1
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, 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)
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 9, 1999 was 16,227,712 shares.
ANSYS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION ---------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1999 and December 31, 1998 2
Condensed Consolidated Statements of
Income and Comprehensive Income - Three
and Nine Months Ended September 30, 1999
and September 30, 1998 3
Condensed Consolidated Statements of
Cash Flows - Nine Months Ended September
30, 1999 and September 30, 1998 4
Notes to Unaudited Condensed Consolidated
Financial Statements 5
Review Report of Independent Accountants 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
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,
1999 1998
__________ __________
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $6,691 $6,589
Short-term investments 48,158 36,138
Accounts receivable, less allowance for
doubtful accounts of $1,850 in 1999 and 7,806 8,943
$1,900 in 1998
Other current assets 2,930 1,848
Deferred income taxes 227 162
--------- ---------
Total current assets 65,812 53,680
Securities available for sale 182 182
Property and equipment, net 3,760 3,748
Capitalized software costs, net 695 426
Goodwill, net 492 424
Other intangibles, net 1,595 1,866
Deferred income taxes 6,734 7,672
----------- ---------
Total assets $ 79,270 $ 67,998
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 55 $ 205
Accrued bonuses 1,470 2,449
Other accrued expenses and liabilities 2,962 3,437
Customer prepayments 186 168
Deferred revenue 10,851 9,372
----------- ---------
Total current liabilities 15,524 15,631
Stockholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized - -
Common stock, $.01 par value; 50,000,000
shares authorized; 16,583,758 and 16,395,938
shares issued in 1999 and 1998 166 164
Additional paid-in capital 37,408 36,657
Retained earnings 26,302 15,676
Accumulated other comprehensive income 120 120
Note receivable from stockholder (250) (250)
----------- ---------
Total stockholders' equity 63,746 52,367
----------- ---------
Total liabilities and stockholders' equity $ 79,270 $ 67,998
=========== =========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
--------- ---------- -------- --------
Revenue:
Software licenses $7,609 $7,884 $26,628 $25,661
Maintenance and service 6,670 5,623 18,913 15,635
--------- ---------- -------- --------
Total revenue 14,279 13,507 45,541 41,296
Cost of sales:
Software licenses 823 818 2,593 2,552
Maintenance and service 757 697 2,261 1,987
--------- ---------- -------- --------
Total cost of sales 1,580 1,515 4,854 4,539
--------- ---------- -------- --------
Gross profit 12,699 11,992 40,687 36,757
Operating expenses:
Selling and marketing 3,387 3,225 11,034 9,448
Research and development 3,109 2,663 9,743 8,694
Amortization 187 218 588 661
General and administrative 2,088 2,309 6,937 6,990
--------- ---------- -------- --------
Total operating expenses 8,771 8,415 28,302 25,793
--------- ---------- -------- --------
Operating income 3,928 3,577 12,385 10,964
Other income 682 533 1,834 1,398
--------- ---------- -------- --------
Income before income tax
provision 4,610 4,110 14,219 12,362
Income tax provision 1,244 1,400 3,593 4,165
--------- ---------- -------- --------
Net income 3,366 2,710 10,626 8,197
Other comprehensive income - - - -
--------- ---------- -------- --------
Comprehensive income $3,366 $2,710 $10,626 $8,197
========= ========== ======== ========
Net income per basic common
share:
Basic earnings per share $0.20 $0.17 $0.65 $0.51
Weighted average shares -
basic 16,504 16,080 16,383 16,006
--------- ---------- -------- --------
Net income per diluted common
share:
Diluted earnings per share $0.20 $0.16 $0.63 $0.49
Weighted average shares -
diluted 16,967 16,672 16,746 16,634
--------- ---------- -------- --------
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,
1999 1998
--------- ---------
Cash flows from operating activities:
Net income $10,626 $8,197
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,041 2,012
Deferred income tax provision 873 587
Provision for bad debts 173 545
Change in operating assets and liabilities:
Accounts receivable 964 164
Other current assets (1,082) 296
Accounts payable, accrued expenses
and liabilities and customer prepayments (1,586) 135
Deferred revenue 1,479 884
--------- ---------
Net cash provided by operating
activities 13,488 12,820
--------- ---------
Cash flows from investing activities:
Capital expenditures (1,532) (707)
Capitalization of internally developed
software costs (487) (322)
Acquisition payment (100) -
Maturities of short-term investments 6,710 6,248
Purchase of short-term investments (18,730) (27,670)
--------- ---------
Net cash used in investing
activities (14,139) (22,451)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common
stock under Employee Stock Purchase Plan 159 168
Proceeds from exercise of stock options 591 28
Proceeds from issuance of treasury stock 9 201
Purchase of treasury stock (6) (5)
--------- ---------
Net cash provided by financing
activities 753 392
--------- ---------
Net increase(decrease) in cash and cash
equivalents 102 (9,239)
Cash and cash equivalents, beginning of
period 6,589 13,990
--------- ---------
Cash and cash equivalents, end of period $6,691 $4,751
========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Income taxes $3,550 $2,695
The accompanying notes are an integral part of the condensed
consolidated financial statements.
ANSYS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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, 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 nine months ended
September 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 September 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 accompanying condensed consolidated balance sheet of
ANSYS, Inc. and Subsidiaries as of September 30, 1999, and the
related condensed consolidated statements of income and
comprehensive income for the three-month and nine-month periods
ended September 30, 1999 and 1998 and the condensed consolidated
statements of cash flows for the nine-month periods ended September 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 accompanying condensed consolidated
interim financial statements 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
cash flows for the year then ended (not presented herein); and 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
October 11, 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 nine-month periods
ended September 30, 1999 and September 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 September 30, 1999 Compared to Three Months
Ended September 30, 1998
Revenue. The Company's total revenue increased 5.7% for the 1999
quarter to $14.3 million from $13.5 million for the 1998 quarter.
This increase primarily resulted from higher maintenance and
service revenue, primarily from maintenance contracts sold in
association with increased paid-up license sales in both the
current and recent quarters. Increased paid-up license revenue
associated with both new sales of paid-up licenses and, to a
lesser extent, conversions of existing leases to paid-up
licenses, also contributed to the overall revenue increase.
Software license revenue decreased 3.5% for the 1999 quarter to
$7.6 million from $7.9 million for the 1998 quarter, resulting
primarily from decreased sales of both noncancellable annual
leases and monthly leases. Noncancellable annual lease license
revenue decreased approximately $700,000. This decrease was attributable
to the conversion of certain leases to paid-up licenses, as well as
a significant noncancellable annual lease sold in the prior year
quarter that is scheduled for renewal in the future. The
Company believes that an increase in its annual lease price as
compared to the prior year was a primary economic factor in
influencing the noncancellable lease conversions. Monthly lease
license revenue decreased approximately $400,000, which is
consistent with recent quarterly trends. 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 noncancellable annual leases, or monthly leases are
converted to paid-up licenses. Decreases in total related lease revenue were
partially offset by increased revenue from the sale of paid-up
licenses. Revenue from the sale of paid-up licenses increased
18.8% to $5.2 million from $4.4 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
analysis product offerings and are sold primarily as paid-up
licenses.
Maintenance and service revenue increased 18.6% for the third
quarter of 1999 to $6.7 million from $5.6 million for the
comparable 1998 quarter. The increase was a result of
maintenance contracts sold in association with the increased paid-
up license sales discussed above. These increases were slightly
offset by reduced revenue associated with the portion of
noncancellable annual leases classified as maintenance and
service revenue. This decrease resulted primarily from a
reduction in noncancellable annual lease sales in both the
current and recent quarters as compared to the comparable prior
year periods.
Of the Company's total revenue for the 1999 quarter,
approximately 56.0% and 44.0%, respectively, were attributable to
international and domestic sales, as compared to 54.2% and 45.8%,
respectively, for the 1998 quarter.
Cost of Sales and Gross Profit. The Company's total cost of
sales increased 4.3% to $1.6 million, or 11.1% of total revenue,
for the 1999 third quarter from $1.5 million, or 11.2% of total
revenue, for the 1998 third 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 revenue.
As a result of the foregoing, the Company's gross profit
increased 5.9% to $12.7 million for the 1999 quarter from $12.0
million for the 1998 quarter.
Selling and Marketing. Total selling and marketing expenses
increased from $3.2 million, or 23.9% of total revenue in the
1998 quarter to $3.4 million, or 23.7% 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 also contributed to the increase. These increases were
partially offset by a reduction in costs associated with the
Company's worldwide users' conference. This biannual event
occurred in 1998 and is next scheduled for the third quarter of
the year 2000.
Research and Development. Research and development expenses
totaled $3.1 million and $2.7 million for the 1999 and 1998
quarters, respectively, or 21.8% and 19.7% 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 acquisition of
Centric Engineering Systems, and to a lesser extent additional
headcount within the corporate product creation group. Reduced
capitalization of internal labor costs in the 1999 third quarter also
contributed to the overall increase. 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 $218,000 in
the prior year quarter to $187,000 for the 1999 quarter. The
reduction primarily related to certain intangible assets,
including capitalized software and a non-compete agreement,
becoming fully amortized during the year.
General and Administrative. General and administrative expenses
decreased from $2.3 million, or 17.1% of total revenue, in the
1998 quarter, to $2.1 million, or 14.6% of total revenue, in the
1999 quarter. The change was primarily the result of a reduction
in bad debt expense.
Other Income. Other income increased 28.0% to $682,000 for the
1999 quarter as compared to $533,000 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 27.0% for the 1999 quarter as compared to 34.0% for the 1998
quarter. The effective rate in 1999 was lower than the 1998 rate
as a result of the increased utilization of the Company's foreign
sales corporation. The 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 third quarters in 1999 and 1998. The
Company anticipates that the effective tax rate in the fourth
quarter of 1999 will remain comparable to that of the 1999 third
quarter.
Net Income. The Company's net income in the 1999 quarter was
$3.4 million as compared to $2.7 million in the 1998 quarter.
Diluted earnings per share increased to $.20 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 increased to 17.0
million in the 1999 quarter from 16.7 million in the 1998
quarter.
Nine Months Ended September 30, 1999 Compared to Nine Months
Ended September 30, 1998
Revenue. The Company's total revenue increased 10.3% for the
1999 nine months to $45.5 million from $41.3 million for the 1998
nine 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 $26.6 million for the 1999 nine
months as compared to $25.7 million for the 1998 nine months, an
increase of 3.8%. The increase resulted principally from an
increase in sales of paid-up licenses. Revenue from sales of paid-
up licenses increased 29.7% for the 1999 nine-month period to
$16.7 million from $12.9 million in the comparable prior year
period. This increase was partially offset by a 41.9% decrease
in monthly lease license revenue to $2.8 million for the 1999
nine months from $4.8 million for the 1998 nine months. This
decrease was attributable to both an increase in the renewal of
existing monthly leases as noncancellable annual leases and
the conversion of certain existing monthly lease licenses 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 21.0% for the 1999 nine-
month period to $18.9 million from $15.6 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 nine months,
approximately 56.7% and 43.3%, respectively, were attributable to
international and domestic sales, as compared to 53.6% and 46.4%,
respectively, for the 1998 nine months.
Cost of Sales and Gross Profit. The Company's total cost of
sales increased 6.9% to $4.9 million, or 10.7% of total revenue,
for the 1999 nine months from $4.5 million, or 11.0% of total
revenue, for the 1998 nine 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 10.7% to $40.7 million for the 1999 nine months from
$36.8 million for the 1998 nine months.
Selling and Marketing. Selling and marketing expenses increased
16.8% for the nine months ended September 30, 1999 to $11.0
million, or 24.2% of total revenue, from $9.4 million, or 22.9%
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 also contributed to the increase.
Research and Development. Research and development costs
increased 12.1% for the 1999 nine months to $9.7 million, or
21.4% of total revenue, from $8.7 million, or 21.1% of total
revenue, for the 1998 nine months. The increase in the 1999
period was substantially the result of increased headcount and
facility costs related to the acquisition of Centric Engineering
Systems, and to a lesser extent additional headcount within the
corporate product creation group. These increases were partially
offset by the capitalization of approximately $410,000 of internal labor
costs related to new commercial product releases in the first
nine months of 1999.
Amortization. Amortization expense decreased from $661,000 for
the 1999 nine-month period to $588,000 for the comparable 1998
period. The reduction primarily related to certain intangible
assets, including capitalized software and a non-compete
agreement, becoming fully amortized during the year.
General and Administrative. General and administrative expenses
remained relatively flat for the 1999 nine months at $6.9
million, or 15.2% of total revenue, as compared to $7.0 million,
or 16.9% of total revenue, for the 1998 nine months. Decreases
in bad debt expense were substantially offset by higher
consulting costs.
Other Income. Other income increased 31.2% to $1.8 million for
the 1999 nine-month period as compared to $1.4 million for the
1998 nine-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 25.3% for the nine months ended September 30, 1999, as
compared to 33.7% 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 Company's foreign sales
corporation as well as increased generation of research and
experimentation credits. 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 the increased
research and experimentation credits.
Net Income. The Company's net income in the first nine months of
1999 totaled $10.6 million as compared to net income of $8.2
million in the first nine months of 1998. As a result of the
increase in net income, diluted earnings per share increased to
$0.63 in the 1999 nine months as compared to diluted earnings per
share of $0.49 in the 1998 nine months. The weighted average
shares used in computing net income per diluted common share
totaled 16.8 million and 16.6 million in the 1999 and 1998 nine-
month periods, respectively.
Liquidity and Capital Resources
As of September 30, 1999, the Company had cash, cash equivalents
and short-term investments totaling $54.8 million and working
capital of $50.3 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 $13.5 million
for the nine months ended September 30, 1999 and $12.8 million
for the nine months ended September 30, 1998. The increase in
the Company's cash flow from operations for the 1999 nine-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 nine-month period.
Net cash used in investing activities totaled $14.1 million for
the 1999 nine months as compared to $22.5 million of cash used in
investing activities for the 1998 nine months. The use of cash in
the 1999 and 1998 nine-month periods primarily related to the
purchase of short-term investments. The Company currently plans
additional capital spending of approximately $400,000 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 $753,000 and $392,000
for the nine months ended September 30, 1999 and 1998,
respectively. Cash provided from financing activities for the
1999 and 1998 nine-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. As reflected in the graphs
below, Phases 4 and 5 are also complete for internal systems which
have been identified as high or critical importance during the
criticality assessment of the Y2K Plan.
[Graph of Remediation Complete]
A bar chart entitled 'Compliance Status Established' in the middle
of page 14 of the 10-Q shows that at 9/30/99 and by 12/31/99 (shown
below each bar) the Company has determined compliance status to be
100% for both periods.
[Graph of Remediation Complete]
A bar chart entitled 'Remediation Complete' in the middle of page 14
of the 10-Q shows that at 9/30/99 and by 12/31/99 (shown below each bar)
the Company has determined remediation to be 100% completed by the
respective dates.
[Graph of Final Certification Testing Complete]
A bar chart entitled 'Final Certification Testing Complete' in the middle
of page 14 of the 10-Q shows that at 9/30/99 and by 12/31/99 (shown below
each bar) the Company has determined final certification testing to be 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 94% 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
July 1999 14,750 7 $7,868.75
August 1999 12,500 6 $5,000.00
September 1999 4,062 4 $3,429.05
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 5, 1999 By: /s/ Peter J. Smith
Peter J. Smith
Chairman and Chief
Executive Officer
Date: November 5, 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