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Retirement Benefit Obligations

12 Months Ended

Jun. 30, 2019

NOTE 17. RETIREMENT BENEFIT OBLIGATIONS

The Company’s employees participate in various defined benefit pension and postretirement plans sponsored by the Company and its subsidiaries. Plans in the U.S., U.K., Australia, and other foreign plans are accounted for as defined benefit pension plans. Accordingly, the funded and unfunded position of each plan is recorded in the Balance Sheets. Actuarial gains and losses that have not yet been recognized through net income are recorded in Accumulated other comprehensive loss, net of taxes, until they are amortized as a component of net periodic benefit cost. The determination of benefit obligations and the recognition of expenses related to the plans are dependent on various assumptions. The major assumptions primarily relate to discount rates, expected long-term rates of return on plan assets and mortality rates. Management develops each assumption using relevant company experience in conjunction with market-related data for each individual country in which such plans exist. The funded status of the plans can change from year to year, but the assets of the funded plans have been sufficient to pay all benefits that came due in each of fiscal 2019, 2018 and 2017.

Summary of Funded Status

The Company uses a June 30 measurement date for all pension and postretirement benefit plans. The combined domestic and foreign pension and postretirement benefit plans resulted in a net pension and postretirement benefits liability of $159 million and $120 million at June 30, 2019 and 2018, respectively. The Company recognized these amounts in the Balance Sheets at June 30, 2019 and 2018 as follows:


	Pension Benefits
	Domestic						Foreign						Postretirement benefits						Total
	2019			2018			2019			2018			2019			2018			2019			2018
	(in millions)
Other non-current assets	$	—		$	—		$	117		$	135		$	—		$	—		$	117		$	135
Other current liabilities		—			—			(2	)		(1	)		(8	)		(9	)		(10	)		(10	)
Retirement benefit obligations		(87	)		(74	)		(78	)		(74	)		(101	)		(97	)		(266	)		(245	)

Net amount recognized	$	(87	)	$	(74	)	$	37		$	60		$	(109	)	$	(106	)	$	(159	)	$	(120	)

The following table sets forth the change in the projected benefit obligation, change in the fair value of the Company’s plan assets and funded status:


	Pension Benefits
	Domestic						Foreign						Postretirement Benefits						Total
	As of June 30,
	2019			2018			2019			2018			2019			2018			2019			2018
	(in millions)
Projected benefit obligation, beginning of the year	$	334		$	368		$	1,040		$	1,216		$	106		$	117		$	1,480		$	1,701
Service cost		—			—			2			6			—			—			2			6
Interest cost		13			12			25			29			4			3			42			44
Benefits paid		(22	)		(27	)		(41	)		(45	)		(8	)		(8	)		(71	)		(80	)
Settlements (a)		—			—			(23	)		(29	)		—			—			(23	)		(29	)
Actuarial loss/(gain) (b)		25			(19	)		52			(151	)		8			(6	)		85			(176	)
Foreign exchange rate changes		—			—			(39	)		14			(1	)		—			(40	)		14
Amendments, transfers and other		—			—			9			—			—			—			9			—

Projected benefit obligation, end of the year		350			334			1,025			1,040			109			106			1,484			1,480

Change in the fair value of plan assets for the Company’s benefit plans:
Fair value of plan assets, beginning of the year		260			277			1,100			1,112			—			—			1,360			1,389
Actual return on plan assets		21			9			56			26			—			—			77			35
Employer contributions		4			1			12			28			—			—			16			29
Benefits paid		(22	)		(27	)		(41	)		(45	)		—			—			(63	)		(72	)
Settlements (a)		—			—			(23	)		(29	)		—			—			(23	)		(29	)
Foreign exchange rate changes		—			—			(42	)		8			—			—			(42	)		8

Fair value of plan assets, end of the year		263			260			1,062			1,100			—			—			1,325			1,360

Funded status	$	(87	)	$	(74	)	$	37		$	60		$	(109	)	$	(106	)	$	(159	)	$	(120	)

(a)	Amounts related to payments made to former employees of the Company in full settlement of their deferred pension benefits.

(b)

Fiscal 2019 actuarial losses related to domestic and foreign pension plans primarily relates to the decrease in discount rates used in measuring plan obligations as of June 30, 2019. Fiscal 2018 actuarial gains related to domestic and foreign pension plans primarily relates to the increase in discount rates for the U.S. and U.K. plans used in measuring plan obligations as of June 30, 2018.

Amounts recognized in Accumulated other comprehensive loss consist of:


	Pension Benefits
	Domestic				Foreign				Postretirement Benefits						Total
	As of June 30,
	2019		2018		2019		2018		2019			2018			2019			2018
	(in millions)
Actuarial losses (gains)	$	142	$	126	$	333	$	316	$	1		$	(7	)	$	476		$	435
Prior service cost (benefit)		—		—		9		—		(25	)		(28	)		(16	)		(28	)

Net amounts recognized	$	142	$	126	$	342	$	316	$	(24	)	$	(35	)	$	460		$	407

Accumulated pension benefit obligations as of June 30, 2019 and 2018 were $1,365 million and $1,364 million, respectively. Below is information about funded and unfunded pension plans.


	Domestic Pension Benefits
	Funded Plans				Unfunded Plans				Total
	As of June 30,
	2019		2018		2019		2018		2019		2018
	(in millions)
Projected benefit obligation	$	335	$	320	$	15	$	14	$	350	$	334
Accumulated benefit obligation		335		320		15		14		350		334
Fair value of plan assets		263		260		—		—		263		260


	Foreign Pension Benefits
	Funded Plans				Unfunded Plans				Total
	As of June 30,
	2019		2018		2019		2018		2019		2018
	(in millions)
Projected benefit obligation	$	955	$	971	$	70	$	69	$	1,025	$	1,040
Accumulated benefit obligation		945		961		70		69		1,015		1,030
Fair value of plan assets		1,062		1,100		—		—		1,062		1,100

The accumulated benefit obligation exceeds the fair value of plan assets for all domestic pension plans. Below is information about foreign pension plans in which the accumulated benefit obligation exceeds the fair value of the plan assets.


	Foreign Pension Benefits
	Funded Plans				Unfunded Plans				Total
	As of June 30,
	2019		2018		2019		2018		2019		2018
					(in millions)
Projected benefit obligation	$	253	$	235	$	70	$	69	$	323	$	304
Accumulated benefit obligation		253		235		70		69		323		304
Fair value of plan assets		244		229		—		—		244		229

Summary of Net Periodic Benefit Costs

The Company recorded ($2) million, $3 million and $1 million in net periodic benefit (income) costs in the Statements of Operations for the fiscal years ended June 30, 2019, 2018 and 2017, respectively. The Company utilizes the full yield-curve approach to estimate the service and interest cost components of net periodic benefit (income) costs for its pension and other postretirement benefit plans.

The amortization of amounts related to unrecognized prior service costs (credits), deferred losses and settlements, curtailments and other were reclassified out of Other comprehensive income as a component of net periodic benefit costs. The components of net periodic benefits costs (income) were as follows:


	Pension Benefits
	Domestic									Foreign									Postretirement Benefits									Total
	For the fiscal years ended June 30,
	2019			2018			2017			2019			2018			2017			2019			2018			2017			2019			2018			2017
	(in millions)
Service cost benefits earned during the period	$	—		$	—		$	—		$	2		$	6		$	9		$	—		$	—		$	—		$	2		$	6		$	9
Interest costs on projected benefit obligations		13			12			12			25			29			29			4			3			3			42			44			44
Expected return on plan assets		(15	)		(18	)		(18	)		(46	)		(53	)		(57	)		—			—			—			(61	)		(71	)		(75	)
Amortization of deferred losses		4			5			5			10			18			16			—			—			—			14			23			21
Amortization of prior service costs		—			—			—			—			—			—			(3	)		(3	)		(4	)		(3	)		(3	)		(4	)
Settlements, curtailments and other		—			—			3			4			4			3			—			—			—			4			4			6

Net periodic benefit (income) costs – Total	$	2		$	(1	)	$	2		$	(5	)	$	4		$	—		$	1		$	—		$	(1	)	$	(2	)	$	3		$	1


	Pension Benefits
	Domestic						Foreign						Postretirement Benefits
	For the fiscal years ended June 30,
	2019		2018		2017		2019		2018		2017		2019		2018		2017
Additional information:
Weighted-average assumptions used to determine benefit obligations
Discount rate		3.6%		4.2%		3.8%		2.3%		2.8%		2.7%		3.3%		4.0%		3.5%
Rate of increase in future compensation		N/A		N/A		N/A		3.4%		3.1%		2.8%		N/A		N/A		N/A
Weighted-average assumptions used to determine net periodic benefit cost
Discount rate for PBO		4.2%		3.8%		3.8%		2.8%		2.7%		2.9%		4.0%		3.5%		3.4%
Discount rate for Service Cost		4.3%		4.0%		4.1%		3.7%		3.8%		3.1%		4.3%		3.9%		3.7%
Discount rate for Interest on PBO		3.9%		3.3%		3.0%		2.5%		2.4%		2.5%		3.6%		2.9%		2.6%
Discount rate for Interest on Service Cost		4.3%		3.8%		3.8%		3.3%		3.4%		2.9%		4.1%		3.5%		3.2%
Expected return on plan assets		6.0%		6.5%		6.5%		4.4%		4.7%		5.5%		N/A		N/A		N/A
Rate of increase in future compensation		N/A		N/A		N/A		3.1%		2.8%		2.7%		N/A		N/A		N/A

N/A—not applicable

The following assumed health care cost trend rates as of June 30 were also used in accounting for postretirement benefits:


	Postretirement benefits
	Fiscal 2019			Fiscal 2018
Health care cost trend rate		6.4	%		6.8	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		4.7	%		4.6	%
Year that the rate reaches the ultimate trend rate		2027			2027

The following table sets forth the estimated benefit payments for the next five fiscal years, and in aggregate for the five fiscal years thereafter. The expected benefits are estimated based on the same assumptions used to measure the Company’s benefit obligation at the end of the fiscal year and include benefits attributable to estimated future employee service:


	Expected Benefit Payments
	Pension Benefits				Postretirement Benefits		Total
	Domestic		Foreign		Postretirement Benefits		Total
	(in millions)
Fiscal year:
2020	$	27	$	56	$	9	$	92
2021		21		44		9		74
2022		21		46		9		76
2023		21		47		9		77
2024		21		47		8		76
2025-2029		103		239		35		377

Plan Assets

The Company applies the provisions of ASC 715, which requires disclosures including: (i) investment policies and strategies; (ii) the major categories of plan assets; (iii) the inputs and valuation techniques used to measure plan assets; (iv) the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period; and (v) significant concentrations of risk within plan assets.

The table below presents the Company’s plan assets by level within the fair value hierarchy, as described in Note 2—Summary of Significant Accounting Policies, as of June 30, 2019 and 2018:


			Fiscal 2019										Fiscal 2018
			Fair Value Measurements at Reporting Date Using										Fair Value Measurements at Reporting Date Using
	Total		Level 1		Level 2		Level 3		NAV		Total		Level 1		Level 2		Level 3		NAV
	(in millions)
Assets
Pooled funds: (a)
Domestic equity funds	$	73	$	—	$	—	$	—	$	73	$	73	$	—	$	—	$	—	$	73
International equity funds		201		—		—		—		201		206		—		—		—		206
Domestic fixed income funds		147		—		—		—		147		142		—		—		—		142
International fixed income funds		704		—		—		—		704		679		—		—		—		679
Balanced funds		146		—		89		—		57		186		—		107		—		79
Other		54		45		—		9		—		74		64		—		10		—

Total	$	1,325	$	45	$	89	$	9	$	1,182	$	1,360	$	64	$	107	$	10	$	1,179

(a)	Open-ended pooled funds that are registered and/or available to the general public are valued at the daily published net asset value (“NAV”). Other pooled funds are valued at the NAV provided by the fund issuer.

The table below sets forth a summary of changes in the fair value of investments reflected as Level 3 assets as of June 30, 2019 and 2018:


	Level 3 Investments
	(in millions)
Balance, June 30, 2017	$	11
Actual return on plan assets:
Relating to assets still held at end of period		—
Relating to assets sold during the period		—
Purchases, sales, settlements and issuances		(1	)
Transfers in and out of Level 3		—

Balance, June 30, 2018	$	10
Actual return on plan assets:
Relating to assets still held at end of period		—
Relating to assets sold during the period		—
Purchases, sales, settlements and issuances		(1	)
Transfers in and out of Level 3		—

Balance, June 30, 2019	$	9

The Company’s investment strategy for its pension plans is to maximize the long-term rate of return on plan assets within 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 conduct a periodic strategic review of its asset allocation. The Company’s current broad strategic targets are to have a pension asset portfolio comprised of 23% equity securities, 68% fixed income securities and 9% in cash and other investments. In developing the expected long-term rate of return, the Company considered the pension asset portfolio’s past average rate of returns and future return expectations of the various asset classes. A portion of the other allocation is reserved in cash to provide for expected benefits to be paid in the short term. The Company’s equity portfolios are managed in such a way as to achieve optimal diversity. The Company’s fixed income portfolio is investment grade in the aggregate. The Company does not manage any assets internally.

The Company’s benefit plan weighted-average asset allocations, by asset category, are as follows:


	Pension benefits
	As of June 30,
	2019			2018
Asset Category:
Equity securities		22	%		23	%
Debt securities		68	%		65	%
Cash and other		10	%		12	%

Total		100	%		100	%

Required pension plan contributions for the next fiscal year are expected to be approximately $20 million; however, actual contributions may be affected by pension asset and liability valuation changes during the year. The Company will continue to make voluntary contributions as necessary to improve funded status.