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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended July 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 000-27874
ANSOFT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 72-1001909
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
Four Station Square, Suite 200
Pittsburgh, Pennsylvania 15219-1119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 261-3200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
The number of shares of the registrant's Common Stock outstanding as of the
close of business on August 30, 2002 was 12,226,132.
ANSOFT CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
----
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - July 31, 2002 (unaudited) and April 30, 2002 1
Consolidated Statements of Operations (unaudited) - Three months ended
July 31, 2002 and 2001 2
Consolidated Statements of Cash Flows (unaudited) - Three months ended
July 31, 2002 and 2001 3
Notes to the Consolidated Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
Certifications 14
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANSOFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
July 31, April 30,
2002 2002
-------- --------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 4,292 $ 5,269
Accounts receivable 11,401 15,044
Deferred income taxes 236 236
Prepaid expenses and other assets 1,046 1,005
-------- --------
Total current assets 16,975 21,554
Equipment and furniture 5,601 5,714
Marketable securities 21,397 22,479
Other assets 374 367
Deferred taxes - non current 5,320 4,484
Intangible assets 12,617 13,626
-------- --------
Total assets $ 62,284 $ 68,224
======== ========
Liabilities and stockholders' equity
Current liabilities
Accounts payable and accrued expenses $ 2,284 $ 3,292
Note payable 1,850 1,850
Deferred revenue 8,726 8,915
-------- --------
Total current liabilities 12,860 14,057
Line of credit 10,000 10,000
Other liabilities 439 520
-------- --------
Total liabilities 23,299 24,577
Stockholders' equity
Preferred stock -- --
Common stock 122 122
Additional paid-in capital 55,074 54,939
Treasury stock (2,006) (1,671)
Other accumulated comprehensive loss (2,823) (1,704)
Accumulated deficit (11,382) (8,039)
-------- --------
Total stockholders' equity 38,985 43,647
Total liabilities and stockholders' equity $ 62,284 $ 68,224
======== ========
See accompanying notes to the consolidated financial statements.
Page 1
ANSOFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
Three months ended July 31,
2002 2001
-------- --------
Revenues
License $ 5,045 $ 7,559
Service and other 4,243 3,662
-------- --------
Total revenue 9,288 11,221
Costs and expenses
Sales and marketing 6,524 6,181
Research and development 4,041 3,002
Research and development
- Altra Broadband 1,103 938
General and administrative 1,032 1,031
Amortization 1,009 1,183
-------- --------
Total costs and expenses 13,709 12,335
-------- --------
Loss from operations (4,421) (1,114)
Other income, net 242 402
-------- --------
Loss before income taxes (4,179) (712)
Income tax benefit 836 214
-------- --------
Net loss $ (3,343) $ (498)
======== ========
Basic net loss per share $ (0.28) $ (0.04)
======== ========
Diluted net loss per share $ (0.28) $ (0.04)
======== ========
Weighted average shares used in calculation
Basic 11,940 11,722
======== ========
Diluted 11,940 11,722
======== ========
See accompanying notes to the consolidated financial statements.
Page 2
ANSOFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
JULY 31
--------------------------
2002 2001
-------- --------
Cash flows from operating activities
Net loss $ (3,343) $ (498)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation 496 423
Amortization 1,009 1,183
Deferred taxes (836) (310)
Non cash charge on marketable securities 78 -
Changes in assets and liabilities, net of effect
from acquisitions 3,643 1,282
Accounts receivable
Prepaid expenses and other assets (41) 108
Other long-term assets and liabilities, net (88) (237)
Accounts payable and accrued expenses (1,008) (43)
Deferred revenue (189) 477
--------- --------
Net cash provided by (used in) operating activities (279) 2,385
-------- --------
Cash flows from investing activities
Purchases of equipment and furniture (383) (379)
Investment in acquired businesses - (7,544)
Purchases of marketable securities (273) (345)
--------- ---------
Net cash used in investing activities (656) (8,268)
-------- --------
Cash flows from financing activities
Purchase of treasury stock (335) -
Proceeds from the issuance of common stock, net 135 681
-------- --------
Net cash provided by (used in) financing activities (200) 681
-------- --------
Net increase (decrease) in cash and cash equivalents (1,135) (5,202)
Effect of exchange rate changes 158 (252)
Cash and cash equivalents at beginning of period 5,269 9,412
-------- --------
Cash and cash equivalents at end of period $ 4,292 $ 3,958
======== ========
Supplemental disclosures of cash flow information
Cash paid for interest $ 78 $ 121
======== ========
Cash paid for income taxes $ 821 $ 127
======== ========
Non Cash Transaction
As part of the Technology License and Transition Agreement with Agilent
effective May 3, 2001, the Company agreed to pay Agilent $1,850 on October 31,
2002. Such liability is recorded as a note payable on the accompanying
consolidated balance sheets as of July 31, 2002.
See accompanying notes to the consolidated financial statements.
Page 3
ANSOFT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Basis of Presentation
The unaudited consolidated financial statements include the accounts of Ansoft
and its majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of financial position and results of operations have been made.
Operating results for interim periods are not necessarily indicative of results
which may be expected for a full year. The information included in this Form
10-Q should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the fiscal year ended April
30, 2002 consolidated financial statements and notes thereto included in
Ansoft's annual report on Form 10-K filed with the Securities and Exchange
Commission.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and disclosure of contingent assets and liabilities. The
estimates and assumptions used in the accompanying consolidated financial
statements are based on management's evaluation of the relevant facts and
circumstances as of the date of the consolidated financial statements. Actual
results may differ from those estimates.
(2) Comprehensive income (loss)
"Comprehensive income (loss)" includes foreign currency translation gains and
losses and other unrealized gains and losses. A summary of comprehensive income
(loss) follows:
Three Months Ended July 31,
(in thousands, except per share amounts)
2002 2001
---- ----
Net loss $ (3,343) $ (498)
Unrealized loss on marketable securities (1,355) (78)
Foreign currency translation adjustments 158 (252)
--------- ---------
Comprehensive loss $ (4,540) $ (828)
========= =========
(3) Net income per share
Basic net income per share is calculated using the weighted-average number of
common shares outstanding during the period. Diluted net income per share is
computed using the weighted-average number of common shares and potentially
dilutive common shares outstanding during the period. Potentially dilutive
common shares consist of the incremental common shares issuable upon the
exercise of employee stock options, and are computed using the treasury stock
method. Potentially dilutive common shares are excluded from the calculation if
their effect is antidilutive.
Page 4
(4) Goodwill and Other Intangible Assets
In 2002, Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets" became effective and, as a result, the Company has
ceased to amortize approximately $1.2 million of goodwill (net of accumulated
amortization of $2.2 million). In lieu of amortization, the Company is required
to perform an initial impairment review of goodwill in fiscal 2003 and an annual
impairment review thereafter. The Company completed a preliminary review during
the first quarter of 2003, and will finalize the analysis before the end of the
second quarter of 2003. Based on the preliminary analysis, the Company does not
expect to record an impairment charge.
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 and under SFAS No. 142 could be
material.
The following table presents the impact of SFAS No. 142 on net income and net
income per share had the standard been in effect for the three months ended July
31, 2001:
Three Months Ended July 31,
2002 2001
---- ----
(in thousands, except per share amounts)
Reported net loss $ (3,343) (498)
Add back: Goodwill amortization -- 128
--------- -------
Adjusted net loss $ (3,343) $ (370)
========= =======
BASIC EARNINGS PER SHARE:
Reported net loss $ (0.28) $ (0.04)
Add back: Goodwill amortization -- 0.01
--------- -------
Adjusted net loss $ (0.28) $ (0.03)
========= =======
DILUTED EARNINGS PER SHARE:
Reported net loss $ (0.28) $ (0.04)
Add back: Goodwill amortization -- 0.01
--------- -------
Adjusted net loss $ (0.28) $ (0.03)
========= =======
Other intangible assets amounted to $11.4 million (net of accumulated
amortization of $12.0 million) at July 31, 2002. These intangible assets consist
primarily of customer lists ($9.4 million net of accumulated amortization of
$9.2 million as of July 31, 2002) and purchased technology, trademark, and
non-compete agreements entered into in connection with business combinations and
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 in millions is as follows: 2003 -
$3.7 million; 2004 - $3.3 million; 2005 - $1.5 million; 2006 - $1.4 million; and
2007 - $1.2 million.
Page 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Form 10-Q, the words
"anticipate," "plan," "believe," "estimate," "expect" and similar expressions as
they relate to Ansoft or its management are intended to identify such
forward-looking statements. Ansoft's actual results, performance or achievements
could differ materially from the results expressed in, or implied by, these
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in this Form 10-Q and in the "Risk Factors"
section included in Ansoft's report on Form 10-K for the fiscal year ended April
30, 2002.
Overview
Ansoft Corporation ("Ansoft" or the "Company") is a leading 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.
Effective May 3, 2001, Ansoft entered into a Technology License and Transition
Agreement in which Agilent has agreed to license its High Frequency Structure
Simulator (HFSS) software product line and transfer customer obligations for
Agilent HFSS software to Ansoft. The Agilent transaction was accounted for as an
acquisition of intangible assets.
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. The financial statements and financial
information in this Form 10-Q include the results of Altra Broadband. The full
impact of Altra Broadband on Ansoft's business, operating results, and financial
condition cannot be predicted at this time. However, certain incremental
expenses, primarily in research and development, are expected to be incurred in
future periods.
Results of Operations
The following table sets forth the percentage of total revenue of each item in
Ansoft's consolidated statements of operations:
Three months ended July 31,
2002 2001
---- ----
Revenues:
License 54% 67%
Service and other 46 33
---- ----
Total revenue 100 100
Costs and expenses:
Sales and marketing 70 55
Research and development 44 27
Research and development - Altra 12 8
General and administrative 11 9
Amortization 11 11
---- ----
Total costs and expenses 148 110
---- ----
Loss from operations (48) (10)
Other income 3 4
---- ----
Loss before income tax benefit (45) (6)
Income tax benefit 9 2
---- ----
Net loss (36)% (4)%
==== ====
Page 6
Comparison of the Three Months Ended July 31, 2002 and 2001
Revenue. Total revenue in the three-month period ended July 31, 2002 decreased
17% to $9.3 million from $11.2 million in the comparable period of the preceding
fiscal year. License revenue during the three-month period ended July 31, 2002
decreased 33% to $5.0 million from $7.6 million during the comparable period in
the prior fiscal year. The decrease is primarily attributable to reduced demand
from customers due to the economic slowdown, particularly in the
telecommunications sector. Service and other revenue in the three-month period
ended July 31, 2002 increased by 16% due to the continued growth of the
installed base of customers under annual maintenance agreements.
International revenue accounted for 54% and 58% of the Company's total product
revenue in the three-month periods ended July 31, 2002 and 2001, 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.
Sales and marketing expenses. Sales and marketing expenses consist of salaries,
commissions paid to internal sales and marketing personnel, promotional costs
and related operating expenses. Sales and marketing expenses increased by 6% to
$6.5 million in the three-month period ended July 31, 2002, as compared to $6.2
million in the same period in the previous fiscal year. The increase is
attributable to increased sales and marketing efforts such as advertising in
trade publications and participation in industry trade shows. Sales and
marketing expenses represented 70% and 55% of total revenue in the three-month
period ended July 31, 2002 and 2001, respectively. Ansoft expects that sales and
marketing expenses will decrease as a percentage of revenue although increase in
absolute dollars in future periods.
Research and development expenses. Research and development expenses include all
costs associated with the development of new products and enhancements to
existing products. Total research and development expenses for the three-month
period ended July 31, 2002 increased 31% to $5.1 million, as compared to $3.9
million for the same period in the previous fiscal year. Excluding Ansoft's
investment in Altra Broadband, research and development expenses increased 35%.
The increase is mainly due to the continued research and development efforts for
Ansoft's current and future software products. Research and development expenses
represented 55% (44% excluding Altra Broadband expense) and 35% (27% excluding
Altra Broadband expense) of total revenue in the three-month periods ended July
31, 2002 and 2001, respectively. Ansoft anticipates that research and
development expenses will decrease as a percentage of revenue and in absolute
dollars in future periods. Ansoft is currently reassessing the level of Altra
Broadband research and development activity to be conducted in the future. It is
currently expected that the level of activity will be reduced from recent
historical levels. However, the extent of the reduction has not yet been
determined.
General and administrative expenses. General and administrative expenses for the
three-month period ended July 31, 2002 was $1.0 million, comparable to the same
period in the previous fiscal year. General and administrative expenses
represented 11% and 9% of total revenue in the three-month periods ended July
31, 2002 and 2001, respectively. The Company anticipates that general and
administrative expenses will decrease as a percentage of revenue but increase
slightly in absolute dollars in future periods.
Amortization expense. Amortization expense for the three-month period ended July
31, 2002 was $1.0 million, as compared to $1.2 million in the same period in the
previous fiscal year. The decrease was 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. Other income for the three-month period ended July 31, 2002 was
$242,000, a decrease from the $402,000 reported for the same period in the
previous fiscal year. The decrease is due primarily to lower interest rates and
investment returns in the current period.
Income taxes. In the three-month periods ended July 31, 2002 and 2001, the
Company recorded income tax benefit of $836,000 and $214,000, respectively. The
Company is in process of determining the extent of research and development
credits for the years prior to fiscal 2001 that have not been recorded. These
credits, once quantified, will be available to reduce future federal income
taxes, if any, through April 30, 2022.
Page 7
Liquidity and Capital Resources
As of July 31, 2002, Ansoft had $4.3 million in cash and cash equivalents and
working capital of $4.1 million. Net cash provided by (used in) operating
activities in the three-month periods ended July 31, 2002 and 2001 was
($279,000) and $2.4 million, respectively.
Net cash used in investing activities in the three-month periods ended July 31,
2002 and 2001 was $656,000 and $8.3 million, respectively. Capital expenditures
were $383,000 and $379,000 in the three-month periods ended July 31, 2002 and
2001, respectively. In the three-month period ended July 31, 2001 the Company
invested $7.5 million in acquired businesses. Purchases of marketable securities
were $273,000 and $345,000 in the three-month periods ended July 31, 2002 and
2001, respectively.
Net cash provided by (used in) financing activities was ($200,000) and $681,000
in the three-month periods ended July 31, 2002 and 2001, respectively. Proceeds
from the issuance of common stock were $135,000 and $681,000 in the three-month
periods ended July 31, 2002 and 2001, respectively. Funds used for the purchase
of treasury stock were $335,000 in the three-month period ended July 31, 2002.
Ansoft has available a $15.0 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, 2003, and is secured by
the marketable securities held with the institution. As of July 31, 2002, $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 as of
July 31, 2002 is as follows (in thousands):
Debt Operating Leases Capital Leases
---- ---------------- --------------
Fiscal 2003 - $1,073 $ 276
2004 $10,000 $1,145 $ 368
2005 - $ 887 $ 112
2006 - $ 705 -
2007 - $ 110 -
Critical Accounting Policies
Certain accounting policies are very important to the portrayal of Ansoft's
financial condition and results of operations and require management's most
subjective or complex judgments. The policies are as follows:
Revenue Recognition
License revenues are recognized when persuasive evidence of an arrangement
exists, delivery of the product has occurred, no significant obligations remain,
the fee is fixed or determinable and collectibility is probable. Revenue earned
on software arrangements involving multiple elements is allocated to each
element based on the relative fair values of the elements. The revenue allocated
to software products is recognized after shipment of the products and
fulfillment of acceptance terms.
In general, postcontract customer support ("PCS") for a three-month period is
bundled with the initial licensing fee. Revenue related to the three-month PCS
is deferred and recognized ratably over the term of the agreement. Revenue
related to all other PCS arrangements is deferred and recognized ratably over
the term of the agreement. Revenue from customer training, support and other
services is recognized as the service is performed.
Page 8
Valuation of Accounts Receivable
Management reviews accounts receivable to determine which are doubtful of
collection. In making the determination of the appropriate allowance for
doubtful accounts, management considers Ansoft's history of write-offs,
relationships with its customers, and the overall credit worthiness of its
customers.
Impairment of Intangible Assets
The Company reviews assets for impairment whenever events or changes in
circumstances indicate that the carrying value of the assets may not be
recoverable. A determination of impairment is made based on estimates of future
cash flows. If such assets are considered to be impaired the amount of the
impairment is based on the excess of the carrying value over the fair value of
the assets. The fair value of the assets is measured using estimated discounted
future cash flows.
Goodwill
The Company reviews goodwill for impairment based on a comparison of the fair
value of the reporting unit (determined to be Ansoft taken as a whole) and its
carrying amount. If the carrying amount exceeds fair value, the implied fair
value of reporting unit goodwill is compared to the carrying amount of the
goodwill and an impairment charge is recorded.
Impairment of Marketable Securities Available for Sale
If a decline in the market value of any available for sale security below cost
is deemed to be other than temporary, an impairment charge is recorded. The
impairment is charged to earnings and a new cost basis for the security is
established. During the three-month period ended July 31, 2002, the marketable
securities declined $1.4 million in market value and have declined a total of
$2.2 million below cost. This decline is deemed to be temporary. While this
assessment is a judgment based on all of the information available at the time
of the assessment, other information or economic developments in the future may
lead to changes in this assessment.
Deferred Tax Asset Valuation Allowance
Deferred tax assets are recognized for deductible temporary differences, net
operating loss carryforwards, and credit carryforwards if it is more likely than
not that the tax benefits will be realized. To the extent a deferred tax asset
cannot be recognized under the preceding criteria, a valuation allowance has
been established.
The judgments used in applying the above policies are based on management's
evaluation of the relevant facts and circumstances as of the date of the
financial statements. Actual results may differ from those estimates. See also
the "Additional Risk Factors that may effect Future Results" section of this
Management's Discussion and Analysis.
Recent Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146
eliminates Emerging Issues Task Force, or EITF, Issue No. 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)." Under SFAS No.
146, liabilities for costs associated with an exit or disposal activity are
recognized when the liabilities are incurred, as opposed to being recognized at
the date of entity's commitment to an exit plan under EITF No. 94-3.
Furthermore, SFAS No. 146 establishes that fair value is the objective for
initial measurement of the liabilities. This Statement will be effective for
exit or disposal activities that are initiated after December 31, 2002.
Page 9
Quantitative and Qualitative Disclosure about Market Risk
There have been no material changes in reported market risks faced by the
Company since April 30, 2002.
Additional Risk Factors that may affect Future Results
Our Future Operating Results Are Uncertain.
During the fiscal year ended April 30, 2002, Ansoft had net income of $1.2
million. Ansoft has incurred net losses in each of the years in the three-year
period ending April 30, 2001. There can be no assurance that Ansoft's revenue
and net income will grow or be sustained in future periods or that Ansoft will
be profitable in any future period. Future operating results will depend on many
factors, including the degree and the rate of growth of the markets in which
Ansoft competes and the accompanying demand for Ansoft's products, the level of
product and price competition, the ability of Ansoft to develop and market new
products and to control costs, the ability of Ansoft to expand its direct sales
force and the ability of Ansoft to attract and retain key personnel.
Our Quarterly Operating Results Are Difficult To Predict.
We are unable to accurately forecast our future revenues primarily because of
the emerging nature of the market in which we compete. Our revenues and
operating results generally depend on the size, timing and structure of
significant licenses. These factors have historically been, and are likely to
continue to be, difficult to forecast. In addition, our current and future
expense levels are based largely on our operating plans and estimates of future
revenues and are, to an extent, fixed. We may be unable to adjust spending
sufficiently or quickly enough to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues in relation to our
planned expenditures would seriously harm our business, financial condition and
results of operations. Such shortfalls in our revenue or operating results from
levels expected by public market analysts and investors could seriously harm the
trading price of our common stock. Additionally, we may not learn of such
revenue shortfalls, earnings shortfalls or other failure to meet market
expectations until late in a fiscal quarter, which could result in an even more
immediate and serious harm to the trading price of our common stock. Our
quarterly operating results have varied, and it is anticipated that our
quarterly operating results will vary, substantially from period to period
depending on various factors, many of which are outside our control. Due to the
foregoing factors, we cannot predict with any significant degree of certainty
our quarterly revenue and operating results. Further, we believe that
period-to-period comparisons of our operating results are not necessarily a
meaningful indication of future performance.
Our Stock Price Is Extremely Volatile.
The trading price of our common stock has fluctuated significantly in the past,
and the trading price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in price in response to such factors as:
- - Actual or anticipated fluctuations in our operating results;
- - Announcements of technological innovations and new products by us or our
competitors;
- - New contractual relationships with strategic partners by us or our
competitors;
- - Proposed acquisitions by us or our competitors; and
- - Financial results that fail to meet public market analyst expectations of
performance.
In addition, the stock market in general, The Nasdaq National Market and the
market for technology companies in particular has experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of such companies. These broad market and industry factors
may seriously harm the market price of our common stock in future periods.
Page 10
Businesses Or Assets We Acquire May Not Perform As Projected.
We have acquired or merged with a number of technologies, assets and companies
in recent years, including the following: Agilent Technologies, Inc.'s HFSS
product line, SIMEC Corporation, Pacific Numerix Corporation, Compact Software,
Inc., the Electronic Business Unit of MacNeal Schwendler Company and Boulder
Microwave Technologies, and as part of our efforts to increase revenue and
expand our product and services offerings we may acquire additional companies.
In addition to direct costs, acquisitions pose a number of risks, including
potential dilution of earnings per share, delays and other problems of
integrating the acquired products and employees into our business, the failure
to realize expected synergies or cost savings, the failure of acquired products
to achieve projected sales, the drain on management time for acquisition-related
activities, possible adverse effects on customer buying patterns due to
uncertainties resulting from an acquisition, and assumption of unknown
liabilities. The foregoing factors could seriously harm our business, financial
condition and results of operations.
We May Lose Competitive Advantages If Our Proprietary Rights Are Inadequately
Protected.
Ansoft's success depends, in part, upon its proprietary technology. We rely on a
combination of trade secrets, copyrights, trademarks and contractual commitments
to protect our proprietary rights in our software products. We generally enter
into confidentiality or license agreements with our employees, distributors and
customers, and limit access to and distribution of our software, documentation
and other proprietary information. Despite these precautions, a third party may
still copy or otherwise obtain and use our products or technology without
authorization, or develop similar technology independently. In addition,
effective patent, copyright and trade secret protection may be unavailable or
limited in certain foreign countries. It is possible that we may fail to
adequately protect our proprietary rights. This would seriously harm Ansoft's
business, operating results and financial condition.
We May Be Unable To Attract And Retain The Key Management And Technical
Personnel That We Need To Succeed.
Ansoft's future operating results depend in large part upon the continued
services of its key technical and management personnel. Ansoft does not have
employment contracts with any executive officer. Ansoft's future success will
also depend in large part on its ability to continue to attract and retain
highly skilled technical, marketing and management personnel. The competition
for such personnel, as well as for qualified EDA engineers, is intense. If
Ansoft is unable to attract, hire and retain qualified personnel in the future,
the development of new products and the management of Ansoft's increasingly
complex business would be impaired. This could seriously harm Ansoft's business,
operating results and financial condition.
We Depend On International Sales for a Significant Percentage Of Our Revenue.
International revenue, principally from Asian customers, accounted for
approximately 55% and 53% of our total revenue in the years ended April 30, 2002
and 2001, respectively. We expect that international license and service revenue
will continue to account for a significant portion of our total revenue for the
foreseeable future. Our international business activities are subject to a
variety of potential risks, including:
- - The impact of recessionary environments in foreign economies;
- - Longer receivables collection periods and greater difficulty in accounts
receivable collection;
- - Difficulties in staffing and managing foreign operations;
- - Political and economic instability;
- - Unexpected changes in regulatory requirements;
- - Reduced protection of intellectual property rights in some countries; and
- - Tariffs and other trade barriers.
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Currency exchange fluctuations in countries in which we license our products
could also seriously harm our business, financial condition and results of
operations by resulting in pricing that is not competitive with products priced
in local currencies. Furthermore, we may not be able to continue to generally
price our products and services internationally in U.S. dollars because of
changing sovereign restrictions on importation and exportation of foreign
currencies as well as other practical considerations. In addition, the laws of
certain countries do not protect our products and intellectual property rights
to the same extent, as do the laws of the United States. Moreover, it is
possible that we may fail to sustain or increase revenue derived from
international licensing and service or that the foregoing factors will seriously
harm our future international license and service revenue, and, consequently,
seriously harm our business, financial condition and results of operations.
We Need To Successfully Manage Our Expanding Operations.
Ansoft has experienced rapid growth in recent years which has placed and could
continue to place a significant strain on the its managerial and other
resources. Revenues have grown from $26.3 million in fiscal 1998 to $53.4
million in fiscal year 2002. 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 experienced significant economic downturns characterized by decreased
product demand, production over-capacity, price erosion, work slowdowns and
layoffs. Any prolonged 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
47% of the outstanding shares of Ansoft common stock. As a result, they have the
ability to effectively control us and direct our affairs, including the election
of directors and approval of significant corporate transactions. This
concentration of ownership also may have the effect of delaying, deferring or
preventing a change in control of our company and may make some transactions
more difficult or impossible without the support of these stockholders. The
interests of these stockholders may conflict with those of other stockholders.
Anti-Takeover Provisions in Ansoft's Certificate Of Incorporation, Bylaws, And
Under Delaware Law Could Prevent An Acquisition.
We have adopted a number of provisions that could have anti-takeover effects.
The Board of Directors has the authority to issue up to 1,000,000 shares of
Preferred Stock without any further vote or action by Ansoft's stockholders.
This and other provisions of Ansoft's Certificate of Incorporation, Bylaws and
Delaware Law may have the effect of deterring hostile takeovers or delaying or
preventing changes in control or management, including transactions in which the
stockholders of Ansoft might otherwise receive a premium for their shares over
then current market prices.
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 Of The Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 Of The Sarbanes-Oxley Act of 2002
(b) No reports on Form 8-K during the quarter ended July 31, 2002.
None.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: September 5, 2002
ANSOFT CORPORATION
By: /s/ Nicholas Csendes
---------------------------------------
Nicholas Csendes
President and Chief Executive Officer
By: /s/ Anthony L. Ryan
---------------------------------------
Anthony L. Ryan
Chief Financial Officer
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CERTIFICATIONS
I, Nicholas Csendes, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ansoft Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: September 5, 2002
By: /s/ Nicholas Csendes
---------------------------------------
Nicholas Csendes
President and Chief Executive Officer
I, Anthony L. Ryan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ansoft Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: September 5, 2002
By: /s/ Anthony L. Ryan
---------------------------------------
Anthony L. Ryan
Chief Financial Officer
Explanatory Note Regarding Certifications: Representations 4, 5 and 6 of the
Certifications as set forth in Form 10-Q have been omitted, consistent with the
Transition Provisions of SEC Exchange Act Release No. 34-46427, because this
Quarterly Report on Form 10-Q covers a period ending before the Effective Date
of Rules 13a-14 and 15d-14.
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