8-KLeadership ChangesCorporate ChangesExhibits & Filings

LOCKHEED MARTIN CORP 8-K Report, Executive Changes (Jun 24, 2011)

Filed June 24, 2011For Securities:LMT

Summary

This 8-K filing from Lockheed Martin Corporation (LMT) on June 24, 2011, primarily addresses two key areas: a correction related to the Deferred Management Incentive Compensation Plan (DMICP) and amendments to the company's bylaws. The DMICP issue involved inadvertent cash distributions to two executive officers in 2010, which were not in accordance with their deferral elections and Section 409A of the Internal Revenue Code. To rectify this, the affected executives must repay the distributed amounts with interest, and will incur personal income tax penalties. In response to the tax implications for the executives, particularly Ralph D. Heath, Lockheed Martin's Board of Directors authorized reimbursements for penalties and interest, along with a "gross-up" to cover taxes on these reimbursements. The company also authorized compensation for lost investment returns on taxes that must be repaid by the executives. The estimated cost for Mr. Heath alone is approximately $170,000. Additionally, the filing details significant amendments to the company's bylaws, impacting areas such as the authority to postpone stockholder meetings, procedural actions by the Chairman, election inspector appointments, director composition and retirement age, Audit Committee responsibilities, and appointment authorities for officers.

Key Highlights

  • 1Correction of DMICP distribution error requiring executive repayment and incurring tax penalties under Section 409A.
  • 2Board authorized reimbursement of penalties, interest, and a tax "gross-up" for affected executives due to the DMICP error.
  • 3Estimated cost of $170,000 for the reimbursement and related payments for one affected executive, Ralph D. Heath.
  • 4Amendments to bylaws clarifying meeting postponement procedures and Chairman's procedural powers.
  • 5Director retirement age increased from 72 to 75, with Board discretion for exemptions.
  • 6Bylaws updated to include Audit Committee oversight of Internal Audit VP's performance and compensation.
  • 7Bylaws amended to clarify CEO's authority for appointing VPs and Corporate Secretary's role in appointing officers and agents.

Frequently Asked Questions

Lockheed Martin inadvertently made cash distributions from the DMICP to two executive officers in 2010. These distributions were not in line with the executives' original deferral elections and violated provisions related to Section 409A of the Internal Revenue Code, requiring the executives to repay the distributed amounts with interest and face personal tax penalties.

The Board of Directors authorized Lockheed Martin to reimburse the affected executives for the penalties and interest they must pay due to the DMICP error. Furthermore, the company will provide an additional "gross-up" amount to cover the taxes on these reimbursed penalties and interest, effectively making the executives whole. Compensation for lost investment returns on taxes that need to be repaid by the executives is also being provided.

The amendments clarified procedures for postponing stockholder meetings, granted the Chairman more authority in procedural matters, and adjusted the appointment process for election inspectors. The bylaws also increased the mandatory retirement age for directors to 75, expanded the Audit Committee's responsibilities to include evaluating the Internal Audit VP, and refined the appointment authorities for various executive and corporate officer roles.

For one of the affected executives, Ralph D. Heath, the total estimated cost of the reimbursement, tax gross-up, and other related payments is approximately $170,000. The total cost for both executives was not explicitly stated, but this figure provides a concrete example of the company's financial commitment to rectifying the situation.