RESTRUCTURING AND RELATED CHARGES

The Company implemented several restructuring plans in the past few years. The goal of these plans was to bring operational expenses to appropriate levels relative to its net revenues, while simultaneously implementing extensive company-wide expense control programs.

The Company accounts for its restructuring plans under the authoritative guidance for exit or disposal activities. The restructuring and asset impairment charges are included in “Product cost of revenue” and “Operating expenses-restructuring and related charges” in the Condensed Consolidated Statements of Operations. The following table summarizes the restructuring and asset impairment charges (in thousands):



	Three months ended					Nine months ended
	September 30, 2016			October 2, 2015		September 30, 2016			October 2, 2015
Restructuring and asset impairment charges in:
Product cost of revenue	$	(1	)	$	113	$	(24	)	$	113
Operating expenses-Restructuring and related charges	(27		)	397		4,488			626
Total restructuring and related charges	$	(28	)	$	510	$	4,464		$	739

Harmonic 2016 Restructuring

In the first quarter of 2016, the Company implemented a new restructuring plan (the “Harmonic 2016 Restructuring Plan”) to streamline the corporate organization, thereby reducing operating costs by consolidating duplicative resources in connection with the acquisition of TVN. The planned activities have primarily resulted, and will primarily result, in cash expenditures related to severance and related benefits and exiting certain operating facilities and disposing of excess assets. In the second quarter of 2016, as part of the Company’s 2016 restructuring initiative, the Company also initiated a voluntary departure plan in France to streamline the organization of the TVN French Subsidiary (the “TVN VDP”). The Company anticipates incurring approximately $31 million to $33 million restructuring and TVN acquisition- and integration-related expenses, in aggregate, including the TVN VDP expenses, primarily in 2016. These activities are expected to take at least 12 months to complete. Approximately $3 million of the anticipated restructuring expenses is non-cash related and the majority of the remaining cash amounts are expected to be paid in 2016. The Company has estimated synergies from these restructuring activities and the TVN integration effort to be approximately $24 million to $25 million on an annualized basis.

The Company recorded $(28,000) and $4.5 million of restructuring and related charges under the Harmonic 2016 Restructuring Plan, in the three and nine months ended September 30, 2016, respectively. The restructuring and related charges in the nine months ended September 30, 2016 consisted of $1.4 million of costs related to the Company exiting an excess facility at its U.S. headquarters and $3.1 million of severance and benefits for the termination of 22 employees worldwide. The Company incurred $5.3 million and $11.8 million of TVN acquisition- and integration-related expenses in the three and nine months ended September 30, 2016, respectively. (See Note 3, “Business Acquisition” for additional information on TVN acquisition-and integration-related expenses). No charges were recorded for the TVN VDP in the three and nine months ended September 30, 2016 as none of the employee voluntary termination applications had been approved, and final acceptance by the employees had not occurred as of September 30, 2016.

TVN VDP

In the second quarter of 2016, the Company initiated a consultative process with the works council for the French Subsidiary and applicable union representatives to establish a voluntary departure plan to enable French employees of TVN to voluntarily terminate with certain benefits. The Company finalized the consultation process and the terms of the voluntary departure plan in the third quarter of 2016. Following approval of the TVN VDP by the applicable French authorities in September 2016, employees were invited to apply for the voluntary termination benefits detailed in the TVN VDP. Employee applications are subject to approval by the Company, and the termination benefits are subject to final acceptance by the employees, and such steps are expected to be fully completed by December 31, 2016. Upon such approval and acceptance, the Company will also settle its retirement obligations under the TVN defined benefit pension plan for the terminating employees through payment of these obligations and/or voluntary termination benefits (See Note 12, “Employee Benefit Plans and Stock-based Compensation”).

The Company accounts for these special termination benefits in accordance with ASC 712, “Compensation - Nonretirement Postemployment Benefits,” which requires that the special termination benefits be recognized as a liability and a loss beginning when an employee accepts the offer of voluntary termination and the amount can be reasonably estimated. Where an employee is required to work beyond a minimum statutory notice period, the cost of the special termination benefit is recognized as an expense over the employee’s remaining service period. Where the employee is not required to work beyond a minimum statutory notice period, the cost of the special termination benefit is recognized upon the date the employee accepts the offer of voluntary termination, provided that the amount of the benefit can be estimated.

As of the September 30, 2016, none of the employee applications had been approved, and final acceptance by the employees had not occurred. Accordingly, the Company did not record any charges relating to the special termination benefits in the three and nine months ended September 30, 2016. The Company anticipates the total termination benefits, net of the amounts expected to be settled under the TVN defined benefit pension plan for the employees who applied for the TVN VDP as of September 30, 2016, will amount to approximately $11 million which it expects to expense in the fourth quarter of 2016 and the first three quarters of 2017. The Company anticipates more employees will apply for the TVN VDP in the fourth quarter of 2016.

Excess Facility in San Jose, California

In January 2016, the Company exited an excess facility at its U.S. headquarters in San Jose, California and recorded $1.4 million in facility exit costs. The Company accounts for facility exit costs in accordance with ASC 420, “Exit or Disposal Cost Obligations”, which requires that a liability for such costs be recognized and measured initially at fair value on the cease-use date based on remaining lease rentals, adjusted for the effects of any prepaid or deferred items recognized, reduced by the estimated sublease rentals that could be reasonably obtained even if it is not the intent to sublease. The fair value of these liabilities is based on a net present value model using a credit-adjusted risk-free rate. The liability will be paid out over the remainder of the leased properties’ terms, which continue through August 2020. Actual sublease terms may differ from the estimates originally made by the Company. Any future changes in the estimates or in the actual sublease income could require future adjustments to the liabilities, which would impact net income in the period the adjustment is recorded. As of the cease-use date, the fair value of this restructuring liability totaled $2.5 million. Offsetting these charges was an adjustment for deferred rent liability relating to this space of $1.1 million.

The following table summarizes the activity in the Company’s restructuring accrual related to the Harmonic 2016 Restructuring Plan during the nine months ended September 30, 2016 (in thousands):



	Excess facilities			Severance and benefits (1)			Other charges			Total
Charges for 2016 Harmonic Restructuring Plan	$	1,445		$	3,171		$	246		$	4,862
Adjustments to restructuring provisions	—			(87		)	—			(87		)
Reclassification of deferred rent	1,087			—			—			1,087
Cash payments	(705		)	(3,061		)	—			(3,766		)
Non-cash write-offs	—			—			(246		)	(246		)
Foreign exchange gain (loss)	—			(12		)	—			(12		)
Balance at September 30, 2016	$	1,827		$	11		$	—		$	1,838

(1) The Company anticipates that the remaining severance and benefits accrual at September 30, 2016 will be fully paid by the first quarter of 2017.

Harmonic 2015 Restructuring

In the fourth quarter of 2014, the Company implemented a restructuring plan (the “Harmonic 2015 Restructuring Plan”) to reduce 2015 operating costs and the planned restructuring activities involve headcount reduction, exiting certain operating facilities and disposing of excess assets. The Company recorded $2.2 million and $1.5 million of restructuring and impairment charges under the Harmonic 2015 Restructuring Plan in fiscal 2014 and 2015, respectively, consisting primarily of severance and benefits for the termination of 56 employees worldwide as well as a fixed asset impairment charge related to software development costs incurred for a discontinued information technology (“IT”) project. No new activities are anticipated in 2016 for the Harmonic 2015 Restructuring Plan and the remaining restructuring accrual for this plan is expected to be fully settled in the fourth quarter of 2016.

The following table summarizes the activity in the Company’s restructuring accrual related to the Harmonic 2015 Restructuring Plan during the nine months ended September 30, 2016 (in thousands):



	Severance and benefits (2)
Balance at December 31, 2015	$	264
Adjustments to restructuring provisions	(65		)
Cash payments	(194		)
Balance at September 30, 2016	$	5

(2) The Company anticipates that the remaining restructuring accrual as of September 30, 2016 will be fully paid by the end of 2016.