Lockheed Martin 2004 Annual Report Download - page 61

an ESOP. The ESOP purchased 34.8 million shares of the
Corporation’s common stock in 1989 with the proceeds from a
$500 million note issue which was guaranteed by the
Corporation. The Corporation’s match consisted of shares of its
common stock, which was partially fulfilled with stock released
from the ESOP at approximately 2.2 million shares per year
based upon the debt repayment schedule which concluded in
May 2004. Compensation costs recognized relative to the ESOP
shares were $56 million, $108 million and $134 million in 2004,
2003 and 2002, respectively. The remainder of the Corporation’s
match to the Salaried Savings Plan was fulfilled through pur-
chases of common stock from participant account balance re-
allocations or through newly issued shares from the Corporation.
Interest incurred on the ESOP debt totaled $1 million, $5 mil-
lion and $10 million in 2004, 2003 and 2002, respectively. The
ESOP held approximately 46.2 million issued shares of the
Corporation’s common stock at December 31, 2004, all of which
were allocated to participant accounts. Unallocated common
shares held by the ESOP were considered outstanding for vot-
ing and other Corporate purposes, but excluded from weighted
average outstanding shares in calculating earnings per share.
For 2004, 2003 and 2002, the weighted average unallocated
ESOP shares excluded in calculating earnings per share totaled
approximately 0.2 million, 2.0 million and 4.4 million common
shares, respectively.
Certain plans for hourly employees include a non-lever-
aged ESOP. In one such plan, the match is made, generally at
the election of the participant, in either the Corporation’s com-
mon stock or cash which is invested at the participant’s direction
in one of the plan’s other investment options. The Corporation’s
contributions to these plans were made through small amounts
of newly issued shares from the Corporation or cash con-
tributed to the ESOP trust which was used by the trustee, if so
elected, to purchase common stock from participant account
balance reallocations or in the open market for allocation to par-
ticipant accounts. This ESOP trust held approximately 3.0 mil-
lion issued and outstanding shares of common stock at
December 31, 2004.
Defined benefit pension plans, and retiree medical and life
insurance plans — Most employees are covered by defined ben-
efit pension plans, and certain health care and life insurance
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 certain retiree medical plans) established to pay future bene-
fits to eligible retirees and dependents. The Corporation uses
December 31 as its measurement date. Benefit obligations as of
the end of each year reflect assumptions in effect as of those
dates. Net pension and net retiree medical costs for each of the
years presented were based on assumptions in effect at the end
of the respective preceding year.
The following provides a reconciliation of benefit obliga-
tions, plan assets and funded status of the plans:
Defined Retiree Medical
Benefit and Life
Pension Plans Insurance Plans
(In millions) 2004 2003 2004 2003
CHANGE IN BENEFIT
OBLIGATIONS
Benefit obligations at
beginning of year $24,364 $21,918 $ 3,810 $ 3,316
Service cost 743 640 49 40
Interest cost 1,497 1,453 225 211
Benefits paid (1,326) (1,296) (355) (344)
Actuarial losses 1,731 1,603 7424
Amendments 646 (2) 80
Divestitures ———3
Participants’ contributions ——93 80
Benefit obligations at
end of year $27,015 $24,364 $ 3,827 $ 3,810
CHANGE IN PLAN ASSETS
Fair value of plan assets
at beginning of year $20,913 $17,661 $ 1,135 $ 906
Actual return on plan assets 2,047 3,876 150 216
Benefits paid (1,326) (1,296) (355) (343)
Corporation’s contributions 505 669 457 276
Participants’ contributions ——93 80
Divestitures —3——
Fair value of plan assets
at end of year $22,139 $20,913 $ 1,480 $ 1,135
Unfunded status of the plans $ (4,876) $ (3,451) $(2,347) $(2,675)
Unrecognized net
actuarial losses 6,603 5,486 1,008 1,122
Unrecognized prior
service cost 461 534 103 113
Unrecognized transition asset —(1) ——
Net amount recognized $ 2,188 $ 2,568 $(1,236) $(1,440)
Lockheed Martin Corporation
59