Lockheed Martin 2002 Annual Report Download - page 65

SEVENTY-TWO
Lockheed Martin Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002
$10.1 billion, respectively, at December 31, 2002, and $482
million and $421 million, respectively, at December 31, 2001.
At December 31, 2002, substantially all of the Corporation’s
plans had projected benefit obligations in excess of plan assets
as reflected in the table above.
The net pension cost as determined by FAS 87, “Employers’
Accounting for Pensions,” and the net post-retirement benefit
cost as determined by FAS 106, “Employers’ Accounting for
Post-retirement Benefits Other Than Pensions,” related to the
Corporation’s plans include the following components:
(In millions) 2002 2001 2000
DEFINED BENEFIT PENSION PLANS
Service cost $ 565 $ 523 $ 517
Interest cost 1,401 1,357 1,372
Expected return on plan assets (2,162) (2,177) (2,130)
Amortization of prior service cost 72 64 75
Recognized net actuarial gains (33) (117) (143)
Amortization of transition asset (3) (4) (4)
Curtailment loss(a) ——11
Total net pension income $(160) $(354) $ (302)
RETIREE MEDICAL AND LIFE
INSURANCE PLANS
Service cost $37$41$38
Interest cost 213 211 198
Expected return on plan assets (89) (99) (105)
Amortization of prior service cost (4) (5) (12)
Recognized net actuarial
losses (gains) 20 9(11)
Curtailment gain(a) ——(87)
Total net post-retirement cost $ 177 $ 157 $ 21
(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 actuarial assumptions 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, are as follows:
2002 2001 2000
Discount rates 6.75% 7.25% 7.50%
Expected long-term rates of
return on assets 9.50(a) 9.50 9.50
Rates of increase in future
compensation levels 5.50 5.50 5.50
(a) The expected long-term rate of return on plan assets for deter-
mining the 2003 net pension and post-retirement costs was
lowered to 8.50%.
The decrease in the discount rate from 7.25% at
December 31, 2001 to 6.75% at December 31, 2002 resulted
in an increase in the December 31, 2002 benefit obligation of
$1.2 billion.
The medical trend rates used in measuring the post-retire-
ment benefit obligation were 9.1% in 2002 and 8.2% in 2001,
and were assumed to ultimately decrease to 4.5% by the year
2011. An increase or decrease of one percentage point in the
assumed medical trend rates would result in a change in the
benefit obligation of approximately 4.7% and (4.2)%, respec-
tively, at December 31, 2002, and a change in the 2002 post-
retirement service cost plus interest cost of approximately
4.4% and (3.9)%, respectively. The medical trend rate for
2003 is 10.0%.
The Corporation sponsors nonqualified defined benefit
plans to provide benefits in excess of qualified plan limits. The
expense associated with these plans totaled $54 million in
2002, $47 million in 2001 and $43 million in 2000.
NOTE 14—LEASES
Total rental expense under operating leases was $235 mil-
lion, $223 million and $232 million for 2002, 2001 and
2000, respectively.
Future minimum lease commitments at December 31, 2002
for all operating leases that have a remaining term of more than
1 year were approximately $1 billion ($222 million in 2003,
$189 million in 2004, $167 million in 2005, $130 million in
2006, $106 million in 2007 and $228 million in later years).
Certain major plant facilities and equipment are furnished by the
U.S. Government under short-term or cancelable arrangements.
NOTE 15—COMMITMENTS AND CONTINGENCIES
The Corporation or its subsidiaries are parties to or have prop-
erty subject to litigation and other proceedings, including mat-
ters arising under provisions relating to the protection of the
environment. In the opinion of management 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 operations, financial position or cash
flows. These matters include the following items:
Environmental matters—The Corporation is responding to
three administrative orders issued by the California Regional