Lockheed Martin 2015 Annual Report Download - page 104

expected funding contributions; (2) to ensure there is a high probability that each plan meets or exceeds our actuarial long-
term rate of return assumptions; and (3) to diversify assets to minimize the risk of large losses. The nature and duration of
benefit obligations, along with assumptions concerning asset class returns and return correlations, 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; 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 allocations of postretirement benefit plans be maintained within the
following approximate ranges:
Asset Class
Asset Allocation
Ranges
Cash and cash equivalents 0-20%
Equity 15-65%
Fixed income 10-60%
Alternative investments:
Private equity funds 0-15%
Real estate funds 0-10%
Hedge funds 0-20%
Commodities 0-25%
Fair value measurements – The rules related to accounting for postretirement benefit plans under GAAP require
certain fair value disclosures related to postretirement benefit plan assets, even though those assets are not included on our
Balance Sheets. The following table presents the fair value of the assets (in millions) of our qualified defined benefit pension
plans and retiree medical and life insurance plans by asset category and their level within the fair value hierarchy, which has
three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based
on quoted prices in active markets for identical assets, Level 2 refers to fair values estimated using significant other
observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.
December 31, 2015 December 31, 2014
Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Cash and cash equivalents (a) $ 2,658 $ 2,658 $ — $ — $ 2,968 $ 2,968 $ — $ —
Equity (a):
U.S. equity securities 4,790 4,771 19 — 6,431 6,363 67 1
International equity securities 6,121 6,087 24 10 5,566 5,525 31 10
Commingled equity funds 1,935 614 1,321 — 6,078 2,047 4,031 —
Fixed income (a):
Corporate debt securities 3,929 — 3,914 15 4,242 — 4,201 41
U.S. Government securities 5,069 — 5,069 — 4,579 — 4,579 —
U.S. Government-sponsored
enterprise securities 1,377 — 1,377 — 613 — 613 —
Other fixed income investments 3,252 — 3,246 6 1,807 39 1,759 9
Alternative investments:
Private equity funds 3,131 — — 3,131 2,952 — — 2,952
Real estate funds 1,108 — 92 1,016 762 — 33 729
Hedge funds 522 — 167 355 570 — 66 504
Commodities (a) (26) 1 (27) — 22——
Total $33,866 $14,131 $15,202 $4,533 $36,570 $16,944 $15,380 $4,246
Receivables, net 43 35
Total $33,909 $36,605
(a) Cash and cash equivalents, equity securities, fixed income securities and commodities included derivative assets and liabilities whose
fair values were not material as of December 31, 2015 and 2014. LMIMCO’s investment policies restrict the use of derivatives to
either establish long exposures for purposes of expediency or capital efficiency or to hedge risks to the extent of a plan’s current
exposure to such risks. Most derivative transactions are settled on a daily basis.
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