Adaptec 2004 Annual Report Download - page 28

contractor costs which was offset by a $3.0 million reduction in depreciation expense as assets became fully depreciated and were not
replaced. In addition, in the fourth quarter of 2004 we eliminated a $1.3 million provision for employee−related taxes on completion
of a payroll tax audit.
In 2003, our MG&A expenses decreased $17.4 million, or 27% compared to 2002. Reductions in headcount due to our first quarter
restructuring program and attrition resulted in a decrease of personnel−related costs of $5.7 million. Other MG&A expenses
decreased $11.7 million primarily due to reduced sales commissions of $1.8 million, reduced spending on marketing and corporate
communications of $3.0 million, and decreased professional fees of $3.6 million. The reduction in professional fees included the
elimination of a provision for potential litigation costs of $1.8 million. This amount was established as a reserve in the third quarter of
2002 for potential litigation costs related to a dispute with the general partner of one of our venture capital fund investments. In the
fourth quarter of 2003, we accepted a proposal from the general partner to restructure the fund, thereby settling the dispute and
eliminating the need for the reserve. Other MG&A expenses also decreased $1.7 million due to a reduction in facilities−related costs,
resulting from our restructuring programs and ongoing cost control measures.
Amortization of Deferred Stock Compensation
We recorded a non−cash charge of $0.7 million for amortization of deferred stock compensation in 2004 compared to $1.0 million in
2003 and $2.8 million in 2002.
Deferred stock compensation charges decreased $0.3 million from 2003 to 2004 and $1.8 million from 2002 to 2003 due to timing of
amortization of deferred stock compensation for certain employees.
Impairment of Property and Equipment
There were no impairments of property and equipment in 2004 or 2003. In 2002, we recorded an impairment charge of $1.8 million
reflecting a reduction in the estimated fair value of a production tester. This equipment was removed from service because lower
manufacturing and product development volumes resulted in excess product testing capacity.
Restructuring Costs
In response to the severe economic downturn in the semiconductor industry in 2001, we implemented two restructuring plans aimed at
focusing development efforts on key projects and reducing operating costs. By the first quarter of 2003, we were still operating in a
challenging economic climate, making it necessary to again streamline operations and announce a further restructuring. Our
assessment of market demand for our products and the development efforts necessary to meet this demand were key factors in our
decisions to implement these restructuring plans. As end markets for our products had contracted, certain projects were curtailed in an
effort to cut research and development costs. Cost reductions in all other functional areas were also implemented, as fewer resources
were required to support the reduced level of development and sales activities during this period.
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