10-Q 1 j9321001e10-q.txt ANSOFT CORPORATION 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended January 31, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission file number 000-27874 ANSOFT CORPORATION (Exact name of registrant as specified in its charter) Delaware 72-1001909 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification no.) Four Station Square, Suite 200 Pittsburgh, Pennsylvania 15219-1119 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (412) 261-3200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] The number of shares of the registrant's Common Stock outstanding as of the close of business on March 4, 2002 was 12,149,232. ANSOFT CORPORATION FORM 10-Q INDEX Page ---- Part I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - January 31, 2002 and April 30, 2001 1 Consolidated Statements of Operations - Three and nine months ended January 31, 2002 and 2001 2 Consolidated Statements of Cash Flows - Nine months ended January 31, 2002 and 2001 3 Notes to the Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Part II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 Signatures 13 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ANSOFT CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands)
(unaudited) January 31, April 30, 2002 2001 ----------- -------- Assets Current assets Cash and cash equivalents $ 4,612 $ 9,412 Accounts receivable 11,269 8,209 Deferred income taxes 84 84 Prepaid expenses and other assets 763 1,266 -------- -------- Total current assets 16,728 18,971 Equipment and furniture 5,918 5,020 Marketable securities 22,181 22,425 Other assets 367 73 Deferred taxes - non current 1,856 1,743 Intangible assets 15,601 9,741 -------- -------- Total assets $ 62,651 $ 57,973 ======== ======== Liabilities and stockholders' equity Current liabilities Accounts payable and accrued expenses $ 1,884 $ 2,034 Deferred revenue 7,031 5,284 -------- -------- Total current liabilities 8,915 7,318 Line of credit 10,000 9,000 Other liabilities 2,474 60 -------- -------- Total liabilities 21,389 16,378 Stockholders' equity Preferred stock -- -- Common stock 121 119 Additional paid-in capital 53,752 52,684 Treasury stock (1,671) (1,601) Other accumulated comprehensive income (loss) (1,714) (354) Accumulated deficit (9,226) (9,253) -------- -------- Total stockholders' equity 41,262 41,595 Total liabilities and stockholders' equity $ 62,651 $ 57,973 ======== ========
See accompanying notes to the consolidated financial statements. Page 1 ANSOFT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (unaudited)
Three months ended January 31, Nine months ended January 31, 2002 2001 2002 2001 -------- -------- -------- -------- Revenue License $ 9,722 $ 7,309 $ 25,649 $ 19,981 Service and other 4,343 3,813 12,177 9,511 -------- -------- -------- -------- Total revenue 14,065 11,122 37,826 29,492 Costs and expenses Sales and marketing 6,509 5,539 19,145 16,313 Research and development 3,462 2,658 9,569 7,896 Research and development - Altra Broadband 1,116 481 3,237 922 General and administrative 1,255 872 3,379 2,554 Amortization 1,175 599 3,533 1,840 -------- -------- -------- -------- Total costs and expenses 13,517 10,149 38,863 29,525 -------- -------- -------- -------- Income (loss) from operations 548 973 (1,037) (33) Other income, net 361 37 1,141 926 -------- -------- -------- -------- Income before income taxes 909 1,010 104 893 Income tax expense 318 303 77 268 -------- -------- -------- -------- Net income $ 591 $ 707 $ 27 $ 625 ======== ======== ======== ======== Net income per share Basic $ 0.05 $ 0.06 $ 0.00 $ 0.05 ======== ======== ======== ======== Diluted $ 0.04 $ 0.06 $ 0.00 $ 0.05 ======== ======== ======== ======== Weighted average shares used in calculation Basic 11,864 11,698 11,823 11,662 ======== ======== ======== ======== Diluted 13,592 12,648 13,517 12,965 ======== ======== ======== ========
See accompanying notes to the consolidated financial statements. Page 2 ANSOFT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)
Nine months ended January 31 2002 2001 -------- -------- Cash flows from operating activities Net income $ 27 $ 625 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 1,477 1,153 Amortization 3,533 1,840 Deferred taxes (113) 262 Changes in assets and liabilities Accounts receivable (3,060) 2,153 Prepaid expenses and other assets 503 14 Other assets and liabilities 270 (51) Accounts payable and accrued expenses (150) (158) Deferred revenue 1,747 189 -------- -------- Net cash provided by operating activities 4,234 6,027 -------- -------- Cash flows from investing activities Purchases of equipment and furniture (2,375) (1,101) Investment in acquired intangibles (7,543) -- Purchases of marketable securities (716) (552) -------- -------- Net cash used in investing activities (10,634) (1,653) -------- -------- Cash flows from financing activities Proceeds (payments) on line of credit, net 1,000 (283) Purchase of treasury stock (70) (672) Proceeds from the issuance of common stock, net 1,070 646 -------- -------- Net cash provided by (used in) financing activities 2,000 (309) Effect of exchange rate (400) 229 -------- -------- Net increase (decrease) in cash and cash equivalents (4,800) 4,294 Cash and cash equivalents at beginning of period 9,412 2,594 Cash and cash equivalents at end of period $ 4,612 $ 6,888 ======== ======== Supplemental disclosures of cash flow information Cash paid for interest $ 331 $ 361 ======== ======== Cash paid for income taxes $ 203 $ 104 ======== ========
As part of the Technology License and Transition Agreement with Agilent, the Company agreed to pay Agilent $1,850 on October 31, 2002. Such liability is recorded as accounts payable and accrued expenses on the accompanying consolidated balance sheets as of January 31, 2002. See accompanying notes to the consolidated financial statements. Page 3 ANSOFT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) (unaudited) (1) Basis of Presentation The unaudited consolidated financial statements include the accounts of Ansoft and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of financial position and results of operations have been made. Operating results for interim periods are not necessarily indicative of results which may be expected for a full year. The information included in this Form 10-Q should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the fiscal year ended April 30, 2001 consolidated financial statements and notes thereto included in Ansoft's annual report on Form 10-K filed with the Securities and Exchange Commission. During the quarter ended January 31, 2002, the Company changed the Post contract customer support ("PCS") period bundled with the initial licensing from a one-year period to a three-month period. Revenue related to the three-month PCS is deferred and recognized ratably over the term of the agreement. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying consolidated financial statements are based on management's evaluation of the relevant facts and circumstances as of the date of the consolidated financial statements. Actual results may differ from those estimates. (2) Comprehensive income (loss) "Comprehensive income (loss)" includes foreign currency translation gains and losses and other unrealized gains and losses. A summary of comprehensive income (loss) follows:
Three Months Nine Months Ended January 31, Ended January 31, 2002 2001 2002 2001 ---- ---- ---- ---- Net income $ 591 $ 707 $ 27 $ 625 Unrealized gain (loss) on marketable securities 546 1,520 (960) 1,169 Foreign currency translation adjustments (150) 118 (400) 236 ------- ------- ------- ------- Comprehensive income (loss) $ 987 $ 2,345 $(1,333) $ 2,030 ======= ======= ======= =======
(3) Net income per share Basic net income per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of the incremental common shares issuable upon the exercise of employee stock options, and are computed using the treasury stock method. Potentially dilutive common shares are excluded from the calculation if their effect is antidilutive. The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the years presented: Page 4
Per share Income Shares amount ------ ------ --------- Three months ended January 31, 2002 Basic net income per share ........ $ 591 11,864 $ 0.05 Effect of dilutive securities: Stock options .................. 1,728 ------ Diluted net income per share ...... $ 591 13,592 $ 0.04 ====== ====== ======== Three months ended January 31, 2001 Basic net income per share ........ $ 707 11,698 $ 0.06 Effect of dilutive securities: Stock options .................. 950 ------ Diluted net income per share ...... $ 707 12,648 $ 0.06 ====== ====== ========
Per share Income Shares amount ------ ------ --------- Nine months ended January 31, 2002 Basic net income per share ........ $ 27 11,823 $ 0.00 Effect of dilutive securities: Stock options .................. 1,694 ------ Diluted net income per share ...... $ 27 13,517 $ 0.00 ====== ====== ======== Nine months ended January 31, 2001 Basic net income per share ........ $ 625 11,662 $ 0.05 Effect of dilutive securities: Stock options .................. 1,303 ------ Diluted net income per share ...... $ 625 12,965 $ 0.05 ====== ====== ========
(4) Agilent Transaction 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 to be paid on October 31, 2002) and assumed liabilities of $1,544. (5) Reclassification Certain items and amounts reported in the fiscal 2001 financial statements have been reclassified to conform to the current year's reporting format. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements that involve substantial risks and uncertainties. When used in this Form 10-Q, the words "anticipate," "plan," "believe," "estimate," "expect" and similar expressions as they relate to Ansoft or its management are intended to identify such forward-looking statements. Ansoft's actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences include those discussed in this Form 10-Q and in the "Risk Factors" section included in Ansoft's report on Form 10-K for the fiscal year ended April 30, 2001. Page 5 Overview Ansoft Corporation ("Ansoft" or the "Company") is a leading developer of electronic design automation ("EDA") software used in high technology products and industries. Ansoft's software is used by electrical engineers in the design of state of the art technology products, such as cellular phones, internet networking, satellite communications systems, computer chips and circuit boards, and electronic sensors and motors. Engineers use our software to maximize product performance, eliminate physical prototypes, and to reduce time-to-market. Effective May 3, 2001, Ansoft entered into a Technology License and Transition Agreement in which Agilent has agreed to license its High Frequency Structure Simulator (HFSS) software product line and transfer customer obligations for Agilent HFSS software to Ansoft. The Agilent transaction was accounted for as an acquisition of intangible assets. Effective July 1996, April 1997, August 1997, December 1999, and February 2001, Ansoft acquired EBU, Compact, Boulder, Pacific Numerix, and SIMEC, respectively. The cost of these transactions has been allocated on the basis of the estimated fair value of the assets acquired and the liabilities assumed. The transactions 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 transactions. In July 2000, Ansoft announced its formation of Altra Broadband to pursue the development of critical intellectual property and products for broadband wireless and optical communications. The financial statements and financial information in this Form 10-Q 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 the percentage of total revenue of each item in Ansoft's consolidated statements of operations:
Three months ended January 31, Nine months ended January 31, 2002 2001 2002 2001 ---- ---- ---- ---- Revenues: License 69% 66% 68% 68% Service and other 31 34 32 32 ---- ---- ---- ---- Total revenue 100 100 100 100 Costs and expenses: Sales and marketing 46 50 51 55 Research and development 25 24 25 27 Research and development - Altra Broadband 8 4 9 3 General and administrative 9 8 9 9 Amortization 8 5 9 6 ---- ---- ---- ---- Total costs and expenses 96 91 103 100 ---- ---- ---- ---- Loss from operations 4 9 (3) (0) Other income 2 -- 3 3 ---- ---- ---- ---- Income before income taxes 6 9 0 3 Income taxes 2 3 0 1 ---- ---- ---- ---- Net income 4% 6% 0% 2% ==== ==== ==== ====
Page 6 Comparison of the Three and Nine Months Ended January 31, 2002 and 2001 Revenue. Total revenue in the three-month period ended January 31, 2002 increased 26% to $14.1 million from $11.1 million in the comparable period of the preceding fiscal year. Total revenue in the nine-month period ended January 31, 2002 increased 28% to $37.8 million from $29.5 million in the comparable period of the preceding fiscal year. License revenue during the three-month period ended January 31, 2002 increased 33% to $9.7 million from $7.3 million during the comparable period in the prior fiscal year. The increase is primarily attributable to strong demand from customers in North America and Europe. Service and other revenue in the three-month period ended January 31, 2002 increased by 14% due to the continued growth of the installed base of customers under annual maintenance agreements. International revenue accounted for 55% and 56% of the Company's total product revenue in the three-month periods ended January 31, 2002 and 2001, respectively. International revenue accounted for 56% and 53% of the Company's total product revenue in the nine-month period ended January 31, 2002 and 2001, respectively. The Company's future international sales may be subject to additional risks associated with international operations, including currency exchange fluctuations, tariff regulations and requirements for export, which licenses may on occasion be delayed or difficult to obtain. Sales and marketing expenses. Sales and marketing expenses consist of salaries, commissions paid to internal sales and marketing personnel, promotional costs and related operating expenses. Sales and marketing expenses increased by 18% to $6.5 million in the three-month period ended January 31, 2002, as compared to $5.5 million in the same period in the previous fiscal year. Sales and marketing expenses increased by 17% to $19.1 million in the nine-month period ended January 31, 2002, as compared to $16.3 million in the same period in the previous fiscal year. The increase is attributable to an increase in the Company's sales levels, in addition to increased marketing efforts such as advertising in trade publications and participation in industry trade shows. Sales and marketing expenses represented 46% and 50% of total revenue in the three-month period ended January 31, 2002 and 2001, respectively. Sales and marketing expenses represented 51% and 55% of total revenue in the nine-month period ended January 31, 2002 and 2001, 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 for the three-month period ended January 31, 2002 increased 46% to $4.6 million, as compared to $3.1 million for the same period in the previous fiscal year. Excluding Ansoft's investment in Altra Broadband, research and development expenses increased 30%. Research and development expenses for the nine-month period ended January 31, 2002 increased 45% to $12.8 million, as compared to $8.8 million for the same period in the previous fiscal year. The increase is due to the research and development efforts of Altra Broadband and the continued research and development efforts for Ansoft's current and future software products. Research and development expenses represented 33% (25% excluding Altra Broadband expense) and 28% (24% excluding Altra Broadband expense) of total revenue in the three-month periods ended January 31, 2002 and 2001, respectively. Research and development expenses represented 34% (25% excluding Altra Broadband expense) and 30% (27% excluding Altra Broadband expense) of total revenue in the nine-month periods ended January 31, 2002 and 2001, respectively. Ansoft anticipates that research and development expenses will increase in absolute dollars in future periods as Ansoft continues development of its existing and new software products and 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 for the three-month period ended January 31, 2002 increased 44% to $1.3 million, as compared to $872,000 for the same period in the previous fiscal year. General and administrative expenses for the nine-month period ended January 31, 2002 increased 32% to $3.4 million. The increase is due to additional costs required to support the increase in operations. General and administrative expenses represented 9% and 8% of total revenue in the three-month periods ended January 31, 2002 and 2001. General and administrative expenses represented 9% of total revenue in the nine-month periods ended Page 7 January 31, 2002 and 2001. The Company anticipates that general and administrative expenses will increase in absolute dollars in future periods. Amortization expense. Amortization expense for the three-month period ended January 31, 2002 was $1.2 million, as compared to $599,000 in the same period in the previous fiscal year. Amortization expense for the nine-month period ended January 31, 2002 was $3.5 million as compared to $1.8 million in the same period in the previous fiscal year. The increase was due to the amortization of intangibles acquired in the SIMEC and Agilent transactions. Other income. Other income for the three-month period ended January 31, 2002 was $361,000, an increase from the $37,000 reported for the same period in the previous fiscal year. Other income for the nine-month period ended January 31, 2002 was $1.1 million, compared to $926,000 reported for the same period in the previous fiscal year. The increase is due primarily to other than temporary declines in the value of certain investments within the investment portfolio in the prior period, partly offset by lower interest rates earned in the current period. Income taxes. In the three and nine-month periods ended January 31, 2002, the Company recorded income tax expense of $318,000 and $77,000, respectively. Ansoft's net deferred tax asset of $1.9 million as of January 31, 2002, consists primarily of the benefit 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. Liquidity and Capital Resources As of January 31, 2002, Ansoft had $4.6 million in cash and cash equivalents and working capital of $7.8 million. Net cash provided by operating activities was $4.2 million and $6.0 million in the nine-month periods ended January 31, 2002 and 2001, respectively. Net cash used in investing activities, consisting primarily of investments in acquired intangibles in fiscal 2002 and capital expenditures in fiscal 2001, were $10.6 million and $1.6 million in the nine-month periods ended January 31, 2002 and 2001, respectively. Capital expenditures, consisting primarily of purchases of computer equipment, were $2.4 million and $1.1 million in the nine-month periods ended January 31, 2002 and 2001, respectively. Net cash provided by (used in) financing activities, consisting primarily of proceeds from (payments on) the line of credit and proceeds from the issuance of common stock and treasury stock purchases were $2 million and ($309,000) in the nine-month periods ended January 31, 2002 and 2001, respectively. Ansoft has available a $15.0 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, 2003, and is secured by the marketable securities held with the institution. As of January 31, 2002, $10.0 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. Page 8 A summary of Ansoft's significant contractual obligations and commitments is as follows (in 000s): Debt Operating Leases ---- ---------------- Fiscal 2002 (3 remaining months) - 379 2003 - 1,430 2004 10,000 1,145 2005 - 887 2006 - 705 2007 - 110 Critical Accounting Policies Certain accounting policies are very important to the portrayal of Ansoft's financial condition and results of operations and require management's most subjective or complex judgments. The policies are as follows: Revenue Recognition License revenues are recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, no significant obligations remain, the fee is fixed or determinable and collectibility is probable. Revenue earned on software arrangements involving multiple elements is allocated to each element based on the relative fair values of the elements. The revenue allocated to software products is recognized after shipment of the products and fulfillment of acceptance terms. 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. During the quarter ended January 31, 2002, the Company changed the PCS period bundled with the initial licensing from a one-year period to a three-month period. Revenue related to the three-month PCS is deferred and recognized ratably over the term of the agreement. Revenue related to all other PCS arrangements is deferred and recognized ratably over the term of the agreement. Revenue from customer training, support and other services is recognized as the service is performed. Valuation of Accounts Receivable Management reviews accounts receivable to determine which are doubtful of collection. In making the determination of the appropriate allowance for doubtful accounts, management considers Ansoft's history of write-offs, relationships with its customers, and the overall credit worthiness of its customers. Impairment of Long-Lived Assets The Company reviews assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. A determination of impairment is made based on estimates of future cash flows. If such assets are considered to be impaired the amount of the impairment is based on the excess of the carrying value over the fair value of the assets. The fair value of the assets is measured using estimated discounted future cash flows. Impairment of Marketable Securities Available for Sale An impairment charge is recorded if a decline in the market value of any available for sale security below cost is deemed to be other than temporary. The impairment is charged to earnings and a new cost basis for the security is established. Page 9 Deferred Tax Asset Valuation Allowance Deferred tax assets are recognized for deductible temporary differences, net operating loss carryforwards, and credit carryforwards if it is more likely than not that the tax benefits will be realized. To the extent a deferred tax asset cannot be recognized under the preceding criteria, a valuation allowance has been established. The judgments used in applying the above policies are based on management's evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from those estimates. See also the "Additional Risk Factors that may effect Future Results" section of this Management's Discussion and Analysis. Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board 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. 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 provisions 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 $4.7 million. SFAS No. 142 must be adopted in fiscal years beginning after December 15, 2001 as of the beginning of the fiscal year. 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 August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The pronouncement is effective for the Company's fiscal year beginning May 1, 2002. The Company does not expect this pronouncement will have a significant impact on the consolidated financial statements. Quantitative and Qualitative Disclosure about Market Risk There have been no material changes in reported market risks faced by the Company since April 30, 2001. Additional Risk Factors that may affect Future Results Our Future Operating Results Are Uncertain. Ansoft has incurred net losses in each of the past three fiscal years. There can be no assurance that Ansoft's revenue and net income will grow or be sustained in future periods or that Ansoft will be profitable in any future period. Future operating results will depend on many factors, including the degree and the rate of growth of the markets in which Ansoft competes and the accompanying demand for Ansoft's products, the level of product and price competition, the ability of Ansoft to develop and market new products and to control costs, the ability of Ansoft to expand its direct sales force and the ability of Ansoft to attract and retain key personnel. Page 10 Our Quarterly Operating Results Are Difficult To Predict. We are unable to accurately forecast our future revenues primarily because of the emerging nature of the market in which we compete. Our revenues and operating results generally depend on the size, timing and structure of significant licenses. These factors have historically been, and are likely to continue to be, difficult to forecast. In addition, our current and future expense levels are based largely on our operating plans and estimates of future revenues and are, to an extent, fixed. We may be unable to adjust spending sufficiently or quickly enough to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues in relation to our planned expenditures would seriously harm our business, financial condition and results of operations. Such shortfalls in our revenue or operating results from levels expected by public market analysts and investors could seriously harm the trading price of our common stock. Additionally, we may not learn of such revenue shortfalls, earnings shortfalls or other failure to meet market expectations until late in a fiscal quarter, which could result in an even more immediate and serious harm to the trading price of our common stock. Our quarterly operating results have varied, and it is anticipated that our quarterly operating results will vary, substantially from period to period depending on various factors, many of which are outside our control. Due to the foregoing factors, we cannot predict with any significant degree of certainty our quarterly revenue and operating results. Further, we believe that period-to-period comparisons of our operating results are not necessarily a meaningful indication of future performance. Our Stock Price Is Extremely Volatile. The trading price of our common stock has fluctuated significantly in the past, and the trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in price in response to such factors as: - Actual or anticipated fluctuations in our operating results; - Announcements of technological innovations and new products by us or our competitors; - New contractual relationships with strategic partners by us or our competitors; - Proposed acquisitions by us or our competitors; and - Financial results that fail to meet public market analyst expectations of performance. In addition, the stock market in general, The Nasdaq National Market and the market for technology companies in particular has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. These broad market and industry factors may seriously harm the market price of our common stock in future periods. Businesses Or Assets We Acquire May Not Perform As Projected. We have acquired or merged with a number of technologies, assets and companies in recent years, including the following: Agilent Technologies, Inc.'s HFSS product line, SIMEC GmbH, Pacific Numerix Corporation, Compact Software, Inc., the Electronic Business Unit of MacNeal Schwendler Company and Boulder Microwave Technologies, and as part of our efforts to increase revenue and expand our product and services offerings we may acquire additional companies. In addition to direct costs, acquisitions pose a number of risks, including potential dilution of earnings per share, delays and other problems of integrating the acquired products and employees into our business, the failure to realize expected synergies or cost savings, the failure of acquired products to achieve projected sales, the drain on management time for acquisition-related activities, possible adverse effects on customer buying patterns due to uncertainties resulting from an acquisition, and assumption of unknown liabilities. The foregoing factors could seriously harm our business, financial condition and results of operations. We May Lose Competitive Advantages If Our Proprietary Rights Are Inadequately Protected. Ansoft's success depends, in part, upon its proprietary technology. We rely on a combination of trade secrets, copyrights, trademarks and contractual commitments to protect our proprietary rights in our software products. We generally enter into confidentiality or license agreements with our employees, distributors and customers, and limit access to and distribution of our software, documentation and other proprietary information. Despite these precautions, a third party may still copy or otherwise obtain and use our products or technology without authorization, or develop similar technology independently. In addition, effective patent, copyright and trade secret protection may be unavailable or limited in certain foreign countries. It is possible that we may fail to adequately protect our proprietary rights. This would seriously harm Ansoft's business, operating results and financial condition. Page 11 We May Be Unable To Attract And Retain The Key Management And Technical Personnel That We Need To Succeed. Ansoft's future operating results depend in large part upon the continued services of its key technical and management personnel. Ansoft does not have employment contracts with any executive officer. Ansoft's future success will also depend in large part on its ability to continue to attract and retain highly skilled technical, marketing and management personnel. The competition for such personnel, as well as for qualified EDA engineers, is intense. If Ansoft is unable to attract, hire and retain qualified personnel in the future, the development of new products and the management of Ansoft's increasingly complex business would be impaired. This could seriously harm Ansoft's business, operating results and financial condition. We Depend On International Sales for a Significant Percentage Of Our Revenue. International revenue, principally from Asian customers, accounted for approximately 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 the 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 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. We Depend On The Growth Of The Communications Semiconductor And Electronics Industries. Ansoft is dependent upon the communications and semiconductor industry and, more generally, the electronics industry. These industries are characterized by rapid technological change, short product life cycles, fluctuations in manufacturing capacity and pricing and gross margin pressures. Segments of these industries have from time to time experienced significant economic downturns characterized by decreased product demand, production over-capacity, price erosion, work slowdowns and layoffs. Any significant downturn could be especially severe on Ansoft. During such downturns, the number of new integrated circuit design projects often decreases. Because acquisitions of new licenses from Ansoft are largely dependent upon the commencement of new design projects, any slowdown in these industries could seriously harm Ansoft's business, financial condition and results of operations. Page 12 We Are Controlled By Our Principal Stockholders And Management Which May Limit Your Ability To Influence Stockholder Matters. Our executive officers, directors and principal stockholders own approximately 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. PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. None. (b) No reports on Form 8-K during the quarter ended January 31, 2002. None. SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 8, 2002 ANSOFT CORPORATION By: /s/ Nicholas Csendes ----------------------------------- Nicholas Csendes President and Chief Executive Officer By: /s/ Anthony L. Ryan ----------------------------------- Anthony L. Ryan Chief Financial Officer Page 13