NOTE H Employee Benefit Plans

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 is a traditional defined benefit pension plan primarily for production employees. The second is a plan for salaried workers 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 international 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 will be no new entrants into the plan. Then effective, August 1, 2016, employees hired prior to August 1, 2013 would no longer continue to accrue Company contribution credits under the plan. The accounting for this amendment is reflected in the current year balance sheet and resulted in decreased pension liabilities of $11.7 million with an offset to AOCI as of July 31, 2013 due to a freeze in previously assumed salary increases.

Net periodic pension costs for the Company’s pension plans include the following components:


	2013		2012		2011

	(thousands of dollars)

Service cost	$	19,439	$	15,464	$	16,148
Interest cost		16,953		19,436		19,440
Expected return on assets		(28,111)		(28,114)		(27,538)
Prior service cost amortization		591		725		674
Actuarial loss amortization		10,362		5,696		3,962
Net periodic benefit cost	$	19,234	$	13,207	$	12,686

The obligations and funded status of the Company’s pension plans as of 2013 and 2012, is as follows:


	2013		2012

	(thousands of dollars)
Change in benefit obligation:
Benefit obligation, beginning of year	$	461,492	$	404,012
Service cost		19,439		15,464
Interest cost		16,953		19,436
Plan amendments		(9)		(781)
Participant contributions		1,207		1,130
Actuarial loss/(gain)		(27,176)		51,914
Currency exchange rates		1,225		(9,689)
Curtailment		(11,692)		—
Benefits paid		(16,496)		(19,994)
Benefit obligation, end of year	$	444,943	$	461,492

Change in plan assets:
Fair value of plan assets, beginning of year	$	387,576	$	373,555
Actual return on plan assets		51,524		4,442
Company contributions		28,186		37,915
Participant contributions		1,207		1,130
Currency exchange rates		727		(9,472)
Benefits paid		(16,496)		(19,994)
Fair value of plan assets, end of year	$	452,724	$	387,576

Funded status:
Funded/(Underfunded) status at July 31, 2013 and 2012	$	7,781	$	(73,916)

The net overfunded status of $7.8 million at July 31, 2013 is recognized in the accompanying Consolidated Balance Sheet. AOCI at July 31, 2013 consists primarily of unrecognized actuarial losses, net of tax. The loss expected to be recognized in net periodic pension expense during Fiscal 2014 is $8.1 million. The accumulated benefit obligation for all defined benefit pension plans was $427.8 million and $423.6 million at July 31, 2013 and 2012, respectively.

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 $20.5 million, $19.7 million, and $8.4 million, respectively, as of July 31, 2013, and $347.5 million, $335.1 million, and $277.5 million, respectively, as of July 31, 2012.

For the years ended July 31, 2013 and 2012 the U.S. pension plans represented approximately 70 percent and 71 percent, respectively, of the Company’s total plan assets, approximately 71 percent and 74 percent, respectively, of the Company’s total projected benefit obligation, and approximately 75 percent and 71 percent, respectively, of the Company’s total pension expense.

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:


Weighted average actuarial assumptions	2013	2012
All U.S. plans:
Discount rate	4.58%	3.59%
Rate of compensation increase	2.61%	2.61%
Non - U.S. plans:
Discount rate	4.04%	4.13%
Rate of compensation increase	2.92%	2.86%

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:


Weighted average actuarial assumptions	2013	2012	2011
All U.S. plans:
Discount rate	3.59%	4.91%	5.25%
Expected return on plan assets	7.50%	7.75%	8.00%
Rate of compensation increase	2.61%	4.50%	5.00%
Non - U.S. plans:
Discount rate	4.13%	5.36%	5.17%
Expected return on plan assets	5.20%	6.03%	6.17%
Rate of compensation increase	2.86%	3.57%	3.69%

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. As of our measurement date of July 31, 2013, the Company maintained its long-term rate of return for the U.S. pension plans at 7.50 percent. The expected long-term rate of return on assets assumption for the plans outside the U.S. reflects the investment allocation and expected total portfolio returns specific to each plan and country. 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.

Discount Rate 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. The discount rate disclosed in the assumptions used to determine net periodic benefit cost and to determine benefit obligations is based upon a weighted average, using year-end projected benefit obligations.

Plan Assets The Company used the following definitions to classify pension assets into either Level 1, Level 2, or Level 3:

Level 1 – Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – Inputs other than quoted prices available in Level 1 that are observable either directly or indirectly.

Level 3 – Unobservable inputs for the asset or liability.

The fair values of the assets held by the U.S. pension plans by asset category are as follows (in millions):


	Quoted Prices in
	Active Markets		Significant		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
Asset Category	(Level 1)		(Level 2)		(Level 3)		Total
2013
Cash	$	18.5	$	—	$	—	$	18.5
Global Equity Securities		82.5		50.2		19.4		152.1
Fixed Income Securities		42.9		20.8		60.8		124.5
Real Assets		—		—		22.1		22.1
Total U.S. Assets at July 31, 2013	$	143.9	$	71.0	$	102.3	$	317.2
2012
Cash	$	0.9	$	—	$	—	$	0.9
Global Equity Securities		61.5		57.3		19.4		138.2
Fixed Income Securities		29.2		19.5		55.0		103.7
Real Assets		—		—		31.4		31.4
Total U.S. Assets at July 31, 2012	$	91.6	$	76.8	$	105.8	$	274.2
2011
Cash	$	0.3	$	—	$	—	$	0.3
Global Equity Securities		64.8		56.2		17.9		138.9
Fixed Income Securities		36.6		20.1		31.4		88.1
Real Assets		—		—		38.0		38.0
Total U.S. Assets at July 31, 2011	$	101.7	$	76.3	$	87.3	$	265.3

Global Equity 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, minus 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 are 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 investments is 60 percent. The underlying global equity investment managers within the Plan will invest primarily in equity securities spanning across market capitalization, geography, style (value, growth), 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 percent 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 investment managers 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 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 is 25 percent. 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. The current fixed income investment is considered liquid, with daily pricing and liquidity. The Fixed Income class may also invest in a variety of alternative investments. Alternatives cover an enormous 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, relative value) with multiple hedge fund managers. This class is 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 consist of commodity funds, Real Estate Investment Trusts (REITS), and interests in partnerships that invest in private real estate, commodity, 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 is 15 percent. The Fund will invest in real assets to provide a hedge against unexpected inflation, to capture unique sources of returns, and to provide diversification benefits. The Fund will pursue 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 sets forth a summary of changes in the fair values of the U.S. pension plans’ Level 3 assets for the years ended July 31, 2013, 2012, and 2011 (in millions):


	Global Equity		Fixed Income		Real Assets		Total
Beginning balance at August 1, 2010	$	17.3	$	33.1	$	16.2	$	66.6
Unrealized gains		1.5		2.1		3.4		7.0
Realized gains		1.0		—		—		1.0
Purchases		2.3		—		30.4		32.7
Sales		(4.2)		(3.8)		(12.0)		(20.0)
Ending balance at July 31, 2011	$	17.9	$	31.4	$	38.0	$	87.3
Unrealized gains		0.1		0.6		(2.1)		(1.4)
Realized gains		1.5		0.4		—		1.9
Purchases		1.0		17.0		2.8		20.8
Sales		(1.1)		(1.7)		—		(2.8)
Net transfers into (out of) level 3		—		7.3		(7.3)		—
Ending balance at July 31, 2012	$	19.4	$	55.0	$	31.4	$	105.8
Unrealized gains		(0.8)		6.4		1.1		6.7
Realized gains		1.7		0.7		—		2.4
Purchases		2.1		—		1.0		3.1
Sales		(3.0)		(1.3)		(11.4)		(15.7)
Ending balance at July 31, 2013	$	19.4	$	60.8	$	22.1	$	102.3

The following table sets forth a summary of the U.S. pension plans’ assets valued at NAV for the year ended July 31, 2013 (in millions):


		Fair Value		Unfunded Commitments	Redemption Frequency (If Currently Eligible)	Redemption Notice Period

Global Equity	$	100.4	$	7.3	Daily, Quarterly, Annually	10 - 100 days
Fixed Income		124.5		-	Daily, Quarterly, Semi-Annually	65 - 120 days
Real Assets		22.1		9.4	Monthly, Quarterly	30 - 95 days

Total	$	247.0	$	16.7

Fair values of the assets held by the international pension plans by asset category are as follows (in millions):


	Quoted Prices in
	Active Markets		Significant		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
Asset Category	(Level 1)		(Level 2)		(Level 3)		Total
2013
Cash	$	0.6	$	—	$	—	$	0.6
Global Equity Securities		63.8		—		—		63.8
Fixed Income Securities		6.9		21.0		—		27.9
Equity/Fixed Income		16.9		—		26.3		43.2
Total International Assets at July 31, 2013	$	88.2	$	21.0	$	26.3	$	135.5
2012
Global Equity Securities	$	37.1	$	—	$	—	$	37.1
Fixed Income Securities		5.9		28.4		—		34.3
Equity/Fixed Income		13.3		—		21.8		35.1
Real Assets		—		6.8		—		6.8
Total International Assets at July 31, 2012	$	56.3	$	35.2	$	21.8	$	113.3
2011
Global Equity Securities	$	33.5	$	—	$	—	$	33.5
Fixed Income Securities		—		26.5		—		26.5
Equity/Fixed Income		15.4		—		26.3		41.7
Real Assets		—		6.5		—		6.5
Total International Assets at July 31, 2011	$	48.9	$	33.0	$	26.3	$	108.2

Global equity consists of 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 percent 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 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 includes 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 percent fixed income products and 60 percent 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 percent to 90 percent fixed income products and 20 percent to 10 percent equity type products (including real estate).

Real Assets consists of property funds. Property funds are valued using the most recent partnership statement of fair value, updated for any subsequent partnership interests’ cash flows.

The following table sets forth a summary of changes in the fair values of the International pension plans’ Level 3 assets for the years ended July 31, 2013, 2012, and 2011 (in millions):


	Equity/Fixed
	Income
Beginning balance at August 1, 2010	$	21.7
Unrealized gains		0.9
Foreign currency exchange		2.5
Purchases		6.2
Sales		(5.0)
Ending balance at July 31, 2011	$	26.3
Unrealized gains		1.4
Foreign currency exchange		(3.8)
Purchases		2.6
Sales		(4.6)
Net transfers into (out of) Level 3		(0.1)
Ending balance at July 31, 2012	$	21.8
Unrealized gains		1.1
Foreign currency exchange		1.7
Purchases		2.6
Sales		(0.9)
Net transfers into (out of) Level 3		-
Ending balance at July 31, 2013	$	26.3

The following table sets forth a summary of the International pension plans’ assets valued at NAV for the year ended July 31, 2013 (in millions):


		Fair Value		Unfunded Commitments	Redemption Frequency (If Currently Eligible)	Redemption Notice Period

Fixed Income	$	13.8	$	-	Weekly	N/A
Equity/Fixed Income		32.6		-	Daily, Yearly	90 days

Total	$	46.4	$	-

Investment Policies and Strategies. For the Company’s U.S. 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. The Company’s asset allocation guidelines target an allocation of 60 percent global equity securities, 25 percent fixed income and 15 percent real assets (investments into funds containing commodities and real estate). 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. The Company may elect to make additional contributions up to the maximum tax deductible contribution. As such, the Company made contributions of $21.5 million to its U.S. pension plans in Fiscal 2013. The minimum funding requirement for the Company’s U.S. pension plans for Fiscal 2014 is $7.9 million. Per the Pension Protection Act of 2006, this obligation could be met with existing credit balances that resulted from payments above the minimum obligation in prior years. As such, the Company does not anticipate making a contribution in Fiscal 2014 to its U.S. pension plans. The Company made contributions of $6.7 million to its non-U.S. pension plans in Fiscal 2013 and estimates that it will contribute approximately $5.6 million in Fiscal 2014 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.

Estimated future benefit payments for the Company’s U.S. and non-U.S. plans are as follows (thousands of dollars):


Fiscal Year
2014	$	23,305
2015	$	20,622
2016	$	23,447
2017	$	28,181
2018	$	25,624
2019-2023	$	137,068

Postemployment and Postretirement Benefit Plans The Company provides certain postemployment and postretirement health care benefits for certain U.S. employees for a limited time after termination of employment. The Company has recorded a liability for its postretirement benefit plan in the amount of $1.3 million and $1.5 million as of July 31, 2013 and July 31, 2012, respectively. The annual cost resulting from these benefits is not material. For measurement purposes, a 7.2 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for Fiscal 2013. The Company has assumed that the long-term rate of increase will decrease gradually to an ultimate annual rate of 4.5 percent. A one-percentage point increase in the health care cost trend rate would increase the Fiscal 2013 and 2012 liability by $0.1 million.

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 percent of compensation are matched at a rate equaling 100 percent of the first 3 percent contributed and 50 percent of the next 2 percent contributed. The Company’s contributions under this plan are based on the level of employee contributions. Total contribution expense for these plans was $7.3 million, $5.5 million, and $9.1 million for the years ended July 31, 2013, 2012, and 2011, respectively. This plan also includes shares from an Employee Stock Ownership Plan (ESOP). As of July 31, 2013, all shares of the ESOP have been allocated to participants. Total ESOP shares are considered to be shares outstanding for earnings per share calculations. In July 2013, the Company announced that Employees hired on or after August 1, 2013 will be eligible for a 3 percent annual Company retirement contribution in addition to the Company’s 401(k) match. Effective August 1, 2016, Employees hired prior to August 1, 2013 will be eligible for the 3 percent annual Company retirement contribution.

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 percent 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 in the amount of $9.5 million for both of the years ended July 31, 2013 and July 31, 2012, related primarily to its deferred compensation plans.