-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WLf2S9F/AcMhqJlY/YRstG8mREFk/KKggnXzFsKg6wmCxAvy/0m8o+kBt94gJQLw dc/yqbm3LnkVc9mzOLPVIQ== 0000950128-99-000874.txt : 19990726 0000950128-99-000874.hdr.sgml : 19990726 ACCESSION NUMBER: 0000950128-99-000874 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990723 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANSOFT CORP CENTRAL INDEX KEY: 0000849433 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 721001901 STATE OF INCORPORATION: PA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27874 FILM NUMBER: 99669121 BUSINESS ADDRESS: STREET 1: FOUR STATION SQUARE STREET 2: STE 660 CITY: PITTSBURGH STATE: PA ZIP: 15219 BUSINESS PHONE: 4122613200 MAIL ADDRESS: STREET 1: 4 STATION SQUARE STREET 2: STE 660 CITY: PITTSBURGH STATE: PA ZIP: 15219 10-K 1 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, 1999 or [ ] Transition report pursuant to section 13 or 15(d) of the securities exchange act of 1934 [no fee required]for the transition period from ________ to ________ Commission file number 000-27874 ANSOFT CORPORATION (Exact name of registrant as specified in its charter) Delaware 72-1001909 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification no.) Four Station Square, Suite 200 Pittsburgh, Pennsylvania 15219-1119 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (412) 261-3200 Securities registered pursuant to Section 12(b) of the act: None Securities registered pursuant to Section 12(g) of the act: Common stock, par value $.01 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of July 15, 1999, 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 $40,819,013. The number of shares of the registrant's Common Stock outstanding as of the close of business on July 15, 1999 was 11,685,663. 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 1999 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 11 3. Legal Proceedings 11 4. Submission of Matters to a Vote of Security Holders 11 4.(a) Executive Officers of the Registrant 11 Part II 5. Market for Registrant's Common Stock, Preferred Stock and Warrants, and Related Stockholders Matters 12 6. Selected Consolidated Financial Data 12 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 8. Financial Statements and Supplementary Data 21 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 20 Part III Part III information will appear in Item 4(a) of Part I of Form 10-K and in the Registrant's Proxy Statement in connection with its Annual Meeting of Stockholders. Such Proxy Statement will be filed with the Securities and Exchange Commission and such information is incorporated herein by this reference as of the date of such filing. Part IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 35 Signatures 36
1 3 PART I ITEM 1. BUSINESS Ansoft Corporation ("Ansoft" or the "Company") develops, markets and supports electronic design automation ("EDA") software based on fundamental electromagnetic principles. The Company's software is used by engineers in the design of high performance electronic devices and systems, such as cellular phones, communications systems, computer circuit boards and motors. As the marketplace demands higher levels of system performance and miniaturization, the need to model accurately the electromagnetic interaction in communications, computer devices and electromechanical components and systems is becoming increasingly important, yet traditional EDA tools do not provide accurate modeling of electromagnetic interaction. By using the Company's software, companies can more easily predict electromagnetic interaction in such systems and components, thus reducing time-to-market and simultaneously lowering design and manufacturing costs. The Company's products are used by design engineers in a wide range of industries, particularly the rapidly evolving wireless communications and RF (radio frequency) markets as well as the semiconductor, computer, automotive and consumer electronics industries. INDUSTRY BACKGROUND In recent years, engineers have used EDA software to automate the previously manual, time-consuming and error-prone design process, resulting in dramatic increases in productivity and efficiency. EDA software can be used in each of the three phases of the electronic design process: Logic Design and Synthesis, which provides an outline of the system's overall architecture; Functional Design and Analysis, which encompasses the specification of desired functionality, functional design, simulation and analysis; and Physical Design and Verification, which involves the creation of physical layout (i.e., placement and routing) and verification that the design meets required specifications. As the marketplace demands higher levels of system performance and miniaturization, the need to model accurately the electromagnetic interaction in communication and computing devices and electromechanical components is becoming increasingly important. The design requirement to fit more devices and interconnections into smaller spaces results in increased electromagnetic interaction. Moreover, high performance systems, with frequencies of approximately 500 MHz and beyond, exhibit a high level of electromagnetic interaction causing the degradation of the quality of electrical signals. In addition, the electromagnetic radiation emitted by electronic products is regulated by the Federal Communications Commission ("FCC") and equivalent regulatory bodies in Europe and Japan, and commercialization of these products is contingent upon meeting government-specified electromagnetic compatibility requirements. These problems are exacerbated by time-to-market pressures and the need to reduce design and development costs. While traditional EDA tools have become more sophisticated, they lack the requisite degree of precision in modeling electromagnetic interactions in components and systems. As a result, the current process for designing and manufacturing wireless and electronic components and systems is often iterative, time-consuming and inaccurate. Designs are generated, devices and systems are developed, prototypes are manufactured, performance is measured and assessed and designs are then refined to meet the original performance specifications. This entire process is typically repeated a number of times, lengthening the design process, increasing costs and resulting in lost market opportunities. THE ANSOFT SOLUTION The Company's software products allow design engineers to model component level and system level electromagnetic interaction which the Company believes is crucial to the effective design of electronic systems and components. The Company's products apply electromagnetic principles, derived from Maxwell's Equations, to more accurately model electromagnetic interaction. By using Ansoft software products to analyze electromagnetic interaction, the Company believes that end users of its products are able to reduce the time-to-market for their products, lower the risks of design failure and eliminate costly and time-consuming product redesign. Ansoft's software products may be used as an independent design platform or integrated with complementary EDA tools within a customer's existing design environment. The Company's research and development team has broad expertise in electromagnetic simulation, electrical engineering, applied mathematics and software development, enabling Ansoft to continue to advance its electromagnetics-based EDA software. 2 4 ANSOFT STRATEGY Ansoft's objective is to become a leading worldwide supplier of EDA software. Using its proprietary electromagnetic technology as a primary competitive advantage, the Company pursues its objectives through the following strategies: leveraging its technology leadership to solve emerging electromagnetic design issues in high performance electrical devices and systems; capitalizing on the growing need for electromagnetic analysis in increasingly compact and complex electronic and electromechanical components and systems operating at higher speeds; and expanding its broad range of product applications to address emerging customer design requirements. PRODUCTS The Company's high-frequency software enables users to design RF ICs, antenna and radar systems and microwave components. The Company's signal integrity software enables users to design computer interconnects, IC Packaging structures and electronic systems by accurately capturing the degradation in signal quality due to higher clock speeds and smaller physical dimensions. The Company's Maxwell Eminence software combines both HF and SI functionality. The Company's electromechanical software products enable designers of electromechanical components and systems to optimize the electrical performance of their designs while increasing manufacturing yields. Ansoft products are available for Unix-based workstations and personal computers running Microsoft Windows 95 and Windows NT. Ansoft High Frequency Software Our High Frequency products address the complete simulation needs of the RF, Microwave or High Frequency design engineer. Our tools allow for the evaluation of the physics of individual components, and then the engineer can easily combine circuit and/ or system simulation to clearly evaluate design concerns. high-frequency software enables users to design RF ICs, antenna and radar systems and microwave components. Ansoft's Serenade Design Environment Ansoft HFSS is a 3D structure electromagnetic field simulator for high frequency, RF & wireless design needs. Ansoft HFSS brings the power of the finite element method (FEM) to the engineer's desktop by leveraging advanced techniques such as automatic adaptive mesh generation and refinement, tangential vector finite elements, and Adaptive Lanczos Pade Sweep (ALPS). HFSS automatically computes multiple adaptive solutions until a user-defined convergence criterion is met. The U.S. list price of Ansoft HFSS 6.0 is $41,900. Ensemble is a Method of Moments (MoM) simulation software package for the design and simulation of RF and wireless circuit and planar antennas for customers in the communications markets. MoM lends itself well to layered media such as PCB, MMIC, and planar antenna structures. Ensemble allows designers to utilize the power of full wave planar simulation by offering an easy-to-use interface, advanced simulation features, and integration with other products in the Serenade Design Environment. The U.S. list price of Ensemble is $16,900. Harmonica is a linear and nonlinear circuit simulator. Harmonica offers full linear and nonlinear analysis features, including integrated schematic capture, tuning, optimization, statistical analysis, and design centering (yield optimization). Libraries of commercial components feature over 100,000 active and passive devices, allowing easy access to standard transistors, diodes, resistors, capacitors, and inductors from major manufacturers. In addition, utilities are included to speed the process of transmission line design, matching network extraction, and filter synthesis for both lumped and distributed designs. The U.S. list price of this product ranges from $9,900 to $21,900. Symphony is a wireless and wired system simulator. Symphony adds efficient analog, digital, and mixed-mode (analog and digital) system analysis capabilities to the Environment. Users can quickly construct a system by including blocks from libraries of built-in analog RF and digital signal processing (DSP) components. Trade-offs between different design approaches can be rapidly investigated at an early stage to reduce design cycle time and avoid costly redesigns due to RF and DSP system interactions. The U.S. list price of this product is $11,900 to $28,900. 3 5 AnsoftLinks links customers and their designs directly to our computational analysis tools. This capability is available for either HP EEsof Series IV, Cadence Allegro, or Xynetix Encore BGA technologies. HP EEsof Series IV high-frequency circuit designs can be directly translated into Ansoft's Serenade Design Environment. Designs are automatically converted into Serenade projects using IFF files and a specialized neutral format. Linear and nonlinear translations are fully supported. The U.S. list price of this product is $4,900. Ansoft Signal Integrity Software Our Signal Integrity products address the complete simulation needs of the High Speed Electronics design engineer. Our tools allow for the evaluation of the physics from the chip level through to the board level, and the coupling concerns of IC packaging, cables, connectors, and interconnects. The engineer can combine field effects with circuit simulation to clearly evaluate the design ramifications of higher clock speeds and smaller physical dimensions. Maxwell Eminence combines the functionality of the Company's high frequency and signal integrity products to enable designers of wireless communication systems to design RF components and sub-systems and to evaluate the interaction between the digital and RF portions of communications systems. This product allows system designers to model critical path PCB emissions, evaluate component level electromagnetic interference and to study shielding effectiveness enabling them to design for FCC and other regulatory guidelines proactively. The U.S. list price of this product is $64,900. Maxwell EZ2D Calculator is the first ever, extremely easy-to-use 2D field solver. Maxwell EZ2D Calculator automatically and adaptively creates the mesh and solves Maxwell's equations to calculate the characteristic impedances, velocities, and cross talk between all conductors. This tool combines the ease of a spreadsheet with the accuracy of a field solver to calculate all the line parameters for a PCB, MCM or IC stackup. The U.S. list price of this product is $4,900. Spicelink (SI 2D and SI 3D) is a 2D or 3D structure electromagnetic field simulator. SI 2D is a suite of tools which extracts the electrical circuit model of either 2D or 3D interconnect and performs a SPICE simulation for signal integrity analysis. This suite has been compiled to increase the productivity of engineers involved in the physical design of interconnects for high speed digital applications. The U.S. list price of this product is $34,900. ParICs is an automated 2D and 3D structure generation modeling tool. It is a vital component of our software solution for your complex IC package design needs. The ParICs Physical IC Modeler is an easy to use modeling tool which allows you to generate geometric models of complex IC packages in minutes. The desired structures come from common JEDEC leaded package libraries. These structures can then be used in our complete suite of signal integrity tools for design, electrical characterization and product documentation. Pacific Numerix Solutions. Pacific Numerix Electronic Design Validation System (EDVS) is a powerful tool suite that provides virtual design-to-manufacturing prototyping and is best of breed in signal integrity and EMI/EMC analysis at all levels: IC, first-level packaging, PCB, and system. Moreover, Pacific Numerix offers a complementary best of breed mechanical analysis tool suite including thermal, vibration, fatigue, and solder simulation. The U.S. list price of these products ranges from $27,000 to $80,000. Ansoft EM Software Our Electromagnetic/ Electromechanical products address the simulation needs of the Low Frequency design engineer. Our tools allow for the evaluation of the physics of devices whose components include permanent magnets, DC current carrying conductors, AC current carrying conductors, time varying excitations, and nonlinear soft irons or steels. The engineer can evaluate design concerns by easily computing the force, torque, or inductance, or by observing the actual field solution. Additional capabilities allow for the comprehensive handling of motion, mechanical components, and back emf's. Maxwell 3DFS is a 3D structure electromagnetic field simulator. Maxwell 3DFS uses electromagnetic field simulation to accurately predict product performance from physical design information. Using technology specifically designed for electromagnetic analysis, the Maxwell 3DFS allows designers to experiment with various three dimensional geometries, materials and excitation levels to shorten design cycles while saving prototyping dollars. The U.S. list price of this product ranges from $15,120 to $29,900. 4 6 Maxwell 2DFS is a 2D structure electromagnetic field simulator. Maxwell 2DFS is a comprehensive, easy-to-use software tool for design problems requiring an accurate, two-dimensional representation of the electric or magnetic field behavior. Maxwell 2D quickly obtains critical device parameters such as force, torque, induction and saturation effects from the physical design information on PCs and UNIX workstations. The integrated parametric analysis module automatically evaluates change in geometry, material and electrical parameters allowing all design options to be thoroughly explored within a single simulation. The U.S. list price of this product ranges from $3,900 to $9,900. EMSS is an Electromechanical system simulator. EMSS is a single integrated solution for analyzing the interaction of currents, voltages, and mechanical loads and motion within an electromechanical device. This system engineering environment provides fundamental analytical understanding and accurately predicts the performance and interactions of control system components and subsystems using your desktop computer. Electric machines, sensors, transformers, and actuators are a few of the many devices that may be simulated with EMSS. This virtual prototype of the complete system behavior dramatically reduces costs and shortens the design cycle. The U.S. list price of this product ranges from $15,920 to $19,900. EMAS is a 2D and 3D Electromagnetic Finite Element (FEM) simulation and analysis software for a wide range of DC, AC, time domain, and coupled electromagnetic/ electromechanical applications. EMAS abilities include a comprehensive sensitivity to nonlinear and anisotropic materials. Technologies include nonlinear transients, coupled Electromagnetic/ Mechanical solutions, coupled Electromagnetic/ Thermal solutions. Additional capabilities include 1D, 2D, tetra, quadra, penta element types. The U.S. list price of this product ranges from $19,900 to $44,900. PEmag is our 2D power electronics parameter simulator. PEmag, part of Ansoft's Maxwell Designer suite of software, performs advanced electromagnetic and signal analysis of inductors and transformers. Classical design methods rely on build-test iterations until appropriate behavior of the component is achieved. PEmag eliminates this costly design methodology by accurately simulating magnetic behavior including the effects of frequency, geometry and material. The magnetic behavior obtained is automatically output to an electric circuit model. The U.S. list price of this product is $4,900. RESEARCH AND DEVELOPMENT Ansoft has a team of research engineers focused on the mathematical and physical underpinnings of the Company's simulation algorithms. Dr. Zoltan Cendes, a founder of the Company, serves as the technical leader of the group. By virtue of over 15 years of research and development by Dr. Cendes prior to the Company's inception in 1984, and by its internal research and development staff thereafter, Ansoft has pioneered the following technologies: automatic and adaptive convergence to solutions, asymptotic waveform evaluation for spectral domain solutions, transfinite elements, basis evaluation state-space techniques and fast multipole acceleration algorithms. The Company continually seeks to design and develop new technologies, products and interfaces based on its core electromagnetic expertise. This effort includes releasing improved versions of its products on a regular basis as well as developing new products. The Company assigns an interdisciplinary team of personnel from research and development, software development, documentation, quality assurance, customer support and marketing to each product development project. Ansoft develops cooperative relationships with major customers with respect to beta-testing its new products or enhancements and implementing suggestions for new product features. The Company also maintains cooperative relationships with the major hardware vendors on which the Company's products operate. The Company believes that its team approach and cooperative relationships allow it to design products that respond on a timely basis to emerging trends in computing, graphics and networking technologies. As of April 30, 1999, the Company's product development group consisted of 91 employees. The Company seeks to hire experts in the fields of electromagnetic engineering, high speed circuit simulation, applied mathematics and software development. During fiscal 1999, 1998 and 1997, research and development expenses were $8.4 million, $7.3 million and $3.0 million, respectively. SALES AND MARKETING Ansoft markets and sells its products worldwide through its direct sales force and distributors. The Company hires application 5 7 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. Direct. In North America, the Company maintains sales and support offices in Arizona, Northern and Southern California, Florida, Massachusetts, Michigan, New Jersey, Ohio, Pennsylvania, Texas, Wisconsin, and a telemarketing sales group operating from its Pittsburgh headquarters. In Asia, the Company maintains direct sales and support offices in Japan, Korea, Singapore, Taiwan, and China. In Europe, the Company maintains sales and support offices in England, Germany, France, and Italy. As of April 30, 1999, the Company had a direct sales force of 46 representatives, supported by 75 employees in application engineering, marketing and sales administration. The Company also has distribution agreements with various international distributors. The Company supports its distributors and their customers with technical, sales and management personnel. CUSTOMERS The Company has significant breadth in its installed base with over 500 customers in the communications, semiconductor, automotive/industrial, computer, consumer electronics and defense/aerospace industries. No single customer in the Company's installed base accounted for more than 10% of total revenue within any of the past three fiscal years. The following table lists a representative sample of the Company's current worldwide end-user customers by industry.
COMMUNICATIONS SEMICONDUCTOR AUTOMOTIVE/INDUSTRIAL -------------- ------------- --------------------- Motorola Intel ABB Ericsson Anam Semiconductor Chrysler Andrew Corporation Applied Materials Cutler Hammer GEC-Marconi Amkor Electronics Daimler Benz Hughes ETRI Delphi Packard Italtel S.p.A. Harris Semiconductor Dupont Lucent Technologies LG Eaton Metawave Communications Molex Ford Motor Celwave VLSI General Motors Qualcomm Teradyne Honda Rockwell Texas Instruments Hyundai Siemens Triquint Semiconductor Nissan EMS Robert Bosch Nortel Wolff Controls ST Microelectronics
COMPUTER CONSUMER ELECTRONICS DEFENSE/AEROSPACE -------- -------------------- ----------------- Fujitsu Daewoo Electronics Raytheon Hitachi Kyocera Bell Helicopter Honeywell General Electric Boeing IBM Matsushita Jet Propulsion Laboratory NEC Mitsubishi Lawrence Livermore Lab. Seagate Nikon Lockheed-Martin Tektronix Phillips Northrop Grumman Sharp Allied Signal Sony TRW Toshiba US Naval Research Laboratory
CUSTOMER SERVICE AND SUPPORT Sales of the Company's software include one year of customer support services; thereafter annual one year maintenance contracts may be purchased. Customer support services include on-line and telephone support for design engineers and on-site and in-house training on all products. Customers with maintenance agreements receive all product enhancement releases without additional charge. Product upgrades that add significant new functionality are provided to customers for an additional fee. The Company offers a variety of training programs for customers ranging from introductory level courses to advanced training. 6 8 COMPETITION The EDA software industry is highly competitive and is characterized by continuing advances in products and technologies. 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 the Company. These companies also have established relationships with current and potential customers of the Company. The Company competes directly with certain major EDA vendors and privately-held companies which also provide products based on electromagnetic principles derived from Maxwell's Equations. There can be no assurance that the major EDA vendors and other EDA companies will not expand and develop new products in the electromagnetics-based EDA market. The Company also competes, on a limited basis, with the internal development groups of its existing and potential customers, many of whom 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 the Company. The Company's software products currently compete with certain software offerings from Hewlett-Packard Corporation ("HP"). In 1989, the Company entered into a distribution arrangement with Hewlett-Packard Corporation ("HP") under which HP formerly distributed the Company's HFSS product on an exclusive basis (the "HP Agreement"). The HP Agreement has since expired, and HP has no right to distribute the Company's HFSS product. Ansoft currently sells HFSS through its own sales force and other distributors. There can be no certainty that the Company will be able to compete successfully against HP. The failure of the Company to compete successfully against current and future competitors would have a material adverse effect on the Company's business, operating results and financial condition. Ansoft believes that its current products compete effectively on the basis of product functionality, solution speed and accuracy, reliability, price, ease of use and technical support for applications which require accurate modeling of electromagnetic interaction. However, there is no assurance that the Company will not face competitive technologies that could hinder its future prospects. PROPRIETARY RIGHTS The Company is heavily dependent on its proprietary software technology. The Company relies on a combination of non-competition and confidentiality agreements with its employees, license agreements, copyrights, trademarks and trade secret laws to establish and protect proprietary rights to its technology. The Company does not hold any patents. All Ansoft software is shipped with a security lock which limits software access to authorized users. In addition, the Company does not license or release its source code. Effective copyright and trade secret protection of the Company's proprietary technology may be unavailable or limited in certain foreign countries. Compact Software(R), Maxwell(R), Harmonica(R), Ensemble(R), ParICs(R), and Serenade(R), are registered United States trademarks of Ansoft. EMPLOYEES As of April 30, 1999, the Company had a total of 227 employees, including 91 in research and development, 121 in sales, marketing, and customer support services and 15 in administration. None of the Company's employees is represented by a collective bargaining agreement, nor has the Company experienced any work stoppage. The Company considers its relations with its employees to be good. Many of the Company's employees are highly skilled, and there is no assurance that the Company will be able to attract and retain sufficient technical personnel in the future. ADDITIONAL RISK FACTORS Uncertainty of Broad Market Acceptance. Historically, substantially all of the Company's revenue has been derived from the licensing and support of its electromagnetic analysis software. To date, there has been a limited market for electromagnetic analysis software. The failure of this market to develop or the slow development of this market would have a material adverse effect on the Company's business, operating results and financial condition. The Company believes that a number of factors will be necessary for its products to achieve broad market acceptance. These factors include increased demand for performance, miniaturization and manufacturing yield in the communications, computer and electronics industries; integration of its products with existing design systems and complementary EDA software; and user familiarity with the Company's products and capabilities. A decreased demand for electromagnetic analysis software as a result of competition, technological change or other factors would have a material adverse effect on the Company's business, operating results and financial condition. There can be no assurance that markets for the Company's products will develop further or, if they do, that the Company's products will achieve broad market acceptance. See "Business-- 7 9 Products" and "Business--Research and Development." History of Losses; Future Operating Results Uncertain. The Company has incurred net losses in each fiscal year since its founding with the exception of fiscal 1998 and 1996. There can be no assurance that the Company's revenue and net income will grow or be sustained in future periods or that the Company will remain 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 the Company competes and the accompanying demand for the Company's products, the level of product and price competition, the ability of the Company to develop and market new products and to control costs, the ability of the Company to expand its direct sales force and the ability of the Company to attract and retain key personnel. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Potential Fluctuations in Quarterly Results. The Company's quarterly operating results have varied in the past and may in the future vary significantly depending on factors such as increased competition, the timing of new product announcements and changes in pricing policies by the Company or its competitors, market acceptance of new and enhanced versions of the Company's products, the size and timing of significant license purchases, the cancellation of maintenance agreements, the mix of direct and indirect sales, future acquisitions, changes in operating expenses and changes in general economic factors. The sales cycle associated with licensing the Company's products is typically lengthy and subject to a number of significant risks over which the Company has little or no control, including customers' budgetary constraints and internal acceptance reviews. Due to the foregoing factors, and particularly the variability of the size and timing of significant license purchases, quarterly revenue and operating results are difficult to forecast. As is common in the software industry, the Company frequently ships more product in the third month of each quarter than in either of the first two months of the quarter, and shipments in the third month are higher at the end of that month. This pattern is likely to continue. The concentration of sales in the last month of the quarter makes the Company's quarterly financial results difficult to predict. Also, any failure of sufficient business to materialize or a disruption in the Company's production or shipping near the end of a quarter could have a material adverse effect on the Company's business, operating results and financial condition. In addition, the Company's business has been seasonal, with revenues in the first fiscal quarter typically lower than those in the fourth quarter of the preceding fiscal year. The Company's expense levels are based, in part, on its expectations as to future revenue levels. If revenue levels are below expectations, it could have a material adverse effect on the Company's business, operating results and financial condition. In particular, net income, if any, may be disproportionately affected by a reduction in revenue because only a small portion of the Company's expenses varies with revenue. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Quarterly Results of Operations." Limited Trading History of Common Stock; Potential Volatility of Stock Price. The Company's Common Stock first became publicly traded on April 3, 1996 after the Company's initial public offering at $8.50 per share. The market price of the Common Stock has and could continue to fluctuate substantially due to a variety of factors, including quarterly fluctuations in results of operations, adverse circumstances affecting the introduction or market acceptance of new products and services offered by the Company, announcements of new products and services by competitors, changes in the EDA environment, changes in earnings estimates by analysts, changes in accounting principles, sales of Common Stock by existing holders, loss of key personnel and other factors. The market price for the Company's Common Stock may also be affected by the Company's ability to meet securities or industry analysts' expectations, and any failure to meet such expectations, even if minor, could have a material adverse effect on the market price of the Company's Common Stock. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of these companies. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against such a company. Any such litigation instituted against the Company could result in substantial costs and a diversion of management's attention and resources, which could have a material adverse effect on the Company's business, operating results and financial condition. See "Price Range of Common Stock." Risks Associated with Acquisitions. The Company's strategy includes the acquisition of businesses, products and technologies that are complementary to those of the Company. Promising acquisitions are difficult to identify and complete for a number of reasons, including competition among prospective buyers. In furtherance of this strategy, in fiscal 1999 Ansoft acquired a majority interest in Pacific Numerix Corporation ("Pacific Numerix"), in fiscal 1997 and 1998 the Company acquired three businesses, Compact Software, Inc. ("Compact"), the Electronic Business Unit (the "EBU") of MacNeal Schwendler Company ("MSC") and Boulder Microwave Technologies, Inc. ("Boulder"). There can be no assurance that the Company will be able to complete future acquisitions or that the Company will be able to successfully integrate these and any future acquired businesses. The failure of the Company to integrate any acquired businesses could have a material adverse effect on the Company's business, operating results and financial 8 10 condition. In order to finance any future acquisitions, it may be necessary for the Company to raise additional funds through public or private financings. Any equity or debt financing, if available at all, may be on terms which are not favorable to the Company and, in the case of equity financing, may result in dilution to the Company's stockholders. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Acquisitions." Risks Associated with Company Investments. The Company invested a portion of the proceeds of its initial and secondary public offerings in certain long-, medium- and short-term investment grade, interest-bearing securities, and currently holds $22.2 million (as valued on its balance sheet as of April 30, 1999) in such securities. The value of the Company's investment in such instruments is subject to the normal risks of interest-bearing investments. Over time, the level of interest rates available in the market changes. As prevailing interest rates fall, the prices of securities that trade on a yield basis tend to rise. Conversely, when prevailing interest rates rise, bond prices generally will fall. Generally, the longer the maturity of a fixed-income security, the higher its yield and the greater its price volatility. As a consequence, the value of the instruments held by the Company could fluctuate substantially over time, depending upon long-term and short-term trends and interest rates. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Dependence on Proprietary Technology. The Company's success is heavily dependent upon its proprietary software technology. The Company does not currently have any patents and relies principally on trade secret and copyright laws and contractual protections to establish and protect its proprietary rights. However, there can be no assurance that the steps taken by the Company will prevent misappropriation or infringement of its technology. Moreover, third parties could independently develop competing technologies that are substantially equivalent to the Company's technologies. Although the Company believes that its products and proprietary rights do not infringe patents and proprietary rights of third parties, there can be no assurance that infringement claims, regardless of merit, will not be asserted against the Company in the future or that any such assertion will not result in costly litigation or require the Company to obtain a license to intellectual property rights of such third parties. In addition, there can be no assurance that such licenses will be available on reasonable terms or at all, which could have a material adverse effect on the Company's business, operating results and financial condition. See "Business--Proprietary Rights." Dependence on Key Personnel. The Company's future operating results depend in large part upon the continued services of its key technical and management personnel, including Dr. Zoltan J. Cendes, a founder, Chairman of the Board of Directors and Chief Technology Officer of the Company. The Company does not have employment contracts with Dr. Cendes or any other executive officer. The Company also believes that its 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. There can be no assurance that the Company will be able to continue to attract and retain the qualified technical and other personnel necessary for the development of its business. The Company maintains key-man life insurance with respect to Dr. Cendes in the amount of $5,000,000. See "Business--Research and Development," and "--Employees" and "Management." Use of Distributors and Shift in Distribution Model. A significant portion of the Company's license and service revenue results from a limited number of international distributors. During fiscal 1999, 1998 and 1997, revenue from international distributors accounted for approximately 10%, 19%, and 19%, respectively, of the Company's total revenue. In addition, pursuant to the HP Agreement, HP formerly distributed the Company's HFSS product on an exclusive basis. The HP Agreement has since expired, and HP has no right to distribute the Company's HFSS product. Ansoft currently sells through its own sales force and other distributors. During fiscal 1998 and 1997, revenue from the HP Agreement accounted for approximately 3% and 12%, respectively, of the Company's total revenue. The Company's distributors are not obligated to purchase products from the Company and may also represent other products. There can be no assurance that the Company's current international distributors will continue to market, service and support the Company's products effectively, that they will choose to continue to license such products or that they will not devote greater resources to marketing or licensing products of other companies. The Company has recently shifted its distribution model to the use of direct sales personnel in Asia and other foreign markets. There can be no assurance that this transition will not result in dislocations or delays in penetration in these markets or that the recent shift will not result in start-up costs and other expenses. These expenses may be incurred before a commensurate level of revenues are generated in these markets. Failure to generate a requisite level of revenues in light of these expenses could have a material adverse effect on the Company's business, operating results and financial condition. See "Business--Sales and Marketing." Risks Associated with International Licensing. International license and service revenue accounted for 52%, 48% and 41% of total product revenue in fiscal 1999, 1998 and 1997, respectively. The Company expects that international license and service revenue will 9 11 continue to account for a significant portion of its revenue. The majority of the Company's international sales are priced in foreign currencies which the Company does not hedge and as such the Company's revenues and profits from such sales are subject to fluctuation due to variable foreign currency exchange rates. International licenses involve a number of inherent risks, including fluctuations in foreign currency exchange rates, variability of foreign economic conditions, changing restrictions imposed by United States export laws, the impact of recessionary environments in economies outside the United States, generally longer receivables collection periods, unexpected changes in and compliance with regulatory requirements, reduced protection for intellectual property rights in some countries, tariffs and other trade barriers. 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. See "Business--Sales and Marketing." Management of Growth. The Company's business has experienced rapid growth in recent years which has placed and could continue to place a significant strain on the Company's managerial and other resources. Revenues have grown from $6.2 million in fiscal 1995 to $24.4 million in fiscal year 1999, and the number of employees has grown from 69 in April 1996 to 227 as of April 30, 1999. The Company'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. The Company's success abroad will depend in part on its ability to manage its foreign operations. There can be no assurance that such efforts can be accomplished successfully. The failure to manage growth effectively or to generate sufficient increased revenues necessary to cover any higher costs resulting from such growth could have a material adverse effect on the Company's business, operating results and financial condition. See "Business." Susceptibility to Changing Economic Factors. The Company is dependent upon the communications, semiconductor, automotive/industrial, computer, consumer electronics and defense/aerospace industries. Because these industries are characterized by technological change, short product life cycles, fluctuations in manufacturing capacity and pricing and gross margin pressure, they have from time to time experienced sudden economic downturns. During these periods, capital spending is commonly curtailed and the number of design projects often decreases. Since the Company's sales are dependent upon capital spending trends and new design project in these industries, negative factors affecting these industries could have a material adverse effect on the Company's business, operating results and financial condition. Risk of Product Defects. Complex software products, such as those offered by the Company, may contain defects, undetected errors or failures when introduced or when new versions are released. There can be no assurance that, despite testing by the Company, errors will not be found in new products or versions after commencement of commercial shipments, resulting in loss of market share or failure to achieve market acceptance. Any such occurrence could have a material adverse effect upon the Company's business, operating results and financial condition. Concentration of Stock Ownership. The directors and executive officers of the Company and their affiliates beneficially own approximately 51% of the Company's outstanding Common Stock. As a result, these stockholders are able to exercise control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. Such concentration of ownership may have the effect of delaying, deterring or preventing a change in control of the Company. Effect of Certain Charter Provisions, Antitakeover Effects of Certificate of Incorporation, Bylaws and Delaware Law. The Company's Board of Directors has the authority to issue up to 1,000,000 shares of Preferred Stock without any further vote or action by the Company's stockholders. The rights of the holders of the Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing desirable flexibility in connection with certain corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. The Company currently has no plans to issue shares of Preferred Stock. Further, certain provisions of the Company's Certificate of Incorporation and Bylaws and of Delaware law could delay or make more difficult a merger, tender offer or proxy contest involving the Company. 10 12 ITEM 2. PROPERTIES The Company occupies approximately 23,000 square feet of space at its headquarters in Pittsburgh, Pennsylvania under a lease expiring in 2006. The Company also leases sales and support offices in Arizona, California, Colorado, New Jersey, Wisconsin, Europe and Asia. The Company's current aggregate annual rental expenses for these facilities is approximately $1.3 million. Ansoft believes that its existing facilities are adequate for its current needs and that suitable additional space will be available when needed. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any litigation and is not aware of any threatened litigation, unasserted claims or assessments that could have material adverse effect on the Company's business, consolidated operating results or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable ITEM 4.(a) OFFICERS OF THE REGISTRANT OFFICERS The following table sets forth certain information concerning each of the officers of the Company:
NAME AGE TITLE ----------------------- ------- -------------------------------------- Zoltan J. Cendes, Ph.D... 53 Chief Technology Officer Nicholas Csendes......... 55 President, and Chief Executive Officer Padmanabhan Premkumar.... 35 Vice President-Marketing Jack Parkes.............. 39 Vice President-Engineering Anthony L. Ryan.......... 31 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. Nicholas Csendes is a founder of Ansoft and has served as President, Chief Executive Officer and Secretary since 1992 and a director since 1984. Mr. Csendes was a senior investment officer with Sun Life of Canada, a major international financial institution focusing on the sale of life insurance and retirement products ("Sun Life"), for over 15 years. Since 1985, Mr. Csendes has been involved with various public and private companies including a publicly-held interactive software company, and has been an officer, director and a controlling stockholder of American Banner Resources, Inc. ("ABR"), a privately-held holding company with various interests in real estate and public and private securities. Padmanabhan Premkumar joined Ansoft in 1989. From 1991 to 1995, Mr. Premkumar was in charge of Ansoft's software development programs as Vice President-Development. Since 1995, Mr. Premkumar has been Vice President-Marketing, responsible for product planning, marketing and commercialization of existing software product enhancements and the commercial development of new products. Prior to joining Ansoft, Mr. Premkumar was a research associate in the Robotics Laboratory at the University of Toledo. Jack Parkes joined Ansoft in 1990. In May 1997, Mr. Parkes was appointed Vice President-Engineering. Mr. Parkes joined Ansoft in 1990 with over 10 years of experience in electrical engineering. Prior to joining Ansoft, Mr. Parkes was a senior design and development engineer with Loral Corporation ("Loral") and, prior to joining Loral, with Texas Instruments, Inc. Anthony L. Ryan joined Ansoft in 1995 as corporate controller. In May 1997, Mr. Ryan was appointed Chief Financial Officer. From 1991 to 1995, Mr. Ryan worked as a certified public accountant with KPMG LLP, an international accounting firm. 11 13 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 Company's Common Stock has been traded on the Nasdaq National Market under the symbol ANST since April 3, 1996. 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, 2000 1st Quarter (through June 30, 1999).............. $ 10.000 $ 7.125 FISCAL YEAR ENDED APRIL 30, 1999 1st Quarter...................................... 13.750 8.375 2nd Quarter...................................... 6.563 5.125 3rd Quarter...................................... 6.250 4.875 4th Quarter...................................... $ 8.000 $ 6.125 FISCAL YEAR ENDED APRIL 30, 1998 1st Quarter...................................... 9.000 4.875 2nd Quarter...................................... 23.250 8.375 3rd Quarter...................................... 16.688 10.000 4th Quarter...................................... $ 15.375 $ 11.375
The Company has never paid any cash dividends on its Common Stock. The Company currently intends to retain the earnings from operations for use in the operation of its business and does not anticipate paying cash dividends with respect to its Common Stock in the foreseeable future. The payment of any future dividends will be determined by the Board of Directors in light of the then current conditions, including the Company's earnings and financial condition. On July 15, 1999, the Company had approximately 148 shareholders of record, of which certain of the recordholders were registered clearing agencies holding common stock on behalf of participants of such clearing agencies. ITEM 6. SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA The selected condensed consolidated financial data presented below for the five years ended April 30, 1999 are derived from the Company's Consolidated Financial Statements and related Notes thereto which have been audited by KPMG LLP, independent certified public accountants. The operating results are not necessarily indicative of the results to be expected for any other interim period or any future fiscal year. 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. 12 14
FISCAL YEAR ENDED APRIL 30, -------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue License ................ $ 17,847 $ 19,974 $ 11,950 $ 7,995 $ 5,921 Service and other ...... 6,628 6,309 2,238 700 233 -------- -------- -------- -------- -------- Total revenue ..... 24,475 26,283 14,188 8,695 6,154 -------- -------- -------- -------- -------- Costs and expenses Sales and marketing .... 17,061 12,643 7,939 5,007 3,935 Research and development 8,391 7,299 2,993 1,766 1,462 General and administrative ....... 2,937 2,322 1,647 1,269 1,046 Amortization ........... 1,691 1,495 407 -- -- Acquired in process research and development .......... -- -- 8,754 -- -- -------- -------- -------- -------- -------- Total costs and expenses ........ 30,080 23,759 21,740 8,042 6,443 -------- -------- -------- -------- -------- Income (loss) from operations ............... (5,605) 2,524 (7,552) 653 (289) Interest income (expense), net ...................... 1,587 549 682 35 (16) -------- -------- -------- -------- -------- Income (loss) before income taxes .................... (4,018) 3,073 (6,870) 688 (305) Income taxes benefit ....... 1,210 1,000 420 612 -- -------- -------- -------- -------- -------- Net income (loss) .......... $ (2,808) $ 4,073 $ (6,450) $ 1,300 $ (305) ======== ======== ======== ======== ======== Basic net income (loss) per share .................... $ (0.25) $ 0.42 $ (0.81) $ 0.21 $ (0.06) ======== ======== ======== ======== ======== Diluted net income (loss) per share ................ $ (0.25) $ 0.39 $ (0.81) $ 0.19 $ (0.06) ======== ======== ======== ======== ======== Weighted average shares Outstanding - basic ...... 11,310 9,681 7,955 6,235 5,528 Weighted average shares Outstanding - diluted .... 11,310 10,521 7,955 6,873 5,528
APRIL 30, -------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents....... $ 2,489 $ 20,677 $ 312 $ 10,728 $ 116 Working capital (deficit)....... 16,699 27,579 (1,936) 11,931 593 Total assets.................... 52,630 49,180 21,951 15,391 1,792 Total stockholders' equity...... 40,863 45,520 14,917 14,291 1,161
13 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Ansoft Corporation ("Ansoft" or the "Company") develops, markets and supports electronic design automation ("EDA") software based on fundamental electromagnetic principles. The Company's software is used by engineers in the design of high performance electronic devices and systems, such as cellular phones, communications systems, computer circuit boards and motors. As the marketplace demands higher levels of system performance and miniaturization, the need to model accurately the electromagnetic interaction in communications, computer devices and electromechanical components and systems is becoming increasingly important, yet traditional EDA tools do not provide accurate modeling of electromagnetic interaction. By using the Company's software, companies can more easily predict electromagnetic interaction in such systems and components, thus reducing time to market and simultaneously lowering design and manufacturing costs. The Company's products are used by design engineers in a wide range of industries, particularly the rapidly evolving wireless communications and RF (radio frequency) markets as well as the semiconductor, computer, automotive and consumer electronics industries. License revenue consists principally of revenue from the licensing of the Company's software and is generally recognized when the software has been shipped and there are no significant remaining obligations. Service revenue consists of maintenance fees for providing system updates, user documentation and technical support for software products, and is recognized ratably over the term of the maintenance agreement. 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. In accordance with Statement of Financial Accounting Standards (SFAS) No. 86, the Company has evaluated the establishment of technological feasibility of its various products during the development phase. Due to the dynamic changes in the market, the Company has concluded that it cannot determine, with any reasonable degree of accuracy, technological feasibility until the development phase of the project is nearly complete. The time period during which costs could be capitalized from the point of reaching technological feasibility until the time of general product release is generally very short and, consequently, the amounts that could be capitalized pursuant to SFAS No. 86 are not material to the Company's financial position or results of operations. Therefore, the Company charges all research and development expenses to operations in the period incurred. Effective April 28, 1999, the Company acquired a majority interest in Pacific Numerix. Effective July 24, 1996, April 9, 1997 and August 8, 1997, the Company acquired the EBU, Compact, and Boulder, respectively. The cost of these acquisitions has been allocated on the basis of the estimated fair value of the assets acquired and the liabilities assumed. The allocation of the EBU and Compact acquisitions resulted in charges of $3.1 million and $5.7 million recorded, respectively, in fiscal 1997 based on the future expected cash flows of certain acquired in process research and development that had not reached technological feasibility. The acquisitions have been accounted for as purchases, and their respective financial results have been included in the accompanying consolidated financial statements since the date of their respective acquisitions. 14 16 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, ---------------------------- 1999 1998 1997 ------ ------ ------ Revenue License ..................... 73% 76% 84% Service and other ........... 27 24 16 ---- ---- ---- Total revenue ............. 100 100 100 ---- ---- ---- Costs and expenses Sales and marketing ......... 70 48 56 Research and development .... 34 28 21 General and administrative .. 12 9 12 Amortization ................ 7 5 3 Acquired in process research and development............ -- -- 62 ---- ---- ---- Total costs and expenses .. 123 90 153 ---- ---- ---- Income (loss) from operations.. (23) 10 (53) Interest, net ................. 7 2 5 ---- ---- ---- Income (loss) before income taxes.......................... (16) 12 (48) Income taxes benefit .......... 5 4 3 ---- ---- ---- Net income (loss) ............. (11)% 16% (45)% ==== ==== ====
YEAR ENDED APRIL 30, 1999 COMPARED WITH YEAR ENDED APRIL 30, 1998 Revenue. Total revenue for the year ended April 30, 1999 decreased 7% to $24.5 million from $26.3 million in the previous fiscal year. The decrease in total revenue is attributable to a decrease in license revenue in North America and Asia and to the completion of a research and development cost sharing contract during 1998. License revenue during the year ended April 30, 1999 decreased 11% to $17.8 million from $20.0 million during the previous fiscal year. Service and other revenue increased by 5% to $6.6 million for the year ended April 30, 1999, as compared with $6.3 million in the previous year. The increase in service and other revenue is attributable to the continued growth of the installed base of customers and increased focus on marketing annual maintenance agreements. This increase was reduced by a decrease in revenue recognized under research and development cost sharing agreements. International revenue, principally from Asia, accounted for 52% and 48% of the Company's total product revenue in the years ended April 30, 1999 and 1998, respectively. 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. The Company has recently shifted its distribution model to the use of direct sales personnel in Asia and other foreign markets. There can be no assurance that this transition will not result in dislocations or delays in penetration in these markets or that the recent shift will not result in start-up costs and other expenses. These expenses may be incurred before a commensurate level of revenues are generated in these markets. Failure to generate a requisite level of revenues in light of these expenses could have a material adverse effect on the Company's business, operating results and financial condition. 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 35% to $17.1 million in the year ended April 30, 1999, as compared to $12.6 million in the previous fiscal year. The increase is primarily attributable to the Company's shift in its distribution model to the use of direct sales personnel in Asia and other foreign markets, as well as increased marketing efforts, including advertising in trade publications and increased participation in industry trade shows. Sales and marketing expenses represented 70% and 48% of total revenue in the years ended April 30, 1999 and 1998, respectively. The Company expects to increase sales and marketing expenditures both domestically and internationally as part of its continuing effort to expand its markets, introduce new products, build marketing staff and programs and expand its international presence. The Company expects that sales and marketing expenses will decrease as a percentage of sales although increase in absolute dollars in future periods. Research and Development Expenses. Research and development expenses include all costs associated with the development of 15 17 new products and enhancements to existing products. Research and development expenses for the year ended April 30, 1999 increased 15% to $8.4 million, as compared to $7.3 million for the previous fiscal year. The increase is due to increased research and development personnel primarily as a result of the acquisitions. Research and development expenses represented 34% and 28% of total revenue in the years ended April 30, 1999 and 1998, respectively. The Company anticipates that research and development expenses will increase in absolute dollars in future periods. General and Administrative Expenses. General and administrative expenses for the year ended April 30, 1999 increased 26% to $2.9 million, as compared to $2.3 million for the previous fiscal year. The increase is due to additional costs required to support the increase in operations, including the hiring of additional administrative personnel. General and administrative expenses represented 12% and 9% of total revenue in the years ended April 30, 1999 and 1998, respectively. The Company anticipates that general and administrative expenses will increase in absolute dollars in future periods. Amortization Expense. Amortization expense for the year ended April 30, 1999 increased to $1.7 million, as compared to $1.5 million for the previous fiscal year. The increase is due to recording amortization of additional intangible assets acquired in recent years. Interest (net). Interest income (net) for the year ended April 30, 1999 increased to $1.6 million, compared to $549,000 for the previous fiscal year. Interest income increased due to the higher net investment balance made available from the proceeds from the public offering of 2.3 million shares in March of 1998. Income Taxes. In the year ended April 30, 1999, the Company recorded a net income tax benefit of $1.2 million, resulting from the recognition of deferred tax assets in accordance with the Financial Accounting Standards Board's SFAS No. 109, "Accounting for Income Taxes." The Company's net deferred tax asset of $3.1 million as of April 30, 1999, 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, 1998 COMPARED WITH YEAR ENDED APRIL 30, 1997 Revenue. Total revenue for the year ended April 30, 1998 increased 85% to $26.3 million from $14.2 million in the previous fiscal year, primarily due to increases in license revenue. License revenue during the year ended April 30, 1999 increased 67% to $20.0 million from $12.0 million during the previous fiscal year. The growth of license revenue is attributable to the continued increase in sales of existing Ansoft products as well as sales of the expanded suite of products offered by Ansoft as a result of the acquisitions. Service and other revenue increased by 182% to $6.3 million for the year ended April 30, 1998, as compared with $2.2 million in the previous year. The increase in service and other revenue is attributable to an increase in revenue recognized under research and development cost sharing agreements as well as the continued growth of the installed base of customers and increased focus on marketing annual maintenance agreements. International revenue, principally from Asia, accounted for 48% and 41% of the Company's total product revenue in the years ended April 30, 1998 and 1997, respectively. In 1989, the Company entered into a distribution arrangement with Hewlett-Packard Corporation ("HP") under which HP formerly distributed the Company's HFSS product on an exclusive basis (the "HP Agreement"). The HP Agreement has since expired, and HP has no right to distribute the Company's HFSS 4.0 product. Ansoft currently sells the latest version of its HFSS product, Ansoft HFSS 6.0, through its own sales force and other distributors. Revenue from the HP Agreement accounted for 3% and 12% of total revenue in the years ended April 30, 1998 and 1997, respectively. Sales and Marketing Expenses. Sales and marketing expenses increased by 59% to $12.6 million in the year ended April 30, 1998, as compared to $7.9 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 48% and 56% of total revenue in the years ended April 30, 1998 and 1997, respectively. 16 18 Research and Development Expenses. Research and development expenses for the year ended April 30, 1998 increased 144% to $7.3 million, as compared to $3.0 million for the previous fiscal year. The increase is due to increased research and development personnel primarily as a result of the acquisitions. Research and development expenses represented 28% and 22% of total revenue in the years ended April 30, 1998 and 1997, respectively. General and Administrative Expenses. General and administrative expenses for the year ended April 30, 1998 increased 41% to $2.3 million, as compared to $1.6 million for the previous fiscal year. The increase is due to additional costs required to support the increase in operations, including the hiring of additional administrative personnel. General and administrative expenses represented 9% and 12% of total revenue in the years ended April 30, 1998 and 1997, respectively. Amortization Expense. Amortization expense for the year ended April 30, 1998 increased to $1.5 million, as compared to $407,000 for the previous fiscal year. The increase is due to recording amortization of intangible assets acquired in Fiscal 1997 for a full fiscal year and to recording amortization of the additional intangible assets acquired during fiscal 1998. Interest (net). Interest income for the year ended April 30, 1999 decreased to $709,000, compared to $902,000 for the previous fiscal year. Interest income decreased due to the use of cash in partial payment for the fiscal 1998 and fiscal 1997 acquisitions. Interest expense for the year ended April 30, 1998 decreased to $160,000, compared to $220,000 for the previous fiscal year. Interest expense decreased due to decreased borrowing by the Company. Income Taxes. In the year ended April 30, 1999, the Company recorded a net income tax benefit of $1.0 million, resulting from the recognition of previously unrecognized deferred tax assets in accordance with the Financial Accounting Standards Board's SFAS No. 109, "Accounting for Income Taxes." QUARTERLY RESULTS OF OPERATIONS The following table presents unaudited quarterly results in dollar amounts and as a percentage of total revenue for each quarter of fiscal 1999 and fiscal 1998. 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 licenses. The Company believes that results of operations for the interim periods are not necessarily indicative of the results to be expected for any future period. The Company's business has been seasonal, with revenues in the first fiscal quarter typically lower than the fourth quarter of the preceding fiscal year. 17 19
QUARTER ENDED -------------------------------------------------------------------------------------------- FISCAL 1999 FISCAL 1998 -------------------------------------------------------------------------------------------- APRIL 30, JAN. 31, OCT. 31, JULY 31, APRIL 30, JAN. 31, OCT. 31, JULY 31, 1999 1999 1998 1998 1998 1998 1997 1997 --------- -------- -------- -------- --------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenue License...................... $ 5,862 $ 4,769 $ 3,977 $ 3,239 $ 6,064 $ 5,005 $ 4,891 $ 4,016 Service and other............ 1,868 1,321 1,524 1,915 1,755 1,840 1,393 1,319 -------- ------- ------- ------- ------- ------- ------- ------- Total Revenue.............. 7,730 6,090 5,501 5,154 7,819 6,845 6,284 5,335 -------- ------- ------- ------- ------- ------- ------- ------- Costs and expenses Sales and marketing.......... 4,470 4,267 4,072 4,252 4,079 3,145 2,867 2,557 Research and development..... 2,186 2,033 2,106 2,066 1,949 1,976 1,864 1,510 General and administrative... 757 706 695 635 655 600 597 470 Amortization................. 545 434 434 422 410 395 376 314 -------- --------- --------- --------- ------- --------- --------- --------- Total costs and expenses... 7,958 7,440 7,307 7,375 7,093 6,116 5,704 4,851 -------- ------- ------- ------- ------- ------- ------- ------- Income (loss) from operations.. (228) (1,350) (1,806) (2,221) 726 729 580 484 Interest income (expense)...... 389 404 416 379 254 108 96 91 -------- --------- --------- --------- ------- --------- --------- --------- Income (loss) before taxes..... 161 (946) (1,390) (1,842) 980 837 676 575 Income tax benefit............. (30) 290 400 550 370 240 220 170 --------- ------- ------- ------- ------- ------- ------- ------- Net income (loss)............ $ 131 $ (656) $ (990) $(1,292) $ 1,350 $ 1,077 $ 896 $ 745 ======== ======= ======= ======= ======= ======= ======= ======= Basic net income (loss) per $ 0.01 $ (0.06) $ (0.09) $ (0.11) $ 0.13 $ 0.12 $ 0.10 $ 0.08 ======== ======= ======= ======= ======= ======= ======= ======= share.......................... Diluted net income (loss) per $ 0.01 $ (0.06) $ (0.09) $ (0.11) $ 0.12 $ 0.11 $ 0.09 $ 0.08 ======== ======= ======= ======= ======= ======= ======= ======= share.......................... Weighted average number of shares outstanding - basic ......... 11,032 11,231 11,453 11,524 10,639 9,205 9,130 8,989 Weighted average number of shares outstanding - diluted ....... 11,800 11,231 11,453 11,524 11,589 10,187 10,121 9,621
PERCENTAGE OF TOTAL REVENUE ------------------------------------------------------------------------------------------- Revenue License...................... 76% 78% 72% 63% 78% 73% 77% 75% Service and other............ 24 22 28 37 22 27 23 25 ---- ---- ---- ---- ---- ---- ---- ---- Total Revenue.............. 100 100 100 100 100 100 100 100 ---- ---- ---- ---- ---- ---- ---- ---- Costs and expenses Sales and marketing.......... 58 70 74 83 52 46 46 48 Research and development..... 28 33 38 40 25 29 30 28 General and administrative... 10 12 13 15 8 9 9 9 Amortization................. 7 7 8 5 5 6 6 6 Acquired in process research and development............ -- -- -- -- -- -- -- -- ---- ---- ---- ---- ---- ---- ---- ---- Total costs and expenses... 103 122 133 143 91 89 91 91 ---- ---- ---- ---- ---- ---- ---- ---- Income (loss) from operations.. (3) (22) (33) (43) 9 11 9 9 Interest income ............... 5 7 8 7 3 1 2 2 ---- ---- ---- ---- ---- ---- ---- ---- Income (loss) before taxes..... 2 (15) (25) (36) 12 12 11 11 Income tax benefit............. -- 4 7 11 5 4 3 3 ---- ---- ---- ---- ---- ---- ---- ---- Net income (loss).............. 2% (11)% (18)% (25)% 17% 16% 14% 14% ==== ==== ==== ==== ==== ==== ==== ====
LIQUIDITY AND CAPITAL RESOURCES As of April 30, 1999, the Company had $2.5 million in cash and cash equivalents. Net cash (used in) provided by operating activities was ($1.9) million, $2.2 million and $403,000 in fiscal 1999, 1998, and 1997, respectively. Net cash used in investing activities, consisting primarily of purchases of marketable securities, was $19.8 million, $3.3 million, and $15.1 million in fiscal 1999, 1998, and 1997, respectively. Capital expenditures, consisting primarily of purchases of computer equipment, were $2.5 million, $1.5 million and $811,000 in fiscal 1999, 1998 and 1997, respectively. Net cash provided by financing activities includes the purchase of $4.2 million of treasury shares in fiscal 1999 and the proceeds from the issuance of Common Stock of $25.7 million in fiscal 1998. In addition, during fiscal 1999 the Company borrowed $7.4 million on its secured line of credit. In fiscal 1998 the Company repaid $4.2 million on its secured line of credit with a financial institution. As of April 30, 1999, the Company had working capital of $16.7 million. The Company has available a $10.0 million secured line of credit from a domestic financial institution at an interest rate equal to LIBOR plus an applicable margin rate. The line of credit is secured by the marketable securities held with the institution. As of April 30, 1999, $7.4 million was the outstanding balance on the line of credit. The Company believes that the available funds will be sufficient to meet its anticipated cash needs for working capital and capital expenditures for at least the next twelve months. Thereafter, if cash generated from operations is insufficient to satisfy the 18 20 Company's liquidity requirements, the Company 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 the Company. Acquisitions. On July 24, 1996, the Company acquired the EBU for $5.6 million in cash. On April 9, 1997, the Company acquired all of the outstanding capital stock of Compact for $3.0 million in cash and 1.3 million shares of the Company's Common Stock. On August 11, 1997, the Company acquired Boulder by the merger of Boulder with and into the Company, in consideration for $743,000 in cash and 108,000 shares of the Company's Common Stock. On April 28th, 1999, Ansoft acquired the majority of the outstanding stock of Pacific Numerix for 377,000 shares and $600,000 in cash. The acquisitions were accounted for as a purchases, and the financial results of the acquired entities have been included in the accompanying consolidated financial statements since the respective date of the acquisition. EFFECTS OF INFLATION To date, inflation has not had a material impact on the Company's consolidated financial results. RECENT ACCOUNTING PRONOUNCEMENTS In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Company does not expect this pronouncement to impact the consolidated financial statements because the Company has not entered into derivative or hedging transactions. YEAR 2000 ISSUES The Company has recently evaluated the products the Company currently supports to determine if they are Year 2000 ready. Most of the Company's products do not rely on knowledge of the date (date-sensitive data) for performance or functionality. The Company's products only use date-sensitive data with respect to the licensing of the Company's products. State Of Readiness. The results of this evaluation revealed that most of the Company's supported products are Year 2000 ready. The Company plans to offer patches or upgrades to the supported products currently not Year 2000 ready. During 1998, an evaluation of the Company's internal support systems was done to determine if they are Year 2000 ready to support the Company's operations beyond the year 2000. The Company currently uses third party software systems and applications, some of which are not Year 2000 ready. The Company has the intention to stop using these software products or upgrade or replace them as part of the Company's growth plans. Although the Company's intention was to replace or upgrade these systems prior to June 30, 1999, the work will be extended to December 31, 1999. The failure by the Company to complete such work prior to December 31, 1999 could have a material adverse effect on the Company's business, financial condition and operations. Costs. The Company does not have a project tracking system that tracks the cost and time that its own internal employees spend on the Year 2000 project. Based on the Company's assessment, the cost incurred to date has not had a material impact to the Company's results of operations. The Company expects that costs directly related to Year 2000 in excess of normal upgrade and maintenance costs would not exceed approximately $100,000 for both costs incurred to date and future costs. However, there is no assurance that the costs may not exceed this amount. Risks. The Company is requesting its vendors to provide Year 2000 compliance certificates for all its internal support systems. However, the Company only intends to perform testing on its critical internal support systems. Inoperability related to Year 2000 problems of internal systems that are certified Year 2000 ready by the vendor and not tested by the Company could have an adverse impact to the Company's operational efficiency. The patches or upgrades provided by the Company as the remedies to make its products Year 2000 ready may not be accepted by the customer, which could have an adverse impact on the Company's business. The Company believes that the purchasing patterns of customers and potential customers may be affected by Year 2000 issues as companies expend significant resources to correct or patch their current software systems for Year 2000 readiness. These expenditures may result in reduced funds available to purchase software products such as those offered by 19 21 the Company, which could result in a material adverse effect on the Company's business, financial condition and results of operation. In addition, the Company does not have any meaningful data as to the state of its customers' Year 2000 readiness. Contingency Plans. The Company does not presently have a contingency plan for handling Year 2000 problems that are not detected and corrected prior to their occurrences. Upon completion of testing and implementation activities, the Company will be able to assess the areas requiring contingency planning and expects to develop appropriate planning at that time. Any failure of the Company to address any unforeseen Year 2000 problems could adversely affect the Company's business, financial condition and results of operations. 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 high credit quality securities and limits the amount of credit exposure to any one issuer. The Company does not hedge any interest rate exposures. 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, 1999, 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 None. There has not been a change of accountants in the past 24 months nor has any disagreement on any matter of accounting principles or practices been reported on Form 8-K during the same period. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 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 thus may differ materially from expected results included in these statements. 20 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report............................................. 22 Consolidated Balance Sheets as of April 30, 1999 and 1998................ 23 Consolidated Statements of Operations for the years ended April 30, 1999, 1998 and 1997......................................................... 24 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended April 30, 1999, 1998 and 1997.............. 25 Consolidated Statements of Cash Flows for the years ended April 30, 1999, 1998 and 1997......................................................... 26 Notes to Consolidated Financial Statements............................... 27
21 23 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, 1999 and 1998, 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, 1999. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule listed at Item 14(a). These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended April 30, 1999, in conformity with generally accepted accounting principles. 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 May 26, 1999 22 24 ANSOFT CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
April 30, April 30, 1999 1998 --------- --------- Assets Current assets Cash and cash equivalents $ 2,489 $ 20,677 Marketable securities 16,461 -- Accounts receivable, net of allowance for doubtful accounts of $175 and $150, respectively 8,645 7,465 Deferred income taxes 126 2,145 Prepaid expenses and other assets 709 536 -------- -------- Total current assets 28,430 30,823 Plant and equipment 4,663 3,097 Marketable securities 5,730 6,703 Other asset 475 260 Deferred taxes - non current 2,993 -- Intangible assets 10,339 8,297 -------- -------- Total assets $ 52,630 $ 49,180 ======== ======== Liabilities and stockholders' equity Current liabilities Line of credit $ 7,446 $ -- Accounts payable 329 534 Income taxes 174 286 Accrued expenses 404 264 Accrued wages 150 347 Deferred revenue 3,228 1,813 -------- -------- Total current liabilities 11,731 3,244 Deferred taxes - non current -- 237 Other liabilities 143 179 -------- -------- Total liabilities 11,874 3,660 Minority Interest (107) -- Stockholders' equity Preferred stock, par value $0.01 per share; 1,000 shares authorized, no shares outstanding -- -- Common stock, par value $0.01 per share; 25,000 authorized; issued 11,658 and 11,516 shares, respectively 116 115 Additional paid-in capital 51,490 50,728 Treasury stock 283 shares (1,556) -- Other accumulated comprehensive income (loss) (1,013) 43 Accumulated deficit (8,174) (5,366) -------- -------- Total stockholders' equity 40,863 45,520 Total liabilities and stockholders' equity $ 52,630 $ 49,180 ======== ========
See accompanying notes to consolidated financial statements. 23 25 ANSOFT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED APRIL 30, -------------------------------- 1999 1998 1997 ------- ------- ------- Revenue License.......................... $17,847 $19,974 $11,950 Service and other................ 6,628 6,309 2,238 ------- ------- ------- Total revenue............... 24,475 26,283 14,188 Cost and expenses Sales and marketing.............. 17,061 12,643 7,939 Research and development......... 8,391 7,299 2,993 General and administrative....... 2,937 2,322 1,647 Amortization..................... 1,691 1,495 407 Acquired in process research and development................ -- -- 8,754 ------- ------- ------- Total costs and expenses.... 30,080 23,759 21,740 ------- ------- ------- Income (loss) from operations...... (5,605) 2,524 (7,552) Interest income.................... 1,693 709 902 Interest expense................... (106) (160) (220) ------- ------- ------- Income (loss) before income taxes (4,018) 3,073 (6,870) Income tax benefit................. 1,210 1,000 420 ------- ------- ------- Net income (loss)........... $(2,808) $ 4,073 $(6,450) ======= ======= ======= Basic net income (loss) per share.. $ (0.25) $ 0.42 $ (0.81) ======= ======= ======= Diluted net income (loss) per share............................ $ (0.25) $ 0.39 $ (0.81) ======= ======= ======= Weighted average shares outstanding used in basic calculation...................... 11,310 9,681 7,955 Weighted average shares ======= ======= ======= outstanding used in diluted calculation...................... 11,310 10,521 7,955 ======= ======= =======
See accompanying notes to consolidated financial statements. 24 26 ANSOFT CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OTHER COMMON STOCK ADDITIONAL TREASURY STOCK ACCUMULATED COMPREHENSIVE ------------------- PAID-IN -------------------- ACCUMULATED COMPREHENSIVE INCOME (LOSS) SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT INCOME (LOSS) ------------- -------- -------- ---------- -------- -------- ----------- ------------- Balance, April 30, 1996..... -- 7,636 $ 76 $ 17,204 -- -- $ (2,989) -- Issuance of common stock.... -- 1,353 14 7,106 -- -- -- -- Net loss ................... (6,450) -- -- -- -- -- (6,450) -- Unrecognized loss on Marketable securities..... (44) -- -- -- -- -- -- (44) -------- -------- -------- -------- -------- -------- -------- -------- $ (6,494) Balance, April 30, 1997..... 8,989 $ 90 $ 24,310 -- -- $ (9,439) $ (44) Issuance of common stock.... 2,527 25 26,418 -- -- -- -- Net income ................. 4,073 -- -- -- -- -- 4,073 -- Unrecognized gain on Marketable securities..... 87 -- -- -- -- -- -- 87 -------- -------- -------- -------- ------- -------- -------- -------- $ 4,160 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) Unrecognized loss on Marketable securities..... (1,033) -- -- -- -- -- -- (1,033) -------- -------- -------- -------- ------- -------- -------- -------- $ (3,864) Balance, April 30, 1999..... 11,658 $ 116 $ 51,490 (283) $ (1,556) $ (8,174) $ (1,013)
See accompanying notes to consolidated financial statements. 25 27 ANSOFT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED APRIL 30, ------------------------------------ 1999 1998 1997 -------- -------- -------- Cash flows from operating activities Net income (loss) ..................... $ (2,808) $ 4,073 $ (6,450) Adjustments to reconcile net income to net cash provided by operating activities Depreciation .......................... 983 640 299 Amortization .......................... 1,691 1,495 429 Acquired in process research and development ......................... -- -- 8,754 Deferred taxes ........................ (1,211) (465) (420) Changes in assets and liabilities Accounts receivable ................... (1,180) (3,336) (1,971) Prepaid expenses and other assets ..... (173) (254) (191) Other long-term assets ................ (251) (257) 10 Accounts payable ...................... (205) 385 (196) Accrued wages and expenses ............ (169) (778) (13) Deferred revenue ...................... 1,415 653 152 -------- -------- -------- Net cash provided (used) by operating activities............................. (1,908) 2,156 403 -------- -------- -------- Cash flows from investing activities Purchases of plant and equipment ...... (2,549) (1,532) (811) Investment in acquired businesses ..... (770) (2,285) (8,600) Sale of marketable securities ......... -- 534 5,878 Purchases of marketable securities .... (16,521) -- (11,614) -------- -------- -------- Net cash used in investing activities ... (19,840) (3,283) (15,147) -------- -------- -------- Cash flows from financing activities Proceeds from line of credit, net ..... 7,446 (4,208) 4,208 Purchase of treasury stock ............ (4,177) -- -- Proceeds from the issuance of common stock, net .......................... 314 25,700 120 -------- -------- -------- Net cash provided by financing activities 3,583 21,492 4,328 -------- -------- -------- Net increase (decrease) in cash and cash Equivalents ........................... (18,165) 20,365 (10,416) Effect of exchange rate changes on cash ................................ (23) -- -- Cash and cash equivalents at beginning of Period ................................ 20,677 312 10,728 -------- -------- -------- Cash and cash equivalents at end of period ................................ $ 2,489 $ 20,677 $ 312 ======== ======== ======== Supplemental disclosures of cash flow Information Cash paid for interest ................ $ 106 $ 160 $ 221 ======== ======== ======== Cash paid for income taxes ............ $ 44 $ 80 $ 13 ======== ======== ======== Plant and equipment acquired through assumption of liability ............. $ 203 $ 179 $ -- ======== ======== ========
See accompanying notes to consolidated financial statements. 26 28 ANSOFT CORPORATION 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 is a leading developer of electronic design automation ("EDA") software. Its products are used by engineers in the design of high performance electrical devices and systems, such as cellular phones, satellite communications, computer circuit boards, motors and ABS braking systems. 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 July 24, 1996, April 9, 1997 and August 8, 1997, the Company acquired the Electronic Business Unit (the "EBU") of The MacNeal Schwendler Company ("MSC"), Compact Software Inc. ("Compact"), and Boulder Microwave Technologies, Inc. ("Boulder"), respectively. The Company acquired the majority interest in Pacific Numerix Corporation ("Pacific Numerix") on April 28, 1999. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying financial statements are based on management's evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from those estimates. Cash Equivalents Cash equivalents include only highly liquid debt instruments purchased with original maturity dates of three months or less. Marketable Securities Marketable Securities consist of corporate bonds and government agency issues and are classified as of April 30, 1999 and 1998, as available for sale. Marketable securities available for sale are recorded at fair market value based on quoted market prices and any unrecorded gains or losses are recorded as a separate component of stockholders' equity. Costs of investments sold are determined on the basis of specific identification. Plant and Equipment Plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation for financial reporting purposes is computed using the straight-line method based upon the estimated useful lives of the assets which range from three to seven years. Assets acquired under capital leases and leasehold improvements are amortized over their useful life or the lease term, as appropriate. Intangible Assets Intangible assets consist mainly of customer lists, established workforce, and purchased technology which are being amortized on a straight line basis over seven, three and three years, respectively. Purchased technology represents acquired software which has been fully developed, achieved technological feasibility, reached commercial viability, and is generating revenue. The carrying value of intangible assets are reviewed whenever circumstances occur which indicate that the carrying value may not be recoverable. 27 29 Revenue Recognition Revenue consists primarily of fees for licenses of the Company's software products, maintenance and customer support. Software Revenue. Prior to May 1, 1998, the Company complied with the American Institute of Certified Public Accountants' (AICPA) Statement of Position (SOP) 91-1,"Software Revenue Recognition". Revenue from the sale of software licenses was recognized after shipment of the products and fulfillment of acceptance terms, if any, providing that no significant vendor and post-contract support obligations remained and collection of the related receivable was probable. Any remaining insignificant vendor or post-contract support obligations were accrued at the time the revenue was recognized. In the first quarter of fiscal 1999, the Company adopted the provisions of the AICPA SOP 97-2, "Software Revenue Recognition" (SOP 97-2). SOP 97-2 generally requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of the elements. The revenue allocated to software products generally is recognized after shipment of the products and fulfillment of acceptance terms. The effect of adopting SOP 97-2 was not material. Service and Other Revenue. Maintenance revenue is deferred and recognized ratably over the term of the maintenance agreement, which is typically 12 months. Revenue from customer training, support and other services is recognized as the service is performed. Other revenue consists primarily of revenue earned on development contracts with government-sponsored entities. Revenue under these arrangements is recognized as the service is performed. Software Development Costs In accordance with Statement of Financial Accounting Standards (SFAS) No. 86, the Company has evaluated the establishment of technological feasibility of its various products during the development phase. Due to the dynamic changes in the market, the Company has concluded that it cannot determine, with any reasonable degree of accuracy, technological feasibility until the development phase of the project is nearly complete. The time period during which costs could be capitalized from the point of reaching technological feasibility until the time of general product release is generally very short and, consequently, the amounts that could be capitalized pursuant to SFAS No. 86 are not material to the Company's financial position or results of operations. Therefore, the Company charges all research and development expenses to operations in the period incurred. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Net Income (Loss) Per Share "Basic earnings (loss) per share" is calculated based upon the weighted average number of common shares actually outstanding, and "diluted earnings per share" is calculated based upon the weighted average number of common shares outstanding and other potential common shares if they are dilutive. 28 30 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, 1999 -------------------------------- Basic net income (loss) per share... $ (2,808) 11,310 $ (0.25) Effect of dilutive securities: Stock options.................... -- -- $ -- -------- ------ ======= Diluted net income (loss) per share............................... $ (2,808) 11,310 $ (0.25) ======== ====== ======= Fiscal year ended April 30, 1998 -------------------------------- Basic net income (loss) per share $ 4,073 9,681 $ 0.42 Effect of dilutive securities: Stock options.................... -- 840 $ (0.03) -------- ====== ======= Diluted net income (loss) per share............................... $ 4,073 10,521 $ 0.39 ======== ====== ======= Fiscal year ended April 30, 1997 -------------------------------- Basic net income (loss) per share... $ (6,450) 7,955 $ (0.81) Effect of dilutive securities: Stock options.................... -- -- $ -- -------- ------ ------- Diluted net income (loss) per share............................... $ (6,450) 7,955 $ (0.81) ======== ====== =======
Stock Based Compensation The Company accounts for stock-based compensation in accordance with the Financial Accounting Standards Board's Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for Stock-Based Compensation." This statement permits a company to choose either a fair value based method of accounting for its stock-based compensation arrangements or the APB Opinion 25 intrinsic value based method adding pro forma disclosures of net income and earnings per share computed as if the fair value based method had been applied in the financial statements. The Company has elected to retain APB Opinion 25 method of accounting for stock-based compensation with annual pro forma disclosures of net income and earnings per share. Comprehensive Income In 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income," which was adopted by the Company in the first quarter of fiscal 1999. SFAS No. 130 establishes rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's results of operations or stockholders' equity. SFAS No. 130 requires companies to report a new, additional measure of income on the income statement or to create a new financial statement that has the new measure of income on it. "Comprehensive income" 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 on its consolidated statements of stockholders' equity. 2. ACQUISITIONS AND RELATED INTANGIBLE ASSETS On July 24, 1996, the Company acquired the EBU for $5,600 in cash. On April 9, 1997, the Company acquired all of the outstanding capital stock of Compact for $3,000 in cash and 1,273 shares of the Company's Common Stock. On August 11, 1997, the Company acquired Boulder by the merger of Boulder with and into the Company, in consideration for $743 in cash and 108 shares of the Company's Common Stock. On April 28th, 1999, Ansoft acquired the majority of the outstanding stock of Pacific Numerix for $3,221, consisting of 373 shares and $600 in cash. The cost of these acquisitions has been allocated on the basis of the estimated fair value of the assets acquired and the liabilities assumed. The allocation of the EBU and Compact acquisitions resulted in charges of $3,100 and $5,700 recorded, respectively, in fiscal 1997 based on the future expected cash flows of certain acquired in process research and development that had not reached technological feasibility. The acquisitions have been accounted for as purchases, and their respective financial results have been included in the accompanying consolidated financial statements since the date of their respective acquisitions. The following unaudited pro forma summary presents information as if the acquisition of Pacific Numerix occurred at the beginning of the periods presented. The pro forma information is provided for information purposes only. It is based on historical information and does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of future results of operations of the combined enterprise.
FISCAL YEAR ENDED APRIL 30, --------------------------- 1999 1998 ------- ------- Revenue...................... $26,864 $29,562 Pro forma net income (loss).. $(4,553) $ 3,357 Pro forma net income (loss) per diluted common share... $ (0.39) $ 0.31
3. PLANT AND EQUIPMENT Plant and equipment consist of the following:
APRIL 30, ------------------- 1999 1998 ------- ------- Computers and equipment...... $ 6,237 $ 4,232 Furniture and fixtures....... 903 628 Leasehold improvements....... 389 120 ------- ------- 7,529 4,980 Less allowances for depreciation and amortization........... 2,866 1,883 ------- ------- $ 4,663 $ 3,097 ======= =======
29 31 4. INTANGIBLE ASSETS Intangible assets consist of the following:
APRIL 30, ------------------- 1999 1998 ------- ------- Customer list................ $10,281 $ 8,146 Established work force....... 1,679 1,206 Purchased technology......... 1,398 273 Goodwill..................... 574 574 ------- ------- 13,932 10,199 Less allowances for amortization............... 3,593 1,902 ------- ------- $10,339 $ 8,297 ======= =======
5. MARKETABLE SECURITIES Marketable securities, classified as available for sale, are summarized as follows:
UNREALIZED AMORTIZED GAIN MARKET COST (LOSS) VALUE ------- ----- ------- April 30, 1999 Marketable Securities... $23,181 $(990) $22,191 April 30, 1998 Marketable Securities... $ 6,660 $ 43 $ 6,703
The carrying values of marketable securities as of April 30, 1999, by maturity is shown below: Due in less than one year.. $16,461 Due in one to five years... 1,664 Due in five to ten years... 4,067 ------- $22,191 =======
Gross realized gains (losses) on sales of securities in fiscal 1999, 1998 and 1997 were immaterial. 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 is secured by the marketable securities held with the institution. As of April 30, 1999, $7,400 was the outstanding balance on the line of credit and the weighted average interest rate was 4.52%. 7. LEASES The Company leases its corporate headquarters in Pittsburgh, Pennsylvania, and other facilities under operating lease agreements which expire over the next six years. Rental expense incurred by the Company under operating lease agreements totaled $1,281, $978 and $548 for the years ended April 30, 1999, 1998 and 1997, respectively. The future minimum lease payments for such operating leases as of April 30, 1999, are:
YEAR ENDING APRIL 30, ---------------------- 2000............ 1,025 2001............ 915 2002............ 872 2003............ 817 2004............ 629 Thereafter...... 1,126 ------- $ 5,384 =======
30 32 8. STOCKHOLDERS' EQUITY In February 1998, the Company closed its public offering of 2,300 shares of Common Stock. The net proceeds of the offering were approximately $25,500, after deducting applicable costs and expenses. In April 1996, the Company closed its initial public offering of 1,500 shares of common stock at $8.50 per share. The net proceeds of the offering were approximately $11,400, after deducting applicable costs and expenses. 9. COMMON STOCK OPTIONS The Company's 1988 Stock Option Plan (1988 Plan) authorizes the issuance of 850 shares of Common Stock for the grant of incentive or nonstatutory stock options to employees and directors. Under the terms of the 1988 Plan, options to purchase Common Stock are granted at no less than the stock's estimated fair market value at the date of the grant and may be exercised during specified future periods as determined by the Board of Directors. The 1988 Plan provides that the options shall expire no more than ten years after the date of the grant. In March 1995, the Board of Directors approved a 1995 Stock Option Plan (1995 Plan) that authorized the issuance of up to 350 shares of Common Stock for the grant of incentive or no statutory stock options to employees and directors. The Board of Directors approved an additional 1,850 shares of Common Stock for grant. Under the terms of the 1995 Plan, options to purchase Common Stock are granted at no less than the stock's estimated fair market value at the date of the grant and may be exercised during specified future periods as determined by the Board of Directors. The 1995 Plan provides that the options shall expire no more than ten years after the date of the grant. Shares underlying outstanding options under the 1988 Plan and the 1995 Plan are as follows:
SHARES UNDERLYING OUTSTANDING OPTIONS ------------------------ SHARES PRICE -------- ------------ Outstanding, April 30, 1996... 835 $1.00--$2.00 Granted..................... 270 $5.00--$6.50 Exercised................... (80) $1.14--$2.00 Canceled.................... (33) $2.00--$5.38 ------- ------------ Outstanding, April 30, 1997... 992 $1.00--$6.50 ======= ============ Granted..................... 544 $5.00--$16.63 Exercised................... (121) $1.00--$5.38 Canceled.................... (100) $2.00--$10.13 ------- ------------- Outstanding, April 30, 1998... 1,515 $1.00--$16.63 ======= ============= Granted..................... 1,135 $5.06--$5.56 Exercised................... (142) $1.14--$5.38 Canceled.................... (426) $2.00--$16.63 ------- ------------- Outstanding, April 30, 1999... 2,073 $1.14--$6.00 ======= =============
Options to purchase 822 shares of Common Stock were exercisable as of April 30, 1999 and options to purchase 728 shares of Common Stock were available for future grant as of April 30, 1999. In addition to the options described above, the Chairman of the Board of Directors received an option to purchase 200 shares of Common Stock at an exercise price of $5.00 per share in April 1995. At that time, such exercise price was considered to be above the estimated fair market value. As of April 30, 1998, all such options were still outstanding and unexercised. The options expire ten years after the date of the grant. As permitted under Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," the Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related Interpretations, in accounting for stock-based awards to employees. Under APB 25, because the exercise price of the Company's employee stock options generally equals the market price of the underlying stock on the date of grant, no compensation expense has been recognized in the Company's consolidated financial statements during fiscal 1999, 1998 or 1997. 31 33 Pro forma information regarding net income and earnings (loss) per share is required by SFAS 123. This information is required to be determined as if the Company had accounted for its employee stock options (including shares issued under the Stock Purchase Plan, collectively called "options") granted subsequent to April 30, 1995 under the fair value method prescribed by SFAS 123. The fair value of options granted in fiscal years 1999, 1998 and 1997, reported below has been estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:
FISCAL YEAR ENDED APRIL 30, ------------------------------- 1999 1998 1997 ------ ------ ------ Risk-free rate (%) Low............................ 4.05 5.79 5.55 High........................... 5.67 6.42 6.54 Volatility (%).................... 54.00 34.00 55.92 Expected Life (in Years).......... 9.66 10.0 10.0 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 1999, 1998 and 1997 was $3.57, $5.82 and $3.94 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, --------------------------------- 1999 1998 1997 ------ ------ ------ Pro forma net income (loss)............ $(3,742) $ 3,373 $(6,711) Pro forma net income (loss) per common share................................ $ (0.33) $ 0.32 $ (0.84)
Because the Company anticipates making additional grants and options vest over several years, the effects on pro forma disclosures of applying SFAS 123 are not likely to be representative of the effects on pro forma disclosures of future years. SFAS 123 is applicable only to options granted subsequent to April 30, 1995. The following table summarizes information about stock options outstanding as of April 30, 1999:
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 1999 LIFE PRICE 1999 PRICE -------- ------------ ----------- --------- ------------ -------- $1.14--$2.00 405 4.74 $1.82 377 $1.81 $3.50--$5.00 575 6.90 $4.86 334 $4.76 $5.06--$6.00 1,093 9.10 $5.20 111 $5.34
32 34 10. EXPORT SALES, MAJOR CUSTOMERS AND CREDIT RISK Export sales, principally to Asia, accounted for 52%, 48% and 41% of total product revenue in 1999, 1998 and 1997, respectively. Included in export sales to Asia were sales to Japan, which accounted for approximately 16%, 16% and 13% of total revenue in fiscal 1999, 1998, and 1997, respectively. No other foreign country accounted for more than 10% of total revenue during these periods. The Company entered into a distribution arrangement with Hewlett-Packard Corporation ("HP") under which HP formerly distributed the Company's HFSS product on an exclusive basis (the "HP Agreement"). The HP Agreement has since expired, and HP has no right to distribute the Company's HFSS 4.0 product. The Company currently sells the latest version of its HFSS product, Ansoft HFSS 6.0, through its own sales force and other distributors. Revenue from the HP Agreement accounted for 3% and 12% of total revenue in fiscal 1998 and 1997, respectively. The Company markets its software products to customers throughout the world directly and through distributors and generally does not require collateral. However, letters of credit are obtained from certain international customers prior to shipment. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential credit losses. The Company believes that it has adequately provided for credit losses. 11. INCOME TAX The provisions for income taxes consists of the following:
APRIL 30, --------------------------------- 1999 1998 1997 ------- ------- ------- Current: Federal ......... $ -- $ 333 $ -- Foreign ......... -- -- -- State ........... -- 95 -- ------- ------- ------- Total ........ -- 428 -- Deferred: Federal ......... (1,057) (1,447) (316) State ........... (153) 19 (104) ------- ------- ------- Total ........ (1,210) (1,428) (420) ------- ------- ------- Total benefit for income taxes .... $(1,210) $(1,000) $ (420) ======= ======= =======
The Company's actual income tax expense (benefit) differs from the expected income tax expense (benefit) computed by applying the statutory federal income before income taxes as a result of the following:
APRIL 30, ----------------------------- 1999 1998 1997 ------ -------- -------- Income tax expense (benefit) at statutory rate............................ $(1,366) $ 1,044 $ (2,335) State income tax, net of federal offset.................................... (101) 142 (419) Net deductible intangible assets............ -- -- -- Expiration of state net operating losses.................................... -- 241 61 Change in valuation allowance............... 43 (2,857) 2,258 Reduction in state deferred tax due to decrease in state effective tax rate... 243 -- Other, net.................................. 214 187 15 ------- -------- -------- Actual income tax benefit................... $(1,210) $ (1,000) $ (420) ======= ======== ========
In addition to the income tax expense (benefit) reported above, a deferred tax liability of $640 was recorded during the fiscal year ended April 30, 1998 in connection with the acquisition of Boulder. 33 35 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, -------------------- 1999 1998 ------- ------- Deferred tax assets: Net operating loss carryforward ........................ $ 3,295 $ 2,089 Allowance for doubtful accounts ........................ 66 56 Alternative minimum tax credit carryforward ............ 86 -- Foreign Tax Credit carryforward ........................ -- Intangible Assets ...................................... 71 -- Net Unrealized Losses on Available for Sale Securities.. 340 ----- ------- ------- Total gross deferred tax assets .......................... 3,858 $ 2,145 Less valuation allowance ................................. 383 -- ------- ------- Net deferred tax assets .................................. 3,475 2,145 ------- ------- Deferred tax liabilities: Intangible assets ...................................... (61) Property, plant, and equipment ......................... (356) (176) ------- ------- Total gross deferred tax liability ....................... (356) (237) ------- ------- Net deferred taxes ....................................... $ 3,119 $ 1,908 ======= =======
The valuation allowance for deferred tax assets as of May 1, 1998 and 1997 was $0 and $2,857, respectively. The net change in the total valuation allowance for the years ended April 30, 1999 and April 30, 1998 was an increase of $383 and a decrease of $2,857, respectively. Management evaluates the recoverability of the deferred tax assets and the level of the valuation on a quarterly basis. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. An additional gross deferred tax benefit of $340 was generated in the year ended April 30, 1999 with respect to unrealized losses on available for sale securities. Since the use of the unrealized loss is limited to offsetting capital gains, management placed a valuation of $340 upon this deferred tax asset, and no benefit was reported in stockholder's equity or income. As of April 30, 1999, the Company had net operating loss carryforwards for federal income tax purposes of $9,100 which are available to offset future federal taxable income, if any, through April 30, 2019. 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. 34 36 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 of the company are filed as part of this annual report on form 10-k.
PAGE ---- Independent Auditor's Report............................................................................... 22 Consolidated Balance Sheets as of April 30, 1999 and 1998.................................................. 23 Consolidated Statements of Operations for the years ended April 30, 1999, 1998 and 1997.................... 24 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended April 30, 1999, 1998 and 1997...................................................................... 25 Consolidated Statements of Cash Flows for the years ended April 30, 1999, 1998 and 1997.................... 26 Notes to Consolidated Financial Statements................................................................. 27 2. Financial Statement Schedule: Schedule II--Valuation and Qualifying Accounts for the years ended April 30, 1999, 1998 and 1997................ 37
Financial statement schedules not listed above have been omitted because they are inapplicable, are not required under applicable provisions of Regulation S-X, or the information that would otherwise be included in such schedules is contained in the registrant's financial statements or accompanying notes. 2. Exhibits. The Exhibits listed below are filed or incorporated by reference as part of this Annual Report on Form 10-K.
EXHIBIT NUMBER DESCRIPTION ------ ---------------------------------------------------------------------- 1.1 Underwriting Agreement (incorporated by reference from Registration Statement No. 333-40189) 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference from Registration Statement No. 333-40189) 3.2 Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation (incorporated by reference from Registration Statement No. 333-40189) 3.3 Bylaws of the Company (incorporated by reference from Registration Statement No. 333-1398). 5.1 Opinion of Buchanan Ingersoll Professional Corporation regarding the legality of the shares of common stock of Ansoft Corporation being registered (incorporated by reference from Registration Statement No. 333-40189) 10.1 1988 Stock Option Plan of the Company (incorporated by reference from Registration Statement No. 333-1398). 10.2 1995 Stock Option Plan of the Company (incorporated by reference from Registration Statement No. 333-1398). 10.3 Zoltan Cendes Stock Option Agreement, dated April 30, 1995 (incorporated by reference from Registration Statement No. 333-1398). 10.4 Office Lease Agreement between Commerce Court Associates and the Company dated June 7, 1989 (incorporated by reference from Registration Statement No. 333-1398). 10.5 Amendment No. 1 to Office Lease Agreement between Commerce Court Associates and the Company dated March 17, 1994 (incorporated by reference from Registration Statement No. 333-1398). 10.6 Software Distribution Agreement, by and between the Company and Hewlett-Packard, dated January 1, 1994 (incorporated by reference from Registration Statement No. 333-1398). 10.7 First Amendment to Software Distribution Agreement, by and between the Company and Hewlett-Packard, dated May 9, 1995 (incorporated by reference from Registration Statement No. 333-1398). 10.8 Second Amendment to Software Distribution Agreement, by and between the Company and Hewlett-Packard, dated September 7, 1995 (incorporated by reference from Registration Statement No. 333-1398). 10.9 Underwriting Agreement dated April 3, 1996 by and between Registrant and Janney Montgomery Scott Inc. and Pennsylvania Merchant Group Ltd., as representatives for the Underwriters identified therein (incorporated by reference from Registration Statement No. 333-1398). 10.10 Jacob K. White Stock Option Agreement dated February 1, 1996, as amended (incorporated by reference from Registration Statement No. 333-40189) 10.11 John N. Whelihan Stock Option Agreement dated February 1, 1996, as amended. (incorporated by reference from Registration Statement No. 333-40189) 10.12 Asset Purchase Agreement by and between Ansoft Corporation and The MacNeal-Schwendler Corporation dated as of July 24, 1996 for the Electronic Business Unit (incorporated by reference from the Company's Current Report filed on Form 8-K dated August 9, 1996, as amended by the Company's Current Report filed on
35 37 Form 8-K/A dated October 8, 1997). 10.13 Stock Purchase Agreement by and between Ansoft Corporation and Dr. Ulrich L. Rohde and Dr. Meta Rohde dated as of April 9, 1997 (incorporated by reference from the Company's Current Report filed on Form 8-K dated April 22, 1997, as amended by the Company's Current Report filed on Form 8-K/A dated June 26, 1997). 10.14 Registration Rights Agreement between the Company and Dr. Ulrich L. Rohde and Dr. Meta Rohde dated as of April 9, 1997. 21.1 Subsidiaries of the registrant (incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 1997). 23.1 Consent of Buchanan Ingersoll Professional Corporation (incorporated by reference from Registration Statement No. 333-40189) 24.1 Powers of Attorney (incorporated by reference from Registration Statement No. 333-40189) *27.1 Financial Data Schedule.
*Filed herewith (b) Reports on Form 8-K filed during the last quarter of fiscal 1999. None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on July 16, 1999 ANSOFT CORPORATION By /s/ NICHOLAS CSENDES -------------------- Nicholas Csendes President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on July 16, 1999. SIGNATURE TITLE /s/ NICHOLAS CSENDES Director and President and Chief ----------------------------- Executive Officer (Principal Nicholas Csendes Executive Officer) /s/ ZOLTAN J. CENDES Director and Chief Technology ----------------------------- Officer and Chairman of the Board Zoltan J. Cendes of Directors /s/ THOMAS A.N. MILLER Director ----------------------------- Thomas A.N. Miller /s/ ULRICH L. ROHDE Director ----------------------------- Ulrich L. Rohde /s/ JOHN N. WHELIHAN Director ----------------------------- John N. Whelihan /s/ JACOB WHITE Director ----------------------------- Jacob White /s/ ANTHONY L. RYAN Chief Financial Officer (Principal ----------------------------- Financial and Accounting Officer) Anthony L. Ryan 36 38 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, 1999 Allowance for doubtful accounts 150 25 -- 175 Year ended April 30, 1998 Allowance for doubtful accounts 125 25 -- 150 Year ended April 30, 1997 Allowance for doubtful accounts 125 -- -- 125
37 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF INCOME FOR YEAR ENDED APRIL 30, 1998 AND THE BALANCE SHEET AT APRIL 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR APR-30-1999 MAY-01-1998 APR-30-1999 2,489 22,191 8,820 175 0 28,430 4,663 983 52,630 11,731 0 0 0 116 40,747 52,630 17,847 24,475 0 30,080 0 0 0 (4,018) 1,210 (2,808) 0 0 0 (2,808) (0.25) (0.25)
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