RETIREMENT BENEFITS

12 Months Ended

Aug. 31, 2012

RETIREMENT BENEFITS

NOTE 11—RETIREMENT BENEFITS

We sponsor two defined contribution plans covering most U.S. salaried employees and certain U.S. hourly employees. Contributions are made to the plans based on a percentage of eligible amounts contributed by participating employees. We also sponsor several defined benefit plans covering certain employees. Benefits are based on years of service and employees’ compensation or stated amounts for each year of service. Our funding policy is consistent with the funding requirements of applicable regulations.

We entered into a new labor agreement at one of our U.S. facilities in fiscal 2011. As a result, we incurred curtailment expense of approximately $1.2 million in fiscal 2011. Curtailment of the pension plan is expected to reduce pension costs in future years.

In addition to pension benefits, we provide health care and life insurance benefits for certain of our retired U.S. employees. Our policy is to fund the cost of these benefits as claims are paid.

Pension and other post-retirement plan costs are as follows:

	Pension Benefits
	2012			2011			2010
	(In thousands)
Service cost	$	1,282		$	1,365		$	1,902
Interest cost		8,058			7,966			8,535
Expected return on plan assets		(7,525	)		(6,325	)		(5,814	)
Settlement/curtailment cost		—			1,203			988
Amortization of prior service cost		175			235			723
Recognized net actuarial losses		3,040			4,101			3,210
Net periodic benefit cost	$	5,030		$	8,545		$	9,544
Defined contribution cost	$	4,435		$	3,675		$	2,570
	Other Benefits
	2012			2011			2010
	(In thousands)
Service cost	$	495		$	487		$	431
Interest cost		1,136			1,158			1,328
Net amortization		654			1,046			814
Net periodic benefit cost	$	2,285		$	2,691		$	2,573

Fiscal 2012 and fiscal 2011 defined contribution cost includes approximately $749,000 and $420,000, respectively, related to T-3.

The estimated net actuarial loss and prior service cost for our defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic pension cost during fiscal 2013 are $4,027,000 and $71,000, respectively.

The estimated net actuarial loss and prior service cost for our other post-retirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic pension cost during fiscal 2013 are $613,000 and $202,000, respectively.

The benefit obligation, funded status and amounts recorded in the Consolidated Balance Sheet at August 31, are as follows:

	Pension Benefits						Other Benefits
	2012			2011			2012			2011
	(In thousands)
Change in benefit obligation:
Beginning of year	$	174,716		$	170,043		$	25,053		$	27,193
Service cost		1,268			1,719			495			487
Interest cost		7,999			8,082			1,136			1,158
Participant contributions		200			49			—			—
Currency exchange rate impact		(7,049	)		8,026			—			—
Actuarial losses (gains)		22,273			(2,782	)		1,564			(2,430	)
Benefit payments		(9,988	)		(10,421	)		(1,505	)		(1,355	)
End of year	$	189,419		$	174,716		$	26,743		$	25,053
Change in plan assets:
Beginning of year	$	97,991		$	81,627		$	—		$	—
Currency exchange rate impact		(820	)		1,603			—			—
Actual return		10,955			11,326			—			—
Company contributions		20,614			13,807			1,505			1,355
Participant contributions		200			49			—			—
Benefit payments		(9,988	)		(10,421	)		(1,505	)		(1,355	)
End of year	$	118,952		$	97,991		$	—		$	—
Funded status	$	(70,467	)	$	(76,725	)	$	(26,743	)	$	(25,053	)
Accrued benefit cost	$	(70,467	)	$	(76,725	)	$	(26,743	)	$	(25,053	)
Recorded as follows:
Accrued expenses	$	(2,777	)	$	(3,045	)	$	(1,468	)	$	(1,595	)
Other long-term liabilities		(67,690	)		(73,680	)		(25,275	)		(23,458	)
		(70,467	)		(76,725	)		(26,743	)		(25,053	)
Accumulated other comprehensive loss		59,123			43,312			8,264			7,354
	$	(11,344	)	$	(33,413	)	$	(18,479	)	$	(17,699	)
Deferred taxes on accumulated other comprehensive loss	$	(16,519	)	$	(14,559	)	$	(3,140	)	$	(2,795	)
Accumulated other comprehensive loss at August 31:
Net actuarial losses	$	59,322		$	43,322		$	7,859		$	6,744
Prior service (credit) cost		(199	)		(10	)		405			610
Deferred taxes		(16,519	)		(14,559	)		(3,140	)		(2,795	)
Net accumulated other comprehensive loss at August 31	$	42,604		$	28,753		$	5,124		$	4,559

Pension plans with accumulated (“ABO”) and projected (“PBO”) benefit obligations in excess of plan assets:

	2012		2011
	(In thousands)
Accumulated benefit obligation	$	179,858	$	166,600
Projected benefit obligation		183,714		169,552
Plan assets		113,153		92,489

In 2012 and 2011, $47,609,000 and $45,367,000, respectively, of the unfunded ABO and $51,465,000 and $48,318,000, respectively, of the unfunded PBO related to our pension plan for a German operation. Pre-funding of pension obligations is not required in Germany.

The weighted allocations of pension plan assets at August 31, 2012 and 2011 are shown in the following table.

	2012			2011
Equity securities		65	%		64	%
Debt securities		31			34
Cash and cash equivalents		4			2
		100	%		100	%

At August 31, 2012, our target allocation percentages for plan assets were approximately 65% equity securities and 35% debt securities. The targets may be adjusted periodically to reflect current market conditions and trends as well as inflation levels, interest rates and the trend thereof, and economic and monetary policy. The objectives underlying this allocation are to achieve a long-term rate of return of 5.75% above inflation and to manage the plan assets so that they are sufficient to meet the plans’ future obligations while maintaining adequate liquidity to meet current benefit payments and operating expenses. The actual amount for which these obligations will be settled depends on future events, including life expectancy of plan participants and salary inflation. Equity securities can include, but are not limited to, broadly diversified international and domestic equities. At August 31, 2012 and 2011, pension assets included 100,000 of our common shares. Debt securities include, but are not limited to, international and domestic direct bond investments. The assets are managed by professional investment firms and performance is evaluated against specific benchmarks.

We will use a weighted average long-term rate of return on pension plan assets of approximately 7.3% in fiscal 2013. Expected rates of return are developed based on the target allocation of debt and equity securities and on the historical returns on these types of investments judgmentally adjusted to reflect current expectations based on historical experience of the plan’s investment managers. In evaluating future returns on equity securities, the existing portfolio is stratified to separately consider large and small capitalization investments as well as international and other types of securities.

We expect to make future benefit payments from our benefit plans as follows:

	Pension Benefits		Other Benefits
	(In thousands)
2013	$	11,400	$	1,500
2014		11,100		1,600
2015		11,000		1,700
2016		10,900		1,800
2017		10,600		1,900
2018-2022		51,400		10,000

The Company intends to make such contributions as are required to maintain the plan assets on a sound actuarial basis, in such amounts and at such times as determined by the Company in accordance with the funding policy established by management and consistent with plans’ objectives. The Company anticipates contributing $3,200,000 to its pension benefit plans in fiscal 2013.

The actuarial weighted average assumptions used to determine plan liabilities at August 31, are as follows:

	Pension Benefits						Other Benefits
	2012			2011			2012			2011
Weighted average assumptions:
Discount rate		3.80	%		5.00	%		3.90	%		4.80	%
Expected return on plan assets		7.30			7.20			N/A			N/A
Rate of compensation increase		2.40			2.80			N/A			N/A
Health care cost increase		N/A			N/A			8.0 –5.0	%		8.5 – 5.0	%
Health care cost grading period		N/A			N/A			6 years			7 years

The actuarial weighted average assumptions used to determine plan costs are as follows (measurement date September 1):

	Pension Benefits						Other Benefits
	2012			2011			2012			2011
Discount rate		5.00	%		4.70	%		4.80	%		4.50	%
Expected return on plan assets		7.20			7.40			N/A			N/A
Rate of compensation increase		2.80			2.90			N/A			N/A
Health care cost increase		N/A			N/A			8.5 – 5.0	%		8.0 – 5.0	%
Health care cost grading period		N/A			N/A			7 years			6 years

The assumed health care trend rate has a significant effect on the amounts reported for health care benefits. A one-percentage point change in assumed health care rate would have the following effects:

	Increase		Decrease
	(In thousands)
Service and interest cost	$	197	$	(186	)
Postretirement benefit obligation		1,080		(959	)

Pursuant to ASC 820, 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 summarizes the bases used to measure financial assets of the pension plans at their fair market value on a recurring basis as of August 31, 2012:

	August 31, 2012		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Cash	$	4,963	$	4,963	$	—	$	—
U.S. Government and U.S. Agency Obligations (1)		11,155		11,155		—		—
Common Stocks (1)		8,445		8,445		—		—
Foreign Stocks (1)		7,867		7,867		—		—
Common Trust Funds and Mutual Funds (1)		70,025		70,025		—		—
Corporate Obligations (2)		14,342		—		14,342		—
Foreign Obligations (2)		2,155		—		2,155		—
Total	$	118,952	$	102,455	$	16,497	$	—

The following table summarizes the bases used to measure financial assets of the pension plans at their fair market value on a recurring basis as of August 31, 2011:

	August 31, 2011		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Cash	$	3,034	$	3,034	$	—	$	—
U.S. Government and U.S. Agency Obligations (1)		10,481		10,481		—		—
Common Stocks (1)		6,401		6,401		—		—
Foreign Stocks (1)		6,753		6,753		—		—
Common Trust Funds and Mutual Funds (1)		58,539		58,539		—		—
Corporate Obligations (2)		11,620		—		11,620		—
Foreign Obligations (2)		1,163		—		1,163		—
Total	$	97,991	$	85,208	$	12,783	$	—

(1) U.S. Government and U.S. Agency Obligations, Common and Foreign Stocks and Common Trust and Mutual Funds are valued at the closing price reported on the active market on which the individual securities are traded.

(2) Corporate and Foreign Obligations are estimated using recent transactions, broker quotations and/or bond spread information.

There have been no changes in the methodologies used during fiscal 2012 and 2011.