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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, 2004
[ ] 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.)
225 West 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 [x ] No [ ]
The number of shares of the registrant's Common Stock outstanding as of the
close of business on August 30, 2004 was 12,891,061.
ANSOFT CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
----
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - July 31, 2004 (unaudited) and April 30, 2004 1
Consolidated Statements of Operations (unaudited) - Three months ended July 31, 2004 and 2003 2
Consolidated Statements of Cash Flows (unaudited) - Three months ended July 31, 2004 and 2003 3
Notes to the Consolidated Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5
Item 3. Quantitative and Qualitative Disclosure about Market Risk 12
Item 4. Controls and Procedures 12
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters 12
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Certifications
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANSOFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
July 31, April 30,
2004 2004
-------- --------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 7,248 $ 15,218
Accounts receivable 6,417 10,179
Deferred income taxes 360 343
Prepaid expenses and other assets 1,668 675
-------- --------
Total current assets 15,693 26,415
Equipment and furniture 3,426 3,598
Marketable securities 22,764 25,502
Other assets 381 383
Deferred taxes - non current 5,141 5,158
Goodwill 1,239 1,239
Intangible assets 4,932 5,341
-------- --------
Total assets $ 53,576 $ 67,636
======== ========
Liabilities and stockholders' equity
Current liabilities
Accounts payable and accrued expenses $ 1,995 $ 4,015
Deferred revenue 13,017 11,935
-------- --------
Total current liabilities 15,012 15,950
Line of credit - 10,000
-------- --------
Total liabilities 15,012 25,950
Stockholders' equity
Preferred stock - -
Common stock 130 129
Additional paid-in capital 59,080 58,562
Treasury stock (11,765) (9,090)
Accumulated other comprehensive (income) loss, net (306) 691
Accumulated deficit (8,575) (8,606)
-------- --------
Total stockholders' equity 38,564 41,686
Total liabilities and stockholders' equity $ 53,576 $ 67,636
======== ========
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,
2004 2003
-------- --------
Revenues
License $ 6,169 $ 5,341
Service and other 6,509 5,310
-------- --------
Total revenue 12,678 10,651
Cost of revenue
License 97 142
Service and other 304 248
-------- --------
Total cost of revenue 401 390
-------- --------
Gross profit 12,277 10,261
Costs and expenses
Sales and marketing 7,497 6,320
Research and development 3,978 3,823
General and administrative 1,064 1,111
Amortization 409 857
-------- --------
Total costs and expenses 12,948 12,111
-------- --------
Loss from operations (671) (1,850)
Net realized gain on sale of securities 759 --
Other income (expense), net (48) 261
-------- --------
Income (loss) before income taxes 40 (1,589)
Income tax expense (benefit) 10 (397)
-------- --------
Net income (loss) $ 30 $ (1,192)
======== ========
Basic net income (loss) per share $ 0.00 $ (0.10)
======== ========
Diluted net income (loss) per share $ 0.00 $ (0.10)
======== ========
Weighted average shares used in calculation
Basic 11,664 11,672
======== ========
Diluted 13,314 11,672
======== ========
See accompanying notes to the consolidated financial statements.
Page 2
ANSOFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Three months ended July 31,
2004 2003
-------- -------
Cash flows from operating activities
Net Income (loss) $ 30 $(1,192)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation 362 381
Amortization 409 891
Deferred taxes -- (397)
Net realized gain on sale of securities (759) --
Non cash charge on marketable securities -- --
Changes in assets and liabilities
Accounts receivable 3,762 4,826
Prepaid expenses and other assets (992) (415)
Other long-term assets and liabilities, net 4 11
Accounts payable and accrued expenses (2,021) (1,091)
Deferred revenue 1,082 (1,236)
-------- -------
Net cash provided by operating activities 1,877 1,778
-------- -------
Cash flows from investing activities
Purchases of equipment and furniture (190) (423)
Proceeds from the sale of marketable securities 13,075 2,426
Purchase of marketable securities (10,510) (4,609)
-------- -------
Net cash provided by (used in) investing activities 2,375 (2,606)
-------- -------
Cash flows from financing activities
Repayment of Line of credit (10,000) --
Purchase of treasury stock (2,675) (417)
Proceeds from the issuance of common stock, net 519 243
-------- -------
Net cash used in financing activities (12,156) (174)
-------- -------
Net decrease in cash and cash equivalents (7,904) (1,002)
Effect of exchange rate changes (66) (5)
Cash and cash equivalents at beginning of period 15,218 7,173
-------- -------
Cash and cash equivalents at end of period $ 7,248 $ 6,166
======== =======
Supplemental disclosures of cash flow information
Cash paid for interest $ 230 $ 51
======== =======
Cash paid for income taxes $ 283 $ --
======== =======
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 wholly 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 the April 30, 2004 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)
2004 2003
----- ----
Net income (loss) $ 30 $(1,192)
Unrealized loss on marketable securities (172) (29)
Reclassification adjustment (759) --
Foreign currency translation adjustments (66) (5)
----- -------
Comprehensive loss $(967) $(1,226)
===== =======
(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) Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with the
Financial Accounting Standards Board's ("FASB") SFAS No. 123 "Accounting for
Stock-Based Compensation." This statement permits a company to choose either a
fair value based method of accounting for its stock-based compensation
arrangements or to comply with the Accounting Principles Board ("APB") Opinion
No. 25 intrinsic value based method, adding pro forma disclosures of net income
and earnings per share computed as if the fair value based method had been
applied in the financial statements. The Company has adopted SFAS No. 123 by
retaining the APB Opinion No. 25 method of accounting for stock-based
compensation with pro forma disclosures of net income and earnings per share.
The Company's pro forma information follows:
Three Months Ended July 31,
(in thousands, except per share amounts)
2004 2003
------ -------
Net Income (loss), as reported $ 30 $(1,192)
Deduct: Total stock-based employee compensation
expense determined under fair value based method, net of tax (584) (800)
------ -------
Pro forma net loss $ (554) $(1,992)
====== =======
Pro forma net loss per basic and diluted common share $(0.05) $ (0.17)
====== =======
Because the Company anticipates making additional grants and options vest over
several years, the effects on pro forma disclosures of applying SFAS No. 123 are
not likely to be representative of the effects on pro forma disclosures of
future years.
(5) Line of Credit
On the July 31, 2004, the Company paid the outstanding balance of $10 million on
its available $20 million secured line of credit from a domestic financial
institution. The Company subsequently terminated the line of credit agreement.
(6) Commitments and Contingencies
The Company sells software licenses and services to its customers under
proprietary software license agreements. Each license agreement contains the
relevant terms of the contractual arrangement with the customer, and generally
includes certain provisions for indemnifying the customer against losses,
expense and liabilities from damages that may be incurred by or awarded against
the customer in the event the Company's software or services are found to
infringe upon a patent, copyright, or other proprietary right of a third party.
To date, the Company has not had to reimburse any of its customers for any
losses related to these indemnification provisions and no material claims
asserted under these indemnification provisions are outstanding as of July 31,
2004. For several reasons, including the lack of prior indemnification claims,
the Company cannot determine the maximum amount of potential future payments, if
any, related to such indemnification provisions. There can be no assurance that
potential future payments will not have a material adverse effect on the
Company's business, financial position, results of operations or cash flows.
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, 2004.
Overview
Ansoft Corporation ("Ansoft" or the "Company") is a developer of electronic
design automation ("EDA") software used in high technology products and
industries. Ansoft's software is used by electrical engineers in the design of
state of the art technology products, such as cellular phones, internet
networking, satellite communications systems, computer chips and circuit boards,
and electronic sensors and motors. Engineers use our software to maximize
product performance, eliminate physical prototypes, and reduce time-to-market.
Page 5
Results of Operations
Three months ended July 31,
2004 2003 Percentage Change
------- ------- -----------------
Revenue 12,678 10,651 19.0%
Cost of Revenue 401 390 2.8%
------- -------
Gross profit 12,277 10,261 19.6%
------- -------
Sales and Marketing 7,497 6,320 18.6%
Research and Development 3,978 3,823 4.1%
General and Administrative 1,064 1,111 (4.2%)
Amortization 409 857 (52.3%)
------- -------
Total Operating Expenses 12,948 12,111 6.9%
------- -------
Loss from operations (671) (1,850) 63.7%
Net realized gain on sale of securities 759 -- 100.0%
Other income, (expense), net (48) 261 (118.4%)
------- -------
Income (loss) before income taxes 40 (1,589) 102.5%
Income tax expense (benefit) 10 (397) 102.5%
------- -------
Net income (loss) 30 (1,192) 102.5%
======= =======
Comparison of the Three Months Ended July 31, 2004 and 2003
Revenue. Total revenue in the three-month period ended July 31, 2004 increased
19% to $12.7 million. License revenue during the three-month period ended July
31, 2004 increased 15.5% to $6.2 million from $5.3 million during the comparable
period in the prior fiscal year. The increase is attributed to an improving
economy, particularly an improvement in the technology sectors resulting in an
increased demand for our software products worldwide. Service and other revenue
in the three-month period ended July 31, 2004 increased 22.6% due to the
continued growth of the installed base of customers under annual maintenance
agreements. Ansoft expects total revenue in fiscal 2005 to increase between 10%
and 15% as compared to fiscal 2004.
International revenue accounted for 60% and 62% of the Company's total product
revenue in the three-month periods ended July 31, 2004 and 2003, respectively.
The Company's future international sales may be subject to additional risks
associated with international operations, including currency exchange
fluctuations, tariff regulations and requirements for export, which licenses may
on occasion be delayed or difficult to obtain.
Cost of Revenue. Cost of revenue consists primarily of software materials,
personnel and other expenses related to providing maintenance and post-contract
customer support and amortization of acquired technology. Our cost of revenue
increased 2.8% to $401,000 from $390,000 during the comparable period in the
prior fiscal year. This increase was attributed to an increase in annual
maintenance agreements from the previous fiscal year. Ansoft expects cost of
revenue to represent 3% of total revenue in fiscal 2005.
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 July 31, 2004 increased 18.6% to $7.5 million due to the increased
sales volume. Sales and marketing expenses represented 59% of total revenue in
the three-month periods ended July 31, 2004 and 2003. Ansoft expects that sales
and marketing expenses will be approximately $7.0 - $7.5 million next quarter
and increase 7% - 10% for the full fiscal 2005 year, as compared to fiscal 2004,
due to the expected increase in sales.
Page 6
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, 2004 increased 4.1% to $4.0 million, as compared to $3.8
million for the same period in the previous fiscal year. Total research and
development increased primarily due to the additional personnel to meet software
development requirements. Research and development expenses represented 31% and
36% of total revenue in the three-month periods ended July 31, 2004 and 2003,
respectively. Ansoft expects to invest between $17 million and $17.5 million in
research and development expenses for the full 2005 fiscal year.
General and administrative expenses. General and administrative expenses for the
three-month period ended July 31, 2004 was $1.1 million, comparable to the same
period in the previous fiscal year. General and administrative expenses
represented 8% and 10% of total revenue in the three-month periods ended July
31, 2004 and 2003, respectively. Ansoft expects general and administrative
expenses for the full 2005 fiscal year to be between $4.7 million and $4.9
million.
Amortization expense. Amortization expense for the three-month period ended July
31, 2004 was $409,000, compared to $857,000 for the same period in the previous
fiscal year. The decrease is due to various intangible assets being fully
amortized in the prior fiscal year. Ansoft expects amortization expense for the
full 2005 fiscal year to be $1.5 million.
Net realized gain on sale of securities. Net realized gain for the three-month
period ended July 31, 2004 was $759,000 compared to $0 for the same period in
the previous fiscal year.
Other income (expense), net. Other income (expense) for the three-month period
ended July 31, 2004 was $(48,000), a decrease from the $261,000 reported for the
same period in the previous fiscal year. The decrease is due to sale of
securities and lower interest rates in the current period.
Income taxes. In the three-month period ended July 31, 2004, the Company
recorded a tax expense of $10,000. Ansoft expects to be profitable for the full
2005 fiscal year resulting in an expected overall tax expense position for the
full fiscal year.
Liquidity and Capital Resources
As of July 31, 2004, Ansoft had $7.2 million in cash and cash equivalents and
working capital of $681,000. Net cash provided by operating activities in the
three-month periods ended July 31, 2004 and 2003 was $1.9 million and $1.8
million, respectively.
Net cash provided by (used in) investing activities in the three-month periods
ended July 31, 2004 and 2003 was $2.3 million and $(2.6) million, respectively.
Capital expenditures were $190,000 and $423,000 in the three-month periods ended
July 31, 2004 and 2003, respectively. Proceeds from the sale of marketable
securities were $13.1 million and $2.4 million in the three-month periods ended
July 31, 2004 and 2003. Purchases of marketable securities were $10.5 million
and $4.6 million in the three-month periods ended July 31, 2004 and 2003,
respectively.
Net cash used in financing activities was $12.2 million and $174,000 in the
three-month periods ended July 31, 2004 and 2003, respectively. Proceeds from
the issuance of common stock were $519,000 and $243,000 in the three-month
periods ended July 31, 2004 and 2003, respectively. Funds used for the purchase
of treasury stock were $2.7 million and $417,000 in the three-month periods
ended July 31, 2004 and 2003, respectively.
Ansoft had 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. As of July 31, 2004, the outstanding balance of $10 million was
paid and the line of credit was closed. Ansoft believes that the available
operating 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 7
A summary of Ansoft's significant contractual obligations and commitments as of
July 31, 2004 is as follows (in thousands):
Debt Operating Leases
Fiscal 2005 - 1,151
2006 - 1,367
2007 - 806
2008 - 663
2009 - 398
For fiscal year 2005, the balance of 1,151 represents the remaining payments due
as of July 31, 2004.
Critical Accounting Policies
Ansoft's critical accounting policies are as follows:
- - Revenue Recognition
- - Valuation of Accounts Receivable
- - Impairment of Long-Lived Assets
- - Impairment of Marketable Securities Available for Sale
- - Deferred Tax Asset Valuation Allowance
Revenue Recognition
Revenue consists of fees for licenses of software products and service and other
revenue. Ansoft recognizes revenue in accordance with SOP 97-2, "Software
Revenue Recognition," and related interpretations. Accordingly, revenue is
recognized when all of the following criteria are met: persuasive evidence of an
arrangement exists, delivery has occurred, the vendor's fee is fixed or
determinable, and collectibility is probable.
License revenue - Ansoft licenses its software on a perpetual basis with no
right to return or exchange the licensed software. License revenue is recognized
based on the residual method.
Postcontract customer support ("PCS") for an initial three month period is
bundled with the perpetual licensing fee. Revenue related to the three-month PCS
is deferred and recognized ratably over the three-month term. Ansoft's
vendor-specific objective evidence of fair value, or VSOE, for the three-month
PCS is based upon the pricing for comparable transactions when the element is
sold separately. Ansoft's VSOE for the three-month PCS is based upon one fourth
of the customer's annual maintenance contract renewal rates.
Service and other revenue - consists primarily of PCS revenue. Ansoft offers
customers one-year maintenance contracts generally at 15% of the list price of
the respective software products. Ansoft recognizes all maintenance revenue
ratably over the respective maintenance period. Customers typically renew
maintenance agreements annually.
Revenue from customer training, support and other services is recognized as the
service is performed.
Valuation of Accounts Receivable
Management reviews accounts receivable to determine which are doubtful of
collection. In making the determination of the appropriate allowance for
doubtful accounts, management considers Ansoft's history of write-offs,
relationships with its customers, and the overall credit worthiness of its
customers. The allowance for doubtful accounts as of July 31, 2004 and 2003 was
$903,000 and $878,000 respectively. The increase in allowance from the prior
fiscal year was primarily due to the overall business environment of our
customers. No particular customer was a cause of the changes in allowances. We
had no significant changes in our collection policies or payment terms
Page 8
Impairment of Long-Lived Assets
The Company reviews assets for impairment whenever events or changes in
circumstances indicate that the carrying value of the assets may not be
recoverable. A determination of impairment is made based on estimates of future
cash flows. If such assets are considered to be impaired the amount of the
impairment is based on the excess of the carrying value over the fair value of
the assets.
Goodwill and purchased intangibles with indefinite lives are reviewed annually
for impairment. A determination of impairment is based on the estimated fair
value of the reporting entity.
Impairment of Marketable Securities Available for Sale
An impairment charge is recorded if a decline in the market value of any
available for sale security below cost is deemed to be other than temporary. The
impairment is charged to earnings and a new cost basis for the security is
established.
Deferred Tax Asset Valuation Allowance
Deferred tax assets are recognized for deductible temporary differences, net
operating loss carryforwards, and credit carryforwards if it is more likely than
not that the tax benefits will be realized. The company considers projected
future taxable income and tax planning strategies in making this assessment. To
the extent a deferred tax asset cannot be recognized under the preceding
criteria, a valuation allowance is established.
The judgments used in applying the above policies are based on management's
evaluation of the relevant facts and circumstances as of the date of the
financial statements. Actual results may differ from those estimates. See also
the "Risk Factors" under "Item 1. Business."
Additional Risk Factors that may affect Future Results
Our Future Operating Results Are Uncertain.
Ansoft has incurred net losses in three of the past five fiscal years. There can
be no assurance that Ansoft's revenue and net income will grow or be sustained
in future periods or that Ansoft will be profitable in any future period. Future
operating results will depend on many factors, including the degree and the rate
of growth of the markets in 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.
Page 9
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.
Businesses Or Assets We Acquire May Not Perform As Projected.
We have acquired or merged with a number of technologies, assets and companies
in recent years, including the Agilent Technologies' HFSS product line within
the past three years. As part of our efforts to increase revenue and expand our
product and services offerings we may acquire additional companies in the
future. In addition to direct costs, acquisitions pose a number of risks,
including potential dilution of earnings per share, delays and other problems of
integrating the acquired products and employees into our business, the failure
to realize expected synergies or cost savings, the failure of acquired products
to achieve projected sales, the drain on management time for acquisition-related
activities, possible adverse effects on customer buying patterns due to
uncertainties resulting from an acquisition, and assumption of unknown
liabilities. The foregoing factors could seriously harm our business, financial
condition and results of operations.
We May Lose Competitive Advantages If Our Proprietary Rights Are Inadequately
Protected.
Ansoft's success depends, in part, upon its proprietary technology. We rely on a
combination of trade secrets, copyrights, trademarks and contractual commitments
to protect our proprietary rights in our software products. We generally enter
into confidentiality or license agreements with our employees, distributors and
customers, and limit access to and distribution of our software, documentation
and other proprietary information. Despite these precautions, a third party may
still copy or otherwise obtain and use our products or technology without
authorization, or develop similar technology independently. In addition,
effective patent, copyright and trade secret protection may be unavailable or
limited in certain foreign countries. It is possible that we may fail to
adequately protect our proprietary rights. This would seriously harm Ansoft's
business, operating results and financial condition.
Page 10
We May Be Unable To Attract And Retain The Key Management And Technical
Personnel That We Need To Succeed.
Ansoft's future operating results depend in large part upon the continued
services of its key technical and management personnel. Ansoft does not have
employment contracts with any executive officer. Ansoft's future success will
also depend in large part on its ability to continue to attract and retain
highly skilled technical, marketing and management personnel. The competition
for such personnel, as well as for qualified EDA engineers, is intense. If
Ansoft is unable to attract, hire and retain qualified personnel in the future,
the development of new products and the management of Ansoft's increasingly
complex business would be impaired. This could seriously harm Ansoft's business,
operating results and financial condition.
We Depend On International Sales for a Significant Percentage Of Our Revenue.
International revenue, principally from Asian customers, accounted for
approximately 57% and 56% of our total revenue in the years ended April 30, 2004
and 2003, respectively. We expect that international license and service revenue
will continue to account for a significant portion of our total revenue for the
foreseeable future. Our international business activities are subject to a
variety of potential risks, including:
- - The impact of recessionary environments in foreign economies;
- - Longer receivables collection periods and greater difficulty in accounts
receivable collection;
- - Difficulties in staffing and managing foreign operations;
- - Political and economic instability;
- - Unexpected changes in regulatory requirements;
- - Reduced protection of intellectual property rights in some countries; and
- - Tariffs and other trade barriers.
Currency exchange fluctuations in countries in which we license our products
could also seriously harm our business, financial condition and results of
operations. In addition, the laws of certain countries do not protect our
products and intellectual property rights to the same extent, as do the laws of
the United States. Moreover, it is possible that we may fail to sustain or
increase revenue derived from international licensing and service or that the
foregoing factors will seriously harm our future international license and
service revenue, and, consequently, seriously harm our business, financial
condition and results of operations.
We Need To Successfully Manage Our Expanding Operations.
Revenues have grown from $8.7 million in fiscal 1996 to $54.7 million in fiscal
year 2004, and the number of employees has grown from 69 in April 1996 to 276 as
of April 30, 2004. Ansoft's ability to manage growth effectively will require it
to continue to improve its operational and financial systems, hire and train new
employees and add additional space, both domestically and internationally.
Ansoft may not be successful in addressing such risks, and the failure to do so
would seriously harm Ansoft's business, financial condition and results of
operations.
We Depend On The Growth Of The Communications, Semiconductor And Electronics
Industries.
Ansoft is dependent upon the communications and semiconductor industry and, more
generally, the electronics industry. These industries are characterized by rapid
technological change, short product life cycles, fluctuations in manufacturing
capacity and pricing and gross margin pressures. Segments of these industries
have from time to time experienced significant economic downturns characterized
by decreased product demand, production over-capacity, price erosion, work
slowdowns and layoffs. Any significant downturn could be especially severe on
Ansoft. During such downturns, the number of new integrated circuit design
projects often decreases. Because acquisitions of new licenses from Ansoft are
largely dependent upon the commencement of new design projects, any slowdown in
these industries could seriously harm Ansoft's business, financial condition and
results of operations.
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We Are Controlled By Our Principal Stockholders And Management Which May Limit
Your Ability To Influence Stockholder Matters.
Our executive officers, directors and principal stockholders own approximately
43% of the outstanding shares of Ansoft common stock. As a result, they have the
ability to effectively control us and direct our affairs, including the election
of directors and approval of significant corporate transactions. This
concentration of ownership also may have the effect of delaying, deferring or
preventing a change in control of our company and may make some transactions
more difficult or impossible without the support of these stockholders. The
interests of these stockholders may conflict with those of other stockholders.
Anti-Takeover Provisions in Ansoft's Certificate Of Incorporation, Bylaws, And
Under Delaware Law Could Prevent An Acquisition.
We have adopted a number of provisions that could have anti-takeover effects.
The Board of Directors has the authority to issue up to 1,000,000 shares of
Preferred Stock without any further vote or action by Ansoft's stockholders.
This and other provisions of Ansoft's Certificate of Incorporation, Bylaws and
Delaware Law may have the effect of deterring hostile takeovers or delaying or
preventing changes in control or management, including transactions in which the
stockholders of Ansoft might otherwise receive a premium for their shares over
then current market prices.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in reported market risks faced by the
Company since April 30, 2004.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial and Chief
Accounting Officer, the Company evaluated the effectiveness of the design and
operation of its disclosure controls and procedures as of the end of the period
covered by this Quarterly Report on Form 10-Q, and, based on their evaluation,
the Chief Executive Officer and Chief Financial and Chief Accounting Officer
concluded that these disclosure controls and procedures are effective. There
were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The following table sets forth, the purchases of Treasury Stock for the quarter
ended July 31, 2004:
Total number of Maximum number of
Total shares purchased as shares that may yet
number of part of publicly be purchased under
shares Average price paid announced plans or the plans or
Period purchased per share programs programs
------ --------- --------- -------- --------
May 1, 2004 - May 31, 2004 78,200 $13.50 1,556,971 443,029
June 1, 2004 - June 30, 2004 23,350 $14.87 1,580,321 419,679
July 1, 2004 - July 31, 2004 88,200 $14.42 1,668,521 331,479
Total 189,750 $14.10 - -
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
31.1 Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended, and
Section 302 of the Sarbanes Oxley Act of 2002
31.2 Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, as amended, and
Section 302 of the Sarbanes Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 Of The Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 Of The Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
On May 27, 2004, Registrant filed a current report on Form 8-K to provide under
Item 9 and Item 12 the Registrant's press release in connection with its results
of operation and fiscal condition for Registrant's fiscal year ended April 30,
2004.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: September 14, 2004 ANSOFT CORPORATION
By: /s/ Nicholas Csendes
-------------------------------------
Nicholas Csendes
President and Chief Executive Officer
By: /s/ Thomas A.N. Miller
-------------------------------------
Thomas A.N. Miller
Chief Financial Officer
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