SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported): May 31, 2002
------------
ASPEN TECHNOLOGY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-24786 04-2739697
-------------------------------------------------------------------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
Ten Canal Park, Cambridge, Massachusetts 02141
------------------------------------------------
(Address of principal executive office and zip code)
Registrant's telephone number, including area code: (617) 949-1000
--------------
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On May 31, 2002, we acquired the capital stock of Hyprotech Ltd. and
related subsidiaries of AEA Technology plc, an English private limited company,
for a purchase price of 67.5 million pounds sterling. The terms of the
acquisition, including the consideration paid by us, were determined pursuant to
arm's-length negotiations.
Hyprotech, which is based in Calgary, develops and markets software and
service solutions designed to improve profitability and operating performance
for process industry clients by simulating plant design and operations.
Hyprotech serves more than 17,000 users, with approximately 600 major customers
in more than 80 countries. Hyprotech's customers include bp, Conoco, Shell,
Exxon-Mobil, UOP and Praxair.
We funded the Hyprotech acquisition with proceeds that we received from
private placements of capital stock and warrants completed in 2002. The private
placement investors consisted of a small number of institutional investors as
well as Wayne Sim, the Chief Executive Officer of Hyprotech, and another
Hyprotech officer, both of whom will be given leading roles in our new
engineering organization. Other than these investments by the two Hyprotech
officers, we do know of any material relationship that Hyprotech, its
affiliates, officers or directors, or any associates of any such officers or
directors had with our company before the completion of the acquisition.
THE PRECEDING DESCRIPTION OF HYPROTECH ACQUISITION DOES NOT PURPORT TO
BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THE RELATED SHARE PURCHASE AGREEMENT, WHICH IS INCLUDED AS EXHIBIT 10.1 TO THIS
CURRENT REPORT.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
Combined financial statements of the Hyprotech division of AEA Technology
plc:
Report of PricewaterhouseCoopers LLP.................................. F-2
Combined balance sheet at March 31, 2002.............................. F-3
Combined statement of operations and comprehensive loss for the
year ended March 31, 2002........................................... F-4
Combined statement of changes in AEA Technology's net investment
for the year ended March 31, 2002................................... F-5
Combined statement of cash flows for the year ended March 31, 2002.... F-6
Notes to combined financial statements................................ F-7
(b) Pro Forma Financial Information.
Unaudited pro forma condensed combined consolidated financial statements
of Aspen Technology, Inc.:
Unaudited pro forma condensed combined consolidated balance
sheet at March 31, 2002............................................ F-23
Unaudited pro forma condensed combined consolidated statement
of operations for the twelve months ended June 30, 2001
and March 31, 2001................................................. F-24
Unaudited pro forma condensed combined consolidated statement
of operations for the nine months ended March 31, 2002............. F-25
Notes to unaudited pro forma condensed combined consolidated
financial statements............................................... F-26
(c) Exhibits.
2
Exhibit
Number Description
------ -----------
10.1 Share Purchase Agreement dated as of May 10, 2002 between
Aspen Technology, Inc. and AEA Technology plc
23.1 Consent of PricewaterhouseCoopers LLP
3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ASPEN TECHNOLOGY, INC.
Date: May 31, 2002
By: /s/ Lisa W. Zappala
-----------------------------------
Lisa W. Zappala
Senior Vice President and
Chief Financial Officer
4
HYPROTECH DIVISION OF AEA
TECHNOLOGY PLC
Combined Financial Statements
MARCH 31, 2002
(in thousands of U.S. dollars)
F-1
May 17, 2002
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
AEA TECHNOLOGY PLC
We have audited the combined balance sheet of HYPROTECH DIVISION OF AEA
TECHNOLOGY PLC ("the division") as at March 31, 2002 and the related combined
statements of operations and comprehensive loss, changes in AEA Technology's net
investment and cash flows for the year then ended. These financial statements
are the responsibility of the management of the division and AEA Technology plc.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in Canada and the United States of America. Those standards require that we plan
and perform an audit to obtain reasonable assurance 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.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the division as at
March 31, 2002 and the results of its operations and its cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America.
/s/ PricewaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
Calgary, Alberta, Canada
F-2
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Combined Balance Sheet
AS AT MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars)
$
ASSETS
CURRENT ASSETS
Cash and cash equivalents 7,042
Accounts receivable, net of allowance for doubtful
accounts of $1,074 16,599
Unbilled services 68
Prepaid expenses and other current assets 3,339
Income taxes recoverable 999
Investment tax credits recoverable 3,367
-------
31,414
PROPERTY AND EQUIPMENT 1,097
GOODWILL AND OTHER INTANGIBLE ASSETS 23,750
-------
56,261
=======
LIABILITIES
CURRENT LIABILITIES
Accounts payable 1,146
Accrued expenses 6,974
Current portion of deferred revenue 19,301
Current portion of capital lease obligations 360
Current portion of long term obligation 208
Deferred income tax 621
-------
28,610
LONG-TERM OBLIGATION, LESS CURRENT PORTION 694
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 223
DEFERRED REVENUE, LESS CURRENT PORTION 1,847
-------
31,374
AEA TECHNOLOGY'S NET INVESTMENT 24,887
-------
56,261
=======
COMMITMENTS AND CONTINGENCIES (note 11)
The accompanying notes are an integral part of these combined financial
statements.
F-3
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Combined Statement of Operations and Comprehensive Loss
FOR THE YEAR ENDED MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars)
$
REVENUE
Software licenses 29,676
Service and other 20,660
-------
50,336
-------
COST OF SALES
Cost of software licenses 2,061
Cost of service and other 7,606
-------
9,667
-------
40,669
-------
OPERATING EXPENSES
Selling and marketing 19,379
Research and development 12,869
General and administrative 9,783
-------
42,031
-------
Loss from operations (1,362)
Interest Income 86
Interest Expense (181)
Foreign currency loss (14)
-------
Loss before recovery of income taxes (1,471)
RECOVERY OF INCOME TAXES (601)
-------
NET LOSS (870)
OTHER COMPREHENSIVE INCOME - FOREIGN CURRENCY
TRANSLATION ADJUSTMENT 70
-------
COMPREHENSIVE LOSS (800)
=======
The accompanying notes are an integral part of these combined financial
statements.
F-4
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Combined Statement of Changes in AEA Technology's Net Investment
FOR THE YEAR ENDED MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars)
$
BALANCE - MARCH 31, 2001 26,573
Net loss (870)
Other comprehensive income - foreign currency
translation adjustment 70
Net activity with AEAT and subsidiaries (886)
-------
BALANCE - MARCH 31, 2002 24,887
=======
The accompanying notes are an integral part of these combined financial
statements.
F-5
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Combined Statement of Cash Flows
FOR THE YEAR ENDED MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars)
$
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss (870)
Items not affecting cash
Depreciation and amortization of property and equipment 629
Amortization of intangible assets 2,060
Gain on sale of property and equipment (19)
Interest on accretion of long-term obligation 67
Deferred income tax 472
Write down intangible assets 44
Changes in assets and liabilities
Accounts receivable (1,681)
Unbilled services 811
Prepaid expenses and other current assets (1,329)
Investment tax credits recoverable (1,138)
Income tax recoverable (502)
Accounts payable (1,279)
Accrued expenses 1,892
Deferred revenue 5,727
------
4,884
------
INVESTING ACTIVITIES
Purchase of property and equipment (420)
Proceeds from sale of property and equipment 153
Purchase of intangible assets (59)
------
(326)
------
FINANCING ACTIVITIES
Repayments of capital lease obligations (340)
Transactions with AEAT and subsidiaries, net (842)
Repayment of long-term obligation (66)
------
(1,248)
------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (51)
------
INCREASE IN CASH AND CASH EQUIVALENTS 3,259
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 3,783
------
CASH AND CASH EQUIVALENTS - END OF YEAR 7,042
======
SUPPLEMENTAL INFORMATION
Cash paid for income taxes 306
Cash paid for interest 50
The accompanying notes are an integral part of these combined financial
statements.
F-6
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Notes to Combined Financial Statements
MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars, except stock option data)
1 NATURE OF OPERATIONS AND BASIS OF PRESENTATION
These combined financial statements include the assets, liabilities,
results of operations and cash flows of the Hyprotech Division of AEA
Technology plc (the "division"). The division comprises AEA Technology
Canada Ltd., Hyprotech Ltd., Hyprotech Europe SL, Hyprotech Malaysia
SDN. BHD, Hyprotech Inc., EA Systems Inc., EA Systems Europe Inc., Advanced
Systems Consultants Ltd., Hyprotech Japan Ltd., Hyprotech India Private
Limited, Hyprotech UK Limited and results relating to the Hyprotech product
line as recorded in the accounts of AEA Technology plc ("AEAT"). All
entities in the division are wholly owned subsidiaries or sub-divisions of
AEAT. No equity interest exists among the members of the division with the
exception of the following:
- Hyprotech SL and Hyprotech Malaysia SDN. BHD are wholly owned
subsidiaries of Hyprotech Ltd. which is a wholly owned subsidiary of
AEA Technology Canada Ltd. Hyprotech Ltd. also owns 5% of the share
capital of Hyprotech Japan Ltd.
- EA Systems Europe Inc. and Advanced Systems Consultants Ltd. were
wholly owned subsidiaries of EA Systems Inc. EA Systems Europe Inc.
was dissolved during the year ended March 31, 2002.
Since the above entities have historically been subject to common control,
the combined financial statements have been prepared by management of AEAT
and the division from the financial statements and accounting records of
the division using historical results of operations and the historical cost
basis of the asset and liabilities together with certain assumptions.
The division is allocated a portion of the cost of certain shared services
and support activities of AEAT consisting of, among other things, financial
and accounting services, executive management, employee benefit costs
(including pensions) and insurance services. The expense allocations have
been determined on bases deemed appropriate for each expense item. Such
bases include relative headcount and relative space occupancy. Management
of the division consider these allocations to be a reasonable reflection of
the utilization of services provided or the benefit received by the
division. Such allocated expenses have been included in general and
administration expenses ($760) and selling and marketing ($125). No
interest expense was allocated as the division does not rely on funding
from AEAT. Income taxes have been allocated on a separate-return basis.
The financial information contained herein may not reflect the consolidated
financial position, operating results, and cash flows of the division had
the division operated as a separate stand alone entity during the year, or
of the future results of operations or financial position of the division.
All balances and transactions within the division have been eliminated.
AEA Technology's net investment includes the accumulated operating results
of the division, net intercompany balances with AEAT and its subsidiaries
outside of the division, AEAT's investment in the share capital of the
companies that comprise the division, and cumulative translation
adjustments. AEA Technology Canada Ltd. pays interest on cash advances from
AEAT at Canadian Prime Rate less 1%. The interest charge for the year ended
March 31, 2002 was $65.
F-7
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Notes to Combined Financial Statements
MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars, except stock option data)
On May 10, 2002, Aspen Technology, Inc. ("Aspen") and AEAT entered into a
purchase and sale agreement under which Aspen would purchase the division
for cash consideration of GBP 67.5 million (approximately $99 million),
subject to working capital adjustments as defined in the purchase and sale
agreement.
NATURE OF OPERATIONS
The division provides integrated and value-added software solutions to
major operators in the oil and gas industry and specializes in process
simulation software. The division has operations and customers worldwide
and sells its products and services through a network of international
offices, agents and distributors.
2 SIGNIFICANT ACCOUNTING POLICIES
These combined financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America.
The following is a summary of the significant accounting policies of the
division:
a) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are stated at cost plus accrued interest
earned, which approximates market value, and consist of cash on
deposit with original maturities of less than three months.
b) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated
depreciation and amortization. Depreciation and amortization is
provided using the straight-line and declining balance methods, by
charges to operations in amounts estimated to allocate the cost of the
assets over their estimated useful lives, as follows:
Computer equipment 3 years
Furniture and fixtures 4 - 5 years
Leasehold improvements Term of the lease
When property is sold or scrapped, the cost of the asset and the
related accumulated depreciation and amortization is removed from the
accounts and the resulting gain or loss on disposal is recorded in the
combined statement of operations.
The division evaluates its long-lived assets for impairment as events
and circumstances indicate that the carrying amount may not be
recoverable and at a minimum at each balance sheet date. The
determination of whether the carrying value of long-lived assets will
be realized is evaluated based on undiscounted cash flow expectations
for the related asset or subsidiary. When it is determined that the
carrying value of an asset is impaired, the asset is written down to
fair value with a charge to income in the year that such a
determination is made.
F-8
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Notes to Combined Financial Statements
MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars, except stock option data)
c) GOODWILL AND OTHER INTANGIBLE ASSETS
On April 1, 2001, the division adopted, on a prospective basis, SFAS
No. 142, "Goodwill and Other Intangible Assets", which eliminated the
amortization of purchased goodwill and other intangible assets with
indefinite useful lives. Upon adoption, the division performed an
impairment test of its goodwill and determined that no impairment of
the recorded goodwill existed. Under SFAS No. 142, goodwill will be
tested for impairment at least annually and more frequently if an
event occurs which indicates the goodwill may be impaired.
Other intangible assets, which are comprised primarily of acquired
core technology, are recorded at cost less accumulated amortization.
Amortization is provided using the straight-line method, by charges to
operations in amounts estimated to allocate the cost of the assets
over their estimated useful lives.
d) REVENUE RECOGNITION
For multiple element arrangements, such as a contract that includes
the delivery of software and services, revenue is allocated to each
element of the arrangement using the fair values of the elements,
based on the residual method in accordance with SOP 98-9, Software
Revenue Recognition, with respect to certain transactions. The
determination of fair value is based on vendor-specific objective
evidence ("VSOE"). The division determines VSOE based upon the price
charged when the same element is sold separately. Consulting services
VSOE represents standard rates, which the division charges its
customers when it sells its consulting services separately. Under the
residual method, the fair value of the undelivered elements for which
VSOE exists is deferred and subsequently recognized when earned. If
VSOE does not exist for the undelivered elements, the entire
arrangement fee is recognized ratably over the term of the
arrangement.
License revenue from multiple element arrangements, including license
renewals, consists principally of revenue earned under fixed-term and
perpetual software license agreements. License revenue for the
perpetual software license agreements is recognized upon shipment of
the software if there is persuasive evidence of an arrangement,
collection of the resulting receivable is reasonably assured, the fee
is fixed or determinable, and VSOE of fair value exists for all
undelivered elements. License revenues from fixed term software
license arrangements is recognized ratably over the term of the
arrangement as VSOE of fair value does not exist for the undelivered
elements.
Maintenance and support services are recognized ratably over the life
of the maintenance and support contract period. Maintenance and
support services include only unspecified rights to product upgrades
and enhancements. These services are typically sold for a one-year
term and are sold either as part of a multiple element arrangement
with software licenses or are sold independently at time of renewal.
The division does not provide specified upgrades to its customers in
connection with the licensing of its software products.
F-9
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Notes to Combined Financial Statements
MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars, except stock option data)
Service revenues from fixed-price contracts are recognized using the
percentage-of-completion method, measured by the percentage of costs
(primarily labor) incurred to date as compared to the estimated total
costs (primarily labor) for each contract. When a loss is anticipated
on a contract, the full amount thereof is provided immediately.
Service revenues from time and expense contracts and consulting and
training revenue are recognized as the related services are performed.
Services that have been performed but for which billings have not been
made are recorded as unbilled services, and billings that have been
recorded before the services have been performed are recorded as
deferred revenue in the accompanying combined balance sheets.
e) COMPUTER SOFTWARE DEVELOPMENT COSTS
In accordance with SFAS No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed, computer software
development costs are expensed as incurred until the establishment of
technological feasibility. The division defines the establishment of
technological feasibility as the development of a working model. No
internally generated software development costs were capitalized
during the year ended March 31, 2002. Software development costs were
charged to research and development expense in the accompanying
combined statement of operations.
f) FOREIGN CURRENCY TRANSLATION
FOREIGN CURRENCY TRANSACTIONS
The determination of functional currency is based on the primary
economic environment in which each entity operates. The functional
currency of each of the entities in the division is the local
currency.
Transactions denominated in currencies other than the functional
currency have been remeasured into the functional currency. Monetary
assets and liabilities are remeasured using the rate of exchange in
effect at the balance sheet date, whereas other non-monetary assets
and liabilities are remeasured at the rate of exchange in effect on
the date of the transaction. Revenues and expenses are remeasured at
average rates prevailing throughout the year, except for depreciation
and amortization which are remeasured at exchange rates prevailing
when the related assets were acquired. Exchange gains and losses
resulting from the remeasurement of foreign currency transactions are
included in the statement of operations.
FINANCIAL STATEMENTS OF FOREIGN ENTITIES
The financial statements of the division's foreign entities are
translated from the various functional currencies into U.S. dollars
(the division's reporting currency) in accordance with SFAS No. 52,
Foreign Currency Translation. All assets and liabilities denominated
in currencies other than the U.S. dollar are translated into U.S.
dollars at the exchange rates prevailing on the balance sheet date.
Revenues, costs and expenses are translated at average rates of
exchange prevailing during the year. All translation gains and losses
from the translation of financial statements from the various
functional currencies to U.S. dollars are reported separately as a
component of other comprehensive income.
F-10
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Notes to Combined Financial Statements
MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars, except stock option data)
g) INCOME TAXES
The division accounts for income taxes under the provisions of SFAS
No. 109, Accounting for Income Taxes. Under the liability method
specified by SFAS No. 109, a deferred tax asset or liability is
calculated based on the difference between the financial statement
and tax bases of assets and liabilities, as measured by the enacted
tax rates. The carrying value of deferred tax assets is reduced, if
necessary, by a valuation allowance for any tax benefits that exceed
the portion for which future realization is more likely than not.
h) INVESTMENT TAX CREDITS
The division is entitled to investment tax credits granted by the
Canadian government. Investment tax credits are earned on qualifying
product research and development costs and are used to offset federal
income taxes otherwise payable. These credits are recognized as a
credit against the provision for income taxes in the statement of
operations.
i) ADVERTISING AND PROMOTION
Advertising and promotion costs are expensed as incurred. These costs
amounted to $660 for the year ended March 31, 2002.
j) MANAGEMENT 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, the disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant
estimates are made for the allowance for doubtful accounts, the
depreciation period for property and equipment, the amortization
period for and the valuation of goodwill and other intangible assets,
the valuation allowance for deferred tax assets, the provision for
contract losses and the allocation of divisional costs incurred by
AEAT.
k) CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the division to
concentrations of credit risk are principally cash and cash
equivalents and accounts receivable.
The division places its cash and cash equivalents with highly rated
financial institutions.
Concentration of credit risk with respect to receivables is limited to
certain customers to which the division makes substantial sales. To
reduce risk, the division routinely assesses the financial strength of
its customers. As a result, the division believes that the accounts
receivable credit risk exposure is limited.
The division maintains an allowance for doubtful accounts but
historically has not experienced any significant losses related to
individual customers or groups of customers in any particular industry
or geographic area. As of March 31, 2002, no individual customers
represent 10% or more of accounts receivable.
F-11
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Notes to Combined Financial Statements
MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars, except stock option data)
l) FINANCIAL INSTRUMENTS
The division's financial instruments consist of cash and cash
equivalents, accounts receivable, unbilled services, accounts payable,
accrued expenses, long-term obligation, and capital lease obligations.
At March 31, 2002, the estimated fair value of these financial
instruments approximates their carrying value.
m) COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity during a
period from transactions and other events and circumstances from
non-owner sources. The only component of other comprehensive income
for the year ended March 31, 2002 was the cumulative translation
adjustment arising from the translation of foreign entity financial
statements.
n) STOCK-BASED COMPENSATION
The division accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees". The division also
provides pro forma disclosures as required under SFAS No. 123.
o) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS
No. 143 requires entities to record the fair value of a liability for
an asset retirement obligation in the period in which it is incurred.
The provisions of SFAS No. 143 are effective for fiscal years
beginning after June 15, 2002. The division believes that the adoption
of SFAS No. 143 in fiscal 2004 will not have a material impact on its
results of operations or financial position.
In October 2001, the FASB issued SFAS No. 144, Accounting for
Impairment or Disposal of Long Lived Assets. SFAS No. 144 supercedes
SFAS No. 121, Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. The primary objectives of SFAS
No. 144 were to develop one accounting model based on the framework
established in SFAS No. 121 and to address significant implementation
issues. The provisions of SFAS No. 144 are effective for fiscal years
beginning after December 15, 2001. The division believes that the
adoption of SFAS No. 144 in fiscal 2003 will not have a material
impact on its results of changes in operation or financial position.
In April 2002, FASB issued SFAS No. 145, Recission of SFAS No. 4, 44
and 64, Amendment of SFAS No. 13 and Technical Corrections as of April
2002. This new standard impacts the reporting of gains and losses from
extinguishment of debt and accounting for leases, and is effective for
the division's fiscal 2005 year. The division has not determined the
impact the adoption of SFAS No. 145 will have on its results of
operations or financial condition.
F-12
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Notes to Combined Financial Statements
MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars, except stock option data)
3 CHANGE IN ACCOUNTING POLICY
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 supercedes APB 17, Intangible Assets. Under this
statement, goodwill and certain other intangible assets determined to have
an indefinite life are no longer amortized, instead these assets are to be
reviewed for impairment on a periodic basis. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001, with early adoption
permitted for non-calendar year-end companies whereby the entity's fiscal
year begins after March 15, 2001. Pursuant to this statement, the division
elected early adoption effective April 1, 2001. The goodwill, acquired
assembled workforce and customer base associated with past acquisitions,
which were previously being amortized over useful lives of 3 to 8.5 years,
are no longer subject to amortization. The assembled workforce and
customer base have been reallocated to goodwill. Such intangible assets are
subject to an annual assessment for impairment by applying a fair-value
based test. A transitional impairment test was performed which did not
result in a write down. The amortization expense for the year ended March
31, 2002 would have been $4,778 under the previous accounting policy.
4 PROPERTY AND EQUIPMENT
$
Computer equipment 2,728
Furniture and fixtures 805
Leasehold improvements 256
-------
3,789
Less: Accumulated depreciation and amortization (2,692)
-------
1,097
=======
Included in computer equipment are assets acquired under capital leases of
$1,178 and accumulated amortization of $682. Additions under capital leases
were $143 during the year.
5 GOODWILL AND OTHER INTANGIBLE ASSETS
$
Goodwill 19,854
Acquired technology (4 - 10 year life) 12,993
-------
32,847
Less: Accumulated amortization(1) (9,097)
-------
23,750
=======
(1)The balance relates to amortization of the acquired technology. Goodwill
is not amortized as a result of the adoption of the new accounting policy
(note 3).
F-13
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Notes to Combined Financial Statements
MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars, except stock option data)
6 CREDIT FACILITIES
The division has a CDN$4 million revolving demand credit facility with a
Canadian bank. Canadian dollar loans and overdrafts bear interest at the
Canadian Prime Rate. U.S. dollar loans and overdrafts bear interest at the
U.S. Base Rate and may not exceed $500. An interest rate of U.S. Base Rate
multiplied by 1.1111 will be applied to the amount of interest owing by
Hyprotech Inc. and EA Systems Inc. This credit facility is secured by a
guarantee from AEAT in an amount that is limited to CDN$5 million.
The division also has a CDN$1 million demand credit facility for foreign
exchange contracts.
These credit facilities require the division to provide the bank with
certain periodic financial reports. At March 31, 2002, there were no
outstanding borrowings under these credit facilities.
7 CAPITAL LEASE OBLIGATIONS
Capital lease obligations consist of the following at March 31, 2002:
$
Capital lease obligations - repayable in blended
monthly instalments and maturing June 2002 to February 2005 583
Less: Current portion (360)
----
223
====
Minimum lease payments are due as follows:
$
2003 388
2004 196
2005 34
----
618
Less: Imputed interest at rates of 8.27% to 10.91% (35)
----
583
====
F-14
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Notes to Combined Financial Statements
MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars, except stock option data)
8 LONG-TERM OBLIGATION
During 1998, AEAT entered into an agreement to acquire certain intellectual
property rights in exchange for an obligation to pay 1.0 million pounds
sterling ("GBP") ($1.68 million) over a 10 year period ending March 31,
2009. Under the agreement, the non-interest bearing obligation was to be
repaid by annual payments that were calculated as a percentage of certain
specified product revenues, with any unpaid balance payable in full by
April 30, 2009. By March 31, 2002, GBP 182 of the original obligation had
been repaid. In April 2002, the original agreement was amended and a
repayment schedule was adopted whereby the division will pay GBP 150 in
2003 and instalments of approximately GBP 134 per year thereafter, until
the GBP 1.0 million obligation is repaid.
Since the long-term obligation is non-interest bearing, the carrying value
of the obligation at March 31, 2002 has been determined by discounting the
repayment stream under the April 2002 amendment.
GBP $
Remaining obligation at March 31, 2002 818 1,165
Less: Imputed interest at 9% (185) (263)
---------------------
Discounted long-term obligation 633 902
Less: Current portion (146) (208)
---------------------
Long-term obligation, less current portion 487 694
=====================
Interest expense for the year ended March 31, 2002 includes $67 for
accretion of the long-term obligation.
9 STOCK-BASED COMPENSATION PLANS
a) STOCK APPRECIATION RIGHT ("SAR") PLAN
Employees of the division participate in the AEAT International
Savings Related Cash Plan (ISRCP), a SAR plan. Under this plan,
employees contribute a fixed monthly amount to a savings plan account
over 3 years. Maximum contributions to the plan are defined by the
plan. At the end of 3 years the employee receives a cash sum equal to
the amount by which the shares in AEAT have increased in value over
three years (less transaction charges) in addition to their original
investment plus interest.
b) INTERNATIONAL SAVINGS RELATED OPTION PLAN (ISROP)
The ISROP is an AEAT plan which gives executive directors and eligible
employees an option to purchase shares at a fixed discounted price.
The exercise price is based on the market value of the shares at the
commencement of the savings contract, less a 20% discount. Under this
plan, participants contribute a fixed monthly amount to a savings plan
account over 3 years. Maximum contributions to the plan are defined by
the plan. At the end of the savings plan, each participant is able to
buy shares in AEAT with the savings and interest at the exercise
price. If the options are not exercised the participant receives the
balance of their savings account as a cash refund.
F-15
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Notes to Combined Financial Statements
MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars, except stock option data)
c) AEAT SHARE OPTION PLAN
In July 1999, AEAT established a plan under which options to purchase
shares are granted to certain employees of the division (excluding
Executive Directors). At March 31, 2002, Hyprotech employees held
awards for 41,000 options under this plan at an option price of GBP
3.675. The vesting period of the options are subject to achieving
specified AEAT share price performance criteria over the period ending
March 31, 2003.
In July 2000, AEAT awarded further options and, with shareholder
approval, opened the scheme to Executive Directors. At March 31, 2002,
Hyprotech employees held awards for 65,000 options under this plan at
an option price of GBP 3.975. The vesting period of the options are
subject to achieving specified performance criteria related to AEAT
earnings per share growth targets over a three-year performance period
starting April 1, 2000.
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE
GBP
Outstanding - March 31, 2001 121,994 3.85
Cancelled (15,710) 3.82
----------------------------
Outstanding - March 31, 2002 106,284 3.86
============================
No stock options are exercisable at March 31, 2002. The weighted
average remaining contractual life of the stock options at March 31,
2002 is 7.69 years.
d) FAIR VALUE OF STOCK-BASED COMPENSATION
SFAS No. 123 Accounting for Stock-Based Compensation requires the
measurement of the fair value of all stock-based compensation plans to
be included in the statement of operations or disclosed in the notes
to financial statements. The division has determined that it will
account for stock-based compensation for employees under APB No. 25,
Accounting for Stock Issued to Employees, and elect the
disclosure-only alternative under SFAS No. 123.
Under the APB No. 25 method, the compensation expense was $nil for the
year ended March 31, 2002. Had compensation cost for the division's
stock-based compensation plans been determined based on fair value as
prescribed in SFAS No. 123, the division's net loss would have been as
follows:
$
Net loss
As reported 870
Pro forma 1,109
F-16
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Notes to Combined Financial Statements
MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars, except stock option data)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions:
Risk-free rates 4.94 - 6.22%
Expected yield None
Expected life 3 years
Expected volatility 98%
10 INCOME TAXES
Loss before recovery of income taxes consists of the following:
$
Canadian operations 398
Foreign operations 1,073
-----
1,471
=====
The recovery of income taxes shown in the division's combined statements of
operations consists of the following:
$
Current
Canadian (1,115)
Foreign 42
Deferred
Canadian 257
Foreign 215
----
Total recovery of income taxes (601)
====
The recovery of income taxes differs from the Canadian statutory rate due
to the following:
$
Income tax recovery at Canadian statutory rate,
41.12% (605)
Foreign tax differential 153
Investment tax credits (653)
Permanent differences, net 145
Valuation allowance and other 359
----
(601)
====
F-17
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Notes to Combined Financial Statements
MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars, except stock option data)
The components of the net deferred tax liability recognized in the
division's combined balance sheet, including the approximate tax effect of
each type of temporary difference, are as follows:
$
DEFERRED INCOME TAX ASSETS RESULTING FROM:
Property and equipment 209
Non-capital loss carry forwards 2,010
Other temporary differences 390
------
2,609
Valuation allowance (1,706)
------
903
------
DEFERRED INCOME TAX LIABILITIES RESULTING FROM:
Intangible assets (207)
Investment tax credits recoverable (1,317)
------
(1,524)
------
Deferred income tax (621)
======
The investment tax credits and non-capital loss carry-forwards expire at
various dates from 2003 through 2010. Due to the uncertainty surrounding
the realization and timing of these tax attributes, the division has
recorded a valuation allowance of $1,706. The net recognited deferred tax
liability arise in the same tax jurisdiction and as a result have been
offset.
11 COMMITMENTS AND CONTINGENCIES
a) The division leases its facilities and various office equipment under
non-cancellable operating leases with terms in excess of one year.
Rent expense charged to operations was approximately $1,764 for the
year ended March 31, 2002. Future minimum lease payments under these
leases as of March 31, 2002 are as follows:
$
2003 2,069
2004 1,179
2005 51
2006 18
F-18
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Notes to Combined Financial Statements
MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars, except stock option data)
b) The division has entered into agreements with seven executive officers
providing for the payment of cash and other benefits upon a change in
control. Payment under these agreements would consist of a lump sum
approximately equal to each executive's annual base salary plus bonus.
c) Additionally, several employees of the division have severance
agreements which entitle them to cash payments in the event of
employment termination. Payments in connection with these agreements
are in the range of one month to one year's base salary plus bonus
for specified employees.
12 BENEFIT PLANS
a) AEA TECHNOLOGY PENSION SCHEME
Certain employees of the division are members of the AEA Technology
Pension Scheme. Pension benefits are based upon salary and years of
service. The division's allocation of the associated periodic benefit
pension cost has been calculated based on the contributions made to
the scheme by the division during the year. The periodic benefit
pension cost for the year ended March 31, 2002 was $117.
b) DEFINED CONTRIBUTION PLANS
The division maintains three defined contribution benefit plans: a
401k plan, a Registered Retirement Savings Plan (RRSP) and a Deferred
Profit Sharing Plan (DPSP). Under these plans, employees may
contribute a percentage of their annual compensation to the plan up to
a certain maximum, as defined by the plan and the local tax
authorities. The division matches a percentage of employee
contributions under the 401k plan and the DPSP. Expenses incurred in
connection with the division's plans were $438 for 2002.
13 ACCRUED EXPENSES
$
Payroll and payroll-related benefits 2,622
Royalties 924
Outside commissions 1,920
Other 1,508
------
6,974
======
F-19
HYPROTECH DIVISION OF AEA TECHNOLOGY PLC
Notes to Combined Financial Statements
MARCH 31, 2002
--------------------------------------------------------------------------------
(in thousands of U.S. dollars, except stock option data)
14 RELATED PARTY TRANSACTIONS
The net balance due to AEAT and its subsidiaries is $4,421 at March 31,
2002. The purchase and sale agreement with Aspen limits the amount payable
by the division to AEAT and its subsidiaries to GBP 2,491 (approximately
$3,547).
Transactions with AEAT and its subsidiaries during the year were as
follows: transfers of software licenses revenue to entities outside of the
division ($121), cost of software licenses ($77), sales and marketing
($125), general and administrative ($1,174), interest income ($12) and
interest expense ($65).
AEA Technology Canada Ltd pays interest on cash advances from AEAT at
Canadian Prime Rate less 1%. All other related party balances are
non-interest bearing, unsecured and repayable on demand.
F-20
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined consolidated balance
sheet as of March 31, 2002 and the unaudited pro forma condensed combined
consolidated statements of operations for the year and nine month periods ended
June 30, 2001 and March 31, 2002 are based on the historical financial
statements of Aspen and Hyprotech after giving effect to the acquisition as a
purchase of Hyprotech by Aspen using the purchase method of accounting and the
assumptions and adjustments described in the accompanying notes to the unaudited
pro forma condensed combined consolidated financial statements.
The unaudited pro forma condensed combined consolidated balance sheet as of
March 31, 2002 is presented to give effect to the proposed acquisition as if it
occurred on March 31, 2002. The unaudited pro forma condensed combined
consolidated statement of operations of Aspen and Hyprotech for the year ended
June 30, 2001 is presented as if the combination had taken place on July 1, 2000
and due to different fiscal period ends, combines the historical results of
Aspen for the year ended June 30, 2001 and the historical results of Hyprotech
for the year ended March, 31, 2001. The unaudited condensed combined
consolidated statement of operations of Aspen and Hyprotech for the nine months
is presented as if the combination had taken place on July 1, 2001 and combines
the historical results of Aspen and Hyprotech for the nine months ended.
Under the purchase method of accounting, the total estimated purchase
price, calculated as described in Note 1 to these unaudited pro forma condensed
combined consolidated financial statements, is allocated to the net tangible and
intangible assets of Hyprotech acquired in connection with the acquisition,
based on their fair values as of the completion of the acquisition. Independent
valuation specialists are currently conducting an independent valuation in order
to assist management of Aspen in determining the fair values of a significant
portion of these assets. The preliminary work performed by the independent
valuation specialists has been considered in management's estimates of the fair
values reflected in these unaudited pro forma condensed combined consolidated
financial statements. A final determination of these fair values, which cannot
be made prior to the completion of the acquisition, will include management's
consideration of a final valuation prepared by the independent valuation
specialists. This final valuation will be based on the actual net tangible and
intangible assets of Hyprotech that exist as of the date of completion of the
acquisition.
Aspen is using the net proceeds from its third quarter preferred stock sale
of approximately $56.7 million and its fourth quarter common stock sale of
approximately $48.0 million to finance this acquisition. The effects of these
transactions have been reflected in the accompanying pro forma condensed
combined consolidated financial statements, as if the common stock transaction
had occurred on March 31, 2002 for balance sheet purposes and as if the
preferred stock and common stock sales had occurred at the beginning of each
statement of operations period.
As part of the acquisition, Aspen management intends to combine certain of
its resources and activities with those of Hyprotech and plans to reduce overall
staff of the merged group. Additionally, certain facilities will be closed down
as Aspen and Hyprotech staff are consolidated. Based on these plans and in
accordance with Emerging Issues Task Force (EITF) Issue No. 95-3 Aspen has
accrued the costs related to the Hyprotech facilities and employees costs as
part of the purchase price. This has resulted in an accrual of $2.1 million
consisting of $1.1 million of employee severance and $1.0 million of facility
consolidation costs. Costs related to reductions in Aspen's employees or
facilities will be recorded as part of Aspen's previously announced fiscal 2002
fourth quarter restructuring.
These unaudited pro forma condensed combined consolidated financial
statements have been prepared based on preliminary estimates of fair values.
Amounts preliminarily allocated to intangible assets with
F-21
indefinite lives may significantly decrease or be eliminated and amounts
allocated to intangible assets with definite lives may increase significantly,
which could result in a material increase in amortization of intangible assets.
Therefore, the actual amounts recorded as of the completion of the acquisition
may differ materially from the information presented in these unaudited pro
forma condensed combined consolidated financial statements. In addition to the
receipt of the final valuation, the impact of ongoing integration activities,
the timing of completion of the acquisition and other changes in Hyprotech's net
tangible and intangible assets which occur prior to completion of the
acquisition could cause material differences in the information presented.
The unaudited pro forma condensed combined consolidated financial
statements should be read in conjunction with the historical consolidated
financial statements and accompanying notes of Aspen and Hyprotech incorporated
by reference into, or included in, this Form 8-K. The unaudited pro forma
condensed combined consolidated financial statements are not intended to
represent or be indicative of the consolidated results of operations or
financial condition of Aspen that would have been reported had the acquisition
been completed as of the dates presented, and should not be taken as
representative of the future consolidated results of operations or financial
condition of Aspen.
F-22
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
MARCH 31, 2002
(in thousands)
HISTORICAL PRO FORMA PRO FORMA
----------
ASPENTECH HYPROTECH ADJUSTMENTS(1) COMBINED
--------- --------- -------------- --------
ASSETS
Cash, cash equivalents and short-term investments $ 117,798 $ 7,042 $ (48,687)(A) $ 76,153
Accounts receivable and unbilled receivables, net 113,540 16,667 -- 130,207
Current portion of long-term installments receivable, net 22,865 -- 14,319 (B) 37,184
Deferred tax asset 3,252 4,366 -- 7,618
Prepaid expenses and other current assets 21,304 3,339 (3,504)(C) 21,139
--------- --------- --------- ---------
Total current assets 278,759 31,414 (37,872) 272,301
--------- --------- --------- ---------
Long-term installments receivable, net of current portion 32,343 -- 25,042 (B) 57,385
Property & equipment, net 44,666 2,861 -- 47,527
Amortizable intangible assets, net 56,308 2,131 20,969 (D) 79,408
Goodwill and intangibles with indefinite lives 24,276 19,855 29,691 (D) 73,822
Deferred tax asset 18,509 -- -- 18,509
Other assets 14,885 -- -- 14,885
--------- --------- --------- ---------
$ 469,746 $ 56,261 $ 37,830 $ 563,837
========= ========= ========= =========
LIABILITIES
Current portion of long-term debt $ 3,063 $ 568 $ -- $ 3,631
Current portion of obligation subject to common stock settlement 29,600 -- -- 29,600
Accounts payable and accrued expenses 46,619 11,702 10,696 (F) 69,017
Unearned revenue 21,308 -- -- 21,308
Deferred revenue 29,050 19,301 (10,776)(G) 37,575
Deferred tax liability -- 621 7,030 (E) 7,651
--------- --------- --------- ---------
Total current liabilities 129,640 32,192 6,950 168,782
--------- --------- --------- ---------
Long-term debt and obligations, less current maturities 5,247 917 -- 6,164
--------- --------- --------- ---------
5 1/4 % Convertibles subordinated debentures 86,250 -- -- 86,250
--------- --------- --------- ---------
Deferred revenue, less current portion 4,983 1,847 4,643 (G) 11,473
--------- --------- --------- ---------
Deferred tax liability -- -- 14,442 14,442
--------- --------- --------- ---------
Other liabilities 635 -- -- 635
--------- --------- --------- ---------
STOCKHOLDERS' EQUITY
Preferred stock 50,743 -- -- 50,743
Common stock related 242,855 -- 48,000 (A) 290,855
Other equity (50,607) 21,305 (36,205)(H) (65,507)
--------- --------- --------- ---------
Total stockholders' equity 242,991 21,305 11,795 276,091
--------- --------- --------- ---------
$ 469,746 $ 56,261 $ 37,830 $ 563,837
========= ========= ========= =========
(1) The letters refer to a description of the adjustments in Note 2.
See accompanying notes to unaudited pro forma
condensed combined consolidated financial statements.
F-23
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 12 MONTHS ENDED JUNE 30, 2001 AND MARCH 31, 2001
(In thousands, except per share amounts)
HISTORICAL
----------
JUNE 30, 2001 MARCH 31, 2001 PRO FORMA PRO FORMA
ASPENTECH HYPROTECH ADJUSTMENTS(1) COMBINED
--------- --------- ----------- --------
REVENUES:
Software licenses $ 147,448 $ 27,403 $ -- $ 174,851
Services 174,515 21,374 -- 195,889
--------- --------- --------- ---------
Total revenues 321,963 48,777 -- 370,740
--------- --------- --------- ---------
EXPENSES:
Cost of software licenses 11,856 1,957 -- 13,813
Cost of services 109,634 7,223 -- 116,857
Selling and marketing 113,608 18,403 -- 132,011
Research and development 68,913 12,221 -- 81,134
General and administrative 30,643 15,796 (2,240)(D) 44,199
Restructuring charges 6,969 -- -- 6,969
Charge for in-process research and development 9,915 -- -- 9,915
--------- --------- --------- ---------
Total costs and expenses 351,538 55,600 (2,240) 404,898
--------- --------- --------- ---------
Income (loss) from operations (29,575) (6,823) 2,240 (34,158)
Other income (expense), net 669 111 -- 780
Write-off of investment (5,000) -- -- (5,000)
Interest income, net 4,799 -- -- 4,799
--------- --------- --------- ---------
Income (loss) before provision for
(benefit from) income taxes (29,107) (6,712) 2,240 (33,579)
Provision for (benefit from)
income taxes (8,732) (2,684) 1,342 (I) (10,074)
--------- --------- --------- ---------
Net income (loss) (20,375) (4,028) 898 (23,505)
Accretion of preferred stock discount and dividend -- -- (8,872)(J) (8,872)
--------- --------- --------- ---------
Net income (loss) applicable to common stockholders $ (20,375) $ (4,028) $ (7,974) $ (32,377)
========= ========= ========= =========
Basic and diluted earnings (loss) per share:
Net income (loss) per share $ (0.68) $ (0.69)
Accretion of preferred stock discount and dividend -- (0.26)
--------- ---------
Net income (loss) per share applicable to common stockholders $ (0.68) $ (0.95)
========= =========
Weighted average shares outstanding - basic and diluted 29,941 4,167(K) 34,108
========= ========= =========
----------
(1) The letters refer to a description of the adjustments in Note 2.
See accompanying notes to unaudited pro forma
condensed combined consolidated financial statements.
F-24
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 9 MONTHS ENDED MARCH 31, 2002
(In thousands, except per share amounts)
HISTORICAL PRO FORMA PRO FORMA
----------
ASPENTECH HYPROTECH ADJUSTMENTS(1) COMBINED
--------- --------- ----------- --------
REVENUES:
Software licenses $ 96,550 $ 22,766 $ -- $ 119,316
Services 140,102 15,915 -- 156,017
--------- --------- --------- ---------
Total revenues 236,652 38,681 -- 275,333
--------- --------- --------- ---------
EXPENSES:
Cost of software licenses 8,663 682 -- 9,345
Cost of services 90,372 6,728 -- 97,100
Selling and marketing 84,597 15,367 -- 99,964
Research and development 55,413 9,398 -- 64,811
General and administrative 23,620 7,603 1,963(D) 33,186
Restructuring charges 2,142 -- -- 2,142
Charge for in-process research and development -- -- -- --
--------- --------- --------- ---------
Total costs and expenses 264,807 39,778 1,963 306,548
--------- --------- --------- ---------
Income (loss) from operations (28,155) (1,097) (1,963) (31,215)
Other income (expense), net (505) (11) -- (516)
Interest income, net 999 (74) -- 925
--------- --------- --------- ---------
Income (loss) before provision for
(benefit from) income taxes (27,661) (1,182) (1,963) (30,806)
Provision for (benefit from)
income taxes (8,299) (642) (294)(I) (9,235)
--------- --------- --------- ---------
Net income (loss) (19,362) (540) (1,669) (21,571)
Accretion of preferred stock discount and dividend (672) -- (5,908)(J) (6,580)
--------- --------- --------- ---------
Net income (loss) applicable to common stockholders $ (20.034) $ (540) $ (7,577) $ (28,151)
========= ========= ========= =========
Basic and diluted earnings (loss) per share:
Net income (loss) per share $ (0.61) $ (0.60)
Accretion of preferred stock discount and dividend (0.02) (0.18)
--------- ---------
Net income (loss) per share applicable to common stockholders $ (0.63) $ (0.78)
========= =========
Weighted average shares outstanding - basic and diluted 31,768 4,167(K) 35,935
========= ========= =========
-----------
(1) The letters refer to a description of the adjustments in Note 2.
See accompanying notes to unaudited pro forma
condensed combined consolidated financial statements.
F-25
Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Statements
(1) Basis of Pro Forma Presentation
On May 10, 2002, Aspen entered into a share purchase agreement with AEA
Technology plc., an English private limited company, under which Aspen
agreed to acquire the capital stock of Hyprotech Ltd. and other,
affiliated subsidiaries of AEA for a purchase price of 67.5 million
pounds sterling (approximately $98.5 million, based on the exchange
rate as of May 10, 2002), subject to finalization of certain defined
purchase price adjustments which are currently estimated at a reduction
of approximately $1.8 million. Under the terms of the share purchase
agreement, the acquisition remains subject to a number of conditions.
The AEA shareholders approved the acquisition in a vote held on May 30,
2002.
The purchase price and terms for the transaction were determined in
arm's-length negotiations. The Hyprotech acquisition will be accounted
for as a purchase in accordance with Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinations, and accordingly, the
purchase price has been allocated to the assets and liabilities of
Hyprotech based on their fair value.
The estimated total purchase price of the Hyprotech acquisition is as
follows (in thousands):
Cash to be paid $ 96,687
Estimated direct costs 9,213
Accrual for reduction of facility and employee costs 2,100
--------
Total estimated purchase price $108,000
========
Under the purchase method of accounting, the total estimated purchase
price as shown in the table above is allocated to Hyprotech's net
tangible and intangible assets based on their estimated fair values as
of the date of the completion of the acquisition. Based on the
preliminary independent valuation, and subject to material changes upon
receipt of the final valuation and other factors as described in the
introduction to these unaudited pro forma condensed combined
consolidated financial statements the preliminary estimated purchase
price is allocated as follows (in thousands):
Preliminary estimated purchase price allocation:
Net tangible assets $ 27,384
Amortizable intangible assets 23,100
Goodwill and intangible assets with indefinite lives 49,546
Deferred taxes related to Amortizable intangible assets (6,930)
In-process research and development 14,900
--------
Total preliminary estimated purchase price allocation $108,000
========
F-26
Of the total estimated purchase price, a preliminary estimate of
$27.4 million has been allocated to net tangible assets acquired and
approximately $23.1 million has been allocated to amortizable intangible assets
acquired. The depreciation and amortization related to the fair value adjustment
to net tangible assets and the amortization related to the amortizable
intangible assets are reflected as pro forma adjustments to the unaudited pro
forma condensed combined consolidated statements of operations.
Acquired technology comprises products that have reached technological
feasibility. At the acquisition date Hyprotech is conducting design,
development, engineering and testing activities associated with the completion
of its next-generation product, and also including enhancements to its current
product family. The next-generation product efforts are focused primarily on
architectural framework development. Aspen expects to amortize the developed and
core technology and patents on a straight-line basis over an estimated life of 6
years.
Backlog represents existing contracts that relate primarily to underlying
software maintenance services provided by Hyprotech. These software maintenance
services include unspecified rights to future product upgrades and releases as
well as telephone support services. Aspen expects to amortize the fair value of
these assets, on a declining basis over an estimated life of three years, the
period in which most of the future income under the existing contracts will be
recognized.
Of the total estimated purchase price, a preliminary estimate of $49.5
million has been allocated to goodwill and intangible assets with indefinite
lives. Goodwill represents the excess of the purchase price of an acquired
business over the fair value of the underlying net tangible and intangible
assets.
In accordance with the SFAS No. 142, "Goodwill and Other Intangible
Assets," goodwill and intangible assets with indefinite lives resulting from
business combinations completed subsequent to June 30, 2001 will not be
amortized but instead will be tested for impairment at least annually (more
frequently if certain indicators are present). In the event that the management
of the combined company determines that the value of goodwill or intangible
assets with indefinite lives has become impaired, the combined company will
incur an accounting charge for the amount of impairment during the fiscal
quarter in which the determination is made.
Of the total estimated purchase price, a preliminary estimate of $14.9
million has been allocated to in-process research and development and will be
charged to expense in the period during which the acquisition is completed. Due
to its non-recurring nature, the in-process research and development expense has
been excluded in the unaudited pro forma condensed combined consolidated
statement of operations.
Hyprotech is currently developing new products that qualify as in-process
research and development in multiple product areas. Projects which qualify as
in-process research and development represent those that have not yet reached
technological feasibility. Technological feasibility is defined as being
equivalent to completion of a beta-phase working prototype in which there is
no remaining risk relating to the development.
F-27
Hyprotech is currently involved in numerous research and development
projects, which are focused on architectural framework, as well as to improving
product performance and broadening features and functionalities. There is a risk
that these developments and enhancements will not be competitive with other
products using alternative technologies that offer comparable functionality.
The value assigned to in-process research and development was determined
by considering the importance of each project to the overall development plan,
estimating costs to develop the purchased in-process research and development
into commercially viable products, estimating the resulting net cash flows from
the projects when completed and discounting the net cash flows to their present
value. The revenue estimates used to value the purchased in-process research
and development were based on estimates of relevant market sizes and growth
factors, expected trends in technology and the nature and expected timing of
new product introductions by Hyprotech and its competitors.
The rates utilized to discount the net cash flows to their present value
are based on Hyprotech's weighted average cost of capital. The weighted average
cost of capital was adjusted to reflect the difficulties and uncertainties in
completing each project and thereby achieving technological feasibility, the
percentage of completion of each project, anticipated market acceptance and
penetration, market growth rates and risks related to the impact of potential
changes in future target markets. Based on the these factors, discount rates
that range from 25% to 40% were deemed appropriate for valuing the in-process
research and development.
The estimates used in valuing in-process research and development were
based upon assumptions believed to be reasonable but which are inherently
uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and
unanticipated events and circumstances may occur. In addition, some projects
which are currently in process may not be in process at completion of the
acquisition and new projects may be started prior to completion of the
acquisition which may be in process at the completion of the acquisition.
Accordingly, actual results may vary from the projected results.
Aspen's consolidated service revenues for the year ended June 30, 2001
included in the pro forma combined condensed consolidated statement of operation
do not agree with the corresponding consolidated service revenues reported in
its Form 10-K. Aspen has reflected the reclassification required by EITF Issue
No. 01-14 for out of pocket expenses which resulted in an increase in service
revenue and service costs of approximately $11.3 million. Certain
reclassifications have been made to Hyprotech's historical balance sheet
presentation to conform with Aspen's presentation.
2. PRO FORMA ADJUSTMENTS
Pro forma adjustments are necessary to reflect the estimated purchase
price, to adjust amounts related to Hyprotech's net tangible and intangible
assets to a preliminary estimate of their fair values, to reflect the
amortization expense related to the estimated amortizable intangible assets, to
reflect changes in depreciation and amortization expense resulting from the
estimated fair value adjustments to net tangible assets and to reflect the
income tax effect related to the pro forma adjustments.
Intercompany balances or transactions between Aspen and Hyprotech were not
significant. No pro forma adjustments were required to conform Hyprotech's
accounting policies to Aspen's accounting policies.
F-28
Aspen has not identified any preacquisition contingencies where the related
asset, liability or impairment is probable and the amount of the asset,
liability or impairment can be reasonably estimated. However, there are certain
unasserted claims which may when resolved result in a purchase price adjustment.
Prior to the end of the purchase price allocation period, if information becomes
available which would indicate it is probable that such events have occurred and
the amounts can be reasonably estimated, such items will be included in the
purchase price allocation.
The pro forma adjustments included in the unaudited pro forma condensed
combined consolidated financial statements are as follows:
(A) Adjustment to record the cash paid to acquire Hyprotech of $96.7
million net of cash received from sale of common stock for $48.0
million.
(B) Adjustment to record the fair market value of payments due Hyprotech
under existing customer contracts which had not become due or recorded
as revenue as of March 31, 2002.
(C) Adjustment to (1) remove $2.9 million of costs capitalized by
Hyprotech that relate to deferred revenue which will be eliminated in
purchase accounting and (2) remove $617,000 of direct acquisition
related costs which have been capitalized by Aspen.
(D) Adjustment to reflect the preliminary estimate of the fair value of
amortizable intangible assets, and goodwill and intangible assets with
indefinite lives and the resulting change in amortization expense, as
follows (in thousands):
Estimated
Hyprotech Preliminary Increase (Decrease) in Useful
Historical Fair Increase Amortization Life
Amount Value (Decrease) Year 9 Months (Years)
---------- ----------- ---------- ------------ -------- -------
Acquired technology..... $ 2,131 $22,100 $19,969 $ 2,116 $1,588 6
Backlog and other....... -- 1,000 1,000 500 375 3
------- ------- ------- ------- ------
Subtotal ............... $ 2,131 $23,100 $20,969 $ 2,616 $1,963
======= ======= ======= ======= ======
Goodwill................. $17,067 $49,546 $32,479 $(3,562) $ -- N/A
Intangible assets with
indefinite lives........ 2,788 -- (2,788) (1,294) -- N/A
------- ------- ------- ------- ------
Subtotal................. $19,855 $49,546 $29,691 $(4,856) $ --
======= ======= ======= ======= ======
Net change in amortization $(2,240) $1,963
======= ======
F-29
(E) Adjustment to record the deferred tax effect of the differences between the
carrying amount of certain assets and their fair market value. Upon the
finalization of the combined company's legal entity structure and the
restructuring plans, the realizability of the combined company's
deferred tax assets may be adjusted to reflect the combined company's
ability to utilize certain foreign net operating loss carryforwards and
certain other tax losses and credits.
(F) Adjustment to reflect the estimated direct transaction costs and costs
related to the planned reduction in Hyprotech employees and facility.
(G) Adjustment to record the difference between the preliminary estimate of the
fair value and the historical amount of Hyprotech's deferred revenue.
(H) Adjustments to other equity (in thousands):
To record the preliminary estimate of the fair value of in-process
research and development........................................ $(14,900)
To eliminate Hyprotech's historical stockholders' equity......... (21,305)
--------
$(36,205)
========
(I) Adjustment to record the income tax effect of the pro forma adjustments
and combination.
(J) Record accretion on preferred stock as if the preferred stock was
outstanding for the entire period.
(K) Adjustment to reflect the effect of the common stock issuance as if it was
outstanding for the entire period.
F-30
EXHIBIT INDEX
Exhibit No. Description
10.1 Share Purchase Agreement dated as of May 10, 2002 between
Aspen Technology, Inc. and AEA Technology plc
23.1 Consent of PricewaterhouseCoopers LLP
F-31