Lockheed Martin 2015 Annual Report Download - page 100

On February 20, 2015, we issued $2.25 billion of notes (the February 2015 Notes) in a registered public offering. We
received net proceeds of $2.21 billion from the offering, after deducting discounts and debt issuance costs, which are being
amortized as interest expense over the life of the debt. The February 2015 Notes consist of $750 million maturing in 2025
with a fixed interest rate of 2.90%, $500 million maturing in 2035 with a fixed interest rate of 3.60% and $1.0 billion
maturing in 2045 with a fixed interest rate of 3.80%. We may, at our option, redeem some or all of the notes at any time by
paying the principal amount of notes being redeemed plus any make-whole premium and accrued and unpaid interest to the
date of redemption. Interest on the notes is payable on March 1 and September 1 of each year, beginning on September 1,
2015. These notes rank equally in right of payment with all of our existing unsecured and unsubordinated indebtedness. The
proceeds of the February 2015 Notes were used for general corporate purposes.
Commercial Paper
We have agreements in place with financial institutions to provide for the issuance of commercial paper. In connection
with the Sikorsky acquisition, in the fourth quarter of 2015 we borrowed and repaid approximately $1.0 billion under our
commercial paper programs. There were no commercial paper borrowings outstanding as of December 31, 2015. If we were
to issue commercial paper in the future, the borrowings would be supported by the credit facility.
Note 11 – 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 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. In June 2014, we amended certain of
our qualified and nonqualified defined benefit pension plans for non-union employees to freeze future retirement benefits.
The calculation of retirement benefits under the affected defined benefit pension plans is determined by a formula that takes
into account the participants’ years of credited service and average compensation. The freeze will take effect in two stages.
Beginning on January 1, 2016, the pay-based component of the formula used to determine retirement benefits is frozen so
that future pay increases, annual incentive bonuses or other amounts earned for or related to periods after December 31, 2015
are not used to calculate retirement benefits. On January 1, 2020, the service-based component of the formula used to
determine retirement benefits will also be frozen so that participants will no longer earn further credited service for any
period after December 31, 2019. When the freeze is complete, the majority of our salaried employees will have transitioned
to an enhanced defined contribution retirement savings plan. As part of the November 6, 2015 acquisition of Sikorsky, we
established a new open defined benefit pension plan for Sikorsky’s union workforce that provides benefits for their
prospective service with us. The Sikorsky salaried employees participate in a defined contribution plan. We did not transfer
any legacy pension liability from UTC.
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.
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