UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-20853
ANSYS, Inc.
(exact name of registrant as specified in its charter)
DELAWARE 04-3219960
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
275 Technology Drive, Canonsburg, PA 15317
(Address of principal executive offices) (Zip Code)
724-746-3304
(Registrant's telephone number, including area code)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
---- ----
The number of shares of the Registrant's Common Stock, par value $.01
per share, outstanding as of August 11 ,1998 was 16,381,482 shares.
ANSYS, INC. AND SUBSIDIARIES
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of
Income and Comprehensive Income - Three
and Six Months Ended June 30, 1998 and 4
June 30, 1997
Condensed Consolidated Statements of
Cash Flows - Six Months Ended June 30,
1998 and June 30, 1997 5
Notes to Condensed Consolidated
Financial Statements 6
Review Report of Independent Accountants 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-13
PART II. OTHER INFORMATION
Item 2. Changes in Securities 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBIT 17
INDEX
Trademarks used in this Form 10-Q: ANSYS(R) and DesignSpace(R) are registered
trademarks of SAS IP, Inc., a wholly-owned subsidiary of ANSYS, Inc.
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
June 30, Dec. 31,
1998 1997
-------------------- -----------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,571 $13,990
Short-term investments 31,459 13,853
Accounts receivable, less allowance for
doubtful accounts of $1,500 in 1998 and
$2,080 in 1997 6,072 8,034
Refundable and prepaid income taxes 470 -
Other current assets 777 926
Deferred income taxes 80 125
--------- ---------
Total current assets 44,429 36,928
Securities available for sale 182 182
Property and equipment, net 4,297 4,771
Capitalized software costs, net of
accumulated amortization of $15,532 in
1998 and $15,471 in 1997 199 260
Other intangibles, net 2,120 2,374
Deferred income taxes 8,736 9,066
----------- ---------
Total assets $59,963 $53,581
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 180 $ 235
Accrued bonuses 1,322 2,133
Other accrued expenses and liabilities 3,206 2,562
Accrued income taxes payable - 46
Customer prepayments 452 746
Deferred revenue 8,633 7,445
----------- ---------
Total liabilities 13,793 13,167
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 shares
issued in 1998 and 1997 164 164
Additional paid-in capital 36,349 36,089
Less treasury stock, at cost: 6,041
shares held in 1998 and 68,800 shares
held in 1997 (3) (12)
Retained earnings 9,814 4,327
Accumulated other comprehensive income 120 120
Notes receivable from stockholders (274) (274)
----------- ---------
Total stockholders' equity 46,170 40,414
----------- ---------
Total liabilities and stockholders' equity
$59,963 $53,581
=========== =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(Unaudited)
Three months ended Six months ended
---------------------------- ------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
---------- -------- --------- --------
Revenue:
Software licenses $ 8,478 $ 8,835 $17,777 $17,940
Maintenance and service 5,084 3,722 10,012 6,631
---------- ------- --------- -------
Total revenue 13,562 12,557 27,789 24,571
Cost of sales:
Software licenses 843 734 1,734 1,355
Maintenance and service 640 592 1,290 1,162
--------- ------- --------- -------
Total cost of sales 1,483 1,326 3,024 2,517
--------- ------- --------- -------
Gross profit 12,079 11,231 24,765 22,054
Operating expenses:
Selling and marketing 3,174 2,746 6,223 5,724
Research and development 2,938 3,033 6,031 5,803
Amortization 222 177 443 2,430
General and administrative 2,193 1,941 4,681 3,864
--------- ------- --------- -------
Total operating expenses 8,527 7,897 17,378 17,821
--------- ------- --------- -------
Operating income 3,552 3,334 7,387 4,233
Other income 508 274 865 421
--------- ------- --------- -------
Income before income tax provision 4,060 3,608 8,252 4,654
Income tax provision 1,340 1,334 2,765 1,721
--------- ------- --------- -------
Net income 2,720 2,274 5,487 2,933
Other comprehensive income(loss), net of tax:
Unrealized losses on securities (70) (180) - (200)
--------- ------- --------- -------
Other comprehensive income (loss) (70) (180) - (200)
Comprehensive income $ 2,650 $ 2,094 $ 5,487 $ 2,733
========== ======= ========== =======
Net income per basic common share:
Basic earnings per share $0.17 $0.15 $0.34 $0.19
Weighted average shares - basic 15,986 15,639 15,969 15,635
Net income per diluted common share:
Diluted earnings per share $0.16 $0.14 $0.33 $0.18
Weighted average shares - diluted 16,793 16,635 16,727 16,603
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six months ended
-------------------------------
June 30, June 30,
1998 1997
--------- ---------
Cash flows from operating activities:
Net income $ 5,487 $ 2,933
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,342 3,088
Deferred income tax provision(benefit) 375 (13)
Provision for bad debts 295 280
Change in operating assets and liabilities:
Accounts receivable 1,667 80
Income taxes (516) (677)
Other current assets 149 (1,275)
Accounts payable, accrued expenses and
liabilities and customer prepayments (516) (796)
Deferred revenue 1,188 2,849
--------- ---------
Net cash provided by operating activities 9,471 6,469
--------- ---------
Cash flows from investing activities:
Capital expenditures (554) (1,635)
Capitalization of internally developed software
costs - (70)
Proceeds from sales of short-term investments 5,247 -
Purchase of short-term investments (22,853) (4,068)
--------- ---------
Net cash used in investing activities (18,160) (5,773)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock under
employee stock purchase plan 94 157
Proceeds from issuance of treasury stock 176 -
Proceeds from exercise of stock options - 10
Repayment of stockholder notes - 28
--------- ---------
Net cash provided by financing activities 270 195
--------- ---------
Net (decrease)increase in cash and cash equivalents (8,419) 891
Cash and cash equivalents, beginning of period 13,990 17,069
--------- ---------
Cash and cash equivalents, end of period $ 5,571 $17,960
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 2,455 $ 2,420
Supplemental non cash investing and financing
activities:
Decrease in securities available for sale - (200)
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
ANSYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements included
herein have been prepared by ANSYS, Inc. (the "Company") in accordance with
generally accepted accounting principles for interim financial information for
commercial and industrial companies and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. The financial statements as of and for the three and
six months ended June 30, 1998 should be read in conjunction with the Company's
consolidated financial statements (and notes thereto) included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
Accordingly, the accompanying statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation of the financial statements have been
included, and all adjustments are of a normal and recurring nature. Operating
results for the three months and six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
2. NET INCOME PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No.128, "Earnings per Share." The Statement requires the
disclosure of basic and diluted earnings per share and revises the method
required to calculate these amounts under previous standards. Earnings per share
data for the three and six month periods ended June 30, 1997 have been restated
to reflect the adoption of this Statement. The adoption of this standard did
not materially impact previously reported earnings per share for the three and
six months periods ended June 30, 1997. The total shares issuable upon exercise
of dilutive outstanding restricted stock and stock options, which are included
in the calculation of diluted earnings per share, totaled 807,000 and 996,000
and 758,000 and 968,000 for the three and six month periods ending June 30, 1998
and 1997, respectively.
3. ACCUMULATED OTHER COMPREHENSIVE INCOME BALANCES
(in thousands)
Accumulated
Unrealized Other
Gains on Comprehensive
Securities Income
---------- ------
Beginning balance $120 $120
Current-period change -- --
Ending balance $120 $120
---- ----
6
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
----------------------------------------
To the Shareholders and Board of Directors of
ANSYS, Inc. and Subsidiaries:
We have reviewed the condensed consolidated balance sheet of ANSYS, Inc. and
Subsidiaries as of June 30, 1998, the related condensed consolidated statements
of income and comprehensive income for the three-month and six-month periods
ended June 30, 1998 and 1997, and condensed consolidated cash flows for the six-
month periods ended June 30, 1998 and 1997. These financial statements are the
responsibility of ANSYS's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
an expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of ANSYS, Inc. and Subsidiaries as of
December 31, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended (not presented
herein). In our report dated January 29, 1998, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1997, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
- -----------------------------
Pittsburgh, Pennsylvania
July 14, 1998
7
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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) products 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
attached unaudited condensed consolidated financial statements and notes thereto
for the three-month and six-month periods ended June 30, 1998 and June 30, 1997
and with the Company's audited financial statements and notes thereto for the
fiscal year ended December 31, 1997.
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including statements 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,
regional economies, as well as other risks and uncertainties that are detailed
in the "Management's Discussion and Analysis of Financial Condition and Results
of Operations" section in the 1997 Annual Report to Shareholders , and in the
statement of "Certain Factors Affecting Future Results" included herein as
Exhibit 99 to this Form 10-Q.
Results of Operations
Three Months Ended June 30, 1998 Compared to Three Months
Ended June 30, 1997
Revenue. The Company's total revenue for the 1998 quarter increased 8.0% to
$13.6 million from $12.6 million for the 1997 quarter. The increase was
primarily related to an increase in maintenance revenue, which resulted from
broader customer usage of maintenance and support services and the Company's
continued emphasis on marketing these services. The increase in maintenance
revenue was partially offset by a decrease in software license revenues, as
discussed in further detail below.
Software license revenue totaled $8.5 million for the 1998 quarter as compared
to $8.8 million for the 1997 quarter, a 4.0% decrease. This decrease principally
resulted from a 50.0% reduction in monthly lease license revenue to $1.7
8
million for the 1998 quarter from $3.3 million for the 1997 quarter. This
decrease was attributable to both an increase in the renewal and sales of
existing monthly leases as noncancellable annual leases, as well as the
conversion of certain existing lease licenses to paid-up licenses throughout the
course of the past year. The decrease in monthly lease revenue was partially
offset by an increase in revenue attributable to the portion of noncancellable
annual license fees which are recognized as paid-up revenue upon renewal or
inception of the lease. Revenue from the sales of paid-up licenses remained
stable at $4.6 million for each of the 1998 and 1997 quarters.
Maintenance and service revenue increased 36.6% for the 1998 quarter to $5.1
million from $3.7 million for the 1997 quarter, 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 the 1998 quarter, approximately 52.65% and
47.35%, respectively, were attributable to international and domestic sales, as
compared to 54.2% and 45.8%, respectively, for the 1997 quarter.
Cost of Sales and Gross Profit. The Company's total cost of sales increased
11.8% to $1.5 million, or 10.9% of total revenue, for the 1998 quarter from $1.3
million, or 10.6% of total revenue, for the 1997 quarter. The Company's cost of
sales for software license revenue increased 14.9% for the 1998 quarter to
$843,000, or 9.9% of software license revenue, from $734,000, or 8.3% of
software license revenue, for the 1997 quarter. The increase was
attributable to additional headcount and related costs, as well as an increase
in royalty fees. The Company's cost of sales for maintenance and service
revenue, which totaled $640,000 and $592,000, or 12.6% and 15.9% of maintenance
and service revenue, for the 1998 and 1997 quarters, respectively, remained
relatively constant in terms of total dollars.
As a result of the foregoing, the Company's gross profit increased 7.6% to $12.1
million for the 1998 quarter from $11.2 million for the 1997 quarter.
Selling and Marketing. Selling and marketing expenses increased 15.6% for the
1998 quarter to $3.2 million, or 23.4% of total revenue, from $2.7 million, or
21.9% of total revenue, for the 1997 quarter. During the 1998 quarter, the
Company incurred increased consulting fees, sales support expenses and
advertising costs, as well as increased office expenses associated with
strategic office locations in the UK, Japan and China, as compared to the 1997
quarter. 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, totaled $2.9
million and $3.0 million for the 1998 and 1997 quarters, or 21.7% and 24.2% of
total revenue, respectively. The decrease is primarily attributable to
reductions in third party development fees and outside labor costs during the
1998 quarter. The Company has traditionally invested significant resources in
research and development activities and
9
intends to continue to make significant investments in the future.
Amortization. Amortization expense remained relatively consistent at $222,000
and $177,000 in the 1998 and 1997 quarter, respectively.
General and Administrative. General and administrative expenses increased 13.0%
to $2.2 million, or 16.2% of total revenue, for the 1998 quarter from $1.9
million, or 15.5% of total revenue, for the 1997 quarter. The increase is
largely attributable to an increase in legal fees related to a dispute regarding
the expiration of an ASD distribution agreement. Additionally, the Company has
added internal finance, information technology and administrative resources to
support its global operations and infrastructure.
Other Income. Other income increased 85.4% to $508,000 for the 1998 quarter as
compared to $274,000 for the 1997 quarter. This increase was attributable to
higher interest-bearing cash and investment balances in the 1998 quarter.
Income Tax Provision. The Company's effective rate of taxation was 33.0% for
the 1998 quarter as compared to 37.0% for the 1997 quarter. This percentage is
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
and is the primary reason for the decrease in the Company's effective tax rate
in the 1998 quarter.
Net Income. The Company's net income in the second quarter of 1998 was $2.7
million as compared to $2.3 million in the second quarter of 1997. Diluted
earnings per share increased to $0.16 in the 1998 quarter as compared to $0.14
in the 1997 quarter. The increase in diluted earnings per share was attributable
to the increase in net income. The weighted average shares outstanding used in
computing net income per diluted common share totaled 16,793,000 and 16,635,000
in the 1998 and 1997 quarter, respectively.
Six Months Ended June 30, 1998 Compared to Six Months
Ended June 30, 1997
Revenue. The Company's total revenue increased 13.1% for the 1998 six months to
$27.8 million from $24.6 million for the 1997 six months. This increase was
attributable principally to an increase in revenue from renewals and sales of
leases as 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. This increase, which was partially offset by
decreases in monthly lease revenue and paid-up revenue as discussed in the
paragraph below, was due, in part, to the active sales and licensing of
noncancellable annual leases to existing and new lease customers. The increase
in revenue in the 1998 six months was also attributable to increased maintenance
revenue, which resulted from broader customer usage of maintenance and support
10
services and the Company's continued emphasis on marketing its maintenance
services.
Software license revenue totaled $17.8 million for the 1998 six months as
compared to $17.9 million for the 1997 six months, a decrease of approximately
1.0%. The slight decrease resulted principally from a decrease in monthly lease
revenues as existing monthly lease customers shifted to noncancellable annual
leases in connection with the renewals of their leases, as well as a decrease in
the sale of paid-up licenses in the Asian markets. These decreases were almost
completely offset by an increase in revenue from renewals and sales of leases as
noncancellable annual leases. Revenue from the sale of paid-up licenses and the
portion of noncancellable annual leases classified as paid-up revenue increased
32.3% for the 1998 six months to $14.4 million from $10.9 million for the 1997
six months. This increase was partially attributable to a refinement of
management's estimate relative to the allocation of noncancellable annual lease
revenue between paid-up and maintenance revenue, which occurred in the first
quarter of 1998. The refinement, which management believes more accurately
reflects the Company's current pricing and business practices, resulted in a net
revenue increase of approximately $1.3 million in the 1998 six months, of which
approximately $980,000 was recorded in the first quarter of 1998.
The Company also experienced a 52.4% decrease in monthly lease license revenue
to $3.4 million for the 1998 six months from $7.0 million for the 1997 six
months. This decrease was primarily attributable to an increase in the renewal
of existing monthly leases as noncancellable annual leases, and to a lesser
extent the conversion of certain existing lease licenses to paid-up licenses
throughout the course of the past year.
Maintenance and service revenue increased 51.0% for the 1998 six months to $10.0
million from $6.6 million for the 1997 six months, 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 the 1998 six months, approximately 53.4% and
46.6%, respectively, were attributable to international and domestic sales, as
compared to 51.4% and 48.6%, respectively, for the 1997 six months.
Cost of Sales and Gross Profit. The Company's total cost of sales increased
20.1% to $3.0 million, or 10.9% of total revenue, for the 1998 six months from
$2.5 million, or 10.2% of total revenue, for the 1997 six months. The Company's
cost of sales for software license revenue increased 28.0% for the 1998 six
months to $1.7 million, or 9.8% of software license revenue, from $1.4 million,
or 7.6% of software license revenue, for the 1997 six months. The increase was
due to the addition of headcount and related expenses, as well as increased
costs related to manuals, packing supplies, media and royalty fees. The
Company's cost of sales for maintenance and service revenue totaled $1.3 million
and $1.2 million, or 12.9% and 17.5% of maintenance and service revenue, for the
1998 and 1997 six months, respectively. The increase in the 1998 period was
principally attributable to increases in salaries, benefits and consulting fees
as additional staff and consultants have been added to support the growth in
global service revenue and related customer and ASD support needs.
11
As a result of the foregoing, the Company's gross profit increased 12.3% to
$24.8 million for the 1998 six months from $22.0 million for the 1997 six
months.
Selling and Marketing. Selling and marketing expenses increased 8.7% for the
1998 six months to $6.2 million, or 22.4% of total revenue, from $5.7 million,
or 23.3% of total revenue, for the 1997 six months. The increase in selling and
marketing expenses resulted primarily from increased consulting and sales
support costs incurred in connection with supporting its global sales and
marketing infrastructure.
Research and Development. Research and development expenses increased 3.9% for
the 1998 six months to $6.0 million, or 21.7% of total revenue, from $5.8
million, or 23.6% of total revenue, for the 1997 six months. This increase
resulted primarily from increased software and depreciation expense as the
Company continues to invest in software and hardware tools used to develop and
enhance the Company's products and increased consulting costs associated with
the upcoming releases of ANSYS 5.5 and DesignSpace 4.1.
Amortization. Amortization expense totaled $443,000 for the 1998 six months as
compared to $2.4 million for the 1997 six months. The decrease was attributable
to the full amortization of certain intangible assets, including goodwill and
capitalized software, which were fully amortized in the first quarter of 1997.
General and Administrative. General and administrative expenses increased 21.1%
for the 1998 six months to $4.7 million, or 16.8% of total revenue, from $3.9
million, or 15.7% of total revenue, for the 1997 six months. The increase was
primarily attributable to an increase in legal fees related to a dispute
regarding the expiration of an ASD distribution agreement. Additionally, the
Company has added internal finance, information technology and administrative
resources to support its global operations and infrastructure.
Other Income. Other income increased 105.5% to $865,000 for the 1998 six month
period as compared to $421,000 for the 1997 six month period. This increase was
attributable to higher interest-bearing cash and investment balances in 1998.
Income Tax Provision. The Company's effective rate of taxation was 33.5% for
the 1998 six months, as compared to 37.0% for the 1997 six months. 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 and is the primary reason for the decrease in the Company's
effective tax rate in the 1998 six months.
Net Income. The Company's net income in the six months of 1998 totaled $5.5
million as compared to net income of $2.9 million in the 1997 six months.
Diluted earnings per share increased to $0.33 in the 1998 six months as compared
to diluted earnings per share of $0.18 in the 1997 six months as a result of the
increase in net income. The weighted average shares used in
12
computing net income per diluted share amounts increased to 16,727,000 in the
1998 six month period from 16,603,000 in the 1997 six month period.
Liquidity and Capital Resources
As of June 30, 1998, the Company had cash, cash equivalents and short-term
investments totaling $37.0 million and working capital of $30.6 million, as
compared to cash, cash equivalents and short-term investments of $27.8 million
and working capital of $23.8 million at December 31, 1997.
The Company's operating activities provided cash of $9.5 million for the six
months ended June 30, 1998 and $6.5 million for the six months ended June 30,
1997. The increase in the Company's cash flow from operations for the 1998 six
months as compared to the 1997 six months was a result of increased earnings 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 infrastructure and
continued investment in research and development activities for the six months
ended June 30, 1998.
Cash used in investing activities totaled $18.2 million for the six months ended
June 30, 1998 and $5.8 million for the six months ended June 30, 1997. The
increase is principally due to the purchase and sale of short-term investments
in the six months ended June 30, 1998. The capital expenditures in 1997 were
primarily related to furniture and equipment for the new corporate office
facility, which the Company initially occupied in February 1997, as well as
computer hardware and software to support the continued growth of the Company's
development activities and the expansion of its global sales and support
infrastructure. The Company currently plans additional capital spending of
approximately $1.5 million throughout the remainder of 1998, however, the level
of spending will be dependent upon various factors, including growth of the
business and general economic conditions.
Financing activities provided net cash of $270,000 for the six months ended June
30, 1998 and $195,000 for the six months ended June 30, 1997. Cash provided
from financing activities for the 1998 and 1997 six month periods primarily
included proceeds from issuance of treasury stock and common stock under
employee stock option and purchase plans.
13
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
(c) The following information is furnished in
connection with securities sold by the
Registrant during the period covered by this Form
10-Q which were not registered under the Securities
Act. The transactions constitute sales of the
Registrant's Common Stock, par value $.01 per
share, upon the exercise of vested options issued
pursuant to the Company's 1994 Stock Option and
Grant Plan, issued in reliance upon the exemption from
registration under Rule 701 promulgated under the
Securities Act and issued prior to the Registrant
becoming subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act of 1934, as
amended.
Number of Number of Aggregate
Month/Year Shares Employees Exercise Price
---------- --------- --------- --------------
April 1998 16,750 3 $8,321.25
May 1998 2,000 1 $2,550.00
June 1998 563 2 $ 717.83
Item 3. Defaults upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on May 6,
1998, the stockholders of the Company (1) elected Roger J. Heinen, Jr.,
Roger B. Kafker and Jacqueline C. Morby as Class II Directors of the
Company to hold office until the 2001 Annual Meeting of Stockholders
and until such Directors' successors are duly elected and qualified and
other nominations were made;(2)approved an amendment to the Company's
1996 Stock Option and Grant Plan increasing the number of shares
available for issuance under the Plan from 2,250,000 to 3,250,000. The
votes were as follows:
Votes For Votes Withheld
--------- --------------
(1) Election of Directors:
Roger B. Heinen, Jr. 15,539.993 37,822
Roger B. Kafker 15,542,379 35,436
Jacqueline C. Morby 15,539,929 37,886
14
(2) Approval of Amendment
to 1996 Stock Option
and Grant Plan
Broker
Votes For Votes Against Votes Abstained Non-Votes
--------- ------------- --------------- ----------
11,448,641 2,228,449 101,625 1,799,100
Item 5. Other information
Not Applicable.
Item 6. Exhibits and Reports Filed on Form 8-K
(a) Exhibits.
10.1 Current Form of Stock Option Agreement
15 Independent Accountants' Letter Regarding
Unaudited Financial Information
27.1 Financial Data Schedule
99 Certain Factors Regarding Future Results
(b) Reports on Form 8-K.
Not Applicable.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANSYS, Inc.
Date: August 12, 1998 By: /s/ Peter J. Smith
----------------------------
Peter J. Smith
Chairman, President and
Chief Executive Officer
Date: August 12, 1998 By: /s/ John M. Sherbin II
-----------------------------
John M. Sherbin II
Chief Financial Officer;
Senior Vice President, Finance
and Administration; Secretary
16
Item 6.
EXHIBIT INDEX
-----------------
Exhibit
- -------
No.
- ---
10.1* Current Form of Stock Option Agreement
15 Independent Accountants' Letter
Regarding Unaudited Financial
Information
27.1 Financial Data Schedule
99 Certain Factors Regarding Future
Results
__________
* Identifies a management contract
or compensatory plan or arrangement in
which an executive officer or director
of the Company participates.
17