22
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, 1999
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 5,
1999 was 16,558,114 shares.
ANSYS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION ---------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - 3
June 30, 1999 and December 31, 1998
Condensed Consolidated Statements of 4
Income and Comprehensive Income - Three
and Six Months Ended June 30, 1999 and
June 30, 1998
Condensed Consolidated Statements of 5
Cash Flows - Six Months Ended June 30,
1999 and June 30, 1998
Notes to Condensed Consolidated 6
Financial Statements
Review Report of Independent 7
Accountants
Item 2. Management's Discussion and Analysis of 8-17
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 4. Submission of Matters to a Vote of
Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
EXHIBIT INDEX 21
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)
June 30, Dec. 31,
1999 1998
----------- ----------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 17,668 $ 6,589
Short-term investments 33,722 36,138
Accounts receivable, less allowance for
doubtful accounts of $1,940 in 1999
and $1,900 in 1998 8,202 8,943
Other current assets 3,500 1,848
Deferred income taxes 162 162
--------- ---------
Total current assets 63,254 53,680
Securities available for sale 182 182
Property and equipment, net 3,861 3,748
Capitalized software costs, net 617 426
Goodwill, net 421 424
Other intangibles, net 1,671 1,866
Deferred income taxes 7,086 7,672
----------- ---------
Total assets $ 77,092 $ 67,998
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 86 $ 205
Accrued bonuses 1,557 2,449
Other accrued expenses and liabilities 3,363 3,437
Customer prepayments 157 168
Deferred revenue 11,843 9,372
----------- ---------
Total current liabilities 17,006 15,631
Stockholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized - -
Common stock, $.01 par value; 50,000,000
shares authorized; 16,513,788 and
16,395,938 shares issued in 1999 and 165 164
1998
Additional paid-in capital 37,115 36,657
Retained earnings 22,936 15,676
Accumulated other comprehensive income 120 120
Note receivable from stockholder (250) (250)
----------- ---------
Total stockholders' equity 60,086 52,367
----------- ---------
Total liabilities and stockholders'equity $ 77,092 $ 67,998
=========== =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ANSYS, INC. AND SUBIDARIES
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,
1999 1998 1999 1998
---------- ---------- --------- ---------
Revenue:
Software licenses $ 8,982 $ 8,478 $ 19,019 $ 17,777
Maintenance and service 6,412 5,084 12,243 10,012
---------- ---------- --------- ---------
Total revenue 15,394 13,562 31,262 27,789
Cost of sales:
Software licenses 922 843 1,770 1,734
Maintenance and service 727 640 1,504 1,290
--------- --------- --------- ---------
Total cost of sales 1,649 1,483 3,274 3,024
--------- --------- --------- ---------
Gross profit 13,745 12,079 27,988 24,765
Operating expenses:
Selling and marketing 4,084 3,174 7,647 6,223
Research and development 3,189 2,938 6,634 6,031
Amortization 181 222 401 443
General and administrative 2,408 2,193 4,849 4,681
--------- --------- --------- ---------
Total operating expenses 9,862 8,527 19,531 17,378
--------- --------- --------- ---------
Operating income 3,883 3,552 8,457 7,387
Other income 602 508 1,152 865
--------- --------- --------- ---------
Income before income tax provision 4,485 4,060 9,609 8,252
Income tax provision 942 1,340 2,349 2,765
--------- --------- --------- ---------
Net income 3,543 2,720 7,260 5,487
Other comprehensive income
(loss), net of tax:
Unrealized loss on securities - (70) - -
--------- --------- --------- --------
Other comprehensive income (loss) - (70) - -
--------- --------- --------- --------
Comprehensive income $ 3,543 $ 2,650 $ 7,260 $ 5,487
========== ========== ========== =========
Net income per basic common share:
Basic earnings per share $ 0.22 $ 0.17 $ 0.45 $ 0.34
Weighted average shares - basic 16,366 15,986 16,321 15,969
---------- ---------- ---------- -------
Net income per diluted common
share:
Diluted earnings per share $ 0.21 $ 0.16 $ 0.43 $ 0.33
Weighted average shares -
diluted 16,805 16,793 16,753 16,727
---------- ---------- ---------- ------
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)
Six months ended
----------------
June 30, June 30,
1999 1998
--------- ---------
Cash flows from operating activities:
Net income $ 7,260 $ 5,487
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,402 1,342
Deferred income tax provision 586 375
Provision for bad debts 125 295
Change in operating assets and liabilities:
Accounts receivable 616 1,667
Other current assets (1,652) 149
Accounts payable, accrued expenses and
liabilities and customer prepayments (1,096) (1,032)
Deferred revenue 2,471 1,188
-------- --------
Net cash provided by operating activities 9,712 9,471
-------- --------
Cash flows from investing activities:
Capital expenditures (1,176) (554)
Capitalization of internally developed
software costs (332) -
Purchase of short-term investments (4,295) (22,853)
Maturities of short-term investments 6,711 5,247
-------- --------
Net cash provided by (used in) investing
activities 908 (18,160)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock
under Employee Stock Purchase Plan 76 94
Proceeds from issuance of treasury stock 9 176
Purchase of treasury stock (6) -
Proceeds from exercise of stock options 380 -
-------- --------
Net cash provided by financing activities 459 270
-------- --------
Net increase(decrease) in cash and cash equivalents 11,079 (8,419)
Cash and cash equivalents, beginning of period 6,589 13,990
-------- --------
Cash and cash equivalents, end of period $ 17,668 $ 5,571
======== =========
Supplemental disclosures of cash flow
Information:
Cash paid during the period for:
Income taxes $ 3,479 $ 2,455
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ANSYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(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, 1999 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, 1998.
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, 1999 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1999.
2. ACCUMULATED OTHER COMPREHENSIVE INCOME
As of June 30, 1999 and 1998, accumulated other comprehensive
income, as reflected on the condensed consolidated balance
sheets, was comprised of unrealized gains on securities available
for sale.
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, 1999, and the related
condensed consolidated statements of income and comprehensive
income for the three month and six month periods ended June 30,
1999 and 1998, and condensed consolidated cash flows for the six
month periods ended June 30, 1999 and 1998. 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 and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to 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, 1998, and the related
consolidated statements of income, stockholders' equity and of
cash flows for the year then ended (not presented herein). In
our report dated January 28, 1999, 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, 1998, 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 20, 1999
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
resellers and dealers (value-added resellers or "VARs"). 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, 1999 and June 30, 1998 and with the Company's audited
financial statements and notes thereto for the fiscal year ended
December 31, 1998.
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 monthly
lease revenue, expectations of sales growth in the Company's
DesignSpace and ANSYS/Professional products, the Company's
intentions related to continued investments in 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 and
comments regarding the effective tax rate 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
1998 Annual Report to Shareholders and in "Certain Factors
Regarding Future Results" included herein as Exhibit 99 to this
Form 10-Q.
Results of Operations
Three Months Ended June 30, 1999 Compared to Three Months Ended
June 30, 1998
Revenue. The Company's total revenue increased 13.5% for the
1999 quarter to $15.4 million from $13.6 million for the 1998
quarter. This increase primarily resulted from an increase in
revenue from paid-up licenses associated with increased sales of
new paid-up licenses during the quarter, and to a much lesser
extent, the conversion of existing leases to paid-up licenses.
Higher maintenance and service revenue, resulting from broader
customer usage of such services and the Company's continued
emphasis on marketing these services, also contributed to the
overall increase.
Software license revenue increased 5.9% for the 1999 quarter to
$9.0 million from $8.5 million for the 1998 quarter, resulting
primarily from increased sales of paid-up licenses. Revenue from
the sale of paid-up licenses increased 33.5% to $6.1 million from
$4.6 million in the prior year quarter. The Company anticipates
that revenue from the 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 analysis product offerings and are sold
primarily as paid-up licenses. Consistent with recent quarterly
trends, the increase in sales of paid-up licenses was partially
offset by an $800,000 reduction in monthly lease license revenue.
This decrease was principally attributable to the conversion of
existing monthly leases to either noncancelable annual lease
licenses or to paid-up licenses. The Company believes that the
reduction in monthly lease license revenue on a quarterly
comparison basis will continue throughout the remainder of 1999
as existing monthly leases are renewed and new licenses are sold
as noncancelable annual leases, or monthly leases are converted
to paid-up licenses. The paid-up license revenue increase was
also partially offset by a reduction in noncancellable annual
lease revenue that the Company believes was principally the
result of an increase in its annual lease price as compared to
the prior year.
Maintenance and service revenue increased 26.1% for the second
quarter of 1999 to $6.4 million from $5.1 million for the
comparable 1998 quarter. The increase was a result of
maintenance contracts sold in association with the new paid-up
license sales discussed above, as well as a broader customer
usage of support services and the Company's increased emphasis on
marketing these services. These increases were partially offset
by reduced revenue associated with the portion of noncancellable
annual leases classified as maintenance and service revenue.
This decrease resulted primarily from a refinement of
management's estimate relative to the allocation of
noncancellable annual lease revenue between paid-up license and
maintenance and service revenue, which occurred in the first
quarter of 1998 and, to a lesser extent, a reduction in
noncancellable annual lease sales in the current year quarter as
compared to the comparable prior year quarter.
Of the Company's total revenue for the 1999 quarter,
approximately 57.9% and 42.1%, respectively, were attributable to
international and domestic sales, as compared to 52.7% and 47.3%,
respectively, for the 1998 quarter.
Cost of Sales and Gross Profit. The Company's total cost of
sales increased 11.2% to $1.6 million, or 10.7% of total revenue,
for the 1999 second quarter from $1.5 million, or 10.9% of total
revenue, for the 1998 second quarter. The increase in the 1999
quarter was principally attributable to higher salaries and
related expenses associated with increased headcount to support
the growth in license and service sales.
As a result of the foregoing, the Company's gross profit
increased 13.8% to $13.7 million for the 1999 quarter from $12.1
million for the 1998 quarter.
Selling and Marketing. Total selling and marketing expenses
increased from $3.2 million, or 23.4% of total revenue in the
1998 quarter to $4.1 million, or 26.5% of total revenue in the
1999 quarter. The increase primarily resulted from additional
headcount and facility costs associated with recently established
strategic direct sales offices in Houston, Texas; Minneapolis,
Minnesota and New England, as well as increased costs associated
with the Company's expanded presence in China and a slightly
revised sales model in Detroit. Higher commission costs related
to direct sales to certain of the Company's major account
customers in the quarter also contributed to the increase.
Research and Development. Research and development expenses
totaled $3.2 million and $2.9 million for the 1999 and 1998
quarters, respectively, or 20.7% and 21.7% of total revenue in
each respective quarter. The increase in the 1999 quarter as
compared to the 1998 quarter was principally related to increased
headcount and facility costs associated with the recent
acquisition of Centric Engineering Systems, and to a lesser
extent additional headcount within the corporate product creation
group. The Company has traditionally invested significant
resources in research and development activities and intends to
continue to make significant investments through the remainder of
1999.
Amortization. Amortization expense decreased from $222,000 in
the prior year quarter to $181,000 for the 1999 quarter. The
reduction primarily related to certain intangible assets,
including capitalized software and a non-compete agreement,
becoming fully amortized.
General and Administrative. General and administrative expenses
increased from $2.2 million, or 16.2% of total revenue, in the
1998 quarter, to $2.4 million, or 15.6% of total revenue, in the
1999 quarter. The change was primarily the result of increased
consulting costs. These costs were partially offset by a
reduction in bad debt expense.
Other Income. Other income increased 18.5% to $602,000 for the
1999 quarter as compared to $508,000 for the 1998 quarter. This
increase was attributable to higher interest-bearing cash and
short-term investment balances in 1999.
Income Tax Provision. The Company's effective rate of taxation
was 21.0% for the 1999 quarter as compared to 33.0% for the 1998
quarter. The effective rate in 1999 was lower than the 1998 rate
as a result of the increased utilization of both research and
experimentation credits and the Company's foreign sales
corporation, as well as a one-time tax benefit related to an
amended prior year tax return. The research and experimentation
credits and foreign sales corporation utilization favorably
impacted the effective tax rates and resulted in such rates being
less than the federal and state combined statutory rates for each
of the second quarters in 1999 and 1998. The Company anticipates
that the effective tax rate will increase in the remaining
quarters of 1999 to a level more comparable to the 27.5%
experienced in the 1999 first quarter.
Net Income. The Company's net income in the 1999 quarter was
$3.5 million as compared to $2.7 million in the 1998 quarter.
Diluted earnings per share increased to $.21 in the 1999 quarter
as compared to $.16 in the 1998 quarter as a result of the
increase in net income. The weighted average shares used in
computing net income per diluted common share were 16.8 million
in each of the 1999 and 1998 quarters.
Six Months Ended June 30, 1999 Compared to Six Months
Ended June 30, 1998
Revenue. The Company's total revenue increased 12.5% for the
1999 six months to $31.3 million from $27.8 million for the 1998
six months. This increase was attributable primarily to an
increase in revenue from 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 from broader customer
usage of such services and the Company's continued emphasis on
marketing these services, also contributed to the overall
increase.
Software license revenue totaled $19.0 million for the 1999 six
months as compared to $17.8 million for the 1998 six months, an
increase of 7.0%. The increase resulted principally from an
increase in sales of paid-up licenses. Revenue from the sale of
paid-up licenses increased 35.4% for the 1999 six-month period to
$11.5 million from $8.5 million in the comparable prior year
period. This increase was partially offset by a 47.7% decrease
in monthly lease license revenue to $1.8 million for the 1999 six
months from $3.4 million for the 1998 six months. This decrease
was attributable to both an increase in the renewal of existing
monthly leases as noncancellable annual leases and to the
conversion of certain existing monthly lease licenses to paid-up
licenses.
Maintenance and service revenue increased 22.3% for the 1999 six-
month period to $12.2 million from $10.0 million for the
comparable 1998 period. The increase was primarily the result of
maintenance contracts sold in association with the paid-up
license sales discussed above, as well as broader customer usage
of support services and the Company's continued emphasis on
marketing these services. These increases were partially offset
by reduced revenue associated with the portion of noncancellable
annual leases classified as maintenance and service revenue.
This decrease resulted from the refinement of management's
estimate relative to the allocation of noncancellable annual
lease revenue between paid-up license revenue and maintenance and
service revenue, which occurred in the first quarter of 1998.
Of the Company's total revenue for the 1999 six months,
approximately 56.9% and 43.1%, respectively, were attributable to
international and domestic sales, as compared to 53.4% and 46.6%,
respectively, for the 1998 six months.
Cost of Sales and Gross Profit. The Company's total cost of
sales increased 8.3% to $3.3 million, or 10.5% of total revenue,
for the 1999 six months from $3.0 million, or 10.9% of total
revenue, for the 1998 six months. The increase in the 1999 period
was principally attributable to higher salaries and related
expenses associated with increased headcount to support the
growth in license and service sales.
As a result of the foregoing, the Company's gross profit
increased 13.0% to $28.0 million for the 1999 six months from
$24.8 million for the 1998 six months.
Selling and Marketing. Selling and marketing expenses increased
22.9% for the six months ended June 30, 1999 to $7.6 million, or
24.5% of total revenue, from $6.2 million, or 22.4% of total
revenue, for the comparable 1998 period. The increase was
primarily the result of additional headcount and facility costs
associated with recently established strategic direct sales
offices in Houston, Texas; Minneapolis, Minnesota and New
England, as well as the Company's expanded presence in China and
a slightly revised sales model in Detroit. Higher commission
costs associated with several direct sales to major account
customers during the second quarter also contributed to the
increase.
Research and Development. Research and development costs
increased 10.0% for the 1999 six months to $6.6 million, or 21.2%
of total revenue, from $6.0 million, or 21.7% of total revenue,
for the 1998 six months. The increase in the 1999 period was
substantially the result of increased headcount and facility
costs related to the recent acquisition of Centric Engineering
Systems, and to a lesser extent additional headcount within the
corporate product creation group. These increases were partially
offset by approximately $250,000 of capitalized internal labor
costs related to new commercial product releases in the first six
months of 1999.
Amortization. Amortization expense remained comparable at
$401,000 and $443,000 in the respective 1999 and 1998 six-month
periods.
General and Administrative. General and administrative expenses
increased 3.6% for the 1999 six months to $4.8 million, or 15.5%
of total revenue, from $4.7 million, or 16.8% of total revenue,
for the 1998 six months. Higher consulting costs, as well as
increased salaries and related headcount expenses from the
addition of internal resources needed to support the Company's
global operations and infrastructure were partially offset by a
decrease in bad debt expense.
Other Income. Other income increased 33.2% to $1.2 million for
the 1999 six-month period as compared to $865,000 for the 1998
six-month period. This increase was attributable to higher
interest-bearing cash and short-term investment balances in 1999.
Income Tax Provision. The Company's effective rate of taxation
was 24.4% for the six months ended June 30, 1999, as compared to
33.5% for the comparable 1998 period. The decrease in the 1999
rate as compared to that of the prior year period was a result of
increased utilization of both research and experimentation
credits and the Company's foreign sales corporation. The 1999
rate was also favorably impacted by a one-time tax benefit in the
second quarter related to an amended prior year tax return.
These percentages are less than the federal and state combined
statutory rate due primarily to the use of a foreign sales
corporation, as well as utilization of research and
experimentation credits.
Net Income. The Company's net income in the first six months of
1999 totaled $7.3 million as compared to net income of $5.5
million in the first six months of 1998. As a result of the
increase in net income, diluted earnings per share increased to
$0.43 in the 1999 six months as compared to diluted earnings per
share of $0.33 in the 1998 six months. The weighted average
shares used in computing net income per diluted common share
totaled 16.8 million and 16.7 million in the 1999 and 1998 six-
month periods, respectively.
Liquidity and Capital Resources
As of June 30, 1999, the Company had cash, cash equivalents and
short-term investments totaling $51.4 million and working capital
of $46.2 million, as compared to cash, cash equivalents and short-
term investments of $42.7 million and working capital of $38.0
million at December 31, 1998. 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 $9.7 million
for the six months ended June 30, 1999 and $9.5 million for the
six months ended June 30, 1998. The increase in the Company's
cash flow from operations for the 1999 six-month period as
compared to the comparable 1998 period was a result of increased
earnings which were partially offset by higher income tax
payments. 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 1999 six-month period.
Net cash provided by investing activities totaled $908,000 for
the 1999 six months as compared to $18.2 million of cash used in
investing activities for the 1998 six months. The cash provided
in the 1999 six-month period resulted primarily from maturities
of short-term investments and was partially offset by purchases
of short-term investments and capital expenditures. The use of
cash in the 1998 six-month period primarily related to the
purchase of short-term investments. The Company currently plans
additional capital spending of approximately $1.0 million
throughout the remainder of 1999; 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 $459,000 and $270,000
for the six months ended June 30, 1999 and 1998, respectively.
Cash provided from financing activities for the 1999 and 1998 six-
month periods principally related to proceeds from the issuance
of common stock and treasury 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 through the remainder of fiscal 1999.
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.
Management's Assessment of the Year 2000
The year 2000 ("Y2K") problem refers to the inability of software
to process date information later than December 31, 1999. Date
codes in many software programs are abbreviated to allow only two
digits for the year. Software with date-sensitive functions that
is not year 2000 compliant may not be able to distinguish whether
"00" means 1900 or 2000. When that happens, some software will
not work at all and other software will suffer critical
calculation and other processing errors. Hardware and other
products with embedded chips may also experience problems.
Software Products. The Company provides analysis and engineering
software for optimizing the design of new products. The
functionality offered by these products is generally not date
dependent and consequently the Company's software products have
minimal date sensitivities or dependencies.
The current releases of the Company's ANSYS and DesignSpace
products are Y2K Compliant, as defined below. Management
believes that substantially all of its 1998 and 1999 license and
service revenue has been derived from the sale of Y2K Compliant
products and services. The Company defines "Y2K Compliant" as
the ability to meet the British Standards Institution DISC PD
2000-1: Year 2000 conformity requirements. This definition
provides that Year 2000 conformity shall mean that neither
performance nor functionality is affected by dates prior to,
during or after the year 2000.
The Company began shipping Y2K Compliant ANSYS products beginning
in 1997 with Release 5.4. The Company believes that versions of
the ANSYS products shipped between 1993 and 1996 should function
after December 31, 1999. However, the Company cannot make a
definitive statement regarding these products because they have
not been tested for Y2K compliance on all platforms or on all
versions of operating systems. Consequently, the Company has
advised its customers who may still be using these older versions
to (a) upgrade to later releases of the Company's software, and
(b) verify that their platforms and operating systems support the
transition to the year 2000. ANSYS products shipped prior to
1993 will not function after December 31, 1999 and the Company
has continually advised its customers to upgrade such products to
newer versions.
The Company began shipping Y2K Compliant DesignSpace products
beginning in 1996 with release 2.0, with the exception that the
report generator utility contained in the DesignSpace product may
or may not be Y2K Compliant. The report generator extensively
utilizes many Microsoft components whose Y2K compliance has not
yet been determined; consequently, the DesignSpace report
generator utility may or may not be Y2K Compliant.
Some commentators have predicted significant litigation regarding
Y2K compliance issues, and the Company is aware of such lawsuits
against other software vendors. Because of the unprecedented
nature of such litigation, it is uncertain whether, or to what
extent, the Company may be affected. However, at this time the
Company believes that the existence of earlier versions of its
products that are not Y2K Compliant is not likely to have a
material adverse effect on the Company's financial position or
results of operations.
Internal Systems. The Company has developed a Year 2000 Project
Plan ("Y2K Plan") that addresses both information technology
("IT") systems (i.e., business systems and the software
development environment) and other systems such as elevators,
building security and HVAC systems.
The Y2K Plan includes five phases: 1) raising Company awareness,
2) a company-wide system inventory, 3) criticality assessment, 4)
implementation (including remediation, upgrading and/or
replacement of certain systems) and 5) compliance certification
testing. Phases 1-3 are complete. Phase 4 (implementation) and
Phase 5 (compliance certification testing) are underway in an
iterative process which is intended to respond to the results of
compliance testing. The following graphs present information on
the Company's current overall status of the implementation and
compliance phases of the Y2K Plan, as well as information
regarding expected final testing completion dates. The
information provided in these graphs specifically relates to
internal systems which have been identified as high or critical
importance during the criticality assessment of the Y2K Plan.
[Graph of Compliance Status Established]
A bar chart entitled 'Compliance Status Established' at the
bottom of page 15 of the 10-Q shows that at 6/30/99 and by
9/30/99 and 12/31/99 (shown below each bar) the Company has
determined compliance status to be 100% for all periods.
[Graph of Remediation Complete]
A bar chart entitled 'Remediation Complete' at the bottom of
page 15 of the 10-Q shows that at 6/30/99 and by 9/30/99 and
12/31/99 (shown below each bar) the Company has determined
remediation to be 99%, 100% and 100% completed by the
respective dates.
[Graph of Final Certification Testing Complete]
A bar chart entitled 'Final Certification Testing Complete' at
the bottom of page 15 of the 10-Q shows that at 6/30/99 and by
9/30/99 and 12/31/99 (shown below each bar) the Company
has determined final certification testing to be 99%, 100% and
100% completed by the respective dates.
Cost of Year 2000 Compliance Efforts. The Company has funded its
Y2K Plan from operating cash flows and has not separately
accounted for related costs in the past, partly because the
responsibilities and costs are distributed throughout the
organization and represent a small percentage of total operating
costs. The Company's current estimate of total costs to the
Company for achieving Y2K compliance is approximately $500,000
over three years (1997 - 2000), with about ninety percent of
those costs estimated to already have been incurred.
Implementing the Y2K Plan has caused some delays in other planned
IT initiatives; however, these delays have not had a material
effect on the Company's operations. There can be no assurance,
however, that there will not be a delay in the completion of the
Y2K Plan. Such a delay could have a material adverse effect on
future results of operations. The Company may experience
unforeseen problems and costs related to Y2K compliance that
could materially adversely affect the Company's business, results
of operations and financial condition.
Risks and Contingencies. During the 1999 second quarter, the
Company finalized a comprehensive Y2K contingency plan to address
situations that may result if the Company is unable to achieve
Y2K readiness of its critical systems.
Third Party Relationships. The Company has contacted its
distributors and key vendors regarding their Y2K compliance
efforts. Although the Company has received information from some
of its distributors and vendors regarding their Y2K compliance
efforts, there can be no assurance that the Company will not
experience disruptions in its ability to conduct business because
of Y2K problems experienced by the Company's distributors or
vendors. The Company has no practical means to verify Y2K
compliance of independent distributors and vendors who have not
yet responded. To the extent that its key distributors or
vendors experience problems relative to achieving Y2K compliance,
the Company could suffer unanticipated revenue losses.
In addition, the Company does not currently have meaningful
information concerning the Y2K compliance status of its
customers. As is the case with other software companies, if
significant numbers of the Company's current or future customers
fail to achieve Y2K compliance, or if they divert technology
expenditures away from those that were reserved for computer
aided engineering ("CAE") software to address Y2K compliance
problems, the Company's business, results of operations or
financial condition could be materially adversely affected.
Qualification. The Year 2000 discussion above contains various
forward-looking statements which represent the Company's beliefs
or expectations regarding future events. When used in the Year
2000 discussion, the words "believes", "expects", "estimates" and
other similar expressions are intended to identify forward-
looking statements. Forward-looking statements include, without
limitation, the Company's expectations as to when it and its
significant distributors, customers and suppliers will complete
the implementation and compliance phases of the Y2K Plan; its
estimated costs related to the Y2K Plan; the effect of earlier
versions of the Company's products or Y2K problems experienced by
key distributors, vendors or customers; and the Company's belief
that its internal systems and equipment will be Y2K Compliant in
a timely manner. All forward-looking statements involve a number
of risks and uncertainties that could cause the actual results to
differ materially from the projected results. Factors that may
cause these differences include, but are not limited to, the
availability of qualified personnel and other information
technology resources, the ability to identify and remediate all
date-sensitive lines of code or to replace embedded chips in
affected systems or equipment, unanticipated delays or expenses
related to remediation and the actions of independent third
parties with respect to Year 2000 problems.
The statements in the previous section include "Year 2000
Readiness Disclosures" within the meaning of the Year 2000
Information and Readiness Disclosure Act of 1998.
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 early stages 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 does not currently believe that the
conversion will have a material adverse impact on the Company's
financial position or results of operations.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
which defines derivatives, requires that all derivatives be
carried at fair value and provides for hedge accounting when
certain conditions are met. The Standard was effective for all
fiscal quarters of fiscal years beginning after June 15, 1999.
Recently, the FASB delayed the effective date of this Statement
for one year through the issuance of Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS No. 133 and an Amendment
of SFAS No. 133." The Company is currently in the process of
evaluating the prospective impact of Statement No. 133 on its
financial position and 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. These
options were 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 1999 10,500 2 $4,637.50
May 1999 85,832 3 $203,184.30
June 1999 5,312 2 $2,835.30
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 5, 1999, the stockholders of the Company
elected John F. Smith as a Class III Director of the
Company to hold office until the 2002 Annual Meeting of
Stockholders and until such Director's successor is
duly elected and qualified. The votes were as follows:
Votes For: 15,068,776
Votes Withheld: 377,729
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: August 9, 1999 By: /s/ Peter J. Smith
Peter J. Smith
Chairman and Chief
Executive Officer
Date: August 9, 1999 By: /s/ Maria T. Shields
Maria T. Shields
Chief Financial Officer
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