<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Aspen Technology, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-24786 04-2739697
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
Ten Canal Park, Cambridge, Massachusetts 02141
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (617) 949-1000
------------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
------------
The undersigned Registrant hereby amends the following items, financial
statements, exhibits and other portions of its Current Report on Form 8-K dated
May 27, 1998, as set forth in the pages attached hereto:
<PAGE> 2
Item 5. Other Events.
On May 27, 1998, pursuant to an Agreement and Plan of Reorganization
dated as of April 28, 1998 among Aspen Technology, Inc. ("AspenTech"), AT
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of
AspenTech, Chesapeake Decision Sciences, Inc., a New Jersey corporation
("Chesapeake"), and Dr. Thomas E. Baker, a stockholder of Chesapeake, AspenTech
acquired Chesapeake by means of a statutory merger (the "Merger") of Acquisition
Corp. into Chesapeake, with Chesapeake remaining as the surviving corporation in
the Merger. As a result of the Merger, Chesapeake became a wholly owned
subsidiary of AspenTech.
AspenTech accounted for the acquisition of Chesapeake under the
"pooling-of-interests" accounting method. AspenTech has included herein its
consolidated financial statements reflecting the combined operations of
AspenTech and Chesapeake as if the two entities had operated as one entity since
inception. These consolidated financial statements are substantially identical
to the supplemental consolidated financial statements initially filed with this
Form 8-K. The principal difference between the two is that the supplemental
consolidated financial statements are now the historical financial statements
for AspenTech due to AspenTech publishing post merger results. The disclosure
set forth under "Item 5. Other Events" in the Form 8-K as initially filed, other
than the consolidated financial statements included therein, has not been
restated, but shall continue to constitute a portion of this Form 8-K as
amended. All references to supplemental consolidated financial statements in
"Item 5. Other Events" of the Form 8-K as initially filed shall be deemed to
refer to the equivalent consolidated financial statements included herewith.
AspenTech has filed as Exhibit 99.1 hereto a copy of its press release
dated August 11, 1998, with respect to its financial results for the quarter and
year ended June 30, 1998.
2
<PAGE> 3
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING CHESAPEAKE
DECISION SCIENCES, INC.:
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997
and March 31, 1998 (Unaudited)......................... F-3
Consolidated Statements of Operations for the Years Ended
June 30, 1995, 1996 and 1997 and for the Nine Months
Ended March 31, 1997 and 1998 (Unaudited).............. F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1995, 1996 and 1997 and for the
Nine Months Ended March 31, 1998 (Unaudited)........... F-6
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1995, 1996 and 1997 and for the Nine Months
Ended March 31, 1997 and 1998 (Unaudited).............. F-7
Notes to Consolidated Financial Statements................ F-9
</TABLE>
F-1
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
CONSOLIDATED FINANCIAL STATEMENTS
To Aspen Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Aspen
Technology, Inc. (a Delaware corporation) and subsidiaries as of June 30, 1996
and 1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended June 30,
1997. The consolidated statements give retroactive effect to the merger with
Chesapeake Decision Sciences, Inc. and subsidiaries (CDI) on May 27, 1998, which
has been accounted for as a pooling of interests as described in Note 1. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the supplemental financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based upon our audit, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Aspen Technology, Inc. and subsidiaries as of June 30,
1996 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended June 30, 1997, after giving retroactive
effect to the merger with CDI as described in Note 1, all in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
May 29, 1998
F-2
<PAGE> 5
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
---- ---- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 14,773 $ 18,284 $ 25,546
Short-term investments............................... 38,821 16,622 9,172
Accounts receivable, net of reserves of $731 in 1996,
$840 in 1997 and $1,429 in 1998................... 41,217 46,997 59,751
Unbilled services.................................... 7,634 12,444 18,282
Current portion of long-term installments receivable,
net of unamortized discount of $930 in 1996, $815
in 1997 and $977 in 1998.......................... 12,068 19,063 21,447
Prepaid expenses and other current assets............ 4,181 8,876 9,590
-------- -------- --------
Total current assets......................... 118,694 122,286 143,788
-------- -------- --------
Long-term installments receivable, net of unamortized
discount of $5,027 in 1996, $7,386 in 1997 and $6,438
in 1998.............................................. 17,708 30,963 29,698
-------- -------- --------
Property and leasehold improvements, at cost:
Land................................................. 350 664 728
Building and improvements............................ 5,000 6,499 8,749
Computer equipment................................... 18,813 24,774 31,938
Purchased software................................... 3,056 9,934 14,983
Furniture and fixtures............................... 3,833 7,941 9,402
Leasehold improvements............................... 698 2,618 4,505
-------- -------- --------
31,750 52,430 70,305
Less -- Accumulated depreciation and amortization...... 12,961 21,271 30,315
-------- -------- --------
18,789 31,159 39,990
-------- -------- --------
Computer software development costs, net of accumulated
amortization of $3,908 in 1996, $5,051 in 1997 and
$5,832 in 1998....................................... 1,817 3,058 5,272
-------- -------- --------
Land................................................... 925 925 925
-------- -------- --------
Intangible assets, net of accumulated amortization of
$819 in 1996, $3,347 in 1997 and $5,352 in 1998...... 9,129 12,768 13,574
-------- -------- --------
Other assets........................................... 1,924 2,386 2,841
-------- -------- --------
$168,986 $203,545 $236,088
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 6
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
---- ---- ---------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations............. $ 425 $ 288 $ 1,581
Accounts payable..................................... 6,584 7,442 5,541
Accrued expenses..................................... 16,417 17,968 21,803
Unearned revenue..................................... 8,967 4,294 4,822
Deferred revenue..................................... 10,943 16,730 21,861
Deferred income taxes................................ 2,798 1,775 5,486
-------- -------- --------
Total current liabilities.................... 46,134 48,497 61,094
-------- -------- --------
Long-term obligations, less current portion............ 706 462 3,315
-------- -------- --------
Deferred revenue, less current portion................. 8,279 9,441 10,068
-------- -------- --------
Other liabilities...................................... 1,757 942 741
-------- -------- --------
Deferred income taxes.................................. 7,633 6,789 9,893
-------- -------- --------
Commitments and contingencies (Notes 10, 11 and 12)
Stockholders' equity:
Common stock, $.10 par value --
Authorized -- 40,000,000 shares
Issued -- 20,758,343 shares, 22,342,399 shares and
24,404,639 shares in 1996, 1997 and 1998,
respectively.................................... 2,076 2,235 2,440
Additional paid-in capital........................... 110,388 128,344 138,466
Retained earnings (Accumulated deficit).............. (7,121) 7,607 10,695
Cumulative translation adjustment.................... (362) (261) (100)
Treasury stock, at cost -- 230,396 shares, 230,330
shares and 230,330 shares of common stock in 1996,
1997 and 1998, respectively....................... (502) (502) (502)
Unrealized gain (loss) on investments................ (2) (9) (22)
-------- -------- --------
Total stockholders' equity................... 104,477 137,414 150,977
-------- -------- --------
$168,986 $203,545 $236,088
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 7
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
----------------------------- -------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses..................... $49,479 $ 70,199 $103,179 $ 71,741 $ 95,544
Service and other..................... 16,540 44,619 90,891 65,858 82,500
------- -------- -------- -------- --------
66,019 114,818 194,070 137,599 178,044
------- -------- -------- -------- --------
Expenses:
Cost of software licenses............. 3,080 3,992 5,539 4,090 4,964
Cost of service and other............. 10,052 27,220 54,006 39,315 48,342
Selling and marketing................. 24,276 36,610 56,034 40,223 52,683
Research and development.............. 12,652 22,310 33,580 23,686 31,519
General and administrative............ 5,679 10,715 17,072 12,854 14,650
Charge for in-process research and
development........................ -- 24,421 8,664 8,664 8,472
Costs related to acquisition.......... 950 -- -- -- 984
------- -------- -------- -------- --------
56,689 125,268 174,895 128,832 161,614
------- -------- -------- -------- --------
Income (loss) from operations...... 9,330 (10,450) 19,175 8,767 16,430
Foreign currency exchange gain (loss)... 34 (223) (236) (110) (365)
Income on equity in joint ventures...... 22 10 26 -- 45
Interest income......................... 3,138 3,745 5,556 3,984 4,305
Interest expense on subordinated notes
payable to a related party............ (369) (377) -- -- --
Other interest expense.................. (192) (946) (151) (117) (147)
------- -------- -------- -------- --------
Income (loss) before provision for
income taxes..................... 11,963 (8,241) 24,370 12,524 20,268
Provision for income taxes.............. 4,854 6,146 10,169 6,268 10,324
------- -------- -------- -------- --------
Net income (loss).................. $ 7,109 $(14,387) $ 14,201 $ 6,256 $ 9,944
======= ======== ======== ======== ========
Net income (loss) per share:
Diluted............................... $ 0.42 $ (0.83) $ 0.63 $ 0.28 $ 0.41
======= ======== ======== ======== ========
Basic................................. $ 0.46 $ (0.83) $ 0.66 $ 0.30 $ 0.43
======= ======== ======== ======== ========
Weighted average shares outstanding:
Diluted............................... 17,113 17,432 22,707 22,596 24,432
======= ======== ======== ======== ========
Basic................................. 15,321 17,432 21,368 21,190 23,101
======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 8
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A, CLASS B
AND SERIES C-1
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
--------------------- --------------------- ADDITIONAL
NUMBER OF NUMBER OF $.10 PAR PAID-IN
SHARES PAR VALUE SHARES VALUE CAPITAL
--------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1994...................................... 356,986 $ 177 8,339,148 $ 834 $ 18,092
Issuance of common stock in a public offering, net of
issuance costs of $1,223................................. -- -- 3,100,000 310 17,539
Issuance of common stock under employee stock purchase
plans.................................................... -- -- 72,064 7 238
Exercise of stock options and warrants..................... -- -- 688,462 69 1,113
Liquidation of fractional shares........................... -- -- -- -- --
Conversion of preferred stock to common stock.............. (356,986) (177) 4,709,580 471 (294)
Purchase of treasury stock................................. -- -- -- -- --
Repayment of receivable.................................... -- -- -- -- --
ESOP contribution.......................................... -- -- 443,209 45 171
Translation adjustment..................................... -- -- -- -- --
Unrealized market gain on investments...................... -- -- -- -- --
Tax benefit related to stock options....................... -- -- -- -- 486
Dividend distributions to stockholders relating to acquired
Subchapter S corporation, net............................ -- -- -- -- --
Net income................................................. -- -- -- -- --
-------- ----- ---------- ------ --------
Balance, June 30, 1995..................................... -- -- 17,352,463 1,736 37,345
Issuance of common stock in a public offering, net of
issuance costs of $4,239................................. -- -- 2,907,820 291 68,166
Issuance of common stock in a private placement............ -- -- 66,770 6 1,058
Issuance of common stock under employee stock purchase
plans.................................................... -- -- 50,220 5 469
Exercise of stock options and warrants..................... -- -- 778,114 78 1,397
ESOP contribution.......................................... -- -- 514,807 51 199
Retired stock.............................................. -- -- (911,851) (91) (353)
Translation adjustment..................................... -- -- -- -- --
Realized gain on investments............................... -- -- -- -- --
Unrealized market loss on investments...................... -- -- -- -- --
Tax benefit related to stock options....................... -- -- -- -- 2,107
Net loss................................................... -- -- -- -- --
-------- ----- ---------- ------ --------
Balance, June 30, 1996...................................... -- -- 20,758,343 2,076 110,388
Issuance of common stock in a pooling...................... -- -- 104,162 10 165
Issuance of common stock in the purchase of businesses..... -- -- 155,740 16 5,892
Issuance of common stock under employee stock purchase
plans.................................................... -- -- 210,085 21 3,549
Exercise of stock options and warrants..................... -- -- 507,545 51 4,152
ESOP contribution.......................................... -- -- 696,154 70 268
Retired stock.............................................. -- -- (89,630) (9) (33)
Translation adjustment..................................... -- -- -- -- --
Issuance of treasury stock to charity...................... -- -- -- -- --
Unrealized market loss on investments...................... -- -- -- -- --
Tax benefit related to stock options....................... -- -- -- -- 3,963
Net income................................................. -- -- -- -- --
-------- ----- ---------- ------ --------
Balance, June 30, 1997...................................... -- -- 22,342,399 2,235 128,344
Issuance of common stock in poolings....................... -- -- 626,443 63 2,046
Issuance of common stock under employee stock purchase
plans.................................................... -- -- 115,617 11 3,867
Exercise of stock options and warrants..................... -- -- 340,728 34 3,830
ESOP contribution.......................................... -- -- 983,145 98 380
Retired stock.............................................. -- -- (3,693) (1) (1)
Translation adjustment..................................... -- -- -- -- --
Unrealized market loss on investments...................... -- -- -- -- --
Net income................................................. -- -- -- -- --
-------- ----- ---------- ------ --------
Balance, March 31, 1998 (Unaudited)......................... -- $ -- 24,404,639 $2,440 $138,466
======== ===== ========== ====== ========
<CAPTION>
RECEIVABLE
RETAINED FROM TREASURY STOCK
EARNINGS CUMULATIVE STOCKHOLDER -------------------
(ACCUMULATED TRANSLATION FOR STOCK NUMBER OF
DEFICIT) ADJUSTMENT ISSUED SHARES AMOUNTS
------------ ----------- ----------- --------- -------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1994...................................... $ 1,084 $(390) $(15) 229,188 $(497)
Issuance of common stock in a public offering, net of
issuance costs of $1,223................................. -- -- -- -- --
Issuance of common stock under employee stock purchase
plans.................................................... -- -- -- -- --
Exercise of stock options and warrants..................... -- -- -- -- --
Liquidation of fractional shares........................... -- -- -- 64 --
Conversion of preferred stock to common stock.............. -- -- -- -- --
Purchase of treasury stock................................. -- -- -- 1,144 (5)
Repayment of receivable.................................... -- -- 15 -- --
ESOP contribution.......................................... -- -- -- -- --
Translation adjustment..................................... -- 87 -- -- --
Unrealized market gain on investments...................... -- -- -- -- --
Tax benefit related to stock options....................... -- -- -- -- --
Dividend distributions to stockholders relating to acquired
Subchapter S corporation, net............................ (927) -- -- -- --
Net income................................................. 7,109 -- -- -- --
-------- ----- ---- ------- -----
Balance, June 30, 1995..................................... 7,266 (303) -- 230,396 (502)
Issuance of common stock in a public offering, net of
issuance costs of $4,239................................. -- -- -- -- --
Issuance of common stock in a private placement............ -- -- -- -- --
Issuance of common stock under employee stock purchase
plans.................................................... -- -- -- -- --
Exercise of stock options and warrants..................... -- -- -- -- --
ESOP contribution.......................................... -- -- -- -- --
Retired stock.............................................. -- -- -- -- --
Translation adjustment..................................... -- (59) -- -- --
Realized gain on investments............................... -- -- -- -- --
Unrealized market loss on investments...................... -- -- -- -- --
Tax benefit related to stock options....................... -- -- -- -- --
Net loss................................................... (14,387) -- -- -- --
-------- ----- ---- ------- -----
Balance, June 30, 1996...................................... (7,121) (362) -- 230,396 (502)
Issuance of common stock in a pooling...................... 527 -- -- -- --
Issuance of common stock in the purchase of businesses..... -- -- -- -- --
Issuance of common stock under employee stock purchase
plans.................................................... -- -- -- -- --
Exercise of stock options and warrants..................... -- -- -- -- --
ESOP contribution.......................................... -- -- -- -- --
Retired stock.............................................. -- -- -- -- --
Translation adjustment..................................... -- 101 -- -- --
Issuance of treasury stock to charity...................... -- -- -- (66) --
Unrealized market loss on investments...................... -- -- -- -- --
Tax benefit related to stock options....................... -- -- -- -- --
Net income................................................. 14,201 -- -- -- --
-------- ----- ---- ------- -----
Balance, June 30, 1997...................................... 7,607 (261) -- 230,330 (502)
Issuance of common stock in poolings....................... (6,856) -- -- -- --
Issuance of common stock under employee stock purchase
plans.................................................... -- -- -- -- --
Exercise of stock options and warrants..................... -- -- -- -- --
ESOP contribution.......................................... -- -- -- -- --
Retired stock.............................................. -- -- -- -- --
Translation adjustment..................................... -- 161 -- -- --
Unrealized market loss on investments...................... -- -- -- -- --
Net income................................................. 9,944 -- -- -- --
-------- ----- ---- ------- -----
Balance, March 31, 1998 (Unaudited)......................... $ 10,695 $(100) $ -- 230,330 $(502)
======== ===== ==== ======= =====
<CAPTION>
UNREALIZED
GAIN TOTAL
(LOSS) ON STOCKHOLDERS'
INVESTMENTS EQUITY
----------- -------------
<S> <C> <C>
Balance, June 30, 1994...................................... $ -- $ 19,285
Issuance of common stock in a public offering, net of
issuance costs of $1,223................................. -- 17,849
Issuance of common stock under employee stock purchase
plans.................................................... -- 245
Exercise of stock options and warrants..................... -- 1,182
Liquidation of fractional shares........................... -- --
Conversion of preferred stock to common stock.............. -- --
Purchase of treasury stock................................. -- (5)
Repayment of receivable.................................... -- 15
ESOP contribution.......................................... -- 216
Translation adjustment..................................... -- 87
Unrealized market gain on investments...................... 282 282
Tax benefit related to stock options....................... -- 486
Dividend distributions to stockholders relating to acquired
Subchapter S corporation, net............................ -- (927)
Net income................................................. -- 7,109
----- --------
Balance, June 30, 1995..................................... 282 45,824
Issuance of common stock in a public offering, net of
issuance costs of $4,239................................. -- 68,457
Issuance of common stock in a private placement............ -- 1,064
Issuance of common stock under employee stock purchase
plans.................................................... -- 474
Exercise of stock options and warrants..................... -- 1,475
ESOP contribution.......................................... -- 250
Retired stock.............................................. -- (444)
Translation adjustment..................................... -- (59)
Realized gain on investments............................... (282) (282)
Unrealized market loss on investments...................... (2) (2)
Tax benefit related to stock options....................... -- 2,107
Net loss................................................... -- (14,387)
----- --------
Balance, June 30, 1996...................................... (2) 104,477
Issuance of common stock in a pooling...................... -- 702
Issuance of common stock in the purchase of businesses..... -- 5,908
Issuance of common stock under employee stock purchase
plans.................................................... -- 3,570
Exercise of stock options and warrants..................... -- 4,203
ESOP contribution.......................................... -- 338
Retired stock.............................................. -- (42)
Translation adjustment..................................... -- 101
Issuance of treasury stock to charity...................... -- --
Unrealized market loss on investments...................... (7) (7)
Tax benefit related to stock options....................... -- 3,963
Net income................................................. -- 14,201
----- --------
Balance, June 30, 1997...................................... (9) 137,414
Issuance of common stock in poolings....................... -- (4,747)
Issuance of common stock under employee stock purchase
plans.................................................... -- 3,878
Exercise of stock options and warrants..................... -- 3,864
ESOP contribution.......................................... -- 478
Retired stock.............................................. -- (2)
Translation adjustment..................................... -- 161
Unrealized market loss on investments...................... (13) (13)
Net income................................................. -- 9,944
----- --------
Balance, March 31, 1998 (Unaudited)......................... $ (22) $150,977
===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE> 9
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED JUNE 30, MARCH 31,
------------------------------ -------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $ 7,109 $(14,387) $ 14,201 $ 6,256 $ 9,944
Adjustments to reconcile net income (loss) to
net cash provided by operating activities --
Depreciation and amortization................. 2,856 5,817 11,655 8,198 9,844
Charge for in-process research and
development................................. -- 24,421 8,664 8,664 8,472
Deferred income taxes......................... 3,684 (295) (1,646) 2,982 6,834
Changes in assets and liabilities --
Accounts receivable......................... (6,210) (11,930) (9,107) (8,622) (16,484)
Prepaid expenses and other current assets... (734) 215 (4,686) (2,040) 111
Long-term installments receivable........... (8,503) 1,790 (20,251) (8,325) (609)
Accounts payable and accrued expenses....... 2,697 7,615 4,513 (655) (3,249)
Unearned revenue............................ 66 2,823 (7,835) (6,780) 527
Deferred revenue............................ 3,953 3,596 7,597 4,458 4,785
-------- -------- -------- -------- --------
Net cash provided by operating
activities............................. 4,918 19,665 3,105 4,136 20,175
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of property and leasehold
improvements.................................. (2,701) (7,926) (20,199) (15,973) (13,570)
Increase in computer software development
costs......................................... (1,026) (908) (2,384) (1,482) (2,923)
(Increase) decrease in other assets............. (154) 117 (549) (323) (445)
(Increase) decrease in short-term investments... (18,081) (20,221) 22,194 16,548 7,437
Increase (decrease) in other liabilities........ 401 955 (815) (2,281) (201)
Cash acquired in immaterial poolings............ -- -- 792 -- (778)
Cash used in the purchase of business, net of
cash acquired................................. -- (44,723) (6,232) (5,307) (9,911)
-------- -------- -------- -------- --------
Net cash used in investing activities.... (21,561) (72,706) (7,193) (8,818) (20,391)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Issuance of common stock........................ 17,849 69,521 -- -- --
Issuance of common stock under employee stock
purchase plans................................ 245 474 3,570 381 3,878
Issuance of common stock under employee stock
ownership plan................................ 216 250 338 339 478
Exercise of stock options and warrants.......... 1,182 925 4,203 2,299 3,864
Purchase of treasury stock...................... (5) -- -- -- --
Repurchase of common stock...................... -- (444) (42) (42) (2)
Repayment of receivable for stock issued........ 15 -- -- -- --
Proceeds from subordinated note payable to
related party................................. 2,000 -- -- -- --
Payment of subordinated notes payable to related
parties....................................... -- (3,450) -- -- --
Payments of long-term debt and capital lease
obligations................................... (661) (5,693) (571) (472) (907)
Dividend distributions to stockholders relating
to acquired Subchapter S corporation, net..... (927) -- -- -- --
-------- -------- -------- -------- --------
Net cash provided by financing
activities............................. 19,914 61,583 7,498 2,505 7,311
-------- -------- -------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents..................................... 87 (59) 101 50 167
-------- -------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents..................................... 3,358 8,483 3,511 (2,127) 7,262
Cash and cash equivalents, beginning of period.... 2,932 6,290 14,773 14,773 18,284
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period.......... $ 6,290 $ 14,773 $ 18,284 $ 12,646 $ 25,546
======== ======== ======== ======== ========
Supplemental disclosure of cash flow information:
</TABLE>
F-7
<PAGE> 10
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED JUNE 30, MARCH 31,
------------------------------ -------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid for income taxes...................... $ 621 $ 3,080 $ 4,074 $ 1,526 $ 1,143
======== ======== ======== ======== ========
Cash paid for interest.......................... $ 524 $ 1,363 $ 199 $ 92 $ 109
======== ======== ======== ======== ========
Supplemental schedule of noncash investing and
financing activities:
Increase in equipment under capital lease
obligations................................... $ -- $ 105 $ -- $ -- $ --
======== ======== ======== ======== ========
Increase in additional paid-in capital and
decrease in accrued expenses relating to the
tax benefit of exercise of nonqualified stock
options....................................... $ 486 $ 2,107 $ 3,963 $ -- $ --
======== ======== ======== ======== ========
Increase in common stock and additional paid-in
capital and decrease in subordinated notes
payable to a related party relating to the
exercise of warrants.......................... $ -- $ 550 $ -- $ -- $ --
======== ======== ======== ======== ========
Supplemental disclosure of cash flows related to
acquisitions:
During 1996, 1997 and the nine months ended
March 31, 1998, the Company acquired certain
companies as described in Note 3. These
acquisitions are summarized as follows --
Fair value of assets acquired, excluding
cash........................................ $ -- $ 47,919 $ 15,469 $ 15,982 $ 11,316
Issuance of common stock related to
acquisitions................................ -- -- (5,908) (6,496) --
Payments in connection with the acquisitions,
net of cash acquired........................ -- (44,723) (6,232) (5,307) (9,911)
-------- -------- -------- -------- --------
Liabilities assumed...................... $ -- $ 3,196 $ 3,329 $ 4,179 $ 1,405
======== ======== ======== ======== ========
</TABLE>
During the fiscal year 1995, the Company acquired Industrial Systems, Inc.,
which was accounted for as a pooling of interests. During the fiscal year 1997,
the Company acquired B-JAC International, Inc., which was accounted for as a
pooling of interests. During the fiscal year 1998, the Company acquired
NeuralWare, Inc., The SAST Corporation Limited, Cimtech S.A./N.V., Contas
Process Control S.r.L. and Zyqad Limited, which were accounted for as poolings
of interests.
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
<PAGE> 11
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS
Aspen Technology, Inc. and subsidiaries (the Company) is a supplier of
software and service solutions that companies in the process industries use to
design, operate and manage their manufacturing processes. The process industries
include manufacturers of chemicals, petrochemicals, petroleum products,
pharmaceuticals, pulp and paper, electric power, food and beverages, consumer
products, and metals and minerals. The Company offers a comprehensive,
integrated suite of process manufacturing optimization solutions that help
process manufacturers enhance profitability by improving efficiency,
productivity, capacity utilization, safety and environmental compliance
throughout the entire manufacturing life-cycle, from research and development to
engineering, planning and scheduling, procurement, production and distribution.
In addition to its broad range of software solutions, the Company offers system
implementation, advanced process control, real-time optimization and other
consulting services through its staff of project engineers. The Company has
operations and customers worldwide.
On May 27, 1998, the Company acquired Chesapeake Decision Sciences, Inc.
and subsidiaries (CDI), a provider of software and services for the supply chain
management market. The Company exchanged 2,961,959 shares of common stock for
all the outstanding shares of CDI. The Company placed 296,196 of these shares
into escrow as security for indemnification obligations of CDI relating to
representation, warranties and tax matters. This merger was accounted for as
a pooling of interests. Accordingly, the consolidated financial statements have
been retroactively restated to reflect the transaction as if the Company and CDI
had operated as one entity since inception.
F-9
<PAGE> 12
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following information details the results of operations of the Company
and CDI for the periods before the pooling of interests combination was
consummated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue --
The Company.................... $57,498 $103,609 $180,299 $127,045 $164,481
CDI............................ 8,521 11,209 13,771 10,554 13,563
------- -------- -------- -------- --------
Combined....................... $66,019 $114,818 $194,070 $137,599 $178,044
======= ======== ======== ======== ========
Net income (loss) --
The Company.................... $ 5,416 $(15,185) $ 13,155 $ 5,076 $ 8,497
CDI............................ 1,693 798 1,046 1,180 1,447
------- -------- -------- -------- --------
Combined....................... $ 7,109 $(14,387) $ 14,201 $ 6,256 $ 9,944
======= ======== ======== ======== ========
Net income (loss) per share --
Diluted --
The Company.................... $ 0.35 $ (0.96) $ 0.63 $ 0.24 $ 0.39
======= ======== ======== ======== ========
CDI............................ $ 1.09 $ 0.51 $ 0.60 $ 0.71 $ 0.59
======= ======== ======== ======== ========
Combined....................... $ 0.42 $ (0.83) $ 0.63 $ 0.28 $ 0.41
======= ======== ======== ======== ========
Net income (loss) per share --
Basic --
The Company.................... $ 0.39 $ (0.96) $ 0.67 $ 0.26 $ 0.41
======= ======== ======== ======== ========
CDI............................ $ 1.09 $ 0.51 $ 0.60 $ 0.71 $ 0.59
======= ======== ======== ======== ========
Combined....................... $ 0.46 $ (0.83) $ 0.66 $ 0.30 $ 0.43
======= ======== ======== ======== ========
</TABLE>
The Company has incurred approximately $4.0 million of merger-related
costs, which will be included in the 1998 consolidated statement of operations
during the period in which the merger was completed.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the results of
operations of the Company, CDI and their wholly owned subsidiaries. All material
intercompany balances and transactions have been eliminated in consolidation.
(b) INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements as of March 31, 1998 and
for the nine months ended March 31, 1997 and 1998 are unaudited, but in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of results for the
interim periods. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted, although the Company believes that the
disclosures included are adequate to make the information presented not
misleading. Results for the nine months ended
F-10
<PAGE> 13
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
March 31, 1998 are not necessarily indicative of the results that may be
expected for the year ending June 30, 1998.
(c) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are stated at cost, which approximates market,
and consist of short-term, highly liquid investments with original maturities of
less than three months.
(d) SHORT-TERM INVESTMENTS
The Company accounts for its short-term investments in accordance with
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 accompanying consolidated
financial statements. Unrealized gains and losses have been accounted for as a
separate component of stockholders' equity.
Available-for-sale investments as of June 30, 1996 and 1997 and March 31,
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
MARKET VALUE AT
-------------------------------
CONTRACTED JUNE 30, JUNE 30, MARCH 31,
DESCRIPTION MATURITY 1996 1997 1998
----------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C>
Commercial paper................ 1-11 months $38,559 $ 2,150 $ --
Money market funds.............. N/A 34 189 2,886
Stocks and mutual funds......... N/A 120 -- 757
Certificate of deposit.......... 1-11 months -- 475 --
Corporate and foreign bonds..... 1-12 months 108 3,145 122
Corporate and foreign bonds..... 1-5 years -- 10,663 5,407
------- ------- ------
$38,821 $16,622 $9,172
======= ======= ======
</TABLE>
The Company had no realized gains or losses for the years ended June 30,
1995 and 1997 and had realized gains (losses) of $282,000 and $(3,000) for the
year ended June 30, 1996 and the nine months ended March 31, 1998, respectively.
The amortized cost of these investments does not differ significantly from their
stated market value for all periods presented.
(e) DEPRECIATION AND AMORTIZATION
The Company provides for depreciation and amortization, computed using the
straight-line and declining balance methods, by charges to operations in amounts
estimated to allocate the cost of the assets over their estimated useful lives,
as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
-------------------- -----------
<S> <C>
Building and improvements........................... 7-30 years
Computer equipment.................................. 3-10 years
Purchased software.................................. 3 years
Furniture and fixtures.............................. 3-10 years
Leasehold improvements.............................. Life of lease
</TABLE>
F-11
<PAGE> 14
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(f) LAND
In connection with the acquisition of Setpoint, Inc. (see Note 3(a)), the
Company acquired land that is being held for investment purposes. The land was
recorded at its appraised value at the date of acquisition.
(g) 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 other 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 required as part
of a software license, the license fees are recognized as the application
development services are performed.
Service revenues from fixed-price contracts are recognized using 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. 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 each
installment agreement is recognized as interest income in the accompanying
consolidated statements of operations. The interest rates in effect for the
years ended June 30, 1995, 1996 and 1997 and the nine months ended March 31,
1998 were 11% to 12%, 11% to 12%, 8.5% to 11% and 8.5%, respectively.
(h) COMPUTER SOFTWARE DEVELOPMENT COSTS
In compliance with 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 balance
sheets. Capitalization of computer software development costs begins upon the
establishment of technological feasibility. Amortization of capitalized computer
software development costs is provided on a product-by-product basis using the
straight-line method over the remaining estimated economic life of the product,
not to exceed three years. Total amortization expense charged to operations was
approximately $630,000, $735,000, $1,143,000, $738,000 and $709,000 in fiscal
1995, 1996 and 1997 and for the nine months ended March 31, 1997 and 1998,
respectively.
(i) FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries are
translated in accordance with SFAS No. 52, Foreign Currency Translation. The
determination of functional currency is based on the subsidiaries' relative
financial and operational independence from the Company. Foreign currency
exchange and translation gains or losses for certain wholly owned subsidiaries
are
F-12
<PAGE> 15
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
credited or charged to the accompanying consolidated statements of operations
since the functional currency of the subsidiaries is the U.S. dollar. Gains and
losses from foreign currency translation related to entities whose functional
currency is their local currency are credited or charged to the cumulative
translation adjustment account, included in stockholders' equity in the
accompanying consolidated balance sheets.
At June 30, 1996 and 1997 and March 31, 1998, the Company had long-term
installments receivable of approximately $7,301,000, $8,987,000 and $5,810,000
denominated in foreign currencies. The March 1998 installments receivable mature
through October 2002 and have been hedged with specific foreign currency
contracts. There have been no material gains or losses recorded relating to
hedge contracts for the periods presented.
(j) NET INCOME (LOSS) PER SHARE
In March 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, Earnings per Share. This statement established standards for computing
and presenting earnings per share and applies to entities with publicly traded
common stock or potential common stock. This statement is effective for periods
ending after December 15, 1997. The prior years' earnings per share have been
retroactively restated to reflect the adoption of SFAS No. 128.
Basic earnings per share was determined by dividing net income by the
weighted average common shares outstanding during the period. Diluted earnings
per share was determined by dividing net income by diluted weighted average
shares outstanding. Diluted weighted average shares reflects the dilutive
effect, if any, of common equivalent shares. Common equivalent shares include
common stock options to the extent their effect is dilutive, based on the
treasury stock method.
The calculations of basic and diluted weighted average shares outstanding
are as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------ -----------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Basic weighted average common shares
outstanding.................................. 15,321 17,432 21,368 21,190 23,101
Weighted average common equivalent shares...... 1,792 -- 1,339 1,406 1,331
------ ------ ------ ------ ------
Diluted weighted average shares outstanding.... 17,113 17,432 22,707 22,596 24,432
====== ====== ====== ====== ======
</TABLE>
(k) MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(l) CONCENTRATION OF CREDIT RISK
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. Financial instruments that potentially subject the Company to
concentrations of credit risk are principally cash and cash equivalents,
investments,
F-13
<PAGE> 16
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounts receivable and installments receivable. The Company places its cash and
cash equivalents and investments in highly rated institutions. Concentration of
credit risk with respect to receivables is limited to certain customers (end
users and distributors) to which the Company makes substantial sales. To reduce
risk, the Company routinely assesses the financial strength of its customers,
hedges specific foreign receivables and routinely sells its receivables to
financial institutions with and without recourse. As a result, the Company
believes that its accounts and installments receivable credit risk exposure is
limited. The Company maintains an allowance for potential credit losses but
historically has not experienced any significant losses related to individual
customers or groups of customers in any particular industry or geographic area.
(m) FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure about fair value of financial instruments. Financial
instruments consist of cash and cash equivalents, short-term investments,
accounts receivable and installments receivable. The estimated fair value of
these financial instruments approximates their carrying value and, except for
accounts receivable and installments receivable, is based primarily on market
quotes.
(n) INTANGIBLE ASSETS
Intangible assets consist of goodwill, existing products, trade names and
assembled work force of certain acquired entities. Intangible assets are being
amortized on a straight-line basis over estimated useful lives of five to twelve
years. At each balance sheet date, the Company evaluates the realizability of
intangible assets based on profitability and cash flow expectations for the
related asset or subsidiary. Based on its most recent analysis, the Company
believes that no impairment of intangible assets exists at March 31, 1998.
Goodwill (net of accumulated amortization) was approximately $4,497,000 at March
31, 1998. Amortization of goodwill was approximately $40,000, $279,000 and
$337,000 for the years ended June 30, 1996 and 1997 and the nine months ended
March 31, 1998, respectively.
(o) NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 requires disclosure of all components of comprehensive income on an
annual and interim basis. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997.
In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 requires certain financial
and supplementary information to be disclosed on an annual and interim basis for
each reportable segment of an enterprise. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. Unless impracticable, companies would
be required to disclose similar prior period information upon adoption.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 requires
computer software costs associated with internal use software to be charged to
operations as incurred until certain capitalization criteria are met. SOP 98-1
is effective beginning January 1, 1999. The Company does not expect adoption of
this statement to have a material impact on its consolidated financial position
or results of operations.
F-14
<PAGE> 17
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) ACQUISITIONS
(a) DYNAMIC MATRIX CONTROL CORPORATION (DMCC) AND SETPOINT, INC. (SETPOINT)
During the quarter ended March 31, 1996, the Company acquired 100% of the
outstanding shares of common stock of DMCC and Setpoint for purchase prices of
$20,139,000 and $27,780,000, respectively, in cash and the assumption of certain
expenses related to the acquisitions. DMCC and Setpoint were suppliers of
on-line automation and information management software and services to companies
in process manufacturing industries.
These acquisitions were accounted for as purchase transactions, and
accordingly, their results of operations from the date of acquisitions forward
are included in the Company's consolidated statements of operations. The fair
market value of assets acquired and liabilities assumed was based on an
independent appraisal. The portion of the purchase price allocated to in-process
research and development represents projects that had not yet reached
technological feasibility and had no alternative future.
The purchase price was allocated to the fair value of assets acquired and
liabilities assumed as follows (in thousands):
<TABLE>
<CAPTION>
DESCRIPTION DMCC SETPOINT LIFE
- ----------- ------- -------- ----
<S> <C> <C> <C>
Purchased in-process research and
development......................... $ 9,521 $14,900 --
Existing technology................... 1,740 3,308 5 years
Other intangibles..................... 1,066 1,709 5-10 years
Building.............................. 627 -- 30 years
Goodwill.............................. -- 1,418 10 years
Uncompleted contracts................. 596 504 Life of contracts
------- -------
13,550 21,839
Net book value of tangible assets
acquired, less liabilities assumed.. 8,080 7,984
------- -------
21,630 29,823
Less -- Deferred taxes................ 1,491 2,043
------- -------
$20,139 $27,780
======= =======
</TABLE>
For tax purposes, these acquisitions were accounted for as purchases of
stock, and due to the different basis in assets for book and tax purposes,
deferred taxes were provided for as part of the purchase price allocation in
accordance with SFAS No. 109.
(b) ACQUISITIONS DURING FISCAL YEAR 1997
During fiscal year 1997, the Company acquired B-JAC International, Inc.
(B-JAC), the Process Control Division of Cambridge Control Limited (the
Cambridge Control Division), the PIMS Division of Bechtel Corporation and Basil
Joffe Associates, Inc.
The Company exchanged 104,162 shares of its common stock valued at
approximately $3,400,000 for all outstanding shares of B-JAC, a major supplier
of detailed heat exchanger modeling software. The acquisition has been accounted
for as a pooling of interests and as a result of its immateriality as compared
to the Company's financial position and results of operations, the historical
financial statements were not restated.
F-15
<PAGE> 18
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's acquisitions of the Cambridge Control Division, the PIMS
Division and Basil Joffe Associates, Inc. were all accounted for as purchase
transactions. Total purchase price for these acquisitions was approximately
$12,217,000 plus approximately $3,011,000 in assumed liabilities and acquisition
related costs. The Cambridge Control Division specialized in advanced process
control solutions, specifically aimed toward process manufacturing controls
applications for the refining, petrochemical and pulp and paper industries. The
PIMS Division and a related software development organization, Basil Joffe
Associates, Inc., developed and sold proprietary PIMS software used by companies
in process industries for economic planning and scheduling based on linear
programming models.
The results of operations of these companies from the dates of acquisition
forward are included in the Company's consolidated statements of operations. The
fair market value of assets acquired and liabilities assumed was based on an
independent appraisal. The portion of the purchase price allocated to in-process
research and development represents projects that had not yet reached
technological feasibility and had no alternative future use. The purchase price
was allocated to the fair value of assets acquired and liabilities assumed as
follows (in thousands):
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT LIFE
----------- ------ ----
<S> <C> <C>
Purchased in-process research and development......... $ 8,664 --
Existing technology................................... 600 5 years
Intangible assets..................................... 5,530 5-12 years
-------
14,794
Net book value of tangible assets acquired,
less liabilities assumed............................ (2,429)
-------
12,365
Less -- Deferred taxes................................ 148
-------
$12,217
=======
</TABLE>
(c) ACQUISITIONS DURING THE FIRST THREE QUARTERS OF FISCAL YEAR 1998
During the first three quarters of fiscal year 1998, the Company acquired
100% of the outstanding shares of NeuralWare, Inc., The SAST Corporation,
Limited, Cimtech S.A./N.V., Contas Process Control S.r.L. and Zyqad Limited. The
Company exchanged 626,443 shares of its common stock and paid approximately
$841,000 in cash for all outstanding shares of the acquired companies. These
acquisitions were accounted for as poolings of interests, and none of them were
material to the Company's financial position or results of operations.
Accordingly, the historical financial statements of the Company have not been
restated.
Additionally, the Company acquired 100% of the outstanding shares of IISYS,
Inc. for an aggregate purchase price of approximately $8,400,000 in cash and the
assumption of approximately $1,600,000 in debt. For financial statement
purposes, this acquisition was accounted for as a purchase, and accordingly, the
results of operations from the date of acquisition are included in the Company's
consolidated statements of operations. The fair market value of assets acquired
and liabilities assumed was based on an independent appraisal. The portion of
the purchase price allocated to in-process research and development represents
projects that had not
F-16
<PAGE> 19
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
yet reached technological feasibility and had no alternative future use. The
purchase price was allocated to the fair market value of assets acquired and
liabilities as follows (in thousands):
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT LIFE
----------- ------ ----
<S> <C> <C>
Purchased in process research and development........... $ 8,472 --
Existing technology..................................... 2,178 5 years
Intangible assets....................................... 392 5 years
-------
11,042
Net book value of tangible assets acquired, less
liabilities assumed................................... (321)
-------
10,721
Less -- Deferred taxes.................................. 800
-------
$ 9,921
=======
</TABLE>
(d) SUBSEQUENT ACQUISITION
On May 29, 1998, the Company acquired 100% of the outstanding shares of
Treiber Controls Inc. (Treiber). The Company exchanged 140,000 shares of its
common stock for all outstanding shares of Treiber. Treiber specializes in
advanced process control and optimization solutions, specifically in petroleum
refining, petrochemical and chemical industries. The Company intends to account
for this acquisition as a pooling of interests. The Company expects this
transaction will be immaterial to the Company's financial position and results
of operations and accordingly the historical financial statements will not be
restated.
(e) UNAUDITED PRO FORMA COMBINED RESULTS
The following table represents selected unaudited pro forma combined
financial information for the Company, DMCC and Setpoint, assuming the companies
had combined at the beginning of fiscal 1995 (in thousands, except per share
data):
<TABLE>
<CAPTION>
YEAR ENDED
--------------------
JUNE 30, JUNE 30,
1995 1996(1)
-------- --------
<S> <C> <C>
Pro forma revenue........................................... $123,251 $153,877
Pro forma net income........................................ $ 5,936 $ 9,397
Pro forma net income per share -- diluted................... $ 0.35 $ 0.50
Pro forma weighted average shares outstanding -- diluted.... 17,113 18,873
</TABLE>
- ---------------
(1) Does not reflect the charge for in-process research and development and
nonrecurring acquisition charges.
Pro forma results are not necessarily indicative of either actual results
of operations that would have occurred had the acquisitions been made at the
beginning of fiscal 1995 or of future results. The pro forma effect of the
acquisitions during fiscal year 1997 and 1998, except for CDI (see Note 1), has
not been presented, as they are immaterial.
(4) LINE OF CREDIT
The Company has a revolving line-of-credit agreement with a bank, which
provides for borrowings up to $30,000,000, subject to existing limitations. The
commitment fee for the unused
F-17
<PAGE> 20
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
portion of the revolving line of credit ranges from .25% to .50%, based on the
financial position of the Company, as defined, and is payable quarterly. At the
Company's election, borrowings bear interest on the basis of the applicable
LIBOR, as defined (5.69% as of March 31, 1998), or at the bank's prime rate
(8.5% as of March 31, 1998). The line is subject to certain covenants, including
profitability and operating ratios, as defined. As of March 31, 1998 no amounts
were outstanding under this line and approximately $29,359,000 was available for
future borrowings as approximately $641,000 was reserved for certain performance
bonds relating to service contracts. The line of credit expires on December 31,
1998.
(5) LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at June 30, 1996 and 1997
and March 31, 1998 (in thousands):
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, MARCH 31,
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Credit arrangement of subsidiary with a bank......... $ -- $ -- $1,540
Mortgage payable due in annual installments of
approximately $101,000............................. -- -- 1,279
Non-interest bearing note payable due in annual
installments of approximately $67,000.............. -- -- 1,000
Convertible Debenture due in 2000, interest is
payable at an annual rate of 6%. This note is
convertible into approximately 7,500 shares of the
Company's common stock at the option of the
holder............................................. -- -- 393
Note payable due in annual installments of $125,000
plus interest at 9.5% per year..................... 671 547 454
Other obligations.................................... 460 203 230
------ ---- ------
1,131 750 4,896
Less -- Current maturities........................... 425 288 1,581
------ ---- ------
$ 706 $462 $3,315
====== ==== ======
</TABLE>
Maturities of these long term obligations are as follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
Years Ending June 30,
1998...................................................... $1,618
1999...................................................... 618
2000...................................................... 409
2001...................................................... 474
2002...................................................... 379
Thereafter................................................ 1,519
------
5,017
Less -- Amount representing interest...................... 121
-- Current maturities............................... 1,581
------
$3,315
======
</TABLE>
(6) SUBORDINATED NOTES PAYABLE TO A RELATED PARTY
At June 30, 1995, the Company had $4,000,000 of outstanding subordinated
notes payable to an outside investor, of which a director of the Company is an
officer. The notes were repayable
F-18
<PAGE> 21
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$2,000,000 on April 30, 1997 and $2,000,000 on April 30, 1998, with interest at
9.6%, payable quarterly.
In December 1995 and June 1996, the lender exercised warrants to purchase
77,500 and 60,000 shares of common stock, respectively. The total proceeds due
to the Company relating to the exercise of the warrants of $550,000 were
recognized as a reduction of principal on the notes. The Company paid the
remaining balance of $3,450,000 on June 27, 1996.
(7) PREFERRED STOCK
The Company's Board of Directors is authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue, from time to
time, up to an aggregate of 10,000,000 shares of preferred stock in one or more
series. Each such series of preferred stock shall have such number of shares,
designations, preferences, voting powers, qualifications and special or relative
rights or privileges, which may include, among others, dividend rights, voting
rights, redemption and sinking fund provisions, liquidation preferences and
conversion rights, as shall be determined by the Board of Directors in a
resolution or resolutions providing for the issuance of such series. Any such
series of preferred stock, if so determined by the Board of Directors, may have
full voting rights with the common stock or superior or limited voting rights
and may be convertible into common stock or another security of the Company.
(8) COMMON STOCK
(a) AUTHORIZED AND OUTSTANDING SHARES
On November 11, 1996, the Company increased its authorized shares of $.10
par value common stock from 30,000,000 to 40,000,000. On February 14, 1997, the
Company effected a two for one stock split through the issuance of a stock
dividend. All share and per share amounts affected by this split have been
retroactively adjusted for all periods presented.
(b) WARRANTS
During fiscal 1990, the Company issued warrants to purchase 255,000 shares
of common stock to the holder of the subordinated notes payable to a related
party (see Note 6). In February 1995, warrants to purchase 100,000 shares were
exercised and sold as part of the Company's second public offering of stock. The
remaining warrants to purchase 155,000 shares of common stock were exercised in
December 1995. During 1991, the Company issued an additional warrant to purchase
120,000 shares of common stock to the holder of the subordinated notes payable
(see Note 6). These warrants were exercised in June 1996.
During fiscal 1992, the Company issued warrants to purchase 60,000 shares
of common stock to a research consultant at an exercise price of $3.34 per
share. In February 1995, warrants to purchase 27,000 shares were exercised and
sold as part of the Company's offering of common stock. In 1996, warrants to
purchase 1,150 shares were exercised. In 1997, warrants to purchase 5,700 shares
were exercised and warrants to purchase 774 shares were terminated. In the nine
month period ended March 31, 1998, warrants to purchase 3,513 shares were
exercised and warrants to purchase 283 shares were terminated. The remaining
warrants to purchase 21,580 shares of common stock are exercisable through June
30, 2001.
During fiscal 1993, the Company issued warrants to purchase 12,000 shares
of common stock to two research consultants at an exercise price of $2.67 per
share. In 1997, warrants to purchase 2,250 shares were exercised. In the nine
month period ended March 31, 1998, warrants to purchase
F-19
<PAGE> 22
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
750 shares were exercised. The remaining warrants to purchase 9,000 shares of
common stock are currently exercisable and expire June 10, 1998.
In connection with the August 1997 acquisition of NeuralWare, Inc. the
Company converted warrants and options to purchase NeuralWare common stock into
warrants and options to purchase 10,980 and 6,618 shares of the Company's common
stock, respectively, of which 13,290 shares are currently exercisable and the
remainder vest over three years. The warrants have exercise prices that range
between $61.73 and $135.80 per share.
(c) STOCK OPTIONS
In July 1987 and August 1988, the Company entered into stock option
agreements covering 120,000 shares of common stock. The purchase price under the
options is $0.93 to $1.05 based on the fair market value of the common stock on
the date of grant. In fiscal 1995, options covering 90,000 shares of common
stock at $1.05 per share were exercised. During fiscal 1997, options covering
the remaining 30,000 shares of common stock at an exercise price of $0.93 were
exercised.
Prior to November 1995, options were granted under the 1988 Nonqualified
Stock Option Plan (the 1988 Plan), which provided for the issuance of
nonqualified stock options. In November 1995, the Board of Directors approved
the establishment of the 1995 Stock Option Plan (the 1995 Plan) and the 1995
Directors Stock Option Plan (the 1995 Directors Plan), which provided for the
issuance of incentive stock options and nonqualified options. Under these plans,
the Board of Directors may grant stock options to purchase up to an aggregate of
3,827,687 (as adjusted) shares of common stock. Shares available for grant under
these plans were increased on July 1, 1996 and 1997 by an amount equal to 5% of
the outstanding shares as of the preceding June 30. As a result of the adoption
of the 1995 Plan, no additional options may be granted pursuant to the 1988
Plan. In December 1997 the shareholders approved an amendment to the 1995 Plan.
The amendment provides for three annual increases to the number of shares for
which options may be granted, beginning July 1, 1999 by an amount equal to 5% of
the outstanding shares on the preceding June 30. In December 1996, the
shareholders of the Company approved the establishment of the 1996 Special Stock
Option Plan (the 1996 Plan). This plan provides for the issuance of incentive
stock options and nonqualified options to purchase up to 500,000 shares of
common stock. The exercise price of options are granted at a price not less than
100% of the fair market value of the common stock on the date of grant. Stock
options become exercisable over varying periods and expire no later than 10
years from the date of grant.
F-20
<PAGE> 23
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of stock option activity under the 1988 Plan,
the 1995 Plan, the 1995 Directors Plan and the 1996 Plan:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Outstanding, June 30, 1994............................ 1,912,876 $ 2.13
Options granted..................................... 270,000 8.45
Options exercised................................... (357,368) 2.22
Options terminated.................................. (145,336) 2.16
--------- ------
Outstanding, June 30, 1995............................ 1,680,172 3.12
Options granted..................................... 1,772,000 17.08
Options exercised................................... (460,114) 1.90
Options terminated.................................. (51,300) 10.04
--------- ------
Outstanding, June 30, 1996............................ 2,940,758 11.65
Options granted..................................... 680,000 31.30
Options exercised................................... (484,205) 8.21
Options terminated.................................. (157,616) 16.61
--------- ------
Outstanding, June 30, 1997............................ 2,978,937 16.44
Options granted..................................... 2,014,637 30.02
Options exercised................................... (329,679) 12.55
Options terminated.................................. (71,714) 16.10
--------- ------
Outstanding, March 31, 1998........................... 4,592,181 $22.66
========= ======
</TABLE>
As of March 31, 1998, there were 166,144 and 78,500 shares of common stock
available for grant under the 1995 and 1996 plans, respectively.
In connection with the 1995 acquisition of Industrial Systems, Inc. (ISI),
the Company assumed the ISI option plan (the ISI Plan). Under the ISI Plan, the
Board of Directors of ISI was entitled to grant either incentive or nonqualified
stock options for a maximum of 197,548 shares of common stock (as converted to
reflect the pooling of interests and conversion to options to purchase Aspen
common stock) to eligible employees, as defined.
Activity under the ISI Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Outstanding, June 30, 1994............................ 131,174 $ .45
Exercised........................................... (105,094) .38
-------- -----
Outstanding, June 30, 1995............................ 26,080 .76
Exercised........................................... (13,040) .25
-------- -----
Outstanding, June 30, 1996............................ 13,040 1.26
Exercised........................................... (13,040) 1.26
-------- -----
Outstanding, June 30, 1997............................ -- $ --
======== =====
</TABLE>
No future grants are available under the ISI Plan.
F-21
<PAGE> 24
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize information about stock options outstanding
and exercisable at March 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE WEIGHTED
OUTSTANDING REMAINING AVERAGE
AT MARCH 31, CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES 1998 LIFE PRICE
------------------------ ------------ ----------- --------
<S> <C> <C> <C>
$ 1.05.................................. 158,898 2.2 $ 1.05
1.83-2.66............................. 197,588 3.8 2.64
3.33-4.00............................. 246,764 6.1 3.42
8.06-10.25............................ 80,700 7.0 9.97
13.12-19.12............................ 1,202,163 7.7 16.43
25.00-32.50............................ 2,387,568 8.9 29.33
38.00-40.18............................ 318,500 9.3 37.48
--------- ------
4,592,181 $22.66
========= ======
</TABLE>
<TABLE>
<CAPTION>
OPTIONS WEIGHTED
EXERCISABLE AVERAGE
AT MARCH 31, EXERCISE
RANGE OF EXERCISE PRICES 1998 PRICE
------------------------ ------------ --------
<S> <C> <C>
$ 1.05................................................ 158,898 $ 1.05
1.83-2.66........................................... 197,588 2.64
3.33-4.00........................................... 240,764 3.40
8.50-10.25.......................................... 38,700 9.84
13.62-19.12.......................................... 505,142 16.29
25.00-32.50.......................................... 556,915 29.65
38.00................................................ 43,256 38.00
--------- ------
Exercisable, March 31, 1998........................... 1,741,263 $16.24
========= ======
Exercisable, June 30, 1997............................ 1,160,258 $ 9.47
========= ======
Exercisable, June 30, 1996............................ 962,990 $ 4.58
========= ======
Exercisable, June 30, 1995............................ 1,046,572 $ 2.07
========= ======
</TABLE>
(d) FAIR VALUE OF STOCK OPTIONS
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 requires the measurement of the fair value of stock
options to be included in the statement of income or disclosed in the notes to
financial statements. The Company has determined that it will continue to
account for stock-based compensation for employees under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and elect the
disclosure-only alternative under SFAS No. 123.
F-22
<PAGE> 25
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation cost for the Company's option plan been determined based
on the fair value at the grant dates, as prescribed in SFAS No. 123, the
Company's net income (loss) (in thousands) and net income (loss) per share would
have been as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Net (loss) income (in thousands) --
As reported......................................... $(14,387) $14,201
Pro forma........................................... (15,623) 9,520
Net (loss) income per share --
Diluted --
As reported...................................... $ (0.83) $ 0.63
Pro forma........................................ (0.90) 0.42
Basic --
As reported...................................... $ (0.83) $ 0.66
Pro forma........................................ (0.90) 0.45
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants during the applicable period: no dividend yield and volatility of 58% for
all periods; risk-free interest rates of 5.54% to 6.83% for options granted
during fiscal 1996 and 6.42% to 6.76% for options granted during fiscal 1997;
and a weighted average expected option term of 7.5 years for all periods. The
weighted average fair value per share of options granted during 1996 and 1997
was $12.83 and $23.49, respectively.
(e) EMPLOYEE STOCK PURCHASE PLANS
In February 1986, the Company's Board of Directors approved the 1986
Employees' Stock Purchase Plan, under which the Board of Directors could grant
stock purchase rights for a maximum of 1,1400,000 shares through November 1995.
In December 1995, the Company's Board of Directors approved the 1995 Employees'
Stock Purchase Plan, under which the Board of Directors may grant stock purchase
rights for a maximum of 500,000 shares through November 2005. In October 1997,
the Company's Board of Directors approved the 1998 Employee Stock Purchase Plan,
under which the Board of Directors may grant stock purchase rights for a maximum
of 1,000,000 shares through September 30, 2007.
Participants are granted options to purchase shares of common stock on the
last business day of each semiannual payment period for 85% of the market price
of the common stock on the first or last business day of such payment period,
whichever is less. The purchase price for such shares is paid through payroll
deductions, and the current maximum allowable payroll deduction is 10% of each
eligible employee's compensation. Under the plans, the Company issued 72,064
shares, 50,220 shares, 81,586 shares and 127,547 shares during fiscal 1995, 1996
and 1997 and the nine months ended March 31, 1998, respectively. As of March 31,
1998, there were 1,000,000 shares available for future issuance under the 1998
Employee Stock Purchase Plan. No shares of common stock were available for
future issuance under the 1986 Employee Stock Purchase Plan or the 1995
Employees' Stock Purchase Plan.
(f) STOCKHOLDER RIGHTS PLAN
During fiscal 1998, the Board of Directors of the Company adopted a
Stockholder Rights Agreement (the "Rights Plan") and distributed one Right for
each outstanding share of Common Stock. The Rights were issued to holders of
record of Common Stock outstanding on March 12, 1998. Each share of Common Stock
issued after March 12, 1998 will also include one Right, subject
F-23
<PAGE> 26
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to certain limitations. Each Right when it becomes exercisable will initially
entitle the registered holder to purchase from the Company one one-hundredth
(1/100(th)) of a share of Series A Preferred Stock at a price of $175.00 (the
"Purchase Price").
The Rights will become exercisable and separately transferable when the
Company learns that any person or group has acquired beneficial ownership of 15%
or more of the outstanding Common Stock or on such other date as may be
designated by the Board of Directors following the commencement of, or first
public disclosure of an intent to commence, a tender or exchange offer for
outstanding Common Stock that could result in the offeror becoming the
beneficial owner of 15% or more of the outstanding Common Stock. In such
circumstances, holders of the Rights will be entitled to purchase, for the
Purchase Price, a number of hundredths of a share of Series A Preferred Stock
equivalent to the number of shares of Common Stock (or, in certain
circumstances, other equity securities) having a market value of twice the
Purchase Price. Beneficial holders of 15% or more of the outstanding Common
Stock, however, would not be entitled to exercise their Rights in such
circumstances. As a result, their voting and equity interests in the Company
would be substantially diluted if the Rights were to be exercised.
The Rights expire in March 2008, but may be redeemed earlier by the Company
at a price of $.01 per Right, in accordance with the provisions of the Rights
Plan.
(g) EMPLOYEE STOCK OWNERSHIP PLAN
In January 1987, CDI established an Employee Stock Ownership Plan and Trust
(the Plan) which covers substantially all employees who have attained the age of
21, completed 1,000 hours of service during the initial plan year in which they
have their first hour of service and are not covered by any collective
bargaining agreement. CDI makes discretionary contributions to the Plan on an
annual basis based on 10% of all eligible employees' base salaries. The common
stock shares are then allocated based on a formula determined by management.
CDI's discretionary contributions for the years ended June 30, 1996 and 1997 and
the nine months ended March 31, 1998 were approximately $250,000, $338,000 and
$478,000, respectively. The Plan also provides for the repurchase of common
stock upon the employee's termination of employment. In connection with the
merger between the Company and CDI, contributions to this Plan ceased as of May
27, 1998.
(h) RESTRICTED STOCK
CDI has stockholders agreements with all existing stockholders that provide
for the repurchase of common stock upon their termination of employment.
(9) INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is measured based on the difference
between the financial statement and tax bases of assets and liabilities, as
measured by the enacted tax rates.
F-24
<PAGE> 27
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provisions for income taxes shown in the accompanying consolidated
statements of operations are composed of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Federal --
Current.......................................... $1,713 $4,933 $ 7,174
Deferred......................................... 2,327 (264) 1,092
State --
Current.......................................... 103 966 1,011
Deferred......................................... 552 6 198
Foreign --
Current.......................................... 159 505 692
------ ------ -------
$4,854 $6,146 $10,169
====== ====== =======
</TABLE>
The provision for income taxes differs from the federal statutory rate due
to the following:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------
1995 1996(1) 1997(1)
---- ------- -------
<S> <C> <C> <C>
Federal tax at statutory rate....................... 34.0% 34.5% 34.5%
State income tax, net of federal tax benefit........ 5.7 5.5 5.6
Foreign tax......................................... (2.1) 1.2 (0.9)
Tax credits generated............................... (1.1) (5.0) (4.1)
Permanent differences, net.......................... 2.8 2.2 1.3
Valuation allowance and other....................... 1.3 (0.4) (0.5)
---- ---- ----
Provision for income taxes........................ 40.6% 38.0% 35.9%
==== ==== ====
</TABLE>
- ---------------
(1) Calculated based on pretax income, before nondeductible charges for
in-process research and development, of $14,850,000 and $26,704,000 for 1996
and 1997, respectively.
The components of the net deferred tax liability recognized in the
accompanying consolidated balance sheets are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets.................................. $ 7,418 $ 6,344
Deferred tax liabilities............................. (16,424) (14,908)
-------- --------
(9,006) (8,564)
Valuation allowance.................................. (1,425) --
-------- --------
$(10,431) $ (8,564)
======== ========
</TABLE>
F-25
<PAGE> 28
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The approximate tax effect of each type of temporary difference and
carryforwards is as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------
1996 1997
---- ----
<S> <C> <C>
Revenue related........................................ $(6,974) $(8,430)
Foreign operating losses............................... 1,425 1,063
Nondeductible reserves and accruals.................... 1,523 1,118
Intangible assets...................................... (3,819) (2,241)
Accounting methods..................................... (1,235) (143)
Other temporary differences............................ 74 69
------- -------
$(9,006) $(8,564)
======= =======
</TABLE>
The decrease in valuation allowance during 1997 resulted from the
utilization of previously reserved tax assets. The foreign operating loss
carryforwards expire at various dates through 2011.
(10) OPERATING LEASES
The Company leases its facilities and various office equipment under
noncancelable operating leases with terms in excess of one year. Rent expense
charged to operations was approximately $2,227,000, $3,418,000, $5,017,000,
$3,762,000 and $4,692,000 for the years ended June 30, 1995, 1996 and 1997 and
the nine months ended March 31, 1997 and 1998, respectively. Future minimum
lease payments under these leases as of June 30, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
Year Ending June 30,
1998.................................................... $ 4,440
1999.................................................... 4,027
2000.................................................... 3,830
2001.................................................... 3,498
2002.................................................... 3,476
Thereafter.............................................. 4,001
-------
$23,272
=======
</TABLE>
(11) SALE OF INSTALLMENTS RECEIVABLE
The Company sold, with limited recourse, certain of its installment
contracts to two financial institutions for $28,895,000, $30,210,000 and
$44,063,000 during fiscal 1996 and 1997 and the nine months ended March 31,
1998, respectively. The financial institutions have partial recourse to the
Company only upon nonpayment 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 on whether the
customers under the installment contracts are foreign or domestic entities.
Collections of these receivables reduce the Company's recourse obligation, as
defined. The Company records these transactions as sales of financial assets in
accordance with SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, as it surrenders control to
these receivables upon transfer.
At March 31, 1998, the balance of the uncollected principal portion of the
contracts sold with partial recourse was approximately $87,659,000. The
Company's potential recourse obligations
F-26
<PAGE> 29
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related to these contracts is approximately $5,000,000. In addition, the Company
is obligated to pay additional costs to the financial institutions in the event
of default by the customer.
(12) COMMITMENTS
The Company has entered into agreements with six executive officers
providing for the payment of cash and other benefits in certain events of their
voluntary or involuntary termination within three years following a change in
control. Payment under these agreements would consist of a lump sum equal to
approximately three years of each executive's annual taxable compensation. The
agreements also provide that the payment would be increased in the event that it
would subject the officer to excise tax as a parachute payment under the federal
tax code. The increase would be equal to the additional tax liability imposed on
the executive as a result of the payment.
(13) RETIREMENT PLAN
The Company maintains a defined contribution retirement plan under Section
401(k) of the Internal Revenue Code covering all eligible employees, as defined.
Under the plan, a participant may elect to defer receipt of a stated percentage
of his or her compensation, subject to limitation under the Internal Revenue
Code, which would otherwise be payable to the participant for any plan year. The
Company may make discretionary contributions to this Plan. No such contributions
were made during 1995 or 1996. During 1997, the plan was modified to provide,
among other changes, for the Company to make matching contributions equal to 25%
of pretax employee contributions up to a maximum of 6% of an employee's salary.
During the fiscal year ended June 30, 1997 and the nine months ended March 31,
1997 and 1998, the Company made matching contributions of approximately
$385,000, $175,000 and $598,000, respectively.
CDI also maintains a deferred contribution (401k) profit sharing plan
covering all full-time employees. Under the plan, a participant may elect to
defer receipt of a stated percentage of his or her compensation, subject to
limitation under the Internal Revenue Code, which would otherwise be payable to
the participant for any plan year. The plan provides for CDI to make matching
contributions equal to 50% of pretax employee contributions up to a maximum of
6% of an employee's salary. In addition, CDI may make discretionary
contributions to the plan determined annually by management. During the fiscal
year ended June 30, 1997 and the nine months ended March 31, 1998, CDI made
matching contributions of approximately $183,000 and $314,000, respectively.
The Company does not provide postretirement benefits to any employees as
defined under SFAS No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions.
(14) JOINT VENTURES
In May 1993, the Company entered into an Equity Joint Venture agreement
with China Petrochemical Technology Company to form a limited liability company
governed by the laws of the People's Republic of China. This company has the
nonexclusive right to distribute the Company's products within the People's
Republic of China. The Company invested $300,000 on August 6, 1993, which
represents a 30% equity interest in the joint venture.
In November 1993, the Company invested approximately $100,000 in a
Cyprus-based corporate joint venture, representing approximately a 14% equity
interest. The Company had a two-year option to purchase additional shares in the
joint venture corporation, which would increase its equity interest to 22.5%. In
December 1995, the Company exercised its option to acquire these additional
shares for approximately $125,000.
F-27
<PAGE> 30
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is accounting for these investments using the equity method.
The net investments are included in other assets in the accompanying
consolidated balance sheets. In the accompanying consolidated statements of
operations for the years ended June 30, 1995, 1996 and 1997 and the nine months
ended March 31, 1997 and 1998, the Company has recognized approximately $22,000,
$10,000, $26,000, $0 and $45,000, respectively, as its portion of the income
from these joint ventures.
(15) ACCRUED EXPENSES
Accrued expenses in the accompanying consolidated balance sheets consist of
the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------ MARCH 31,
1996 1997 1998
---- ---- ---------
<S> <C> <C> <C>
Income taxes................................ $ 2,728 $ 6,711 $ 9,172
Payroll and payroll-related................. 5,672 3,713 5,432
Royalties and outside commissions........... 4,437 2,168 2,321
Other....................................... 3,580 5,376 4,878
------- ------- -------
$16,417 $17,968 $21,803
======= ======= =======
</TABLE>
(16) RELATED PARTY TRANSACTION
Smart Finance & Co., a company of which a director of the Company is the
President, provides advisory services to the Company from time to time. In
fiscal 1996 and 1997 and the nine months ended March 31, 1998, payments of
approximately $72,000, $222,000 and $43,000, respectively, were made by the
Company to Smart Finance & Co. as compensation for services rendered.
(17) FINANCIAL INFORMATION BY GEOGRAPHIC AREA
Domestic and export sales as a percentage of total revenues are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
------------------------- -----------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
United States.................. 52.2% 58.0% 50.0% 51.6% 54.7%
Europe......................... 27.7 24.4 30.6 23.8 27.8
Japan.......................... 11.4 9.0 8.7 15.3 10.8
Other.......................... 8.7 8.6 10.7 9.3 6.7
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
Revenues, income (loss) from operations and identifiable assets for the
Company's United States, European and Asian operations are as follows (in
thousands). The Company has intercompany distribution arrangements with its
subsidiaries. The basis for these arrangements, disclosed below as transfers
between geographic locations, is cost plus a specified percentage for services
and a commission rate for sales generated in the geographic region.
F-28
<PAGE> 31
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
UNITED STATES EUROPE ASIA ELIMINATIONS CONSOLIDATED
------------- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1995 --
Revenues...................... $ 64,819 $ 1,200 $ -- $ -- $ 66,019
Transfers between geographic
locations.................. -- 10,912 4,463 (15,375) --
-------- ------- ------ -------- --------
Total revenues........ $ 64,819 $12,112 $4,463 $(15,375) $ 66,019
======== ======= ====== ======== ========
Income from operations.......... $ 7,904 $ 1,113 $ 313 $ -- $ 9,330
======== ======= ====== ======== ========
Identifiable assets............. $ 78,555 $ 4,237 $ 416 $ 51 $ 83,259
======== ======= ====== ======== ========
Year ended June 30, 1996 --
Revenues...................... $111,304 $ 3,506 $ 8 $ -- $114,818
Transfers between geographic
locations.................. -- 13,771 4,645 (18,416) --
-------- ------- ------ -------- --------
Total revenues........ $111,304 $17,277 $4,653 $(18,416) $114,818
======== ======= ====== ======== ========
Income (loss) from operations... $(10,363) $ (102) $ 15 $ -- $(10,450)
======== ======= ====== ======== ========
Identifiable assets............. $192,016 $11,391 $ 414 $(45,814) $158,007
======== ======= ====== ======== ========
Year ended June 30, 1997 --
Revenues...................... $184,193 $ 9,833 $ 44 $ -- $194,070
Transfers between geographic
locations.................. -- 23,588 8,099 (31,687) --
-------- ------- ------ -------- --------
Total revenues........ $184,193 $33,421 $8,143 $(31,687) $194,070
======== ======= ====== ======== ========
Income from operations.......... $ 15,959 $ 2,622 $ 594 $ -- $ 19,175
======== ======= ====== ======== ========
Identifiable assets............. $232,599 $ 7,493 $1,191 $(53,564) $187,719
======== ======= ====== ======== ========
</TABLE>
F-29
<PAGE> 32
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Because the impact of the acquired business does not meet the minimum
materiality threshold of Rule 3-05(b)(2)(i) of Regulation S-X, financial
information of the acquired business is not required to be filed pursuant to
Item 7(a) of this Form 8-K.
(b) Pro Forma Financial Information.
Because (i) separate financial statements of the acquired business are
not required to be included in this filing and (ii) the acquisition of
Chesapeake does not constitute a significant business combination under Rule
11-01(b)(1) of Regulation S-X, pro forma financial information is not required
to be filed pursuant to Item 7(b) of this Form 8-K.
(c) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1* Agreement and Plan of Reorganization dated as of April 28, 1998,
among Aspen Technology, Inc., AT Acquisition Corp., Chesapeake
Decision Sciences, Inc. and Dr. Thomas E. Baker
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants
99.1 Press release of Aspen Technology dated August 11, 1998
- ------------
* Filed previously with Current Report on Form 8-K of Aspen Technology, Inc.
dated May 27, 1998.
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
ASPEN TECHNOLOGY, INC.
Date: September 17, 1998 By: /s/ LISA W. ZAPPALA
-------------------------------------
Lisa W. Zappala
Chief Financial Officer
<PAGE> 34
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1* Agreement and Plan of Reorganization dated as of April 28, 1998,
among Aspen Technology, Inc., AT Acquisition Corp., Chesapeake
Decision Sciences, Inc. and Dr. Thomas E. Baker
23.1 Consent of Arthur Andersen LLP, Independent Public Accountants
99.1 Press release of Aspen Technology dated April 11, 1998
- -----------
* Filed previously with Current Report on Form 8-K of Aspen Technology, Inc.
dated May 27, 1998.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this
Form 8-K of our report dated May 29, 1998 on our audit of the consolidated
financial statements of Aspen Technology, Inc. and subsidiaries.
/s/ ARTHUR ANDERSEN LLP
September 14, 1998
<PAGE> 1
EXHIBIT 99.1
ASPENTECH ANNOUNCES FOURTH QUARTER AND FISCAL 1998 YEAR END RESULTS
FOURTH QUARTER REVENUES ROSE 32%
CAMBRIDGE, MA, August 11, 1998 -- Aspen Technology, Inc. (NASDAQ: AZPN), the
leading supplier of enterprise manufacturing optimization solutions for the
process industries, today announced results for its fourth quarter and fiscal
year ended June 30, 1998.
For the fourth fiscal quarter, total revenues increased 32% to $74.5 million,
compared with $56.5 million in the fourth quarter of fiscal 1997. For the three
months ended June 30, 1998, software license revenue grew 39% to $43.8 million,
while services revenue rose 22% to $30.7 million. Net income for the 1998
fourth quarter, excluding one-time acquisition-related charges, totaled
$8.7 million or $0.33 per share.
For the full 1998 fiscal year, total revenues grew 30% to $252.6 million from
$194.1 million for fiscal 1997. Net income for fiscal 1998, excluding one-time
charges, rose 31% to $27.7 million. Earnings per share, excluding one-time
charges, grew 19% to $1.11 versus the $0.93 earned in fiscal 1997, while
weighted average shares outstanding increased 10% year-over-year. All per share
amounts have been adjusted to reflect a two-for-one stock split effected
February 29, 1997.
"License revenue growth was outstanding in the fourth quarter, important
evidence of good market demand for AspenTech solutions, and strong industry
leadership," commented Larry Evans, Chairman and Chief Executive Officer.
"However, project services execution challenges and unbudgeted expenses
combined to reduce our profitability to levels below our expectations. To
address these issues, we are implementing a number of organizational changes
that we believe will better focus senior management on execution, and will
significantly strengthen AspenTech's infrastructure to streamline our
operations and support our growth." In a SEPARATE RELEASE today, AspenTech
announced a realignment of management duties.
One of the most significant transactions during the fourth quarter was the
expansion of a license agreement by Lyondell Petrochemical to implement
AspenTech's Plantelligence solution at as many as nine additional production
sites in addition to the Matagorda, Texas facility already using AspenTech's
technology. Other noteworthy fourth quarter customers include Buckeye Cellulose
Corporation, Cabot Corporation, Daicel Chemical Industries, Ltd., Fluor Daniel,
Inc., Hercules, Inc., Kyowa Hakko Kogyo Co., Ltd., NOVA Chemicals, Ltd.,
Raytheon Engineers & Constructors, Inc., Samsung Data Systems Co., Ltd.,
Statoil (the Norwegian state-owned oil company), and Union Carbide Corporation.
The fourth paragraph of this press release contains forward-looking statements
that involve a number of risks and uncertainties. Although the Company believes
that the assumptions underlying the forward-looking statements are reasonable,
any of the assumptions could be inaccurate and there can be no assurance that
actual results will be the same as those indicated by the forward-looking
statements, that the license revenue growth is evidence of good market demand,
or that the organizational changes will significantly strengthen the Company's
operation or infrastructure. Additional factors that could cause actual results
to differ materially from those indicated by such forward-looking statements
include the risks set forth under the caption "Risk Factors" in Aspen
Technology's Form 8-K filed June 3, 1998, which factors are incorporated herein
by reference.
ABOUT ASPENTECH
Aspen Technology, Inc., is a leading supplier of software and services for the
analysis, design and automation of process manufacturing plants in industries
such as chemical, petroleum, pharmaceuticals, electric power, pulp and paper,
and metals. Process manufacturers use AspenTech's solutions to improve the way
they design, operate and manage their plants. These solutions enable customers
to reduce their raw material, energy, and capital expenses, meet environmental
and safety regulations, improve product quality, and shorten the time required
to get new production processes on stream. AspenTech is headquartered in
Cambridge, Massachusetts, with offices in 21 countries worldwide. AspenTech and
the AspenTech logo are registered trademarks of Aspen Technology, Inc.
<PAGE> 2
<TABLE>
<CAPTION>
Three Months Ended Year Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUES:
Software licenses $43,846 $31,438 $139,390 $103,179
Maintenance and other services 30,665 25,033 113,165 90,891
Total revenues 74,511 56,471 252,555 194,070
EXPENSES:
Cost of software licenses 3,214 1,449 8,178 5,539
Cost of maintenance and other services 20,148 14,691 68,490 54,006
Selling and marketing 22,243 15,811 74,926 56,034
Research and development 12,034 9,894 43,553 33,580
General and administrative 5,558 4,218 20,208 17,072
Charge for in-process research & development - - 8,472 8,664
One-time acquisition costs 4,000 - 4,984 -
Total costs and expenses 67,197 46,063 228,811 174,895
Income from operations 7,314 10,408 23,744 19,175
Other expense, net (78) (100) (398) (210)
Interest income, net 1,181 1,538 5,339 5,405
Income before provision for
income taxes 8,417 11,846 28,685 24,370
Provision for income taxes 3,725 3,901 14,049 10,169
Net income $ 4,692 $ 7,945 $ 14,636 $ 14,201
Diluted earnings per share $ 0.18 $ 0.34 $ 0.59 $ 0.63
Weighted average shares outstanding-diluted 26,206 23,225 24,883 22,707
Basic earnings per share $ 0.19 $ 0.36 $ 0.63 $ 0.66
Weighted average shares outstanding-basic 24,354 22,020 23,415 21,368
PRO FORMA EXCLUDING ONE-TIME ACQUISITION
COSTS AND CHARGE FOR IN-PROCESS R&D:
Operating income $11,314 $10,408 $ 37,200 $ 27,839
Net income 8,692 7,945 27,731 21,165
Diluted earnings per share $ 0.33 $ 0.34 $ 1.11 $ 0.93
Weighted average shares outstanding-diluted 26,206 23,225 24,883 22,707
</TABLE>
Page 1
<PAGE> 3
<TABLE>
<CAPTION>
Year End Year End
ASSETS June 30, 1998 June 30, 1997
<S> <C> <C>
Current Assets:
Cash, cash equivalents and short-term investments $113,681 $ 34,906
Accounts receivable and unbilled services, net 89,880 59,441
Current portion of long-term installments receivable, net 23,643 19,063
Prepaid expenses and other current assets 10,831 8,876
Total current assets 238,035 122,286
Long-term installments receivable, net 36,203 30,963
Equipment and leasehold improvements, net 42,736 31,159
Computer software development costs, net 5,696 3,058
Intangible assets, net 12,857 12,768
Other assets 7,355 3,311
Total assets $342,882 $203,545
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 2,187 $ 288
Accounts payable and accrued expenses 38,545 25,410
Unearned revenue 6,008 4,294
Deferred revenue 17,888 16,730
Deferred income taxes 541 1,775
Total current liabilities 65,169 48,497
Long-term debt, less current maturities 90,635 462
Deferred revenue, less current portion 15,074 9,441
Other liabilities 914 942
Deferred income taxes 6,074 6,789
Total stockholders' equity 165,016 137,414
Total liabilities and stockholders' equity $342,882 $203,545
</TABLE>
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