8x8 2005 Annual Report Download - page 24

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and contractor headcount. These increases were offset by decreases in depreciation, tooling and maintenance
expenses.
The $5.1 million decrease in research and development expenses in fiscal 2004 as compared to fiscal 2003 was
primarily due to a $2.7 million reduction in compensation expense for personnel primarily attributable to headcount
reductions arising from the sale of Centile Europe SA during fiscal 2004, closure of our United Kingdom (UK)
office in late fiscal 2003, and the transfer of employees to Leadtek Research, Inc. in connection with the sale and
license of our next generation video chip technology, a $0.6 million reduction in depreciation and amortization
expense due to the end of life of certain assets and the asset write-offs recorded in fiscal 2003; and a $1.7 million
reduction in expenditures attributable to the closure of our UK office in late fiscal 2003 and the sale of Centile
Europe SA in the second quarter of fiscal 2004. The reduction in Centile Europe SA expenses in France was
partially offset by expenses attributable to 8x8 Europe SARL, our new French subsidiary formed in the third quarter
of fiscal 2004.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses consist primarily of personnel and related overhead costs for sales,
marketing, customer support, finance, human resources and general management. Such costs also include sales
commissions, trade show, advertising and other marketing and promotional expenses. Selling, general, and
administrative expenses were $18.5 million, $6.1 million and $7.4 million in fiscal 2005, 2004, and 2003,
respectively. The $12.4 million increase in selling, general and administrative expenses for fiscal 2005, as
compared to fiscal 2004 was primarily attributable to a $1.4 million increase in compensation expense for personnel
due to headcount additions, a $4.9 million increase in advertising, public relations and other marketing and
promotional expenses, a $1.8 million increase in contractor expenses to the increase in staffing of our telemarketing
and customer service organizations, a $1 million increase in sales agent and retailer commissions, a $0.8 million
increase in consultant and auditor expenses related to compliance with Sarbanes Oxley Section 404, a $0.5 million
increase in legal fees and a $0.4 million increase in credit card transaction processing fees.
The $1.3 million decrease in selling, general, and administrative expenses in fiscal 2004 as compared to fiscal 2003
was due primarily to a $1 million reduction in compensation expense for personnel due to headcount reductions, a
$0.7 million reduction in facility related expenses for our headquarters due to a reduction of rent and operating
expenses in the fist quarter of fiscal 2004 in connection with a lease extension and a $0.3 million reduction in
depreciation and amortization expense due to the end of life of certain assets. The decreases were partially offset by
a $0.7 million increase in various other sales, general and administrative expenses including: advertising, promotion
and trade show expenses, legal expenditures, primarily related to intellectual property, regulatory and financing
matters, and reseller commissions and credit card processing fees.
RESTRUCTURING AND OTHER CHARGES
2003 Restructuring Actions
As a result of restructuring activities in fiscal 2003, we recorded restructuring and other asset impairment charges of
approximately $3.4 million. These charges included severance and benefits of approximately $1.2 million, as we
reduced our workforce, under voluntary and involuntary separation plans, by thirty-two employees or thirty percent.
The majority of the affected employees were Netergy employees based in Santa Clara, California and Marlow,
United Kingdom and included employees from sales and marketing and research and development, as well as four
executives of Netergy. Severance of approximately $325,000 attributable to involuntary terminations was paid
during the year ended March 31, 2003.
We closed our facility in Marlow, United Kingdom, and recorded $434,000 of charges related to the termination of
the operating leases for the facility and related services. In addition, we recorded asset impairment charges of
$212,000 related to assets in the United Kingdom that were abandoned or disposed of.
We also recorded a charge of approximately $74,000 for our remaining lease liability for office space in Tempe,
Arizona that was vacated as a result of the restructuring actions during the fourth quarter.
In the fourth quarter of fiscal 2003, we also implemented a plan to reduce the workforce at our Sophia Antipolis,
France office by ten employees or seventy percent. This downsizing and its potential impact on our iPBX business
prompted an assessment of the key assumptions underlying our goodwill valuation judgments. As a result of the
analysis, we determined that an impairment charge of $1.5 million was required because the estimated fair value of