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, 1997
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)
412-746-3304
(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
11, 1997 was 16,284,684 shares.
ANSYS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION ----------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - 1
September 30, 1997 and December 31, 1996
Condensed Consolidated Statements of
Income - Three and Nine Months Ended 2
September 30, 1997 and September 30,
1996
Condensed Consolidated Statements of
Cash Flows - Nine Months Ended September 3
30, 1997 and September 30, 1996
Notes to Condensed Consolidated 4
Financial Statements
Review Report of Independent Accountants 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of 6-10
Operations
PART II. OTHER INFORMATION
Item 2. Changes in Securities 11
Item 4. Submission of Matters to a Vote of 11
Security Holders
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBIT INDEX 13
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.
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,
1997 1996
----------- ---------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 14,511 $ 17,069
Short-term investments 10,441 -
Accounts receivable, less allowance for doubtful
accounts of $1,600 in 1997 and $950 in 1996 6,573 7,307
Other current assets 1,679 350
Deferred income taxes 427 422
----------- ---------
Total current assets 33,631 25,148
Securities available for sale 370 673
Property and equipment, net 5,088 4,334
Capitalized software costs, net of accumulated
amortization of $15,441 in 1997 and $14,328 in
1996 290 1,174
Goodwill, net of accumulated amortization of
$14,671 in 1997 and $13,652 in 1996 - 1,019
Other intangibles, net 1,470 1,756
Deferred income taxes 9,275 9,327
----------- ---------
Total assets $ 50,124 $ 43,431
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 155 $ 486
Accrued bonuses 1,412 2,281
Accrued pension and profit sharing 825 11
Other accrued expenses and liabilities 1,764 1,690
Accrued income taxes payable - 677
Customer prepayments 1,011 1,447
Deferred revenue 7,171 3,865
----------- ---------
Total liabilities 12,338 10,457
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized - -
Common stock, $.01 par value; 50,000,000 shares
authorized; 16,356,884 shares issued in 1997 and
16,228,985 shares issued in 1996 164 162
Additional paid-in capital 36,084 35,755
Less treasury stock, at cost: 74,450 shares
held in 1997 and 71,600 shares held in 1996 (12) (12)
Retained earnings (deficit) 1,580 (3,073)
Unrealized appreciation in securities available
for sale, net 244 444
Notes receivable from stockholders (274) (302)
----------- ---------
Total stockholders' equity 37,786 32,974
----------- ---------
Total liabilities and stockholders' equity $ 50,124 $ 43,431
=========== =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
(Unaudited)
Three months ended Nine months ended
------------------------ ----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Revenue:
Software licenses $ 7,309 $ 10,206 $ 25,249 $ 27,428
Maintenance and service 4,180 2,455 10,811 7,305
---------- ---------- --------- ---------
Total revenue 11,489 12,661 36,060 34,733
Cost of sales:
Software licenses 669 828 2,024 2,310
Maintenance and service 595 575 1,757 1,827
--------- --------- --------- ---------
Total cost of sales 1,264 1,403 3,781 4,137
--------- --------- --------- ---------
Gross profit 10,225 11,258 32,279 30,596
Operating expenses:
Selling and marketing 2,746 2,733 8,470 7,180
Research and development 2,538 2,561 8,341 7,240
Amortization 177 2,670 2,607 8,104
General and administrative 2,260 1,999 6,124 5,655
--------- --------- --------- ---------
Total operating expenses 7,721 9,963 25,542 28,179
--------- --------- --------- ---------
Operating income 2,504 1,295 6,737 2,417
Interest expense - - - (1,669)
Other income 225 406 646 561
--------- --------- --------- ---------
Income before income tax provision
and extraordinary item 2,729 1,701 7,383 1,309
Income tax provision 1,010 635 2,730 485
--------- --------- --------- ---------
Net income before extraordinary item 1,719 1,066 4,653 824
Extraordinary item, net - - - (343)
--------- --------- --------- ---------
Net income $ 1,719 $ 1,066 $ 4,653 $ 481
========== ========== ========== =========
Net income applicable to common stock:
Net income $ 1,719 $ 1,066 $ 4,653 $ 481
Redeemable preferred stock dividends - - - (236)
--------- --------- --------- ---------
$ 1,719 $ 1,066 $ 4,653 $ 245
========== ========== ========== =========
Net income per common share:
Net income before
extraordinary item $ 0.10 $ 0.06 $ 0.28 $ 0.04
Extraordinary item $ - $ - $ - $ (0.02)
--------- --------- --------- ---------
Net income $ 0.10 $ 0.06 $ 0.28 $ 0.02
========= ========= ========= =========
Shares used in computing per common
share amounts 16,758,000 16,700,000 16,671,000 14,573,000
========== ========== ========== ==========
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,
1997 1996
--------- ---------
Cash flows from operating activities:
Net income $ 4,653 $ 481
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,600 8,913
Extraordinary item - 553
Deferred income taxes 150 (2,381)
Provision for bad debts 650 47
Change in operating assets and liabilities:
Accounts receivable 85 (4,136)
Income taxes (685) 1,497
Other current assets (644) (90)
Accounts payable, accrued expenses and
liabilities and customer prepayments (1,425) 20
Deferred revenue 3,305 (178)
--------- ---------
Net cash provided by operating activities 9,689 4,726
--------- ---------
Cash flows from investing activities:
Capital expenditures (1,935) (1,542)
Capitalization of internally developed software
costs (229) (117)
Purchase of short-term investments (10,442) -
Notes receivable from stockholders - 32
--------- ---------
Net cash used in investing activities (12,606) (1,627)
--------- ---------
Cash flows from financing activities:
Payments on long-term debt - (21,000)
Proceeds from issuance of restricted stock - 326
Proceeds from issuance of common stock under
employee stock purchase plan 125 -
Proceeds from exercise of stock options 206 113
Repayment of stockholder notes 28 -
Repayment of subordinated notes - (17,204)
Redemption of preferred stock and accumulated
dividends - (5,128)
Purchase of treasury stock - (2)
Proceeds from initial public offering, net of
issuance costs of $1,250 - 41,015
--------- ---------
Net cash provided by (used in) financing
activities 359 (1,880)
--------- ---------
Net (decrease) increase in cash and cash equivalents (2,558) 1,219
Cash and cash equivalents, beginning of period 17,069 8,091
--------- ---------
Cash and cash equivalents, end of period $ 14,511 $ 9,310
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest - $2,848
Income taxes $3,380 1,136
Supplemental non cash investing and financing
activities:
Decrease in securities available for sale (200) 915
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, 1997
(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, 1997 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, 1996.
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, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No.128, "Earnings per
Share." The new standard, which is effective for financial
statements issued for periods ending after December 15, 1997,
establishes standards for computing and presenting earnings per
share (EPS) and requires restatement of all prior-period EPS data
presented. Management believes that the implementation of the
standard will not have a material effect on its consolidated
financial statements.
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. 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 these statements from both an operations and
financial reporting perspective.
The Financial Accounting Standards Board has approved the
American Institute of Certified Public Accountants Statement of
Position (SOP) on software and revenue recognition, which will be
effective for transactions entered into beginning after December
15, 1997. The Company believes that it is in compliance with the
provisions of the new SOP and that its adoption will not have a
material impact on the financial position or results of
operations of the Company.
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 September 30, 1997, the
related condensed consolidated statements of income for the three-
month and nine-month periods ended September 30, 1997 and 1996,
and condensed consolidated cash flows for the nine-month periods
ended September 30, 1997 and 1996. 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, 1996, and the related
consolidated statements of operations, stockholders' equity and
cash flows for the year then ended (not presented herein). In
our report dated February 7, 1997, 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, 1996, is fairly
stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ Coopers & Lybrand L.L.P.
- -----------------------------
Pittsburgh, Pennsylvania
October 21, 1997
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 periods ended September 30, 1997 and September
30, 1996 and with the Company's audited financial statements and
notes thereto for the fiscal year ended December 31, 1996.
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, 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 1996 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 September 30, 1997 Compared to Three Months
Ended September 30, 1996
Revenue. The Company's revenue decreased 9.3% for the 1997
quarter to $11.5 million from $12.7 million for the 1996 quarter.
The decrease was primarily related to a decrease in the sale of
domestic and international paid-up licenses, particularly from
large contracts, as well as a decrease in monthly lease revenue.
These decreases were partially offset by an increase in revenues
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. The decreases
were also partially offset by 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.
Software license revenue decreased 28.4% for the 1997 quarter to
$7.3 million from $10.2 million for the 1996 quarter. This
decrease principally resulted from a decrease in the sale of paid-
up licenses in domestic and international markets as compared to
the prior year quarter. Paid-up license revenue for the 1996
quarter reflected the recognition of substantial revenue from
several large contracts from customers such as General Electric,
3M and Fiat Avio. The Company believes that large contracts such
as these 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 Company also experienced a 34.9%
decrease in lease license revenue to $2.8 million for the 1997
quarter from $4.3 million for the 1996 quarter. This decrease
was attributable to both an increase in the renewal 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 lease
license revenue was partially offset by an increase in revenue
attributable to the portion of the noncancellable annual license
fees which are recognized as paid-up revenue upon renewal or
inception of the lease. Maintenance and service revenue
increased 70.3% for the 1997 quarter to $4.2 million from $2.5
million for the 1996 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 1997 quarter,
approximately 53.3% and 46.7%, respectively, were attributable
to international and domestic sales, as compared to 45.6% and
54.4%, respectively, for the 1996 quarter.
Cost of Sales and Gross Profit. The Company's total cost of
sales decreased 9.9 % to $1.3 million, or 11.0% of total revenue,
for the 1997 quarter from $1.4 million, or 11.1% of total
revenue, for the 1996 quarter. The Company's cost of sales for
software license revenue decreased 19.2% for the 1997 quarter to
$669,000, or 9.2% of software license revenue, from $828,000, or
8.1% of software license revenue, for the 1996 quarter. The
decrease was primarily due to reductions in the costs related to
manuals, packing supplies and media. The Company's cost of sales
for maintenance and service revenue, which totaled $595,000 and
$575,000, or 14.2% and 23.4% of maintenance and service revenue,
for the 1997 and 1996 quarters, respectively, remained relatively
stable.
As a result of the foregoing, the Company's gross profit
decreased 9.2% to $10.2 million for the 1997 quarter from $11.3
million for the 1996 quarter.
Selling and Marketing. Selling and marketing expenses remained
stable overall for the 1997 and 1996 quarters at $2.7 million, or
23.9% and 21.6% of total revenue, respectively. During the 1997
quarter, the Company incurred increased personnel costs,
including costs associated with increased headcount and
compensation expenses related to building a global sales and
marketing organization and establishing strategic offices in the
UK, Michigan and Japan, as compared to the 1996 quarter.
However, these increases were offset by decreased commissions
associated with decreased revenue. 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,
which totaled $2.5 million and $2.6 million for the 1997 and 1996
quarters, or 22.1% and 20.2% of total revenue, respectively, also
remained relatively stable from quarter to quarter. 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 $177,000 in the 1997
quarter as compared to $2.7 million in the 1996 quarter. This
significant decrease was attributable to the full amortization of
certain of the intangible assets which resulted from the
acquisition of the Company in 1994 (the "1994 Acquisition"),
including goodwill and capitalized software, in the first quarter
of 1997.
General and Administrative. General and administrative expenses
increased 13.1% to $2.3 million, or 19.7% of total revenue, for
the 1997 quarter from $2.0 million, or 15.8% of total revenue,
for the 1996 quarter. 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. Additionally, the
Company has added internal legal and finance resources to support
the operations of a publicly owned company.
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 37.0% for the 1997 quarter as compared to 37.3%
for the 1996 quarter. This percentage is less than the federal
and state combined statutory rate of approximately 39.0% due
primarily to the utilization of research and experimentation
credits.
Net Income. The Company's net income in the third quarter of
1997 was $1.7 million as compared to $1.1 million in the third
quarter of 1996. Net income per share increased to $.10 in the
1997 quarter as compared to $.06 in the 1996 quarter. The
increase in net income 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. The weighted average common and common equivalent shares
totaled 16,758,000 and 16,700,000 in the 1997 and 1996 quarter,
respectively.
Nine Months Ended September 30, 1997 Compared to Nine Months
Ended September 30, 1996
Revenue. The Company's revenue increased 3.8% for the 1997 nine
months to $36.1 million from $34.7 million for the 1996 nine
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, 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 1997 nine months
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.
Software license revenue decreased 7.9% for the 1997 nine months
to $25.2 million from $27.4 million for the 1996 nine months,
resulting principally from existing monthly lease customers
shifting 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 domestic market. These decreases were
partially 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 11.1% for
the 1997 nine months to $15.4 million from $13.9 million for the
1996 nine months. The Company also experienced a 27.5% decrease
in lease license revenue to $9.8 million for the 1997 nine months
from $13.5 million for the 1996 nine months. This decrease was
attributable to both an increase in the renewal 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. Maintenance and service
revenue increased 48.0% for the 1997 nine months to $10.8 million
from $7.3 million for the 1996 nine 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 1997 nine months,
approximately 53.1% and 46.9%, respectively, were attributable
to international and domestic sales, as compared to 50.7% and
49.3%, respectively, for the 1996 nine months.
Cost of Sales and Gross Profit. The Company's total cost of
sales decreased 8.6% to $3.8 million, or 10.5% of total revenue,
for the 1997 nine months from $4.1 million, or 11.9% of total
revenue, for the 1996 nine months. The Company's cost of sales
for software license revenue decreased 12.4% for the 1997 nine
months to $2.0 million, or 8.0% of software license revenue, from
$2.3 million, or 8.4% of software license revenue, for the 1996
nine months. 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 stable at $1.8 million, or 16.3% and 25.0% of
maintenance and service revenue, for the 1997 and 1996 nine
months, respectively.
As a result of the foregoing, the Company's gross profit
increased 5.5% to $32.3 million for the 1997 nine months from
$30.6 million for the 1996 nine months.
Selling and Marketing. Selling and marketing expenses increased
18.0% for the 1997 nine months to $8.5 million, or 23.5% of total
revenue, from $7.2 million, or 20.7% of total revenue, for the
1996 nine months. The planned increase in selling and marketing
expenses resulted primarily from increased personnel costs,
including costs associated with increased headcount and
compensation expenses related to the establishment of a global
sales and marketing organization and establishing strategic
offices in the UK, Michigan and Japan.
Research and Development. Research and development expenses
increased 15.2% for the 1997 nine months to $8.3 million, or
23.1% of total revenue, from $7.2 million, or 20.8% of total
revenue, for the 1996 nine months. 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 continued development
of the Company's DesignSpace(r) products, as well as increased
third party development and consulting costs associated with the
release of ANSYS 5.4.
Amortization. Amortization expense was $2.6 million for the 1997
nine months and $8.1 million for the 1996 nine months. The
decrease was attributable to the full amortization of certain of
the intangible assets which resulted from the 1994 Acquisition,
including goodwill and capitalized software, and which were fully
amortized in the first quarter of 1997.
General and Administrative. General and administrative expenses
increased 8.3% for the 1997 nine months to $6.1 million, or 17.0%
of total revenue, from $5.7 million, or 16.3% of total revenue,
for the 1996 nine months. 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.
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
consulting fees.
Interest. Interest expense, which was zero in the 1997 nine
months, totaled $1.7 million for the 1996 nine months. 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.
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 37.0% for the 1997 nine months, as compared to
37.1% for the 1996 nine months. These percentages are less than
the federal and state combined statutory rate of approximately
39.0% due primarily to the utilization of research and
experimentation credits.
Net Income. The Company's net income in the nine months of 1997
totaled $4.7 million as compared to net income before
extraordinary item of $824,000 and net income including the
extraordinary item of $481,000 in the 1996 nine months. Net
income per share increased to $.28 in the 1997 nine months as
compared to net income before extraordinary item of $.04 per
share and net income including the extraordinary item of $.02 per
share in the 1996 nine months. The increase in net income 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. The weighted
average common and common equivalent shares increased to
16,671,000 in the 1997 nine month period from 14,573,000 in the
1996 nine month period, primarily as a result of the Company's
initial public offering.
Liquidity and Capital Resources
As of September 30, 1997, the Company had cash and cash
equivalents totaling $14.5 million, $10.4 of short-term
investments and working capital of $21.3 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 $9.7 million
for the nine months ended September 30, 1997 and $4.7 million for
the nine months ended September 30, 1996. The increase in the
Company's cash flow from operations for the 1997 nine months as
compared to the 1996 nine months was a 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 nine months ended September 30, 1997.
Cash used in investing activities totaled $12.6 million for the
nine months ended September 30, 1997 and $1.6 million for the
nine months ended September 30, 1996. The increase is principally
due to the purchase of short-term investments in the nine months
ended September 30, 1997, as well as the acquisition of $1.9
million in capital equipment. 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 $300,000 throughout the remainder of
1997, 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 $359,000 for the nine
months ended September 30, 1997 and used net cash of $1.9 million
for the nine months ended September 30, 1996. Cash provided from
financing activities for the 1996 nine month period included the
receipt of $41.0 million of net proceeds from the Company's
initial public offering in June 1996. Cash provided from
financing activities for the 1997 and 1996 nine month periods
also included proceeds from issuance of common stock under
employee stock purchase and option plans. Cash used for
financing activities for the nine months ended September 30, 1996
was the result of repayment of all outstanding indebtedness
related to the 1994 Acquisition and the redemption of Redeemable
Preferred Stock and accumulated dividends.
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, 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 1997 57,834 4 $ 23,243.86
August 1997 10,563 5 $ 7,561.58
September 1997 13,250 2 $ 7,487.50
Item 3. Defaults upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other information
Not Applicable.
Item 6. Exhibits and Reports Filed on Form 8-K
(a) Exhibits.
15 Independent Accountants' Letter Regarding
Unaudited Financial Information
27.1 Financial Data Schedule
99 Certain Factors Regarding Future Results
(b) Reports on Form 8-K.
Not Applicable.
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 7, 1997 By: /s/ Peter J. Smith
Peter J. Smith
Chairman, President and
Chief Executive Officer
Date: November 7, 1997 By: /s/ John M. Sherbin II
John M. Sherbin II
Chief Financial Officer;
Vice President, Finance and
Administration; Secretary
Item 6.
EXHIBIT INDEX
Exhibit
No.
15 Independent Accountants' Letter
Regarding Unaudited Financial
Information
27.1 Financial Data Schedule
99 Certain Factors Regarding Future
Results