Adaptec 2003 Annual Report Download - page 32

Restructuring charges − Facilities
In calculating the cost to dispose of our excess facilities we had to estimate for each location the amount to be paid in lease
termination payments, the future lease and operating costs to be paid until the lease is terminated, and the amount of sublease
revenues. This required us to estimate the timing and costs of each lease to be terminated, the amount of operating costs for the
affected facilities, and the timing and rate at which we might be able to sublease each site. To form our estimates for these costs we
performed an assessment of the affected facilities and considered the current market conditions for each site.
During 2001, we recorded total charges of $155 million for the restructuring of excess facilities as part of two restructuring plans.
After elimination of the lease obligation related to Mission Towers Two during 2003, we performed a review of our assumptions
relating to the remaining lease commitments using current market conditions for the timing and rates to sublet or cancel the lease for
each of the remaining facilities. Based on this analysis we determined that an additional charge of $3.1 million was required for
facilities closure costs due to further deterioration in facilities leasing markets. The accrual at the end of 2003 of $9.7 million
represents 72% of the estimated total future operating costs and lease obligations for those affected sites.
In the first quarter of 2003, we announced a further restructuring of our operations, which resulted in the closing of an additional four
product development sites: two in Ireland, one in India and our Maryland site. During the year we recorded total charges of $9.6
million when we abandoned usage of these sites. The amount unpaid at the end of the year of $5.2 million represents 52% of the
estimated total future operating costs and lease obligations for the effected sites.
Our assumptions on either the lease termination payments, operating costs until lease termination, or the amounts and timing of
offsetting sublease revenues may turn out to be incorrect and our actual cost may be materially different from our estimates. If our
actual costs exceed our estimates, we would incur additional expenses in future periods.
Inventory
We periodically compare our inventory levels to sales forecasts for the future twelve months on a part−by−part basis and record a
charge for inventory on hand in excess of the estimated twelve−month demand. As a result of the downturn in networking equipment
demand in 2001 and 2002, our inventory of networking products exceeded estimated 12−month demand by $4.0 million and $20.7
million in 2002 and 2001, respectively, and we recorded a charge of those amounts in those two years. If future demand for our
products were to decline, we may have to take an additional write−down of inventory.
Income Taxes
We have incurred losses and other costs that can be applied against future taxable earnings to reduce our tax liability on those
earnings. As we are uncertain of realizing the future benefit of those losses and expenditures, we have taken a valuation allowance
against all domestic and foreign deferred tax assets.
Our operations are conducted in a number of countries with complex tax regulations. Interpretation of regulations, and legislation
pertaining to our activities, and those regulations
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