Employee Benefit Plans

Defined Benefit Pension Plans

The Company and certain of its international subsidiaries have defined benefit pension plans for many of their hourly and salaried employees. There are two types of U.S. plans. The first type of U.S. plan (Hourly Pension Plan) is a traditional defined benefit pension plan for union production employees. The second is a plan (Salaried Pension Plan) for some salaried and non-union production employees that provides defined benefits pursuant to a cash balance feature whereby a participant accumulates a benefit comprised of a percentage of current salary that varies with years of service, interest credits and transition credits. The non-U.S. plans generally provide pension benefits based on years of service and compensation level.

On July 31, 2013, the Company adopted a sunset freeze on its U.S. Salaried Pension Plan. Effective August 1, 2013, there are no longer any new entrants into the plan. Then, effective August 1, 2016, employees hired prior to August 1, 2013, no longer continued to accrue Company contribution credits under the plan. The freeze of the plan resulted in the participants no longer being active. As a result, actuarial losses will be amortized over the estimated average remaining life expectancy of the inactive participants, rather than the estimated average remaining service period of the active participants.

Net periodic pension costs and amounts recognized in other comprehensive income for the Company’s pension plans include the following components (in millions):



	Year Ended July 31,
	2016			2015			2014
Service cost	$	18.4		$	20.4		$	18.8
Interest cost	18.9			19.1			19.5
Expected return on assets	(28.8		)	(29.5		)	(30.8		)
Prior service cost and transition amortization	0.8			0.6			0.6
Actuarial loss amortization	8.5			7.1			7.4
Settlement loss	—			3.9			—
Net periodic benefit cost	17.8			21.6			15.5
Other changes recognized in other comprehensive income
Net actuarial loss	53.6			3.5			15.2
Amortization of asset obligations	(0.4		)	(0.2		)	(0.2		)
Amortization of prior service cost	(0.4		)	(0.4		)	(0.4		)
Amortization of net actuarial loss	(8.5		)	(11.0		)	(7.4		)
Total recognized in other comprehensive income	44.3			(8.1		)	7.2
Total recognized in net periodic benefit costs and other comprehensive income	$	62.1		$	13.5		$	22.7

The changes in projected benefit obligations, fair value of plan assets and funded status of the Company’s pension plans for the years ended July 31, 2016 and 2015 are summarized as follows (in millions):



	Year Ended July 31,
	2016			2015
Change in projected benefit obligation:
Projected benefit obligation, beginning of year	$	498.7		$	498.7
Service cost	18.4			20.4
Interest cost	18.9			19.1
Participant contributions	1.0			1.2
Actuarial loss	50.0			13.1
Currency exchange rates	(17.2		)	(18.2		)
Settlement	—			(9.2		)
Benefits paid	(32.5		)	(26.4		)
Projected benefit obligation, end of year	$	537.3		$	498.7
Change in fair value of plan assets:
Fair value of plan assets, beginning of year	$	478.5		$	489.9
Actual return on plan assets	22.2			35.0
Company contributions	4.2			5.5
Participant contributions	1.0			1.2
Currency exchange rates	(17.9		)	(17.5		)
Settlement	—			(9.2		)
Benefits paid	(32.5		)	(26.4		)
Fair value of plan assets, end of year	$	455.5		$	478.5
Funded status:
Projected benefit obligation in excess of plan assets at end of fiscal year	$	(81.8	)	$	(20.2	)

Amounts recognized on the consolidated balance sheets consist of:
Other long-term assets	$	1.4		$	10.3
Other current liabilities	(1.5		)	(2.9		)
Other long-term liabilities	(81.7		)	(27.6		)
Net recognized liability	$	(81.8	)	$	(20.2	)

The net underfunded status of $81.8 million and $20.2 million at July 31, 2016 and 2015, respectively, is recognized in the accompanying Consolidated Balance Sheets. The pension-related accumulated other comprehensive loss at July 31, 2016 and 2015 (prior to the consideration of income taxes) was $179.6 million and $135.4 million, respectively, and consisted primarily of unrecognized actuarial losses. The loss expected to be recognized in net periodic pension expense during the year ending July 31, 2017 is $7.3 million. The accumulated benefit obligation for all defined benefit pension plans was $519.0 million and $484.2 million at July 31, 2016 and 2015, respectively.

The projected benefit obligation and fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets were $433.1 million and $350.0 million, respectively, as of July 31, 2016, and $290.0 million and $259.5 million, respectively, as of July 31, 2015.

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $375.5 million, $377.4 million, and $304.4 million, respectively, as of July 31, 2016, and $242.3 million, $241.9 million, and $216.0 million, respectively, as of July 31, 2015.

For the years ended July 31, 2016 and 2015, the two U.S. pension plans represented approximately 65% and 67%, respectively, of the Company’s total plan assets and approximately 69% of the Company’s total projected benefit obligation and approximately 81% of the Company’s total pension expense for both years.

Assumptions

The weighted-average discount rate and rates of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation are as follows:



Projected Benefit Obligation	Year Ended July 31,
Weighted average actuarial assumptions	2016		2015
All U.S. plans:
Discount rate	3.65	%	4.33	%
Rate of compensation increase	2.56	%	2.56	%
Non - U.S. plans:
Discount rate	2.08	%	3.14	%
Rate of compensation increase	2.69	%	2.68	%

The weighted-average discount rates, expected returns on plan assets and rates of increase in future compensation levels used to determine the net periodic benefit cost are as follows:



Net Periodic Benefit Cost	Year Ended July 31,
Weighted average actuarial assumptions	2016		2015		2014
All U.S. plans:
Discount rate	4.33	%	4.33	%	4.58	%
Expected return on plan assets	6.99	%	7.14	%	7.50	%
Rate of compensation increase	2.56	%	2.61	%	2.61	%
Non - U.S. plans:
Discount rate	3.14	%	3.64	%	4.04	%
Expected return on plan assets	4.83	%	5.41	%	5.48	%
Rate of compensation increase	2.68	%	2.79	%	2.92	%

Discount Rates The Company’s objective in selecting a discount rate is to select the best estimate of the rate at which the benefit obligations could be effectively settled on the measurement date, taking into account the nature and duration of the benefit obligations of the plan. In making this best estimate, the Company looks at rates of return on high-quality, fixed-income investments currently available, and expected to be available, during the period to maturity of the benefits. This process includes looking at the universe of bonds available on the measurement date with a quality rating of Aa or better. Similar appropriate benchmarks are used to determine the discount rate for the non-U.S. plans.

Beginning with its July 31, 2016 measurement date, the Company changed the method used to estimate the service and interest costs for pension and postretirement benefits. The new method utilizes a full yield curve approach to estimate service and interest costs by applying specific spot rates along the yield curve used to determine the benefit obligation of relevant projected cash outflows. Historically, the Company utilized a single weighted average discount rate applied to projected cash outflows. The Company made the change to provide a more precise measurement of service and interest costs by aligning the timing of the plan's liability cash flows to the corresponding spot rate on the yield curve. The change does not impact the measurement of the plan's obligations but will impact the Company's pension expense beginning in fiscal 2017. The Company has accounted for this change as a change in accounting estimate.

Expected Long-Term Rate of Return To develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. In fiscal 2014, the Company adopted a plan to adjust the target asset allocation for all U.S. plans and to employ differing allocation strategies for each plan. These investment changes, which were implemented in the second quarter of fiscal 2015, enabled the Company to manage or reduce the risk to income statement volatility while continuing to ensure an appropriate funded status in each plan. Based on portfolio performance, as of the measurement date of July 31, 2016, the Company reduced its long-term rate of return for the U.S. pension plans to an asset-based weighted average of 6.90%. The expected long-term rate of return on assets shown in the pension benefit disclosure for non-U.S. plans is an asset-based weighted average of all non-U.S. plans.

Fair Value of Plan Assets

The estimated fair value of U.S. Pension Plan assets and their respective levels in the fair value hierarchy at July 31, 2016, 2015 and 2014 by asset category are as follows (in millions):



	U.S Pension Plans
Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
July 31, 2016
Cash	$	1.2	$	—	$	—	$	1.2
Global Equity Securities	62.2		83.1		17.1		162.4
Fixed Income Securities	72.2		—		47.3		119.5
Real Assets	5.9		—		7.9		13.8
Total U.S. Assets	$	141.5	$	83.1	$	72.3	$	296.9

July 31, 2015
Cash	$	1.9	$	—	$	—	$	1.9
Global Equity Securities	76.6		84.6		19.5		180.7
Fixed Income Securities	0.9		64.1		54.7		119.7
Real Assets	6.0		—		13.0		19.0
Total U.S. Assets	$	85.4	$	148.7	$	87.2	$	321.3

July 31, 2014
Cash	$	14.2	$	—	$	—	$	14.2
Global Equity Securities	107.3		87.3		21.1		215.7
Fixed Income Securities	27.0		—		58.7		85.7
Real Assets	7.1		—		13.5		20.6
Total U.S. Assets	$	155.6	$	87.3	$	93.3	$	336.2

Global Equity Securities consists primarily of publicly traded U.S. and non-U.S. equities, Europe, Australasia, Far East (EAFE) index funds, equity private placement funds, private equity investments and some cash and cash equivalents. Publicly traded equities are valued at the closing price reported in the active market in which the individual securities are traded. Index funds are valued at the net asset value (NAV) as determined by the custodian of the fund. The NAV is based on the fair value of the underlying assets owned by the fund less its liabilities then divided by the number of units outstanding. Private equity consists of interests in partnerships that invest in U.S. and non-U.S. equity and debt securities. This may include a diversified mix of partnership interests including buyouts, restructured/distressed debt, growth equity, mezzanine/subordinated debt, real estate, special situation partnerships and venture capital investments. Partnership interest is valued using the most recent general partner statement of fair value updated for any subsequent partnership interests’ cash flow.

The target allocation for global equity securities investments was 65% and 35% in the Salaried and Hourly Pension Plans, respectively. The underlying global equity investment managers within the plan will invest primarily in equity securities spanning across market capitalization, geography, style (e.g. value, growth, etc.) and other diversifying characteristics. Managers may invest in common stocks or American Depository Receipts (ADRs), mutual funds, bank or trust company pooled funds, international stocks, stock options for hedging purposes, stock index futures, financial futures for purposes of replicating a major market index and private equity partnerships. The Long/short equity managers within global equity may take long or short positions in equity securities and have the ability to shift exposure from net long to net short. Long/short equity managers made up about 15% of the global equity portfolio at year-end, and are considered less liquid, as the funds can be partially liquidated on a quarterly basis. Long-only managers are considered liquid. The long-only investments are typically valued daily, while long/short equity is valued on a monthly basis. Private equity is considered illiquid and performance is typically valued on a quarterly basis. The underlying assets, however, may be valued less frequently, such as annually or if and when a potential buyer is identified and has submitted a bid to similar types of investments.

Fixed Income Securities consists primarily of investment and non-investment grade debt securities and alternative fixed income-like investments. Corporate and other bonds and notes are valued at either the yields currently available on comparable securities of issuers with similar credit ratings or valued under a discounted cash flows approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable such as credit and liquidity risks. Alternative fixed income-like investments consist primarily of private partnership interests in hedge funds of funds. Partnership interests are valued using the NAV as determined by the administrator or custodian of the fund.

The target allocation for fixed income securities was 30% and 60% in the Salaried and Hourly Pension Plans respectively. The Fixed Income class may invest in debt securities issued or guaranteed by the U.S., its agencies or instrumentalities (including U.S. Government Agency mortgage backed securities), or other investment grade rated debt issued by foreign governments; corporate bonds, debentures and other forms of corporate debt obligations, including equipment trust certificates; indexed notes, floaters and other variable rate obligations; bank collective funds; mutual funds; insurance company pooled funds and guaranteed investments; futures and options for the purpose of yield curve management; and private debt investments. Fixed income risk is driven by various factors including, but not limited to, interest rate levels and changes, credit risk and duration. Current fixed income securities are considered liquid, with daily pricing and liquidity. The fixed income class is also invested in a variety of alternative investments. Alternative investments cover a variety of traditional and non-traditional investments and investment strategies, spanning various levels of risk and return. These investments can be made in a broad array of non-traditional investment strategies (including, but not limited to, commodities and futures, distressed securities, short/long—or both—fixed income, international opportunities and relative value) with multiple hedge fund managers. Alternative investments are considered less liquid to illiquid. The liquidity ranges from quarterly to semi-annually and illiquid. Alternative investments are typically valued on a quarterly basis.

Real Assets consists of commodity funds, Real Estate Investment Trusts (REITS) and interests in partnerships that invest in private real estate, commodities and timber investments. Private investments are valued using the most recent partnership statement of fair value, updated for any subsequent partnership interests’ cash flows. Commodity funds and REITS are valued at the closing price reported in the active market in which it is traded.

The target allocation for real assets was 5% for both the Salaried and Hourly Pension Plans. The fund invests in real assets to provide a hedge against unexpected inflation, to capture unique sources of returns and to provide diversification benefits. The fund pursues a real asset strategy through a fund of funds, private investments and/or a direct investment program that may invest long, short or both, in assets including, but not limited to, domestic and international properties, buildings and developments, timber and/or commodities. Real assets range from less liquid to illiquid, with about two-thirds of the real asset allocation having monthly liquidity and one-third illiquid. Real asset manager performance is typically reported quarterly, though underlying assets may be valued less frequently.

The following table summarizes the changes in the fair values of the U.S. pension plans’ Level 3 assets for the years ended July 31, 2016, 2015 and 2014 (in millions):



	U.S. Pension Plans
	Global Equity			Fixed Income			Real Assets			Total
Ending balance at July 31, 2013	$	19.4		$	60.8		$	22.1		$	102.3
Unrealized gains (losses)	1.7			(2.0		)	—			(0.3		)
Realized gains	2.4			8.9			0.8			12.1
Purchases	2.0			20.0			2.7			24.7
Sales	(4.4		)	(29.0		)	(12.1		)	(45.5		)
Ending balance at July 31, 2014	$	21.1		$	58.7		$	13.5		$	93.3
Unrealized gains (losses)	(0.3		)	(3.7		)	0.7			(3.3		)
Realized gains	2.8			5.1			0.6			8.5
Purchases	1.8			—			0.8			2.6
Sales	(5.9		)	(5.4		)	(2.6		)	(13.9		)
Ending balance at July 31, 2015	$	19.5		$	54.7		$	13.0		$	87.2
Unrealized gains (losses)	(1.3		)	(2.5		)	(2.4		)	(6.2		)
Realized gains	2.5			0.8			0.4			3.7
Purchases	0.6			—			0.1			0.7
Sales	(4.2		)	(5.7		)	(3.2		)	(13.1		)
Ending balance at July 31, 2016	$	17.1		$	47.3		$	7.9		$	72.3

The following table summarizes the U.S. pension plans’ assets valued at NAV at July 31, 2016 (in millions):



	Fair Value		Unfunded Commitments		Redemption Frequency (If Currently Eligible)	Redemption Notice Period
Global Equity	$	162.4	$	2.7	Daily, Monthly, Quarterly, Annually	10 - 100 days
Fixed Income	47.3		—		Daily, Quarterly, Semi-Annually	60 - 120 days
Real Assets	13.8		2.2		Daily, Quarterly	95 days
Total	$	223.5	$	4.9

The estimated fair values of Non-U.S. Pension Plan assets and their respective levels in the fair value hierarchy at July 31, 2016, 2015 and 2014 by asset category are as follows (in millions):



	Non-U.S. Pension Plans
Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
July 31, 2016
Cash	$	0.5	$	—	$	—	$	0.5
Global Equity Securities	69.2		—		—		69.2
Fixed Income Securities	4.6		35.8		—		40.4
Equity/Fixed Income	16.7		—		31.8		48.5
Total Non-U.S. Assets	$	91.0	$	35.8	$	31.8	$	158.6

July 31, 2015
Global Equity Securities	$	71.7	$	—	$	—	$	71.7
Fixed Income Securities	4.2		35.9		—		40.1
Equity/Fixed Income	17.2		—		28.2		45.4
Total Non-U.S. Assets	$	93.1	$	35.9	$	28.2	$	157.2

July 31, 2014
Cash	$	5.7	$	—	$	—	$	5.7
Global Equity Securities	71.3		—		—		71.3
Fixed Income Securities	4.8		23.3		—		28.1
Equity/Fixed Income	18.0		—		30.5		48.5
Total Non-U.S. Assets	$	99.8	$	23.3	$	30.5	$	153.6

Global Equity Securities consists of publicly traded diversified growth funds invested across a broad range of traditional and alternative asset classes which may include, but are not limited to: equities, investment grade and high yield bonds, property, private equity, infrastructure, commodities and currencies. They may invest directly or hold up to 100% of the fund in other collective investment vehicles and may use exchange traded and over the counter financial derivatives, such as currency forwards or futures, for both investment as well as hedging purposes.

Fixed Income Securities consists primarily of investment grade debt securities. Corporate bonds and notes are valued at either the yields currently available on comparable securities of issuers with similar credit ratings or valued under a discounted cash flows approach that maximizes observable inputs, such as current yields of similar instruments, but can include adjustments for certain risks that may not be observable such as credit and liquidity risks. These funds may also aim to provide liability hedging by offering interest rate and inflation protections which replicates the liability profile of a typical defined benefit pension scheme.

Equity/Fixed Income consists of Level 1 assets that are part of a unit linked fund with a strategic asset allocation of 40% fixed income products and 60% equity type products. Assets are valued at either the closing price reported, if traded on an active market, or at yields currently available on comparable securities of issuers with similar credit ratings. Index funds are valued at the net asset value as determined by the custodian of the fund. The Level 3 assets are composed of mathematical reserves on individual contracts and the Company does not have any influence on the investment decisions as made by the insurer due to the specific minimum guaranteed return characteristics of this type of contract. European insurers, in general, broadly have a strategic asset allocation with 80% to 90% fixed income products and 10% to 20% equity type products (including real estate).

The following table summarizes the changes in the fair values of the non-U.S. pension plans’ Level 3 assets for the years ended July 31, 2016, 2015 and 2014 (in millions):



	Non-U.S. Pension Plans
	Equity/Fixed Income
Ending balance at July 31, 2013	$	26.3
Unrealized gains	4.3
Realized gains	0.1
Foreign currency exchange	0.1
Purchases	3.1
Sales	(3.4		)
Ending balance at July 31, 2014	$	30.5
Unrealized gains	1.3
Realized gains	—
Foreign currency exchange	(5.5		)
Purchases	2.7
Sales	(0.8		)
Ending balance at July 31, 2015	$	28.2
Unrealized gains	2.7
Realized gains	—
Foreign currency exchange	0.3
Purchases	2.7
Sales	(2.1		)
Ending balance at July 31, 2016	$	31.8

The following table summarizes the non-U.S. pension plans’ assets valued at NAV as of July 31, 2016 (in millions):



	Fair Value		Unfunded Commitments		Redemption Frequency (If Currently Eligible)	Redemption Notice Period
Fixed Income	$	35.8	$	—	Weekly	7 days
Equity/Fixed Income	31.8		—		Yearly	90 days
Total	$	67.6	$	—

Investment Policies and Strategies

For the Company’s U.S. Pension Plans, the Company uses a total return investment approach to achieve a long-term return on plan assets, with what the Company believes to be a prudent level of risk for the purpose of meeting its retirement income commitments to employees. The plans’ investments are diversified to assist in managing risk. During the year ended July 31, 2016, the Company’s asset allocation guidelines targeted an allocation of 65% global equity securities, 30% fixed income, and 5% real assets (investments into funds containing commodities and real estate) for the Salaried Pension Plan and 35% global equity securities, 60% fixed income, and 5% real assets (investments in funds containing commodities and real estate) for the Hourly Pension Plan. These target allocation guidelines are determined in consultation with the Company’s investment consultant and through the use of modeling the risk/return trade-offs among asset classes utilizing assumptions about expected annual return, expected volatility/standard deviation of returns and expected correlations with other asset classes.

For the Company’s non-U.S. plans, the general investment objectives are to maintain a suitably diversified portfolio of secure assets of appropriate liquidity which will generate income and capital growth to meet, together with any new contributions from members and the Company, the cost of current and future benefits. Investment policy and performance is measured and monitored on an ongoing basis by the Company’s Investment Committee through its use of an investment consultant and through quarterly investment portfolio reviews.

Estimated Contributions and Future Payments

The Company’s general funding policy for its pension plans is to make at least the minimum contributions as required by applicable regulations. Additionally, the Company may elect to make additional contributions up to the maximum tax deductible contribution. The Company made contributions of $0.9 million to its U.S. pension plans during the year ended July 31, 2016. The estimated minimum funding requirement for the Company’s U.S. plans for the year ending July 31, 2017 is $9.7 million. In accordance with the Pension Protection Act of 2006, this contribution obligation may be met with existing credit balances that resulted from payments above the minimum obligation in prior years. As a result, the Company does not anticipate making a contribution in fiscal 2017 to its U.S. pension plans. The Company made contributions of $3.3 million to its non-U.S. pension plans during the year ended July 31, 2016 and estimates that it will contribute approximately $3.4 million in fiscal 2017 based upon the local government prescribed funding requirements. Future estimates of the Company’s pension plan contributions may change significantly depending on the actual rate of return on plan assets, discount rates and regulatory requirements.

The estimated future benefit payments for the Company’s U.S. and non-U.S. plans are as follows (in millions):



Year Ending July 31,	Estimated Future Benefit Payments
2017	$	26.6
2018	25.1
2019	27.4
2020	25.7
2021	27.6
2022-2026	137.6

Retirement Savings and Employee Stock Ownership Plan

The Company provides a contributory employee savings plan to U.S. Employees that permits participants to make contributions by salary reduction pursuant to section 401(k) of the Internal Revenue Code. Employee contributions of up to 25% of compensation are matched at a rate equaling 100% of the first 3% contributed and 50% of the next 2% contributed. In addition, the Company contributes 3.0% of compensation annually. Total contribution expense for these plans was $8.2 million, $8.6 million, and $8.1 million for the years ended July 31, 2016, 2015 and 2014, respectively. This plan also includes shares from an Employee Stock Ownership Plan (ESOP). As of July 31, 2016, all shares of the ESOP have been allocated to participants. Total ESOP shares are considered to be shares outstanding for diluted earnings per share calculations.

Deferred Compensation and Other Benefit Plans

The Company provides various deferred compensation and other benefit plans to certain executives. The deferred compensation plan allows these employees to defer the receipt of all of their bonus and other stock related compensation and up to 75% of their salary to future periods. Other benefit plans are provided to supplement the benefits for a select group of highly compensated individuals which are reduced because of compensation limitations set by the Internal Revenue Code. The Company has recorded a liability of $8.6 million and $9.1 million as of July 31, 2016 and 2015, respectively, related primarily to its deferred compensation plans.