3Ware 2005 Annual Report Download - page 31

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68% complete at the date of acquisition. The estimated aggregate cost to complete these projects was $5.3
million. The discount rate applied to calculate the IPR&D charge ranged from 20% to 30%. The IPR&D charge
related to the JNI Corporation acquisition was made up of six projects, which were between 33% and 88%
complete at the date of acquisition. The estimated aggregate cost to complete these projects was $2.3 million.
The discount rate applied to calculate the IPR&D charge ranged from 22% to 35%. There can be no assurance
that acquisitions of businesses, products or technologies by us in the future will not result in substantial charges
for acquired IPR&D that may cause fluctuations in our interim or annual operating results.
Goodwill and Purchased Intangible Asset Impairment Charges. To coincide with our annual long-range
planning process, we assess goodwill for impairment annually in the fourth quarter, or more frequently if the
indicators of impairment are present. As a result of the November 2004 restructuring program, we decided to
reduce our future investment in certain products acquired in the JNI transaction. During the third quarter of fiscal
2005, we performed an impairment test as required by SFAS 144 which resulted in a non-cash charge of $27.3
million for the impairment of purchased intangibles. This charge is recorded in operating expenses in the
consolidated statement of operations for the year ended March 31, 2005.
Based upon an analysis performed in the fourth quarter of fiscal 2005, which included a discounted cash
flow analysis, as well as market comparables, no impairment of goodwill or other purchased intangibles was
evident.
Restructuring Charges. The following table presents restructuring charges for the fiscal years ended
March 31, 2005 and March 31, 2004 (in thousands):
Fiscal Years Ended March 31,
Increase
(Decrease) Change
2005 2004
Amount
%ofNet
Revenue Amount
%ofNet
Revenue
Restructuring charges ....................... $9,622 3.8% $22,325 17.0% $(12,703) (56.9)%
In July 2001, we announced the first of our restructuring programs. The July 2001 restructuring plan was in
response to the sharp downturn in business at the end of the Company’s fiscal 2001 and included reducing our
overall cost structure and aligning manufacturing capacity with the then current demand. The restructuring plan
consisted of the elimination of approximately 50 employees, or 5% of our workforce, the consolidation of excess
facilities and the write-off of certain property and equipment. As a result of the July 2001 restructuring, we
recorded a charge of $11.6 million consisting of $900,000 for employee severances, $2.0 million of non-
cancelable lease commitments, and $8.7 million for the disposal of excess manufacturing equipment, the
abandonment of certain leasehold improvements, and the write off of software licenses.
As a result of our July 2001 restructuring activities, we 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. During fiscal 2005, we have completed the restructuring activities contemplated by the July 2001
restructuring plan and no further payments or expenses are anticipated under this program.
In July 2002, we announced our second restructuring program, as a result of the prolonged downturn in the
telecommunications industry. The July 2002 restructuring program consisted of the closure of our wafer
manufacturing facility in San Diego and a workforce reduction of approximately 165 employees or 25% of our
workforce. During fiscal 2003, we recognized a total charge of $7.0 million consisting of $4.0 million for the
estimated facility restoration costs and the severance packages for approximately 70 manufacturing employees,
and of $3.0 million consisting of employee severances, related to the closure of a United States design center and
the disposal of its related assets.
During the third quarter of fiscal 2004, we completed the activities contemplated by the plan. As a result, we
recorded an adjustment to the restructuring liability for the excess accrued severance and facilities restoration
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