3Ware 2004 Annual Report Download - page 39

global workforce reduction undertaken in July 2002, we realized approximately $16 million of annual
savings relating to operating expenses in fiscal 2004.
As the downturn in the telecommunications industry continued it became evident that further cost reductions
were necessary. In April of 2003, we announced our third workforce reduction and restructuring program. The
April 2003 restructuring program consisted of a workforce reduction, further consolidation of excess facilities
and additional fixed asset disposals. In June 2002, the FASB issued SFAS 146 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. Accordingly, restructuring costs of $23.5 million related to the restructuring plan were
recognized in the first quarter of fiscal 2004 and approximately $281,000 was recognized in the fourth quarter of
fiscal 2003 for severance packages communicated to employees in March 2003. The April 2003 workforce
reduction and restructuring program was comprised of the following:
•Workforce reduction—Approximately 185 employees have been eliminated, resulting in a severance
charge of approximately $5.7 million, which was substantially paid during the first two quarters of fiscal
2004.
•Consolidation of excess facilities and other operating leases—As a result of the lower head count
resulting from the workforce reduction, we were able to exit certain facilities, including a 58,000 square
foot building in San Diego and a substantial portion of the Sunnyvale facility. We recorded a charge of
$7.2 million representing the estimated discounted cash flow of the lease payments, less the estimated
sublease income. In addition, as a result of the lower head count resulting from the workforce reduction,
we disposed of certain software licenses used by the engineering workforce resulting in a charge of $3.4
million, which will be paid over the terms of the respective licenses.
•Property and equipment impairments—As a result of lower head count and facility closure we
accelerated depreciation and abandoned a substantial amount of leasehold improvements as well as
furniture, fixtures and employee workstations. This resulted in a charge of $7.5 million in the first
quarter of fiscal 2004 for the abandoned assets.
As a result of our April 2003 restructuring activities, we anticipated we would realize approximately $4
million of annual savings relating to fixed cost of sales overhead and approximately $36 million of
annual savings relating to operating expenses in fiscal 2004. However, in November 2003 we elected to
reoccupy a portion of the 58,000 square foot building in San Diego. This decision was based on the
acquisition of JNI Corporation and the need to integrate the operations of the two companies in order to
achieve the planned cost savings. As a result of this decision to reoccupy the San Diego building, we
reversed a portion of the prior accrual for the excess lease commitment and reinstated the book value of
the leasehold improvements, which were previously abandoned. We recorded a net restructuring benefit
of approximately $2.4 million related to this activity. In addition, we recorded an adjustment to the
amount of accrued severance of approximately $200,000 because we overestimated the amount of
severance that would be paid.
In November 2003, we implemented a fourth workforce reduction and restructuring. The November 2003
workforce reduction was implemented as a means to achieve certain cost savings anticipated in connection with
the fiscal 2004 acquisitions. The restructuring consisted of the elimination of approximately 50 employees and
the abandonment of certain leased property. As a result of the November restructuring, the Company recorded a
charge of approximately $2.8 million, consisting of $1.2 million for employee severance and $1.6 million for
excess facilities costs. The amount for employee severance was substantially paid by the end of fiscal 2004 and
the amounts to be paid for the excess lease commitments will be paid over the remaining lease term ending in
October 2005. We estimate that as a result of the November 2003 work force reductions we will achieve annual
operating expense savings of approximately $7 million in fiscal 2005.
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