Pension And Postretirement Benefits

12 Months Ended

Jul. 31, 2011

Pension And Postretirement Benefits

Pension And Postretirement Benefits

11.  Pension and Postretirement Benefits

Pension Benefits — The company sponsors 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. In 1999, the company 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 continues to accrue for active employees participating in the plans under the old formula prior to the amendments through the year 2014. 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. Benefits are paid from funds previously provided to trustees and insurance companies or are paid directly by the company from general funds. Effective as of January 1, 2011, the company's 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 — The company provides postretirement benefits including health care and life insurance to substantially all retired U.S. employees and their dependents. The company 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.

The company uses the fiscal year end as the measurement date for the benefit plans.

Components of net periodic benefit cost:

	Pension
	2011	2010	2009
Service cost	$      58	$      55	$      46
Interest cost	121	121	122
Expected return on plan assets	(178)	(170)	(163)
Amortization of prior service cost	1	1	1
Recognized net actuarial loss	70	49	19
Settlement (gains)/costs	(1)	12	—
Special termination benefits	—	—	2
Net periodic pension expense	$      71	$      68	$      27

The settlement costs in 2010 are related to the closure of a plant in Canada. The settlement costs are included in Restructuring charges in the Consolidated Statements of Earnings. See Note 7 for additional information.

The estimated net actuarial loss that will be amortized from Accumulated other comprehensive loss into net periodic pension cost during 2012 is $75.

	Postretirement
	2011	2010	2009
Service cost	$     3	$    3	$     3
Interest cost	18	19	22
Amortization of prior service cost/(credit)	(1)	1	1
Recognized net actuarial loss	7	1	—
Net periodic postretirement expense	$  27	$  24	$  26

The estimated prior service credit and net actuarial loss that will be amortized from Accumulated other comprehensive loss into net periodic postretirement expense during 2012 are $1 and $9, respectively.

Change in benefit obligation:

	Pension		Postretirement
	2011	2010	2011	2010
Obligation at beginning of year	$   2,275	$   2,077	$  362	$  340
Service cost	58	55	3	3
Interest cost	121	121	18	19
Actuarial loss	61	181	15	50
Participant contributions	—	—	5	4
Benefits paid	(146)	(148)	(34)	(39)
Medicare subsidies	—	—	5	3
Other	(4)	(2)	—	—
Plan amendments	(1)	—	—	(18)
Settlement	(8)	(21)	—	—
Foreign currency adjustment	32	12	—	—
Benefit obligation at end of year	$   2,388	$   2,275	$  374	$  362

Change in the fair value of pension plan assets:

	2011	2010
Fair value at beginning of year	$   1,767	$   1,415
Actual return on plan assets	266	222
Employer contributions	144	284
Benefits paid	(139)	(142)
Settlement	(6)	(21)
Foreign currency adjustment	27	9
Fair value at end of year	$   2,059	$   1,767

Amounts recognized in the Consolidated Balance Sheets:

	Pension		Postretirement
	2011	2010	2011	2010
Accrued liabilities	$       (10)	$         (8)	$     (30)	$     (30)
Other liabilities	(319)	(500)	(344)	(332)
Net amount recognized	$     (329)	$     (508)	$   (374)	$   (362)
Amounts recognized in accumulated other comprehensive loss consist of:
Net actuarial loss	$   1,179	$   1,263	$       95	$      87
Prior service credit	(3)	(1)	(9)	(10)
Total	$   1,176	$   1,262	$        86	$      77

The changes in other comprehensive loss associated with pension benefits included the reclassification of actuarial losses into earnings of $70 and $49 in 2011 and 2010, respectively. The remaining changes in other comprehensive loss associated with pension benefits were primarily due to net actuarial losses arising during the period and the impact of foreign currency.

The change in other comprehensive loss associated with postretirement benefits in 2011 was primarily due to net actuarial losses arising during the period. The change in other comprehensive loss associated with postretirement benefits in 2010 included $50 of net actuarial losses arising during the period and $18 of prior service credit.

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

	2011	2010
Projected benefit obligation	$   2,194	$  2,261
Accumulated benefit obligation	$   2,131	$  2,140
Fair value of plan assets	$   1,891	$  1,757

The accumulated benefit obligation for all pension plans was $2,299 at July 31, 2011 and $2,148 at August 1, 2010.

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

	Pension		Postretirement
	2011	2010	2011	2010
Discount rate	5.41%	5.46%	5.00%	5.25%
Rate of compensation increase	3.31%	3.29%	3.25%	3.25%

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

Pension	2011	2010	2009
Discount rate	5.46%	6.00%	6.87%
Expected return on plan assets	8.15%	8.13%	8.60%
Rate of compensation increase	3.29%	3.29%	3.97%

The discount rate is established as of the company's fiscal year-end measurement date. In establishing the discount rate, the company reviews 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 the company's 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 5.25% in 2011, 6.00% in 2010, and 7.00% in 2009.

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

	2011	2010
Health care cost trend rate assumed for next year	8.25%	8.25%
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	2019	2018

A one-percentage-point change in assumed health care costs would have the following effects on 2011 reported amounts:

	Increase	Decrease
Effect on service and interest cost	$     1	$     (1)
Effect on the 2011 accumulated benefit obligation	$  20	$   (18)

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 the plans' 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.

The company's year-end pension plan weighted-average asset allocations by category were:

	Strategic   Target	2011	2010
Equity securities	51%	50%	49%
Debt securities	35%	35%	34%
Real estate and other	14%	15%	17%
Total	100%	100%	100%

The company is required to categorize pension plan assets based on the following fair value hierarchy:

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

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

·Level 3: Unobservable inputs that reflect the reporting entity's own assumptions.

The following table presents the company's pension plan assets by asset category at July 31, 2011 and August 1, 2010:

	Fair Value	Fair Value Measurements at			Fair Value	Fair Value Measurements at
	as of	July  31, 2011 Using			as of	August 1, 2010 Using
	July 31,	Fair Value Hierarchy			August 1,	Fair Value Hierarchy
	2011	Level 1	Level 2	Level 3	2010	Level 1	Level 2	Level 3
Asset category
Short-term investments	$     65	$    5	$     60	$  —	$     60	$    5	$     55	$  —
Equities:
U.S	396	396	—	—	308	308	—	—
Non-U.S	267	267	—	—	245	245	—	—
Corporate bonds:
U.S	414	—	414	—	357	—	357	—
Non-U.S	88	—	88	—	89	—	89	—
Government and agency bonds:
U.S	9	—	9	—	21	—	21	—
Non-U.S	31	—	31	—	21	—	21	—
Municipal Bonds	42	—	42	—	17	—	17	—
Commingled funds:
Equities	366	—	366	—	298	—	298	—
Fixed Income	73	—	73	—	46	—	46	—
Mortgage and asset backed securities	27	—	27	—	26	—	26	—
Real estate	70	7	44	19	60	4	38	18
Limited partnerships	20	—	—	20	24	—	—	24
Hedge funds	196	—	196	—	174	—	174	—
Guaranteed insurance contracts	—	—	—	—	8	—	—	8
Total	$2,064	$675	$1,350	$39	$ 1,754	$562	$1,142	$  50
Other items to reconcile to fair value of plan assets	(5)				13
Total pension assets at fair value	$2,059				$ 1,767

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. Other investment vehicles are valued based upon a net asset value and are classified as Level 2.

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.

Commingled funds – Investments in commingled funds are classified as Level 2 assets as the funds are not traded in active markets. Commingled funds are valued based on the unit values of such funds. Unit values are based on the fair value of the underlying assets of the funds derived from inputs principally based on quoted market prices in an active market or corroborated by observable market data by correlation or other means.

Mortgage and asset backed securities – Fair value is 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 and property funds.  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. Fair value is based on third party appraisals.

Limited partnerships – Investments in 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.

Hedge funds – Hedge fund investments include hedge funds valued based upon a net asset value derived from the fair value of underlying securities and are therefore classified as Level 2 assets. 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. 

Guaranteed insurance contracts – These assets are classified as Level 3 assets as they are valued using unobservable inputs. Guaranteed insurance contracts are valued based on the discounted stream of guaranteed benefit payments at a market rate increased for expected future profit sharing. The expected excess return is equal to expected indexation granted to participants. The discounted stream of guaranteed benefit payments is calculated based on the expected mortality rates of plan participants.

Other items to reconcile to fair value of plan assets included net accrued interest and dividends receivable, 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, 2011 and August 1, 2010:

	Real Estate	Limited Partnerships	Guaranteed Insurance Contracts	Total
Fair value at August 1, 2010	$             18	$             24	$               8	$             50
Actual return on plan assets	4	4	(2)	6
Purchases	—	—	—	—
Sales	(3)	(8)	—	(11)
Settlements	—	—	(6)	(6)
Transfers out of Level 3	—	—	—	—
Fair value at July 31, 2011	$             19	$             20	$             —	$             39

	Real Estate	Limited Partnerships	Guaranteed Insurance Contracts	Total
Fair value at August 2, 2009	$             32	$             31	$               5	$             68
Actual return on plan assets	(2)	(4)	2	(4)
Purchases	—	—	1	1
Sales	(1)	(3)	—	(4)
Settlements	—	—	—	—
Transfers out of Level 3	(11)	—	—	(11)
Fair value at August 1, 2010	$             18	$             24	$               8	$             50

The company contributed $55 to U.S. plans in the first quarter of 2012. Additional contributions to U.S. plans are not expected in 2012. Contributions to non-U.S. plans are expected to be approximately $10 in 2012.

Estimated future benefit payments are as follows:

	Pension	Postretirement
2012	$     147	$     30
2013	$     150	$     31
2014	$     150	$     31
2015	$     154	$     32
2016	$     158	$     32
2017-2021	$     856	$   163

The benefit payments include payments from funded and unfunded plans.

Estimated future Medicare subsidy receipts are approximately $3 annually from 2012 through 2016, and $15 cumulatively for the period 2017 through 2021.

Savings Plan — The company sponsors employee savings plans which cover substantially all U.S. employees. Effective January 1, 2011, the company provides 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 Savings Plan. Prior to January 1, 2011, the company 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 $20 in 2011, $17 in 2010, and $18 in 2009.