Special Charges

12 Months Ended

Sep. 30, 2011

14.

Special Charges

Special charges consist of the following (in thousands):


	Successor		Predecessor
	Period from April 20, 2011 through September 30, 2011		Period from October 2, 2010 through April 19, 2011		Fiscal Year Ended October 1, 2010			Fiscal Year Ended October 2, 2009
Severance charges	$	9,621	$	2,873	$	342		$	—
Merger transaction charges		68		16,860		—			—
Environmental remediation charges		1,483		145		—			—
Lease impairment charges		2,279		87		188			—
Restructuring charges		1,786		925		(282	)		15,116
Settlements		—		—		589			3,475
Other special charges		—		—		—			392

	$	15,237	$	20,890	$	837		$	18,983

For the successor period from April 20, 2011 through September 30, 2011, special charges consisted primarily of $9.6 million of severance charges resulting from reduction in headcount after the Merger, $2.3 million of lease impairment charges resulting from under-utilized space after the Merger under which we have continuing lease obligations, $1.8 million for restructuring charges resulting primarily from changes in projected sub-lease income on restructured leases and $1.5 million additional accrual for environmental remediation charges. For the predecessor period from October 2, 2010 through April 19, 2011, special charges consisted primarily of $16.9 million for transaction charges, including payment of a $7.7 million fee for termination of the SMSC Agreement and $9.2 million of financial advisory, legal and other fees related to the terminated merger with SMSC and the Merger, $2.9 million for one-time severance benefits associated with reductions in headcount primarily in the first fiscal quarter of 2011, and $0.9 million of restructuring charges from accretion of lease liability related to restructured facilities.

Special charges for the predecessor fiscal year ended October 1, 2010 consisted primarily of an estimated settlement amount for unasserted insurance claims, lease charge and a one-time severance benefit associated with certain reductions in headcount, and restructuring credits due to an increase of subtenant income.

Special charges for the predecessor fiscal year ended October 2, 2009 consisted primarily of restructuring charges due to reduction of subtenant income from restructured office space and $3.5 million for a settlement of our class action lawsuit related to our 401(k) plan.

Charges for environmental remediation expense were classified in cost of goods sold in the predecessor fiscal years ended October 1 2010 and October 2, 2009 and were $0.2 million and $0.1 million, respectively.

Restructuring Charges

The Company has implemented a number of cost reduction initiatives to improve its operating cost structure. The cost reduction initiatives included workforce reductions and the closure or consolidation of certain facilities, among other actions.

Restructuring Accruals — As of September 30, 2011, the Company has remaining restructuring accruals of $31.0 million, which primarily relate to facilities. Of the $31.0 million of restructuring accruals at September 30, 2011, $4.2 million is included in other current liabilities and $26.8 million is included in other non-current liabilities in the accompanying consolidated balance sheet. The Company expects to pay the obligations for the non-cancelable lease and other commitments over their respective terms, which expire at various dates through fiscal 2021. The Company calculates its restructuring liability based on the discounted cash flow of contracted lease payments, sub-contracted rental income, projected rental income, and estimated facility expenses, using discount rates in effect at the time the leases were impaired. The Company’s accrued liabilities include the net present value of the future lease obligations of $48.3 million, net of contracted sublease income of $12.8 million, and projected sublease income of $4.5 million. The facility charges were determined in accordance with the accounting guidance for costs associated with exit or disposal activities. As a result, the Company recorded the net present value of the future lease obligations and will accrete the remaining amounts into expense over the remaining terms of the non-cancellable leases.

Fiscal 2009 Restructuring Actions — As part of a workforce reduction implemented during the fiscal year ended October 2, 2009, the Company completed actions that resulted in the elimination of 183 positions worldwide.

Activity and liability balances recorded as part of the the predecessor fiscal year ended October 2, 2009 restructuring actions through September 30, 2011 were as follows (in thousands):


	Workforce Reductions
	Fiscal Period Ended
	Successor		Predecessor
	September 30, 2011		April 19, 2011			October 1, 2010
Reserve at beginning of period	$	—	$	53		$	1,582
Charged to costs and expenses		—		(8	)		26
Cash payments		—		(45	)		(1,555	)

Reserve at end of period	$	—	$	—		$	53

There was no activity in the period April 20, 2011 through September 30, 2011 related to the fiscal 2009 restructuring action.

Fiscal 2008 Restructuring Actions — During fiscal 2008, the Company announced its decision to discontinue investments in standalone wireless networking solutions and other product areas. Charges to expense in the period from April 20, 2011 through September 30, 2011 and October 2, 2010 to April 19, 2011 relate to accretion of lease liability on restructured facilities under non-cancelable leases.

Activity and liability balances recorded as part of the Fiscal 2008 restructuring actions through September 30, 2011 were as follows (in thousands):


	Facility and Other
	Fiscal Period Ended
	Successor			Predecessor
	September 30, 2011			April 19, 2011			October 1, 2010
Reserve at beginning of period	$	44		$	74		$	64
Charged to costs and expenses		22			4			115
Cash payments		(27	)		(34	)		(105	)

Reserve at end of period	$	39		$	44		$	74

Fiscal 2007 Restructuring Actions — During fiscal 2007, the Company announced several facility closures and workforce reductions. In total, the Company notified approximately 670 employees of their involuntary termination. Charges to expense in the period from April 20, 2011 through September 30, 2011 consist of $1.5 million expense due to lower projected sub-tenant rent income offset by $0.4 million reduction in projected expense and $0.9 million accretion of lease liability on restructured facilities under non-cancelable leases, of which $2.3 million was included in discontinued operations related to the Company’s discontinued BMP business. Charges to expense in the period October 2, 2010 to April 19, 2011 consists of $0.2 million of expense due to lower projected sub-tenant rent income and $1.1 million accretion of lease liability on restructured facilities under non-cancelable leases, of which $0.8 million was included in discontinued operations related to the Company’s discontinued BMP business.

Activity and liability balances recorded as part of the fiscal 2007 restructuring actions through September 30, 2011 were as follows (in thousands):


	Facility and Other
	Fiscal Period Ended
	Successor			Predecessor
	September 30, 2011			April 19, 2011			October 1, 2010
Reserve at beginning of period	$	19,617		$	22,845		$	27,233
Charged to costs and expenses		2,003			1,282			2,211
Cash payments		(1,621	)		(4,510	)		(6,599	)

Reserve at end of period	$	19,999		$	19,617		$	22,845

Fiscal 2006 and 2005 Restructuring Actions — During fiscal years 2006 and 2005, the Company announced operating site closures and workforce reductions. In total, the Company notified approximately 385 employees of their involuntary termination. Charges to expense in the period from April 20, 2011 through September 30, 2011 consist of $1.5 million expense due to lower projected sub-tenant rent income and $0.4 million accretion of lease liability on restructured facilities under non-cancelable leases. Charges to expense in the period October 2, 2010 to April 19, 2011 relate to accretion of lease liability on restructured facilities under non-cancelable leases.

Activity and liability balances recorded as part of the fiscal 2006 and 2005 restructuring actions through September 30, 2011 were as follows (in thousands):


	Facility and Other
	Fiscal Period Ended
	Successor			Predecessor
	September 30, 2011			April 19, 2011			October 1, 2010
Reserve at beginning of period	$	10,070		$	10,849		$	13,851
Charged to costs and expenses		1,869			515			(936	)
Cash payments		(967	)		(1,294	)		(2,066	)

Reserve at end of period	$	10,972		$	10,070		$	10,849

CONEXANT SYSTEMS INC 10-K