<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended July 31, 1998
[ ] 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 660
Pittsburgh, Pennsylvania 15219-1119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 261-3200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
The number of shares of the registrant's Common Stock outstanding as of the
close of business on September 2, 1998 was 11,522,969.
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ANSOFT CORPORATION
FORM 10-Q
INDEX
Page
----
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - July 31, 1998
and April 30, 1998 1
Consolidated Statements of Operations - Three months
ended July 31, 1998 and 1997 2
Consolidated Statements of Cash Flows - Three months
ended July 31, 1998 and 1997 3
Notes to the Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ANSOFT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
July 31, April 30,
1998 1998
-------- --------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 4,978 $ 20,677
Marketable securities 13,849 --
Accounts receivable 6,121 7,465
Deferred income taxes 2,233 2,145
Prepaid expenses and other assets 915 536
-------- --------
Total current assets 28,096 30,823
Plant and equipment, net 3,272 3,097
Marketable securities 7,183 6,703
Other asset 262 260
Deferred taxes - non current 313 --
Intangible assets 8,035 8,297
-------- --------
Total assets $ 47,161 $ 49,180
======== ========
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 595 $ 534
Accrued expenses 62 264
Income taxes 261 286
Accrued wages 47 347
Deferred revenue 1,888 1,813
-------- --------
Total current liabilities 2,853 3,244
Deferred taxes - non current -- 237
Other liabilities 170 179
-------- --------
Total liabilities 3,023 3,660
Stockholders' equity
Preferred stock -- --
Common stock 115 115
Additional paid-in capital 50,785 50,728
Other accumulated comprehensive income (loss) (104) 43
Accumulated deficit (6,658) (5,366)
-------- --------
Total stockholders' equity 44,138 45,520
-------- --------
Total liabilities and stockholders' equity $ 47,161 $ 49,180
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
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ANSOFT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three months ended July 31,
1998 1997
-------- ------
Revenues
License $ 3,239 $4,016
Service and other 1,915 1,319
-------- ------
Total revenue 5,154 5,335
Costs and expenses
Sales and marketing 4,252 2,557
Research and development 2,066 1,510
General and administrative 635 470
Amortization 422 314
-------- ------
Total costs and expenses 7,375 4,851
-------- ------
Income (loss) from operations (2,221) 484
Other income, net 379 91
-------- ------
Income (loss) before income taxes (1,842) 575
Income tax benefit 550 170
-------- ------
Net income (loss) $ (1,292) $ 745
======== ======
Basic net income (loss) per share $ (0.11) $ 0.08
======== ======
Diluted net income (loss) per share $ (0.11) $ 0.08
======== ======
Weighted average shares used in calculation
Basic 11,524 8,989
======== ======
Diluted 11,524 9,621
======== ======
See accompanying notes to the consolidated financial statements.
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ANSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
THREE MONTHS ENDED JULY 31,
---------------------------
1998 1997
-------- --------
Cash flows from operating activities
Net income (loss) ............................. $ (1,292) $ 745
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation .................................. 210 120
Amortization .................................. 422 314
Acquired in process research and development .. -- --
Deferred taxes ................................ (638) (170)
Changes in assets and liabilities
Accounts receivable ........................... 1,344 (149)
Prepaid expenses and other assets ............. (379) (250)
Other long-term assets ........................ (11) (75)
Accounts payable .............................. 61 267
Accrued wages and expenses .................... (527) (1,007)
Deferred revenue .............................. 75 122
-------- -------
Net cash provided by operating activities ....... (735) (83)
-------- -------
Cash flows from investing activities
Purchases of plant and equipment .............. (385) (291)
Investment in acquired businesses ............. (160) --
Sale (purchases) of marketable securities ..... (14,380) 2,612
-------- -------
Net cash provided by (used in) investing
activities) .................................. (14,925) 2,321
-------- -------
Cash flows from financing activities
Proceeds from line of credit, net ............. -- (1,721)
Proceeds from the issuance of common
stock, net .................................. 57 5
-------- -------
Net cash provided by (used in) financing ........ 57 (1,716)
activities
Effect of exchange rate ......................... (96) --
-------- -------
Net increase (decrease) in cash and cash
equivalents ................................... (15,699) 522
Cash and cash equivalents at beginning of
period ........................................ 20,677 312
-------- -------
Cash and cash equivalents at end of period ...... $ 4,978 $ 834
======== =======
Supplemental disclosures of cash flow information
Cash paid for interest ........................ $ 4 $ 69
======== =======
Cash paid for income taxes .................... $ 20 $ 13
======== =======
See accompanying notes to the consolidated financial statements.
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ANSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The unaudited consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. In the opinion of management,
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of financial position and results of operations have been
made. Operating results for interim periods are not necessarily indicative of
results which may be expected for a full year. The information included in this
Form 10-Q should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the fiscal year
ended April 30, 1998 consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K filed with the Commission.
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and disclosure of contingent assets and liabilities. The
estimates and assumptions used in the accompanying consolidated financial
statements are based on management's evaluation of the relevant facts and
circumstances as of the date of the consolidated financial statements. Actual
results may differ from those estimates.
(2) Borrowings
The Company has available a secured line of credit from a domestic
financial institution at an interest rate varying from a minimum of 2% below the
Broker Call Rate to a maximum equaling the Broker Call Rate. The line of credit
is secured by the marketable securities held with the institution. As of July
31, 1998, there was no outstanding balance on the line of credit.
(3) Comprehensive income (loss)
On May 1, 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes
requirements for disclosure of comprehensive income. The objective of SFAS 130
is to report all changes in equity that result from transactions and economic
events other than transactions with owners. Comprehensive income is the total of
net income and all other non-owner changes in equity. Adoption of SFAS 130 did
not impact the Company's consolidated financial position, results of operations
or cash flows for the three months ended July 31, 1998 and 1997. The
reconciliation of net loss to comprehensive income (loss) is as follows (in
thousands):
Three Months Ended July 31,
1998 1997
------- -------
Net income (loss) $(1,292) $745
Unrealized gain (loss) on marketable securities (8) 203
Foreign currency translation adjustments (96) --
------- ----
Comprehensive gain (loss) $(1,396) $948
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(4) Net income (loss) per share
Net income (loss) per share is computed using the weighted average
number of common and common equivalent shares outstanding during the period.
Common equivalent shares are not included in the per share calculations where
their inclusion would be antidilutive.
In February 1997, Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS 128") was issued by the Financial Accounting
Standards Board. SFAS 128 requires the presentation of both basic and diluted
earnings per share. Under SFAS 128, "basic earnings (loss) per share" is
calculated based upon the weighted average number of common shares actually
outstanding, and "diluted earnings per share" is calculated based upon the
weighted average number of common shares outstanding and other potential common
shares if they are dilutive. SFAS 128 was adopted in the Company's third quarter
of fiscal 1998. Prior periods have been restated to conform with SFAS 128.
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for the periods presented:
<TABLE>
<CAPTION>
Income Per share
(loss) Shares amount
------ ------ ------
Three months ended July 31, 1998
--------------------------------
<S> <C> <C> <C>
Basic net income (loss) per share.... $ (1,292) 11,524 $ (0.11)
=========== ========== ========
Effect of dilutive securities:
Stock options..................... -- -- --
----------- ---------- --------
Diluted net income (loss) per share.. $ (1,292) 11,524 $ (0.11)
============ ========== ========
Three months ended July 31, 1997
--------------------------------
Basic net income (loss) per share.... $ 745 8,989 $ 0.08
=========== ========== ========
Effect of dilutive securities:
Stock options..................... -- 632 --
----------- ---------- --------
Diluted net income (loss) per share.. $ 745 9,621 $ 0.08
=========== ========== ========
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains certain forward-looking statements
that involve substantial risks and uncertainties. When used in this Prospectus,
the words "anticipate," "plan," "believe," "estimate," "expect" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements could differ materially from the results expressed
in, or implied by, these forward-looking statements. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors" section
included in the Company's report on Form 10-K for the fiscal year ended April
30, 1998.
Overview
Ansoft Corporation ("Ansoft" or the "Company") develops, markets and
supports electronic design automation ("EDA") software based on fundamental
electromagnetic principles. The Company's products are used by design engineers
in a wide range of industries, including the rapidly evolving wireless
communications and RF markets as well as the semiconductor, computer, automotive
and consumer electronics industries. The Company's software is used in the
design of high performance electrical devices and systems, such as cellular
phones, communications systems, computer circuit boards and motors.
License revenue consists principally of revenue from the licensing of
the Company's software and is generally recognized when the software has been
shipped and there are no significant remaining obligations. Service revenue
consists of maintenance fees for providing system updates, user documentation
and technical support for software products, and is recognized ratably over the
term of the maintenance agreement. Other revenue consists primarily of revenue
earned on development contracts with government-sponsored entities. Revenue
under these arrangements is recognized as the service is performed.
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 86, the Company has evaluated the establishment of technological feasibility
of its various products during the development phase. Due to the dynamic changes
in the market, the Company has concluded that it cannot determine, with any
reasonable degree of accuracy, technological feasibility until the development
phase of the project is nearly complete. The time period during which costs
could be capitalized from the point of reaching technological feasibility until
the time of general product release is generally very short and, consequently,
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the amounts that could be capitalized pursuant to SFAS No. 86 are not material
to the Company's consolidated financial position or results of operations.
Therefore, the Company charges all research and development expenses to
operations in the period incurred.
Effective July 24, 1996, April 9, 1997 and August 8, 1997, the Company
acquired the Electronic Business Unit (the "EBU") of The MacNeal Schwendler
Company ("MSC"), Compact Software Inc. ("Compact"), and Boulder Microwave
Technologies, Inc. ("Boulder"), respectively. The cost of these acquisitions has
been allocated on the basis of the estimated fair value of the assets acquired
and the liabilities assumed. The acquisitions have been accounted for as
purchases, and their respective financial results have been included in the
accompanying consolidated financial statements since the date of their
respective acquisitions.
Results of Operations
The following table sets forth the percentage of total revenue of each
item in the Company's consolidated statements of operations:
Three months ended July 31,
1998 1997
---- ----
Revenues:
License 63% 75%
Service and other 37 25
---- ---
Total revenue 100 100
Costs and expenses:
Sales and marketing 83 48
Research and development 40 28
General and administrative 12 9
Amortization 8 6
---- ---
Total costs and expenses 143 91
---- ---
Income (loss) from
operations (43) 9
Other income 7 2
---- ---
Income (loss) before income
taxes (36) 11
Income taxes 11 3
---- ---
Net income (loss) (25)% 14%
==== ===
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Comparison of The Three Months Ended July 31, 1998 and 1997
Revenue. Total revenue in the three-month period ended July 31, 1998
decreased 3% to $5.2 million from $5.3 million in the comparable period of the
preceding fiscal year. The decrease is primarily attributable to lower sales in
the Asia-Pacific region. License revenue during the three-month period ended
July 31, 1998 decreased 19% to $3.2 million from $4.0 million during the
comparable period in the prior fiscal year. The decrease in licenses revenue is
primarily attributable to lower sales in the Asia-Pacific region. The increase
in service and other revenue is primarily attributable to the continued growth
of the installed base of customers and increased focus on marketing annual
maintenance agreements.
International revenue accounted for 51% and 55% of the Company's total
product revenue in the three-month period ended July 31, 1998 and 1997,
respectively.
In 1989, the Company entered into a distribution arrangement with
Hewlett-Packard Corporation ("HP") under which HP formerly distributed the
Company's HFSS product on an exclusive basis (the "HP Agreement"). The HP
Agreement has since expired, and HP has no right to distribute the Company's
HFSS 4.0 product. Ansoft currently sells the latest version of its HFSS product,
Ansoft HFSS 6.0, through its own sales force and other distributors. Revenue
from the HP Agreement accounted 7% of total revenue in the three-month period
ended July 31, 1997. Management believes that the expiration of the HP Agreement
has not had a material adverse effect on the consolidated financial condition or
results of operations.
Sales and marketing expenses. Sales and marketing expenses consist of
salaries, commissions paid to internal sales and marketing personnel and
international distributors, promotional costs and related operating expenses.
Sales and marketing expenses increased by 66% to $4.3 million in the three-month
period ended July 31, 1998, as compared to $2.6 million in the same period in
the previous fiscal year. The increase is attributable to an increase in the
Company's sales force as a result of the acquisitions as well as increased
marketing efforts, including advertising in trade publications and increased
participation in industry trade shows. Sales and marketing expenses represented
83% and 48% of total revenue in the three-month period ended July 31, 1998 and
1997, respectively.
Research and development expenses. Research and development expenses
include all costs associated with the development of new products and
enhancements to existing products. Research and development expenses for the
three-month period ended July 31, 1998 increased 37% to $2.1 million, as
compared to $1.5 million for the same period in the previous fiscal year. The
increase is due to increased research and development personnel primarily as a
result of the acquisitions. Research and development expenses represented 40%
and 28% of total revenue in the three-month period ended July 31, 1998 and 1997,
respectively. The Company anticipates that research and development expenses
will increase in absolute dollars in future periods.
General and administrative expenses. General and administrative
expenses for the three-month period ended July 31, 1998 increased 35% to
$635,000, as compared to $470,000 for the same period in the previous fiscal
year. The increase is due to additional costs required to support the increase
in operations, including the hiring of additional administrative personnel.
General and administrative expenses represented 12% and 9% of total revenue in
the three-month period ended July 31, 1998 and 1997, respectively. The Company
anticipates that general and administrative expenses will increase in absolute
dollars in future periods.
Amortization expense. Amortization expense for the three-month period
ended July 31, 1998 increased to $422,000, as compared to $314,000 for the same
period in the previous fiscal year. The increase is due to the amortization of
the additional intangible assets acquired during fiscal 1998.
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Other income. Other income for the three-month period ended July 31,
1998 increased to $379,000, compared to $91,000 for the same period in the
previous fiscal year. Other income increased due to the higher net investment
balance due to the proceeds from the public offering of 2,000,000 shares in
March of 1998.
Income taxes. In the three-month period ended July 31, 1998, the
Company recorded a net income tax benefit of $550,000. In the three-month period
ended July 31, 1997, the Company recorded a net income tax benefit of $170,000,
resulting from the partial recognition of previously unrecognized deferred tax
assets in accordance with the Financial Accounting Standards Board's SFAS No.
109, "Accounting for Income Taxes."
Liquidity and Capital Resources
As of July 31, 1998, the Company had $5.0 million in cash and cash
equivalents and working capital of $25.2 million. Net cash used in operating
activities was $735,000 and $83,000 in the three months ended July 31, 1998 and
1997, respectively. Net cash provided by (used in) investing activities was
$(14.9) million and $2.3 million in the three months ended July 31, 1998 and
1997, respectively. Capital expenditures, consisting primarily of purchases of
computer equipment, were $385,000 and $291,000 in the three months ended July
31, 1998 and 1997, respectively. Net cash provided by financing activities
includes cash proceeds from the issuance of Common Stock totaling $57,000 and
$5,000 in the three months ended July 31, 1998 and 1997, respectively. During
the three months ended July 31, 1997, the Company repaid $1.7 million on its
line of credit with a financial institution.
YEAR 2000 ISSUES
The Company is currently reviewing its products, internal systems and
infrastructure in order to identify and modify those products and systems that
are not Year 2000 compliant. The Company expects any required modification to be
made on a timely basis and does not believe that the cost of any such
modifications will have a material adverse effect on the Company's operating
results. There can be no assurance, however, that there will not be a delay in,
or increased costs associated with, implementation of any such modifications and
the Company's inability to implement such modifications could have an adverse
affect on the Company's future operating results.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this Quarterly Report on Form 10-Q are listed
below and are incorporated herein by reference:
Exhibit No.
27.1 Financial Data Schedule.
(b) No reports on Form 8-K during the period from May 1, 1998 to July 31, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date September 14, 1998
ANSOFT CORPORATION
By: /s/ NICHOLAS CSENDES
-------------------------------------
Nicholas Csendes
President and Chief Executive Officer
By: /s/ ANTHONY L. RYAN
-------------------------------------
Anthony L. Ryan
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME FOR THE 3-MOS ENDED JULY 31, 1998 AND THE
BALANCE SHEET AT JULY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000849433
<NAME> ANSOFT CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JUL-31-1998
<CASH> 4,978
<SECURITIES> 13,849
<RECEIVABLES> 6,121
<ALLOWANCES> 150
<INVENTORY> 0
<CURRENT-ASSETS> 28,096
<PP&E> 3,272
<DEPRECIATION> 210
<TOTAL-ASSETS> 47,161
<CURRENT-LIABILITIES> 2,853
<BONDS> 0
0
0
<COMMON> 115
<OTHER-SE> 44,023
<TOTAL-LIABILITY-AND-EQUITY> 47,161
<SALES> 3,239
<TOTAL-REVENUES> 5,154
<CGS> 0
<TOTAL-COSTS> 7,375
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,842)
<INCOME-TAX> (550)
<INCOME-CONTINUING> (1,292)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,292)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
