<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter ended March 31, 1997.
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number:
ASPEN TECHNOLOGY, INC.
(exact name of registrant as specified in its charter)
Massachusetts 04-2739697
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Ten Canal Park, Cambridge, Massachusetts, 02141
(Address of principal executive office and zip code)
Registrant's telephone number, including area code: (617) 949-1000
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
----- -----
As of March 31, 1997, there were 19,811,452 shares of the Registrant's common
stock (par value $.10 per share) outstanding.
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ASPEN TECHNOLOGY, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets
as of March 31, 1997 and June 30, 1996 3
Consolidated Condensed Statements of
Income for the Three and Nine Month Periods
Ended March 31, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows
for the Nine Month Periods Ended
March 31, 1997 and 1996 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
2
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ASPEN TECHNOLOGY, INC.
<TABLE>
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited and in thousands)
<CAPTION>
3/31/97 6/30/96
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,706 $ 9,005
Short-term investments 21,871 42,078
Accounts receivable, net 55,306 45,640
Current portion of long-term
installments receivable, net 13,697 12,068
Prepaid expenses and other current assets 5,231 3,318
--------- ---------
Total current assets 106,811 112,109
Long-term installments receivable, net 24,404 17,708
Equipment and leasehold
improvements, at cost 43,153 28,764
Accumulated depreciation (17,717) (11,949)
--------- ---------
25,436 16,815
Computer software development
costs, net 2,560 1,817
Intangible assets, net 13,238 9,129
Other assets 2,923 2,589
--------- ---------
$ 175,372 $ 160,167
========= =========
CURRENT LIABILITIES:
Current portion of long-term debt $ 263 $ 425
Accounts payable and accrued expenses 24,221 22,049
Unearned revenue 4,931 8,967
Deferred revenue 10,793 8,953
Deferred income taxes 5,970 2,798
--------- ---------
Total current liabilities 46,178 43,192
Long-term debt, less current maturities 586 706
Deferred revenue, less current portion 8,584 8,279
Other liabilities 1,176 1,757
Deferred income taxes 4,699 6,398
STOCKHOLDERS' EQUITY:
Common stock 1,998 969
Additional paid-in capital 118,458 110,826
Retained earnings (5,503) (11,094)
Cumulative translation adjustment (303) (362)
Unrealized market loss on investments - (2)
Treasury stock, at cost (501) (502)
--------- ---------
Total Stockholders' Equity 114,149 99,835
--------- ---------
$ 175,372 $ 160,167
========= =========
</TABLE>
3
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ASPEN TECHNOLOGY, INC.
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
(Unaudited and in thousands, per share amounts)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
3/31/97 3/31/96 3/31/97 3/31/96
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Software licenses $ 26,656 $ 17,923 $ 66,715 $ 41,830
Services and other 21,320 13,169 60,330 20,471
--------- --------- --------- ---------
47,976 31,092 127,045 62,301
--------- --------- --------- ---------
EXPENSES:
Cost of software licenses 1,183 938 3,267 2,501
Cost of services and other 12,464 8,397 35,577 12,384
Selling and marketing 14,207 9,631 38,446 22,735
Research and development 7,861 5,834 21,966 13,022
General and administrative 4,342 3,133 12,022 5,796
Charge for in-process research
and development - 24,421 8,664 24,421
--------- --------- --------- ---------
Total costs and expenses 40,057 52,354 119,942 80,859
Income (loss) from operations 7,919 (21,262) 7,103 (18,558)
Other expense, net -- (69) (110) (138)
Interest income, net 1,126 434 3,707 2,177
--------- --------- --------- ---------
Income (loss) before provision for
income taxes 9,045 (20,897) 10,700 (16,519)
Provision for income taxes 3,418 1,339 5,624 3,017
--------- --------- --------- ---------
NET INCOME (LOSS) $ 5,627 $ (22,236) $ 5,076 $ (19,536)
========= ========= ========= =========
Net income (loss) per common and
common equivalent share $ 0.27 $ (1.40) $ 0.24 $ (1.25)
========= ========= ========= =========
Weighted average number of common and
common equivalent shares outstanding 21,147 15,876 20,938 15,586
========= ========= ========= =========
</TABLE>
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ASPEN TECHNOLOGY, INC.
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
<CAPTION>
NINE MONTHS ENDED
3/31/97 3/31/96
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 5,076 $(19,536)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 7,945 3,338
Charge for in-process research and development 8,664 24,421
Deferred income taxes 2,982 3,012
Increase in accounts receivable (8,142) (7,234)
Decrease (increase) in installments receivable (8,325) 9,938
Decrease (increase) in prepaid expenses
and other current assets (2,157) 453
Decrease in accounts payable
and accrued expenses (883) (1,427)
(Decrease) increase in unearned revenue (6,780) 1,476
Increase in deferred revenue 4,145 2,211
-------- --------
Net cash provided by operating activities 2,525 16,652
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold
improvements (13,907) (3,653)
Sale of investment securities 20,209 18,322
Increase in other long-term assets (323) (97)
Increase in computer software development costs (1,482) (460)
(Decrease) increase in other long-term liabilities (2,281) 101
Cash used in the purchase of business, net of cash acquired (5,307) (44,723)
-------- --------
Net cash used in investing activities (3,091) (30,510)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock under employee stock purchase plans 381 1,327
Exercise of stock options 2,299 1,064
Net borrowings from bank line of credit - 16,525
Payments of long-term debt and capital lease obligations (472) (2,542)
Payments of subordinated notes payable to related party - (310)
-------- --------
Net cash provided by financing activities 2,208 16,064
-------- --------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 59 (73)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 1,701 2,133
CASH AND CASH EQUIVALENTS, beginning of period 9,005 4,189
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 10,706 $ 6,322
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS RELATED TO ACQUISITIONS:
During the nine months ended March 31, 1997 the Company acquired certain
companies as described in Note 4
These acquisitions are summarized as follows-
Fair value of assets acquired, excluding cash $ 15,982 $ -
Issuance of common stock related to acquisitions (6,496) -
Payments in connection with the acquisitions, net of cash acqiured (5,307) -
-------- --------
Liabilities assumed $ 4,179 $ -
======== ========
</TABLE>
5
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ASPEN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated condensed
financial statements have been prepared in conformity with generally
accepted accounting principles and include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair
presentation. The results of operations for the three and nine month
periods ended March 31, 1997 are not necessarily indicative of the
results to be expected for the full year. It is suggested that these
interim consolidated condensed financial statements be read in
conjunction with the audited consolidated financial statements for the
year ended June 30, 1996, which are contained in the Company's Form
10-K, as previously filed with the Securities and Exchange Commission.
2. ACCOUNTING POLICIES
(a) Revenue Recognition
The Company recognizes revenue from software licenses upon the shipment
of its products, pursuant to a signed noncancelable license agreement.
In the case of license renewals, revenue is recognized upon execution
of the renewal license agreement. The Company has no significant vendor
obligations or collectibility risk associated with its product sales.
The Company recognizes revenue from postcontract customer support
ratably over the period of the postcontract arrangement. The Company
accounts for insignificant vendor obligations by deferring a portion of
the revenue and recognizing it either ratably as the obligations are
fulfilled or when the related services are performed. If significant
application development services are performed in connection with the
purchase of a license, the license fees are recognized as the
application development services are performed.
Service revenues from fixed-price contracts are recognized on the
percentage-of-completion method, measured by the percentage of costs
(primarily labor) incurred to date as compared to the estimated total
costs (primarily labor) for each contract. When a loss is anticipated
on a contract, the full amount thereof is provided currently. Service
revenues from time and expense contracts and consulting and training
revenue are recognized as the related services are performed.
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Services that have been performed but for which billings have not been
made are recorded as unbilled services, and billings that have been
recorded before the services have been performed are recorded as
unearned revenue in the accompanying consolidated balance sheets.
Installments receivable represent the present value of future payments
related to the financing of noncancelable term license agreements that
provide for payment in installments over a one- to five-year period. A
portion of the revenue from each installment agreement is recognized as
interest income in the accompanying consolidated condensed statements
of income loss. The interest rates in effect for the three and nine
months ended March 31, 1996 were 12% to 11% and for the three and nine
months ended March 31, 1997 were 11% to 8.5%.
(b) Computer Software Development Costs
In compliance with Statement of Financial Accounting Standards (SFAS)
No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed", certain computer software development
costs are capitalized in the accompanying consolidated condensed
balance sheets. Capitalization of computer software development costs
begins upon the establishment of technological feasibility and ends
upon market introduction. Amortization of capitalized computer software
development costs is included in cost of revenues and is provided on a
product-by-product basis at the greater of the amount computed using
(a) the ratio of current gross revenues for a product to the total of
current and anticipated future gross revenues or (b) the straight-line
method over the remaining estimated economic life of the product, not
to exceed three years. Total amortization expense charged to operations
in the three and nine month periods ended March 31, 1997 was $278,000
and $738,000 as compared to $189,000 and $524,000 for the three and
nine month periods ended March 31, 1996.
(c) Net Income (loss) Per Share
Net income (loss) per common and common equivalent share is computed
using the weighted average number of common and dilutive common
equivalent shares outstanding during each period. Fully diluted
earnings per common share are not presented as they are not materially
different from primary earnings per share. Dilutive common equivalent
shares consist of stock options and stock warrants (using the treasury
stock method). For the three and nine months ended March 31, 1996,
common equivalent shares have not been included as their effect would
be antidilutive.
7
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In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
(SFAS 128). This Statement establishes standards for computing and
presenting earnings per share and applies to entities with publicly
traded common stock or potential common stock. SFAS 128 is effective
for financial statements for both interim and annual periods ending
after December 15, 1997 and early adoption is not permitted. When
adopted, the statement will require restatement of prior years'
earnings per share. The Company will adopt this statement for its
quarter ended December 31, 1997. Assuming that SFAS 128 had been
implemented, basic income (loss) per share would have been $0.28 and
($1.40) for the three month periods ended March 31, 1997 and March 31,
1996, respectively and $0.26 and ($1.25) for the nine month periods
ended March 31, 1997 and March 31, 1996, respectively. Under this
Statement, diluted income (loss) per share would not have differed from
the net income (loss) per share disclosed on the accompanying statement
of income.
(d) Investments
The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities". Under SFAS No. 115, securities purchased to be
held for indefinite periods of time, and not intended at the time of
purchase to be held until maturity, are classified as
available-for-sale securities. Securities classified as
available-for-sale are required to be recorded at market value in the
financial statements. Unrealized gains and losses have been accounted
for as a separate component of stockholders' equity. Investments held
as of March 31, 1997 consist of $2,218,000 in money market accounts and
$19,653,000 in municipal bonds .
3. SALE OF INSTALLMENTS RECEIVABLE
The Company sold, with limited recourse, certain of its installment
contracts to two financial institutions for approximately $7.6 million
and $23.3 million during the three and nine month periods ended March
31, 1997. The financial institutions have partial recourse to the
Company only upon non-payment by the customer under the installments
receivable. The amount of recourse is determined pursuant to the
provisions of the Company's contracts with the financial institutions
and varies depending upon whether the customers under the installment
contracts are foreign or domestic entities. Collections of these
receivables reduce the Company's recourse obligations, as defined.
At March 31, 1997, the balance of the uncollected principal portion of
all contracts sold was $50.3 million. The Company's potential recourse
obligation related to these contracts is approximately $7.6 million. In
addition, the Company is obligated to pay additional costs to the
financial institutions in the event of default by the customer.
8
<PAGE> 9
4. ACQUISITIONS
(a) B-JAC International, Inc. ("B-JAC")
On October 1, 1996, the Company acquired 100% of the outstanding shares
of common stock of B-JAC, a major supplier of detailed heat exchanger
modeling software. The company exchanged 52,081 shares of its common
stock valued at $3.4 million for all outstanding shares of B-JAC common
stock. The acquisition has been accounted for as a
pooling-of-interests. This transaction is immaterial to the Company's
financial position and results of operations and, accordingly the
historical financial statements have not been restated.
(b) Process Control Division of Cambridge Control Limited
On October 7, 1996, the Company acquired the Process Control Division
of Cambridge Control Limited ("the Cambridge Control Division") for
$1.9 million, plus $225,000 in related costs. The Cambridge Control
Division specializes in advanced process control solutions,
specifically aimed towards process manufacturing controls applications
for the refining, petrochemical and pulp and paper industries. This
acquisition was accounted for as a purchase. The portion of the
purchase price allocated to in-process research and development was
based on an independent appraisal. Such in-process research and
development projects had not reached technological feasibility and had
no alternative future use. As a result, the Company recognized a
one-time charge of $764,000 during the quarter ended December 31, 1996.
The remainder of the purchase price has been allocated to various
assets based on their fair values.
(c) Bechtel Corporation PIMS (Process Industries Modeling System) and
Basil Joffe Associates, Inc.
On December 31, 1996, the Company acquired the assets of Bechtel's PIMS
(Process Industries Modeling System) business for approximately $4.3
million in cash and an additional $2.1 million in assumed liabilities
and acquisition-related costs. On the same date, the Company acquired
all the outstanding shares of the related software development
organization, Basil Joffe Associates, Inc. for approximately 78,000
shares of its common stock. The proprietary PIMS software developed and
sold by these businesses is used by companies in process industries for
economic planning and scheduling based on large linear programming
models. The acquisition of these two businesses has been accounted for
as a purchase. The portion of the purchase price allocated to
in-process research and development was based on an independent
appraisal.
9
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Such in-process research and development projects had not reached
technological feasibility and had no alternative future use. As a
result, the Company recognized a one-time charge of approximately $7.9
million during the quarter ended December 31, 1996. The remainder of
the purchase price has been allocated to various assets based on their
fair values.
The Proforma effect of all of these acquisitions is immaterial to the
historical financial statements; accordingly it has not been presented.
10
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ASPEN TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
RESULTS OF OPERATIONS
The Company acquired Dynamic Matrix Control Corporation ("DMCC") and Setpoint,
Inc. ("Setpoint") in the third quarter of fiscal 1996 in purchase transactions
and has subsequently taken steps to integrate the operations and reorganize the
operations of Aspen Technology, Inc. (the "Company" or "AspenTech") and its new
subsidiaries. As a result of these acquisitions, the Company's operating results
for the three and nine months ended March 31, 1997 and 1996 are not directly
comparable.
Revenues are derived from software licenses and maintenance and other services.
Total revenues for the three and nine months ended March 31, 1997 were $48.0 and
$127.0 million, an increase of 54.3% and 103.9%, respectively from $31.1 and
$62.3 million in the comparable periods of fiscal 1996. Software license
revenues represented 55.6% and 52.5% of total revenues for the three and nine
months ended March 31, 1997, respectively, as compared to 57.7% and 67.1% in the
comparable periods of fiscal 1996. Revenues from software licenses for the three
and nine months ended March 31, 1997 were $26.7 and $66.7 million, an increase
of 48.7% and 59.5%, respectively, from $17.9 and $41.8 million in the comparable
periods of fiscal 1996. The growth in software license revenues was attributable
both to internal growth in existing operations and to additional licenses
entered into by the acquired subsidiaries. The internal growth in software
license revenues was attributable to renewals of software licenses covering
existing users, the expansion of existing customer relationships through
licenses covering additional users, additional software products, and, to a
lesser extent, to the addition of new customers. The decrease in software
license revenues as a percentage of total revenues was attributable to the
growth in service revenues resulting from AspenTech's acquisition of DMCC and
Setpoint.
Total revenues from customers outside the United States were $19.1 and $64.4
million or 39.8% and 50.7% of total revenues for the three and nine months ended
March 31, 1997, respectively, as compared to $12.6 and $27.7 million or 40.6%
and 44.4% of total revenues for the comparable periods in fiscal 1996. The
geographical mix of license revenues can vary from quarter to quarter; however
for fiscal year 1997, the overall mix of revenues from customers outside the
United States is expected to be relatively consistent with the prior year.
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Revenues from services and other consist of consulting services, post contract
support on software licenses, training and sales of documentation. Since the
acquisitions of DMCC and Setpoint, the Company has generated a significantly
greater amount of consulting revenues from services for the analysis, design and
automation of process manufacturing plants. As a result, revenues from services
and other for the three and nine months ended March 31, 1997 were $21.3 and
$60.3 million, an increase of 62.0% and 194.7%, respectively, from $13.2 and
$20.5 million in the comparable periods in fiscal 1996.
Neither the Company's joint venture and similar activities, nor any discounting
or similar activities has historically had a material effect on the Company's
revenues.
Cost of software licenses consists of royalties, amortization of previously
capitalized software costs, costs related to the delivery of software (including
disk duplication and third party software costs), printing of manuals and
packaging. Cost of software licenses for the three and nine months ended March
31, 1997 were $1.2 and $3.3 million, an increase of 26.1% and 30.6%,
respectively, from $1.0 and $2.5 million in the comparable periods of fiscal
1996. Cost of software licenses as a percentage of revenues from software
licenses was 4.4% and 4.9%, respectively, for the three and nine months ended
March 31, 1997 as compared to 5.2% and 6.0% for the three and nine months ended
March 31, 1996. The decrease is due to the spreading of fixed production and
delivery costs over a larger revenue base and to the generation of a greater
portion of sales having minimal third party royalty costs.
Cost of services and other consists of the cost of execution of application
consulting services, technical support expenses, the cost of training services
and the cost of manuals sold separately. Cost of maintenance and other services
for the three and nine months ended March 31, 1997 were $12.5 and $35.6 million,
an increase of 48.4% and 187.3%, respectively, from $8.4 and $12.4 million in
the comparable periods in fiscal 1996. Cost of services and other as a
percentage of services revenue was 58.5% and 59.0% in the three and nine months
ended March 31, 1997 and 63.8% and 60.5% in the comparable periods of fiscal
1996. This percentage decrease reflected a change in the mix of services
provided by the Company, primarily as a result of the acquisitions of DMCC and
Setpoint.
Selling and marketing expenses for the three and nine months ended March 31,
1997 were $14.2 and $38.5 million, an increase of 47.5% and 69.1%, respectively,
from $9.6 and $22.7 million in the comparable periods in fiscal 1996. As a
percentage of revenues, selling and marketing expenses were 29.6% and 30.3%, and
31.0% and 36.5% for the three and nine month periods ending March 31, 1997 and
March 31, 1996, respectively. The percentage decrease in costs reflects the
lower level of sales and marketing activities historically supported by DMCC and
Setpoint, as well as the Company's leveraging of its existing worldwide sales
and technical sales force to market the software products and services of the
newly acquired companies.
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The Company continues to invest in sales personnel and regional sales offices to
improve the Company's geographic proximity to its customers, to maximize the
penetration of existing accounts and to add new customers.
Research and development expenses consist primarily of personnel and outside
consultancy costs required to conduct the Company's product development efforts.
Capitalized research and development costs are amortized over three years.
Research and development expenses during the three and nine months ended March
31, 1997 were $7.9 and $22.0 million, an increase of 34.7% and 68.7%,
respectively, from $5.8 and $13.0 million in the comparable periods of fiscal
1996. The increase in costs reflects continued investment in the development of
the Company's core modeling products and a common software architecture
encompassing the Company's expanded family of software products. The Company
capitalized 7.4% and 6.3% of its total research and development costs during the
three and nine months ended March 31, 1997 as compared to 0.2% and 3.7% in the
comparable periods of fiscal 1996.
General and administrative expenses consist primarily of salaries of
administrative, executive, financial and legal personnel, outside professional
fees, and amortization of certain intangibles. General and administrative
expenses for the three and nine months ended March 31, 1997 were $4.3 and $12.0
million, an increase of 38.6% and 107.4%, respectively, from $3.1 and $5.8
million in the comparable periods of fiscal 1996. These costs remain relatively
constant as a percentage of total revenues of 9.1% and 9.5% and 10.1% and 9.3%
for the three and nine month periods ended March 31, 1997 and 1996,
respectively.
Interest income is generated from the sale of software pursuant to installment
contracts for off-line modeling software and the investment of excess cash in
short-term and long-term investments. Under these contracts, the Company offers
customers the option to make annual payments for its term licenses instead of a
single license fee payment at the beginning of the license term. A substantial
majority of the off-line modeling customers elect to license these products
through installment contracts. The Company believes this election is made
principally because the customers prefer to pay for the Company's off-line
modeling products out of their operating budgets, rather than out of their
capital budgets. Included in the annual payments is an implicit interest charge
based upon the interest rate established by the Company at the time of the
license. The Company sells a portion of the installment contracts to unrelated
financial institutions. The interest earned by the Company on the installment
contract portfolio in any one year is the result of the implicit interest
established by the Company on installment contracts and the size of the contract
portfolio. Interest income for the three and nine months ended March 31, 1997
was $1.1 and $3.8 million, an increase of 35.9% and 31.7%, respectively, from
$.8 and $2.9 million in the comparable periods of fiscal 1996. Interest income
increased primarily as a result of the investment of the net proceeds of the
Company's secondary offering which was completed in June, 1996.
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Interest expense is generated from interest charged on the Company's bank line
of credit, subordinated notes payable and capital lease obligations. Interest
expense for the three and nine months ended March 31, 1997 was $30,000 and
$100,000, respectively, as compared to $400,000 and $700,000 in the comparable
periods of fiscal 1996. The decrease reflects the lower level of borrowings as a
result of using the proceeds of the Company's secondary offering to retire
borrowings under the line of credit and the subordinated notes payable.
The effective tax rate after eliminating the effect of the charge for in-process
development decreased for the three and nine months ended March 31, 1997 to
37.8% and 37.8% of pretax income from 38.4% and 38.2% for the three and nine
months ended March 31, 1996. This percentage decrease related principally to a
lower effective rate for state income taxes and increased tax credits in 1997 as
compared to 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended March 31, 1997, the Company's cash and cash
equivalents balance increased by $1.7 million. Operations provided $2.5 million
of cash during this period, primarily related to net income and an increase in
deferred revenue offset in part by increases in accounts receivable,
installments receivable, prepaid expenses and unearned revenue and a decrease in
accounts payable and accrued expenses. Short-term investments decreased $20.2
million to $21.9 million primarily due to the purchase of equipment and
leasehold improvements and the net cash used to purchase businesses. At March
31, 1997, the Company had a relatively high level of accounts receivable
primarily as a result of an increase in the overall revenues of the Company, and
in particular due to an increase in unbilled services, reflecting the timing of
billing as compared to when the services are performed and recognized as
revenue.
In recent years, the Company has had arrangements to sell long-term contracts to
two financial institutions, General Electric Capital Corporation ("GECC") and
Sanwa Business Credit Corporation (SBCC"). During the nine months ended March
31, 1997, installment contracts increased to $38.1 million, net of $23.3 million
of installment contracts sold to GECC and SBCC. This increase reflects several
customers' elections to make installment license fee payments on licenses
delivered primarily during the three months ended March 31, 1997. The Company's
arrangements with the two financial institutions provide for the sale of
installment contracts up to certain limits and with certain recourse
obligations. At March 31, 1997, the balance of the uncollected principal portion
of the contracts sold to these two financial institutions was $50.3 million, for
which the Company has a partial recourse obligation of approximately $7.6
million. The availability under these arrangements will increase as the
financial institutions receive payment on installment contracts previously sold.
The Company maintains a $30.0 million bank line of credit, expiring December 31,
1998, that provides for borrowings of specified percentages of eligible accounts
receivable and eligible current installment contracts. Advances under the line
of credit bear interest at a rate equal to the bank's prime rate (8.5% at March
31, 1997) plus a specified margin or, at the Company's option, a rate equal to a
defined LIBOR (5.7% at March 31, 1997) plus a specified margin. The line of
credit agreement requires the Company to provide the bank with certain periodic
financial reports and to comply with certain financial tests, including
maintenance of minimum levels of consolidated net income before taxes and of the
ratio of current assets to current liabilities. As of March 31, 1997, there were
no outstanding borrowings under the line of credit.
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ASPEN TECHNOLOGY, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any pending material proceedings.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Current Report on Form 8-K dated January 29, 1997
which incorporates the Company's press release issued
January 28, 1997 regarding a stock split.
15
<PAGE> 16
SIGNATURE
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.
ASPEN TECHNOLOGY, INC.
Date: May 15, 1997 by: /s/ MARY A. PALERMO
----------------------------------------
Mary A. Palermo
Executive Vice President
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF MARCH 31, 1997 INCLUDED IN
THE COMPANY'S FORM 10-Q FOR SUCH PERIOD, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 10,706
<SECURITIES> 21,871
<RECEIVABLES> 55,306
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 106,811
<PP&E> 43,153
<DEPRECIATION> (17,717)
<TOTAL-ASSETS> 175,372
<CURRENT-LIABILITIES> 46,178
<BONDS> 586
0
0
<COMMON> 1,998
<OTHER-SE> 112,151
<TOTAL-LIABILITY-AND-EQUITY> 175,372
<SALES> 66,715
<TOTAL-REVENUES> 127,045
<CGS> 3,267
<TOTAL-COSTS> 38,844
<OTHER-EXPENSES> 21,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,700
<INCOME-TAX> (5,624)
<INCOME-CONTINUING> 5,076
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,076
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
