Adaptec 2007 Annual Report Download - page 43

Table of Contents
Research and Development Expenses
Our research and development, or R&D, expenses were flat in 2007 compared to 2006. Payroll costs increased by approximately $0.3 million due to an increase
in stock based compensation expense. Office and facilities costs increased by $0.8 million due to supporting our Israel R&D facility for a full year in 2007
compared to seven months in 2006, and operating our Shanghai R&D facility that opened in 2007. These increases were partially offset by $0.6 million in
material costs.
Our R&D expenses were $40 million, or 34%, higher in 2006 compared to 2005. Total payroll costs, including the acquired businesses, were higher by $16.1
million due to salary increases, and additional headcount from Passave and the Storage Semiconductor Business for 2006, which were partially offset by savings
from our workforce reduction initiatives. In addition, we recorded $16.2 million stock-based compensation expense compared to none in 2005. Material costs
were higher by $6.1 million, office and facilities costs were higher by $1.8 million, depreciation increased by $1.2 million, and training and travel costs also
increased by $0.9 million due to the acquisitions. These increases were offset by lower hardware and software costs of $1.4 million and other cost reductions of
$0.9 million.
Selling, General and Administrative Expenses
Our selling, general and administrative, or SG&A, expenses were lower by $1.9 million, or 2%, in 2007 compared to 2006.
In 2006, we accrued $2.4 million for payroll withholding taxes associated with transactions from 2000 and prior. In 2007, we settled this matter for $0.2 million
and reversed the remaining accrual, thus reducing SG&A by $4.6 million compared to 2006. Partially offsetting this reduction in costs was a $2.2 million
increase in professional fees related to our settlement of litigation inherited from our Passave acquisition and the ongoing examination of our historic transfer
pricing practices and policies of certain companies within the PMC-Sierra group. In 2007, we also received a capital tax refund of $0.5 million.
While we incurred increased payroll-related costs during the year, due to the significant increase in the Canadian dollar relative to the US dollar, this was offset
by decreases in our stock-based compensation expense.
Our SG&A expenses were $46.1 million, or 82% higher in 2006 compared to 2005. The primary reasons for the increase in SG&A expense as a percentage of
revenues were that we recorded $19.9 million of stock-based compensation expense compared to $0.2 million in 2005, and payroll-related costs were higher by
$14.0 million due to increased headcount. We also incurred an additional $3.8 million in professional fees, the majority of which related to the investigation by
the Audit Committee into stock option dating and the resulting restatement of our financial statements, and $2.4 million in additional payroll withholding taxes
associated with transactions from years 2000 and prior. Sales commissions were higher by $2.0 million, training and travel increased by $1.8 million primarily
due to the acquisitions, and office and facilities costs increased by $1.1 million. Lastly, the reversal of $0.9 million provision for doubtful accounts receivable in
2005 and an increase in other costs of $0.3 million in 2006 contributed to the remainder of the overall increase in SG&A expenses in 2006.
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Source: PMC SIERRA INC, 10-K, February 22, 2008