UNITED STATES-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-20853
ANSYS, Inc.
(exact name of registrant as specified in its charter)
DELAWARE 04-3219960
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
275 Technology Drive, Canonsburg, PA 15317
(Address of principal executive offices) (Zip Code)
724-746-3304
(Registrant's telephone number, including area code)
Indicate by a check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days.
Yes X No
---- ----
The number of shares of the Registrant's Common Stock,
par value $.01 per share, outstanding as of November 6,
2000 was 15,856,603 shares.
ANSYS, INC. AND SUBSIDIARIES
INDEX
------------
Page No.
PART I. FINANCIAL INFORMATION ---------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - 3
September 30, 2000 and December 31,
1999
Condensed Consolidated Statements of 4
Income - Three and Nine Months Ended
September 30, 2000 and September 30,
1999
Condensed Consolidated Statements of 5
Cash Flows - Nine Months Ended
September 30, 2000 and September 30,
1999
Notes to Condensed Consolidated 6-8
Financial Statements
Review Report of Independent 9
Accountants
Item 2. Management's Discussion and Analysis of 10-16
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 6. Exhibits and Reports Filed on Form 8-K 17-18
SIGNATURES 19
EXHIBIT INDEX 20
Trademarks used in this Form 10-Q: ANSYS(r) and DesignSpace(r) are
registered trademarks of SAS IP, Inc., a wholly-owned subsidiary
of ANSYS, Inc. All other trademarks and registered trademarks
are the property of their respective owners.
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements:
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
Sept. 30, Dec. 31,
2000 1999
------------ ----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 11,437 $ 10,401
Short-term investments 39,168 46,731
Accounts receivable, less allowance for
doubtful accounts of $1,800 in 2000 and
$1,700 in 1999 10,362 10,518
Other current assets 3,124 2,929
Deferred income taxes 513 336
--------- ---------
Total current assets 64,604 70,915
Securities available for sale - 182
Long-term investment 375 -
Property and equipment, net 5,281 3,529
Capitalized software costs, net 483 676
Goodwill, net 9,795 428
Other intangibles, net 9,446 1,518
Deferred income taxes 4,764 6,643
----------- ---------
Total assets $ 94,748 $ 83,891
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 237 $ 222
Accrued bonuses 2,997 2,882
Other accrued expenses and liabilities 5,915 3,750
Customer prepayments 190 140
Deferred revenue 13,754 11,266
----------- ---------
Total current liabilities 23,093 18,260
Stockholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized - -
Common stock, $.01 par value; 50,000,000
shares authorized; 16,584,758 shares
issued in both 2000 and 1999 166 166
Additional paid-in capital 37,285 37,543
Less treasury stock, at cost: 737,490
shares held in 2000 and 339,358 shares
held in 1999 (8,074) (2,375)
Retained earnings 42,278 30,427
Accumulated other comprehensive income - 120
Note receivable from stockholder - (250)
----------- ---------
Total stockholders' equity 71,655 65,631
----------- ---------
Total liabilities and stockholders' equity $ 94,748 $83,891
=========== =========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
ANSYS, INC. AND SUBIDARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
--------------------- ------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
---------- --------- -------- -------
Revenue:
Software licenses $ 8,640 $ 7,609 $ 28,556 $ 26,628
Maintenance and service 8,042 6,670 21,759 18,913
---------- --------- -------- -------
Total revenue 16,682 14,279 50,315 45,541
Cost of sales:
Software licenses 1,048 823 3,139 2,593
Maintenance and service 1,033 757 2,739 2,261
--------- --------- -------- --------
Total cost of sales 2,081 1,580 5,878 4,854
--------- --------- -------- --------
Gross profit 14,601 12,699 44,437 40,687
Operating expenses:
Selling and marketing 4,307 3,387 12,165 11,034
Research and development 3,457 3,109 10,071 9,743
Amortization 523 187 922 588
General and administrative 2,509 2,088 7,451 6,937
--------- --------- --------- ---------
Total operating expenses 10,796 8,771 30,609 28,302
--------- --------- --------- ---------
Operating income 3,805 3,928 13,828 12,385
Other income 877 682 2,769 1,834
--------- --------- --------- ---------
Income before income tax 4,682 4,610 16,597 14,219
provision
Income tax provision 1,410 1,244 4,746 3,593
--------- --------- --------- ---------
Net income 3,272 3,366 11,851 10,626
========== ========= ========= =========
Net income per basic common
share:
Basic earnings per share $ 0.21 $ 0.20 $ 0.75 $ 0.65
Weighted average shares -
basic 15,495 16,504 15,854 16,383
---------- --------- --------- ---------
Net income per diluted common
share:
Diluted earnings per share $ 0.21 $ 0.20 $ 0.73 $ 0.63
Weighted average shares -
diluted 15,973 16,967 16,343 16,746
---------- --------- --------- ---------
The accompanying notes are an integral part of the condensed
consolidated financial statements.
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine months ended
Sept. 30, Sept. 30,
2000 1999
--------- ---------
Cash flows from operating activities:
Net income $ 11,851 $ 10,626
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,447 2,041
Deferred income tax provision 244 873
Provision for bad debts 123 173
Change in operating assets and liabilities:
Accounts receivable 2,083 964
Other current assets 36 (1,082)
Accounts payable, accrued expenses and
liabilities and customer prepayments (653) (1,586)
Deferred revenue 1,793 1,479
-------- --------
Net cash provided by operating activities 17,924 13,488
-------- --------
Cash flows from investing activities:
Cash paid for business acquisition, net of
cash acquired (7,481) -
Acquisition-related loan (1,366) -
Capital expenditures (2,497) (1,532)
Capitalization of internally developed
software costs (286) (487)
Repayment of stockholder loan 250 -
Other acquisition payments (200) (100)
Purchase of short-term investments (20,876) (18,730)
Maturities of short-term investments 28,439 6,710
Purchase of long-term investment (375) -
-------- --------
Net cash used in investing activities (4,392) (14,139)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock
under Employee Stock Purchase Plan 164 159
Proceeds from issuance of treasury stock - 9
Purchase of treasury stock (14,346) (6)
Proceeds from exercise of stock options 1,686 591
-------- --------
Net cash (used in) provided by financing
activities (12,496) 753
-------- --------
Net increase in cash and cash equivalents 1,036 102
Cash and cash equivalents, beginning of period 10,401 6,589
-------- --------
Cash and cash equivalents, end of period $ 11,437 $ 6,691
======== ========
Supplemental disclosures of cash flow
Information:
Cash paid during the period for:
Income taxes $ 3,324 $ 3,550
The accompanying notes are an integral part of the
condensed consolidated financial statements.
ANSYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements included herein have been prepared by ANSYS, Inc. (the
"Company") in accordance with generally accepted accounting
principles for interim financial information for commercial and
industrial companies and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. The financial statements as of and for
the three and nine months ended September 30, 2000 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, 1999.
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 nine months ended
September 30, 2000 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000.
2. ACCUMULATED OTHER COMPREHENSIVE INCOME
As of December 31, 1999, accumulated other comprehensive income,
as reflected on the condensed consolidated balance sheet, was
comprised of unrealized gains on securities available for sale.
3. BUSINESS ACQUISITIONS AND DIVESTITURES
ACQUISITION OF PACIFIC MARKETING AND CONSULTING, INC.
On August 30, 2000, ANSYS, Inc. and GenesisOne Acquisition
Corporation, a Delaware corporation and wholly-owned subsidiary
of ANSYS, entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Pacific Marketing and Consulting, Inc.,
a California corporation ("PMAC"), and its officers and
stockholders. The transactions contemplated by the Merger
Agreement were consummated on August 31, 2000 with the merger of
PMAC with and into GenesisOne.
In the merger, each share of common stock of PMAC outstanding at
the time of the Merger ceased to be outstanding and each such
share was converted into the right to receive the initial merger
consideration provided for under the Merger Agreement. Holders
of PMAC's Class A voting and Class B non-voting common stock
received initial merger consideration consisting of an aggregate
of 618,992 shares of ANSYS common stock, valued for purposes of
such issuance at $10.01563 per share, and cash in an aggregate
amount of $5,832,531. Holders of PMAC's Class C non-voting
common stock received initial merger consideration aggregating
$367,290 solely in cash. Of the total initial stock
consideration, an aggregate of 123,795 shares of ANSYS common
stock were delivered into escrow, to be released on August 31,
2001 or, if later, upon the resolution of any outstanding
indemnification claims secured by such shares. In addition,
$3,000,000 of the initial aggregate cash consideration was
delivered into escrow, to be released during the first quarter of
2001 upon and subject to the determination of certain post-
closing adjustments and claims.
The Merger Agreement also provides for certain additional future
payments if the acquired business achieves certain performance
criteria. Such additional contingent consideration will be paid
to the former holders of PMAC Class A and Class B common stock
48.4737% in cash and 51.5263% in shares of ANSYS common stock,
valued for such purposes at the average closing price for the
twenty consecutive trading days preceding the date of such
payment. The total number of shares of ANSYS common stock that
will be issued under the Merger Agreement therefore will depend
on the future value of ANSYS common stock. The total amount of
funds required to pay the initial aggregate cash consideration
was $6,199,821, which was obtained from the working capital of
ANSYS. The aggregate merger consideration was determined on the
basis of arms' length negotiations between representatives of
ANSYS and PMAC.
The acquisition has been accounted for as a purchase and,
accordingly, the operating results of PMAC have been included in
the Company's consolidated financial statements since the date of
acquisition, August 31, 2000. The total purchase price was
allocated to the assets and liabilities of PMAC based upon their
estimated fair market values. The allocation of the purchase
price was based on an independent valuation and included an
allocation of $8,242,000 to identifiable intangibles (including
$2,700,000 to assembled workforce, $2,345,000 to existing
software, $1,790,000 to non-compete agreements and $1,407,000 to
customer list) and $9,501,000 to goodwill. The identified
intangibles and goodwill are being amortized over three to five
years.
The following unaudited pro forma information presents the
results of operations of the Company as if the acquisition had
occurred at the beginning of the nine month periods ended
September 30, 2000 and 1999, respectively.
Nine Nine
months ended months ended
September 30, September 30,
(in 000's) 2000 1999
------------- -------------
Total revenue $ 56,253 $ 50,914
Net income $ 9,378 $ 8,834
Net income per share:
Basic $ 0.57 $ 0.52
Diluted $ 0.55 $ 0.51
The unaudited pro forma consolidated results are not necessarily
indicative of results that would have occurred had the
acquisition been in effect for the periods presented, nor are
they necessarily indicative of future consolidated results.
PMAC (hereafter, "ICEM CFD Engineering" or "ICEM CFD") is a
privately held developer and leading supplier of software for pre-
and post-processing of CFD and other high growth engineering
applications. ICEM CFD Engineering sells these products to a
variety of market segments, including the electronics, automotive
and aerospace industries. Additional information related to the
acquisition of ICEM CFD is included in the Company's Current
Report on Forms 8-K and 8-K/A, filed on September 13, 2000 and
November 8, 2000, respectively.
4. CASH FLOW STATEMENT
Supplemental cash flow information with respect to the
acquisition discussed in Note 3 is as follows:
(in 000's)
Fair value of assets acquired, net of cash $ 20,599
acquired
Fair value of liabilities assumed ($ 6,580)
Fair value of common stock issued ($ 6,538)
-----------------
Cash paid for acquisition $ 7,481
=================
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------
To the Shareholders and Board of Directors of
ANSYS, Inc. and Subsidiaries:
We have reviewed the accompanying condensed consolidated balance
sheet of ANSYS, Inc. and Subsidiaries as of September 30, 2000,
and the related condensed consolidated statements of income for
each of the three-month and nine-month periods ended September
30, 2000 and 1999 and the condensed consolidated statements of
cash flows for the nine-month periods ended September 30, 2000
and 1999. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying condensed consolidated
interim financial statements for them to be in conformity with
accounting principles generally accepted in the United States
of America.
We previously audited in accordance with auditing standards
generally accepted in the United States of America, the
consolidated balance sheet of ANSYS, Inc. and Subsidiaries
as of December 31, 1999 and the related consolidated statements
of income, stockholders' equity and of cash flows for the year
then ended (not presented herein), and in our report dated
January 27, 2000, 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, 1999, is fairly stated in all
material respects in relation to the consolidated balance sheet
from which it has been derived.
/s/ PricewaterhouseCoopers LLP
- -----------------------------
Pittsburgh, Pennsylvania
October 11, 2000
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. Sales, support and
training for customers are provided primarily through the
Company's global network of independent ANSYS Support
Distributors ("ASDs"). The Company distributes and supports its
ANSYS(r) and DesignSpace(r) product lines through its ASDs, certain
direct sales offices, as well as a network of independent
distributors and dealers. The following discussion should be read
in conjunction with the attached unaudited condensed consolidated
financial statements and notes thereto for the three-month and
nine-month periods ended September 30, 2000 and September 30,
1999 and with the Company's audited financial statements and
notes thereto for the fiscal year ended December 31, 1999.
This Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934, including statements
below concerning future trends related to paid-up and lease
license revenue, expectations of sales growth in the Company's
DesignSpace and ANSYS/Professional products, the Company's
intentions related to continued investments in sales and
marketing and research and development, plans related to future
capital spending, the sufficiency of existing cash and cash
equivalent balances to meet future working capital and capital
expenditure requirements, comments regarding the effective tax
rate and cost of sales increases in future quarters, as well as
statements which contain such words as "anticipates", "intends",
"believes", "plans" and other similar expressions. The Company's
actual results could differ materially from those set forth in
forward-looking statements. Certain factors that might cause such
a difference include risks and uncertainties detailed in the
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" section in the 1999 Annual Report to
Shareholders and in "Certain Factors Regarding Future Results"
included herein as Exhibit 99 to this Form 10-Q.
Results of Operations
Three Months Ended September 30, 2000 Compared to Three Months
Ended September 30, 1999
Revenue. The Company's total revenue increased 16.8% in the 2000
quarter to $16.7 million from $14.3 million in the 1999 quarter.
Revenue for the third quarter of 2000 includes revenue of
approximately $961,000 from the acquisition of Pacific Marketing
and Consulting, Inc.("ICEM CFD"). The remaining increase in
revenue resulted primarily from higher paid-up license sales.
Higher maintenance and service revenue, primarily from
maintenance contracts sold in association with increased paid-up
licenses in both the current and recent quarters, also
contributed to the overall revenue increase.
Software license revenue increased 13.5% in the 2000 quarter to
$8.6 million from $7.6 million in the 1999 quarter, resulting
primarily from increased sales of paid-up licenses. Revenue from
the sale of paid-up licenses increased 27.3% to $6.6 million from
$5.2 million in the prior year quarter. The Company anticipates
that revenue from sales of paid-up licenses will increase as
sales of its DesignSpace and ANSYS/Professional products grow.
These products are priced at much lower price points compared to
the traditional high-end product offerings and are sold primarily
as paid-up licenses. Also contributing to the license revenue
growth was approximately $600,000 in revenue from the acquisition
of ICEM CFD.
The increases in software license revenue discussed above were
partially offset by a $509,000 reduction in noncancellable annual
lease license revenue and a $447,000 reduction in monthly lease
license revenue. The decrease in noncancellable annual lease
license revenue was principally attributable to the conversion of
existing noncancellable annual leases to paid-up licenses in both
the current and recent quarters. The Company believes that a 1999
increase in its annual lease price was a primary economic factor
in influencing certain noncancellable annual lease conversions.
The decrease in monthly lease license revenue is consistent with
recent quarterly trends and resulted from existing monthly leases
being renewed as noncancellable annual leases or converted to
paid-up licenses. The Company believes that the reduction in
lease license revenue on a quarterly comparison basis will
continue throughout the remainder of 2000.
Maintenance and service revenue increased 20.6% in the 2000
quarter to $8.0 million from $6.7 million in the 1999 quarter.
The increase was primarily a result of maintenance contracts sold
in association with the paid-up license sales discussed above.
Also contributing to the maintenance and service revenue growth
was approximately $400,000 in revenue from the acquisition of
ICEM CFD.
Of the Company's total revenue for the 2000 quarter,
approximately 56.6% and 43.4%, respectively, were attributable to
international and domestic sales, as compared to 56.0% and 44.0%,
respectively, in the 1999 quarter.
Cost of Sales and Gross Profit. The Company's total cost of
sales increased 31.7% to $2.1 million, or 12.5% of total revenue
for the 2000 quarter, from $1.6 million, or 11.1% of total
revenue for the 1999 quarter. The increase in the 2000 quarter
was principally attributable to higher royalty costs, as well as
costs associated with consulting services provided by ICEM CFD.
The Company anticipates that total cost of sales as a percentage
of revenue will increase slightly in future quarters as a result
of the ICEM CFD acquisition.
As a result of the foregoing, the Company's gross profit
increased 15.0% to $14.6 million in the 2000 quarter from $12.7
million in the 1999 quarter.
Selling and Marketing. Total selling and marketing expenses
increased from $3.4 million, or 23.7% of total revenue in the
1999 quarter, to $4.3 million, or 25.8% of total revenue in the
2000 quarter. The increase was attributable primarily to costs
associated with the Company's biannual worldwide users'
conference. Increased sales consulting costs related to sales
training initiatives for both the direct and indirect sales
channels also contributed to the increase. The Company
anticipates that it will continue to make significant investments
in its global sales and marketing organization to strengthen its
competitive position, to enhance major account sales activities
and to support its worldwide sales channels and marketing
strategies.
Research and Development. Research and development expenses
increased 11.2% to $3.5 million, or 20.7% of total revenue for
the 2000 quarter, from $3.1 million, or 21.8% of total revenue
for the 1999 quarter. The increase in the 2000 quarter was
attributable to development costs associated with the acquisition
of ICEM CFD. The Company has traditionally invested significant
resources in research and development activities and intends to
continue to make significant investments throughout the remainder
of 2000.
Amortization. Amortization expense increased to $523,000 for the
2000 quarter compared to $187,000 for the 1999 quarter. The
increase resulted from amortization associated with the
acquisition of ICEM CFD.
General and Administrative. General and administrative expenses
increased 20.2% to $2.5 million, or 15.0% of total revenue in the
2000 quarter, from $2.1 million, or 14.6% of total revenue in the
1999 quarter. The increase was primarily the result of
approximately $275,000 in one-time charges associated with the
acquisition of ICEM CFD, as well as consulting costs related to
implementation of the Company's customer relationship management
system. These increases were partially offset by a reduction in
legal costs.
Other Income. Other income increased 28.6% to $877,000 for the
2000 quarter as compared to $682,000 for the 1999 quarter. This
increase was attributable to an increasing interest rate
environment as compared to the prior year quarter.
Income Tax Provision. The Company's effective rate of taxation
was 30.0% for the 2000 quarter as compared to 27.0% for the 1999
quarter. The effective rate increased from the prior year
quarter as a result of certain non-deductible amortization associated
with the acquisition of ICEM CFD. These rates are lower than
the federal and state combined statutory rate as a result
of the utilization of a foreign sales corporation, as well
as the generation of research and experimentation credits.
As a result of the acquisition of ICEM CFD, the Company
anticipates that the effective tax rate will increase in
the fourth quarter of 2000 and will reach a rate in
the range of 35% early in 2001.
Net Income. The Company's net income in the 2000 quarter was
$3.3 million as compared to $3.4 million in the 1999 quarter.
Diluted earnings per share increased to $.21 in the 2000 quarter
as compared to $.20 in the 1999 quarter. The weighted average
shares used in computing net income per diluted common share were
16.0 million in the 2000 quarter and 17.0 million in the 1999
quarter.
Nine Months Ended September 30, 2000 Compared to Nine Months
Ended September 30, 1999
Revenue. The Company's total revenue increased 10.5% for the 2000
nine months to $50.3 million from $45.5 million for the 1999 nine
months. The increase was attributable primarily to an increase in
paid-up licenses associated with increased sales of new paid-up
licenses and, to a lesser extent, the conversion of existing
leases to paid-up licenses. Higher maintenance and service
revenue, resulting primarily from maintenance contracts sold in
association with increased paid-up license sales, and
approximately $961,000 of revenue associated with the third
quarter acquisition of ICEM CFD, also contributed to the
increase.
Software license revenue totaled $28.6 million for the 2000 nine
months as compared to $26.6 million for the 1999 nine months, an
increase of 7.2%. The increase resulted principally from an
increase in sales of paid-up licenses. Revenue from the sale of
paid-up licenses increased 25.4% for the 2000 nine-month period
to $21.0 million from $16.7 million in the comparable prior year
period.
The increase in sales of paid-up licenses was partially offset by
a $1.6 million decrease in noncancellable annual lease license
revenue and a $1.3 million reduction in monthly lease license
revenue for the 2000 nine-month period as compared to the
comparable 1999 period. The decrease in noncancellable annual
lease license revenue was principally attributable to the
conversion of existing noncancellable annual leases to paid-up
licenses in recent periods. The Company believes that a 1999
increase in its annual lease price was a primary economic factor
in influencing certain noncancellable annual lease conversions.
The reduction in monthly lease license revenue resulted from
existing monthly leases being renewed as noncancellable annual
leases or converted to paid-up licenses.
Maintenance and service revenue increased 15.0% in the 2000 nine-
month period to $21.8 million from $18.9 million in the
comparable 1999 period. The increase was primarily the result of
maintenance contracts sold in association with the paid-up
license sales discussed above.
Of the Company's total revenue for the 2000 six months,
approximately 56.3% and 43.7%, respectively, were attributable to
international and domestic sales, as compared to 56.7% and 43.3%,
respectively, for the 1999 nine months.
Cost of Sales and Gross Profit. The Company's total cost of
sales increased 21.1% to $5.9 million, or 11.7% of total revenue
for the 2000 nine months, from $4.9 million, or 10.7% of total
revenue for the 1999 nine months. The increase in the 2000
period was principally attributable to higher salaries and
related expenses associated with increased headcount to support
the growth in license and service sales, as well as increased
royalty costs. The Company anticipates that total cost of sales
as a percentage of revenue will increase slightly in future
quarters as a result of the ICEM CFD acquisition.
As a result of the foregoing, the Company's gross profit
increased 9.2% to $44.4 million for the 2000 nine months from
$40.7 million for the 1999 nine months.
Selling and Marketing. Selling and marketing expenses increased
10.3% for the nine months ended September 30, 2000 to $12.2
million, or 24.2% of total revenue, from $11.0 million, or 24.2%
of total revenue for the comparable 1999 period. The increase
was primarily the result of higher salaries and related expenses
associated with the hiring of key personnel to bolster the
Company's sales and marketing capabilities, as well as costs
associated with the Company's biannual worldwide users'
conference.
Research and Development. Research and development costs
increased 3.4% to $10.1 million, or 20.0% of total revenue for
the 2000 nine months, from $9.7 million, or 21.4% of total
revenue for the 1999 nine months. The increase in the 2000
period was principally attributable to higher consulting costs as
well as development costs associated with the acquisition of ICEM
CFD.
Amortization. Amortization expense increased to $922,000 for the
2000 nine months compared to $588,000 for the 1999 nine months.
The increase resulted from amortization associated with the
acquisition of ICEM CFD.
General and Administrative. General and administrative expenses
increased 7.4% for the 2000 nine months to $7.5 million, or 14.8%
of total revenue, from $6.9 million, or 15.2% of total revenue
for the 1999 nine months. The increase was primarily the result
of a $500,000 one-time charge in the first quarter related to the
expiration of an ASD distribution agreement, as well as
approximately $275,000 in one-time charges associated with the
acquisition of ICEM CFD.
Other Income. Other income increased 51.0% to $2.8 million in
the 2000 nine-month period as compared to $1.8 million in the
1999 nine-month period. This increase was attributable to an
increasing interest rate environment as compared to the
comparable prior year period and a $151,000 one-time gain related
to the sale of investment securities in the first quarter of
2000.
Income Tax Provision. The Company's effective rate of taxation
was 28.6% for the nine months ended September 30, 2000, as
compared to 25.3% for the comparable 1999 period. The 1999 rate
was favorably impacted by a one-time tax benefit related to an
amended prior year tax return. These percentages are less than
the federal and state combined statutory rate as a result of the
utilization of a foreign sales corporation, as well as the
generation of research and experimentation credits. As a result
of the acquisition of ICEM CFD, the Company anticipates that the
effective tax rate will increase in the fourth quarter of 2000
and will reach a rate in the range of 35% early in 2001.
Net Income. The Company's net income in the first nine months of
2000 totaled $11.9 million as compared to net income of $10.6
million in the first nine months of 1999. As a result of the
increase in net income, diluted earnings per share increased to
$0.73 in the 2000 nine months as compared to diluted earnings per
share of $0.63 in the 1999 nine months. The weighted average
shares used in computing net income per diluted common share
totaled 16.3 million and 16.7 million in the 2000 and 1999 nine-
month periods, respectively.
Liquidity and Capital Resources
As of September 30, 2000, the Company had cash, cash equivalents
and short-term investments totaling $50.6 million and working
capital of $41.5 million, as compared to cash, cash equivalents
and short-term investments of $57.1 million and working capital
of $52.7 million at December 31, 1999. The short-term
investments are generally investment grade and liquid-type, which
allows the Company to minimize interest rate risk and to
facilitate liquidity in the event an immediate cash need arises.
The Company's operating activities provided cash of $17.9 million
for the nine months ended September 30, 2000 and $13.5 million
for the nine months ended September 30, 1999. The increase in
the Company's cash flow from operations for the 2000 nine-month
period as compared to the comparable 1999 period was a result of
increased earnings, improved accounts receivable collections and
the timing of payments related to certain operating expenses.
Net cash generated by operating activities provided sufficient
resources to fund increased headcount and capital needs, as well
as to sustain share repurchase activity under the Company's
announced share repurchase program.
Net cash used in investing activities totaled $4.4 million for
the nine months ended September 30, 2000 and $14.1 million for
the nine months ended September 30, 1999. Cash used in the 2000
nine-month period primarily related to the acquisition of ICEM
CFD and capital expenditures. These costs were partially offset
by net maturities of short-term investments. Cash used in the
1999 nine-month period related primarily to net purchases of
short-term investments and capital expenditures. The Company
currently plans additional capital spending of approximately
$500,000 throughout the remainder of 2000; however, the level of
spending will be dependent upon various factors, including growth
of the business and general economic conditions.
Financing activities used net cash of $12.5 million for the nine
months ended September 30, 2000 and provided cash of $753,000 for
the comparable 1999 period. In 2000, cash outlays related to the
Company's share repurchase program were partially offset by
proceeds from the issuance of common stock under employee stock
purchase and option plans. In the 1999 quarter, cash provided
from financing activities related primarily to proceeds from the
issuance of common stock under employee stock purchase and option
plans.
The Company believes that existing cash and cash equivalent
balances together with cash generated from operations will be
sufficient to meet the Company's working capital and capital
expenditure requirements, as well as cash required for the
Company's share repurchase program through the remainder of 2000.
The Company's cash requirements in the future may also be
financed through additional equity or debt financings. There can
be no assurance that such financings can be obtained on favorable
terms, if at all.
Conversion to the Euro
On January 1, 1999, eleven of the member countries of the
European Union established fixed conversion rates between their
existing currencies and one common currency, the euro. The
legacy currencies will remain legal currency in the participating
countries during a transition period through January 1, 2002.
Beginning on this date, new euro-denominated currency will be
issued and the legacy currencies will be withdrawn from
circulation.
The Company is currently in the process of identifying and
addressing issues that may result from the euro conversion such
as changes to information systems to accommodate euro-denominated
transactions, long-term competitive implications and the exposure
to market risk with respect to financial instruments. Although
the Company's assessment of the impact of the euro conversion is
not yet complete, it currently does not believe that the
conversion will have a material adverse impact on its financial
position or results of operations.
Recently Issued Accounting Pronouncements
In March 2000, the Financial Accounting Standards Board issued
FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation." This Interpretation clarifies
such issues as: (a) the definition of employee for purposes of
applying APB Opinion No. 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business
combination. This Interpretation is effective July 1, 2000, but
certain conclusions in this Interpretation cover specific events
that occur after either December 15, 1998, or January 12, 2000.
To the extent that this Interpretation covers events occurring
during the period after December 15, 1998, or January 12, 2000,
but before the effective date of July 1, 2000, the effects of
applying this Interpretation are recognized on a prospective
basis from July 1, 2000. The adoption of this Interpretation did
not have a material impact on the Company's financial position or
results of operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to various legal proceedings
from time to time that arise in the ordinary course of
business activities. Each of these matters is subject
to various uncertainties, and it is possible that these
matters may be resolved unfavorably to the Company.
Item 2. Changes in Securities
(c) The following information is furnished in
connection with securities sold by the Registrant
during the period covered by this Form 10-Q which were
not registered under the Securities Act. The
transactions constitute sales of the Registrant's
Common Stock, par value $.01 per share, upon the
exercise of vested options issued pursuant to the
Company's 1994 Stock Option and Grant Plan, issued in
reliance upon the exemption from registration under
Rule 701 promulgated under the Securities Act and
issued prior to the Registrant becoming subject to the
reporting requirements of Section 13 or 15(d) of the
Exchange Act of 1934, as amended.
Number of Number of Aggregate
Month/Year Shares Employees Exercise Price
July 2000 104 2 $ 132.60
Aug 2000 --- --- ---
Sept 2000 30,612 3 $294,672.80
Item 3. Defaults upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other information
Not Applicable.
Item 6. Exhibits and Reports Filed on Form 8-K
(a) Exhibits.
2.1 Agreement and Plan of Merger, dated
August 30, 2000, by and among ANSYS, Inc.,
GenesisOne Acquisition Corporation, Pacific
Marketing and Consulting, Inc., Christine
Schoefer, Michael Hohmeyer, Wayne
Christopher, Mary Jo Hamilton,
Michael Salari, Masoud Doroudian, Diane
Poirier, Devendra Rajwade, Jan Soreide,
Vijay Shah, Akila Diwakar, Philip Diwakar,
Alan Magnuson, Forest Rouse, Vladimir
Griaznov, Xiaomin Wang, Jieyong Xu, Jigen
Zhou, Manfred Friedrichs, Carsten Martens,
Reimund Steberl and Armin Wulf (filed as
Exhibit 2.1 to a Current Report on Form 8-K
filed September 13, 2000 and incorporated
herein by reference).
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.
Current Report on Form 8-K filed
September 13, 2000, Event date: August 30, 2000
Current Report on Form 8-K/A filed
November 8, 2000, Event date: August 30, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ANSYS, Inc.
Date: November 9, 2000 By: /s/ James E. Cashman, III
James E. Cashman, III
President and Chief
Executive Officer
Date: November 9, 2000 By: /s/ Maria T. Shields
Maria T. Shields
Chief Financial Officer
Item 6.
EXHIBIT INDEX
-------------
Exhibit
No.
2.1 Agreement and Plan of Merger, dated August 30,
2000, by and among ANSYS, Inc., GenesisOne
Acquisition Corporation, Pacific Marketing and
Consulting, Inc., Christine Schoefer, Michael
Hohmeyer, Wayne Christopher, Mary Jo Hamilton,
Michael Salari, Masoud Doroudian, Diane
Poirier, Devendra Rajwade, Jan Soreide, Vijay
Shah, Akila Diwakar, Philip Diwakar, Alan
Magnuson, Forest Rouse, Vladimir Griaznov,
Xiaomin Wang, Jieyong Xu, Jigen Zhou, Manfred
Friedrichs, Carsten Martens, Reimund Steberl
and Armin Wulf (filed as Exhibit 2.1 to a
Current Report on Form 8-K filed September 13,
2000 and incorporated herein by reference).
15 Independent Accountants' Letter Regarding
Unaudited Financial Information
27.1 Financial Data Schedule for the Nine Months
Ended September 30, 2000
99 Certain Factors Regarding Future Results