Pension and Postretirement Benefits

Pension Benefits — We sponsor a number of noncontributory defined benefit pension plans to provide retirement benefits to all eligible U.S. and non-U.S. employees. The benefits provided under these plans are based primarily on years of service and compensation levels. Benefits are paid from funds previously provided to trustees and insurance companies or are paid directly by us from general funds. In 1999, we implemented significant amendments to certain U.S. pension plans. Under a new formula, retirement benefits are determined based on percentages of annual pay and age. To minimize the impact of converting to the new formula, service and earnings credit continued to accrue through the year 2014 for certain active employees participating in the plans under the old formula prior to the amendments. Employees will receive the benefit from either the new or old formula, whichever is higher. Benefits become vested upon the completion of three years of service. Effective as of January 1, 2011, our U.S. pension plans were amended so that employees hired or rehired on or after that date and who are not covered by collective bargaining agreements will not be eligible to participate in the plans.

Postretirement Benefits — We provide postretirement benefits, including health care and life insurance, to substantially all retired U.S. employees and their dependents. We established retiree medical account benefits for eligible U.S. retirees. The accounts were intended to provide reimbursement for eligible health care expenses on a tax-favored basis. Effective as of January 1, 2011, the retirement medical program was amended to eliminate the retiree medical account benefit for employees not covered by collective bargaining agreements. To preserve the benefit for employees close to retirement age, the retiree medical account will be available to employees who were at least age 50 with at least 10 years of service as of December 31, 2010, and who satisfy the other eligibility requirements for the retiree medical program. In July 2016, the retirement medical program was amended and beginning on January 1, 2017, we will no longer sponsor our own medical coverage for certain Medicare-eligible retirees. Instead, we will offer these Medicare-eligible retirees access to health care coverage through a private exchange and offer a health reimbursement account to subsidize benefits for a select group of retirees.

We use the fiscal year end as the measurement date for the benefit plans.

Components of net benefit expense (income) were as follows:



	Pension
	2016			2015			2014
Service cost	$	26		$	28		$	42
Interest cost	98			105			115
Expected return on plan assets	(147		)	(173		)	(169		)
Amortization of prior service credit	—			(1		)	(1		)
Recognized net actuarial loss	302			136			48
Curtailment loss	—			1			—
Net periodic benefit expense	$	279		$	96		$	35

The curtailment loss of $1 in 2015 was related to a voluntary employee separation program and was included in Restructuring charges. See also Note 8.



	Postretirement
	2016			2015			2014
Service cost	$	1		$	2		$	2
Interest cost	15			15			17
Amortization of prior service credit	(1		)	(1		)	(1		)
Recognized net actuarial loss	23			7			5
Curtailment loss	—			6			—
Net periodic benefit expense	$	38		$	29		$	23

The curtailment loss of $6 in 2015 was related to a voluntary employee separation program and was included in Restructuring charges. See also Note 8.

The estimated prior service credit that will be amortized from Accumulated other comprehensive loss into net periodic postretirement expense during 2017 is $25. The prior service credit is primarily related to the amendment in July 2016.

Change in benefit obligation:



	Pension						Postretirement
	2016			2015			2016			2015
Obligation at beginning of year	$	2,569		$	2,539		$	392		$	388
Service cost	26			28			1			2
Interest cost	98			105			15			15
Actuarial loss	210			106			23			7
Participant contributions	—			—			1			3
Plan amendments	—			—			(93		)	—
Benefits paid	(116		)	(151		)	(30		)	(33		)
Settlements	(160		)	—			—			—
Medicare subsidies	—			—			4			4
Other	(6		)	(1		)	—			—
Curtailment	—			1			—			6
Foreign currency adjustment	5			(58		)	—			—
Benefit obligation at end of year	$	2,626		$	2,569		$	313		$	392

Change in the fair value of pension plan assets:



	2016			2015
Fair value at beginning of year	$	2,316		$	2,364
Actual return on plan assets	54			143
Employer contributions	2			5
Benefits paid	(106		)	(141		)
Settlements	(160		)	—
Foreign currency adjustment	5			(55		)
Fair value at end of year	$	2,111		$	2,316

Amounts recognized in the Consolidated Balance Sheets:



	Pension				Postretirement
	2016		2015		2016		2015
Accrued liabilities	$	14	$	20	$	28	$	30
Other liabilities	501		233		285		362
Amounts recognized	$	515	$	253	$	313	$	392



Amounts recognized in accumulated other comprehensive income (loss) consist of:	Pension				Postretirement
	2016		2015		2016		2015
Prior service credit	$	—	$	—	$	96	$	4

The change in amounts recognized in accumulated other comprehensive income (loss) associated with postretirement benefits was due to the plan amendment in July 2016.

The following table provides information for pension plans with accumulated benefit obligations in excess of plan assets:



	2016		2015
Projected benefit obligation	$	2,434	$	1,926
Accumulated benefit obligation	$	2,385	$	1,906
Fair value of plan assets	$	1,933	$	1,684

The accumulated benefit obligation for all pension plans was $2,557 at July 31, 2016, and $2,516 at August 2, 2015.

Weighted-average assumptions used to determine benefit obligations at the end of the year:



	Pension		Postretirement
	2016	2015	2016	2015
Discount rate	3.39%	4.19%	3.20%	4.00%
Rate of compensation increase	3.25%	3.29%	3.25%	3.25%

Weighted-average assumptions used to determine net periodic benefit cost for the years ended:



	Pension
	2016	2015	2014
Discount rate	4.19%	4.33%	4.82%
Expected return on plan assets	7.35%	7.62%	7.62%
Rate of compensation increase	3.29%	3.30%	3.30%

The discount rate is established as of our fiscal year-end measurement date. In establishing the discount rate, we review published market indices of high-quality debt securities, adjusted as appropriate for duration. In addition, independent actuaries apply high-quality bond yield curves to the expected benefit payments of the plans. The expected return on plan assets is a long-term assumption based upon historical experience and expected future performance, considering our current and projected investment mix. This estimate is based on an estimate of future inflation, long-term projected real returns for each asset class, and a premium for active management.

The discount rate used to determine net periodic postretirement expense was 4.00% in 2016 and 2015, and 4.50% in 2014.

Assumed health care cost trend rates at the end of the year:



	2016	2015
Health care cost trend rate assumed for next year	7.25%	7.75%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)	4.50%	4.50%
Year that the rate reaches the ultimate trend rate	2022	2022

A one-percentage-point change in assumed health care costs would have the following effects on 2016 reported amounts:



	Increase		Decrease
Effect on service and interest cost	$	—	$	—
Effect on the 2016 accumulated benefit obligation	$	12	$	(11	)

Pension Plan Assets

The fundamental goal underlying the investment policy is to ensure that the assets of the plans are invested in a prudent manner to meet the obligations of the plans as these obligations come due. The primary investment objectives include providing a total return which will promote the goal of benefit security by attaining an appropriate ratio of plan assets to plan obligations, to provide for real asset growth while also tracking plan obligations, to diversify investments across and within asset classes, to reduce the impact of losses in single investments, and to follow investment practices that comply with applicable laws and regulations.

The primary policy objectives will be met by investing assets to achieve a reasonable tradeoff between return and risk relative to plan obligations. This includes investing a portion of the assets in funds selected in part to hedge the interest rate sensitivity to plan obligations.

The portfolio includes investments in the following asset classes: fixed income, equity, real estate and alternatives. Fixed income will provide a moderate expected return and partially hedge the exposure to interest rate risk of the plans’ obligations. Equities are used for their high expected return. Additional asset classes are used to provide diversification.

Asset allocation is monitored on an ongoing basis relative to the established asset class targets. The interaction between plan assets and benefit obligations is periodically studied to assist in the establishment of strategic asset allocation targets. The investment policy permits variances from the targets within certain parameters. Asset rebalancing occurs when the underlying asset class allocations move outside these parameters, at which time the asset allocation is rebalanced back to the policy target weight.

Our year-end pension plan weighted-average asset allocations by category were:



	Strategic Target	2016	2015
Equity securities	51%	51%	50%
Debt securities	35%	35%	34%
Real estate and other	14%	14%	16%
Net periodic benefit expense	100%	100%	100%

Pension plan assets are categorized based on the following fair value hierarchy:


•	Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.


•	Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with observable market data.


•	Level 3: Unobservable inputs, which are valued based on our estimates of assumptions that market participants would use in pricing the asset or liability.

The following table presents our pension plan assets by asset category at July 31, 2016, and August 2, 2015:



	Fair Value as of July 31, 2016			Fair Value Measurements at July 31, 2016 Using Fair Value Hierarchy							Fair Value as of August 2, 2015			Fair Value Measurements at August 2, 2015 Using Fair Value Hierarchy
				Level 1		Level 2			Level 3					Level 1		Level 2			Level 3
Short-term investments	$	43		$	41	$	2		$	—	$	32		$	32	$	—		$	—
Equities:
U.S.	349			349		—			—		386			386		—			—
Non-U.S.	273			273		—			—		312			312		—			—
Corporate bonds:
U.S.	469			—		469			—		494			—		494			—
Non-U.S.	98			—		98			—		102			—		102			—
Government and agency bonds:
U.S.	49			—		49			—		42			—		42			—
Non-U.S.	29			—		29			—		36			—		36			—
Municipal bonds	67			—		67			—		68			—		68			—
Mortgage and asset backed securities	7			—		7			—		9			—		9			—
Real estate	19			13		—			6		14			8		—			6
Hedge funds	45			—		—			45		39			—		—			39
Derivative assets	6			—		6			—		5			—		5			—
Derivative liabilities	(7		)	—		(7		)	—		(6		)	—		(6		)	—
Total assets at fair value	$	1,447		$	676	$	720		$	51	$	1,533		$	738	$	750		$	45
Investments measured at net asset value:
Short-term investments	20										28
Commingled funds:
Equities	309										375
Fixed income	31										31
Blended	79										79
Real estate	108										117
Hedge funds	144										175
Total investments measured at net asset value:	691										805
Other items to reconcile to fair value of plan assets	(27		)								(22		)
Total pension assets at fair value	$	2,111									$	2,316

Short-term investments — Investments include cash and cash equivalents, and various short-term debt instruments and short-term investment funds. Institutional short-term investment vehicles valued daily are classified as Level 1 at cost which approximates market value. Short-term debt instruments are classified at Level 2 and are valued based on bid quotations and recent trade data for identical or similar obligations. Other investments valued based upon net asset value are included as a reconciling item to the fair value table.

Equities — Common stocks and preferred stocks are classified as Level 1 and are valued using quoted market prices in active markets.

Corporate bonds — These investments are valued based on quoted market prices, yield curves and pricing models using current market rates.

Government and agency bonds — These investments are generally valued based on bid quotations and recent trade data for identical or similar obligations.

Municipal bonds — These investments are valued based on quoted market prices, yield curves and pricing models using current market rates.

Mortgage and asset backed securities — These investments are valued based on prices obtained from third party pricing sources. The prices from third party pricing sources may be based on bid quotes from dealers and recent trade data. Mortgage backed securities are traded in the over-the-counter market.

Real estate — Real estate investments consist of real estate investment trusts, property funds and limited partnerships. Real estate investment trusts are classified as Level 1 and are valued based on quoted market prices. Property funds are classified as either Level 2 or Level 3 depending upon whether liquidity is limited or there are few observable market participant transactions. Property funds are valued based on third party appraisals. Limited partnerships are valued based upon valuations provided by the general partners of the funds. The values of limited partnerships are based upon an assessment of each underlying investment, incorporating valuations that consider the evaluation of financing and sales transactions with third parties, expected cash flows, and market-based information, including comparable transactions and performance multiples among other factors. The investments are classified as Level 3 since the valuation is determined using unobservable inputs. Real estate investments valued at net asset value are included as a reconciling item to the fair value table.

Hedge funds — Hedge fund investments include hedge funds valued based upon a net asset value derived from the fair value of underlying securities. Hedge fund investments that are subject to liquidity restrictions or that are based on unobservable inputs are classified as Level 3. Hedge fund investments may include long and short positions in equity and fixed income securities, derivative instruments such as futures and options, commodities and other types of securities. Hedge fund investments valued at net asset value are included as a reconciling item to the fair value table.

Derivatives — Derivative financial instruments include forward currency contracts, futures contracts, options contracts, interest rate swaps and credit default swaps. Derivative financial instruments are classified as Level 2 and are valued based on observable market transactions or prices.

Commingled funds — Investments in commingled funds are not traded in active markets. Blended commingled funds are invested in both equities and fixed income securities. Commingled funds are valued based on the net asset values of such funds and are included as a reconciling item to the fair value table.

Other items to reconcile to fair value of plan assets included amounts due for securities sold, amounts payable for securities purchased, and other payables.

The following table summarizes the changes in fair value of Level 3 investments for the years ended July 31, 2016, and August 2, 2015:



	Real Estate			Hedge Funds		Total
Fair value at August 2, 2015	$	6		$	39	$	45
Actual return on plan assets	1			1		2
Purchases	—			5		5
Sales	(1		)	—		(1		)
Settlements	—			—		—
Transfers out of Level 3	—			—		—
Fair value at July 31, 2016	$	6		$	45	$	51



	Real Estate		Hedge Funds		Total
Fair value at August 3, 2014	$	3	$	30	$	33
Actual return on plan assets	1		2		3
Purchases	2		7		9
Sales	—		—		—
Settlements	—		—		—
Transfers out of Level 3	—		—		—
Fair value at August 2, 2015	$	6	$	39	$	45

The following table presents additional information about the pension plan assets valued using net asset value as a practical expedient within the fair value hierarchy table.



	2016				2015
	Fair Value		Unfunded Commitments		Fair Value		Unfunded Commitments		Redemption Frequency		Redemption Notice Period Range
Short-term investments	$	20	$	—	$	28	$	—	Daily		1 Day
Commingled funds:
Equities	309		—		375		—		Daily,	Monthly	1	to	60 Days
Fixed income	31		—		31		—		Daily		1 Day
Blended	79		—		79		—		Primarily Daily		1 Day
Real estate funds⁽¹⁾	108		—		117		3		Primarily Quarterly		1	to	90 Days
Hedge funds⁽²⁾	144		—		175		25		Monthly,	Quarterly	5	to	65 Days
Total	$	691	$	—	$	805	$	28

___________________________________


⁽¹⁾	Includes real estate investments valued at $34 for which a redemption queue has been imposed by the investment manager increasing the redemption receipt period to up to 9 months after notice.


⁽²⁾	Includes a fund valued at $45 which is being liquidated. Distributions from the fund will be received as the underlying investments are liquidated which is estimated to occur by December 31, 2016.

No contributions are expected to be made to U.S. pension plans in 2017. We expect contributions to non-U.S. pension plans to be approximately $5 in 2017.

Estimated future benefit payments are as follows:



	Pension		Postretirement
2017	$	176	$	28
2018	$	164	$	28
2019	$	168	$	27
2020	$	161	$	26
2021	$	161	$	24
2022-2026	$	808	$	99

The estimated future benefit payments include payments from funded and unfunded plans.

401(k) Retirement Plan — We sponsor employee savings plans that cover substantially all U.S. employees. Effective January 1, 2011, we provide a matching contribution of 100% of employee contributions up to 4% of compensation for employees who are not covered by collective bargaining agreements. Employees hired or rehired on or after January 1, 2011, who will not be eligible to participate in the defined benefit plans and who are not covered by collective bargaining agreements receive a contribution equal to 3% of compensation regardless of their participation in the 401(k) Retirement Plan. Prior to January 1, 2011, we provided a matching contribution of 60% (50% at certain locations) of the employee contributions up to 5% of compensation after one year of continued service. Amounts charged to Costs and expenses were $33 in 2016, $31 in 2015 and $29 in 2014.