Lockheed Martin 2003 Annual Report Download - page 64

Lockheed Martin Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
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medical trend rates would result in a change in the benefit obli-
gation of approximately 5% and (4)%, respectively, at
December 31, 2003, and a change in the 2003 post-retirement
service cost plus interest cost of approximately 5% and (4)%,
respectively. The medical trend rate for 2004 is 11.0%.
The asset allocations of the Corporation’s plans at December 31,
2003 and 2002, by asset category, were as follows:
Defined Retiree Medical
Benefit and Life
Pension Plans Insurance Plans
2003 2002 2003 2002
Asset category:
Equity securities 63% 52% 64% 59%
Debt securities 33 44 34 39
Other 4422
100% 100% 100% 100%
Lockheed Martin Investment Management Company
(LMIMCO), an investment adviser registered under the
Investment Advisers Act of 1940 and a wholly-owned subsidiary
of the Corporation, has the fiduciary responsibility for making
investment decisions related to the assets of the Corporation’s
defined benefit pension plans and retiree medical and life insur-
ance plans. LMIMCO’s investment objectives for the assets of
the defined benefit pension plans are to minimize the present
value of expected funding contributions and to meet or exceed
the rate of return assumed for plan funding purposes over the
long term. The investment objective for the assets of the retiree
medical and life insurance plans is to meet or exceed the rate of
return assumed for the plans for funding purposes over the long
term. The nature and duration of benefit obligations, along with
assumptions concerning asset class returns and return correla-
tions, are considered when determining an appropriate asset
allocation to achieve the investment objectives.
Investment policies and strategies governing the assets of
the plans are designed to achieve investment objectives within
prudent risk parameters. Risk management practices include
the use of external investment managers and the maintenance of
a portfolio diversified by asset class, investment approach and
security holdings, and the maintenance of sufficient liquidity to
meet benefit obligations as they come due.
LMIMCO’s investment policies require that asset alloca-
tions of defined benefit pension plans be maintained within the
following ranges:
Investment Groups Asset Allocation Ranges
Equity securities 35–70%
Non-U.S. equity securities 0–20%
Debt securities 10–60%
Cash 0–35%
Other 0–15%
Current policies for the plans target an asset mix of 65% in
total equity securities and 35% in debt and other securities.
Investment policies for all plans limit the use of alternative
investments and derivatives. Investments in alternative asset
classes or structures (e.g., real estate, private equity, hedge
funds and commodities) are limited to 15% of plan assets.
Investments in derivatives are subject to additional limitations
and constraints, including a maximum notional value of futures
of no more than 5% of plan assets. Use of derivatives to create
leverage is prohibited.
Equity securities purchased by external investment man-
agers and included in the assets of the defined benefit pension
plans included the Corporation’s common stock in the amounts
of $13.7 million (less than 0.07% of total plan assets) and $9.5
million (less than 0.06% of total plan assets) at December 31,
2003 and 2002, respectively. Equity securities included in the
assets of the retiree medical and life insurance plans included
the Corporation’s common stock in the amounts of $0.3 million
(less than 0.03% of total plan assets) and $1.4 million (less than
0.2% of total plan assets) at December 31, 2003, and 2002,
respectively.
The Corporation generally refers to U.S. Government Cost
Accounting Standards (CAS) and Internal Revenue Code rules
in determining funding requirements for its pension plans. In
December 2003, the Corporation made a discretionary pre-
payment of $450 million to the defined benefit plan pension
trust, the majority of which will reduce its cash funding require-
ments for 2004. In 2004, the Corporation expects to contribute
approximately $50 million–$60 million to its defined benefit
pension plans, after giving consideration to the 2003 prepay-
ment, and $310 million–$320 million to its retiree medical and
life insurance plans.