10-K 1 e10-k.txt ANSOFT CORPORATION 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT (Mark one) [x] Annual report pursuant to section 13 or 15(d) of the securities exchange act of 1934 [fee required] for the fiscal year ended April 30, 2000 or [ ] Transition report pursuant to section 13 or 15(d) of the securities exchange act of 1934 [no fee required]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 Securities registered pursuant to Section 12(b) of the act: None Securities registered pursuant to Section 12(g) of the act: Common stock, par value $.01 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of July 24, 2000, the aggregate market value of voting common stock held by non-affiliates of the registrant, based upon the last reported sale price for the registrant's Common Stock on the Nasdaq National Market on such date, as reported in The Wall Street Journal, was $72,276,189. The number of shares of the registrant's Common Stock outstanding as of the close of business on July 24, 2000 was 11,859,517. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the definitive Proxy Statement of Ansoft Corporation (the "Company") to be furnished in connection with the solicitation of proxies by the Company's Board of Directors for use at the 2000 Annual Meeting of Stockholders (the "Proxy Statement") are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent provided herein. Except as specifically incorporated by reference herein, the Proxy Statement is not to be deemed filed as part of this Annual Report on Form 10-K. 2 TABLE OF CONTENTS
Item of Form 10-K Page ----------------- ---- Part I 1. Business 2 2. Properties 9 3. Legal Proceedings 9 4. Submission of Matters to a Vote of Security Holders 9 4.(a) Executive Officers of the Registrant 9 Part II 5. Market for Registrant's Common Stock, Preferred Stock and Warrants, and Related Stockholders Matters 11 6. Selected Consolidated Financial Data 11 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 8. Financial Statements and Supplementary Data 18 Part III Part III information will appear in Item 4(a) of Part I of Form 10-K and in the Registrant's Proxy Statement in connection with its Annual Meeting of Stockholders. Such Proxy Statement will be filed with the Securities and Exchange Commission and such information is incorporated herein by this reference as of the date of such filing. Part IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 32 Signatures 34
1 3 PART I ITEM 1. BUSINESS 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. INDUSTRY BACKGROUND In recent years, engineers have used EDA software to automate the previously manual, time-consuming and error-prone design process, resulting in dramatic increases in productivity and efficiency. EDA software can be used in each of the three phases of the electronic design process: Logic Design and Synthesis, which provides an outline of the system's overall architecture; Functional Design and Analysis, which encompasses the specification of desired functionality, functional design, simulation and analysis; and Physical Design and Verification, which involves the creation of physical layout (i.e., placement and routing) and verification that the design meets required specifications. As the marketplace demands higher levels of system performance and miniaturization, the need to model accurately the electromagnetic interaction in communication and computing devices and electromechanical components is becoming increasingly important. The design requirement to fit more devices and interconnections into smaller spaces results in increased electromagnetic interaction. Moreover, high performance systems, with frequencies of approximately 500 MHz and beyond, exhibit a high level of electromagnetic interaction causing the degradation of the quality of electrical signals. In addition, the electromagnetic radiation emitted by electronic products is regulated by the Federal Communications Commission ("FCC") and equivalent regulatory bodies in Europe and Japan, and commercialization of these products is contingent upon meeting government-specified electromagnetic compatibility requirements. These problems are exacerbated by time-to-market pressures and the need to reduce design and development costs. While traditional EDA tools have become more sophisticated, they lack the requisite degree of precision in modeling electromagnetic interactions in components and systems. As a result, the current process for designing and manufacturing wireless and electronic components and systems is often iterative, time-consuming and inaccurate. Designs are generated, devices and systems are developed, prototypes are manufactured, performance is measured and assessed and designs are then refined to meet the original performance specifications. This entire process is typically repeated a number of times, lengthening the design process, increasing costs and resulting in lost market opportunities. THE ANSOFT SOLUTION The Company's software products allow design engineers to model component level and system level electromagnetic interaction which the Company believes is crucial to the effective design of electronic systems and components. The Company's products apply electromagnetic principles, derived from Maxwell's Equations, to more accurately model electromagnetic interaction. By using Ansoft software products to analyze electromagnetic interaction, the Company believes that end users of its products are able to reduce the time-to-market for their products, lower the risks of design failure and eliminate costly and time-consuming product redesign. Ansoft's software products may be used as an independent design platform or integrated with complementary EDA tools within a customer's existing design environment. The Company's research and development team has broad expertise in electromagnetic simulation, electrical engineering, applied mathematics and software development, enabling Ansoft to continue to advance its electromagnetics-based EDA software. 2 4 ANSOFT STRATEGY Ansoft's objective is to become a leading worldwide supplier of EDA software. Using its proprietary electromagnetic technology as a primary competitive advantage, the Company pursues its objectives through the following strategies: leveraging its technology leadership to solve emerging electromagnetic design issues in high performance electrical devices and systems; capitalizing on the growing need for electromagnetic analysis in increasingly compact and complex electronic and electromechanical components and systems operating at higher speeds; and expanding its broad range of product applications to address emerging customer design requirements. PRODUCTS The Company's high-frequency software enables users to design RF ICs, antenna and radar systems and microwave components. The Company's signal integrity software enables users to design computer interconnects, IC Packaging structures and electronic systems by accurately capturing the degradation in signal quality due to higher clock speeds and smaller physical dimensions. The Company's Maxwell Eminence software combines both HF and SI functionality. The Company's electromechanical software products enable designers of electromechanical components and systems to optimize the electrical performance of their designs while increasing manufacturing yields. Ansoft products are available for Unix-based workstations and personal computers running Microsoft Windows 95 and Windows NT. Ansoft High Frequency Software Our High Frequency products address the complete simulation needs of the RF, Microwave or High Frequency design engineer. Our tools allow for the evaluation of the physics of individual components, and then the engineer can easily combine circuit and/ or system simulation to clearly evaluate design concerns. high-frequency software enables users to design RF ICs, antenna and radar systems and microwave components. Ansoft's Serenade Design Environment Ansoft HFSS is a 3D structure electromagnetic field simulator for high frequency, RF & wireless design needs. Ansoft HFSS brings the power of the finite element method (FEM) to the engineer's desktop by leveraging advanced techniques such as automatic adaptive mesh generation and refinement, tangential vector finite elements, and Adaptive Lanczos Pade Sweep (ALPS). HFSS automatically computes multiple adaptive solutions until a user-defined convergence criterion is met. The U.S. list price of Ansoft HFSS 6.0 is $41,900. Ensemble is a Method of Moments (MoM) simulation software package for the design and simulation of RF and wireless circuit and planar antennas for customers in the communications markets. MoM lends itself well to layered media such as PCB, MMIC, and planar antenna structures. Ensemble allows designers to utilize the power of full wave planar simulation by offering an easy-to-use interface, advanced simulation features, and integration with other products in the Serenade Design Environment. The U.S. list price of Ensemble is $16,900. Harmonica is a linear and nonlinear circuit simulator. Harmonica offers full linear and nonlinear analysis features, including integrated schematic capture, tuning, optimization, statistical analysis, and design centering (yield optimization). Libraries of commercial components feature over 100,000 active and passive devices, allowing easy access to standard transistors, diodes, resistors, capacitors, and inductors from major manufacturers. In addition, utilities are included to speed the process of transmission line design, matching network extraction, and filter synthesis for both lumped and distributed designs. The U.S. list price of this product ranges from $9,900 to $21,900. Symphony is a wireless and wired system simulator. Symphony adds efficient analog, digital, and mixed-mode (analog and digital) system analysis capabilities to the Environment. Users can quickly construct a system by including blocks from libraries of built-in analog RF and digital signal processing (DSP) components. Trade-offs between different design approaches can be rapidly investigated at an early stage to reduce design cycle time and avoid costly redesigns due to RF and DSP system interactions. The U.S. list price of this product is $11,900 to $28,900. 3 5 AnsoftLinks links you and your designs directly to our computational analysis tools. This capability is available for either HP EEsof Series IV, Cadence Allegro, or Xynetix Encore BGA technologies. HP EEsof Series IV high-frequency circuit designs can be directly translated into Ansoft's Serenade Design Environment. Designs are automatically converted into Serenade projects using IFF files and a specialized neutral format. Linear and nonlinear translations are fully supported. The U.S. list price of this product is $4,900. Ansoft Signal Integrity Software Our Signal Integrity products address the complete simulation needs of the High Speed Electronics design engineer. Our tools allow for the evaluation of the physics from the chip level through to the board level, and the coupling concerns of IC packaging, cables, connectors, and interconnects. The engineer can combine field effects with circuit simulation to clearly evaluate the design ramifications of higher clock speeds and smaller physical dimensions. Maxwell Eminence combines the functionality of the Company's high frequency and signal integrity products to enable designers of wireless communication systems to design RF components and sub-systems and to evaluate the interaction between the digital and RF portions of communications systems. This product allows system designers to model critical path PCB emissions, evaluate component level electromagnetic interference and to study shielding effectiveness enabling them to design for FCC and other regulatory guidelines proactively. The U.S. list price of this product is $64,900. Maxwell EZ2D Calculator is the first ever, extremely easy-to-use 2D field solver. Maxwell EZ2D Calculator automatically and adaptively creates the mesh and solves Maxwell's equations to calculate the characteristic impedances, velocities, and cross talk between all conductors. This tool combines the ease of a spreadsheet with the accuracy of a field solver to calculate all the line parameters for a PCB, MCM or IC stackup. The U.S. list price of this product is $4,900. Spicelink (SI 2D and SI 3D) is a 2D or 3D structure electromagnetic field simulator. SI 2D is a suite of tools which extracts the electrical circuit model of either 2D or 3D interconnect and performs a SPICE simulation for signal integrity analysis. This suite has been compiled to increase the productivity of engineers involved in the physical design of interconnects for high speed digital applications. The U.S. list price of this product is $34,900. ParICs is an automated 2D and 3D structure generation modeling tool. It is a vital component of our software solution for your complex IC package design needs. The ParICs Physical IC Modeler is an easy to use modeling tool which allows you to generate geometric models of complex IC packages in minutes. The desired structures come from common JEDEC leaded package libraries. These structures can then be used in our complete suite of signal integrity tools for design, electrical characterization and product documentation. Pacific Numerix Solutions. Pacific Numerix Electronic Design Validation System (EDVS) is a powerful tool suite that provides virtual design-to-manufacturing prototyping and is best of breed in signal integrity and EMI/EMC analysis at all levels: IC, first-level packaging, PCB, and system. Moreover, Pacific Numerix offers a complementary best of breed mechanical analysis tool suite including thermal, vibration, fatigue, and solder simulation. The U.S. list price of these products ranges from $27,000 to $80,000. Ansoft EM Software Our Electromagnetic/ Electromechanical products address the simulation needs of the Low Frequency design engineer. Our tools allow for the evaluation of the physics of devices whose components include permanent magnets, DC current carrying conductors, AC current carrying conductors, time varying excitations, and nonlinear soft irons or steels. The engineer can evaluate design concerns by easily computing the force, torque, or inductance, or by observing the actual field solution. Additional capabilities allow for the comprehensive handling of motion and mechanical components. Maxwell 3DFS is a 3D structure electromagnetic field simulator. Maxwell 3DFS uses electromagnetic field simulation to accurately predict product performance from physical design information. Using technology specifically designed for electromagnetic analysis, the Maxwell 3DFS allows designers to experiment with various three dimensional geometries, materials and excitation levels to shorten design cycles while saving prototyping dollars. The U.S. list price of this product ranges from $15,120 to $29,900. 4 6 Maxwell 2DFS is a 2D structure electromagnetic field simulator. Maxwell 2DFS is a comprehensive, easy-to-use software tool for design problems requiring an accurate, two-dimensional representation of the electric or magnetic field behavior. Maxwell 2D quickly obtains critical device parameters such as force, torque, induction and saturation effects from the physical design information on PCs and UNIX workstations. The integrated parametric analysis module automatically evaluates change in geometry, material and electrical parameters allowing all design options to be thoroughly explored within a single simulation. The U.S. list price of this product ranges from $3,900 to $9,900. EMSS is an Electromechanical system simulator. EMSS is a single integrated solution for analyzing the interaction of currents, voltages, and mechanical loads and motion within an electromechanical device. This system engineering environment provides fundamental analytical understanding and accurately predicts the performance and interactions of control system components and subsystems using your desktop computer. Electric machines, sensors, transformers, and actuators are a few of the many devices that may be simulated with EMSS. This virtual prototype of the complete system behavior dramatically reduces costs and shortens the design cycle. The U.S. list price of this product ranges from $15,920 to $19,900. EMAS is a 2D and 3D Electromagnetic Finite Element (FEM) simulation and analysis software for a wide range of DC, AC, time domain, and coupled electromagnetic/ electromechanical applications. EMAS abilities include a comprehensive sensitivity to nonlinear and anisotropic materials. Technologies include no linear transients, coupled Electromagnetic/ Mechanical solutions, coupled Electromagnetic/ Thermal solutions. Additional capabilities include 1D, 2D, tetra, quadra, penta element types. The U.S. list price of this product ranges from $19,900 to $44,900. PEmag is our 2D power electronics parameter simulator. PEmag, part of Ansoft's Maxwell Designer suite of software, performs advanced electromagnetic and signal analysis of inductors and transformers. Classical design methods rely on build-test iterations until appropriate behavior of the component is achieved. PEmag eliminates this costly design methodology by accurately simulating magnetic behavior including the effects of frequency, geometry and material. The magnetic behavior obtained is automatically output to an electric circuit model. The U.S. list price of this product is $4,900. RESEARCH AND DEVELOPMENT Ansoft has a team of research engineers focused on the mathematical and physical underpinnings of the Company's simulation algorithms. Dr. Zoltan Cendes, a founder of the Company, serves as the technical leader of the group. By virtue of over 15 years of research and development by Dr. Cendes prior to the Company's inception in 1984, and by its internal research and development staff thereafter, Ansoft has pioneered the following technologies: automatic and adaptive convergence to solutions, asymptotic waveform evaluation for spectral domain solutions, transfinite elements, basis evaluation state-space techniques and fast multipole acceleration algorithms. The Company continually seeks to design and develop new technologies, products and interfaces based on its core electromagnetic expertise. This effort includes releasing improved versions of its products on a regular basis as well as developing new products. The Company assigns an interdisciplinary team of personnel from research and development, software development, documentation, quality assurance, customer support and marketing to each product development project. Ansoft develops cooperative relationships with major customers with respect to beta-testing its new products or enhancements and implementing suggestions for new product features. The Company also maintains cooperative relationships with the major hardware vendors on which the Company's products operate. The Company believes that its team approach and cooperative relationships allow it to design products that respond on a timely basis to emerging trends in computing, graphics and networking technologies. As of April 30, 2000, the Company's product development group consisted of 85 employees. The Company seeks to hire experts in the fields of electromagnetic engineering, high speed circuit simulation, applied mathematics and software development. During fiscal 2000, 1999 and 1998, research and development expenses were $10.2 million, $8.4 million and $7.3 million, respectively. SALES AND MARKETING Ansoft markets and sells its products worldwide through its direct sales force and distributors. The Company hires application engineers with significant industry experience who can analyze the needs of its customers and gain technical insight into the 5 7 development of future products and enhancements to existing products. The Company's application engineers work with the direct sales force to provide on-site support during critical stages of the user's benchmark, evaluation and implementation processes. The Company generates sales leads through customer referrals, advertising in trade publications and on the World Wide Web. In addition, the Company participates in industry trade shows and organizes seminars to promote and expand the adoption of its products. In North America, the Company maintains sales and support offices in Arizona, Northern and Southern California, Florida, Massachusetts, Michigan, New Jersey, Ohio, Pennsylvania, Texas, Wisconsin, and a telemarketing sales group operating from its Pittsburgh headquarters. In Asia, the Company maintains direct sales and support offices in Japan, Korea, Singapore, Taiwan, and China. In Europe, the Company maintains sales and support offices in England, Germany, France, and Italy. As of April 30, 2000, the Company had a direct sales force of 42 representatives, supported by 86 employees in application engineering, marketing and sales administration. CUSTOMERS The Company has significant breadth in its installed base with over 1,000 customers in the communications, semiconductor, automotive/industrial, computer, consumer electronics and defense/aerospace industries. No single customer in the Company's installed base accounted for more than 10% of total revenue within any of the past three fiscal years. The following table lists a representative sample of the Company's current worldwide end-user customers by industry.
COMMUNICATIONS SEMICONDUCTOR AUTOMOTIVE/INDUSTRIAL -------------- ------------- --------------------- Motorola Intel ABB Ericsson Anam Semiconductor Chrysler Andrew Corporation Applied Materials Cutler Hammer GEC-Marconi Amkor Electronics Daimler Benz Hughes ETRI Delphi Packard Italtel S.p.A. Harris Semiconductor Dupont Lucent Technologies Intel Eaton Metawave Communications LG Ford Motor Celwave Molex General Motors Qualcomm VLSI Honda Rockwell Teradyne Hyundai Siemens Texas Instruments Nissan EMS Triquint Semiconductor Robert Bosch Nortel Wolff Controls ST Microelectronics COMPUTER CONSUMER ELECTRONICS DEFENSE/AEROSPACE -------- -------------------- ----------------- Fujitsu Daewoo Electronics Raytheon Hitachi Kyocera Bell Helicopter Honeywell General Electric Boeing IBM Matsushita Jet Propulsion Laboratory NEC Mitsubishi Lawrence Livermore Lab. Seagate Nikon Lockheed-Martin Tektronix Phillips Northrop Grumman Sharp Allied Signal Sony TRW Toshiba US Naval Research Laboratory
CUSTOMER SERVICE AND SUPPORT Sales of the Company's software include one year of customer support services; thereafter annual one-year maintenance contracts may be purchased. Customer support services include on-line and telephone support for design engineers and on-site and in-house training on all products. Customers with maintenance agreements receive all product enhancement releases without additional charge. Product upgrades that add significant new functionality are provided to customers for an additional fee. The Company offers a variety of training programs for customers ranging from introductory level courses to advanced training for an additional fee. COMPETITION The electronic design automation software market in which Ansoft competes is intensely competitive and subject to rapid change. In 6 8 general, competition comes from major EDA vendors, many of which have a longer operating history, significantly greater financial, technical and marketing resources, greater name recognition and a larger installed customer base than Ansoft. These companies also have established relationships with current and potential customers of Ansoft. Ansoft's software products currently compete with certain software offerings from Agilent Corporation. Ansoft also competes directly with certain major EDA vendors and privately-held companies which also provide competing products. Ansoft also competes, on a limited basis, with the internal development groups of its existing and potential customers, many of which design and develop customized design tools for their particular needs. In addition, the EDA industry has become increasingly concentrated in recent years as a result of acquisitions, and further concentration within the EDA industry could result in increased competition for Ansoft. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could seriously harm Ansoft's business, operating results or financial condition. Ansoft may be unable to compete successfully against current and future competitors, and competitive pressures faced by Ansoft could seriously harm Ansoft's business, operating results and financial condition. PROPRIETARY RIGHTS The Company is heavily dependent on its proprietary software technology. The Company relies on a combination of non-competition and confidentiality agreements with its employees, license agreements, copyrights, trademarks and trade secret laws to establish and protect proprietary rights to its technology. The Company does not hold any patents. All Ansoft software is shipped with a security lock which limits software access to authorized users. In addition, the Company does not license or release its source code. Effective copyright and trade secret protection of the Company's proprietary technology may be unavailable or limited in certain foreign countries. Compact Software(R), Maxwell(R), Harmonica(R), Ensemble(R), ParICs(R), and Serenade(R), are registered United States trademarks of Ansoft. EMPLOYEES As of April 30, 2000, the Company had a total of 232 employees, including 85 in research and development, 128 in sales, marketing, and customer support services and 19 in administration. None of the Company's employees is represented by a collective bargaining agreement, nor has the Company experienced any work stoppage. The Company considers its relations with its employees to be good. Many of the Company's employees are highly skilled, and there is no assurance that the Company will be able to attract and retain sufficient technical personnel in the future. ADDITIONAL RISK FACTORS Our Future Operating Results Are Uncertain. Ansoft has incurred net losses in fiscal 2000, 1999, and 1997. There can be no assurance that Ansoft's revenue and net income will grow or be sustained in future periods or that Ansoft will be profitable in any future period. Future operating results will depend on many factors, including the degree and the rate of growth of the markets in which Ansoft competes and the accompanying demand for Ansoft's products, the level of product and price competition, the ability of Ansoft to develop and market new products and to control costs, the ability of Ansoft to expand its direct sales force and the ability of Ansoft to attract and retain key personnel. Our Quarterly Operating Results Are Difficult To Predict. We are unable to accurately forecast our future revenues primarily because of the emerging nature of the market in which we compete. Our revenues and operating results generally depend on the size, timing and structure of significant licenses. These factors have historically been, and are likely to continue to be, difficult to forecast. In addition, our current and future expense levels are based largely on our operating plans and estimates of future revenues and are, to an extent, fixed. We may be unable to adjust spending sufficiently or quickly enough to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues in relation to our planned expenditures would seriously harm our business, financial condition and results of operations. Such shortfalls in our revenue or operating results from levels expected by public market analysts and investors could seriously harm the trading price of our common stock. Additionally, we may not learn of such revenue shortfalls, earnings shortfalls or other failure to meet market expectations until late in a fiscal quarter, which could result in an even more immediate and serious harm to the trading price of our common stock. Our quarterly operating results have varied, and it is anticipated that our quarterly operating results will vary, substantially from period to period depending on various factors, many of which are outside our control. Due to the foregoing factors, we cannot predict with any significant degree of certainty our quarterly revenue and operating results. Further, we believe that period-to-period comparisons of our operating results are not necessarily a meaningful indication of future performance. Our Stock Price Is Extremely Volatile. The trading price of our common stock has fluctuated significantly in the past, and the trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in price in response to such factors as: - Actual or anticipated fluctuations in our operating results; - Announcements of technological innovations and new products by us or our competitors; - New contractual relationships with strategic partners by us or our competitors; - Proposed acquisitions by us or our competitors; and -- - Financial results that fail to meet public market analyst expectations of performance. In addition, the stock market in general, The Nasdaq National Market and the market for technology companies in particular has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. These broad market and industry factors may seriously harm the market price of our common stock in future periods. 7 9 Businesses We Acquire May Not Perform As Projected. We have acquired or merged with a number of companies in recent years, including the acquisitions of: 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 patents, trade secrets, copyrights, trademarks and contractual commitments to protect our proprietary rights in our software products. We generally enter into confidentiality or license agreements with our employees, distributors and customers, and limit access to and distribution of our software, documentation and other proprietary information. Despite these precautions, a third party may still copy or otherwise obtain and use our products or technology without authorization, or develop similar technology independently. In addition, effective patent, copyright and trade secret protection may be unavailable or limited in certain foreign countries. It is possible that we may fail to adequately protect our proprietary rights. This would seriously harm Ansoft's business, operating results and financial condition. We May Be Unable To Attract And Retain The Key Management And Technical Personnel That We Need To Succeed. Ansoft's future operating results depend in large part upon the continued services of its key technical and management personnel. Ansoft does not have employment contracts with any executive officer. Ansoft's future success will also depend in large part on its ability to continue to attract and retain highly skilled technical, marketing and management personnel. The competition for such personnel, as well as for qualified EDA engineers, is intense. If Ansoft is unable to attract, hire and retain qualified personnel in the future, the development of new products and the management of Ansoft's increasingly complex business would be impaired. This could seriously harm Ansoft's business, operating results and financial condition. We Depend On International Sales for a Significant Percentage Of Our Revenue. International revenue, principally from Asian customers, accounted for approximately 48% and 52% of our total revenue in the years ended April 30, 2000 and 1999, 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 $6.2 million in fiscal 1995 to $33.5 million in fiscal year 2000, and the number of employees has grown from 69 in April 1996 to 230 as of May 31, 2000. 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 8 10 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. While these industries have experienced an extended period of significant economic growth over the past few years, such economic growth may not continue, and if it does not, any downturn could be especially severe on Ansoft. During such downturns, the number of new integrated circuit design projects often decreases. Because acquisitions of new licenses from Ansoft are largely dependent upon the commencement of new design projects, any slowdown in these industries could seriously harm Ansoft's business, financial condition and results of operations. We Are Controlled By Our Principal Stockholders And Management Which May Limit Your Ability To Influence Stockholder Matters. Our executive officers, directors and principal stockholders own approximately 49% 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 2. PROPERTIES The Company occupies approximately 28,000 square feet of space at its headquarters in Pittsburgh, Pennsylvania under a lease expiring in 2006. The Company also leases sales and support offices in Arizona, California, Colorado, New Jersey, Wisconsin, Europe and Asia. The Company's current aggregate annual rental expenses for these facilities is approximately $1.5 million. Ansoft believes that its existing facilities are adequate for its current needs and that suitable additional space will be available when needed. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any litigation and is not aware of any threatened litigation, unasserted claims or assessments that could have material adverse effect on the Company's business, consolidated operating results or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable ITEM 4.(A) OFFICERS OF THE REGISTRANT OFFICERS The following table sets forth certain information concerning each of the officers of the Company:
NAME AGE TITLE ----------------------- ------ ----------------------------------------- Zoltan J. Cendes, Ph.D. 54 Chief Technology Officer Nicholas Csendes....... 56 President, and Chief Executive Officer Jack Parkes............ 41 Vice President-Engineering Padmanabhan Premkumar.. 36 Vice President-Business Development Anthony L. Ryan........ 32 Chief Financial Officer
9 11 Dr. Zoltan J. Cendes is a founder of Ansoft and has served as Chairman of the Board of Directors of the Company and its chief research scientist since its formation in 1984. Since 1982, Dr. Cendes has been a university professor in electrical and computer engineering at Carnegie Mellon University. Dr. Cendes has lectured throughout North America, Europe and Asia on the topic of electromagnetics and finite element analysis and has published over 100 publications on these topics. Dr. Cendes directs the research efforts of Ansoft. Nicholas Csendes is a founder of Ansoft and has served as President, Chief Executive Officer and Secretary since 1992 and a director since 1984. Mr. Csendes was a senior investment officer with Sun Life of Canada, a major international financial institution focusing on the sale of life insurance and retirement products ("Sun Life"), for over 15 years. Since 1985, Mr. Csendes has been involved with various public and private companies including a publicly-held interactive software company, and has been an officer, director and a controlling stockholder of American Banner Resources, Inc. ("ABR"), a privately-held holding company with various interests in real estate and public and private securities, including a 14% beneficial ownership interest in Ansoft as of April 30, 2000. Padmanabhan Premkumar joined Ansoft in 1989. From 1991 to 1995, Mr. Premkumar was in charge of Ansoft's software development programs as Vice President-Development. Since 1995, Mr. Premkumar has been Vice President-Marketing, responsible for product planning, marketing and commercialization of existing software product enhancements and the commercial development of new products. Prior to joining Ansoft, Mr. Premkumar was a research associate in the Robotics Laboratory at the University of Toledo. Jack Parkes joined Ansoft in 1990. In May 1997, Mr. Parkes was appointed Vice President-Engineering. Mr. Parkes joined Ansoft in 1990 with over 10 years of experience in electrical engineering. Prior to joining Ansoft, Mr. Parkes was a senior design and development engineer with Loral Corporation ("Loral") and, prior to joining Loral, with Texas Instruments, Inc. Anthony L. Ryan joined Ansoft in 1995 as corporate controller. In May 1997, Mr. Ryan was appointed Chief Financial Officer. From 1991 to 1995, Mr. Ryan worked as a certified public accountant with KPMG LLP, an international accounting firm. Dr. Zoltan J. Cendes and Mr. Nicholas Csendes are brothers. There are no other family relationships between the executive officers of the Company. 10 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS The following table sets forth, for the periods indicated, the range of high and low last reported sale prices for the Common Stock as reported on the Nasdaq National Market.
HIGH LOW ------- ------- FISCAL YEAR ENDED APRIL 30, 2001 1st Quarter (through July 15, 2000).......... $12.500 $8.625 FISCAL YEAR ENDED APRIL 30, 2000 1st Quarter.................................. 10.000 5.625 2nd Quarter.................................. 9.000 5.500 3rd Quarter.................................. 8.125 5.500 4th Quarter.................................. $13.938 $6.563 FISCAL YEAR ENDED APRIL 30, 1999 1st Quarter.................................. 13.750 8.375 2nd Quarter.................................. 6.563 5.125 3rd Quarter.................................. 6.250 4.875 4th Quarter.................................. $ 8.000 $6.125
The Company has never paid any cash dividends on its Common Stock. The Company currently intends to retain the earnings from operations for use in the operation of its business and does not anticipate paying cash dividends with respect to its Common Stock in the foreseeable future. The payment of any future dividends will be determined by the Board of Directors in light of the then current conditions, including the Company's earnings and financial condition. On July 15, 2000, the Company had approximately 479 shareholders of record, of which certain of the recordholders were registered clearing agencies holding common stock on behalf of participants of such clearing agencies. ITEM 6. SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA The selected condensed consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related Notes thereto appearing elsewhere herein.
FISCAL YEAR ENDED APRIL 30, ---------------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA Revenue License $ 25,806 $ 17,847 $ 19,974 $ 11,950 $ 7,995 Service and other 7,685 6,628 6,309 2,238 700 -------- -------- -------- -------- -------- Total revenue 33,491 24,475 26,283 14,188 8,695 -------- -------- -------- -------- -------- Costs and expenses Sales and marketing 19,421 17,061 12,643 7,939 5,007 Research and development 10,176 8,391 7,299 2,993 1,766 General and administrative 3,322 2,937 2,322 1,647 1,269 Amortization 2,512 1,691 1,495 407 -- Acquired in process research and development -- -- -- 8,754 -- -------- -------- -------- -------- -------- Total costs and expenses 35,431 30,080 23,759 21,740 8,042 -------- -------- -------- -------- -------- Income (loss) from operations (1,940) (5,605) 2,524 (7,552) 653 Interest income (expense), net 1,640 1,587 549 682 35 -------- -------- -------- -------- -------- Income (loss) before income taxes (300) (4,018) 3,073 (6,870) 688 Income taxes benefit 66 1,210 1,000 420 612 -------- -------- -------- -------- -------- Net income (loss) $ (234) $ (2,808) $ 4,073 $ (6,450) $ 1,300 ======== ======== ======== ======== ======== Basic net income (loss) per share $ (0.02) $ (0.25) $ 0.42 $ (0.81) $ 0.21 ======== ======== ======== ======== ======== Diluted net income (loss) per share $ (0.02) $ (0.25) $ 0.39 $ (0.81) $ 0.19 ======== ======== ======== ======== ======== Weighted average shares outstanding - basic 11,460 11,310 9,681 7,955 6,235 Weighted average shares outstanding - diluted 11,460 11,310 10,521 7,955 6,873
11 13
APRIL 30, -------------------------------------------------------------- 2000 1999 1998 1997 1996 ------- ------- ------- ---------- --------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA Cash and cash equivalents $ 2,594 $ 2,489 $20,677 $ 312 $10,728 Working capital (deficit) 17,659 16,699 27,579 (1,936) 11,931 Total assets 53,610 52,630 49,180 21,951 15,391 Total stockholders' equity 39,047 40,863 45,520 14,917 14,291
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The statements contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" which are not historical are "forward looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Company's present expectations or beliefs concerning future events. The Company cautions that such statements are qualified by important factors that could cause actual results to differ materially from those in the forward looking statements including those factors identified in "Additional Risk Factors." Results actually achieved may differ materially from expected results included in these statements. 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 Ansoft's software to maximize product performance, eliminate physical prototypes, and to reduce time-to-market. Effective December 23, 1999, Ansoft completed the acquisition of Pacific Numerix ("PNC"). Effective July 24, 1996, April 9, 1997 and August 8, 1997, Ansoft acquired EBU, Compact, and Boulder, respectively. The cost of these acquisitions has been allocated on the basis of the estimated fair value of the assets acquired and the liabilities assumed. The acquisitions have been accounted for as purchases, and their respective financial results have been included in the accompanying consolidated financial statements since the date of their respective acquisitions. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of total revenue of each item in the Company's consolidated statements of operations:
PERCENTAGE OF REVENUE ------------------------------ FISCAL YEAR ENDED APRIL 30, ------------------------------ 2000 1999 1998 ----- ----- ----- Revenue License...................... 77% 73% 76% Service and other............ 23 27 24 ----- ----- ----- Total revenue.............. 100 100 100 ----- ----- ----- Costs and expenses Sales and marketing.......... 58 70 48 Research and development..... 30 34 28 General and administrative... 10 12 9 Amortization................. 8 7 5 ----- ----- ----- Total costs and expenses... 106 123 90 ----- ----- ----- Income (loss) from operations.. (6) (23) 10 Interest, net.................. 5 7 2 ----- ----- ----- Income (loss) before income taxes.......................... (1) (16) 12 Income taxes benefit........... -- 5 4 ----- ----- ----- Net income (loss).............. (1)% (11)% 16% ===== ===== =====
12 14 YEAR ENDED APRIL 30, 2000 COMPARED WITH YEAR ENDED APRIL 30, 1999 Revenue. Total revenue for the year ended April 30, 2000 increased 37% to $33.5 million from $24.5 million in the previous fiscal year. License revenue increased 45% to $25.8 million from $17.8 million. The increase is primarily attributable to strong demand from customers in North America and Asia. Service and other revenue increased by 16% due to the continued growth of the installed base of customers under annual maintenance agreements. This increase was partially offset by a reduction in contract revenue due to the completion of certain contracts in the previous year. Excluding contract revenue, service and other revenue increased by 38%. International revenue accounted for 48% and 52% of the Company's total product revenue in the years ended April 30, 2000 and 1999, 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 and international distributors, promotional costs and related operating expenses. Sales and marketing expenses increased by 13% to $19.4 million in the year ended April 30, 2000, as compared to $17.1 million in the previous fiscal year. The increase is attributable to an increase in the Company's sales force as a result of the acquisitions as well as increased marketing efforts, including advertising in trade publications and increased participation in industry trade shows. Sales and marketing expenses represented 58% and 70% of total revenue in the years ended April 30, 2000 and 1999, respectively. Ansoft expects that sales and marketing expenses will decrease as a percentage of revenue although increase in absolute dollars in future periods. Research and development expenses. Research and development expenses include all costs associated with the development of new products and enhancements to existing products. Research and development expenses increased by 21% to $10.2 million in the year ended April 30, 2000, as compared to $8.4 million in the previous fiscal year. The increase is due to increased research and development personnel primarily as a result of the acquisitions. Research and development expenses represented 30% and 34% of total revenue in the years ended April 30, 2000 and 1999, respectively. Ansoft anticipates that research and development expenses will decrease as a percentage of revenue although increase in absolute dollars in future periods. General and administrative expenses. General and administrative expenses increased by 14% to $3.3 million in the year ended April 30, 2000, as compared to $2.9 million in the previous fiscal year. The increase is due to additional costs required to support the increase in operations, including the hiring of additional administrative personnel. General and administrative expenses represented 10% and 12% of total revenue in the years ended April 30, 2000 and 1999, respectively. The Company anticipates that general and administrative expenses will increase in absolute dollars in future periods. Amortization expense. Amortization expense increased by 47% to $2.5 million in the year ended April 30, 2000, as compared to $1.7 million in the previous fiscal year. The increase is due to the amortization of the additional intangible assets acquired. Other income. Other income for the year ended April 30, 2000 was $1.6 million, comparable to the previous fiscal year. Income taxes. In the year ended April 30, 2000, the Company recorded a tax benefit of $66,000, resulting from the partial recognition of deferred tax assets in accordance with the Financial Accounting Standards Board's SFAS No. 109, "Accounting for Income Taxes." Ansoft's net deferred tax asset of $3.2 million as of April 30, 2000, consists primarily of net operating loss carryforwards for federal income tax purposes, which are available to offset future taxable income, and expire in increments beginning in April 2004, through April 2019. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. YEAR ENDED APRIL 30, 1999 COMPARED WITH YEAR ENDED APRIL 30, 1998 Revenue. Total revenue for the year ended April 30, 1999 decreased 7% to $24.5 million from $26.3 million in the previous fiscal year. The decrease in total revenue is attributable to a decrease in license revenue in North America and in Asia and to the completion of a research and development cost sharing contract during 1998. License revenue during the year ended April 30, 1999 decreased 11% to $17.8 million from $20.0 million during the previous fiscal year. Service and other revenue increased by 5% to $6.6 million for the year ended April 30, 1999, as compared with $6.3 million in the previous year. The increase in service and other revenue is attributable to the continued growth of the installed base of customers and increased focus on marketing annual maintenance agreements. This increase was reduced by a decrease in revenue recognized under research and development cost sharing agreements. International revenue, principally from Asia, accounted for 52% and 48% of the Company's total product revenue in the years ended April 30, 1999 and 1998, respectively. 13 15 Sales and Marketing Expenses. Sales and marketing expenses increased by 35% to $17.1 million in the year ended April 30, 1999, as compared to $12.6 million in the previous fiscal year. The increase is primarily attributable to the Company's shift in its distribution model to the use of direct sales personnel in Asia and other foreign markets, as well as increased marketing efforts, including advertising in trade publications and increased participation in industry trade shows. Sales and marketing expenses represented 70% and 48% of total revenue in the years ended April 30, 1999 and 1998, respectively. Research and Development Expenses. Research and development expenses for the year ended April 30, 1999 increased 15% to $8.4 million, as compared to $7.3 million for the previous fiscal year. The increase is due to increased research and development personnel primarily as a result of the acquisitions. Research and development expenses represented 34% and 28% of total revenue in the years ended April 30, 1999 and 1998, respectively. General and Administrative Expenses. General and administrative expenses for the year ended April 30, 1999 increased 26% to $2.9 million, as compared to $2.3 million for the previous fiscal year. The increase is due to additional costs required to support the increase in operations, including the hiring of additional administrative personnel. General and administrative expenses represented 12% and 9% of total revenue in the years ended April 30, 1999 and 1998, respectively. Amortization Expense. Amortization expense for the year ended April 30, 1999 increased to $1.7 million, as compared to $1.5 million for the previous fiscal year. The increase is due to recording amortization of additional intangible assets acquired in recent years. Interest (net). Interest income (net) for the year ended April 30, 1999 increased to $1.6 million, compared to $549,000 for the previous fiscal year. Interest income increased due to the higher net investment balance made available from the proceeds from the public offering of 2.3 million shares in March of 1998. Income Taxes. In the year ended April 30, 1999, the Company recorded a net income tax benefit of $1.2 million, resulting from the recognition of deferred tax assets in accordance with the Financial Accounting Standards Board's SFAS No. 109, "Accounting for Income Taxes." QUARTERLY RESULTS OF OPERATIONS The following table presents unaudited quarterly results for each quarter of fiscal 2000 and fiscal 1999. The information has been prepared on a basis consistent with the Company's annual consolidated financial statements and, in the opinion of management, contains all adjustments necessary for a fair presentation of the information for such periods. The Company's quarterly results have been in the past, and may be in the future, subject to fluctuations due to increased competition, the timing of new product announcements, changes in pricing policies by the Company or its competitors, market acceptance of new and enhanced versions of the Company's products and the size and timing of significant licenses. The Company believes that results of operations for the interim periods are not necessarily indicative of the results to be expected for any future period. The Company's business has been seasonal, with revenues in the first fiscal quarter typically lower than the fourth quarter of the preceding fiscal year. 14 16
QUARTER ENDED --------------------------------------------------------------------------------------- FISCAL 2000 FISCAL 1999 ------------------------------------------- ------------------------------------------- APRIL 30, JAN. 31, OCT. 31, JULY 31, APRIL 30, JAN. 31, OCT. 31, JULY 31, 2000 2000 1999 1999 1999 1999 1998 1998 ------- ------- ------- ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Total Revenue $10,802 $ 8,392 $ 7,386 $ 6,911 $ 7,730 $ 6,090 $ 5,501 $ 5,154 Income (loss) from operations $ 1,067 $ (470) $(1,029) $(1,508) $ (228) $(1,350) $(1,806) $(2,221) Net income (loss) $ 1,188 $ (34) $ (498) $ (893) $ 131 $ (656) $ (990) $(1,292) Basic net income (loss) per share $ 0.10 $ (0.00) $ (0.04) $ (0.08) $ 0.01 $ (0.06) $ (0.09) $ (0.11) Diluted net income (loss) per share $ 0.09 $ (0.00) $ (0.04) $ (0.08) $ 0.01 $ (0.06) $ (0.09) $ (0.11) Weighted average number of shares outstanding 11,555 11,494 11,410 11,383 11,032 11,231 11,453 11,524 - basic - diluted 12,774 12,290 11,410 11,383 11,800 11,231 11,453 11,524
LIQUIDITY AND CAPITAL RESOURCES As of April 30, 2000, Ansoft had $2.6 million in cash and cash equivalents and working capital of $17.7 million. Net cash provided by (used in) operating activities was $2.3 million, $(1.9) million and $2.2 million in fiscal 2000, 1999, and 1998, respectively. Net cash used in investing activities, was $3.9 million, $19.8 million, and $3.3 million in fiscal 2000, 1999, and 1998, respectively. Purchases of marketable securities during fiscal 2000 and 1999 were $1.7 million and $16.5 million, respectively. Capital expenditures, consisting primarily of purchases of computer equipment, were $1.4 million, $2.5 million and $1.5 million in fiscal 2000, 1999 and 1998, respectively. Net cash provided by financing activities, consisting primarily of proceeds drawn on the line of credit, were $1.9 million and $3.6 million in fiscal 2000 and 1999, respectively. Proceeds used for the purchase of treasury stock were $162,000 and $4.2 million in fiscal 2000 and 1999, respectively. In fiscal 1998 net cash provided by financing activities included $25.7 million of proceeds from the issuance of Common Stock and repayment of line of credit of $4.2 million. Ansoft has available a $10.0 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 is secured by the marketable securities held with the institution. As of April 30, 2000, $9.2 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 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. Acquisitions. On July 24, 1996, the Company acquired the EBU for $5.6 million in cash. On April 9, 1997, the Company acquired all of the outstanding capital stock of Compact for $3.0 million in cash and 1.3 million shares of the Company's Common Stock. On August 11, 1997, the Company acquired Boulder by the merger of Boulder with and into the Company, in consideration for $743,000 in cash and 108,000 shares of the Company's Common Stock. On April 28th, 1999, Ansoft acquired the majority of the outstanding stock of Pacific Numerix for 377,000 shares and $600,000 in cash. On December 23, 1999, Ansoft acquired the remaining portion of Pacific Numerix for 108,000 shares and $7,000 in cash. The acquisitions were accounted for as a purchases, and the financial results of the acquired entities have been included in the accompanying consolidated financial statements since the respective date of the acquisition. EFFECTS OF INFLATION To date, inflation has not had a material impact on the Company's consolidated financial results. 15 17 RECENT ACCOUNTING PRONOUNCEMENTS In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". In June 1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133," was issued. The statement defers the effective date of SFAS No. 133 for Ansoft until the first quarter of fiscal 2001. The Company does not expect this pronouncement to significantly impact the consolidated financial statements because the Company has not entered into derivative or hedging transactions. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin, or SAB, No. 101, "Revenue Recognition." SAB 101 provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. SAB 101 is effective for Ansoft the first quarter of fiscal 2001. The Company does not expect this pronouncement to significantly impact the consolidated financial statements. YEAR 2000 ISSUES Ansoft's supported products are Year 2000 compliant. Our products do not rely on knowledge of the date (date-sensitive data) for performance or functionality. Our products only use date-sensitive data with respect to the licensing of our products. During 1999, an evaluation was done to our internal support systems to determine if they are Year 2000 ready to support our operations beyond the year 2000. We currently use third party software systems and applications. Costs. We have not incurred and do not expect to incur material costs directly related to Year 2000 in excess of normal upgrade and maintenance costs. Risks. While we believe the risk is low, there is a possibility that a software program or system Year 2000 compliance failure related to products, its internal systems and software or those of its major suppliers and customers could still occur. Lost revenues or the inability of the Company to operate for any significant period of time that would result from a software program or system Year 2000 compliance failure, could have a material adverse effect on the Company's business, results of operations and financial condition. As of the date of this filing, Ansoft has not experienced year 2000 related disruptions. ITEM 7.A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Interest Rate Risk. The Company's exposure to market risk for changes in interest rates relates primarily to its investment portfolio and debt obligations. The Company mitigates its risk by diversifying its investments among credit quality debt securities and limits the amount of credit exposure to any one issuer. The Company does not hedge any interest rate exposures. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. The following table presents the carrying value and related weighted-average interest rates for the Company's investment portfolio. The carrying value approximates fair value at April 30, 2000.
APRIL 30, -------------------------------------------------------------------------------- 2001 2002 2003 2004 2005 THEREAFTER TOTAL (AMOUNTS IN THOUSANDS) Fixed Marketable Securities -- -- -- $ 524 -- $3,396 $ 3,920 Average % Rate -- -- -- 6.43% -- 7.52% 7.38% Variable Marketable Securities $17,722 -- -- -- -- -- $17,722 Average % Rate 8.75% -- -- -- -- -- 8.75% Variable Debt $ 9,194 -- -- -- -- -- $ 9,194 Average % Rate 4.54% -- -- -- -- -- 4.54%
Foreign Currency Risk. The Company transacts business in various foreign currencies. Accordingly, the Company is subject to exposure from adverse movements in foreign currency exchange rates. As of April 30, 2000, the Company had no hedging contracts 16 18 outstanding. The Company assesses the need to utilize financial instruments to hedge currency exposures on an ongoing basis. The Company does not use derivative financial instruments for speculative trading purposes. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. There has not been a change of accountants in the past 24 months nor has any disagreement on any matter of accounting principles or practices been reported on Form 8-K during the same period. 17 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS PAGE ---- Independent Auditors Report.............................................. 19 Consolidated Balance Sheets as of April 30, 2000 and 1999................ 20 Consolidated Statements of Operations for the years ended April 30, 2000, 1999 and 1998......................................... 21 Consolidated Statements of Stockholders' Equity and Comprehensive income for the years ended April 30, 2000, 1999 and 1998......................................................... 22 Consolidated Statements of Cash Flows for the years ended April 30, 2000, 1999 and 1998 ........................................ 23 Notes to Consolidated Financial Statements............................... 24
18 20 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Ansoft Corporation: We have audited the accompanying consolidated balance sheets of Ansoft Corporation and subsidiaries as of April 30, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and comprehensive income and cash flows for each of the years in the three-year period ended April 30, 2000. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule listed in Item 14. These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ansoft Corporation and subsidiaries as of April 30, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended April 30, 2000, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG LLP Pittsburgh, Pennsylvania May 24, 2000 19 21 CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
April 30, April 30, 2000 1999 -------- -------- Assets Current assets Cash and cash equivalents $ 2,594 $ 2,489 Marketable securities 17,722 16,461 Accounts receivable net of allowance for doubtful accounts of $221 and $175, respectively 10,550 8,645 Deferred income taxes 312 126 Prepaid expenses and other assets 941 709 -------- -------- Total current assets 32,119 28,430 Equipment and furniture 4,989 4,663 Marketable securities 3,920 5,730 Other assets 310 475 Deferred taxes - non current 2,886 2,993 Intangible assets 9,386 10,339 -------- -------- Total assets $ 53,610 $ 52,630 ======== ======== Liabilities and stockholders' equity Current liabilities Line of credit $ 9,194 $ 7,446 Accounts payable and accrued expenses 1,383 1,057 Deferred revenue 3,883 3,228 -------- -------- Total current liabilities 14,460 11,731 Other liabilities 103 143 -------- -------- Total liabilities 14,563 11,874 Minority Interest -- (107) 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 authorized; issued 11,780 and 11,658 shares, respectively 117 116 Additional paid-in capital 51,956 51,490 Treasury stock, 201 and 283 shares, respectively (1,131) (1,556) Other accumulated comprehensive income (loss) (3,487) (1,013) Accumulated deficit (8,408) (8,174) -------- -------- Total stockholders' equity 39,047 40,863 Total liabilities and stockholders' equity $ 53,610 $ 52,630 ======== ========
See accompanying notes to consolidated financial statements. 20 22 CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED APRIL 30, ---------------------------------------- 2000 1999 1998 -------- -------- -------- Revenue License ............................. $ 25,806 $ 17,847 $ 19,974 Service and other ................... 7,685 6,628 6,309 -------- -------- -------- Total revenue ....................... 33,491 24,475 26,283 Cost and expenses Sales and marketing ................. 19,421 17,061 12,643 Research and development ............ 10,176 8,391 7,299 General and administrative .......... 3,322 2,937 2,322 Amortization ........................ 2,512 1,691 1,495 -------- -------- -------- Total costs and expenses ............ 35,431 30,080 23,759 -------- -------- -------- Income (loss) from operations ....... (1,940) (5,605) 2,524 Interest income ..................... 2,153 1,693 709 Interest expense .................... (513) (106) (160) -------- -------- -------- Income (loss) before income taxes.... (300) (4,018) 3,073 Income tax benefit .................. 66 1,210 1,000 -------- -------- -------- Net income (loss) ................... $ (234) $ (2,808) $ 4,073 ======== ======== ======== Basic net income (loss) per share.... $ (0.02) $ (0.25) $ 0.42 ======== ======== ======== Diluted net income (loss) per share.. $ (0.02) $ (0.25) $ 0.39 ======== ======== ======== Weighted average shares outstanding -- basic......................... 11,460 11,310 9,681 ======== ======== ======== -- diluted ...................... 11,460 11,310 10,521 ======== ======== ========
See accompanying notes to consolidated financial statements. 21 23 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OTHER COMMON STOCK ADDITIONAL TREASURY STOCK ACCUMULATED COMPREHENSIVE -------------- PAID-IN -------------------- ACCUMULATED COMPREHENSIVE INCOME (LOSS) SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT INCOME (LOSS) ------------- ------ ------ ------- ------ ------ ------- ------------- Balance, April 30, 1997 ..... 8,989 $ 90 $24,310 -- -- $(9,439) $ (44) Issuance of common stock .... 2,527 25 26,418 -- -- -- -- Net income .................. 4,073 -- -- -- -- -- 4,073 -- Unrecognized gain on Marketable securities ..... 87 -- -- -- -- -- -- 87 ------- ------ ------ ------- ------- ------- ------- ------- Balance, April 30, 1998 ..... $ 4,160 11,516 $ 115 $50,728 -- -- $(5,366) $ 43 Purchase of treasury stock .. -- -- -- -- (656) (3,728) -- -- Issuance of common stock .... -- 142 1 762 373 2,172 -- -- Net loss .................... (2.808) -- -- -- -- -- (2,808) -- Foreign currency translation ................. (23) -- -- -- -- -- -- (23) Unrecognized loss on Marketable securities ..... (1,033) -- -- -- -- -- -- (1,033) ------- ------ ------ ------- ------- ------- ------- ------- Balance, April 30, 1999 ..... $(3,864) 11,658 $ 116 $51,490 (283) $(1,556) $(8,174) $(1,013) Purchase of treasury stock .. -- -- -- -- (23) (162) -- -- Issuance of common stock .... -- 122 1 466 105 587 -- -- Net loss .................... (234) -- -- -- -- -- (234) -- Foreign currency translation ................. (206) -- -- -- -- -- -- (206) Unrecognized loss on Marketable securities ..... (2,268) -- -- -- -- -- -- (2,268) ------- ------ ------ ------- ------- ------- ------- ------- Balance, April 30, 2000 ..... $(2,708) 11,780 $ 117 $51,956 (201) $(1,131) $(8,408) $(3,487)
See accompanying notes to consolidated financial statements. 22 24 CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED APRIL 30, ----------------------------------------------- 2000 1999 1998 -------- -------- -------- Cash flows from operating activities Net income (loss) .......................... $ (234) $ (2,808) $ 4,073 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Depreciation ............................... 1,090 983 640 Amortization ............................... 2,512 1,691 1,495 Deferred taxes ............................. (79) (1,211) (465) Changes in assets and liabilities Accounts receivable ........................ (1,905) (1,180) (3,336) Prepaid expenses and other assets .......... (232) (173) (254) Other long-term assets ..................... 125 (251) (257) Accounts payable ........................... 163 (205) 385 Accrued wages and expenses ................. 161 (169) (778) Deferred revenue ........................... 655 1,415 653 -------- -------- -------- Net cash provided (used) by operating activities.................................... 2,256 (1,908) 2,156 -------- -------- -------- Cash flows from investing activities Purchases of plant and equipment ........... (1,416) (2,549) (1,532) Investment in acquired businesses .......... (724) (770) (2,285) Sale of marketable securities .............. -- -- 534 Purchases of marketable securities ......... (1,716) (16,521) -- -------- -------- -------- Net cash used in investing activities ........ (3,856) (19,840) (3,283) -------- -------- -------- Cash flows from financing activities Proceeds from line of credit, net .......... 1,748 7,446 (4,208) Purchase of treasury stock ................. (162) (4,177) -- Proceeds from the issuance of common stock, net ............................... 325 314 25,700 -------- -------- -------- Net cash provided by financing activities .... 1,911 3,583 21,492 -------- -------- -------- Net increase (decrease) in cash and cash Equivalents ................................ 311 (18,165) 20,365 Effect of exchange rate changes on cash ...... (206) (23) -- Cash and cash equivalents at beginning of Period ..................................... 2,489 20,677 312 -------- -------- -------- Cash and cash equivalents at end of period ... $ 2,594 $ 2,489 $ 20,677 ======== ======== ======== Supplemental disclosures of cash flow Information Cash paid for interest ..................... $ 458 $ 106 $ 160 ======== ======== ======== Cash paid for income taxes ................. $ 6 $ 44 $ 80 ======== ======== ======== Plant and equipment acquired through assumption of liability .................. $ -- $ 203 $ 179 ======== ======== ========
See accompanying notes to consolidated financial statements. 23 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Ansoft Corporation ("Ansoft" or the "Company") is a 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. Principles of Consolidation and Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, from the date of inception or acquisition. All intercompany transactions have been eliminated. Effective December 23, 1999, Ansoft completed the acquisition of Pacific Numerix ("PNC"). Effective July 24, 1996, April 9, 1997 and August 8, 1997, Ansoft acquired the EBU, Compact, and Boulder, respectively. Use of Estimates The preparation of the 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 financial statements are based on management's evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from those estimates. Cash Equivalents Cash equivalents include only highly liquid debt instruments purchased with original maturity dates of three months or less. Marketable Securities Marketable Securities consist of corporate bonds and other interest-bearing securities and are classified as of April 30, 2000 and 1999, as available for sale. Marketable securities available for sale are recorded at fair market value based on quoted market prices and any unrecorded gains or losses are recorded as other accumulated comprehensive income (loss) in stockholders' equity. Costs of investments sold are determined on the basis of specific identification. Plant and Equipment Plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation for financial reporting purposes is computed using the straight-line method based upon the estimated useful lives of the assets which range from three to seven years. Assets acquired under capital leases and leasehold improvements are amortized over their useful life or the lease term, as appropriate. Intangible Assets Intangible assets consist mainly of customer lists, established workforce, and purchased technology which are being amortized on a straight line basis over seven, three and three years, respectively. Purchased technology represents acquired software which has been fully developed, achieved technological feasibility, reached commercial viability, and is generating revenue. The carrying value of intangible assets are reviewed whenever circumstances occur which indicate that the carrying value may not be recoverable. 24 26 Revenue Recognition Revenue consists primarily of fees for licenses of the Company's software products, maintenance and customer support. Software Revenue. Prior to May 1, 1998, the Company complied with the American Institute of Certified Public Accountants' (AICPA) Statement of Position (SOP) 91-1,"Software Revenue Recognition". Revenue from the sale of software licenses was recognized after shipment of the products and fulfillment of acceptance terms, if any, providing that no significant vendor and post-contract support obligations remained and collection of the related receivable was probable. In the first quarter of fiscal 1999, the Company adopted the provisions of the AICPA SOP 97-2, "Software Revenue Recognition" (SOP 97-2). SOP 97-2 generally requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of the elements. The revenue allocated to software products generally is recognized after shipment of the products and fulfillment of acceptance terms. The effect of adopting SOP 97-2 on May 1, 1998 was not material. Service and Other Revenue. Maintenance revenue is deferred and recognized ratably over the term of the maintenance agreement, which is typically 12 months. Revenue from customer training, support and other services is recognized as the service is performed. Other revenue consists primarily of revenue earned on development contracts with government-sponsored entities. Revenue under these arrangements is recognized as the service is performed. Software Development Costs In accordance with Statement of Financial Accounting Standards (SFAS) No. 86, the Company has evaluated the establishment of technological feasibility of its various products during the development phase. Due to the dynamic changes in the market, the Company has concluded that it cannot determine, with any reasonable degree of accuracy, technological feasibility until the development phase of the project is nearly complete. The time period during which costs could be capitalized from the point of reaching technological feasibility until the time of general product release is generally very short and, consequently, the amounts that could be capitalized pursuant to SFAS No. 86 are not material to the Company's financial position or results of operations. Therefore, the Company charges all research and development expenses to operations in the period incurred. Income Taxes Income taxes are provided for under the provisions of SFAS No. 109, "Accounting for Income Taxes," for all periods presented. Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. When necessary, valuation allowances are established to reduce deferred tax assets to the amounts expected to be realized. Net Income (Loss) Per Share "Basic earnings (loss) per share" is calculated based upon the weighted average number of common shares actually outstanding, and "diluted earnings per share" is calculated based upon the weighted average number of common shares outstanding and other potential common shares if they are dilutive. The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the years presented:
INCOME PER SHARE (LOSS) SHARES AMOUNT ------ ------ ------ FISCAL YEAR ENDED APRIL 30, 2000 Basic net income (loss) per share....... $ (234) 11,460 $(0.02) Effect of dilutive securities: Stock options........................ -- -- $ -- ======= ====== ====== Diluted net income (loss) per share................................... $ (234) 11,460 $(0.02) ======= ====== ====== FISCAL YEAR ENDED APRIL 30, 1999 Basic net income (loss) per share....... $(2,808) 11,310 $(0.25) Effect of dilutive securities: Stock options........................ -- -- $ -- ------- ------ ------ Diluted net income (loss) per share................................... $(2,808) 11,310 $(0.25) ======= ====== ====== FISCAL YEAR ENDED APRIL 30, 1998 Basic net income (loss) per share....... $ 4,073 9,681 $ 0.42 Effect of dilutive securities: Stock options........................ -- 840 $(0.03) ======= ====== ====== Diluted net income (loss) per share..... $ 4,073 10,521 $ 0.39 ======= ====== ======
25 27 Stock Based Compensation The Company accounts for stock-based compensation in accordance with the Financial Accounting Standards Board's Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for Stock-Based Compensation." This statement permits a company to choose either a new fair value based method of accounting for its stock-based compensation arrangements or to comply with APB Opinion 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 APB Opinion 25 method of accounting for stock-based compensation with annual pro forma disclosures of net income and earnings per share. Comprehensive Income In 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which was adopted by the Company in the first quarter of fiscal 1999. SFAS No.130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's results of operations or stockholders' equity. 2. ACQUISITIONS AND RELATED INTANGIBLE ASSETS On July 24, 1996, the Company acquired the EBU for $5,600 in cash. On April 9, 1997, the Company acquired all of the outstanding capital stock of Compact for $3,000 in cash and 1,273 shares of the Company's Common Stock. On August 11, 1997, the Company acquired Boulder by the merger of Boulder with and into the Company, in consideration for $743 in cash and 108 shares of the Company's Common Stock. On April 28th, 1999, Ansoft acquired the majority of the outstanding stock of Pacific Numerix for 377 shares and $600 in cash. On December 31, 1999, Ansoft acquired the remaining portion of Pacific Numerix for 108 shares and $7 in cash. The cost of these acquisitions has been allocated on the basis of the estimated fair value of the assets acquired and the liabilities assumed. The allocation of the EBU and Compact acquisitions resulted in charges of $3,100 and $5,700 recorded, respectively, in fiscal 1997 based on the future expected cash flows of certain acquired in process research and development that had not reached technological feasibility. The acquisitions have been accounted for as purchases, and their respective financial results have been included in the accompanying consolidated financial statements since the date of their respective acquisitions. The following unaudited pro forma summary presents information as if the acquisition of Pacific Numerix occurred at the beginning of the periods presented. The pro forma information is provided for information purposes only. It is based on historical information and does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of future results of operations of the combined enterprise.
FISCAL YEAR ENDED APRIL 30, --------------------------------- 2000 1999 1998 ------- ------- ------- Revenue......................................... $33,491 $26,864 $29,562 Pro forma net income (loss)..................... $ (234) $(4,553) $ 3,357 Pro forma net income (loss) per common share... $ (0.02) $ (0.39) $ 0.31
26 28 3. PLANT AND EQUIPMENT Plant and equipment consist of the following:
APRIL 30, ------------------- 2000 1999 ------- ------- Computers and equipment.................................... $ 7,293 $ 6,237 Furniture and fixtures..................................... 1,129 903 Leasehold improvements..................................... 523 389 ------- ------- 8,945 7,529 Less allowances for depreciation and amortization ......... 3,956 2,866 ------- ------- $ 4,989 $ 4,663 ======= =======
4. INTANGIBLE ASSETS Intangible assets consist of the following:
APRIL 30, ------------------- 2000 1999 ------- ------- Customer list........................... $11,503 $10,281 Established work force.................. 1,730 1,679 Purchased technology.................... 1,684 1,398 Goodwill................................ 574 574 ------- ------- 15,491 13,932 Less allowances for amortization ....... 6,105 3,593 ------- ------- $ 9,386 $10,339 ======= =======
5. MARKETABLE SECURITIES Marketable securities, classified as available for sale, are summarized as follows:
UNREALIZED AMORTIZED GAIN MARKET COST (LOSS) VALUE --------- ---------- ------ April 30, 2000 Marketable Securities ..... $24,894 $(3,252) $21,642 April 30, 1999 Marketable Securities ..... $23,181 $ (990) $22,191
The carrying values of marketable securities as of April 30, 2000, by maturity is shown below: Due in less than one year ... $17,722 Due in one to five years .... $ 524 Due in five to ten years .... 3,396 ------- $21,642
Gross realized gains (losses) on sales of securities in fiscal 2000, 1999 and 1998 were immaterial. 6. LINE OF CREDIT The Company has available a $10.0 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 is secured by the marketable securities held with the institution. As of April 30, 2000, $9.2 million was the outstanding balance on the line of credit and the weighted average interest rate was 4.54%. 27 29 7. LEASES The Company leases its corporate headquarters in Pittsburgh, Pennsylvania, and other facilities under operating lease agreements which expire over the next six years. Rental expense incurred by the Company under operating lease agreements totaled $1,525, $1,281 and $978 for the years ended April 30, 2000, 1999 and 1998, respectively. The future minimum lease payments for such operating leases as of April 30, 2000, are: YEAR ENDING APRIL 30, ---------------------- 2001............ 1,131 2002............ 872 2003............ 817 2004............ 629 2005............ 564 Thereafter...... 762 ------ $4,775 ====== 8. STOCKHOLDERS' EQUITY In February 1998, the Company closed its public offering of 2.3 million shares of Common Stock. The net proceeds of the offering were approximately $25,500, after deducting applicable costs and expenses. 9. COMMON STOCK OPTIONS The Company's 1988 Stock Option Plan (1988 Plan) authorizes the issuance of 850 shares of Common Stock for the grant of incentive or nonstatutory stock options to employees and directors. Under the terms of the 1988 Plan, options to purchase Common Stock are granted at no less than the stock's estimated fair market value at the date of the grant and may be exercised during specified future periods as determined by the Board of Directors. The 1988 Plan provides that the options shall expire no more than ten years after the date of the grant. In March 1995, the Board of Directors approved a 1995 Stock Option Plan (1995 Plan) that authorized the issuance of up to 350 shares of Common Stock for the grant of incentive or nonstatutory stock options to employees and directors. The Board of Directors approved an additional 1,850 shares of Common Stock for grant. Under the terms of the 1995 Plan, options to purchase Common Stock are granted at no less than the stock's estimated fair market value at the date of the grant and may be exercised during specified future periods as determined by the Board of Directors. The 1995 Plan provides that the options shall expire no more than ten years after the date of the grant. Shares underlying outstanding options under the 1988 Plan and the 1995 Plan are as follows: SHARES UNDERLYING OUTSTANDING OPTIONS ------------------------------ SHARES PRICE ------- ------------- Outstanding, April 30, 1997... 992 $1.00--$6.50 Granted..................... 544 $5.00--$16.63 Exercised................... (121) $1.00--$5.38 Canceled.................... (100) $2.00--$10.13 ------- ------------- Outstanding, April 30, 1998... 1,515 $1.00--$16.63 Granted..................... 1,135 $5.06--$5.56 Exercised................... (142) $1.00--$5.38 Canceled.................... (426) $2.00--$16.63 ------- ------------- Outstanding, April 30, 1999... 2,073 $1.14--$6.00 Granted..................... 621 $5.50--$7.3125 Exercised................... (113) $1.14--$5.38 Canceled.................... (126) $2.00--$16.63 ------- ------------- Outstanding, April 30, 2000... 2,455 $1.75--$7.3125 ======= -------------- Options to purchase 1,141 shares of Common Stock were exercisable as of April 30, 2000 and options to purchase 236 shares of Common Stock were available for future grant as of April 30, 2000. As permitted under Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," the Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to 28 30 Employees" ("APB 25"), and related Interpretations, in accounting for stock-based awards to employees. Under APB 25, because the exercise price of the Company's employee stock options generally equals the market price of the underlying stock on the date of grant, no compensation expense has been recognized in the Company's consolidated financial statements during fiscal 2000, 1999 or 1998. Pro forma information regarding net income and earnings (loss) per share is required by SFAS 123. This information is required to be determined as if the Company had accounted for its employee stock options (including shares issued under the Stock Purchase Plan, collectively called "options") granted subsequent to April 30, 1995 under the fair value method prescribed by SFAS 123. The fair value of options granted in fiscal years 2000, 1999 or 1998, reported below has been estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions: FISCAL YEAR ENDED APRIL 30, --------------------------- 2000 1999 1998 --------- --------- -------- Risk-free rate (%) ......... 5.50 4.86 6.05 Volatility (%).............. 30.00 54.00 34.00 Expected Life (in Years) ... 8.50 9.66 10.00 Dividend Yield (%) ......... 0.00 0.00 0.00 The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of its options. However, based solely on this analysis, the weighted average estimated fair value of employee stock options granted during 2000, 1999 or 1998, was $3.02, $3.57 and $5.82 per share, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (unaudited): FISCAL YEAR ENDED APRIL 30, --------------------------- 2000 1999 1998 ----------- ----------- -------- Pro forma net income (loss) ...... $(1,590) $(3,742) $3,373 Pro forma net income (loss) per common share ................. $ (0.14) $ (0.33) $ 0.32 Because the Company anticipates making additional grants and options vest over several years, the effects on pro forma disclosures of applying SFAS 123 are not likely to be representative of the effects on pro forma disclosures of future years. SFAS 123 is applicable only to options granted subsequent to April 30, 1995. 29 31 The following table summarizes information about stock options outstanding as of April 30, 2000:
OPTIONS OUTSTANDING ----------------------------------------- OPTIONS EXERCISABLE ----------------------- WEIGHTED- NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE AT APRIL 30, CONTRACTUAL EXERCISE AT APRIL 30, EXERCISE PRICES 2000 LIFE PRICE 2000 PRICE ------ ---- ---- ----- ---- ----- $1.75--$2.00 339 3.74 $1.83 339 $1.83 $3.50--$5.00 533 5.90 $4.87 404 $4.84 $5.063-$7.313 1,583 8.10 $5.46 398 $5.35
10. EXPORT SALES, MAJOR CUSTOMERS AND CREDIT RISK Export sales, principally to Asia, accounted for 48%, 52% and 48% of total product revenue in 2000, 1999 or 1998, respectively. Included in export sales to Asia were sales to Japan, which accounted for approximately 17%, 16% and 16% of total revenue in fiscal 2000, 1999 or 1998, respectively. No other foreign country accounted for more than 10% of total revenue during these periods. The Company markets its software products to customers throughout the world directly and through distributors and generally does not require collateral. However, letters of credit are obtained from certain international customers prior to shipment. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential credit losses. The Company believes that it has adequately provided for credit losses. 11. INCOME TAX The provisions for income taxes consists of the following:
APRIL 30, ---------------------------- 2000 1999 1998 -------- --------- ------- Current: Federal............... $ 13 $ -- $ 333 Foreign............... -- -- -- State................. -- -- 95 ---- ------- ------- Total.............. 13 -- 428 Deferred: Federal............... (70) (1,057) (1,447) State................. (9) (153) 19 ---- ------- ------- Total.............. (79) (1,210) (1,428) ------- ------- Total benefit for income taxes.......... $(66) $(1,210) $(1,000) ==== ======= =======
The Company's actual income tax expense (benefit) differs from the expected income tax expense (benefit) computed by applying the statutory federal income before income taxes as a result of the following:
APRIL 30, ----------------------------- 2000 1999 1998 ---- ---- ---- Income tax expense (benefit) at statutory rate......................... $(102) $(1,366) $ 1,044 State income tax, net of federal offset................................. (6) (101) 142 Net deductible intangible assets....... -- -- -- Expiration of state net operating losses................................. -- -- 241 Change in valuation allowance.......... (18) 43 (2,857) Reduction in state deferred tax due to decrease in state effective tax rate................................... -- -- 243 Other, net............................. 60 214 187 ----- ------- ------- Actual income tax benefit.............. $ (66) $(1,210) $(1,000) ===== ======= =======
30 32 In addition to the income tax expense (benefit) reported above, a deferred tax liability of $640 was recorded during the fiscal year ended April 30, 1998 in connection with the acquisition of Boulder. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
APRIL 30, ----------------------- 2000 1999 ---- ---- Deferred tax assets: Net operating loss carryforward ........... $ 2,833 $ 3,295 Allowance for doubtful accounts ........... 84 66 Alternative minimum tax credit carryforward ......................... 104 86 Foreign Tax Credit carryforward ........... -- -- Intangible Assets ......................... 758 71 Net Unrealized Losses on Available for Sale Securities ....................... 1,105 340 ------- ------- Total gross deferred tax assets ............. 4,884 3,858 Less valuation allowance .................... 1,130 383 ------- ------- Net deferred tax assets ..................... 3,754 3,475 Deferred tax liabilities: Intangible assets ......................... -- -- Property, plant, and equipment ............ (556) (356) ------- ------- Total gross deferred tax liability .......... (556) (356) ------- ------- Net deferred taxes .......................... $ 3,198 $ 3,119 ======= =======
The valuation allowance for deferred tax assets as of May 1, 1999 and 1998 was $383 and $0, respectively. The net change in the total valuation allowance for the years ended April 30, 2000 and April 30, 1999 was an increase of $747 and $383, respectively. Management evaluates the recoverability of the deferred tax assets and the level of the valuation on a quarterly basis. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. An additional gross deferred tax benefit of $765 was generated in the year ended April 30, 2000 with respect to unrealized losses on available for sale securities. Since it was more likely than not that some portion, or all of, the unrealized loss would not be realized, management placed a valuation of $765 upon this deferred tax asset, and no benefit was reported in stockholder's equity or income. As of April 30, 2000, the Company had net operating loss carryforwards for federal income tax purposes of $8,247 which are available to offset future federal taxable income, if any, through April 30, 2019. 12. EMPLOYEE BENEFIT PLAN The Company has a 401(k) savings and retirement plan which covers its full-time employees who have attained the age of 21 and have completed six months of service. Eligible employees make voluntary contributions to the plan up to 15% of their annual compensation. The Company is not required to contribute, nor has it contributed, to the 401(k) Plan. 13. COMMITMENTS AND CONTINGENCIES The Company is not a party to any litigation and is not aware of any threatened litigation, unasserted claims or assessments that could have a material adverse effect on the Company's business, consolidated operating results or consolidated financial condition. 31 33 PART IV ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) documents filed as part of this report: 1. Financial statements. The following consolidated financial statements are filed as part of this annual report on form 10-k.
PAGE ---- Independent Auditors' Report........................................................................ 19 Consolidated Balance Sheets as of April 30, 2000 and 1999........................................... 20 Consolidated Statements of Operations for the years ended April 30, 2000, 1999 and 1998 ............ 21 Consolidated Statements of Stockholders' Equity and Comprehensive income for the years ended April 30, 2000, 1999 and 1998.................................................................. 22 Consolidated Statements of Cash Flows for the years ended April 30, 2000, 1999 and 1998 ............ 23 Notes to Consolidated Financial Statements.......................................................... 24 2. Financial Statement Schedule: Schedule II--Valuation and Qualifying Accounts for each of the three years ended April 30, 2000 ........ 35
FINANCIAL STATEMENT SCHEDULES NOT LISTED ABOVE HAVE BEEN OMITTED BECAUSE THEY ARE INAPPLICABLE, ARE NOT REQUIRED UNDER APPLICABLE PROVISIONS OF REGULATION S-X, OR THE INFORMATION THAT WOULD OTHERWISE BE INCLUDED IN SUCH SCHEDULES IS CONTAINED IN THE REGISTRANT'S FINANCIAL STATEMENTS OR ACCOMPANYING NOTES. 2. Exhibits. The Exhibits listed below are filed or incorporated by reference as part of this Annual Report on Form 10-K.
EXHIBIT NUMBER DESCRIPTION ------ ------------------------------------------------------------------------------- 1.1 Underwriting Agreement (incorporated by reference from Registration Statement No. 333-40189). 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference from Registration Statement No. 333-40189). 3.2 Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation (incorporated by reference from Registration Statement No. 333-40189). 3.3 Bylaws of the Company (incorporated by reference from Registration Statement No. 333-1398). 10.1 1988 Stock Option Plan of the Company (incorporated by reference from Registration Statement No. 333-1398). 10.2 1995 Stock Option Plan of the Company (incorporated by reference from Registration Statement No. 333-1398). 10.3 Zoltan Cendes Stock Option Agreement, dated April 30, 1995 (incorporated by reference from Registration Statement No. 333-1398). 10.4 Office Lease Agreement between Commerce Court Associates and the Company dated June 7, 1989 (incorporated by reference from Registration Statement No. 333-1398). 10.5 Amendment No. 1 to Office Lease Agreement between Commerce Court Associates and the Company dated March 17, 1994 (incorporated by reference from Registration Statement No. 333-1398). 10.6 Software Distribution Agreement, by and between the Company and Hewlett-Packard, dated January 1, 1994 (incorporated by reference from Registration Statement No. 333-1398). 10.7 First Amendment to Software Distribution Agreement, by and between the Company and Hewlett-Packard, dated May 9, 1995 (incorporated by reference from Registration Statement No. 333-1398). 10.8 Second Amendment to Software Distribution Agreement, by and between the Company and Hewlett-Packard, dated September 7, 1995 (incorporated by reference from Registration Statement No. 333-1398). 10.9 Underwriting Agreement dated April 3, 1996 by and between Registrant and Janney Montgomery Scott Inc. and Pennsylvania Merchant Group Ltd., as representatives for the Underwriters identified therein (incorporated by reference from Registration Statement No. 333-1398). 10.10 Jacob K. White Stock Option Agreement dated February 1, 1996, as amended (incorporated by reference from Registration Statement No. 333-40189). 10.11 John N. Whelihan Stock Option Agreement dated February 1, 1996, as amended. (incorporated by reference from Registration Statement No. 333-40189). 10.12 Asset Purchase Agreement by and between Ansoft Corporation and The MacNeal-Schwendler Corporation dated as of July 24, 1996 for the Electronic Business Unit (incorporated by reference from the Company's Current Report filed on Form 8-K dated August 9, 1996, as amended by the Company's Current Report filed on Form 8-K/A dated October 8, 1997).
32 34
EXHIBIT NUMBER DESCRIPTION ------ ------------------------------------------------------------------------------- 10.13 Stock Purchase Agreement by and between Ansoft Corporation and Dr. Ulrich L. Rohde and Dr. Meta Rohde dated as of April 9, 1997 (incorporated by reference from the Company's Current Report filed on Form 8-K dated April 22, 1997, as amended by the Company's Current Report filed on Form 8-K/A dated June 26, 1997). 10.14 Registration Rights Agreement between the Company and Dr. Ulrich L. Rohde and Dr. Meta Rohde dated as of April 9, 1997. 21.1 Subsidiaries of the registrant (incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1997). 23.1 Consent of Buchanan Ingersoll Professional Corporation (incorporated by reference from Registration Statement No. 333-40189). 24.1 Powers of Attorney (incorporated by reference from Registration Statement No. 333-40189). *27.1 Financial Data Schedule.
*Filed herewith (b) Reports on Form 8-K filed during the last quarter of fiscal 2000. None. 33 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on July 27, 2000. ANSOFT CORPORATION By /s/ NICHOLAS CSENDES --------------------------------- Nicholas Csendes President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on July 27, 2000. SIGNATURE TITLE /s/ NICHOLAS CSENDES Director, President and Chief Executive ----------------------------------- Officer (Principal Executive Officer) Nicholas Csendes /s/ ZOLTAN J. CENDES Director, Chief Technology Officer and ----------------------------------- Chairman of the Board of Directors Zoltan J. Cendes /s/ THOMAS A.N. MILLER Director ----------------------------------- Thomas A.N. Miller /s/ ULRICH L. ROHDE Director ----------------------------------- Ulrich L. Rohde /s/ JOHN N. WHELIHAN Director ----------------------------------- John N. Whelihan /s/ JACOB WHITE Director ----------------------------------- Jacob White /s/ ANTHONY L. RYAN Chief Financial Officer (Principal ----------------------------------- Financial and Accounting Officer) Anthony L. Ryan 34 36 Schedule II-Valuation and Qualifying Accounts (In thousands)
Balance as of Additions Balance as of the Beginning Charged to Costs the End of of the Period and Expenses Deductions the Period ------------- ------------- ---------- ----------- Year ended April 30, 2000 Allowance for doubtful accounts 175 46 -- 221 Year ended April 30, 1999 Allowance for doubtful accounts 150 25 -- 175 Year ended April 30, 1998 Allowance for doubtful accounts 125 25 -- 150
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