3Ware 2000 Annual Report Download - page 20

18 2000
AMCC
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
and 11% of net revenues, respectively. Sales outside of North America accounted for 24% and 23% of net revenues for
the years ended March 31, 1999 and 1998, respectively.
GROSS MARGIN. Gross margin was 63.9% for the year ended March 31, 1999, as compared to 55.2% for the year
ended March 31, 1998. The increase in gross margin resulted from increased utilization of our wafer fabrication facility.
RESEARCH AND DEVELOPMENT. R&D expenses increased 69% to approximately $22.5 million, or 21.4% of
revenues, for the year ended March 31, 1999 from approximately $13.3 million, or 17.3% of net revenues, for the year
ended March 31, 1998. The substantial increase in R&D expenses was due to our acquisition of Cimaron, which incurred
approximately $2.5 million of R&D expenses during its fiscal year, and accelerated new product and process development
efforts, including a $3.2 million increase in compensation costs and a $3.9 million increase in prototyping and outside
contractor costs.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses were approximately $18.3 million, or 17.5% of
revenues, for the year ended March 31, 1999, as compared to approximately $14.3 million, or 18.6% of net revenues, for
the year ended March 31, 1998. The increase in SG&A expenses for the year ended March 31, 1999 was primarily due to
a $2.1 million increase in personnel costs, a $500,000 increase in commissions earned by third-party sales representa-
tives, a $500,000 increase in product promotion expenses and a $400,000 increase in legal and accounting costs. A por-
tion of such increases was also due to our acquisition of Cimaron. The decrease in SG&A expenses as a percentage of net
revenues for the year ended March 31, 1999 was a result of net revenues increasing more rapidly than SG&A expenses.
MERGER-RELATED COSTS. In March 1999, we acquired all of the outstanding common stock and common stock
equivalents of Cimaron in exchange for approximately 12 million shares of our common stock. The acquisition has been
accounted for using the pooling-of-interests method of accounting. Costs associated with this merger of $2.3 million, or
$0.02 per diluted share, were expensed in the quarter ended March 31, 1999.
OPERATING MARGIN. Our operating margin increased to 22.8% of net revenues for the year ended March 31, 1999,
compared to 19.3% for the year ended March 31, 1998, 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 $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 our public
offerings completed during the second half of the year ended March 31, 1998.
INCOME TAXES. Our 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.
DILUTED EARNINGS PER SHARE. Diluted earnings per share decreased 16% to $0.16 in the year ended
March 31, 1999, compared to $0.19 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. Amortization of deferred compensation recorded for the years ended March 31, 1998
and 1999 was $127,000 and $860,000, respectively.