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 June 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 August 7, 2002 was 14,578,894 shares.
1
ANSYS, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 2002 and December 31, 2001 3
Condensed Consolidated Statements of Income -
Three and Six Months Ended June 30, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements 6-8
Independent Accountants' Report 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-16
Item 3. Quantitative and Qualitative Disclosures Regarding
Market Risk - No Significant Changes
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 4. Submission of Matters to a Vote of Security Holders
17
Item 5. Other Information 18
Item 6. Exhibits and Reports Filed on Form 8-K 18
SIGNATURES 19
EXHIBIT INDEX 20
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)
(Unaudited)
June 30, Dec. 31,
2002 2001
------------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 22,803 $ 28,545
Short-term investments 27,834 24,903
Accounts receivable, less allowance for
doubtful accounts of $1,630
and $1,610, respectively 13,523 15,352
Other current assets 12,195 12,803
Deferred income taxes 1,905 1,799
----------- ---------
Total current assets 78,260 83,402
----------- ---------
Long-term investments 1,083 500
Property and equipment, net 4,916 4,915
Capitalized software costs, net 827 817
Goodwill, net 17,807 16,937
Other intangibles, net 5,598 6,499
Deferred income taxes 4,747 4,692
----------- ---------
Total assets $ 113,238 $ 117,762
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 666 $ 624
Accrued bonuses 2,097 4,578
Other accrued expenses and liabilities 5,587 13,047
Deferred revenue 25,736 25,120
----------- ---------
Total current liabilities 34,086 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 39,022 37,822
Less treasury stock, at cost: 1,979,720
and 2,071,123 shares, respectively (29,075) (23,953)
Retained earnings 69,037 60,429
Accumulated other comprehensive income (loss) 2 (71)
----------- ---------
Total stockholders' equity 79,152 74,393
----------- ---------
Total liabilities and stockholders' equity $ 113,238 $ 117,762
=========== =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
ANSYS, INC. AND SUBIDARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
Three months ended Six months ended
-------- -------- -------- --------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Revenue:
Software licenses $ 11,778 $ 11,078 $ 23,108 $ 20,560
Maintenance and service 10,956 9,853 20,891 18,593
-------- -------- -------- --------
Total revenue 22,734 20,931 43,999 39,153
Cost of sales:
Software licenses 915 1,333 1,952 2,443
Maintenance and service 1,894 1,613 3,708 3,166
-------- -------- -------- --------
Total cost of sales 2,809 2,946 5,660 5,609
-------- -------- -------- --------
Gross profit 19,925 17,985 38,339 33,544
Operating expenses:
Selling and marketing 5,241 5,112 10,402 10,046
Research and development 4,938 4,298 9,757 8,213
Amortization 568 1,318 1,167 2,643
General and administrative 2,710 2,552 5,040 5,123
-------- -------- -------- --------
Total operating expenses 13,457 13,280 26,366 26,025
-------- -------- -------- --------
Operating income 6,468 4,705 11,973 7,519
Other income 323 467 494 1,111
-------- -------- -------- --------
Income before income tax provision 6,791 5,172 12,467 8,630
Income tax provision 2,071 1,603 3,859 2,690
-------- -------- -------- --------
Net income $ 4,720 $ 3,569 $ 8,608 $ 5,940
======== ======== ======== ========
Earnings per share - basic:
Basic earnings per share $ 0.32 $ 0.25 $ 0.59 $ 0.41
Weighted average shares - basic 14,670 14,342 14,629 14,628
Earnings per share - diluted:
Diluted earnings per share $ 0.30 $ 0.24 $ 0.55 $ 0.39
Weighted average shares - diluted 15,829 15,171 15,776 15,310
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)
Six months ended
----------------
June 30, June 30,
2002 2001
-------- --------
Cash flows from operating activities:
Net income $ 8,608 $ 5,940
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,309 3,864
Deferred income tax provision 363 127
Provision for bad debts 159 270
Changes in operating assets and liabilities:
Accounts receivable 1,670 2,432
Other current assets 768 1,795
Accounts payable, accrued expenses and liabilities (4,820) (3,164)
Deferred revenue 616 1,876
-------- --------
Net cash provided by operating activities 9,673 13,140
-------- --------
Cash flows from investing activities:
Capital expenditures (1,124) (1,549)
Capitalization of internally developed
software costs (241) (97)
Acquisition payments (1,686) (150)
Net (purchases) maturities of short-term investments (2,931) 11,349
ICEM CFD acquisition (2,591) (183)
Purchase of long-term investment (600) -
-------- --------
Net cash (used in) provided by
investing activities (9,173) 9,370
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock
under Employee Stock Purchase Plan 136 86
Purchase of treasury stock (10,151) (11,199)
Proceeds from exercise of stock options 3,764 2,316
-------- --------
Net cash used in financing activities (6,251) (8,797)
-------- --------
Effect of exchange rate changes on cash 9 (240)
-------- --------
Net (decrease) increase in cash and cash equivalents (5,742) 13,473
Cash and cash equivalents, beginning of period 28,545 6,313
-------- --------
Cash and cash equivalents, end of period $ 22,803 $ 19,786
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 3,561 $ 2,073
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
ANSYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(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
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 six months ended June 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. 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 six
months ended June 30, 2002 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2002.
2. Accumulated Other Comprehensive Income
As of June 30, 2002 and December 31, 2001, 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 six month periods ended June 30, 2002 and
2001 was as follows:
Three months ended Six months ended
-------- -------- -------- --------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Comprehensive Income $ 5,088 $ 3,525 $ 8,681 $ 5,700
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 $8.3 million and
$10.3 million as of June 30, 2002 and December 31, 2001, respectively.
6
4. Recently Issued Accounting Pronouncements
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standard No. 142 (Statement 142), "Goodwill and Other Intangible Assets," for
existing goodwill and other intangible assets, including the non-amortization
provisions of this standard arising from business combinations after June 30,
2001. This standard eliminates the amortization of goodwill and intangible
assets with indefinite useful lives and requires annual testing for impairment.
This standard also requires the assignment of assets acquired and liabilities
assumed, including goodwill, to reporting units for purposes of the annual
impairment test. As of June 30, 2002 and December 31, 2001, ANSYS had goodwill
of $17.8 million and $16.9 million, respectively. The Company completed the
required transitional goodwill impairment test during the quarter ended June 30,
2002 and determined that goodwill had not been impaired as of the 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 six month periods
ended June 30, 2002 and 2001 as if Statement 142 had been in effect for both
periods:
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
------------- ------------- ------------- -------------
Reported net income $4,720 $3,569 $ 8,608 $ 5,940
Add back: Goodwill and trademark
amortization, net of tax - 656 - 1,289
Adjusted net income $4,720 $4,225 $ 8,608 $ 7,229
Earnings per share- basic:
Reported earnings per share $ 0.32 $ 0.25 $ 0.59 $ 0.41
Goodwill and trademark amortization - .04 - .08
Adjusted earnings per share $ 0.32 $ 0.29 $ 0.59 $ 0.49
Earnings per share-diluted:
Reported earnings per share $ 0.30 $ 0.24 $ 0.55 $ 0.39
Goodwill and trademark amortization - .04 - .08
Adjusted earnings per share $ 0.30 $ 0.28 $ 0.55 $ 0.47
7
As of June 30, 2002, the Company's intangible assets are classified as follows:
Gross Carrying Accumulated
(in thousands) Amount Amortization
Amortized intangible assets:
Core technology $4,335 $ (1,632)
Non-compete agreements 2,280 (633)
Customer List 1,407 (516)
--------- ------------
Total $8,022 $ (2,781)
========= ============
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 $1,050,000 was reclassified to goodwill.
The increase in goodwill from December 31, 2001 to June 30, 2002 primarily
relates to a territory acquisition payment in France.
Amortization expense for the amortized intangible assets reflected above is
expected to be approximately $1,743,000, $1,482,000, $961,000, $738,000 and
$199,000 for the years ending December 31, 2002, 2003, 2004, 2005 and 2006,
respectively.
5. Reclassifications
Certain reclassifications have been made to the 2001 condensed consolidated
financial statements to conform to the 2002 presentation.
8
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
ANSYS, Inc.
Canonsburg, Pennsylvania
We have reviewed the accompanying condensed consolidated balance sheet of ANSYS,
Inc. and subsidiaries (the "Company") as of June 30, 2002, and the related
condensed consolidated statements of income and cash flows for the three-month
and six-month periods then ended. 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 of 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 such condensed consolidated financial statements as of June 30, 2002,
and for the three-month and six-month periods then ended for them to be in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying condensed financial information as of December 31, 2001, and
for the three-month and six-month periods ended June 30, 2001, were not audited
or reviewed by us and, accordingly, we do not express an opinion or any other
form of assurance on them.
/s/ Deloitte & Touche LLP
- -----------------------------
Pittsburgh, Pennsylvania
July 12, 2002
9
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANSYS, Inc. (the "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 approximately 460 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 its ANSYS(R), DesignSpace(R),
AI*Solutions, ICEM CFD Engineering and CADOE products and services through a
network of channel partners in 37 countries, in addition to its own direct sales
offices in 18 strategic locations 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-month and
six-month periods ended June 30, 2002 and 2001, and with the Company's audited
financial statements and notes thereto for the year ended December 31, 2001
filed in 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'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, estimates of tax rates in future
periods, 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 2001 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 June 30, 2002 Compared to Three Months Ended June 30, 2001
Revenue. The Company's total revenue increased 8.6% in the 2002 second quarter
to $22.7 million from $20.9 million in the 2001 second quarter. Reported revenue
for the prior year was affected by a modification of the Company's revenue
recognition policy related to noncancellable annual software leases.
10
As previously disclosed, in 2001 the Company modified its revenue recognition
policy for annual software leases to comply with Technical Practice Aid ("TPA")
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, second quarter 2002 revenue would have been approximately $21.6 million.
Software license revenue increased 6.3% in the 2002 quarter to $11.8 million
from $11.1 million in the 2001 quarter. The prior year quarter included
approximately $2.0 million in software license revenue related to a major
account sale, which had at that time represented the second largest deal in the
Company's history. The quarterly revenue increase in 2002 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 discussed above on reported revenue in the second quarter of 2001.
Also contributing to the increase in the 2002 quarter was higher license revenue
from the Company's ICEM CFD Engineering and DesignSpace product lines.
Maintenance and service revenue increased 11.2% in the 2002 quarter to $11.0
million from $9.9 million in the 2001 quarter. This increase was primarily the
result of maintenance contracts sold in association with increased paid-up
license sales in recent quarters.
Of the Company's total revenue in the 2002 quarter, approximately
53.5% and 46.5%, respectively, were attributable to international and domestic
sales, as compared to 51.1% and 48.9%, respectively, in the 2001 quarter.
Cost of Sales and Gross Profit. The Company's total cost of sales decreased 4.7%
to $2.8 million, or 12.4% of total revenue, in the 2002 second quarter from $2.9
million, or 14.1% of total revenue, in the 2001 second quarter. The decrease in
the 2002 quarter was principally attributable to lower headcount-related costs
and a reduction in third party royalty expenses.
As a result of the foregoing, the Company's gross profit increased 10.8% to
$19.9 million in the 2002 quarter from $18.0 million in the 2001 quarter.
Selling and Marketing. Total selling and marketing expenses increased from $5.1
million, or 24.4% of total revenue in the 2001 quarter, to $5.2 million, or
23.1% of total revenue in the 2002 quarter. The increase primarily resulted from
costs associated with the Company's biennial worldwide users' conference, which
was last held in the third quarter of 2000. Also contributing to the increase
were higher salaries and related headcount costs associated with the addition of
personnel within the Company's direct sales and sales support organization.
11
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, as well as reduced third party commissions. The Company
anticipates that it will continue to make significant investments throughout the
remainder of 2002 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 14.9% in
the 2002 second quarter to $4.9 million, or 21.7% of total revenue, from $4.3
million, or 20.5% of total revenue, in the 2001 quarter. The increase primarily
resulted from additional headcount and related costs related to the development
and introduction of new and enhanced products. These increases were partially
offset by the capitalization of $241,000 in labor costs associated with
development of the Company's ANSYS 6.1 and DesignSpace 6.1 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 $568,000 in the 2002 second
quarter from $1.3 million in the prior year quarter. 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
second quarter of 2001, amortization expense in that quarter would have been
approximately $477,000.
General and Administrative. General and administrative expenses increased from
$2.6 million, or 12.2% of total revenue in the 2001 quarter, to $2.7 million, or
11.9% of total revenue in the 2002 quarter. The increase was primarily the
result of higher legal expenses in the 2002 quarter.
Other Income. Other income decreased to $323,000 in the 2002 second quarter from
$467,000 in the prior year quarter. The decrease was primarily attributable to a
reduced interest rate environment in the 2002 second quarter as compared to that
in the 2001 second quarter.
Income Tax Provision. The Company's effective rates of taxation were 30.5% in
the 2002 quarter and 31.0% in the 2001 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. The Company expects that the effective tax rate will
remain in the range of 29.5% - 30.5% for the remainder of the year.
Net Income. The Company's net income in the 2002 quarter was $4.7 million as
compared to $3.6 million in the 2001 quarter. Diluted earnings per share
increased to $.30 in the 2002 quarter as compared to $.24 in the 2001 quarter as
a result of the increase in net income. The weighted average shares used in
computing diluted
12
earnings per share were 15.8 million in the 2002 quarter and 15.2 million in the
2001 quarter.
Excluding acquisition-related amortization, net income increased 12.8% to $5.0
million, or diluted earnings per share of $0.32.
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Revenue. The Company's total revenue increased 12.4% for the 2002 six months to
$44.0 million from $39.2 million for the 2001 six months. Reported revenue for
the first six 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 to comply with Technical Practice Aid ("TPA")
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, revenue for the first six months of 2002 would have been approximately
$41.2 million.
Software license revenue totaled $23.1 million in the 2002 six months as
compared to $20.6 million in the 2001 six months, an increase of 12.4%. 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 discussed above on reported revenue
during 2001.
Maintenance and service revenue increased 12.4% for the six months ended June
30, 2002 to $20.9 million from $18.6 million in the comparable 2001 period. 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 consulting revenue.
Of the Company's total revenue in the 2002 six months, approximately 54.7% and
45.3%, respectively, were attributable to international and domestic sales, as
compared to 53.6% and 46.4%, respectively, in the 2001 six months.
Cost of Sales and Gross Profit. The Company's total cost of sales remained flat
at $5.7 million, or 12.9% of total revenue, for the 2002 six months as compared
to $5.6 million, or 14.3% of total revenue, for the 2001 six months.
As a result of the foregoing, the Company's gross profit increased 14.3% to
$38.3 million in the 2002 six-month period from $33.5 million in the comparable
2001 period.
13
Selling and Marketing. Selling and marketing expenses increased 3.5% in the six
months ended June 30, 2002 to $10.4 million, or 23.6% of total revenue, from
$10.0 million, or 25.7% 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 was last held in the third quarter of 2000. These
increases were partially offset by a reduction in discretionary advertising and
promotion expenditures. The Company anticipates that it will continue to make
significant investments throughout the remainder of 2002 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 18.8% in
the 2002 six months to $9.8 million, or 22.2% of total revenue, from $8.2
million, or 21.0% of total revenue, in the 2001 six months. The increase
primarily resulted from additional headcount and related costs related to the
development and introduction of new and enhanced products. These increases were
partially offset by the capitalization of $241,000 in labor costs associated
with development of the Company's ANSYS 6.1 and DesignSpace 6.1 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 $1.2 million in the 2002
six-month period from $2.6 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 half of 2001, amortization expense in that
period would have been approximately $990,000.
General and Administrative. General and administrative expenses remained
relatively flat at $5.0 million, or 11.5% of total revenue, in the 2002 six
months, as compared to $5.1 million, or 13.1% of total revenue, in the 2001 six
months.
Other Income. Other income decreased from $1.1 million in the 2001 six-month
period to $500,000 in the comparable 2002 period. The decrease was primarily
attributable to a declining interest rate environment.
Income Tax Provision. The Company's effective rates of taxation were 31.0% for
the 2002 six months and 31.2% for the 2001 six months. 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
14
and experimentation credits. The Company expects that the effective tax rate
will be in the range of 29.5% - 30.5% for the remainder of the year.
Net Income. The Company's net income in the 2002 six months was $8.6 million as
compared to $5.9 million in the 2001 six months. Diluted earnings per share
increased to $.55 in the 2002 period as compared to $.39 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 15.8 million and 15.3 million in the
2002 and 2001 six-month periods, respectively.
Excluding acquisition-related amortization, net income increased 19.4% to $9.2
million, or diluted earnings per share of $0.58.
Liquidity and Capital Resources
As of June 30, 2002, the Company had cash, cash equivalents and short-term
investments totaling $50.6 million and working capital of $44.2 million, as
compared to cash, cash equivalents and short-term investments of $53.4 million
and working capital of $40.0 million at December 31, 2001. 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 $9.7 million for the six
months ended June 30, 2002 and $13.1 million for the six months ended June 30,
2001. The decrease in the Company's cash flow from operations in the 2002
six-month period as compared to the comparable 2001 period was primarily a
result of the payment of approximately $2.0 million associated with the
settlement of a dispute with a former distributor. This amount was fully accrued
in the third quarter of 2001. Also contributing to the reduction in cash
generated from operating activities were higher income tax payments and less
favorable accounts receivable collection activity. 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 used cash of $9.2 million in the six months
ended June 30, 2002 and provided cash of $9.4 million in the six months ended
June 30, 2001. In the 2002 six-month period, cash outlays primarily related to
net purchases of short-term investments and a final payment of $2.6 million
related to the 2000 acquisition of ICEM CFD Engineering. In the 2001 six-month
period, cash was primarily generated from net maturities of short-term
investments. The Company currently plans additional capital spending of
approximately $1.3 million throughout the remainder of 2002; 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 $6.3 million and $8.8 million in
the six months ended June 30, 2002 and 2001, 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
15
option plans. The Company repurchased 418,700 shares during the first six months
of 2002.
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 2002. 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.
Critical Accounting Policies
ANSYS believes 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 for perpetual
licenses is recognized upon delivery of the utility which enables the customer
to request authorization keys, acceptance by the customer and receipt of a
signed contractual obligation, provided that no significant Company obligations
remain and collection of the receivable is probable. Revenue for software lease
licenses is recognized ratably over the period of the lease contract. Revenue is
recorded at the net price to ANSYS 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. ANSYS maintains allowances for doubtful accounts
for estimated losses resulting from the inability of its customers to make
required payments. 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. 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 impairments 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.
16
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
---------- --------- ----------- --------------
April 2002 8,000 1 $ 80,000.00
May 2002 2,000 1 $ 800.00
Item 3. Defaults upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on May 9,
2002, the stockholders of the Company elected James E. Cashman, III and
John F. Smith as Class III directors of the Company to hold office
until the 2005 Annual Meeting of Stockholders and until such Directors'
successors are duly elected and qualified. The votes were as follows:
James E. Cashman, III
Votes For: 10,275,480
Votes Withheld: 2,613,424
John F. Smith
Votes For: 12,593,423
Votes Withheld: 295,481
17
Item 5. Other information
At its July 2002 meeting, the Company's Board of Directors formed a
Nominating and Corporate Governance Committee (the "Committee"). The
Committee is comprised of three independent directors, Patrick J.
Zilvitis, Bradford C. Morley and John F. Smith. The purpose of the
committee is to oversee the qualification and nomination process for
potential director candidates, as well as review the continued
qualification of existing directors. The Committee also has
responsibility for corporate governance oversight.
Item 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.
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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: August 12, 2002 By: /s/ James E. Cashman, III
-----------------------------
James E. Cashman, III
President and Chief
Executive Officer
Date: August 12, 2002 By: /s/ Maria T. Shields
------------------------
Maria T. Shields
Chief Financial Officer
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Item 6.
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
20