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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-20853
ANSYS, Inc.
(exact name of registrant as specified in its charter)
DELAWARE 04-3219960
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
275 Technology Drive, Canonsburg, PA 15317
(Address of principal executive offices) (Zip Code)
724-746-3304
(Registrant's telephone number, including area code)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
---- ----
The number of shares of the Registrant's Common Stock, par value $.01
per share, outstanding as of August 11 ,1998 was 16,381,482 shares.
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ANSYS, INC. AND SUBSIDIARIES
INDEX
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<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of
Income and Comprehensive Income - Three
and Six Months Ended June 30, 1998 and 4
June 30, 1997
Condensed Consolidated Statements of
Cash Flows - Six Months Ended June 30,
1998 and June 30, 1997 5
Notes to Condensed Consolidated
Financial Statements 6
Review Report of Independent Accountants 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-13
PART II. OTHER INFORMATION
Item 2. Changes in Securities 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBIT 17
INDEX
</TABLE>
Trademarks used in this Form 10-Q: ANSYS(R) and DesignSpace(R) are registered
trademarks of SAS IP, Inc., a wholly-owned subsidiary of ANSYS, Inc.
2
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1998 1997
-------------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,571 $13,990
Short-term investments 31,459 13,853
Accounts receivable, less allowance for
doubtful accounts of $1,500 in 1998 and
$2,080 in 1997 6,072 8,034
Refundable and prepaid income taxes 470 -
Other current assets 777 926
Deferred income taxes 80 125
--------- ---------
Total current assets 44,429 36,928
Securities available for sale 182 182
Property and equipment, net 4,297 4,771
Capitalized software costs, net of
accumulated amortization of $15,532 in
1998 and $15,471 in 1997 199 260
Other intangibles, net 2,120 2,374
Deferred income taxes 8,736 9,066
----------- ---------
Total assets $59,963 $53,581
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 180 $ 235
Accrued bonuses 1,322 2,133
Other accrued expenses and liabilities 3,206 2,562
Accrued income taxes payable - 46
Customer prepayments 452 746
Deferred revenue 8,633 7,445
----------- ---------
Total liabilities 13,793 13,167
Stockholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized - -
Common stock, $.01 par value; 50,000,000
shares authorized; 16,359,134 shares
issued in 1998 and 1997 164 164
Additional paid-in capital 36,349 36,089
Less treasury stock, at cost: 6,041
shares held in 1998 and 68,800 shares
held in 1997 (3) (12)
Retained earnings 9,814 4,327
Accumulated other comprehensive income 120 120
Notes receivable from stockholders (274) (274)
----------- ---------
Total stockholders' equity 46,170 40,414
----------- ---------
Total liabilities and stockholders' equity
$59,963 $53,581
=========== =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
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ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
---------------------------- ------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
---------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenue:
Software licenses $ 8,478 $ 8,835 $17,777 $17,940
Maintenance and service 5,084 3,722 10,012 6,631
---------- ------- --------- -------
Total revenue 13,562 12,557 27,789 24,571
Cost of sales:
Software licenses 843 734 1,734 1,355
Maintenance and service 640 592 1,290 1,162
--------- ------- --------- -------
Total cost of sales 1,483 1,326 3,024 2,517
--------- ------- --------- -------
Gross profit 12,079 11,231 24,765 22,054
Operating expenses:
Selling and marketing 3,174 2,746 6,223 5,724
Research and development 2,938 3,033 6,031 5,803
Amortization 222 177 443 2,430
General and administrative 2,193 1,941 4,681 3,864
--------- ------- --------- -------
Total operating expenses 8,527 7,897 17,378 17,821
--------- ------- --------- -------
Operating income 3,552 3,334 7,387 4,233
Other income 508 274 865 421
--------- ------- --------- -------
Income before income tax provision 4,060 3,608 8,252 4,654
Income tax provision 1,340 1,334 2,765 1,721
--------- ------- --------- -------
Net income 2,720 2,274 5,487 2,933
Other comprehensive income(loss), net of tax:
Unrealized losses on securities (70) (180) - (200)
--------- ------- --------- -------
Other comprehensive income (loss) (70) (180) - (200)
Comprehensive income $ 2,650 $ 2,094 $ 5,487 $ 2,733
========== ======= ========== =======
Net income per basic common share:
Basic earnings per share $0.17 $0.15 $0.34 $0.19
Weighted average shares - basic 15,986 15,639 15,969 15,635
Net income per diluted common share:
Diluted earnings per share $0.16 $0.14 $0.33 $0.18
Weighted average shares - diluted 16,793 16,635 16,727 16,603
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
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ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended
-------------------------------
June 30, June 30,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,487 $ 2,933
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,342 3,088
Deferred income tax provision(benefit) 375 (13)
Provision for bad debts 295 280
Change in operating assets and liabilities:
Accounts receivable 1,667 80
Income taxes (516) (677)
Other current assets 149 (1,275)
Accounts payable, accrued expenses and
liabilities and customer prepayments (516) (796)
Deferred revenue 1,188 2,849
--------- ---------
Net cash provided by operating activities 9,471 6,469
--------- ---------
Cash flows from investing activities:
Capital expenditures (554) (1,635)
Capitalization of internally developed software
costs - (70)
Proceeds from sales of short-term investments 5,247 -
Purchase of short-term investments (22,853) (4,068)
--------- ---------
Net cash used in investing activities (18,160) (5,773)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock under
employee stock purchase plan 94 157
Proceeds from issuance of treasury stock 176 -
Proceeds from exercise of stock options - 10
Repayment of stockholder notes - 28
--------- ---------
Net cash provided by financing activities 270 195
--------- ---------
Net (decrease)increase in cash and cash equivalents (8,419) 891
Cash and cash equivalents, beginning of period 13,990 17,069
--------- ---------
Cash and cash equivalents, end of period $ 5,571 $17,960
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 2,455 $ 2,420
Supplemental non cash investing and financing
activities:
Decrease in securities available for sale - (200)
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
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ANSYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements included
herein have been prepared by ANSYS, Inc. (the "Company") in accordance with
generally accepted accounting principles for interim financial information for
commercial and industrial companies and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. The financial statements as of and for the three and
six months ended June 30, 1998 should be read in conjunction with the Company's
consolidated financial statements (and notes thereto) included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
Accordingly, the accompanying statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation of the financial statements have been
included, and all adjustments are of a normal and recurring nature. Operating
results for the three months and six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
2. NET INCOME PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No.128, "Earnings per Share." The Statement requires the
disclosure of basic and diluted earnings per share and revises the method
required to calculate these amounts under previous standards. Earnings per share
data for the three and six month periods ended June 30, 1997 have been restated
to reflect the adoption of this Statement. The adoption of this standard did
not materially impact previously reported earnings per share for the three and
six months periods ended June 30, 1997. The total shares issuable upon exercise
of dilutive outstanding restricted stock and stock options, which are included
in the calculation of diluted earnings per share, totaled 807,000 and 996,000
and 758,000 and 968,000 for the three and six month periods ending June 30, 1998
and 1997, respectively.
3. ACCUMULATED OTHER COMPREHENSIVE INCOME BALANCES
(in thousands)
Accumulated
Unrealized Other
Gains on Comprehensive
Securities Income
---------- ------
Beginning balance $120 $120
Current-period change -- --
Ending balance $120 $120
---- ----
6
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REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
----------------------------------------
To the Shareholders and Board of Directors of
ANSYS, Inc. and Subsidiaries:
We have reviewed the condensed consolidated balance sheet of ANSYS, Inc. and
Subsidiaries as of June 30, 1998, the related condensed consolidated statements
of income and comprehensive income for the three-month and six-month periods
ended June 30, 1998 and 1997, and condensed consolidated cash flows for the six-
month periods ended June 30, 1998 and 1997. These financial statements are the
responsibility of ANSYS's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
an expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of ANSYS, Inc. and Subsidiaries as of
December 31, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended (not presented
herein). In our report dated January 29, 1998, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1997, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
- -----------------------------
Pittsburgh, Pennsylvania
July 14, 1998
7
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANSYS, Inc. (the "Company") is a leading international supplier of analysis and
engineering software for optimizing the design of new products. The Company is
committed to providing the most open and flexible analysis solutions to suit
customer requirements for engineering software in today's competitive
marketplace. In addition, the Company partners with leading design software
suppliers to develop state-of-the-art computer-aided design ("CAD") integrated
products. A global network of ANSYS Support Distributors ("ASDs") provides
sales, support and training for customers. Additionally, the Company
distributes its DesignSpace(R) products through its global network of ASDs, as
well as a network of independent distributors and dealers (value-added resellers
or "VARs") who support sales of DesignSpace(R) products to end users throughout
the world. The following discussion should be read in conjunction with the
attached unaudited condensed consolidated financial statements and notes thereto
for the three-month and six-month periods ended June 30, 1998 and June 30, 1997
and with the Company's audited financial statements and notes thereto for the
fiscal year ended December 31, 1997.
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including statements which contain such words as "anticipate",
"intend", "believe", "plan" and other similar expressions. The Company's actual
results could differ materially from those set forth in the forward-looking
statements. Certain factors that might cause such a difference include
uncertainties regarding customer acceptance of new products, possible delays in
developing, completing or shipping new or enhanced products, potential
volatility of revenues and profit in any period due to, among other things,
lower than expected demand for or the ability to complete large contracts,
regional economies, as well as other risks and uncertainties that are detailed
in the "Management's Discussion and Analysis of Financial Condition and Results
of Operations" section in the 1997 Annual Report to Shareholders , and in the
statement of "Certain Factors Affecting Future Results" included herein as
Exhibit 99 to this Form 10-Q.
Results of Operations
Three Months Ended June 30, 1998 Compared to Three Months
Ended June 30, 1997
Revenue. The Company's total revenue for the 1998 quarter increased 8.0% to
$13.6 million from $12.6 million for the 1997 quarter. The increase was
primarily related to an increase in maintenance revenue, which resulted from
broader customer usage of maintenance and support services and the Company's
continued emphasis on marketing these services. The increase in maintenance
revenue was partially offset by a decrease in software license revenues, as
discussed in further detail below.
Software license revenue totaled $8.5 million for the 1998 quarter as compared
to $8.8 million for the 1997 quarter, a 4.0% decrease. This decrease principally
resulted from a 50.0% reduction in monthly lease license revenue to $1.7
8
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million for the 1998 quarter from $3.3 million for the 1997 quarter. This
decrease was attributable to both an increase in the renewal and sales of
existing monthly leases as noncancellable annual leases, as well as the
conversion of certain existing lease licenses to paid-up licenses throughout the
course of the past year. The decrease in monthly lease revenue was partially
offset by an increase in revenue attributable to the portion of noncancellable
annual license fees which are recognized as paid-up revenue upon renewal or
inception of the lease. Revenue from the sales of paid-up licenses remained
stable at $4.6 million for each of the 1998 and 1997 quarters.
Maintenance and service revenue increased 36.6% for the 1998 quarter to $5.1
million from $3.7 million for the 1997 quarter, as a result of broader customer
usage of maintenance and support services and the Company's increased emphasis
on marketing these services, as well as an increase in the renewal and sale of
noncancellable annual leases.
Of the Company's total revenue for the 1998 quarter, approximately 52.65% and
47.35%, respectively, were attributable to international and domestic sales, as
compared to 54.2% and 45.8%, respectively, for the 1997 quarter.
Cost of Sales and Gross Profit. The Company's total cost of sales increased
11.8% to $1.5 million, or 10.9% of total revenue, for the 1998 quarter from $1.3
million, or 10.6% of total revenue, for the 1997 quarter. The Company's cost of
sales for software license revenue increased 14.9% for the 1998 quarter to
$843,000, or 9.9% of software license revenue, from $734,000, or 8.3% of
software license revenue, for the 1997 quarter. The increase was
attributable to additional headcount and related costs, as well as an increase
in royalty fees. The Company's cost of sales for maintenance and service
revenue, which totaled $640,000 and $592,000, or 12.6% and 15.9% of maintenance
and service revenue, for the 1998 and 1997 quarters, respectively, remained
relatively constant in terms of total dollars.
As a result of the foregoing, the Company's gross profit increased 7.6% to $12.1
million for the 1998 quarter from $11.2 million for the 1997 quarter.
Selling and Marketing. Selling and marketing expenses increased 15.6% for the
1998 quarter to $3.2 million, or 23.4% of total revenue, from $2.7 million, or
21.9% of total revenue, for the 1997 quarter. During the 1998 quarter, the
Company incurred increased consulting fees, sales support expenses and
advertising costs, as well as increased office expenses associated with
strategic office locations in the UK, Japan and China, as compared to the 1997
quarter. The Company anticipates that it will continue to make significant
investments in its global sales and marketing organization to strengthen its
competitive position and to support its worldwide sales channels and marketing
strategies.
Research and Development. Research and development expenses, totaled $2.9
million and $3.0 million for the 1998 and 1997 quarters, or 21.7% and 24.2% of
total revenue, respectively. The decrease is primarily attributable to
reductions in third party development fees and outside labor costs during the
1998 quarter. The Company has traditionally invested significant resources in
research and development activities and
9
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intends to continue to make significant investments in the future.
Amortization. Amortization expense remained relatively consistent at $222,000
and $177,000 in the 1998 and 1997 quarter, respectively.
General and Administrative. General and administrative expenses increased 13.0%
to $2.2 million, or 16.2% of total revenue, for the 1998 quarter from $1.9
million, or 15.5% of total revenue, for the 1997 quarter. The increase is
largely attributable to an increase in legal fees related to a dispute regarding
the expiration of an ASD distribution agreement. Additionally, the Company has
added internal finance, information technology and administrative resources to
support its global operations and infrastructure.
Other Income. Other income increased 85.4% to $508,000 for the 1998 quarter as
compared to $274,000 for the 1997 quarter. This increase was attributable to
higher interest-bearing cash and investment balances in the 1998 quarter.
Income Tax Provision. The Company's effective rate of taxation was 33.0% for
the 1998 quarter as compared to 37.0% for the 1997 quarter. This percentage is
less than the federal and state combined statutory rate due primarily to the
utilization of research and experimentation credits, as well as the use of a
foreign sales corporation, which was established in the fourth quarter of 1997
and is the primary reason for the decrease in the Company's effective tax rate
in the 1998 quarter.
Net Income. The Company's net income in the second quarter of 1998 was $2.7
million as compared to $2.3 million in the second quarter of 1997. Diluted
earnings per share increased to $0.16 in the 1998 quarter as compared to $0.14
in the 1997 quarter. The increase in diluted earnings per share was attributable
to the increase in net income. The weighted average shares outstanding used in
computing net income per diluted common share totaled 16,793,000 and 16,635,000
in the 1998 and 1997 quarter, respectively.
Six Months Ended June 30, 1998 Compared to Six Months
Ended June 30, 1997
Revenue. The Company's total revenue increased 13.1% for the 1998 six months to
$27.8 million from $24.6 million for the 1997 six months. This increase was
attributable principally to an increase in revenue from renewals and sales of
leases as noncancellable annual leases, for which a portion of the annual
license fee is recognized as paid-up revenue upon renewal or inception of the
lease, while the remaining portion is recognized as maintenance revenue ratably
over the remaining lease period. This increase, which was partially offset by
decreases in monthly lease revenue and paid-up revenue as discussed in the
paragraph below, was due, in part, to the active sales and licensing of
noncancellable annual leases to existing and new lease customers. The increase
in revenue in the 1998 six months was also attributable to increased maintenance
revenue, which resulted from broader customer usage of maintenance and support
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services and the Company's continued emphasis on marketing its maintenance
services.
Software license revenue totaled $17.8 million for the 1998 six months as
compared to $17.9 million for the 1997 six months, a decrease of approximately
1.0%. The slight decrease resulted principally from a decrease in monthly lease
revenues as existing monthly lease customers shifted to noncancellable annual
leases in connection with the renewals of their leases, as well as a decrease in
the sale of paid-up licenses in the Asian markets. These decreases were almost
completely offset by an increase in revenue from renewals and sales of leases as
noncancellable annual leases. Revenue from the sale of paid-up licenses and the
portion of noncancellable annual leases classified as paid-up revenue increased
32.3% for the 1998 six months to $14.4 million from $10.9 million for the 1997
six months. This increase was partially attributable to a refinement of
management's estimate relative to the allocation of noncancellable annual lease
revenue between paid-up and maintenance revenue, which occurred in the first
quarter of 1998. The refinement, which management believes more accurately
reflects the Company's current pricing and business practices, resulted in a net
revenue increase of approximately $1.3 million in the 1998 six months, of which
approximately $980,000 was recorded in the first quarter of 1998.
The Company also experienced a 52.4% decrease in monthly lease license revenue
to $3.4 million for the 1998 six months from $7.0 million for the 1997 six
months. This decrease was primarily attributable to an increase in the renewal
of existing monthly leases as noncancellable annual leases, and to a lesser
extent the conversion of certain existing lease licenses to paid-up licenses
throughout the course of the past year.
Maintenance and service revenue increased 51.0% for the 1998 six months to $10.0
million from $6.6 million for the 1997 six months, as a result of broader
customer usage of maintenance and support services and the Company's increased
emphasis on marketing these services, as well as an increase in the renewal and
sale of noncancellable annual leases.
Of the Company's total revenue for the 1998 six months, approximately 53.4% and
46.6%, respectively, were attributable to international and domestic sales, as
compared to 51.4% and 48.6%, respectively, for the 1997 six months.
Cost of Sales and Gross Profit. The Company's total cost of sales increased
20.1% to $3.0 million, or 10.9% of total revenue, for the 1998 six months from
$2.5 million, or 10.2% of total revenue, for the 1997 six months. The Company's
cost of sales for software license revenue increased 28.0% for the 1998 six
months to $1.7 million, or 9.8% of software license revenue, from $1.4 million,
or 7.6% of software license revenue, for the 1997 six months. The increase was
due to the addition of headcount and related expenses, as well as increased
costs related to manuals, packing supplies, media and royalty fees. The
Company's cost of sales for maintenance and service revenue totaled $1.3 million
and $1.2 million, or 12.9% and 17.5% of maintenance and service revenue, for the
1998 and 1997 six months, respectively. The increase in the 1998 period was
principally attributable to increases in salaries, benefits and consulting fees
as additional staff and consultants have been added to support the growth in
global service revenue and related customer and ASD support needs.
11
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As a result of the foregoing, the Company's gross profit increased 12.3% to
$24.8 million for the 1998 six months from $22.0 million for the 1997 six
months.
Selling and Marketing. Selling and marketing expenses increased 8.7% for the
1998 six months to $6.2 million, or 22.4% of total revenue, from $5.7 million,
or 23.3% of total revenue, for the 1997 six months. The increase in selling and
marketing expenses resulted primarily from increased consulting and sales
support costs incurred in connection with supporting its global sales and
marketing infrastructure.
Research and Development. Research and development expenses increased 3.9% for
the 1998 six months to $6.0 million, or 21.7% of total revenue, from $5.8
million, or 23.6% of total revenue, for the 1997 six months. This increase
resulted primarily from increased software and depreciation expense as the
Company continues to invest in software and hardware tools used to develop and
enhance the Company's products and increased consulting costs associated with
the upcoming releases of ANSYS 5.5 and DesignSpace 4.1.
Amortization. Amortization expense totaled $443,000 for the 1998 six months as
compared to $2.4 million for the 1997 six months. The decrease was attributable
to the full amortization of certain intangible assets, including goodwill and
capitalized software, which were fully amortized in the first quarter of 1997.
General and Administrative. General and administrative expenses increased 21.1%
for the 1998 six months to $4.7 million, or 16.8% of total revenue, from $3.9
million, or 15.7% of total revenue, for the 1997 six months. The increase was
primarily attributable to an increase in legal fees related to a dispute
regarding the expiration of an ASD distribution agreement. Additionally, the
Company has added internal finance, information technology and administrative
resources to support its global operations and infrastructure.
Other Income. Other income increased 105.5% to $865,000 for the 1998 six month
period as compared to $421,000 for the 1997 six month period. This increase was
attributable to higher interest-bearing cash and investment balances in 1998.
Income Tax Provision. The Company's effective rate of taxation was 33.5% for
the 1998 six months, as compared to 37.0% for the 1997 six months. These
percentages are less than the federal and state combined statutory rate due
primarily to the utilization of research and experimentation credits, as well as
the use of a foreign sales corporation, which was established in the fourth
quarter of 1997 and is the primary reason for the decrease in the Company's
effective tax rate in the 1998 six months.
Net Income. The Company's net income in the six months of 1998 totaled $5.5
million as compared to net income of $2.9 million in the 1997 six months.
Diluted earnings per share increased to $0.33 in the 1998 six months as compared
to diluted earnings per share of $0.18 in the 1997 six months as a result of the
increase in net income. The weighted average shares used in
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computing net income per diluted share amounts increased to 16,727,000 in the
1998 six month period from 16,603,000 in the 1997 six month period.
Liquidity and Capital Resources
As of June 30, 1998, the Company had cash, cash equivalents and short-term
investments totaling $37.0 million and working capital of $30.6 million, as
compared to cash, cash equivalents and short-term investments of $27.8 million
and working capital of $23.8 million at December 31, 1997.
The Company's operating activities provided cash of $9.5 million for the six
months ended June 30, 1998 and $6.5 million for the six months ended June 30,
1997. The increase in the Company's cash flow from operations for the 1998 six
months as compared to the 1997 six months was a result of increased earnings as
well as improved management of working capital. Net cash generated by operating
activities provided sufficient resources to fund increased headcount and capital
needs to support the Company's expansion of its global infrastructure and
continued investment in research and development activities for the six months
ended June 30, 1998.
Cash used in investing activities totaled $18.2 million for the six months ended
June 30, 1998 and $5.8 million for the six months ended June 30, 1997. The
increase is principally due to the purchase and sale of short-term investments
in the six months ended June 30, 1998. The capital expenditures in 1997 were
primarily related to furniture and equipment for the new corporate office
facility, which the Company initially occupied in February 1997, as well as
computer hardware and software to support the continued growth of the Company's
development activities and the expansion of its global sales and support
infrastructure. The Company currently plans additional capital spending of
approximately $1.5 million throughout the remainder of 1998, however, the level
of spending will be dependent upon various factors, including growth of the
business and general economic conditions.
Financing activities provided net cash of $270,000 for the six months ended June
30, 1998 and $195,000 for the six months ended June 30, 1997. Cash provided
from financing activities for the 1998 and 1997 six month periods primarily
included proceeds from issuance of treasury stock and common stock under
employee stock option and purchase plans.
13
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
(c) The following information is furnished in
connection with securities sold by the
Registrant during the period covered by this Form
10-Q which were not registered under the Securities
Act. The transactions constitute sales of the
Registrant's Common Stock, par value $.01 per
share, upon the exercise of vested options issued
pursuant to the Company's 1994 Stock Option and
Grant Plan, issued in reliance upon the exemption from
registration under Rule 701 promulgated under the
Securities Act and issued prior to the Registrant
becoming subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act of 1934, as
amended.
Number of Number of Aggregate
Month/Year Shares Employees Exercise Price
---------- --------- --------- --------------
April 1998 16,750 3 $8,321.25
May 1998 2,000 1 $2,550.00
June 1998 563 2 $ 717.83
Item 3. Defaults upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on May 6,
1998, the stockholders of the Company (1) elected Roger J. Heinen, Jr.,
Roger B. Kafker and Jacqueline C. Morby as Class II Directors of the
Company to hold office until the 2001 Annual Meeting of Stockholders
and until such Directors' successors are duly elected and qualified and
other nominations were made;(2)approved an amendment to the Company's
1996 Stock Option and Grant Plan increasing the number of shares
available for issuance under the Plan from 2,250,000 to 3,250,000. The
votes were as follows:
Votes For Votes Withheld
--------- --------------
(1) Election of Directors:
Roger B. Heinen, Jr. 15,539.993 37,822
Roger B. Kafker 15,542,379 35,436
Jacqueline C. Morby 15,539,929 37,886
14
<PAGE>
(2) Approval of Amendment
to 1996 Stock Option
and Grant Plan
Broker
Votes For Votes Against Votes Abstained Non-Votes
--------- ------------- --------------- ----------
11,448,641 2,228,449 101,625 1,799,100
Item 5. Other information
Not Applicable.
Item 6. Exhibits and Reports Filed on Form 8-K
(a) Exhibits.
10.1 Current Form of Stock Option Agreement
15 Independent Accountants' Letter Regarding
Unaudited Financial Information
27.1 Financial Data Schedule
99 Certain Factors Regarding Future Results
(b) Reports on Form 8-K.
Not Applicable.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANSYS, Inc.
Date: August 12, 1998 By: /s/ Peter J. Smith
----------------------------
Peter J. Smith
Chairman, President and
Chief Executive Officer
Date: August 12, 1998 By: /s/ John M. Sherbin II
-----------------------------
John M. Sherbin II
Chief Financial Officer;
Senior Vice President, Finance
and Administration; Secretary
16
<PAGE>
Item 6.
EXHIBIT INDEX
-----------------
<TABLE>
<CAPTION>
Exhibit
- -------
No.
- ---
<S> <C>
10.1* Current Form of Stock Option Agreement
15 Independent Accountants' Letter
Regarding Unaudited Financial
Information
27.1 Financial Data Schedule
99 Certain Factors Regarding Future
Results
__________
* Identifies a management contract
or compensatory plan or arrangement in
which an executive officer or director
of the Company participates.
</TABLE>
17
<PAGE>
Exhibit 10.1
Incentive Stock Option Agreement
under the
1996 Stock Option and Grant Plan
Name of Optionee: (Fullname)
No./Class of Option Shares: (Options) shares of Common Stock
Grant Date:
Expiration Date:
Option Exercise Price/Share:
Pursuant to the ANSYS, Inc. 1996 Stock Option and Grant Plan (the "Plan"),
ANSYS, Inc., a Delaware corporation (together with all successors thereto, the
"Company"), hereby grants to the person named above (the "Optionee"), who is an
officer or full-time employee of the Company or any of its subsidiaries, an
option (the "Stock Option") to purchase on or prior to the expiration date
specified above, or such earlier date as is specified herein, all or any part of
the number of shares of Common Stock, par value $0.01 per share ("Common
Stock"), of the Company indicated above (the "Option Shares"), at the per share
option exercise price specified above, subject to the terms and conditions set
forth in this Incentive Stock Option Agreement (the "Agreement") and in the
Plan. This Stock Option is intended to qualify as an "incentive stock option"
as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended
from time to time (the "Code"). To the extent that any portion of the Stock
Option does not so qualify, it shall be deemed a non-qualified stock option.
All capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Plan.
1. Vesting and Exercisability.
--------------------------
(a) No portion of this Stock Option may be exercised until such
portion shall have vested.
(b) Except as set forth below and in Section 6, and subject to the
<PAGE>
determination of the Compensation Committee of the Board of Directors of the
Company or the Board of Directors of the Company, as applicable (the
"Committee"), in its sole discretion to accelerate the vesting schedule
hereunder, this Stock Option shall be vested and exercisable with respect to the
following number of Option Shares on the respective dates indicated:
Incremental/Aggregate Number
Of Option Shares Exercisable* Vesting Date
---------------------------- ------------
(Vest1)/(Vest1Bal)
(Vest2)/(Vest2Bal)
(Vest3)/(Vest3Bal)
(Vest4)/(Vest4Bal)
Notwithstanding anything herein to the contrary and without limitation of
Section 6, in the event that this Stock Option is assumed in the sole discretion
of the parties to a Sale Event (as defined in Section 6) or is continued by the
Company and thereafter remains in effect following such Sale Event as
contemplated by Section 6, then this Stock Option shall be deemed vested and
exercisable in full upon the date on which the Optionee's employment with the
Company and its subsidiaries or successor entity terminates if (i) such
termination occurs within eighteen (18) months of such Sale Event and (ii) such
termination is by the Company without cause or by the Optionee if such
termination by Optionee is preceded during such 18-month period by any material
adverse modification of the duties, principal employment location or
compensation of the Optionee without his or her consent, subject, however, to
the following sentence. Notwithstanding the foregoing, in the event a Sale
Event is contingent on using "pooling of interest" accounting methodology, the
Company may, in its discretion, take any action necessary to preserve the use of
"pooling of interest" accounting, including nullifying the vesting of this Stock
Option
- ------------------------
* Subject to Section 5.
<PAGE>
as provided in the previous sentence. In addition and notwithstanding
anything herein to the contrary, in the event that the Optionee is not offered
employment by the Company and its subsidiaries or any successor entity following
a Sale Event other than a Sale Event accounted for as a "pooling of interests"
on substantially the same or better terms (including, without limitation, duties
and compensation) than those in effect immediately prior to such Sale Event with
respect to his or her employment, then this Stock Option shall be deemed vested
and exercisable in full upon the date on which the Optionee's employment with
the Company and its subsidiaries terminates.
(c) In the event that the Optionee's Service Relationship (as
hereinafter defined) with the Company and its subsidiaries terminates for any
reason or under any circumstances, including the Optionee's resignation,
retirement or termination by the Company, upon the Optionee's death or
disability, or for any other reason, regardless of the circumstances thereof,
this Stock Option shall no longer vest or become exercisable with respect to any
Option Shares not vested (or which do not vest) as of the date of such
termination from and after the date of such termination, and this Stock Option
may thereafter be exercised, to the extent it was vested and exercisable on such
date of such termination, until the Expiration Date contemplated by Section
1(d), except as the Committee may otherwise determine. For purposes hereof, a
"Service Relationship" shall mean any relationship as an employee, part-time
employee or consultant of the Company or any subsidiary of the Company such
that, for example, a Service Relationship shall be deemed to continue without
interruption in the event the Optionee's status changes from full-time employee
to part-time employee or consultant.
(d) Once any portion of this Stock Option becomes vested and
exercisable, it shall continue to be exercisable by the Optionee or his or her
successors as contemplated herein at any time or times prior to the earlier of
(i) the date which is twelve months following the date on which the Optionee's
Service
<PAGE>
Relationship with the Company and its subsidiaries terminates due to
death or disability (as defined in Section 422(c)(6) of the Code), the date
which is 21 days following the date on which the optionee's Service Relationship
is terminated by the Company for cause or the date which is 90 days following
the date on which the Optionee's Service Relationship with the Company
terminates if the termination is due to any other reason or (ii) the tenth
anniversary of option grant, subject to the provisions hereof, including,
without limitation, Section 6 hereof which provides for the termination of
unexercised options upon completion of certain transactions as described therein
(the earliest to occur of such dates being referred to as the "Expiration
Date"). The Committee shall have sole discretion to determine the reason for
the termination of the Optionee's Service Relationship with the Company and its
subsidiaries.
(e) It is understood and intended that this Stock Option is intended
to qualify as an "incentive stock option" as defined in Section 422 of the Code.
Accordingly, the Optionee understands that in order to obtain the benefits of an
incentive stock option under Section 422 of the Code, no sale or other
disposition may be made of Option Shares for which incentive stock option
treatment is desired within the one-year period beginning on the day after the
day of the transfer of such Option Shares to him or her, nor within the two-year
period beginning on the day after the grant of this Stock Option and further
that this Stock Option must be exercised within three months after termination
of employment (or such shorter period as is permitted hereunder) (or twelve
months in the case of death or disability) to qualify as an incentive stock
option. If the Optionee disposes (whether by sale, gift, transfer or otherwise)
of any such Option Shares within either of these periods, he or she will notify
the Company within thirty (30) days after such disposition. The Optionee also
agrees to provide the Company with any information concerning any such
dispositions required by the Company for tax purposes. Further, to the extent
Option Shares and any other incentive stock options of the Optionee
<PAGE>
having an aggregate exercise price in excess of $100,000 vest in any year, such
options will not qualify as incentive stock options.
2. Exercise of Stock Option.
------------------------
(a) The Optionee may exercise only vested portions of this Stock
Option and only in the following manner: Prior to the Expiration Date (subject
to Section 6), the Optionee may deliver a Stock Option Exercise Notice (an
"Exercise Notice") in the form of Appendix A hereto indicating his or her
----------
election to purchase some or all of the Option Shares with respect to which this
Stock Option has vested at the time of such notice. Such notice shall specify
the number of Option Shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or more
(if applicable) of the following methods: (i) in cash, by certified or bank
check or other instrument acceptable to the Committee; or (ii) (A) through the
delivery (or attestation to ownership) of shares of Common Stock that have been
purchased by the Optionee on the open market or that have been held by the
Optionee for at least six months, and are not subject to restrictions under any
plan of the Company, if permitted by the Committee in its sole discretion, (B)
by the Optionee delivering to the Company a properly executed Exercise Notice
together with irrevocable instructions to a broker to promptly deliver to the
Company cash or a check payable and acceptable to the Company to pay the option
purchase price, provided that in the event the Optionee chooses to pay the
option purchase price as so provided, the Optionee and the broker shall comply
with such procedures and enter into such agreements of indemnity and other
agreements as the Committee shall prescribe as a condition of such payment
procedure, or (C) a combination of (i), (ii)(A) and (ii)(B) above if permitted
by the Committee in its sole discretion. Payment instruments will be received
subject to collection.
(b) Certificates for the Option Shares so purchased will be issued and
delivered to the Optionee upon compliance to the satisfaction of the Committee
with all requirements under
<PAGE>
applicable laws or regulations in connection with such issuance. Until the
Optionee shall have complied with the requirements hereof and of the Plan, the
Company shall be under no obligation to issue the Option Shares subject to this
Stock Option, and the determination of the Committee as to such compliance shall
be final and binding on the Optionee. The Optionee shall not be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
of stock subject to this Stock Option unless and until this Stock Option shall
have been exercised pursuant to the terms hereof, the Company shall have issued
and delivered the Option Shares to the Optionee, and the Optionee's name shall
have been entered as a stockholder of record on the books of the Company.
Thereupon, the Optionee shall have full dividend and other ownership rights with
respect to such Option Shares, subject to the terms of this Agreement.
(c) Notwithstanding any other provision hereof or of the Plan, no
portion of this Stock Option shall be exercisable after the Expiration Date,
including such date as is contemplated by Section 6 hereof.
3. Incorporation of Plan. Notwithstanding anything herein to the
---------------------
contrary, this Stock Option shall be subject to and governed by all the terms
and conditions of the Plan.
4. Transferability. This Agreement is personal to the Optionee and is not
---------------
transferable by the Optionee in any manner other than by will or by the laws of
descent and distribution. This Stock Option may be exercised during the
Optionee's lifetime only by the Optionee (or by the Optionee's guardian or
personal representative in the event of the Optionee's incapacity). The
Optionee may elect to designate a beneficiary by providing written notice of the
name of such beneficiary to the Company, and may revoke or change such
designation at any time by filing written notice of revocation or change with
the Company; such beneficiary may exercise the Optionee's Stock Option in the
event of the Optionee's death to the extent provided herein. If the Optionee
does not designate a beneficiary, or if the designated beneficiary predeceases
the Optionee, the personal representative
<PAGE>
of the Optionee may exercise this Stock Option to the extent provided herein in
the event of the Optionee's death.
5. Adjustment Upon Changes in Capitalization. The shares of stock covered
-----------------------------------------
by this Stock Option are shares of Common Stock of the Company. Subject to
Section 6 hereof, if the shares of Common Stock as a whole are increased,
decreased, changed or converted into or exchanged for a different number or kind
of shares or securities of the Company or any successor entity (or a parent or
subsidiary thereof), whether through merger or consolidation, sale of all or
substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, combination of
shares, exchange of shares, change in corporate structure or the like, an
appropriate and proportionate adjustment shall be made in the number and kind of
shares and in the per share exercise price of shares subject to any unexercised
portion of this Stock Option. In the event of any such adjustment in this Stock
Option, the Optionee thereafter shall have the right, subject to Section 6, to
purchase the number of shares under this Stock Option at the per share price, as
so adjusted, which the Optionee could purchase at the total purchase price
applicable to this Stock Option immediately prior to such adjustment, all
references herein to Common Stock shall be deemed to refer to the security that
is subject to acquisition upon exercise of this Stock Option and all references
to the Company shall be deemed to refer to the issuer of such security.
Adjustments under this Section 5 shall be determined by the Committee, whose
determination as to what adjustment shall be made, and the extent thereof, shall
be conclusive. No fractional shares of Common Stock shall be issued under the
Plan resulting from any such adjustment, but the Company in its discretion may
make a cash payment in lieu of fractional shares.
6. Effect of Certain Transactions. In the case of (a) the dissolution or
------------------------------
liquidation of the Company, (b) the sale of all or substantially all of the
assets of the Company on a consolidated basis to an another person or entity,
(c) a merger, reorganization or consolidation in which the holders of the then
<PAGE>
outstanding voting securities of the Company prior to such transaction do not
own a majority of the outstanding voting securities of the surviving or
resulting entity immediately upon completion of such transaction, (d) the sale
of all of the outstanding stock of the Company to an unrelated person or entity
or (e) any other transaction where the holders of the then outstanding voting
securities of the Company prior to such transaction do not own at least a
majority of the outstanding voting securities of the relevant entity after the
transaction (in each case, a "Sale Event"), this Stock Option shall terminate on
the effective date of such Sale Event, unless provision is made in such
transaction in the sole discretion of the parties thereto for the assumption or
continuation by the Company as survivor of this Stock Option or the substitution
for this Stock Option of a new stock option of the successor person or entity or
a parent or subsidiary thereof, with appropriate adjustment as to the number and
kind of shares and the per share exercise price, as provided in Section 5 of
this Agreement. In the event of any transaction which will result in the
termination of this Stock Option, the Company shall give to the Optionee written
notice thereof at least fifteen (15) days prior to the effective date of such
transaction. Until such effective date, the Optionee may exercise any portion
of this Stock Option which is vested as of such effective date (as contemplated
by Section 1(b)), but after such effective date, the Optionee may not exercise
this Stock Option unless it is assumed or substituted by the successor entity
(or a parent or subsidiary thereof) as provided above.
7. Withholding Taxes. The Optionee shall, not later than the date as of
-----------------
which the exercise of this Stock Option becomes a taxable event for federal
income tax purposes, pay to the Company or make arrangements satisfactory to the
Committee for payment of any federal, state and local taxes required by law to
be withheld on account of such taxable event. Subject to approval by the
Committee, the Optionee may elect to have such tax withholding obligation
satisfied, in whole or in part, by authorizing the
<PAGE>
Company to withhold from shares of Common Stock to be issued or transferring to
the Company, a number of shares of Common Stock with an aggregate Fair Market
Value that would satisfy the withholding amount due. For purposes of this
Section 7 "Fair Market Value" on any given date means the last reported sale
price at which Common Stock is traded on such date or, if no Common Stock is
traded on such date, the next preceding date on which Common Stock was traded,
as reflected on the principal stock exchange or, if applicable, any other
national stock exchange on which the Common Stock is traded or admitted to
trading. The Optionee acknowledges and agrees that the Company or any subsidiary
of the Company has the right to deduct from payments of any kind otherwise due
to the Optionee, or from the Option Shares to be issued in respect of an
exercise of this Stock Option, any federal, state or local taxes of any kind
required by law to be withheld with respect to the issuance of Option Shares to
the Optionee.
8. Forfeiture of Stock Option. As additional consideration for the
--------------------------
issuance of this Stock Option to the Optionee, the Optionee hereby agrees that,
if at anytime during and for a period of one (1) year after the termination of
his or her Service Relationship no matter what the cause of that termination, he
or she engages for any reason, directly or indirectly, whether as owner, part-
owner, shareholder, member, partner, director, officer, trustee, employee, agent
or consultant, or in any other capacity, on behalf of himself or herself or any
firm, corporation or other business organization other than the Company and its
subsidiaries in any one or more of the following activities:
(a) the development, marketing, solicitation, or selling of any
product or service which performs functions the same as those being marketed,
licensed, or sold by the Company at the time of such termination and of which
the Optionee acquired specialized knowledge while employed by the Company
related to the development, marketing or sale of such product or service;
<PAGE>
(b) the use of any confidential or proprietary information which was
acquired by the Optionee as an employee of the Company and its subsidiaries (i)
in order to acquire a competitive advantage or (ii) in any manner such that it
would have a detrimental effect upon the business of the Company and its
subsidiaries; or
(c) any activity for the purpose of inducing, encouraging, or
arranging for the employment or engagement by anyone other than the Company and
its subsidiaries of any employee, officer, director, agent, consultant, or sales
representative of the Company and its subsidiaries or attempt to engage any of
them in a manner which would deprive the Company and its subsidiaries of their
services or place them in a conflict of interest with the Company and its
subsidiaries;
then (i) this Stock Option shall terminate effective on the date on which he or
she first engages in such activity, unless terminated sooner by operation of any
other term or condition of this Stock Option or the Plan, and (ii) any option
gain recognized by the Optionee from exercising all or a portion of this Stock
Option shall be paid by Optionee to the Company.
The Optionee may be released from his or her obligations as stated above
only if the Committee (or its duly appointed agent) determines in its sole
discretion that such action is in the best interests of the Company and its
subsidiaries.
9. Miscellaneous Provisions.
------------------------
(a) Equitable Relief. The parties hereto agree and declare that legal
----------------
remedies may be inadequate to enforce the provisions of this Agreement and that
equitable relief, including specific performance and injunctive relief, may be
used to enforce the provisions of this Agreement.
(b) Change and Modifications. This Agreement may not be orally
------------------------
changed, modified or terminated, nor shall any oral waiver of any of its terms
be effective. This Agreement may be changed, modified or terminated only by an
agreement in writing signed by the Company and the Optionee.
(c) Governing Law. This Agreement shall be governed
-------------
<PAGE>
by and construed in accordance with the laws of the State of Delaware.
(d) Headings. The headings are intended only for convenience in
--------
finding the subject matter and do not constitute part of the text of this
Agreement and shall not be considered in the interpretation of this Agreement.
(e) Saving Clause. If any provision(s) of this Agreement shall be
-------------
determined to be illegal or unenforceable, such determination shall in no manner
affect the legality or enforceability of any other provision hereof.
(f) Notices. All notices, requests, consents and other communications
-------
shall be in writing and be deemed given when delivered personally, by telex or
facsimile transmission or when received if mailed by first class registered or
certified mail, postage prepaid. Notices to the Company or the Optionee shall
be addressed as set forth underneath their signatures below, or to such other
address or addresses as may have been furnished by such party in writing to the
other.
(g) Benefit and Binding Effect. This Agreement shall be binding upon
--------------------------
and shall inure to the benefit of the parties hereto, their respective
successors, permitted assigns, and legal representatives. The Company has the
right to assign this Agreement, and such assignee shall become entitled to all
the rights of the Company hereunder to the extent of such assignment.
(h) Counterparts. For the convenience of the parties and to
------------
facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
<PAGE>
The foregoing Agreement is hereby accepted and the terms and conditions
thereof hereby agreed to by the undersigned.
Dated: ANSYS, Inc.
By:
--------------------------------------
Name: Peter J. Smith
Title: President
Address: ANSYS, Inc.
Attention: President
275 Technology Drive
Canonsburg, PA 15317
The foregoing Agreement is hereby accepted and the terms and conditions
thereof hereby agreed to by the undersigned.
Dated:
OPTIONEE:
-------------------------------------
(Fullname)
Optionees Address:
-------------------------------------
-------------------------------------
DESIGNATED BENEFICIARY:
-------------------------------------
Beneficiary's Address:
-------------------------------------
-------------------------------------
<PAGE>
Appendix A
STOCK OPTION EXERCISE NOTICE
ANSYS, Inc.
Attention: Chief Financial Officer
275 Technology Drive
Canonsburg, PA 15317
Dear Sirs:
Pursuant to the terms of my stock option agreement dated __________ (the
"Agreement") under the ANSYS, Inc. 1996 Stock Option and Incentive Plan, I,
(Fullname), hereby [Circle One] partially/fully exercise such option by
including herein payment in the amount of $______ representing the purchase
price for [Fill in number of Option Shares] _______ option shares. I have
chosen the following form(s) of payment:
[ ] 1. Cash
[ ] 2. [Certified or Bank] Check payable to [ ]
[ ] 3. Other (as described in the Agreement (please
describe)) _________.
Sincerely yours,
-------------------------------
(Fullname)
<PAGE>
EXHIBIT 15
August 12, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: ANSYS, Inc. and Subsidiaries
1. Form S-8 (Registration No. 333-8613) 1996 Stock Option
and Grant Plan Employee Stock Purchase Plan, as Amended
Ladies & Gentlemen:
We are aware that our report dated July 14, 1998 on our review of the interim
financial information of ANSYS, Inc. and Subsidiaries for the three-month and
six-month periods ended June 30, 1998 is incorporated by reference in the
registration statement referred to above. Pursuant to Rule 436 (c) under the
Securities Act of 1933, this report should not be considered a part of the
registration statement prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
Very truly yours,
/s/ PricewaterhouseCoopers LLP
- -----------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,571
<SECURITIES> 31,459
<RECEIVABLES> 7,572
<ALLOWANCES> 1,500
<INVENTORY> 0
<CURRENT-ASSETS> 44,428
<PP&E> 4,297
<DEPRECIATION> 0
<TOTAL-ASSETS> 59,963
<CURRENT-LIABILITIES> 13,793
<BONDS> 0
0
0
<COMMON> 164
<OTHER-SE> 46,006
<TOTAL-LIABILITY-AND-EQUITY> 59,963
<SALES> 17,777
<TOTAL-REVENUES> 27,789
<CGS> 1,734
<TOTAL-COSTS> 3,024
<OTHER-EXPENSES> 17,378
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,252
<INCOME-TAX> 2,765
<INCOME-CONTINUING> 5,487
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,487
<EPS-PRIMARY> .17
<EPS-DILUTED> .16
</TABLE>
<PAGE>
EXHIBIT 99 Certain Factors Regarding Future Results
Information provided by the Company or its spokespersons may from
time to time contain forward-looking statements concerning projected
financial performance, market and industry segment growth, product
development and commercialization or other aspects of future
operations. Such statements will be based on the assumptions and
expectations of the Company's management at the time such statements
are made. The Company cautions investors that its performance (and,
therefore, any forward-looking statement) is subject to risks and
uncertainties. Various important factors, including, but not
limited to the following, may cause the Company's future results to
differ materially from those projected in any forward-looking
statement.
Potential Fluctuations in Operating Results. The Company may
experience significant fluctuations in future quarterly operating
results. Fluctuations may be caused by many factors, including the
timing of new product releases or product enhancements by the
Company or its competitors; the size and timing of individual
orders, including a fluctuation in the demand for and the ability to
complete large contracts; software errors or other product quality
problems; competition and pricing; customer order deferrals in
anticipation of new products or product enhancements; reduction in
demand for the Company's products; changes in operating expenses;
mix of software license and maintenance and service revenue;
personnel changes; and general economic conditions. A substantial
portion of the Company's operating expenses is related to personnel,
facilities and marketing programs. The level of personnel and
personnel expenses cannot be adjusted quickly and is based, in
significant part, on the Company's expectation for future revenues.
The Company does not typically experience significant order backlog.
Further, the Company has often recognized a substantial portion of
its revenue in the last month of a quarter, with this revenue
frequently concentrated in the last weeks or days of a quarter, and
increasingly is dependent upon receiving large orders of perpetual
licenses involving the payment of a single up-front fee. The Company
believes that large orders of this type may reflect an increasing
demand for enterprise-wide software solutions from certain of the
Company's customers, which, if continued, may increase the
volatility of the Company's revenues and profit from period to
period. More recently, the Company has also experienced an increase
in renewals and sales of 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.
As a result, product revenues in any quarter are substantially
dependent on orders booked and shipped in the latter part of that
quarter, and revenues for any future quarter are not predictable
with any significant degree of accuracy.
1
<PAGE>
Stock Market Volatility. Market prices for securities of software
companies have generally been volatile. In particular, the market
price of the Company's common stock has been and may continue to be
subject to significant fluctuations as a result of factors affecting
the Company and software industry or securities markets in general.
In addition, a large percentage of the Company's common stock is
held by TA Associates, Inc. and various institutional investors.
Consequently, actions with respect to the Company's common stock by
either TA Associates, Inc. or certain of these institutional
investors could have a significant impact on the market price for
the stock.
Rapidly Changing Technology; New Products; Risk of Product Defects.
The markets for the Company's products are generally characterized
by rapidly changing technology and frequent new product
introductions that can render existing products obsolete or
unmarketable. A major factor in the Company's future success will be
its ability to anticipate technological changes and to develop and
introduce in a timely manner enhancements to its existing products
and new products to meet those changes. If the Company is unable to
introduce new products and respond to industry changes on a timely
basis, its business, financial condition and results of operations
could be materially adversely affected. The introduction and
marketing of new or enhanced products require the Company to manage
the transition from existing products in order to minimize
disruption in customer purchasing patterns. There can be no
assurance that the Company will be successful in developing and
marketing, on a timely basis, new products or product enhancements,
that its new products will adequately address the changing needs of
the marketplace, or that it will successfully manage the transition
from existing products. Software products as complex as those
offered by the Company may contain undetected errors or failures
when first introduced or as new versions are released, and the
likelihood of errors is increased as a result of the Company's
commitment to accelerating the frequency of its product releases.
There can be no assurance that errors will not be found in new or
enhanced products after commencement of commercial shipments. Any of
these problems may result in the loss of or delay in market
acceptance, diversion of development resources, damage to the
Company's reputation, or increased service or warranty costs, any of
which could have a materially adverse effect upon the Company's
business, financial condition and results of operations.
Dependence on Distributors. The Company distributes its products
principally through its global network of 35 independent, regional
ANSYS Support Distributors ("ASDs"). The ASDs sell ANSYS
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and DesignSpace(R) products to new and existing customers, expand
installations within their existing customer base, offer consulting
services and provide the first line of ANSYS technical support. The
ASDs have more immediate contact with most customers who use ANSYS
software than does the Company. Consequently, the Company is highly
dependent on the efforts of the ASDs. Difficulties in ongoing
relationships with ASDs, such as delays in collecting accounts
receivable, ASDs' failure to meet performance criteria or to promote
the Company's products as aggressively as the Company expects, and
differences in the handling of customer relationships, could
adversely affect the Company's performance. Additionally, the loss
of any major ASD for any reason, including an ASD's decision to sell
competing products, could have a materially adverse effect on the
Company. Moreover, the Company's future success will depend
substantially on the ability and willingness of its ASDs to continue
to dedicate the resources necessary to promote the Company's
products and to support a larger installed base of the Company's
products. If the ASDs are unable or unwilling to do so, the Company
may be unable to sustain revenue growth.
Competition. The CAD, computer-aided engineering ("CAE") and
computer-aided manufacturing ("CAM") markets are intensely
competitive. In the traditional CAE market, the Company's primary
competitors include MacNeal-Schwendler Corporation, Hibbitt,
Karlsson and Sorenson, Inc. and MARC Analysis Research Corporation.
The Company also faces competition from smaller vendors of
specialized analysis applications in fields such as computational
fluid dynamics. In addition, certain integrated CAD suppliers such
as Parametric Technology Corporation and Structural Dynamics
Research Corporation provide varying levels of design analysis and
optimization and verification capabilities as part of their product
offerings. The entrance of new competitors would likely intensify
competition in all or a portion of the overall CAD, CAE and CAM
market. Some of the Company's current and possible future
competitors have greater financial, technical, marketing and other
resources than the Company, and some have well established
relationships with current and potential customers of the Company.
It is also possible that alliances among competitors may emerge and
rapidly acquire significant market share or that competition will
increase as a result of software industry consolidation. Increased
competition may result in price reductions, reduced profitability
and loss of market share, any of which would materially adversely
affect the Company's business, financial condition and results of
operations.
Dependence on Senior Management and Key Technical Personnel. The
Company is highly dependent upon the ability and experience of its
senior executives and
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its key technical and other management employees. Although the
Company has entered into employment agreements with two executives,
the loss of these, or any of the Company's other key employees,
could adversely affect the Company's ability to conduct its
operations.
Risks Associated with International Activities. A significant and
growing portion of the Company's business comes from outside the
United States. Risks inherent in the Company's international
business activities include imposition of government controls,
export license requirements, restrictions on the export of critical
technology, political and economic instability, trade restrictions,
changes in tariffs and taxes, difficulties in staffing and managing
international operations, longer accounts receivable payment cycles
and the burdens of complying with a wide variety of foreign laws and
regulations. Effective patent, copyright and trade secret
protection may not be available in every foreign country in which
the Company sells its products. The Company's business, financial
condition and results of operations could be materially adversely
affected by any of these risks.
Additionally, countries in the Asia Pacific region, including Japan,
have recently experienced weaknesses in their currency, banking and
equity markets. These weaknesses could adversely affect consumer
demand for the Company's products and ultimately the Company's
financial position or results of operations.
Dependence on Proprietary Technology. The Company's success is
highly dependent upon its proprietary technology. The Company does
not have patents on any of its technology and relies on contracts
and the laws of copyright and trade secrets to protect its
technology. Although the Company maintains a trade secrets program,
enters into confidentiality agreements with its employees and
distributors and limits access to and distribution of its software,
documentation and other proprietary information, there can be no
assurance that the steps taken by the Company to protect its
proprietary technology will be adequate to prevent misappropriation
of its technology by third parties, or that third parties will not
be able to develop similar technology independently. Although the
Company is not aware that any of its technology infringes upon the
rights of third parties, there can be no assurance that other
parties will not assert technology infringement claims against the
Company, or that, if asserted, such claims will not prevail.
Increased Reliance on Perpetual Licenses and Noncancellable Annual
Leases. The Company has historically maintained stable recurring
revenue from the sale of monthly lease licenses for its software
products. While the Company has experienced an increase in customer
preference for
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perpetual licenses that involve payment of a single up-front fee and
that are more typical in the computer software industry, most
recently, it has also experienced an increase in customer preference
for noncancellable annual leases. Although lease license revenue
currently represents a significant portion of the Company's software
license fee revenue, to the extent that perpetual license and
noncancellable annual lease license revenue increase as a percent of
total software license fee revenue, the Company's revenue in any
period will increasingly depend on sales completed during that
period.
Year 2000 Computer Systems Compliance. The Company has established a
corporate-wide Year 2000 task force, led by the Company's Vice
President of Corporate Quality, with the representation of all major
business segments. This task force is responsible for identifying,
evaluating and overseeing the implementation of necessary changes to
computer systems and applications to achieve a Year 2000 date
conversion with no effect on customers or disruption of business
operations. The task force is currently in the process of assessing
its exposure to contingencies related to the Year 2000 Issue for
previous releases of its products. The Company plans to utilize both
internal and external resources to reprogram, or replace and test
the software for Year 2000 modifications. The Company plans to
substantially complete the Year 2000 project no later than December
31, 1998. The total remaining cost of the Year 2000 project will be
funded through operating cash flows. The Company does not expect the
amounts required to be expensed to have a material effect on its
financial position or results of operations. During 1997 and the
first six months of 1998, the costs related to the assessment of,
and preliminary efforts in connection with, its Year 2000 project
and the development of its action plan were not material.
The Company is also communicating with its significant suppliers and
customers to identify critical related issues which need to be
resolved. The Company's total Year 2000 project costs and estimates
to complete include the estimated costs and time associated with the
impact of a third party's Year 2000 issue, and are based on
presently available information. However, there can be no guarantee
that the systems of other companies on which the Company's systems
rely will be converted on a timely basis, or that a failure to
convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect
on the Company.
The costs of the project and the date on which the Company plans to
complete the year 2000 action plan are based upon management's best
estimates, which are derived utilizing numerous assumptions of
future events including the availability of certain resources, third
party modification plans and
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other factors. However, there can be no guarantee that these
estimates will be achieved and actual results could differ
materially from those plans. Specific factors that might cause such
material differences include, but are not limited to, the
availability and cost of personnel with necessary expertise in this
area, the ability to identify and correct all relevant computer
codes and similar uncertainties.
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