Lockheed Martin 1998 Annual Report Download - page 43

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Lockheed Martin Corporation
Dividends paid to the salaried and hourly ESOP trusts on the
allocated shares are paid annually by the ESOP trusts to the partici-
pants based upon the number of shares allocated to each participant.
Defined Benefit Pension Plans, and Retiree Medical
and Life Insurance Plans—Most employees are covered by
defined benefit pension plans, and certain health care and life insur-
ance benefits are provided to eligible retirees by the Corporation.
The Corporation has made contributions to trusts (including
Voluntary Employees’ Beneficiary Association trusts and 401(h)
accounts, the assets of which will be used to pay expenses of cer-
tain retiree medical plans) established to pay future benefits to eli-
gible retirees and dependents. Benefit obligations as of the end of
each year reflect assumptions in effect as of those dates. Net pen-
sion and net retiree medical costs for 1998 and 1996 were based on
assumptions in effect at the end of the respective preceding years.
Effective October 1997, the Corporation changed its expected long-
term rate of return on assets related to its defined benefit pension
and retiree medical plans.
The following provides a reconciliation of benefit obligations,
plan assets and funded status of the plans:
Retiree Medical
Defined Benefit and Life
Pension Plans Insurance Plans
(In millions) 1998 1997 1998 1997
Change in Benefit Obligations
Benefit obligations at
beginning of year $16,326 $15,416 $ 2,526 $ 2,607
Service cost 491 444 40 39
Interest cost 1,197 1,163 178 191
Benefits paid (1,117) (1,049) (210) (210)
Amendments 259 37 (72) (5)
Divestitures (9) (197) (11) (7)
Actuarial losses (gains) 995 507 205 (117)
Participants’ contributions 4529 28
Benefit obligations at
end of year $18,146 $16,326 $ 2,685 $ 2,526
Change in Plan Assets
Fair value of plan assets at
beginning of year $20,642 $18,402 $ 895 $ 736
Actual return on plan assets 3,140 3,294 86 112
Corporation’s contributions 152 182 120 141
Benefits paid (1,117) (1,049) (128) (122)
Participants’ contributions 4529 28
Divestitures (10) (192) ——
Fair value of plan assets at
end of year $22,811 $20,642 $ 1,002 $ 895
Funded (unfunded) status
of the plans $ 4,665 $ 4,316 $(1,683) $(1,631)
Unrecognized net
actuarial gain (4,142) (3,738) (156) (363)
Unrecognized prior
service cost 651 456 (64) 1
Unrecognized transition asset (17) (106) ——
Prepaid (accrued) benefit cost $ 1,157 $ 928 $(1,903) $(1,993)
The net pension cost and the net post-retirement benefit cost
related to the Corporation’s plans include the following components:
(In millions) 1998 1997 1996
Defined Benefit Pension Plans
Service cost $ 491 $ 444 $ 463
Interest cost 1,197 1,163 1,050
Expected return on plan assets (1,715) (1,542) (1,315)
Amortization of prior service cost 58 54 51
Recognized net actuarial (gains) losses (22) — 1
Amortization of transition asset (89) (90) (91)
Net pension (income) cost $ (80) $ 29 $ 159
Retiree Medical and Life Insurance Plans
Service cost $ 40 $ 39 $ 40
Interest cost 178 191 181
Expected return on plan assets (79) (64) (48)
Amortization of prior service cost (6) (6) (7)
Recognized net actuarial gains (15) (9) (5)
Curtailment gain —— (15)
Net post-retirement cost $ 118 $ 151 $ 146
The following actuarial assumptions were used to determine the
benefit obligations and the net costs related to the Corporation’s
defined benefit pension and post-retirement benefit plans, as
appropriate: 1998 1997 1996
Discount rates 7.0% 7.5% 7.8%
Expected long-term rates of return
on assets 9.5 9.5 9.0
Rates of increase in future
compensation levels 5.5 6.0 6.0
The medical trend rates used in measuring the post-retirement
benefit obligation were 6.7 percent in 1998 and 7.0 percent in 1997,
and were assumed to gradually decrease to 4.5 percent by the year
2004. An increase and decrease of one percentage point in the
assumed medical trend rates would result in a change in the benefit
obligation of approximately 5.9 percent and (5.2) percent, respectively,
at December 31, 1998, and a change in the 1998 post-retirement
benefit cost of approximately 8.9 percent and (7.8) percent, respec-
tively. The medical trend rate for 1999 is 6.0 percent.
The change in the discount rate and in the rate of increase in
future compensation levels increased the benefit obligation for
defined benefit pension plans at December 31, 1998 by approxi-
mately $770 million. The change in discount rate increased the
benefit obligation for retiree medical plans at December 31, 1998
by approximately $110 million.
Note 15—Leases
Total rental expense under operating leases, net of immaterial
amounts of sublease rentals and contingent rentals, were $285
million, $295 million and $320 million for 1998, 1997 and 1996,
respectively.