fiscal 2016 and prospectively, and historical measurements of service and interest cost were not affected.

This change in estimate reduced our fiscal 2016 annual net periodic benefit expense by approximately $5.4 million for our U.S. Plans and by approximately $1.0 million for our non-U.S. plans versus the amounts that would have been recorded had we not elected to change our approach. Accordingly, for fiscal 2016, total service cost and interest cost for all plans was $36.9 million and $23.1 million, respectively, a reduction of $0.8 million and $5.6 million, respectively, as a result of implementing the new approach. This resulted in an increase in income from continuing operations and net income for fiscal 2016 of approximately $6.4 million and $4.7 million, respectively, and an increase in basic and diluted earnings per share of $0.04 and $0.03, respectively, versus what would have been recorded had we not elected to change our approach.

Net periodic pension cost consisted of the following for the year ended May 31:

	U.S. Plans									Non-U.S. Plans
(In thousands)	2016			2015			2014			2016			2015			2014
Service cost	$	32,808		$	30,359		$	27,056		$	4,061		$	4,611		$	4,375
Interest cost		17,995			20,119			18,039			5,070			7,184			7,382
Expected return on plan assets		(25,749	)		(24,308	)		(20,761	)		(7,571	)		(8,611	)		(8,411	)
Amortization of:
Prior service cost		234			294			334			(2	)		39			19
Net actuarial losses recognized		16,759			13,890			13,222			1,739			2,004			2,448
Curtailment/settlement (gains) losses		87									57						44
Net Pension Cost	$	42,134		$	40,354		$	37,890		$	3,354		$	5,227		$	5,857

The changes in benefit obligations and plan assets, as well as the funded status of our pension plans at May 31, 2016 and 2015, were as follows:

	U.S. Plans						Non-U.S. Plans
(In thousands)	2016			2015			2016			2015
Benefit obligation at beginning of year	$	537,465		$	476,590		$	191,386		$	202,168
Service cost		32,808			30,359			4,061			4,611
Interest cost		17,995			20,119			5,070			7,184
Benefits paid		(26,932	)		(24,147	)		(7,078	)		(6,066	)
Participant contributions								830			773
Plan amendments								(349	)
Plan settlements/curtailments		(272	)					(630	)
Actuarial (gains)/losses		27,982			28,166			1,778			7,738
Acquisitions and transfers					6,378						781
Premiums paid								(121	)		(128	)
Currency exchange rate changes								(7,883	)		(25,675	)
Benefit Obligation at End of Year	$	589,046		$	537,465		$	187,064		$	191,386
Fair value of plan assets at beginning of year	$	327,427		$	282,113		$	176,437		$	177,079
Actual return on plan assets		(21,742	)		11,076			1,619			21,867
Employer contributions		35,735			53,327			6,042			5,601
Participant contributions								830			773
Benefits paid		(26,932	)		(24,147	)		(7,078	)		(6,066	)
Premiums paid								(121	)		(128	)
Plan settlements/curtailments		(272	)					(595	)
Acquisitions and transfers					5,058
Currency exchange rate changes								(7,670	)		(22,689	)
Fair Value of Plan Assets at End of Year	$	314,216		$	327,427		$	169,464		$	176,437
(Deficit) of plan assets versus benefit obligations at end of year	$	(274,830	)	$	(210,038	)	$	(17,600	)	$	(14,949	)
Net Amount Recognized	$	(274,830	)	$	(210,038	)	$	(17,600	)	$	(14,949	)
Accumulated Benefit Obligation	$	483,944		$	441,306		$	175,394		$	179,998

The fair value of the assets held by our pension plans has decreased at May 31, 2016 since our previous measurement date at May 31, 2015, due primarily to losses in the stock market. Plan liabilities have increased due to a decrease in interest rates. As such, we have increased our recorded liability for the net underfunded status of our pension plans. Due to lower discount rates and asset values, we expect pension expense in fiscal 2017 to be above our fiscal 2016 expense level. Any future declines in the value of our pension plan assets or increases in our plan liabilities could require us to further increase our recorded liability for the net underfunded status of our pension plans and could also require accelerated and higher cash contributions to our pension plans.

Amounts recognized in the Consolidated Balance Sheets for the years ended May 31, 2016 and 2015 are as follows:

	U.S. Plans						Non-U.S. Plans
(In thousands)	2016			2015			2016			2015
Noncurrent assets	$	-		$	5		$	4,297		$	1,280
Current liabilities		(15	)		(15	)		(468	)		(402	)
Noncurrent liabilities		(274,815	)		(210,028	)		(21,429	)		(15,827	)
Net Amount Recognized	$	(274,830	)	$	(210,038	)	$	(17,600	)	$	(14,949	)

The following table summarizes the relationship between our plans' benefit obligations and assets:

	U.S. Plans
	2016				2015
(In thousands)	Benefit Obligation		Plan Assets		Benefit Obligation		Plan Assets
Plans with projected benefit obligations in excess of plan assets	$	589,046	$	314,216	$	536,365	$	326,323
Plans with accumulated benefit obligations in excess of plan assets		483,944		314,216		440,206		326,323
Plans with assets in excess of projected benefit obligations		-		-		1,100		1,104
Plans with assets in excess of accumulated benefit obligations		-		-		1,100		1,104

	Non-U.S. Plans
	2016				2015
(In thousands)	Benefit Obligation		Plan Assets		Benefit Obligation		Plan Assets
Plans with projected benefit obligations in excess of plan assets	$	141,627	$	119,730	$	141,149	$	124,920
Plans with accumulated benefit obligations in excess of plan assets		46,464		31,868		47,242		33,083
Plans with assets in excess of projected benefit obligations		45,437		49,734		50,237		51,517
Plans with assets in excess of accumulated benefit obligations		128,930		137,596		132,756		143,354

The following table presents the pretax net actuarial loss and prior service (costs) recognized in accumulated other comprehensive income (loss) not affecting retained earnings:

	U.S. Plans						Non-U.S. Plans
(In thousands)	2016			2015			2016			2015
Net actuarial loss	$	(271,456	)	$	(212,828	)	$	(43,272	)	$	(39,307	)
Prior service (costs)		(469	)		(703	)		9			(357	)
Total recognized in accumulated other comprehensive
income not affecting retained earnings	$	(271,925	)	$	(213,531	)	$	(43,263	)	$	(39,664	)

The following table includes the changes recognized in other comprehensive income:

		U.S. Plans						Non-U.S. Plans
(In thousands)		2016			2015			2016			2015
Changes in plan assets and benefit obligations recognized in other comprehensive income:
	Prior service cost	$	-		$	-		$	(349	)	$	-
	Net loss (gain) arising during the year		75,474			41,398			7,731			(5,518	)
	Effect of exchange rates on amounts included in AOCI								(1,953	)		(5,771	)
Amounts recognized as a component of net periodic benefit cost:
	Amortization or curtailment recognition of prior service (cost)		(234	)		(294	)		(7	)		(39	)
	Amortization or settlement recognition of net (loss)		(16,846	)		(13,890	)		(1,823	)		(2,004	)
	Total recognized in other comprehensive loss (income)	$	58,394		$	27,214		$	3,599		$	(13,332	)

The following table presents the amounts in accumulated other comprehensive income (loss) as of May 31, 2016 that have not yet been recognized in net periodic pension cost, but will be recognized in our Consolidated Statements of Income during the fiscal year ending May 31, 2017:

(In thousands)	U.S. Plans			Non-U.S. Plans
Net actuarial loss	$	(20,804	)	$	(2,292	)
Prior service (cost) credit	$	(217	)	$	2

In measuring the projected benefit obligation and net periodic pension cost for our plans, we utilize actuarial valuations. These valuations include specific information pertaining to individual plan participants, such as salary, age and years of service, along with certain assumptions. The most significant assumptions applied include discount rates, expected return on plan assets and rate of compensation increases. We evaluate these assumptions, at a minimum, on an annual basis, and make required changes, as applicable. In developing our expected long-term rate of return on pension plan assets, we consider the current and expected target asset allocations of the pension portfolio, as well as historical returns and future expectations for returns on various categories of plan assets. Expected return on assets is determined by using the weighted-average return on asset classes based on expected return for the target asset allocations of the principal asset categories held by each plan. In determining expected return, we consider both historical performance and an estimate of future long-term rates of return. Actual experience is used to develop the assumption for compensation increases.

The following weighted-average assumptions were used to determine our year-end benefit obligations and net periodic pension cost under the plans:

	U.S. Plans						Non-U.S. Plans
Year-End Benefit Obligations	2016			2015			2016			2015
Discount rate		3.85	%		4.25	%		3.13	%		3.26	%
Rate of compensation increase		3.80	%		3.80	%		2.81	%		2.81	%

	U.S. Plans									Non-U.S. Plans
Net Periodic Pension Cost	2016			2015			2014			2016			2015			2014
Discount rate		4.25	%		4.30	%		4.45	%		3.26	%		3.82	%		3.95	%
Expected return on plan assets		7.90	%		8.25	%		8.50	%		4.49	%		5.18	%		5.37	%
Rate of compensation increase		3.80	%		3.81	%		3.14	%		2.81	%		3.30	%		3.32	%

The following tables illustrate the weighted-average actual and target allocation of plan assets:

	U.S. Plans
	Target Allocation			Actual Asset Allocation
(Dollars in millions)	as of May 31, 2016			2016		2015
Equity securities		55	%	$	234.7	$	223.2
Fixed income securities		25	%		72.1		95.9
Cash					7.1		8.0
Other		20	%		0.3		0.3
Total assets		100	%	$	314.2	$	327.4

	Non-U.S. Plans
	Target Allocation			Actual Asset Allocation
(Dollars in millions)	as of May 31, 2016			2016		2015
Equity securities		43	%	$	71.7	$	75.7
Fixed income securities		38	%		67.4		68.9
Cash							0.4
Property and other		19	%		30.4		31.4
Total assets		100	%	$	169.5	$	176.4

The following tables present our pension plan assets as categorized using the fair value hierarchy at May 31, 2016 and 2015:

U.S. Plans
(In thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at May 31, 2016
U.S. Treasury and other government	$	-	$	9,533	$	-	$	9,533
State and municipal bonds				532				532
Foreign bonds				1,095				1,095
Mortgage-backed securities				12,289				12,289
Corporate bonds				21,035				21,035
Stocks - large cap		28,686						28,686
Stocks - mid cap		12,350						12,350
Stocks - small cap		24,361						24,361
Stocks - international		3,538						3,538
Mutual funds - equity				165,784				165,784
Mutual funds - fixed				27,611				27,611
Cash and cash equivalents		7,108						7,108
Limited partnerships						294		294
Total	$	76,043	$	237,879	$	294	$	314,216

Non-U.S. Plans
(In thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at May 31, 2016
Pooled equities	$	-	$	70,452	$	-	$	70,452
Pooled fixed income				67,144				67,144
Foreign bonds				231				231
Insurance contracts						30,379		30,379
Mutual funds				1,214				1,214
Cash and cash equivalents		44						44
Total	$	44	$	139,041	$	30,379	$	169,464

U.S. Plans
(In thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at May 31, 2015
U.S. Treasury and other government	$	-	$	9,245	$	-	$	9,245
State and municipal bonds				461				461
Foreign bonds				2,608				2,608
Mortgage-backed securities				11,536				11,536
Corporate bonds				17,894				17,894
Stocks - large cap		36,554						36,554
Stocks - mid cap		14,575						14,575
Stocks - small cap		20,175						20,175
Stocks - international		3,756						3,756
Mutual funds - equity				148,207				148,207
Mutual funds - fixed				54,112				54,112
Cash and cash equivalents		8,019						8,019
Limited partnerships						285		285
Total	$	83,079	$	244,063	$	285	$	327,427

Non-U.S. Plans
(In thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at May 31, 2015
Pooled equities	$	-	$	74,159	$	-	$	74,159
Pooled fixed income				68,773				68,773
Foreign bonds				195				195
Insurance contracts						31,384		31,384
Mutual funds				1,502				1,502
Cash and cash equivalents		424						424
Total	$	424	$	144,629	$	31,384	$	176,437

The following table includes the activity that occurred during the years ended May 31, 2016 and 2015 for our Level 3 assets:

			Actual Return on Plan Assets For:
	Balance at		Assets Still Held		Assets Sold		Purchases, Sales and			Balance at
(In thousands)	Beginning of Period		at Reporting Date		During Year		Settlements, net ⁽¹⁾			End of Period
Year ended May 31, 2016	$	31,669		191		9		(1,196	)	$	30,673
Year ended May 31, 2015		29,568		7,659		888		(6,446	)		31,669

(1)	Includes the impact of exchange rate changes during the year.

The primary objective for the investments of the Retirement Plan is to provide for long-term growth of capital without undue exposure to risk. This objective is accomplished by utilizing a strategy of equities, fixed income securities and cash equivalents in a mix that is conducive to participation in a rising market, while allowing for adequate protection in a falling market. Our Investment Committee oversees the investment allocation process, which includes the selection and evaluation of investment managers, the determination of investment objectives and risk guidelines, and the monitoring of actual investment performance. In order to manage investment risk properly, Plan policy prohibits short selling, securities lending, financial futures, options and other specialized investments except for certain alternative investments specifically approved by the Investment Committee. The Investment Committee reviews, on a quarterly basis, reports of actual Plan investment performance provided by independent third parties, in addition to its review of the Plan investment policy on an annual basis. The investment objectives are similar for our plans outside of the U.S., subject to local regulations. In general, investments for all plans are managed by private investment managers, reporting to our Investment Committee on a regular basis.

The goals of the investment strategy for pension assets include: The total return of the funds shall, over an extended period of time, surpass an index composed of the Standard & Poor’s 500 Stock Index (equity), the Barclays Aggregate Bond Index (fixed income), and 30-day Treasury Bills (cash), weighted appropriately to match the asset allocation of the plans. The equity portion of the funds shall surpass the Standard & Poor’s 500 Stock Index over a full market cycle, while the fixed income portion shall surpass Barclays Aggregate Bond Index over a full market cycle. The purpose of the core fixed income fund is to increase return in the form of cash flow, provide a hedge against inflation and to reduce the volatility of the fund overall. Therefore, the primary objective of the core fixed income portion is to match the Barclays Aggregate Bond Index. The purpose of including opportunistic fixed income assets such as, but not limited to, global and high yield securities in the portfolio is to enhance the overall risk-return characteristics of the Fund.

In addition to the defined benefit pension plans discussed above, we also sponsor employee savings plans under Section 401(k) of the Internal Revenue Code, which cover most of our employees in the U.S. We record expense for defined contribution plans for any employer matching contributions made in conjunction with services rendered by employees. The majority of our plans provide for matching contributions made in conjunction with services rendered by employees. Matching contributions are invested in the same manner that the participants invest their own contributions. Matching contributions charged to income were $16.3 million, $14.9 million and $13.6 million for the years ending May 31, 2016, 2015 and 2014, respectively.

We expect to pay the following estimated pension benefit payments in the next five years (in millions): $48.0 in 2017, $50.0 in 2018, $53.2 in 2019, $57.1 in 2020, and $56.2 in 2021. In the five years thereafter (2022-2026) we expect to pay $302.0 million.