Defined Benefit Pension Plans

12 Months Ended

Jul. 31, 2016

Defined Benefit Pension Plans

(11) DEFINED BENEFIT PENSION PLANS

The Company sponsors two defined benefit pension plans covering certain of its employees in its Netherlands facility, one defined benefit pension plan covering certain of its employees in its Taiwan facility and one unfunded defined benefit pension plan covering certain of its employees in Japan. Pension costs are actuarially determined.

The plan assets are primarily related to the defined benefit plan associated with the Company’s Netherlands facility. It consists of an insurance contract that guarantees the payment of the funded pension entitlements. Insurance contract assets are recorded at fair value, which is determined based on the cash surrender value of the insured benefits which is the present value of the guaranteed funded benefits. Insurance contracts are valued using unobservable inputs, primarily by discounting expected future cash flows relating to benefits paid from a notional investment portfolio in order to determine the cash surrender value of the policy. The following table presents the plan assets measured at fair value on a recurring basis as of July 31, 2016 and 2015, classified by fair value hierarchy:

						Fair Value Measurements at Reporting Date Using
(In thousands)	July 31, 2016		Asset Allocations			Level 1		Level 2		Level 3
Insurance contract	$	24,012		94	%	$	—	$	—	$	24,012
Other investments		1,461		6	%		—		—		1,461
	$	25,473		100	%	$	—	$	—	$	25,473
						Fair Value Measurements at Reporting Date Using
(In thousands)	July 31, 2015		Asset Allocations			Level 1		Level 2		Level 3
Insurance contract	$	18,038		93	%	$	—	$	—	$	18,038
Other investments		1,312		7	%		—		—		1,312
	$	19,350		100	%	$	—	$	—	$	19,350

The aggregate change in benefit obligation and plan assets related to these plans was as follows:

	July 31,
	2016			2015
	(In thousands)
Change in benefit obligation
Benefit obligation at beginning of year	$	25,617		$	26,326
Service cost		632			658
Interest cost		637			604
Actuarial (gain) loss		5,351			3,310
Employee contributions		120			51
Amendments		—			24
Benefits and administrative expenses paid		(269	)		(311	)
Adjustments		156			6
Settlements		(55	)		(279	)
Effect of curtailment		(941	)		(164	)
Currency translation		419			(4,608	)
Benefit obligation at end of year		31,667			25,617
Change in plan assets
Fair value of plan assets at beginning of year		19,350			22,543
Actual return on plan assets		5,556			852
Employee contributions		120			129
Employer contributions		539			347
Settlements		(55	)		(264	)
Benefits and administrative expenses paid		(269	)		(311	)
Currency translation		232			(3,946	)
Fair value of plan assets at end of year		25,473			19,350
Funded status
Assets		889			81
Current liability		(68	)		(43	)
Noncurrent liability		(7,015	)		(6,305	)
Net amount recognized in statement of financial position as a noncurrent asset (liability)	$	(6,194	)	$	(6,267	)

The accumulated benefit obligation was approximately $29.0 million and $22.7 million at July 31, 2016, and 2015, respectively.

Information for pension plans with an accumulated benefit obligation in excess of plan assets was as follows:

	July 31,
	2016		2015
	(In thousands)
Projected benefit obligation	$	31,667	$	24,818
Accumulated benefit obligation	$	29,031	$	22,205
Fair value of plan assets	$	24,584	$	18,470

Components of net periodic pension cost were as follows:

	Twelve Months Ended July 31,
	2016			2015			2014
	(In thousands)
Service cost	$	632		$	658		$	521
Interest costs		637			604			743
Expected return on plan assets		(491	)		(537	)		(577	)
Amortization of net actuarial (gain) loss		222			64			62
Curtailment gain		(844	)		(164	)		—
Net periodic pension costs	$	156		$	625		$	749

The amount included in accumulated other comprehensive income expected to be recognized as a component of net periodic pension costs in fiscal year 2017 is approximately $6.0 million related to amortization of a net actuarial loss and prior service cost.

Assumptions:

Weighted-average assumptions used to determine benefit obligations was as follows:

	Twelve Months Ended July  31,
	2016			2015			2014
Discount rate		1.72	%		2.46	%		2.95	%
Rate of compensation increase		1.92	%		1.95	%		2.05	%

Weighted-average assumptions used to determine net periodic pension cost was as follows:

	Twelve Months Ended July 31,
	2016			2015			2014
Discount rate		1.95	%		3.05	%		3.73	%
Expected long-term rate of return on plan assets		2.41	%		3.02	%		3.54	%
Rate of compensation increase		1.83	%		2.41	%		2.01	%

The discount rate reflects the Company’s best estimate of the interest rate at which pension benefits could be effectively settled as of the valuation date. It is based on the Mercer Yield Curve for the Eurozone as per July 31, 2016 for the appropriate duration of the plan.

To develop the expected long-term rate of return on assets assumptions consideration is given to the current level of expected returns on risk free investments, the historical level of risk premium associated with the other asset classes in which the portfolio is invested and the expectations for the future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio.

Benefit payments:

The following table summarizes expected benefit payments from the plans through fiscal year 2026. Actual benefit payments may differ from expected benefit payments. The minimum required contributions to the plans are expected to be approximately $0.2 million in fiscal year 2017.

	Pension Benefit Payments
	(in thousands)
For the fiscal years ended July 31:
2017		200
2018		168
2019		211
2020		208
2021		237
Next 5 years		1,818

The current target allocations for plan assets are primarily insurance contracts. The market value of plan assets using Level 3 inputs is approximately $25.5 million.

Valuation Technique:

Benefit obligations are computed using the projected unit credit method. Benefits are attributed to service based on the plan’s benefit formula. Cumulative gains and losses in excess of 10% of the greater of the pension benefit obligation or market-related value of plan assets are amortized over the expected average remaining future service of the current active membership.