UNITED
STATES-STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549FORM 10-Q
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-20853 ANSYS, Inc. (exact name of registrant as specified in its charter) DELAWARE 04-3219960 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 275 Technology Drive, Canonsburg, PA 15317 (Address of principal executive offices) (Zip Code) 724-746-3304 Registrant's telephone number, including area code) Indicate by a 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, par value $.01 per share, outstanding as of November 12, 2002 was 14,559,159 shares. 1
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-20853
ANSYS INC.
(exact name of registrant as specified in its charter)
DELAWARE
04-3219960
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
275 Technology Drive, Canonsburg, PA
15317
(Address of principal executive offices)
(Zip Code)
724-746-3304
(Registrant’s telephone number, including area code)
Indicate by a 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 o
Indicate by a check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes x
No o
The number of shares of the Registrant’s Common Stock, par value $.01 per share, outstanding as of May 9, 2003 was 14,812,263 shares.
ANSYS INC. AND SUBSIDIARIES
INDEX
Page No.
PART I.
Item 1.
3
4
5
6-10
11
Item 2.
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
11-1812-18
Item 3.
Quantitative and Qualitative Disclosures Regarding Market Risk
19
Item 4.
20
PART II.
Item 1.
21
Item 2.
21
Item 4.
Submission of Matters to a Vote of Security Holders
20 Item 5. Other Information 2021
Item 6.
22
23
24-25
26
ANSYS, AI*NASTRAN, AI*Environment and DesignSpace are Trademarks
used in this Form 10-Q: ANSYS(R)and DesignSpace(R)areor registeredtrademarks of SAS IP, Inc., a wholly-owned subsidiaryTrademarks of ANSYS Inc. and its subsidiaries located in the United States or other countries. NASTRAN is a registered Trademark of the National Aeronautics Space Administration. All other trademarks are the property of their respective owners.2
PART I
-– UNAUDITED FINANCIAL INFORMATIONItem 1. - Financial Statements:
ANSYS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS(in
(in thousands, except share information)(Unaudited)
September 30, Dec. 31, 2002 2001 ----------------- --------------ASSETS Current assets: Cash and cash equivalents $ 25,429 $ 28,545 Short-term investments 29,840 24,903 Accounts receivable, less allowance for doubtful accounts of $1,690 and $1,610, respectively 12,785 15,352 Other current assets 11,775 12,803 Deferred income taxes 2,030 1,799 ----------------- -------------- Total current assets 81,859 83,402 ----------------- -------------- Long-term investments 1,018 500 Property and equipment, net 4,667 4,915 Capitalized software costs, net 709 817 Goodwill, net 17,806 16,937 Other intangibles, net 5,164 6,499 Deferred income taxes 5,051 4,692 ----------------- -------------- Total assets $ 116,274 $ 117,762 ================= ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 578 $ 624 Accrued bonuses 2,653 4,578 Other accrued expenses and liabilities 5,914 13,047 Deferred revenue 23,218 25,120 ----------------- -------------- Total current liabilities 32,363 43,369 ----------------- -------------- Stockholders' equity: Preferred stock, $.01 par value, 2,000,000 shares authorized - - Common stock, $.01 par value; 50,000,000 shares authorized; 16,584,758 shares issued 166 166 Additional paid-in capital 41,154 37,822 Less treasury stock, at cost: 2,037,776 and 2,071,123 shares, respectively (30,567) (23,953) Retained earnings 73,119 60,429 Accumulated other comprehensive income (loss) 39 (71) ----------------- -------------- Total stockholders' equity 83,911 74,393 ----------------- -------------- Total liabilities and stockholders' equity $ 116,274 $ 117,762 ================= ==============
March 31,
2003
Dec. 31,
2002
ASSETS
Current assets:
Cash and cash equivalents
$
36,849
$
46,198
Short-term investments
14,944
14,934
Accounts receivable, less allowance for doubtful accounts of $2,377 and $1,560, respectively
18,878
15,875
Other current assets
15,751
13,737
Deferred income taxes
2,570
1,747
Total current assets
88,992
92,491
Long-term investment
486
486
Property and equipment, net
5,953
4,302
Capitalized software costs, net
949
971
Goodwill
30,212
18,615
Other intangibles, net
16,169
5,098
Deferred income taxes
4,572
5,038
Total assets
$
147,333
$
127,001
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
1,133
$
627
Accrued bonuses
1,895
2,941
Other accrued expenses and liabilities
10,193
5,645
Deferred revenue
36,672
26,395
Total current liabilities
49,893
35,608
Stockholders’ equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized
—
—
Common stock, $.01 par value; 50,000,000 shares authorized; 16,584,758 shares issued
166
166
Additional paid-in capital
41,453
41,416
Less treasury stock, at cost: 1,882,099 and 2,014,999 shares, respectively
(28,998
)
(30,337
)
Retained earnings
83,667
79,388
Accumulated other comprehensive income
1,152
760
Total stockholders’ equity
97,440
91,393
Total liabilities and stockholders’ equity
$
147,333
$
127,001
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
ANSYS INC. AND
SUBIDARIESSUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME(in
(in thousands, except per share data)(Unaudited)
Three months ended Nine months ended ---------- --------- ---------- --------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2002 2001 2002 2001 ---------- --------- ---------- ---------Revenue: Software licenses $ 11,017 $ 10,377 $ 34,125 $ 30,937 Maintenance and service 10,728 10,233 31,619 28,826 ---------- --------- ---------- --------- Total revenue 21,745 20,610 65,744 59,763 Cost of sales: Software licenses 904 1,042 2,856 3,485 Maintenance and service 2,117 1,669 5,825 4,835 ---------- --------- ---------- --------- Total cost of sales 3,021 2,711 8,681 8,320 ---------- --------- ---------- --------- Gross profit 18,724 17,899 57,063 51,443 Operating expenses: Selling and marketing 4,690 4,370 15,092 14,416 Research and development 5,155 4,358 14,912 12,571 Amortization 557 1,281 1,724 3,924 General and administrative 2,522 4,523 7,562 9,646 ---------- --------- ---------- --------- Total operating expenses 12,924 14,532 39,290 40,557 ---------- --------- ---------- --------- Operating income 5,800 3,367 17,773 10,886 Other income 32 483 526 1,594 ---------- --------- ---------- --------- Income before income tax provision 5,832 3,850 18,299 12,480 Income tax provision 1,750 1,196 5,609 3,886 ---------- --------- ---------- --------- Net income $ 4,082 $ 2,654 $ 12,690 $ 8,594 ========== ========= ========== ========= Earnings per share - basic: Basic earnings per share $ 0.28 $ 0.18 $ 0.87 $ 0.59 Weighted average shares - basic 14,578 14,532 14,612 14,596 Earnings per share - diluted: Diluted earnings per share $ 0.26 $ 0.17 $ 0.81 $ 0.56 Weighted average shares - diluted 15,475 15,577 15,677 15,393
Three months ended
March 31,
2003
March 31,
2002
Revenue:
Software licenses
$
12,442
$
11,330
Maintenance and service
12,158
9,935
Total revenue
24,600
21,265
Cost of sales:
Software licenses
1,179
1,037
Maintenance and service
2,894
1,814
Total cost of sales
4,073
2,851
Gross profit
20,527
18,414
Operating expenses:
Selling and marketing
5,512
5,161
Research and development
5,656
4,819
Amortization
748
599
General and administrative
2,644
2,330
Total operating expenses
14,560
12,909
Operating income
5,967
5,505
Other income
534
171
Income before income tax provision
6,501
5,676
Income tax provision
2,222
1,788
Net income
$
4,279
$
3,888
Earnings per share - basic:
Basic earnings per share
$
0.29
$
0.27
Weighted average shares – basic
14,627
14,588
Earnings per share - diluted:
Diluted earnings per share
$
0.27
$
0.25
Weighted average shares – diluted
15,584
15,843
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
ANSYS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in
(in thousands)(Unaudited)
Nine months ended ----------------- Sept. 30, Sept. 30, 2002 2001 --------- ---------Cash flows from operating activities: Net income $ 12,690 $ 8,594 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,411 5,695 Deferred income tax provision (65) (669) Provision for bad debts 228 281 Loss from investment 82 - Changes in operating assets and liabilities: Accounts receivable 2,338 1,174 Other current assets 3,232 515 Accounts payable, accrued expenses and liabilities (4,023) (1,098) Deferred revenue (1,903) 358 -------- -------- Net cash provided by operating activities 15,990 14,850 -------- -------- Cash flows from investing activities: Capital expenditures (1,430) (1,817) Capitalization of internally developed software costs (241) (116) Acquisition payments (1,686) (150) Net (purchases) maturities of short-term investments (4,937) 11,452 ICEM CFD acquisition (2,591) (183) Purchase of long-term investment (600) (500) -------- -------- Net cash (used in) provided by investing activities (11,485) 8,686 -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock under Employee Stock Purchase Plan 333 205 Purchase of treasury stock (11,919) (15,410) Proceeds from exercise of stock options 3,932 3,523 -------- -------- Net cash used in financing activities (7,654) (11,682) -------- -------- Effect of exchange rate changes on cash 33 (172) -------- -------- Net (decrease) increase in cash and cash equivalents (3,116) 11,682 Cash and cash equivalents, beginning of period 28,545 6,313 -------- -------- Cash and cash equivalents, end of period $ 25,429 $ 17,995 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Income taxes $ 3,706 $ 4,594 ======== ========
Three months ended
March 31,
2003
March 31,
2002
Cash flows from operating activities:
Net income
$
4,279
$
3,888
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
1,379
1,146
Deferred income tax provision
(74
)
72
Provision for bad debts
152
49
Changes in operating assets and liabilities:
Accounts receivable
1,808
2,246
Other current assets
(1,011
)
65
Accounts payable, accrued expenses and liabilities
(558
)
(5,967
)
Deferred revenue
5,493
1,390
Net cash provided by operating activities
11,468
2,889
Cash flows from investing activities:
Capital expenditures
(640
)
(645
)
Capitalization of internally developed software costs
(103
)
—
Purchases of short-term investments
(4,985
)
(6,976
)
Maturities of short-term investments
4,975
35
Acquisition of CFX, net of cash acquired
(21,489
)
—
Other acquisition payments
—
(3,436
)
Purchase of long-term investment
—
(600
)
Cash used in investing activities
(22,242
)
(11,622
)
Cash flows from financing activities:
Proceeds from issuance of common stock under Employee Stock Purchase Plan
187
136
Purchase of treasury stock
—
(3,317
)
Proceeds from exercise of stock options
1,189
2,061
Net cash provided by (used in) financing activities
1,376
(1,120
)
Effect of exchange rate changes on cash
49
(235
)
Net decrease in cash and cash equivalents
(9,349
)
(10,088
)
Cash and cash equivalents, beginning of period
46,198
28,545
Cash and cash equivalents, end of period
$
36,849
$
18,457
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes
$
676
$
2,466
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
ANSYS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2002 (UNAUDITED)
March 31, 20031.
BASIS OF PRESENTATIONBasis of PresentationThe accompanying unaudited condensed consolidated financial statements included herein have been prepared by ANSYS
Inc.INC. (the"Company"“Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information for commercial and industrial companies and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.The financial statements as of and for the three and nine months ended September 30, 2002 should be read in conjunction with the Company's consolidated financial statements (and notes thereto) included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.Accordingly, the accompanying statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements (and notes thereto) included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements have been included, and all adjustments are of a normal and recurring nature. Operating results for the threeand ninemonths endedSeptember 30, 2002March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31,2002.2003.2. Accumulated Other Comprehensive Income
As of
September 30, 2002March 31, 2003 and December 31,2001,2002, accumulated other comprehensive income, as reflected on the condensed consolidated balance sheets, was comprised of foreign currency translation adjustments.Comprehensive income for the
three- and nine-monththree-month periods endedSeptember 30,March 31, 2003 and 2002and 2001was as follows:
Three months ended Nine months ended --------- --------- -------- -------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2002 2001 2002 2001 --------- --------- --------- ---------Comprehensive Income $ 4,119 $ 2,722 $ 12,800 $ 8,422
(in thousands)
Three months ended
March 31,
2003
March 31,
2002
Comprehensive Income
$
4,671
$
3,593
3. Other Current Assets
The Company reports accounts receivable related to the portion of annual lease licenses and software maintenance that has not yet been recognized as revenue as a component of other current assets. These amounts totaled
$7.4$11.8 million and$10.3$11.5 million as ofSeptember 30, 2002March 31, 2003 and December 31,2001,2002, respectively.6
4.
Recently Issued Accounting Pronouncements Effective January 1, 2002,Acquisition of CFXOn February 4, 2003, the Company
adopted Statementsigned a definitive agreement to acquire 100% ofFinancial Accounting Standard No. 142 (Statement 142), "Goodwillthe shares in certain entities andOther Intangible Assets,"assets (hereinafter collectively referred to as “CFX”) forexisting goodwilla purchase price of approximately $21.5 million in cash.CFX is a leading supplier of computational fluid dynamics software and
otherservices. Computational fluid dynamics is the second largest segment of the computer-aided engineering market behind the solid mechanics segment, where ANSYS is well recognized as a global market leader. By acquiring CFX, ANSYS will broaden the scope of engineering physics solutions it can offer to its customers, gain access to new customers and enter new markets.CFX represents the Company’s second acquisition in the CFD market. The Company had previously acquired ICEM CFD Engineering in August 2000. CFX’s mathematical representations for simulating the physics involved in CFD applications will complement the pre- and post-processing capabilities of ICEM CFD Engineering.
The operating results of CFX have been included in the Company’s consolidated financial results since the date the acquisition was consumated, February 26, 2003.
The total purchase price was allocated to the assets and liabilities of CFX based upon their estimated fair market values. The allocation of the purchase price was based, in part, on an independent valuation and included an allocation of $11.5 million to identifiable intangible assets
including(including $9.5 million to existing software, $1.1 million to trademark and $900,000 to customer list) and $11.4 million to goodwill. The trademark is not being amortized as it is determined to have an indefinite life; thenon-amortizationremaining identifiable intangible assets are being amortized over three to five years.In valuing deferred revenue for inclusion on the CFX opening balance sheet as of February 26, 2003, the Company complied with the fair value provisions of
this standard arisingEmerging Issues Task Force (“EITF”) Issue No. 01-3 “Accounting in a Business Combination for Deferred Revenue of an Acquiree.” In accordance with EITF 01-3, acquired deferred software license revenue of approximately $4.8 million was recorded on the opening balance sheet.CFX reported revenue of approximately $19 million for its fiscal year ended March 31, 2002. The CFX business was a carve out entity from
business combinations after June 30, 2001. This standard eliminatestheamortizationacquiree and books and records were not maintained at a level where reliable stand-alone financial statements could be produced. As such, proforma information on revenue, income before extraordinary items and the cumulative effect ofgoodwillaccounting changes (including those on an interim basis), net income andintangible assets with indefinite useful lives and requires annual testing for impairment. This standard also requiresearnings per share are indeterminable.Allocation of the
assignment ofpurchase price to the assets acquired and liabilities assumedincluding goodwill, to reporting unitshas not been completed forpurposesthis acquisition. Final determination of theannual impairment test.fair values to be assigned may result in adjustments to the preliminary values assigned at the date of acquisition, and could principally impact goodwill and taxes.7
5. Goodwill and Intangible Assets
As of
September 30, 2002March 31, 2003 and December 31,2001,2002, ANSYS had goodwill of$17.8$30.2 million and$16.9$18.6 million, respectively.TheDuring the quarter ended March 31, 2003, the Company completed the
required transitional goodwillannual impairment testduring the quarter ended June 30, 2002for goodwill and determined that goodwill had not been impaired as of the test date,of the transitional test,January 1,2002. The following table sets forth the condensed consolidated pro forma results of operations for the three- and nine-month periods ended September 30, 2002 and 2001 as if Statement 142 had been in effect for both periods: Three Three Nine Nine Months Months Months Months Ended Ended Ended Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2002 2001 2002 2001 ---------- ----------- ----------- ----------- Reported net income $ 4,082 $ 2,654 $ 12,690 $ 8,594 Add back: Goodwill and trademark amortization, net of tax - 656 - 1,945 Adjusted net income $ 4,082 $ 3,310 $ 12,690 $ 10,539 Earnings per share- basic: Reported earnings per share $ 0.28 $ 0.18 $ 0.87 $ 0.59 Goodwill and trademark amortization - .05 - .13 Adjusted earnings per share $ 0.28 $ 0.23 $ 0.87 $ 0.72 Earnings per share- diluted: Reported earnings per share $ 0.26 $ 0.17 $ 0.81 $ 0.56 Goodwill and trademark amortization - .04 - .12 Adjusted earnings per share $ 0.26 $ 0.21 $ 0.81 $ 0.68 72003. As of
September 30, 2002,March 31, 2003, theCompany'sCompany’s intangible assets are classified as follows:Gross Carrying Accumulated (in thousands) Amount Amortization Amortized intangible assets: Core technology $ 4,335 $ (1,890) Non-compete agreements 2,280 (739) Customer list 1,407 (586) -------------- -------------- Total $ 8,022 $ (3,215) ============== ============== Unamortized intangible assets: Trademark $ 357 ============== Prior to the adoption of Statement 142, the Company had separately identified and valued the assembled workforce associated with the acquisition of ICEM CFD Engineering as an intangible asset. In accordance with the guidance in Statement 142, the net unamortized balance of $1,500,000 was reclassified to goodwill. The increase in goodwill from December 31, 2001 to September 30, 2002 primarily relates to a territory acquisition payment in France.
(in thousands)
Gross Carrying
Amount
Accumulated
Amortization
Amortized intangible assets:
Core technology
$
14,359
$
(2,598
)
Non-compete agreements
2,392
(1,013
)
Customer List
2,322
(752
)
Total
$
19,073
$
(4,363
)
Unamortized intangible assets:
Trademark
$
1,459
Amortization expense for the amortized intangible assets reflected above is expected to be approximately
$1,743,000, $1,482,000, $961,000, $738,000$2,532,000, $2,742,000, $2,707,000, $2,363,000 and$199,000$2,279,000 for the years ending December 31,2002,2003, 2004, 2005, 2006 and2006,2007, respectively.85. Earnings Per Share Basic earnings per share ("EPS") amounts are computed by dividing earnings by the average number of common shares outstandingThe changes in goodwill during the
period. Diluted EPS amounts assumethree-month periods ended March 31, 2003 and 2002 are as follows:
Three months ended
March 31,
2003
March 31,
2002
Beginning Balance
$
18,615
$
16,412
CFX Acquisition
11,440
—
Sales territory acquisition
—
1,527
Other
157
4
Ending Balance
$
30,212
$
17,943
8
6. Stock-Based Compensation
The Company has elected to account for stock-based compensation arrangements under the
issuanceprovisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock-Based Compensation.” No compensation expense has been recognized in the condensed consolidated statements of income as option grants generally are made with exercise prices equal to the fair value of the underlying common stock on the award date, which is typically the date of compensation measurement. Had compensation cost been determined based on the fair value at the date of grant, in accordance with the provisions of SFAS No. 123, “Accounting forall potentially dilutive equivalents outstanding. The details ofStock-Based Compensation,” the Company’s net income and basic and diluted earnings per sharearewould have been reduced to the pro forma amounts indicated below:
Three months ended
March 31,
2003
March 31,
2002
Net income, as reported
$
4,279
$
3,888
Add: Stock-based employee compensation expense included in net income, net of related tax effects
—
—
Deduct: Stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects
(751
)
(729
)
Pro forma net income
$
3,528
$
3,159
Earnings per share:
Basic – as reported
$
0.29
$
0.27
Basic – pro forma
$
0.24
$
0.22
Diluted – as reported
$
0.27
$
0.25
Diluted – pro forma
$
0.23
$
0.20
9
7. Geographic Information
Revenue by geographic area for the three months ended March 31, 2003 and 2002 is as follows:
(in thousands, Three Three Nine Nine except per share Months Months Months Months amounts) Ended Ended Ended Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2002 2001 2002 2001 -------------- --------------- --------------- --------------Net income $ 4,082 $ 2,654 $ 12,690 $ 8,594 Weighted average shares outstanding - basic 14,578 14,532 14,612 14,596 Basic earnings per share $ 0.28 $ 0.18 $ 0.87 $ 0.59 ============== ============== ============== ============== Effect of dilutive securities - shares issuable upon exercise of dilutive outstanding stock options 897 1,045 1,065 797 Weighted average shares outstanding - diluted 15,475 15,577 15,677 15,393 Diluted earnings per share $ 0.26 $ 0.17 $ 0.81 $ 0.56 ============== ============== ============== ============== Anti-dilutive stock options 177 456 83 456 ============== ============== ============== ==============6. Reclassifications Certain reclassifications have been made
Three months ended
March 31,
2003
March 31,
2002
North America
$
9,417
$
9,752
Europe
9,061
6,585
Japan/Other International
6,122
4,928
Total revenue
$
24,600
$
21,265
8. Recently Issued Accounting Pronouncements
In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” Interpretation No. 45 requires the recognition of liabilities for guarantees that are issued or modified subsequent to December 31, 2002. The Company implemented the
2001 condensedprovisions of this Interpretation on January 1, 2003 as required with no effect on its financial position, results of operations and cash flows.In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities.” Interpretation No. 46 requires unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse the risk and rewards of ownership among their owners and other parties involved. The provisions of Interpretation No. 46 are effective immediately to all variable interest entities created after January 1, 2003 and variable interest entities in which an enterprise obtains an interest after that date. For variable interest entities created before this date, the provisions are effective July 31, 2003. The Company presently has no variable interest entities created after January 1, 2003 and is currently evaluating the provisions of this Interpretation on its financial
statements to conform toposition, results of operations and cash flows.On February 7, 2003, the
2002 presentation. 9American Institute of Certified Public Accountants issued Technical Practice Aid (“TPA”) 5100.75, “Fair Value of PCS Renewals Based on Users Deployed and Software Revenue Recognition” and TPA 5100.76, “Fair Value in Multiple-Element Arrangements that Include Contingent Usage-Based Fees and Software Revenue Recognition.” Effective January 1, 2003, the Company implemented the provisions of TPA 5100.75 and TPA 5100.76 with no effect on its financial position, results of operations and cash flows. 10
INDEPENDENT
ACCOUNTANTS'ACCOUNTANTS’ REPORTTo the Board of Directors and Stockholders of
ANSYSInc.INC.
Canonsburg, PennsylvaniaWe have reviewed the accompanying condensed consolidated balance sheet of ANSYS Inc. and subsidiaries (the
"Company"“Company”) as ofSeptember 30, 2002,March 31, 2003, and the related condensed consolidated statements of income and cash flows for the three-month periods ended March 31, 2003 andnine-month periods then ended.2002. These financial statements are the responsibility of theCompany'sCompany’s management.We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with
auditing standardsgenerally acceptedin the United States of America,auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements
as of September 30, 2002, and for the three-month and nine-month periods then endedfor them to be in conformity with accounting principles generally accepted in the United States of America.The accompanying condensed financial informationWe have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of ANSYS Inc. and subsidiaries as of December 31,
2001,2002, and the related consolidated statements of income, cash flows and stockholders’ equity for thethree-monthyear then ended (not presented herein); andnine-month periods ended September 30, 2001, were not audited or reviewed by usin our report dated January 29, 2003 (February 4, 2003 as to the last paragraph of Note 3), we expressed an unqualified opinion on those consolidated financial statements andaccordingly, we do not expressincluded an explanatory paragraph, which indicated that the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” In our opinion,or any other formthe information set forth in the condensed consolidated balance sheet as ofassurance on them. /s/ Deloitte & Touche LLP - ----------------------------- Pittsburgh, Pennsylvania October 11,December 31, 200210included in the Company’s Form 10-Q referred to above is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
April 28, 2003
11
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONSANSYS
Inc.INC. (the"Company"“Company”) develops and globally markets engineering simulation software and technologies widely used by engineers and designers across a broad spectrum of industries, including aerospace, automotive, manufacturing, electronics and biomedical. Headquartered at Southpointe in Canonsburg, Pennsylvania, the Company employs approximately460600 people and focuses on the development of open and flexible solutions that enable users to analyze designs directly on the desktop, providing a common platform for fast, efficient and cost-conscious product development, from design concept to final-stage testing and validation. The Company distributes itsANSYS(R)ANSYS®,DesignSpace(R)DesignSpace®, AI*Solutions,NASTRAN, ICEM CFD Engineering and CADOE productsand servicesthrough a global network of channel partners,in 37 countries,in addition to its own direct sales offices in18strategic,locationsglobal locations. It is the Company’s intention to continue to maintain this mixed sales and distribution model. The Company’s CFX® products are currently distributed primarily through direct sales offices located in seven countries throughout the world. The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto for the three-monthand nine-monthperiods endedSeptember 30,March 31, 2003 and 2002,and 2001,and with theCompany'sCompany’s audited financial statements and notes thereto for the year ended December 31,20012002 filed on Form 10-K with the Securities and Exchange Commission.This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements below concerning future trends regarding the
Company'sCompany’s total cost of sales increasing as a percentage of revenue, the Company’s intentions related to continued investments in sales and marketing and research and development,regarding increased general and administrative expenses due to additional legal and accounting compliance costs,plans related to future capital spending,potential changes in the Company's effective tax rate,the sufficiency of existing cash and cash equivalent balances to meet future working capital and capital expenditure requirements, estimates of tax rates in future periods, as well as statements which contain such words as"anticipates"“anticipates”,"intends"“intends”,"believes"“believes”,"plans"“plans” and other similar expressions. TheCompany'sCompany’s actual results could differ materially from those set forth in forward-looking statements. Certain factors that might cause such a difference include risks and uncertainties detailed in the"Management's“Management’s Discussion and Analysis of Financial Condition and Results ofOperations"Operations” section in the20012002 Annual Report to Shareholders and in"Certain“Certain Factors Regarding FutureResults"Results” included herein as Exhibit9999.1 to this Form 10-Q.1112
Results of Operations
Three Months Ended
September 30, 2002March 31, 2003 Compared to Three Months EndedSeptember 30, 2001March 31, 2002Revenue. The
Company'sCompany’s total revenue increased5.5%15.7% in the 2003 first quarter to $24.6 million from $21.3 million in the 2002third quarter to $21.7 million from $20.6 millionfirst quarter. Total revenue in the2001 third quarter. Reported revenue for the prior year was affected by a modificationfirst quarter ofthe Company's revenue recognition policy2003 included approximately $2.3 million related tononcancellable annual software leases. As previously disclosed, in 2001certain entities and assets acquired during theCompany modified its revenue recognition policy for annual software leasesfirst quarter (hereinafter referred tocomply with Technical Practice Aid ("TPA"as “CFX”)5100.53 "Fair Value of PCS in a Short-Term Time-Based License and Software Revenue Recognition," issued by the American Institute of Certified Public Accountants. Prior to the revenue recognition modification, the Company recognized a portion of the license fee from annual software leases upon inception or renewal of the lease, while the remaining portion was recognized ratably over the lease period. The TPA requires all revenue from noncancellable annual software lease licenses to be recognized ratably over the lease term. Had this revenue recognition policy modification been initially made in January 2002, third quarter 2002 revenue would have been approximately $21.0 million..Software license revenue increased
6.2%9.8% in the20022003 quarter to$11.0$12.4 million from$10.4$11.3 million in the20012002 quarter. The quarterly revenue increasein 2002wasprimarilythe result ofan increase in license revenueapproximately $1.2 million related toannual software leases, which resulted from the adverse impact of the revenue recognition policy modification discussed above on reported revenue in the third quarter of 2001. Also contributing to the increase in the 2002 quarter was higher license revenue from the Company's ICEM CFD Engineering product line.CFX.Maintenance and service revenue increased
4.8%22.4% in the20022003 quarter to$10.7$12.2 million from$10.2$9.9 million in the20012002 quarter. This increase was primarily the result of maintenance contracts sold in association with paid-up license sales in recentquarters.quarters, as well as approximately $1.1 million in revenue related to the acquisition of CFX.In valuing deferred revenue for inclusion on the CFX opening balance sheet as of February 26, 2003, the Company complied with the fair value provisions of Emerging Issues Task Force (“EITF”) Issue No. 01-3 “Accounting in a Business Combination for Deferred Revenue of an Acquiree.” In accordance with EITF 01-3, acquired deferred software license revenue of approximately $4.8 million was recorded on the opening balance sheet. This amount was approximately $3.4 million lower than the historical carrying value. Although this purchase accounting requirement will have no impact on the Company’s business or cash flow, it will adversely impact the Company’s reported GAAP software license revenue for the first twelve months post-acquisition. The adverse impact on reported revenue was approximately $454,000 for the three months ended March 31, 2003, and is expected to be approximately $1.1 million, $900,000 and $500,000 for the quarters ending June 30, 2003, September 30, 2003 and December 31, 2003, respectively. The adverse impact on reported revenue for the year ending December 31, 2004 is expected to be approximately $400,000.
The Company has recently developed and introduced many new software products. Certain of these products require a higher level of sales and support expertise. The ability of the
Company'sCompany’s sales channel,in particularparticularly the indirect channel, to obtain this expertise and sell the new product offerings effectively could have an effect on theCompany'sCompany’s sales in future periods. Additionally, royalties and consulting engagements associated with the new software products may result in theCompany'sCompany’s cost of sales increasing as a percentage of revenue in future periods.12As the Company has grown, it has become increasingly subject to the risks arising from adverse changes in domestic and global economic conditions. As a result of the current economic slowdown, many companies are delaying or reducing technology
13
purchases, which has had an impact on the
Company'sCompany’s visibility into the closing of new business, as opposed toourits recurring business. This slowdown has also contributed to, and may continue to contribute to, reductions in sales, longer sales cycles and increased price competition. Each of these items could adversely affect theCompany'sCompany’s sales in future periods.Of the
Company'sCompany’s total revenue in the20022003 quarter, approximately56.5%64.8% and43.5%35.2%, respectively, were attributable to international and domestic sales, as compared to58.3%56.1% and41.7%43.9%, respectively, in the20012002 quarter.Cost of Sales and Gross Profit. The
Company'sCompany’s total cost of sales increased11.4%to$3.0$4.1 million, or13.9%16.6% of total revenue, in the 2003 first quarter from $2.9 million, or 13.4% of total revenue, in the 2002third quarter from $2.7 million, or 13.2% of total revenue, in the 2001 thirdfirst quarter. The increase in the20022003 quarter wasprincipallyprimarily attributable tocontracted technical supportcostsin France,associated with engineering consulting services provided by CFX, as well asserviceroyalty costs associated withthe Company's recently acquired CADOE subsidiary.CFX software sales.As a result of the foregoing, the
Company'sCompany’s gross profit increased4.6%11.5% to$18.7$20.5 million in the 2003 quarter from $18.4 million in the 2002quarter from $17.9 million inquarter.The CFX business has historically included a higher percentage of engineering consulting services than has the
2001 quarter.core ANSYS business. As a result, the Company expects total cost of sales as a percentage of revenue to increase over the comparable 2002 period for the remainder of 2003.Selling and Marketing. Total selling and marketing expenses increased from
$4.4$5.2 million, or21.2%24.3% of total revenue in the20012002 quarter, to$4.7$5.5 million, or21.6%22.4% of total revenue in the 2003 quarter. The increase resulted from the addition of headcount and facility costs associated with CFX. The Company anticipates that it will continue to make significant investments throughout the remainder of 2003 in its global sales and marketing organization to strengthen its competitive position, to enhance major account sales activities and to support its worldwide sales channels and marketing strategies.Research and Development. Research and development expenses increased in the 2003 first quarter to $5.7 million, or 23.0% of total revenue, from $4.8 million, or 22.7% of total revenue, in the 2002 quarter. The increase primarily resulted from
higher salaries and related headcount costs associated with the addition of personnel within the Company's direct sales and sales support organization. These additions include personnel associated with the Company's recently established direct sales offices in India and France. These increases were partially offset by a reduction in discretionary advertising and promotion expenditures. Research and Development. Research and development expenses increased 18.3% in the 2002 third quarter to $5.2 million, or 23.7% of total revenue, from $4.4 million, or 21.1% of total revenue, in the 2001 quarter. The increase primarily resulted fromadditional headcount and related costsincluding thoserelated to the development and introduction of new and enhanced products. Headcount and facility costs associated with CFX also contributed to theCADOE acquisition, as well as resources necessary to support the continued expansion of our various product offerings.increase. The Company has traditionally invested significant resources in research and development activities and intends to continue to make significant investments in this area.Amortization. Amortization expense
decreasedincreased to$557,000$748,000 in the2002 third2003 first quarter from$1.3 million$599,000 in the prior year quarter. Thereduction primarily relatedincrease relates tothe adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. This standard eliminates theamortizationof goodwill and otherexpense associated with intangible assetswith indefinite useful lives and requires annual testing for impairment. Had this standard beenacquired ineffect forthethird quarter of 2001, amortization expense in that quarter would have been approximately $440,000. 13CFX purchase. 14
General and Administrative. General and administrative expenses
decreasedincreased from$4.5$2.3 million, or21.9% of total revenue in the 2001 quarter, to $2.5 million, or 11.6%11.0% of total revenue in the 2002 quarter, to $2.6 million, or 10.7% of total revenue in the 2003 quarter. Thedecrease wasincrease primarily related toa $2.0 million non-recurring charge ingeneral and administrative costs associated with theprior year quarter related to the settlement of a dispute with a former distributor.CFX business.The Company maintains commercial insurance to protect against and manage the risks involved in conducting business. The cost to obtain insurance coverage for such risks has significantly increased due to the environment within the commercial insurance industry. Additionally, the Company has recently renewed its contract for employee health insurance coverage in 2003. The new contract results in significantly higher health insurance costs than in prior years. Because these insurance costs relate to personnel, they are allocated to each functional area of the Company and will increase cost of sales, sales and marketing, research and development, and general and administrative expenses in future periods.
On July 30, the Sarbanes-Oxley Act of 2002 (the
"Act"“Act”) was signed into law. The Act contains far-reaching corporate governance reforms and new disclosure requirements for public companies. Certain of theAct'sAct’s provisions became effective immediately, while other provisions will be implemented over the course of the next twelve months. Costs to comply with the provisions of the Act, including legal and accounting fees,couldwill result in higher general and administrative expenses in future periods.Other Income. Other income
decreasedincreased to$32,000$534,000 in the2002 third2003 first quarter from$483,000$171,000 in the prior year quarter. Thedecrease was primarily attributableincrease related toa reduced interest rate environmenthigher average cash and investment balances inthe 2002 third quarter2003, as compared tothat inthe2001 third quarter, and, to a lesser extent, equity affiliate andprior year period, as well as foreign currency transactionlosses in the current year period.gains.Income Tax Provision. The
Company'sCompany’s effective rates of taxation were30.0%34.2% in the20022003 quarter and31.1%31.5% in the20012002 quarter. These rates are lower than the federal and state combined statutory rate as a result ofbenefits related toexportsales,benefits, as well as the generation of research and experimentation credits. The increase in the effective tax rate in the 2003 period relates to the impact of the CFX acquisition. The Company expects that the effective tax rate will remain in the range of30.0%33% -31.0%35% for the remainder of the year.In November 2000, the United States enacted the FSC Repeal and Extraterritorial Income Exclusion Act (the
"Act"“Act”) in response to a challenge from the World Trade Organization("WTO"(“WTO”) that the existing tax benefits provided by foreign sales corporations were prohibited tax subsidies. The Act generally repeals the foreign sales corporation and implements an extraterritorial income("ETI"(“ETI”) tax benefit. Recently, the European Union stated that it did not believe the ETI provisions bring U.S. tax law into WTO-compliance and asked the WTO to rule on the matter. On August 30, 2002, the WTO ruled that the European Union may impose up to $4 billion per year in retaliatory duties against U.S. exports. As a result, there may be further related changes to U.S. export tax law in connection with this ruling.15
In April 2003, the Job Protection Act of 2003 (H.R. 1769) was introduced into the House of Representatives. The Act would repeal the ETI tax regime and replace it with a permanent rate deduction for companies with production activities in the US. In its current form, the Act provides general transition relief through 2008 based upon the 2001 ETI benefit. In fiscal year 2002, export benefits reduced the
Company'sCompany’s effective tax rate by6.6%approximately 4.3%. Anysuchprospective changes regarding tax benefits associated with theCompany'sCompany’s export sales or other federal and state tax planning vehicles mayresult in an increase inadversely impact theCompany'sCompany’s effective tax rate and decrease its net income in future periods.Net Income. The
Company'sCompany’s net income in the20022003 quarter was$4.1$4.3 million as compared to$2.7$3.9 million in the20012002 quarter. Diluted earnings per share increased to$.26$.27 in the20022003 quarter as compared to$.17$.25 in the20012002 quarter as a result of the increase in net income. The weighted average shares used in computing diluted earnings per share were15.515.6 million in the 2003 quarter and 15.8 million in the 2002quarter and 15.6 million in the 2001quarter.14Excluding acquisition-related amortization, net income increased 25.1% to $4.4 million, or diluted earnings per share of $0.28, in the 2002 quarter as compared with $3.5 million, or diluted earnings per share of $0.23, in the 2001 quarter. Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001 Revenue. The Company's total revenue increased 10.0% for the 2002 nine months to $65.7 million from $59.8 million for the 2001 nine months. Reported revenue for the first nine months of 2001 was affected by a modification of the Company's revenue recognition policy related to noncancellable annual software leases. As previously disclosed, in 2001 the Company modified its revenue recognition policy for annual software leases. Had this revenue recognition policy modification been initially made in January 2002, revenue for the first nine months of 2002 would have been approximately $62.3 million. Software license revenue totaled $34.1 million in the 2002 nine months as compared to $30.9 million in the 2001 nine months, an increase of 10.3%. The revenue increase was primarily the result of an increase in license revenue related to annual software leases, which resulted from the adverse impact of the revenue recognition policy modification on reported revenue during 2001. Maintenance and service revenue increased 9.7% for the nine months ended September 30, 2002 to $31.6 million from $28.8 million in the comparable 2001 period. This increase was primarily the result of maintenance contracts sold in association with paid-up license sales in recent quarters, and, to a lesser extent, an increase in consulting revenue. Of the Company's total revenue in the 2002 nine months, approximately 55.3% and 44.7%, respectively, were attributable to international and domestic sales, as compared to 55.1% and 44.9%, respectively, in the 2001 nine months. Cost of Sales and Gross Profit. The Company's total cost of sales increased 4.3% to $8.7 million, or 13.2% of total revenue, for the 2002 nine months as compared to $8.3 million, or 13.9% of total revenue, for the 2001 nine months. The increase in 2002 was principally attributable to contracted technical support costs in France, as well as service costs associated with the Company's recently acquired CADOE subsidiary. As a result of the foregoing, the Company's gross profit increased 10.9% to $57.1 million in the 2002 nine-month period from $51.4 million in the comparable 2001 period. 15Selling and Marketing. Selling and marketing expenses increased 4.7% in the nine months ended September 30, 2002 to $15.1 million, or 23.0% of total revenue, from $14.4 million, or 24.1% of total revenue, in the comparable 2001 period. The increase primarily resulted from higher salaries and related headcount costs associated with the addition of personnel within the Company's direct sales and sales support organization. These additions include personnel associated with the Company's recently established direct sales offices in India and France. Also contributing were costs associated with the Company's biennial worldwide users' conference, which occurred in the second quarter. These increases were partially offset by a reduction in discretionary advertising and promotion expenditures, as well as reduced commissions related to major account sales. Research and Development. Research and development expenses increased 18.6% in the 2002 nine months to $14.9 million, or 22.7% of total revenue, from $12.6 million, or 21.0% of total revenue, in the 2001 nine months. The increase primarily resulted from additional headcount and related costs, including those associated with the CADOE acquisition, related to the development and introduction of new and enhanced products. The Company has traditionally invested significant resources in research and development activities and intends to continue to make significant investments in this area. Amortization. Amortization expense decreased to $1.7 million in the 2002 nine-month period from $3.9 million in the comparable prior year period. The reduction primarily related to the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. This standard eliminates the amortization of goodwill and other intangible assets with indefinite useful lives and requires annual testing for impairment. Had this standard been in effect for the first nine months of 2001, amortization expense in that period would have been approximately $1.4 million. General and Administrative. General and administrative expenses decreased 21.6% to $7.6 million, or 11.5% of total revenue, in the 2002 nine months, as compared to $9.6 million, or 16.1% of total revenue, in the 2001 nine months. The decrease was primarily related to a $2.0 million non-recurring charge in the prior year related to the settlement of a dispute with a former distributor. Other Income. Other income decreased from $1.6 million in the 2001 nine-month period to $526,000 in the comparable 2002 period. The decrease was primarily attributable to a declining interest rate environment, and, to a lesser extent, equity affiliate and foreign currency transaction losses in the current year. Income Tax Provision. The Company's effective rates of taxation were 30.7% for the 2002 nine months and 31.1% for the 2001 nine months. These rates are lower than the federal and state combined statutory rate as a result of benefits related to export sales, as well as the generation of research and experimentation credits. The Company expects that the effective tax rate will be in the range of 30.0% - 31.0% for the remainder of the year. 16Net Income. The Company's net income in the 2002 nine months was $12.7 million as compared to $8.6 million in the 2001 nine months. Diluted earnings per share increased to $.81 in the 2002 period as compared to $.56 in the 2001 period as a result of the increase in net income. The weighted average shares used in computing diluted earnings per share were 15.7 million and 15.4 million in the 2002 and 2001 nine-month periods, respectively. Excluding acquisition-related amortization, net income increased 21.2% to $13.5 million, or diluted earnings per share of $0.86, in the 2002 nine months as compared with $11.2 million, or diluted earnings per share of $0.73, in the 2001 nine months.Liquidity and Capital Resources
As of
September 30, 2002,March 31, 2003, the Company had cash, cash equivalents and short-term investments totaling$55.3$51.8 million and working capital of$49.5$39.1 million, as compared to cash, cash equivalents and short-term investments of$53.4$61.1 million and working capital of$40.0$56.9 million at December 31,2001.2002. The short-term investments are generally investment grade and liquid, which allows the Company to minimize interest rate risk and to facilitate liquidity in the event an immediate cash need arises.The
Company'sCompany’s operating activities provided cash of$16.0$11.5 million for theninethree months endedSeptember 30, 2002March 31, 2003 and$14.9$2.9 million for theninethree months endedSeptember 30, 2001.March 31, 2002. The increase in theCompany'sCompany’s cash flow from operations in the2002 nine-month2003 three-month period as compared to the comparable20012002 period was primarily a result of cash collections associated with increasedearnings after the effect of non-cash expenses such as depreciation, amortization and deferred income taxes. This increase was partially offset by thesales activity. The prior year period also included a nonrecurring paymentin 2002of approximately $2.0 million associated with the settlement of a dispute with a former distributor.This settlement amount was fully accruedAlso contributing to the increase inthe third quarter of 2001. Netcash were lower income tax payments and approximately $1.1 million in cash generated byoperating activities provided sufficient resources to fund increased headcount and capital needs, as well as to sustain share repurchase activity undertheCompany's ongoing share repurchase program.CFX business.The
Company'sCompany’s investing activities used cash of$11.5$22.2 millioninand $11.6 million for theninethree months endedSeptember 30,March 31, 2003 and 2002,and provided cash of $8.7 million in the nine months ended September 30, 2001.respectively. In the2002 nine-month2003 three-month period, cash outlays primarily related tonet purchasesthe acquisition of CFX. In the 2002 three-month period, cash usage primarily related to the purchase of short-term investments,and aas well as the final paymentof $2.6 millionrelated to the 2000 acquisition of ICEM CFD Engineering.In the 2001 nine-month period, cash was primarily generated from net maturities of short-term investments.The Company currently plans additional capital spending of approximately$400,000$2.5 million throughout the remainder of2002;2003; however, the level of spending will be dependent upon various factors, including growth of the business and general economic conditions.16
Financing activities generated cash of $1.4 million in the three months ended March 31, 2003 and used cash of approximately
$7.7 million and $11.7$1.1 million in theninethree months endedSeptember 30,March 31, 2002. In the 2003 period, cash was provided by proceeds from the issuance of common stock under employee stock purchase and option plans. In the 2002and 2001, respectively. In both periods,period, cash outlays related to theCompany'sCompany’s share repurchase program were partially offset by proceeds from the issuance of common stock under employee stock purchase and option plans.The Company repurchased 504,900 shares during the first nine months of 2002. 17The Company believes that existing cash and cash equivalent balances, together with cash generated from operations, will be sufficient to meet the
Company'sCompany’s working capital and capital expenditure requirements through the remainder of fiscal2002.2003. TheCompany'sCompany’s cash requirements in the future may also be financed through additional equity or debt financings. There can be no assurance that such financings can be obtained on favorable terms, if at all.The Company does not have any special purpose entities or off-balance sheet financing arrangements.
Critical Accounting Policies
ANSYS believes that the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. ANSYS recognizes revenue in accordance with SOP 97-2, “Software Revenue Recognition,” and related interpretations. Revenue
forfrom perpetual licenses is recognized upon delivery of the licensed product and the utility which enables the customer to request authorization keys, provided that acceptanceby the customerhas occurred andreceipt ofa signed contractual obligationprovided that no significant Company obligations remainhas been received, the price is fixed andcollectiondeterminable, and collectibility of the receivable is probable. Revenue for software lease licenses isrecognizedrecorded ratably over the period of the lease contract. Revenue is recordedatnet of thenet price to ANSYSdistributor fee for sales through the ANSYS distribution network. The Company estimates the value of post-contract customer support sold together with perpetual licenses by reference to published price lists which generally represent the prices at which customers could purchase renewal contracts for such services. Revenue from maintenance contracts is recognized ratably over the term of the contract. Revenue from training, support and other services is recognized as the services are performed.ANSYS maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management specifically analyzes accounts receivable, historical bad debts, credit concentrations and customer payment terms when evaluating the adequacy of the allowance for doubtful accounts.
If the financial condition of ANSYS customers, including ANSYS distributors, were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.17
ANSYS capitalizes internal labor costs associated with the development of product enhancements subsequent to the determination of technological feasibility. Amortization of capitalized software costs, both for internally developed as well as for purchased software products, is computed on a product-by-product basis over the estimated economic life of the product, which is generally three years. The Company periodically reviews the carrying value of capitalized software and
impairmentsan impairment will be recognized in the results of operations if the expected future undiscounted operating cash flow derived from the capitalized software is less than its carrying value.The Company tests goodwill for impairment at least annually by comparing the fair value of the goodwill to its carrying value. Fair value is estimated using the discounted cash flow and other valuation methodologies that are based on projections of the amounts and timing of future revenues and cash flows.
18
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKQuantitative and Qualitative Disclosures
Regarding Market RiskAs the Company continues to expand its direct sales presence in international regions, the portion of its revenue and expenses denominated in foreign currencies continues to increase. As a result, changes in currency exchange rates from time to time may affect the Company's financial position, results of operations and cash flows. There
werewas no materialchangeschange in theCompany'sCompany’s exposure to market risk from December 31,2001.2002.19
Item 4.
CONTROLS AND PROCEDURES (a) Disclosure controlsControls and
procedures. As required by new Rule 13a-15 under the Securities Exchange Act of 1934, within the 90 days prior to the date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures under the supervision and with the participation of the Company's management, including James E. Cashman, III, the Company's President and Chief Executive Officer, and Maria T. Shields, the Company's Chief Financial Officer. In advance of this evaluation, the Company created a Disclosure Review Committee to assist in the quarterly evaluation of the Company's internal disclosure controls and procedures and in the review of the Company's periodic filings under the Exchange Act. The membership of the Disclosure Review Committee consists of the Company's Chief Executive Officer, Chief Financial Officer, Controller, Corporate Counsel, Treasurer, Vice President of Sales and Services, Vice President of Human Resources, and Business Unit General Managers. Based upon that evaluation, Mr. Cashman and Ms. Shields concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. In connection with the new rules, the Company will continue to review and document its disclosure controls and procedures, including its internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that its systems evolve with its business. (b) Internal controls. Since the date of the evaluation described above, there have not been any significant changes in our internal accounting controls or in other factors that could significantly affect those controls. 19Procedures
(a)
Disclosure controls and procedures. As required by new Rule 13a-15 under the Securities Exchange Act of 1934, within the 90 days prior to the date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures under the supervision and with the participation of the Company’s management, including James E. Cashman, III, the Company’s President and Chief Executive Officer, and Maria T. Shields, the Company’s Chief Financial Officer. In 2002, the Company created a Disclosure Review Committee to assist in the quarterly evaluation of the Company’s internal disclosure controls and procedures and in the review of the Company’s periodic filings under the Exchange Act. The membership of the Disclosure Review Committee consists of the Company’s Chief Executive Officer, Chief Financial Officer, Controller, Corporate Counsel, Treasurer, Vice President of Sales and Services, Vice President of Human Resources, and Business Unit General Managers. Based upon that evaluation, Mr. Cashman and Ms. Shields concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. In connection with the new rules, the Company will continue to review and document its disclosure controls and procedures, including its internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that its systems evolve with its business.
(b)
Changes in internal controls. Since the date of the evaluation described above, the Company acquired CFX. The Company is currently in the process of evaluating the effectiveness of the disclosure controls related to the CFX business. Other than the CFX acquisition, there have not been any significant changes in the Company’s internal accounting controls or in other factors that could significantly affect those controls.
20
PART II
-– OTHER INFORMATIONItem 1. Legal Proceedings The Company is subject to various legal proceedings from time to time that arise in the ordinary course of business. Each of these matters is subject to various uncertainties, and it is possible that these matters may be resolved unfavorably to the Company. Item 2. Changes in Securities and Use of Proceeds (c) The following information is furnished in connection with securities sold by the Registrant during the period covered by this Form 10-Q which were not registered under the Securities Act. The transactions constitute sales of the Registrant's Common Stock, par value $.01 per share, upon the exercise of vested options issued pursuant to the Company's 1994 Stock Option and Grant Plan, issued in reliance upon the exemption from registration under Rule 701 promulgated under the Securities Act and issued prior to the Registrant becoming subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act of 1934, as amended. Number of Number of Aggregate Month/Year Shares Individuals Exercise Price ---------- ------ ----------- -------------- August 2002 100 1 $ 1,000.00 Item 3. Defaults upon Senior Securities Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other information The Company's Chief Executive Officer and Chief Financial Officer have furnished to the SEC the certification with respect to this Form 10-Q that is required by Section 906 of the Sarbanes-Oxley Act of 2002. See Exhibits 99.2 and 99.3 attached hereto. 20Item 6. Exhibits and Reports Filed on Form 8-K (a) Exhibits. 15 Independent Accountants' Letter Regarding Unaudited Financial Information 99.1 Certain Factors Regarding Future Results 99.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 Of The Sarbanes-Oxley Act of 2002 99.3 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 Of The Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K. Not Applicable.
Legal Proceedings
The Company is subject to various legal proceedings from time to time that arise in the ordinary course of business. Each of these matters is subject to various uncertainties, and it is possible that these matters may be resolved unfavorably to the Company.
Changes in Securities
(c) The following information is furnished in connection with securities sold by the Registrant during the period covered by this Form 10-Q which were not registered under the Securities Act. The transactions constitute sales of the Registrant’s Common Stock, par value $.01 per share, upon the exercise of vested options issued pursuant to the Company’s 1994 Stock Option and Grant Plan, issued in reliance upon the exemption from registration under Rule 701 promulgated under the Securities Act and issued prior to the Registrant becoming subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act of 1934, as amended.
Month/Year
Number of
Shares
Number of
Individuals
Aggregate
Exercise Price
January 2003
800
1
$
8,000.00
February 2003
500
1
$
5,000.00
March 2003
20,000
1
$
200,000.00
Item 3.
Defaults upon Senior Securities
Not Applicable.
Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5.
Other information
The Company’s Chief Executive Officer and Chief Financial Officer have furnished to the SEC the certification with respect to this Form 10-Q that is required by Section 906 of the Sarbanes-Oxley Act of 2002. See Exhibits 99.2 and 99.3 attached hereto.
21
Exhibits and Reports Filed on Form 8-K
(a) Exhibits.
10
Employment Agreement Between the Registrant and James E. Cashman III
15
Independent Accountants’ Letter Regarding Unaudited Financial Information
99.1
Certain Factors Regarding Future Results
99.2
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
99.3
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K with the Securities and Exchange Commission on February 5, 2003 to report that it had entered into a definitive agreement to acquire CFX.
The Company filed a Current Report on Form 8-K with the Securities and Exchange Commission on March 12, 2003 to report that it had completed the acquisition of CFX.
22
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ANSYS, Inc. Date: November 12, 2002 By: /s/ James E. Cashman, III ------------------------------ James E. Cashman, III President and Chief Executive Officer Date: November 12, 2002 By: /s/ Maria T. Shields ------------------------- Maria T. Shields Chief Financial Officer 22
ANSYS INC.
Date: May 12, 2003
By:
/s/ JAMES E. CASHMAN, III
James E. Cashman, III
President and Chief
Executive OfficerDate: May 12, 2003
By:
/s/ MARIA T. SHIELDS
Maria T. Shields
Chief Financial Officer23
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, James E. Cashman, III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ANSYS, Inc. ("ANSYS"); 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of ANSYS as of, and for, the periods presented in this quarterly report; 4. ANSYS's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for ANSYS and we have: a) designed such disclosure controls and procedures to ensure that material information relating to ANSYS, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of ANSYS's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. ANSYS's other certifying officer and I have disclosed, based on our most recent evaluation, to ANSYS's auditors and the audit committee of ANSYS's Board of Directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect ANSYS's ability to record, process, summarize and report financial data and have identified for ANSYS'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 ANSYS's internal controls; and 6. ANSYS's other certifying officer and I have indicated in this quarterly 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: November 12, 2002 /s/ James E. Cashman, III ------------------------- James E. Cashman, III President and Chief Executive Officer 23
1.
I have reviewed this quarterly report on Form 10-Q of ANSYS INC. (“ANSYS”);
2.
Based on my knowledge, this quarterly 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 quarterly report;
3.
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of ANSYS as of, and for, the periods presented in this quarterly report;
4.
ANSYS’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for ANSYS and we have:
a)
designed such disclosure controls and procedures to ensure that material information relating to ANSYS, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)
evaluated the effectiveness of ANSYS’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.
ANSYS’s other certifying officer and I have disclosed, based on our most recent evaluation, to ANSYS’s auditors and the audit committee of ANSYS’s Board of Directors:
a)
all significant deficiencies in the design or operation of internal controls which could adversely affect ANSYS’s ability to record, process, summarize and report financial data and have identified for ANSYS’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 ANSYS’s internal controls; and
6.
ANSYS’s other certifying officer and I have indicated in this quarterly 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: May 12, 2003
/s/ JAMES E. CASHMAN, III
James E. Cashman, III
President and Chief
Executive Officer24
CHIEF FINANCIAL OFFICER CERTIFICATION
I, Maria T. Shields, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ANSYS, Inc. ("ANSYS"); 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of ANSYS as of, and for, the periods presented in this quarterly report; 4. ANSYS's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for ANSYS and we have: a. designed such disclosure controls and procedures to ensure that material information relating to ANSYS, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of ANSYS's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. ANSYS's other certifying officer and I have disclosed, based on our most recent evaluation, to ANSYS's auditors and the audit committee of ANSYS's Board of Directors: a. all significant deficiencies in the design or operation of internal controls which could adversely affect ANSYS's ability to record, process, summarize and report financial data and have identified for ANSYS'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 ANSYS's internal controls; and 6. ANSYS's other certifying officer and I have indicated in this quarterly 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: November 12, 2002 /s/ Maria T. Shields ------------------- Maria T. Shields Chief Financial Officer 24Item 6.
1.
I have reviewed this quarterly report on Form 10-Q of ANSYS INC. (“ANSYS”);
2.
Based on my knowledge, this quarterly 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 quarterly report;
3.
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of ANSYS as of, and for, the periods presented in this quarterly report;
4.
ANSYS’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for ANSYS and we have:
a.
designed such disclosure controls and procedures to ensure that material information relating to ANSYS, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.
evaluated the effectiveness of ANSYS’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c.
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.
ANSYS’s other certifying officer and I have disclosed, based on our most recent evaluation, to ANSYS’s auditors and the audit committee of ANSYS’s Board of Directors:
a.
all significant deficiencies in the design or operation of internal controls which could adversely affect ANSYS’s ability to record, process, summarize and report financial data and have identified for ANSYS’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 ANSYS’s internal controls; and
6.
ANSYS’s other certifying officer and I have indicated in this quarterly 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: May 12, 2003
/s/ MARIA T. SHIELDS
Maria T. Shields
Chief Financial Officer25
EXHIBIT INDEX
Exhibit No. ----------- 15 Independent Accountants' Letter Regarding Unaudited Financial Information 99.1 Certain Factors Regarding Future Results 99.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 Of The Sarbanes-Oxley Act of 2002 99.3 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 Of The Sarbanes-Oxley Act of 2002 25
Exhibit | ||
10.1 | Employment Agreement Between the Registrant and James E. Cashman III as of April 21, 2003; filed herewith. | |
15 | Independent Accountants’ Letter Regarding Unaudited Financial Information | |
99.1 | Certain Factors Regarding Future Results | |
99.2 | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 | |
99.3 | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 |
26