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 current industrial market conditions, we began to execute a restructuring program in the fourth quarter of 2015 to further reduce our cost structure. We recognized $3.5 million of severance and other restructuring costs for this program during the three months ended April 3, 2016. We expect to incur approximately $5 million of additional severance and other restructuring costs for this program, the majority of which will be incurred in the second 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.

Grass Valley Restructuring Program

Our Broadcast segment’s Grass Valley brand has been negatively impacted by a decline in global demand of broadcast technology infrastructure products. Outside of the U.S., demand for these products has been 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 has been impacted by deferred capital spending. Also, 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 quarter of 2015 to further reduce our cost structure. We recognized $4.1 million of severance and other restructuring costs for this program during the three months ended April 3, 2016. 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 second and third quarters 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. The Grass Valley costs relate to our Broadcast segment. We substantially completed the productivity improvement program and the acquisition integration activities in 2015. In the three months ended March 29, 2015, we recorded severance, restructuring, and integration costs of $14.5 million related to these two significant programs, as well as other cost reduction actions and the integration of our acquisitions of ProSoft, Coast, and Tripwire.

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


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

Broadcast Solutions	$	(784)	$	5,162	$	4,378
Enterprise Connectivity Solutions		-		500		500
Industrial Connectivity Solutions		444		421		865
Industrial IT Solutions		1,882		783		2,665
Network Security Solutions		-		-		-

Total	$	1,542	$	6,866	$	8,408


Three Months Ended March 29, 2015
Broadcast Solutions	$	2,303	$	9,224	$	11,527
Enterprise Connectivity Solutions		50		518		568
Industrial Connectivity Solutions		441		1,332		1,773
Industrial IT Solutions		(740)		688		(52)
Network Security Solutions		-		667		667

Total	$	2,054	$	12,429	$	14,483

Of the total severance, restructuring, and acquisition integration costs recognized in the three months ended April 3, 2016, $2.2 million, $6.0 million, and $0.2 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 March 29, 2015, $1.4 million, $11.8 million, and $1.3 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 significant programs described above. The balances are included in accrued liabilities.


	Grass
	Valley		Industrial
	Restructuring		Restructuring
	(In thousands)

Balance at December 31, 2015	$	12,085	$	2,643

New charges		1,001		2,572
Cash payments		(4,116)		(1,424)
Foreign currency translation		118		92
Other adjustments		(2,266)		(144)

Balance at April 3, 2016	$	6,822	$	3,739

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 and third quarters of 2016.