Note 7: Severance, Restructuring, and Acquisition Integration Activities

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 relate 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 as of June 28, 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 June 29, 2014, we recorded severance, restructuring, and integration costs of $38.2 million and $39.7 million, respectively, related to these two significant programs. The following table summarizes the costs by segment:


Three Months Ended June 28, 2015	Severance		Other Restructuring and Integration Costs		Total Costs
	(In thousands)

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


Three Months Ended June 29, 2014
Broadcast Solutions	$	16,819	$	10,705	$	27,524
Enterprise Connectivity Solutions		1,592		229		1,821
Industrial Connectivity Solutions		8,111		33		8,144
Industrial IT Solutions		586		133		719
Network Security Solutions		-		-		-


Total	$	27,108	$	11,100	$	38,208


Six Months Ended June 28, 2015
Broadcast Solutions	$	713	$	14,108	$	14,821
Enterprise Connectivity Solutions		72		568		640
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


Six Months Ended June 29, 2014
Broadcast Solutions	$	18,102	$	10,865	$	28,967
Enterprise Connectivity Solutions		1,592		229		1,821
Industrial Connectivity Solutions		8,111		33		8,144
Industrial IT Solutions		586		133		719
Network Security Solutions		-		-		-


Total	$	28,391	$	11,260	$	39,651

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 three months ended June 29, 2014, $8.0 million, $28.9 million, and $1.3 million were included in cost of sales; selling, general and administrative expenses; and research and development, respectively.

administrative expenses; and research and development, respectively. Of the total severance, restructuring, and acquisition integration costs recognized in the three months ended June 29, 2014, $8.0 million, $28.9 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 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. Of the total severance, restructuring, and acquisition integration costs recognized in the six months ended June 29, 2014, $8.0 million, $30.0 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 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.

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


	Productivity Improvement Program		Grass Valley Integration
	(In thousands)

Balance at December 31, 2013 and March 30, 2014	$	-	$	-
New charges		10,507		16,528
Cash payments		(1,774)		(4,497)
Foreign currency translation		(62)		82

Balance at June 29, 2014	$	8,671	$	12,113
New charges		2,575		1,536
Cash payments		(1,171)		(3,746)
Foreign currency translation		(381)		(191)
Other adjustments		(1,697)		(1,900)

Balance at September 28, 2014	$	7,997	$	7,812
New charges		3,048		1,761
Cash payments		(2,244)		(4,699)
Foreign currency translation		(465)		(218)
Other adjustments		(1,195)		-

Balance at December 31, 2014	$	7,141	$	4,656

New charges		887		2,164
Cash payments		(1,455)		(2,370)
Foreign currency translation		(367)		(302)

Balance at March 29, 2015	$	6,206	$	4,148

New charges		22		-
Cash payments		(933)		(1,709)
Foreign currency translation		71		10
Other adjustments		-		(1,590)

Balance at June 28, 2015	$	5,366	$	859

The other adjustments in the three months ended June 28, 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. The other adjustments in 2014 were due to changes in estimates, including an impact of forfeited severance amounts. We expect the majority of the liabilities for these programs to be paid in the second half of fiscal 2015.

We do not expect to incur any significant additional severance, restructuring, and acquisition integration costs in 2015 as a result of the activities discussed above.

Our Broadcast segment results were negatively impacted by a decline in sales volume in the six months ended June 28, 2015. Outside of the U.S., the Broadcast segment has been impacted by the relative price increase of our products due to the strengthened U.S. dollar as well as lower capital spending as a result of government austerity programs in some regions. Within the U.S., Broadcast results have been impacted by deferred capital spending for broadcast technology infrastructure products. We believe broadcast customers have deferred their capital spending as they navigate through a number of important industry transitions, including a decline in advertising spending and the rise of “over-the-top” distribution models. We expect these trends to continue to impact our results. In response to these current broadcast market conditions, we will execute a restructuring program beginning in the third fiscal quarter to further reduce our cost structure. We expect to incur approximately $30 million of severance and other restructuring costs for this program, of which approximately $27 million will be incurred in the second half 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.

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