Defined Benefit Pension and Postretirement Plans

In the United States and certain other countries, the Company maintains and administers defined benefit retirement plans and postretirement medical plans for certain current, retired and resigned employees. In addition, the Company’s U.S. defined benefit pension plans include a frozen plan for former pre-incorporation partners, which is unfunded. Benefits under the employee retirement plans are primarily based on years of service and compensation during the years immediately preceding retirement or termination of participation in the plan. The defined benefit pension disclosures include the Company’s U.S. and material non-U.S. defined benefit pension plans.

Assumptions

The weighted-average assumptions used to determine the defined benefit pension obligations as of August 31 and the net periodic pension expense were as follows:



	Pension Plans												Postretirement Plans
	August 31, 2017				August 31, 2016				August 31, 2015				August 31, 2017		August 31, 2016		August 31, 2015
	U.S. Plans		Non-U.S. Plans		U.S. Plans		Non-U.S. Plans		U.S. Plans		Non-U.S. Plans		U.S. and Non-U.S. Plans		U.S. and Non-U.S. Plans		U.S. and Non-U.S. Plans
Discount rate for determining projected benefit obligation	3.75	%	2.83	%	3.50	%	2.40	%	4.50	%	3.47	%	3.73	%	3.51	%	4.46	%
Discount rate for determining net periodic pension expense	3.50	%	2.40	%	4.50	%	3.47	%	4.25	%	3.53	%	3.51	%	4.46	%	4.25	%
Long term rate of return on plan assets	4.25	%	3.52	%	4.75	%	3.99	%	5.50	%	4.55	%	4.13	%	4.54	%	5.05	%
Rate of increase in future compensation for determining projected benefit obligation	2.25	%	3.63	%	2.57	%	3.47	%	3.65	%	3.56	%	N/A		N/A		N/A
Rate of increase in future compensation for determining net periodic pension expense	2.57	%	3.47	%	3.60	%	3.56	%	3.65	%	3.75	%	N/A		N/A		N/A

Beginning in fiscal 2016, the Company changed the method it uses to estimate the service and interest cost components of net periodic pension expense. Historically, the Company selected a discount rate for the U.S. plans by matching the plans’ cash flows to that of the average of two yield curves that provide the equivalent yields on zero-coupon corporate bonds for each maturity. The discount rate assumption for the non-U.S. Plans primarily reflected the market rate for high-quality, fixed-income debt instruments. Beginning in fiscal 2016, the Company utilized a full yield curve approach to estimate these components by applying specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. The Company made this change to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of service and interest costs. This change does not affect the measurement of the Company’s total benefit obligations. The Company accounted for this change as a change in estimate and, accordingly, recognized its effect prospectively beginning in fiscal 2016.

The discount rate assumptions are based on the expected duration of the benefit payments for each of the Company’s defined benefit pension and postretirement plans as of the annual measurement date and are subject to change each year.

The expected long-term rate of return on plan assets should, over time, approximate the actual long-term returns on defined benefit pension and postretirement plan assets and is based on historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the asset portfolio.

Assumed U.S. Health Care Cost Trend

The Company’s U.S. postretirement plan assumed annual rate of increase in the per capita cost of health care benefits is 7.2% for the plan year ending June 30, 2018. The rate is assumed to decrease on a straight-line basis to 4.5% for the plan year ending June 30, 2038 and remain at that level thereafter. A one percentage point increase in the assumed health care cost trend rates would increase the benefit obligation by $83,430, while a one percentage point decrease would reduce the benefit obligation by $64,701.

U.S. Defined Benefit Pension Plan Settlement Charges

In May 2017, the Company settled its U.S. pension plan obligations. Plan participants elected to receive either a lump-sum distribution or to transfer benefits to a third-party annuity provider. As a result of the settlement, the Company was relieved of any further obligation under its U.S. pension plan. During fiscal 2017, the Company recorded a pension settlement charge of $509,793, and related income tax benefits of $198,219. The charge primarily consisted of unrecognized actuarial losses of $460,908 previously included in Accumulated other comprehensive loss. In connection with the settlement, the Company made a $118,500 cash contribution ($48,885 related to additional actuarial losses and $69,615 to fund previously recorded pension liabilities). In connection with the plan termination, the Company created a separate defined benefit plan, with substantially the same terms as the terminated plan, for approximately 600 active employees who are currently eligible to accrue benefits.

During fiscal 2015, the Company offered a voluntary one-time lump sum payment option to certain eligible former employees who had vested benefits under the Company’s U.S. pension plan that, if accepted, would settle the Company’s pension obligations to them. This resulted in lump sum payments from plan assets of $279,571 during fiscal 2015. As a result of this settlement and the adoption of the new U.S. mortality tables released by the Society of Actuaries, the Company remeasured the assets and liabilities of the U.S. pension plan, which in aggregate resulted in a net reduction to the projected benefit obligation of $179,938 as well as a non-cash settlement charge of $64,382, pre-tax, during fiscal 2015.

Pension and Postretirement Expense

Pension expense for fiscal 2017, 2016 and 2015 was $622,302, $94,827 and $143,968 (including the above noted settlement charges), respectively. Postretirement expense for fiscal 2017, 2016 and 2015 was not material to the Company’s Consolidated Financial Statements.

Benefit Obligation, Plan Assets and Funded Status

The changes in the benefit obligations, plan assets and funded status of the Company’s pension and postretirement benefit plans for fiscal 2017 and 2016 were as follows:



	Pension Plans												Postretirement Plans
	August 31, 2017						August 31, 2016						August 31, 2017			August 31, 2016
	U.S. Plans			Non-U.S. Plans			U.S. Plans			Non-U.S. Plans			U.S. and Non-U.S. Plans			U.S. and Non-U.S. Plans
Reconciliation of benefit obligation
Benefit obligation, beginning of year	$	2,030,006		$	1,758,110		$	1,635,744		$	1,439,225		$	500,964		$	403,095
Service cost	7,380			82,727			7,305			72,502			19,898			18,565
Interest cost	48,354			36,906			63,470			43,827			15,270			15,618
Participant contributions	—			11,832			—			9,857			—			—
Acquisitions/divestitures/transfers	—			15,664			—			41,719			—			—
Amendments	—			(847		)	—			(1,561		)	—			—
Curtailment	—			—			—			(689		)	—			84
Pension settlement	(1,612,824		)	—			—			—			—			—
Special termination benefits	—			—			—			1,332			—			—
Actuarial (gain) loss	(80,507		)	(76,066		)	371,294			261,252			5,084			74,213
Benefits paid	(49,546		)	(47,233		)	(47,807		)	(52,549		)	(13,047		)	(11,143		)
Exchange rate impact	—			35,369			—			(56,805		)	1,511			532
Benefit obligation, end of year	$	342,863		$	1,816,462		$	2,030,006		$	1,758,110		$	529,680		$	500,964
Reconciliation of fair value of plan assets
Fair value of plan assets, beginning of year	$	1,801,435		$	1,081,154		$	1,596,186		$	982,471		$	27,130		$	24,643
Actual return on plan assets	(63,919		)	42,417			242,112			97,638			(38		)	3,856
Acquisitions/divestitures/transfers	—			818			—			24,052			—			—
Employer contributions	129,483			67,300			10,944			71,046			12,496			9,774
Participant contributions	—			11,832			—			9,857			—			—
Pension settlement	(1,612,824		)	—			—			—			—			—
Benefits paid	(49,546		)	(47,233		)	(47,807		)	(52,549		)	(13,047		)	(11,143		)
Exchange rate impact	—			(2,160		)	—			(51,361		)	—			—
Fair value of plan assets, end of year	$	204,629		$	1,154,128		$	1,801,435		$	1,081,154		$	26,541		$	27,130
Funded status, end of year	$	(138,234	)	$	(662,334	)	$	(228,571	)	$	(676,956	)	$	(503,139	)	$	(473,834	)
Amounts recognized in the Consolidated Balance Sheets
Non-current assets	$	2,127		$	64,461		$	—		$	59,335		$	—		$	—
Current liabilities	(11,047		)	(21,015		)	(11,091		)	(16,691		)	(1,659		)	(1,579		)
Non-current liabilities	(129,314		)	(705,780		)	(217,480		)	(719,600		)	(501,480		)	(472,255		)
Funded status, end of year	$	(138,234	)	$	(662,334	)	$	(228,571	)	$	(676,956	)	$	(503,139	)	$	(473,834	)

Accumulated Other Comprehensive Loss

The pre-tax accumulated net loss and prior service (credit) cost recognized in Accumulated other comprehensive loss as of August 31, 2017 and 2016 was as follows:



	Pension Plans										Postretirement Plans
	August 31, 2017					August 31, 2016					August 31, 2017		August 31, 2016
	U.S. Plans		Non-U.S. Plans			U.S. Plans		Non-U.S. Plans			U.S. and Non-U.S. Plans		U.S. and Non-U.S. Plans
Net loss	$	112,015	$	386,428		$	592,873	$	480,408		$	142,197	$	143,777
Prior service (credit) cost	—		(5,222		)	—		(6,860		)	27,656		31,569
Accumulated other comprehensive loss, pre-tax	$	112,015	$	381,206		$	592,873	$	473,548		$	169,853	$	175,346

Funded Status for Defined Benefit Plans

The accumulated benefit obligation for defined benefit pension plans as of August 31, 2017 and 2016 was as follows:



	August 31, 2017				August 31, 2016
	U.S. Plans		Non-U.S. Plans		U.S. Plans		Non-U.S. Plans
Accumulated benefit obligation	$	333,588	$	1,651,869	$	2,017,437	$	1,592,598

The following information is provided for defined benefit pension plans and postretirement plans with projected benefit obligations in excess of plan assets and for defined benefit pension plans with accumulated benefit obligations in excess of plan assets as of August 31, 2017 and 2016:



	Pension Plans								Postretirement Plans
	August 31, 2017				August 31, 2016				August 31, 2017		August 31, 2016
	U.S. Plans		Non-U.S. Plans		U.S. Plans		Non-U.S. Plans		U.S. and Non-U.S. Plans		U.S. and Non-U.S. Plans
Projected benefit obligation in excess of plan assets
Projected benefit obligation	$	342,863	$	1,037,634	$	2,030,006	$	1,400,510	$	529,680	$	500,964
Fair value of plan assets	202,502		310,839		1,801,435		664,220		26,541		27,130



	August 31, 2017				August 31, 2016
	U.S. Plans		Non-U.S. Plans		U.S. Plans		Non-U.S. Plans
Accumulated benefit obligation in excess of plan assets
Accumulated benefit obligation	$	138,476	$	810,330	$	2,017,437	$	1,233,952
Fair value of plan assets	—		208,559		1,801,435		627,738

Investment Strategies

U.S. Pension Plans

The overall investment objective of the defined benefit pension plans is to match the duration of the plans’ assets to the plans’ liabilities while managing risk in order to meet current defined benefit pension obligations. The plans’ future prospects, their current financial conditions, the Company’s current funding levels and other relevant factors suggest that the plans can tolerate some interim fluctuations in market value and rates of return in order to achieve long-term objectives without undue risk to the plans’ ability to meet their current benefit obligations. The Company recognizes that asset allocation of the defined benefit pension plans’ assets is an important factor in determining long-term performance. Actual asset allocations at any point in time may vary from the target asset allocations and will be dictated by current and anticipated market conditions, required cash flows and investment decisions of the investment committee and the pension plans’ investment funds and managers. Ranges are established to provide flexibility for the asset allocation to vary around the targets without the need for immediate rebalancing.

Non-U.S. Pension Plans

Plan assets in non-U.S. defined benefit pension plans conform to the investment policies and procedures of each plan and to relevant legislation. The pension committee or trustee of each plan regularly, but at least annually, reviews the investment policy and the performance of the investment managers. In certain countries, the trustee is also required to consult with the Company. Asset allocation decisions are made to provide risk adjusted returns that align with the overall investment strategy for each plan. Generally, the investment return objective of each plan is to achieve a total annualized rate of return that exceeds inflation over the long term by an amount based on the target asset allocation mix of that plan. In certain countries, plan assets are invested in funds that are required to hold a majority of assets in bonds, with a smaller proportion in equities. Also, certain plan assets are entirely invested in contracts held with the plan insurer, which determines the strategy. Defined benefit pension plans in certain countries are unfunded.

Risk Management

Plan investments are exposed to risks including market, interest rate and operating risk. In order to mitigate significant concentrations of these risks, the assets are invested in a diversified portfolio primarily consisting of fixed income instruments and equities. To minimize asset volatility relative to the liabilities, plan assets allocated to debt securities appropriately match the duration of individual plan liabilities. Equities are diversified between U.S. and non-U.S. index funds and are intended to achieve long term capital appreciation. Plan asset allocation and investment managers’ guidelines are reviewed on a regular basis.

Plan Assets

The Company’s target allocation for fiscal 2018 and weighted-average plan assets allocations as of August 31, 2017 and 2016 by asset category for defined benefit pension plans were as follows:



	2018 Target Allocation				2017				2016
	U.S. Plans		Non-U.S. Plans		U.S. Plans		Non-U.S. Plans		U.S. Plans		Non-U.S. Plans
Asset Category
Equity securities	—	%	38	%	—	%	30	%	—	%	29	%
Debt securities	99		49		94		58		75		58
Cash and short-term investments	1		3		6		2		25		2
Insurance contracts	—		6		—		6		—		7
Other	—		4		—		4		—		4
Total	100	%	100	%	100	%	100	%	100	%	100	%

Fair Value Measurements

Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity.

The three-level hierarchy of fair value measurements is based on whether the inputs to those measurements are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The fair-value hierarchy requires the use of observable market data when available and consists of the following levels:


•	Level 1—Quoted prices for identical instruments in active markets;


•	Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and


•	Level 3—Valuations derived from valuation techniques in which one or more significant inputs are unobservable.

The fair values of defined benefit pension and postretirement plan assets as of August 31, 2017 were as follows:



Non-U.S. Plans
	Level 1		Level 2		Level 3		Total
Equity
Mutual fund equity securities	$	—	$	347,781	$	—	$	347,781
Fixed Income
Non-U.S. government debt securities	105,331		—		—		105,331
Mutual fund debt securities	3,093		560,606		—		563,699
Cash and short-term investments	16,072		9,059		—		25,131
Insurance contracts	—		69,754		—		69,754
Other	—		42,432		—		42,432
Total	$	124,496	$	1,029,632	$	—	$	1,154,128

There were no transfers between Levels 1 and 2 during fiscal 2017.

The U.S. Plans have $231,170 in Level 2 assets, primarily made up of U.S. corporate debt securities of $130,245 and U.S. government, state and local debt securities of $59,743.

Expected Contributions

Generally, annual contributions are made at such times and in amounts as required by law and may, from time to time, exceed minimum funding requirements. The Company estimates it will pay approximately $88,919 in fiscal 2018 related to contributions to its U.S. and non-U.S. defined benefit pension plans and benefit payments related to the unfunded frozen plan for former pre-incorporation partners. The Company has not determined whether it will make additional voluntary contributions for its defined benefit pension plans. The Company’s postretirement plan contributions in fiscal 2018 are not expected to be material to the Company’s Consolidated Financial Statements.

Estimated Future Benefit Payments

Benefit payments for defined benefit pension plans and postretirement plans, which reflect expected future service, as appropriate, are expected to be paid as follows:



	Pension Plans				Postretirement Plans
	U.S. Plans		Non-U.S. Plans		U.S. and Non-U.S. Plans
2018	$	12,774	$	54,846	$	11,509
2019	13,572		59,328		12,747
2020	14,357		70,756		14,189
2021	15,158		80,109		16,145
2022	15,868		85,344		18,357
2023-2027	89,785		475,803		125,060

Defined Contribution Plans

In the United States and certain other countries, the Company maintains and administers defined contribution plans for certain current, retired and resigned employees. Total expenses recorded for defined contribution plans were $454,124, $419,932 and $397,123 in fiscal 2017, 2016 and 2015, respectively.