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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 January 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 000-27874
ANSOFT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 72-1001909
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
Four Station Square, Suite 200
Pittsburgh, Pennsylvania 15219-1119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 261-3200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ x ]
The number of shares of the registrant's Common Stock outstanding as of the
close of business on February 27, was 12,244,132.
ANSOFT CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
----
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - January 31, 2003 (unaudited) and April 30, 2002 1
Consolidated Statements of Operations (unaudited) - Three and nine months ended
January 31, 2003 and 2002 2
Consolidated Statements of Cash Flows (unaudited) - Three and nine months ended
January 31, 2003 and 2002 3
Notes to the Consolidated Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosure about Market Risk 13
Item 4. Controls and Procedures 13
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANSOFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
January 31, April 30,
2003 2002
-------------- --------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 5,148 $ 5,269
Accounts receivable 10,308 15,044
Deferred income taxes 251 236
Prepaid expenses and other assets 509 1,005
-------- -------
Total current assets 16,216 21,554
Equipment and furniture 4,042 5,714
Marketable securities 22,139 22,479
Other assets 374 367
Deferred taxes - non current 5,915 4,484
Intangible assets, net 10,794 13,626
-------- -------
Total assets $ 59,480 $ 68,224
========= ========
Liabilities and stockholders' equity
Current liabilities
Accounts payable and accrued expenses $ 1,972 $ 3,292
Note payable - 1,850
Deferred revenue 8,786 8,915
-------- -------
Total current liabilities 10,758 14,057
Line of credit 11,500 10,000
Other liabilities - 520
-------- -------
Total liabilities 22,258 24,577
Stockholders' equity
Preferred stock - -
Common stock 122 122
Additional paid-in capital 55,127 54,939
Treasury stock (2,821) (1,671)
Other accumulated comprehensive loss (1,568) (1,704)
Accumulated deficit (13,638) (8,039)
-------- -------
Total stockholders' equity 37,222 43,647
Total liabilities and stockholders' equity $ 59,480 $ 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 January 31, Nine months ended January 31,
2003 2002 2003 2002
--------- --------- --------- ---------
Revenue
License $ 7,003 $ 9,722 $ 17,893 $ 25,649
Service and other 5,359 4,343 14,314 12,177
-------- -------- --------- ---------
Total revenue 12,362 14,065 32,207 37,826
Costs and expenses
Sales and marketing 6,442 6,509 19,336 19,145
Research and development 4,272 4,578 14,779 12,806
General and administrative 1,110 1,255 3,117 3,379
Amortization 905 1,175 2,831 3,533
-------- -------- --------- ---------
Total costs and expenses 12,729 13,517 40,063 38,863
-------- -------- --------- ---------
Income (loss) from operations (367) 548 (7,856) (1,037)
Other income, net 294 361 856 1,141
-------- -------- --------- ---------
Income (loss) before income taxes (73) 909 (7,000) 104
Income tax expense (benefit) (15) 318 (1,401) 77
-------- -------- --------- ---------
Net income (loss) $ (58) $ 591 $ (5,599) $ 27
======== ======== ========= =========
Net income (loss) per share
Basic $ (0.00) $ 0.05 $ (0.47) $ 0.00
======== ======== ========= =========
Diluted $ (0.00) $ 0.04 $ (0.47) $ 0.00
======== ======== ========= =========
Weighted average shares used in
calculation
Basic 11,764 11,864 11,840 11,823
======== ======== ========= =========
Diluted 11,764 13,592 11,840 13,517
======== ======== ========= =========
See accompanying notes to the consolidated financial statements.
Page 2
ANSOFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Nine months ended January 31
2003 2002
-------- --------
Cash flows from operating activities
Net income $ (5,599) $ 27
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 1,499 1,477
Amortization 2,831 3,533
Deferred taxes (1,446) (113)
Impairment charge to equipment 407 -
Non cash charge on marketable securities 78 -
Net gain on sale of marketable securities (113) -
Changes in assets and liabilities
Accounts receivable 4,736 (3,060)
Prepaid expenses and other assets 496 503
Other assets and liabilities (527) 270
Accounts payable and accrued expenses (1,320) (150)
Deferred revenue (129) 1,747
-------- --------
Net cash provided by operating activities 913 4,234
-------- --------
Cash flows from investing activities
Purchases of equipment and furniture (628) (2,375)
Proceeds from the sale of equipment 395 -
Investment in acquired intangibles - (7,543)
Net proceeds from (purchases of) marketable
securities 138 (716)
-------- --------
Net cash used in investing activities (95) (10,634)
-------- --------
Cash flows from financing activities
Proceeds from line of credit, net 1,500 1,000
Purchase of treasury stock (1,150) (70)
Payment of note payable (1,850) -
Proceeds from the issuance of common stock, net 188 1,070
-------- --------
Net cash provided by (used in) financing activities (1,312) 2,000
Effect of exchange rate 373 (400)
-------- --------
Net decrease in cash and cash equivalents (121) (4,800)
Cash and cash equivalents at beginning of period 5,269 9,412
-------- --------
Cash and cash equivalents at end of period $ 5,148 $ 4,612
======== ========
Supplemental disclosures of cash flow information
Cash paid for interest $ 304 $ 331
======== ========
Cash paid for income taxes $ 846 $ 203
======== ========
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. See also the "Additional Risk Factors
that may affect Future Results'' section of Management's Discussion and
Analysis.
(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 January 31, Nine Months Ended January 31,
(in thousands, except per share amounts)
2003 2002 2003 2002
--------- --------- --------- ---------
Net loss $ (58) $ 591 $ (5,599) $ 27
Unrealized gain (loss) on marketable securities 1,416 546 (237) (960)
Foreign currency translation adjustments 114 (150) 373 (400)
--------- --------- --------- ---------
Comprehensive income (loss) $ 1,472 $ 987 $ (5,463) $ (1,333)
========= ========= ========= =========
(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 its initial review during
the second quarter of 2003. Based on the initial review, there was no 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 and nine months
ended January 31, 2002:
Three Months Ended January 31, Nine Months Ended January 31,
(in thousands, except per share amounts)
2003 2002 2003 2002
--------- --------- --------- ---------
Reported net loss $ (58) $ 591 $ (5,599) $ 27
Add back: Goodwill amortization - 85 - 256
--------- --------- --------- ---------
Adjusted net income (loss) $ (58) $ 676 $ (5,599) $ 283
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
Reported net loss $ (0.00) $ 0.05 $ (0.47) $ 0.00
Add back: Goodwill amortization - 0.01 - 0.02
--------- --------- --------- ---------
Adjusted net income (loss) $ (0.00) $ 0.06 $ (0.47) $ 0.02
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Reported net loss $ (0.00) $ 0.04 $ (0.47) $ 0.00
Add back: Goodwill amortization - 0.01 - 0.02
--------- --------- --------- ---------
Adjusted net income (loss) $ (0.00) $ 0.05 $ (0.47) $ 0.02
========= ========= ========= =========
Other intangible assets amounted to $9.6 million (net of accumulated
amortization of $13.8 million) at January 31, 2003. These intangible assets
consist primarily of customer lists ($8.2 million net of accumulated
amortization of $10.4 million as of January 31, 2003) 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. 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 in September
2002, resulting in a restructuring charge of $532,000 that is included in
"Research and development expense."
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 January 31, Nine months ended January 31,
2003 2002 2003 2002
--------- ---------- ----------- ---------
Revenues:
License 57% 69% 56% 68%
Service and other 43 31 44 32
-------- -------- ------- --------
Total revenue 100 100 100 100
Costs and expenses:
Sales and marketing 52 46 60 51
Research and development 35 33 45 34
General and administrative 9 9 10 9
Amortization 7 8 9 9
-------- -------- ------- --------
Total costs and expenses 103 96 124 103
-------- -------- ------- --------
Loss from operations (3) 4 (24) (3)
Other income 2 2 3 3
-------- -------- ------- --------
Loss before income taxes (1) 6 (21) 0
Income taxes 0 2 4 0
-------- -------- ------- --------
Net loss (1)% 4% (17)% 0%
======== ======== ======= ========
Page 6
Comparison of the Three and Nine Months Ended January 31, 2003 and 2002
Revenue. Total revenue in the three-month period ended January 31, 2003 declined
12% to $12.4 million. Total revenue in the nine-month period ended January 31,
2003 declined 15% to $32.2 million. License revenue during the three-month
period ended January 31, 2003 decreased 28% to $7 million from $9.7 million
during the comparable period in the prior fiscal year. License revenue during
the nine-month period ended January 31, 2003 decreased 30% to $17.9 million from
$25.6 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 and nine-month periods ended January 31, 2003
increased 23% and 18%, respectively, due to the continued growth of the
installed base of customers under annual maintenance agreements.
International revenue accounted for 59% and 55% of the Company's total product
revenue in the three-month periods ended January 31, 2003 and 2002,
respectively. International revenue accounted for 57% and 56% of the Company's
total product revenue in the nine-month periods ended January 31, 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.
Sales and marketing expenses. Sales and marketing expenses consist of salaries,
commissions paid to internal sales and marketing personnel, promotional costs
and related operating expenses. Sales and marketing expenses in the three-month
period ended January 31, 2003 decreased by 1% to $6.4 million, as compared to
$6.5 million in the same period in the previous fiscal year. The decrease was
due primarily to lower commission expense, as well as cost control measures.
Sales and marketing expenses increased by 1% to $19.3 million in the nine-month
period ended January 31, 2003, as compared to $19.1 million in the same period
in the previous fiscal year. Sales and marketing expenses represented 52% and
46% of total revenue in the three-month periods ended January 31, 2003 and 2002,
respectively. Sales and marketing expenses represented 60% and 51% of total
revenue in the nine-month periods ended January 31, 2003 and 2002, respectively.
Ansoft expects that sales and marketing expenses will decrease as a percentage
of revenue although increase in absolute dollars approximately 10% in the next
quarter due to increased sales.
Research and development expenses. Research and development expenses include all
costs associated with the development of new products and enhancements to
existing products. Total research and development expenses for the three-month
period ended January 31, 2003 decreased 7% to $4.3 million, as compared to $4.6
million for the same period in the previous fiscal year. The decrease is mainly
due to the closing of the Altra Broadband Irvine Technology Center and other
cost control measures. A restructuring charge of $532,000 related to the closing
of Altra Broadband's Irvine Technology Center is included in the expenses for
the nine month period ended January 31, 2003. Research and development expenses
represented 35% and 33% of total revenue in the three-month periods ended
January 31, 2003 and 2002, respectively. Research and development expenses
represented 45% and 34% of total revenue in the nine-month periods ended January
31, 2003 and 2002, respectively. Ansoft anticipates that research and
development expenses will decrease as a percentage of revenue and in absolute
dollars in the next quarter.
General and administrative expenses. General and administrative expenses for the
three-month period ended January 31, 2003 was $1.1 million, as compared to $1.3
million in the same period in the previous fiscal year. General and
administrative expenses for the nine-month period ended January 31, 2003
decreased 8% to $3.1 million. The decline is due to general cost control
measures. General and administrative expenses represented 9% of total revenue in
the three-month periods ended January 31, 2003 and 2002, respectively. The
Company anticipates that general and administrative expenses will decrease as a
percentage of revenue but increase in absolute dollars in the next quarter.
Page 7
Amortization expense. Amortization expense for the three-month period ended
January 31, 2003 was $905,000, as compared to $1.2 million in the same period in
the previous fiscal year. Amortization expense for the nine-month period ended
January 31, 2003 was $2.8 million, as compared to $3.5 million in the same
period in 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. Other income for the three-month period ended January 31, 2003 was
$294,000, a decrease from the $361,000 reported for the same period in the
previous fiscal year. Other income for the nine-month period ended January 31,
2002 was $856,000, a decrease from the $1.1 million 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 and nine-month periods ended January 31, 2003, the
Company recorded tax benefits of $15,000 and $1.4 million, respectively. In
addition, during the quarter ended January 31, 2003, a study of research and
development credits was completed. The Company has determined that it has
approximately $2 million in research and development credits for the years prior
to fiscal 2001 that are available to reduce future federal income taxes, if any,
through April 30, 2022. The ultimate realization of these tax assets is
dependant upon the generation of future taxable income. Based on an analysis of
taxable income projections, management has recorded an equivalent valuation
allowance.
Liquidity and Capital Resources
As of January 31, 2003, Ansoft had $5.1 million in cash and cash equivalents and
working capital of $5.4 million. Net cash provided by operating activities in
the nine-month periods ended January 31, 2003 and 2002 was $913,000 and $4.2
million, respectively.
Net cash used in investing activities in the nine-month periods ended January
31, 2003 and 2002 were $95,000 and $10.6 million, respectively. Capital
expenditures were $628,000 and $2.4 million in the nine-month periods ended
January 31, 2003 and 2002, respectively. In the nine-month period ended January
31, 2002 the Company invested $7.5 million in acquired businesses. Net proceeds
from the sale of (purchases of) marketable securities were $138,000 and
($716,000) in the nine-month periods ended January 31, 2003 and 2002,
respectively.
Net cash used in financing activities was $1.3 million in the nine-month period
ended January 31, 2003. Net cash provided by financing activities was $2 million
in the nine-month period ended January 31, 2002. Proceeds from the issuance of
common stock were $188,000 and $1.1 million in the nine-month periods ended
January 31, 2003 and 2002, respectively. Proceeds from the line of credit were
$1.5 million and $1.0 million in the nine-month periods ended January 31, 2003
and 2002, respectively. Payment of a note payable was $1.9 million in the
nine-month period ended January 31, 2003. Funds used for the purchase of
treasury stock were $1.2 million and $70,000 in the nine-month periods ended
January 31, 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, and is secured by
the marketable securities held with the institution. As of January 31, 2003,
$11.5 million was the outstanding balance on the line of credit. Ansoft believes
that the available funds will be sufficient to meet its anticipated cash needs
for working capital and capital expenditures for at least the foreseeable
future. Thereafter, if cash generated from operations is insufficient to satisfy
the Company's liquidity requirements, Ansoft may seek additional funds through
equity or debt financing. There can be no assurance that additional financing
will be available or that, if available, such financing will be on terms
favorable to Ansoft.
Page 8
A summary of Ansoft's significant contractual obligations and commitments as of
January 31, 2003 is as follows (in thousands):
Debt Operating Leases
Fiscal 2003 - $ 351
2004 - $1,145
2005 $11,500 $ 887
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.
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.
Page 9
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 nine-month period ended January 31, 2003, the marketable
securities declined $237,000 in market value and have declined a total of $1.2
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 is effective for exit or
disposal activities that are initiated after December 31, 2002.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure--an Amendment of FASB Statement No.
123." This Statement amends SFAS 123, Accounting for Stock-Based Compensation,
to provide alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation. In addition,
this Statement amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements. Certain
of the disclosure modifications are required for interim periods beginning after
December 15, 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
Page 10
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 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.
Page 11
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.
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 electronic design projects
often decreases. Since 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.
Page 12
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in reported market risks faced by the
Company since April 30, 2002.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of the Company's disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of
1934, as amended) as of a date within 90 days of the filing of this quarterly
report (the "Evaluation Date"), have concluded that, as of the Evaluation Date,
the Company's disclosure controls and procedures were effective to ensure the
timely collection, evaluation and disclosure of information relating to the
Company that would potentially be subject to disclosure under the Securities
Exchange Action of 1934, as amended, and the rules and regulations promulgated
thereunder. There were no significant changes in the Company's internal controls
or in other factors that could significantly affect the internal controls
subsequent to the Evaluation Date.
Page 13
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
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: March 7, 2003 ANSOFT CORPORATION
By: /s/ Nicholas Csendes
-------------------------------------------
Nicholas Csendes
President and Chief Executive Officer
By: /s/ Anthony L. Ryan
-------------------------------------------
Anthony L. Ryan
Chief Financial Officer
Page 14
CERTIFICATIONS
I, Nicholas Csendes, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ansoft Corporation, the
registrant;
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;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 7, 2003
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, the
registrant;
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;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 7, 2003
By: /s/ Anthony L. Ryan
-------------------------------------------
Anthony L. Ryan
Chief Financial Officer