EXHIBIT 13.1
FINANCIAL HIGHLIGHTS
Year Ended December 31,
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Pro Forma Predecessor
The Company The Company The Company Combined/(1)/ Company
(in thousands, except per share data) 1997 1996 1995 1994 1993
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Revenue $50,547 $47,066 $ 39,616 $32,823 $31,604
Operating income 10,731 3,674 1,360 2,307 7,648
Net income(loss) 7,400 1,304 (1,580) 257 8,120
Net income (loss) per basic share after extraordinary 0.47 0.08 (0.18) -- --
item (2)
Weighted averages shares - basic (2) 15,742 14,000 11,354 -- --
Net income(loss) per diluted share after extraordinary 0.45 0.07 (0.17) -- --
item (2)
Weighted average shares - diluted (2) -- --
16,518 14,906 12,204
Total assets $53,581 $43,431 $ 42,921 $44,669 $26,205
Working capital 23,761 14,691 3,196 1,822 16,135
Long-term obligations -- -- 33,204 37,696 3,401
Redeemable preferred stock -- -- 4,892 4,447 --
Stockholder's equity 40,414 32,974 (10,028) (7,985) 19,515
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(1) The results of operations of the Predecessor Company for the two and one-
half months ended March 13, 1994 have been combined with the results of
operations of the Company for the nine and one-half months ended December
31, 1994 by adding corresponding items without adjustment. This computation,
which is reflected as pro forma combined for 1994, was done to permit useful
comparison.
(2) The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" issued in February 1997. This Statement requires the
disclosure of basic and diluted earnings per share and revises the method to
calculate these amounts. Earnings per share data for periods prior to 1997
have been restated to reflect adoption of this Statement.
[Graph of Total Revenues]
A bar chart entitled "Total Revenues (in millions of dollars)" at the bottom
left of page 1 of the Annual Report shows that for the fiscal years 1993, 1994,
1995, 1996, and 1997 (shown below each bar) the Company had total revenue (shown
above each bar) in the respective amounts provided in the table entitled
"financial Highlights" on page 1 of the Annual Report.
[Graph of Cash, Cash Equivalents and Short-Term Investments]
A bar chart entitled "Cash, Cash Equivalents and Short-Term Investments (in
millions of dollars)" at the bottom right of page 1 of the Annual Report shows
that at the end of each of the fiscal years 1995, 1996 and 1997 (shown below
each bar) the Company had total cash, cash equivalents and short-term
investments of $8.1 million, $17.1 million and $27.8 million in the respective
years.
ANSYS, Inc. 1
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
ANSYS, Inc. (the "Company") is a leading international supplier of analysis
and engineering software for optimizing the design of new products. 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. A global network of ANSYS Support Distributors ("ASDs") provides
sales, support and training for customers. Additionally, the Company distributes
its DesignSpace(R) product through its global network of ASDs as well as a
network of independent distributors and dealers (value-added resellers or
"VARs") who support sales of DesignSpace(R) products to end users throughout
the world. The following discussion should be read in conjunction with the
audited consolidated financial statements and notes thereto included elsewhere
in this report.
This Annual Report 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 which contain such words as
"anticipate", "intend", "believe", "plan" and other similar expressions. The
Company's actual results could differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
include uncertainties regarding customer acceptance of new products, possible
delays in developing, completing or shipping new or enhanced products, potential
volatility of revenues and profit in any period due to, among other things,
lower than expected demand for or the ability to complete large contracts, as
well as other risks and uncertainties that are detailed in the "Important
Factors Regarding Future Results" beginning on page 16.
For purposes of the following discussion and analysis, the following table
sets forth certain consolidated financial data for the years 1997, 1996 and
1995.
Year Ended December 31,
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(in thousands) 1997 1996 1995
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Revenue:
Software licenses $35,083 $37,013 $32,604
Maintenance and service 15,464 10,053 7,012
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Total revenue 50,547 47,066 39,616
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Cost of sales:
Software licenses 2,833 3,051 3,331
Maintenance and service 2,365 2,337 1,572
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Total cost of sales 5,198 5,388 4,903
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Gross profit 45,349 41,678 34,713
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Operating expenses:
Selling and marketing 11,834 9,722 7,526
Research and development 11,004 9,796 8,329
Amortization 2,797 10,774 10,641
General and administrative 8,983 7,712 6,857
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Total operating expenses 34,618 38,004 33,353
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Operating income 10,731 3,674 1,360
Interest expense (1) (1,669) (3,983)
Other income 912 611 250
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Income (loss) before income taxes 11,642 2,616 (2,373)
Income tax provision (benefit) 4,242 969 (793)
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Net income (loss) before extraordinary item 7,400 1,647 (1,580)
Extraordinary item, net - (343) -
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Net income (loss) $ 7,400 $ 1,304 $(1,580)
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Results of Operations
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenue. The Company's total revenue increased 7.4% for 1997 to $50.5 million
from $47.1 million for 1996. The increase in total revenue in 1997 as compared
to 1996 was attributable principally to an increase in revenue from renewals and
sales of leases as noncancellable annual leases. The increase, which was
partially offset by decreases in monthly lease license revenue and paid-up
license revenue, was due, in part, to the active sales and licensing of
noncancellable annual leases to existing and new lease customers during 1997.
The increase in total revenue in 1997 was also attributable to increased
maintenance revenue, which resulted from broader customer usage of maintenance
and support services and the Company's continued emphasis on marketing its
maintenance services.
12 ANSYS, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The comparison of the Company's revenue in 1997 and 1996 is affected by the
Company's change in licensing and sales practices as they related to leases.
Beginning in the third quarter of 1996, the Company began to promote sales and
renewals of noncancellable annual leases, for which a portion of the annual
license fee is recognized as paid-up revenue upon renewal or inception of the
lease, while the remaining portion is recognized as maintenance revenue ratably
over the remaining lease period. Prior to the third quarter of 1996, the Company
recorded all revenue from lease licenses as license revenue, as earned, because
the underlying lease agreements contained provisions which allowed the customer
to cancel the lease with 30 days' notice. The effect of this change generally
was to increase paid-up revenue attributable to sales and renewals of leases and
to increase maintenance revenues for 1997 relative to 1996, while resulting in a
corresponding decrease in monthly lease license revenue. Had this change not
been initiated, software license revenue would have been reported as $37.9
million in 1997 as compared to $37.4 in 1996, while maintenance and service
revenue would have been reported as $12.3 million and $9.6 million in 1997 and
1996, respectively.
Software license revenue decreased 5.2% for 1997 to $35.1 million from $37.0
million for 1996, resulting principally from existing monthly lease customers
shifting to noncancellable annual leases in connection with the renewals of
their leases, thereby reducing the portion of their lease fees characterized as
lease revenue, as described above. The decrease was also due to a decrease in
the sale of paid-up licenses in the domestic market as compared to the prior
year, as paid-up license revenue for the 1996 year reflected the recognition of
substantial revenue from several large contracts. In this regard, the Company
believes that such large contracts reflect an increasing demand for enterprise
wide software solutions from certain of its customers and the ability, or
inability, to close large contracts during any period may increase the
volatility of the Company's revenues and profit from period to period. The
foregoing decreases in monthly lease and paid-up revenue were partially offset
by an increase in revenue from renewals and sales of leases as noncancellable
annual leases, as described above. Revenue from the sale of paid-up licenses,
excluding the portion of noncancellable annual leases classified as paid-up
revenue, decreased 4.2% for the 1997 year to $18.6 million from $19.4 million
for 1996. The Company also experienced a 27.9% decrease in monthly lease license
revenue to $12.5 million for 1997 from $17.4 million for 1996. This decrease was
attributable to an increase in the renewal of existing leases as noncancellable
annual leases, as well as the conversion of certain existing lease licenses to
paid-up licenses in 1997. The total revenue recognized from monthly and
noncancellable annual leases was $19.3 million and $18.0 million in 1997 and
1996, respectively, of which $2.8 million and $400,000 were classified as
maintenance revenue in 1997 and 1996, respectively. Maintenance and service
revenue, excluding the portion of noncancellable annual leases recognized as
maintenance revenue, increased 31.6% for 1997 to $12.7 million from $9.6 million
for 1996, as a result of broader customer usage of maintenance and support
services and the Company's increased emphasis on marketing these services, as
well as an increase in the renewal and sale of noncancellable annual leases.
Of the Company's total revenue for 1997, approximately 53.2% and 46.8%,
respectively, were attributable to international and domestic sales, as compared
to 49.4% and 50.6%, respectively, for 1996.
Cost of Sales and Gross Profit. The Company's total cost of sales decreased 3.5%
to $5.2 million for 1997 from $5.4 million for 1996, representing 10.3% and
11.4% of total revenue, respectively. The Company's cost of sales for software
license revenue decreased 7.1% for 1997 to $2.8 million, or 8.1% of software
license revenue, from $3.1 million, or 8.2% of software license revenue, for
1996. The decrease was due primarily to a reduction of costs related to manuals,
packing supplies and media. The Company's cost of sales for maintenance and
service revenue remained relatively stable at $2.4 million and $2.3 million, or
15.3% and 23.2% of maintenance and service revenue, for 1997 and 1996,
respectively.
As a result of the foregoing, the Company's gross profit increased 8.8% to
$45.3 million for 1997 from $41.7 million for 1996.
Selling and Marketing. Selling and marketing expenses increased 21.7% for 1997
to $11.8 million, or 23.4% of total revenue, from $9.7 million, or 20.7% of
total revenue, for 1996. This planned growth was attributable principally to
increased personnel costs, including costs associated with increased headcount
and compensation expenses related to the ongoing establishment of a global sales
and marketing organization, as well as the establishment of strategic offices in
the United Kingdom, Michigan and Japan in 1997. The Company anticipates that it
will continue to make significant investments in its global sales and marketing
organization to strengthen its competitive position and to support its worldwide
sales channels and marketing strategies.
Research and Development. Research and development expenses increased 12.3% for
1997 to $11.0 million, or 21.8% of total revenue, from $9.8 million, or 20.8% of
total revenue, for 1996. This increase resulted primarily from employment of
additional staff and independent contractors to develop and enhance the
Company's products, including a dedicated team working on the development of the
Company's DesignSpace(R) products. The increase was partially offset by a
decrease in equipment lease expense. The Company has traditionally invested
significant resources in research and development activities and intends to
continue to make significant investments in the future.
Amortization. Amortization expense was $2.8 million in 1997 and $10.8 million in
1996. The decrease was attributable to the full amortization of certain of the
intangible assets which resulted from the acquisition of the Company in 1994
("1994 Acquisition"), including goodwill and capitalized software, which were
fully amortized in the first quarter of 1997.
General and Administrative. General and administrative expenses increased 16.5%
for 1997 to $9.0 million, or 17.8% of total revenue, from $7.7 million, or 16.4%
of total revenue, for 1996. The increase is primarily attributable to expenses
incurred to increase the allowance for doubtful accounts and an increase in
legal fees related to a dispute regarding the expiration of an ASD distribution
agreement. The Company is currently the Plaintiff in litigation regarding this
matter, however, the action has not progressed sufficiently for the Company to
estimate a range of potential gain, if any, should it prevail in its pursuit of
damages related to this action. Additionally, the Company has added internal
legal and finance resources to support the operations of a publicly owned
company, which were offset by a significant reduction in outside labor and
consulting fees.
Interest. Interest expense, which was $1,000 in 1997, totaled $1.7 million in
1996. This decrease was attributable to the early repayment of all outstanding
debt related to the 1994 Acquisition with the net proceeds from the Company's
initial public offering in June 1996.
ANSYS, Inc. 13
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Other Income. Other income increased for 1997 to $912,000 as compared to
$611,000 for 1996. This increase was primarily attributable to higher interest-
bearing cash and investment balances in 1997.
Income Tax Provision. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The Company's effective rate of taxation was 36.4% for 1997, as compared
to 37.0% for 1996. These percentages are less than the federal and state
combined statutory rate due primarily to the utilization of research and
experimentation credits, as well as the use of a foreign sales corporation which
was established in the fourth quarter of 1997.
Net Income. The Company's net income totaled $7.4 million in 1997 as compared to
net income before extraordinary item of $1.6 million. The Company's net income
including the extraordinary item in 1996 was $1.3 million. Diluted earnings per
share, after extraordinary item, was $.45 in 1997 as compared to diluted
earnings per share, after extraordinary item, of $.07 in 1996. The increase in
diluted earnings per share is attributable to the increase in net income, as
well as the elimination of the preferred stock dividends due to the redemption
of the Redeemable Preferred Stock, which occurred at the time of the Company's
initial public offering in June 1996. The weighted average shares used in
computing net income per diluted common share amounts have increased to
16,518,000 in 1997 from 14,906,000 in 1996, primarily as a result of the initial
public offering.
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" issued in February 1997 and
has restated prior periods in accordance with this pronouncement.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenue. The Company's revenue increased 18.8% for 1996 to $47.1 million from
$39.6 million for 1995. This increase was attributable principally to increased
domestic and international sales of paid-up licenses and increased maintenance
and service revenue, both of which resulted primarily from the Company's
increased marketing emphasis, market acceptance of new product releases and
broader customer usage of maintenance and support services in response to
accelerated frequency of product releases and the Company's increased emphasis
on marketing its maintenance services.
Software license revenue increased 13.5% for 1996 to $37.0 million from $32.6
million for 1995, resulting principally from increased sales of paid-up licenses
in domestic and international markets. Revenue from sales of paid-up licenses
increased 35.2% for 1996 to $19.6 million from $14.5 million for 1995. The
Company's paid-up license revenue reflected recognition of substantial revenue
from several large contracts that were formalized during 1996 from customers
such as General Electric, 3M, Pratt & Whitney and Fiat Avio. The Company also
experienced a 3.9% decrease in lease license revenue to $17.4 million for 1996
from $18.1 million for 1995. This decrease was attributable to an increase in
noncancellable annual leases, for which a portion of the annual license fee is
recognized as paid-up revenue upon inception of the lease. The remaining portion
is recognized as maintenance revenue ratably over the remaining lease period.
Additionally, the decrease is partially attributable to the conversion of
certain lease licenses to paid-up licenses in 1996. Maintenance and service
revenue increased 43.4% for 1996 to $10.1 million from $7.0 million for 1995, as
a result of a substantial increase in the sale of paid-up licenses, reduction in
the warranty period, and broader customer usage of maintenance and support
services.
Of the Company's total revenue for 1996, approximately 50.6% and 49.4%,
respectively, were attributable to domestic and international sales, as compared
to 47.3% and 52.7%, respectively, for 1995.
Cost of Sales and Gross Profit. The Company's total cost of sales increased 9.9%
to $5.4 million for 1996 from $4.9 million for 1995, representing 11.4% and
12.4% of total revenue, respectively. The Company's cost of sales for software
license revenue decreased 8.4% for 1996 to $3.1 million, or 8.2% of software
license revenue, from $3.3 million, or 10.2% of software license revenue, for
1995. The decrease was due primarily to a reduction of expenses through lower
headcount, cost controls and implementation of a more efficient multi-platform
development environment for the Company's product releases and was partially
offset by increased royalty fees. The Company's cost of sales for maintenance
and service revenue was $2.3 million and $1.6 million, or 23.2% and 22.4% of
maintenance and service revenue, for 1996 and 1995, respectively. This 48.7%
increase in 1996 compared to 1995 reflects an increase in headcount, consulting
fees and royalties.
As a result of the foregoing, the Company's gross profit increased 20.1% to
$41.7 million for 1996 from $34.7 million for 1995.
Selling and Marketing. Selling and marketing expenses increased 29.2% for 1996
to $9.7 million, or 20.7% of total revenue, from $7.5 million, or 19.0% of total
revenue, for 1995. This planned growth was attributable principally to increased
personnel costs, including costs associated with increased headcount and
compensation expenses related to building a sales and marketing organization, as
well as increased commissions associated with increased revenue and increased
advertising costs.
Research and Development. Research and development expenses increased 17.6% for
1996 to $9.8 million, or 20.8% of total revenue, from $8.3 million, or 21.0% of
total revenue, for 1995. This increase resulted primarily from employment of
additional staff and independent contractors to develop and enhance the
Company's products, including a dedicated team working on the development of the
Company's DesignSpace(R) product, costs associated with quality assurance and
additional depreciation expense related to equipment purchases made to implement
and enhance a multi-platform development environment.
Amortization. Amortization expense was $10.8 million in 1996 and $10.6 million
in 1995. This amortization expense resulted principally from the 1994
Acquisition and relates to intangible assets, including goodwill, which were
being amortized from the date of the 1994 Acquisition, March 14, 1994.
General and Administrative. General and administrative expenses increased 12.5%
for 1996 to $7.7 million, or 16.4% of total revenue, from $6.9 million, or 17.3%
of total revenue, for 1995. The increase was attributable to the addition of
administrative support services, such as computerized order fulfillment and
corporate-wide information technology systems, to support the Company's future
operations. In addition, the Company also incurred expenses related to
increasing the allowance for bad debt, as well as the addition of personnel, and
accounting and legal costs to support the operations of a publicly owned
company.
14 ANSYS, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Interest. Interest expense decreased 58.1% for 1996 to $1.7 million from $4.0
million for 1995. This decrease was attributable to the early repayment of the
debt incurred to finance the 1994 Acquisition with the net proceeds from the
Company's initial public offering in June 1996.
Other Income. Other income increased for 1996 to $611,000 as compared to
$250,000 for 1995. Approximately $331,000 of this increase was related to the
repayment of a note receivable and related past-due interest, which had
previously been determined by the Company to be uncollectible.
Income Tax Provision (Benefit). The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." The Company's effective rate of taxation was 37.0% for 1996,
as compared to 33.4% for 1995. These percentages are less than the federal and
state combined statutory rate due primarily to the utilization of research and
experimentation credits.
Net Income (Loss). The Company's net income before extraordinary item in 1996
was $1.6 million compared to a net loss of $1.6 million in 1995. The net income
including the extraordinary item in 1996 was $1.3 million. Diluted earnings per
share increased to $.07 in 1996 as compared to a diluted loss per share of
($.17) in 1995. The increase in diluted earnings per share is attributable to
the increase in net income, as well as the elimination of the preferred stock
dividends due to the redemption of the Redeemable Preferred Stock, which
occurred at the time of the Company's initial public offering in June 1996. The
weighted average common and common equivalent shares used in computing net
income per diluted common share amounts increased to 14,906,000 in 1996 from
12,204,000 in 1995, primarily as a result of the initial public offering.
Liquidity and Capital Resources
As of December 31, 1997, the Company had cash, cash equivalents and short-term
investments totaling $27.8 million and working capital of $23.8 million, as
compared to cash and cash equivalents of $17.1 million and working capital of
$14.7 million at December 31, 1996.
The Company's operating activities provided cash of $12.7 million for 1997,
$13.5 million for 1996 and $10.8 million for 1995. The decrease in cash flow
from operations in 1997 as compared to 1996 is the result of the fluctuations
within the individual components of working capital, as well as a decrease in
earnings after the effect of depreciation and amortization. The increase in cash
flow from operations in 1996 as compared to 1995 is the result of increased
earnings before the effect of depreciation and amortization, as well as improved
management of working capital. Net cash generated by operating activities
provided sufficient resources to fund increased headcount and capital needs to
support the Company's expansion of its global sales support network and
continued investment in research and development activities for the 1997 year.
Cash used in investing activities was $16.1 million for 1997, $2.6 million for
1996 and $2.0 million for 1995. The Company's use of cash in 1997 was primarily
related to the purchase of short-term investments, and to a lesser extent the
purchase of furniture and computer equipment for the new corporate office
facility, while the use of cash in 1996 and 1995 was substantially related to
capital expenditures. The Company expects to spend approximately $2.0 million
for capital expenditures in 1998, principally for the acquisition of computer
hardware and software to support the continued growth of the Company's
development activities and expansion of its global sales and support
infrastructure.
Financing activities provided cash of $335,000 in 1997 and used cash of $1.9
million and $5.0 million for 1996 and 1995, respectively. Cash provided from
financing activities in 1997 was substantially related to proceeds from the
issuance of common stock under employee stock purchase and option plans. Cash
provided from financing activities in 1996 was due primarily to the net proceeds
of $41.1 million received from the Company's initial public offering on June 25,
1996. Cash used for financing activities for 1996 was principally for the
repayment of the indebtedness incurred to finance the 1994 Acquisition, payment
of related unpaid interest and the redemption of the Redeemable Preferred Stock,
issued in connection with the 1994 Acquisition, and accumulated dividends. Cash
used for 1995 was the principal repayments made on the senior indebtedness.
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 at least the next
fiscal year. 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 financing can be obtained on favorable terms, if at all.
Management's Assessment of the Year 2000
The Company has established a corporate-wide Year 2000 task force, led by the
Company's Vice President of Corporate Quality, with the representation of all
major business segments. This task force is responsible for identifying,
evaluating and overseeing the implementation of necessary changes to computer
systems and applications to achieve a Year 2000 date conversion with no effect
on customers or disruption of business operations. The task force is currently
in the process of assessing its exposure to contingencies related to the Year
2000 issue for previous releases of its products. The Company plans to utilize
both internal and external resources to reprogram, or replace and test the
software for Year 2000 modifications. The Company plans to complete the Year
2000 project within the next year, but no later than December 31, 1998. The
total remaining cost of the Year 2000 project will be funded through operating
cash flows. The Company does not expect the amounts required to be expensed over
the next two years to have a material effect on its financial position or
results of operations. During 1997, the costs related to the assessment of, and
preliminary efforts in connection with, its Year 2000 project and the
development of its action plan were not material.
The Company is also communicating with its significant suppliers and customers
to identify critical related issues which need to be resolved. The Company's
total Year 2000 project costs and estimates to complete include the estimated
costs and time associated with the impact of a third party's Year 2000 issue,
and are based on presently available information. However, there can be no
guarantee that the systems
ANSYS, Inc. 15
Management's Discussion and Analysis of
Financial Condition and Results of Operations
of other companies on which the Company's systems rely will be converted on a
timely basis, or that a failure to convert by another company, or a conversion
that is incompatible with the Company's systems, would not have a material
adverse effect on the Company.
The costs of the project and the date on which the Company plans to complete
the Year 2000 action plan are based upon management's best estimates, which are
derived utilizing numerous assumptions of future events including the
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel with necessary expertise in this
area, the ability to identify and correct all relevant computer codes and
similar uncertainties.
Recently Issued Accounting Pronouncements
In October 1997, the Financial Accounting Standards Board approved the
American Institute of Certified Public Accountants Statement of Position (SOP)
No. 97-2, "Software Revenue Recognition," which is effective for transactions
entered into beginning after December 15, 1997. This SOP provides guidance on
when revenue should be recognized and in what amounts for licensing, selling,
leasing or otherwise marketing computer software. This SOP supersedes SOP No.
91-1, "Software Revenue Recognition." Beginning in December 1997, the Company
has adopted the provisions of SOP No. 97-2 and its current revenue recognition
policies are in conformance with the guidelines of the statement.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No.130, "Reporting Comprehensive Income,"
which establishes standards for reporting and displaying comprehensive income
and its components in a full set of general-purpose financial statements. This
Statement, which is effective for financial statements issued for fiscal years
beginning after December 15, 1997, requires that all items that are required to
be recognized under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the same prominence
as other financial statements. The Company will adopt SFAS No.130 for its fiscal
year ending December 31, 1998.
Additionally, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. This
Statement, which is effective for financial statements for periods beginning
after December 15, 1997, also establishes standards for related disclosures
about products and services, geographic areas and major customers. Management is
currently evaluating the implication of this statement from both an operations
and financial reporting perspective.
Important Factors Regarding Future Results
Information provided by the Company, including information contained in this
Annual Report to Shareholders, or its spokespersons may from time to time
contain forward-looking statements concerning projected financial performance,
market and industry segment growth, product development and commercialization or
other aspects of future operations. Such statements will be based on the
assumptions and expectations of the Company's management at the time such
statements are made. The Company cautions investors that its performance (and,
therefore, any forward-looking statement) is subject to risks and uncertainties.
Various important factors, including but not limited to the following, may cause
the Company's future results to differ materially from those projected in any
forward-looking statement.
Potential Fluctuations in Operating Results. The Company may experience
significant fluctuations in future quarterly operating results. Fluctuations may
be caused by many factors, including the timing of new product releases or
product enhancements by the Company or its competitors; the size and timing of
individual orders, including a fluctuation in the demand for and the ability to
complete large contracts; software errors or other product quality problems;
competition and pricing; customer order deferrals in anticipation of new
products or product enhancements; reduction in demand for the Company's
products; changes in operating expenses; mix of software license and maintenance
and service revenue; personnel changes and general economic conditions. A
substantial portion of the Company's operating expenses are related to
personnel, facilities and marketing programs. The level of personnel and
personnel expenses cannot be adjusted quickly and is based, in significant part,
on the Company's expectation for future revenues. The Company does not typically
experience significant order backlog. Further, the Company has often recognized
a substantial portion of its revenue in the last month of a quarter, with this
revenue frequently concentrated in the last weeks or days of a quarter, and has
become increasingly dependent upon receiving large orders of perpetual licenses
involving a single up-front fee. The Company believes that large contracts of
this type may reflect an increasing demand for enterprise-wide software
solutions from certain of the Company's customers, which, if continued, may
increase the volatility of the Company's revenues and profit from period to
period. More recently, the Company has also experienced an increase in renewals
and sales of noncancellable annual leases, for which a portion of the annual
license fee is recognized as paid-up revenue upon renewal or inception of the
lease. As a result, product revenues in any quarter are substantially dependent
on orders booked and shipped in the latter part of that quarter, and revenues
for any future quarter are not predictable with any significant degree of
accuracy.
Stock Market Volatility. Market prices for securities of software companies have
generally been volatile. In particular, the market price of the Company's common
stock has been and may continue to be subject to significant fluctuations as a
result of factors affecting the Company and software industry or the securities
markets in general.
In addition, a large percentage of the Company's common stock is held by TA
Associates, Inc. and various institutional investors. Consequently, actions with
respect to the Company's common stock by either TA Associates, Inc. or certain
of these institutional investors could have a significant impact on the market
price for the stock.
Rapidly Changing Technology; New Products; Risk of Product Defects. The markets
for the Company's products are generally characterized by rapidly changing
technology and frequent new product introductions that can render existing
products obsolete or unmarketable. A major
16 ANSYS, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
factor in the Company's future success will be its ability to anticipate
technological changes and to develop and introduce in a timely manner
enhancements to its existing products and new products to meet those changes. If
the Company is unable to introduce new products and respond to industry changes
on a timely basis, its business, financial condition and results of operations
could be materially adversely affected. The introduction and marketing of new or
enhanced products require the Company to manage the transition from existing
products in order to minimize disruption in customer purchasing patterns. There
can be no assurance that the Company will be successful in developing and
marketing, on a timely basis, new products or product enhancements, that its new
products will adequately address the changing needs of the marketplace, or that
it will successfully manage the transition from existing products. Software
products as complex as those offered by the Company may contain undetected
errors or failures when first introduced or as new versions are released, and
the likelihood of errors is increased as a result of the Company's commitment to
accelerating the frequency of its product releases. There can be no assurance
that errors will not be found in new or enhanced products after commencement of
commercial shipments. Any of these problems may result in the loss of or delay
in market acceptance, diversion of development resources, damage to the
Company's reputation, or increased service or warranty costs, any of which could
have a materially adverse effect upon the Company's business, financial
condition and results of operations.
Dependence on Distributors. The Company distributes its products principally
through its global network of 36 independent, regional ASDs. The ASDs sell ANSYS
and DesignSpace(R) products to new and existing customers, expand installations
within their existing customer base, offer consulting services and provide the
first line of ANSYS technical support. The ASDs have more immediate contact with
most customers who use ANSYS software than does the Company. Consequently, the
Company is highly dependent on the efforts of the ASDs. Difficulties in ongoing
relationships with ASDs, such as delays in collecting accounts receivable, ASDs'
failure to meet performance criteria or to promote the Company's products as
aggressively as the Company expects, and differences in the handling of customer
relationships, could adversely affect the Company's performance. Additionally,
the loss of any major ASD for any reason, including an ASD's decision to sell
competing products rather than ANSYS products, could have a materially adverse
effect on the Company. Moreover, the Company's future success will depend
substantially on the ability and willingness of its ASDs to continue to dedicate
the resources necessary to promote the Company's products and to support a
larger installed base of the Company's products. If the ASDs are unable or
unwilling to do so, the Company may be unable to sustain revenue growth.
Competition. The CAD, computer-aided engineering ("CAE") and computer-aided
manufacturing ("CAM") markets are intensely competitive. In the traditional CAE
market, the Company's primary competitors include MacNeal-Schwendler
Corporation, Hibbitt, Karlsson and Sorenson, Inc. and MARC Analysis Research
Corporation. The Company also faces competition from smaller vendors of
specialized analysis applications in fields such as computational fluid
dynamics. In addition, certain integrated CAD suppliers such as Parametric
Technology Corporation and Structural Dynamics Research Corporation provide
varying levels of design analysis and optimization and verification capabilities
as part of their product offerings. The entrance of new competitors would be
likely to intensify competition in all or a portion of the overall CAD, CAE and
CAM market. Some of the Company's current and possible future competitors have
greater financial, technical, marketing and other resources than the Company,
and some have well established relationships with current and potential
customers of the Company. It is also possible that alliances among competitors
may emerge and rapidly acquire significant market share or that competition will
increase as a result of software industry consolidation. Increased competition
may result in price reductions, reduced profitability and loss of market share,
any of which would materially adversely affect the Company's business, financial
condition and results of operations.
Dependence on Senior Management and Key Technical Personnel. The Company is
highly dependent upon the ability and experience of its senior executives and
its key technical and other management employees. Although the Company has
entered into employment agreements with two executives, the loss of these, or
any of the Company's other key employees, could adversely affect the Company's
ability to conduct its operations.
Risks Associated with International Activities. A significant portion of the
Company's business comes from outside the United States. Risks inherent in the
Company's international business activities include imposition of government
controls, export license requirements, restrictions on the export of critical
technology, political and economic instability, trade restrictions, changes in
tariffs and taxes, difficulties in staffing and managing international
operations, longer accounts receivable payment cycles and the burdens of
complying with a wide variety of foreign laws and regulations. Effective
copyright and trade secret protection may not be available in every foreign
country in which the Company sells its products. The Company's business,
financial condition and results of operations could be materially adversely
affected by any of these risks.
Dependence on Proprietary Technology. The Company's success is highly dependent
upon its proprietary technology. The Company does not have patents on any of its
technology and relies on contracts and the laws of copyright and trade secrets
to protect its technology. Although the Company maintains a trade secrets
program, enters into confidentiality agreements with its employees and
distributors and limits access to and distribution of its software,
documentation and other proprietary information, there can be no assurance that
the steps taken by the Company to protect its proprietary technology will be
adequate to prevent misappropriation of its technology by third parties, or that
third parties will not be able to develop similar technology independently.
Although the Company is not aware that any of its technology infringes upon the
rights of third parties, there can be no assurance that other parties will not
assert technology infringement claims against the Company, or that, if asserted,
such claims will not prevail.
Increased Reliance on Perpetual Licenses. The Company has historically
maintained stable recurring revenue from the sale of time-based licenses for its
software products. While the Company has experienced an increase in customer
preference for perpetual licenses that involve payment of a single up-front fee
and that are more typical in the computer software industry, more recently, it
has also experienced an increase in customer preference for noncancellable
annual leases. Although lease license revenue currently represents a substantial
portion of the Company's software license fee revenue, to the extent that
perpetual license and noncancellable annual lease license revenue increase as a
percent of total software license fee revenue, the Company's revenue in any
period will increasingly depend on sales completed during that period.
ANSYS, Inc. 17
Report of Independent Accountants
To the Board of Directors of ANSYS, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of ANSYS, Inc.
and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ANSYS, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Pittsburgh, Pennsylvania
January 29, 1998
18 ANSYS, Inc.
Consolidated Balance Sheets
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share data) December 31, 1997 December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $13,990 $17,069
Short-term investments 13,853 -
Accounts receivable, less allowance for doubtful
accounts of $2,080 in 1997 and $950 in 1996 8,034 7,307
Other current assets 926 350
Deferred income taxes 125 422
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 36,928 25,148
- --------------------------------------------------------------------------------------------------------------------------------
Securities available for sale 182 673
Property and equipment, net 4,771 4,334
Capitalized software costs, net of accumulated
amortization of $15,471 in 1997 and $14,328 in 1996 260 1,174
Goodwill, net of accumulated amortization of
$14,671 in 1997 and $13,652 in 1996 - 1,019
Other intangibles, net 2,374 1,756
Deferred income taxes 9,066 9,327
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $53,581 $43,431
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 235 $ 486
Accrued bonuses 2,133 2,281
Other accrued expenses and liabilities 2,562 1,701
Accrued income taxes payable 46 677
Customer prepayments 746 1,447
Deferred revenue 7,445 3,865
- --------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 13,167 10,457
- --------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized - -
Common stock, $.01 par value; 50,000,000 shares
authorized; 16,359,134 and 16,228,985 shares issued
in 1997 and 1996 164 162
Additional paid-in capital 36,089 35,755
Less treasury stock, at cost: 68,800 shares held in
1997 and 71,600 shares held in 1996 (12) (12)
Retained earnings (deficit) 4,327 (3,073)
Unrealized appreciation in securities available for sale, net 120 444
Notes receivable from stockholders (274) (302)
- --------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 40,414 32,974
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $53,581 $43,431
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
ANSYS, Inc. 19
Consolidated Statements of Operations
- ------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
Revenue:
Software licenses $35,083 $37,013 $32,604
Maintenance and service 15,464 10,053 7,012
- ------------------------------------------------------------------------------------------------------------------------
Total revenue 50,547 47,066 39,616
- ------------------------------------------------------------------------------------------------------------------------
Cost of sales:
Software licenses 2,833 3,051 3,331
Maintenance and service 2,365 2,337 1,572
- ------------------------------------------------------------------------------------------------------------------------
Total cost of sales 5,198 5,388 4,903
- ------------------------------------------------------------------------------------------------------------------------
Gross profit 45,349 41,678 34,713
Operating expenses:
Selling and marketing 11,834 9,722 7,526
Research and development 11,004 9,796 8,329
Amortization 2,797 10,774 10,641
General and administrative 8,983 7,712 6,857
- ------------------------------------------------------------------------------------------------------------------------
Total operating expenses 34,618 38,004 33,353
- ------------------------------------------------------------------------------------------------------------------------
Operating income 10,731 3,674 1,360
Interest expense (1) (1,669) (3,983)
Other income 912 611 250
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before income tax provision
(benefit) and extraordinary item 11,642 2,616 (2,373)
Income tax provision (benefit) 4,242 969 (793)
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) before extraordinary item 7,400 1,647 (1,580)
Extraordinary item, net - (343) -
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 7,400 $ 1,304 $(1,580)
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock:
Net income (loss) $ 7,400 $ 1,304 $(1,580)
Redeemable preferred stock dividends - (236) (445)
- ------------------------------------------------------------------------------------------------------------------------
$ 7,400 $ 1,068 $(2,025)
Net income (loss) per basic common share:
Net income (loss) before extraordinary item $ .47 $ .10 $ (.18)
Extraordinary item - (.02) -
Basic earnings per share $ .47 $ .08 $ (.18)
Weighted average shares - basic 15,742 14,000 11,354
Net income (loss) per diluted common share:
Net income (loss) before extraordinary item $ .45 $ .09 $ (.17)
Extraordinary item - (.02) -
Diluted earnings per share $ .45 $ .07 $ (.17)
Weighted average shares - diluted 16,518 14,906 12,204
- ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
20 ANSYS, Inc.
Consolidated Statements of Cash Flows
- -----------------------------------------------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 7,400 $ 1,304 $(1,580)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 4,170 11,911 11,458
Extraordinary item - 553 -
Deferred income tax provision (benefit) 725 (2,836) (2,115)
Provision for bad debts 1,130 250 50
Change in operating assets and liabilities:
Accounts receivable (2,857) 108 (1,981)
Other current assets (576) 89 534
Accounts payable, accrued expenses and
liabilities and customer prepayments (239) (942) 3,816
Income taxes (631) 2,174 (450)
Deferred revenue 3,580 870 1,034
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 12,702 13,481 10,766
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (2,063) (2,544) (1,937)
Capitalization of internally developed software costs (229) (117) (19)
Purchase of short-term investments (13,853) - -
Notes receivable from stockholders 28 32 (21)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (16,117) (2,629) (1,977)
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Payments on long-term debt - (21,000) (5,000)
Proceeds from issuance of restricted stock - 326 12
Proceeds from issuance of common stock under
Employee Stock Purchase Plan 283 - -
Proceeds from exercise of stock options 50 119 -
Repayment of subordinated notes - (17,204) -
Redemption of preferred stock and accumulated dividends - (5,128) -
Proceeds from initial public offering, net of issuance costs of $1,300 - 41,015 -
Purchase of treasury stock (1) (2) (10)
Proceeds from issuance of treasury stock 4 - -
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 336 (1,874) (4,998)
- -----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (3,079) 8,978 3,791
Cash and cash equivalents, beginning of period 17,069 8,091 4,300
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 13,990 $ 17,069 $ 8,091
- -----------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest - $ 2,848 $ 2,568
Income taxes $ 4,148 2,311 2,463
Supplemental noncash investing and financing activities:
Exercise of option for non-compete agreement 1,000 - -
Deferred interest notes issued for interest in arrears on subordinated notes - 508
(Decrease) increase in securities available for sale (491) 673 -
- -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
ANSYS, Inc. 21
Consolidated Statements of Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock Class A Common Stock
--------------------- ---------------------
(in thousands) Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 10,626 $106 964 $ 10
Treasury stock acquired - - - -
Issuance of Class A common stock - - 30 -
Dividends accrued on redeemable preferred stock - - - -
Loans to facilitate purchase of restricted stock - - - -
Net loss for the year - - - -
-----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 10,626 106 994 10
Treasury stock acquired - - - -
Issuance of restricted stock 136 1 - -
Conversion of Class A shares into common stock 994 10 (994) (10)
Issuance of common stock 3,500 35 - -
Reinstatement of adjustment for predecessor basis - - - -
Unrealized appreciation in securities, net - - - -
Exercise of stock options 973 10 - -
Dividends accrued on redeemable preferred stock - - - -
Repayment of note receivable from stockholder - - - -
Net income for the year - - - -
-----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 16,229 162 - -
Treasury stock acquired - - - -
Treasury stock sold - - - -
Unrealized depreciation in securities, net - - - -
Exercise of stock options 92 1 - -
Issuance of common stock under Employee
Stock Purchase Plan 38 1 - -
Repayment of note receivable from stockholder - - - -
Net income for the year - - - -
-----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 16,359 $164 - $ -
- ----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
22 ANSYS, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Unrealized
Adjustment Appreciation Notes
Additional for Treasury Stock Retained in Securities Receivable Total
Paid-in Predecessor ------------- Earnings Available from Stockholders'
Capital Basis Shares Amount (Deficit) for Sale Stockholders Equity
- -------------------------------------------------------------------------------------------------------
$ 1,340 $(7,010) - - $(2,116) - $(314) $ (7,984)
- - 55 $(10) - - - (10)
11 - - - - - - 11
- - - - (445) - - (445)
- - - - - - (20) (20)
- - - - (1,580) - - (1,580)
- -------------------------------------------------------------------------------------------------------
1,351 (7,010) 55 (10) (4,141) - (334) (10,028)
- - 17 (2) - - - (2)
325 - - - - - - 326
- - - - - - - -
40,980 - - - - - - 41,015
(7,010) 7,010 - - - - - -
- - - - - $ 444 - 444
109 - - - - - - 119
- - - - (236) - - (236)
- - - - - - 32 32
- - - - 1,304 - - 1,304
- -------------------------------------------------------------------------------------------------------
35,755 - 72 (12) (3,073) 444 (302) 32,974
- - 4 (1) - - - (1)
3 - (7) 1 - - - 4
- - - - - (324) - (324)
49 - - - - - - 50
282 - - - - - - 283
- - - - - - 28 28
- - - - 7,400 - - 7,400
- -------------------------------------------------------------------------------------------------------
$36,089 - $69 $(12) $ 4,327 $ 120 $(274) $ 40,414
- -------------------------------------------------------------------------------------------------------
ANSYS, Inc. 23
Notes To Consolidated Financial Statements
1. Organization and Initial Public Offering:
ANSYS, Inc. ("the Company"), formerly SAS Holdings, Inc., is a holding company
incorporated on January 12, 1994 for the purpose of acquiring through its
subsidiary, SAS Acquisition Corp. (Acquisition), substantially all of the assets
and technology, and the assumption of certain liabilities of Swanson Analysis
Systems, Inc. (the "1994 Acquisition"). The Company, through its operating
subsidiaries, develops, markets and supports a family of mechanical computer-
aided engineering software products. The Company's products are marketed and
sold to many industries throughout the world, including automotive, aerospace
and electronics.
Effective June 20, 1996, the Company completed an initial public offering
(IPO) of 3,500,000 shares of Common Stock at $13.00 per share. The net proceeds
(after deducting underwriting discounts and commissions and offering expenses)
totaled $41.1 million and were used as follows: (i) the repayment of
approximately $18.5 million of senior secured indebtedness (the "1994 Loan"),
including accrued and unpaid interest; (ii) the repayment of $17.5 million of
10% Subordinated Notes (the "Subordinated Notes"), including accrued and unpaid
interest; and (iii) the redemption of $5.1 million of Redeemable Preferred
Stock, including accumulated dividends.
2. Summary of Significant Accounting Policies:
Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries, ANSYS
Operating Corporation, SAS IP, Inc., ASN Systems Limited and ANSYS Foreign Sales
Corporation. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Revenue Recognition: The Company's revenue recognition policy is in conformance
with the American Institute of Certified Public Accountants' Statement of
Position 91-1,"Software Revenue Recognition."
The Company's products are sold primarily through distributors, who are
resellers with respect to its products. Revenue is derived principally from the
licensing of computer software products, either on an annual lease, monthly
lease or perpetual basis, and from related maintenance contracts. Revenue from
product licensing for perpetual licenses is recognized upon delivery of the
product, 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. A portion of the license fees from
noncancellable annual leases is recognized as paid-up revenue upon inception of
the lease. The remaining portion is recognized ratably over the remaining lease
period. Revenue for monthly lease licenses is recognized monthly as earned
because the lease license agreements can be cancelled by the customers with 30
days' notice. The portion of the perpetual license associated with providing
the initial warranty is unbundled from the fee and deferred and recognized
ratably over the warranty period. The Company discontinued the offering of an
initial warranty period in 1997. Revenue from maintenance contracts is
recognized ratably over the term of the contract. Costs related to maintenance
obligations are expensed as incurred. Revenue from training, support and other
services is recognized as the services are performed.
In October 1997, the Financial Accounting Standards Board approved the
American Institute of Certified Public Accountants Statement of Position (SOP)
No. 97-2, "Software Revenue Recognition," which is effective for transactions
entered into beginning after December 15, 1997. This SOP provides guidance on
when revenue should be recognized and in what amounts for licensing, selling,
leasing or otherwise marketing computer software. This SOP supersedes SOP No.
91-1, "Software Revenue Recognition." Beginning in December 1997, the Company
has adopted the provisions of SOP No. 97-2 and its current revenue recognition
policies are in conformance with the guidelines of the statement.
Cash Equivalents: For the purposes of the consolidated statements of cash flows,
the Company considers highly liquid deposits in money market funds to be cash
equivalents. Cash equivalents are recorded at cost, which approximates fair
value.
Short-Term Investments: The Company considers investments in money market funds
backed by government agencies or U.S. financial institutions and which have a
maturity between thirty days and up to one year from the date of purchase to be
short-term investments. Short-term investments are recorded at cost, which
approximates fair value.
Securities Available for Sale: The Company follows the provisions of Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," which addresses the classification, accounting
and disclosure of investments in debt and equity securities. In accordance with
Statement No. 115, the Company has investments in marketable equity securities
that have been classified as available-for-sale, and accordingly, are carried at
fair value, with the unrealized gains and losses, net of tax, reported in a
separate component of stockholders' equity until disposition.
Property and Equipment: Property and equipment is carried at cost. Depreciation
is computed by the straight-line method over the estimated useful lives of the
various classes of assets, which range from two to ten years. Repairs and
maintenance are charged to expense as incurred. Gains or losses from the sale or
retirement of property and equipment are included in the results of operations.
24 ANSYS, Inc.
Notes to Consolidated Financial Statements
Capitalized Software: Internally developed computer software costs and costs of
product enhancements are capitalized subsequent to the determination of
technological feasibility; such capitalization continues until the product
becomes available for general release. 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 ranges from three years to five years. Amortization is the
greater of the amount computed using: (i) the ratio of the current year's gross
revenue to the total current and anticipated future gross revenue for that
product or (ii) the straight-line method over the estimated life of the product.
The Company periodically reviews the carrying value of capitalized software
and impairments are recognized in the results of operations when the expected
future undiscounted operating cash flow derived from the capitalized software is
less than its carrying value.
Research and Development Costs: Research and development costs are expensed as
incurred.
Goodwill and Other Intangible Assets: Intangible assets consist of the excess of
the purchase cost over the fair value of net assets acquired (goodwill), the
ANSYS trade name and non-compete agreements, which are being amortized on the
straight-line method over the estimated useful lives of these assets. The
Company periodically evaluates the carrying value of goodwill, which was being
amortized over three years, based on whether the goodwill is recoverable from
expected future undiscounted operating cash flows of the related business. The
goodwill recorded in connection with the 1994 Acquisition has been fully
amortized at December 31, 1997. Additionally, the Company periodically reviews
the carrying value of other intangible assets and will recognize impairments
when the expected future operating cash flow derived from such intangible assets
is less than their carrying value.
Debt Issuance Costs: Debt issuance costs, which were incurred by the Company in
connection with the 1994 Acquisition, were deferred and amortized over the term
of the related debt. Debt issuance costs had been included in other intangibles
on the consolidated balance sheet. As a result of the early repayment of the
1994 Loan with a portion of the net proceeds from its IPO, the Company wrote off
the unamortized balance of the debt issuance cost, which was reflected as an
extraordinary item, net of income taxes, in the Consolidated Statement of
Operations for the year ended December 31, 1996.
Concentrations of Credit Risk: The Company invests its cash primarily in
deposits and money market funds with commercial banks. The Company has not
experienced any losses to date on its invested cash.
The Company has a concentration of credit risk with respect to trade
receivables because of the limited number of distributors through which the
Company sells its products. The Company performs periodic credit evaluations of
its customers' financial condition and generally does not require collateral.
During 1997, sales by distributors comprised approximately 97% of the
Company's total revenue, with two distributors accounting for approximately 14%
and 10% of total revenue. During 1996, sales by distributors comprised
approximately 96% of the Company's total revenue, with two distributors
accounting for approximately 13% and 9% of total revenue. During 1995, sales by
distributors comprised approximately 97% of the Company's total revenue, with
two distributors accounting for approximately 15% and 10% of total revenue.
Income Taxes: Deferred tax assets and liabilities are determined based on
temporary differences between the financial statement and the tax basis of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized.
Foreign Currency Transactions: Certain of the Company's sales transactions are
denominated in foreign currencies. These transactions are translated to U.S.
dollars at the exchange rate on the transaction date. Accounts receivable in
foreign currencies at year-end are translated at the effective exchange rate on
that date. The unrealized exchange loss or gain resulting from the translation
as of year-end is included in the results of operations.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the amounts of revenues and expenses during
the reported periods. Actual results could differ from the estimates.
Net Income (Loss) Per Share: Effective December 31, 1997, the Company has
adopted Statement of Financial Accounting Standards No. 128, "Earnings per
Share" issued in February 1997. This Statement requires the disclosure of basic
and diluted earnings per share and revises the method required to calculate
these amounts under previous standards. Earning per share data for periods prior
to 1997 have been restated to reflect adoption of this Statement. The adoption
of this standard did not materially impact previously reported earnings per
share amounts. Net income (loss) per basic common share is computed using the
weighted average number of common shares outstanding during each period. Net
income (loss) per diluted common share is computed using the weighted average
number of common and common equivalent shares outstanding during each period.
Common equivalent shares are not included in the per share calculations where
their inclusion would be anti-dilutive, except that, in accordance with certain
Securities and Exchange Commission (SEC) Staff Accounting Bulletins, common and
common equivalent shares issued within 12 months of the IPO date have been
included in the calculation as if they were outstanding for all periods prior to
June 20, 1996, using the treasury stock method and the IPO price. Such shares
totaled 690,680. Common equivalent shares also consist of the common shares
issuable upon the exercise of stock options (using the treasury stock method).
ANSYS, Inc. 25
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued):
Common Stock Split: In April 1996, the Board of Directors approved an amendment
to the Company's Certificate of Incorporation to increase the number of
authorized shares of common stock to 50,000,000 and to effect a ten-for-one
stock split of the Company's common stock in the form of a stock dividend, paid
on or about April 30, 1996. All references in the accompanying consolidated
financial statements to share and per share amounts have been retroactively
restated to reflect the stock split.
3. Property and Equipment:
Property and equipment consisted of the following:
- ---------------------------------------------------------------------------------------------
(in thousands) December 31, 1997 December 31, 1996
----------------------------------------------------------------------------------------
Equipment $ 3,977 $ 3,307
Computer software 2,199 1,920
Furniture 839 527
Leasehold improvements 824 828
----------------------------------------------------------------------------------------
7,839 6,582
Less: accumulated depreciation and amortization (3,068) (2,248)
----------------------------------------------------------------------------------------
$ 4,771 $ 4,334
- ---------------------------------------------------------------------------------------------
Depreciation expense was approximately $1,373,000, $1,137,000 and $877,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
4. Other Intangible Assets:
The components of other intangible assets were as follows:
- ----------------------------------------------------------------------------------------------------
(in thousands) Estimated Useful Lives December 31, 1997 December 31, 1996
-----------------------------------------------------------------------------------------------
Trade names 10 $ 1,824 $ 1,824
Non-compete agreements 5-8 2,000 1,000
-----------------------------------------------------------------------------------------------
3,824 2,824
Less: accumulated amortization (1,450) (1,068)
-----------------------------------------------------------------------------------------------
$ 2,374 $ 1,756
- ----------------------------------------------------------------------------------------------------
During 1997, the Company exercised an option for a non-compete agreement
related to the Company's United Kingdom and Netherlands territories. The total
purchase price of the non-compete agreement was $1,000,000.
5. Securities Available for Sale:
Securities Available for Sale:
- ------------------------------------------------------------------------------------------
(in thousands) December 31, 1997
------------------------------------------------------------------------------------
Gross Gross Gross
Unrealized Unrealized Estimated
Long-term: Cost Gains Losses Fair Value
Marketable equity securities $ - $ - $491 $182
------------------------------------------------------------------------------------
$ - $ - $491 $182
------------------------------------------------------------------------------------
December 31, 1996
------------------------------------------------------------------------------------
Gross Gross Gross
Unrealized Unrealized Estimated
Long-term: Cost Gains Losses Fair Value
Marketable equity securities $ - $915 $242 $673
------------------------------------------------------------------------------------
$ - $915 $242 $673
- ------------------------------------------------------------------------------------------
26 ANSYS, Inc.
Notes to Consolidated Financial Statements
6. Income Taxes:
The provision (benefit) for income taxes is comprised of the following:
- ------------------------------------------------------------------------------------------------------------
(in thousands) December 31, 1997 December 31, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------------------
Current:
Federal $ 2,699 $ 2,886 $ 680
State 73 244 5
Foreign 745 675 637
- ------------------------------------------------------------------------------------------------------------
Deferred:
Federal 725 (2,836) (2,115)
- ------------------------------------------------------------------------------------------------------------
Total $ 4,242 $ 969 $ (793)
- ------------------------------------------------------------------------------------------------------------
The reconciliation of the federal statutory tax rate to the consolidated
effective tax rate is as follows:
- ---------------------------------------------------------------------------------------------------------------------
(in thousands) December 31, 1997 December 31, 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------
Federal statutory tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 0.4 6.1 -
Research and experimentation credit (0.9) (3.8) (1.1)
Other 2.9 0.7 0.5
- ---------------------------------------------------------------------------------------------------------------------
36.4% 37.0% 33.4%
- ---------------------------------------------------------------------------------------------------------------------
The components of net deferred tax assets and liabilities are as follows:
- ---------------------------------------------------------------------------------------------------------------------
(in thousands) December 31, 1997 December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Goodwill $ 4,126 $ 4,148
Capitalized software 5,081 5,172
Other intangible assets 422 370
Allowance for doubtful accounts 707 323
Accrued expenses and liabilities 136 234
- ---------------------------------------------------------------------------------------------------------------------
10,472 10,247
- ---------------------------------------------------------------------------------------------------------------------
Deferred tax liability:
Accounts receivable mark-to-market 707 -
Property and equipment 286 189
Other 288 309
- ---------------------------------------------------------------------------------------------------------------------
1,281 498
- ---------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $ 9,191 $ 9,749
- ---------------------------------------------------------------------------------------------------------------------
Based upon the Company's current and historical taxable income and the
anticipated level of future taxable income, management believes it is more
likely than not that all of the deferred tax assets will be realized.
Accordingly, no valuation allowance has been established against the deferred
tax assets.
7. Stockholders' Equity:
The Company is authorized to issue up to 50,000,000 shares of $.01 par value
voting common stock. Upon the closing of the Company's IPO, each Class A share
was converted into one share of common stock. Subsequently, the Class A common
stock was cancelled.
On April 19, 1996, the Board of Directors authorized 2,000,000 shares of
undesignated preferred stock issuable in one or more series by the Board of
Directors. At December 31, 1997 and 1996, there were no shares of preferred
stock issued or outstanding.
ANSYS, Inc. 27
Notes to Consolidated Financial Statements
8. Pension and Profit-Sharing Plans:
The Company maintains both a money purchase pension plan (the "Pension Plan")
and a profit-sharing plan (the "Profit-Sharing Plan") for all qualifying full-
time employees. The plans are noncontributory. The Pension Plan required the
Company to contribute 20% of each participant's compensation annually in 1997,
1996 and 1995, while the Profit-Sharing Plan contribution was determined
annually by the Board of Directors, subject to a maximum limitation of 5% of
eligible compensation.
Pension expense was $2,113,00, $1,563,000 and $1,500,000 for the years ended
December 31, 1997, 1996 and 1995, respectively. Additionally, profit-sharing
expense was $453,000, $319,000 and $346,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
Effective January 1, 1998, the Compensation Committee of the Board of
Directors approved an amendment to the Pension Plan reducing the Company's
contribution from 20% to 5%. Additionally, the employee vesting period has been
amended to a five year graduated vesting schedule for employer contributions.
Effective January 1, 1998, the Company also elected to implement the 401(k)
feature of the existing Profit-Sharing Plan. Under the 401(k) feature, each
eligible employee may elect to contribute to the plan, through payroll
deductions, up to 10% of his or her salary, subject to certain limitations. The
Company makes matching contributions on behalf of each participant in an amount
equal to 100% of the employee contribution up to a maximum of 5% of employee
compensation. The employee's vesting period under the Profit-Sharing Plan was
also amended to a five year graduated vesting schedule for employer
contributions.
9. Non-Compete and Employment Agreements:
The Company has entered into non-compete agreements with certain holders of
the Company's common stock. The agreements preclude the stockholders from
competing either directly or indirectly with the Company for a period ranging
from one to three years subsequent to termination. Additionally, during 1997,
the Company exercised an option for a non-compete agreement related to
activities in the Company's United Kingdom and Netherlands territories. The
agreement precludes the former ASD from engaging in any competitive business
activities previously undertaken pursuant to the former ASD Agreement.
The Company has entered into employment agreements with the Chief Executive
Officer and another senior executive. The terms of the agreements are
substantially similar except with respect to minimum annual base salary. In the
event the Chief Executive Officer is terminated without cause, his employment
agreement provides for severance at the annual rate of $300,000 for the later of
a period of one year after termination or when he accepts other employment. In
the event the other senior executive is terminated without cause, his employment
agreement provides that the Company will continue to pay his base salary of
$256,000, subject to specified cost of living increases, through the later of
March 14, 1999 or six months from the date of termination. The Chief Executive
Officer and the other senior executive are subject to one and three-year
restrictions on competition, respectively, with the Company following
termination of employment under the circumstances described in each contract.
10. Stock Option and Grant Plans:
The Company has two stock option and grant plans - the 1994 Stock Option and
Grant Plan ("1994 Stock Plan") and the 1996 Stock Option and Grant Plan ("1996
Stock Plan"). The 1994 and 1996 Stock Plans authorize the grant of up to 868,110
and 2,250,000 shares, respectively, of the Company's common stock in the form
of: (i) incentive stock options ("ISOs"), (ii) nonqualified stock options, or
(iii) the issuance or sale of common stock with or without vesting or other
restrictions (Stock Grants). Additionally, the 1996 Stock Plan permits the grant
of common stock upon the attainment of specified performance goals (Performance
Share Awards) and the grant of the right to receive cash dividends with the
holders of the common stock as if the recipient held a specified number of
shares of the common stock (Dividend Equivalent Rights). No further grants may
be made under the 1994 Stock Plan.
The 1994 and 1996 Stock Plans provide that: (i) the exercise price of an ISO
must be no less than the fair value of the relevant stock at the date of grant,
and (ii) the exercise price of an optionee who possesses more than 10% of the
total combined voting power of all classes of stock must be no less than 110% of
the fair market value of the stock at the time of grant. The Board of Directors
has the authority to set expiration dates no longer than ten years from the date
of grant (or five years for an optionee who meets the 10% criteria), payment
terms and other provisions of each grant. Shares associated with unexercised
options or repurchased shares of common stock become available for options or
issuances under the 1996 Stock Plan. The Compensation Committee of the Board of
Directors may, in its sole discretion, accelerate or extend the date or dates on
which all or any particular award or awards granted under the 1994 and 1996
Stock Plans may be exercised or vest. In the event of a merger, liquidation, or
the sale of substantially all of the assets of the Company, the Board of
Directors has the discretion to accelerate the vesting of the options granted
under the 1994 and 1996 Stock Plans, except that options granted to the Chief
Executive Officer and Independent Directors vest automatically in such
circumstances. In addition, the 1994 and 1996 Stock Plans and the grants issued
thereunder
28 ANSYS, Inc.
Notes to Consolidated Financial Statements
terminate upon the effectiveness of any such transaction or event, unless a
provision is made in connection with such transaction for the assumption of
grants theretofore made. Under the 1996 Stock Plan, at the discretion of the
Compensation Committee, any option may include a "reload" feature. Such feature
allows an optionee exercising an option to receive, in addition to the number of
shares of common stock due on the exercise, an additional option with an
exercise price equal to the fair market value of the common stock on the date
such additional option is granted.
In addition, the 1996 Stock Plan provides for the automatic grant of Non-
Qualified options to Independent Directors. Under such provisions, options to
purchase that number of shares of common stock determined by dividing $200,000
by the option exercise price will be granted to each individual when he or she
first becomes a member of the Board of Directors provided that he or she is not
an employee of the Company. In addition, on the date five business days
following each annual meeting of stockholders of the Company, commencing with
the meeting to be held in 1997, each Independent Director who is then serving
will be granted an option to purchase that number of shares of common stock
determined by dividing $75,000 by the option exercise price. Options granted to
Independent Directors under the foregoing provisions will vest in annual
installments over four years commencing with the date of grant and will expire
ten years after grant, subject to earlier termination if the optionee ceases to
serve as a director. The exercisability of these options will be accelerated
upon the occurrence of a merger, liquidation or sale of substantially all of the
assets of the Company.
During 1994, the Company issued 1,289,750 shares of restricted common stock to
certain officers, employees and members of the Board of Directors. In addition,
during 1996 and 1995 the Company issued 135,860 and 30,000 shares of restricted
common stock to an officer and members of the Board of Directors, respectively.
Substantially all shares of restricted stock and all of the options under both
the 1994 and 1996 Stock Plans were issued at the estimated market value of the
Company's common stock at the time of issuance. The recipients of the restricted
stock are required to continue in the employment or service of the Company for
periods up to five years after the date of issuance for ownership to vest and
provide for repurchase of unvested restricted stock by the Company at the
original purchase price in the event of the termination of employment prior to
vesting. Upon termination of employment, the Company repurchased 3,950, 16,750
and 54,850 shares of restricted stock from employees in 1997, 1996 and 1995
respectively.
Restricted stock purchases, grants and option activity under the 1994 and 1996
Stock Plans, and the issuance of 50,000 shares of restricted stock to members of
the Board of Directors under separate agreements, are summarized as follows:
1994 Stock Option and Grant Plan: Restricted Stock Stock Options
- -----------------------------------------------------------------------------------------------------------------------
Number of Range of Number of Range of
(in thousands, except for range of issue price) Shares Issue Price Options Issue Price
- -------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 1,290 $ .01-.40 960 $ .11
Issued/granted 30 .40 315 .40
Exercised - - - -
Repurchased/cancelled (55) 01-.40 - -
--------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995 1,265 .01-.40 1,275 .11-.40
Issued/granted 1,096(1) .11-2.40(1) 553 1.275-11.00
Exercised - - (973)(1) .11-1.275(1)
Repurchased/cancelled (17) .10 (16) .40-10.00
--------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996 2,344 .01-2.40 839 .11-11.00
Issued/granted - - - -
Exercised (79) .10-.40 (99) .40-1.275
Repurchased/cancelled (4) .10 (86) .40-10.00
--------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 2,261 $.01-2.40 654 $ .11-11.00
--------------------------------------------------------------------------------------------------------------------
Exercisable at:
December 31, 1995 471 -
December 31, 1996 721 91
December 31, 1997 979 156
- -------------------------------------------------------------------------------------------------------------------------
(1) Includes 960 options exercised by a stockholder at an exercise price of
$.11 per share. The shares received upon such exercise are restricted
subject to repurchase by the Company in certain circumstances and vest in
March 1998 and 1999.
ANSYS, Inc. 29
Notes to Consolidated Financial Statements
10. Stock Option and Grant Plans (continued):
1996 Stock Option and Grant Plan: Stock Options
- --------------------------------------------------------------------------------------------
(in thousands, except for range of issue price) Number of Options Range of Issue Price
- --------------------------------------------------------------------------------------------
Issued/granted 415 $11.75-13.125
Exercised - -
Repurchased/cancelled (1) 11.75
---------------------------------------------------------------------------------------
Outstanding at December 31, 1996 414 11.75-13.125
Issued/granted 759 6.25-9.625
Exercised - -
Repurchased/cancelled (146) 6.25-13.125
---------------------------------------------------------------------------------------
Outstanding at December 31, 1997 1,027 $ 6.25-13.125
---------------------------------------------------------------------------------------
Exercisable at:
December 31, 1996 -
December 31, 1997 95
- --------------------------------------------------------------------------------------------
The Company has elected to account for stock-based compensation arrangements
under the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock-Based Compensation," which resulted in no compensation costs being
recorded. The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation expense has been recognized for
restricted stock or options which have been issued under the 1994 and 1996 Stock
Plans. Had compensation cost for the Company's two stock option and grant plans
been determined based upon the fair value at the grant date for the option
awards in 1997, 1996 and 1995 consistent with the provisions of SFAS No. 123,
the Company's net income (loss) and diluted earnings (loss) per share would have
been reduced to the pro forma amounts indicated below:
- --------------------------------------------------------------------
(in thousands, except per share data) 1997 1996 1995
- --------------------------------------------------------------------
Net income (loss) - as reported $7,400 $1,304 $(1,580)
Net income (loss) - pro forma 7,048 927 (1,585)
Net income (loss) per basic
common share - as reported $ 0.47 $ 0.08 $ (0.18)
Net income (loss) per basic
common share - pro forma 0.45 0.05 (0.18)
Net income (loss) per diluted
common share - as reported 0.45 0.07 (0.17)
Net income (loss) per diluted
common share - pro forma 0.43 0.05 (0.17)
- --------------------------------------------------------------------
The weighted-average fair value of options granted was $6.65 per share in
1997, $9.03 per share in 1996 and $0.40 per share in 1995.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the risk-free interest rates ranging
from a low of 5.24% to a high of 6.48%. The interest rates used were determined
by using the five year Treasury Note rate at the date of grant. The following
assumptions were also used to determine the fair value of each option grant:
dividend yields of 0%; expected volatility of 70% and expected term of 5 years.
30 ANSYS, Inc.
Notes to Consolidated Financial Statements
11. Employee Stock Purchase Plan:
The Company's 1996 Employee Stock Purchase Plan ("Purchase Plan") was adopted
by the Board of Directors on April 19, 1996 and was subsequently approved by the
Company's stockholders. Up to 210,000 shares of common stock may be issued under
the Purchase Plan. The Purchase Plan is administered by the Compensation
Committee. The first offering under the Purchase Plan commenced on August 1,
1996 and closed on January 31, 1997. Subsequent offerings commence on each
February 1 and August 1 thereafter, and have a duration of six months. An
employee who owns or is deemed to own shares of stock representing in excess of
5% of the combined voting power of all classes of stock of the Company may not
participate in the Purchase Plan.
During each offering, an eligible employee may purchase shares under the
Purchase Plan by authorizing payroll deductions of up to 10% of their cash
compensation during the offering period. The maximum number of shares which may
be purchased by any participating employee during any offering period is limited
to 960 shares (as adjusted by the Compensation Committee from time to time).
Unless the employee has previously withdrawn from the offering, his accumulated
payroll deductions will be used to purchase common stock on the last business
day of the period at a price equal to 85% of the fair market value of the common
stock on the first or last day of the offering period, whichever is lower. Under
applicable tax rules, an employee may purchase no more than $25,000 worth of
common stock in any calendar year. At December 31, 1997, 37,877 shares of common
stock were issued under the Purchase Plan. At December 31, 1996, no common stock
had been issued under the Purchase Plan.
12. Leases:
In January 1996 the Company entered into a lease agreement with an unrelated
third party for a new corporate office facility, which the Company occupied in
February 1997. The lease agreement is for ten years, with an option for five
additional years, and includes a rental acceleration at the end of the fifth and
tenth years. The Company incurred lease rental expense related to this facility
lease of $1,022,000 in 1997. Future minimum lease payments under the facility
lease are $1,227,000 per annum for 1998 through 2001.
Prior to February 1997 the Company had operated from facilities which it had
leased from a joint venture held by a corporate officer. The Company incurred
lease rental expense related to this lease agreement of $138,000 for the year
ended December 31, 1997 and $839,000 for the years ended December 31, 1996 and
1995.
The Company has also entered into various noncancellable operating leases for
equipment. Lease rental expense related to these leases totaled $1,125,000,
$1,211,000 and $889,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. Future minimum lease payments under operating leases for equipment
in effect at December 31, 1997 is $575,000 for 1998 and $178,000 for 1999.
13. Royalty Agreements:
The Company has entered into various renewable nonexclusive license agreements
under which the Company has been granted access to the licensor's patent
technology and the right to sell the patent technology in the Company's product
line. Royalties are payable to developers of the software at various rates and
amounts generally based upon unit sales or revenues. Royalty fees, which are
included in cost of sales, were approximately $422,000, $450,000 and $114,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
14. Related Party Transactions:
In connection with his initial employment, the Company's Chief Executive
Officer purchased 626,000 restricted shares of common stock in July 1994 for a
cash purchase price of $250,000 with proceeds from a loan from the Company
evidenced by a promissory note bearing interest at 8.23% and maturing on July 8,
2006. The promissory note is collateralized by a pledge of the shares purchased
with the proceeds of the loan. The shares purchased by the Chief Executive
Officer vest on a monthly basis over a five-year period.
In addition, another senior executive of the Company purchased restricted
shares of common stock with proceeds from a loan from the Company. The loan,
which totaled $24,000 in 1997 and 1996, had terms similar to the promissory note
described above.
ANSYS, Inc. 31
Notes to Consolidated Financial Statements
15. Geographic Information:
Revenue by geographic area is as follows:
- -----------------------------------------------------------------------------------------------------------------------
Other Other
(in thousands) United States Canada Germany Europe Japan International Total
-------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997 $22,881 $ 771 $5,113 $11,258 $6,878 $3,646 $50,547
Year ended December 31, 1996 22,624 1,196 4,674 9,124 6,248 3,200 47,066
Year ended December 31, 1995 17,951 771 4,021 8,242 6,055 2,576 39,616
- -----------------------------------------------------------------------------------------------------------------------
16. Commitments and Contingencies:
The Company had outstanding irrevocable standby letter of credits in the
amount of $1,815,000 and $300,000 as of December 31, 1997 and 1996,
respectively. These letters of credit, which expire on September 30, 1998 and
November 30, 1998, were issued to either collateralize the Company's obligations
to a third party for future performance requirements under a contract or as a
guarantee for court-awarded damages related to litigation initiated by the
Company. The fair value of the letters of credit approximates the contract value
based on the nature of the fee arrangements with the issuing bank. No material
losses on these commitments have been incurred, nor are any anticipated.
17. Earnings Per Share:
Basic earnings per common share (EPS) amounts are computed by dividing
earnings after the deduction of preferred stock dividends by the average number
of common shares outstanding. Diluted EPS amounts assume the issuance of common
stock for all potentially dilutive equivalents outstanding.
The details of basic and diluted earnings per common share are as follows:
- ---------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 1997 1996 1995
----------------------------------------------------------------------------------------------------------
Net income (loss) $ 7,400 $ 1,304 $(1,580)
Redeemable preferred stock dividends - (236) (445)
Income (loss) available to common stockholders $ 7,400 $ 1,068 $(2,025)
Weighted average shares outstanding - basic 15,742 14,000 11,354
Net income (loss) per basic earnings per share after extraordinary item $ 0.47 $ 0.08 $ (0.18)
Effect of dilutive securities:
Shares issuable upon exercise of dilutive
outstanding restricted stock and stock options 776 906 850
Weighted average shares outstanding - diluted 16,518 14,906 12,204
Net income (loss) per diluted earnings per share after extraordinary item $ 0.45 $ 0.07 $ (0.17)
Anti-dilutive shares/options 642 720 -
- ---------------------------------------------------------------------------------------------------------------
32 ANSYS, Inc.
Notes to Consolidated Financial Statements
18. Litigation:
The Company is currently the plaintiff in litigation related to the expiration
of an ASD distribution agreement. However, the action has not progressed
sufficiently for the Company to estimate a range of possible gain, if any,
should it prevail in its pursuit of damages related to this action.
19. Recently Issued Accounting Pronouncements:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.130, "Reporting Comprehensive Income," which
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. This
Statement, which is effective for financial statements issued for fiscal years
beginning after December 15, 1997, requires that all items that are required to
be recognized under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the same prominence
as other financial statements. The Company will adopt SFAS No.130 for its fiscal
year ending December 31, 1998.
Additionally, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. This
Statement, which is effective for financial statements for periods beginning
after December 15, 1997, also establishes standards for related disclosures
about products and services, geographic areas and major customers. Management
is currently evaluating the implication of this Statement from both an
operations and financial reporting perspective.
ANSYS, Inc. 33
Quarterly Financial Information, (Unaudited)
Fiscal Quarter Ended
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, September 30, June 30, March 31,
(in thousands, except per share data) 1997 1997 1997 1997
--------------------------------------------------------------------------------------------------------------------------
Revenue $14,487 $11,489 $12,557 $12,014
Gross profit 13,070 10,225 11,231 10,822
Operating income 3,993 2,504 3,335 890
Net income 2,748 1,719 2,274 659
Net income per basic share (3) .17 .11 .15 .04
Net income per diluted share (3) .17 .10 .14 .04
Common stock price per share (2) (3):
High 11.00 11.25 9.25 13.25
Low 6.31 7.00 5.38 7.63
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal Quarter Ended
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, September 30, June 30, March 31,
(in thousands, except per share data) 1996 1996 1996 1996
--------------------------------------------------------------------------------------------------------------------------
Revenue $12,332 $12,661 $11,340 $10,733
Gross profit 11,082 11,258 9,800 9,538
Operating income 1,257 1,295 652 470
Net income (loss) after extraordinary item 823 1,066 (384) (201)
Net income (loss) per basic share after
extraordinary items (3) .05 .07 (.04) (.03)
Net income (loss) per diluted share after
extraordinary items (3) .05 .07 (.04) (.02)
Common stock price per share (1) (2):
High 15.50 13.63 13.38 -
Low 11.00 10.25 11.75 -
- ------------------------------------------------------------------------------------------------------------------------------------
(1) The Company's common stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market under the symbol: ANSS.
The common stock prices shown are based on the Nasdaq daily closing stock
price.
(2) Effective June 20, 1996, the Company completed its Initial Public Offering
of 3,500,000 shares of common stock at $13.00 per share.
(3) The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share", issued in February 1997. This Statement
requires the disclosure of basic and diluted earnings per share and
revises the method to calculate these amounts. Earnings per share data for
periods prior to 1997 have been restated to reflect adoption of this
Statement.
- ------------------------------------------------------------------------------
The Company has not paid cash dividends on its common stock as it has
retained earnings for use in its business. The Company intends to review its
policy with respect to the payment of dividends from time to time, however,
there can be no assurance that any dividends will be paid in the future.
On February 19, 1998, there were 366 shareholders of record and
approximately 2,749 beneficial shareholders of the Company's common stock.
34 ANSYS, Inc.
Corporate Information
Headquarters
ansysinfo@ansys.com
T 724.746.3304
F 724.514.9494
Toll Free USA and Canada:
1.800.WE.R.FEA.1
Toll Free Mexico:
95.800.9373321
Regional Offices
North America
len.zera@ansys.com
T 248.585.5020
F 248.585.5730
International
jim.tung@ansys.com
T 724.514.3086
F 724.514.3115
Europe
brian.butcher@ansys.com
T 44.118.9880229
F 44.118.9880925
http://www.ansys.com
Officers and Senior
Management
Peter J. Smith
Chairman of the Board of
Directors, President and
Chief Executive Officer
Dr. John A. Swanson
Chief Technologist
James E. Cashman III
Senior Vice President,
Operations
Paul A. Johnson
Senior Vice President,
Product Development
John M. Sherbin II
Chief Financial Officer;
Senior Vice President,
Finance and Administration;
and Secretary
Dr. Joseph S. Solecki
Corporate Fellow
Dr. Shah M. Yunus
Corporate Fellow
Brian Butcher
Managing Director,
European Operations
Paul A. Chilensky
Vice President,
Customer Service
David Conover
Manager, Product
Development
Karen C. Harker
Director, Human Resources
Mark C. Imgrund
Vice President, Corporate
Quality
David S. Secunda
Corporate Counsel
James C. Tung
Vice President,
International Operations
Leonard Zera
Vice President, North
American Sales
Shareholder Information
Requests for information about the Company should be
directed to: Investor Relations, ANSYS, Inc., Southpointe,
275 Technology Drive, Canonsburg, PA 15317.
Telephone: 724.514.1782.
Report on Form 10-K
Stockholders may obtain additional financial information about ANSYS, Inc. from
the Company's Report on Form 10-K filed with the Securities and Exchange
Commission. Copies are available from the Company without charge upon written
request.
Stock Listing
Nasdaq National Market Symbol: ANSS
Counsel
Goodwin, Procter, & Hoar L.L.P., Boston, MA
Buchanan Ingersoll Professional Corporation L.L.P.,
Pittsburgh, PA
Annual Meeting
The Annual Meeting of Stockholders will be held on May 6, 1998 at 2:00 p.m. at
the law offices of Buchanan Ingersoll,
One Oxford Centre, 301 Grant Street, Pittsburgh, PA 15219.
Transfer Agent
Chase Mellon Shareholder Services, Ridgefield Park, NJ
Independent Accountants
Coopers & Lybrand L.L.P., Pittsburgh, PA
ANSYS, Inc. is an Equal Opportunity Employer. As such, it is the Company's
policy to promote equal employment opportunity and to prohibit discrimination on
the basis of race, color, religion, sex, age, national origin, disability, or
status as a veteran in all aspects of employment including recruiting, hiring,
training, or promoting personnel. In fulfilling this commitment, the Company
shall comply with the letter and spirit of the laws, regulations, and Executive
Orders governing equal opportunity in employment; including the Civil Rights Act
of 1964, Executive Order 11246, Revised Order Number 4 and amendments thereto.
ANSYS, DesignSpace and ANSYS/ProFEA are registered in the U.S. Patent and
Trademark Office. All other trademarks and registered trademarks are the
property of their respective owners.
[RECYCLED LOGO] This entire report is printed on recycled paper
ANSYS, Inc. 35