Question

M10-21. Analyzing and Interpreting Pension Plan Benefit Footnotes Lockheed Martin Corporation discloses the following funded status for its defined benefit pension plans in its 10-K report, LO2 Lockheed Martin Corporation (LMT) Defined Benefit Pension Plans ($ millions) 2015 Unfunded status of the plans...... .......... $(11,606)

Answer 1

1) Since funded status is negative $(11,606), which is negative thus indicates an underfunded pension plan. Under current GAAP, it would be reported as a liability on Lockheed’s balance sheet

2) As the funded status is negative thus indicates that the PV of expected pension benefit payments to retirees would exceed the current available funds to pay these benefits. The long-term liability need to be treated no differently from other debt obligations. Thus our analysis focuses on the ability of the company to repay it's obligations when it mature

3) The pension assets make payments to retirees. The plans of Lockheed’s are substantially underfunded. Should the pension investments decrease due to a fall in the financial markets, the pension plan becomes more underfunded; consequently Lockheed would need to increase the cash contribution towards the pension plan. Lockheed's contribution would be raised from operating borrowing and/or cash flow and there is a possibility that it impact its ability to fund required for capital expenditures.