UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended October 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 000-27874
ANSOFT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 72-1001909
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
Four Station Square, Suite 200
Pittsburgh, Pennsylvania 15219-1119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 261-3200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]
The number of shares of the registrant's Common Stock outstanding as of the
close of business on December 4, 2003 was 12,415,132.
ANSOFT CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
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Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - October 31, 2003 (unaudited) and April 30, 2003 1
Consolidated Statements of Operations (unaudited) - Three and six months ended
October 31, 2003 and 2002 2
Consolidated Statements of Cash Flows (unaudited) - Six months ended
October 31, 2003 and 2002 3
Notes to the Consolidated Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5
Item 3. Quantitative and Qualitative Disclosure about Market Risk 12
Item 4. Controls and Procedures 13
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Certifications
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANSOFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
October 31, April 30,
2003 2003
------------- --------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 6,886 $ 7,173
Accounts receivable 9,668 13,968
Deferred income taxes 274 310
Prepaid expenses and other assets 946 842
--------- --------
Total current assets 17,774 22,293
Equipment and furniture 3,723 3,829
Marketable securities 24,395 21,785
Other assets 415 436
Deferred taxes - non current 5,380 4,909
Goodwill 1,239 1,239
Intangible assets 6,974 8,663
--------- --------
Total assets $ 59,900 $ 63,154
========= ========
Liabilities and stockholders' equity
Current liabilities
Accounts payable and accrued expenses $ 1,817 $ 2,449
Deferred revenue 9,902 10,879
--------- --------
Total current liabilities 11,719 13,328
Line of credit 10,000 10,000
--------- --------
Total liabilities 21,719 23,328
Stockholders' equity
Preferred stock - -
Common stock 124 123
Additional paid-in capital 56,178 55,522
Treasury stock (5,656) (3,954)
Other accumulated comprehensive income (loss) (89) (703)
Accumulated deficit (12,376) (11,162)
--------- --------
Total stockholders' equity 38,181 39,826
Total liabilities and stockholders' equity $ 59,900 $ 63,154
========= ========
See accompanying notes to the consolidated financial statements.
Page 1
ANSOFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
Three months ended October 31, Six months ended October 31,
2003 2002 2003 2002
---------- ---------- ----------- -----------
Revenue
License $ 6,893 $ 5,845 $ 12,234 $ 10,890
Service and other 5,365 4,712 10,675 8,955
-------- -------- --------- ---------
Total revenue 12,258 10,557 22,909 19,845
Costs of revenue
License 164 157 306 382
Service and other 272 232 520 454
-------- -------- --------- ---------
Total cost of revenue 436 389 826 836
-------- -------- --------- ---------
Gross profit 11,822 10,168 22,083 19,009
Operating Expenses
Sales and marketing 6,339 6,042 12,659 12,272
Research and development 3,773 5,363 7,596 10,507
General and administrative 1,186 975 2,297 2,007
Amortization 761 856 1,618 1,712
-------- -------- --------- ---------
Total operating expenses 12,059 13,236 24,170 26,498
-------- -------- --------- ---------
Loss from operations (237) (3,068) (2,087) (7,489)
Other income, net 207 320 468 562
-------- -------- --------- ---------
Loss before income taxes (30) (2,748) (1,619) (6,927)
Income tax benefit (8) (550) (405) (1,386)
-------- -------- --------- ---------
Net loss $ (22) $ (2,198) $ (1,214) $ (5,541)
======== ======== ========= =========
Net loss per share
Basic $ (0.00) $ (0.19) $ (0.10) $ (0.47)
======== ======== ========= =========
Diluted $ (0.00) $ (0.19) $ (0.10) $ (0.47)
======== ======== ========= =========
Weighted average shares used
in calculation
Basic 11,637 11,817 11,655 11,878
======== ======== ========= =========
Diluted 11,637 11,817 11,655 11,878
======== ======== ========= =========
See accompanying notes to the consolidated financial statements.
Page 2
ANSOFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Six months ended October 31,
2003 2002
----------- -----------
Cash flows from operating activities
Net loss $(1,214) $(5,541)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation 771 1,065
Amortization 1,689 1,926
Deferred taxes (435) (1,386)
Impairment charge to equipment -- 407
Non cash charge on marketable securities -- 78
Changes in assets and liabilities
Accounts receivable 4,300 5,160
Prepaid expenses and other assets (104) 155
Other long-term assets and liabilities, net 21 154
Accounts payable and accrued expenses (632) (1,144)
Deferred revenue (977) (339)
------- -------
Net cash provided by operating activities 3,419 535
------- -------
Cash flows from investing activities
Purchases of equipment and furniture (665) (517)
Proceeds from the sale of marketable securities 6,813 --
Purchase of marketable securities (9,060) (547)
------- -------
Net cash used in investing activities (2,912) (1,064)
------- -------
Cash flows from financing activities
Proceeds from line of credit -- 1,500
Purchase of treasury stock (1,702) (976)
Payment of note payable -- (1,850)
Proceeds from the issuance of common stock, net 657 135
------- -------
Net cash used in financing activities (1,045) (1,191)
------- -------
Net decrease in cash and cash equivalents (538) (1,720)
Effect of exchange rate changes 251 258
Cash and cash equivalents at beginning of year 7,173 5,269
------- -------
Cash and cash equivalents at end of year $ 6,886 $ 3,807
======= =======
Supplemental disclosures of cash flow information
Cash paid for interest $ 121 $ 213
======= =======
Cash paid for income taxes $ 30 $ 846
======= =======
See accompanying notes to the consolidated financial statements.
Page 3
ANSOFT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Basis of Presentation
The unaudited consolidated financial statements include the accounts of Ansoft
and its majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of financial position and results of operations have been made.
Operating results for interim periods are not necessarily indicative of results
which may be expected for a full year. The information included in this Form
10-Q should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the fiscal year ended April
30, 2003 consolidated financial statements and notes thereto included in
Ansoft's annual report on Form 10-K filed with the Securities and Exchange
Commission.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and disclosure of contingent assets and liabilities. The
estimates and assumptions used in the accompanying consolidated financial
statements are based on management's evaluation of the relevant facts and
circumstances as of the date of the consolidated financial statements. Actual
results may differ from those estimates.
(2) Comprehensive income (loss)
"Comprehensive income (loss)" includes foreign currency translation gains and
losses and other unrealized gains and losses. A summary of comprehensive income
(loss) follows:
Three Months Ended October 31, Six Months Ended October 31,
(in thousands, except per share amounts)
2003 2002 2003 2002
------- ------- ------- -------
Net loss $ (22) $(2,198) $(1,214) $(5,541)
Unrealized gain (loss) on marketable securities 392 (298) 363 (1,653)
Foreign currency translation adjustments 256 102 251 260
------- ------- ------- -------
Comprehensive income (loss) $ 626 $(2,394) $ (600) $(6,934)
======= ======= ======= =======
(3) Net income (loss) per share
Basic net income (loss) per share is calculated using the weighted-average
number of common shares outstanding during the period. Diluted net income per
share is computed using the weighted-average number of common shares and
potentially dilutive common shares outstanding during the period. Potentially
dilutive common shares consist of the incremental common shares issuable upon
the exercise of employee stock options, and are computed using the treasury
stock method. Potentially dilutive common shares are excluded from the
calculation if their effect is antidilutive.
(4) Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with the
Financial Accounting Standards Board's ("FASB") SFAS No. 123 "Accounting for
Stock-Based Compensation." This statement permits a company to choose either a
fair value based method of accounting for its stock-based compensation
arrangements or to comply with the Accounting Principles Board ("APB") Opinion
No. 25 intrinsic value based method, adding pro forma disclosures of net income
and earnings per share computed as if the fair value based method had been
applied in the financial statements. The Company has adopted SFAS No. 123 by
retaining the APB Opinion No. 25 method of accounting for stock-based
compensation with pro forma disclosures of net income and earnings per share.
Page 4
The Company's pro forma information follows:
Three Months Ended October 31, Six Months Ended October 31,
(in thousands, except per share amounts)
2003 2002 2003 2002
------- ------- ------- -------
Net loss, as reported $ (22) $(2,198) $(1,214) $(5,541)
Deduct: Total stock-based employee compensation
expense determined under fair value based
method, net of tax 807 730 1,607 1,426
------- ------- ------- -------
Pro forma net loss $ (829) $(2,928) $(2,821) $(6,967)
======= ======= ======= =======
Pro forma net loss per basic and diluted share $ (0.07) $ (0.25) $ (0.24) $ (0.59)
======= ======= ======= =======
Because the Company anticipates making additional grants and options vest over
several years, the effects on pro forma disclosures of applying SFAS No. 123 are
not likely to be representative of the effects on pro forma disclosures of
future years.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Form 10-Q, the words
"anticipate," "plan," "believe," "estimate," "expect" and similar expressions as
they relate to Ansoft or its management are intended to identify such
forward-looking statements. Ansoft's actual results, performance or achievements
could differ materially from the results expressed in, or implied by, these
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in this Form 10-Q and in the "Risk Factors"
section included in Ansoft's report on Form 10-K for the fiscal year ended April
30, 2003.
Overview
Ansoft Corporation ("Ansoft" or the "Company") is a developer of electronic
design automation ("EDA") software used in high technology products and
industries. Ansoft's software is used by electrical engineers in the design of
state of the art technology products, such as cellular phones, internet
networking, satellite communications systems, computer chips and circuit boards,
and electronic sensors and motors. Engineers use our software to maximize
product performance, eliminate physical prototypes, and to reduce
time-to-market.
Page 5
Results of Operations
The following table sets forth the percentage of total revenue of each item in
Ansoft's consolidated statements of operations:
Three months ended October 31, Six months ended October 31,
2003 2002 2003 2002
---- ---- ---- ----
Revenue
License 56% 55% 53% 55%
Service and other 44 45 47 45
---- ---- ---- ----
Total revenue 100 100 100 100
---- ---- ---- ----
Costs of revenue
Cost of license revenue 1 1 2 2
Cost of service and other revenue 2 2 2 2
---- ---- ---- ----
Gross profit 97 97 96 96
---- ---- ---- ----
Operating Expenses
Sales and marketing 52 57 55 62
Research and development 31 51 33 53
General and administrative 10 9 10 10
Amortization 6 8 7 9
---- ---- ---- ----
Total operating expenses 99 125 105 134
Income (loss) from operations (2) (28) (9) (38)
Other income, net 2 3 2 3
---- ---- ---- ----
Income (loss) before income taxes (0) (25) (7) (35)
Income tax expense (benefit) (0) (5) (2) (7)
---- ---- ---- ----
Net income (loss) (0)% (20)% (5)% (28)%
==== ==== ==== ====
Comparison of the Three and Six Months Ended October 31, 2003 and 2002
Revenue. Total revenue in the three and six-month periods ended October 31, 2003
increased 16% and 15% to $12.3 million and $22.9 million, respectively. License
revenue during the three-month period ended October 31, 2003 increased 18% to
$6.9 million from $5.8 million during the comparable period in the prior fiscal
year. License revenue during the six-month period ended October 31, 2003
increased 12% to $12.2 million from $10.9 million during the comparable period
in the prior fiscal year. The increase is attributable to increased demand from
customers in North America and Asia. Service and other revenue in the three and
six-month periods ended October 31, 2003 increased 14% and 19%, respectively,
due to the continued growth of the installed base of customers under maintenance
agreements. Ansoft expects total revenue in the third quarter of fiscal 2004 to
be between $13.5 million and $14 million. Ansoft expects total revenue in fiscal
2004 to increase between 10%-15% as compared to fiscal 2003.
International revenue accounted for 50% and 56% of the Company's total product
revenue in the three-month periods ended October 31, 2003 and 2002,
respectively. International revenue accounted for 55% of the Company's total
product revenue in each of the six-month periods ended October 31, 2003 and
2002. The Company's future international sales may be subject to risks
associated with international operations, including currency exchange
fluctuations, tariff regulations and requirements for export, which licenses may
on occasion be delayed or difficult to obtain.
Cost of revenue. Cost of revenue consists primarily of software materials,
personnel and other expenses related to providing maintenance and post-contract
customer support and amortization of acquired technology. Cost of revenue for
the three-month period ended October 31, 2003 increased 12% to $436,000 from
$389,000 during the comparable period in the prior fiscal year, due to the
increase in sales. Cost of revenue for the six-month period ended October 31,
2003 decreased 1% to $826,000 from $836,000 during the comparable period in the
prior fiscal year. This decrease was due to certain acquired technology being
fully amortized in fiscal 2003. Ansoft expects cost of revenue to represent 3%
of total revenue in fiscal 2004.
Page 6
Sales and marketing expenses. Sales and marketing expenses consist of salaries,
commissions paid to internal sales and marketing personnel, promotional costs
and related operating expenses. Sales and marketing expenses in the three and
six-month periods ended October 31, 2003 increased 5% and 3% to $6.3 million and
$12.7 million, respectively. The increase is due to the higher revenue levels.
Sales and marketing expenses represented 52% and 57% of total revenue in the
three-month periods ended October 31, 2003 and 2002, respectively. Sales and
marketing expenses represented 55% and 62% of total revenue in the six-month
periods ended October 31, 2003 and 2002, respectively. Ansoft expects that sales
and marketing expenses will be between $6.6 million and $6.8 million next
quarter and increase approximately 8% for the full fiscal 2004 year, as compared
to fiscal 2003, due to the increase in expected sales.
Research and development expenses. Research and development expenses include all
costs associated with the development of new products and enhancements to
existing products. Total research and development expenses for the three and
six-month periods ended October 31, 2003 decreased 30% and 28% to $3.8 million
and $7.6 million, respectively. Total research and development decreased 25% and
22% during the three and six-month periods ended October 31, 2003, due to the
closing of the Altra Broadband Irvine Technology Center. Total research and
development decreased 5% and 6% during the three and six-month periods ended
October 31, 2003, due to general cost control measures. Research and development
expenses represented 31% and 51% of total revenue in the three-month periods
ended October 31, 2003 and 2002, respectively. Research and development expenses
represented 33% and 53% of total revenue in the six-month periods ended October
31, 2003 and 2002, respectively. Ansoft expects to invest approximately $15.5
million in research and development expenses for the full 2004 fiscal year.
General and administrative expenses. General and administrative expenses for the
three and six-month periods ended October 31, 2003 increased 22% and 14% to $1.2
million and $2.3 million, respectively. The increase is due to general operation
costs related to the increase in sales. General and administrative expenses
represented 9% of total revenue in each of the three-month periods ended October
31, 2003 and 2002. General and administrative expenses represented 10% of total
revenue in each of the six-month periods ended October 31, 2003 and 2002. Ansoft
expects general and administrative expenses for the full 2004 fiscal year to be
approximately $4.8 million.
Amortization expense. Amortization expense decreased 11% and 5% to $761,000 and
$1.6 million, respectively, for the three and six-month periods ended October
31, 2003. The decrease was due to certain acquired technology being fully
amortized in fiscal 2003. Ansoft expects amortization expense for the full 2004
fiscal year to be $3.1 million.
Other income. Other income decreased 35% and 17% to $207,000 and $468,000,
respectively, for the three and six-month periods ended October 31, 2003. The
decrease is due to lower interest income earned on the investment portfolio in
the current period.
Income taxes. In the three and six-month periods ended October 31, 2003, the
Company recorded tax benefits of $8,000 and $405,000, respectively. Ansoft
expects to be profitable for the full 2004 fiscal year resulting in an expected
overall tax expense position for the full fiscal year.
Liquidity and Capital Resources
As of October 31, 2003, Ansoft had $6.9 million in cash and cash equivalents and
working capital of $6.1 million. Net cash provided by operating activities in
the six-month periods ended October 31, 2003 and 2002 was $3.4 million and
$535,000, respectively.
Net cash used in investing activities in the six-month periods ended October 31,
2003 and 2002 was $2.9 million and $1.1 million, respectively. Capital
expenditures were $665,000 and $517,000 in the six-month periods ended October
31, 2003 and 2002, respectively. Net purchases of marketable securities were
$2.2 million and $547,000 in the six-month periods ended October 31, 2003 and
2002, respectively.
Page 7
Net cash used in financing activities was $1.0 million and $1.2 million in the
six-month periods ended October 31, 2003 and 2002, respectively. Proceeds from
the issuance of common stock were $657,000 and $135,000 in the six-month periods
ended October 31, 2003 and 2002, respectively. Funds used for the purchase of
treasury stock were $1.7 million and $1.0 million in the six-month periods ended
October 31, 2003 and 2002, respectively. The six-month period ended October 31,
2002 included the payment of a note payable of $1.9 million and proceeds from
the line of credit of $1.5 million.
Ansoft has available a $20.0 million secured line of credit from a domestic
financial institution at an interest rate equal to LIBOR plus an applicable
margin rate. The line of credit expires on September 30, 2005, and is secured by
the marketable securities held with the institution. As of October 31, 2003, $10
million was the outstanding balance on the line of credit. Ansoft believes that
the available funds will be sufficient to meet its anticipated cash needs for
working capital and capital expenditures for at least the foreseeable future.
Thereafter, if cash generated from operations is insufficient to satisfy the
Company's liquidity requirements, Ansoft may seek additional funds through
equity or debt financing. There can be no assurance that additional financing
will be available or that, if available, such financing will be on terms
favorable to Ansoft.
A summary of Ansoft's significant contractual obligations and commitments as of
October 31, 2003 is as follows (in thousands):
Debt Operating Leases
Fiscal 2004 - 638
2005 - 1,272
2006 10,000 1,127
2007 - 624
2008 - 633
2009 - 398
Critical Accounting Policies
Ansoft's critical accounting policies are as follows:
- - Revenue Recognition
- - Valuation of Accounts Receivable
- - Impairment of Long-Lived Assets
- - Impairment of Marketable Securities Available for Sale
- - Deferred Tax Asset Valuation Allowance
Revenue Recognition
Revenue consists of fees for licenses of software products and service and other
revenue.
License revenue - Ansoft licenses its software on a perpetual basis with no
right to return or exchange the licensed software.
Postcontract customer support ("PCS") is bundled with the perpetual licensing
fee. Revenue related to the three-month PCS is deferred and recognized ratably
over the three-month term. Ansoft's vendor-specific objective evidence of fair
value, or VSOE, for the three-month PCS is based upon the pricing for comparable
transactions when the element is sold separately. Ansoft's VSOE for the
three-month PCS is based upon one fourth of the customer's annual maintenance
contract renewal rates. Three-month PCS services provided are the same as
maintenance.
Page 8
Service and other revenue - consists primarily of maintenance revenue. Ansoft
offers customers one-year maintenance contracts at 15% of the list price of the
respective software products. Ansoft recognizes all maintenance revenue ratably
over the respective maintenance period. Customers renew maintenance agreements
annually.
Revenue from customer training, support and other services is recognized as the
service is performed.
Valuation of Accounts Receivable
Management reviews accounts receivable to determine which are doubtful of
collection. In making the determination of the appropriate allowance for
doubtful accounts, management considers Ansoft's history of write-offs,
relationships with its customers, and the overall credit worthiness of its
customers.
Impairment of Long-Lived Assets
The Company reviews assets for impairment whenever events or changes in
circumstances indicate that the carrying value of the assets may not be
recoverable. A determination of impairment is made based on estimates of future
cash flows. If such assets are considered to be impaired the amount of the
impairment is based on the excess of the carrying value over the fair value of
the assets.
Impairment of Marketable Securities Available for Sale
An impairment charge is recorded if a decline in the market value of any
available for sale security below cost is deemed to be other than temporary. The
impairment is charged to earnings and a new cost basis for the security is
established.
Deferred Tax Asset Valuation Allowance
Deferred tax assets are recognized for deductible temporary differences, net
operating loss carryforwards, and credit carryforwards if it is more likely than
not that the tax benefits will be realized. To the extent a deferred tax asset
cannot be recognized under the preceding criteria, a valuation allowance has
been established.
The judgments used in applying the above policies are based on management's
evaluation of the relevant facts and circumstances as of the date of the
financial statements. Actual results may differ from those estimates. See also
the "Additional Risk Factors that may affect Future Results."
Recent Accounting Pronouncements
Page 9
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150
requires companies to classify and measure certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that requires a transfer of assets and that
meets the definition of liabilities in Concepts Statement 6 and other
recognition criteria in SFAS No. 5, "Recognition and Measurement in Financial
Statements of Business Enterprises," be reported as a liability. SFAS No. 150
also requires that certain obligations that could be settled by issuance of an
entity's equity but lack other characteristics of equity be reported as
liabilities even though the obligation does not meet the definition of
liabilities in Concepts Statement No. 6. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective beginning after June 15, 2003. The adoption of SFAS No. 150 is not
expected to have a material effect on our consolidated financial position,
results of operations or cash flows.
Additional Risk Factors that may affect Future Results
Our Future Operating Results Are Uncertain.
Ansoft has incurred net losses in four of the past five fiscal years. There can
be no assurance that Ansoft's revenue and net income will grow or be sustained
in future periods or that Ansoft will be profitable in any future period. Future
operating results will depend on many factors, including the degree and the rate
of growth of the markets in which Ansoft competes and the accompanying demand
for Ansoft's products, the level of product and price competition, the ability
of Ansoft to develop and market new products and to control costs, the ability
of Ansoft to expand its direct sales force and the ability of Ansoft to attract
and retain key personnel.
Our Quarterly Operating Results Are Difficult To Predict.
We are unable to accurately forecast our future revenues primarily because of
the emerging nature of the market in which we compete. Our revenues and
operating results generally depend on the size, timing and structure of
significant licenses. These factors have historically been, and are likely to
continue to be, difficult to forecast. In addition, our current and future
expense levels are based largely on our operating plans and estimates of future
revenues and are, to an extent, fixed. We may be unable to adjust spending
sufficiently or quickly enough to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues in relation to our
planned expenditures would seriously harm our business, financial condition and
results of operations. Such shortfalls in our revenue or operating results from
levels expected by public market analysts and investors could seriously harm the
trading price of our common stock. Additionally, we may not learn of such
revenue shortfalls, earnings shortfalls or other failure to meet market
expectations until late in a fiscal quarter, which could result in an even more
immediate and serious harm to the trading price of our common stock. Our
quarterly operating results have varied, and it is anticipated that our
quarterly operating results will vary, substantially from period to period
depending on various factors, many of which are outside our control. Due to the
foregoing factors, we cannot predict with any significant degree of certainty
our quarterly revenue and operating results. Further, we believe that
period-to-period comparisons of our operating results are not necessarily a
meaningful indication of future performance.
Our Stock Price Is Extremely Volatile.
The trading price of our common stock has fluctuated significantly in the past,
and the trading price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in price in response to such factors as:
- - Actual or anticipated fluctuations in our operating results;
- - Announcements of technological innovations and new products by us or our
competitors;
- - New contractual relationships with strategic partners by us or
our competitors;
- - Proposed acquisitions by us or our competitors; and
- - Financial results that fail to meet public market analyst expectations of
performance.
In addition, the stock market in general, The Nasdaq National Market and the
market for technology companies in particular has experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of such companies. These broad market and industry factors
may seriously harm the market price of our common stock in future periods.
Page 10
Businesses Or Assets We Acquire May Not Perform As Projected.
We have acquired or merged with a number of technologies, assets and companies
in recent years, including the following: Agilent Technologies, Inc.'s HFSS
product line, SIMEC Corporation, Pacific Numerix Corporation, Compact Software,
Inc., the Electronic Business Unit of MacNeal Schwendler Company and Boulder
Microwave Technologies, and as part of our efforts to increase revenue and
expand our product and services offerings we may acquire additional companies.
In addition to direct costs, acquisitions pose a number of risks, including
potential dilution of earnings per share, delays and other problems of
integrating the acquired products and employees into our business, the failure
to realize expected synergies or cost savings, the failure of acquired products
to achieve projected sales, the drain on management time for acquisition-related
activities, possible adverse effects on customer buying patterns due to
uncertainties resulting from an acquisition, and assumption of unknown
liabilities. The foregoing factors could seriously harm our business, financial
condition and results of operations.
We May Lose Competitive Advantages If Our Proprietary Rights Are Inadequately
Protected.
Ansoft's success depends, in part, upon its proprietary technology. We rely on a
combination of trade secrets, copyrights, trademarks and contractual commitments
to protect our proprietary rights in our software products. We generally enter
into confidentiality or license agreements with our employees, distributors and
customers, and limit access to and distribution of our software, documentation
and other proprietary information. Despite these precautions, a third party may
still copy or otherwise obtain and use our products or technology without
authorization, or develop similar technology independently. In addition,
effective patent, copyright and trade secret protection may be unavailable or
limited in certain foreign countries. It is possible that we may fail to
adequately protect our proprietary rights. This would seriously harm Ansoft's
business, operating results and financial condition.
We May Be Unable To Attract And Retain The Key Management And Technical
Personnel That We Need To Succeed.
Ansoft's future operating results depend in large part upon the continued
services of its key technical and management personnel. Ansoft does not have
employment contracts with any executive officer. Ansoft's future success will
also depend in large part on its ability to continue to attract and retain
highly skilled technical, marketing and management personnel. The competition
for such personnel, as well as for qualified EDA engineers, is intense. If
Ansoft is unable to attract, hire and retain qualified personnel in the future,
the development of new products and the management of Ansoft's increasingly
complex business would be impaired. This could seriously harm Ansoft's business,
operating results and financial condition.
We Depend On International Sales for a Significant Percentage Of Our Revenue.
International revenue, principally from Asian customers, accounted for
approximately 56% and 55% of our total revenue in the years ended April 30, 2003
and 2002, respectively. We expect that international license and service revenue
will continue to account for a significant portion of our total revenue for the
foreseeable future. Our international business activities are subject to a
variety of potential risks, including:
- - The impact of recessionary environments in foreign economies;
- - Longer receivables collection periods and greater difficulty in accounts
receivable collection;
- - Difficulties in staffing and managing foreign
operations;
- - Political and economic instability;
- - Unexpected changes in regulatory requirements;
- - Reduced protection of intellectual property rights in some countries; and
- - Tariffs and other trade barriers.
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Currency exchange fluctuations in countries in which we license our products
could also seriously harm our business, financial condition and results of
operations by resulting in pricing that is not competitive with products priced
in local currencies. Furthermore, we may not be able to continue to generally
price our products and services internationally in U.S. dollars because of
changing sovereign restrictions on importation and exportation of foreign
currencies as well as other practical considerations. In addition, the laws of
certain countries do not protect our products and intellectual property rights
to the same extent, as do the laws of the United States. Moreover, it is
possible that we may fail to sustain or increase revenue derived from
international licensing and service or that the foregoing factors will seriously
harm our future international license and service revenue, and, consequently,
seriously harm our business, financial condition and results of operations.
We Need To Successfully Manage Our Expanding Operations.
Ansoft has experienced rapid growth in recent years which has placed and could
continue to place a significant strain on the its managerial and other
resources. Revenues have grown from $26.3 million in fiscal 1998 to $47.3
million in fiscal year 2003. Ansoft's ability to manage growth effectively will
require it to continue to improve its operational and financial systems, hire
and train new employees and add additional space, both domestically and
internationally. Ansoft may not be successful in addressing such risks, and the
failure to do so would seriously harm Ansoft's business, financial condition and
results of operations.
We Depend On The Growth Of The Communications, Semiconductor And Electronics
Industries.
Ansoft is dependent upon the communications and semiconductor industry and, more
generally, the electronics industry. These industries are characterized by rapid
technological change, short product life cycles, fluctuations in manufacturing
capacity and pricing and gross margin pressures. Segments of these industries
have from time to time experienced significant economic downturns characterized
by decreased product demand, production over-capacity, price erosion, work
slowdowns and layoffs. Any significant downturn could be especially severe on
Ansoft. During such downturns, the number of new integrated circuit design
projects often decreases. Because acquisitions of new licenses from Ansoft are
largely dependent upon the commencement of new design projects, any slowdown in
these industries could seriously harm Ansoft's business, financial condition and
results of operations.
We Are Controlled By Our Principal Stockholders And Management Which May Limit
Your Ability To Influence Stockholder Matters.
Our executive officers, directors and principal stockholders own approximately
43% of the outstanding shares of Ansoft common stock. As a result, they have the
ability to effectively control us and direct our affairs, including the election
of directors and approval of significant corporate transactions. This
concentration of ownership also may have the effect of delaying, deferring or
preventing a change in control of our company and may make some transactions
more difficult or impossible without the support of these stockholders. The
interests of these stockholders may conflict with those of other stockholders.
Anti-Takeover Provisions in Ansoft's Certificate Of Incorporation, Bylaws, And
Under Delaware Law Could Prevent An Acquisition.
We have adopted a number of provisions that could have anti-takeover effects.
The Board of Directors has the authority to issue up to 1,000,000 shares of
Preferred Stock without any further vote or action by Ansoft's stockholders.
This and other provisions of Ansoft's Certificate of Incorporation, Bylaws and
Delaware Law may have the effect of deterring hostile takeovers or delaying or
preventing changes in control or management, including transactions in which the
stockholders of Ansoft might otherwise receive a premium for their shares over
then current market prices.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in reported market risks faced by the
Company since April 30, 2003.
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ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial and Chief
Accounting Officer, the Company evaluated the effectiveness of the design and
operation of its disclosure controls and procedures as of the end of the period
covered by this Quarterly Report on Form 10-Q, and, based on their evaluation,
the Chief Executive Officer and Chief Financial and Chief Accounting Officer
concluded that these disclosure controls and procedures are effective. There
were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's annual meeting of stockholders was held on September 22, 2003 at
which the actions below were taken:
1. The stockholders elected the following seven directors to the Company's
Board of Directors, by the votes indicated below, to serve for the ensuing
year.
Shares in Shares
Name Favor Against
---- ----- -------
Nicholas Csendes 8,597,632 2,121,632
Zoltan J. Cendes 8,597,632 2,121,632
Thomas A.N. Miller 8,598,032 2,121,232
Ulrich L. Rohde 10,416,872 302,392
Peter Robbins 10,417,072 302,192
John N. Whelihan 10,391,250 328,014
Jacob K. White 8,411,890 2,307,374
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
31.1 Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended, and
Section 302 of the Sarbanes Oxley Act of 2002
31.2 Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended, and
Section 302 of the Sarbanes Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 Of The Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 Of The Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
On August 20, 2003, Registrant filed a current report on Form 8-K to provide
under Item 9 and Item 12 the Registrant's press release in connection with its
results of operation and financial condition for Registrant's fiscal quarter
ended July 31, 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: December 8, 2003 ANSOFT CORPORATION
By: /s/ Nicholas Csendes
-------------------------------------------
Nicholas Csendes
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Anthony L. Ryan
-------------------------------------------
Anthony L. Ryan
Chief Financial Officer
(Principal Financial and Accounting Officer)
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