3Ware 1999 Annual Report Download - page 22

RESEARCH AND DEVELOPMENT. Research and development (“R&D”) expenses increased 69% to approximately $13.3 million,
or 17.3% of net revenues, for the year ended March 31, 1998 from approximately $7.9 million, or 13.7% of net revenues,
for the year ended March 31, 1997. The substantial increase in R&D expenses was due to accelerated new product and process
development efforts, including a $3.4 million increase in compensation costs and a $1.6 million increase in prototyping
and outside contractor costs.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative (“SG&A”) expenses were approximately $14.3 million,
or 18.6% of net revenues, for the year ended March 31, 1998, as compared to approximately $12.5 million, or 21.8% of net
revenues, for the year ended March 31, 1997. The increase in SG&A expenses for the year ended March 31, 1998 was primarily due
to a $700,000 increase in compensation costs and a $600,000 increase in commissions earned by third-party sales representatives.
The decrease in SG&A expenses as a percentage of net revenues for the year ended March 31, 1998 was a result of net revenues
increasing more rapidly than SG&A expenses.
OPERATING MARGIN. The Company’s operating margin increased to 19.3% of net revenues for the year ended March 31, 1998,
compared to 12.2% for the year ended March 31, 1997, principally as a result of the increase in gross margin and decrease in
SG&A expenses as a percentage of net revenues, partially offset by the increase in R&D expenses as a percentage of net revenues.
NET INTEREST INCOME. Net interest income increased to $871,000 for the year ended March 31, 1998 from a net interest
expense of $29,000 for the year ended March 31, 1997. This increase was due principally to a $600,000 increase in interest
income resulting from larger cash and short-term investment balances generated by the proceeds from the Company’s public
offerings completed during the year ended March 31, 1998, as well as a $300,000 decrease in interest expense associated with
outstanding capital lease and debt obligations.
INCOME TAXES. The Company’s annual effective tax rate for the year ended March 31, 1998 was 2.6%. This was due primarily
to the reduction of a valuation allowance recorded against deferred tax assets for net operating loss carryforwards and credits
in the prior two years. This reduction results from sufficient levels of income for fiscal 1998, which made the realization of these
deferred tax assets more likely than not. The effective tax rate of 9.5% for the year ended March 31, 1997 was attributable
primarily to alternative minimum taxes (“AMT”).
DILUTED EARNINGS PER SHARE. Diluted earnings per share increased 114% to $0.75 in the year ended March 31, 1998,
compared to $0.35 for the year ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s principal source of liquidity as of March 31, 1999 consisted of $86.5 million in cash, cash equivalents and
short-term investments. Working capital as of March 31, 1999 was $103.6 million, compared to $77.4 million as of
March 31, 1998. This increase in working capital was primarily due to cash provided by operating activities and the proceeds
from the sale of Common Stock, offset by the purchase of property, equipment and other assets.
MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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1999 AMCC