Lockheed Martin 2013 Annual Report Download - page 82

to, among other things, our compliance with various representations, warranties and covenants, including covenants limiting
our ability and certain of our subsidiaries’ ability to encumber assets and a covenant not to exceed a maximum leverage ratio,
as defined in the credit facility. The leverage ratio covenant excludes the adjustments recognized in stockholders’ equity
related to postretirement benefit plans. As of December 31, 2013, we were in compliance with all covenants contained in the
credit facility, as well as in our debt agreements.
We have agreements in place with financial institutions to provide for the issuance of commercial paper. There were no
commercial paper borrowings outstanding during 2013 or 2012. If we were to issue commercial paper, the borrowings would
be supported by the credit facility.
In April 2013, we repaid $150 million of long-term notes with a fixed interest rate of 7.38% due to their scheduled
maturities. During the next five years, we have scheduled long-term debt maturities of $952 million due in 2016. Interest
payments were $340 million in 2013, $378 million in 2012, and $326 million in 2011.
Note 10 – Postretirement Plans
Defined Benefit Pension Plans and Retiree Medical and Life Insurance Plans
Many of our employees are covered by qualified defined benefit pension plans, and we provide certain health care and
life insurance benefits to eligible retirees (collectively, postretirement benefit plans). We also sponsor nonqualified defined
benefit pension plans to provide for benefits in excess of qualified plan limits. Non-union represented employees hired after
December 2005 do not participate in our qualified defined benefit pension plans, but are eligible to participate in a qualified
defined contribution plan in addition to our other retirement savings plans. They also have the ability to participate in our
retiree medical plans, but we do not subsidize the cost of their participation in those plans as we do with employees hired
before January 1, 2006. Over the last few years, we have negotiated similar changes with various labor organizations such
that new union represented employees do not participate in our defined benefit pension plans. We have made contributions to
trusts established to pay future benefits to eligible retirees and dependents, 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. We
use December 31 as the measurement date. Benefit obligations as of the end of each year reflect assumptions in effect as of
those dates. Net periodic benefit cost is based on assumptions in effect at the end of the respective preceding year.
The rules related to accounting for postretirement benefit plans under GAAP require us to recognize on a plan-by-plan
basis the funded status of our postretirement benefit plans as either an asset or a liability on our Balance Sheets. There is a
corresponding non-cash adjustment to accumulated other comprehensive loss, net of tax benefits recorded as deferred tax
assets, in stockholders’ equity. The funded status is measured as the difference between the fair value of the plan’s assets and
the benefit obligation of the plan.
The net periodic benefit cost recognized each year included the following (in millions):
Qualified Defined
Benefit Pension Plans (a)
Retiree Medical and
Life Insurance Plans
2013 2012 2011 2013 2012 2011
Service cost $ 1,142 $ 1,055 $ 974 $27 $28 $32
Interest cost 1,800 1,884 1,918 116 131 162
Expected return on plan assets (2,485) (2,187) (2,033) (145) (131) (140)
Recognized net actuarial losses 1,410 1,116 880 44 32 34
Amortization of prior service cost (credit) and other 81 73 82 (17) (12) (16)
Total net periodic benefit cost $ 1,948 $ 1,941 $ 1,821 $25 $48 $72
(a) Total net periodic benefit cost associated with our qualified defined benefit plans represents pension expense calculated in accordance
with GAAP (FAS expense). We are required to calculate pension expense in accordance with both GAAP and CAS rules, each of
which results in a different calculated amount of pension expense. The CAS cost is recovered through the pricing of our products and
services on U.S. Government contracts and, therefore, is recognized in net sales and cost of sales for products and services. We
include the difference between FAS expense and CAS cost, referred to as the FAS/CAS pension adjustment, as a component of other
unallocated costs on our Statements of Earnings. The FAS/CAS pension adjustment, which was expense of $482 million in 2013,
$830 million in 2012, and $922 million in 2011, effectively adjusts the amount of CAS pension cost in the business segment operating
profit so that pension expense recorded on our Statements of Earnings is equal to FAS expense.
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