Employee Benefit Plans

12 Months Ended

Jul. 31, 2023

Retirement Benefits, Description [Abstract]

Employee Benefit Plans

Note 14. Employee Benefit Plans

Defined Benefit Pension Plans

The Company has defined benefit pension plans for certain hourly and salaried employees. They consist of plans in the U.S., Belgium, Germany, Mexico and the United Kingdom. These plans generally provide pension benefits based on years of service and compensation level. Components of net periodic pension costs other than the service cost component are included in other income, net in the Consolidated Statements of Earnings.

Net periodic pension costs for the Company’s pension plans were as follows (in millions):

	Year Ended July 31,
	2023		2022		2021
Net periodic pension costs
Service cost	$	6.7	$	6.9	$	7.5
Interest cost	17.0		10.6		10.2
Expected return on assets	(25.3)		(24.8)		(23.7)
Prior service cost amortization	—		0.2		0.3
Actuarial loss amortization	2.1		6.9		8.2
Settlement charge	5.5		3.0		2.0
Curtailment charge	0.2		—		0.8
Net periodic pension costs	6.2		2.8		5.3
Other changes recognized in other comprehensive income (loss):
Prior service cost	(0.4)		—		—
Net actuarial (loss) gain	(5.9)		(1.3)		35.9
Amortization of prior service cost	0.2		0.3		1.2
Amortization of net actuarial loss	7.7		9.9		10.2
Total recognized in other comprehensive income	1.6		8.9		47.3
Total recognized in net periodic pension costs and other comprehensive (loss) income	$	(4.6)	$	6.1	$	42.0

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, 2023 and 2022 were as follows (in millions):

	Year Ended July 31,
	2023		2022
Change in projected benefit obligation
Projected benefit obligation, beginning of year	$	442.6	$	579.9
Service cost	6.7		6.9
Interest cost	17.0		10.6
Plan amendments	0.2		—
Participant contributions	0.7		0.7
Actuarial gain	(42.0)		(100.3)
Foreign currency exchange rates	9.2		(25.4)
Settlements paid	(17.0)		(12.9)
Acquisition	1.2		—
Benefits paid	(17.5)		(16.9)
Projected benefit obligation, end of year	401.1		442.6
Change in fair value of plan assets
Fair value of plan assets, beginning of year	459.8		591.3
Actual return on plan assets	(22.1)		(80.7)
Company contributions	2.6		2.3
Participant contributions	0.7		0.7
Foreign currency exchange rates	8.3		(24.0)
Settlements paid	(17.0)		(12.9)
Acquisition	1.2		—
Benefits paid	(17.5)		(16.9)
Fair value of plan assets, end of year	416.0		459.8
Funded status of plans, end of year	$	14.9	$	17.2
Amounts recognized on the Consolidated Balance Sheets
Other long-term assets	$	34.7	$	38.3
Other current liabilities	(1.7)		(1.8)
Other long-term liabilities	(18.1)		(19.3)
Net recognized asset	$	14.9	$	17.2

The net overfunded status of $14.9 million and $17.2 million as of July 31, 2023 and 2022, respectively, is recognized on the Consolidated Balance Sheets. The pension-related accumulated other comprehensive loss as of July 31, 2023 and 2022, prior to the consideration of income taxes, was $109.0 million and $110.2 million, respectively, and consisted primarily of unrecognized actuarial losses. The accumulated benefit obligation for all defined benefit pension plans was $384.4 million and $424.1 million as of July 31, 2023 and 2022, respectively. The decrease in the accumulated benefit obligation during fiscal 2023 is due to actuarial gains. Pension settlement accounting was triggered in fiscal 2023 and 2022 as a result of the amount of lump sum distributions in the defined benefit pension plans exceeding the service and interest cost threshold.

The projected benefit obligation and fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets were $73.5 million and $53.7 million, respectively, as of July 31, 2023 and $70.3 million and $49.2 million, respectively, as of July 31, 2022.

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 $15.0 million, $15.0 million and $5.0 million, respectively, as of July 31, 2023 and $12.8 million, $12.8 million and $3.1 million, respectively, as of July 31, 2022.

Assumptions

The significant assumptions used in determining the actuarial present value of the projected benefit obligation were as follows:

	Year Ended July 31,
	2023		2022
U.S. plans
Discount rate	5.58	%	4.62	%
Expected rate of return on plan assets	5.66	%	5.41	%
Rate of compensation increase	N/A		N/A
Non-U.S. plans
Discount rate	4.80	%	3.26	%
Expected rate of return on plan assets	4.39	%	3.40	%
Rate of compensation increase	3.12	%	2.99	%

The weighted average discount rates, expected returns on plan assets and rates of increase in future compensation levels used to determine the net periodic pension costs were as follows:

	Year Ended July 31,
	2023		2022		2021
U.S. plans
Discount rate	4.62	%	2.55	%	2.37	%
Expected rate of return on plan assets	5.66	%	5.41	%	5.33	%
Rate of compensation increase	N/A		N/A		N/A
Non-U.S. plans
Discount rate	3.26	%	1.60	%	1.52	%
Expected rate of return on plan assets	4.39	%	3.40	%	3.13	%
Rate of compensation increase	3.12	%	2.99	%	2.86	%

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 the 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 assessing 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.

Expected Long-Term Rate of Return on Plan Assets

The Company considers historical returns and future expected returns for each asset class, as well as the target asset allocation to develop the assumption for each of its U.S. pension plans. The assumption for non-U.S. pension plans reflects the investment allocation and expected total portfolio returns specific to each plan and country.

Mortality Rates

The Company’s actuary uses the Pri-2012 mortality table issued by the Society of Actuaries during the pre-retirement period and the Mercer Industry Longevity Experience Study (MILES) table for post-retirement mortality, both reflecting the Scale MMP-2021 mortality improvement projection scale for its U.S. pension plans. These assumptions were used for determining the benefit obligations as of July 31, 2023 and for developing the annual expense for its U.S. pension plans for the fiscal year ending July 31, 2024. The Company follows the local actuaries’ recommendations for non-U.S. pension plans.

Service and Interest Costs

The Company uses 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. This method provides a precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rate on the yield curve.

Investments

Global Equity Securities 

Global equity securities consist primarily of publicly traded U.S. and non-U.S. equities, mutual funds, collective investment trusts, diversified growth investment funds and private equity. Publicly traded equities and index funds are valued at the closing price reported in the active market in which the individual securities are traded. 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 or distressed debt, growth equity, mezzanine or subordinated debt, real estate, special situation partnerships and venture capital investments. Interests in these funds are valued at net asset value (NAV).

Fixed Income Securities

Fixed income securities consist primarily of investment and non-investment grade debt securities, debt securities issued by the U.S. Treasury, multi-asset credit investment funds and exchange-traded funds. Government, corporate and other bonds and notes, interest rate and inflation swaps, physical inflation-linked and nominal gilts, synthetic gilts, money market instruments and cash are valued at the closing price reported if they are traded on an active market or if they are traded at yields currently available on comparable securities of issuers with similar credit ratings. Fixed income securities also include smaller allocations to alternative investments, private equity and alternative fixed income investments. Alternative investments consist primarily of private placement funds, private equity investments and alternative fixed income-like investments. 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 or distressed debt, growth equity, mezzanine or subordinated debt, real estate, special situation partnerships and venture capital investments. Alternative fixed income securities consist primarily of private partnership interests in hedge funds. Interests in these funds are valued at NAV, which is determined by the administrator or custodian of the fund based on the fair value of the underlying assets owned by the fund less its liabilities.

Insurance Contracts

Insurance contracts are individual contracts whereby an insurance company offers a guaranteed minimum interest return. The Company does not have any influence on the investment decisions made by the insurer. European insurers, in general, are strictly regulated by an external control mechanism and have to invest for their guaranteed interest products within certain boundaries. Typically, they have a strategic asset allocation with 80% to 90% fixed income products and 10% to 20% equity-type products, including real estate.

Real Assets Funds

Real assets funds consist of interests in partnerships that invest in private real estate and commodities investments. Interests in partnerships are valued using NAV.

Fair Value of Plan Assets

Fair value measurements of plan assets are reported in one of three levels based on the lowest level of significant input used. For Level 1, inputs to the fair value measurement are quoted prices in active markets for identical assets or liabilities. For Level 2, inputs to the fair value measurement include quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. For Level 3, inputs to the fair value measurement are unobservable inputs or are based on valuation techniques.

The estimated fair value of pension plan assets and their respective levels in the fair value hierarchy by asset category were as follows (in millions):

	Level 1		Level 2		Level 3		Total
Balances as of July 31, 2023
Cash and cash equivalents	$	3.6	$	0.7	$	—	$	4.3
Global equity securities	61.2		55.7		—		116.9
Fixed income securities	90.1		117.2		—		207.3
Insurance contracts	—		—		41.3		41.3
Total investments in the fair value hierarchy	$	154.9	$	173.6	$	41.3	369.8
Investments using NAV as practical expedient							46.2
Total assets							$	416.0
Balances as of July 31, 2022
Cash and cash equivalents	$	6.6	$	0.8	$	—	$	7.4
Global equity securities	136.5		—		—		136.5
Fixed income securities	114.1		115.7		—		229.8
Insurance contracts	—		—		35.4		35.4
Total investments in the fair value hierarchy	$	257.2	$	116.5	$	35.4	409.1
Investments using NAV as practical expedient							50.7
Total assets							$	459.8

Certain investments, valued at NAV, had the following unfunded commitments and/or redemption restrictions (in millions):

	July 31, 2023				July 31, 2022
	NAV		Unfunded Commitments		NAV		Unfunded Commitments		Redemption Frequency (If Currently Eligible)	Redemption Notice (Days)
Global equity securities	$	33.6	$	1.8	$	37.0	$	1.8	Daily	0 - 5
Fixed income securities	9.5		—		10.8		—		Daily, Weekly and Quarterly	0 - 60
Real asset funds	3.1		4.2		2.9		4.2		Not eligible	N/A
Total U.S. assets	$	46.2	$	6.0	$	50.7	$	6.0

The changes in the fair values of the pension plans’ Level 3 assets were as follows (in millions):

	Year Ended July 31,
	2023		2022		2021
Balance as of beginning of year	$	35.4	$	37.7	$	35.4
Unrealized gains	2.7		3.5		3.6
Foreign currency exchange	3.0		(5.6)		0.1
Purchases and sales, net	0.2		(0.2)		(1.4)
Balance as of end of year	$	41.3	$	35.4	$	37.7

Investment Policies and Strategies

For U.S. pension plans, the Company uses a total return on 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 U.S. pension plans’ investments are diversified to assist in managing risk. During the year ended July 31, 2023, the Company’s asset allocation was as follows:

	Salaried Pension Plan		Hourly Pension Plan
Global equity securities	33	%	32	%
Fixed income securities	65		67
Real asset funds	1		—
Cash and cash equivalents	1		1
Total	100	%	100	%

The target allocation guidelines are determined in conjunction 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 non-U.S. plans, the general investment objectives are to maintain a suitably diversified portfolio of secure assets with appropriate liquidity that 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.

Estimated Contributions and Future Payments

The Company’s general funding policy is to make at least the minimum required contributions as required by applicable regulations, plus any additional amounts it determines to be appropriate. The Company made contributions of $2.6 million to its pension plans during the year ended July 31, 2023. Future required pension plan contributions may change significantly depending on the actual rate of return on plan assets, discount rates and regulatory requirements.

Estimated future benefit required payments for the Company’s pension plans as of July 31, 2023 were as follows (in millions):

2024	$	33.0
2025	$	28.7
2026	$	30.9
2027	$	28.8
2028	$	28.9
2029-2033	$	161.5

Retirement Savings

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. For eligible employees, employee contributions of up to 50% 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% of compensation annually for eligible employees. Total contribution expense for this plan was $28.6 million, $27.2 million and $25.2 million for the years ended July 31, 2023, 2022 and 2021, respectively.

Deferred Compensation and Other Benefit Plans

The Company provides various deferred compensation and other benefit plans to certain executives. The deferred compensation plan allows eligible employees to defer the receipt of all or a portion of their cash 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 that are reduced because of compensation limitations set by the Internal Revenue Code. The Company has recorded a liability of $1.9 million and $2.6 million as of July 31, 2023 and 2022, respectively, related primarily to its deferred compensation plans.