Notes to Consolidated Financial Statements
3. Restructuring and Other Charges
During the fourth quarter of 2008, management initiated a plan that resizes Tellabs business to reflect market conditions. Restructuring actions under this plan include reducing future investment in access products and freeing up resources to focus on data and transport products. The pretax restructuring charges for this plan are expected to be approximately $23 million, which includes approximately $10 million in severance charges for workforce reductions and $13 million for facility- and asset-related charges. In the fourth quarter of 2008, we recorded $17.3 million, of which $10.3 million was for severance and $7.0 million was for facility-related charges. Cash payments under this plan are expected to be approximately $16 million. Restructuring actions under this plan are expected to be completed by the third quarter of 2009.
During the second quarter of 2008, management initiated a plan to consolidate several facilities as a result of the discontinuation of the Tellabs® 8865 optical line terminal. The facility consolidations were also impacted by the headcount reductions that were announced in September 2007 and January 2008. We incurred $12.4 million for this plan, of which $12.3 million was for facility reductions and fixed asset write-downs and $0.1 million was for other obligations. Actions under this plan were completed in the third quarter of 2008.
During the first quarter of 2008, management committed to a plan to improve gross profit margins and reduce operating expenses. The pretax restructuring charges for this plan are $12 million, which includes $7 million in severance charges for workforce reductions and $5 million in facility- and asset-related charges. We incurred $11.5 million in 2008. Remaining actions under this plan were completed in January 2009. Total cash payments are expected to be approximately $10 million, of which $9 million was paid in 2008. Severance cash payments totaled $6 million and $3 million related to facility payments. The remaining cash payments of approximately $1 million related to severance are expected to be completed in 2009.
During the third quarter of 2007, management inititated a plan to better align resources with strategic business objectives. The primary activity was a reduction of headcount in both the Broadband and Transport segments. By the end of 2007, we reduced headcount by 126 and recorded $5.5 million, primarily in cash severance expense related to those reductions. We completed the objectives of this plan in the fourth quarter of 2007.
In the second quarter of 2006, management inititated restructuring activities to reduce costs and better align resources with internal needs and our customers' requirements. The activities included consolidation of two order configuration and distribution centers in North America into a single location, and a reduction of headcount in both the Transport and Broadband segments. We reduced headcount by 126 employees during 2006 and closed or consolidated two leased facilities as a result. These activities have been completed. The total expense of the 2006 restructuring plans was $9.2 million, which included $2.3 million in severance costs, $6.7 million in facility charges and $0.2 million in asset disposals, all of which were recorded in 2006.
A reduction of $0.3 million to prior restructuring plans in 2008 primarily consists of a reduction in severance. An additional charge to restructuring expense in 2007 of $0.3 million includes a reduction of $0.1 million in severance and an increase of $0.4 million in facility-related charges. Reductions to restructuring expense in 2006 totaled $1.2 million, including $0.5 million in severance and $0.7 million in facility-related charges. The changes in 2008, 2007 and 2006 are due to changes in estimates to previous restructuring plans.
Our accrual for restructuring plans as of January 2, 2009, was $31.0 million. The 2008 restructuring plans balance of $18.5 million consists of $8.2 million in cash severance that we expect to pay through the second quarter of 2010 and $10.3 million in net lease obligations that expire in 2015. The 2007 restructuring plan balance of $0.1 million consists of cash severance that we expect to pay through the first quarter of 2009. The $12.4 million balance for previous restructuring plans relates to net lease obligations that expire by 2011.
The following table summarizes restructuring and other charges recorded for the plans mentioned above, as well as adjustments to reserves recorded for prior restructurings:
The following table summarizes our restructuring and other charges activity by segment during 2008 and 2007 and the status of the reserves at year end: