NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Aspen Technology Inc. and Subsidiaries Notes to Consolidated Financial Statements (1) Operations (2) Significant Accounting Policies (a) Principles of Consolidation (b) Management Estimates (c) Cash and Cash Equivalents (d) Short-Term Investments 36 Aspen Technology, Inc. and its subsidiaries (the Company) is a leading supplier of integrated software and services to the process industries, which consist of petroleum, chemicals, pharmaceutical and other industries that provide products from a chemical process. The Company develops two types of software to design, operate, manage and optimize its customers' key business processes; engineering software and manufacturing/supply chain software. The accompanying consolidated financial statements include the results of operations of the Company and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less. Securities purchased to be held for indefinite periods of time, and not intended at the time of purchase to be held until maturity, are classified as available-for-sale securities. Securities classified as available-for-sale are included in short-term investments and cash and cash equivalents and are recorded at market value in the accompanying consolidated financial statements. Unrealized gains and losses have been accounted for as a component of comprehensive income (loss). Realized investment gains and losses were not material in fiscal 2001, 2002 or 2003. Available-for-sale investments as of June 30, 2002 and 2003 were as follows (in thousands): June 30, 2002 June 30, 2003 Total Total Total Total Contracted Market Amortized Market Amortized Maturity Value Cost Value Cost Cash and cash equivalents: Cash and cash equivalents N/A $21,835 $21,835 $22,412 $22,412 Money market funds 0-3 months 11,736 11,736 29,155 29,155 Total cash and cash equivalents 33,571 33,571 51,567 51,567 Short-term investments: Corporate and foreign bonds 4-12 months 13,389 13,381 — — Corporate and foreign bonds 1-2 years 5,160 5,151 — — Total short term investments 18,549 18,532 — — $52,120 $52,103 $51,567 $51,567