UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark one) [x] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended April 30, 2004 or [ ] 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 IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 225 WEST STATION SQUARE, SUITE 200 15219-1119 PITTSBURGH, PENNSYLVANIA (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) Registrant's telephone number, including area code: (412) 261-3200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, par value $.01 per share 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [X] As of October 31, 2003, the aggregate market value of voting common stock held by non-affiliates of the registrant, based upon the last reported sale price for the registrant's common stock on the Nasdaq National Market on such date, as reported in The Wall Street Journal, was $78,852,662. The number of shares of the registrant's common stock outstanding as of the close of business on July 7, 2004 was 11,677,351. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the definitive Proxy Statement of Ansoft Corporation (the "Company") to be furnished in connection with the solicitation of proxies by the Company's Board of Directors for use at the 2004 Annual Meeting of Stockholders (the "Proxy Statement") are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent provided herein. Except as specifically incorporated by reference herein, the Proxy Statement is not to be deemed filed as part of this Annual Report on Form 10-K. 1 TABLE OF CONTENTS Item of Form 10-K Page - ----------------- ---- Part I 1. Business................................................................... 3 2. Properties................................................................. 10 3. Legal Proceedings.......................................................... 10 4. Submission of Matters to a Vote of Security Holders........................ 10 Part II 5. Market for Registrant's Common Equity and Related Stockholders Matters..... 11 6. Selected Consolidated Financial Data....................................... 12 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................. 13 7(a). Quantitative and Qualitative Disclosure about Market Risk.................. 19 8. Financial Statements and Financial Statement Schedule...................... 20 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosures...................................................... 38 9(a). Controls and Procedures.................................................... 38 Part III Part III information (Item 10 through Item 14) will appear in the Registrant's Proxy Statement in connection with its Annual Meeting of Stockholders. Such Proxy Statement will be filed with the Securities and Exchange Commission and such information is incorporated herein by this reference as of the date of such filing. Part IV Item 15. Exhibits and Financial Statement Schedule..................................... 39 Signatures............................................................................. 41 Schedule II - Valuation and Qualifying Accounts Certifications 2 PART I ITEM 1. BUSINESS The statements contained in this report which are not historical are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Company's present expectations or beliefs concerning future events. The Company cautions that such statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements including those factors identified in "Risk Factors" under "Item 1. Business." The following discussion and analysis also should be read in conjunction with "Item 6. Selected Consolidated Financial Data" and our Consolidated Financial Statements and Notes thereto included elsewhere in this report. Results actually achieved may differ materially from expected results included in these statements. 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. INDUSTRY BACKGROUND In recent years, engineers have used EDA software to automate the previously manual, time-consuming and error-prone design process, resulting in dramatic increases in productivity and efficiency. EDA software can be used in each of the three phases of the electronic design process: Logic Design and Synthesis, which provides an outline of the system's overall architecture; Functional Design and Analysis, which encompasses the specification of desired functionality, functional design, simulation and analysis; and Physical Design and Verification, which involves the creation of physical layout (i.e., placement and routing) and verification that the design meets required specifications. As the marketplace demands higher levels of system performance and miniaturization, the need to model accurately the electromagnetic interaction in communication and computing devices and electromechanical components is becoming increasingly important. The design requirement to fit more devices and interconnections into smaller spaces results in increased electromagnetic interaction. Moreover, high performance systems, with frequencies of approximately 500 MHz and beyond, exhibit a high level of electromagnetic interaction causing the degradation of the quality of electrical signals. These problems are exacerbated by time-to-market pressures and the need to reduce design and development costs. While traditional EDA tools have become more sophisticated, they frequently lack the requisite degree of precision in modeling electromagnetic interactions in components and systems. As a result, the current process for designing and manufacturing wireless and electronic components and systems is often iterative, time-consuming and inaccurate. Designs are generated, devices and systems are developed, prototypes are manufactured, performance is measured and assessed and designs are then refined to meet the original performance specifications. This entire process is typically repeated a number of times, lengthening the design process, increasing costs and resulting in lost market opportunities. THE ANSOFT SOLUTION Our software products allow design engineers to model component level and system level electromagnetic interaction which we believe is crucial to the effective design of electronic systems and components. Our products apply electromagnetic principles, derived from Maxwell's Equations, to more accurately model electromagnetic interaction. By using Ansoft software products to analyze electromagnetic interaction, we believe that end users of our products are able to reduce the time-to-market for their products, lower the risks of design failure and eliminate costly and time-consuming product redesign. Ansoft's software products may be used as an independent design platform or integrated with complementary EDA tools within a customer's existing design environment. Our research and development team has broad expertise in electromagnetic simulation, electrical engineering, applied mathematics and software development, enabling Ansoft to continue to advance its electromagnetics-based EDA software. 3 ANSOFT STRATEGY Ansoft's objective is to become a leading worldwide supplier of high performance EDA software. Using our proprietary electromagnetic technology as a primary competitive advantage, we pursue our objectives through the following strategies: leveraging our technology leadership to solve emerging electromagnetic design issues in high performance electrical devices and systems; capitalizing on the growing need for electromagnetic analysis in increasingly compact and complex electronic and electromechanical components and systems operating at higher speeds; and expanding our broad range of product applications to address emerging customer design requirements. PRODUCTS Our high-frequency software enables users to design radio frequency integrated circuits (RFICs), antenna and radar systems and microwave components. Our signal integrity software enables users to design computer interconnects, monolithic microwave integrated circuits (MMICs), integrated circuit (IC) packaging structures and electronic systems by accurately capturing the degradation in signal quality due to higher clock speeds and smaller physical dimensions. Our low frequency software products enable designers of electromechanical components and systems to optimize the electrical performance of their designs while increasing manufacturing yields. We currently provide several products that address our customers' component and system level design needs. Customers encounter different combinations of challenges in their designs and often purchase multiple products. We have organized the products below by their market application. Ansoft High Frequency Software HFSS is a three dimensional (3D) electromagnetic field simulation software for high frequency, radio frequency (RF) and wireless design. Ansoft HFSS brings the power of the finite element method (FEM) to the engineer's desktop by leveraging advanced techniques such as automatic adaptive mesh generation and refinement, tangential vector finite elements, and Adaptive Lanczos Pade Sweep (ALPS). HFSS automatically computes multiple adaptive solutions until a user-defined convergence criterion is met. Ansoft Designer is the first suite of design tools to fully integrate high-frequency, physics-based electromagnetic simulation into a seamless environment. Ansoft Designer merges the power of electromagnetics, into circuit and system-level simulation. The key to this integration is a unique capability called solver-on-demand(TM) that orchestrates the use of multiple solvers - while still giving you complete control. Ansoft Designer extends this automation and integration even further by enabling work created in other types of design software to be rapidly imported as easily as if it was created directly in Ansoft Designer. Ansoft's Signal Integrity Software SIwave is a wave-enabled software product for the advanced analysis of printed circuit boards (PCBs), components, and packages, SIwave is the only signal-integrity tool on the market to generate both frequency- and time-domain results, allowing engineers to model not only individual components, but also entire PCBs and package structures. Q3D Extractor, a physics-based EDA tool for the electromagnetic-field simulation of two-dimensional (2D) and arbitrary three-dimensional (3D) structures, provides engineers with unprecedented levels of accuracy and confidence in their designs. Consisting of 2D and 3D solver engines, an easy-to-use drawing tool, and a built-in SPICE simulator, Q3D Extractor provides engineers with a complete environment to extensively analyze their high-speed electronic designs. Turbo Package Analyzer (TPA) is an advanced software tool that automates the analysis of all complex semiconductor packages. TPA can analyze flip-chip, chip-scale package, and multiple-die system-in-package designs common in the networking and broadband communications markets. Ansoft's Electromechanical (EM) Software Maxwell 3D and 2D are comprehensive, easy-to-use software tools for design problems requiring an accurate, two-dimensional or three-dimensional representation of the electric or magnetic field behavior. Maxwell includes 4 AC/DC magnetic, electrostatic, and transient electromagnetic fields; thermal analysis; parametric modeling; and optimization. Additionally, Maxwell produces highly accurate equivalent circuits for inclusion within Ansoft's SIMPLORER(R) and other circuit tools. SIMPLORER is a sophisticated multi domain simulation package for the design of complex power electronic and drive systems. SIMPLORER is based on a unique simulator coupling technology and provides exceptional simulation speed combined with high accuracy and numerical stability. The intuitive graphical user interface allows a fast and easy model generation using three modeling languages - electrical circuits, block diagrams and state machines. Models are developed using a powerful schematic capture program. Simulation results may be displayed with oscilloscopes or digital displays using SIMPLORER's unique Active Elements Technology. PEmag is a specialized software package for power electronics engineers wishing to perform advanced electromagnetic and signal analysis of magnetic components. PEmag is especially well suited for the design of custom magnetic components. RMxprt helps electric-machine manufacturers capitalize on this growing opportunity by allowing designers to make sizing decisions and to estimate performance during the initial stage of the design process. RMxprt is an ideal tool for calculating critical design parameters, such as torque vs. speed, power loss, flux in the air gap, and efficiency. Ansoft's Add-On Modules AnsoftLinks provides unidirectional and bidirectional links for streamlining data import and exportation between Ansoft's products and popular electronic design automation (EDA) packages and Mechanical CAD (MCAD) packages. EDA links include such companies as Cadence(R), Synopsys(R), Zuken(R), and Mentor(R). MCAD links include IGES and STEP formats common to ProE, Catia and Unigraphics. Full-Wave Spice is an add-on module for Ansoft's electromagnetic field solvers enabling SPICE transient analysis of interconnects for gigabit ethernet, optoelectronic packaging, and other broadband communications design. Full-Wave Spice provides high-bandwidth SPICE models at the touch of a button. This capability enables engineers to design electronic and communication components while taking Gigahertz-frequency effects into account. Optimetrics is an add-on module for Ansoft's electromagnetic field solvers which provides integrated parametrics and optimization. Optimetrics is a smart parametrics and optimization engine that allows users to perform parametric analysis, optimization, sensitivity analysis, and other design studies from an easy to use interface. RESEARCH AND DEVELOPMENT Ansoft has a team of research engineers focused on the mathematical and physical underpinnings of the Company's simulation algorithms. Dr. Zoltan Cendes, a founder of the Company, serves as the technical leader of the group. By virtue of over 20 years of research and development by Dr. Cendes prior to the Company's inception in 1984, and by its internal research and development staff thereafter, Ansoft has pioneered the following technologies: automatic and adaptive convergence to solutions, asymptotic waveform evaluation for spectral domain solutions, transfinite elements, edge elements and tangential vector finite elements and fast multipole acceleration algorithms. We continually seek to design and develop new technologies, products and interfaces based on our core electromagnetic expertise. This effort includes releasing improved versions of our products on a regular basis as well as developing new products. Ansoft assigns an interdisciplinary team of personnel from research and development, software development, documentation, quality assurance, customer support and marketing to each product development project. Ansoft develops cooperative relationships with major customers with respect to beta-testing its new products or enhancements and implementing suggestions for new product features. The Company also maintains cooperative relationships with the major hardware vendors on which the Company's products operate. As of April 30, 2004, Ansoft's research and development group consisted of 101 employees. During fiscal 2004, 2003 and 2002, total research and development expenses were $15.7 million, $18.6 million and $17.7 million, respectively. In July 2000, Ansoft announced its formation of Altra Broadband to pursue the development of intellectual property 5 and products for broadband wireless and optical communications. In spite of certain technical successes, profitable deployment of intellectual property developed by Altra Broadband's Irvine Technology Center in this telecom environment was deemed unlikely in the near term. As such, the Company closed the Irvine Technology Center during the quarter ended October 31, 2002, resulting in a restructuring charge of $532,000 that is included in "Research and development expense." SALES AND MARKETING Ansoft markets and sells its products worldwide through its direct sales force. The Company hires application engineers with significant industry experience who can analyze the needs of its customers and gain technical insight into the development of future products and enhancements to existing products. The Company's application engineers work with the direct sales force to provide on-site support during critical stages of the user's benchmark, evaluation and implementation processes. The Company generates sales leads through customer referrals, advertising in trade publications and on the internet. In addition, the Company participates in industry trade shows and organizes seminars to promote and expand the adoption of its products. In North America, the Company maintains sales and support offices in Arizona, California, Florida, Illinois, Massachusetts, Michigan, New Jersey, Ohio, Texas, Wisconsin, and Pennsylvania. In Asia-Pacific, the Company maintains sales and support offices in Japan, Korea, Singapore, Taiwan, and China. In Europe, the Company maintains sales and support offices in England, Germany, France, Italy and Denmark. As of April 30, 2004, the Company had a direct sales force of 46 representatives, supported by 104 employees in application engineering, marketing and sales administration. CUSTOMERS The Company has significant breadth in its installed base with over 1,000 customers in the communications, semiconductor, automotive/industrial, computer, consumer electronics and defense/aerospace industries. No single customer in the Company's installed base accounted for more than 10% of total revenue within any of the past three fiscal years. The following table lists a representative sample of the Company's current worldwide end-user customers by industry that have generated greater than $100,000 in revenue during the fiscal year ended April 30, 2003 or April 30, 2004. COMMUNICATIONS SEMICONDUCTOR AUTOMOTIVE/INDUSTRIAL - -------------- ------------- --------------------- Motorola Intel Daimler Chrysler Ericsson Harris Delphi Rockwell AMCC Mitsubishi Siemens Amkor Electronics Ford Motor EMS On Semiconductor General Motors Nortel LG Nissan ST Microelectronics Qualcomm Robert Bosch Cisco Toyota COMPUTER CONSUMER ELECTRONICS DEFENSE/AEROSPACE - -------- -------------------- ----------------- Cray Kyocera Raytheon Fujitsu Matsushita Boeing Hitachi Mitsubishi Lockheed-Martin Honeywell Phillips Northrop Grumman IBM Sony TRW NEC Toshiba US Navy Sun Microsystems Seiko Epson NASA CUSTOMER SERVICE AND SUPPORT Ansoft offers customers annual maintenance contracts that may generally be purchased for 15% of the list price of the respective software product. Customer support services include on-line and telephone support for design engineers and on-site and in-house training on all products. Customers with maintenance agreements receive product enhancement releases, typically identified by a subsequent whole number version of the same product name (e.g., 6 HFSS V9). Product upgrades that add significant new functionality are typically separately identified as an add-on module and have a stand-alone list price (e.g., Optimetrics) and are not covered by the annual maintenance agreement. We offer a variety of training programs for customers ranging from introductory level courses to advanced training for an additional fee. COMPETITION The electronic design automation software market in which Ansoft competes is intensely competitive and subject to rapid change. Within our High Frequency Software products, Ansoft competes directly with certain software offerings from Agilent Corporation and certain smaller privately-held companies on a limited basis. Within our Signal Integrity Software products, Ansoft mainly competes with in-house analysis tools or test and measurement methodologies and products of certain smaller privately-held companies. Within our Electromechanical Software products, Ansoft faces limited competition from certain product offerings from Synopsys, Mentor Graphics, Ansys, and certain smaller privately-held companies. In addition, the EDA industry has become increasingly concentrated in recent years as a result of acquisitions, and further concentration within the EDA industry could result in increased competition for Ansoft. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could seriously harm Ansoft's business, operating results or financial condition. Ansoft may be unable to compete successfully against current and future competitors, and competitive pressures faced by Ansoft could seriously harm Ansoft's business, operating results and financial condition. We believe that the principal competitive factors in our market include: - High performance (problem complexity) and accuracy; - Short run time; - Ease of use; - Depth and breadth of product features; - High quality user support; - Interoperability; and - Price. PROPRIETARY RIGHTS Ansoft is heavily dependent on its proprietary software technology. The Company relies on a combination of non-competition and confidentiality agreements with its employees, license agreements, copyrights, trademarks and trade secret laws to establish and protect proprietary rights to its technology. Ansoft does not hold any patents. All Ansoft software is shipped with a security lock which limits software access to authorized users. In addition, the Company does not license or release its source code. Effective copyright and trade secret protection of the Company's proprietary technology may be unavailable or limited in certain foreign countries. EMPLOYEES As of April 30, 2004, Ansoft had a total of 276 employees, including 101 in research and development, 150 in sales, marketing, and customer support services and 25 in administration. None of the Company's employees is represented by a collective bargaining agreement, nor has the Company experienced any work stoppage. The Company considers its relations with its employees to be good. Many of the company's employees are highly skilled, and there is no assurance that the Company will be able to attract and retain sufficient technical personnel in the future. OTHER INFORMATION Ansoft maintains investor relations pages on its internet website at http://www.ansoft.com. On these pages, Ansoft makes available its annual, quarterly and other current reports filed or furnished with the SEC as soon as practicable. These reports may be reviewed or downloaded free of charge. RISK FACTORS Our Future Operating Results Are Uncertain. Ansoft has incurred net losses in three 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 7 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 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. 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 Agilent Technologies' HFSS product line within the past three years. As part of our efforts to increase revenue and expand our product and services offerings we may acquire additional companies in the future. 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. 8 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 57% and 56% of our total revenue in the years ended April 30, 2004 and 2003, 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. Currency exchange fluctuations in countries in which we license our products could also seriously harm our business, financial condition and results of operations. 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. Revenues have grown from $8.7 million in fiscal 1996 to $54.7 million in fiscal year 2004, and the number of employees has grown from 69 in April 1996 to 276 as of April 30, 2004. 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 42% 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. 9 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 2. PROPERTIES Ansoft occupies approximately 28,000 square feet of space at its headquarters in Pittsburgh, Pennsylvania under a lease expiring in 2006. The Company also leases sales and support offices in North America, Europe and Asia. Our current aggregate annual rental expenses for these facilities is approximately $2.5 million. Ansoft believes that its existing facilities are adequate for its current needs and that suitable additional space will be available when needed. ITEM 3. LEGAL PROCEEDINGS Ansoft is not a party to any litigation and is not aware of any threatened litigation, unasserted claims or assessments that could have a material adverse effect on the Company's business, consolidated operating results or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS The following table sets forth, for the periods indicated, the range of high and low last reported sale prices for the common stock as reported on the Nasdaq National Market. HIGH LOW -------- -------- FISCAL YEAR ENDED APRIL 30, 2005 1st Quarter (through July 7, 2004)................. $ 15.280 $ 12.860 FISCAL YEAR ENDED APRIL 30, 2004 1st Quarter........................................ $ 11.200 $ 8.050 2nd Quarter........................................ 12.430 9.520 3rd Quarter........................................ 14.900 10.910 4th Quarter........................................ 15.760 12.850 FISCAL YEAR ENDED APRIL 30, 2003 1st Quarter........................................ $ 12.100 $ 5.690 2nd Quarter........................................ 5.989 4.049 3rd Quarter........................................ 7.070 4.750 4th Quarter........................................ 8.530 5.830 The Company has never paid any cash dividends on its common stock. We currently intend to retain the earnings from operations for use in the business and do not anticipate paying cash dividends with respect to our common stock in the foreseeable future. The payment of any future dividends will be determined by the Board of Directors in light of the then current conditions, including but not limited to the Company's earnings and financial condition. On July 7, 2004, the Company had 288 shareholders of record, of which certain of the recordholders were registered clearing agencies holding common stock on behalf of participants of such clearing agencies. See "Equity Compensation Plan Information," Item 12 in Part III, which is incorporated by reference herein. Equity Compensation Plan Information As of April 30, 2004 Weighted- average exercise price of Number of securities to be outstanding Number of securities remaining issued upon exercise of options, available for future issuance outstanding options, warrants and under equity compensation warrants and rights rights plans -------------------------- ---------------- ------------------------------ Plan Category Equity compensation plans approved by security holders 3,464,485 $ 7.41 242,100 --------- ------ ------- Total 3,464,485 $ 7.41 242,100 ========= ====== ======= In the fourth quarter of fiscal year ended April 30, 2004, we purchased 183,500 shares of Treasury Stock at an average price of $14.56. For the fiscal year ended April 30, 2004, we purchased 406,600 shares of Treasury Stock at an average price of $12.63. 11 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected condensed consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related Notes thereto appearing elsewhere herein. FISCAL YEAR ENDED APRIL 30, ------------------------------------------------------ 2004 2003 2002 2001 2000 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA Revenue: License $ 32,301 $ 27,540 $ 36,683 $ 29,951 $ 22,709 Service and other 22,352 19,779 16,752 13,607 10,782 -------- -------- -------- -------- -------- Total revenue 54,653 47,319 53,435 43,558 33,491 -------- -------- -------- -------- -------- Cost of revenue: License 702 683 938 843 780 Service and other 1,155 970 871 701 529 -------- -------- -------- -------- -------- Total cost of revenue 1,857 1,653 1,809 1,544 1,309 -------- -------- -------- -------- -------- Gross profit 52,796 45,666 51,626 42,014 32,182 -------- -------- -------- -------- -------- Operating expenses: Sales and marketing 26,930 24,611 24,966 22,025 18,579 Research and development 15,690 18,588 17,705 12,711 10,176 General and administrative 4,488 4,284 4,555 3,667 3,322 Amortization 3,182 3,428 4,129 1,940 2,045 -------- -------- -------- -------- -------- Total operating expenses 50,290 50,911 51,355 40,343 34,122 -------- -------- -------- -------- -------- Income (loss) from operations 2,506 (5,245) 271 1,671 (1,940) Other income (expense), net 904 1,152 1,347 (1,608) 1,640 -------- -------- -------- -------- -------- Income (loss) before income taxes 3,410 (4,093) 1,618 63 (300) Income tax expense (benefit) 854 (970) 404 908 (66) -------- -------- -------- -------- -------- Net income (loss) $ 2,556 $ (3,123) $ 1,214 $ (845) $ (234) ======== ======== ======== ======== ======== Basic net income (loss) per share $ 0.22 $ (0.26) $ 0.10 $ (0.07) $ (0.02) ======== ======== ======== ======== ======== Diluted net income (loss) per share $ 0.19 $ (0.26) $ 0.09 $ (0.07) $ (0.02) ======== ======== ======== ======== ======== Weighted average shares outstanding - basic 11,672 11,809 11,844 11,690 11,460 Weighted average shares outstanding - diluted 13,248 11,809 13,649 11,690 11,460 APRIL 30, ----------------------------------------------- 2004 2003 2002 2001 2000 ------- ------- ------- ------- ------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA Cash and cash equivalents $15,218 $ 7,173 $ 5,269 $ 9,412 $ 2,594 Working capital 10,465 8,965 7,497 11,653 9,131 Total assets 67,636 63,154 68,224 57,973 53,610 Long term liabilities 10,000 10,000 10,520 9,060 9,194 Total stockholders' equity 41,686 39,826 43,647 41,595 39,047 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The statements contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" which are not historical are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Company's present expectations or beliefs concerning future events. The Company cautions that such statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements including those factors identified in "Risk Factors" under "Item 1. Business." The following discussion and analysis also should be read in conjunction with "Item 6. Selected Consolidated Financial Data" and our Consolidated Financial Statements and Notes thereto included elsewhere in this report. Results actually achieved may differ materially from expected results included in these statements. Ansoft Corporation ("Ansoft" or the "Company") is a developer of high performance 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, design optimal product size and materials, eliminate physical prototypes, and reduce time-to-market. Our overall sales increased this past year. We had an increase in revenues of 15% for the fiscal year ending April 30, 2004 as compared to the prior year. The increase in revenues is primarily attributed to an improving economy particularly in the technology sectors. The following three specific factors can be further attributed to the increase in revenues; significant improvement in our Japanese business, growth in the defense and consumer electronic customers, as well as, good growth in our electromechanical business. All these factors contributed to an increase in new license revenue for fiscal year ending April, 30, 2004. In future years, we believe the technology industry should continue to experience increased demand for wireless products, as well as, the continuation of improvement in size, speed and functionality for high performance electronics. Ansoft's products are classified into three categories, high frequency (HF), signal integrity (SI), and electromechanical (EM). The following table presents product sales by market application as a percentage of total sales: 2004 2003 2002 ---- ---- ---- High Frequency 66% 65% 69% Signal Integrity 13% 17% 15% Electromechanical 21% 18% 16% 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. Ansoft recognizes revenue in accordance with SOP 97-2, "Software Revenue Recognition," and related interpretations. Accordingly, revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the vendor's fee is fixed or determinable, and collectibility is probable. 13 License revenue - Ansoft licenses its software on a perpetual basis with no right to return or exchange the licensed software. License revenue is recognized based on the residual method. Postcontract customer support ("PCS") for an initial three month period 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. Service and other revenue - consists primarily of PCS revenue. Ansoft offers customers one-year maintenance contracts generally at 15% of the list price of the respective software products. Ansoft recognizes all maintenance revenue ratably over the respective maintenance period. Customers typically 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. The allowance for doubtful accounts as of April 30, 2004 and 2003 was $903,000 and $818,000 respectively. The increase in allowance in fiscal 2004 was primarily due to the overall business environment of our customers. No particular customer was a cause of the changes in allowances. We had no significant changes in our collection policies or payment terms Impairment of Long-Lived Assets The Company reviews assets with definite lives 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. Goodwill and purchased intangibles with indefinite lives are reviewed annually for impairment. A determination of impairment is based on the estimated fair value of the reporting entity. 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. The company considers projected future taxable income and tax planning strategies in making this assessment. To the extent a deferred tax asset cannot be recognized under the preceding criteria, a valuation allowance is 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 "Risk Factors" under "Item 1. Business." 14 RESULTS OF OPERATIONS FISCAL YEAR ENDED FISCAL YEAR ENDED APRIL 30 APRIL 30 -------- -------- (IN THOUSANDS) PERCENT PERCENT 2004 2003 CHANGE 2003 2002 CHANGE ---- ---- ------ ---- ---- ------ Sales $ 54,653 $ 47,319 15.5% 47,319 53,435 (11.4%) Cost of Revenue 1,857 1,653 12.3% 1,653 1,809 (8.6%) -------- -------- ------ ------ Gross Profit 52,796 45,666 15.6% 45,666 51,626 (11.5%) -------- -------- ------ ------ Sales and Marketing 26,930 24,611 9.4% 24,611 24,966 (1.4%) Research and Development 15,690 18,588 (15.6%) 18,588 17,705 5.0% General and Administrative 4,488 4,284 4.8% 4,284 4,555 (5.9%) Amortization 3,182 3,428 (7.2%) 3,428 4,129 (17.0%) -------- -------- ------ ------ Total Operating Expenses 50,290 50,911 (1.2%) 50,911 51,355 (0.8%) -------- -------- ------ ------ Income (loss) from operations 2,506 (5,245) 147.7% (5,245) 271 (2,035.4%) Other income, net 904 1,152 (21.5%) 1,152 1,347 (14.5%) -------- -------- ------ ------ Income (loss) before income taxes 3,410 (4,093) 183.3% (4,093) 1,618 (353.0%) Income Tax Expense (Benefit) 854 (970) 188.0% (970) 404 (340.1%) -------- -------- ------ ------ Net Income (loss) $ 2,556 (3,123) 181.8% (3,123) 1,214 (157.2%) ======== ======== ====== ====== YEAR ENDED APRIL 30, 2004 COMPARED WITH YEAR ENDED APRIL 30, 2003 Revenue. Total revenue for the year ended April 30, 2004 increased 15% to $54.7 million from $47.3 million in the previous fiscal year. License revenue increased 17% to $32.3 million from $27.5 million. The increase is primarily attributable to increased demand from customers for our HF and EM products. The increase in revenues can also be attributed to an improving economy, particularly an improvement in the technology sectors resulting in an increased demand for our software products. Service and other revenue increased by 13% to $22.4 million from $19.8 million due to the continued growth of the installed base of customers. Deferred revenue as of April 30, 2004 increased $1.1 million. International revenue accounted for 57% and 56% of the Company's total product revenue in the years ended April 30, 2004 and 2003, respectively. Revenue in Asia accounted for 40% and 41% and revenue in Europe accounted for 17% and 15% in the years ended April 30, 2004 and 2003. Future international sales may be subject to additional risks associated with international operations, including currency exchange fluctuations, tariff regulations and requirements for export, and licenses may on occasion be delayed or difficult to obtain. We expect international revenue to remain approximately at 55% of total revenues in the next fiscal year. 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. Our cost of license revenue increased 3% to $702,000 from $683,000 in the previous fiscal year. This increase was attributable to the increase in the number of new license orders from the previous fiscal year. Our cost of service and other revenue increased 19% to $1.2 million from $970,000 in the previous fiscal year primarily due to the continued growth in our existing installed customer base. Continuing increases in our installed customer based should result in increases in the cost of revenue in future years. Sales and marketing expenses. Sales and marketing expenses consist of salaries, commissions paid to sales and marketing personnel, promotional costs and related operating expenses. Sales and marketing expenses increased 9% to $26.9 million in the year ended April 30, 2004, as compared to $24.6 million in the previous fiscal year. The increase was due to higher commission expense as a result of a higher level of sales. Sales and marketing expenses represented 49% and 52% of total revenue in the years ended April 30, 2004 and 2003, respectively. The decrease in the percentage is primarily due to an improvement in operating margins as a result of increased overall sales from the 15 prior year. Management expects that sales and marketing expenses will increase between 6% and 7% in absolute dollars in the next fiscal year. This increase is due to projected increases in revenues for the fiscal year ending April 30, 2005. 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 decreased by 16% to $15.7 million in the year ended April 30, 2004, as compared to $18.6 million in the previous fiscal year. The decrease in research and development expenses was primarily attributable to the closing of our Altra Broadband development site in Irvine, California in the third quarter of fiscal year ended April 30, 2003 and the consolidation of some research and development facilities during the fiscal year ending April 30, 2004. Research and development expenses represented 29% and 39% of total revenue in the years ended April 30, 2004 and 2003, respectively. Ansoft anticipates that research and development expenses will increase approximately 10% for the next fiscal year. Research and development costs will increase primarily due to anticipated growth in our personnel to meet software development requirements. General and administrative expenses. General and administrative expenses increased by 5% to $4.5 million in the year ended April 30, 2004, as compared to $4.3 million in the previous fiscal year. General and administrative expenses represented 8% and 9% of total revenue in the years ended April 30, 2004 and 2003. Ansoft anticipates that general and administrative expenses for the next fiscal year are expected to increase approximately 10%. Amortization expense. Amortization expense in the fiscal year ended April 30, 2004 was $3.2 million, as compared to $3.4 million the previous fiscal year. The decrease was mainly due to certain intangibles becoming fully amortized in the current fiscal year. Other income (expense) and interest expense, net. Other income (expense) and interest expense for the year ended April 30, 2004 was $904,000, compared to $1.2 million reported for the previous fiscal year. The decrease is due primarily to lower interest rates and investment returns in the current period. Income tax expense (benefit). In the year ended April 30, 2004, the Company recorded a tax expense of $854,000. The effective tax rate of 25% is primarily the result of research and development tax credits available in the current year. YEAR ENDED APRIL 30, 2003 COMPARED WITH YEAR ENDED APRIL 30, 2002 Revenue. Total revenue for the year ended April 30, 2003 decreased 11% to $47.3 million from $53.4 million in the previous fiscal year. License revenue decreased 25% to $27.5 million from $36.7 million. The primary reason for the decrease in license revenue for the period ending April 30, 2003 was due to the overall downturn in the technology sector. Service and other revenue increased by 18% to $19.8 million from $16.8 million due to the continued growth of the installed base of customers under annual maintenance agreements. Primarily due to this growth of the installed base of customers under maintenance contracts, deferred revenue as of April 30, 2003 increased $2 million. International revenue accounted for 56% and 55% of the Company's total product revenue in the years ended April 30, 2003 and 2002, respectively. The Company's future international sales may be subject to additional 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. Our cost of license revenue decreased 27% to $683,000 from $938,000 in the previous fiscal year. This decrease was primarily due to lower overall sales of new licenses in fiscal 2003. Our cost of service and other revenue increased 11% to $970,000 from $871,000 in the previous fiscal year primarily due to increased personnel providing customer support. Sales and marketing expenses. Sales and marketing expenses consist of salaries, commissions paid to sales and marketing personnel, promotional costs and related operating expenses. Sales and marketing expenses decreased 1% to $24.6 million in the year ended April 30, 2003, as compared to $25 million in the previous fiscal year. The decrease was due to lower commission expense as a result of a lower level of sales. Sales and marketing expenses represented 52% and 47% of total revenue in the years ended April 30, 2003 and 2002, respectively. 16 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 increased by 5% to $18.6 million in the year ended April 30, 2003, as compared to $17.7 million in the previous fiscal year. Research and development expenses increased by 15% due to the continued research and development efforts for Ansoft's current and future software products. Research and development expenses decreased by 10% due to the closing of the Altra Broadband Irvine Technology Center and other cost control measures. In July 2000, Ansoft announced its formation of Altra Broadband to pursue the development of critical intellectual property and products for broadband wireless and optical communications. In spite of certain technical successes, profitable deployment of intellectual property developed by Altra Broadband's Irvine Technology Center in this telecom environment was deemed unlikely in the near term. As such, the Company closed the Irvine Technology Center during the quarter ended October 31, 2002, resulting in a restructuring charge of $532,000 that is included in "Research and development expense." Research and development expenses represented 39% and 33% of total revenue in the years ended April 30, 2003 and 2002, respectively. General and administrative expenses. General and administrative expenses decreased by 6% to $4.3 million in the year ended April 30, 2003, as compared to $4.6 million in the previous fiscal year. The decrease is due to general cost control measures. General and administrative expenses represented 9% of total revenue in each of the years ended April 30, 2003 and 2002. Amortization expense. Amortization expense in the year ended April 30, 2003 was $3.4 million, as compared to $4.1 million the previous fiscal year. The decrease was mainly due to the Company ceasing to amortize approximately $1.2 million of goodwill in conjunction with the adoption of SFAS 142, effective May 1, 2002. Other income (expense) and interest expense, net. Other income (expense) and interest expense for the year ended April 30, 2003 was $1.2 million, compared to $1.3 million reported for the previous fiscal year. The decrease is due primarily to lower interest rates and investment returns in the current period. Income tax expense (benefit). In the year ended April 30, 2003, the Company recorded a tax benefit of $1 million. In addition, during the year a study of federal research and development credits was completed. The Company has determined that it has approximately $2.2 million in research and development credits for all years through April 30, 2003 that are available to reduce future federal income taxes, if any, through April 30, 2022. The ultimate realization of these and other deferred tax assets are dependant upon the generation of future taxable income. Based on an analysis of taxable income projections, management has recorded a valuation allowance. QUARTERLY RESULTS OF OPERATIONS The following table presents unaudited quarterly results for each quarter of fiscal 2004 and fiscal 2003. The information has been prepared on a basis consistent with the Company's annual consolidated financial statements and, in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for such periods. The Company's quarterly results have been in the past, and may be in the future, subject to fluctuations due to increased competition, the timing of new product announcements, changes in pricing policies by the Company or its competitors, market acceptance of new and enhanced versions of the Company's products and the size and timing of significant license transactions. The Company believes that results of operations for the interim periods are not necessarily indicative of the results to be expected for any future period. The Company's business historically has shown sequential increases in revenues on a quarterly basis, with the first fiscal quarter generally being the lowest quarter for revenue in the fiscal year. 17 FISCAL 2004 APRIL 30, JAN. 31, OCT. 31, JULY 31, 2004 2004 2003 2003 -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenue $ 17,761 $ 13,982 $ 12,258 $ 10,651 Income (loss) from operations $ 3,585 $ 1,008 $ (237) $ (1,850) Net income (loss) $ 2,830 $ 941 $ (22) $ (1,192) Basic net income (loss) per share $ 0.24 $ 0.08 $ (0.00) $ (0.10) Diluted net income (loss) per share $ 0.21 $ 0.07 $ (0.00) $ (0.10) Weighted average number of shares outstanding - basic 11,738 11,640 11,637 11,672 - diluted 13,504 13,306 11,637 11,672 FISCAL 2003 APRIL 30, JAN. 31, OCT. 31, JULY 31, 2003 2003 2002 2002 -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenue $ 15,112 $ 12,362 $ 10,557 $ 9,288 Income (loss) from operations $ 2,611 $ (367) $ (3,068) $ (4,421) Net income (loss) $ 2,476 $ (58) $ (2,198) $ (3,343) Basic net income (loss) per share $ 0.21 $ (0.00) $ (0.19) $ (0.28) Diluted net income (loss) per share $ 0.20 $ (0.00) $ (0.19) $ (0.28) Weighted average number of shares outstanding - basic 11,715 11,764 11,817 11,940 - diluted 12,488 11,764 11,817 11,940 LIQUIDITY AND CAPITAL RESOURCES As of April 30, 2004, Ansoft had $15.2 million in cash and cash equivalents and working capital of $10.5 million. Net cash provided by operating activities was $13.8 million, $4.2 million and $4.4 million in fiscal 2004, 2003, and 2002, respectively. Net cash (used in) provided by investing activities was $(3.9) million, $975,000 and $(11.2) million in fiscal 2004, 2003, and 2002, respectively. Capital expenditures, consisting primarily of purchases of computer equipment, were $1.3 million, $755,000 and $2.6 million in fiscal 2004, 2003, and 2002, respectively. Net proceeds from the sale (purchase) of securities were $(2.6) million, $1.3 million, and $(1.0) million in fiscal 2004, 2003, and 2002, respectively. Net cash used in the investment of acquired business from Agilent was $7.5 million in fiscal 2002. Net cash (used in) provided by financing activities were $(2.1) million, $(3.6) million and $3.2 million in fiscal 2004, 2003, and 2002, respectively. In fiscal 2003 Ansoft repaid its note payable of $1.9 million. Proceeds from the issuance of common stock were $3.0 million, $494,000, and $2.3 million in fiscal 2004, 2003, and 2002, respectively. Funds used for the purchase of treasury stock were $5.1 million, $2.3 million and $70,000 in fiscal 2004, 2003, and 2002, respectively. 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. The line of credit is secured by the marketable securities held with this institution, and includes a minimum tangible net worth covenant. The Company was in compliance with all financial covenants as of April 30, 2004 and 2003. As of April 30, 2004, $10.0 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 next year. 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 is as follows (in 000s): PAYMENT DUE BY PERIOD LESS THAN 1-3 3-5 MORE THAN TOTAL 1 YEAR YEARS YEARS 5 YEARS ------- --------- ------- ------- --------- CONTRACTUAL OBLIGATIONS Long Term Debt Obligations $10,000 - $10,000 - - Operating Lease Obligations $ 3,731 $ 1,332 $ 1,766 $ 633 - ------- ------- ------- ------- ------- Total $13,731 $ 1,332 $11,766 $ 633 - 18 Stock Repurchase Program. In September 2002, our Board of Directors voted to amend the existing 1,000,000 common stock repurchase program to permit the Company to acquire an additional 1,000,000 shares of its Common Stock. Common shares reacquired are intended to be used for general corporate purposes. As of the date we filed this Annual Report on Form 10-K with the SEC, we had repurchased 1.75 million shares under the repurchase program. For the fiscal year ending April 30, 2004, we purchased 406,600 shares at an average price of $12.63. Foreign Currency Fluctuations. Foreign currency exchange rates positively (negatively) affected revenue by approximately $1.8 million, $1.4 million and ($653,000) in fiscal 2004, 2003, and 2002, respectively, primarily due to the fluctuations of the Japanese yen and euro in relation to the U.S. dollar. EFFECTS OF INFLATION To date, inflation has not had a material impact on the Company's consolidated financial results. Seasonal Effects Traditionally, sales in the first quarter will decrease from the fourth quarter of the prior fiscal year. Revenues will sequentially increase over the next three quarters of the fiscal year. The fourth quarter is typically the highest revenue quarter for the fiscal year. ITEM 7.(a) QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Interest Rate Risk. The Company's exposure to market risk for changes in interest rates relates primarily to its investment portfolio. The Company mitigates its risk by diversifying its investments among securities and limits the amount of credit exposure to any one issuer. The Company does not hedge any interest rate exposures. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. The following table presents the carrying value and related weighted-average interest rates for the Company's investments subject to variable interest rates and debt. The carrying value approximates fair value at April 30, 2004. APRIL 30, -------------------------------------------------------------- 2005 2006 2007 2008 2009 THEREAFTER TOTAL (AMOUNTS IN THOUSANDS) Marketable Securities (bond funds) $17,413 -- -- -- -- -- $ 17,413 Average % Rate 4.91% -- -- -- -- 4.91% Variable Rate Debt -- $10,000 -- -- -- -- $ 10,000 Average % Rate -- 1.90% -- -- -- -- 1.90% As of April 30, 2003, the Company had bond mutual funds and variable rate debt of $19.3 million, and $10 million, respectively. The average rates of return for bond mutual funds and variable rate debt at April 30, 2003 were 5.88%, and 1.94%, respectively. Foreign Currency Risk. The Company transacts business in various foreign currencies. Accordingly, the Company is subject to exposure from adverse movements in foreign currency exchange rates. As of April 30, 2004, the Company had no hedging contracts outstanding. The Company assesses the need to utilize financial instruments to hedge currency exposures on an ongoing basis. Approximately 50-57% of our sales are subject to foreign exchange fluctuations, however, the company did not experience any material fluctuations in fiscal year ending April 30, 2004. 19 ITEM 8. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE INDEX TO FINANCIAL STATEMENTS PAGE ---- Report of Independent Registered Public Accounting Firm 21 Consolidated Balance Sheets as of April 30, 2004 and 2003 22 Consolidated Statements of Operations for the fiscal years ended April 30, 2004, 2003 and 2002 23 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the fiscal years ended April 30, 2004, 2003 and 2002 24 Consolidated Statements of Cash Flows for the fiscal years ended April 30, 2004, 2003 and 2002 25 Notes to Consolidated Financial Statements 26 Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts 43 20 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Ansoft Corporation: We have audited the accompanying consolidated balance sheets of Ansoft Corporation and subsidiaries as of April 30, 2004 and 2003, and the related consolidated statements of operations, stockholders' equity and comprehensive income and cash flows for each of the years in the three-year period ended April 30, 2004. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ansoft Corporation and subsidiaries as of April 30, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended April 30, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in note 1 to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangible assets in fiscal 2003. KPMG LLP Pittsburgh, Pennsylvania May 27, 2004 21 ANSOFT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) April 30, April 30, 2004 2003 --------- --------- ASSETS Current assets Cash and cash equivalents $ 15,218 $ 7,173 Accounts receivable, net of allowance for doubtful accounts of $903 and $818, respectively 10,179 13,968 Deferred income taxes 343 310 Prepaid expenses and other assets 675 842 --------- --------- Total current assets 26,415 22,293 Equipment and furniture, net 3,598 3,829 Marketable securities 25,502 21,785 Other assets 383 436 Deferred income taxes 5,158 4,909 Goodwill, net 1,239 1,239 Other intangible assets, net 5,341 8,663 --------- --------- Total assets $ 67,636 $ 63,154 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $ 4,015 $ 2,449 Deferred revenue 11,935 10,879 --------- --------- Total current liabilities 15,950 13,328 Line of credit 10,000 10,000 --------- --------- Total liabilities 25,950 23,328 Stockholders' equity Preferred stock, par value $0.01 per share; 1,000 shares authorized, no shares outstanding -- -- Common stock, par value $0.01 per share; 25,000 shares authorized; issued 12,778 and 12,296 shares, respectively and outstanding 11,744 and 11,669, respectively 129 123 Additional paid-in capital 58,562 55,522 Treasury stock, 1,034 and 627 shares, respectively (9,090) (3,954) Accumulated other comprehensive income (loss) 691 (703) Accumulated deficit (8,606) (11,162) --------- --------- Total stockholders' equity 41,686 39,826 --------- --------- Total liabilities and stockholders' equity $ 67,636 $ 63,154 ========= ========= See accompanying notes to consolidated financial statements. 22 ANSOFT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FISCAL YEAR ENDED APRIL 30, 2004 2003 2002 --------------------------- -------- -------- -------- Revenue: License $ 32,301 $ 27,540 $ 36,683 Service and other 22,352 19,779 16,752 -------- -------- -------- Total revenue 54,653 47,319 53,435 -------- -------- -------- Cost of revenue: License revenue 702 683 938 Service and other 1,155 970 871 -------- -------- -------- Total cost of revenue 1,857 1,653 1,809 -------- -------- -------- Gross profit 52,796 45,666 51,626 Operating Expenses: Sales and marketing 26,930 24,611 24,966 Research and development 15,690 18,588 17,705 General and administrative 4,488 4,284 4,555 Amortization 3,182 3,428 4,129 -------- -------- -------- Total operating expenses 50,290 50,911 51,355 -------- -------- -------- Income (loss) from operations 2,506 (5,245) 271 Other income 1,138 1,428 1,878 Interest expense (234) (276) (531) -------- -------- -------- Income (loss) before income taxes 3,410 (4,093) 1,618 Income taxes expense (benefit) 854 (970) 404 -------- -------- -------- Net income (loss) $ 2,556 $ (3,123) $ 1,214 ======== ======== ======== Basic net income (loss) per share $ 0.22 $ (0.26) $ 0.10 ======== ======== ======== Diluted net income (loss) per share $ 0.19 $ (0.26) $ 0.09 ======== ======== ======== Weighted average shares outstanding - basic 11,672 11,809 11,844 Weighted average shares outstanding - diluted 13,248 11,809 13,649 See accompanying notes to consolidated financial statements. 23 ANSOFT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ACCUMULATED ADDITIONAL OTHER COMPREHENSIVE COMMON STOCK PAID-IN TREASURY STOCK COMPREHENSIVE ACCUMULATED INCOME (LOSS) SHARES AMOUNT CAPITAL SHARES AMOUNT INCOME (LOSS) DEFICIT ------------- ------ ------ ---------- ------ -------- ------------- ----------- Balance, April 30, 2001 11,960 $ 119 $ 52,684 (256) $(1,601) $ (354) $ (9,253) Purchase of treasury stock -- -- -- (7) (70) -- -- Issuance of common stock 236 3 1,335 -- -- -- -- Tax effect of stock option Exercises -- -- 920 -- -- -- -- Net income $ 1,214 -- -- -- -- -- -- 1,214 Foreign currency translation (525) -- -- -- -- -- (525) -- Reclassification adjustment 117 -- -- -- -- -- 117 -- Change in unrealized loss on marketable securities (942) -- -- -- -- -- (942) -- ------- Comprehensive income (loss) $ (136) -- -- -- -- -- -- -- ------ ------ ---------- ------ -------- -------- -------- Balance, April 30, 2002 12,196 $ 122 $ 54,939 (263) $(1,671) $ (1,704) $ (8,039) Purchase of treasury stock -- -- -- (364) (2,283) -- -- Issuance of common stock 100 1 493 -- -- -- -- Tax effect of stock option Exercises -- -- 90 -- -- -- -- Net income $(3,123) -- -- -- -- -- -- (3,123) Foreign currency translation 394 -- -- -- -- -- 394 -- Reclassification adjustment 78 -- -- -- -- -- 78 -- Change in unrealized loss on marketable securities 529 -- -- -- -- -- 529 -- ------- Comprehensive income (loss) $(2,122) -- -- -- -- -- -- -- ------ ------ ---------- ------ -------- -------- -------- Balance, April 30, 2003 12,296 $ 123 $ 55,522 (627) $(3,954) $ (703) $(11,162) Purchase of treasury stock -- -- -- (407) (5,136) -- -- Issuance of common stock 482 6 2,363 -- -- -- -- Tax effect of stock option Exercises -- -- 677 -- -- -- -- Net Income $ 2,556 -- -- -- -- -- -- 2,556 Foreign currency translation 267 -- -- -- -- -- 267 -- Reclassification adjustment 7 -- -- -- -- -- 7 -- Change in unrealized gain on marketable securities 1,120 -- -- -- -- -- 1,120 -- ------- Comprehensive income (loss) $ 3,950 -- -- -- -- -- -- -- ------ ------ ---------- ------ -------- -------- -------- Balance, April 30, 2004 12,778 $ 129 $ 58,562 (1,034) $(9,090) $ 691 $ (8,606) See accompanying notes to consolidated financial statements. 24 ANSOFT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FISCAL YEAR ENDED APRIL 30, -------------------------------- 2004 2003 2002 -------- -------- -------- Cash flows from operating activities Net income (loss) $ 2,556 $ (3,123) $ 1,214 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation 1,536 1,838 1,936 Amortization 3,322 3,724 4,709 Deferred taxes (282) (408) (2,093) Impairment charge to equipment -- 407 -- Non-cash charge on marketable securities -- 78 117 Loss (Gain) on marketable securities 7 (113) -- Changes in assets and liabilities, net of effect from acquisitions Accounts receivable 3,789 1,076 (6,835) Prepaid expenses and other assets 167 163 261 Other long-term assets and liabilities, net 53 (589) 166 Accounts payable and accrued expenses 1,566 (843) 1,258 Deferred revenue 1,056 1,964 3,631 -------- -------- -------- Net cash provided by operating activities 13,770 4,174 4,364 -------- -------- -------- Cash flows from investing activities Purchases of equipment and furniture (1,305) (755) (2,630) Investment in acquired businesses -- -- (7,544) Proceeds from the sale of equipment -- 395 -- Proceeds from the sale of marketable securities 12,723 6,983 -- Purchase of marketable securities (15,320) (5,648) (996) -------- -------- -------- Net cash (used in) provided by investing activities (3,902) 975 (11,170) -------- -------- -------- Proceeds from (repayments of) line of credit, net -- -- 1,000 Payment of note payable -- (1,850) -- Purchase of treasury stock (5,136) (2,283) (70) Proceeds from the issuance of common stock, net 3,046 494 2,258 -------- -------- -------- Net cash (used in) provided by financing activities (2,090) (3,639) 3,188 Effect of exchange rate changes 267 394 (525) Cash and cash equivalents at beginning of year 7,173 5,269 9,412 -------- -------- -------- Cash and cash equivalents at end of year $ 15,218 $ 7,173 $ 5,269 ======== ======== ======== Supplemental disclosures of cash flow information Cash paid for interest $ 234 $ 276 $ 414 ======== ======== ======== Cash paid for income taxes $ 99 $ 846 $ 203 ======== ======== ======== See accompanying notes to consolidated financial statements. 25 ANSOFT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business 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. Principles of Consolidation and Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions have been eliminated. Effective May 3, 2001, Ansoft entered into an agreement to acquire the following intangible assets related to the Agilent HFSS software product: customer list, non-compete agreement, and trademark. As part of the agreement Agilent agreed to transfer customer obligations for Agilent HFSS software to Ansoft. The acquisition cost was $7,850 in cash and assumed liabilities of $1,544 for a total cost of $9,394. In July 2000, Ansoft announced its formation of Altra Broadband to pursue the development of critical intellectual property and products for broadband wireless and optical communications. In spite of certain technical successes, profitable deployment of intellectual property developed by Altra Broadband's Irvine Technology Center in this telecom environment was deemed unlikely in the near term. As such, the Company closed the Irvine Technology Center during the quarter ended October 31, 2002, resulting in a restructuring charge of $532 that is included in "Research and development expense." The restructuring was committed to and completed in the quarter ended October 31, 2002. The total $532 restructuring charge was comprised of a $407 charge for the impairment of fixed assets and a charge of $125 for the remaining lease obligations for which a liability was recorded as of October 31, 2002. The impairment charge was based on third-party offers to purchase the remaining assets. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements 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. Estimates which are particularly significant to the consolidated financial statements include deferred revenue, the allowance for doubtful accounts, future cash flows related to long-lived assets, other than temporary declines in the market value of marketable securities, and the deferred tax valuation allowance. Cash Equivalents Cash equivalents include only highly liquid debt instruments purchased with original maturity dates of three months or less. Marketable Securities Marketable securities consist of corporate bonds, bond and government agency mutual funds, and mortgage backed securities and are classified as available for sale as of April 30, 2004 and 2003. Marketable securities available for sale are recorded at fair market value based on quoted market prices and any unrealized gains or losses are recorded as a separate component of stockholders' equity. Costs of investments sold/held are determined on the average cost 26 method. 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. Dividend and interest income are recognized when earned. Equipment and Furniture Equipment and furniture are stated at cost less accumulated depreciation and amortization. Depreciation for financial reporting purposes is computed using the straight-line method based upon the estimated useful lives of the assets, which range from three to seven years. Assets acquired under capital leases and leasehold improvements are amortized over their useful life or the lease term, as appropriate. Goodwill and Other Intangible Assets Goodwill and other intangible assets, which include customer lists, non-compete agreement, and purchased technology, are stated at cost less accumulated depreciation and are reviewed periodically (at least annually) for impairment. The non-compete agreement is a result of the Agilent transaction discussed in note 2. Purchased technology represents acquired software which has been fully developed, achieved technological feasibility, reached commercial viability, and is generating revenue. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" which was adopted on May 1, 2002 (the beginning of Ansoft's fiscal year 2003), goodwill and purchased intangibles with indefinite useful lives are no longer amortized but are reviewed periodically (at least annually) for impairment. Accordingly, Ansoft has ceased to amortize approximately $1.2 million of goodwill, net of amortization, including workforce intangibles that were subsumed into goodwill upon adoption of SFAS No. 142. Acquired intangibles with definite lives are amortized on a straight-line basis over the remaining estimated economic life of the underlying products and technologies (original lives assigned are three to seven years), and reviewed for impairment in accordance with SFAS No. 144, "Accounting for Impairment or Disposal of Long-lived Assets." The Company reviews the realizability of acquired technology, goodwill and other intangibles on an ongoing basis, and if there is an indication of impairment, the Company performs procedures under the applicable accounting pronouncements to quantify any impairment that exists. Determining the amount of impairment of these assets requires the Company to estimate future cash flows and make judgments regarding discount rates and other variables that impact the net realizable value or fair value of those assets, as applicable. Actual future cash flows and other assumed variables could differ from these estimates. Future impairment charges under existing pronouncements could be material. The pro forma effects of the adoption of SFAS No. 142 are as follows: Fiscal Year Ended April 30, (in thousands, except per share amounts) 2004 2003 2002 ----------- ----------- ----------- Reported net income (loss) $ 2,556 $ (3,123) $ 1,214 Add back: Goodwill amortization -- -- 368 ----------- ----------- ----------- Adjusted net income (loss) $ 2,556 $ (3,123) $ 1,582 =========== =========== =========== BASIC EARNINGS PER SHARE: Reported net income (loss) $ 0.22 $ (0.26) $ 0.10 Add back: Goodwill amortization -- -- 0.03 ----------- ----------- ----------- Adjusted net income (loss) $ 0.22 $ (0.26) $ 0.13 =========== =========== =========== DILUTED EARNINGS PER SHARE: Reported net loss $ 0.19 $ (0.26) $ 0.09 Add back: Goodwill amortization -- -- 0.03 ----------- ----------- ----------- Adjusted net income (loss) $ 0.19 $ (0.26) $ 0.12 =========== =========== =========== Prior to the adoption of SFAS No. 142, goodwill was amortized on a straight-line basis over the expected periods to be benefited, generally seven years, and assessed for recoverability by determining whether the amortization of goodwill balance over its remaining life could be recovered through undiscounted future operating cash flows. Impairment of Long-Lived Assets 27 SFAS No. 144 provides a single accounting model for long-lived assets to be disposed of. SFAS No. 144 also changes the criteria for classifying an asset held for sale; and broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations and changes the timing of recognizing losses on such operations. The Company adopted SFAS No. 144 on May 1, 2002. The adoption of SFAS No. 144 did not affect the Company's financial statements. In accordance with SFAS No. 144, long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of an asset exceeds the fair value of the asset. Prior to the adoption of SFAS No. 144, the Company accounted for long-lived assets in accordance with SFAS No. 121, "Accounting for Impairment of Long-Lived Assets to be Disposed Of". Revenue Recognition Revenue consists of fees for licenses of software products and service and other revenue. Ansoft recognizes revenue in accordance with SOP 97-2, "Software Revenue Recognition," and related interpretations. Accordingly revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the vendor's fee is fixed or determinable, and collectability is probable. License revenue - Ansoft licenses its software generally on a perpetual basis with no right to return or exchange the licensed software. License revenue is recognized based on the residual method. 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. During the fiscal year ended April 30, 2002, the Company changed the PCS period bundled with the perpetual license from a one-year period to a three-month period to more closely align our pricing policy with other vendors within our industry. In addition, we no longer believed we could continue to expect future releases offered to customers under three-month PCS would contain only enhancements limited to bug fixes covered by warranty provisions and therefore the Company began deferring the PCS in fiscal 2002. Prior to fiscal 2002, the Company recognized PCS revenue together with the licensing fee on delivery of the software if collectibility of the resulting receivable was probable, enhancements were limited to bug fixes covered by warranty provisions, and the costs of providing these services were expected to be insignificant. Pursuant to this policy, there were no deferred amounts recorded prior to fiscal 2002 and the estimated costs of providing PCS were accrued at the time of revenue recognition. Service and other revenue - consists primarily of maintenance revenue. Ansoft offers customers one-year maintenance contracts generally 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. Deferred revenue Ansoft's deferred revenue consists of unearned revenue on annual maintenance contracts and the deferred component of PCS. Software Development Costs The Company accounts for software development costs in accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." Software development costs are capitalized beginning when a product's technological feasibility has been established by completion of a working model of the product and ending when a product is available for general release to customers. Completion of a working model of 28 the Company's products and general release have substantially coincided. As a result, the Company has not capitalized any software development costs during these periods since the amounts have not been material. Income Taxes The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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 is established. 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 (loss) 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. The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the years presented: INCOME (LOSS) SHARES PER SHARE AMOUNT ------------- ------ ---------------- FISCAL YEAR ENDED APRIL 30, 2004 Basic net income (loss) per share $ 2,556 11,672 $ 0.22 Effect of dilutive securities: Stock options -- 1,576 (0.03) -------- ------ ---------- Diluted net income (loss) per share $ 2,556 13,248 $ 0.19 ======== ====== ========== FISCAL YEAR ENDED APRIL 30, 2003 Basic net income (loss) per share $ (3,123) 11,809 $ (0.26) Effect of dilutive securities: Stock options -- -- -- -------- ------ ---------- Diluted net income (loss) per share $ (3,123) 11,809 $ (0.26) ======== ====== ========== FISCAL YEAR ENDED APRIL 30, 2002 Basic net income (loss) per share $ 1,214 11,844 $ 0.10 Effect of dilutive securities: Stock options -- 1,805 (0.01) -------- ------ ---------- Diluted net income (loss) per share $ 1,214 13,649 $ 0.09 ======== ====== ========== 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 annual pro forma disclosures of net income and earnings per share. Under APB No. 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense has been recognized in the Company's consolidated financial statements during fiscal 2004, 2003 or 2002. Pro forma information regarding net income and earnings (loss) per share is required by SFAS No. 123. This 29 information is required to be determined as if the Company had accounted for its employee stock options (including shares issued under the Stock Purchase Plan, collectively called "options") granted subsequent to April 30, 1995 under the fair value method prescribed by SFAS No. 123. The fair value of options granted in fiscal years 2004, 2003 or 2002 has been estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions: FISCAL YEAR ENDED APRIL 30, ------------------------------ 2004 2003 2002 -------- -------- -------- Risk-free rate (%) 2.00 2.00 4.00 Volatility (%) 115.40 110.00 75.55 Expected life (in years) 6.00 7.50 9.90 Dividend yield (%) 0.00 0.00 0.00 The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of its options. However, based solely on this analysis, the weighted average estimated fair value of employee stock options granted during 2004, 2003 or 2002 was $7.78, $4.65 and $8.70 per share, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (unaudited): FISCAL YEAR ENDED APRIL 30, -------------------------------- 2004 2003 2002 -------- -------- -------- Net income (loss), as reported $ 2,556 $ (3,123) $ (1,214) Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax (2,469) (2,956) (2,073) --------- --------- --------- Pro forma net income (loss) $ 87 $ (6,079) $ (859) Pro forma net income (loss) per basic and diluted common share $ 0.01 $ (0.51) $ (0.07) 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. Comprehensive Income Comprehensive income includes foreign currency translation gains and losses and other unrealized gains and losses related to marketable securities that have been previously excluded from net income and reflected instead in equity. The Company has reported the components of comprehensive income, net of tax of $0 in 2004, 2003 and 2002, in its consolidated statements of stockholders' equity and comprehensive income. Foreign Currency Translation The functional currency of the Company's foreign subsidiaries is the respective local currency. Accordingly, assets and liabilities are translated to United States dollars at the exchange rates in effect as of the balance sheet date, and results of operations are translated using the average rates in effect for the period presented. Transaction gains and losses, which are included in other income (expense) in the accompanying consolidated statements of income, have not been significant. 30 Fair Value of Financial Instruments The carrying value and fair value of the Company's receivables, payables and debt obligations are estimated to be substantially the same at April 30, 2004 and 2003. Reclassification 2. ACQUISITIONS AND RELATED INTANGIBLE ASSETS Effective May 3, 2001, Ansoft entered into an agreement to acquire the following intangible assets related to the Agilent HFSS software product: customer list, non-compete agreement, and trademark. As part of the agreement Agilent agreed to transfer customer obligations for Agilent HFSS software to Ansoft. The acquisition cost was $7,850 in cash and assumed liabilities of $1,544 for a total cost of $9,394. 3. EQUIPMENT AND FURNITURE Equipment and furniture consist of the following: APRIL 30, ----------------- 2004 2003 ------- ------- Computers and equipment $ 7,410 $ 9,660 Furniture and fixtures 1,610 1,411 Leasehold improvements 873 570 ------- ------- 9,893 11,641 Less allowances for depreciation and amortization 6,295 7,812 ------- ------- $ 3,598 $ 3,829 ======= ======= 4. OTHER INTANGIBLE ASSETS Other intangible assets consist of the following: APRIL 30, ----------------- 2004 2003 ------- ------- Customer list $18,488 $18,488 Non-compete 2,500 2,500 Purchased technology 2,230 2,230 Trademark 212 212 ------- ------- 23,430 23,430 Less allowances for amortization 18,089 14,767 ------- ------- $ 5,341 $ 8,663 ======= ======= These intangible assets are amortized over their estimated useful lives, ranging between three and seven years. There are no expected residual values related to these intangible assets. Estimated fiscal year amortization expense is as follows: 2005 - $1,510; 2006 - $1,434; 2007 - $1,272; and 2008 - $1,125. 31 5. MARKETABLE SECURITIES Marketable securities, classified as available for sale, are summarized as follows: AMORTIZED UNREALIZED UNREALIZED MARKET COST GAIN (LOSS) VALUE ---------- ---------- ---------- ---------- April 30, 2004 Mutual Bond Funds $ 17,413 $ 1,183 $ (290) $ 18,306 Mortgage Backed Securities 4,251 -- (48) 4,203 Corporate Bonds 3,064 -- (71) 2,993 ---------- ---------- ---------- ---------- Total marketable securities $ 24,728 $ 1,183 $ (409) $ 25,502 April 30, 2003 Mutual Bond Funds $ 19,628 $ 177 $ (550) $ 19,255 Mortgage Backed Securities 2,510 20 -- 2,530 ---------- ---------- ---------- ---------- Total marketable securities $ 22,138 $ 197 $ (550) $ 21,785 Other income (loss) consists of dividend and interest income, realized gains and losses on securities and other than temporary declines in fair value of marketable securities. Dividend and interest income was $1,145, $1,315 and $1,995 in fiscal year 2004, 2003 and 2002, respectively. Gross realized gains were $0, $113 and $0 in fiscal year 2004, 2003 and 2002, respectively. Gross realized losses were $7, $0 and $0 in fiscal year 2004, 2003 and 2002, respectively. Other than temporary declines were $0, $78 and $117 in fiscal year 2004, 2003 and 2002, respectively. The following table sets forth certain information relating to the estimated fair value and unrealized losses on marketable securities available-for-sale as of April 30, 2004. Unrealized losses have been segregated into those existing for less than twelve months and those existing for twelve months or longer. Less than 12 months 12 months or longer Total ------------------- ------------------- -------------------- Description of Fair Unrealized Fair Unrealized Fair Unrealized Securities Value Losses Value Losses Value Losses -------------- ------- ---------- ------- ---------- -------- ---------- Mutual Bond Funds $ 5,415 $ 290 -- -- $ 5,415 $ 290 Mortgage Backed Securities $ 4,203 $ 48 -- -- $ 4,203 $ 48 Corporate Bonds $ 2,993 $ 71 -- -- $ 2,993 $ 71 Total $12,611 $ 409 -- -- $ 12,611 $ 409 At April 30, 2004, the contractual maturities of the debt securities available for sale are: Amortized Cost Fair Value -------------- ---------- Due in one year or less Due after one year through five years $ 249 $ 240 Due after five years through ten years $ 3,016 $ 2,955 Due after ten years $ 4,050 $ 4,001 Total $ 7,315 $ 7,196 32 6. LINE OF CREDIT The Company has available a $20,000 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 April 30, 2004 and 2003, $10,000 was the outstanding balance on the line of credit and the weighted average interest rate was 1.90% and 1.94%, respectively. The Company was in compliance with all financial covenants as of April 30, 2004 and 2003. 7. LEASES The Company leases its corporate headquarters in Pittsburgh, Pennsylvania, and other facilities under operating lease agreements that expire over the next five years. Rental expense incurred by the Company under operating lease agreements totaled $2,500, $2,658 and $2,209 for the years ended April 30, 2004, 2003 and 2002, respectively. The future minimum lease payments for such operating leases as of April 30, 2004, are: YEAR ENDING APRIL 30, - --------------------- 2005 1,332 2006 1,142 2007 624 2008 633 ------- $ 3,731 ======= 8. COMMON STOCK OPTIONS The Company's 1988 Stock Option Plan (1988 Plan) authorizes the issuance of 850 shares of common stock for the grant of incentive or nonstatutory stock options to employees and directors. Under the terms of the 1988 Plan, options to purchase common stock are granted at no less than the stock's estimated fair market value at the date of the grant and may be exercised during specified future periods as determined by the Board of Directors. The 1988 Plan provides that the options shall expire no more than ten years after the date of the grant. The Company's 1995 Stock Option Plan (1995 Plan) authorizes the issuance of 3,500 shares of common stock for the grant of incentive or nonstatutory stock options to employees and directors. Under the terms of the 1995 Plan, options to purchase common stock are granted at no less than the stock's estimated fair market value at the date of the grant and may be exercised during specified future periods as determined by the Board of Directors. The 1995 Plan provides that the options shall expire no more than ten years after the date of the grant. Shares underlying outstanding options under the 1988 Plan and the 1995 Plan are as follows: SHARES UNDERLYING OUTSTANDING OPTIONS ------------------------- SHARES PRICE ------ --------------- Outstanding, April 30, 2001 2,622 $ 1.75 -- $ 9.75 Granted 1,291 $ 9.03 -- $13.55 Exercised (219) $ 1.75 -- $ 9.75 Terminated (57) $ 5.00 -- $ 9.75 ------ ---------------- Outstanding, April 30, 2002 3,637 $ 1.75 -- $13.55 ====== Granted 651 $ 9.03 -- $13.55 Exercised (93) $ 1.75 -- $ 9.75 Terminated (212) $ 4.75 -- $12.95 ------ ---------------- Outstanding, April 30, 2003 3,983 $ 1.75 -- $13.55 ====== Granted 79 $ 8.05 -- $10.91 Exercised (482) $ 1.75 -- $12.95 Terminated (116) $ 4.75 -- $12.95 ------ ---------------- Outstanding, April 30, 2004 3,464 $ 1.75 -- $13.55 ====== 33 Options to purchase 2,186 shares of common stock were exercisable as of April 30, 2004 and options to purchase 242 shares of common stock were available for future grant as of April 30, 2004. The following table summarizes information about stock options outstanding as of April 30, 2004: OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------- ------------------------ WEIGHTED- NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED- RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE AT APRIL 30, CONTRACTUAL EXERCISE AT APRIL 30, EXERCISE PRICES 2004 LIFE PRICE 2004 PRICE - ---------------- ------------ ----------- --------- ------------ --------- $ 1.75 -- $ 2.00 55 0.8 $ 1.95 55 $ 1.95 $ 3.50 -- $ 5.13 1,459 5.0 $ 5.04 1,096 $ 5.06 $ 5.50 -- $ 8.25 541 5.7 $ 6.49 395 $ 6.41 $ 8.31 -- $12.02 935 7.2 $ 9.13 451 $ 9.12 $12.95 -- $13.55 474 7.6 $ 12.99 189 $12.99 9. SEGMENT REPORTING, EXPORT SALES AND CREDIT RISK The Company has adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which requires the reporting of segment information using the "management approach". Under this approach, operating segments are identified in substantially the same manner as they are reported internally and used by the Company's chief operating decision maker ("CODM") for purposes of evaluating performance and allocating resources. Ansoft's chief operating decision maker is its President and Chief Executive Officer, or CEO. Based on this approach, the Company has one reportable segment as the CODM reviews financial information on a basis consistent with that presented in the consolidated financial statements. Ansoft's products are classified into three categories, high frequency (HF), signal integrity (SI), and electromechanical (EM). Ansoft's CEO reviews sales by product category. The following table presents product sales by market application as a percentage of total sales: 2004 2003 2002 ---- ---- ---- High Frequency 66% 65% 69% Signal Integrity 13% 17% 15% Electromechanical 21% 18% 16% Profitability information by product category is not available as operating expenses and other income and expense items are managed on a functional basis. Export sales, principally to Asia, accounted for 57%, 56% and 55% of total product revenue in 2004, 2003 and 2002, respectively. Included in export sales to Asia were sales to Japan, which accounted for approximately 23%, 21% and 18% of total revenue in fiscal 2004, 2003 and 2002, respectively. No other foreign country accounted for more than 10% of total revenue during these periods. The Company markets its software products to customers throughout the world directly and generally does not require collateral. However, letters of credit are obtained from certain international customers prior to shipment. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential credit losses. The Company believes that it has adequately provided for credit losses. 34 10. INCOME TAX Income (loss) before taxes includes domestic and foreign income as follows: APRIL 30, ----------------------------- 2004 2003 2002 ------- ------- ------- Domestic $ 1,648 $(4,363) $ 1,250 Foreign 1,762 270 368 ------- ------- ------- Total $ 3,410 $(4,093) $ 1,618 ======= ======= ======= The provision for income taxes consists of the following: APRIL 30, ----------------------------- 2004 2003 2002 ------- ------- ------- Current: Federal $ 499 $ (495) $ 1,611 State 192 24 886 Foreign 445 -- -- ------- ------- ------- Total 1,136 (471) 2,497 Deferred: Federal (394) (337) (1,508) State (72) (162) (585) Foreign 184 -- -- ------- ------- ------- Total (282) (499) (2,093) ------- ------- ------- Total expense (benefit) for income tax $ 854 $ (970) $ 404 ======= ======= ======= The Company's actual income tax expense (benefit) differs from the expected income tax expense (benefit) computed by applying the statutory federal rate to income before income taxes as a result of the following: APRIL 30, ----------------------------- 2004 2003 2002 ------- ------- ------- Income tax expense (benefit) at statutory rate $ 1,159 $(1,392) $ 549 State income tax, net of federal benefit 79 (92) 199 Research and development credit (480) (1,575) (505) Rate differential between U.S. and foreign taxes 30 -- -- Change in valuation allowance (55) 1,843 40 Intangible Amortization 74 77 210 Other, net 47 169 (89) ------- ------- ------- Actual income tax expense (benefit) $ 854 $ (970) $ 404 ======= ======= ======= In addition to amounts applicable to income before taxes, the following income tax expense (benefit) amounts were recorded in stockholders' equity. Fiscal year ending April 30, ---------------------------- 2004 2003 2002 ---- ---- ---- Compensation expense for tax purposes in excess of amounts recognized for financial statement purposes. (677) (90) (920) ==== ==== ==== 35 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below: APRIL 30, ------------------ 2004 2003 ------- ------- Deferred tax assets: Net operating loss carryforward $ 241 $ 425 Capital loss carryovers 395 392 Allowance for doubtful accounts 343 310 Alternative minimum tax credit carryforward 256 256 Research and development tax credit carryforward 2,157 2,215 Intangible assets 4,004 3,400 Net unrealized losses on available for sale securities 989 1,417 ------- ------- Total gross deferred tax assets 8,385 8,415 Less valuation allowance (2,523) (3,006) ------- ------- Net deferred tax assets 5,862 5,409 Deferred tax liabilities: Furniture and equipment (361) (190) ------- ------- Total gross deferred tax liability (361) (190) ------- ------- Net deferred taxes 5,501 5,219 ======= ======= The valuation allowance for deferred tax assets as of May 1, 2003 and 2002 was $3,006 and $1,393, respectively. The net change in the total valuation allowance for the years ended April 30, 2004 and April 30, 2003 was a decrease of $483 and an increase of $1,613, respectively. A change in the valuation allowance of $428 and $230 was recorded in accumulated other comprehensive income relating to marketable securities for the year ended April 30, 2004 and 2003, respectively. Management evaluates the recoverability of the deferred tax assets and the level of the valuation allowance on a quarterly basis. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of April 30, 2004, the Company had net foreign operating loss carryforwards of $710, which are available to offset future foreign taxable income through April 30, 2007. The Company also has alternative minimum tax credit carryforwards of $256 which are available to reduce future federal income taxes, if any, over an indefinite period. The Company has research and development credit carryforwards of $2,157 as of April 30, 2004. These credits will be available to reduce future federal income taxes, if any, through April 30, 2023. The Company also has capital loss carryovers of $1,160 that are available to offset capital gains through April 30, 2007. 11. EMPLOYEE BENEFIT PLAN The Company has a 401(k) savings and retirement plan which covers its full-time employees who have attained the age of 21 and have completed six months of service. Eligible employees make voluntary contributions to the plan up to 15% of their annual compensation. The Company is not required to contribute, nor has it contributed, to the 401(k) plan. 12. COMMITMENTS AND CONTINGENCIES The Company is not a party to any litigation and is not aware of any threatened litigation, unasserted claims or assessments that could have a material adverse effect on the Company's business, consolidated operating results or consolidated financial condition. 36 13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) A summary of quarterly financial information follows: FISCAL 2004 FISCAL 2003 APRIL 30, JAN. 31, OCT. 31, JULY 31, APRIL 30, JAN. 31, OCT. 31, JULY 31, 2004 2004 2003 2003 2003 2003 2002 2002 --------- --------- --------- --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenue $ 17,761 $ 13,982 $ 12,258 $ 10,651 $ 15,112 $ 12,362 $ 10,557 $ 9,288 Income (loss) from operations $ 3,585 $ 1,008 $ (237) $ (1,850) $ 2,611 $ (367) $ (3,068) $ (4,421) Net income (loss) $ 2,830 $ 941 $ (22) $ (1,192) $ 2,476 $ (58) $ (2,198) $ (3,343) Basic net income (loss) per share $ 0.24 $ 0.08 $ (0.00) $ (0.10) $ 0.21 $ 0.00 $ (0.19) $ (0.28) Diluted net income (loss) per share $ 0.21 $ 0.07 $ (0.00) $ (0.10) $ 0.20 $ 0.00 $ (0.19) $ (0.28) Weighted average number of shares outstanding - basic 11,738 11,640 11,637 11,672 11,715 11,764 11,817 11,940 - diluted 13,504 13,306 11,637 11,672 12,488 11,764 11,817 11,940 37 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 9(a). 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 Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Exchange Act Rule 13a-14(c)) as of the end of the period covered by this annual report on Form 10-K, and, based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective in all material respects, including those to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the Commission's rules and forms, and is accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely disclosure. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls in the fourth quarter and subsequent to the date of their evaluation. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY - The information set forth under the captions "Election of Directors", "Employment Contracts and Change of Control Agreements", "Executive Compensation", "Director Compensation", "Beneficial Ownership of Common Stock" and "Background of Directors" in the Proxy Statement for the 2004 Annual Meeting of Shareholders of the Company is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION - The information set forth under the captions "Employment Contracts and Change of Control Agreements" and "Executive Compensation" in the Proxy Statement for the 2004 Annual Meeting of Shareholders of the Company is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND RELATED STOCKHOLDER MATTERS - The information set forth under the captions "Fiscal Year-End Option Values", "Option Grants In Last Fiscal Year", "Summary Compensation Table" and "Beneficial Ownership of Common Stock" in the Proxy Statement for the 2004 Annual Meeting of Shareholders of the Company is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS - The information set forth under the captions "Compensation Committee Interlocks and Insider Participation" and "Independent Public Accountants" in the Proxy Statement for the 2004 Annual Meeting of Shareholders of the Company is incorporated herein by reference. ITEM 14. PRINCIPLE ACCOUNTING FEES AND SERVICE - The information set forth under the caption "Independent Public Accountants" in the Proxy Statement for the 2004 Annual Meeting of Shareholders of the Company is incorporated herein by reference. 38 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this report: 1. Financial statements. The following consolidated financial statements are filed as part of this Annual Report on Form 10-K. PAGE ---- Report of Independent Registered Public Accounting Firm 21 Consolidated Balance Sheets as of April 30, 2004 and 2003 22 Consolidated Statements of Operations for the years ended April 30, 2004, 2003 and 2002 23 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended April 30, 2004, 2003 and 2002 24 Consolidated Statements of Cash Flows for the years ended April 30, 2004, 2003 and 2002 25 Notes to Consolidated Financial Statements 26 2. Financial Statement Schedule: Schedule II--Valuation and Qualifying Accounts for each of the years in the three-year period ended April 30, 2004. FINANCIAL STATEMENT SCHEDULES NOT LISTED ABOVE HAVE BEEN OMITTED BECAUSE THEY ARE INAPPLICABLE, ARE NOT REQUIRED UNDER APPLICABLE PROVISIONS OF REGULATION S-X, OR THE INFORMATION THAT WOULD OTHERWISE BE INCLUDED IN SUCH SCHEDULES IS CONTAINED IN THE REGISTRANT'S FINANCIAL STATEMENTS OR ACCOMPANYING NOTES. 3. Exhibits. The Exhibits listed below are filed or incorporated by reference as part of this Annual Report on Form 10-K. EXHIBIT NUMBER DESCRIPTION ------ ----------- 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference from Registration Statement No. 333-40189) 3.2 Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation (incorporated by reference from Registration Statement No. 333-40189) 3.3 Bylaws of the Company (incorporated by reference from Registration Statement No. 333-1398). 10.1 1988 Stock Option Plan of the Company (incorporated by reference from Registration Statement No. 333-1398).** 10.2 1995 Stock Option Plan of the Company (incorporated by reference from Registration Statement No. 333-1398).** 10.3 Zoltan Cendes Stock Option Agreement, dated April 30, 1995 (incorporated by reference from Registration Statement No. 333-1398). 10.10 Jacob K. White Stock Option Agreement dated February 1, 1996, as amended (incorporated by reference from Registration Statement No. 333-40189) 10.11 John N. Whelihan Stock Option Agreement dated February 1, 1996, as amended. (incorporated by reference from Registration Statement No. 333-40189) 10.12 Agilent HFSS Technology and License Transfer Agreement dated May 1, 2001* 10.12 Revolving Credit Facility dated January 7, 1999* 21.1 Subsidiaries of the registrant (incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1997). 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification pursuant to 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 * Filed herewith ** Incentive or stock compensation plan of the Company. 39 (b) Reports on Form 8-K: On May 27, 2004, Registrant filed a current report on Form 8-K to provide under Item 12 the Registrant's press release in connection with its results of operation and fiscal condition for Registrant's fiscal year ended April 30, 2004. The current report on Form 8-K included the following financial statements: 1) Consolidated Statements of Operation for the 3 months ended April 30, 2003 and 2004 and the fiscal year ended April 30, 2003 and 2004. 2) Consolidated Balance Sheets as of April 30, 2003 and 2004. 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 on July 14, 2004 ANSOFT CORPORATION By /s/ Nicholas Csendes ---------------------- Nicholas Csendes President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on July 14, 2004. SIGNATURE TITLE --------- ----- /s/ Nicholas Csendes Director, President and Chief Executive - ------------------------ Officer (Principal Executive Officer) Nicholas Csendes /s/ Zoltan J. Cendes Director, Chief Technology Officer and - ------------------------ Chairman of the Board of Directors Zoltan J. Cendes /s/ Thomas A.N. Miller Director, Chief Financial Officer - ------------------------ (Principal Financial and Accounting Officer) Thomas A.N. Miller /s/ Peter Robbins Director - ------------------------ Peter Robbins /s/ Ulrich L. Rohde Director - ------------------------ Ulrich L. Rohde /s/ John N. Whelihan Director - ------------------------ John N. Whelihan /s/ Jacob White Director - ------------------------ Jacob White 41 Code of Business Conduct - refer to the Company's website: www.ansoft.com SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS) BALANCE AS OF ADDITIONS BALANCE AS OF THE BEGINNING CHARGED TO COSTS THE END OF OF THE PERIOD AND EXPENSES DEDUCTIONS THE PERIOD YEAR ENDED APRIL 30, 2004 ALLOWANCE FOR DOUBTFUL ACCOUNTS 818 250 (165) 903 YEAR ENDED APRIL 30, 2003 ALLOWANCE FOR DOUBTFUL ACCOUNTS 621 373 (176) 818 YEAR ENDED APRIL 30, 2002 ALLOWANCE FOR DOUBTFUL ACCOUNTS 221 688 (288) 621