Adaptec 2002 Annual Report Download - page 67

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In the first quarter of 2001, PMC implemented a restructuring plan in response to the decline in demand for
our networking products and consequently recorded a restructuring charge of $19.9 million. The restructuring
plan included the involuntary termination of 223 employees across all business functions, the consolidation
of a number of facilities and the curtailment of certain research and development projects.
The following summarizes the activity in the March 2001 restructuring liability:
Facility Lease Write−down of
and Property
Workforce Contract Settlement and
(in thousands) Reduction Costs Equipment, Net Total
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Total charge − March 26, 2001 $ 9,367 $ 6,545 $ 3,988 $ 19,900
Noncash charges − − (3,988) (3,988)
Cash payments (7,791) (3,917) − (11,708)
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Balance at December 31, 2001 1,576 2,628 − 4,204
======================================================================
The Company completed the restructuring activities contemplated in the March
2001 plan by June 30, 2002.
During the first six months of fiscal 2002, the Company made cash payments of
$2.8 million in connection with this restructuring. The remaining restructuring
liability of $1.4 million at June 30, 2002 related primarily to facility lease
payments, net of estimated sublease revenues, and was classified as accrued
liabilities on the balance sheet. The Company does not expect this restructuring
to have any impact on its Statement of Operations in the future.
Impairment of Goodwill and Intangible Assets
During the second quarter of 2001, PMC made a decision to discontinue further
development of the technology acquired in the purchase of Malleable. The Company
did not expect to have any future cash flows related to these assets and had no
alternative use for the technology. Accordingly, the Company recorded an
impairment charge of $189 million, equal to the remaining net book value of
goodwill and intangible assets related to Malleable.
In the fourth quarter of 2001, due to a continued decline in market conditions
and a delay in introduction of certain products to the market, the Company
completed an assessment of the future revenue potential and estimated costs
associated with all acquired technologies. As a result of this review, the
Company recorded a further impairment charge of $80.8 million related to the
acquired goodwill and other intangibles recognized in the purchase of Datum and
Octera. The Company recorded a charge of $79.3 million, measured as the amount
by which the carrying value of the goodwill and intangibles exceeded the present
value of estimated future cash flows related to these assets, to impair the
goodwill and intangibles acquired in the purchase of Datum. The remaining $1.5
million impairment of goodwill resulted from the cancellation of Octera's
research and development activities during 2001.
Write−down of Inventory
The Company recorded a write−down of excess inventory of $4.0 million in 2002
and $20.7 million in 2001. The continued industry wide reduction in capital
spending and resulting decrease in demand for the Company's products prompted
the Company to assess its current inventory levels compared to sales forecasts
for the next twelve months. The excess inventory charge, which was included in
cost of revenues, was calculated in accordance with the Company's policy, which
is based on inventory levels in excess of estimated 12−month demand.
65