Lockheed Martin 2005 Annual Report Download - page 67

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   
Lockheed฀Martin฀Corporation
Lockheed฀ Martin฀ Investment฀ Management฀ Company฀
(LMIMCO),฀ a฀ wholly-owned฀ subsidiary฀ of฀ the฀ Corporation,฀
has฀ the฀ fiduciary฀ responsibility฀ for฀ making฀ investment฀ deci-
sions฀related฀to฀the฀assets฀of฀the฀Corporation’s฀defined฀benefit฀
pension฀ plans฀ and฀ retiree฀ medical฀ and฀ life฀ insurance฀ plans.฀
LMIMCO’s฀investment฀objectives฀for฀the฀assets฀of฀the฀defined฀
benefit฀pension฀plans฀are฀to฀minimize฀the฀net฀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฀correlations,฀are฀considered฀when฀determining฀an฀appro-
priate฀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฀liquid-
ity฀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 ฀ 0–25%
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฀alterna-
tive฀ 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฀lim-
itations฀and฀constraints,฀including฀a฀maximum฀notional฀value฀
of฀futures฀of฀no฀more฀than฀5%฀of฀plan฀assets.฀
Equity฀ securities฀purchased฀by฀external฀investment฀man-
agers฀and฀included฀in฀the฀assets฀of฀the฀defined฀benefit฀pension฀
plans฀ included฀ issued฀ and฀ outstanding฀ common฀ stock฀ of฀ the฀
Corporation฀in฀the฀amounts฀of฀$11฀million฀(less฀than฀0.05%฀of฀
total฀plan฀assets)฀and฀$16฀million฀(less฀than฀0.08%฀of฀total฀plan฀
assets)฀ at฀ December฀ 31,฀ 2005฀ and฀ 2004,฀ respectively.฀ Equity฀
securities฀included฀in฀the฀assets฀of฀the฀retiree฀medical฀and฀life฀
insurance฀plans฀included฀less฀than฀$1฀million฀(less฀than฀0.07%฀
of฀total฀plan฀assets)฀of฀the฀Corporation’s฀issued฀and฀outstand-
ing฀common฀stock฀at฀both฀December฀31,฀2005฀and฀2004.
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.฀The฀
Corporation฀ made฀ discretionary฀ prepayments฀ totaling฀ $980฀
million฀ in฀ 2005฀ to฀ the฀ defined฀ benefit฀ pension฀ plans’฀ trust฀
which฀will฀reduce฀its฀cash฀funding฀requirements฀for฀2006.฀In฀
2006,฀ the฀ Corporation฀ expects฀ to฀ contribute฀ $100฀ million—
$110฀million฀to฀its฀defined฀benefit฀pension฀plans฀and฀$230฀mil-
lion—$240฀ million฀ to฀ its฀ retiree฀ medical฀ and฀ life฀ insurance฀
plans,฀after฀giving฀consideration฀to฀the฀2005฀prepayments.฀
The฀ following฀ benefit฀ payments,฀ which฀ reflect฀ expected฀
future฀service,฀as฀appropriate,฀are฀expected฀to฀be฀paid:
(In฀millions) Pension฀Benefits Other฀Benefits
2006 $1,380 $฀ 260
2007 1,430 260
2008 1,490 270
2009 1,550 270
2010 1,610 270
Years฀2011–2015 9,190 1,340
The฀ Corporation฀ sponsors฀ nonqualified฀ defined฀ benefit฀
plans฀ to฀ provide฀ benefits฀ in฀ excess฀ of฀ qualified฀ plan฀ limits.฀
The฀aggregate฀liabilities฀for฀these฀plans฀at฀December฀31,฀2005฀
were฀approximately฀$450฀million.฀The฀expense฀associated฀with฀
these฀ plans฀ totaled฀ $58฀ million฀ in฀ 2005,฀ $61฀ million฀ in฀ 2004฀
and฀$60฀million฀in฀2003.฀The฀Corporation฀also฀sponsors฀a฀small฀
number฀ of฀ foreign฀ benefit฀ plans.฀ The฀ liabilities฀ and฀ expenses฀
associated฀with฀these฀plans฀are฀not฀material฀to฀the฀Corporation’s฀
results฀of฀operations,฀financial฀position฀or฀cash฀flows.