Restructuring and Exit Costs

The Company has initiated a restructuring plan to consolidate U.S. manufacturing operations and to reduce headcount and operating expenses in order to align the Company’s cost structure with the current business forecast and to improve operational efficiency. The plan also includes the potential divestiture of a product line. In connection with the restructuring plan, the Company expects to incur total restructuring and related charges of approximately $3.8 million. The anticipated charges include $2.1 million in facilities costs related to the consolidation of manufacturing operations, $1.2 million in employee severance costs, $375,000 in accelerated equipment depreciation expense and $125,000 in relocation costs. Upon completion of the plan, which is anticipated to be by the end of the first quarter of 2016, total cash expenditures related to restructuring activities are expected to be approximately $2.2 million. During the three and nine months ended September 30, 2015, the Company paid $650,000 and $768,000, respectively, in restructuring expenses.

The Company accounts for charges resulting from restructuring and exit activities in accordance with ASC Topic 420, Exit or Disposal Cost Obligations (“ASC 420”), and, ASC Topic 712, Compensation-Nonretirement Postemployment Benefits (“ASC 712”) for employee termination benefits to be paid in accordance with its ongoing employee termination benefit arrangement.

In June 2015, the Company had ceased use of approximately 60,000 square feet of its Peoria, AZ manufacturing facility, and determined this leased space would have no future economic benefit to the Company based on the current business forecast. As a result, in June 2015, the Company recorded a liability for the future rent obligation associated with this space, net of estimated sublease income, in accordance with ASC Topic 420. The liability recorded related to the exit of this leased space was $1.2 million, before tax, and is a component of the total expected restructuring charge.

Restructuring charges for the three and nine months ended September 30, 2015 included $56,000 and $1.1 million, respectively, in employee severance costs for work force reductions. This amount included planned severance payments to be paid in consideration of past employee services under the Company’s ongoing employee termination benefit arrangement, which were probable of incurrence and estimable as of September 30, 2015.

For the three and nine months ended September 30, 2015, the Company recorded total charges related to its restructuring plan of $56,000 and $2.3 million, respectively, within "restructuring and exit costs", and recorded $125,000 and $310,000, respectively, of accelerated depreciation expense, within “cost of revenue”, in the condensed consolidated statements of operations. As of September 30, 2015, the Company had a $419,000 liability associated with employee severances recorded in “accrued employee compensation”, $277,000 of lease obligation costs recorded within “other current liabilities” and $845,000 of lease obligation costs recorded within "other long term liabilities” in the consolidated balance sheet.

The following table summarizes the restructuring and exit costs for the nine months ended September 30, 2015 (in thousands):



	Employee Severance Costs			Lease Obligation Costs			Other Exit Costs		Total
Costs incurred for the quarter ended June 30, 2015	$	1,132		$	1,208		$	—	$	2,340
Amounts paid for the quarter ended June 30, 2015	(118		)	—			—		(118		)
Amounts reserved at June 30, 2015	1,014			1,208			—		2,222
Additional costs incurred for the quarter ended September 30, 2015	149			—			—		149
Amounts paid for the quarter ended September 30, 2015	(650		)	—			—		(650		)
Amounts released and other non-cash adjustments for the quarter ended September 30, 2015	(93		)	(86		)	—		(179		)
Amounts reserved at September 30, 2015	$	420		$	1,122		$	—	$	1,542