Note 7: Severance, Restructuring, and Acquisition Integration Activities

Productivity Improvement Program and Acquisition Integration

In 2014, we began a productivity improvement program and the integration of our acquisition of Grass Valley. The productivity improvement program focused on improving the productivity of our sales, marketing, finance, and human resources functions relative to our peers. The majority of the costs for the productivity improvement program related to the Industrial Connectivity, Enterprise, and Industrial IT segments. The restructuring and integration activities related to our acquisition of Grass Valley focused on achieving desired cost savings by consolidating existing and acquired operating facilities and other support functions. The Grass Valley costs relate to our Broadcast segment. We substantially completed the productivity improvement program and the integration activities in the second fiscal quarter of 2015.

In the three months ended September 27, 2015 and September 28, 2014, we recorded severance, restructuring, and integration costs of $0.1 million and $9.2 million, respectively, related to these two significant programs, as well as other cost reduction actions and the integration of our acquisitions of ProSoft, Coast, and Tripwire. We recorded $19.5 million and $48.8 million of such costs in the nine months ended September 27, 2015 and September 28, 2014, respectively.

Grass Valley Restructuring Program

Our Broadcast segment has been negatively impacted by a decline in sales volume for our broadcast technology infrastructure products sold by our Grass Valley brand. Outside of the U.S., demand for these products has been impacted by the relative price increase of our products due to the strengthened U.S. dollar as well as the impact of lower energy prices, which result in lower capital spending. Within the U.S., demand for these products has been impacted by deferred capital spending. We believe broadcast customers have deferred their capital spending as they navigate through a number of important industry transitions and a changing media landscape. In response to these current broadcast market conditions, we began to execute a restructuring program beginning in the third fiscal quarter of 2015 to further reduce our cost structure. We recognized approximately $14.0 million of severance and other restructuring costs for this program for both the three and nine months ended September 27, 2015. We expect to incur approximately $16 million of additional severance and other restructuring costs for this program, the majority of which will be incurred in the fourth fiscal quarter of 2015. We expect the restructuring program to generate approximately $30 million of savings on an annualized basis, which we will begin to realize in the fourth fiscal quarter of 2015.

The following table summarizes the costs by segment of the various programs described above:


Three Months Ended September 27, 2015	Severance		Other Restructuring and Integration Costs		Total Costs
	(In thousands)

Broadcast Solutions	$	11,978	$	1,744	$	13,722
Enterprise Connectivity Solutions		99		93		192
Industrial Connectivity Solutions		-		118		118
Industrial IT Solutions		-		54		54
Network Security Solutions		-		57		57

Total	$	12,077	$	2,066	$	14,143


Three Months Ended September 28, 2014

Broadcast Solutions	$	54	$	5,740	$	5,794
Enterprise Connectivity Solutions		(347)		573		226
Industrial Connectivity Solutions		1,282		824		2,106
Industrial IT Solutions		823		209		1,032
Network Security Solutions		-		-		-

Total	$	1,812	$	7,346	$	9,158


Nine Months Ended September 27, 2015

Broadcast Solutions	$	12,691	$	15,852	$	28,543
Enterprise Connectivity Solutions		171		661		832
Industrial Connectivity Solutions		967		2,087		3,054
Industrial IT Solutions		(740)		742		2
Network Security Solutions		-		1,102		1,102

Total	$	13,089	$	20,444	$	33,533


Nine Months Ended September 28, 2014

Broadcast Solutions	$	18,156	$	16,605	$	34,761
Enterprise Connectivity Solutions		1,245		802		2,047
Industrial Connectivity Solutions		9,393		857		10,250
Industrial IT Solutions		1,409		342		1,751
Network Security Solutions		-		-		-

Total	$	30,203	$	18,606	$	48,809

Of the total severance, restructuring, and acquisition integration costs recognized in the three months ended September 27, 2015, $3.2 million, $9.3 million, and $1.6 million were included in cost of sales; selling, general and administrative expenses; and research and development, respectively. Of the total severance, restructuring, and acquisition integration costs recognized for the three months ended September 28, 2014, $5.3 million, $2.6 million, and $1.3 million were included in cost of sales; selling, general and administrative expenses; and research and development, respectively.

Of the total severance, restructuring, and acquisition integration costs recognized in the nine months ended September 27, 2015, $6.3 million, $23.8 million, and $3.4 million were included in cost of sales; selling, general and administrative expenses; and research and development, respectively. Of the total severance, restructuring, and acquisition integration costs recognized for the nine months ended September 28, 2014, $13.3 million, $32.6 million, and $2.9 million were included in cost of sales; selling, general and administrative expenses; and research and development, respectively.

The other restructuring and integration costs primarily consisted of costs of integrating manufacturing operations, such as relocating inventory on a global basis, retention bonuses, relocation, travel, reserves for inventory obsolescence as a result of product line integration, costs to consolidate operating and support facilities, and other costs. The majority of the other restructuring and integration costs related to these actions were paid as incurred or are payable within the next 60 days.

We continue to review our business strategies and evaluate potential new restructuring actions. This could result in additional restructuring costs in future periods.

Accrued Severance

The table below sets forth severance activity that occurred for the three significant programs described above. The balances are included in accrued liabilities.


	Productivity Improvement Program		Grass Valley Integration		Grass Valley Restructuring
	(In thousands)
Balance at December 31, 2014	$	7,141	$	5,579	$	-
New charges		887		2,165		-
Cash payments		(1,455)		(2,370)		-
Foreign currency translation		(408)		(302)		-
Other adjustments		(170)		-		-

Balance at March 29, 2015	$	5,995	$	5,072	$	-

New charges		22		-		-
Cash payments		(1,268)		(1,709)		-
Foreign currency translation		97		10		-
Other adjustments		-		(1,590)		-

Balance at June 28, 2015	$	4,846	$	1,783	$	-

New charges		99		-		11,978
Cash payments		(987)		(946)		(755)
Foreign currency translation		(29)		-		-

Balance at September 27, 2015	$	3,929	$	837	$	11,223

The other adjustments in the nine months ended September 27, 2015 were the result of changes in estimates. We experienced higher than expected voluntary turnover, and as a result, certain approved severance actions were not taken. We expect the majority of the liabilities for these programs to be paid during the fourth fiscal quarter of 2015 and first fiscal quarter of 2016.