3Ware 2005 Annual Report Download - page 32

costs, and recognized a restructuring benefit of approximately $537,000. We do not expect any future charges or
benefits related to the closure of the wafer manufacturing facility. As a result of the closure of our internal wafer
manufacturing facility and workforce reduction, we realized annual savings totaling approximately $14 million
relating to fixed cost of sales overhead and approximately $16 million of annual savings relating to operating
expenses in fiscal 2004.
In April 2003, we announced our third restructuring program. As the downturn in the telecommunications
industry continued, it became evident that further cost reductions were necessary. The April 2003 restructuring
program consisted of a workforce reduction of 185 employees, 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, approximately $281,000 was charged for severance packages communicated to
employees in March 2003. The remaining restructuring costs of $23.5 million were recognized in the first quarter
of fiscal 2004 and consisted of approximately $5.4 million for employee severances, $7.2 million representing
the discounted cash flow of lease payments on exited facilities, $3.4 million for the disposal of certain software
licenses, and $7.5 million for the write off of leasehold improvements and property and equipment.
As a result of our April 2003 restructuring activities, we realized approximately $4 million of annual
savings relating to fixed cost of sales overhead and approximately $34 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 2003 restructuring, we recorded a
charge of approximately $2.8 million, consisting of $1.2 million for employee severances and $1.6 million for
excess facilities costs. During fiscal 2005, we completed the restructuring activities contemplated by the
November 2003 workforce reduction program and no further payments or expenses are anticipated under this
program. We achieved annual operating expense savings of approximately $8 million in fiscal 2005, as a result
of our November 2003 workforce reduction.
In November 2004, we implemented a fifth workforce reduction and realignment. The November 2004
workforce reduction was implemented as a means to reduce ongoing operating expenses by restructuring our
operations, consolidating our facilities and reducing our workforce. The restructuring consisted of the elimination
of approximately 150 employees, or 20 percent of our workforce, the closure of our Israel facility and
consolidating other locations. As a result of the November 2004 restructuring, we recorded a charge of
approximately $9.1 million, consisting of $4.4 million for employee severance, $4.2 million for property and
equipment write-offs, and $500,000 for the closure of its Israel facility and abandonment of certain leased
property. We estimate that as a result of the November 2004 workforce reduction, we will achieve annual
operating expense savings of approximately $24 million to $32 million annually.
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