Staples 2015 Annual Report Download - page 148

APPENDIX C
C-31 STAPLES Form 10-K
STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The following table shows the effect on pension obligations at January 30, 2016 of a change in discount rate and other assumptions
(in millions):
Change in Discount Rate
(0.25)% No change 0.25%
Change in rate of compensation increase:
(0.25)% $38 $(1) $(37)
No change 39 — (36)
0.25% 40 1 (35)
Change in rate of pension increase:
(0.25)% $5 $(32) $(66)
No change 39 — (36)
0.25% 75 34 (5)
The discount rate used is the interest rate on high quality (AA
rated) corporate bonds that have a maturity approximating
the term of the related obligations. In estimating the expected
return on plan assets, appropriate consideration is taken into
account of the historical performance for the major asset
classes held, or anticipated to be held, by the applicable
pension funds and of current forecasts of future rates of return
for those asset classes.
Staples’ investment strategy for worldwide pension plan
assets is to seek a competitive rate of return relative to an
appropriate level of risk depending on the funded status of
each plan. The majority of the plans’ investment managers
employ active investment management strategies with the
goal of outperforming the broad markets in which they invest.
Risk management practices include diversification across
asset classes and investment styles and periodic rebalancing
toward asset allocation targets. A portion of the currency risk
related to investments in equity securities, real estate and debt
securities is hedged.
The target allocation reflects a risk/return profile Staples feels
is appropriate relative to each plan’s liability structure and
return goals. Staples conducts periodic asset-liability studies
for the plan assets in order to model various potential asset
allocations in comparison to each plan’s forecasted liabilities
and liquidity needs.
Outside the United States, asset allocation decisions are
typically made by an independent board of trustees. As in the
U.S., investment objectives are designed to generate returns
that will enable the plan to meet its future obligations. In
some countries local regulations require adjustments in asset
allocation, typically leading to a higher percentage in fixed
income than would otherwise be deployed. Staples acts in a
consulting and governance role via its board representatives
in reviewing investment strategy, with final decisions on asset
allocation and investment managers made by local trustees.
The Company’s pension plans’ actual and target asset
allocations at January 30, 2016 and January 31, 2015 are
as follows:
January 30, 2016
Actual Target
U.S.
Plans International Plans Total U.S. Plans International Plans Total
Asset allocation:
Equity securities 48% 26% 27% 50% 26% 26%
Debt securities 49% 62% 62% 50% 62% 62%
Real estate 3% 8% 7% —% 8% 8%
Cash —% 2% 2% —% —% —%
Other —% 2% 2% —% 4% 4%
Total 100% 100% 100% 100% 100% 100%