3Ware 2003 Annual Report Download - page 28

analysis as required under SFAS 142, it became evident, as a result of lower revenue forecasts, that certain other
purchased intangible assets were also impaired. As a result, we performed an analysis of these assets as required
under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” and recorded non-cash
charges in the year ended March 31, 2003 of $187.9 million for the impairment of developed technology and
$16.3 million as a result of the abandonment of the MMC Networks trademark. These amounts are reflected as
components of operating loss. In the fourth quarter of fiscal 2003, we performed our annual goodwill impairment
review and recorded an additional $186.4 million impairment charge to reduce the carrying value of goodwill,
which is also reflected as a component of operating loss.
Prior to the adoption of SFAS 142, we reviewed the value of our intangible assets in accordance with
SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of”,
or SFAS 121. In the year ended March 31, 2002, we recorded a charge of $3.1 billion to write down the value of
intangible assets associated with our purchase acquisitions.
Restructuring Charges. Due to the prolonged downturn in our industry, we have announced a total of three
restructuring programs between July 2001 and April 2003. A summary of each of the separate programs is as
follows:
• The July 2001 program consisted of a 5% workforce reduction, consolidation of excess facilities and
property and equipment impairments of approximately $8.7 million ($5.6 million for the elimination of
certain excess manufacturing equipment and $3.1 million for the abandonment of leasehold
improvements and software licenses). Payments for the workforce reduction were approximately
$900,000 and were completed in fiscal 2002. Amounts related to the consolidation of facilities will be
paid over the respective lease terms through fiscal 2005 and are estimated to be approximately $2.0
million. The program resulted in total charges of $11.6 million that are reflected as an expense in fiscal
2002.
• The July 2002 program included the closure of the internal wafer manufacturing facility and a global
workforce reduction. The estimate for the closure of the manufacturing facility is approximately $4.0
million and is comprised of severance packages for the manufacturing workforce, facility restoration
costs and fixed asset disposals. The payments for these costs are expected to be complete by the end of
the first quarter of fiscal 2004. The global workforce reduction included the closing of a design center
and disposal of related assets, and resulted in a charge of $3.0 million. Payments for the employee
severance were made in fiscal 2003; amounts for the facility closure will be paid through the end of the
related lease term in fiscal 2004.
• In April 2003, we announced our third restructuring program, consisting of a workforce reduction,
further consolidation of excess facilities and additional fixed asset writeoffs. In June 2002, the FASB
issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, requiring that
costs associated with exit or disposal activities be recognized when they are incurred rather than at the
date of a commitment to an exit or disposal plan. Total costs related to the restructuring plan are
expected to be $20 million to $25 million and will be substantially recognized in the first quarter of
fiscal 2004, in accordance with the new guidance. In the year ended March 31, 2003, we recorded
approximately $300,000 as a liability for certain severance packages communicated to employees in
March 2003.
Other Income (Expense). Other income (expense), net, primarily includes recorded gains and losses on
strategic equity investments as well as gains and losses from dispositions of property and equipment. Other
income (expense) for the year ended March 31, 2003 primarily consists of a recognized impairment charge of
$13.3 million for certain strategic equity investments and losses of $2.3 million for certain fixed asset disposals,
offset by a $3.7 million gain from the sale of real estate. Other income (expense) for the year ended March 31,
2002 primarily reflects a gain on strategic equity investments of $1.2 million, offset by an impairment charge of
$15.0 million and certain losses on fixed asset disposals.
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