Adaptec 2008 Annual Report Download - page 32

compared to 2007, as well, the IBM RAID R&D programs which began in first quarter of 2008, added additional
costs in 2008. In addition, there was a $1.9 million increase in infrastructure related expenses due to normal
maintenance of equipment and design related software tools, $1.7 million increase in the amortization of
purchased intangibles mainly due to increased tools relating to the IBM RAID project and an increase of $0.1
million in other costs.
Our 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
lower material costs.
Selling, General and Administrative Expenses
Our selling, general and administrative (“SG&A”) expenses were $7.0 million, or 7% lower in 2008
compared to 2007. The primary reason for the net decrease in SG&A expenses is the restructuring activities
undertaken in the first quarter of 2007. As a result, payroll-related costs and facilities-related costs were lower by
$4.9 million and $2.5 million, respectively. Professional fees were $2.1 million lower in 2008 compared to 2007,
mainly due to settlement of a litigation matter in August 2007. Other SG&A costs were $2.5 million higher in
2008 compared to 2007. The primary reasons for the increase were that in 2007 we received a credit of $2.8
million arising from the favorable settlements of both a payroll tax matter with the United Kingdom tax
authorities and a capital tax refund.
Our 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 U.S. dollar, this was offset by decreases in our stock-based compensation expense.
Amortization of purchased intangible assets and in-process research and development
Amortization of intangible assets acquired from the Storage Semiconductor Business and Passave was $18.9
million and $20.4 million, respectively, for 2008.
Passave
A portion of the purchase price for Passave was allocated to in-process research and development
(“IPR&D”) projects and was expensed in the second quarter of 2006 because technological feasibility had not
been established and no future alternative uses existed. Projects acquired from Passave included EPON, and
Analog Front End (“AFE”) products, which are based on technology that provides a low-cost method of
deploying optical access lines between a carrier’s central office and a customer site and which provide further
enhancements and functionality to the existing EPON series, and GPON products, which are more complex and
support multiple protocols and provide further enhancements to the GPON series.
At the acquisition date of Passave, early revisions of the AFE products were in the final stage of testing and
had been sent out to be manufactured or taped out, with estimated costs to complete of approximately
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