SEC Filing | ANSYS, Inc.

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For the Fiscal Year Ended December 31, 2004

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2004

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-20853

ANSYS, Inc.

(Exact name of registrant as specified in its charter)

DELAWARE

04-3219960

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


275 Technology Drive, Canonsburg, PA		15317
(Address of principal executive offices)		(Zip Code)

724-746-3304

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


None		None
(Title of each class)		(Name of exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value per share

(Title of class)

Indicate by a check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in PART III of this Form 10-K, or any amendment to this Form 10-K. x

Indicate by a check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ¨

The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on June 30, 2004 as reported on the NASDAQ National Market, was approximately $547,000,000. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares of the Registrant’s Common Stock, par value $.01 per share, outstanding as of March 7, 2005 was 31,517,373 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Stockholders for the fiscal year ended December 31, 2004 are incorporated by reference into Parts I, II and IV. Portions of the Proxy Statement for the Registrant’s 2005 Annual Meeting of Stockholders to be held on May 10, 2005 are incorporated by reference into Part III.

Important Factors Regarding Future Results

Information provided by ANSYS, Inc. (the “Company”), including information contained in this Annual Report on Form 10-K, or by its spokespersons may from time to time contain forward-looking statements concerning such matters as projected financial performance, market and industry segment growth, product development and commercialization, acquisitions or other aspects of future operations. Such statements, made pursuant to the safe harbor established by the securities laws, are based on the assumptions and expectations of the Company’s management at the time such statements are made. The Company cautions investors that its performance (and, therefore, any forward-looking statement) is subject to risks and uncertainties. Various important factors, including but not limited to those discussed herein, may cause the Company’s future results to differ materially from those projected in any forward-looking statement. Important information about the basis for those assumptions is contained in “Important Factors Regarding Future Results” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” incorporated by reference to pages 11 through 26 of the Company’s 2004 Annual Report to Stockholders. All information presented is as of December 31, 2004, unless otherwise indicated.

PART I

ITEM 1: BUSINESS

ANSYS, Inc. develops and globally markets engineering simulation software and technologies widely used by engineers and designers across a broad spectrum of industries, including aerospace, automotive, manufacturing, electronics and biomedical. Headquartered at Southpointe in Canonsburg, Pennsylvania, the Company employs approximately 550 people and focuses on the development of open and flexible solutions that enable users to analyze designs directly on the desktop, providing a common platform for fast, efficient and cost-conscious product development, from design concept to final-stage testing and validation. The Company distributes its ANSYS^{^®}, ANSYS Workbench^TM, CFX^®, DesignSpace^TM, ICEM CFD^TM, and CADOE^TM products through a global network of channel partners, in addition to its own direct sales offices in strategic, global locations. It is the Company’s intention to continue to maintain this mixed sales and distribution model.

The Company operates as one segment, as defined by Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Given the integrated approach to the problem-solving needs of the Company’s customers, a single sale of software may contain components from multiple product areas. Additionally, the Company applies an integrated approach to development whereby best-in-class technology is utilized across all product lines, regardless of the product line from which such technology was originally developed. There is no means by which the Company can provide accurate historical (or current) reporting among its ANSYS Simulation Suite, ANSYS Workbench, ANSYS ICEM CFD Suite, and ANSYS CFX Suite or any other product-line segmentation. Disclosure of such information is impracticable.

The Company’s major product lines are described as follows:

ANSYS Simulation Suite

Incorporating design simulation and virtual prototyping into a product development process is critical to minimize costs and improve time-to-market. With the ANSYS Simulation Suite, you can determine real-world structural, thermal, electromagnetic and fluid-flow behavior of 3-D product designs, including the effects of multiple physics when they are coupled together for added accuracy and reliability.

ANSYS Workbench

The ANSYS Workbench is a new-generation solution from ANSYS that provides powerful methods for interacting with the ANSYS solver functionality. This environment provides a unique integration with Computer-Aided Design (CAD) systems enabling bi-directional interaction between the CAD model and the analytical solution provided by the ANSYS Workbench environment. This parametric association enhances the product design process, allowing shorter product development cycles.

ANSYS ICEM CFD Suite

ICEM CFD software products consist of geometry acquisition, mesh generation, post-processing, and mesh optimization tools. ICEM CFD products provide best-in-class tools for universal pre-processing for analysis, including Finite Element Analysis (FEA), Computational Fluids Dynamics (CFD) and other Computer-Aided Engineering (CAE) applications. The major products in this suite include ICEM CFD, the leading software for 3-D grid generation for CFD, and AI*Environment, a high powered meshing pre- and post-processor for FEA. The ICEM CFD products interface with all of the main CAD products and have translators to over 100 solvers.

ANSYS CFX Suite

CFD has become an integral part of the engineering design and analysis environment of many companies because of its ability to predict the performance of new designs or processes before they are ever manufactured or implemented. CFX uses world-leading technology such as a coupled multigrid solver that solves the full system of hydrodynamic equations simultaneously. This robust methodology, in addition to providing industry-leading accuracy, is also the basis for unequalled parallel computing efficiency, allowing companies to solve these computationally intensive problems in less time than ever before.

BUSINESS ACQUISITION

On February 26, 2003, the Company acquired 100% of the shares in certain entities and assets (hereinafter collectively referred to as “CFX”) for a purchase price of approximately $21.7 million in cash. CFX is a leading supplier of CFD software and services. By acquiring CFX, ANSYS broadened the scope of engineering physics solutions it can offer to its customers and gained access to new customers and geographic territories.

On January 5, 2005, the Company signed a definitive agreement to acquire Century Dynamics, Inc. (hereinafter referred to as “Century Dynamics”), a leading provider of sophisticated simulation software for solving linear, nonlinear and explicit, as well as multi-body hydro-dynamics problems, for an initial purchase price of approximately $5.6 million in cash. In addition, the agreement provides for future payments contingent upon the attainment of certain performance criteria. The acquisition of Century Dynamics expands the Company’s product offerings and allows it to deliver a more complete and comprehensive solution to meet its customers needs.

PRODUCT DEVELOPMENT

The Company makes significant investments in research and development and emphasizes accelerated new integrated product releases. The Company’s product development strategy centers on ongoing development and innovation of new technologies to increase productivity and provide solutions that customers can integrate into enterprise-wide engineering systems. The Company’s product development efforts focus on extensions of the full product line with new functional modules, further integration with CAD and Product Lifecycle Management (PLM) products, and the development of new products. The Company’s products run on the most widely used engineering computing platforms and operating systems, including Windows, Linux and most UNIX workstations.

During 2004, the Company completed the following major product development activities and releases (in chronological order):

•

The release of ANSYS 8.1, featuring new high-end simulation capabilities, as well as design process enhancements. ANSYS 8.1 includes advances in parallel computing, solver technology, memory management, data handling, electromagnetics analysis, linear and nonlinear analysis, integration, ease-of-use and the solution of advanced coupled physics problems using ANSYS Multiphysics.

•

The release of ANSYS CFX 5.7, which continues the rapid advancement of CFD core technology development and leverages the ANSYS technology to increase integration into the engineering design cycle. CFX-5.7 can include ANSYS DesignModeler for geometry creation or CAD import along with a special version of ANSYS ICEM CFD, which provides a proven meshing capability that is well known for its exceptional robustness when applied to industrial CAD models. CFX-5.7 includes many extensions in physical models, permitting a much broader range of applications.

•

The release of ANSYS ICEM CFD 5.0, featuring the integration of the hex meshing and post-processing modules. The integration provides a more streamlined user experience, while maintaining the large amount of control desired by users. This release includes significant functional improvements to geometry creation, model diagnosis and repair, the meshing modules, mesh editing and visualization.

•

The release of AI*Environment 5.0, an upgrade to the pre- and post-processing software dedicated to structural analysis, that can be run within the ANSYS Workbench as the Advanced Meshing Tab. The upgrade provides users with direct access to their CAD system that allows the cleanest path of CAD geometry to a high-quality mesh.

•

The release of ANSYS CFX-TurboGrid 2.2, a specialized software tool used by rotating machinery designers and engineers. This version of CFX-Turbo Grid brings a new level of speed, automation, flexibility and high mesh quality to the product for a wide range of axial and radial turbomachinery bladed row components.

•

The release of ANSYS 9.0, which integrates technical capabilities from each of the Company’s major product lines, is the latest version of the Company’s industry-leading CAE simulation software platform. This software release features electromagnetic, computational fluid dynamics (CFD) and mesh creation technologies integrated within the ANSYS Workbench product development environment. ANSYS 9.0 extends core features and provides powerful robust design capabilities. In addition, ANSYS 9.0 is ported to the AMD Opteron processor which allows companies to preserve their investments in 32-bit applications, while providing a transition path to 64-bit computing for those projects demanding high-performance capabilities.

The Company’s total research and development expenses were $26.3 million, $23.8 million and $19.6 million in 2004, 2003 and 2002, or 19.5%, 21.0% and 21.5% of total revenue, respectively. As of December 31, 2004, the Company’s product development staff consisted of approximately 200 full time employees, most of whom hold advanced degrees and have industry experience in engineering, mathematics, computer science or related disciplines.

The Company uses multi-functional teams to develop its products and develops them simultaneously on multiple platforms to reduce subsequent porting costs. In addition to developing source code, these teams create and perform highly automated software verification tests; develop on-line documentation and support for the products; implement development enhancement tools, software configuration management and product licensing processes; and conduct regression tests of ANSYS products for all supported platforms.

PRODUCT QUALITY

The Company’s employees perform all product development and support tasks according to predefined quality plans, procedures and work instructions. These plans define for each project the methods to be used, the responsibilities of project participants and the quality objectives to be met. The ANSYS^® Simulation Suite and ANSYS^® Workbench are certified according to ISO 9001:2000 standards. To ensure that the Company meets or surpasses the IS0 9001 standards, the Company establishes quality plans for all products and services, subjects product designs to multiple levels of testing and verification and selects development subcontractors in accordance with processes established under the Company’s quality system.

SALES AND MARKETING

The Company distributes and supports its products through a global network of channel partners, as well as through its own direct sales offices. This network provides the Company with a cost-effective, highly specialized channel of distribution and technical support. Approximately 43% of the Company’s total revenue in 2004 was derived through the indirect sales channel.

The channel partners sell ANSYS products to new customers, expand installations within the existing customer base, offer training and consulting services and provide the first line of ANSYS technical support. The Company’s channel partner certification process helps to ensure that each channel partner has the ongoing capacity to adequately represent the Company’s expanding product lines and to provide an acceptable level of training, consultation and customer support.

The Company also has a direct sales management infrastructure in place to develop an enterprise-wide, focused sales approach and to implement a worldwide major account strategy. The sales management organization also functions as a focal point for requests to ANSYS from the independent channel partners, and provides additional support in strategic locations through the presence of direct sales offices. A Vice President of Sales and Support heads the Company’s sales management organization.

During 2004, the Company continued to invest in its existing domestic and international strategic sales offices. In total, the Company’s direct sales offices employ approximately 120 persons, who are responsible for the sales, marketing initiatives and administrative activities in those geographic areas designed to support the Company’s overall revenue growth and expansion strategies.

During 2004, the Company also continued to expand its independent channel partner network, including its reseller network. The reseller network complements the larger ANSYS channel partners by establishing a broader user base for the Company’s products and services. The resellers are required to have appropriately trained marketing and technical personnel.

The Company’s products are utilized by organizations ranging in size from small consulting firms to the world’s largest industrial companies. No single customer accounted for more than 10% of the Company’s revenue in 2004.

Information with respect to foreign and domestic revenue may be found in Note 15 to the Consolidated Financial Statements and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Annual Report to Stockholders for the year ended December 31, 2004 (“2004 Annual Report to Stockholders”), which financial statements are included in Exhibit 13.1 to this Annual Report on Form 10-K and incorporated herein by reference.

STRATEGIC ALLIANCES AND MARKETING RELATIONSHIPS

The Company has established and continues to pursue strategic alliances with advanced technology suppliers and marketing relationships with hardware vendors, specialized application developers, and CAD and Product Lifecycle Management (PLM) providers. The Company believes these relationships allow accelerated incorporation of advanced technology into the ANSYS, ICEM CFD and CFX products, provide access to important new customers, expand the Company’s sales channels, develop specialized product applications and provide direct integration with leading CAD and PLM systems.

The Company has technical and marketing relationships with leading CAD vendors, such as Autodesk, Dassault Systemes, Parametric Technology Corporation, Solid Edge, Solid Works and UGS PLM Solutions, to provide direct links between products. These links facilitate the transfer of electronic data models between the CAD systems and ANSYS products.

The Company has established relationships with leading suppliers of computer hardware, including Hewlett-Packard, SGI, Sun Microsystems, IBM, Dell, Intel, Fujitsu America and various graphics card vendors. These relationships typically provide the Company with joint marketing opportunities such as advertising, events and Internet links with the hardware partner’s home page. In addition, the Company receives reduced equipment costs and software porting support to ensure that the Company’s software products are certified to run on various hardware platforms.

The Company’s Enhanced Solution Partner Program actively encourages specialized developers of niche software solutions to use ANSYS technology as a development platform for their applications. In most cases, the sale of the Enhanced Solution Partners’ products is accompanied by the sale of an ANSYS product.

The Company has a software license agreement with Livermore Software Technology Corporation (“LSTC”) under which LSTC has provided LS-DYNA software for explicit dynamics solutions used in applications such as crash test simulation in the automotive and other industries. Under this arrangement, LSTC assists in the integration of the LS-DYNA software with the Company’s pre- and post-processing capabilities and provides updates and problem resolution in return for a share of revenue from sales of the ANSYS/LS-DYNA combined product.

The Company has an agreement with Autodesk, Inc. (“Autodesk”) under which Autodesk licenses ANSYS part-level stress and resonant frequency simulation technologies and packages them as an integral part of the Autodesk Inventor Professional 9.0 product and future releases.

COMPETITION

The Company believes that principal factors affecting sales of its software include ease of use, breadth and depth of functionality, flexibility, quality, ease of integration with other software systems, file compatibility across computer platforms, range of supported computer platforms, performance, price and cost of ownership, customer service and support, company reputation and financial viability, and effectiveness of sales and marketing efforts. Although the Company believes that it currently performs effectively with respect to these factors, there can be no assurance that the Company will be able to continue to perform effectively with respect to all or any of these factors. There also can be no assurance that other software suppliers and customers will not develop their own software, or acquire software from suppliers other than the Company, or otherwise discontinue their relationships with the Company. If any of these events occur, the Company’s business, financial condition, results of operations and cash flows could be materially adversely affected.

The Company continues to experience intense competition across all markets for its products and services. Some of the Company’s current and possible future competitors have greater financial, technical, marketing and other resources than the Company, and some have well established relationships with current and potential customers of the Company. These competitive pressures may result in decreased sales volumes, price reductions and/or increased operating costs, and could result in lower revenues, margins and net income.

PROPRIETARY RIGHTS AND LICENSES

The Company regards its software as proprietary and relies on a combination of trade secret, copyright and trademark laws, license agreements, nondisclosure and other contractual provisions, and technical measures to protect its proprietary rights in its products. The Company distributes its software under software license agreements that grant customers nonexclusive licenses for the use of the Company’s products, which are typically nontransferable. License agreements for the Company’s products are directly between the Company and end users. Use of the licensed software is restricted to designated computers at specified sites, unless the customer obtains a site license for its use of the software. Software security measures are also employed to prevent unauthorized use of the Company’s software and the licensed software is subject to terms and conditions prohibiting unauthorized reproduction of the software. Customers may either purchase a perpetual license of the technology with the right to annually purchase ongoing maintenance, technical support and updates, or may lease the product on an annual basis for a fee which includes the license, maintenance, technical support and upgrades.

For certain software products, the Company primarily relies on “click-wrapped” licenses. The enforceability of these types of agreements under the laws of some jurisdictions is uncertain.

The Company also seeks to protect the source code of its software as a trade secret and as unpublished copyrighted work. The Company has obtained federal trademark registration protection for ANSYS and CFX in the U.S. and in foreign countries. Additionally, the Company was awarded a patent by the U.S. Patent and Trademark Office for its Web-based reporting technology.

Employees of the Company have signed covenant agreements under which they have agreed not to disclose trade secrets or confidential information, and where legally permitted, restricts engagement in or connection with any business which is competitive with the Company anywhere in the world, while employed by the Company (and, in some cases, for specified periods thereafter), and that any products or technology created by them during their term of employment are the property of the Company. In addition, the Company requires all channel partners and resellers to enter into agreements not to disclose the Company’s trade secrets and other proprietary information.

Despite these precautions, there can be no assurance that misappropriation of the Company’s technology will not occur. Further, there can be no assurance that copyright, trademark, patent, and trade secret protection will be available for the Company’s products in certain countries, or that restrictions on the ability of employees and channel partners to engage in activities competitive with the Company will be enforceable.

The software development industry is characterized by rapid technological change. Therefore, the Company believes that factors such as the technological and creative skills of its personnel, new product developments, frequent product enhancements, name recognition and reliable product maintenance are more important to establishing and maintaining a technology leadership position than the various legal protections of its technology which may be available.

The Company does not believe that any of its products infringe upon the proprietary rights of third parties. There can be no assurance, however, that third parties will not claim in the future such infringement by the Company or its licensors or licensees with respect to current or future products. The Company expects that software product developers will increasingly be subject to such claims as the number of products and competitors in the Company’s market segment grow and the functionality of products in different market segments overlaps. Any such claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require the Company to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to the Company.

BACKLOG

The Company generally ships its products within 30 days after acceptance of an order and execution of a software license agreement. Accordingly, the Company does not believe that its backlog at any particular point in time is indicative of future sales levels.

EMPLOYEES

As of December 31, 2004, the Company had approximately 550 full-time employees. At that date, there were also contract personnel and co-op students providing ongoing development services and technical support. The Company believes that its relationship with its employees is good.

AVAILABLE INFORMATION

The Company’s website is www.ansys.com. The Company makes available on its website Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, reports filed pursuant to Section 16 and amendments to those reports as soon as reasonably practicable after such materials are electronically filed or furnished to the Securities and Exchange Commission. In addition, the Company has posted the charters for its Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, as well as the Company’s Code of Business Conduct and Ethics and Standard Business Practices. Information posted on our website is not included in this Annual Report on Form 10-K.

ITEM 2: PROPERTIES

The Company’s executive offices and those related to domestic product development, marketing, production and administration are located in a 107,000 square feet office facility in Canonsburg, Pennsylvania, which was leased for an annual rent of approximately $1,241,000 in 2004. The Company and its subsidiaries also lease office space in various locations throughout the world. The Company owns substantially all equipment used in its facilities. Management believes that its facilities allow for sufficient space to support not only its present needs, but also allow for expansion and growth as the business may require in the foreseeable future.

In the opinion of management, the Company’s properties and its equipment are in good operating condition and are adequate for the Company’s current needs. The Company does not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities.

ITEM 3: LEGAL PROCEEDINGS

The Company is subject to various investigations, claims and legal proceedings from time to time that arise in the ordinary course of its business activities. These proceedings currently include customary audit activities by various taxing authorities. Each of these matters is subject to various uncertainties, and it is possible that these matters may be resolved unfavorably to the Company. Management believes, after consulting with legal counsel, that the ultimate liabilities, if any, resulting from such lawsuits and claims will not materially affect the Company’s financial position, liquidity or results of operations.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2004.

PART II

ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Equity compensation plan information as of December 31, 2004 is as follows:


	(a)	(b)		(c)
Plan Category	Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a))
Equity Compensation Plans Approved By Security Holders
1994 Stock Option and Grant Plan	157,056	$	1.85	0
1996 Stock Option and Grant Plan	3,758,063	$	10.42	2,478,304
1996 Employee Stock Purchase Plan	(1)		(2)	427,318
Equity Compensation Plans Not Approved By Security Holders
None

Total	3,915,119			2,905,622

(1)	The number of shares issuable with respect to the current offering period is not determinable until the end of the period.

(2)	The per share purchase price of shares issuable with respect to the current offering period is not determinable until the end of the offering period.

Other information required by this Item is incorporated by reference to page 47 and the section captioned “Corporate Information” appearing in the Company’s 2004 Annual Report to Stockholders.

ITEM 6: SELECTED FINANCIAL DATA

The information required by this Item is incorporated by reference to page 1 of the Company’s 2004 Annual Report to Stockholders.

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information required by this Item is incorporated by reference to pages 11 through 26 of the Company’s 2004 Annual Report to Stockholders, including the “Important Factors Regarding Future Results.”

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As the Company continues to expand its direct sales presence in international regions, the portion of its revenue, expenses, cash, accounts receivable and payment obligations denominated in foreign currencies continues to increase. As a result, changes in currency exchange rates from time to time may affect the Company’s financial position, results of operations and cash flows.

As of December 31, 2004, the Company had a British Pound-denominated intercompany loan related to the CFX acquisition with one of its subsidiaries. This note was recorded as a receivable on a U.S. company and was subject to foreign currency translation risk between the British Pound and the U.S. Dollar. Monthly translations to the current spot-rate are recorded in the statement of income. As of December 31, 2004, a U.K. subsidiary had a U.S. dollar cash balance, which provided a natural hedge against the intercompany loan thereby substantially eliminating foreign currency exchange risk on this loan.

Based on the nature of the Company’s business, it has no direct exposure to commodity price risk.

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is incorporated by reference to pages 27 through 45 of the Company’s 2004 Annual Report to Stockholders, which is attached hereto as Exhibit 13.1.

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As required by Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, the Company has evaluated, with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures are effective in ensuring that material information relating to the Company, including its consolidated subsidiaries, is made known to the certifying officers by others within the Company and its consolidated subsidiaries during the period covered by this report.

The Company has a Disclosure Review Committee to assist in the quarterly evaluation of the Company’s internal disclosure controls and procedures and in the review of the Company’s periodic filings under the Exchange Act. The membership of the Disclosure Review Committee consists of the Company’s Chief Executive Officer, Chief Financial Officer, Controller, General Counsel, Treasurer, Vice President of Sales and Support, Vice President of Human Resources and Business Unit General Managers. This committee is advised by external counsel, particularly on SEC-related matters. Additionally, other members of the Company’s global management team advise the committee with respect to disclosure via a sub-certification process.

The Company believes based on its knowledge that the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report. The Company cannot provide assurance that new problems will not be found in the future, nor does it expect that its disclosure controls and procedures, or its internal controls, will prevent all errors and all fraud because no system can provide absolute assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud within ANSYS have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some person or by collusion of two or more people. The Company is committed to both a sound internal control environment and to good corporate governance.

From time to time, the Company reviews the disclosure controls and procedures, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company’s systems evolve with its business. As of the end of the period covered by this report, an evaluation was performed of the effectiveness of the design and operation of ANSYS’ disclosure controls and procedures by the Company. Based on that evaluation, the Company has concluded that its disclosure controls and procedures are effective.

Report on Internal Control Over Financial Reporting. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company has conducted an evaluation of the effectiveness of its internal control over financial reporting based upon the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s internal control over financial reporting was effective at December 31, 2004.

Management’s assessment of the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2004 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm. Deloitte & Touche LLP has issued an attestation report on the Company’s controls over financial reporting. The report is included in Item 8 of this Form 10-K.

Changes in Internal Controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s internal controls over financial reporting during the quarter ended December 31, 2004.

ITEM 9B: OTHER INFORMATION

None.

PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information concerning the Company’s directors and executive officers required by this Item is incorporated by reference to the Company’s 2005 Proxy Statement and is set forth under “Information Regarding Directors” and “Executive Officers” therein.

CODE OF BUSINESS CONDUCT AND ETHICS

The Company has adopted the ANSYS Code of Business Conduct and Ethics, which applies to all employees, officers and directors. This Code of Business Conduct and Ethics meets the requirements of a “code of ethics” as defined by Item 406 of Regulation S-K and applies to the Company’s Board of Directors, Chief Executive Officer, Chief Financial Officer and other employees, as indicated above. This document also meets certain requirements under the listing standards of Nasdaq. The ANSYS Code of Business Conduct and Ethics is posted on the Company’s website at www.ansys.com. The Company intends to disclose on its website any amendments to its Code of Business Conduct and Ethics, as well as any waivers for executive officers or directors.

ITEM 11: EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to the Company’s 2005 Proxy Statement and is set forth under “Executive Compensation” therein.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated by reference to the Company’s 2005 Proxy Statement and is set forth under “Principal and Management Stockholders” therein.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference to the Company’s 2005 Proxy Statement and is set forth under “Certain Transactions” therein.

ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated by reference to the Company’s 2005 Proxy Statement and is set forth under “Independent Registered Public Accounting Firm” therein.

PART IV

ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)

Documents Filed as Part of this Annual Report on Form 10-K:

Financial Statements: The following consolidated financial statements and reports of independent registered public accounting firm are incorporated by reference to pages 27 through 45 of the Company’s 2004 Annual Report to Stockholders:

•

Reports of Independent Registered Public Accounting Firm

•

Management’s Assessment of Internal Control

•

Consolidated Balance Sheets as of December 31, 2004 and 2003

•

Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002

•

Consolidated Statements of Cash Flow for the years ended December 31, 2004, 2003 and 2002

•

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2004, 2003 and 2002

•

Notes to Consolidated Financial Statements

Financial Statement Schedules: The following financial statement schedule and report of independent registered public accounting firm are filed on pages 13 through 14 of this Annual Report on Form 10-K and should be read in conjunction with the consolidated financial statements.

Report of Independent Registered Public Accounting Firm

Schedule II - Valuation and Qualifying Accounts

Schedules not listed above have been omitted because they are not applicable, or are not required, or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto.

Exhibits:

The Exhibits listed on the accompanying Exhibit Index immediately following the financial statement schedule are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.

(b)

Reports on Form 8-K:

The Company furnished a Current Report on Form 8-K to the Securities and Exchange Commission on November 11, 2004 containing the earnings release announcement of its financial results for the third quarter ended September 30, 2004.

(c)

Exhibits

The Company hereby files as part of this Annual Report on Form 10-K the Exhibits listed in the attached Exhibit Index on pages 15 and 16 of this Annual Report.

Financial Statement Schedules

The Company hereby files as part of this Annual Report on Form 10-K the financial statement schedule listed in Item 15(a)(2) as set forth above.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ANSYS, Inc.

Date: March 10, 2005	By:	/s/ James E. Cashman III
		James E. Cashman III
		President and Chief Executive Officer

Date: March 10, 2005	By:	/s/ Maria T. Shields
		Maria T. Shields
		Chief Financial Officer, Vice President, Finance and Administration

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James E. Cashman III, his or her attorney-in-fact, with the power of substitution, for such person in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below.


Signature	Title	Date
/s/ James E. Cashman III	President and Chief Executive Officer (Principal Executive Officer)	March 10, 2005
James E. Cashman III

/s/ Maria T. Shields	Chief Financial Officer, Vice President, Finance and Administration; (Principal Financial Officer and Accounting Officer)	March 10, 2005
Maria T. Shields

/s/ Peter J. Smith	Chairman of the Board of Directors	March 10, 2005
Peter J. Smith

/s/ Jacqueline C. Morby	Director	March 10, 2005
Jacqueline C. Morby

/s/ Roger J. Heinen, Jr.	Director	March 10, 2005
Roger J. Heinen, Jr.

/s/ John F. Smith	Director	March 10, 2005
John F. Smith

/s/ Patrick J. Zilvitis	Director	March 10, 2005
Patrick J. Zilvitis

/s/ Bradford C. Morley	Director	March 10, 2005
Bradford C. Morley

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

ANSYS, Inc.

Canonsburg, Pennsylvania

We have audited the consolidated financial statements of ANSYS, Inc. and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and for each of the three years in the period ended December 31, 2004, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, and have issued our reports thereon dated March 4, 2005; such consolidated financial statements and reports are included in your 2004 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of the Company listed in Item 15. This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP

Pittsburgh, Pennsylvania

March 4, 2005

SCHEDULE II

ANSYS, INC.

Valuation and Qualifying Accounts


Description	Balance at Beginning of Year		Additions – Charges to Costs and Expenses			Deductions - Returns and Write-Offs		Balance at End of Year
Year ended December 31, 2004 Allowance for doubtful accounts	$	2,110,000	$	153,000		$	373,000	$	1,890,000
Year ended December 31, 2003 Allowance for doubtful accounts	$	1,560,000	$	1,131,000	⁽¹⁾	$	581,000	$	2,110,000
Year ended December 31, 2002 Allowance for doubtful accounts	$	1,610,000	$	506,000		$	556,000	$	1,560,000

(1)	Amount includes $684,000 related to the acquisition date balance sheet of CFX.

EXHIBIT INDEX


Exhibit No.		Exhibit
3.1		Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996 and incorporated herein by reference).

3.2		By-laws of the Company (filed as Exhibit 3.3 to the Company’s Registration Statement on Form S-1 (File No. 333-4278) and incorporated herein by reference).

10.1		1994 Stock Option and Grant Plan, as amended (filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-1 (File No. 333-4278) and incorporated herein by reference). *

10.2		1996 Stock Option and Grant Plan, as amended (filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996 and incorporated herein by reference). *

10.3		ANSYS, Inc. Employee Stock Purchase Plan, as amended (filed as Exhibit 10.2 to the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1996 and incorporated herein by reference). *

10.4		First Amendment to ANSYS, Inc. Employee Stock Purchase Plan; filed herewith. *

10.5		Employment Agreement between a subsidiary of the Registrant and Peter J. Smith dated as of March 28, 1994 (filed as Exhibit 10.10 to the Company’s Registration Statement on Form S-1 (File No. 333-4278) and incorporated herein by reference). *

10.6		Lease between National Build to Suit Washington County, L.L.C. and the Registrant for the Southpointe property (filed as Exhibit 10.19 to the Company’s Registration Statement on Form S-1 (File No. 333-4278) and incorporated herein by reference).

10.7		First Amended Lease Agreement between Southpointe Park Corp. and ANSYS, Inc. (filed as Exhibit 10.2 to the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2004 and incorporated herein by reference).

10.8		Registrant’s Pension Plan and Trust, as amended (filed as Exhibit 10.20 to the Company’s Registration Statement on Form S-1 (File No. 333-4278) and incorporated herein by reference). *

10.9		Form of Director Indemnification Agreement (filed as Exhibit 10.21 to the Company’s Registration Statement on Form S-1 (File No. 333-4278) and incorporated herein by reference). *

10.10		Agreement and Plan of Merger among ANSYS, Inc., GenesisOne Acquisition Corporation, Pacific Marketing and Consulting, Inc. (PMAC) and the PMAC stockholders (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, dated September 13, 2000 and incorporated herein by reference).

10.11		Agreement between ANSYS, Inc. and AEA Technology PLC (“AEA”) relating to the Registrant’s acquisition from AEA of the capital stock of certain AEA subsidiaries and of related assets constituting the CFX business of AEA (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, dated March 12, 2003 and incorporated herein by reference).

10.12		Employment Agreement between the Registrant and J. Christopher Reid dated as of February 20, 2003 (filed as Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference). *

10.13		Employment Agreement between the Registrant and James E. Cashman III dated as of March 29, 2001 (filed as Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and incorporated herein by reference). *



10.14		Employment Agreement between the Registrant and James E. Cashman III dated as of April 21, 2003 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and incorporated herein by reference). *

10.15		Description of Executive Bonus Plan, Director Stock Option Program and Officer Stock Option Program, Including Forms of Option Agreements for Option Grants to Directors and Officers (filed as Exhibits 99.1 – 99.5 on Form 8-K, dated February 5, 2005, and incorporated herein by reference).*

13.1		Annual Report to Stockholders for the fiscal year ended December 31, 2004 (which is not deemed to be “filed” except to the extent that portions thereof are expressly incorporated by reference in this Annual Report on Form 10-K); filed herewith.

14.1		Code of Business Conduct and Ethics (filed as Exhibit 14.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 and incorporated herein by reference).

21		Subsidiaries of the Registrant; filed herewith.

23.1		Consent of Deloitte & Touche LLP, independent registered public accounting firm.

24.1		Powers of Attorney. Contained on page 12 of this Annual Report on Form 10-K and incorporated herein by reference.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Indicates management contract or compensatory plan, contract or arrangement.

First Amendment to ANSYS, Inc. Employee Stock Purchase Plan

EXHIBIT 10.4

FIRST AMENDMENT

ANSYS, INC.

EMPLOYEE STOCK PURCHASE PLAN

WHEREAS, the ANSYS, Inc. Employee Stock Purchase Plan (the “Plan”) was previously adopted by the Board of Directors and the stockholders of ANSYS, Inc. (the “Company”) and became effective on the consummation of the Company’s initial public offering in 1996;

WHEREAS, the Plan was adopted by the Board of Directors and the stockholders of the Company as an incentive to assist the Company in attracting and retaining key personnel and to align the interests of the participating employees with those of the Company’s stockholders;

WHEREAS, the Plan is intended to constitute an “employee stock purchase plan” within the meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended, and shall be interpreted in accordance with that intent;

WHEREAS, the Plan provides that the total number of shares of the Company’s common stock, $.01 par value per share (the “Common Stock”), which may be issued pursuant the Plan shall not exceed an aggregate of 210,000 shares of Common Stock;

WHEREAS, the Board of Directors of the Company believes that the number of shares of Common Stock remaining available for issuance under the Plan has become insufficient for the Company’s current and anticipated future needs;

WHEREAS, Paragraph (r) of the Plan provides that the Board of Directors of the Company may amend the Plan at any time, subject to certain conditions set forth therein; and

WHEREAS, the Board of Directors of the Company has determined that it is in the best interests of the Company to amend the Plan to provide that an additional 190,000 shares of Common Stock be made available for issuance under the Plan.

NOW, THEREFORE:

1. Amendment of Plan. The first paragraph of the Plan is hereby amended and restated to provide in its entirety as follows:

The purpose of the ANSYS, Inc. Employee Stock Purchase Plan (“the Plan”) is to provide eligible employees of ANSYS, Inc. (the “Company”) and its subsidiaries with opportunities to purchase shares of the Company’s common stock, par value $.01 per share (the “Common Stock”). Four hundred thousand (400,000) shares of Common Stock in the aggregate have been approved and reserved for this purpose. The Plan is intended to constitute an “employee stock purchase plan” within the meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended (the “Code”), and shall be interpreted in accordance with that intent.

2. Effective Date of Amendment. This First Amendment to the Plan shall become effective upon the date that it is adopted by the Board of Directors of the Company; provided, however, that this First Amendment shall be subject to the approval of the Company’s stockholders in accordance with applicable laws and regulations at an annual or special meeting held within twelve months of such effective date.

IN WITNESS WHEREOF, this First Amendment to the Plan has been adopted by the Board of Directors of the Company this 5th day of February, 2004, and approved by the Company’s stockholders at the Company’s Annual Meeting of Stockholders held on May 6, 2004.

Annual Report to Stockholders

EXHIBIT 13.1

2004 ANNUAL REPORT TO STOCKHOLDERS

ANSYS, Inc. 2004 Annual Report ¹

FINANCIAL HIGHLIGHTS


	Year Ended December 31,
*(in thousands, except per share data)*	2004			2003			2002			2001			2000
Total revenue	$	134,539		$	113,535		$	91,011		$	84,836		$	74,467
Operating income		45,978			30,317			27,074			18,548			19,579
Net income		34,567			21,313			18,959			13,692			16,310
Earnings per share – basic ⁽¹⁾	$	1.12		$	0.71		$	0.65		$	0.47		$	0.52
Weighted average shares – basic ⁽¹⁾		30,955			29,916			29,196			29,108			31,608
Earnings per share – diluted ⁽¹⁾	$	1.05		$	0.67		$	0.61		$	0.44		$	0.50
Weighted average shares – diluted ⁽¹⁾		32,978			31,876			31,188			30,876			32,538
Total assets	$	239,646		$	180,559		$	127,001		$	117,762		$	101,120
Working capital		120,077			69,074			56,883			40,033			40,046
Long-term liabilities		—			—			—			—			—
Stockholders’ equity		175,469			127,074			91,393			74,393			69,364
Cash provided by operating activities		51,366			38,806			22,116			23,638			22,850
Return on average stockholders’ equity		23	%		20	%		23	%		19	%		24	%
Return on average total assets		16	%		14	%		15	%		13	%		17	%

⁽¹⁾	The capital accounts, share data, and earnings per share data in this report give effect to the two-for-one stock split, effective October 4, 2004, applied retroactively, to all periods presented.

ANSYS, Inc. 2004 Annual Report ¹⁰

FINANCIAL CONTENT


Management’s Discussion and Analysis of Financial Condition and Results of Operations		11

Reports of Independent Registered Public Accounting Firm		27, 28

Management’s Assessment of Internal Control		28

Consolidated Balance Sheets		29

Consolidated Statements of Income		30

Consolidated Statements of Cash Flow		31

Consolidated Statements of Stockholders’ Equity		32

Notes to Consolidated Financial Statements		33

Quarterly Financial Information (Unaudited)		46

Corporate Information		47

ANSYS, Inc. 2004 Annual Report ¹¹

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

ANSYS, Inc.’s (the “Company”) results for the year ended December 31, 2004 reflect revenue growth of 19% and diluted earnings per share growth of 57%. These results were impacted by various factors, including higher revenues from the Company’s software products and services, a full twelve months of CFX (acquired February 2003) operating results in 2004 as compared to ten months in 2003, an improvement in operating margins and foreign currency fluctuations.

ANSYS, Inc. develops and globally markets engineering simulation software and technologies widely used by engineers and designers across a broad spectrum of industries, including aerospace, automotive, manufacturing, electronics and biomedical. Headquartered at Southpointe in Canonsburg, Pennsylvania, the Company employs approximately 550 people and focuses on the development of open and flexible solutions that enable users to analyze designs directly on the desktop, providing a common platform for fast, efficient and cost-conscious product development, from design concept to final-stage testing and validation. The Company distributes its ANSYS^®, ANSYS Workbench^™, CFX^®, DesignSpace^™, ICEM CFD^™, and CADOE^™ products through a global network of channel partners, in addition to its own direct sales offices in strategic, global locations. It is the Company’s intention to continue to maintain this mixed sales and distribution model.

The Company licenses its technology to businesses, educational institutions and governmental agencies. The growth in the Company’s revenues is affected by the strength of the economy, general business conditions, customer budgetary constraints and the competitive position of the Company’s products. The Company believes that the features, functionality and integrated multiphysics capabilities of its software products are as strong as they have ever been. However, the software business is generally characterized by long sales cycles. These long sales cycles increase the difficulty of predicting sales for any particular quarter. As a result, the Company believes that its overall performance is best measured by fiscal year results rather than by quarterly results.

The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included elsewhere in this Annual Report. The Company’s discussion and analysis of its financial condition and results of operations are based upon ANSYS’ consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires ANSYS to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, ANSYS evaluates its estimates, including those related to bad debts, valuation of investments, valuation of goodwill, valuation of intangible assets, income taxes, and contingencies and litigation. ANSYS bases its estimates on historical experience, estimated future cash flows and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including the following statements, as well as statements which contain such words as “anticipates,” “intends,” “believes,” “plans” and other similar expressions:

•

The Company’s intention to continue to maintain a mixed sales and distribution model.

•

The Company’s intentions related to significant investments in global sales and marketing, and research and development.

•

The impact on general and administrative costs due to the ongoing costs associated with the Sarbanes-Oxley Act of 2002.

•

Increased exposure to volatility of foreign exchange rates and of domestic and foreign tax laws in future periods.

•

Plans related to future capital spending.

•

The sufficiency of existing cash and cash equivalent balances to meet future working capital and capital expenditure requirements.

•

Management’s assessment of the ultimate liabilities arising from various investigations, claims and legal proceedings.

•

Management’s assessment of its ability to realize deferred tax assets.

•

Management’s intention regarding the reinvestment of undistributed foreign earnings.

The Company’s actual results could differ materially from those set forth in the forward-looking statements due to various risks and uncertainties which are detailed in “Important Factors Regarding Future Results” beginning on page 21.

ANSYS, Inc. 2004 Annual Report ¹²

Acquisitions

On February 26, 2003 the Company acquired 100% of the shares in certain entities and assets (hereinafter collectively referred to as “CFX”) for a purchase price of approximately $21.7 million in cash. CFX is a leading supplier of computational fluid dynamics (“CFD”) software and services. By acquiring CFX, ANSYS broadened the scope of engineering physics solutions it can offer to its customers and gained access to new customers and geographic territories.

The total purchase price was allocated to the foreign and domestic assets and liabilities of CFX based upon estimated fair market values. The allocation, based upon foreign currency translation rates as of the date of acquisition, were approximately $11.5 million to identifiable intangible assets (including $9.5 million to core software technology to be amortized over five years, $900,000 to customer lists to be amortized over three years and $1.1 million to trademark) and $14.1 million to goodwill, $5.1 million of which is tax-deductible. The trademark is not being amortized as it has been determined to have an indefinite life.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:


*(in thousands)*	At February 26, 2003
Current assets	$	7,477
Property, plant and equipment		1,640
Intangible assets		11,500
Goodwill		14,076

Total assets acquired		34,693

Current liabilities		(11,009	)
Other liabilities		(1,937	)

Total liabilities assumed		(12,946	)

Net assets acquired	$	21,747

In valuing deferred revenue on the CFX balance sheet as of the acquisition date, the Company applied the fair value provisions of Emerging Issues Task Force (“EITF”) Issue No. 01-3 “Accounting in a Business Combination for Deferred Revenue of an Acquiree.” In accordance with EITF 01-3, acquired deferred software license revenue of approximately $4.8 million was recorded on the opening balance sheet.

CFX reported revenue of approximately $19 million for its fiscal year ended March 31, 2002. The CFX business was a carve-out entity from the acquiree with significant intercompany transactions and, as a result, pro forma information on revenue, income before extraordinary items and the cumulative effect of accounting changes, net income and earnings per share are indeterminable.

The acquisition of CFX was accounted for as a purchase, and accordingly, its operating results have been included in ANSYS, Inc.’s consolidated financial statements since the date of acquisition.

On January 5, 2005, the Company signed a definitive agreement to acquire Century Dynamics, Inc., a leading provider of sophisticated simulation software for solving linear, nonlinear, explicit and multi-body hydro-dynamics problems, for an initial purchase price of approximately $5.6 million in cash. In addition, the agreement provides for future payments contingent upon the attainment of certain performance criteria, which may result in an increase to goodwill. The acquisition of Century Dynamics, Inc. expands the Company’s product offerings and allows it to deliver a more complete and comprehensive solution to its customers. The operating results for Century Dynamics, Inc. will be included with the Company’s operating results from the date of acquisition, January 5, 2005. The Company has not yet completed the purchase accounting for the assets and liabilities acquired. After allocation to the identifiable assets and liabilities, the remaining excess of the purchase price over the value of net assets acquired will be attributed to goodwill.

ANSYS, Inc. 2004 Annual Report ¹³

Results of Operations

As previously discussed, the Company completed the acquisition of CFX on February 26, 2003. Accordingly, the results of operations for 2004 and 2003 contain twelve and ten months of CFX activity, respectively.

For purposes of the following discussion and analysis, the table below sets forth certain consolidated financial data for the years 2004, 2003 and 2002.


	Year Ended December 31,
*(in thousands)*	2004		2003		2002
Revenue:
Software licenses	$	71,326	$	58,408	$	48,177
Maintenance and service		63,213		55,127		42,834

Total revenue		134,539		113,535		91,011

Cost of sales:
Software licenses		4,840		5,365		3,897
Amortization of software and acquired technology		3,030		3,028		1,471
Maintenance and service		13,437		13,112		7,863

Total cost of sales		21,307		21,505		13,231

Gross profit		113,232		92,030		77,780
Operating expenses:
Selling and marketing		24,984		24,777		20,089
Research and development		26,281		23,792		19,605
Amortization		1,149		1,055		818
General and administrative		14,840		12,089		10,194

Total operating expenses		67,254		61,713		50,706

Operating income		45,978		30,317		27,074
Other income, net		1,923		357		311
Income before income tax provision		47,901		30,674		27,385
Income tax provision		13,334		9,361		8,426

Net income	$	34,567	$	21,313	$	18,959

ANSYS, Inc. 2004 Annual Report ¹⁴

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

REVENUE: The Company’s total revenue increased 18.5% from $113.5 million in 2003 to $134.5 million in 2004. The 2004 CFX revenue was approximately $28.1 million, as compared with the 2003 post-acquisition CFX-related revenue of $19.2 million.

On average, for the year ended December 31, 2004, the U.S. Dollar was approximately 9.0% weaker, when measured against the Company’s primary foreign currencies, than for the year ended December 31, 2003. The fluctuation in foreign currency resulted in increased revenue and operating income during 2004, as compared with 2003, of approximately $3.7 million and $1.7 million, respectively.

International and domestic revenues, as a percentage of total revenue, were 66.4% and 33.6%, respectively, during the year ended December 31, 2004 and 65.2% and 34.8%, respectively, in the year ended December 31, 2003.

Software license revenue increased 22.1% in 2004 to $71.3 million from $58.4 million during the 2003 year. Approximately $7.9 million of the increase relates to higher revenue from CFX products. Three factors contributed to the higher CFX revenue and include: the growth of the business over 2003, a full twelve months of CFX revenue in 2004 as compared to ten months in 2003 and a $2.7 million reduction in the adverse impact on reported CFX license revenue related to the accounting for acquired deferred revenue which is further discussed below. Also contributing to the increase was approximately $5.0 million in newly generated software license revenue from the Company’s non-CFX products.

Maintenance and service revenue increased 14.7% from $55.1 million in 2003 to $63.2 million in 2004. This change was primarily the result of increased maintenance revenue related to contracts sold in association with perpetual license sales.

A substantial portion of the Company’s maintenance revenue is derived from annual maintenance contracts. These contracts are generally renewed on an annual basis and have a high rate of customer renewal. In addition to the recurring revenue base associated with these contracts, a majority of customers purchasing new perpetual licenses also purchase related annual maintenance contracts. As a result of the significant recurring revenue base, the Company’s maintenance revenue growth rate in any period does not necessarily correlate to the growth rate of new maintenance contracts sold during that period. To the extent the rate of customer renewal for maintenance contracts remains at current levels, incremental maintenance contracts sold with new perpetual licenses will result in maintenance revenue growth.

In valuing deferred revenue for inclusion on the CFX opening balance sheet as of the acquisition date, February 26, 2003, the Company complied with the fair value provisions of Emerging Issues Task Force (“EITF”) Issue No. 01-3 “Accounting in a Business Combination for Deferred Revenue of an Acquiree.” In accordance with EITF 01-3, acquired deferred software license revenue of approximately $4.8 million was recorded on the acquisition date balance sheet for CFX. This amount was approximately $3.4 million lower than the historical carrying value. Although this purchase accounting requirement had no impact on the Company’s business or cash flow, it adversely impacted the Company’s reported software license revenue under accounting principles generally accepted in the United States of America (“GAAP”) post-acquisition. The adverse impact on reported revenue under GAAP was approximately $300,000 and $3.0 million for the years ended December 31, 2004 and 2003, respectively.

COSTS OF SALES AND GROSS PROFIT: The Company’s total cost of sales decreased to $21.3 million, or 15.8% of total revenue, in 2004 from $21.5 million, or 18.9% of total revenue, in 2003. The decrease during the 2004 period as compared to the 2003 period was primarily related to a reduction of $600,000 in third party royalties and a $600,000 reduction associated with technical and other consulting support. These changes were partially offset by an additional $1.1 million in costs associated with CFX due to a full twelve months of activity in the current year as compared to only ten months of activity in the prior year.

As a result of the changes in revenue and cost of sales, the Company’s gross profit increased 23.0% to $113.2 million in 2004 from $92.0 million in 2003.

SELLING AND MARKETING: Total selling and marketing expenses increased from $24.8 million, or 21.8% of total revenue, in 2003 to $25.0 million, or 18.6% of total revenue, in 2004. The 2004 increase is a result of $700,000 in additional costs related to CFX, mainly the result of the inclusion of a full twelve months of CFX operational activity in 2004 as compared to only ten months in 2003, and $400,000 related to the Company’s biennial users’ conference. These increases were partially offset by a $900,000 reduction in global marketing and advertising costs.

The Company anticipates that it will make investments throughout 2005 in its global sales and marketing organization to enhance major account sales activities and to support its worldwide distribution and marketing strategies.

ANSYS, Inc. 2004 Annual Report ¹⁵

RESEARCH AND DEVELOPMENT: Research and development expenses increased in 2004 to $26.3 million, or 19.5% of total revenue, from $23.8 million, or 21.0% of total revenue, in the year ended December 31, 2003. The increase primarily resulted from an approximate $1.5 million increase in total compensation and headcount related costs and $900,000 in additional costs related to CFX, mainly the result of the inclusion of a full twelve months of CFX operational activity in 2004 as compared to only ten months in 2003.

The 2004 and 2003 costs were reduced by approximately $500,000 and $600,000, respectively, for amounts capitalized related to internal software development activities.

The Company has traditionally invested significant resources in research and development activities and intends to continue to make significant investments in this area.

AMORTIZATION: Amortization expense remained consistent at approximately $1.1 million in both 2004 and 2003.

GENERAL AND ADMINISTRATIVE: General and administrative expenses increased $2.8 million in 2004 to $14.8 million, or 11.0% of total revenue, as compared to $12.1 million, or 10.6% of total revenue, in 2003. The 2004 period includes additional costs of approximately $1.2 million related to increased salaries, incentive compensation and related payroll taxes, $800,000 of third party compliance costs associated with the Sarbanes-Oxley Act of 2002 (the “Act”) and $500,000 related to a full versus partial year of CFX expenses. Costs to comply with the provisions of the Act, including legal, accounting and consulting fees, will be ongoing.

OTHER INCOME: Other income increased to $1.9 million for the year ended December 31, 2004 as compared with $400,000 for the 2003 year. The net increase was a result of the following three factors:

Foreign Currency Translation - During 2004 the Company had a net foreign exchange gain of $200,000 as compared with a gain of $400,000 for 2003. Because the CFX acquisition consisted primarily of non-U.S. locations, the Company, for the foreseeable future, will have increased exposure to volatility of foreign exchange rates. The Company is most impacted by movements among and between the Canadian Dollar, British Pound, Euro and the U.S. Dollar.

Investment Income - Interest and dividend income increased by approximately $1.0 million in the year ended December 31, 2004, as compared with the year ended December 31, 2003. The increase in investment income is a result of an increased level of funds invested as well as higher interest rates in 2004 as compared with 2003.

Other - During the year ended December 31, 2003, the Company recorded other-than-temporary impairment losses on equity and cost-basis investments of approximately $600,000, and the Company also recorded losses of approximately $100,000 for investments accounted for under the equity method. These losses did not recur in 2004. The current net book value of equity and cost-basis investments is zero.

INCOME TAX PROVISION: The Company’s effective tax rate was 27.8% in 2004 as compared to 30.5% in 2003. These rates are lower than the federal and state combined statutory rate as a result of export benefits, as well as the generation of research and experimentation credits. The effective tax rate in 2004 was also favorably impacted by the one-time tax benefit discussed in the following paragraph.

During 2004, the Company and the Internal Revenue Service (IRS) settled and closed the audits of the Company’s 2001, 2002 and 2003 federal income tax returns. The Company provides in the financial statements an estimate for income taxes based on its tax filing positions and interpretations of existing tax law. Changes in estimates are reflected in the year of settlement or expiration of the statute of limitations. As a result of the federal income tax returns for 2001, 2002 and 2003 being settled and closed, the Company adjusted its estimated accrued income tax balance related to those years by recording a one-time tax benefit and reducing the tax accrual by approximately $1.1 million.

In November 2000, the United States enacted the Foreign Sales Corporation (“FSC”) Repeal and Extraterritorial Income Exclusion Act (the “ETI Act”) in response to a challenge from the World Trade Organization (“WTO”) that the existing tax benefits provided by foreign sales corporations were prohibited tax subsidies. The ETI Act generally repealed the foreign sales corporation and implemented an extraterritorial income (“ETI”) tax benefit. Upon introduction of the ETI tax benefit, the European Union (“EU”) stated that it did not believe the ETI Act provisions bring U.S. tax law into WTO-compliance and asked the WTO to rule on the matter. On August 30, 2002, the WTO ruled that the EU may impose up to $4 billion per year in retaliatory duties against U.S. exports.

ANSYS, Inc. 2004 Annual Report ¹⁶

In October 2004, the American Jobs Creation Act of 2004 was signed into law and included replacement legislation for the FSC/ETI. This bill retains FSC grandfather rules and ETI benefits for transactions in the ordinary course of business under binding contracts with unrelated persons in effect on September 17, 2003. The phase-out of the ETI associated with the pending legislation is summarized as follows:


		ETI Phase-out
2004		No effect
2005		80% of otherwise-applicable benefits
2006		60% of otherwise-applicable benefits
2007 - beyond		ETI fully eliminated

In addition to repealing the ETI tax benefits, the American Jobs Creation Act of 2004 provides significant tax relief for domestic manufacturers. Effective for taxable years beginning after December 31, 2004, qualifying entities will be able to deduct a certain percentage (as defined below) of the lesser of their qualified production activities income or their taxable income for a taxable year. The deduction, however, will be limited to 50% of an employer’s W-2 wages for a taxable year. Beginning in 2010, when the 9% deduction is fully phased in, corporations facing a marginal tax rate of 35% would be subject to an effective tax rate of 31.85% on qualifying income.


		Manufacturing Income Deduction Phase-in
2004		No effect
2005 - 2006		3% applicable deduction for qualified income
2007 - 2009		6% applicable deduction for qualified income
2010 - beyond		9% applicable deduction for qualified income

In 2004, export benefits reduced the Company’s effective tax rate by approximately 4.2%. The impact of the above legislation on the Company’s effective tax rate in 2005 is not expected to be significant. The Company is currently analyzing the impact on its effective tax rate for years beyond 2005. Any other prospective changes regarding tax benefits associated with the Company’s export sales or other federal and state tax planning vehicles may adversely impact the Company’s effective tax rate and decrease its net income in future periods.

The Company makes significant estimates in determining its worldwide income tax provision. These estimates involve complex tax regulations in a number of jurisdictions across the Company’s global operations and are subject to many transactions and calculations where the ultimate tax outcome is uncertain. Although the Company believes that its estimates are reasonable, the final outcome of tax matters could be different than the estimates reflected in the historical income tax provision and related accruals. Such differences could have a material impact on income tax expense and net income in the period in which such determination is made.

NET INCOME: The Company’s net income increased 62.2% to $34.6 million, or $1.05 diluted earnings per share, in 2004 as compared to net income of $21.3 million, or $0.67 diluted earnings per share, in 2003. The weighted average common and common equivalent shares used in computing diluted earnings per share were 33.0 million in 2004 and 31.9 million in 2003.

ANSYS, Inc. 2004 Annual Report ¹⁷

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

REVENUE: The Company’s total revenue increased 24.7% from $91.0 million in 2002 to $113.5 million in 2003. Total revenue in 2003 included approximately $19.2 million related to CFX, which was acquired during the first quarter of 2003.

On average, for the year ended December 31, 2003, the U.S. Dollar was approximately 12.3% weaker, when measured against the Company’s primary foreign currencies, than for the year ended December 31, 2002. The fluctuation in foreign currency resulted in increased revenue and operating income during 2003, as compared with 2002, of approximately $2.1 million and $1.2 million, respectively.

International and domestic revenues, as a percentage of total revenue were 65.2% and 34.8%, respectively, during the year ended December 31, 2003 and 56.5% and 43.5%, respectively, in the year ended December 31, 2002.

Software license revenue increased 21.2% in 2003 to $58.4 million from $48.2 million during the 2002 year. The revenue increase was primarily the result of approximately $10.4 million related to the inclusion of the CFX operations since the acquisition date.

Maintenance and service revenue increased 28.7% from $42.8 million in 2002 to $55.1 million in 2003. This increase was primarily the result of approximately $8.8 million in revenue related to the inclusion of CFX since the acquisition date, as well as approximately $6.6 million in additional maintenance revenue related to contracts sold in association with perpetual license sales in recent quarters.

As previously mentioned, in accordance with EITF 01-3, acquired deferred software license revenue of approximately $4.8 million was recorded on the CFX opening balance sheet. This amount was approximately $3.4 million lower than the historical carrying value. The adverse impact on reported revenue under GAAP was approximately $3.0 million for the year ended December 31, 2003.

COSTS OF SALES AND GROSS PROFIT: The Company’s total cost of sales increased 62.5% to $21.5 million, or 18.9% of total revenue, in 2003 from $13.2 million, or 14.5% of total revenue, in 2002. The increase in 2003 was primarily attributable to approximately $6.4 million in costs associated with CFX, the majority of which related to providing engineering consulting services and technical support. Also contributing to the increase was approximately $1.7 million of amortization expense associated with the technology acquired in the CFX acquisition.

As a result of the changes in revenue and cost of sales, the Company’s gross profit increased 18.3% to $92.0 million in 2003 from $77.8 million in 2002.

SELLING AND MARKETING: Total selling and marketing expenses increased from $20.1 million, or 22.1% of total revenue, in 2002 to $24.8 million, or 21.8% of total revenue, in 2003. The 2003 increase of $4.7 million resulted primarily from approximately $4.0 million associated with the addition of the CFX operations since the acquisition date and approximately $600,000 from increased third party royalties and commissions.

RESEARCH AND DEVELOPMENT: Research and development expenses increased in 2003 to $23.8 million, or 21.0% of total revenue, from $19.6 million, or 21.5% of total revenue, in the year ended December 31, 2002. The increase primarily resulted from approximately $3.9 million related to the addition of the CFX operations since the acquisition date. Also contributing to the increase were approximately $800,000 in higher salaries and related headcount costs associated with the Company’s core development activities. The 2003 and 2002 expenses were each reduced by approximately $600,000 for amounts capitalized related to internal software development activities.

AMORTIZATION: Amortization expense increased to $1.1 million in 2003, as compared with $800,000 in 2002. The increase is associated with amortization expense for customer lists acquired in the CFX acquisition.

GENERAL AND ADMINISTRATIVE: General and administrative expenses increased $1.9 million in 2003 to $12.1 million, or 10.6% of total revenue, as compared to $10.2 million, or 11.2% of total revenue, in 2002. Increased costs of approximately $2.8 million related to the CFX acquisition were partially offset by approximately $500,000 in reduced legal expenses.

ANSYS, Inc. 2004 Annual Report ¹⁸

OTHER INCOME: Other income increased slightly to $400,000 for the year ended December 31, 2003 as compared with $300,000 for the 2002 year. This change was the result of the following three factors:

Foreign Currency Translation - During 2003 the Company had a net foreign exchange gain of $400,000 as compared with a gain of $100,000 for 2002.

Investment Income - Interest and dividend income decreased by approximately $200,000 in the year ended December 31, 2003, as compared with the year ended December 31, 2002. The decrease resulted from a decline in interest rates.

Other - During the years ended December 31, 2003 and 2002, the Company recorded other-than-temporary impairment losses on equity and cost-basis investments of approximately $600,000 and $500,000, respectively. During both 2003 and 2002, the Company also recorded losses of approximately $100,000 per year for investments accounted for under the equity method.

INCOME TAX PROVISION: The Company’s effective tax rate was 30.5% in 2003 as compared to 30.8% in 2002. These rates are lower than the federal and state combined statutory rate as a result of export benefits, as well as the generation of research and experimentation credits.

NET INCOME: The Company’s net income increased 12.4% to $21.3 million, or $0.67 diluted earnings per share, in 2003 as compared to net income of $19.0 million, or $0.61 diluted earnings per share, in 2002. The weighted average common and common equivalent shares used in computing diluted earnings per share were 31.9 million in 2003 and 31.2 million in 2002.

Liquidity and Capital Resources

As of December 31, 2004, the Company had cash, cash equivalents and short-term investments totaling $138.4 million and working capital of $120.1 million, as compared to cash, cash equivalents and short-term investments of $83.0 million and working capital of $69.1 million at December 31, 2003. The short-term investments are generally investment-grade and liquid, which allows the Company to minimize interest rate risk and to facilitate liquidity in the event an immediate cash need arises.

The Company’s operating activities provided cash of $51.4 million in 2004, $38.8 million in 2003 and $22.1 million in 2002. The increase in cash generated from operations in 2004 compared to 2003 was primarily the result of $13.3 million in increased earnings after the effect of non-cash expenses, such as depreciation, amortization and deferred income taxes. This increase was partially offset by a net decrease in cash of $800,000 from other working capital fluctuations.

Cash used for investing activities was $53.2 million in 2004 and $15.9 million in 2003, as compared with cash provided by investing activities of $2.9 million in 2002. In 2004, the Company purchased approximately $49.5 million more in short-term investments than related maturities. In addition, the Company spent approximately $3.2 million on capital expenditures. During 2003, cash outlays of $21.7 million related to the acquisition of CFX and $2.8 million for capital expenditures were partially offset by approximately $10.0 million in net maturities of short-term investments. In 2002, net maturities of short-term investments were partially offset by business acquisition payments and capital expenditures.

Financing activities provided $5.9 million of cash in 2004 and $7.5 million of cash in 2003 as compared with cash used of $7.5 million in 2002. During each of the three years the Company received proceeds from the exercise of stock options and the issuance of common stock under the Employee Stock Purchase Plan. In 2002, these amounts were more than offset by cash outlays related to the purchase of treasury stock.

The Company’s cash and short-term investment balance at December 31, 2004 of $138.4 million exceeds the Company’s total cash expenditures in 2004. As such, the Company believes that existing cash and short-term investments, together with cash generated from 2005 operations, will be sufficient to meet the Company’s working capital and capital expenditure requirements through at least the next fiscal year. The Company’s cash requirements in the future may also be financed through additional equity or debt financings. There can be no assurance that such financings can be obtained on favorable terms, if at all.

ANSYS, Inc. 2004 Annual Report ¹⁹

The Company continues to generate positive cash flows from operating activities and believes that the best use of its excess cash is to grow the business and, under certain conditions, repurchase stock. Additionally, the Company has in the past and expects in the future to acquire or make investments in complementary companies, products, services and technologies. The Company believes it can fund future acquisitions with available cash and investments, cash generated from operations, existing or additional credit facilities, or from the issuance of additional securities.

The Company does not have any special purpose entities or off-balance sheet financing arrangements.

The Company’s significant contractual obligations as of December 31, 2004 are summarized below:


	Payments Due by Period
*(in thousands)*	*Total*		Within 1 year		2 – 3 years		4 – 5 years		After 5 years
Long-term debt	$	—	$	—	$	—	$	—	$	—
Corporate office lease		13,539		1,241		2,481		2,670		7,147
Other office leases		4,316		1,698		1,882		665		71
Unconditional purchase obligations		1,292		810		482		—		—
Other long-term obligations		—		—		—		—		—

Total contractual cash obligations	$	19,147	$	3,749	$	4,845	$	3,335	$	7,218

The Company has no outstanding long-term debt; however, during 2003 the Company obtained an uncommitted and unsecured $10.0 million line of credit with a bank. Interest on any borrowings is at the bank’s prime rate or LIBOR, plus an applicable margin. The bank may demand repayment of the entire amount outstanding under the line of credit at any time and for any reason without notice. The Company, in lieu of a fee for the line of credit, has agreed to maintain certain deposits, which range from $5 million to $10 million, depending on the deposit type, with the bank. No borrowings occurred under this line of credit during 2004 or 2003.

The Company’s significant contractual obligations as of December 31, 2004 primarily include lease commitments for its corporate office facility, as well as various noncancellable operating leases for equipment and sales offices. In May 2004, the Company entered into the first amendment to its corporate headquarters lease agreement, with an effective date of January 1, 2004. Under the new amendment, the corporate office facility lease agreement includes a commitment through 2014, with an option for five additional years.

The Company has ongoing employment agreements with certain employees, including the Chairman of the Board of Directors and the Chief Executive Officer. The terms of these employment agreements generally include annual compensation, severance payment provisions and non-competition clauses. The employment agreements terminate upon the occurrence of certain events described in the contracts.

Additionally, the Company had an outstanding irrevocable standby letter of credit for $1.7 million at December 31, 2004. This letter of credit is subject to annual renewal and was issued as a guarantee for damages that could be awarded related to a legal matter in which the Company was involved. The fair value of the letter of credit approximates the contract value based on the nature of the fee arrangements with the issuing bank. No material losses on this commitment have been incurred, nor are any anticipated.

ANSYS, Inc. 2004 Annual Report ²⁰

Critical Accounting Policies and Estimates

ANSYS believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. ANSYS recognizes revenue in accordance with SOP 97-2, “Software Revenue Recognition,” and related interpretations. Revenue from perpetual licenses is recognized upon delivery of the licensed product and the utility that enables the customer to request authorization keys, provided that acceptance has occurred and a signed contractual obligation has been received, the price is fixed and determinable, and collectibility of the receivable is probable. Revenue for software lease licenses is recognized ratably over the period of the lease contract. Revenue is recorded net of the distributor fee for sales through the ANSYS distribution network. The Company estimates the value of post-contract customer support sold together with perpetual licenses by reference to published price lists which generally represent the prices at which customers could purchase renewal contracts for such services. Costs related to maintenance obligations are expensed as incurred. Revenue from maintenance contracts is recognized ratably over the term of the contract. Revenue from training, support and other services is recognized as the services are performed.

ANSYS makes judgments as to its ability to collect outstanding receivables and provides allowances for a portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices from both a value and delinquency perspective. For those invoices not specifically reviewed, provisions are provided at differing rates, based upon the age of the receivable and the geographical area of origin. In determining these percentages, the Company analyzes its historical collection experience and current economic trends in the customer’s industry and geographic region. If the historical data used to calculate the allowance for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and future results of operations could be materially affected.

ANSYS capitalizes internal labor costs associated with the development of product enhancements subsequent to the determination of technological feasibility. Amortization of capitalized software costs, both for internally developed as well as for purchased software products, is computed on a product-by-product basis over the estimated economic life of the product, which is generally three years. The Company periodically reviews the carrying value of capitalized software and an impairment will be recognized in the results of operations if the expected future undiscounted operating cash flow derived from the capitalized software is less than its carrying value.

ANSYS makes significant estimates in determining its worldwide income tax provision. These estimates involve complex tax regulations in a number of jurisdictions across the Company’s global operations and are subject to many transactions and calculations where the ultimate tax outcome is uncertain. Although the Company believes that its estimates are reasonable, the final outcome of tax matters could be different than the estimates reflected in the historical income tax provision and related accruals. Such differences could have a material impact on income tax expense and net income in the period in which such determination is made.

ANSYS tests goodwill and intangibles with indefinite lives for impairment at least annually by comparing the fair value of each asset to its carrying value. Fair value is estimated using the discounted cash flow and other valuation methodologies. In preparing the estimate of fair value, the Company relies on a number of factors, including historical operating results, business plans, anticipated future cash flows, economic projections and other market data. Because there are inherent uncertainties involved in these factors, the Company’s estimates of fair value are imprecise and the resulting carrying value of goodwill and intangible assets may be misstated.

ANSYS is involved in various investigations, claims and legal proceedings that arise in the ordinary course of its business activities. The Company reviews the status of these matters, assesses its financial exposure and records a related accrual if the potential loss from an investigation, claim or legal proceeding is probable and the amount is reasonably estimable. Significant judgment is involved in the determination of probability and in the determination of whether an exposure is reasonably estimable. As a result of the uncertainties involved in making these estimates, the Company may have to revise its estimates as facts and circumstances change. The revision of these estimates could have a material impact on the Company’s results of operations and financial position.

ANSYS, Inc. 2004 Annual Report ²¹

Recently Issued and Adopted Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities.” Interpretation No. 46 requires unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse the risks and rewards of ownership among their owners and other parties involved. The provisions of Interpretation No. 46 were generally effective immediately to all variable interest entities created after January 31, 2003, and variable interest entities in which an enterprise obtained an interest after that date. For variable interest entities created before this date, the provisions were effective March 15, 2004. The Company has no interest in any variable interest entities; therefore, this Interpretation has no impact on the Company’s financial position, results of operations or cash flows.

In December 2004, the FASB issued a revised version of FASB Statement No. 123, “Accounting for Stock-Based Compensation.” The statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award, typically the vesting period. For public entities, the revised statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. The Company currently estimates that the adoption of this statement will reduce its net income by approximately $1.6 – $2.0 million in 2005.

In December 2004, the FASB issued Statement No. 153, “Exchanges of Nonmonetary Assets.” Statement 153 addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on the fair value of the assets exchanged. Statement 153 is effective for fiscal periods beginning after June 15, 2005. The Company does not expect that the adoption of this statement will have a material impact on its financial position, results of operations or cash flows.

Important Factors Regarding Future Results

Information provided by the Company or its spokespersons, including information contained in this Annual Report to Stockholders, may from time to time contain forward-looking statements concerning projected financial performance, market and industry sector growth, product development and commercialization or other aspects of future operations. Such statements will be based on the assumptions and expectations of the Company’s management at the time such statements are made. The Company cautions investors that its performance (and, therefore, any forward-looking statement) is subject to risks and uncertainties. Various important factors including, but not limited to, the following may cause the Company’s future results to differ materially from those projected in any forward-looking statement.

POTENTIAL FLUCTUATIONS IN OPERATING RESULTS: The Company may experience significant fluctuations in future quarterly operating results. Fluctuations may be caused by many factors, including the timing of new product releases or product enhancements by the Company or its competitors; the size and timing of individual orders, including a fluctuation in the demand for and the ability to complete large contracts; software errors or other product quality problems; competition and pricing changes; customer order deferrals in anticipation of new products or product enhancements; fluctuation in demand for the Company’s products; changes in operating expenses; changes in the mix of software license and maintenance and service revenue; personnel changes; and general economic conditions. A substantial portion of the Company’s operating expenses is related to personnel, facilities and marketing programs. The level of personnel and related expenses cannot be adjusted quickly and is based, in significant part, on the Company’s expectation for future revenue. The Company does not typically experience significant order backlog. Further, the Company has often recognized a substantial portion of its revenue in the last month of a quarter, with this revenue frequently concentrated in the last weeks or days of a quarter. During certain quarterly periods, the Company has been dependent upon receiving large orders of perpetual licenses involving the payment of a single up-front fee and, more recently, has shifted the business emphasis of its products to provide a collaborative solution to the Company’s customers. This emphasis has increased the Company’s average order size and increased the related sales cycle time for the larger orders. This shift may have the effect of increasing the volatility of the Company’s revenue and profit from period to period. As a result, product revenue in any quarter is substantially dependent upon sales completed in the latter part of that quarter, and revenue for any future quarter is not predictable with any significant degree of accuracy.

ANSYS, Inc. 2004 Annual Report ²²

SEASONAL VARIATIONS: The Company’s business has experienced significant seasonality, including quarterly reductions in software sales resulting from the slowdown in Europe during the summer months, as well as from the seasonal purchasing and budgeting patterns of the Company’s customers.

ECONOMIC SLOWDOWN IN CERTAIN SECTORS: The Company’s sales are based significantly on end user demand for products in key industrial sectors. Many of these sectors have recently experienced economic declines which have adversely affected the Company’s business. A continuation of this general economic decline may adversely affect the Company’s business by extending sales cycles and reducing revenue.

The Company has customers, who supply a wide spectrum of goods and services, in virtually all of the world’s major economic regions. The Company’s performance is materially impacted by general economic conditions and the performance of its customers. The Company’s management team forecasts macroeconomic trends and developments and integrates them through long-range planning into budgets, research and development strategies and a wide variety of general management duties. When forecasting future economic trends and technological developments, management does not have a comparative advantage. To the extent that the Company’s forecasts are in error by being overly optimistic or overly pessimistic about the performance of an economy or sector, the Company’s performance may be hindered because of a failure to properly match corporate strategy with economic conditions.

Terrorist attacks and other increased global hostilities have, at times, contributed to widespread uncertainty and speculation in the world financial markets. This uncertainty and speculation may result in further economic contraction, resulting in the suspension or delay of purchasing by our customers.

STOCK MARKET AND STOCK PRICE VOLATILITY: Market prices for securities of software companies have generally been volatile. In particular, the market price of the Company’s common stock has been, and may continue to be, subject to significant fluctuations as a result of factors affecting the Company, the software industry or the securities markets in general. Such factors include, but are not limited to, declines in trading price that may be triggered by the Company’s failure to meet the expectations of securities analysts and investors. The Company cannot provide assurance that in such circumstances the trading price of the Company’s common stock will recover or that it will not experience a further decline. Moreover, the trading price could be subject to additional fluctuations in response to quarter-to-quarter variations in the Company’s operating results, material announcements made by the Company or its competitors, conditions in the software industry generally or other events and factors, many of which are beyond the Company’s control.

RAPIDLY CHANGING TECHNOLOGY; NEW PRODUCTS; RISK OF PRODUCT DEFECTS: The Company operates in an industry generally characterized by rapidly changing technology and frequent new product introductions that can render existing products obsolete or unmarketable. A major factor in the Company’s future success will be its ability to anticipate technological changes and to develop and introduce, in a timely manner, enhancements to its existing products and new products to meet those changes. If the Company is unable to introduce new products and to respond quickly to industry changes, its business, financial condition, results of operations and cash flows could be materially adversely affected.

The introduction and marketing of new or enhanced products require the Company to manage the transition from existing products in order to minimize disruption in customer purchasing patterns. There can be no assurance that the Company will be successful in developing and marketing, on a timely basis, new products or product enhancements, that its new products will adequately address the changing needs of the marketplace or that it will successfully manage the transition from existing products. Software products as complex as those offered by the Company may contain undetected errors or failures when first introduced or as new versions are released, and the likelihood of errors is increased as a result of the Company’s commitment to accelerating the frequency of its product releases. There can be no assurance that errors will not be found in new or enhanced products after commencement of commercial shipments. Any of these problems may result in the loss of or delay in customer acceptance, diversion of development resources, damage to the Company’s reputation or increased service and warranty costs, any of which could have a material, adverse effect on the Company’s business, financial condition, results of operations and cash flows.

ANSYS, Inc. 2004 Annual Report ²³

SALES OF NEW PRODUCTS: The Company continues to develop and introduce many new software products. Certain of these products require a higher level of sales and support expertise. The ability of the Company’s sales channel, particularly the indirect channel, to obtain this expertise and to sell the new product offerings effectively could have an impact on the Company’s sales in future periods. Additionally, royalties and engineering service engagements associated with the new software products may result in the Company’s cost of sales increasing as a percentage of revenue in future periods.

DEPENDENCE ON DISTRIBUTORS: The Company continues to distribute a substantial portion of its products through its global network of independent, regional channel partners. The channel partners sell the Company’s software products to new and existing customers, expand installations within their existing customer base, offer consulting services and provide the first line of technical support. Consequently, the Company is highly dependent upon the efforts of the channel partners. Difficulties in ongoing relationships with channel partners, such as delays in collecting accounts receivable, failure to meet performance criteria or to promote the Company’s products as aggressively as the Company expects and differences in the handling of customer relationships could adversely affect the Company’s performance. Additionally, the loss of any major channel partner for any reason, including a channel partner’s decision to sell competing products rather than the Company’s products, could have a material adverse effect on the Company. Moreover, the Company’s future success will depend substantially on the ability and willingness of its channel partners to continue to dedicate the resources necessary to promote the Company’s products and to support a larger installed base of the Company’s products. If the channel partners are unable or unwilling to do so, the Company may be unable to sustain revenue growth.

Currently the Company is partially protected from exchange rate fluctuations among the U.S. Dollar and other currencies as a result of its indirect sales channel, which generally pays the Company in U.S. Dollars. The revenues and expenses associated with the Company’s international direct sales channel are subject to foreign currency exchange fluctuations and, as a result, the Company’s future financial results may be impacted by fluctuations in exchange rates. Additionally, any future changes to the Company’s sales channel involving proportionally higher direct sales from international locations could result in additional exposure to the foreign currency exchange fluctuations. This exposure could adversely impact the Company’s financial position and results of operations in future periods.

COMPETITION: The Company continues to experience intense competition across all markets for its products and services. Some of the Company’s current and possible future competitors have greater financial, technical, marketing and other resources than the Company, and some have well established relationships with current and potential customers of the Company. These competitive pressures may result in decreased sales volumes, price reductions and/or increased operating costs, and could result in lower revenues, margins, cash flows and net income.

DEPENDENCE ON SENIOR MANAGEMENT AND KEY TECHNICAL PERSONNEL: The Company is highly dependent upon the ability and experience of its senior executives and its key technical and other management employees. Although the Company has employment agreements with certain employees, the loss of these employees, or any of the Company’s other key employees, could adversely affect the Company’s ability to conduct its operations.

RISKS ASSOCIATED WITH INTERNATIONAL ACTIVITIES: A majority of the Company’s business comes from outside the United States of America. Risks inherent in the Company’s international business activities include imposition of government controls, export license requirements, restrictions on the export of critical technology, products and services, political and economic instability, trade restrictions, changes in tariffs and taxes, difficulties in staffing and managing international operations, longer accounts receivable payment cycles and the burdens of complying with a wide variety of foreign laws and regulations. Effective patent, copyright and trade secret protection may not be available in every foreign country in which the Company sells its products and services. The Company’s business, financial condition, results of operations and cash flows could be materially adversely affected by any of these risks.

Additionally, countries in certain international regions have continued to experience weaknesses in their currency, banking and equity markets. These weaknesses could adversely affect customer demand for the Company’s products and ultimately the Company’s financial condition, results of operations and cash flows.

ANSYS, Inc. 2004 Annual Report ²⁴

As the Company has grown, it has become increasingly subject to the risks arising from adverse changes in domestic and global economic conditions. As a result of the current economic slowdown in certain sectors, many companies are delaying or reducing technology purchases, which has had an impact on the Company’s visibility into the closing of new business, as opposed to its recurring business. This slowdown has also contributed to, and may continue to contribute to, reductions in sales, longer sales cycles and increased price pressure. Each of these items could adversely affect the Company’s sales in future periods.


		ETI Phase-out
2004		No effect
2005		80% of otherwise-applicable benefits
2006		60% of otherwise-applicable benefits
2007 – beyond		ETI fully eliminated


		Manufacturing Income Deduction Phase-in
2004		No effect
2005 – 2006		3% applicable deduction for qualified income
2007 – 2009		6% applicable deduction for qualified income
2010 – beyond		9% applicable deduction for qualified income

ANSYS, Inc. 2004 Annual Report ²⁵

DEPENDENCE ON PROPRIETARY TECHNOLOGY: The Company’s success is highly dependent upon its proprietary technology. Although the Company was awarded a patent by the U.S. Patent and Trademark Office for its Web-based reporting technology, the Company generally relies on contracts and the laws of copyright and trade secrets to protect its technology. Although the Company maintains a trade secrets program, enters into confidentiality agreements with its employees and distributors, and limits access to and distribution of its software, documentation and other proprietary information, there can be no assurance that the steps taken by the Company to protect its proprietary technology will be adequate to prevent misappropriation of its technology by third parties, or that third parties will not be able to develop similar technology independently. Although the Company is not aware that any of its technology infringes upon the rights of third parties, there can be no assurance that other parties will not assert technology infringement claims against the Company, or that, if asserted, such claims will not prevail.

INCREASED RELIANCE ON PERPETUAL LICENSES: Although the Company has historically maintained stable recurring revenue from the sale of software lease licenses, software maintenance subscriptions and third party royalties, it also has relied on sales of perpetual licenses that involve payment of a single up-front fee and that are more typical in the computer software industry. While revenue generated from software lease licenses, software maintenance subscriptions and third party royalties currently represents a portion of the Company’s software license revenue, to the extent that perpetual license revenue continues to represent a significant percentage of total software license revenue, the Company’s revenue in any period will depend increasingly on sales completed during that period.

RISKS ASSOCIATED WITH ACQUISITIONS: The Company has consummated and may continue to consummate certain strategic acquisitions in order to provide increased capabilities to its existing products, supply new products and services or enhance its distribution channels. In the future, the Company may not be able to identify suitable acquisition candidates or, if suitable candidates are identified, the Company may not be able to complete the business combination on commercially acceptable terms. Business acquisitions may result in devotion of significant management and financial resources. The ability of the Company to integrate the acquired businesses, including delivering sales and support, ensuring continued customer commitment, obtaining further commitments and challenges associated with expanding sales in particular markets and retaining key personnel, will impact the success of these acquisitions. If the Company is unable to properly and timely integrate the acquired businesses, there could be a material, adverse effect on the Company’s business, financial condition, results of operations and cash flows.

DISRUPTION OF OPERATIONS AT DEVELOPMENT FACILITIES: A significant portion of the Company’s software development personnel, source code and computer equipment is located at operating facilities in the United States, Canada and Europe. The occurrence of a natural disaster or other unforeseen catastrophe at any of these facilities could cause interruptions in the Company’s operations, services and product development activities. These interruptions could have a material, adverse effect on the Company’s business, financial condition, results of operations and cash flows.

PERIODIC REORGANIZATION OF SALES FORCE: The Company relies heavily on its direct sales force. From time to time, the Company reorganizes and makes adjustments to its sales force in response to such factors as management changes, performance issues, market opportunities and other considerations. These changes may result in a temporary lack of sales production and may adversely impact revenue in future quarters. There can be no assurance that the Company will not restructure its sales force in future periods or that the transition issues associated with such a restructuring will not recur.

THIRD PARTY ROYALTY AGREEMENTS: The Company has agreements with third parties whereby it receives royalty revenues in return for the right of the third party to utilize the Company’s technology or embed the Company’s technology in the third party’s products. To the extent that the Company is unable to maintain these third party relationships, or that the third party is unsuccessful in selling the embedded products, there could be a material, adverse impact on the Company’s business, financial condition, results of operations and cash flows.

ANSYS, Inc. 2004 Annual Report ²⁶

SALES FORECASTS: The Company makes many operational and strategic decisions based upon short- and long-term sales forecasts. The Company’s sales personnel continually monitor the status of all proposals, including the estimated closing date and the dollar amount of the sale, in order to forecast quarterly sales. These forecasts are subject to significant estimation and are impacted by many external factors. For example, a slowdown in information technology spending or economic factors could cause purchasing decisions to be delayed. A variation in actual sales activity from that forecasted could cause the Company to plan or to budget incorrectly and, therefore, could adversely affect the Company’s business, financial condition, results of operations and cash flows.

INCOME TAX ESTIMATES: The Company makes significant estimates in determining its worldwide income tax provision. These estimates involve complex tax regulations in a number of jurisdictions across the Company’s global operations and are subject to many transactions and calculations where the ultimate tax outcome is uncertain. Although the Company believes that its estimates are reasonable, the final outcome of tax matters could be different than the estimates reflected in the historical income tax provision and related accruals. Such differences could have a material impact on income tax expense and net income in the period in which such determination is made.

REGULATORY COMPLIANCE: Like all other public companies, the Company is subject to the rules and regulations of the Securities and Exchange Commission (“SEC”), including those that require the Company to report on and receive a certification from its independent accounting firm regarding the Company’s internal controls. Compliance with these requirements causes the Company to incur additional expenses and causes management to divert time from the day to day operation of the Company. While the Company anticipates being able to fully comply with these internal control requirements, if it is not able to comply with the Sarbanes-Oxley reporting or certification requirements relating to internal controls, the Company may be subject to sanction by the SEC or Nasdaq.

The Company’s sales to the Government of the United States must comply with the regulations set forth in the Federal Acquisition Regulations. Failure to comply with these regulations could result in penalties being assessed against the Company or an order preventing the Company from making futures sales to the United States Government. Further, the Company’s international activities must comply with the export control laws of the United States, the Foreign Corrupt Practices Act and a variety of other laws and regulations of the United States of America and other countries in which the Company operates. Failure to comply with any of these laws and regulations could adversely affect the Company’s business, financial condition, results of operation and cash flows.

CONTINGENCIES: The Company is involved in various investigations, claims and legal proceedings from time to time that arise in the ordinary course of its business activities. These proceedings currently include customary audit activities by various taxing authorities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably to the Company.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK: The Company is exposed to certain market risks, primarily foreign currency exchange rates, which arise from transactions entered into in the normal course of business. The Company seeks to minimize these risks primarily through its normal operating and financing activities.

ANSYS, Inc. 2004 Annual Report ²⁷

Internal Controls – Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of ANSYS, Inc.

Canonsburg, Pennsylvania

We have audited management’s assessment, included in the accompanying Management’s Assessment of Internal Control, that ANSYS, Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2004 of the Company and our report dated March 4, 2005 expressed an unqualified opinion on those financial statements.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP

Pittsburgh, Pennsylvania

March 4, 2005

ANSYS, Inc. 2004 Annual Report ²⁸

Financial Statements – Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of ANSYS, Inc.

Canonsburg, Pennsylvania

We have audited the accompanying consolidated balance sheets of ANSYS, Inc. and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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, such consolidated financial statements present fairly, in all material respects, the financial position of ANSYS, Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 4, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP

Pittsburgh, Pennsylvania

March 4, 2005

Management’s Assessment of Internal Control

Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting for the Company. In order to evaluate the effectiveness of internal control over financial reporting, management has conducted an assessment, including testing, using the financial reporting criteria in the “Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s system of internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial records used in preparation of the Company’s published financial statements. As all internal control systems have inherent limitations, even systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Based on its assessment, management has concluded that the Company maintained an effective system of internal control over financial reporting as of December 31, 2004. The Company’s registered public accounting firm has issued an attestation report on management’s assessment in conjunction with their audit of the Company’s system of internal control over financial reporting and the financial statements.


/s/ James E. Cashman III		/s/ Maria T. Shields
James E. Cashman III		Maria T. Shields
President and Chief Executive Officer		Chief Financial Officer

March 4, 2005

ANSYS, Inc. 2004 Annual Report ²⁹

Consolidated Balance Sheets


*(in thousands, except share data)*	December 31, 2004			December 31, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	83,547		$	78,038
Short-term investments		54,899			4,976
Accounts receivable, less allowance for doubtful accounts of $1,890 and $2,110, respectively		18,792			20,028
Other receivables and current assets		23,612			16,206
Deferred income taxes		3,404			3,311

Total current assets		184,254			122,559

Property and equipment, net		5,551			5,801
Capitalized software costs, net		898			959
Goodwill		36,277			35,151
Other intangibles, net		12,108			14,876
Deferred income taxes		558			1,213

Total assets	$	239,646		$	180,559

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,100		$	988
Accrued bonuses		7,927			4,439
Other accrued expenses and liabilities		11,244			10,184
Deferred revenue		43,906			37,874

Total current liabilities		64,177			53,485

Commitments and contingencies		—			—
Stockholders’ equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized		—			—
Common stock, $.01 par value; 50,000,000 shares authorized; 33,169,516 shares issued		332			332
Additional paid-in capital		50,868			44,369
Retained earnings		135,268			100,701
Treasury stock, at cost: 1,753,391 and 2,634,976 shares, respectively		(17,700	)		(22,768	)
Accumulated other comprehensive income		6,701			4,440

Total stockholders’ equity		175,469			127,074

Total liabilities and stockholders’ equity	$	239,646		$	180,559

The accompanying notes are an integral part of the consolidated financial statements.

ANSYS, Inc. 2004 Annual Report ³⁰

Consolidated Statements of Income


*(in thousands, except per share data)*	2004		2003		2002
Revenue:
Software licenses	$	71,326	$	58,408	$	48,177
Maintenance and service		63,213		55,127		42,834

Total revenue		134,539		113,535		91,011

Cost of sales:
Software licenses		4,840		5,365		3,897
Amortization of software and acquired technology		3,030		3,028		1,471
Maintenance and service		13,437		13,112		7,863

Total cost of sales		21,307		21,505		13,231

Gross profit		113,232		92,030		77,780
Operating expenses:
Selling and marketing		24,984		24,777		20,089
Research and development		26,281		23,792		19,605
Amortization		1,149		1,055		818
General and administrative		14,840		12,089		10,194

Total operating expenses		67,254		61,713		50,706

Operating income		45,978		30,317		27,074
Other income, net		1,923		357		311

Income before income tax provision		47,901		30,674		27,385
Income tax provision		13,334		9,361		8,426

Net income	$	34,567	$	21,313	$	18,959

Earnings per share – basic:
Basic earnings per share	$	1.12	$	0.71	$	0.65
Weighted average shares – basic		30,955		29,916		29,196
Earnings per share – diluted:
Diluted earnings per share	$	1.05	$	0.67	$	0.61
Weighted average shares – diluted		32,978		31,876		31,188

The accompanying notes are an integral part of the consolidated financial statements.

ANSYS, Inc. 2004 Annual Report ³¹

Consolidated Statements of Cash Flow


*(in thousands)*	2004			2003			2002
Cash flows from operating activities:
Net income	$	34,567		$	21,313		$	18,959
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,588			7,098			4,525
Deferred income tax provision (benefit)		546			(17	)		231
Provision for bad debts		153			447			506
Impairment of investment		—			611			500
Equity in loss of investment		—			75			114
Changes in operating assets and liabilities:
Accounts receivable		1,884			503			(1,029	)
Other receivables and current assets		(7,251	)		1,715			(934	)
Accounts payable, accrued expenses and liabilities		8,889			594			(2,031	)
Deferred revenue		4,990			6,467			1,275

Net cash provided by operating activities		51,366			38,806			22,116

Cash flows from investing activities:
Capital expenditures		(3,191	)		(2,761	)		(1,612	)
Capitalization of internally developed software costs		(544	)		(550	)		(624	)
Purchases of short-term investments		(74,455	)		(25,030	)		(98,536	)
Maturities of short-term investments		25,000			34,988			108,505
Acquisition of CFX, net of cash acquired		—			(21,747	)		—
Other acquisition payments		—			(588	)		(4,277	)
Purchase of long-term investments		—			(200	)		(600	)

Net cash (used in) provided by investing activities		(53,190	)		(15,888	)		2,856

Cash flows from financing activities:
Proceeds from issuance of common stock under Employee Stock Purchase Plan		485			408			333
Proceeds from exercise of stock options		5,408			7,105			4,131
Purchase of treasury stock		—			—			(11,919	)

Net cash provided by (used in) financing activities		5,893			7,513			(7,455	)

Effect of exchange rate fluctuations		1,440			1,409			136
Net increase in cash and cash equivalents		5,509			31,840			17,653
Cash and cash equivalents, beginning of year		78,038			46,198			28,545
Cash and cash equivalents, end of year	$	83,547		$	78,038		$	46,198
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes, net	$	5,439		$	3,407		$	4,632

The accompanying notes are an integral part of the consolidated financial statements.

ANSYS, Inc. 2004 Annual Report ³²

Consolidated Statements of Stockholders’ Equity


*(in thousands)*	Common Stock			Additional Paid-in Capital		Retained Earnings		Treasury Stock					Accumulated Other Comprehensive Income			Total Stockholders’ Equity			Total Comprehensive Income
*(in thousands)*	Shares	Amount		Additional Paid-in Capital		Retained Earnings		Shares		Amount			Accumulated Other Comprehensive Income			Total Stockholders’ Equity			Total Comprehensive Income
Balance, January 1, 2002	33,170	$	332	$	37,656	$	60,429	4,143		$	(23,953	)	$	(71	)	$	74,393
Treasury stock acquired	—		—		—		—	1,010			(11,919	)		—			(11,919	)
Acquisition of ICEM CFD Engineering	—		—		1,380		—	(198	)		950			—			2,330
Exercise of stock options, net of tax benefit of $2,134	—		—		2,075		—	(886	)		4,391			—			6,466
Issuance of common stock under Employee Stock Purchase Plan	—		—		139		—	(38	)		194			—			333
Net income for the year	—		—		—		18,959	—			—			—			18,959		$	18,959
Other comprehensive income	—		—		—		—	—			—			831			831			831

Balance, December 31, 2002	33,170		332		41,250		79,388	4,031			(30,337	)		760			91,393			19,790

Exercise of stock options, net of tax benefit of $3,175	—		—		2,992		—	(1,344	)		7,288			—			10,280
Issuance of common stock under Employee Stock Purchase Plan	—		—		127		—	(52	)		281			—			408
Net income for the year	—		—		—		21,313	—			—			—			21,313			21,313
Other comprehensive income	—		—		—		—	—			—			3,680			3,680			3,680

Balance, December 31, 2003	33,170		332		44,369		100,701	2,635			(22,768	)		4,440			127,074			24,993

Exercise of stock options, net of tax benefit of $5,552	—		—		6,107		—	(844	)		4,853			—			10,960
Issuance of common stock under Employee Stock Purchase Plan	—		—		306		—	(31	)		178			—			484
Issuance of restricted stock	—		—		86		—	(7	)		37			—			123
Net income for the year	—		—		—		34,567	—			—			—			34,567			34,567
Other comprehensive income	—		—		—		—	—			—			2,261			2,261			2,261

Balance, December 31, 2004	33,170	$	332	$	50,868	$	135,268	1,753		$	(17,700	)	$	6,701		$	175,469		$	36,828

The accompanying notes are an integral part of the consolidated financial statements.

ANSYS, Inc. 2004 Annual Report ³³

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

ANSYS, Inc. (the “Company” or “ANSYS”) develops and globally markets engineering simulation software and technologies widely used by engineers and designers across a broad spectrum of industries, including aerospace, automotive, manufacturing, electronics and biomedical.

The Company operates as one segment, as defined by Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Given the integrated approach to the problem-solving needs of the Company’s customers, a single sale of software may contain components from multiple product areas and include combined technologies. There is no means by which the Company can provide accurate historical (or current) reporting among its ANSYS^® Simulation Suite, ANSYS Workbench, ANSYS ICEM CFD Suite, and ANSYS CFX^® Suite or any other product-line segmentation. Disclosure of such information is impracticable.

2. Summary of Significant Accounting Policies

PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the amounts of revenue and expenses during the reported periods. Significant estimates included in these consolidated financial statements include allowances for doubtful accounts receivable, income tax accruals and tax valuation reserves, fair value of stock-based compensation, useful lives for depreciation and amortization, loss contingencies, valuation of goodwill and indefinite-lived intangible assets, carrying value of non-marketable securities and estimates of service contract revenue. Actual results could differ from these estimates. Changes in estimates are recorded in the results of operations in the period that the changes occur.

REVENUE RECOGNITION: Revenue is derived principally from the licensing of computer software products and from related maintenance contracts. ANSYS recognizes revenue in accordance with SOP 97-2, “Software Revenue Recognition,” and related interpretations. Revenue from perpetual licenses is recognized upon delivery of the licensed product and the utility which enables the customer to request authorization keys, provided that acceptance has occurred and a signed contractual obligation has been received, the price is fixed and determinable, and collectibility of the receivable is probable. Revenue is recorded net of the distributor fee for sales through the ANSYS distribution network. Revenue for software lease licenses is recognized ratably over the period of the lease contract. The Company estimates the value of post-contract customer support sold together with perpetual licenses by reference to published price lists which generally represent the prices at which customers could purchase renewal contracts for such services. Revenue from maintenance contracts is recognized ratably over the term of the contract. Costs related to maintenance obligations are expensed as incurred. Revenue from training, support and other services is recognized as the services are performed.

CASH EQUIVALENTS: For purposes of the consolidated statements of cash flows, the Company considers highly liquid deposits in money market funds to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value.

SHORT-TERM INVESTMENTS: The Company considers investments backed by government agencies or U.S. financial institutions and which have a maturity or renewal option between 30 days and up to one year from the date of purchase to be short-term investments. Short-term investments are recorded at fair value, which approximates amortized cost. The Company uses the specific identification method to determine the realized gain or loss upon the sale of such securities. As of the balance sheet date, there were no significant unrealized gains or losses on the investments, all of which had maturities of less than one year.

PROPERTY AND EQUIPMENT: Property and equipment is stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the various classes of assets, which range from one to seven years. Repairs and maintenance are charged to expense as incurred. Gains or losses from the sale or retirement of property and equipment are included in the results of operations.

RESEARCH AND DEVELOPMENT COSTS: Research and development costs, other than certain capitalized software development costs, are expensed as incurred.

ANSYS, Inc. 2004 Annual Report ³⁴

CAPITALIZED SOFTWARE: Internally developed computer software costs and costs of product enhancements are capitalized subsequent to the determination of technological feasibility; such capitalization continues until the product becomes available for general release. Amortization of capitalized software costs, both for internally developed as well as for purchased software products, is computed on a product-by-product basis over the estimated economic life of the product, which is generally three years. Amortization is the greater of the amount computed using: (i) the ratio of the current year’s gross revenue to the total current and anticipated future gross revenue for that product or (ii) the straight-line method over the estimated life of the product. Amortization expense related to capitalized and acquired software costs was $3.0 million for the years ended December 31, 2004 and 2003, and $1.5 million for the year ended December 31, 2002. These amounts include amortization expense related to capitalized costs of internally developed software of $600,000 for the years ended December 31, 2004 and 2003, and $500,000 for the year ended December 31, 2002.

The Company periodically reviews the carrying value of capitalized software. Impairments are recognized in the results of operations when the expected future undiscounted operating cash flow derived from the capitalized costs of internally developed software is less than the carrying value. No charges for impairment have been required to date.

GOODWILL AND OTHER INTANGIBLE ASSETS: Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Intangible assets consist of trademarks, non-compete agreements, customer lists and acquired software and technology.

The Company evaluates, at least annually, the realizability of the carrying value of goodwill by comparing the carrying value to its estimated fair value. The Company performs its annual goodwill impairment test on January 1 of each year unless there is an indicator which would require a test during the year. No impairments were recorded during 2004, 2003 or 2002.

The Company periodically reviews the carrying value of other intangible assets and will recognize impairments when the expected future discounted operating cash flow derived from such intangible assets is less than the carrying value. No impairment charges have been required to date.

STOCK SPLIT: On August 5, 2004, the Company announced that its Board of Directors approved a two-for-one stock split of the Company’s common stock. The stock split was payable in the form of a stock dividend and entitled each stockholder of record at the close of business on September 3, 2004, to receive one share of common stock for every outstanding share of common stock held on that date. The stock dividend was distributed on October 4, 2004. Par value of the stock remains at $.01 per share. Accordingly, $166,000 was transferred from additional paid-in capital to common stock for the cumulative number of shares issued as of October 4, 2004. The capital accounts, share data, and earnings per share data in this report give effect to the stock split, applied retroactively, to all periods presented.

CONCENTRATIONS OF CREDIT RISK: The Company has a concentration of credit risk with respect to trade receivables due to the limited number of distributors through which the Company sells its products. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral.

During 2004, sales by distributors comprised approximately 43% of the Company’s total revenue, with two distributors each individually accounting for approximately 10% and 8% of total revenue. During 2003, sales by distributors comprised approximately 45% of the Company’s total revenue, with two distributors each individually accounting for approximately 11% and 9% of total revenue. During 2002, sales by distributors comprised approximately 51% of the Company’s total revenue, with two distributors each individually accounting for approximately 11% and 7% of total revenue.

In addition to the concentration of credit risk with respect to trade receivables, the Company’s cash and cash equivalents are also exposed to concentration of credit risk. The Company maintains its cash accounts primarily in U.S. banks, which are insured by the F.D.I.C. up to $100,000 per bank. The Company had cash balances on deposit with a U.S. bank at December 31, 2004 that exceeded the balance insured by the F.D.I.C. in the amount of approximately $43 million. A significant portion of the Company’s remaining cash balance is also uninsured.

ALLOWANCE FOR DOUBTFUL ACCOUNTS: The Company makes judgments as to its ability to collect outstanding receivables and provides allowances for a portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices from both a value and delinquency perspective. For those invoices not specifically reviewed, provisions are provided at differing rates, based upon the age of the receivable and the geographical area of origin. In determining these percentages, the Company analyzes its historical collection experience and current economic trends in the customer’s industry and geographic region.

ANSYS, Inc. 2004 Annual Report ³⁵

INCOME TAXES: Deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

FOREIGN CURRENCIES: Certain of the Company’s sales transactions are denominated in foreign currencies. These transactions are translated to the functional currency at the exchange rate on the transaction date. Accounts receivable in foreign currencies at year-end are translated at the effective exchange rate on the balance sheet date. Gains and losses resulting from foreign exchange transactions are included in the results of operations.

The financial statements of the Company’s foreign subsidiaries are translated from the functional currency, generally the local currency, to U.S. Dollars. Assets and liabilities are translated at the exchange rates on the balance sheet date. Results of operations are translated at average exchange rates. Accumulated other comprehensive income in the accompanying consolidated statements of stockholders’ equity consists entirely of the resulting exchange difference.

NON-MARKETABLE INVESTMENTS: The Company has non-controlling investments in privately held technology companies. These investments are carried at the lower of cost or market if a more than temporary decline in market value is noted. The Company continually reviews these non-marketable equity investments for impairment conditions that indicate that an other-than-temporary decline in market value has occurred. In conducting this review, numerous factors are considered which individually, or in combination, indicate that a decline is other than temporary and that a reduction in carrying value is required. These factors include specific information pertaining to an individual company or a particular industry and general market conditions that reflect the prospects for the economy as a whole. Based on this review, other than temporary losses of approximately $600,000 and $500,000 were recorded as reductions of other income during the years ended December 31, 2003 and 2002, respectively. As of December 31, 2004 and 2003, the book value of non-marketable equity investments was zero.

EARNINGS PER SHARE: Basic earnings per share (“EPS”) amounts are computed by dividing net income by the weighted average number of common shares outstanding during each year. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive equivalents outstanding. Common equivalent shares are not included in the per share calculations where their inclusion would be anti-dilutive. The details of basic and diluted earnings per share are as follows:


	Year Ended December 31,
*(in thousands, except per share data)*	2004		2003		2002
Net income	$	34,567	$	21,313	$	18,959

Weighted average shares outstanding – basic		30,955		29,916		29,196
Basic earnings per share	$	1.12	$	0.71	$	0.65
Effect of dilutive securities:
Shares issuable upon exercise of dilutive outstanding stock options		2,023		1,960		1,992
Weighted average shares outstanding – diluted		32,978		31,876		31,188
Diluted earnings per share	$	1.05	$	0.67	$	0.61

Anti-dilutive shares/options, not included in the computation		—		—		354

STOCK-BASED COMPENSATION: The Company has elected to account for stock-based compensation arrangements through the intrinsic value method under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock-Based Compensation.” Under the intrinsic value method, compensation expense is measured as the excess, if any, of the market value of the underlying common stock over the amount the employee is required to pay on the date both the number of shares and the price to be paid are known. No compensation expense has been recognized in the consolidated statements of income as option grants generally are made with exercise prices equal to the fair value of the underlying common stock on the award date, which is typically the date of compensation measurement. Had compensation cost been determined based on the fair value at the date of grant, in accordance with the provisions of SFAS No. 123,

ANSYS, Inc. 2004 Annual Report ³⁶

“Accounting for Stock-Based Compensation,” the Company’s net income and basic and diluted earnings per share would have been reduced to the pro forma amounts indicated below:


	Year Ended December 31,
*(in thousands, except per share data)*	2004			2003			2002
Net income, as reported	$	34,567		$	21,313		$	18,959

Add: Stock-based employee compensation expense included in net income, net of related tax effects		—			—			—
Deduct: Stock-based employee compensation expense determined under the fair value-based method for all awards, net of related tax effects		(2,797	)		(2,903	)		(3,061	)

Pro forma net income	$	31,770		$	18,410		$	15,898

Earnings per share:
Basic – as reported	$	1.12		$	0.71		$	0.65
Basic – pro forma	$	1.03		$	0.62		$	0.54
Diluted – as reported	$	1.05		$	0.67		$	0.61
Diluted – pro forma	$	0.96		$	0.58		$	0.51

The weighted-average fair value of options granted was $10.82 per share in 2004, $6.99 per share in 2003 and $5.92 per share in 2002.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes options pricing model, which was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The Company’s options have characteristics significantly different from those of traded options, and changes in input assumptions can materially affect the fair value estimates. The fair values of options granted were estimated using the Black-Scholes pricing model with the risk-free interest rates ranging from 3.16% - 3.96% for 2004, 2.13% - 3.22% for 2003 and 3.23% - 4.50% for 2002. The interest rates used were determined by using the five-year Treasury Note rate at the date of grant. The following assumptions were also used to determine the fair value of each option grant: dividend yields of 0%; expected volatility of 53%, 57%, and 62% for 2004, 2003, and 2002, respectively; and expected term of 5.3 years, 5.0 years and 5.0 years for 2004, 2003 and 2002, respectively.

ANSYS, Inc. 2004 Annual Report ³⁷

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities.” Interpretation No. 46 requires unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse the risks and rewards of ownership among their owners and other parties involved. The provisions of Interpretation No. 46 were generally effective immediately to all variable interest entities created after January 1, 2003 and variable interest entities in which an enterprise obtained an interest after that date. For variable interest entities created before this date, the provisions were generally effective March 15, 2004. The Company has no interest in any variable interest entities; therefore, this Interpretation has no impact on the Company’s financial position, results of operations or cash flows.

In December 2004, the FASB issued a revised version of FASB Statement No. 123, “Accounting for Stock-Based Compensation.” The statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award, typically the vesting period. For public entities, the revised statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. The Company currently estimates that the adoption of this \statement will reduce its net income by approximately $1.6 – $2.0 million in 2005.

In December 2004, the FASB issued Statement No. 153, “Exchanges of Nonmonetary Assets.” Statement 153 addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on the fair value of the assets exchanged. Statement 153 is effective for fiscal periods beginning after June 15, 2005. The Company does not expect that the adoption of this statement will have a material impact on its financial position, results of operations or cash flows.

RECLASSIFICATIONS: Certain reclassifications have been made to the 2003 and 2002 financial statements to conform to the 2004 presentation.

3. Acquisitions

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:


*(in thousands)*	At February 26, 2003
Current assets	$	7,477
Property, plant and equipment		1,640
Intangible assets		11,500
Goodwill		14,076

Total assets acquired		34,693

Current liabilities		(11,009	)
Other liabilities		(1,937	)

Total liabilities assumed		(12,946	)

Net assets acquired	$	21,747

ANSYS, Inc. 2004 Annual Report ³⁸

In valuing deferred revenue on the CFX balance sheet as of the acquisition date, the Company applied the fair value provisions of Emerging Issues Task Force (“EITF”) Issue No. 01-3 “Accounting in a Business Combination for Deferred Revenue of an Acquiree.” In accordance with EITF 01-3, acquired deferred software license revenue of approximately $4.8 million was recorded on the opening balance sheet.

The acquisition of CFX was accounted for as a purchase, and accordingly, its operating results have been included in ANSYS, Inc.’s consolidated financial statements since the date of acquisition.

On January 5, 2005, the Company signed a definitive agreement to acquire Century Dynamics, Inc., a leading provider of sophisticated simulation software for solving linear, nonlinear, explicit and multi-body hydro-dynamics problems, for an initial purchase price of approximately $5.6 million in cash. In addition, the agreement provides for future payments contingent upon the attainment of certain performance criteria, which may result in an increase to goodwill. The acquisition of Century Dynamics, Inc. expands the Company’s product offerings and allows it to deliver a more complete and comprehensive solution to its customers. The operating results for Century Dynamics will be included with the Company’s operating results from the date of acquisition, January 5, 2005. The Company has not yet completed the purchase accounting for the assets and liabilities acquired. After allocation to the identifiable assets and liabilities, the remaining excess of the purchase price over the value of net assets acquired will be attributed to goodwill.

4. Other Current Assets

The Company reports accounts receivable related to the portion of annual lease licenses and software maintenance that has not yet been recognized as revenue as a component of other current assets. These amounts totaled $20.1 million and $13.0 million as of December 31, 2004 and 2003, respectively.

5. Property and Equipment

Property and equipment consists of the following:


*(in thousands)*	Estimated Useful Lives	December 31, 2004			December 31, 2003
Equipment	2-5 years	$	13,744		$	11,816
Computer software	1-5 years		7,326			6,376
Furniture	5-7 years		1,292			1,095
Leasehold improvements	5-7 years		1,037			899

			23,399			20,186

Less: accumulated depreciation and amortization			(17,848	)		(14,385	)

		$	5,551		$	5,801

Depreciation and amortization expense related to property and equipment was approximately $3.4 million, $2.9 million and $2.3 million for the years ended December 31, 2004, 2003 and 2002, respectively.

6. Goodwill and Other Intangible Assets

Goodwill represents the excess of the cost over the net tangible and identifiable intangible assets of acquired businesses. Identifiable intangible assets acquired in business combinations are recorded based upon fair market value at the date of acquisition.

ANSYS, Inc. 2004 Annual Report ³⁹

During the first quarter of 2004, the Company completed the annual impairment test for goodwill and intangibles with indefinite lives and determined these assets had not been impaired as of the test date, January 1, 2004. The Company tested the goodwill and identifiable intangible assets attributable to each of its reporting units utilizing estimated discounted cash flow methodologies and market comparable information. No events occurred or circumstances changed during the year ended December 31, 2004 that required an interim goodwill impairment test.

The changes in goodwill during the years ended 2004 and 2003 are as follows:


	Year Ended December 31,
*(in thousands)*	2004		2003
Beginning balance	$	35,151	$	18,615
CFX acquisition		—		14,076
Other acquisitions		—		872
Foreign exchange translation		1,126		1,588

Ending balance	$	36,277	$	35,151

Identifiable intangible assets with finite lives continue to be amortized on a straight-line basis over their estimated useful lives (three to ten years) and are reviewed for impairment whenever events or circumstances indicate that the carrying amounts may not be recoverable.

As of December 31, 2004 and December 31, 2003, the Company’s intangible assets have estimated useful lives and are classified as follows:


	December 31, 2004					December 31, 2003
*(in thousands)*	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Core technology (3-10 years)	$	16,894	$	(7,491	)	$	15,865	$	(4,715	)
Non-compete agreements (4-5 years)		2,536		(2,126	)		2,481		(1,553	)
Customer lists (5 years)		2,474		(1,872	)		2,415		(1,218	)

Total	$	21,904	$	(11,489	)	$	20,761	$	(7,486	)

Unamortized intangible assets:
Trademarks	$	1,693				$	1,601

Amortization expense for intangible assets reflected above was $3.6 million, $3.5 million and $1.8 million for the years ended December 31, 2004, 2003 and 2002, respectively, and is expected to be approximately $3.6 million, $2.7 million, $2.6 million, $700,000 and $300,000 for the years ending December 31, 2005, 2006, 2007, 2008 and 2009, respectively.

ANSYS, Inc. 2004 Annual Report ⁴⁰

7. Income Taxes

Income before income tax provision includes the following:


*(in thousands)*	December 31, 2004		December 31, 2003			December 31, 2002
Domestic	$	43,662	$	32,126		$	26,058
Foreign		4,239		(1,452	)		1,327

Total	$	47,901	$	30,674		$	27,385

The provision for income taxes is comprised of the following:


*(in thousands)*	December 31, 2004			December 31, 2003			December 31, 2002
Current:
Federal	$	9,690		$	7,132		$	6,912
State		1,122			1,126			582
Foreign		1,976			1,120			701
Deferred:
Federal		1,224			1,755			212
State		103			127			19
Foreign		(781	)		(1,899	)		—

Total	$	13,334		$	9,361		$	8,426

The reconciliation of the U.S. federal statutory tax rate to the consolidated effective tax rate is as follows:


	December 31, 2004		December 31, 2003		December 31, 2002
Federal statutory tax rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	1.7		2.7		2.1
Research and experimentation credits	(2.2	)	(2.8	)	(1.5	)
Export benefits	(4.2	)	(6.3	)	(4.3	)
One-time tax benefit (see below)	(2.2	)	—		—
Other	(0.3	)	1.9		(0.5	)

	27.8	%	30.5	%	30.8	%

During 2004, the Company and the Internal Revenue Service (IRS) settled and closed the audits of the Company’s 2001, 2002, and 2003 federal income tax returns. The Company provides in the financial statements an estimate for income taxes based on its tax filing positions and interpretations of existing tax law. Changes in estimates are reflected in the year of settlement or expiration of the statute of limitations. As a result of the federal income tax returns for 2001, 2002 and 2003 being settled and closed, the Company adjusted its estimated accrued income tax balance related to those years by recording a tax benefit and reducing the tax accrual by approximately $1.1 million. Such amount is reflected as a one-time tax benefit in the table above.

ANSYS, Inc. 2004 Annual Report ⁴¹

The components of deferred tax assets and liabilities are as follows:


*(in thousands)*	December 31, 2004			December 31, 2003
Deferred tax assets:
Goodwill	$	1,467		$	2,318
Other intangible assets		445			—
Allowance for doubtful accounts		679			630
Deferred revenue		2,382			2,731
Net operating loss carryforwards		678			835
Investments		746			746
Other		474			230
Valuation allowance		(746	)		(746	)

		6,125			6,744

Deferred tax liabilities:
Property and equipment		(659	)		(502	)
Acquired software		(972	)		(509	)
Other intangible assets		—			(722	)
Other		(532	)		(487	)
		(2,163	)		(2,220	)

Net deferred tax assets	$	3,962		$	4,524

The deferred tax assets labeled “investments” in the table above relate to impaired investments, the deduction for which may only be utilized to offset future capital gains. Based on the nature of the Company’s investments, it has been determined that it is more likely than not that it will not experience these capital gains and, therefore, the Company has established a full valuation allowance against the related tax assets. Based upon the Company’s current and historical taxable income, and the anticipated level of future taxable income, management believes it is more likely than not that the remaining deferred tax assets will be realized. Accordingly, no valuation allowance has been established against those assets.

The Company has foreign operating loss carryforwards of approximately $1.9 million, which have no expiration date.

The Company has not provided for U.S. deferred income taxes or foreign withholding taxes on $6.8 million of its undistributed earnings for non-U.S. subsidiaries because these earnings are intended to be reinvested indefinitely.

8. Pension and Profit-Sharing Plans

The Company has historically maintained both a money purchase pension plan (the “Pension Plan”) and a 401(k) / profit-sharing plan (the “Profit-Sharing Plan”) for all qualifying full-time domestic employees. The Company also maintains various defined contribution pension arrangements for its international employees. The Pension Plan is a noncontributory plan and requires the Company to contribute 5% of each participant’s eligible compensation. The 401(k) feature of the Profit-Sharing Plan permits employee contributions up to 25% of eligible compensation. The Company makes matching contributions on behalf of each participant in an amount equal to 100% of the employee contribution up to a maximum of 5% of employee compensation. There is a five-year graduated vesting schedule for employer contributions. Under the profit-sharing provisions of the plan, the Company contribution is determined annually by the Board of Directors, subject to a maximum limitation of 5% of eligible compensation. On April 30, 2003, the Pension Plan and the Profit-Sharing Plan were merged into a single plan, the ANSYS, Inc. Employees’ Retirement Program. The former benefits of the two plans were maintained for all domestic employees hired prior to January 1, 2004; however, the 5% annual pension contribution is now discretionary. Employees hired on or after January 1, 2004 receive a Company match of 50% of the employee contribution up to the first 6% of the employee’s compensation.

Total expense related to the Company’s retirement programs was $2.6 million in 2004 and 2003, and $1.9 million in 2002.

ANSYS Inc. 2004 Annual Report ⁴²

9. Non-Compete and Employment Agreements

Employees of the Company have signed covenant agreements under which they have agreed not to disclose trade secrets or confidential information, or to engage in or become connected with any business which is competitive with the Company anywhere in the world, while employed by the Company (and, in some cases, for specified periods thereafter), and that any products or technology created by them during their term of employment are the property of the Company. In addition, the Company requires all channel partners and resellers to enter into agreements not to disclose the Company’s trade secrets and other proprietary information.

In connection with the Company’s acquisition of ICEM CFD Engineering in August 2000, the stockholders of ICEM CFD Engineering agreed to non-compete clauses restricting certain competitive business activities for periods of two or five years, depending on the involvement of each stockholder in the daily operations of the business. Additionally, the CADOE stockholders agreed to similar non-compete clauses for a period of four years in connection with the 2001 acquisition of CADOE. As part of the Company’s acquisition of Century Dynamics, Inc. in January 2005, shareholders of Century Dynamics, Inc. agreed to non-compete clauses for periods of one, three or five years, depending on level of responsibility.

The Company has an employment agreement with the Chairman of its Board of Directors. In the event the Chairman is terminated without cause, his employment agreement provides for severance at the annual rate of $300,000 for the earlier of a period of one year after termination or when he accepts other employment. The Chairman is subject to a one-year restriction on competition following termination of employment under the circumstances described in the contract.

The Company has an employment agreement with the Chief Executive Officer. This agreement provides for, among other things, minimum severance payments equal to his base salary, target bonus and then-existing benefits, in equal semi-monthly installments, through the earlier of the second anniversary of the termination date if the Chief Executive Officer is terminated without cause or when he accepts other employment. The Chief Executive Officer is subject to a two-year restriction on competition following termination of employment under the circumstances described in the contract.

The Company also has employment agreements with several other employees, primarily in foreign jurisdictions. The terms of these employment agreements generally include annual compensation, severance payment provisions and non-compete clauses.

10. Stock Option and Grant Plans

The Company has two stock option and grant plans — the 1994 Stock Option and Grant Plan (“1994 Stock Plan”) and the Second Amended and Restated 1996 Stock Option and Grant Plan (“1996 Stock Plan”). The 1994 and 1996 Stock Plans, as amended, authorize the grant of up to 1,736,220 and 10,700,000 shares, respectively, of the Company’s common stock in the form of: (i) incentive stock options (“ISOs”), (ii) nonqualified stock options or (iii) the issuance or sale of common stock with or without vesting or other restrictions. Additionally, the 1996 Stock Plan permits the grant of common stock upon the attainment of specified performance goals and the grant of the right to receive cash dividends with the holders of the common stock as if the recipient held a specified number of shares of the common stock. No further grants may be made under the 1994 Stock Plan.

The 1994 and 1996 Stock Plans provide that: (i) the exercise price of an ISO must be no less than the fair value of the stock at the date of grant and (ii) the exercise price of an ISO held by an optionee who possesses more than 10% of the total combined voting power of all classes of stock must be no less than 110% of the fair market value of the stock at the time of grant. The Board of Directors has the authority to set expiration dates no later than ten years from the date of grant (or five years for an optionee who meets the 10% criteria), payment terms and other provisions for each grant. Shares associated with unexercised options or reacquired shares of common stock become available for options or issuances under the 1996 Stock Plan. The Compensation Committee of the Board of Directors may, at its sole discretion, accelerate or extend the date or dates on which all or any particular award or awards granted under the 1994 and 1996 Stock Plans may vest or be exercised. In the event of a merger, liquidation or sale of substantially all of the assets of the Company, the Board of Directors has the discretion to accelerate the vesting of the options granted under the 1994 and 1996 Stock Plans, except that options granted to Independent Directors vest automatically. Under certain scenarios, other optionees may also automatically vest upon the occurrence of such an event. In addition, the 1994 and 1996 Stock Plans and the grants issued thereunder terminate upon the effectiveness of any such transaction or event, unless a provision is made in connection with such transaction for the assumption of grants theretofore made. Under the 1996 Stock Plan, at the discretion of the Compensation Committee, any option may include a “reload” feature. Such feature allows an optionee exercising an option to receive, in addition to the number of shares of common stock due on the exercise, an additional option with an exercise price equal to the fair market value of the common stock on the date such additional option is granted.

ANSYS, Inc. 2004 Annual Report ⁴³

In addition, the 1996 Stock Plan provides for the automatic grant of non-qualified options to Independent Directors. Under such provisions, options to purchase 50,000 shares of common stock at the option exercise price will be granted to each individual when he or she first becomes a member of the Board of Directors, provided that he or she is not an employee of the Company. In addition, in 1998 the Board of Directors amended the 1996 Stock Plan to provide that on the date five business days following each annual meeting of stockholders of the Company, each Independent Director who is then serving will be granted an option to purchase 24,000 shares of common stock. Options granted to Independent Directors under the foregoing provisions will vest in annual installments over four years, commencing with the date of grant, and will expire ten years after the grant, subject to earlier termination if the optionee ceases to serve as a director. The exercisability of these options will be accelerated upon the occurrence of a merger, liquidation or sale of substantially all of the assets of the Company.

Information regarding stock option transactions is summarized below:


	Year Ended December 31,
*(options in thousands)*			2004				2003				2002
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding, beginning of year	4,268		$	7.37	5,540		$	6.55	5,704		$	5.80
Granted	683		$	23.51	296		$	13.75	886		$	10.58
Exercised	(844	)	$	6.41	(1,344	)	$	5.29	(884	)	$	4.67
Forfeited	(192	)	$	15.51	(224	)	$	7.58	(166	)	$	7.17
Outstanding, end of year	3,915		$	10.08	4,268		$	7.37	5,540		$	6.55
Exercisable, end of year	2,409		$	6.38	2,384		$	5.66	2,608		$	4.86

Information regarding stock options outstanding as of December 31, 2004 is summarized below:


*(options in thousands)*		Options Outstanding			Options Exercisable
Range of Exercise Prices	Options	Weighted Average Remaining Contractural Life	Weighted Average Exercise Price		Options	Weighted Average Exercise Price
$0.20 - $1.20	125	1.07 years	$	1.05	125	$	1.05
$3.00 - $4.94	637	3.68 years	$	4.13	637	$	4.13
$5.00 - $9.89	1,978	6.19 years	$	7.54	1,442	$	6.98
$11.13 - $21.72	916	8.24 years	$	14.95	205	$	12.42
$31.09 - $31.50	259	9.98 years	$	31.15	—		—

ANSYS Inc. 2004 Annual Report ⁴⁴

11. Stock Repurchase Program

On October 25, 2001, the Company announced that its Board of Directors had amended its common stock repurchase program to acquire up to an additional two million shares, or eight million shares in total under a program that was initially announced in February 2000. Under this program, ANSYS repurchased no shares in 2004 or 2003. As of December 31, 2004, 2.2 million shares remained authorized for repurchase under the program.

12. Employee Stock Purchase Plan

The Company’s 1996 Employee Stock Purchase Plan (the “Purchase Plan”) was adopted by the Board of Directors on April 19, 1996 and was subsequently approved by the Company’s stockholders. The stockholders approved an amendment to the Company’s Employee Stock Purchase Plan on May 6, 2004 to increase the number of shares available for offerings to 800,000 shares. The Purchase Plan is administered by the Compensation Committee. Offerings under the Purchase Plan commence on each February 1 and August 1, and have a duration of six months. An employee who owns or is deemed to own shares of stock representing in excess of 5% of the combined voting power of all classes of stock of the Company may not participate in the Purchase Plan.

During each offering, an eligible employee may purchase shares under the Purchase Plan by authorizing payroll deductions of up to 10% of his cash compensation during the offering period. The maximum number of shares which may be purchased by any participating employee during any offering period is limited to 1,920 shares (as adjusted by the Compensation Committee from time to time). Unless the employee has previously withdrawn from the offering, his accumulated payroll deductions will be used to purchase common stock on the last business day of the period at a price equal to 85% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower. Under applicable tax rules, an employee may purchase no more than $25,000 worth of common stock in any calendar year. At December 31, 2004, 372,682 shares of common stock had been issued under the Purchase Plan of which 341,554 were issued as of December 31, 2003.

13. Leases

In January 1996, the Company entered into a lease agreement with an unrelated third party for a new corporate office facility, which the Company occupied in February 1997. In May 2004, the Company entered into the first amendment to this lease agreement, effective January 1, 2004. The lease was extended from an original period of ten years, with an option for five additional years to a period of 18 years from the inception date, with an option for five additional years. The Company incurred lease rental expense related to this facility of $1.6 million in 2004, and $1.4 million in 2003 and 2002. The future minimum lease payments are $1.2 million per annum from January 1, 2005 to December 31, 2008 and $1.4 million per annum from January 1, 2009 to December 31, 2014. The future minimum lease payments from January 1, 2015 through December 31, 2019 will be determined based on prevailing market rental rates at the time of the extension, if elected. The amended lease also provides for the lessor to reimburse the Company for up to $550,000 in building refurbishments completed through March 31, 2006. These amounts are recorded as a reduction of lease expense over the remaining term of the lease.

The Company has also entered into various noncancellable operating leases for equipment and sales offices. Lease rental expense related to these leases totaled $2.4 million, $2.1 million, and $1.4 million for the years ended December 31, 2004, 2003 and 2002, respectively. Future minimum lease payments under noncancellable operating leases for sales and development offices in effect at December 31, 2004 are $1.7 million in 2005, $1.1 million in 2006, $800,000 in 2007, $400,000 in 2008 and $300,000 in 2009.

14. Royalty Agreements

The Company has entered into various renewable, nonexclusive license agreements under which the Company has been granted access to the licensor’s technology and the right to sell the technology in the Company’s product line. Royalties are payable to developers of the software at various rates and amounts generally based upon unit sales or revenue. Royalty fees, which are included in cost of sales, were approximately $1.7 million, $2.5 million and $1.0 million for the years ended December 31, 2004, 2003 and 2002, respectively.

ANSYS, Inc. 2004 Annual Report ⁴⁵

15. Geographic Information

Revenue by geographic area is as follows:


	Year Ended December 31,
*(in thousands)*	2004		2003		2002
United States	$	45,147	$	39,512	$	39,577
Canada		5,534		3,365		1,863
United Kingdom		17,478		17,166		10,068
Germany		20,160		14,800		8,743
Japan		17,000		15,852		10,380
Other European		16,982		11,852		11,111
Other International		12,238		10,988		9,269

Total	$	134,539	$	113,535	$	91,011

Long-lived assets (excluding deferred tax assets) by geographic area are as follows:


	December 31,
*(in thousands)*	2004		2003
United States	$	27,728	$	28,675
Canada		6,831		7,307
United Kingdom		8,607		9,333
Germany		4,080		3,818
Japan		1,006		967
Other European		6,313		6,336
Other International		269		351

Total	$	54,834	$	56,787

16. Contingencies and Commitments

The Company had an outstanding irrevocable standby letter of credit for $1.7 million at December 31, 2004. This letter of credit is subject to annual renewal and was issued as a guarantee for damages that could be awarded related to a legal matter in which the Company was involved. The fair value of the letter of credit approximates the contract value based on the nature of the fee arrangements with the issuing bank. No material losses on this commitment have been incurred, nor are any anticipated.

From time to time the Company is involved in various investigations, claims and legal proceedings that arise in the ordinary course of its business activities. Management believes, after consulting with legal counsel, that the ultimate liabilities, if any, resulting from such matters will not materially affect the Company’s financial position, liquidity or results of operations.

During 2003 the Company obtained an uncommitted and unsecured $10.0 million line of credit with a bank. Interest on any borrowings is at the bank’s prime rate or LIBOR, plus an applicable margin. The bank may demand repayment of the entire amount outstanding under the line of credit at any time and for any reason without notice. The Company, in lieu of a fee for the line of credit, has agreed to maintain certain deposits, which range from $5 million to $10 million, depending on the deposit type, with the bank. No borrowings occurred under this line of credit during 2004 or 2003.

ANSYS, Inc. 2004 Annual Report ⁴⁶

Quarterly Financial Information (Unaudited)


	Fiscal Quarter Ended
*(in thousands, except per share data)*	December 31, 2004		September 30, 2004		June 30, 2004		March 31, 2004
Revenue	$	38,887	$	32,318	$	32,002	$	31,332
Gross profit		33,174		26,877		27,024		26,157
Operating income		14,869		10,461		10,678		9,970
Net income		12,251		7,599		7,577		7,140
Earnings per share – basic⁽²⁾		0.39		0.24		0.25		0.23
Earnings per share – diluted⁽²⁾		0.36		0.23		0.23		0.22
Common stock price per share⁽¹⁾⁽²⁾:
High		33.16		24.87		23.95		22.25
Low		25.41		20.85		18.19		18.56


	Fiscal Quarter Ended
*(in thousands, except per share data)*	December 31, 2003		September 30, 2003		June 30, 2003		March 31, 2003
Revenue	$	33,254	$	28,038	$	27,643	$	24,600
Gross profit		27,706		22,742		21,580		20,002
Operating income		10,428		7,919		6,003		5,967
Net income		7,201		5,361		4,472		4,279
Earnings per share – basic⁽²⁾		0.24		0.18		0.15		0.15
Earnings per share – diluted⁽²⁾		0.22		0.17		0.14		0.14
Common stock price per share⁽¹⁾⁽²⁾:
High		20.65		20.00		15.69		12.20
Low		17.31		15.82		12.02		9.26

(1)	The Company’s common stock trades on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol: ANSS. The common stock prices shown are based on the Nasdaq daily closing stock price.

(2)	The earnings per share data and common stock prices give effect to the two-for-one stock split, effective October 4, 2004, applied retroactively, to all periods presented.

The Company has not paid cash dividends on its common stock as it has retained earnings for use in its business. The Company intends to review its policy with respect to the payment of dividends from time to time; however, there can be no assurance that any dividends will be paid in the future.

On February 1, 2005, there were 207 stockholders of record and approximately 5,700 beneficial stockholders of the Company’s common stock.

ANSYS, Inc. 2004 Annual Report ⁴⁷

Corporate Information

Stockholder Information

Requests for information about the Company should be directed to:

Investor Relations

ANSYS, Inc.

Southpointe

275 Technology Drive

Canonsburg, PA 15317

U.S.A.

Telephone: 724.514.1782

Report on Form 10-K

Stockholders may obtain additional financial information about ANSYS, Inc. from the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. Copies are available from the Company without charge upon written request.

Stock Listing

ANSS (NASDAQ Listed)

Transfer Agent

Mellon Investor Services LLC

Overpeck Center

85 Challenger Road

Ridgefield Park, NJ 07660-2108

Telephone: 1.800.756.3353 or 201.329.8660

www.melloninvestor.com/isd

Annual Meeting

The Annual Meeting of Stockholders will be held on May 10, 2005 at

2:00 p.m. Eastern Time at:

The Southpointe Club

360 Southpointe Blvd.

Canonsburg, PA 15317

U.S.A.

Counsel

Goodwin Procter LLP, Boston, MA

Independent Registered Public Accounting Firm

Deloitte & Touche LLP, Pittsburgh, PA

Headquarters

ANSYS, Inc.

Southpointe

275 Technology Drive

Canonsburg, PA 15317

U.S.A.

Telephone: 1.866.ANSYS.AI or 724.746.3304

www.ansys.com

ANSYS, Inc. is an Equal Opportunity Employer. As such, it is the Company’s policy to promote equal employment opportunity and to prohibit discrimination on the basis of race, color, religion, sex, age, national origin, disability or status as a veteran in all aspects of employment including recruiting, hiring, training or promoting personnel. In fulfilling this commitment, the Company shall comply with the letter and spirit of the laws, regulations and Executive Orders governing equal opportunity in employment; including the Civil Rights Act of 1964, Executive Order 11246, Revised Order Number 4 and amendments thereto.

ANSYS, ANSYS Workbench, CFX, AUTODYN and any and all ANSYS, Inc. product and service names are registered trademarks or trademarks of ANSYS, Inc. or its subsidiaries located in the United States or other countries. ICEM CFD is a trademark licensed by ANSYS, Inc. All other trademarks or registered trademarks are the property of their respective owners.

Subsidiaries of the Registrant

EXHIBIT 21

Subsidiaries of the Registrant

SAS IP, Inc., a Wyoming corporation

ANSYS Europe Limited, a United Kingdom corporation

CFX Limited, a United Kingdom corporation

ANSYS Software Private Limited, an India corporation

Matrix CFD Solutions Pvt. Ltd., an India corporation

CADOE S.A., a France corporation

ANSYS France SARL, a France corporation

ANSYS Germany GmbH, a Germany corporation

ANSYS KK, a Japan corporation

ICEM CFD Japan Pvt. Ltd., a Japan corporation

ANSYS Canada Limited, a Canada corporation

2011767 Ontario, Inc., a Canada corporation

Consent of Deloitte & Touche LLP

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-110728, 333-69506, and 333-08613 of ANSYS, Inc. on Form S-8 of our reports dated March 4, 2005, relating to the financial statements and financial statement schedule of ANSYS, Inc. and management’s report on the effectiveness of internal control over financial reporting, appearing in and incorporated by reference in the Annual Report on Form 10-K of ANSYS, Inc. for the year ended December 31, 2004.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP

Pittsburgh, Pennsylvania

March 10, 2005

Section 302 CEO Certification

EXHIBIT 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, James E. Cashman, III, certify that:

1.	I have reviewed this annual report on Form 10-K of ANSYS, Inc. (“ANSYS”);

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of ANSYS as of, and for, the periods presented in this annual report;

4.	ANSYS’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for ANSYS and we have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to ANSYS, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

evaluated the effectiveness of ANSYS’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and

disclosed in this report any change in ANSYS’s internal control over financial reporting that occurred during ANSYS’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, ANSYS’s internal control over financial reporting; and

5.	ANSYS’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to ANSYS’s auditors and the audit committee of ANSYS’s Board of Directors:

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect ANSYS’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in ANSYS’s internal control over financial reporting.


Date: March 10, 2005		/s/ James E. Cashman, III
		James E. Cashman, III
		President and Chief Executive Officer

Section 302 CFO Certification

EXHIBIT 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION

I, Maria T. Shields, certify that:

1.	I have reviewed this annual report on Form 10-K of ANSYS, Inc. (“ANSYS”);

3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of ANSYS as of, and for, the periods presented in this annual report;

4.	ANSYS’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for ANSYS and we have:

5.	ANSYS’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to ANSYS’s auditors and the audit committee of ANSYS’s Board of Directors:

any fraud, whether or not material, that involves management or other employees who have a significant role in ANSYS’s internal control over financial reporting.


Date: March 10, 2005		/s/ Maria T. Shields
		Maria T. Shields
		Chief Financial Officer

Section 906 CEO Certification

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of ANSYS, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James E. Cashman III, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)

The Report fully complies with requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certification is provided solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed to be part of the Report or filed for any purpose whatsoever.

/s/ James E. Cashman, III

James E. Cashman, III

President and Chief Executive Officer

March 10, 2005

Section 906 CFO Certification

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of ANSYS, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Maria T. Shields, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)

The Report fully complies with requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Maria T. Shields

Maria T. Shields

Chief Financial Officer

March 10, 2005