Note 7: Severance, Restructuring, and Acquisition Integration Activities

Industrial Restructuring Program

Both our Industrial Connectivity and Industrial IT segments have been negatively impacted by a decline in sales volume. Global demand for industrial products has been negatively impacted by the strengthened U.S. dollar and lower energy prices. Our customers have reduced capital spending in response to these conditions, and we expect these conditions to continue to negatively impact our industrial segments’ sales volume. In response to these industrial market conditions, we began to execute a restructuring program in the fourth quarter of 2015 to reduce our cost structure. We recognized $2.4 million and $5.8 million of severance and other restructuring costs for this program during the three and six months ended July 3, 2016, respectively. We expect to incur approximately $2 million of additional severance and other restructuring costs for this program, the majority of which will be incurred in the third quarter of 2016. We expect the restructuring program to generate approximately $18 million of savings on an annualized basis, which we began to realize in the first quarter of 2016.

Industrial Manufacturing Footprint Program

In further response to the industrial market conditions described above, in the first quarter of 2016 we began a program to further consolidate our manufacturing footprint. The manufacturing consolidation is expected to be completed by the end of 2017. We recognized $2.0 million and $2.5 million of severance and other restructuring costs for this program during the three and six months ended July 3, 2016, respectively. The costs were incurred by the Enterprise and Industrial Connectivity segments, as the manufacturing locations involved in the program serve both platforms. We expect to incur approximately $16 million and $15 million of additional severance and other restructuring costs for this program in 2016 and 2017, respectively. We expect the program to generate approximately $10 million of savings on an annualized basis, beginning in the second half of 2017.

Grass Valley Restructuring Program

Our Broadcast segment’s Grass Valley brand was negatively impacted by a decline in global demand of broadcast technology infrastructure products. Outside of the U.S., demand for these products was impacted by the relative price increase of products due to the strengthened U.S. dollar as well as the impact of weaker economic conditions which have resulted in lower capital spending. Within the U.S., demand for these products was 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 broadcast market conditions, we began to execute a restructuring program beginning in the third quarter of 2015 to further reduce our cost structure. We recognized $0.9 million and $5.0 million of severance and other restructuring costs for this program during the three and six months ended July 3, 2016, respectively. We expect to incur approximately $1 million of additional severance and other restructuring costs for this program, the majority of which will be incurred in the third quarter of 2016. We expect the restructuring program to generate approximately $30 million of savings on an annualized basis, which we began to realize in the fourth quarter of 2015.

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. We substantially completed the productivity improvement program and the acquisition integration activities in 2015. In the three and six months ended June 28, 2015, we recorded severance, restructuring, and integration costs of $4.9 million and $19.4 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. In the three and six months ended July 3, 2016, we recognized $0.6 million and $1.0 million of costs, respectively, primarily related to our 2016 acquisition of M2FX.

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


Three Months Ended July 3, 2016	Severance		Other Restructuring and Integration Costs		Total Costs
	(In thousands)

Broadcast Solutions	$	(109)	$	1,428	$	1,319
Enterprise Connectivity Solutions		71		1,136		1,207
Industrial Connectivity Solutions		1,180		1,191		2,371
Industrial IT Solutions		309		634		943
Network Security Solutions		-		29		29


Total	$	1,451	$	4,418	$	5,869


Three Months Ended June 28, 2015
Broadcast Solutions	$	(1,590)	$	4,873	$	3,283
Enterprise Connectivity Solutions		22		61		83
Industrial Connectivity Solutions		526		637		1,163
Industrial IT Solutions		-		-		-
Network Security Solutions		-		378		378


Total	$	(1,042)	$	5,949	$	4,907


Six Months Ended July 3, 2016
Broadcast Solutions	$	(751)	$	6,448	$	5,697
Enterprise Connectivity Solutions		76		1,631		1,707
Industrial Connectivity Solutions		1,777		1,459		3,236
Industrial IT Solutions		2,631		977		3,608
Network Security Solutions		-		29		29


Total	$	3,733	$	10,544	$	14,277


Six Months Ended June 28, 2015
Broadcast Solutions	$	713	$	14,097	$	14,810
Enterprise Connectivity Solutions		72		579		651
Industrial Connectivity Solutions		967		1,969		2,936
Industrial IT Solutions		(740)		688		(52)
Network Security Solutions		-		1,045		1,045


Total	$	1,012	$	18,378	$	19,390

Of the total severance, restructuring, and acquisition integration costs recognized in the three months ended July 3, 2016, $1.8 million, $3.6 million, and $0.5 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 three months ended June 28, 2015, $1.8 million, $2.7 million, and $0.4 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 in the six months ended July 3, 2016, $3.9 million, $9.7 million, and $0.7 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 six months ended June 28, 2015, $3.2 million, $14.5 million, and $1.7 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 equipment transfer, costs to consolidate operating and support facilities, retention bonuses, relocation, travel, legal, 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 the significant severance activity that occurred for two of the programs described above. The balances are included in accrued liabilities.


	Grass Valley Restructuring		Industrial Restructuring
	(In thousands)

Balance at December 31, 2015	$	12,076	$	2,947

New charges		886		2,919
Cash payments		(4,404)		(1,967)
Foreign currency translation		167		94
Other adjustments		(1,528)		-


Balance at April 3, 2016	$	7,197	$	3,993

New charges		251		1,489
Cash payments		(3,356)		(1,685)
Foreign currency translation		(13)		(42)
Other adjustments		(360)		-


Balance at July 3, 2016	$	3,719	$	3,755

The other adjustments 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 second half of 2016.