UNITED STATES-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 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, 2001
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 5, 2001 was 14,428,466 shares.
1
ANSYS, INC. AND SUBSIDIARIES
INDEX
-----
Page No.
PART I. FINANCIAL INFORMATION ---------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - 3
September 30, 2001 and December 31, 2000
Condensed Consolidated Statements of
Income - Three and Nine Months Ended
September 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash
Flows - Nine Months Ended September 30,
2001 and 2000 5
Notes to Condensed Consolidated Financial
Statements 6-7
Report of Independent Accountants 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 6. Exhibits and Reports Filed on Form 8-K 16
SIGNATURES 17
EXHIBIT INDEX 18
Trademarks used in this Form 10-Q: ANSYS(R) and DesignSpace(R) are registered
trademarks of SAS IP, Inc., a wholly-owned subsidiary of ANSYS, Inc.
2
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements:
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
Sept. 30, Dec. 31,
2001 2000
------------- -----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 17,995 $ 6,313
Short-term investments 29,775 41,227
Accounts receivable, less allowance for
doubtful accounts of $1,590 and $2,350,
respectively 12,948 14,403
Other current assets 3,455 2,269
Deferred income taxes 1,725 695
----------- -----------
Total current assets 65,898 64,907
----------- -----------
Investments 1,000 500
Property and equipment, net 5,160 5,152
Capitalized software costs, net 448 574
Goodwill, net 8,176 9,227
Other intangibles, net 6,901 8,970
Deferred income taxes 4,534 4,895
----------- -----------
Total assets $ 92,117 $ 94,225
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 572 $ 459
Accrued bonuses 3,913 4,869
Other accrued expenses and liabilities 6,174 6,429
Deferred revenue 14,685 13,104
----------- -----------
Total current liabilities 25,344 24,861
----------- -----------
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 36,977 37,502
Less treasury stock, at cost: 2,239,280
and 1,451,692 shares, respectively (25,616) (15,127)
Accumulated other comprehensive income (86) 86
Retained earnings 55,332 46,737
----------- -----------
Total stockholders' equity 66,773 69,364
----------- -----------
Total liabilities and stockholders' equity
$ 92,117 $ 94,225
=========== ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
---------------------------- -----------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Revenue:
Software licenses $ 10,377 $ 8,640 $ 30,937 $ 28,556
Maintenance and service 10,233 8,042 28,826 21,759
--------- --------- --------- ---------
Total revenue 20,610 16,682 59,763 50,315
Cost of sales:
Software licenses 1,042 1,048 3,485 3,139
Maintenance and service 1,669 1,033 4,835 2,739
--------- --------- --------- ---------
Total cost of sales 2,711 2,081 8,320 5,878
--------- --------- --------- ---------
Gross profit 17,899 14,601 51,443 44,437
Operating expenses:
Selling and marketing 4,370 4,307 14,416 12,165
Research and development 4,358 3,457 12,571 10,071
Amortization 1,281 523 3,924 922
General and administrative 4,523 2,509 9,646 7,451
--------- --------- --------- ---------
Total operating expenses 14,532 10,796 40,557 30,609
--------- --------- --------- ---------
Operating income 3,367 3,805 10,886 13,828
Other income 483 877 1,594 2,769
--------- --------- --------- ---------
Income before income tax provision
3,850 4,682 12,480 16,597
Income tax provision 1,196 1,410 3,886 4,746
--------- --------- --------- ---------
Net income $ 2,654 $ 3,272 8,594 11,851
========= ========= ========= ==========
Earnings per share - basic:
Basic earnings per share $ 0.18 $ 0.21 $ 0.59 $ 0.75
Weighted average shares -
basic 14,532 15,495 14,596 15,854
Earnings per share - diluted:
Diluted earnings per share $ 0.17 $ 0.21 $ 0.56 $ 0.73
Weighted average shares -
diluted 15,577 15,973 15,393 16,343
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 thousands)
(Unaudited)
Nine months ended
-----------------
Sept. 30, Sept. 30,
2001 2000
--------- ---------
Cash flows from operating activities:
Net income $ 8,594 $ 11,851
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,695 2,447
Deferred income tax provision (669) 244
Provision for bad debts 281 123
Changes in operating assets and liabilities:
Accounts receivable 1,174 2,083
Other current assets (708) 36
Accounts payable, accrued expenses and
liabilities (1,098) (653)
Deferred revenue 1,581 1,793
--------- ---------
Net cash provided by operating
activities 14,850 17,924
--------- ---------
Cash flows from investing activities:
Capital expenditures (1,817) (2,497)
Capitalization of internally developed
software costs (116) (286)
Acquisition payments (150) (200)
Acquisition-related loan - (1,366)
Purchases of short-term investments (24,945) (20,876)
Maturities of short-term investments 36,397 28,439
Repayment of stockholder loan - 250
ICEM CFD acquisition (183) (7,481)
Purchase of investment (500) (375)
--------- ---------
Net cash provided by(used in)
investing activities 8,686 (4,392)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock
under Employee Stock Purchase Plan 205 164
Purchase of treasury stock (15,410) (14,346)
Proceeds from exercise of stock options 3,523 1,751
--------- ---------
Net cash used in financing activities (11,682) (12,431)
--------- ---------
Effect of exchange rate changes on cash (172) (65)
Net increase in cash and cash equivalents 11,682 1,036
Cash and cash equivalents, beginning of period 6,313 10,401
--------- ---------
Cash and cash equivalents, end of period $ 17,995 $ 11,437
========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Income taxes $ 4,594 $ 3,324
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
ANSYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements included
herein have been prepared by ANSYS, Inc. (the "Company") in accordance with
generally accepted accounting principles 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, 2001 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, 2000.
Accordingly, the accompanying statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. 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 three and nine months ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001.
2. Accumulated Other Comprehensive Income
As of September 30, 2001 and December 31, 2000, accumulated other comprehensive
income, as reflected on the condensed consolidated balance sheets, was comprised
of foreign currency translation adjustments.
3. Recently Issued Accounting Pronouncements
On July 20, 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141 (Statement 141), Business Combinations,
and No. 142 (Statement 142), Goodwill and Other Intangible Assets.
Statement 141 supersedes Accounting Principles Board Opinion No. 16 (APB 16),
Business Combinations. The most significant changes made by Statement 141 are:
(1) requiring that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, (2) establishing specific criteria
for the recognition of intangible assets separately from goodwill, and (3)
requiring unallocated negative goodwill to be written off immediately as an
extraordinary gain (rather than being deferred and amortized).
Statement 142 supersedes APB 17, Intangible Assets and primarily addresses the
accounting for goodwill and intangible assets subsequent to their acquisition
(i.e., the post-acquisition accounting). The most significant changes made by
Statement 142 are:
6
(1) goodwill and indefinite lived intangible assets will no longer be amortized,
(2) goodwill will be tested for impairment at least annually at the reporting
unit level, (3) intangible assets deemed to have an indefinite life will be
tested for impairment at least annually, and (4) the amortization period of
intangible assets with finite lives will no longer be limited to forty years.
Statement 142 also specifies that certain intangible assets that were previously
identified as separate from goodwill (e.g., assembled workforce) are not
considered separately identifiable for purposes of this standard and should be
included as part of goodwill and subject to the non-amortization provisions of
Statement 142.
The provisions of Statement 142 will be effective for the Company's fiscal year
beginning January 1, 2002, and must be adopted as of the beginning of the year.
At adoption, an evaluation of goodwill and intangible assets will be required,
and any impairment of goodwill or intangible assets at that time will be
recognized as a cumulative effect of adoption. Management has not yet completed
the final assessment of the impact of adoption of these standards.
7
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of
ANSYS, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of ANSYS,
Inc. and its subsidiaries as of September 30, 2001, and the related condensed
consolidated statements of income for each of the three-month and nine-month
periods ended September 30, 2001 and 2000 and the condensed consolidated
statements of cash flows for the nine-month periods ended September 30, 2001 and
2000. These financial statements are the responsibility of the Company'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 making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted 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 the accompanying condensed consolidated interim financial statements
for them to be in conformity with accounting principles generally accepted in
the United States of America.
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet of ANSYS, Inc.
and its subsidiaries as of December 31, 2000 and the related consolidated
statements of income, of stockholders' equity and of cash flows for the year
then ended (not presented herein), and in our report dated January 30, 2001, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 2000, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
/s/ PricewaterhouseCoopers LLP
- -----------------------------
Pittsburgh, Pennsylvania
October 10, 2001
8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANSYS, Inc. (the "Company") is a global innovator of simulation software and
technologies aimed at optimizing customers' product development processes. The
Company is committed to providing the most open and flexible analysis solutions
to suit customer requirements for engineering software in today's competitive
marketplace. In addition, the Company partners with leading design software
suppliers to develop state-of-the-art computer-aided design ("CAD") integrated
products. The Company distributes and supports its ANSYS(R), DesignSpace(R) and
ICEM CFD product lines through its global network of independent ANSYS Support
Distributors ("ASDs"), certain direct sales offices, as well as a network of
independent resellers and dealers. The following discussion should be read in
conjunction with the accompanying unaudited condensed consolidated financial
statements and notes thereto for the three-month and nine-month periods ended
September 30, 2001 and 2000, and with the Company's audited financial statements
and notes thereto for the year ended December 31, 2000.
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's intentions related to continued investments in sales and marketing and
research and development, plans related to future capital spending, the
sufficiency of existing cash and cash equivalent balances to meet future working
capital and capital expenditure requirements, uncertain economic conditions
causing our customers' preference for annual leases to increase so long as these
conditions continue, as well as statements which contain such words as
"anticipates", "intends", "believes", "plans" and other similar expressions.
The Company'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 Discussion and
Analysis of Financial Condition and Results of Operations" section in the 2000
Annual Report to Shareholders and in "Certain Factors Regarding Future Results"
included herein as Exhibit 99 to this Form 10-Q.
Results of Operations
Three Months Ended September 30, 2001 Compared to Three Months Ended September
30, 2000
Revenue. The Company's total revenue increased 23.5% in the 2001 third quarter
to $20.6 million from $16.7 million in the 2000 third quarter. Reported revenue
for the third quarter of 2001 was affected by a modification of the Company's
revenue recognition policy related to noncancellable annual software leases.
9
As previously disclosed, the Company modified its previous revenue recognition
policy for annual software leases to comply with a Technical Practice Aid
("TPA") 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 leases upon inception or renewal of the lease, while the
remaining portion was recognized ratably over the lease period. The TPA now
requires all revenue from noncancellable annual software lease licenses to be
recognized ratably over the lease term. The Company estimates that revenue
would have been approximately $20.5 million in the third quarter of 2001, or a
23.2% increase over the prior year quarter, had this modification not been made.
Software license revenue increased 20.1% in the 2001 quarter to $10.4 million
from $8.6 million in the 2000 quarter. The quarterly revenue increase was
primarily the result of an increase in license revenue related to the August
2000 acquisition of ICEM CFD Engineering ("ICEM CFD"). Increased revenue from
the sale of annual lease licenses also contributed to the quarterly revenue
growth. This increase resulted from a slight shift in our customers' preference
for annual leases during recent quarters, largely influenced by the uncertainty
of general economic conditions that has been prevalent throughout 2001 and which
management expects to continue through the remainder of 2001.
Maintenance and service revenue increased 27.2% in the 2001 quarter to $10.2
million from $8.0 million in the 2000 quarter. This increase was primarily the
result of maintenance contracts sold in association with increased paid-up
license sales in recent quarters, as well as an increase in quarterly revenue
related to the acquisition of ICEM CFD.
Of the Company's total revenue in the 2001 quarter, approximately 58.3% and
41.7%, respectively, were attributable to international and domestic sales, as
compared to 56.6% and 43.4%, respectively, in the 2000 quarter.
Cost of Sales and Gross Profit. The Company's total cost of sales increased
30.3% to $2.7 million, or 13.2% of total revenue, in the 2001 third quarter from
$2.1 million, or 12.5% of total revenue, in the 2000 third quarter. The
increase in the 2001 quarter was principally attributable to costs associated
with engineering consulting services provided by ICEM CFD.
As a result of the foregoing, the Company's gross profit increased 22.6% to
$17.9 million in the 2001 quarter from $14.6 million in the 2000 quarter.
Selling and Marketing. Total selling and marketing expenses increased from $4.3
million, or 25.8% of total revenue in the 2000 quarter, to $4.4 million, or
21.2% of total revenue in the 2001 quarter. Higher salaries and related
headcount costs associated with the acquisition of ICEM CFD were substantially
offset by a reduction in costs associated with the Company's worldwide users'
conference. This biannual event occurred in 2000 and is next scheduled for the
second quarter of 2002. The Company anticipates that it will continue to make
significant
10
investments throughout the remainder of 2001 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 26.1% in
the 2001 third quarter to $4.4 million, or 21.1% of total revenue, from $3.5
million, or 20.7% of total revenue, in the 2000 quarter. The increase primarily
resulted from higher salaries and related headcount costs associated with both
the acquisition of ICEM CFD, as well as the hiring of additional development
personnel within the ANSYS product creation organization. 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 increased to $1.3 million in the 2001 third
quarter from $523,000 in the prior year quarter. The increase resulted from a
full quarter of amortization associated with the acquisition of ICEM CFD.
General and Administrative. General and administrative expenses increased from
$2.5 million, or 15.0% of total revenue in the 2000 quarter, to $4.5 million, or
21.9% of total revenue in the 2001 quarter. The increase was the result of a
$2.0 million non-recurring charge related to the settlement of a dispute with a
former distributor.
Other Income. Other income decreased to $483,000 in the 2001 third quarter from
$877,000 in the prior year quarter. The decrease was primarily attributable to
lower interest-bearing cash and short-term investment balances, as well as a
declining interest rate environment.
Income Tax Provision. The Company's effective rates of taxation were 31.1% for
the 2001 quarter and 30.1% for the 2000 quarter. These rates are lower than the
federal and state combined statutory rate as a result of the utilization of a
foreign sales corporation, as well as the generation of research and
experimentation credits.
Net Income. The Company's net income in the 2001 quarter was $2.7 million as
compared to $3.3 million in the 2000 quarter. Diluted earnings per share
decreased to $.17 in the 2001 quarter as compared to $.21 in the 2000 quarter as
a result of the decrease in net income. The weighted average shares used in
computing diluted earnings per share were 15.6 million in the 2001 quarter and
16.0 million in the 2000 quarter. The decrease in shares outstanding is
primarily the result of stock repurchases by the Company (see Liquidity and
Capital Resources).
Excluding the estimated effects of the modification of the Company's revenue
recognition policy for noncancellable annual software leases and amortization
associated with the acquisition of ICEM CFD, net income decreased 8.8% to $3.4
million, or diluted earnings per share of $0.22.
11
Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000
Revenue. The Company's total revenue increased 18.8% for the 2001 nine months
to $59.8 million from $50.3 million for the 2000 nine months. Reported revenue
for the first nine months of 2001 was adversely affected by a modification of
the Company's revenue recognition policy related to noncancellable annual
software leases. The Company estimates that revenue would have been
approximately $63.3 million in the first nine months of 2001, or a 25.7%
increase over the comparable prior year period, had this modification not been
made.
Software license revenue totaled $30.9 million in the 2001 nine months as
compared to $28.6 million in the 2000 nine months, an increase of 8.3%. The
revenue increase was adversely impacted by the annual lease revenue recognition
policy modification discussed above. Excluding the impact of this modification,
software license revenue would have increased approximately 17.5% to $33.6
million. This increase was primarily the result of a full nine months of
revenue in 2001 related to the August 2000 acquisition of ICEM CFD and, to a
lesser extent, increased license sales to the Company's major account customers.
Maintenance and service revenue increased 32.5% for the nine months ended
September 30, 2001 to $28.8 million from $21.8 million in the comparable 2000
period. Reported maintenance and service revenue would have been approximately
$29.7 million, or 36.6% higher than the prior year period, had the revenue
recognition modification not occurred. This increase was primarily the result of
maintenance contracts sold in association with increased paid-up license sales
in recent quarters, as well as additional revenue related to the prior year
acquisition of ICEM CFD.
Of the Company's total revenue in the 2001 nine months, approximately 55.1% and
44.9%, respectively, were attributable to international and domestic sales, as
compared to 56.3% and 43.7%, respectively, in the 2000 nine months.
Cost of Sales and Gross Profit. The Company's total cost of sales increased
41.5% to $8.3 million, or 13.9% of total revenue, for the 2001 nine months from
$5.9 million, or 11.7% of total revenue, for the 2000 nine months. The increase
in the 2001 nine months was principally attributable to costs associated with
engineering consulting services provided by ICEM CFD.
As a result of the foregoing, the Company's gross profit increased 15.8% to
$51.4 million in the 2001 nine-month period from $44.4 million in the comparable
2000 period.
Selling and Marketing. Selling and marketing expenses increased 18.5% in the
nine months ended September 30, 2001 to $14.4 million, or 24.1% of total
revenue, from $12.2 million, or 24.2% of total revenue, in the comparable 2000
period. The increase primarily resulted from higher salaries and related
headcount costs associated with both the acquisition of ICEM CFD, as well as the
hiring of personnel to bolster the ANSYS direct sales and sales support
organization. Higher third-party commission costs
12
associated with direct sales to certain of the Company's major account customers
also contributed to the increase. The Company anticipates that it will continue
to make significant investments throughout the remainder of 2001 in its global
sales and marketing organization to strengthen its competitive position, to
enhance major account sales activities and to support its worldwide distribution
channels and marketing strategies.
Research and Development. Research and development expenses increased 24.8% in
the 2001 nine months to $12.6 million, or 21.0% of total revenue, from $10.1
million, or 20.0% of total revenue, in the 2000 nine months. The increase
primarily resulted from higher salaries and related headcount costs associated
with both the acquisition of ICEM CFD, as well as the hiring of additional
development personnel within the ANSYS product creation organization. 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 increased to $3.9 million in the 2001 nine-
month period from $922,000 in the comparable prior year period. The increase
resulted from a full nine months of amortization associated with the acquisition
of ICEM CFD.
General and Administrative. General and administrative expenses increased from
$7.5 million, or 14.8% of total revenue, in the 2000 nine months, to $9.6
million, or 16.1% of total revenue, in the 2001 nine months. The increase was
the result of a $2.0 million non-recurring charge related to the settlement of a
dispute with a former distributor.
Other Income. Other income decreased from $2.8 million in the 2000 nine-month
period to $1.6 million in the comparable 2001 period. The decrease was
primarily attributable to lower interest-bearing cash and short-term investment
balances, as well as a declining interest rate environment.
Income Tax Provision. The Company's effective rates of taxation were 31.1% for
the 2001 nine months and 28.6% for the 2000 nine months. The effective rate
increased from the prior year period as a result of certain non-deductible
amortization expense associated with the acquisition of ICEM CFD. These rates
are lower than the federal and state combined statutory rate as a result of the
utilization of a foreign sales corporation, as well as the generation of
research and experimentation credits.
Net Income. The Company's net income in the 2001 nine months was $8.6 million
as compared to $11.9 million in the 2000 nine months. Diluted earnings per
share decreased to $.56 in the 2001 period as compared to $.73 in the 2000
period as a result of the decrease in net income. The weighted average shares
used in computing diluted earnings per share were 15.4 million and 16.3 million
in the 2001 and 2000 nine-month periods, respectively. The decrease in shares
outstanding is primarily the result of stock repurchases by the Company (see
Liquidity and Capital Resources).
13
Excluding the estimated effects of the modification of the Company's revenue
recognition policy for noncancellable annual software leases and amortization
associated with the acquisition of ICEM CFD, net income increased 9.8% to $13.6
million, or diluted earnings per share of $0.88.
Liquidity and Capital Resources
As of September 30, 2001, the Company had cash, cash equivalents and short-term
investments totaling $47.8 million and working capital of $40.6 million, as
compared to cash, cash equivalents and short-term investments of $47.5 million
and working capital of $40.0 million at December 31, 2000. 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's operating activities provided cash of $14.9 million for the nine
months ended September 30, 2001 and $17.9 million for the nine months ended
September 30, 2000. The decrease in the company's cash flow from operations in
the 2001 nine-month period as compared to the comparable 2000 period was a
result of increased income tax payments and higher accounts receivable balances.
Net cash generated by operating activities provided sufficient resources to fund
increased headcount and capital needs, as well as to sustain share repurchase
activity under the Company's ongoing stock repurchase program.
The Company's investing activities provided cash of $8.7 million in the nine
months ended September 30, 2001 and used cash of $4.4 million for the nine
months ended September 30, 2000. The change in cash flows from investing
activities is primarily the result of cash outlays of $7.5 million related to
the acquisition of ICEM CFD in the 2000 nine-month period that were not repeated
in the 2001 period. Additionally, net maturities of short-term investments
during the 2001 period exceeded those in the 2000 period by approximately $3.9
million. The Company currently plans additional capital spending of
approximately $600,000 throughout the remainder of 2001; however, the level of
spending will be dependent upon various factors, including growth of the
business and general economic conditions.
Financing activities used cash of approximately $11.7 million and $12.4 million
for the nine months ended September 30, 2001 and 2000, respectively. In both
periods, cash outlays related to the Company's share repurchase program were
partially offset by proceeds from the issuance of common stock under employee
stock purchase and option plans.
The Company believes that existing cash and cash equivalent balances, together
with cash generated from operations, will be sufficient to meet the Company's
working capital and capital expenditure requirements through the remainder of
fiscal 2001. The Company'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.
14
Recently Issued Accounting Pronouncements
On July 20, 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141 (Statement 141), Business Combinations,
and No. 142 (Statement 142), Goodwill and Other Intangible Assets.
Statement 141 supersedes Accounting Principles Board Opinion No. 16 (APB 16),
Business Combinations. The most significant changes made by Statement 141 are:
(1) requiring that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, (2) establishing specific criteria
for the recognition of intangible assets separately from goodwill, and (3)
requiring unallocated negative goodwill to be written off immediately as an
extraordinary gain (rather than being deferred and amortized).
Statement 142 supersedes APB 17, Intangible Assets and primarily addresses the
accounting for goodwill and intangible assets subsequent to their acquisition
(i.e., the post-acquisition accounting). The most significant changes made by
Statement 142 are:
(1) goodwill and indefinite lived intangible assets will no longer be amortized,
(2) goodwill will be tested for impairment at least annually at the reporting
unit level, (3) intangible assets deemed to have an indefinite life will be
tested for impairment at least annually, and (4) the amortization period of
intangible assets with finite lives will no longer be limited to forty years.
Statement 142 also specifies that certain intangible assets that were previously
identified as separate from goodwill (e.g., assembled workforce) are not
considered separately identifiable for purposes of this standard and should be
included as part of goodwill and subject to the non-amortization provisions of
Statement 142.
The provisions of Statement 142 will be effective for the Company's fiscal year
beginning January 1, 2002, and must be adopted as of the beginning of the year.
At adoption, an evaluation of goodwill and intangible assets will be required,
and any impairment of goodwill or intangible assets at that time will be
recognized as a cumulative effect of adoption. Management has not yet completed
the final assessment of the impact of adoption of these standards.
15
PART II - OTHER INFORMATION
Item 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
(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
---------- ------ ----------- --------------
July 2001 20,418 3 $210,532.95
August 2001 300 1 $ 382.50
September 2001 700 2 $ 892.50
Item 3. Defaults upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other information
Not Applicable.
Item 6. Exhibits and Reports Filed on Form 8-K
(a) Exhibits.
15 Independent Accountants' Letter Regarding
Unaudited Financial Information
99 Certain Factors Regarding Future Results
(b) Reports on Form 8-K.
Not Applicable.
16
SIGNATURES
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 5, 2001 By: /s/ James E. Cashman, III
-------------------------------
James E. Cashman, III
President and Chief
Executive Officer
Date: November 5, 2001 By: /s/ Maria T. Shields
-------------------------------
Maria T. Shields
Chief Financial Officer
17
Item 6.
EXHIBIT INDEX
-----------------
Exhibit
-------
No.
---
15 Independent Accountants' Letter
Regarding Unaudited Financial
Information
99 Certain Factors Regarding Future
Results
18