<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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 000-27874
ANSOFT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 72-1001909
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
Four Station Square, Suite 200
Pittsburgh, Pennsylvania 15219-1119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 261-3200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
The number of shares of the registrant's Common Stock outstanding as of the
close of business on September 7, 1999 was 11,689,663.
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ANSOFT CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - July 31, 1999 and April 30, 1999 1
Consolidated Statements of Operations - Three months ended July 31, 1999 and 1998 2
Consolidated Statements of Cash Flows - Three months ended July 31, 1999 and 1998 3
Notes to the Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
</TABLE>
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANSOFT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
July 31,
1999 April 30,
(unaudited) 1999
----------- ---------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 2,657 $ 2,489
Marketable securities 17,007 16,461
Accounts receivable 7,411 8,645
Deferred income taxes 126 126
Prepaid expenses and other assets 734 709
-------- --------
Total current assets 27,935 28,430
Plant and equipment 4,707 4,663
Marketable securities 5,721 5,730
Other assets 310 475
Deferred taxes - non current 3,218 2,993
Intangible assets 10,072 10,339
-------- --------
Total assets $ 51,963 $ 52,630
======== ========
Liabilities and stockholders' equity
Current liabilities
Line of credit $ 8,488 $ 7,446
Accounts payable 206 329
Accrued expenses 178 404
Income taxes 174 174
Accrued wages 150 150
Deferred revenue 3,158 3,228
-------- --------
Total current liabilities 12,354 11,731
Other liabilities 136 143
-------- --------
Total liabilities 12,490 11,874
Minority interest (107) (107)
Stockholders' equity
Preferred stock -- --
Common stock 116 116
Additional paid-in capital 51,509 51,490
Treasury stock (1,696) (1,556)
Other accumulated comprehensive income (loss) (1,282) (1,013)
Accumulated deficit (9,067) (8,174)
-------- --------
Total stockholders' equity 39,580 40,863
Total liabilities and stockholders' equity $ 51,963 $ 52,630
======== ========
</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)
(unaudited)
<TABLE>
<CAPTION>
Three months ended July 31,
1999 1998
-------- --------
<S> <C> <C>
Revenues
License $ 5,304 $ 3,239
Service and other 1,607 1,915
-------- --------
Total revenue 6,911 5,154
Costs and expenses
Sales and marketing 4,592 4,252
Research and development 2,378 2,066
General and administrative 807 635
Amortization 642 422
-------- --------
Total costs and expenses 8,419 7,375
-------- --------
Income (loss) from operations (1,508) (2,221)
Other income, net 390 379
-------- --------
Income (loss) before income taxes (1,118) (1,842)
Income tax benefit 225 550
-------- --------
Net income (loss) $ (893) $ (1,292)
======== ========
Basic net income (loss) per share $ (0.08) $ (0.11)
======== ========
Diluted net income (loss) per share $ (0.08) $ (0.11)
======== ========
Weighted average shares used in calculation
Basic 11,383 11,524
======== ========
Diluted 11,383 11,524
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
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ANSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (893) $ (1,292)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation 220 210
Amortization 642 422
Deferred taxes (225) (638)
Changes in assets and liabilities
Accounts receivable 1,234 1,344
Prepaid expenses and other assets (25) (379)
Other long-term assets 158 (11)
Accounts payable (123) 61
Accrued wages and expenses (227) (527)
Deferred revenue (70) 75
-------- --------
Net cash provided by (used in) operating activities 691 (735)
-------- --------
Cash flows from investing activities
Purchases of plant and equipment (264) (385)
Investment in acquired businesses (375) (160)
Purchases of marketable securities (766) (14,380)
-------- --------
Net cash provided by (used in) investing activities (1,405) (14,925)
-------- --------
Cash flows from financing activities
Proceeds from line of credit, net 1,042 --
Purchase of treasury stock (140)
Proceeds from the issuance of common stock, net 19 57
-------- --------
Net cash provided by (used in) financing activities 921 57
Effect of exchange rate (39) (96)
-------- --------
Net increase (decrease) in cash and cash equivalents 168 (15,699)
Cash and cash equivalents at beginning of period 2,489 20,677
-------- --------
Cash and cash equivalents at end of period $ 2,657 $ 4,978
======== ========
Supplemental disclosures of cash flow information
Cash paid for interest $ 88 $ 4
======== ========
Cash paid for income taxes $ 0 $ 20
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
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ANSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Basis of Presentation
The unaudited consolidated financial statements include the accounts of
Ansoft 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, 1999 consolidated financial statements and notes thereto
included in Ansoft's annual report on Form 10-K filed with the Commission.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and disclosure of contingent assets and liabilities. The
estimates and assumptions used in the accompanying consolidated financial
statements are based on management's evaluation of the relevant facts and
circumstances as of the date of the consolidated financial statements. Actual
results may differ from those estimates.
(2) Comprehensive income (loss)
"Comprehensive income (loss)" includes foreign currency translation gains
and losses and other unrealized gains and losses. A summary of comprehensive
income (loss) follows:
<TABLE>
<CAPTION>
Three Months Ended July 31,
1999 1998
------- -------
<S> <C> <C>
Net income (loss) $ (893) $(1,292)
Unrealized gain (loss) on marketable securities (230) (8)
Foreign currency translation adjustments (39) (96)
------- -------
Comprehensive income (loss) $(1,162) $(1,396)
======= =======
</TABLE>
(3) Net income (loss) per share
"Basic income (loss) per share" is calculated based upon the weighted
average number of common shares actually outstanding, and "diluted income per
share" is calculated based upon the weighted average number of common shares
outstanding and other potential common shares if they are dilutive. 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
-------- -------- ---------
<S> <C> <C> <C>
Three months ended July 31, 1999
--------------------------------
Basic net income (loss) per share........... $ (893) 11,383 $ (0.08)
======= ======= ========
Effect of dilutive securities:
Stock options............................. -- -- --
------- ------- --------
Diluted net income (loss) per share......... $ (893) 11,383 $ (0.08)
======= ======= ========
Three months ended July 31, 1998
--------------------------------
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)
======= ======= ========
</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 Ansoft or its management are intended to identify
such forward-looking statements. Ansoft's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors" section included in
Ansoft's report on Form 10-K for the fiscal year ended April 30, 1999.
Overview
Ansoft Corporation ("Ansoft" or the "Company") develops, markets and
supports electronic design automation ("EDA") software based on fundamental
electromagnetic principles. Ansoft's software is used by engineers in the design
of high performance electronic devices and systems, such as cellular phones,
communications systems, computer circuit boards and motors. As the marketplace
demands higher levels of system performance and miniaturization, the need to
model accurately the electromagnetic interaction in communications, computer
devices and electromechanical components and systems is becoming increasingly
important, yet traditional EDA tools do not provide accurate modeling of
electromagnetic interaction. By using Ansoft's software, companies can more
easily predict electromagnetic interaction in such systems and components, thus
reducing time to market and simultaneously lowering design and manufacturing
costs. Ansoft's products are used by design engineers in a wide range of
industries, particularly the rapidly evolving wireless communications and RF
(radio frequency) markets as well as the semiconductor, computer, automotive and
consumer electronics industries.
License revenue consists principally of revenue from the licensing of
Ansoft'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.
Effective April 28, 1999, Ansoft acquired a majority interest in Pacific
Numerix ("PNC"). Effective July 24, 1996, April 9, 1997 and August 8, 1997,
Ansoft acquired the EBU, Compact, and Boulder, respectively. The cost of these
acquisitions has been allocated on the basis of the estimated fair value of the
assets acquired and the liabilities assumed. The 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.
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Results of Operations
The following table sets forth the percentage of total revenue of each item
in Ansoft's consolidated statements of operations:
<TABLE>
<CAPTION>
Three months ended July 31,
1999 1998
---- ----
<S> <C> <C>
Revenues:
License 77% 63%
Service and other 23 37
---- ----
Total revenue 100 100
Costs and expenses:
Sales and marketing 66 83
Research and development 34 40
General and administrative 12 12
Amortization 9 8
---- ----
Total costs and expenses 122 143
---- ----
Income (loss) from
operations (22) (43)
Other income 6 7
---- ----
Income (loss) before income
taxes (16) (36)
Income taxes 3 11
---- ----
Net income (loss) (13)% (25)%
==== ====
</TABLE>
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Comparison of The Three Months Ended July 31, 1999 and 1998
Revenue. Total revenue in the three-month period ended July 31, 1999
increased 34% to $6.9 million from $5.2 million in the comparable period of the
preceding fiscal year. License revenue during the three-month period ended July
31, 1999 increased 64% to $5.3 million from $3.2 million during the comparable
period in the prior fiscal year. The increase is primarily attributable to
strong demand for our HFSS product, and to a recovery of sales in the
Asia-Pacific region. Service and other revenue decreased by 16% due to the
completion of a research and development cost-sharing contract during 1998.
International revenue accounted for 52% and 51% of Ansoft's total product
revenue in the three-month period ended July 31, 1999 and 1998, respectively.
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 8% to $4.6 million in the three-month
period ended July 31, 1999, as compared to $4.3 million in the same period in
the previous fiscal year. The increase is attributable to an increase in
Ansoft'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
66% and 83% of total revenue in the three-month period ended July 31, 1999 and
1998, respectively. Ansoft expects that sales and marketing expenses will
decrease as a percentage of sales although increase in absolute dollars in
future periods.
Research and development expenses. Research and development expenses
include all costs associated with the development of new products and
enhancements to existing products. Research and development expenses for the
three-month period ended July 31, 1999 increased 15% to $2.4 million, as
compared to $2.1 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 PNC acquisition. Research and development expense represented 34%
and 40% of total revenue in the three-month period ended July 31, 1999 and 1998,
respectively. Ansoft anticipates that research and development expenses will
decrease as a percentage of sales although increase in absolute dollars in
future periods.
General and administrative expenses. General and administrative expenses
for the three-month period ended July 31, 1999 increased 27% to $807,000, as
compared to $635,000 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% of total revenue in the three-month
period ended July 31, 1999 and 1998. Ansoft anticipates that general and
administrative expenses will decrease as a percentage of sales although increase
in absolute dollars in future periods.
Amortization expense. Amortization expense for the three-month period ended
July 31, 1999 increased to $642,000, as compared to $422,000 for the same period
in the previous fiscal year. The increase is due to the amortization of the
additional intangible assets acquired during fiscal 1999.
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Other income. Other income for the three-month period ended July 31, 1999
was $390,000, comparable to $379,000 reported for the same period in the
previous fiscal year.
Income taxes. In the three-month period ended July 31, 1999, Ansoft
recorded a net income tax benefit of $225,000 resulting from the recognition of
deferred tax assets in accordance with the Financial Accounting Standards
Board's SFAS No. 109, "Accounting for Income Taxes." Ansoft's net deferred tax
asset of $3.3 million as of July 31, 1999, consists primarily of net operating
loss carryforwards for federal income tax purposes, which are available to
offset future taxable income, and expire in increments beginning in April 2004,
through April 2019. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
Liquidity and Capital Resources
As of July 31, 1999, Ansoft had $2.7 million in cash and cash equivalents
and working capital of $15.6 million. Net cash provided by (used in) operating
activities was $691,000 and $(735,000) in the three months ended July 31, 1999
and 1998, respectively. Net cash provided by (used in) investing activities was
$(1.4) million and $(14.9) million in the three months ended July 31, 1999 and
1998, respectively. Capital expenditures, consisting primarily of purchases of
computer equipment, were $264,000 and $385,000 in the three months ended July
31, 1999 and 1998, respectively. Net cash provided by financing activities
includes cash proceeds from the issuance of Common Stock totaling $19,000 and
$57,000 in the three months ended July 31, 1999 and 1998, respectively.
Ansoft has available a $10.0 million secured line of credit from a domestic
financial institution at an interest rate equal to LIBOR plus an applicable
margin rate. The line of credit is secured by the marketable securities held
with the institution. As of July 31, 1999, $8.5 million was the outstanding
balance on the line of credit. Ansoft believes that the available funds will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least the foreseeable future. Thereafter, if cash generated
from operations is insufficient to satisfy 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.
Year 2000 Issues
Ansoft has recently evaluated the products Ansoft currently supports to
determine if they are Year 2000 ready. Most of Ansoft's products do not rely on
knowledge of the date (date-sensitive data) for performance or functionality.
Ansoft's products only use date-sensitive data with respect to the licensing of
Ansoft's products.
State Of Readiness. The results of this evaluation revealed that most of
Ansoft's supported products are Year 2000 ready. Ansoft plans to offer patches
or upgrades to the supported products currently not Year 2000 ready.
During 1998, an evaluation of Ansoft's internal support systems was done to
determine if they are Year 2000 ready to support Ansoft's operations beyond the
year 2000. Ansoft currently uses third party software systems and applications,
some of which are not Year 2000 ready. Ansoft has the intention to stop using
these software products or upgrade or replace them as part of Ansoft's growth
plans.
Although Ansoft's intention was to replace or upgrade these systems prior
to June 30, 1999, the work will be extended to December 31, 1999. The failure by
Ansoft to complete such work prior to December 31, 1999 could have a material
adverse effect on Ansoft's business, financial condition and operations.
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Costs. Ansoft does not have a project tracking system that tracks the cost
and time that its own internal employees spend on the Year 2000 project. Ansoft
expects that costs directly related to Year 2000 in excess of normal upgrade and
maintenance costs would not exceed approximately $100,000 for both costs
incurred to date and future costs. However, there is no assurance that the costs
may not exceed this amount.
Risks. Ansoft is requesting its vendors to provide Year 2000 compliance
certificates for all its internal support systems. However, Ansoft only intends
to perform testing on its critical internal support systems. Inoperability
related to Year 2000 problems of internal systems that are certified Year 2000
ready by the vendor and not tested by Ansoft could have an adverse impact to
Ansoft's operational efficiency.
The patches or upgrades provided by Ansoft as the remedies to make its
products Year 2000 ready may not be accepted by the customer, which could have
an adverse impact on Ansoft's business.
Ansoft believes that the purchasing patterns of customers and potential
customers may be affected by Year 2000 issues as companies expend significant
resources to correct or patch their current software systems for Year 2000
readiness. These expenditures may result in reduced funds available to purchase
software products such as those offered by Ansoft, which could result in a
material adverse effect on Ansoft's business, financial condition and results of
operation. In addition, Ansoft does not have any meaningful data as to the state
of its customers' Year 2000 readiness.
Contingency Plans. Ansoft does not presently have a contingency plan for
handling Year 2000 problems that are not detected and corrected prior to their
occurrences. Upon completion of testing and implementation activities, Ansoft
will be able to assess the areas requiring contingency planning and expects to
develop appropriate planning at that time. Any failure of Ansoft to address any
unforeseen Year 2000 problems could adversely affect Ansoft's business,
financial condition and results of operations.
Quantitative and Qualitative Disclosure about Market Risk
Interest Rate Risk. Ansoft's exposure to market risk for changes in
interest rates relates primarily to its investment portfolio. Ansoft mitigates
its risk by diversifying its investments among credit quality securities and
limits the amount of credit exposure to any one issuer. Ansoft does not hedge
any interest rate exposures.
Foreign Currency Risk. Ansoft transacts business in various foreign
currencies. Accordingly, Ansoft is subject to exposure from adverse movements in
foreign currency exchange rates. As of July 31, 1999, Ansoft had no hedging
contracts outstanding. Ansoft assesses the need to utilize financial instruments
to hedge currency exposures on an ongoing basis.
Additional Risk Factors that may affect Future Results
We may be unable to successfully compete in the highly competitive electronic
design automation ("EDA") software market. The electronic design automation
software market in which Ansoft competes is intensely competitive and subject to
rapid change. In general, competition comes from major EDA vendors, many of
which have a longer operating history, significantly greater financial,
technical and marketing resources, greater name recognition and a larger
installed customer base than Ansoft. These companies also have established
relationships with current and potential customers of Ansoft. Ansoft's software
products currently compete with certain software offerings from Hewlett-Packard
Corporation ("HP"). Ansoft also competes directly with certain major EDA vendors
and privately-held companies which also provide competing products. Ansoft also
competes, on a limited basis, with the internal development groups of its
existing and potential customers, many of which design and develop customized
design tools for their particular needs. In addition, the EDA industry has
become increasingly concentrated in recent years as a result of acquisitions,
and further concentration within the EDA industry could result in increased
competition for Ansoft. Increased competition could result in price reductions,
reduced margins or loss of market share, any of which could seriously harm
Ansoft's business, operating results or financial condition. Ansoft's may be
unable to
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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 have a history of losses and our future operating results are
uncertain. Ansoft has incurred net losses in each fiscal year since its founding
with the exception of fiscal 1998 and 1996. There can be no assurance that
Ansoft's revenue and net income will grow or be sustained in future periods or
that Ansoft will remain profitable in any future period. Future operating
results will depend on many factors, including the degree and the rate of growth
of the markets in which 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 a extent, fixed. We
may be unable to adjust spending sufficiently quickly 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, and The Nasdaq National Market
and the market for technology companies in particular has experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of such companies. These broad market and industry
factors may seriously harm the market price of our common stock in future
periods.
Businesses we acquire may not perform as projected. We have acquired or
merged with a number of companies in recent years, including PNC, Compact, the
EBU and Boulder Microwave Technologies, and as part of our efforts to increase
revenue and expand our product and services offerings we may acquire additional
companies. In addition to direct costs, acquisitions pose a number of risks,
including potential dilution of earnings per share, delays and other problems of
integrating the acquired products and employees into our business, the failure
to realize expected synergies or cost savings, the failure of acquired products
to achieve projected sales, the drain on management time for acquisition-related
activities, possible adverse effects on customer buying patterns due to
uncertainties resulting from an acquisition, and assumption of unknown
liabilities. The foregoing factors could seriously harm our business, financial
condition and results of operations.
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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 patents, trade secrets, copyrights,
trademarks and contractual commitments to protect our proprietary rights in our
software products. We generally enter into confidentiality or license agreements
with our employees, distributors and customers, and limit access to and
distribution of our software, documentation and other proprietary information.
Despite these precautions, a third party may still copy or otherwise obtain and
use our products or technology without authorization, or develop similar
technology independently. In addition, effective patent, copyright and trade
secret protection may be unavailable or limited in certain foreign countries. It
is possible that we may fail to adequately protect our proprietary rights. This
would seriously harm Ansoft's business, operating results and financial
condition.
We may be unable to attract and retain the key management and technical
personnel that we need to succeed. Ansoft's future operating results depend in
large part upon the continued services of its key technical and management
personnel, including Dr. Zoltan J. Cendes, a founder, Chairman of the Board of
Directors and Chief Technology Officer of Ansoft. Ansoft does not have
employment contracts with Dr. Cendes or any other executive officer. Ansoft
maintains key-man life insurance with respect to Dr. Cendes in the amount of
$5,000,000. 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 had previously depended upon third party international distributors and
have recently shifted our distribution model to the use of direct sales
personnel in international markets. A significant portion of Ansoft's license
and service revenue results from a limited number of international distributors.
During fiscal 1999, 1998 and 1997, revenue from international distributors
accounted for approximately 10%, 19%, and 19%, respectively, of Ansoft's total
revenue. Ansoft's distributors are not obligated to purchase products from
Ansoft and may also represent other products. Ansoft has recently shifted its
distribution model to the use of direct sales personnel in international
markets. It is possible that we may fail to sustain or increase revenue
previously derived from third party international distributors and,
consequently, seriously harm our business, financial condition and results of
operations.
We depend on international sales for a significant percentage of our
revenue. International revenue, principally from Asian customers, accounted for
approximately 52% and 51% of our total revenue in in the three-month period
ended July 31, 1999 and 1998, 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.
Page 11
<PAGE> 14
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 $24.4 million in fiscal year 1999, and
the number of employees has grown from 69 in April 1996 to 234 as of July 31,
1999. 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. While these
industries have experienced an extended period of significant economic growth
over the past few years, such economic growth may not continue, and if it does
not, any downturn could be especially severe on Ansoft. During such downturns,
the number of new integrated circuit design projects often decreases. Because
acquisitions of new licenses from Ansoft are largely dependent upon the
commencement of new design projects, any slowdown in these industries could
seriously harm Ansoft's business, financial condition and results of operations.
Errors in our software products could result in loss of market share or
failure to achieve market acceptance. Software products as complex as those
offered by Ansoft may contain defects or failures when introduced or when new
versions are released. Ansoft has in the past discovered software defects in
certain of its products and may experience delays or lost revenue to correct
such defects in the future. Despite testing by Ansoft, errors may still be found
in new products or releases after commencement of commercial shipments,
resulting in loss of market share or failure to achieve market acceptance. Any
such occurrence could seriously harm Ansoft's business, financial condition and
results of operations.
Anti-Takeover Provisions in Ansoft's Certificate of Incorporation, Bylaws,
and under Delaware Law could prevent an acquisition of Ansoft. 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 the 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
the Ansoft might otherwise receive a premium for their shares over then current
market prices.
We are controlled by our principal stockholders and management which may
limit your ability to influence stockholder matters. Our executive officers,
directors and principal stockholders own approximately 49% of the outstanding
shares of Ansoft common stock. As a result, they have the ability to effectively
control us and direct our affairs, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
also may have the effect of delaying, deferring or preventing a change in
control of our company and may make some transactions more difficult or
impossible without the support of these stockholders. The interests of these
stockholders may conflict with those of other stockholders.
Page 12
<PAGE> 15
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, 1999 to July 31, 1999.
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 10, 1999
ANSOFT CORPORATION
By: /s/ Nicholas Csendes
--------------------------------------------
Nicholas Csendes
President and Chief Executive Officer
By: /s/ Anthony L. Ryan
--------------------------------------------
Anthony L. Ryan
Chief Financial Officer
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE 3-MOS ENDED JULY 31, 1999 AND THE
BALANCE SHEET AT JULY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> ANSOFT CORPORATION
<MULTIPLIER> 1,000
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<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
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<SECURITIES> 22,728
<RECEIVABLES> 7,411
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