10-K405 1 j8971401e10-k405.txt ANSOFT CORPORATION 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, 2001 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. [X] As of August 7, 2001, 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 $108,247,699. The number of shares of the registrant's common stock outstanding as of the close of business on August 7, 2001 was 12,090,182. 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 2001 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 Equity and Related Stockholders Matters 10 6. Selected Condensed Consolidated Financial Data 11 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 7.(a) Quantitative and Qualitative Disclosure about Market Risk 15 8. Financial Statements and Financial Statement Schedule 17 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 and Financial Statement Schedules 31 Signatures 32
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 Our software products allow design engineers to model component level and system level electromagnetic interaction which we believe is crucial to the effective design of electronic systems and components. Our products apply electromagnetic principles, derived from Maxwell's Equations, to more accurately model electromagnetic interaction. By using Ansoft software products to analyze electromagnetic interaction, we believe that end users of our 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. Our 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 our proprietary electromagnetic technology as a primary competitive advantage, we pursue our objectives through the following strategies: leveraging our 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 our broad range of product applications to address emerging customer design requirements. PRODUCTS Our high-frequency software enables users to design RF ICs, antenna and radar systems and microwave components. Our 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. Our low frequency software products enable designers of electromechanical components and systems to optimize the electrical performance of their designs while increasing manufacturing yields. We currently provide several products that address our customers' component and system level design needs. Since different customers encounter different combinations of challenges in their designs, we often provide integrated bundles of our various products and their options in an attempt to address their needs. These bundles are sold to customers in different configurations and at different price points, depending on a customer's needs. Although customers frequently purchase these bundles, we have organized the products below by their market application. Ansoft High Frequency Software HFSS is a 3D structure electromagnetic field simulator for high frequency, RF and 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. 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. 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. 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. AnsoftLinks links 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 design environment. Designs are automatically converted into Serenade projects using IFF files and a specialized neutral format. Linear and nonlinear translations are fully supported. 3 5 Ansoft's Signal Integrity Software 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. 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. Turbo Package Analyzer (TPA) allows engineers to determine performance and compatibility before a design is committed to fabrication. TPA fully characterizes an entire package structure with minimal preparation of the design artwork. TPA automatically produces accurate, frequency-dependent RLCG (resistance, inductance, capacitance, and conductance) values for any lead or any coupled group of leads. The RLCG outputs can be in matrix format or in SPICE sub-circuit format. PCB/MCM Signal Integrity. The automated 3-D modelling capability of PCB/MCM Signal Integrity allows parasitic extraction and signal integrity analysis of PCBs and MCMs with non-ideal ground planes. The program never forces the use of an "ideal ground" representation of an actual ground structure. PCB Mechanical. This suite of tools incorporates Thermal, Fatigue, Hybrid Thermal. Our PCB Mechanical tools help engineers and PCB designers find fast and accurate 3D solutions to design problems including component overheating, component placement, board and component heatsink selection, component package selection, and material selection. Ansoft's Low Frequency Software 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. 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 2DFS quickly obtains critical device parameters such as force, torque, induction and saturation effects from the physical design information. 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. SIMPLORER is a sophisticated multi domain simulation package for the design of complex power electronic and drive systems. SIMPLORER is based on a unique simulator coupling technology and provides exceptional simulation speed combined with high accuracy and numerical stability. The intuitive graphical user interface allows a fast and easy model generation using three modeling languages - electrical circuits, block diagrams and state machines. All description languages can be used simultaneously. Models are developed using a powerful schematic capture program. Simulation results may be displayed with oscilloscopes or digital displays using SIMPLORER's unique Active Elements Technology. Animated symbols help visualizing system states during the simulation. 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. 4 6 Maxwell Designer Series. This suite of tools includes PEmag, a 2D power electronics parameter simulator; RMxprt, a specialized tool for the analysis and design of rotating electric machines; and EMpulse, a time-domain analysis software package that solves the coupled nonlinear electromagnetic field, circuit, and motion problem using a time-step finite element approach. 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. We continually seek to design and develop new technologies, products and interfaces based on our core electromagnetic expertise. This effort includes releasing improved versions of our products on a regular basis as well as developing new products. Ansoft 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, 2001, the Company's research and development group consisted of 111 employees. The Company seeks to hire experts in the fields of electromagnetic engineering, high-speed circuit simulation, broadband communication, applied mathematics and software development. During fiscal 2001, 2000 and 1999, total research and development expenses were $12.7 million, $10.2 million and $8.4 million, respectively. On July 17, 2000, Ansoft announced its formation of Altra Broadband to pursue the development of critical intellectual property and products for broadband wireless and optical communications. During fiscal 2001, research and development expenses for Altra Broadband were $1.7 million. SALES AND MARKETING Ansoft markets and sells its products worldwide through its direct sales force. The Company hires application engineers with significant industry experience who can analyze the needs of its customers and gain technical insight into the 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, California, Florida, Illinois, Massachusetts, Michigan, New Jersey, Ohio, Texas, Wisconsin, and Pennsylvania. In Asia-Pacific, 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, Italy and Sweden. As of April 30, 2001, the Company had a direct sales force of 41 representatives, supported by 107 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. 5 7 COMMUNICATIONS SEMICONDUCTOR AUTOMOTIVE/INDUSTRIAL -------------- ------------- --------------------- Motorola Intel ABB Ericsson Anam Semiconductor Daimler Chrysler Andrew Corporation Applied Materials Cutler Hammer GEC-Marconi Amkor Electronics Delphi Packard Hughes Broadcom Dupont Italtel Cisco Eaton Lucent Technologies LG Ford Motor Metawave Communications Molex General Motors Celwave Rambus Honda Qualcomm Teradyne Hyundai Rockwell Texas Instruments Nissan Siemens Triquint Semiconductor Robert Bosch EMS Vitesse Semiconductor Wolff Controls Nortel 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 Ansoft offers customers annual one-year maintenance contracts that may be purchased for 12% of the list price of the respective software product. 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 product enhancement releases without additional charge. Product upgrades that add significant new functionality are provided for an additional fee. We offer 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 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 Ansoft 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. Ansoft 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. 6 8 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, 2001, Ansoft had a total of 283 employees, including 111 in research and development, 148 in sales, marketing, and customer support services and 24 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 our 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 2001, 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. 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: SIMEC Corporation, Pacific Numerix Corporation, Compact Software, Inc., the Electronic Business Unit of MacNeal Schwendler Company and Boulder Microwave Technologies, and as part of our efforts to increase revenue and expand our product and services offerings we may acquire additional companies. In addition to direct costs, acquisitions pose a number of risks, including potential dilution of earnings per 7 9 share, delays and other problems of integrating the acquired products and employees into our business, the failure to realize expected synergies or cost savings, the failure of acquired products to achieve projected sales, the drain on management time for acquisition-related activities, possible adverse effects on customer buying patterns due to uncertainties resulting from an acquisition, and assumption of unknown liabilities. The foregoing factors could seriously harm our business, financial condition and results of operations. We May Lose Competitive Advantages If Our Proprietary Rights Are Inadequately Protected. Ansoft's success depends, in part, upon its proprietary technology. We rely on a combination of trade secrets, copyrights, trademarks and contractual commitments to protect our proprietary rights in our software products. We generally enter into confidentiality or license agreements with our employees, distributors and customers, and limit access to and distribution of our software, documentation and other proprietary information. Despite these precautions, a third party may still copy or otherwise obtain and use our products or technology without authorization, or develop similar technology independently. In addition, effective patent, copyright and trade secret protection may be unavailable or limited in certain foreign countries. It is possible that we may fail to adequately protect our proprietary rights. This would seriously harm Ansoft's business, operating results and financial condition. We May Be Unable To Attract And Retain The Key Management And Technical Personnel That We Need To Succeed. Ansoft's future operating results depend in large part upon the continued services of its key technical and management personnel. Ansoft does not have employment contracts with any executive officer. Ansoft's future success will also depend in large part on its ability to continue to attract and retain highly skilled technical, marketing and management personnel. The competition for such personnel, as well as for qualified EDA engineers, is intense. If Ansoft is unable to attract, hire and retain qualified personnel in the future, the development of new products and the management of Ansoft's increasingly complex business would be impaired. This could seriously harm Ansoft's business, operating results and financial condition. We Depend On International Sales for a Significant Percentage Of Our Revenue. International revenue, principally from Asian customers, accounted for approximately 53% and 48% of our total revenue in the years ended April 30, 2001 and 2000, 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 its managerial and other resources. Revenues have grown from $6.2 million in fiscal 1995 to $43.6 million in fiscal year 2001, and the number of employees has grown from 69 in April 1996 to 283 as of April 30, 2001. Ansoft's ability to manage growth effectively will require it to continue to improve its operational and financial systems, hire and train new employees and add additional space, both domestically and internationally. Ansoft may not be successful in addressing such risks, and the failure to do so would seriously harm Ansoft's business, financial condition and results of operations. 8 10 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 Ansoft 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. Our current aggregate annual rental expenses for these facilities is approximately $1.8 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 Ansoft 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 financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable ITEM 4.(A) EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information concerning each of the executive officers of the Company: NAME AGE TITLE ---- --- ----- Zoltan J. Cendes, Ph.D. 55 Chief Technology Officer Nicholas Csendes....... 57 President, and Chief Executive Officer Thomas Miller ......... 54 Executive Vice President Anthony L. Ryan........ 33 Chief Financial Officer 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. 9 11 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, for over 15 years. Since 1985, Mr. Csendes has been involved with various public and private companies including a publicly-held interactive software company. Thomas A.N. Miller is a founder of Ansoft and has served as a director since 1984 and served as Chief Financial Officer from 1994 to May 1997. In January 2001, Mr. Miller was appointed Executive Vice President. Since 1985, Mr. Miller has been involved with various public and private companies including a publicly-held interactive software company. 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. 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, 2002 1st Quarter ..................................... $19.250 $9.010 FISCAL YEAR ENDED APRIL 30, 2001 1st Quarter...................................... $16.000 $7.125 2nd Quarter...................................... 16.625 9.000 3rd Quarter...................................... 10.500 5.750 4th Quarter...................................... 11.688 7.500 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
The Company has never paid any cash dividends on its common stock. We currently intend to retain the earnings from operations for use in the operation of its business and do not anticipate paying cash dividends with respect to our 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 17, 2001, the Company had approximately 361 shareholders of record, of which certain of the recordholders were registered clearing agencies holding common stock on behalf of participants of such clearing agencies. 10 12 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, --------------------------------------------------- 2001 2000 1999 1998 1997 -------- -------- -------- -------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA Revenue: License $29,951 $22,709 $15,705 $17,577 $10,516 Service and other 13,607 10,782 8,770 8,706 3,672 ------- ------- ------- ------- ------- Total revenue 43,558 33,491 24,475 26,283 14,188 ------- ------- ------- ------- ------- Costs and expenses: Sales and marketing 23,079 19,421 17,061 12,643 7,939 Research and development 11,044 10,176 8,391 7,299 2,993 Research and development - Altra Broadband 1,667 -- -- -- -- General and administrative 3,667 3,322 2,937 2,322 1,647 Amortization 2,430 2,512 1,691 1,495 407 Acquired in process research and development -- -- -- -- 8,754 ------- ------- ------- ------- ------- Total costs and expenses 41,887 35,431 30,080 23,759 21,740 ------- ------- ------- ------- ------ Income (loss) from operations 1,671 (1,940) (5,605) 2,524 (7,552) Other income (expense), net (1,608) 1,640 1,587 549 682 ------- ------- ------- ------- ------- Income (loss) before income taxes 63 (300) (4,018) 3,073 (6,870) Income tax expense (benefit) 908 (66) (1,210) (1,000) (420) ------- -------- ------- ------- ------- Net income (loss) $ (845) $ (234) $(2,808) $ 4,073 $(6,450) ======= ======= ======= ======= ======= Basic net income (loss) per share $ (0.07) $ (0.02) $ (0.25) $ 0.42 $ (0.81) ======= ======= ======= ======= ======= Diluted net income (loss) per share $ (0.07) $ (0.02) $ (0.25) $ 0.39 $ (0.81) ======= ======= ======= ======= ======= Weighted average shares outstanding - basic 11,690 11,460 11,310 9,681 7,955 Weighted average shares outstanding - diluted 11,690 11,460 11,310 10,521 7,955
APRIL 30, ------------------------------------------------------- 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA Cash and cash equivalents $ 9,412 $ 2,594 $ 2,489 $20,677 $ 312 Working capital (deficit) 11,653 9,131 7,684 27,579 (1,936) Total assets 57,973 53,610 52,630 49,180 21,951 Long term debt 9,000 9,194 7,446 416 -- Total stockholders' equity 41,595 39,047 40,863 45,520 14,917
Certain amounts previously reported have been reclassified to conform to the current year's reporting format. 11 13 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 high performance 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, design optimal product size and materials, eliminate physical prototypes, and to reduce time-to-market. Effective February 16, 2001, Ansoft completed the acquisition of SIMEC Corporation. Effective July 24, 1996, April 9, 1997, August 8, 1997 and December 23, 1999, Ansoft acquired EBU, Compact, Boulder and Pacific Numerix, 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. On July 17, 2000, Ansoft announced its formation of Altra Broadband to pursue the development of critical intellectual property and products for broadband wireless and optical communications. The financial statements and financial information in this Report on Form 10-K include the results of Altra Broadband. The full impact of Altra Broadband on Ansoft's business, operating results, and financial condition cannot be predicted at this time. However, certain incremental expenses, primarily in research and development, are expected to be incurred in future periods. RESULTS OF OPERATIONS The following table sets forth, 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, 2001 2000 1999 ----- ----- ----- Revenue: License 69% 68% 64% Service and other 31 32 36 ----- ----- ----- Total revenue 100 100 100 ----- ----- ----- Costs and expenses: Sales and marketing 53 58 70 Research and development 25 30 34 Research and development - Altra 4 -- -- Broadband General and administrative 8 10 12 Amortization 6 8 7 -------- -------- -------- Total costs and expenses 96 106 123 ----- ----- ----- Income (loss) from operations 4 (6) (23) Other income (expense), net (4) 5 7 ----- ----- ----- Income (loss) before income taxes 0 (1) (16) Income tax expense (benefit) 2 -- (5) ----- ----- ----- Net income (loss) (2)% (1)% (11)% ===== ===== =====
YEAR ENDED APRIL 30, 2001 COMPARED WITH YEAR ENDED APRIL 30, 2000 Revenue. Total revenue for the year ended April 30, 2001 increased 30% to $43.6 million from $33.5 million in the previous fiscal year. License revenue increased 32% to $30.0 million from $22.7 million. The increase is primarily attributable to strong demand from Asian and European customers. Service and other revenue increased by 26% due to the continued growth of the installed base of 12 14 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 30%. International revenue accounted for 53% and 48% of the Company's total product revenue in the years ended April 30, 2001 and 2000, 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 19% to $23.1 million in the year ended April 30, 2001, as compared to $19.4 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 53% and 58% of total revenue in the years ended April 30, 2001 and 2000, respectively. Ansoft expects that sales and marketing expenses will decrease as a percentage of revenue although increase in absolute dollars in future periods. Research and development expenses. Research and development expenses include all costs associated with the development of new products and enhancements to existing products. Total research and development expenses increased by 25% to $12.7 million in the year ended April 30, 2001, as compared to $10.2 million in the previous fiscal year. The increase is primarily due to the research and development efforts of Altra Broadband. Excluding Ansoft's investment in Altra Broadband, research and development expenses increased 9%. Research and development expenses represented 29% (25% excluding Altra Broadband expense) and 30% of total revenue in the years ended April 30, 2001 and 2000, respectively. Ansoft anticipates that research and development expenses will increase in absolute dollars in future periods as Altra Broadband increases its efforts to develop critical intellectual property and products for broadband wireless and optical communications. General and administrative expenses. General and administrative expenses increased by 11% to $3.7 million in the year ended April 30, 2001, as compared to $3.3 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 8% and 10% of total revenue in the years ended April 30, 2001 and 2000, respectively. The Company anticipates that general and administrative expenses will increase in absolute dollars in future periods. Amortization expense. Amortization expense was $2.4 million in the year ended April 30, 2001, comparable to $2.5 million in the previous fiscal year. Other income (expense), net. Other income (expense), net consists mainly of realized losses and other than temporary declines in value of our marketable securities, interest income and interest expense. For the year ended April 30, 2001 other income (expense), net was ($1.6 million), as compared to $1.6 million in the previous fiscal year. The decrease is primarily due to realized losses on securities transactions and other than temporary declines in value of certain investments within the investment portfolio. Interest expense decreased from the prior year due to lower borrowing rates. Income tax expense (benefit). In the years ended April 30, 2001 and 2000, the Company recorded a tax expense (benefit) of $908,000 and ($66,000), respectively. Ansoft's net deferred tax asset of $1.8 million as of April 30, 2001 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, 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 $22.7 million from $15.7 million. The increase was primarily attributable to strong demand from customers in North America and Asia. Service and other revenue increased by 23% 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 40%. International revenue accounted for 48% and 52% of the Company's total product revenue in the years ended April 30, 2000 and 1999, respectively. 13 15 Sales and marketing 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 was 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. Research and development expenses. 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 was 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. General and administrative expenses. General and administrative expenses increased by 13% to $3.3 million in the year ended April 30, 2000, as compared to $2.9 million in the previous fiscal year. The increase was 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. Amortization expense. Amortization expense increased by 49% to $2.5 million in the year ended April 30, 2000, as compared to $1.7 million in the previous fiscal year. The increase was due to the amortization of the additional intangible assets acquired. Other income (expense), net. Other income (expense), net for the year ended April 30, 2000 was $1.6 million, which was comparable to the previous fiscal year. Income tax expense (benefit). In the years ended April 30, 2000, and 1999 the Company recorded tax benefits of $66,000 and $1.2 million, respectively, resulting from the partial recognition of deferred tax assets in accordance with the Financial Accounting Standards Board's ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." QUARTERLY RESULTS OF OPERATIONS The following table presents unaudited quarterly results for each quarter of fiscal 2001 and fiscal 2000. 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, consisting only of normal recurring 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 license transactions. 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 cyclical, with revenues in the first fiscal quarter typically lower than the fourth quarter of the preceding fiscal year.
FISCAL 2001 FISCAL 2000 QUARTER ENDED APRIL 30, JAN. 31, OCT. 31, JULY 31, APRIL 30, JAN. 31, OCT. 31, JULY 31, 2001 2001 2000 2000 2000 2000 1999 1999 -------- -------- -------- -------- --------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenue $14,066 $11,122 $ 9,664 $ 8,706 $10,802 $ 8,392 $ 7,386 $ 6,911 Pro forma income (loss) from operations excluding Altra Broadband and amortization $ 3,030 $ 2,053 $ 649 $ 29 $ 1,724 $ 145 $ (433) $ (866) Income (loss) from operations $ 1,702 $ 973 $ (233) $ (771) $ 1,067 $ (470) $(1,029) $(1,508) Pro forma net income (loss) excluding Altra Broadband and amortization $ (525) $ 1,463 $ 773 $ 324 $ 1,717 $ 458 $ (26) $ (311) Net income (loss) $(1,471) $ 707 $ 155 $ (236) $ 1,191 $ (34) $ (498) $ (893) Basic net income (loss) per share $ (0.13) $ 0.06 $ 0.01 $ (0.02) $ 0.10 $ (0.00) $ (0.04) $ (0.08) Diluted net income (loss) per share $ (0.13) $ 0.06 $ 0.01 $ (0.02) $ 0.09 $ (0.00) $ (0.04) $ (0.08) Weighted average number of shares outstanding - basic 11,709 11,698 11,720 11,645 11,555 11,494 11,410 11,383 - diluted 11,709 12,648 13,206 11,645 12,774 11,494 11,410 11,383
14 16 LIQUIDITY AND CAPITAL RESOURCES As of April 30, 2001, Ansoft had $9.4 million in cash and cash equivalents and working capital of $11.7 million. Net cash provided by (used in) operating activities was $11.8 million, $2.3 million and $(1.9) million in fiscal 2001, 2000, and 1999, respectively. Net cash used in investing activities, consisting primarily of investments in acquired businesses in 2001 and purchases of marketable securities in 2000 and 1999, was $5.0 million, $3.9 million, and $19.8 million in fiscal 2001, 2000, and 1999, respectively. Capital expenditures, consisting primarily of purchases of computer equipment, were $1.7 million, $1.4 million and $2.5 million in fiscal 2001, 2000, and 1999, respectively. Net cash provided by financing activities, consisting primarily of proceeds from the issuance of common stock in 2001, and of proceeds drawn on the line of credit in fiscal 2000 and 1999, were $66,000, $1.9 million and $3.6 million in fiscal 2001, 2000, and 1999, respectively. Funds used for the purchase of treasury stock were $970,000, $162,000 and $4.2 million in fiscal 2001, 2000, and 1999, respectively. 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 expires on September 30, 2002, and is secured by the marketable securities held with the institution. As of April 30, 2001, $9.0 million was the outstanding balance on the line of credit. Ansoft believes that the available funds will be sufficient to meet its anticipated cash needs for working capital and capital expenditures for at least the 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. Effective December 23, 1999, Ansoft acquired all of the outstanding stock of Pacific Numerix for 485,000 shares and $607,000 in cash. Effective February 16, 2001, Ansoft acquired all of the outstanding stock of SIMEC GmbH for 72,000 shares and $900,000 in cash. The acquisitions were accounted for as purchase business combinations, and the financial results of the acquired entities have been included in the accompanying consolidated financial statements since the respective dates of the acquisitions. EFFECTS OF INFLATION To date, inflation has not had a material impact on the Company's consolidated financial results. RECENT ACCOUNTING PRONOUNCEMENTS In December 1999, the Staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. We adopted SAB 101 in our fiscal quarter beginning May 1, 2000. The adoption of SAB 101 had no impact to our operating results and financial position. The FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133", as amended by SFAS No. 138). This statement establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement also requires that changes in the derivative's fair value be recognized in earnings unless specific hedge accounting criteria are met. We adopted SFAS No. 133 in our fiscal quarter beginning May 1, 2000. The adoption of SFAS No. 133 had no impact to our operating results and financial position, since we currently do not invest in derivative instruments or engage in hedging activities. In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. These standards, among other things, eliminate the pooling of interests method of accounting for future acquisitions and require that goodwill no longer be amortized, but instead be subject to impairment testing at least annually. SFAS No. 142 must be adopted in fiscal years beginning after December 15, 2001 as of the beginning of the fiscal year. Companies with fiscal years beginning after March 15, 2001 may early adopt provided they have not yet issued their first quarter financial statements. Goodwill and intangible assets acquired prior to July 1, 2001 will continue to be amortized and tested for impairment in accordance with pre-SFAS No. 142 requirements until adoption of SFAS No. 142. Under the provision of SFAS No. 142, intangible assets with definite useful lives will be amortized to their estimatable residual values over those estimated useful lives in proportion to the economic benefits consumed. Such intangible assets remain subject to the impairment provisions of SFAS No. 121. Intangible assets with indefinite useful lives will be tested for impairment annually in lieu of being amortized. The Company's current yearly amortization of intangible assets is approximately $2.4 million. Because of the effort needed to comply with adopting SFAS Nos. 141 and 142, it is not practicable to reasonably estimate the impact of adopting these statements on the Company's consolidated financial statements at the date of this report. In addition, the Company has not yet determined whether it will early adopt SFAS No. 142. 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. The Company mitigates its risk by diversifying its investments among 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. 15 17 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, 2001.
APRIL 30, --------------------------------------------------------------------------------- 2002 2003 2004 2005 2006 THEREAFTER TOTAL (AMOUNTS IN THOUSANDS) Fixed Rate Debt Securities -- -- $ 550 -- $1,050 $2,060 $ 3,660 Average % Rate -- -- 6.43% -- 6.78% 6.94% 6.81% Marketable Equity Securities 18,765 -- -- -- -- -- $18,765 Average % Yield 7.97% -- -- -- -- -- 7.97% Variable Rate Debt -- $9,000 -- -- -- -- $ 9,000 Average % Rate -- 5.11% -- -- -- -- 5.11%
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, 2001, the Company had no hedging contracts outstanding. The Company assesses the need to utilize financial instruments to hedge currency exposures on an ongoing basis. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 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. 16 18 ITEM 8. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE INDEX TO FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report 18 Consolidated Balance Sheets as of April 30, 2001 and 2000 19 Consolidated Statements of Operations for the fiscal years ended April 30, 2001, 2000 and 1999 20 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the fiscal years ended April 30, 2001, 2000 and 1999 21 Consolidated Statements of Cash Flows for the fiscal years ended April 30, 2001, 2000 and 1999 22 Notes to Consolidated Financial Statements 23 Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts 33
17 19 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, 2001 and 2000, 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, 2001. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement 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, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended April 30, 2001, 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, presents fairly, in all material respects, the information set forth therein. KPMG LLP Pittsburgh, Pennsylvania August 6, 2001 18 20 CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
April 30, April 30, 2001 2000 --------- --------- Assets Current assets Cash and cash equivalents $ 9,412 $ 2,594 Accounts receivable, net of allowance for doubtful accounts of $221 and $221, respectively 8,209 10,550 Deferred income taxes 84 312 Prepaid expenses and other assets 1,266 941 ------- ------- Total current assets 18,971 14,397 Equipment and furniture, net 5,020 4,989 Marketable securities 22,425 21,642 Other assets 73 310 Deferred taxes - non current 1,743 2,886 Intangible assets, net 9,741 9,386 ------- ------- Total assets $57,973 $53,610 ======= ======= Liabilities and stockholders' equity Current liabilities Accounts payable and accrued expenses $ 2,034 $ 1,383 Deferred revenue 5,284 3,883 ------- ------- Total current liabilities 7,318 5,266 Line of credit 9,000 9,194 Other liabilities 60 103 ------- ------- Total liabilities 16,378 14,563 Stockholders' equity Preferred stock, par value $0.01 per share; 1,000 shares authorized, no shares outstanding -- -- Common stock, par value $0.01 per share; 25,000 shares authorized; issued 11,960 and 11,780 shares, respectively 119 117 Additional paid-in capital 52,684 51,956 Treasury stock, 256 and 202 shares, respectively (1,601) (1,131) Other accumulated comprehensive income (loss) (354) (3,487) Accumulated deficit (9,253) (8,408) ------- ------- Total stockholders' equity 41,595 39,047 Total liabilities and stockholders' equity $57,973 $53,610 ======= =======
See accompanying notes to consolidated financial statements. 19 21 CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED APRIL 30, 2001 2000 1999 --------------------------- ------- ------- ------- Revenue: License $29,951 $22,709 $15,705 Service and other 13,607 10,782 8,770 ------- ------- ------- Total revenue 43,558 33,491 24,475 ------- ------- ------- Costs and expenses: Sales and marketing 23,079 19,421 17,061 Research and development 11,044 10,176 8,391 Research and development - Altra Broadband 1,667 -- -- General and administrative 3,667 3,322 2,937 Amortization 2,430 2,512 1,691 ------- ------- ------- Total costs and expenses 41,887 35,431 30,080 ------- ------- ------- Income (loss) from operations 1,671 (1,940) (5,605) Other income (expense) (1,108) 2,153 1,693 Interest expense (500) (513) (106) ------- ------- ------- Income (loss) before income taxes 63 (300) (4,018) Income taxes expense (benefit) 908 (66) (1,210) ------- ------- ------- Net income (loss) $ (845) $ (234) $(2,808) ======= ======= ======= Basic net income (loss) per share $ (0.07) $ (0.02) $ (0.25) ======= ======= ======= Diluted net income (loss) per share $ (0.07) $ (0.02) $ (0.25) ======= ======= ======= Weighted average shares outstanding - basic 11,690 11,460 11,310 Weighted average shares outstanding - diluted 11,690 11,460 11,310
See accompanying notes to consolidated financial statements. 20 22 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OTHER ADDITIONAL ACCUMULATED COMPREHENSIVE COMMON STOCK PAID-IN TREASURY STOCK ACCUMULATED COMPREHENSIVE INCOME (LOSS) SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT INCOME (LOSS) ------------- ------ ------ ---------- ------ ------ ----------- ------------- Balance, April 30, 1998...... 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) Change in unrealized gain/ (loss) on marketable securities...... (1,033) -- -- -- -- -- -- (1,033) ------ Comprehensive income (loss).. $(3,864) -- -- -- -- -- -- -- ======= ------ ---- ------- ------ ------- ------- -------- Balance, April 30, 1999...... 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) Change in unrealized gain/ (loss) on marketable securities................. (2,268) -- -- -- -- -- -- (2,268) ------- Comprehensive income (loss).. $(2,708) -- -- -- -- -- -- -- ======= ------ ---- ------- ------ ------- ------- ------- Balance, April 30, 2000...... 11,780 117 51,956 (202) (1,131) (8,408) (3,487) Purchase of treasury stock... -- -- -- (126) (970) -- -- Issuance of common stock..... 180 2 728 72 500 -- -- Net loss..................... $ (845) -- -- -- -- -- (845) -- Foreign currency translation................ 15 -- -- -- -- -- -- 15 Change in unrealized gain/ (loss) on marketable securities................. (465) -- -- -- -- -- -- (465) Reclassification adjustment.. 3,583 -- -- -- -- -- -- 3,583 ------- Comprehensive income (loss).. $ 2,288 -- -- -- -- -- -- -- ======= ------ ---- ------- ------ ---- ------- ------- Balance, April 30, 2001...... 11,960 $119 $52,684 (256) $(1,601) $(9,253) $ (354) ====== ==== ======= ====== ======= ======= =======
See accompanying notes to consolidated financial statements. 21 23 CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED APRIL 30, 2001 2000 1999 ------- ------- -------- Cash flows from operating activities Net income (loss) .............................. $ (845) $ (234) $ (2,808) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities Depreciation ................................... 1,662 1,090 983 Amortization ................................... 2,430 2,512 1,691 Deferred taxes ................................. 611 (79) (1,210) Non cash charge on marketable securities ....... 3,629 -- -- Changes in assets and liabilities, net of effect from acquisitions ......................... 2,341 (1,905) (1,181) Accounts receivable ............................ Prepaid expenses and other assets .............. (325) (232) (173) Other long-term assets ......................... 194 125 (251) Accounts payable ............................... (153) 163 (205) Accrued wages and expenses ..................... 810 161 (169) Deferred revenue ............................... 1,401 655 1,415 ------- ------- -------- Net cash provided (used) by operating activities.. 11,755 2,256 (1,908) ------- ------- -------- Cash flows from investing activities Purchases of equipment and furniture ........... (1,693) (1,416) (2,549) Investment in acquired businesses .............. (2,025) (724) (770) Purchases of marketable securities, net ........ (1,291) (1,716) (16,521) ------- ------- -------- Net cash used by investing activities ............ (5,009) (3,856) (19,840) ------- ------- -------- Cash flows from financing activities Proceeds from (repayments of) line of credit, net .......................................... (194) 1,748 7,446 Purchase of treasury stock ..................... (970) (162) (4,177) Proceeds from the issuance of common stock, net ................................... 1,230 325 314 ------- ------- -------- Net cash provided by financing activities ........ 66 1,911 3,583 ------- ------- -------- Net increase (decrease) in cash and cash equivalents .................................... 6,812 311 (18,165) Effect of exchange rate changes on cash .......... 6 (206) (23) Cash and cash equivalents at beginning of year ............................................ 2,594 2,489 20,677 ------- ------- -------- Cash and cash equivalents at end of year ......... $ 9,412 $ 2,594 $ 2,489 ======= ======= ======== Supplemental disclosures of cash flow information Cash paid for interest ......................... $ 453 $ 458 $ 106 ======= ======= ======== Cash paid for income taxes ..................... $ 182 $ 6 $ 44 ======= ======= ======== Equipment and furniture acquired through assumption of liability ...................... $ -- $ -- $ 203 ======= ======= ========
See accompanying notes to consolidated financial statements. 22 24 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, design optimal product size and materials, 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 February 16, 2001, Ansoft completed the acquisition of SIMEC Corporation. Effective July 24, 1996, April 9, 1997, August 8, 1997 and December 23, 1999, Ansoft acquired EBU, Compact, Boulder and Pacific Numerix, respectively. Use of Estimates The preparation of 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, bond and government agency mutual funds, and equity securities and are classified as available for sale as of April 30, 2001 and 2000. Marketable securities available for sale are recorded at fair market value based on quoted market prices and any unrealized gains or losses are recorded as a separate component of stockholders' equity. Costs of investments sold/held are determined on the average cost method. An impairment charge is recorded if a decline in the market value of any available for sale security below cost is deemed to be other than temporary. The impairment is charged to earnings and a new cost basis for the security is established. Dividend and interest income are recognized when earned. Equipment and Furniture Equipment and furniture 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. 23 25 Impairment of Long-Lived Assets Based on the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", the Company reviews assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. A determination of impairment is made based on estimates of future cash flows. If such assets are considered to be impaired, the amount of the impairment is based on the excess of the carrying value over the fair value of the assets. The fair value of the assets is measured using estimated discounted future cash flows. The Company has determined that there has been no impairment to the carrying value of such assets in fiscal 2001, 2000 or 1999. Revenue Recognition Revenue consists primarily of fees for licenses of the Company's software products, maintenance and customer support. Software License Revenue. The Company recognizes revenue in accordance with Statement of Position ("SOP") 97-2 "Software Revenue Recognition", as amended by SOP 98-9 "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions." SOP 97-2, as amended, requires license revenues to be recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, no significant obligations remain, the fee is fixed or determinable and collectibility is probable. SOP 97-2 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 is recognized after shipment of the products and fulfillment of acceptance terms. Service and Other Revenue. Postcontract customer support ("PCS") for a one year period is bundled with the initial licensing fee and is recognized together with the initial licensing fee on delivery of the software if collectibility of the resulting receivable is probable, enhancements are limited to bug fixes covered by warranty provisions, and the costs of providing these services are expected to be insignificant. Revenue related to all other PCS arrangements is deferred and recognized ratably over the term of the agreement. Revenue from customer training, support and other services is recognized as the service is performed. 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 The Company accounts for software development costs in accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." Software development costs are capitalized beginning when a product's technological feasibility has been established by completion of a working model of the product and ending when a product is available for general release to customers. Completion of a working model of the Company's products and general release have substantially coincided. As a result, the Company has not capitalized any software development costs during these periods since the amounts have not been material. Income Taxes The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, 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 are recognized for deductible temporary differences, net operating loss carryforwards, and credit carryforwards if it is more likely than not that the tax benefits will be realized. To the extent a deferred tax asset cannot be recognized under the preceding criteria, a valuation allowance has been established. Net Income (Loss) Per Share Basic net income (loss) per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of the incremental common shares issuable upon the exercise of employee stock options, and are computed using the treasury stock method. Potentially dilutive common shares are excluded from the calculation if their effect is antidilutive. 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, 2001 Basic net income (loss) per share... $ (845) 11,690 $(0.07) Effect of dilutive securities: Stock options ................... -- -- -- ------- ------ ------ Diluted net income (loss) per share .............................. $ (845) 11,690 $(0.07) ======= ====== ======
24 26
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) ======= ====== ======
Stock-Based Compensation The Company accounts for stock-based compensation in accordance with the Financial Accounting Standards Board's ("FASB") SFAS No. 123 "Accounting for Stock-Based Compensation." This statement permits a company to choose either a fair value based method of accounting for its stock-based compensation arrangements or to comply with the Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," intrinsic value based method, adding pro forma disclosures of net income and earnings per share computed as if the fair value based method had been applied in the financial statements. The Company has adopted SFAS No. 123 by retaining the APB Opinion No. 25 method of accounting for stock-based compensation with annual pro forma disclosures of net income and earnings per share. Comprehensive Income In 1997, the FASB issued 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 stockholder's equity. SFAS No. 130 requires companies to report a new, additional measure of income that includes foreign currency translation gains and losses and other unrealized gains and losses that have been previously excluded from net income and reflected instead in equity. The Company has reported the components of comprehensive income, net of tax of $0, in its consolidated statements of stockholders' equity and comprehensive income. Fair Value of Financial Instruments The carrying value of the Company's receivables, payables and debt obligations are equal to or approximate fair value at April 30, 2001 and 2000. Reclassification Certain items and amounts reported in the fiscal 2000 and 1999 financial statements have been reclassified to conform to the current year's reporting format. 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. Effective December 23, 1999, Ansoft acquired all of the outstanding stock of Pacific Numerix for 485 shares and $607 in cash. Effective February 16, 2001, Ansoft acquired all of the outstanding stock of SIMEC GmbH for 72 shares and $900 in cash. The cost of these acquisitions has been allocated to the assets acquired and the liabilities assumed, based on their respective estimated fair values. 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 results of operations from the acquisitions that occurred in fiscal 2001 and 2000 are not material to the Company's financial position or results of operations. 25 27 3. EQUIPMENT AND FURNITURE Equipment and furniture consist of the following:
APRIL 30, ------------------- 2001 2000 ------- ------- Computers and equipment $ 8,851 $ 7,293 Furniture and fixtures 1,250 1,129 Leasehold improvements 537 523 ------- ------- 10,638 8,945 Less allowances for depreciation and amortization 5,618 3,956 ------- ------- $ 5,020 $ 4,989 ======= =======
4. INTANGIBLE ASSETS Intangible assets consist of the following:
APRIL 30, ------------------- 2001 2000 ------- ------- Customer list $13,366 $11,503 Established work force 2,106 1,730 Purchased technology 2,230 1,684 Goodwill 574 574 ------- ------- 18,276 15,491 Less allowances for amortization 8,535 6,105 ------- ------- $ 9,741 $ 9,386 ======= =======
5. MARKETABLE SECURITIES Marketable securities, classified as available for sale, are summarized as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAIN (LOSS) VALUE --------- --------- ---------- ----- April 30, 2001 Mutual funds $18,806 $65 $ (125) $18,746 Corporate bonds 3,734 2 (76) 3,660 Equity securities 19 -- -- 19 ------- --- ------- ------- Total marketable securities $22,559 $67 $ (201) $22,425 ======= === ======= ======= April 30, 2000 Mutual funds $20,335 $31 $(2,644) $17,722 Corporate bonds 4,559 -- (639) 3,920 ------- --- ------- ------- Total marketable securities $24,894 $31 $(3,283) $21,642 ======= === ======= =======
The carrying values of debt securities as of April 30, 2001, by maturity, is shown below:
Due in one to five years $1,600 Due in five to ten years 2,060 ------ $3,660 ======
Gross realized gains and losses were $46 and $3,629 in fiscal year 2001, respectively. Gross realized gains (losses) on securities in fiscal 2000 and 1999 were $0. Cash proceeds from the sale of securities were $351 in 2001, and $0 in 2000 and 1999. In the fourth quarter of fiscal 2001, the Company recorded impairment write-downs of $3,076 reflecting the Company's assessment of other than temporary decline in the value of certain marketable equity securities. Other than temporary impairment is a judgment based on information that develops over a period of time. While the impairment recognized is based on all of the information available at the time of the assessment, other information or economic developments in the future may lead to further impairment. 6. LINE OF CREDIT The Company has available a $10,000 secured line of credit from a domestic financial institution at an interest rate equal to LIBOR plus an applicable margin rate. The line of credit expires on September 30, 2002 and is secured by the marketable securities held with 26 28 the institution. As of April 30, 2001, $9,000 was the outstanding balance on the line of credit and the weighted average interest rate was 5.11%. The Company was in compliance with all financial covenants as of April 30, 2001 and 2000. 7. LEASES The Company leases its corporate headquarters in Pittsburgh, Pennsylvania, and other facilities under operating lease agreements which expire over the next five years. Rental expense incurred by the Company under operating lease agreements totaled $1,811, $1,525 and $1,281 for the years ended April 30, 2001, 2000 and 1999, respectively. The future minimum lease payments for such operating leases as of April 30, 2001, are:
YEAR ENDING APRIL 30, --------------------- 2002 $1,420 2003 1,207 2004 936 2005 699 2006 518 ------ $4,780 ======
8. 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. The Company's 1995 Stock Option Plan (1995 Plan) authorizes the issuance of 3,500 shares of common stock for the grant of incentive or nonstatutory stock options to employees and directors. 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, 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--$7.3125 ----- -------------- Outstanding, April 30, 2000 2,455 $1.75--$7.3125 Granted 430 $6.125--$9.75 Exercised (180) $1.75--$7.313 Canceled (83) $5.00--$9.75 ----- -------------- Outstanding, April 30, 2001 2,622 $1.75--$9.75 =====
Options to purchase 1,408 shares of common stock were exercisable as of April 30, 2001 and options to purchase 916 shares of common stock were available for future grant as of April 30, 2001. As permitted under SFAS No. 123, the Company has elected to follow APB Opinion No. 25, and related interpretations, in accounting for stock-based awards to employees. Under APB Opinion No. 25, because the exercise price of the Company's employee stock options 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 2001, 2000 or 1999. Pro forma information regarding net income (loss) and earnings (loss) per share is required by SFAS No. 123. This information is required 27 29 to be determined as if the Company had accounted for its employee stock options granted subsequent to April 30, 1995 under the fair value method prescribed by SFAS No. 123. The fair value of options granted in fiscal years 2001, 2000 and 1999 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, ----------------------------- 2001 2000 1999 ----- ----- ----- Risk-free rate (%) 5.44 5.50 4.86 Volatility (%) 88.96 30.00 54.00 Expected life (in years) 9.51 8.50 9.66 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 2001, 2000 and 1999 was $7.62, $3.02 and $3.57 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, ------------------------------ 2001 2000 1999 ------ ------ ------ Pro forma net income (loss) $(1,915) $(1,590) $(3,742) Pro forma net income (loss) per diluted common share $ (0.16) $ (0.14) $ (0.33)
The following table summarizes information about stock options outstanding as of April 30, 2001:
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 2001 LIFE PRICE 2001 PRICE ----------------- ------------- ------------- ------------- ------------- ---------- $1.75--$2.00 230 3.3 $1.86 230 $1.86 $3.50--$5.13 1,356 6.3 $5.04 831 $5.00 $5.50-$8.25 750 8.3 $6.36 294 $6.20 $8.31-$9.75 286 9.2 $9.17 13 $8.68
28 30 9. EXPORT SALES, MAJOR CUSTOMERS AND CREDIT RISK Export sales, principally to Asia, accounted for 53%, 48% and 52% of total revenue in 2001, 2000 and 1999, respectively. Included in export sales to Asia were sales to Japan, which accounted for approximately 21%, 17% and 16% of total revenue in fiscal 2001, 2000 and 1999, 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. 10. INCOME TAX The provision for income taxes consists of the following:
APRIL 30, --------------------------------- 2001 2000 1999 ---- ---- ------- Current: Federal ................. $373 $ 13 $ -- Foreign ................. -- -- -- State ................... (76) -- -- ---- ---- ------- Total ................ 297 13 -- Deferred: Federal ................. 517 (70) (1,057) State ................... 94 (9) (153) ---- ---- ------- Total ................ 611 (79) (1,210) ---- ---- ------- Total income tax expense (benefit) ............... $908 $(66) $(1,210) ==== ==== =======
The Company's actual income tax expense (benefit) differs from the expected income tax expense (benefit) computed by applying the statutory federal rate to income before income taxes as a result of the following:
APRIL 30, --------------------------------- 2001 2000 1999 ------ ----- ------- Income tax expense (benefit) at statutory rate $ 21 $(102) $(1,366) State income tax, net of federal offset 12 (6) (101) Research and development credit (250) -- -- Change in valuation allowance 989 (18) 43 Other, net 136 60 214 ------ ----- ------- Actual income tax expense (benefit) $ 908 $ (66) $(1,210) ====== ===== =======
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, -------------------- 2001 2000 ------- ------- Deferred tax assets: Net operating loss carryforward $ 1,275 $ 2,833 Allowance for doubtful accounts 84 84 Alternative minimum tax credit carryforward 247 104 Research and development credit carryforward 250 -- Capital loss carryforward 1,227 -- Intangible assets 244 758 Net unrealized losses on available for sale securities 46 1,105 ------- ------- Total gross deferred tax assets 3,373 4,884 Less valuation allowance (1,025) (1,130) Net deferred tax assets 2,348 3,754 Deferred tax liabilities: Furniture and equipment (521) (556) ------- ------- Total gross deferred tax liability (521) (556) ------- ------- Net deferred taxes $ 1,827 $ 3,198 ======= =======
The valuation allowance for deferred tax assets as of May 1, 2000 and 1999 was $1,130, and $383, respectively. The net change in the total valuation allowance for the years ended April 30, 2001 and April 30, 2000 was a decrease of $105 and an increase of $747, 29 31 respectively. Management evaluates the recoverability of the deferred tax assets and the level of the valuation allowance 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. As of April 30, 2001, the Company had net operating loss carryforwards for federal income tax purposes of $1,738, net operating loss carryforwards for state income tax purposes of $756, and net operating loss carryforwards for foreign income tax purposes of $1,924, which are available to offset future taxable income, if any, through April 30, 2020, through April 30, 2004, and through April 30, 2005, respectively. The Company also has alternative minimum tax credit carryforwards of $247 which are available to reduce future federal income taxes, if any, over an indefinite period. In addition, the Company has research and development credit carryforwards of $250 which are available to reduce future federal income taxes, if any, through April 30, 2021. 11. 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. 12. 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. 13. QUARTERLY FINANCIAL INFORMATION--UNAUDITED A summary of quarterly financial information follows:
Fiscal 2001 Fiscal 2000 Quarter Ended April 30, Jan. 31, Oct. 31, July 31, April 30, Jan. 31, Oct. 31, July 31, 2001 2001 2000 2000 2000 2000 1999 1999 --------- -------- -------- -------- --------- -------- -------- -------- (in thousands, except per share data) Total revenue $14,066 $11,122 $ 9,664 $ 8,706 $10,802 $ 8,392 $ 7,386 $ 6,911 Pro forma income (loss) from operations excluding Altra Broadband and amortization $ 3,030 $ 2,053 $ 649 $ 29 $ 1,724 $ 145 $ (433) $ (866) Income (loss) from operations $ 1,702 $ 973 $ (233) $ (771) $ 1,067 $ (470) $(1,029) $(1,508) Pro forma net income (loss) excluding Altra Broadband and amortization $ (525) $ 1,463 $ 773 $ 324 $ 1,717 $ 458 $ (26) $ (311) Net income (loss) $(1,471) $ 707 $ 155 $ (236) $ 1,191 $ (34) $ (498) $ (893) Basic net income (loss) per share $ (0.13) $ 0.06 $ 0.01 $ (0.02) $ 0.10 $ (0.00) $ (0.04) $ (0.08) Diluted net income (loss) per share $ (0.13) $ 0.06 $ 0.01 $ (0.02) $ 0.09 $ (0.00) $ (0.04) $ (0.08) Weighted average number of shares outstanding --basic 11,709 11,698 11,720 11,645 11,555 11,494 11,410 11,383 --diluted 11,709 12,648 13,206 11,645 12,774 11,494 11,410 11,383
14. SUBSEQUENT EVENT On May 3, 2001, Ansoft and Agilent Technologies Inc. entered into a Technology License And Transition Agreement. Under the terms of the agreement, Agilent has agreed to license its High Frequency Structure Simulator (HFSS) software product line and transfer customer obligations for Agilent HFSS software to Ansoft in exchange for $7,850 in cash ($6,000 as of closing and $1,850 on October 31, 2002). In addition, Agilent may also purchase up to 60 licenses of Ansoft's HFSS product. 30 32 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 ............................................................... 18 Consolidated Balance Sheets as of April 30, 2001 and 2000 .................................. 19 Consolidated Statements of Operations for the years ended April 30, 2001, 2000 and 1999 .... 20 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended April 30, 2001, 2000 and 1999 ................................................... 21 Consolidated Statements of Cash Flows for the years ended April 30, 2001, 2000 and 1999 .... 22 Notes to Consolidated Financial Statements ................................................. 23
2. Financial Statement Schedule: Schedule II--Valuation and Qualifying Accounts for each of the years in the three-year period ended April 30, 2001 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 -------- ------------------------------------------------------------------------------ 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). 10.10 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) 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)
*Filed herewith (b) Reports on Form 8-K filed during the last quarter of fiscal 2001. A report dated February 13, 2001 was filed on Form 8-K regarding the expansion of Ansoft's management team and the completion of a transition in Ansoft's business model. 31 33 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 August 9, 2001 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 August 9, 2001.
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 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
32 34 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, 2001 Allowance for doubtful accounts 221 86 (86) 221 Year ended April 30, 2000 Allowance for doubtful accounts 175 46 -- 221 Year ended April 30, 1999 Allowance for doubtful accounts 150 25 -- 175
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