Adaptec 2005 Annual Report Download - page 42

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Table of Contents
• in 2006, we sold inventory acquired from the Storage Semiconductor Business of Avago that was valued at its selling price, less related selling
costs, as opposed to the lower manufacturing cost; there was no such expense incurred in 2007 and our gross margin increased by 2% compared to
2006; and
• the combined impact of increased obsolescence provision and royalty expense decreased gross margin by 1%.
Total gross profit for 2006 increased by $68.1 million over gross profit in 2005. Gross profits increased in 2006 due to higher sales volumes, primarily resulting
from the acquisitions. In 2005, gross profit improved due in part to the centralizing of our manufacturing logistics teams into a single location through our
restructuring activities, as well as tightly managing our manufacturing costs.
Gross profit as a percentage of revenues decreased to 66% in 2006 from 72% in 2005 primarily as a result of the following factors:
• the acquisitions changed the overall mix of revenues, decreasing gross profit as a percentage of revenues by 3%;
• lower margins on our existing products decreased gross profit as a percentage of revenues by 1%; and
• we recorded $4.2 million higher provisions for excess and obsolete inventory, which decreased gross profit as a percentage of net revenues by 1%.
Other Costs and Expenses ($ millions)
2007 Change 2006 Change 2005
Research and development $ 159.1 — $ 158.7 34% $ 118.7
Percentage of net revenues 35% 37% 41%
Selling, general and administrative $ 100.5 (2)% $ 102.4 82% $ 56.3
Percentage of net revenues 22% 24% 19%
Amortization of purchased intangible assets $ 39.3 18% $ 33.4 100% —
Percentage of net revenues 9% 8% —
In-process research and development — (100)% $ 35.3 100% —
Percentage of net revenues — 8% —
Restructuring costs $ 14.8 143% $ 6.1 (56)% $ 13.8
Percentage of net revenues 3% 1% 5%
36
Source: PMC SIERRA INC, 10-K, February 22, 2008