3Ware 1999 Annual Report Download - page 20

NET INTEREST INCOME. Net interest income increased to $3.5 million for the year ended March 31, 1999 compared to
$871,000 for the year ended March 31, 1998. This increase was due principally to higher interest income from larger cash and
short-term investment balances generated from operations and the proceeds from the Company’s public offerings completed
during the second half of the year ended March 31, 1998.
INCOME TAXES. The Company’s annual effective tax rate for the year ended March 31, 1999, which approximated statutory
rates, was 37.4% compared to an effective tax rate of 2.6% for the year ended March 31, 1998. The effective tax rate for the
year ended March 31, 1998 was decreased from statutory rates due to the reduction of a valuation allowance recorded against
deferred tax assets for net operating loss carryforwards and credits. The Company expects the tax rate for fiscal 2000 to approx-
imate statutory rates.
DILUTED EARNINGS PER SHARE. Diluted earnings per share decreased 17% to $0.62 in the year ended March 31, 1999, com-
pared to $0.75 for the year ended March 31, 1998. The decrease reflects the merger-related costs of $2.3 million, the increase
in the effective tax rate and the greater number of shares outstanding, due in part to the Cimaron acquisition, offset in part
by the increase in operating income in fiscal 1999.
DEFERRED COMPENSATION. In connection with the grant of certain stock options to employees during the six months ended
September 30, 1997, the Company recorded aggregate deferred compensation of $599,000, representing the difference
between the deemed fair value of the Common Stock at the date of grant for accounting purposes and the option exercise price
of such options. Additionally, during the year ended March 31, 1999, the Company recorded deferred compensation
of $2.5 million related to restricted stock and options granted to founders and employees of Cimaron. Such amounts are
presented as a reduction of stockholders’ equity and amortized ratably over the vesting period of the applicable options.
Amortization of deferred compensation recorded for the years ended March 31, 1998 and 1999 was $127,000 and $860,000,
respectively. The Company currently expects to record amortization of deferred compensation with respect to these option
grants of approximately $658,000, $543,000, $414,000, $330,000 and $178,000 during the fiscal years ended March 31,
2000, 2001, 2002, 2003 and 2004, respectively.
BACKLOG. The Company’s sales are made primarily pursuant to standard purchase orders for delivery of products. Quantities
of the Company’s products to be delivered and delivery schedules are frequently revised to reflect changes in customer needs,
and customer orders can be canceled or rescheduled without significant penalty to the customer. For these reasons, the
Company’s backlog as of any particular date is not representative of actual sales for any succeeding period, and the Company
therefore believes that backlog is not a good indicator of future revenue. The Company’s backlog for products requested to be
shipped and nonrecurring engineering services to be completed in the next six months was $38.2 million on March 31, 1999,
compared to $30.1 million on March 31, 1998. Included in backlog at March 31, 1999 is the $9.3 million balance of an order
received from Raytheon Systems Co. related to an end-of-life buy for integrated circuits used in its high-speed radar systems.
YEAR 2000 COMPLIANCE. As a semiconductor manufacturer with its own wafer fabrication facility, the Company is dependent
on computer systems and manufacturing equipment with embedded hardware or software to conduct its business. The
Company has developed and is currently executing a plan designed to make its computer systems, applications, computer and
manufacturing equipment and facilities Year 2000 ready. The plan covers five stages including (i) inventory, (ii) assessment,
(iii) remediation, (iv) testing and (v) contingency planning. The Company has completed the inventory and assessment stages.
The remediation, testing and contingency planning stages are targeted to be completed by October 1999. The Company will
primarily utilize internal resources to reprogram, or replace where necessary, and test the software for Year 2000 modifications.
MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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1999 AMCC