12.Severance, Impairment and Other Charges

During the third quarter of fiscal 2016, we announced a financial improvement plan that resulted in a reduction in global headcount of approximately 11%. This plan was implemented to re-align our fixed costs with our near-term to mid-term expectations for our business. In addition, during the first quarter of fiscal 2017, we decided to terminate production and marketing of a specific product line due to limitations in its design. Since this decision was made, we have written off $293,000, net related to inventory and impaired certain customer receivable balances in the amount of $127,000. We have substantially completed the plan that was announced; as of December 31, 2017, we have incurred total pre-tax cash and non-cash charges relating to the original restructuring plan, as well as the additional charges from the terminated product line, of $3,534,000.

In July 2017, we announced that we had entered into an agreement to settle the civil suit that was filed by 3CEMS, a Cayman Island and People’s Republic of China corporation, in January 2015 (see Note 17, “Commitments and Contingencies – Legal Proceedings” for further discussion). The settlement of $1,000,000 was recorded as a liability in fiscal 2017.

In January 2018, a judge in a trade secrets case brought by Perceptron granted the defendants’ motions for recovery of their attorney fees (see Note 19, “Subsequent Events” for further discussion relating to this matter). A charge in the amount of $675,000 was recorded as a liability at December 31, 2017.

The charges recorded as Severance, Impairment and Other Charges are as follows (in thousands):



	Three Months Ended December 31,				Six Months Ended December 31,
	2017		2016		2017		2016
Severance and Related Costs	$	(17)	$	61	$	(13)	$	175
Court Award		675		-		675		-
Impairment		-		-		(42)		145
Inventory Write-Off		-		-		(14)		397
Total	$	658	$	61	$	606	$	717

Severance income for the three months ended December 31, 2017 was primarily associated with an adjustment at our Chinese location.

Severance expense for the three months ended December 31, 2016 was associated with an adjustment at our U.S. location.

Severance income for the six months ended December 31, 2017 was associated with adjustments at our China (income of $15,000) and U.S. (expense of $2,000) locations as we reached final settlements related to several individuals impacted by the reduction in force. The decrease in the impairment for the six months ended December 31, 2017 was due to a collection of an accounts receivable balance that was previously written off. The decrease of the inventory write-off was due to finding other uses for some of the inventory originally designated as impaired.

Severance expense (income) for the six months ended December 31, 2016 was associated with adjustments at our U.S. (expense of $171,000), Chinese (expense of $82,000) and German (income of $78,000) locations, as we reached final settlements related to several individuals impacted by the reduction in force.

The following table reconciles the activity for the Reserves for Restructuring and Other Charges (in thousands):



	2017		2016
Beginning Balance at July 1,	$	1,113	$	814
Accruals - Severance Related		(13)		175
Accruals - Court Award		675		-
Payments		(531)		(676)
Ending Balance at December 31,	$	1,244	$	313

The remaining accrued balance at December 31, 2017 includes payments to be made related to our legal settlement with 3CEMS, which is expected to be paid out over the next 5 months and the China reduction in force, which is expected to be paid within our third quarter of fiscal 2018. Furthermore, due to our plans to appeal the court decisions in the trade secrets case, the timing of any payments related to this matter is unknown to us at this time.