Lockheed Martin 2001 Annual Report Download - page 56

Lockheed Martin Annual Report >>> 63
Lockheed Martin Corporation
(Continued)
The net pension cost and the net post-retirement benefit
cost related to the Corporation’s plans include the following
components:
(In millions) 2001 2000 1999
Defined Benefit Pension Plans
Service cost $ 523 $ 517 $ 564
Interest cost 1,357 1,372 1,245
Expected return on plan assets (2,177) (2,130) (1,920)
Amortization of prior service cost 64 75 69
Recognized net actuarial gains (117) (143) (43)
Amortization of transition asset (4) (4) (4)
Curtailment loss(a) —11 —
Net pension income $ (354) $ (302) $ (89)
Retiree Medical and Life Insurance Plans
Service cost $41$38$43
Interest cost 211 198 177
Expected return on plan assets (99) (105) (90)
Amortization of prior service cost (5) (12) (12)
Recognized net actuarial
losses (gains) 9(11) (8)
Curtailment gain(a) —(87) —
Net post-retirement cost $ 157 $ 21 $ 110
(a) Amounts relate primarily to the divestiture of AES and Control
Systems in 2000 and are included in the calculation of the
gains or losses on the respective transactions.
The following actuarial assumptions were used to deter-
mine the benefit obligations and the net costs related to the
Corporation’s defined benefit pension and post-retirement
benefit plans, as appropriate:
2001 2000 1999
Discount rates 7.25% 7.5% 7.75%
Expected long-term rates of
return on assets 9.5 9.5 9.5
Rates of increase in future
compensation levels 5.5 5.5 5.5
The medical trend rates used in measuring the post-
retirement benefit obligation were 8.2 percent in 2001
and 7.8 percent in 2000, and were assumed to ultimately
decrease to 4.5 percent by the year 2012. An increase or
decrease of one percentage point in the assumed medical
trend rates would result in a change in the benefit obliga-
tion of approximately 4.3 percent and (3.8) percent,
respectively, at December 31, 2001, and a change in the
2001 post-retirement service cost plus interest cost of
approximately 4.7 percent and (4.1) percent, respectively.
The medical trend rate for 2002 is 9.1 percent.
The Corporation sponsors nonqualified defined benefit
plans to provide benefits in excess of qualified plan limits.
The expense associated with these plans totaled $47 million
in 2001, $43 million in 2000 and $40 million in 1999.
Note 15—Leases
Total rental expense under operating leases was $223
million, $232 million and $260 million for 2001, 2000
and 1999, respectively.
Future minimum lease commitments at December 31,
2001 for all operating leases that have a remaining term
of more than one year were approximately $855 million
($139 million in 2002, $129 million in 2003, $125 mil-
lion in 2004, $114 million in 2005, $106 million in 2006
and $242 million in later years). Certain major plant facili-
ties and equipment are furnished by the U.S. Government
under short-term or cancelable arrangements.
Note 16—Commitments and Contingencies
The Corporation or its subsidiaries are parties to or
have property subject to litigation and other proceedings,
including matters arising under provisions relating to the
protection of the environment. In the opinion of manage-
ment and in-house counsel, the probability is remote that
the outcome of these matters will have a material adverse
effect on the Corporation’s consolidated results of opera-
tions or financial position. These matters include the
following items:
Environmental matters—The Corporation is responding
to three administrative orders issued by the California
Regional Water Quality Control Board (the Regional Board)
in connection with the Corporation’s former Lockheed
Propulsion Company facilities in Redlands, California.
Under the orders, the Corporation is investigating the
impact and potential remediation of regional groundwater
contamination by perchlorates and chlorinated solvents. The
Regional Board has approved the Corporation’s plan to
maintain public water supplies with respect to chlorinated
solvents during this investigation, and the Corporation con-
tinues to negotiate with local water purveyors to implement
this plan, as well as to address water supply concerns rela-
tive to perchlorate contamination. The Corporation esti-
mates that expenditures required to implement work
currently approved will be approximately $85 million. The
Corporation is also coordinating with the U.S. Air Force,
which is working with the aerospace and defense industry
to conduct preliminary studies of the potential health effects
of perchlorate exposure in connection with several sites
across the country, including the Redlands site. The results
of these studies are intended to assist state and federal reg-
ulators in setting appropriate action levels for perchlorates