Adaptec 2006 Annual Report Download - page 45

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Table of Contents
Gross profit as a percentage of revenues decreased to 66% in 2006 from 72% in 2005 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%.
In addition, we recorded $1.8 million stock-based compensation expense in cost of revenues in 2006 compared to none in 2005 and 2004, which had an impact of
less than one percentage point. Many of the acquired products sell at overall lower gross margins, particularly the FTTH products. If the proportion of revenues
from FTTH products increases in future periods as anticipated, we expect declining gross profit as a percentage of revenues to continue.
Gross profit as a percentage of revenues increased to 72% in 2005 from 71% in 2004 as a result of the following factors:
• yield improvements and procurement cost reductions, which increased gross profit by approximately 1 percentage point;
• engineering fees charged to customers for engineering we undertook on their behalf increased from $1.5 million in 2004 to $6.8 million in 2005,
increasing gross profit by 1 percentage point; and
• fixed manufacturing costs were spread over lower shipment volumes, reducing gross profit by 1 percentage point.
Other Costs and Expenses ($ millions)
2006 Change 2005 Change 2004
Research and development $ 158.7 34% $ 118.7 (1%) $ 120.5
Percentage of net revenues 37% 41% 41%
Selling, general and administrative $ 102.4 82% $ 56.3 20% $ 46.8
Percentage of net revenues 24% 19% 16%
Amortization of purchased intangible assets $ 33.4 100% — —
Percentage of net revenues 8% — —
In-process research and development $ 35.3 100% — —
Percentage of net revenues 8% — —
Restructuring costs $ 6.1 (56%) $ 13.8 $ 3.5
Percentage of net revenues 1% 5% 1%
43
Source: PMC SIERRA INC, 10-K, March 01, 2007 Powered by Morningstar® Document Research℠