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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 October 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 November 30, 2004 was 11,412,206.
ANSOFT CORPORATION
FORM 10-Q
INDEX
Page
----
Part I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - October 31, 2004 and
April 30, 2004 1
Consolidated Statements of Operations - Three and
six months ended October 31, 2004 and 2003 2
Consolidated Statements of Cash Flows - Six months
ended October 31, 2004 and 2003 3
Notes to the Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure about Market Risk 15
Item 4. Controls and Procedures 16
Part II OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits 18
Signatures 19
Certifications
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANSOFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands) (unaudited)
October 31, April 30,
2004 2004
----------- ---------
Assets
Current assets
Cash and cash equivalents $ 8,947 $ 15,218
Accounts receivable, net 8,602 10,179
Deferred income taxes 576 343
Prepaid expenses and other assets 1,452 675
-------- --------
Total current assets 19,577 26,415
Equipment and furniture, net 3,402 3,598
Marketable securities 24,871 25,502
Other assets 381 383
Deferred income taxes 4,973 5,158
Goodwill 1,239 1,239
Intangible assets, net 4,548 5,341
-------- --------
Total assets $ 58,991 $ 67,636
======== ========
Liabilities and stockholders' equity
Current liabilities
Accounts payable and accrued expenses $ 3,818 $ 4,015
Deferred revenue 12,802 11,935
Line of credit 5,000 --
-------- --------
Total current liabilities 21,620 15,950
Line of credit -- 10,000
-------- --------
Total liabilities 21,620 25,950
Stockholders' equity
Preferred stock , par value $0.01 per share; 1,000
shares authorized, no shares outstanding -- --
-------- --------
Common stock , par value $0.01 per share; 25,000 shares
authorized; issued 12,987 and 12,778 shares,
respectively and outstanding 11,416 and 11,744,
respectively 131 129
Additional paid-in capital 60,462 58,562
Treasury stock, 1,571 and 1,034 shares, respectively (16,856) (9,090)
Accumulated other comprehensive income, net 319 691
Accumulated deficit (6,685) (8,606)
-------- --------
Total stockholders' equity 37,371 41,686
-------- --------
Total liabilities and stockholders' equity $ 58,991 $ 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 October 31, Six months ended October 31,
2004 2003 2004 2003
-------- -------- -------- --------
Revenue
License $ 8,661 $ 6,893 $ 14,830 $ 12,234
Service and other 7,285 5,365 13,794 10,675
-------- -------- -------- --------
Total revenue 15,946 12,258 28,624 22,909
Costs of revenue
License 125 164 222 306
Service and other 356 272 660 520
-------- -------- -------- --------
Total cost of revenue 481 436 882 826
-------- -------- -------- --------
Gross profit 15,465 11,822 27,742 22,083
Operating Expenses
Sales and marketing 7,601 6,339 15,098 12,659
Research and development 4,048 3,773 8,026 7,596
General and administrative 1,329 1,186 2,393 2,297
Amortization 384 761 793 1,618
-------- -------- -------- --------
Total costs and expenses 13,362 12,059 26,310 24,170
-------- -------- -------- --------
Income (loss) from operations 2,103 (237) 1,432 (2,087)
Net realized gain (loss) on sale of
securities (27) -- 732 --
Other income, net 647 207 601 468
-------- -------- -------- --------
Income (loss) before income taxes 2,723 (30) 2,765 (1,619)
Income tax expense (benefit) 834 (8) 844 (405)
-------- -------- -------- --------
Net income (loss) $ 1,889 $ (22) $ 1,921 $ (1,214)
======== ======== ======== ========
-------- -------- -------- --------
Basic net income (loss) per share $ 0.16 $ -- $ 0.17 $ (0.10)
======== -------- ======== --------
Diluted net income (loss) per share $ 0.14 $ -- $ 0.14 $ (0.10)
======== ======== ======== ========
Weighted average shares used in calculation
Basic 11,567 11,637 11,616 11,655
======== ======== -------- ========
Diluted 13,238 11,637 13,275 11,655
======== ======== ======== ========
See accompanying notes to the consolidated financial statements.
Page 2
ANSOFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Six months ended October 31,
2004 2003
-------- --------
Cash flows from operating activities
Net income (loss) $ 1,921 $ (1,214)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation 717 771
Amortization 934 1,689
Deferred taxes -- (435)
Net realized gain on sale of securities (732) --
Changes in assets and liabilities
Accounts receivable 1,865 4,300
Prepaid expenses and other assets (745) (104)
Other long-term assets 2 21
Accounts payable and accrued expenses 133 (632)
Deferred revenue 527 (977)
-------- --------
Net cash provided by operating activities 4,622 3,419
-------- --------
Cash flows from investing activities
Purchases of equipment and furniture (500) (665)
Proceeds from the sale of marketable securities 14,085 6,813
Purchase of marketable securities (13,291) (9,060)
-------- --------
Net cash provided by (used in) investing activities 294 (2,912)
-------- --------
Cash flows from financing activities
Proceeds from (repayment of) line of credit, net (5,000) --
Purchase of treasury stock (7,766) (1,702)
Proceeds from the issuance of common stock, net 1,323 657
-------- --------
Net cash used in financing activities (11,443) (1,045)
-------- --------
Net decrease in cash and cash equivalents (6,527) (538)
Effect of exchange rate changes 256 251
Cash and cash equivalents at beginning of period 15,218 7,173
-------- --------
Cash and cash equivalents at end of period $ 8,947 $ 6,886
======== ========
Supplemental disclosures of cash flow information
Cash paid for interest $ 44 $ 121
======== ========
Cash paid for income taxes $ 290 $ 30
======== ========
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
Corporation ("Ansoft" or the "Company") 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, net of tax. A summary of
comprehensive income (loss) follows:
Three months ended Six months ended
October 31, October 31,
2004 2003 2004 2003
------- ------- ------- -------
Net income (loss) $ 1,889 $ (22) $ 1,921 $(1,214)
Unrealized gain on marketable securities 365 392 193 363
Reclassification adjustment for (gain)/loss
on sale of marketable securities included in
net income 27 -- (732) --
Foreign currency translation adjustments 233 256 167 251
------- ------- ------- -------
Comprehensive income (loss) $ 2,514 $ 626 $ 1,549 $ (600)
======= ======= ======= =======
(3) Net income per share
Basic net income per share is calculated using the weighted-average number of
common shares outstanding during the period. The weighted-average basic shares
were 11,567 and 11,616 for the three and six month periods ended October 31,
2004, respectively. Diluted net income per share is computed using the
weighted-average number of common shares and potentially dilutive common shares
outstanding during the period. The weighted-average dilutive shares were 13,238
and 13,275 for the three and six month periods ended October 31, 2004,
respectively. 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 pro forma effects of stock options on the Company's net income (loss) for
those periods may not be representative of the pro forma effect for future
periods due to the impact of vesting and potential awards.
The Company's pro forma information follows:
Three months ended Six months ended
October 31, October 31,
2004 2003 2004 2003
------- ------- ------- -------
Net income (loss) as reported $ 1,889 $ (22) $ 1,921 $(1,214)
Deduct: Total stock-based employee compensation
expense determined under fair value based method,
net of tax 633 807 1,238 1,607
------- ------- ------- -------
Pro forma net income (loss) $ 1,256 $ (829) $ 683 $(2,281)
======= ======= ======= =======
Pro forma net income (loss) per basic common share $ 0.11 $ (0.07) $ 0.06 $ (0.24)
======= ======= ======= =======
Pro forma net income (loss) per diluted common share $ 0.09 $ (0.07) $ 0.05 $ (0.24)
======= ======= ======= =======
(5) Line of Credit
On October 21, 2004, the Company entered into a one year secured credit
facility, with an aggregate commitment of up to $30 million, with a domestic
financial institution (the "Bank"). The facility replaced the Company's $20
million secured facility closed during the first quarter. Borrowings under the
credit facility bear interest at the Company's option, at the Bank's prime
lending rate or the LIBOR rate plus a margin of 50 basis points. The facility is
secured by the Company's marketable securities.
The ability of the Company to borrow under the credit facility is subject to our
ongoing compliance with certain financial and other covenants, including a
covenant as to our tangible net worth. As of October 31, 2004, the Company was
in compliance with all debt covenants.
As of October 31, 2004, the Company had borrowed $5 million under the credit
facility.
(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.
Page 5
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 October
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.
(7) Recent Accounting Pronouncements
On March 31, 2004, the FASB issued an exposure draft, "Share-Based Payment, an
Amendment of FASB Statements No. 123 and 95." The proposed change in accounting
would replace existing requirements under SFAS No. 123 and APB Opinion No. 25
and cover a wide range of equity-based compensation arrangements. Under the
proposal, all forms of share-based payments to employees, including stock
options, would be treated as other forms of compensation by recognizing the
related cost in the statement of operations. The expense of the award would
generally be measured at fair value at the grant date. Final rules are expected
to be issued in late 2004. The standard would be effective for interim and
annual periods beginning after June 15, 2005. The Company will evaluate the
impact of the final rules on its financial position and operations when issued.
(8) Intangible Assets
The following is a list of Intangible Assets as of October 31, 2004:
Purchased Technology $ 2,230
Non-Compete 2,500
Trademark 212
Customer list 18,488
--------
TOTAL $ 23,430
========
Total accumulated amortization as of October 31, 2004 was $18,882.
(9) Stockholders' Equity
The Company has consistently purchased its common stock in public market
transactions over the past several years. In the current fiscal year as of
October 31, 2004, the Company purchased a total of 537 shares of common stock at
an average price of $14.46. The Company utilized $7.8 million in cash from
operations to effect these common stock purchases. The Company may choose to
continue purchases of common stock in the future.
On October 7, 2004, the Company's Board of Directors increased the authorized
share repurchase amount by 1.0 million shares to 3.0 million (increase in
authorization was publicly announced October 12, 2004).
The Company currently has two stock option plans (1988 Plan and 1995 Plan).
Under the terms of both plans , options to purchase common stock are granted at
no less than the stock's estimated fair market value at the date of the grant
and may be exercised during the specified future periods as determined by the
Board of Directors. Both plans provide that the options shall expire no more
than ten years after the date of the grant. During the first six months of the
fiscal year 2005, 78 shares were granted at an average price of $12.56. At
October 31, 2004 options to purchase 2,238 shares of common stock were
exercisable at an average price of $6.92.
Page 6
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 (1) the degree and rate of growth of the markets in which
Ansoft competes and the accompanying demand for Ansoft's products, (2) the level
of product and price competition, (3) the ability of Ansoft to develop and
market new products and to control costs, (4) the ability to expand its direct
sales force, and (5) the ability to attract and retain key personnel.
Overview
Ansoft 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.
During the second quarter of fiscal 2005, revenues increased by 30% from the
previous fiscal year's second quarter. New license revenue increased by 26% and
maintenance revenue increased 36%. The Company experienced growth in both
product lines and in our domestic and international markets for the quarter.
Net income for the quarter was $1.9 million compared to a $22,000 loss during
the second fiscal quarter of 2004.
Page 7
RESULTS OF OPERATIONS
Three months ended October 31, Six months ended October 31,
Percentage Percentage
2004 2003 Change 2004 2003 Change
------- ------- ---------- ------- -------- ----------
Revenue $15,946 $12,258 30.1% $28,624 $ 22,909 24.9%
Cost of revenue 481 436 10.3% 882 826 6.8%
------- ------- ------- --------
Gross profit 15,465 11,822 30.8% 27,742 22,083 25.6%
------- ------- ------- --------
Sales and marketing 7,601 6,339 19.9% 15,098 12,659 19.3%
Research and development 4,048 3,773 7.3% 8,026 7,596 5.7%
General and administrative 1,329 1,186 12.1% 2,393 2,297 4.2%
Amortization 384 761 (49.5%) 793 1,618 (51.0%)
------- ------- ------- --------
Total operating expenses 13,362 12,059 10.8% 26,310 24,170 8.9%
------- ------- ------- --------
Income (loss) from
operations 2,103 (237) 987.3% 1,432 (2,087) 168.6%
Net realized gain (loss)on
sale of securities (27) - N/A 732 - N/A
Other income, net 647 207 212.6% 601 468 28.4%
------- ------- ------- --------
Income (loss) before income
taxes 2,723 (30) 9,176.7% 2,765 (1,619) 270.8%
Income tax expense (benefit) 834 (8) 10,525.0% 844 (405) 308.4%
------- ------- ------- --------
Net income (loss) $ 1,889 $ (22) 8,686.4% $ 1,921 $ (1,214) 258.2%
======= ======= ======= ========
Comparison of the Three and Six Months Ended October 31, 2004 and 2003
REVENUE. Total revenue in the three and six-month period ended October 31, 2004
increased 30.1% and 24.9% to $15.9 million and $28.6 million, respectively.
License revenue during the three-month period ended October 31, 2004 increased
25.6% to $8.7 million from $6.9 million during the comparable period in the
prior fiscal year. License revenue during the six-month period ended October 31,
2004 increased 21.2% to $14.8 million from $12.2 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. Growth occurred in both
our high frequency and EM product lines. Service and other revenue in the three
and six-month periods ended October 31, 2004 increased 35.8% and 29.2% due to
the continued growth of the installed base of customers under annual maintenance
agreements. This increase is primarily attributed to an increase in our
international annual maintenance agreements.
Page 8
International revenue accounted for 60% and 50% of the Company's total product
revenue in the three-month periods ended October 31, 2004 and 2003,
respectively. International revenue accounted for 60% and 55% of the Company's
total product revenue in the six-month periods ended October 31, 2004 and 2003,
respectively. Generally, the Company believes international sales are subject to
additional risks associated with international operations, including currency
exchange fluctuations, tariff regulations and requirements for export.
Exchange rates will fluctuate throughout the fiscal year. When comparing the
percentage of international revenues to total revenues for the three and
six-month periods, using current year exchange rates for the prior year
revenues, the international revenue would increase by 2% in the prior year
resulting in 52% and 57% of total revenue for the three and six-month periods
ended October 31, 2003.
COST OF REVENUE. Cost of revenue consists primarily of software materials,
personnel and other expenses related to providing maintenance and post-contract
customer support and amortization of acquired technology. Cost of revenue for
the three-month period ended October 31, 2004 increased 10.3% to $481,000 from
the comparable period in the prior fiscal year. Cost of revenue for the
six-month period ended October 31, 2004 increased 6.8% to $882,000 from the
comparable period in the prior fiscal year. The increase was primarily
attributed to an increase in annual maintenance agreements from the previous
fiscal year.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist of salaries,
commissions paid to internal sales and marketing personnel, promotional costs
and related operating expenses. Sales and marketing expenses in the three and
six-month period ended October 31, 2004 increased 19.9% and 19.3% to $7.6
million and $15.1 million due to the increased sales volume. Sales and marketing
expenses represented 48% and 52% of total revenue in the three-month periods
ended October 31, 2004 and 2003, respectively. Sales and marketing expenses
represented 53% and 55% of total revenue in the six-month periods ended October
31, 2004 and 2003, respectively.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses include all
costs associated with the development of new products and enhancements to
existing products. Total research and development expenses for the three and
six-month period ended October 31, 2004 increased 7.3% and 5.7% to $4 million
and $8 million, respectively. Total research and development increased primarily
due to the additional personnel to meet software development requirements.
Research and development expenses represented 25% and 31% of total revenue in
the three-month periods ended October 31, 2004 and 2003, respectively. Research
and development expenses represented 28% and 33% of total revenue in the
six-month periods ended October 31, 2004 and 2003, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the
three and six-month periods ended October 31, 2004 increased 12.1% and 4.2% to
$1.3 million and $2.4 million, respectively. The increase is due to general
operating costs related to the increase in personnel. General and administrative
expenses represented 8% and 10% of total revenue in the three and six-month
periods ended October 31, 2004 and 2003, respectively.
AMORTIZATION EXPENSE. Amortization expense for the three and six-month periods
ended October 31, 2004 decreased 49.5% and 51% to $384,000 and $793,000,
respectively. The decrease is due to various intangible assets being fully
amortized in the prior fiscal year.
Page 9
NET REALIZED GAIN (LOSS) ON SALE OF SECURITIES. Net realized loss for the
three-month period ended October 31, 2004 was $(27,000) compared to $0 for the
same period in the previous fiscal year. Net realized gain for the six-month
period ended October 31, 2004 was $732,000 compared to $0 for the same period in
the previous fiscal year. There were no sales of securities for the three and
six month periods ending October 31, 2003.
OTHER INCOME, NET. Other income for the three-month period ended October 31,
2004 was $647,000, an increase from the $207,000 reported for the same period in
the previous fiscal year. Other income for the six-month period ended October
31, 2004 was $601,000, an increase from the $468,000 reported in the same period
in the previous fiscal year. The increase is primarily due to interest on
marketable securities and translation gains.
INCOME TAX EXPENSE (BENEFIT). In the three-month period ended October 31, 2004,
the Company recorded tax expense of $834,000 compared to an $(8,000) tax benefit
for the same period in the previous fiscal year. In the six-month period ended
October 31, 2004, the Company recorded tax expense of $844,000 compared to a
$(405,000) tax benefit for the same period in the previous fiscal year. Ansoft
expects to be profitable for the full 2005 fiscal year resulting in an expected
overall tax expense position for the full fiscal year. The forecasted effective
tax rate of 30.5% has been favorably impacted by approximately 6.5% as a result
of the expected research and development credit that is available to the
Company.
Liquidity and Capital Resources
As of October 31, 2004, Ansoft had $8.9 million in cash and cash equivalents and
working capital of $(2.0) million. Net cash provided by operating activities in
the six-month periods ended October 31, 2004 and 2003 was $4.6 million and $3.4
million, respectively.
Net cash provided by (used in) investing activities in the six-month periods
ended October 31, 2004 and 2003 was $294,000 and $(2.9) million, respectively.
Capital expenditures were $500,000 and $665,000 in the six-month periods ended
October 31, 2004 and 2003, respectively. Proceeds from the sale of marketable
securities were $14.1 million and $6.8 million in the six-month periods ended
October 31, 2004 and 2003. Purchases of marketable securities were $13.3 million
and $9.1 million in the six-month periods ended October 31, 2004 and 2003,
respectively. The increase in purchases of marketable securities was due to
increased cash resulting from cash flows from operations. Cash and cash
equivalents were $15.2 million at April 30, 2004 compared to $7.2 million at
April 30, 2003.
Net cash used in financing activities was $11.4 million and $1.3 million in the
six-month periods ended October 31, 2004 and 2003, respectively. Proceeds from
the issuance of common stock were $1.9 million and $657,000 in the six-month
periods ended October 31, 2004 and 2003, respectively. Funds used for the
purchase of treasury stock were $7.8 million and $1.7 million in the six-month
periods ended October 31, 2004 and 2003, respectively. The Company continues to
purchase treasury stock under its share repurchase plan. Cash and cash
equivalents were $15.2 million at April 30, 2004 compared to $7.2 million at
April 30, 2003.
Ansoft had available a $30.0 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 was secured in October 2004. As of October 31,
2004, the outstanding balance was $5 million. Ansoft believes that the net cash
provided by operating activities will be sufficient to meet its anticipated cash
needs for working capital and capital expenditures for 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. Ansoft does hold marketable securities that are available
for liquidation to pay on the line of credit should additional debt or equity
financing not become available.
Page 10
A summary of Ansoft's significant contractual obligations and commitments as of
October 31, 2004 is as follows (in thousands and for fiscal year):
Debt Operating Leases
---------------- ------------------
2005 $ - $ 745
2006 5,000 1,367
2007 - 806
2008 - 663
2009 - 398
2010 - 4
For fiscal year 2005, the balance of $745 represents the remaining payments due
as of October 31, 2004. For fiscal year 2010, the balance of $4 represents the
payments through October 31, 2010.
Critical Accounting Policies
Ansoft's critical accounting policies are as follows:
o Revenue Recognition
o Valuation of Accounts Receivable
o Impairment of Long-Lived Assets
o Impairment of Marketable Securities Available for Sale
o 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 license 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. Following the
initial three month PCS period, 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 October
31, 2004 and 2003 was $814,000 and $903,000 respectively. The decrease in the
allowance from the prior fiscal year was primarily due to uncollectible customer
balances written off during the six month period ending October 31, 2004. We had
no significant changes in our collection policies or payment terms.
Page 11
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. To the extent that is it more likely than not that some portion
or all of the deferred tax asset will not be realized, a valuation allowance is
established. The company considers projected future taxable income and tax
planning strategies in making this assessment.
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.
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.
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.
Page 12
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 five 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 13
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.
Page 14
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
37% 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.
Effects of Inflation.
To date, inflation has not had a material impact on the Company's consolidated
financial results.
Seasonal Effects.
Traditionally, sales in the first quarter will decrease from the fourth quarter
of the prior fiscal year. Revenues will sequentially increase over the next
three quarters of the fiscal year. The fourth quarter is typically the highest
revenue quarter for the fiscal year.
ITEM 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. The majority of our foreign currency transactions
are denominated in the yen or the euro, which are the functional currencies of
Japan and Europe, respectively. As a result of transactions being denominated
and settled in such functional currencies, the risks associated with currency
fluctuations are primarily associated with foreign currency translation
adjustments. We do not currently hedge against foreign currency translation
risks and do not currently believe that foreign currency exchange risk is
significant to our operations due to the short term nature of assets and
liabilities denominated in foreign currency.
The average foreign exchange rates used to translate the 2004 and 2005
statements of operations were as follows:
SIX MONTHS ENDING SIX MONTHS ENDING
FOREIGN CURRENCY OCTOBER 31, 2004 OCTOBER 31, 2003
- ---------------- ----------------- -----------------
Yen 111.0 119.5
Euro 1.195 1.110
Page 15
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 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 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.
Page 16
PART II OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth, the repurchases of common stock for the quarter
ended October 31, 2004:
Total number of Maximum number
shares purchased of shares that
Total as part of may yet be
number Average publicly purchased under
of shares price paid announced plans the plans or
Period purchased per share or programs programs (a)
- ------------------------------- ---------- ---------- ---------------- ----------------
Aug, 1, 2004 - Aug. 31, 2004 44,900 $ 13.79 1,713,421 286,579
Sept. 1, 2004 - Sept. 30, 2004 48,000 $ 15.17 1,761,421 238,579
Oct. 1, 2004 - Oct. 31, 2004 254,600 $ 14.70 2,016,021 983,979
--------- ---------
Total 347,500 $ 14.65
========= =========
(a) On October 7, 2004, the Company's Board of Directors increased the
authorized share repurchase amount by 1.0 million shares to 3.0 million
(increase in authorization was publicly announced October 12, 2004).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's annual meeting of stockholders was held on October 7, 2004 at
which the actions below were taken:
1. The stockholders elected the following five directors to the Company's
Board of Directors, by the votes indicated below, to serve for the ensuing
year.
Shares in Shares
Name Favor Withheld
---- --------- --------
Nicholas Csendes 12,142,293 87,867
Zoltan J. Cendes 12,152,540 77,620
Peter Robbins 12,157,040 73,120
John N. Whelihan 12,155,940 74,220
Paul J. Quast 12,138,793 91,367
Page 17
ITEM 6. EXHIBITS
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation of the Company---
Incorporated by reference from Registration Statement No. 333-40189
3.2 Certificate of Amendment to the Company's Amended and Restated
Certificate of Incorporation---Incorporated by reference from the
Registration Statement No. 333-40189.
3.3 Bylaws of the Company---Incorporated by reference from Registration
Statement No. 333-1398.
10.1 Loan Agreement by and between Ansoft Corporation and PNC Bank,
National Association dated October 21, 2004---Exhibit 99.1 of the
October 21, 2004 Form 8-K is incorporated herein by reference.
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---Filed herewith.
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---Filed herewith.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002---Filed herewith.
Page 18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: December 10, 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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