3Ware 2004 Annual Report Download - page 89

APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
•Property and equipment impairments—During fiscal 2000 and 2001, the Company aggressively
expanded its manufacturing capacity in order to meet demand. As a result of the sharp decrease in
demand at the end of fiscal 2001, the Company recorded a charge of approximately $5.6 million in the
second quarter of fiscal 2002, for the elimination of excess manufacturing equipment related to older
process technologies. These assets were removed from the production floor and disposed of. In addition,
the Company recorded a charge of approximately $3.1 million relating to the abandonment of certain
leasehold improvements and software licenses in connection with the closure of certain U.S. facilities.
The Company has completed the restructuring activities contemplated by the July 2001 restructuring plan,
but has not yet disposed of the surplus leased facilities. As a result of the Company’s July 2001
restructuring activities, the Company realized approximately $4 million of annual savings relating to fixed
cost of sales overhead and approximately $2 million of annual savings relating to operating expenses.
As a result of the prolonged downturn in the telecommunications industry and the uncertainty as to when the
telecommunication equipment market would recover, in July 2002 the Company announced its second workforce
reduction and restructuring program. The July 2002 workforce reduction and restructuring program was
comprised of the following:
•Closure of the wafer manufacturing facility—In June 2002, the Company completed its plan to
discontinue manufacturing non-communication ICs and close its internal wafer manufacturing facility in
San Diego. As a result, the Company recorded a total charge of $4.0 million in fiscal 2003. The charge
was comprised of severance packages for approximately 70 employees in the manufacturing workforce
and estimated facility restoration costs. This was the only wafer fabrication facility owned by the
Company.
The Company’s wafer manufacturing facility was closed at the end of March 2003 and the facility was
exited at the end of June 2003. During the third quarter of fiscal 2004, the Company completed the
activities contemplated by the plan. As a result, the Company recorded an adjustment to the
restructuring liability for the excess accrued severance and facilities restoration costs, and recognized a
restructuring benefit of approximately $537,000. The Company does not expect any future charges or
benefits related to the closure of the wafer manufacturing facility. As a result of the closure of the
Company’s internal wafer manufacturing facility, the Company realized annual savings totaling
approximately $14 million relating to fixed cost of sales overhead in fiscal 2004.
•Global workforce reduction—In an effort to reduce the Company’s expenses in July 2002, the Company
implemented a workforce reduction plan, which eliminated approximately 165 employees or 25% of the
Company’s workforce. The global workforce reduction included the closing of a United States design
center and disposal of its 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 were paid through the
end of the related lease term in fiscal 2004.
The Company has completed the activities contemplated by the global workforce reduction portion of
the July 2002 plan, and no further payments or expenses are anticipated under this program. As a result
of the global workforce reduction undertaken in July 2002, the Company realized approximately $16
million of annual savings relating to operating expenses in fiscal 2004.
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