Lockheed Martin 2015 Annual Report Download - page 112

under the guarantees. In determining our exposures, we evaluate the reputation, technical capabilities and credit quality of
our current and former venture partners. There were no material amounts recorded in our financial statements related to
third-party guarantees.
United Launch Alliance
In connection with our 50% ownership interest of ULA, we and The Boeing Company (Boeing) are required to provide
ULA an additional capital contribution if ULA is unable to make required payments under its inventory supply agreement
with Boeing. As of December 31, 2015, ULA’s total remaining obligation to Boeing under the inventory supply agreement
was $120 million. The parties have agreed to defer the remaining payment obligation, as it is more than offset by other
commitments to ULA. Accordingly, we do not expect to be required to make a capital contribution to ULA under this
agreement.
In addition, both we and Boeing have cross-indemnified each other for guarantees by us and Boeing of the performance
and financial obligations of ULA under certain launch service contracts. We believe ULA will be able to fully perform its
obligations, as it has done through December 31, 2015, and that it will not be necessary to make payments under the cross-
indemnities or guarantees.
Our 50% ownership share of ULA’s net assets exceeded the book value of our investment by approximately
$395 million (of which approximately $40 million remains at December 31, 2015 that will be amortized in 2016). This yearly
amortization and our share of ULA’s net earnings are reported as equity in net earnings (losses) of equity investees in other
income, net on our Statements of Earnings. Our investment in ULA totaled $748 million and $706 million at December 31,
2015 and 2014.
Note 15 – Restructuring Charges
2015 Actions
During 2015, we recorded severance charges totaling $102 million, of which $67 million related to our MST business
segment and $35 million related to our IS&GS business segment (prior to realignment). These charges reduced our 2015 net
earnings by $66 million ($.21 per share). These severance actions resulted from a review of future workload projections and
to reduce our overhead costs in order to improve the affordability of our products and services. The charges consisted of
severance costs associated with the planned elimination of certain positions through either voluntary or involuntary actions.
Upon separation, terminated employees will receive lump-sum severance payments primarily based on years of service, the
majority of which are expected to be paid over the next several quarters. As of December 31, 2015, we have paid
approximately $18 million in severance payments associated with these actions.
In connection with the Sikorsky acquisition, we assumed obligations related to certain restructuring actions committed to
by Sikorsky in June 2015. These actions included a global workforce reduction of approximately 1,400 production-related
positions and facilities consolidations. As of December 31, 2015, accrued restructuring costs associated with these actions are
approximately $15 million, all of which are expected to be paid in 2016. Net of amounts we anticipate to recover through the
pricing of our products and services to our customers, we also expect to incur an additional $40 million of costs in 2016
related to these actions.
2013 Actions
During 2013, we recorded charges related to certain severance actions totaling $201 million, of which $83 million,
$37 million and $81 million related to our IS&GS, MST and Space Systems business segments (prior to realignment). These
charges reduced our 2013 net earnings by $130 million ($.40 per share) and primarily related to a plan we committed to in
November 2013 to close and consolidate certain facilities and reduce our total workforce by approximately 4,000 positions.
These charges also include $30 million related to certain severance actions that occurred in the first quarter of 2013, which
were subsequently paid in 2013.
The November 2013 plan resulted from a strategic review of these businesses’ facility capacity and future workload
projections. Upon separation, terminated employees receive lump-sum severance payments primarily based on years of
service. As of December 31, 2015, we have paid approximately $153 million in severance payments associated with this
action, of which approximately $46 million, $92 million and $15 million was paid in 2015, 2014 and 2013, respectively. The
remaining severance payments are expected to be paid in 2016.
We also expect to incur accelerated costs (e.g., accelerated depreciation expense related to long-lived assets at sites
closed) and incremental costs (e.g., relocation of equipment and other employee related costs) of approximately $10 million,
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