10-K 1 j0226301e10vk.txt ANSOFT CORPORATION 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 for the fiscal year ended April 30, 2003 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________ to ________ Commission file number 000-27874 ANSOFT CORPORATION (Exact name of registrant as specified in its charter) Delaware 72-1001909 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification no.) Four Station Square, Suite 200 Pittsburgh, Pennsylvania 15219-1119 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (412) 261-3200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, par value $.01 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark if whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] As of October 31, 2002, 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 $38,659,420. The number of shares of the registrant's common stock outstanding as of the close of business on July 21, 2003 was 12,340,832. 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 2003 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. TABLE OF CONTENTS
Item of Form 10-K Page ----------------- ---- Part I 1. Business 2 2. Properties 9 3. Legal Proceedings 9 4. Submission of Matters to a Vote of Security Holders 9 4.(a) Executive Officers of the Registrant 9 Part II 5. Market for Registrant's Common Equity and Related Stockholders Matters 10 6. Selected Consolidated Financial Data 11 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 7.(a) Quantitative and Qualitative Disclosure about Market Risk 18 8. Financial Statements and Financial Statement Schedule 19 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosures 35 Part III Part III information (Item 10 through Item 13 and Item 15) 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. 14. Controls and Procedures 35 Part IV 16. Exhibits and Financial Statement Schedule 35 Signatures 37 Certifications 38 Schedule II - Valuation and Qualifying Accounts 40
1 PART I ITEM 1. BUSINESS The statements contained in this report 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 "Risk Factors" under "Item 1. Business." The following discussion and analysis also should be read in conjunction with "Item 6. Selected Consolidated Financial Data" and our Consolidated Financial Statements and Notes thereto included elsewhere in this report. Results actually achieved may differ materially from expected results included in these statements. OVERVIEW Ansoft Corporation ("Ansoft" or the "Company") is a developer of electronic design automation ("EDA") software used in high technology products and industries. Ansoft's software is used by electrical engineers in the design of state of the art technology products, such as cellular phones, internet networking, satellite communications systems, computer chips and circuit boards, and electronic sensors and motors. Engineers use our software to maximize product performance, eliminate physical prototypes, and to reduce time-to-market. INDUSTRY BACKGROUND In recent years, engineers have used EDA software to automate the previously manual, time-consuming and error-prone design process, resulting in dramatic increases in productivity and efficiency. EDA software can be used in each of the three phases of the electronic design process: Logic Design and Synthesis, which provides an outline of the system's overall architecture; Functional Design and Analysis, which encompasses the specification of desired functionality, functional design, simulation and analysis; and Physical Design and Verification, which involves the creation of physical layout (i.e., placement and routing) and verification that the design meets required specifications. As the marketplace demands higher levels of system performance and miniaturization, the need to model accurately the electromagnetic interaction in communication and computing devices and electromechanical components is becoming increasingly important. The design requirement to fit more devices and interconnections into smaller spaces results in increased electromagnetic interaction. Moreover, high performance systems, with frequencies of approximately 500 MHz and beyond, exhibit a high level of electromagnetic interaction causing the degradation of the quality of electrical signals. These problems are exacerbated by time-to-market pressures and the need to reduce design and development costs. While traditional EDA tools have become more sophisticated, they lack the requisite degree of precision in modeling electromagnetic interactions in components and systems. As a result, the current process for designing and manufacturing wireless and electronic components and systems is often iterative, time-consuming and inaccurate. Designs are generated, devices and systems are developed, prototypes are manufactured, performance is measured and assessed and designs are then refined to meet the original performance specifications. This entire process is typically repeated a number of times, lengthening the design process, increasing costs and resulting in lost market opportunities. THE ANSOFT SOLUTION Our software products allow design engineers to model component level and system level electromagnetic interaction which we believe is crucial to the effective design of electronic systems and components. Our products apply electromagnetic principles, derived from Maxwell's Equations, to more accurately model electromagnetic interaction. By using Ansoft software products to analyze electromagnetic interaction, we believe that end users of our products are able to reduce the time-to-market for their products, lower the risks of design failure and eliminate costly and time-consuming product redesign. Ansoft's software products may be used as an independent design platform or integrated with complementary EDA tools within a customer's existing design environment. Our research and development team has broad expertise in electromagnetic simulation, electrical engineering, applied mathematics and software development, enabling Ansoft to continue to advance its electromagnetics-based EDA software. 2 ANSOFT STRATEGY Ansoft's objective is to become a leading worldwide supplier of EDA software. Using our proprietary electromagnetic technology as a primary competitive advantage, we pursue our objectives through the following strategies: leveraging our technology leadership to solve emerging electromagnetic design issues in high performance electrical devices and systems; capitalizing on the growing need for electromagnetic analysis in increasingly compact and complex electronic and electromechanical components and systems operating at higher speeds; and expanding our broad range of product applications to address emerging customer design requirements. PRODUCTS Our high-frequency software enables users to design radio frequency integrated circuits (RFICs), antenna and radar systems and microwave components. Our signal integrity software enables users to design computer interconnects, monolithic microwave integrated circuits (MMICs), integrated circuit (IC) packaging structures and electronic systems by accurately capturing the degradation in signal quality due to higher clock speeds and smaller physical dimensions. Our low frequency software products enable designers of electromechanical components and systems to optimize the electrical performance of their designs while increasing manufacturing yields. We currently provide several products that address our customers' component and system level design needs. Customers encounter different combinations of challenges in their designs and often purchase multiple products. We have organized the products below by their market application. Ansoft High Frequency Software HFSS is a three dimensional (3D) electromagnetic field simulation software for high frequency, radio frequency (RF) and wireless design. 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. Ansoft Designer is the first suite of design tools to fully integrate high-frequency, physics-based electromagnetic simulation into a seamless environment. Ansoft Designer merges the power of electromagnetics, into circuit and system-level simulation. The key to this integration is a unique capability called solver-on-demand(TM) that orchestrates the use of multiple solvers - while still giving you complete control. Ansoft Designer extends this automation and integration even further by enabling work created in other types of design software to be rapidly imported as easily as if it was created directly in Ansoft Designer. Ansoft's Signal Integrity Software SIwave is a wave-enabled software product for the advanced analysis of printed circuit boards (PCBs), components, and packages, SIwave is the only signal-integrity tool on the market to generate both frequency- and time-domain results, allowing engineers to model not only individual components, but also entire PCBs and package structures. Combined with Ansoft's established strength in time-domain simulation, SPICE-based transistor-level analysis, and IBIS drivers to provide the widest range of simulation capabilities available today. Spicelink, a physics-based EDA tool for the electromagnetic-field simulation of two-dimensional (2D) and arbitrary three-dimensional (3D) structures, provides engineers with unprecedented levels of accuracy and confidence in their designs. Consisting of 2D and 3D solver engines, an easy-to-use drawing tool, and a built-in SPICE simulator, Spicelink provides engineers with a complete environment to extensively analyze their high-speed electronic designs. Turbo Package Analyzer (TPA) is an advanced software tool that automates the analysis of all complex semiconductor packages. TPA can analyze flip-chip, chip-scale package, and multiple-die system-in-package designs common in the networking and broadband communications markets. Ansoft's Electromechanical (EM) Software 3 Maxwell 3D and 2D are comprehensive, easy-to-use software tools for design problems requiring an accurate, two-dimensional or three-dimensional representation of the electric or magnetic field behavior. Maxwell includes AC/DC magnetic, electrostatic, and transient electromagnetic fields; thermal analysis; parametric modeling; and optimization. Additionally, Maxwell produces highly accurate equivalent circuits for inclusion within Ansoft's SIMPLORER(R) and other circuit tools. SIMPLORER is a sophisticated multi domain simulation package for the design of complex power electronic and drive systems. SIMPLORER is based on a unique simulator coupling technology and provides exceptional simulation speed combined with high accuracy and numerical stability. The intuitive graphical user interface allows a fast and easy model generation using three modeling languages - electrical circuits, block diagrams and state machines. All description languages can be used simultaneously. Models are developed using a powerful schematic capture program. Simulation results may be displayed with oscilloscopes or digital displays using SIMPLORER's unique Active Elements Technology. Animated symbols help visualizing system states during the simulation. PEmag is a specialized software package for power electronics engineers wishing to perform advanced electromagnetic and signal analysis of magnetic components. PEmag is especially well suited for the design of custom magnetic components with ferrite cores used in high frequency applications. RMxprt helps electric-machine manufacturers capitalize on this growing opportunity by allowing designers to make sizing decisions and to estimate performance during the initial stage of the design process. RMxprt is an ideal tool for calculating critical design parameters, such as torque vs. speed, power loss, flux in the air gap, and efficiency. Ansoft's Add-On Modules AnsoftLinks provides unidirectional and bidirectional links for streamlining data import and exportation between Ansoft's products and popular electronic design automation (EDA) packages and Mechanical CAD (MCAD) packages. EDA links include such companies as Cadence(R), Synopsys(R), Zuken(R), Mentor(R), and Avant! (R). MCAD links include IGES and STEP formats common to ProE, Catia and Unigraphics. Full-Wave Spice is an add-on module for Ansoft's electromagnetic field solvers enabling SPICE transient analysis of interconnects for gigabit ethernet, optoelectronic packaging, and other broadband communications design. Full-Wave Spice provides high-bandwidth SPICE models at the touch of a button. This capability enables engineers to design electronic and communication components while taking Gigahertz-frequency effects into account. Optimetrics is an add-on module for Ansoft's electromagnetic field solvers which provides integrated parametrics and optimization. Optimetrics is a smart parametrics and optimization engine that allows users to perform parametric analysis, optimization, sensitivity analysis, and other design studies from an easy to use interface. 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 20 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, edge elements and tangential vector finite elements and fast multipole acceleration algorithms. We continually seek to design and develop new technologies, products and interfaces based on our core electromagnetic expertise. This effort includes releasing improved versions of our products on a regular basis as well as developing new products. Ansoft assigns an interdisciplinary team of personnel from research and development, software development, documentation, quality assurance, customer support and marketing to each product development project. Ansoft develops cooperative relationships with major customers with respect to beta-testing its new products or enhancements and implementing suggestions for new product features. The Company also maintains cooperative relationships with the major hardware vendors on which the Company's products operate. The Company believes that its team approach and cooperative relationships allow it to design products that respond on a timely basis to emerging trends in computing, graphics and networking technologies. As of April 30, 2003, Ansoft's research and development group consisted of 104 employees. During fiscal 2003, 2002 and 2001, total 4 research and development expenses were $18.6 million, $17.7 million and $12.7 million, respectively. In July 2000, Ansoft announced its formation of Altra Broadband to pursue the development of critical intellectual property and products for broadband wireless and optical communications. In spite of certain technical successes, profitable deployment of intellectual property developed by Altra Broadband's Irvine Technology Center in this telecom environment was deemed unlikely in the near term. As such, the Company closed the Irvine Technology Center during the quarter ended October 31, 2002, resulting in a restructuring charge of $532,000 that is included in "Research and development expense." SALES AND MARKETING Ansoft markets and sells its products worldwide through its direct sales force. The Company hires application engineers with significant industry experience who can analyze the needs of its customers and gain technical insight into the development of future products and enhancements to existing products. The Company's application engineers work with the direct sales force to provide on-site support during critical stages of the user's benchmark, evaluation and implementation processes. The Company generates sales leads through customer referrals, advertising in trade publications and on the World Wide Web. In addition, the Company participates in industry trade shows and organizes seminars to promote and expand the adoption of its products. In North America, the Company maintains sales and support offices in Arizona, California, Florida, Illinois, Massachusetts, Michigan, New Jersey, Ohio, Texas, Wisconsin, and Pennsylvania. In Asia-Pacific, the Company maintains sales and support offices in Japan, Korea, Singapore, Taiwan, and China. In Europe, the Company maintains sales and support offices in England, Germany, France, Italy and Denmark. As of April 30, 2003, the Company had a direct sales force of 49 representatives, supported by 106 employees in application engineering, marketing and sales administration. CUSTOMERS The Company has significant breadth in its installed base with over 1,000 customers in the communications, semiconductor, automotive/industrial, computer, consumer electronics and defense/aerospace industries. No single customer in the Company's installed base accounted for more than 10% of total revenue within any of the past three fiscal years. The following table lists a representative sample of the Company's current worldwide end-user customers by industry that have generated greater than $100,000 in revenue during the fiscal year ended April 30, 2003.
COMMUNICATIONS SEMICONDUCTOR AUTOMOTIVE/INDUSTRIAL -------------- ------------- --------------------- Motorola Intel ABB Ericsson Harris Daimler Chrysler Qualcomm AMCC Delphi Rockwell Amkor Electronics Mitsubishi Siemens On Semiconductor Ford Motor EMS Cisco General Motors Nortel LG Nissan ST Microelectronics Molex Robert Bosch COMPUTER CONSUMER ELECTRONICS DEFENSE/AEROSPACE -------- -------------------- ----------------- Cray Kyocera Raytheon Fujitsu Matsushita Boeing Hitachi Mitsubishi Lockheed-Martin Honeywell Phillips Northrop Grumman IBM Sony TRW NEC Toshiba US Navy Sun Microsystems Seiko Epson NASA
CUSTOMER SERVICE AND SUPPORT Ansoft offers customers annual maintenance contracts that may be purchased for 15% of the list price of the respective software product. Customer support services include on-line and telephone support for design engineers and on-site and in-house training on all products. Customers with maintenance agreements receive product enhancement releases, typically identified by a subsequent whole number version of the same product name (e.g., HFSS V9). Product upgrades that add significant new functionality are typically separately identified as an add-on module have a stand-alone list price (e.g., Optimetrics) and are not covered by the annual 5 maintenance agreement. We offer a variety of training programs for customers ranging from introductory level courses to advanced training for an additional fee. COMPETITION The electronic design automation software market in which Ansoft competes is intensely competitive and subject to rapid change. Within our High Frequency Software products, Ansoft competes directly with certain software offerings from Agilent Corporation and certain smaller privately-held companies on a limited basis. Within our Signal Integrity Software products, Ansoft mainly competes with in-house analysis tools or test and measurement methodologies and products of certain smaller privately-held companies. Within our Electromechanical Software products, Ansoft faces limited competition from certain product offerings from Synopsys, Mentor Graphics, Ansys, and certain smaller privately-held companies. In addition, the EDA industry has become increasingly concentrated in recent years as a result of acquisitions, and further concentration within the EDA industry could result in increased competition for Ansoft. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could seriously harm Ansoft's business, operating results or financial condition. Ansoft may be unable to compete successfully against current and future competitors, and competitive pressures faced by Ansoft could seriously harm Ansoft's business, operating results and financial condition. We believe that the principal competitive factors in our market include: - High performance (problem complexity) and accuracy; - Short run time; - Ease of use; - Depth and breadth of product features; - High quality user support; - Interoperability; and - Price. PROPRIETARY RIGHTS Ansoft is heavily dependent on its proprietary software technology. The Company relies on a combination of non-competition and confidentiality agreements with its employees, license agreements, copyrights, trademarks and trade secret laws to establish and protect proprietary rights to its technology. Ansoft does not hold any patents. All Ansoft software is shipped with a security lock which limits software access to authorized users. In addition, the Company does not license or release its source code. Effective copyright and trade secret protection of the Company's proprietary technology may be unavailable or limited in certain foreign countries. EMPLOYEES As of April 30, 2003, Ansoft had a total of 285 employees, including 104 in research and development, 155 in sales, marketing, and customer support services and 26 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 our employees are highly skilled, and there is no assurance that the Company will be able to attract and retain sufficient technical personnel in the future. OTHER INFORMATION Ansoft maintains investor relations pages on its internet website at http://www.ansoft.com. On these pages, Ansoft makes available its annual, quarterly and other current reports filed or furnished with the SEC as soon as practicable. These reports may be reviewed or downloaded free of charge. 6 RISK FACTORS Our Future Operating Results Are Uncertain. Ansoft has incurred net losses in four of the past five fiscal years. There can be no assurance that Ansoft's revenue and net income will grow or be sustained in future periods or that Ansoft will be profitable in any future period. Future operating results will depend on many factors, including the degree and the rate of growth of the markets in which Ansoft competes and the accompanying demand for Ansoft's products, the level of product and price competition, the ability of Ansoft to develop and market new products and to control costs, the ability of Ansoft to expand its direct sales force and the ability of Ansoft to attract and retain key personnel. Our Quarterly Operating Results Are Difficult To Predict. We are unable to accurately forecast our future revenues primarily because of the emerging nature of the market in which we compete. Our revenues and operating results generally depend on the size, timing and structure of significant licenses. These factors have historically been, and are likely to continue to be, difficult to forecast. In addition, our current and future expense levels are based largely on our operating plans and estimates of future revenues and are, to an extent, fixed. We may be unable to adjust spending sufficiently or quickly enough to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues in relation to our planned expenditures would seriously harm our business, financial condition and results of operations. Such shortfalls in our revenue or operating results from levels expected by public market analysts and investors could seriously harm the trading price of our common stock. Additionally, we may not learn of such revenue shortfalls, earnings shortfalls or other failure to meet market expectations until late in a fiscal quarter, which could result in an even more immediate and serious harm to the trading price of our common stock. Our quarterly operating results have varied, and it is anticipated that our quarterly operating results will vary, substantially from period to period depending on various factors, many of which are outside our control. Due to the foregoing factors, we cannot predict with any significant degree of certainty our quarterly revenue and operating results. Further, we believe that period-to-period comparisons of our operating results are not necessarily a meaningful indication of future performance. Our Stock Price Is Extremely Volatile. The trading price of our common stock has fluctuated significantly in the past, and the trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in price in response to such factors as: - Actual or anticipated fluctuations in our operating results; - Announcements of technological innovations and new products by us or our competitors; - New contractual relationships with strategic partners by us or our competitors; - Proposed acquisitions by us or our competitors; and - Financial results that fail to meet public market analyst expectations of performance. In addition, the stock market in general, The Nasdaq National Market and the market for technology companies in particular has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. These broad market and industry factors may seriously harm the market price of our common stock in future periods. Businesses Or Assets We Acquire May Not Perform As Projected. We have acquired or merged with a number of technologies, assets and companies in recent years, including the following within the past three years: Agilent Technologies' HFSS product line and SIMEC GmbH. As part of our efforts to increase revenue and expand our product and services offerings we may acquire additional companies in the future. In addition to direct costs, acquisitions pose a number of risks, including potential dilution of earnings per share, delays and other problems of integrating the acquired products and employees into our business, the failure to realize expected synergies or cost savings, the failure of acquired products to achieve projected sales, the drain on management time for acquisition-related activities, possible adverse effects on customer buying patterns due to uncertainties resulting from an acquisition, and assumption of unknown liabilities. The foregoing factors could seriously harm our business, financial condition and results of operations. We May Lose Competitive Advantages If Our Proprietary Rights Are Inadequately Protected. Ansoft's success depends, in part, upon its proprietary technology. We rely on a combination of trade secrets, copyrights, trademarks and contractual commitments to protect our proprietary rights in our software products. We generally enter into confidentiality or license agreements with our employees, distributors and customers, and limit access to and distribution of our software, documentation and other proprietary information. Despite these precautions, a third party may still copy or otherwise obtain and use our products or technology without authorization, or develop similar technology independently. In addition, effective patent, copyright and trade secret protection may be unavailable or limited in certain foreign countries. It is possible that we may fail to adequately protect our proprietary rights. This would seriously harm Ansoft's business, operating results and financial condition. 7 We May Be Unable To Attract And Retain The Key Management And Technical Personnel That We Need To Succeed. Ansoft's future operating results depend in large part upon the continued services of its key technical and management personnel. Ansoft does not have employment contracts with any executive officer. Ansoft's future success will also depend in large part on its ability to continue to attract and retain highly skilled technical, marketing and management personnel. The competition for such personnel, as well as for qualified EDA engineers, is intense. If Ansoft is unable to attract, hire and retain qualified personnel in the future, the development of new products and the management of Ansoft's increasingly complex business would be impaired. This could seriously harm Ansoft's business, operating results and financial condition. We Depend On International Sales for a Significant Percentage Of Our Revenue. International revenue, principally from Asian customers, accounted for approximately 56% and 55% of our total revenue in the years ended April 30, 2003 and 2002, respectively. We expect that international license and service revenue will continue to account for a significant portion of our total revenue for the foreseeable future. Our international business activities are subject to a variety of potential risks, including: - The impact of recessionary environments in foreign economies; - Longer receivables collection periods and greater difficulty in accounts receivable collection; - Difficulties in staffing and managing foreign operations; - Political and economic instability; - Unexpected changes in regulatory requirements; - Reduced protection of intellectual property rights in some countries; and - Tariffs and other trade barriers. Currency exchange fluctuations in countries in which we license our products could also seriously harm our business, financial condition and results of operations by resulting in pricing that is not competitive with products priced in local currencies. Furthermore, we may not be able to continue to generally price our products and services internationally in U.S. dollars because of changing sovereign restrictions on importation and exportation of foreign currencies as well as other practical considerations. In addition, the laws of certain countries do not protect our products and intellectual property rights to the same extent, as do the laws of the United States. Moreover, it is possible that we may fail to sustain or increase revenue derived from international licensing and service or that the foregoing factors will seriously harm our future international license and service revenue, and, consequently, seriously harm our business, financial condition and results of operations. We Need To Successfully Manage Our Expanding Operations. Ansoft has experienced rapid growth in recent years which has placed and could continue to place a significant strain on its managerial and other resources. Revenues have grown from $6.2 million in fiscal 1995 to $47.3 million in fiscal year 2003, and the number of employees has grown from 69 in April 1996 to 285 as of April 30, 2003. Ansoft's ability to manage growth effectively will require it to continue to improve its operational and financial systems, hire and train new employees and add additional space, both domestically and internationally. Ansoft may not be successful in addressing such risks, and the failure to do so would seriously harm Ansoft's business, financial condition and results of operations. We Depend On The Growth Of The Communications, Semiconductor And Electronics Industries. Ansoft is dependent upon the communications and semiconductor industry and, more generally, the electronics industry. These industries are characterized by rapid technological change, short product life cycles, fluctuations in manufacturing capacity and pricing and gross margin pressures. Segments of these industries have from time to time experienced significant economic downturns characterized by decreased product demand, production over-capacity, price erosion, work slowdowns and layoffs. Any significant downturn could be especially severe on Ansoft. During such downturns, the number of new integrated circuit design projects often decreases. Because acquisitions of new licenses from Ansoft are largely dependent upon the commencement of new design projects, any slowdown in these industries could seriously harm Ansoft's business, financial condition and results of operations. We Are Controlled By Our Principal Stockholders And Management Which May Limit Your Ability To Influence Stockholder Matters. Our executive officers, directors and principal stockholders own approximately 46% of the outstanding shares of Ansoft common stock. As a result, they have the ability to effectively control us and direct our affairs, including the election of directors and approval of significant corporate transactions. This concentration of ownership also may have the effect of delaying, deferring or preventing a change in control of our company and may make some transactions more difficult or impossible without the support of these stockholders. The interests of these stockholders may conflict with those of other stockholders. 8 Anti-Takeover Provisions in Ansoft's Certificate Of Incorporation, Bylaws, And Under Delaware Law Could Prevent An Acquisition. We have adopted a number of provisions that could have anti-takeover effects. The Board of Directors has the authority to issue up to 1,000,000 shares of Preferred Stock without any further vote or action by Ansoft's stockholders. This and other provisions of Ansoft's Certificate of Incorporation, Bylaws and Delaware Law may have the effect of deterring hostile takeovers or delaying or preventing changes in control or management, including transactions in which the stockholders of Ansoft might otherwise receive a premium for their shares over then current market prices. ITEM 2. PROPERTIES Ansoft occupies approximately 28,000 square feet of space at its headquarters in Pittsburgh, Pennsylvania under a lease expiring in 2006. The Company also leases sales and support offices in North America, Europe and Asia. Our current aggregate annual rental expenses for these facilities is approximately $2.7 million. Ansoft believes that its existing facilities are adequate for its current needs and that suitable additional space will be available when needed. ITEM 3. LEGAL PROCEEDINGS Ansoft is not a party to any litigation and is not aware of any threatened litigation, unasserted claims or assessments that could have a material adverse effect on the Company's business, consolidated operating results or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable ITEM 4.(a) EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information concerning each of the executive officers of the Company:
NAME AGE TITLE ----------------------- --- -------------------------------------- Zoltan J. Cendes, Ph.D. 57 Chief Technology Officer Nicholas Csendes....... 59 President, and Chief Executive Officer Thomas Miller ......... 56 Executive Vice President Anthony L. Ryan........ 35 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 Technology Officer 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 200 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, for over 15 years. Since 1985, Mr. Csendes has been involved with various public and private companies including a publicly-held interactive software company. Thomas A.N. Miller is a founder of Ansoft and has served as a director since 1984 and served as Chief Financial Officer from 1994 to May 1997. In January 2001, Mr. Miller was appointed Executive Vice President. Since 1985, Mr. Miller has been involved with various public and private companies including a publicly-held interactive software company. Anthony L. Ryan joined Ansoft in 1995 as corporate controller. In May 1997, Mr. Ryan was appointed Chief Financial Officer. From 1991 to 1995, Mr. Ryan worked as a certified public accountant with KPMG LLP, an international accounting firm. Dr. Zoltan J. Cendes and Mr. Nicholas Csendes are brothers. There are no other family relationships between the executive officers of the Company. 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS The following table sets forth, for the periods indicated, the range of high and low last reported sale prices for the common stock as reported on the Nasdaq National Market.
HIGH LOW ---- --- FISCAL YEAR ENDED APRIL 30, 2004 1st Quarter (through July 21, 2003).............. $ 11.200 $ 8.050 FISCAL YEAR ENDED APRIL 30, 2003 1st Quarter...................................... $ 12.100 $ 5.690 2nd Quarter...................................... 5.989 4.049 3rd Quarter...................................... 7.070 4.750 4th Quarter...................................... 8.530 5.830 FISCAL YEAR ENDED APRIL 30, 2002 1st Quarter...................................... $ 19.250 $ 9.080 2nd Quarter...................................... 17.800 9.030 3rd Quarter...................................... 19.200 12.950 4th Quarter...................................... 18.890 11.310
The Company has never paid any cash dividends on its common stock. We currently intend to retain the earnings from operations for use in the operation of its business and do not anticipate paying cash dividends with respect to our common stock in the foreseeable future. The payment of any future dividends will be determined by the Board of Directors in light of the then current conditions, including the Company's earnings and financial condition. On July 21, 2003, the Company had 320 shareholders of record, of which certain of the recordholders were registered clearing agencies holding common stock on behalf of participants of such clearing agencies. See "Equity Compensation Plan Information," Item 12 in Part III, which is incorporated by reference herein. 10 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected condensed consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related Notes thereto appearing elsewhere herein.
FISCAL YEAR ENDED APRIL 30, --------------------------------------------------- 2003 2002 2001 2000 1999 -------- -------- -------- -------- ------ (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA Revenue: License $27,540 $36,683 $29,951 $22,709 $15,705 Service and other 19,779 16,752 13,607 10,782 8,770 ------- ------- ------- ------- ------- Total revenue 47,319 53,435 43,558 33,491 24,475 ------- ------- ------- ------- ------- Cost of revenue: License 683 938 843 780 320 Service and other 970 871 701 529 428 ------- ------- ------- ------- ------- Total cost of revenue 1,653 1,809 1,544 1,309 748 ------- ------- ------- ------- ------- Gross profit 45,666 51,626 42,014 32,182 23,727 ------- ------- ------- ------- ------- Operating expenses: Sales and marketing 24,611 24,966 22,025 18,579 16,404 Research and development 18,588 17,705 12,711 10,176 8,391 General and administrative 4,284 4,555 3,667 3,322 2,937 Amortization 3,428 4,129 1,940 2,045 1,600 ------- ------- ------- ------- ------- Total operating expenses 50,911 51,355 40,343 34,122 29,332 ------- ------- ------- ------- ------- Income (loss) from operations (5,245) 271 1,671 (1,940) (5,605) Other income (expense), net 1,152 1,347 (1,608) 1,640 1,587 ------- ------- ------- ------- ------- Income (loss) before income taxes (4,093) 1,618 63 (300) (4,018) Income tax expense (benefit) (970) 404 908 (66) (1,210) ------- ------- ------- ------- ------- Net income (loss) $(3,123) $ 1,214 $ (845) $ (234) $(2,808) ======= ======= ======= ======= ======= Basic net income (loss) per share $ (0.26) $ 0.10 $ (0.07) $ (0.02) $ (0.25) ======= ======= ======= ======= ======= Diluted net income (loss) per share $ (0.26) $ 0.09 $ (0.07) $ (0.02) $ (0.25) ======= ======= ======= ======= ======= Weighted average shares outstanding - basic 11,809 11,844 11,690 11,460 11,310 Weighted average shares outstanding - diluted 11,809 13,649 11,690 11,460 11,310
APRIL 30, ---------------------------------------------------------- 2003 2002 2001 2000 1999 -------- -------- -------- -------- --------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA Cash and cash equivalents $ 7,173 $ 5,269 $ 9,412 $ 2,594 $ 2,489 Working capital 8,965 7,497 11,653 9,131 7,684 Total assets 63,154 68,224 57,973 53,610 52,630 Long term liabilities 10,000 10,520 9,060 9,194 7,446 Total stockholders' equity 39,826 43,647 41,595 39,047 40,863
Certain amounts previously reported have been reclassified to conform to the current year's reporting format. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The statements contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" which are not historical are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Company's present expectations or beliefs concerning future events. The Company cautions that such statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements including those factors identified in "Risk Factors" under "Item 1. Business." The following discussion and analysis also should be read in conjunction with "Item 6. Selected Consolidated Financial Data" and our Consolidated Financial Statements and Notes thereto included elsewhere in this report. Results actually achieved may differ materially from expected results included in these statements. OVERVIEW Ansoft Corporation ("Ansoft" or the "Company") is a developer of high performance electronic design automation ("EDA") software used in high technology products and industries. Ansoft's software is used by electrical engineers in the design of state of the art technology products, such as cellular phones, internet networking, satellite communications systems, computer chips and circuit boards, and electronic sensors and motors. Engineers use our software to maximize product performance, design optimal product size and materials, eliminate physical prototypes, and reduce time-to-market. Effective May 3, 2001, Ansoft entered into an agreement to acquire the following intangible assets related to the Agilent HFSS software product: customer list, non-compete agreement, and trademark. As part of the agreement Agilent agreed to transfer customer obligations for Agilent HFSS software to Ansoft. Effective February 2001, Ansoft acquired SIMEC. The cost of the transaction has been allocated on the basis of the estimated fair value of the assets acquired and the liabilities assumed. The transactions have been accounted for as purchases, and their respective financial results have been included in the accompanying consolidated financial statements since the date of their respective transactions. In July 2000, Ansoft announced its formation of Altra Broadband to pursue the development of critical intellectual property and products for broadband wireless and optical communications. In spite of certain technical successes, profitable deployment of intellectual property developed by Altra Broadband's Irvine Technology Center in this telecom environment was deemed unlikely in the near term. As such, the Company closed the Irvine Technology Center during the quarter ended October 31, 2002, resulting in a restructuring charge of $532,000 that is included in "Research and development expense." The restructuring was committed to and completed in the quarter ended October 31, 2002. The total $532,000 restructuring charge was comprised of a $407,000 charge for the impairment of fixed assets (included in the cash flow statement) and a charge of $125,000 for the remaining lease obligations for which a liability was recorded as of October 31, 2002. The impairment charge was based on third-party offers to purchase the remaining assets. CRITICAL ACCOUNTING POLICIES Ansoft's critical accounting policies are as follows: - Revenue Recognition - Valuation of Accounts Receivable - Impairment of Long-Lived Assets - Impairment of Marketable Securities Available for Sale - Deferred Tax Asset Valuation Allowance Revenue Recognition Revenue consists of fees for licenses of software products and service and other revenue. License revenue - Ansoft licenses its software on a perpetual basis with no right to return or exchange the licensed software. 12 Postcontract customer support ("PCS") is bundled with the perpetual licensing fee. Revenue related to the three-month PCS is deferred and recognized ratably over the three-month term. Ansoft's vendor-specific objective evidence of fair value, or VSOE, for the three-month PCS is based upon the pricing for comparable transactions when the element is sold separately. Ansoft's VSOE for the three-month PCS is based upon one fourth of the customer's annual maintenance contract renewal rates. Three-month PCS services provided are the same as maintenance. During the year ended April 30, 2002, the Company changed the PCS period bundled with the perpetual license from a one-year period to a three-month period to more closely align our pricing policy with other vendors within our industry. In addition, we no longer believed we could continue to expect future releases offered to customers under three-month PCS would only contain enhancements limited to bug fixes covered by warranty provisions and therefore the Company began deferring the PCS in fiscal 2002. Prior to fiscal 2002, the Company recognized PCS revenue together with the licensing fee on delivery of the software if collectibility of the resulting receivable was probable, enhancements were limited to bug fixes covered by warranty provisions, and the costs of providing these services were expected to be insignificant. Pursuant to this policy, there were no deferred amounts recorded prior to fiscal 2002 and the estimated costs of providing PCS were accrued at the time of revenue recognition. Service and other revenue - consists primarily of maintenance revenue. Ansoft offers customers one-year maintenance contracts at 15% of the list price of the respective software products. Ansoft recognizes all maintenance revenue ratably over the respective maintenance period. Customers renew maintenance agreements annually. Revenue from customer training, support and other services is recognized as the service is performed. Valuation of Accounts Receivable Management reviews accounts receivable to determine which are doubtful of collection. In making the determination of the appropriate allowance for doubtful accounts, management considers Ansoft's history of write-offs, relationships with its customers, and the overall credit worthiness of its customers. The allowance for doubtful accounts as of April 30, 2003 and 2002 was $818,000 and $621,000 respectively. The increase in allowance in fiscal 2003 was primarily due to the overall business environment of our customers. In fiscal 2002 the allowance was increased $400,000 due primarily due to the overall increase in Ansoft's receivable balance as of April 30, 2002, and to a lesser extent, the overall business environment of our customers. No particular customer was a cause of the changes in allowances. We had no significant changes in our collection policies or payment terms. Impairment of Long-Lived Assets The Company reviews assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. A determination of impairment is made based on estimates of future cash flows. If such assets are considered to be impaired the amount of the impairment is based on the excess of the carrying value over the fair value of the assets. Impairment of Marketable Securities Available for Sale An impairment charge is recorded if a decline in the market value of any available for sale security below cost is deemed to be other than temporary. The impairment is charged to earnings and a new cost basis for the security is established. Deferred Tax Asset Valuation Allowance Deferred tax assets are recognized for deductible temporary differences, net operating loss carryforwards, and credit carryforwards if it is more likely than not that the tax benefits will be realized. To the extent a deferred tax asset cannot be recognized under the preceding criteria, a valuation allowance has been established. The judgments used in applying the above policies are based on management's evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from those estimates. See also the "Risk Factors" under "Item 1. Business." 13 RESULTS OF OPERATIONS The following table sets forth the percentage of total revenue of each item in the Company's consolidated statements of operations for the periods indicated:
PERCENTAGE OF REVENUE ---------------------------------- FISCAL YEAR ENDED APRIL 30, 2003 2002 2001 ---------- ---------- ---------- Revenue: License 58% 69% 69% Service and other 42 31 31 ----- ----- ----- Total revenue 100 100 100 ----- ----- ----- Costs of revenue: Cost of license revenue 2 2 2 Cost of service and other revenue 2 2 2 ----- ----- ----- Gross profit 96 96 96 ----- ----- ----- Operating Expenses: Sales and marketing 52 46 51 Research and development 39 33 29 General and administrative 9 8 8 Amortization 7 8 4 ----- ----- ----- Total operating expenses 107 95 92 ----- ----- ----- Income (loss) from operations (11) 1 4 Other income (expense), net 2 2 (4) ----- ----- ----- Income (loss) before income taxes (9) 3 0 Income tax expense (benefit) (2) 1 2 ----- ----- ----- Net income (loss) (7)% 2% (2)% ====== ===== =====
YEAR ENDED APRIL 30, 2003 COMPARED WITH YEAR ENDED APRIL 30, 2002 Revenue. Total revenue for the year ended April 30, 2003 decreased 11% to $47.3 million from $53.4 million in the previous fiscal year. License revenue decreased 25% to $27.5 million from $36.7 million. The decrease is primarily attributable to reduced demand from customers due to the economic slowdown, particularly in the telecommunications sector. Service and other revenue increased by 18% to $19.8 million from $16.8 million due to the continued growth of the installed base of customers under annual maintenance agreements. Primarily due to this growth of installed base of customers under maintenance contracts, deferred revenue as of April 30, 2003 increased $2 million. International revenue accounted for 56% and 55% of the Company's total product revenue in the years ended April 30, 2003 and 2002, 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. Cost of revenue. Cost of revenue consists primarily of software materials, personnel and other expenses related to providing maintenance and post-contract customer support and amortization of acquired technology. Our cost of license revenue decreased 27% to $683,000 from $938,000 in the previous fiscal year. This decrease was due to certain acquired technology being fully amortized in fiscal 2003. Our cost of service and other revenue increased 11% to $970,000 from $871,000 in the previous fiscal year primarily due to the increased personnel providing customer support. Sales and marketing expenses. Sales and marketing expenses consist of salaries, commissions paid to sales and marketing personnel, promotional costs and related operating expenses. Sales and marketing expenses decreased 1% to $24.6 million in the year ended April 30, 2003, as compared to $25 million in the previous fiscal year. The decrease was due to lower commission expense as a result of a lower level of sales. Sales and marketing expenses represented 52% and 46% of total revenue in the years ended April 30, 2003 and 2002, respectively. Ansoft expects that sales and marketing expenses will increase between 5% and 8% in absolute dollars in the next fiscal year. Research and development expenses. Research and development expenses include all costs associated with the development of new products and enhancements to existing products. Total research and development expenses increased by 5% to $18.6 million in the year ended April 30, 2003, as compared to $17.7 million in the previous fiscal year. Research and development expenses increased by 15% due to the continued research and development efforts for Ansoft's current and future software products. Research and development expenses decreased by 10% due to the closing of the Altra Broadband Irvine Technology Center and other cost control 14 measures. A restructuring charge of $532,000 related to the closing of Altra Broadband's Irvine Technology Center is included in the expenses for the year ended April 30, 2003. Research and development expenses represented 39% and 33% of total revenue in the years ended April 30, 2003 and 2002, respectively. Ansoft anticipates that research and development expenses for the next fiscal year are expected to be between $15.5 million and $16 million. General and administrative expenses. General and administrative expenses decreased by 6% to $4.3 million in the year ended April 30, 2003, as compared to $4.6 million in the previous fiscal year. The decline is due to general cost control measures. General and administrative expenses represented 9% and 8% of total revenue in the years ended April 30, 2003 and 2002 respectively. Ansoft anticipates that general and administrative expenses for the next fiscal year are expected to be between $4.8 million and $5 million. Amortization expense. Amortization expense in the year ended April 30, 2003 was $3.4 million, as compared to $4.1 million the previous fiscal year. The decrease was mainly due to the Company ceasing to amortize approximately $1.2 million of goodwill in conjunction with the adoption of SFAS 142, effective May 1, 2002. Other income (expense) and interest expense, net. Other income (expense) and interest expense for the year ended April 30, 2003 was $1.2 million, compared to $1.3 million reported for the previous fiscal year. The decrease is due primarily to lower interest rates and investment returns in the current period. Income tax expense (benefit). In the year ended April 30, 2003, the Company recorded a tax benefit of $1 million. In addition, during the year a study of federal research and development credits was completed. The Company has determined that it has approximately $2.2 million in research and development credits for all years through April 30, 2003 that are available to reduce future federal income taxes, if any, through April 30, 2022. The ultimate and other deferred tax assets is dependant upon the generation of future taxable income. Based on an analysis of taxable income projections, management has recorded a valuation allowance. YEAR ENDED APRIL 30, 2002 COMPARED WITH YEAR ENDED APRIL 30, 2001 Revenue. Total revenue for the year ended April 30, 2002 increased 23% to $53.4 million from $43.6 million in the previous fiscal year. License revenue increased 22% to $36.7 million from $30.0 million. The increase was primarily attributable to strong demand from North American and European customers. Service and other revenue increased by 23% to $16.7 million from $13.6 million. Service and other revenue increased by 27% due to the continued growth of the installed base of customers under annual maintenance agreements. Primarily due to this growth of installed base of customers under maintenance contracts, deferred revenue as of April 30, 2002 increased $3.6 million. Service and other revenue decreased by 4% due to a reduction in contract revenue due to the completion of certain contracts in the previous year. International revenue accounted for 55% and 53% of the Company's total product revenue in the years ended April 30, 2002 and 2001, respectively. Cost of revenue. Our cost of license revenue increased 11% to $938,000 from $843,000 in the previous fiscal year due to increased license revenue levels. Our cost of service and other revenue increased 24% to $871,000 from $701,000 in the previous fiscal year primarily due to the increased personnel providing customer support. Sales and marketing expenses. Sales and marketing expenses increased by 13% to $25 million in the year ended April 30, 2002, as compared to $22 million in the previous fiscal year. Sales and marketing expense increased 11% due to the increase in the Company's sales levels. Sales and marketing expense increased 2% due to increased marketing efforts such as advertising in trade publications and participation in industry trade shows. Sales and marketing expenses represented 46% and 51% of total revenue in the years ended April 30, 2002 and 2001, respectively. Research and development expenses. Total research and development expenses increased by 39% to $17.7 million in the year ended April 30, 2002, as compared to $12.7 million in the previous fiscal year. Research and development expenses increased by 21% due to the research and development efforts of Altra Broadband. Research and development expenses increased by 18% due to the continued research and development efforts for Ansoft's current and future software products. Research and development expenses represented 33% and 29% of total revenue in the years ended April 30, 2002 and 2001, respectively. General and administrative expenses. General and administrative expenses increased by 24% to $4.6 million in the year ended April 30, 2002, as compared to $3.7 million in the previous fiscal year. The increase is due to additional costs required to support the 15 increase in operations, including the hiring of additional administrative personnel. General and administrative expenses represented 8% of total revenue in each of the years ended April 30, 2002 and 2001. Amortization expense. Amortization expense in the year ended April 30, 2002 was $4.1 million, as compared to $1.9 million in the previous fiscal year. The increase was due to the amortization of intangibles acquired in the SIMEC and Agilent transactions. Other income (expense) and interest expense, net. Other income (expense) and interest expense for the year ended April 30, 2002 was $1.3 million, compared to $(1.6) million reported for the previous fiscal year. Other income (expense) increased $3.5 million due to higher other than temporary declines on the portfolio in fiscal 2001. Other income decreased $480,000 due to lower dividend and interest rates earned in fiscal 2002. Income tax expense (benefit). In the years ended April 30, 2002 and 2001, the Company recorded a tax expense of $404,000 and $908,000, respectively. The Company has recorded research and development credit carryforwards of $337,000 as of April 30, 2002. QUARTERLY RESULTS OF OPERATIONS The following table presents unaudited quarterly results for each quarter of fiscal 2003 and fiscal 2002. The information has been prepared on a basis consistent with the Company's annual consolidated financial statements and, in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for such periods. The Company's quarterly results have been in the past, and may be in the future, subject to fluctuations due to increased competition, the timing of new product announcements, changes in pricing policies by the Company or its competitors, market acceptance of new and enhanced versions of the Company's products and the size and timing of significant license transactions. The Company believes that results of operations for the interim periods are not necessarily indicative of the results to be expected for any future period. The Company's business has been cyclical, with revenues in the first fiscal quarter typically lower than the fourth quarter of the preceding fiscal year.
FISCAL 2003 FISCAL 2002 APRIL 30, JAN. 31, OCT. 31, JULY 31, APRIL 30, JAN. 31, OCT. 31, JULY 31, 2003 2003 2002 2002 2002 2002 2001 2001 --------- --------- --------- --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenue $ 15,112 $ 12,362 $ 10,557 $ 9,288 $ 15,609 $ 14,065 $ 12,540 $ 11,221 Income (loss) from operations $ 2,611 $ (367) $ (3,068) $(4,421) $ 1,308 $ 548 $ (471) $ (1,114) Net income (loss) $ 2,476 $ (58) $ (2,198) $(3,343) $ 1,186 $ 591 $ (65) $ (498) Basic net income (loss) per share $ 0.21 $ (0.00) $ (0.19) $ (0.28) $ 0.10 $ 0.05 $ (0.01) $ (0.04) Diluted net income (loss) per share $ 0.20 $ (0.00) $ (0.19) $ (0.28) $ 0.09 $ 0.04 $ (0.01) $ (0.04) Weighted average number of shares outstanding 11,715 11,764 11,817 11,940 11,907 11,864 11,836 11,722 - basic - diluted 12,488 11,764 11,817 11,940 13,844 13,592 11,836 11,722
LIQUIDITY AND CAPITAL RESOURCES As of April 30, 2003, Ansoft had $7.2 million in cash and cash equivalents and working capital of $9.0 million. Net cash provided by operating activities was $4.2 million, $4.4 million and $11.8 million in fiscal 2003, 2002, and 2001, respectively. Net cash provided by (used in) investing activities was $975,000, $(11.2) million and $(5.0) million in fiscal 2003, 2002, and 2001, respectively. Capital expenditures, consisting primarily of purchases of computer equipment, were $755,000, $2.6 million and $1.7 million in fiscal 2003, 2002, and 2001, respectively. Net proceeds from the sale (purchase) of securities were $1.3 million, $(1.0) million, and $(1.2) million in fiscal 2003, 2002, and 2001, respectively. Net cash used in investment of acquired businesses were $7.5 million and $2.0 million in fiscal 2002 and 2001, respectively. Net cash (used in) provided by financing activities were $(3.6) million, $3.2 million and $66,000 in fiscal 2003, 2002, and 2001, respectively. In fiscal 2003 Ansoft repaid its note payable of $1.9 million. Proceeds from the issuance of common stock were $494,000, $2.3 million, and $1.2 million in fiscal 2003, 2002, and 2001, respectively. Funds used for the purchase of treasury stock were $2.3 million, $70,000 and $970,000 in fiscal 2003, 2002, and 2001, respectively. 16 Ansoft has available a $20.0 million secured line of credit from a domestic financial institution at an interest rate equal to LIBOR plus an applicable margin rate. The line of credit expires on September 30, 2004. The line of credit is secured by the marketable securities held with institution, and includes a minimum tangible net worth covenant. The Company was in compliance with all financial covenants as of April 30, 2003 and 2002. As of April 30, 2003, $10.0 million was the outstanding balance on the line of credit. Ansoft believes that the available funds will be sufficient to meet its anticipated cash needs for working capital and capital expenditures for at least the next year. Thereafter, if cash generated from operations is insufficient to satisfy the Company's liquidity requirements, Ansoft may seek additional funds through equity or debt financing. There can be no assurance that additional financing will be available or that, if available, such financing will be on terms favorable to Ansoft. A summary of Ansoft's significant contractual obligations and commitments is as follows (in 000s):
Debt Operating Leases Fiscal 2004 - 1,145 2005 10,000 887 2006 - 705 2007 - 110
Stock Repurchase Program. In September 2002, our Board of Directors voted to amend the existing 1,000,000 common stock repurchase program to permit the Company to acquire an additional 1,000,000 shares of its Common Stock. Common shares reacquired are intended to be used for general corporate purposes. As of the date we filed this Annual Report on Form 10-K with the SEC, we had repurchased 1.2 million shares under the repurchase program. Acquisitions. Effective May 3, 2001, Ansoft entered into an agreement to acquire the following intangible assets related to the Agilent HFSS software product: customer list, non-compete agreement, and trademark. As part of the agreement Agilent agreed to transfer customer obligations for Agilent HFSS software to Ansoft. The acquisition cost was $7,850,000 in cash and assumed liabilities of $1,544,000 for a total cost of $9,394,000. Effective February 16, 2001, Ansoft acquired all of the outstanding stock of SIMEC GmbH for 72,000 shares and $900,000 in cash. SIMEC was a provider of multi domain simulation package for system simulation. Ansoft purchased SIMEC to acquire technology, key customer list and personnel. The acquisition was accounted for as a purchase, and the financial results have been included in the accompanying consolidated financial statements since the date of the acquisition. Foreign Currency Fluctuations. Foreign currency exchange rates positively (negatively) affected revenue by approximately $1.4 million, ($653,000) and ($543,000) in fiscal 2003, 2002, and 2001, respectively, primarily due to the fluctuations of the Japanese yen in relation to the U.S. dollar. EFFECTS OF INFLATION To date, inflation has not had a material impact on the Company's consolidated financial results. RECENT ACCOUNTING PRONOUNCEMENTS In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 eliminates Emerging Issues Task Force, or EITF, Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." Under SFAS No. 146, liabilities for costs associated with an exit or disposal activity are recognized when the liabilities are incurred, as opposed to being recognized at the date of entity's commitment to an exit plan under EITF No. 94-3. Furthermore, SFAS No. 146 establishes that fair value is the objective for initial measurement of the liabilities. The new requirements are effective prospectively for exit and disposal activities initiated after December 31, 2002. The Company adopted this standard beginning January 1, 2003 and the adoption of SFAS 146 did not have a material effect on its consolidated financial statements. In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation--Transition and Disclosure--an Amendment of FASB Statement No. 123." This Statement amends SFAS 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both 17 annual and interim financial statements. The annual disclosure provisions are effective for fiscal years ending after December 15, 2002. The Company adopted the disclosure requirements of this standard in fiscal 2003. ITEM 7.(a) QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Interest Rate Risk. The Company's exposure to market risk for changes in interest rates relates primarily to its investment portfolio. The Company mitigates its risk by diversifying its investments among securities and limits the amount of credit exposure to any one issuer. The Company does not hedge any interest rate exposures. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. The following table presents the carrying value and related weighted-average interest rates for the Company's investment portfolio and debt. The carrying value approximates fair value at April 30, 2003.
APRIL 30, --------------------------------------------------------------------------------- 2004 2005 2006 2007 2008 THEREAFTER TOTAL (AMOUNTS IN THOUSANDS) Fixed Rate Debt Securities -- -- -- -- -- $ 2,530 $ 2,530 Average % Rate -- -- -- -- -- 6.04% 6.04% Marketable Equity Securities (bond funds) $ 19,255 -- -- -- -- -- $ 19,255 Average % Rate 5.88% -- -- -- -- -- 5.88% Variable Rate Debt -- $ 10,000 -- -- -- -- $ 10,000 Average % Rate -- 1.94% -- -- -- -- 1.94%
As of April 30, 2002, the Company had Fixed Rate Debt Securities, Marketable Equity Securities, and Variable Rate Debt of $3.7 million, $18.8 million, and $10 million, respectively. The average rates for Fixed Rate Debt Securities, Marketable Equity Securities, and Variable Rate Debt at April 30, 2002 were 6.81%, 7.25%, and 2.49%, respectively. These rates declined primarily due to the lowering of federal interest rates in fiscal 2003. 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, 2003, the Company had no hedging contracts outstanding. The Company assesses the need to utilize financial instruments to hedge currency exposures on an ongoing basis. 18 ITEM 8. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE INDEX TO FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report 20 Consolidated Balance Sheets as of April 30, 2003 and 2002 21 Consolidated Statements of Operations for the fiscal years ended April 30, 2003, 2002 and 2001 22 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the fiscal years ended April 30, 2003, 2002 and 2001 23 Consolidated Statements of Cash Flows for the fiscal years ended April 30, 2003, 2002 and 2001 24 Notes to Consolidated Financial Statements 25 Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts 40
19 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Ansoft Corporation: We have audited the accompanying consolidated balance sheets of Ansoft Corporation and subsidiaries as of April 30, 2003 and 2002, 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, 2003. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ansoft Corporation and subsidiaries as of April 30, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended April 30, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in note 1 to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangible assets in fiscal 2003. KPMG LLP Pittsburgh, Pennsylvania May 27, 2003 20 ANSOFT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
April 30, April 30, 2003 2002 ------------- ------------- Assets Current assets Cash and cash equivalents $ 7,173 $ 5,269 Accounts receivable, net of allowance for doubtful accounts of $818 and $621, respectively 13,968 15,044 Deferred income taxes 310 236 Prepaid expenses and other assets 842 1,005 --------- -------- Total current assets 22,293 21,554 Equipment and furniture 3,829 5,714 Marketable securities 21,785 22,479 Other assets 436 367 Deferred taxes - non current 4,909 4,484 Goodwill, net 1,239 1,239 Other intangible assets, net 8,663 12,387 --------- -------- Total assets $ 63,154 $ 68,224 ========= ======== Liabilities and stockholders' equity Current liabilities Accounts payable and accrued expenses $ 2,449 $ 3,292 Note Payable - 1,850 Deferred revenue 10,879 8,915 --------- -------- Total current liabilities 13,328 14,057 Line of credit 10,000 10,000 Other liabilities - 520 --------- -------- Total liabilities 23,328 24,577 Stockholders' equity Preferred stock, par value $0.01 per share; 1,000 shares authorized, no shares outstanding - - Common stock, par value $0.01 per share; 25,000 shares authorized; issued 12,296 and 12,196 shares, respectively and outstanding 11,669 and 11,933, respectively 123 122 Additional paid-in capital 55,522 54,939 Treasury stock, 627 and 263 shares, respectively (3,954) (1,671) Other accumulated comprehensive income (loss) (703) (1,704) Accumulated deficit (11,162) (8,039) --------- -------- Total stockholders' equity 39,826 43,647 Total liabilities and stockholders' equity $ 63,154 $ 68,224 ========= ========
See accompanying notes to consolidated financial statements. 21 ANSOFT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED APRIL 30, 2003 2002 2001 --------------------------- -------- -------- ------ Revenue: License $27,540 $36,683 $29,951 Service and other 19,779 16,752 13,607 ------- ------- ------- Total revenue 47,319 53,435 43,558 ------- ------- ------- Cost of revenue: License revenue 683 938 843 Service and other 970 871 701 ------- ------- ------- Total cost of revenue 1,653 1,809 1,544 ------- ------- ------- Gross profit 45,666 51,626 42,014 Operating Expenses: Sales and marketing 24,611 24,966 22,025 Research and development 18,588 17,705 12,711 General and administrative 4,284 4,555 3,667 Amortization 3,428 4,129 1,940 ------- ------- ------- Total operating expenses 50,911 51,355 40,343 ------- ------- ------- Income (loss) from operations (5,245) 271 1,671 Other income (loss) 1,428 1,878 (1,108) Interest expense (276) (531) (500) -------- -------- -------- Income (loss) before income taxes (4,093) 1,618 63 Income taxes expense (benefit) (970) 404 908 ------- ------- ------- Net income (loss) $(3,123) $ 1,214 $ (845) ======= ======= ======= Basic net income (loss) per share $ (0.26) $ 0.10 $ (0.07) ======== ======== ======== Diluted net income (loss) per share $ (0.26) $ 0.09 $ (0.07) ======== ======== ======== Weighted average shares outstanding - basic 11,809 11,844 11,690 Weighted average shares outstanding - diluted 11,809 13,649 11,690
See accompanying notes to consolidated financial statements. 22 ANSOFT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OTHER ADDITIONAL ACCUMULATED COMPREHENSIVE COMMON STOCK PAID-IN TREASURY STOCK COMPREHENSIVE ACCUMULATED INCOME (LOSS) SHARES AMOUNT CAPITAL SHARES INCOME (LOSS) INCOME (LOSS) DEFICIT ------------- -------- -------- --------- -------- ------------- ------------- ------- Balance, April 30, 2000 11,780 $117 $ 51,956 (201) $(1,131) $(3,487) $(8,408) Purchase of treasury stock -- -- -- (127) (970) -- -- Issuance of common stock 180 2 728 72 500 -- -- Net income $(845) -- -- -- -- -- -- (845) Foreign currency translation 15 -- -- -- -- -- 15 -- Reclassification adjustment 3,583 -- -- -- -- -- 3,583 -- Change in unrealized loss on marketable securities (465) -- -- -- -- -- (465) -- ------ Comprehensive Income (loss) $2,288 -- -- -- -- -- -- -- ------ ---- -------- ------ ---- ------- -------- Balance, April 30, 2001 11,960 $119 $ 52,684 (256) $(1,601) $(354) $(9,253) Purchase of treasury stock -- -- -- (7) (70) -- -- Issuance of common stock 236 3 1,335 -- -- -- -- Tax effect of stock option exercises -- -- 920 -- -- -- -- Net income $1,214 -- -- -- -- -- -- 1,214 Foreign currency translation (525) -- -- -- -- -- (525) -- Reclassification adjustment 117 -- -- -- -- -- 117 -- Change in unrealized loss on marketable securities (942) -- -- -- -- -- (942) -- ------ Comprehensive Income (loss) $(136) -- -- -- -- -- -- -- ------ ---- -------- ------ ---- ------- -------- Balance, April 30, 2002 12,196 $122 $ 54,939 (263) $(1,671) $(1,704) $(8,039) Purchase of treasury stock -- -- -- (364) (2,283) -- -- Issuance of common stock 100 1 493 -- -- -- -- Tax effect of stock option exercises -- -- 90 -- -- -- -- Net loss $(3,123) -- -- -- -- -- -- (3,123) Foreign currency 394 -- -- -- -- -- 394 -- translation Reclassification adjustment 78 -- -- -- -- -- 78 -- Change in unrealized loss on marketable securities 529 -- -- -- -- -- 529 -- ----- Comprehensive Income (loss) $(2,122) -- -- -- -- -- -- -- ------ ---- -------- ------ ---- ------- -------- Balance, April 30, 2003 12,296 $123 $ 55,522 (627) $(3,954) $(703) $(11,162)
See accompanying notes to consolidated financial statements. 23 ANSOFT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED APRIL 30, 2003 2002 2001 ----------- ----------- ----------- Cash flows from operating activities Net income (loss) $ (3,123) $ 1,214 $ (845) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation 1,838 1,936 1,662 Amortization 3,724 4,709 2,430 Deferred taxes (408) (2,093) 611 Impairment charge to equipment 407 - - Non cash charge on marketable securities 78 117 3,629 (Gain) loss on marketable securities (113) - (46) Changes in assets and liabilities, net of effect from acquisitions 1,076 (6,835) 2,341 Accounts receivable Prepaid expenses and other assets 163 261 (325) Other long-term assets and liabilities, net (589) 166 194 Accounts payable and accrued expenses (843) 1,258 657 Deferred revenue 1,964 3,631 1,401 -------- -------- -------- Net cash provided by operating activities 4,174 4,364 11,709 -------- -------- -------- Cash flows from investing activities Purchases of equipment and furniture (755) (2,630) (1,693) Investment in acquired businesses - (7,544) (2,025) Proceeds from the sale of equipment 395 - - Proceeds from the sale of marketable securities 6,983 - 351 Purchase of marketable securities (5,648) (996) (1,596) -------- ------ -------- Net cash provided by (used in) investing activities 975 (11,170) (4,963) -------- -------- -------- Cash flows from financing activities Proceeds from (repayments of) line of credit, net - 1,000 (194) Payment of note payable (1,850) - - Purchase of treasury stock (2,283) (70) (970) Proceeds from the issuance of common stock, net 494 2,258 1,230 -------- -------- -------- Net cash provided by (used in) financing activities (3,639) 3,188 66 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 1,510 (3,618) 6,812 Effect of exchange rate changes 394 (525) 6 Cash and cash equivalents at beginning of year 5,269 9,412 2,594 -------- -------- -------- Cash and cash equivalents at end of year $ 7,173 $ 5,269 $ 9,412 ======== ======== ======== Supplemental disclosures of cash flow information Cash paid for interest $ 276 $ 414 $ 453 ======== ======== ======== Cash paid for income taxes $ 846 $ 203 $ 182 ======== ======== ========
See accompanying notes to consolidated financial statements. 24 ANSOFT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Ansoft Corporation ("Ansoft" or the "Company") is a developer of electronic design automation ("EDA") software used in high technology products and industries. Ansoft's software is used by electrical engineers in the design of state of the art technology products, such as cellular phones, internet networking, satellite communications systems, computer chips and circuit boards, and electronic sensors and motors. 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 May 3, 2001, Ansoft entered into an agreement to acquire the following intangible assets related to the Agilent HFSS software product: customer list, non-compete agreement, and trademark. As part of the agreement Agilent agreed to transfer customer obligations for Agilent HFSS software to Ansoft. The acquisition cost was $7,850 in cash and assumed liabilities of $1,544 for a total cost of $9,394. Effective February 16, 2001, Ansoft acquired all of the outstanding stock of SIMEC GmbH for 72 shares and $900 in cash. SIMEC was a provider of multi domain simulation package for system simulation. Ansoft purchased SIMEC to acquire technology, key customer list and personnel. The acquisition was accounted for as a purchase, and the financial results have been included in the accompanying consolidated financial statements since the date of the acquisition. In July 2000, Ansoft announced its formation of Altra Broadband to pursue the development of critical intellectual property and products for broadband wireless and optical communications. In spite of certain technical successes, profitable deployment of intellectual property developed by Altra Broadband's Irvine Technology Center in this telecom environment was deemed unlikely in the near term. As such, the Company closed the Irvine Technology Center during the quarter ended October 31, 2002, resulting in a restructuring charge of $532 that is included in "Research and development expense." The restructuring was committed to and completed in the quarter ended October 31, 2002. The total $532 restructuring charge was comprised of a $407 charge for the impairment of fixed assets and a charge of $125 for the remaining lease obligations for which a liability was recorded as of October 31, 2002. The impairment charge was based on third-party offers to purchase the remaining assets. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying financial statements are based on management's evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from those estimates. Estimates which are particularly significant to the consolidated financial statements include deferred revenue, the allowance for doubtful accounts, future cash flows related to long-lived assets, other than temporary declines in the market value of securities, and the deferred tax valuation allowance. Cash Equivalents Cash equivalents include only highly liquid debt instruments purchased with original maturity dates of three months or less. 25 Marketable Securities Marketable securities consist of corporate bonds, bond and government agency mutual funds, and mortgage backed securities and are classified as available for sale as of April 30, 2003 and 2002. Marketable securities available for sale are recorded at fair market value based on quoted market prices and any unrealized gains or losses are recorded as a separate component of stockholders' equity. Costs of investments sold/held are determined on the average cost method. An impairment charge is recorded if a decline in the market value of any available for sale security below cost is deemed to be other than temporary. The impairment is charged to earnings and a new cost basis for the security is established. Dividend and interest income are recognized when earned. Equipment and Furniture Equipment and furniture are stated at cost less accumulated depreciation and amortization. Depreciation for financial reporting purposes is computed using the straight-line method based upon the estimated useful lives of the assets, which range from three to seven years. Assets acquired under capital leases and leasehold improvements are amortized over their useful life or the lease term, as appropriate. Goodwill and Other Intangible Assets Goodwill and Other Intangible assets, which include customer lists, non-compete agreement, and purchased technology, are stated at cost less accumulated depreciation and are reviewed periodically (at least annually) for impairment. The non-compete agreement is a result of the Agilent transaction discussed in note 2. Purchased technology represents acquired software which has been fully developed, achieved technological feasibility, reached commercial viability, and is generating revenue. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" which was adopted on May 1, 2002 (the beginning of Ansoft's fiscal year 2003), goodwill and purchased intangibles with indefinite useful lives are no longer amortized but are reviewed periodically (at least annually) for impairment. Accordingly, Ansoft has ceased to amortize approximately $1.2 million of goodwill, net of amortization, including workforce intangibles that were subsumed into goodwill upon adoption of SFAS No. 142. Acquired intangibles with definite lives are amortized on a straight-line basis over the remaining estimated economic life of the underlying products and technologies (original lives assigned are three to seven years), and reviewed for impairment in accordance with SFAS No. 144, "Accounting for Impairment or Disposal of Long-lived Assets." The Company reviews the realizability of acquired technology, goodwill and other intangibles on an ongoing basis, and if there is an indication of impairment, the Company performs procedures under the applicable accounting pronouncements to quantify any impairment that exists. Determining the amount of impairment of these assets requires the Company to estimate future cash flows and make judgments regarding discount rates and other variables that impact the net realizable value or fair value of those assets, as applicable. Actual future cash flows and other assumed variables could differ from these estimates. Future impairment charges under existing pronouncements and under SFAS No. 142 could be material. The pro forma effects of the adoption of SFAS No. 142 are as follows:
Fiscal Year Ended April 30, (in thousands, except per share amounts) 2003 2002 2001 ---- ---- ---- Reported net income (loss) $ (3,123) $ 1,214 $ (845) Add back: Goodwill amortization - 368 206 ---------- --------- ---------- Adjusted net income (loss) $ (3,123) $ 1,582 $ (639) ========== ========= ========== BASIC EARNINGS PER SHARE: Reported net loss $ (0.26) $ 0.10 $ (0.07) Add back: Goodwill amortization - 0.03 0.02 ---------- --------- ---------- Adjusted net income (loss) $ (0.26) $ 0.13 $ (0.05) ========== ========= ========== DILUTED EARNINGS PER SHARE: Reported net loss $ (0.26) $ 0.09 $ (0.07) Add back: Goodwill amortization - 0.03 0.02 ---------- --------- ---------- Adjusted net income (loss) $ (0.26) $ 0.12 $ (0.05) ========== ========= ==========
Prior to the adoption of SFAS No. 142, goodwill was amortized on a straight-line basis over the expected periods to be benefited, generally seven years, and assessed for recoverability by determining whether the amortization of goodwill balance over its remaining 26 life could be recovered through undiscounted future operating cash flows. Impairment of Long-Lived Assets SFAS No. 144 provides a single accounting model for long-lived assets to be disposed of. SFAS No. 144 also changes the criteria for classifying an asset held for sale; and broadens the scope of businesses to be disposed of that qualify for reporting as discontinued operations and changes the timing of recognizing losses on such operations. The Company adopted SFAS No. 144 on May 1, 2002. The adoption of SFAS No. 144 did not affect the Company's financial statements. In accordance with SFAS No. 144, long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of an asset exceeds the fair value of the asset. Prior to the adoption of SFAS No. 144, the Company accounted for long-lived assets in accordance with SFAS No. 121, "Accounting for Impairment of Long-Lived Assets to be Disposed Of". Revenue Recognition Revenue consists of fees for licenses of software products and service and other revenue. License revenue - Ansoft licenses its software on a perpetual basis with no right to return or exchange the licensed software. Postcontract customer support ("PCS") is bundled with the perpetual licensing fee. Revenue related to the three-month PCS is deferred and recognized ratably over the three-month term. Ansoft's vendor-specific objective evidence of fair value, or VSOE, for the three-month PCS is based upon the pricing for comparable transactions when the element is sold separately. Ansoft's VSOE for the three-month PCS is based upon one fourth of the customer's annual maintenance contract renewal rates. Three-month PCS services provided are the same as maintenance. During the year ended April 30, 2002, the Company changed the PCS period bundled with the perpetual license from a one-year period to a three-month period to more closely align our pricing policy with other vendors within our industry. In addition, we no longer believed we could continue to expect future releases offered to customers under three-month PCS would only contain enhancements limited to bug fixes covered by warranty provisions and therefore the Company began deferring the PCS in fiscal 2002. Prior to fiscal 2002, the Company recognized PCS revenue together with the licensing fee on delivery of the software if collectibility of the resulting receivable was probable, enhancements were limited to bug fixes covered by warranty provisions, and the costs of providing these services were expected to be insignificant. Pursuant to this policy, there were no deferred amounts recorded prior to fiscal 2002 and the estimated costs of providing PCS were accrued at the time of revenue recognition. Service and other revenue - consists primarily of maintenance revenue. Ansoft offers customers one-year maintenance contracts at 15% of the list price of the respective software products. Ansoft recognizes all maintenance revenue ratably over the respective maintenance period. Customers renew maintenance agreements annually. Revenue from customer training, support and other services is recognized as the service is performed. Deferred revenue Deferred revenue arises when customers are billed for products and/or services in advance of delivery and completion of the earnings process. Ansoft's deferred revenue consists of unearned revenue on annual maintenance contracts and the deferred component of PCS. Software Development Costs The Company accounts for software development costs in accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." Software development costs are capitalized beginning when a product's technological feasibility has been established by completion of a working model of the product and ending when a product is available 27 for general release to customers. Completion of a working model of the Company's products and general release have substantially coincided. As a result, the Company has not capitalized any software development costs during these periods since the amounts have not been material. Income Taxes The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are recognized for deductible temporary differences, net operating loss carryforwards, and credit carryforwards if it is more likely than not that the tax benefits will be realized. To the extent a deferred tax asset cannot be recognized under the preceding criteria, a valuation allowance has been established. Net Income (Loss) Per Share Basic net income (loss) per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted-average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of the incremental common shares issuable upon the exercise of employee stock options, and are computed using the treasury stock method. 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, 2003 -------------------------------- Basic net income (loss) per share $ (3,123) 11,809 $ (0.26) Effect of dilutive securities: Stock options -- -- -- -------- -------- -------- Diluted net income (loss) per share $ (3,123) 11,809 $ (0.26) ======== ======== ======== FISCAL YEAR ENDED APRIL 30, 2002 -------------------------------- Basic net income (loss) per share $ 1,214 11,844 $ 0.10 Effect of dilutive securities: Stock options -- 1,805 (0.01) -------- -------- -------- Diluted net income (loss) per share $ 1,214 13,649 $ 0.09 ======== ======== ======== FISCAL YEAR ENDED APRIL 30, 2001 -------------------------------- Basic net income (loss) per share $ (845) 11,690 $ (0.07) Effect of dilutive securities: Stock options -- -- -- -------- -------- -------- Diluted net income (loss) per share $ (845) 11,690 $ (0.07) ======== ======== ========
Stock-Based Compensation The Company accounts for stock-based compensation in accordance with the Financial Accounting Standards Board's ("FASB") SFAS No. 123 "Accounting for Stock-Based Compensation." This statement permits a company to choose either a fair value based method of accounting for its stock-based compensation arrangements or to comply with the Accounting Principles Board ("APB") Opinion No. 25 intrinsic value based method, adding pro forma disclosures of net income and earnings per share computed as if the fair value based method had been applied in the financial statements. The Company has adopted SFAS No. 123 by retaining the APB Opinion No. 25 method of accounting for stock-based compensation with annual pro forma disclosures of net income and earnings per share. Under APB No. 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense has been recognized in the Company's consolidated financial statements during fiscal 2003, 2002 or 2001. Pro forma information regarding net income and earnings (loss) per share is required by SFAS No. 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 No. 123. The fair value of options granted in fiscal years 2003, 2002 or 2001 has been estimated at the date of grant using a Black-Scholes 28 option pricing model with the following weighted average assumptions:
FISCAL YEAR ENDED APRIL 30, --------------------------- 2003 2002 2001 ----------- ----------- ----------- Risk-free rate (%) 2.00 4.00 5.44 Volatility (%) 110.00 75.55 88.96 Expected life (in years) 7.50 9.90 9.51 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 2003, 2002 or 2001 was $4.65, $8.70 and $7.62 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, --------------------------- 2003 2002 2001 ----------- ----------- ----------- Net income (loss), as reported $ (3,123) $ 1,214 $ (845) Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax (2,956) (2,073) (1,070) ------- ------- ------- Pro forma net income (loss) $ (6,079) $ (859) $ (1,915) Pro forma net income (loss) per basic and diluted common share $ (0.51) $ (0.07) $ (0.16)
Because the Company anticipates making additional grants and options vest over several years, the effects on pro forma disclosures of applying SFAS No. 123 are not likely to be representative of the effects on pro forma disclosures of future years. Comprehensive Income Comprehensive income includes foreign currency translation gains and losses and other unrealized gains and losses related to marketable securities that have been previously excluded from net income and reflected instead in equity. The Company has reported the components of comprehensive income, net of tax of $0 in 2003, 2002 and 2001, in its consolidated statements of stockholders' equity and comprehensive income. Foreign Currency Translation The functional currency of the Company's foreign subsidiaries is the United States dollar. Accordingly, assets and liabilities are translated to United States dollars at the exchange rates in effect as of the balance sheet date, and results of operations are translated using the average rates in effect for the period presented. Transaction gains and losses, which are included in other income (expense) in the accompanying consolidated statements of income, have not been significant. Fair Value of Financial Instruments The carrying value and fair value of the Company's receivables, payables and debt obligations are estimated to be substantially the same at April 30, 2003 and 2002. Recent Accounting Pronouncements In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 eliminates Emerging Issues Task Force, or EITF, Issue No. 94-3 "Liability Recognition for 29 Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." Under SFAS No. 146, liabilities for costs associated with an exit or disposal activity are recognized when the liabilities are incurred, as opposed to being recognized at the date of entity's commitment to an exit plan under EITF No. 94-3. Furthermore, SFAS No. 146 establishes that fair value is the objective for initial measurement of the liabilities. The new requirements are effective prospectively for exit and disposal activities initiated after December 31, 2002. The Company adopted this standard beginning January 1, 2003 and the adoption of SFAS 146 did not have a material effect on its consolidated financial statements. In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation--Transition and Disclosure--an Amendment of FASB Statement No. 123." This Statement amends SFAS 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements. The annual disclosure provisions are effective for fiscal years ending after December 15, 2002. The Company adopted the disclosure requirements of this standard in fiscal 2003. Reclassification Certain items and amounts reported in the fiscal 2002 and 2001 financial statements have been reclassified to conform to the current year's reporting format. 2. ACQUISITIONS AND RELATED INTANGIBLE ASSETS Effective May 3, 2001, Ansoft entered into an agreement to acquire the following intangible assets related to the Agilent HFSS software product: customer list, non-compete agreement, and trademark. As part of the agreement Agilent agreed to transfer customer obligations for Agilent HFSS software to Ansoft. The acquisition cost was $7,850 in cash and assumed liabilities of $1,544 for a total cost of $9,394. Effective February 16, 2001, Ansoft acquired all of the outstanding stock of SIMEC GmbH for 72 shares and $900 in cash. SIMEC was a provider of multi domain simulation package for system simulation. Ansoft purchased SIMEC to acquire technology, key customer list and personnel. The acquisition was accounted for as a purchase, and the financial results have been included in the accompanying consolidated financial statements since the date of the acquisition. 3. EQUIPMENT AND FURNITURE Equipment and furniture consist of the following:
APRIL 30, ------------------- 2003 2002 ------- ------- Computers and equipment $ 9,660 $11,128 Furniture and fixtures 1,411 1,594 Leasehold improvements 570 546 ------- ------- 11,641 13,268 Less allowances for depreciation and amortization 7,812 7,554 ------- ------- $ 3,829 $ 5,714 ======= =======
4. OTHER INTANGIBLE ASSETS Other acquired intangible assets consist of the following:
APRIL 30, --------------------- 2003 2002 --------- --------- Customer list $ 18,488 $ 18,488 Non-compete 2,500 2,500 Purchased technology 2,230 2,230 Trademark 212 212 --------- --------- 23,430 23,430 Less allowances for amortization 14,767 11,043 --------- --------- $ 8,663 $ 12,387 ========= =========
30 These intangible assets are amortized over their estimated useful lives, ranging between three and seven years. There are no expected residual values related to these intangible assets. Estimated fiscal year amortization expense is as follows: 2004 - $3,281; 2005 - $1,510; 2006 - $1,435; 2007 - $1,272; and 2008 - $1,165. 5. MARKETABLE SECURITIES Marketable securities, classified as available for sale, are summarized as follows:
AMORTIZED UNREALIZED UNREALIZED MARKET COST GAIN (LOSS) VALUE ------- ---- -------- ------- April 30, 2003 Mutual Funds $19,628 $177 $(550) $19,255 Mortgage Backed Securities 2,510 20 - 2,530 ------- ---- -------- ------- Total marketable securities $22,138 $197 $(550) $21,785 April 30, 2002 Mutual Funds $19,938 $177 $(1,297) $18,818 Corporate Bonds 3,500 161 - 3,661 ------- ---- -------- ------- Total marketable securities $23,438 $338 $(1,297) $22,479
Other income (loss) consists of dividend and interest income, realized gains and losses on securities and other than temporary declines in fair value of marketable securities. Dividend and interest income was $1,315, $1,995 and $2,475 in fiscal year 2003, 2002 and 2001, respectively. Gross realized gains were $113, $0 and $46 in fiscal year 2003, 2002 and 2001, respectively. Gross realized losses were $0, $0 and $553 in fiscal year 2003, 2002 and 2001, respectively. Other than temporary declines were $78, $117 and $3,076 in fiscal year 2003, 2002 and 2001, respectively. In the year ended April 30, 2001, our high yield funds comprising a portion of our marketable securities experienced significant declines in the market value and the corresponding net asset value of the underlying debt instruments held by these funds. In our judgment, these declines were determined to be "other than temporary" during fiscal 2001 and the Company recorded an impairment charge of $3,076. Factors considered in our judgment included the period and extent of the declines and the general outlook for the high yield market. Other than temporary impairment is a judgment based on information that develops over a period of time. While the impairment recognized is based on all of the information available at the time of the assessment, other information or economic developments in the future may lead to further impairment. 6. LINE OF CREDIT The Company has available a $20,000 secured line of credit from a domestic financial institution at an interest rate equal to LIBOR plus an applicable margin rate. The line of credit expires on September 30, 2004 and is secured by the marketable securities held with the institution. As of April 30, 2003, $10,000 was the outstanding balance on the line of credit and the weighted average interest rate was 1.94%. The Company was in compliance with all financial covenants as of April 30, 2003 and 2002. 7. LEASES The Company leases its corporate headquarters in Pittsburgh, Pennsylvania, and other facilities under operating lease agreements that expire over the next five years. Rental expense incurred by the Company under operating lease agreements totaled $2,658, $2,209 and $1,811 for the years ended April 30, 2003, 2002 and 2001, respectively. The future minimum lease payments for such operating leases as of April 30, 2003, are:
YEAR ENDING APRIL 30, ---------------------- 2004 1,145 2005 887 2006 705 2007 110 ------- $ 2,847 =======
31 8. COMMON STOCK OPTIONS The Company's 1988 Stock Option Plan (1988 Plan) authorizes the issuance of 850 shares of common stock for the grant of incentive or nonstatutory stock options to employees and directors. Under the terms of the 1988 Plan, options to purchase common stock are granted at no less than the stock's estimated fair market value at the date of the grant and may be exercised during specified future periods as determined by the Board of Directors. The 1988 Plan provides that the options shall expire no more than ten years after the date of the grant. The Company's 1995 Stock Option Plan (1995 Plan) authorizes the issuance of 3,500 shares of common stock for the grant of incentive or nonstatutory stock options to employees and directors. Under the terms of the 1995 Plan, options to purchase common stock are granted at no less than the stock's estimated fair market value at the date of the grant and may be exercised during specified future periods as determined by the Board of Directors. The 1995 Plan provides that the options shall expire no more than ten years after the date of the grant. Shares underlying outstanding options under the 1988 Plan and the 1995 Plan are as follows:
SHARES UNDERLYING OUTSTANDING OPTIONS ------------------------------ SHARES PRICE ------- ------------ Outstanding, April 30, 2000 2,455 $1.75--$7.3125 Granted 430 $6.125--$9.75 Exercised (180) $1.75--$7.313 Terminated (83) $5.00--$9.75 ------- ------------ Outstanding, April 30, 2001 2,622 $1.75--$9.75 Granted 1,291 $9.03--$13.55 Exercised (219) $1.75--$9.75 Terminated (57) $5.00--$9.75 ------- ------------ Outstanding, April 30, 2002 3,637 $1.75--$13.55 ======= Granted 651 $9.03--$13.55 Exercised (93) $1.75--$9.75 Terminated (212) $4.75--$12.95 ------- ------------- Outstanding, April 30, 2003 3,983 $1.75--$13.55 =======
Options to purchase 2,095 shares of common stock were exercisable as of April 30, 2003 and options to purchase 201 shares of common stock were available for future grant as of April 30, 2003. The following table summarizes information about stock options outstanding as of April 30, 2003:
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 2003 LIFE PRICE 2003 PRICE ----------------- ------------- ------------- ------------- ------------- ---------- $1.75--$2.00 203 1.3 $1.86 203 $1.86 $3.50--$5.13 1,649 5.9 $5.02 1,035 $5.04 $5.50-$8.25 651 6.6 $6.36 411 $6.40 $8.31-$12.02 959 8.0 $9.11 340 $9.14 $12.95-$13.55 521 8.6 $12.98 105 $12.98
9. SEGMENT REPORTING, EXPORT SALES AND CREDIT RISK The Company has adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which requires the reporting of segment information using the "management approach". Under this approach, operating segments are identified in substantially the same manner as they are reported internally and used by the Company's chief operating decision maker ("CODM") for purposes of evaluating performance and allocating resources. Ansoft's chief operating decision maker is its President and Chief Executive Officer, or CEO. Based on this approach, the Company has one reportable segment as the CODM reviews financial information on a basis consistent with that presented in the consolidated financial statements. 32 Ansoft's products are classified into three categories, high frequency (HF), signal integrity (SI), and electromechanical (EM). Ansoft's CEO reviews sales by product category. The following table presents product sales by market application as a percentage of total sales:
2003 2002 2001 ---- ---- ---- High Frequency 65% 69% 64% Signal Integrity 17% 15% 20% Electromechanical 18% 16% 16%
Profitability information by product category is not available as operating expenses and other income and expense items are managed on a functional basis. Export sales, principally to Asia, accounted for 56%, 55% and 53% of total product revenue in 2003, 2002 and 2001, respectively. Included in export sales to Asia were sales to Japan, which accounted for approximately 21%, 18% and 21% of total revenue in fiscal 2003, 2002 and 2001, respectively. No other foreign country accounted for more than 10% of total revenue during these periods. The Company markets its software products to customers throughout the world directly and generally does not require collateral. However, letters of credit are obtained from certain international customers prior to shipment. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential credit losses. The Company believes that it has adequately provided for credit losses. 10. INCOME TAX The provision for income taxes consists of the following:
APRIL 30, ------------------------------ 2003 2002 2001 --------- --------- --------- Current: Federal $ (495) $ 1,611 $ 373 State 24 886 (76) ------ ------- ----- Total (471) 2,497 297 Deferred: Federal (337) (1,508) 517 State (162) (585) 94 ------ ------- ----- Total (499) (2,093) 611 ------ ------- ----- Total expense (benefit) for income tax $ (970) $ 404 $ 908 ====== ======= =====
The Company's actual income tax expense (benefit) differs from the expected income tax expense (benefit) computed by applying the statutory federal rate to income before income taxes as a result of the following:
APRIL 30, ------------------------------- 2003 2002 2001 --------- --------- --------- Income tax expense (benefit) at statutory rate $(1,392) $549 $21 State income tax, net of federal offset (92) 199 12 Research and development credit (1,575) (505) (250) Change in valuation allowance 1,843 40 989 Intangible Amortization 77 210 -- Other, net 169 (89) 136 ------- ----- ----- Actual income tax expense (benefit) $(970) $404 $908 ======= ===== =====
33 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, ------------------ 2003 2002 ------ ------ Deferred tax assets: Net operating loss carryforward $425 $717 Capital loss carryovers 392 -- Allowance for doubtful accounts 310 236 Alternative minimum tax credit carryforward 256 906 Research and development tax credit carryforward 2,215 337 Intangible Assets 3,400 2,608 Net unrealized losses on available for sale securities 1,417 1,786 ----- ----- Total gross deferred tax assets 8,415 6,590 Less valuation allowance (3,006) (1,393) ------- ------- Net deferred tax assets 5,409 5,197 Deferred tax liabilities: Furniture and equipment (190) (477) ----- ----- Total gross deferred tax liability (190) (477) ----- ----- Net deferred taxes 5,219 4,720 ===== =====
The valuation allowance for deferred tax assets as of May 1, 2002 and 2001 was $1,393 and $1,025, respectively. The net change in the total valuation allowance for the years ended April 30, 2003 and April 30, 2002 were increases of $1,613 and $368, respectively. A change in the valuation allowance of $230 and $328 was recorded in accumulated other comprehensive income relating to marketable securities for the year ended April 30, 2003 and 2002, respectively. Management evaluates the recoverability of the deferred tax assets and the level of the valuation allowance on a quarterly basis. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of April 30, 2003, the Company had net foreign operating loss carryforwards of $425, which are available to offset future foreign taxable income through April 30, 2007. The Company also has alternative minimum tax credit carryforwards of $256 which are available to reduce future federal income taxes, if any, over an indefinite period. The Company has research and development credit carryforwards of $2,215 as of April 30, 2003. These credits will be available to reduce future federal income taxes, if any, through April 30, 2023. The Company also has capital loss carryovers of $1,153 that are available to offset capital gains through April 30, 2007. 11. EMPLOYEE BENEFIT PLAN The Company has a 401(k) savings and retirement plan which covers its full-time employees who have attained the age of 21 and have completed six months of service. Eligible employees make voluntary contributions to the plan up to 15% of their annual compensation. The Company is not required to contribute, nor has it contributed, to the 401(k) plan. 12. COMMITMENTS AND CONTINGENCIES The Company is not a party to any litigation and is not aware of any threatened litigation, unasserted claims or assessments that could have a material adverse effect on the Company's business, consolidated operating results or consolidated financial condition. 13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) A summary of quarterly financial information follows:
FISCAL 2003 FISCAL 2002 APRIL 30, JAN. 31, OCT. 31, JULY 31, APRIL 30, JAN. 31, OCT. 31, JULY 31, 2003 2003 2002 2002 2002 2002 2001 2001 --------- --------- --------- --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Total revenue $ 15,112 $12,362 $10,557 $ 9,288 $ 15,609 $14,065 $12,540 $11,221 Income (loss) from operations $ 2,611 $ (367) $(3,068) $(4,421) $ 1,308 $ 548 $ (471) $(1,114) Net income (loss) $ 2,476 $ (58) $(2,198) $(3,343) $ 1,186 $ 591 $ (65) $ (498) Basic net income (loss) per share $ 0.21 $ (0.00) $ (0.19) $ (0.28) $ 0.10 $ 0.05 $ (0.01) $ (0.04) Diluted net income (loss) per share $ 0.20 $ (0.00) $ (0.19) $ (0.28) $ 0.09 $ 0.04 $ (0.01) $ (0.04) Weighted average number of shares outstanding - basic 11,715 11,764 11,817 11,940 11,907 11,864 11,836 11,722 - diluted 12,488 11,764 11,817 11,940 13,844 13,592 11,836 11,722
34 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 14. CONTROLS AND PROCEDURES The Company's Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended) as of a date within 90 days of the filing of this annual report (the "Evaluation Date"), have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were effective to ensure the timely collection, evaluation and disclosure of information relating to the Company that would potentially be subject to disclosure under the Securities Exchange Action of 1934, as amended, and the rules and regulations promulgated thereunder. There were no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the Evaluation Date. PART IV ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Documents filed as part of this report: 1. Financial statements. The following consolidated financial statements are filed as part of this Annual Report on Form 10-K.
PAGE ---- Independent Auditors' Report 20 Consolidated Balance Sheets as of April 30, 2003 and 2002 21 Consolidated Statements of Operations for the years ended April 30, 2003, 2002 and 2001 22 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended April 30, 2003, 2002 and 2001 23 Consolidated Statements of Cash Flows for the years ended April 30, 2003, 2002 and 2001 24 Notes to Consolidated Financial Statements 25
2. Financial Statement Schedule: Schedule II--Valuation and Qualifying Accounts for each of the years in the three-year period ended April 30, 2003 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. 3. Exhibits. The Exhibits listed below are filed or incorporated by reference as part of this Annual Report on Form 10-K.
EXHIBIT NUMBER DESCRIPTION ---------- -------------------------------------------------------------------------------------------- 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference from Registration Statement No. 333-40189) 3.2 Certificate of Amendment to the Company's Amended and Restated Certificate of Incorporation (incorporated by reference from Registration Statement No. 333-40189) 3.3 Bylaws of the Company (incorporated by reference from Registration Statement No. 333-1398). 10.1 1988 Stock Option Plan of the Company (incorporated by reference from Registration Statement No. 333-1398). 10.2 1995 Stock Option Plan of the Company (incorporated by reference from Registration Statement No. 333-1398). 10.3 Zoltan Cendes Stock Option Agreement, dated April 30, 1995 (incorporated by reference from Registration Statement No. 333-1398). 10.10 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 Agilent HFSS Technology and License Transfer Agreement dated May 1, 2001* 10.13 Revolving Credit Facility dated January 7, 1999* 10.14 Fifth Amendment to Credit Agreement* 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). 99.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 Of The Sarbanes-Oxley Act of 2002 99.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 Of The Sarbanes-Oxley Act of 2002
*Filed herewith 35 (b) Reports on Form 8-K: On May 28, 2003, Registrant filed a current report on Form 8-K to provide under Item 9 and Item 12 the Registrant's press release in connection with its results of operation and fiscal condition for Registrant's fiscal year ended April 30, 2003. 36 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 25, 2003 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 25, 2003.
SIGNATURE TITLE ----------------------------------- ----------------------------------------- /s/ Nicholas Csendes Director, President and Chief Executive ----------------------------------- Officer (Principal Executive Officer) Nicholas Csendes /s/ Zoltan J. Cendes Director, Chief Technology Officer and ----------------------------------- Chairman of the Board of Directors Zoltan J. Cendes /s/ Thomas A.N. Miller Director ----------------------------------- Thomas A.N. Miller /s/ Peter Robbins Director ----------------------------------- Peter Robbins /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
37 CERTIFICATIONS I, Nicholas Csendes, certify that: 1. I have reviewed this annual report on Form 10-K of Ansoft Corporation, the registrant; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 25, 2003 By: /s/ Nicholas Csendes ---------------------------------------- Nicholas Csendes President and Chief Executive Officer 38 I, Anthony L. Ryan, certify that: 1. I have reviewed this annual report on Form 10-K of Ansoft Corporation, the registrant; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 25, 2003 By: /s/ Anthony L. Ryan --------------------------------------- Anthony L. Ryan Chief Financial Officer 39 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, 2003 Allowance for doubtful accounts 621 373 (176) 818 Year ended April 30, 2002 Allowance for doubtful accounts 221 688 (288) 621 Year ended April 30, 2001 Allowance for doubtful accounts 221 86 (86) 221
40