8x8 2002 Annual Report Download - page 56

Company closed its offices in Montreal and Hull, Quebec and laid-
off all remaining employees resulting in the
cessation of most of the research and development efforts and all of the sales and marketing and professional services
activities associated with the U|Force business. As a result of the restructuring, the Company recorded a one-
time
charge of $33.3 million in the quarter ended March 31, 2001. The restructuring charge consisted of the following (in
thousands):
Employee separation............................... $ 765
Fixed asset losses and impairments................ 2,084
Intangible asset impairments...................... 30,247
Lease obligation and termination.................. 220
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$ 33,316
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Employee separation costs represent severance payments related to the 96 employees in the Montreal and Hull offices
who were laid-off.
The impairment charges for fixed assets approximated $2.1 million which included write-
offs of abandoned and
unusable assets of approximately $1.4 million, a loss on sale of assets of $567,000, and a charge for assets to be
disposed of $172,000. The asset write-
offs of $1.4 million included approximately $850,000 related to leasehold
improvements and $560,000 related to computer equipment, furniture, and software. The loss on sale of assets of
$567,000 was attributable to the sale of office, computer, and other equipment of the Montreal office. The Company
received common stock of the purchaser valued at approximately $412,000 at the date of sale. Fair value of assets to be
disposed of was measured based on expected salvage value, less costs to sell. Assets to be disposed of consist of
computer equipment with a fair value of $57,000 at March 31, 2001. Substantially all of these assets were liquidated
during fiscal 2002.
The impairment charges for intangible assets represented the write-
off of the unamortized intangible assets recorded in
connection with the acquisition of U|Force. The charges of approximately $30.2 million included: $28.7 million for the
goodwill related to the acquisition, $739,000 for the assembled workforce, and $789,000 related to a distribution
agreement. The impairments were directly attributable to the cessation of operations in Canada. The Company
performed an evaluation of the recoverability of the intangible assets related to these operations in accordance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of."
The lack of estimated future net cash flows related to the acquired products necessitated an impairment charge to write-
off the remaining unamortized goodwill. The distribution agreement asset was written off because the Company will no
longer provide products and services to customers under that agreement.
Cash payments related to the restructuring during the quarter ended March 31, 2001, which included all employee
separation costs and certain lease termination costs, approximated $920,000. Accrued obligations related to remaining
lease commitments on the Montreal and Hull facilities totaled $212,000 at March 31, 2001. The Company terminated
the lease for its primary facility in Montreal in March 2001, but was required to pay rent on the facility through May
31, 2001. The Company terminated the lease for the facility in Hull, Quebec, in fiscal 2002. The payments made in
fiscal 2002 related to the terminations of the Montreal and Hull facility leases totaled $225,000. There are no remaining
restructuring related accruals at March 31, 2002.
NOTE 4 -- DEBT
Convertible Subordinated Debentures
Issuance of the Debentures
In December 1999, the Company issued $7.5 million of 4% Series A and Series B convertible subordinated debentures