Note 8. Restructuring Charges and Exit Costs

12 Months Ended

Mar. 31, 2013

Restructuring and Related Activities Disclosure [Text Block]

NOTE 8.    RESTRUCTURING CHARGES AND EXIT COSTS

2013 Restructuring Charges and Exit Costs

During the fourth quarter of fiscal year 2013, we recorded $0.3 million restructuring charges and exit costs and released a $0.5 million liability related to Industrial Research Assistance Program (IRAP) with a Canadian governmental agency. In the third, second and first quarters of fiscal year 2013, we recorded restructuring charges and exit costs of $0.6 million, $0.3 million and $0.9 million, respectively. Of the total restructuring charges and exit costs recorded in fiscal year 2013, $0.3 million was reflected in cost of sales and $1.3 million was reflected in operating expenses within our consolidated statements of operations.

2012 Restructuring Charges and Exit Costs

In fiscal year 2012, we incurred restructuring charges and exit costs totaling $14.2 million, of which $13.9 million was recorded in the fourth quarter and $0.3 million was recorded in the first quarter. Of the total restructuring charges and exit costs, $1.3 million was reflected in cost of sales and $12.9 million was reflected in operating expenses within our consolidated statements of operations.

During the fourth quarter of fiscal year 2012, we implemented and completed reductions in force of approximately 173 positions across of all company functions. This action was intended to align our cost structure with revenues, reduce spending in operations and to cease development of certain products. The reduction in headcount was primarily associated with offices located in Fremont, California; Hangzhou, China; Ottawa, Ontario, Canada; Minneapolis, Minnesota; Raleigh, North Carolina; and San Diego, California. As part of the reduction activity, we terminated our development efforts in connection with our pre-production OTN and de-duplication products. The market for our OTN product was modest and the outlook to achieve meaningful revenue and a return on this investment was considered unlikely. As a result of the reduction activity in the fourth quarter of fiscal year 2012, we recorded a total charge for restructuring and exit costs of $13.9 million, which included a one-time severance charge of $4.2 million, lease contract termination costs and other costs of $7.0 million, lease abandonment charges of $0.8 million and accelerated amortization and depreciation charges of $1.9 million. We paid $1.4 million of the $4.2 million one-time severance charges in fiscal year 2012.

The lease contract termination costs and other costs of $7.0 million include: (1) costs associated with the termination of certain electronic design automated license agreements consisting of the accrual of future payments of $3.9 million, and the write off of prepaid training, maintenance and license fees of $2.6 million; and (2) costs associated with a Canadian governmental agency related to the Industrial Research Assistance Program (“IRAP”) tied to continued employment obligations of $0.5 million, which was waived as of March 31, 2013.

The lease abandonment charges of $0.8 million include future lease obligations, net of estimated rental income for vacated facilities in Ottawa, Canada, San Diego, California, Minneapolis, Minnesota and Raleigh, North Carolina, for leases that expire at various dates from June 2012 to January 2015. In light of local market conditions, we estimated that one of the facilities could be sublet within 12 months.

The accelerated amortization and depreciation charges of $1.9 million include $1.7 million related to termination of OTN and de-duplication products (See “Note 10 – Goodwill and Intangible Assets”) and $0.2 million related to certain property and equipment.

During the first quarter of fiscal year 2012, we incurred restructuring charges and exit costs of $0.3 million, which included a one-time severance charge of $0.1 million, lease contract termination costs of $0.1 million, and inventory write-off costs of $0.1 million.

2011 Restructuring Charges and Exit Costs

During the fourth quarter of fiscal year 2011, we decided to exit the data center virtualization market, and, in connection therewith, to stop development of our 10GbE network interface cards. We determined that the current economic and market environment did not provide the potential to deliver acceptable returns on the required investments in these products. As a result, in the fourth quarter of fiscal year 2011 we abandoned all related development of in-process research and development. In addition, we began to actively market for sale the related assets of our 10GbE technology, consisting primarily of underlying existing and core technology intangible assets. Charges related to this decision in the fourth quarter of fiscal year 2011 totaled approximately $11.1 million and included $7.5 million for the impairment of intangible assets, which is included within the impairment of intangible assets and goodwill line in our consolidated statements of operations, $2.1 million for the write-off of inventory, which is included within the cost of sales line in our consolidated statements of operations, and $1.2 million in severance related costs, which is included in operating expenses within our consolidated statements of operations. The majority of the severance related costs were paid out in fiscal year 2011.

The intangible asset impairment charge of $7.5 million consists of $0.8 million related to the write-off of abandoned IPR&D acquired in the Neterion acquisition and $6.7 million related to the write-down of the carrying value of intangible assets that were held for sale to $0.2 million at March 27, 2011, which represented their estimated fair value less costs to sell based on third-party bids received to date. In June 2011, we completed the asset sale process and received $0.2 million, net of selling costs.

During the quarter ended December 26, 2010, we vacated our facility in Framingham, Massachusetts and recorded a restructuring reserve of $134,000 for the remaining payments owed on this site.  The lease expired in November 2011. 

In connection with the Neterion acquisition in March 2010, we assumed a lease obligation for a facility in Sunnyvale, California. We vacated the facility in May 2010 and recorded a restructuring reserve of approximately $234,000, during the quarter ended June 27, 2010, for the remaining payments due on this site. The lease expired in August 2011. 

In connection with the acquisition of Sipex Corporation (“Sipex”) in August 2007, our management approved and initiated plans to restructure the operations of the combined company to eliminate certain duplicative activities, reduce costs and better align product and operating expenses with then current economic conditions. These costs were accounted for as liabilities assumed as part of the business combination in 2007. The costs remaining as of March 27, 2011 relate to office space in Belgium that has been vacated but is under lease until February 2012 and were $81,000. The lease expired in February 2012. 

Total restructuring charges and exit costs recorded in cost of sales and operating expenses within our consolidated statements of operations were $1.6 million, $14.2 million and $3.6 million for the fiscal years 2013, 2012 and 2011, respectively.

Our restructuring liabilities were included in other current liabilities and other non-current obligations line items in our consolidated balance sheets. The following table summarizes the activities affecting the liabilities as of the dates indicated below (in thousands):

	March 31, 2013
	Beginning balance		Additions/ adjustments		Non-cash charges			Payments			Ending balance
Lease termination costs and others	$	5,235	$	6	$	(56	)	$	(2,325	)	$	2,860
Severance		2,806		1,548		—			(3,928	)		426
Balance at March 31, 2013	$	8,041		1,554	$	(56	)	$	(6,253	)	$	3,286

	April 1, 2012
	Beginning balance		Additions/ adjustments		Non-cash charges			Payments			Ending balance
Lease termination costs and others	$	288	$	7,869	$	(2,566	)	$	(356	)	$	5,235
Severance		—		4,321		—			(1,515	)		2,806
Accelerated amortization and depreciation		—		1,883		(1,883	)		—			—
Inventory write-off		—		152		(152	)		—			—
Balance at April 1, 2012	$	288	$	14,225	$	(4,601	)	$	(1,871	)	$	8,041

See “Note 5—Balance Sheet Details” for current and long-term portion of restructuring charges and exit costs recorded in the consolidated balance sheets at March 31, 2013 and April 1, 2012.