Exhibit 99.2
ANSYS, Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On May 1, 2006, ANSYS, Inc. (hereafter “ANSYS” or the “Company”) completed its acquisition of Fluent Inc., a global provider of computational fluid dynamics (“CFD”)-based computer-aided engineering software and services (hereafter “Fluent”). Under the terms of the merger agreement, ANSYS issued approximately 6,000,000 shares of its common stock, valued at approximately $274 million based on the average closing market price on the two days preceding and the two days following the announcement of the acquisition, and paid approximately $315 million in cash to acquire Fluent. The total purchase price of approximately $598 million includes approximately $9 million in transaction fees. The acquisition is accounted for under the purchase method of accounting.
The preliminary allocation of the purchase price used in the unaudited pro forma condensed combined financial statements is based upon management’s estimates of the fair market values of the assets acquired and the liabilities assumed. These estimates are subject to change upon the final valuation of Fluent’s assets and liabilities.
The unaudited pro forma condensed combined balance sheet as of March 31, 2006 is presented as if the Fluent acquisition and related bank financing occurred on March 31, 2006.
The unaudited pro forma condensed combined statements of operations of ANSYS and Fluent for the three months ended March 31, 2006 and for the year ended December 31, 2005 are presented as if the Fluent acquisition and related bank financing had taken place on January 1, 2005 and were carried forward through March 31, 2006 and December 31, 2005, respectively.
The unaudited pro forma condensed combined financial statements are based on the historical financial statements of ANSYS and Fluent after giving effect to borrowings used and stock issued to finance the Fluent acquisition, as well as the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements are not intended to represent or be indicative of the consolidated results of operations or financial position of the Company that would have been reported had the acquisition and borrowings been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial position of the Company. This information should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined financial statements do not reflect any operating efficiencies and cost savings that the Company may achieve with respect to the combined companies. The unaudited pro forma statements of operations also exclude a charge of approximately $31.9 million, which represents the estimated fair value of Fluent research projects in process. This charge will be recorded upon consummation of the acquisition.
The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements and accompanying notes of ANSYS’ annual report filed on Form 10-K for the year ended December 31, 2005, and quarterly report on Form 10-Q for the quarter ended March 31, 2006, and of Fluent included as Exhibit 99.1 in this Form 8-K/A.
ANSYS, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Balance Sheet
As of March 31, 2006
| Historical | |||||||||||||
| (in thousands) | ANSYS | Fluent | Pro Forma Adjustments | Pro Forma Combined | |||||||||
ASSETS | |||||||||||||
Current assets: | |||||||||||||
Cash and cash equivalents | $ | 197,159 | $ | 22,734 | $ | (126,428 | )(A) | $ | 93,465 | ||||
Short-term investments | 6,071 | — | — | 6,071 | |||||||||
Accounts receivable, net | 22,491 | 28,098 | — | 50,589 | |||||||||
Other receivables and current assets | 28,014 | 4,741 | — | 32,755 | |||||||||
Deferred income taxes | 4,179 | 6,214 | (1,622 | )(E)(O) | 8,771 | ||||||||
Total current assets | 257,914 | 61,787 | (128,050 | ) | 191,651 | ||||||||
Property and equipment, net | 6,265 | 14,794 | 3,038 | (C) | 24,097 | ||||||||
Capitalized software costs, net | 528 | — | — | 528 | |||||||||
Goodwill | 44,582 | 37,487 | 363,052 | (D) | 445,121 | ||||||||
Other intangibles, net | 9,440 | — | 213,900 | (B) | 223,340 | ||||||||
Investment in related party | — | 4,633 | (4,633 | )(L) | — | ||||||||
Other assets | 3,864 | 1,026 | 1,871 | (P) | 6,761 | ||||||||
Deferred income taxes | 2,950 | 820 | (3,770 | )(E)(O) | — | ||||||||
Total assets | $ | 325,543 | $ | 120,547 | $ | 445,408 | $ | 891,498 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||
Current liabilities: | |||||||||||||
Current portion of long-term debt and capital lease obligations | $ | — | $ | 771 | $ | 29,000 | (M) | $ | 29,771 | ||||
Accounts payable | 1,385 | 2,077 | — | 3,462 | |||||||||
Accrued bonuses | 4,368 | 2,833 | — | 7,201 | |||||||||
Other accrued expenses and liabilities | 16,845 | 14,620 | — | 31,465 | |||||||||
Deferred revenue | 57,724 | 51,082 | (19,054 | )(F) | 89,752 | ||||||||
Total current liabilities | 80,322 | 71,383 | 9,946 | 161,651 | |||||||||
Long-term debt and capital lease obligations, less current portion | — | 654 | 169,000 | (M) | 169,654 | ||||||||
Other long-term liabilities | 1,375 | — | — | 1,375 | |||||||||
Amounts due to parent and related party | — | 9,007 | (9,007 | )(L) | — | ||||||||
Deferred income taxes | — | — | 72,854 | (E)(O) | 72,854 | ||||||||
Commitments and contingencies | |||||||||||||
Stockholders’ equity | 243,846 | 39,503 | 202,615 | (G) | 485,964 | ||||||||
Total liabilities and stockholders’ equity | $ | 325,543 | $ | 120,547 | $ | 445,408 | $ | 891,498 | |||||
The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.
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ANSYS, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2005
| Historical | ||||||||||||||||
| (in thousands, except per share data) | ANSYS | Fluent | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||
Revenue: | ||||||||||||||||
Software licenses | $ | 85,680 | $ | 79,497 | $ | — | $ | 165,177 | ||||||||
Maintenance and service | 72,356 | 42,372 | — | 114,728 | ||||||||||||
Total revenue | 158,036 | 121,869 | — | 279,905 | ||||||||||||
Cost of sales: | ||||||||||||||||
Software licenses | 5,292 | 2,856 | — | 8,148 | ||||||||||||
Amortization of software and acquired technology | 3,576 | — | 17,134 | (H) | 20,710 | |||||||||||
Maintenance and service | 15,171 | 19,228 | 3,202 | (I)(N) | 37,601 | |||||||||||
Total cost of sales | 24,039 | 22,084 | 20,336 | 66,459 | ||||||||||||
Gross profit | 133,997 | 99,785 | (20,336 | ) | 213,446 | |||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 43,285 | 52,066 | (5,143 | )(I)(N) | 90,208 | |||||||||||
Research and development | 30,688 | 15,714 | 2,183 | (I)(N) | 48,585 | |||||||||||
Amortization | 1,184 | — | 8,731 | (H) | 9,915 | |||||||||||
Total operating expenses | 75,157 | 67,780 | 5,771 | 148,708 | ||||||||||||
Operating income | 58,840 | 32,005 | (26,107 | ) | 64,738 | |||||||||||
Interest income (expense), net | 4,295 | (1,883 | ) | (15,147 | )(J) | (12,735 | ) | |||||||||
Other income (expense), net | (24 | ) | 307 | — | 283 | |||||||||||
Income before income tax provision | 63,111 | 30,429 | (41,254 | ) | 52,286 | |||||||||||
Income tax provision | 19,208 | 11,143 | (15,677 | )(K) | 14,674 | |||||||||||
Net income | $ | 43,903 | $ | 19,286 | $ | (25,577 | ) | $ | 37,612 | |||||||
Earnings per share – basic: | ||||||||||||||||
Basic earnings per share | $ | 1.38 | $ | 1.00 | ||||||||||||
Weighted average shares – basic | 31,749 | 6,000 | 37,749 | |||||||||||||
Earnings per share – diluted: | ||||||||||||||||
Diluted earnings per share | $ | 1.30 | $ | 0.95 | ||||||||||||
Weighted average shares – diluted | 33,692 | 6,000 | 39,692 | |||||||||||||
The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.
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ANSYS, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Three Months Ended March 31, 2006
| Historical | Pro Forma | Pro Forma | |||||||||||||
| (in thousands, except per share data) | ANSYS | Fluent | |||||||||||||
Revenue: | |||||||||||||||
Software licenses | $ | 26,752 | $ | 21,689 | $ | — | $ | 48,441 | |||||||
Maintenance and service | 19,259 | 11,583 | — | 30,842 | |||||||||||
Total revenue | 46,011 | 33,272 | — | 79,283 | |||||||||||
Cost of sales: | |||||||||||||||
Software licenses | 1,490 | 1,448 | — | 2,938 | |||||||||||
Amortization of software and acquired technology | 908 | — | 4,391 | (H) | 5,299 | ||||||||||
Maintenance and service | 4,470 | 4,649 | 785 | (I)(N) | 9,904 | ||||||||||
Total cost of sales | 6,868 | 6,097 | 5,176 | 18,141 | |||||||||||
Gross profit | 39,143 | 27,175 | (5,176 | ) | 61,142 | ||||||||||
Operating expenses: | |||||||||||||||
Selling, general and administrative | 11,839 | 12,927 | (1,324 | )(I)(N) | 23,442 | ||||||||||
Research and development | 9,357 | 4,118 | 599 | (I)(N) | 14,074 | ||||||||||
Amortization | 128 | — | 2,097 | (H) | 2,225 | ||||||||||
Total operating expenses | 21,324 | 17,045 | 1,372 | 39,741 | |||||||||||
Operating income | 17,819 | 10,130 | (6,548 | ) | 21,401 | ||||||||||
Interest income (expense), net | 1,512 | (28 | ) | (3,572 | )(J) | (2,088 | ) | ||||||||
Other income (expense), net | 186 | (111 | ) | — | 75 | ||||||||||
Income before income tax provision | 19,517 | 9,991 | (10,120 | ) | 19,388 | ||||||||||
Income tax provision | 6,604 | 3,638 | (3,846 | )(K) | 6,396 | ||||||||||
Net income | $ | 12,913 | $ | 6,353 | $ | (6,274 | ) | $ | 12,992 | ||||||
Earnings per share – basic: | |||||||||||||||
Basic earnings per share | $ | 0.40 | $ | 0.34 | |||||||||||
Weighted average shares – basic | 32,122 | 6,000 | 38,122 | ||||||||||||
Earnings per share – diluted: | |||||||||||||||
Diluted earnings per share | $ | 0.38 | $ | 0.32 | |||||||||||
Weighted average shares – diluted | 34,165 | 6,000 | 40,165 | ||||||||||||
The accompanying notes are an integral part of the unaudited pro forma condensed combined financial statements.
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ANSYS, Inc.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial statements are based on the historical financial statements of ANSYS and Fluent after giving effect to borrowings used to finance the Fluent acquisition, as well as certain assumptions and adjustments.
The unaudited pro forma condensed combined balance sheet as of March 31, 2006 is presented as if the Fluent acquisition and related bank financing occurred on March 31, 2006.
The unaudited pro forma condensed combined statements of operations of ANSYS and Fluent for the three months ended March 31, 2006 and for the year ended December 31, 2005 are presented as if the Fluent acquisition and related bank financing had taken place on January 1, 2005 and were carried forward through March 31, 2006 and December 31, 2005, respectively.
ANSYS accounts for acquisitions under Financial Accounting Standards Board Statement No. 141, “Business Combinations” (“Statement 141”). In accordance with business combination accounting, ANSYS allocates the purchase price of an acquired company to the tangible and intangible assets acquired, and liabilities assumed based on their estimated fair values. The excess of the purchase price over the net tangible and identifiable intangible assets will be recorded as goodwill.
The preliminary allocation of the purchase price used in the unaudited pro forma condensed combined financial statements is based upon management’s estimates of the fair market values of the assets acquired and the liabilities assumed. These estimates are subject to change upon the final valuation of Fluent’s assets and liabilities.
The unaudited pro forma condensed combined financial statements are not intended to represent or be indicative of the consolidated results of operations or financial position of ANSYS that would have been reported had the acquisition and borrowings been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial position of ANSYS. The unaudited pro forma condensed combined financial statements do not reflect any operating efficiencies and cost savings that ANSYS may achieve with respect to the combined companies. The unaudited pro forma statements of operations also exclude a charge of approximately $31.9 million, which represents the estimated fair value of Fluent research projects in process. This charge will be recorded upon consummation of the acquisition.
The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements and accompanying notes of ANSYS’ annual report filed on Form 10-K for the year ended December 31, 2005, and quarterly report on Form 10-Q for the quarter ended March 31, 2006, and of Fluent included as Exhibit 99.1 in this Form 8-K/A.
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Transactions between ANSYS and Fluent were nominal during the periods presented. No pro forma adjustments were made to conform Fluent’s accounting policies to ANSYS’ accounting policies, except as noted below.
In connection with its acquisition of Fluent, ANSYS also acquired Fluent’s parent, Aavid Thermal Technologies, Inc. (“ATTI”). The unaudited pro forma condensed combined financial statements do not include the balances or activity of ATTI. However, ATTI was primarily a shell entity with no assets or liabilities other than the tax attributes of its subsidiaries. These tax attributes included net operating loss carryforwards of approximately $42.7 million. The related deferred tax assets had been fully reserved in ATTI’s historical financial statements. These net operating loss carryforwards will have value to ANSYS post-acquisition and the reduction of the related valuation reserve will result in an increase in deferred tax assets and a decrease in goodwill of $14.9 million. See Notes 3.O. and 5.
2. Fluent Acquisition
On May 1, 2006, ANSYS completed its acquisition of Fluent Inc., a global provider of CFD-based computer-aided engineering software and services. Under the terms of the merger agreement, ANSYS issued approximately 6,000,000 shares of its common stock, valued at approximately $274 million based on the average closing market price on the two days preceding and the two days following the announcement of the acquisition (February 16, 2006), and paid approximately $315 million in net cash to acquire Fluent. The total purchase price of approximately $598 million includes approximately $9 million in transaction fees. The Company used a combination of existing cash and $198 million from committed bank financing to fund the transaction. The interest rate on the indebtedness associated with the transaction is equal to a margin based on the Company’s consolidated leverage ratio, plus the then current rate based on (a) the British Bankers Association London Inter-Bank Offered Rate for dollar deposits (“LIBOR”) or (b) the higher of (i) the Bank of America prime rate and (ii) the Federal Funds rate plus .50%. The interest rate for the period from May 1, 2006 through June 30, 2006 was set at 6.08% which was based on LIBOR + 1.00%. The debt is scheduled to be repaid over a period of five years and includes covenants related to the consolidated leverage ratio and the consolidated fixed charge coverage ratio, as well as certain restrictions on additional investments and indebtedness.
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Preliminary Purchase Price
The total preliminary purchase price is estimated at $598 million, and is comprised of:
| (in thousands) | |||
Value of 5,999,948 shares of common stock based on the average closing market price two days before and after the announced acquisition | $ | 274,018 | |
Cash consideration – at closing, less working capital and other adjustments | 314,961 | ||
Acquisition-related transaction costs | 9,467 | ||
Total preliminary purchase price | $ | 598,446 | |
Acquisition-related transaction costs: Acquisition-related transactions costs of $9 million include ANSYS’ estimate of investment banking fees of $6 million, and legal, accounting and other professional fees of $3 million.
Preliminary Purchase Price Allocation
The total preliminary purchase price will be allocated to Fluent tangible and intangible assets acquired, liabilities assumed, as well as in-process research and development based on their estimated fair values as of the acquisition date. The excess of the purchase price over the net tangible and identifiable intangible assets will be recorded as goodwill. Based upon a preliminary valuation, the total preliminary purchase price was allocated as follows:
| (in thousands) | ||||
Cash and other net tangible assets/liabilities | $ | 23,319 | ||
Goodwill | 400,539 | |||
Identifiable intangible assets | 213,900 | |||
Net deferred tax liabilities | (71,212 | ) | ||
In-process research and development | 31,900 | |||
Total preliminary purchase price allocation | $ | 598,446 | ||
The preliminary allocation of the purchase price is based upon a preliminary valuation, as described below, and ANSYS’ estimates and assumptions are subject to change upon final valuation.
Cash and other net tangible assets/liabilities: Cash and tangible assets were recorded at their respective carrying amounts, except for adjustments to deferred revenues and property and equipment. ANSYS reduced Fluent’s historical deferred revenue by $19.1 million in the pro forma condensed combined balance sheet to adjust deferred revenue to fair value. ANSYS increased Fluent’s historical net carrying value of certain property by $3.0 million in the pro forma condensed combined balance sheet to reflect its fair market value.
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Goodwill: Goodwill represents the excess of the preliminary purchase price over the estimated fair value of tangible and identifiable intangible assets acquired. The fair value of Fluent’s assembled workforce was also estimated and was classified as goodwill in accordance with Statement 141. Goodwill amounts are not amortized, but rather are tested for impairment at least annually. In the event that ANSYS determines that the value of goodwill has become impaired, ANSYS will incur an accounting charge for the amount of impairment during the fiscal quarter in which such determination is made. See Note 3.D.
Identifiable intangible assets: Identifiable intangible assets acquired include developed software, trade name, and customer contracts and related relationships. Developed software comprises products that have reached technological feasibility. Customer contracts and related relationships represent the underlying relationships and agreements with customers of Fluent’s installed base.
The fair value of intangible assets was based on a preliminary valuation using either the discounted cash flow method, the relief from royalty method, or a combination of the two, as well as discussions with Fluent management and a review of certain transaction-related documents and forecasts. The rate utilized to discount net cash flows to their present values was 17%. This discount rate was determined after consideration of similar companies’ required rates of return, utilizing the Capital Asset Pricing Model.
Estimated useful lives were based on historical experience with technology life cycles, product roadmaps, branding strategy, historical and projected maintenance renewal rates, historical treatment of Fluent and ANSYS acquisition-related intangible assets and ANSYS’ intended future use of the intangible assets. Intangible assets other than the trade name are being amortized using the proportional cash flow method. Fluent’s trade name is one of the most recognized in the computer-aided engineering market. The trade name represents a reputation of superior technical capability and strong support service that has been recognized by Fluent’s customers. Because the trade name continues to gain strength in the market today, as evidenced by Fluent’s increased sales over the past several years, the Company expects the trade name to contribute to cash flows indefinitely and, accordingly, has assigned an indefinite life to the trade name. See Note 3.B.
In-process research and development: In-process research and development represents incomplete Fluent research and development projects that had not reached technological feasibility and had no alternative future use when acquired. ANSYS estimates that $31.9 million of the preliminary purchase price represents purchased in-process technology related to projects which had not yet reached technological feasibility and have no alternative future use. The fair value of in-process research and development was determined based on the discounted cash flow method, utilizing a risk adjusted discount rate of 22% and an expectation that net cash inflows related to the in-process projects would commence in 2009. This estimate is subject to change upon final valuation of the in-process research and development. Although in-process research and development costs are not considered in the unaudited pro forma condensed combined statements of operations, such costs will be expensed in ANSYS’ consolidated financial statements as a non-tax deductible charge for the quarter ended June 30, 2006. This has been reflected in the pro forma balance sheet with an adjustment to equity. See Note 3.G.
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Pre-acquisition contingencies: Other than certain tax contingencies, ANSYS has currently not identified any pre-acquisition contingencies where a liability is probable and the amount of the liability can be reasonably estimated. If information becomes available prior to the end of the purchase price allocation period, which would indicate that a liability is probable and the amount can be reasonably estimated, such items will be included in the purchase price allocation and result in additional goodwill.
Financing Activities
On May 1, 2006, ANSYS and Fluent borrowed $175 million and $23 million, respectively, from a syndicate of banks. The interest rate on the indebtedness associated with the transaction is equal to a margin based on the Company’s consolidated leverage ratio, plus the then current rate based on (a) the British Bankers Association London Inter-Bank Offered Rate for dollar deposits (“LIBOR”) or (b) the higher of (i) the Bank of America prime rate and (ii) the Federal Funds rate plus .50%. The interest rate for the period from May 1, 2006 through June 30, 2006 was set at 6.08%, which was based on LIBOR + 1.00%. An increase or decrease in the interest rate of 1/8% would affect pro forma interest expense by $235,000 in the annual period and $53,000 in the quarterly period. The debt is scheduled to be repaid over a period of five years and includes covenants related to the consolidated leverage ratio and the consolidated fixed charge coverage ratio, as well as certain restrictions on additional investments and indebtedness.
3. Pro Forma Adjustments
The following pro forma adjustments are included in the unaudited pro forma condensed combined balance sheet:
| (A) | To record the following adjustments to cash and cash equivalents: |
| (in thousands) | ||||
To record ANSYS bank loan proceeds | $ | 175,000 | ||
To record Fluent bank loan proceeds | 23,000 | |||
To record acquisition-related transaction costs | (9,467 | ) | ||
To record cash paid to Fluent stockholders | (173,033 | ) | ||
To record cash paid to Fluent debt/noteholders | (141,928 | ) | ||
Total adjustments to cash | $ | (126,428 | ) | |
| (B) | To record the difference between the preliminary fair value and the historical amount of intangible assets: |
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| (dollars in thousands) | Historical Amount, Net | Preliminary Value | Increase | Annual Amortization | Three Months Amortization | Estimated Useful Life | |||||||||||
Developed software | $ | — | $ | 88,000 | $ | 88,000 | $ | 17,134 | $ | 4,391 | 7 years | ||||||
Trade name | — | 60,000 | 60,000 | — | — | Indefinite | |||||||||||
Customer contracts and related relationships | — | 65,900 | 65,900 | 8,731 | 2,097 | 9.5 years | |||||||||||
Total identifiable intangible assets | $ | — | $ | 213,900 | $ | 213,900 | 25,865 | 6,488 | |||||||||
Fluent historical amortization | — | — | |||||||||||||||
Net increase in amortization | $ | 25,865 | $ | 6,488 | |||||||||||||
| (C) | To record the difference between the preliminary fair value and the historical value of property, plant and equipment: |
| (dollars in thousands) | Historical Amount, Net | Preliminary Value | Increase | Annual Depreciation | Three Months Depreciation | Estimated Useful Life | |||||||||||
Land | $ | 1,032 | $ | 1,920 | $ | 888 | $ | — | $ | — | Indefinite | ||||||
Depreciable property | 13,762 | 15,912 | 2,150 | 3,218 | 835 | 3–20 years | |||||||||||
Total property, plant and equipment | $ | 14,794 | $ | 17,832 | $ | 3,038 | 3,218 | 835 | |||||||||
Fluent historical depreciation | 2,976 | 775 | |||||||||||||||
Net increase in depreciation | $ | 242 | $ | 60 | |||||||||||||
| (D) | To eliminate Fluent’s historical goodwill and record the preliminary fair value of goodwill: |
| (in thousands) | Historical Amount, Net | Preliminary Fair Value | Increase | ||||||
Goodwill | $ | 37,487 | $ | 400,539 | $ | 363,052 | |||
| (E) | To record adjustments for deferred tax liabilities related to identifiable intangible assets and deferred revenues: |
| (dollars in thousands) | Preliminary Fair Value Adjustment | Statutory Tax Rate | Deferred Tax Asset (Liability) | |||||||
Increase in identifiable intangible assets | $ | 213,900 | 40 | % | $ | (85,560 | ) | |||
Decrease in deferred revenues | 19,054 | 40 | % | (7,622 | ) | |||||
Net deferred tax liabilities | $ | 232,954 | 40 | % | $ | (93,182 | ) | |||
Fluent’s intellectual property is owned by a U.S.-based legal entity. Additionally, a substantial portion of Fluent’s deferred revenue is recorded on a U.S.-based legal entity. Accordingly, the U.S. statutory tax rate of 40% was utilized to record the deferred tax liabilities rather than the blended global tax rate of 38%.
| (F) | To record the difference between the preliminary fair value and the historical amount of Fluent’s deferred revenue. The preliminary fair value comprises unexpired contractual |
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obligations, primarily annual leases and for post-contract support. To the extent that these underlying annual leases and support contracts are renewed, ANSYS will recognize the revenue for the full value of the support contracts over the support periods, the majority of which are one year. |
| (in thousands) | Historical Amount, Net | Preliminary Value | Decrease | |||||||
Deferred revenues | $ | 51,082 | $ | 32,028 | $ | (19,054 | ) | |||
| (G) | To record the following adjustments to stockholders’ equity: |
| (in thousands) | ||||
To eliminate Fluent’s historical stockholders’ equity | $ | (39,503 | ) | |
To record the issuance of 5,999,948 ANSYS shares in connection with the acquisition | 274,018 | |||
To record the preliminary estimated fair value of in-process research and development | (31,900 | ) | ||
Total adjustments to stockholders’ equity | $ | 202,615 | ||
| (H) | To record additional amortization expenses related to intangible assets acquired. Amortization expense was estimated based on the ratio of the projected net cash flows of the intangible asset in the current period to the total projected net cash flows over the expected life of the intangible asset – see Note B. |
| (I) | To record additional depreciation related to property, plant and equipment acquired as follows – see Note C: |
| Annual Depreciation | Three Month Depreciation | |||
Selling, general & administrative | 117 | 29 | ||
Cost of sales | 69 | 17 | ||
Research and development | 56 | 14 |
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| (J) | To record the effects of the acquisition on interest expense and interest income as further discussed below: |
| (dollars in thousands) | Estimated Annual Interest Rate | Effect on Annual Interest Income (Expense) | Effect on Three Months Interest Income (Expense) | ||||||||
Interest expense on ANSYS debt financing of $175 million | 6.08 | % | $ | (10,811 | ) | $ | (2,524 | ) | |||
Interest expense on Fluent debt financing of $23 million | 6.08 | % | (1,230 | ) | (197 | ) | |||||
Interest income from ANSYS cash used in acquisition of $126 million | (3,404 | ) | (851 | ) | |||||||
Interest expense of Fluent on certain pre-acquisition borrowings | 298 | — | |||||||||
Total adjustments to interest expense | $ | (15,147 | ) | $ | (3,572 | ) | |||||
To record interest expense, including amortization of issuance costs, associated with the debt to finance the Fluent acquisition at a rate of 6.08%, which represents the actual interest rate at the inception of the bank loan as of May 1, 2006. The pro forma condensed combined statements of operations do not assume reductions in interest based on other-than-scheduled principal repayments of ANSYS’ borrowings or changes in interest rates if ANSYS refinances its borrowings. Since a significant portion of the purchase price was paid from existing cash and short-term investments of ANSYS, the pro forma condensed combined statements of operations assume that earnings are adversely impacted by the foregone interest income on such balances.
Additionally, interest expense on certain pre-acquisition borrowings was removed from the pro forma financial results because such borrowings were paid in full upon consummation of the acquisition.
| (K) | To record the income tax impact on pro forma adjustments at the global statutory rate of 38%. The pro forma combined provision for income taxes does not reflect the amounts that would have resulted had ANSYS and Fluent filed consolidated income tax returns during the periods presented. |
| (L) | To record the elimination of intercompany and related party assets and liabilities. |
| (M) | To record the current and long-term portions of debt associated with the financing obtained by ANSYS and Fluent in connection with the transaction. |
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| (N) | To allocate certain expenditures to cost of sales and research and development, that were historically recorded in the Fluent financial statements as selling, general and administrative, to be consistent with ANSYS’ historical financial statement presentation, as follows: |
| Annual Reclassification | Three Month Reclassification | |||||
Selling, general & administrative | (5,260 | ) | (1,353 | ) | ||
Cost of sales | 3,133 | 768 | ||||
Research and development | 2,127 | 585 |
| (O) | To record deferred tax assets of $14,936,000 related to the value of net operating losses associated with Fluent’s parent, Aavid Thermal Technologies, Inc. See Note 5. |
| (P) | To record deferred financing costs of $1,871,000 related to the costs of obtaining debt financing associated with the acquisition. |
4. Pro Forma Earnings Per Share
The pro forma basic and diluted earnings per share are based on the weighted average number of shares of ANSYS common stock outstanding and are adjusted for additional common stock issued to Fluent’s stockholders as part of the acquisition.
| Weighted Average Shares | ||||
| (in thousands) | Year Ended December 31, 2005 | Three Months Ended March 31, 2006 | ||
Basic, as reported | 31,749 | 32,122 | ||
Stock issued in Fluent acquisition | 6,000 | 6,000 | ||
Basic, pro forma | 37,749 | 38,122 | ||
Diluted, as reported | 33,692 | 34,165 | ||
Stock issued in Fluent acquisition | 6,000 | 6,000 | ||
Diluted, pro forma | 39,692 | 40,165 | ||
5. Other Assets Acquired
In connection with its acquisition of Fluent, ANSYS also acquired Fluent’s parent, Aavid Thermal Technologies, Inc. (“ATTI”). The unaudited pro forma condensed combined financial statements do not include the balances or activity of ATTI. However, ATTI was primarily a shell entity with no assets or liabilities other than the tax attributes of its subsidiaries. These tax attributes included net operating loss carryforwards of approximately $42.7 million. The related deferred tax assets had been fully reserved in ATTI’s historical financial statements. These net operating loss carryforwards will have value to ANSYS post-acquisition and the reduction of the related valuation reserve will result in an increase in deferred tax assets and a decrease in goodwill of $14.9 million.
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