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ANSYS INC
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-20853
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
2600 ANSYS Drive, Canonsburg, PA
(Registrant's telephone number, including area code)
Indicate by 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.
Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2). (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of shares of the Registrant's Common Stock, par value $.01 per share, outstanding as of October 31, 2015 was 88,992,196 shares.
ANSYS, INC. AND SUBSIDIARIES
UNAUDITED FINANCIAL INFORMATION
Page No.
Condensed Consolidated Balance Sheets – September 30, 2015 and December 31, 2014
Condensed Consolidated Statements of Income – Three and Nine Months Ended September 30, 2015 and 2014
Condensed Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2015 and 2014
Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2015 and 2014
Notes to Condensed Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Management's Discussion and Analysis of Financial Condition and Results of Operations
Controls and Procedures
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
PART I – UNAUDITED FINANCIAL INFORMATION
Item 1.Financial Statements:
Accounts receivable, less allowance for doubtful accounts of $5,400 and $5,500, respectively
Other receivables and current assets
Other intangible assets, net
Other long-term assets
Accrued bonuses and commissions
Accrued income taxes
Other accrued expenses and liabilities
Long-term liabilities:
Preferred stock, $.01 par value; 2,000,000 shares authorized; zero shares issued or outstanding
Common stock, $.01 par value; 300,000,000 shares authorized; 93,236,023 shares issued
Treasury stock, at cost: 4,222,634 and 2,470,675 shares, respectively
Total stockholders' equity
The accompanying notes are an integral part of the condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Cost of sales:
Total cost of sales
Selling, general and administrative
Other (expense) income, net
Income before income tax provision
Earnings per share – basic:
Basic earnings per share
Weighted average shares – basic
Earnings per share – diluted:
Diluted earnings per share
Weighted average shares – diluted
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Other comprehensive loss:
Foreign currency translation adjustments
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Deferred income tax benefit
Provision for bad debts
Excess tax benefits from stock-based compensation
Changes in operating assets and liabilities:
Accounts payable, accrued expenses and current liabilities
Acquisitions, net of cash acquired
Other investing activities
Net cash used in investing activities
Principal payments on capital leases
Purchase of treasury stock
Restricted stock withholding taxes paid in lieu of issued shares
Contingent consideration payments
Proceeds from shares issued for stock-based compensation
Net cash used in financing activities
Effect of exchange rate fluctuations on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosures of cash flow information:
Income taxes paid
Fair value of stock options and restricted stock awards assumed in connection with acquisitions
Construction-in-progress - leased facility
ANSYS, Inc. (hereafter the "Company" or "ANSYS") develops and globally markets engineering simulation software and technologies widely used by engineers, designers, researchers and students across a broad spectrum of industries and academia, including aerospace, automotive, manufacturing, electronics, biomedical, energy and defense.
As of January 1, 2015, the Company began to operate as one segment when two legal entities merged and a third insignificant acquired segment was no longer separately reported internally. Given the integrated approach to the multi-discipline problem-solving needs of the Company's customers, a single sale of software may contain components from multiple product areas and include combined technologies. The Company also has a multi-year product and integration strategy that will result in new, combined products or changes to or discontinuation of the historical product offerings. As a result, it is impracticable for the Company to provide accurate historical or current reporting among its various product lines.
The accompanying unaudited condensed consolidated financial statements have been prepared by ANSYS in accordance with accounting principles generally accepted in the United States for interim financial information for commercial and industrial companies and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the accompanying statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements (and notes thereto) included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014. The condensed consolidated December 31, 2014 balance sheet presented is derived from the audited December 31, 2014 balance sheet included in the most recent Annual Report on Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements have been included, and all adjustments are of a normal and recurring nature. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for any future period.
Cash and cash equivalents consist primarily of highly liquid investments such as deposits held at major banks and money market mutual funds. Cash equivalents are carried at cost, which approximates fair value. The Company's cash and cash equivalent balances comprise the following:
(in thousands, except percentages)
Cash accounts
The Company's money market mutual fund balances are held in various funds of a single issuer.
2015 Acquisitions
During the nine months ended September 30, 2015, the Company completed various acquisitions to accelerate development of new and innovative products to the marketplace while lowering design and engineering costs for customers. The acquisitions were not individually significant. The combined purchase price of the acquisitions was approximately $44.4 million, which included cash and equity.
The operating results of each acquisition have been included in the Company's condensed consolidated financial statements since each respective date of acquisition. The effects of the business combinations were not individually material to the Company's consolidated results of operations.
The total consideration transferred was allocated to the assets and liabilities of each acquisition based on management's estimates of the fair values of the assets acquired and liabilities assumed. The allocation included $19.1 million to identifiable intangible assets to be amortized over periods between five and ten years, and $28.5 million to goodwill, inclusive of any measurement-period adjustments recorded since the respective acquisition dates. The fair values of the assets acquired and liabilities assumed are based on provisional calculations and the estimates and assumptions for these items are subject to change during the measurement period (up to one year from the acquisition date) as the Company obtains new information about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.
In valuing deferred revenue on the balance sheet as of each acquisition date, the Company applied the fair value provisions applicable to the accounting for business combinations. Acquired deferred revenues with a combined historical carrying value of $0.9 million were ascribed no fair value on the opening balance sheets. As a result, the Company's post-acquisition revenue will be less than the sum of what would have otherwise been reported by ANSYS and each acquiree absent the acquisitions. The impacts on reported revenue for the three and nine months ended September 30, 2015 were $0.2 million and $0.6 million, respectively. The expected impacts on reported revenue are $0.2 million for the quarter ending December 31, 2015 and $0.1 million for the year ending December 31, 2016.
SpaceClaim Corporation
On April 30, 2014, the Company completed the acquisition of SpaceClaim Corporation ("SpaceClaim"), a leading provider of 3-D modeling technology. Under the terms of the agreement, the Company acquired SpaceClaim for a purchase price of $85.0 million, which was paid almost entirely in cash.
SpaceClaim's software provides customers with a powerful and intuitive 3-D direct modeling solution to author new concepts and then leverage the power of simulation to rapidly iterate on these designs to drive innovation. The broad appeal of the SpaceClaim technology can help the Company deliver simulation tools to any engineer in any industry.
The operating results of SpaceClaim have been included in the Company's condensed consolidated financial statements since April 30, 2014, the date of acquisition.
The assets and liabilities of SpaceClaim have been recorded based upon management's estimates of their fair market values as of the acquisition date. The following tables summarize the fair value of consideration transferred and the fair values of identified assets acquired and liabilities assumed at the acquisition date, as adjusted within the one-year measurement period:
Fair Value of Consideration Transferred:
ANSYS replacement stock options
Total consideration transferred at fair value
Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
Accounts receivable and other tangible assets
Developed technology (10-year life)
Customer relationships (6-year life)
Trade name (6-year life)
Contract backlog (6-year life)
Non-compete agreement (2-year life)
Net deferred tax assets
Accounts payable and other liabilities
Total identifiable net assets
The goodwill, which is not tax-deductible, is attributed to intangible assets that do not qualify for separate recognition, including the assembled workforce of the acquired business and the synergies expected to arise as a result of the acquisition of SpaceClaim.
During the one-year measurement period since the SpaceClaim acquisition date, the Company adjusted the fair values of the assets acquired and liabilities assumed, with the offset recorded as a $4.8 million decrease to goodwill. These adjustments were made as the Company obtained new information about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.
In valuing deferred revenue on the SpaceClaim balance sheet as of the acquisition date, the Company applied the fair value provisions applicable to the accounting for business combinations. Acquired deferred revenue with a historical carrying value of $3.3 million was ascribed a fair value of $0.7 million on the opening balance sheet. As a result, the Company's post-acquisition revenue will be less than the sum of what would have otherwise been reported by ANSYS and SpaceClaim absent the acquisition. The impacts on reported revenue for the three and nine months ended September 30, 2015 were $0.1 million and $0.6 million, respectively.
Reaction Design
On January 3, 2014, the Company completed the acquisition of Reaction Design, a leading developer of chemistry simulation software. Under the terms of the agreement, the Company acquired Reaction Design for a purchase price of $19.1 million in cash. Reaction Design's solutions enable transportation manufacturers and energy companies to rapidly achieve their clean technology goals by automating the analysis of chemical processes via computer simulation and modeling solutions.
The operating results of Reaction Design have been included in the Company's condensed consolidated financial statements since January 3, 2014, the date of acquisition. The total consideration transferred was allocated to the assets and liabilities of Reaction Design based on management's estimates of the fair values of the assets acquired and liabilities assumed. The allocation included $7.0 million to identifiable intangible assets, including core technology, customer lists and trade names, to be amortized over periods between two and eleven years, and $9.2 million to goodwill, which is not tax-deductible. These amounts include measurement-period adjustments. During the one-year measurement period since the Reaction Design acquisition date, the Company adjusted the fair values of the assets acquired and liabilities assumed, with the offset recorded as an increase to goodwill of $1.9 million and a reduction in noncontrolling interest of $0.6 million. These adjustments were made
as the Company obtained new information about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.
In valuing deferred revenue on the Reaction Design balance sheet as of the acquisition date, the Company applied the fair value provisions applicable to the accounting for business combinations. Acquired deferred revenue with a historical carrying value of $2.3 million was ascribed no fair value on the opening balance sheet. As a result, the Company's post-acquisition revenue will be less than the sum of what would have otherwise been reported by ANSYS and Reaction Design absent the acquisition. The impact on reported revenue for the nine months ended September 30, 2015 was $0.2 million.
The Company's other receivables and current assets comprise the following balances:
Receivables related to unrecognized revenue
Income taxes receivable, including overpayments and refunds
Prepaid expenses and other current assets
Total other receivables and current assets
Receivables for unrecognized revenue represent the current portion of billings made for annual lease licenses and software maintenance that have not yet been recognized as revenue.
Basic earnings per share ("EPS") amounts are computed by dividing earnings by the weighted average number of common shares outstanding during the period. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive equivalents outstanding. To the extent stock options are anti-dilutive, they are excluded from the calculation of diluted EPS.
The details of basic and diluted EPS are as follows:
Weighted average shares outstanding – basic
Dilutive effect of stock plans
Weighted average shares outstanding – diluted
Anti-dilutive shares
Goodwill and Intangible Assets
The Company's intangible assets and estimated useful lives are classified as follows:
Amortized intangible assets:
Developed software and core technologies (3 – 11 years)
Customer lists and contract backlog (5 – 15 years)
Trade names (2 – 10 years)
Non-compete agreement (2 years)
Unamortized intangible assets:
The decrease in unamortized trade names in the table above was due to the determination that a trade name no longer had an indefinite life. Amortization expense for the intangible assets reflected above was $14.7 million and $16.3 million for the three months ended September 30, 2015 and 2014, respectively. Amortization expense for the intangible assets reflected above was $44.0 million and $45.6 million for the nine months ended September 30, 2015 and 2014, respectively.
As of September 30, 2015, estimated future amortization expense for the intangible assets reflected above is as follows:
Remainder of 2015
Thereafter
Total intangible assets subject to amortization
Indefinite-lived trade name
The changes in goodwill during the nine months ended September 30, 2015 and 2014 were as follows:
Beginning balance – January 1
Adjustments(1)
Ending balance – September 30
(1) In accordance with the accounting for business combinations, the Company recorded adjustments to goodwill for the effect of changes in the provisional fair values of the assets acquired and liabilities assumed during the measurement period (up to one year from the acquisition date) as the Company obtained new information about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.
During the first quarter of 2015, the Company completed the annual impairment test for goodwill and indefinite-lived intangible assets and determined that these assets had not been impaired as of the test date, January 1, 2015. The Company tested the previously unamortized trade name discussed above for impairment during the first quarter of 2015 and determined that its fair value exceeded its carrying value, so no impairment was recorded. No other events or circumstances changed during the nine months ended September 30, 2015 that would indicate that the fair values of the Company's reporting unit and indefinite-lived intangible asset are below their carrying amounts.
Fair Value Measurement
The valuation hierarchy for disclosure of assets and liabilities reported at fair value prioritizes the inputs for such valuations into three broad levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; or
Level 3: unobservable inputs based on the Company's own assumptions used to measure assets and liabilities at fair value.
A financial asset's or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following tables provide the assets and liabilities carried at fair value and measured on a recurring basis:
Fair Value Measurements at Reporting Date Using:
Quoted Prices in
Active Markets
Unobservable
Contingent consideration
The cash equivalents in the preceding tables represent money market mutual funds.
The short-term investments in the preceding tables represent deposits held by certain foreign subsidiaries of the Company. The deposits have fixed interest rates with maturity dates ranging from three months to one year.
The contingent consideration in the tables above represents potential future payments related to the EVEN - Evolutionary Engineering AG ("EVEN") acquisition in accordance with the 2013 merger agreement. The net present value calculations for the contingent consideration include significant unobservable inputs in the assumption that all remaining payments will be made, and, therefore, the liabilities were classified as Level 3 in the fair value hierarchy.
The following tables present the changes in the Company's Level 3 liabilities that are measured at fair value on a recurring basis during the three and nine months ended September 30, 2015 and 2014:
Fair Value Measurement Using
Significant Unobservable Inputs
Balance as of January 1, 2015
Interest expense and foreign exchange activity included in earnings
Balance as of March 31, 2015
Contingent payment
Balance as of June 30, 2015
Balance as of September 30, 2015
Contingent payments
The carrying values of cash, accounts receivable, accounts payable, accrued expenses, other accrued liabilities and short-term obligations approximate their fair values because of their short-term nature.
Revenue to external customers is attributed to individual countries based upon the location of the customer. Revenue by geographic area is as follows:
Property and equipment by geographic area is as follows:
Total property and equipment
Total stock-based compensation expense and its net impact on basic and diluted earnings per share are as follows:
Stock-based compensation expense before taxes
Related income tax benefits
Stock-based compensation expense, net of taxes
Net impact on earnings per share:
Stock Repurchase Program
Under the Company's stock repurchase program, the Company repurchased shares during the nine months ended September 30, 2015 and 2014, as follows:
Number of shares repurchased
Average price paid per share
In February 2015, the Company's Board of Directors increased the number of shares authorized for repurchase to a total of 5.0 million shares under the stock repurchase program. As of September 30, 2015, 3.1 million shares remained available for repurchase under the program.
Contingencies and Commitments
The Company is subject to various investigations, claims and legal proceedings that arise in the ordinary course of business, including commercial disputes, labor and employment matters, tax audits, alleged infringement of intellectual property rights and other matters. In the opinion of the Company, the resolution of pending matters is not expected to have a material, adverse effect on the Company's consolidated results of operations, cash flows or financial position. However, each of these matters is subject to various uncertainties and it is possible that an unfavorable resolution of one or more of these proceedings could materially affect the Company's results of operations, cash flows or financial position.
An Indian subsidiary of the Company received a formal inquiry after a service tax audit was held in 2011. The Company could incur tax charges and related liabilities, including those related to the service tax audit case, of approximately $6 million. The service tax issues raised in the Company's notice are very similar to the case, M/s Microsoft Corporation (I) (P) Ltd. Vs Commissioner of Service Tax, New Delhi, wherein the Delhi Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has passed a favorable ruling to Microsoft. The Company can provide no assurances on whether the Microsoft case's favorable ruling will be challenged in higher courts or on the impact that the present Microsoft case's decision will have on the Company's audit case. The Company is uncertain as to when the service tax audit will be completed.
The Company sells software licenses and services to its customers under proprietary software license agreements. Each license agreement contains the relevant terms of the contractual arrangement with the customer, and generally includes certain provisions for indemnifying the customer against losses, expenses and liabilities from damages that are incurred by or awarded against the customer in the event the Company's software or services are found to infringe upon a patent, copyright or other proprietary right of a third party. To date, the Company has not had to reimburse any of its customers for any losses related to these indemnification provisions and no material claims asserted under these indemnification provisions are outstanding as of September 30, 2015. For several reasons, including the lack of prior material indemnification claims, the Company cannot determine the maximum amount of potential future payments, if any, related to such indemnification provisions.
New Accounting Guidance
Measurement-period adjustments related to business combinations: In September 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments (ASU 2015-16). ASU 2015-16 requires adjustments to provisional amounts that are identified during the measurement period to be recognized in the period in which the adjustments are determined. The acquirer must record the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. Prior guidance required the restatement of prior periods if the adjustments impacted those periods. The guidance was early adopted by the Company during the quarter ended September 30, 2015 and applied prospectively. The impact on the Company's financial position, results of operations and cash flows was not material.
Revenue from contracts with customers: In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). ASU 2014-09 supersedes most current revenue recognition guidance, including industry-specific guidance. Previous guidance requires an entity to recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price to the buyer is fixed or determinable, and collectibility is reasonably assured. Under the new guidance, an entity is required to evaluate revenue recognition by identifying a contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when (or as) the entity satisfies a performance obligation. ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, delayed the effective date of ASU 2014-09 to annual periods beginning after December 15, 2017, including interim periods within that reporting period. Entities have the option of using a full retrospective, cumulative effect or modified approach to adopt ASU 2014-09. This update will impact the timing and amounts of revenue recognized. The Company is currently evaluating the effect that implementation of this update will have on its financial results upon adoption.
To the Board of Directors and Stockholders of
Canonsburg, Pennsylvania
We have reviewed the accompanying condensed consolidated balance sheet of ANSYS, Inc. and subsidiaries (the "Company") as of September 30, 2015, and the related condensed consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2015 and 2014, and of cash flows for the nine-month periods ended September 30, 2015 and 2014. These interim financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of ANSYS, Inc. and subsidiaries as of December 31, 2014, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 26, 2015, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2014 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
The Company's GAAP and non-GAAP results for the quarter ended September 30, 2015 as compared to the quarter ended September 30, 2014 were significantly impacted by a stronger U.S. Dollar. The Company's GAAP results for the three months ended September 30, 2015 reflect increased revenue of 1.6%, decreased operating income of 0.7% and increased diluted earnings per share of 2.9% as compared to the three months ended September 30, 2014. The Company's GAAP results for the nine months ended September 30, 2015 reflect growth in revenue of 1.4%, operating income of 1.3% and diluted earnings per share of 2.6% as compared to the nine months ended September 30, 2014. The Company experienced higher revenue in 2015 primarily from growth in maintenance revenue, partially offset by decreased lease license revenue. The Company also experienced increased operating expenses primarily due to increased employee compensation and other headcount-related costs, partially offset by cost reductions from foreign exchange translation as a result of the stronger U.S. Dollar.
The Company's non-GAAP results for the three months ended September 30, 2015 reflect increased revenue of 1.1%, decreased operating income of 3.5% and increased diluted earnings per share of 1.1% as compared to the three months ended September 30, 2014. The Company's non-GAAP results for the nine months ended September 30, 2015 reflect increased revenue of 1.0%, decreased operating income of 1.0% and increased diluted earnings per share of 0.4% as compared to the nine months ended September 30, 2014. The non-GAAP results exclude the income statement effects of acquisition accounting adjustments to deferred revenue, stock-based compensation, acquisition-related amortization of intangible assets and transaction costs related to business combinations. For further disclosure regarding non-GAAP results, see the section titled "Non-GAAP Results" immediately preceding the section titled "Liquidity and Capital Resources".
The impacts on the Company's revenue and operating income due to the stronger U.S. Dollar for the three and nine months ended September 30, 2015 as compared to the three and nine months ended September 30, 2014 were as follows:
Three Months Ended September 30, 2015
Nine Months Ended September 30, 2015
Non-GAAP
In constant currency(1), the Company's growth rates were as follows:
(1) Constant currency amounts exclude the effect of foreign currency fluctuations on the reported results. To present this information, the results for 2015 for entities whose functional currency is a currency other than the U.S. Dollar were converted to U.S. Dollars at rates that were in effect for 2014, rather than the actual exchange rates in effect for 2015.
The Company's financial position includes $776.9 million in cash and short-term investments, and working capital of $633.3 million as of September 30, 2015.
Under the Company's stock repurchase program, the Company repurchased 1,250,000 shares during the three months ended September 30, 2015 at an average price per share of $91.23, for a total cost of $114.0 million. The Company repurchased 2,792,911 shares during the nine months ended September 30, 2015 at an average price per share of $86.92, for a total cost of $242.7 million.
During the nine months ended September 30, 2015, the Company completed various acquisitions to accelerate development of new and innovative products to the marketplace while lowering design and engineering costs for customers. The acquisitions were not individually significant. The combined purchase price of the acquisitions was approximately $44.4 million, which included cash and equity. The operating results of each acquisition have been included in the Company's condensed consolidated financial statements since each respective date of acquisition.
ANSYS develops and globally markets engineering simulation software and services widely used by engineers, designers, researchers and students across a broad spectrum of industries and academia, including aerospace, automotive, materials and chemical processing, turbomachinery, consumer products, electronics, biomedical, energy, defense and others. Headquartered south of Pittsburgh, Pennsylvania, the Company employed approximately 2,800 people as of September 30, 2015. ANSYS 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 suite of simulation technologies through a global network of independent channel partners and direct sales offices in strategic, global locations. It is the Company's intention to continue to maintain this hybrid sales and distribution model.
The Company licenses its technology to businesses, educational institutions and governmental agencies. Growth in the Company's revenue is affected by the strength of global economies, general business conditions, currency exchange rate fluctuations, 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. The Company makes many operational and strategic decisions based upon short- and long-term sales forecasts that are impacted not only by these long sales cycles but also by current global economic conditions. As a result, the Company believes that its overall performance is best measured by fiscal-year results rather than by quarterly results.
The Company's management considers the competition and price pressure that it faces in the short- and long-term by focusing on expanding the breadth, depth, ease of use and quality of the technologies, features, functionality and integrated multiphysics capabilities of its software products as compared to its competitors; investing in research and development to develop new and innovative products and increase the capabilities of its existing products; supplying new products and services; focusing on customer needs, training, consulting and support; and enhancing its distribution channels. From time to time, the Company also considers acquisitions to supplement its global engineering talent, product offerings and distribution channels.
Geographic Trends:
The following table presents the Company's geographic constant currency revenue growth during the three and nine months ended September 30, 2015 as compared to the three and nine months ended September 30, 2014:
General International Area
In North America, strong performance was observed in the electronics, high-tech, aerospace and defense, and automotive industries as companies continued to rely on ANSYS technology to meet the needs of energy and fuel efficiency, safety and comfort, and the cost-effective delivery of more innovative products in the face of evolving competition and customer requirements. The low price of oil negatively impacted the energy industry as energy companies held back investments, reduced their workforce and considered consolidation and realignment. Healthcare industry market leaders continued to invest in ANSYS solutions throughout the quarter, but performance was negatively impacted by a macroeconomic downturn in the healthcare technology industry.
Europe continued to show progress and overall revenue growth, but with mixed results and pockets of lingering economic and geopolitical issues. The Company experienced strong performance in Germany, Italy, Switzerland, Spain and the Netherlands. However, the Company's performance in Europe continued to be adversely impacted in the third quarter as a result of weakness in markets such as the United Kingdom, France, Sweden and Russia. The ANSYS industry performance trends for the quarter were similar to those in North America. Additionally, weakness in channel partner new business production and a cautious spending environment continued to have an adverse impact. Sales hiring and sales pipeline building activities continued to be a major focus.
The results in the General International Area, which primarily consists of the Asia-Pacific region, continued to demonstrate strength in Japan and India. The growth was adversely impacted by declines in the Company's business in South Korea, Taiwan and Brazil. Additionally, business momentum in the Chinese state-owned enterprises has been slower. In the automotive industry, the economic issues in China negatively impacted the off-road segment. In the industrial equipment industry, continued focus on power generation had a positive impact. The Company continues to focus on improving direct sales execution and the new business production of the channel partner network.
The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto for the nine months ended September 30, 2015, and with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2014 filed on the Annual Report on Form 10-K with the Securities and Exchange Commission. The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's condensed consolidated financial statements, which have been prepared in
accordance with GAAP. The preparation of these financial statements requires the Company 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, the Company evaluates its estimates, including those related to the fair value of stock awards, bad debts, contract revenue, valuation of goodwill and other intangible assets, contingent consideration, deferred compensation, income taxes, uncertain tax positions, tax valuation reserves, useful lives for depreciation and amortization, and contingencies and litigation. The Company bases its estimates on historical experience, market experience, estimated future cash flows and 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 available from other sources. Actual results may differ from these estimates.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, but not limited to, the following statements, as well as statements that contain such words as "anticipates", "intends", "believes", "plans" and other similar expressions:
The Company's expectations regarding the accelerated development of new and innovative products to the marketplace while lowering design and engineering costs for customers as a result of the Company's acquisitions.
The Company's estimates regarding the expected impact on reported revenue related to the acquisition accounting treatment of deferred revenue.
The Company's estimation that it is probable that all remaining payments will be made for contingent consideration related to the EVEN acquisition.
The Company's assessment of the ultimate liabilities arising from various investigations, claims and legal proceedings.
The Company's expectations regarding the outcome of its service tax audit case.
The Company's intentions regarding its hybrid sales and distribution model.
The Company's statement regarding the strength of the features, functionality and integrated multiphysics capabilities of its software products.
The Company's belief that its overall performance is best measured by fiscal-year results rather than by quarterly results.
The Company's expectation that it will continue to make targeted investments in its global sales and marketing organization and its global business infrastructure to enhance and support its revenue-generating activities.
The Company's intentions related to investments in research and development, particularly as it relates to expanding the ease of use and capabilities of its broad portfolio of simulation software products, including the evolution of its ANSYS® Workbench™ platform, expansion of high-performance computing capabilities, ANSYS® AIM™ immersive user interface, robust design and ongoing integration of acquired technology.
The Company's intention to repatriate previously taxed earnings and to reinvest all other earnings of its non-U.S. subsidiaries.
The Company's plans related to future capital spending.
The sufficiency of existing cash and cash equivalent balances to meet future working capital and capital expenditure requirements.
The Company's belief that the best uses of its excess cash are to invest in the business and to repurchase stock in order to both offset dilution and return capital to stockholders in excess of its requirements with the goal of increasing stockholder value.
The Company's intentions related to investments in complementary companies, products, services and technologies.
The Company's statement regarding increased exposure to volatility of foreign exchange rates.
Forward-looking statements should not be unduly relied upon because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the Company's control. The Company's actual results could differ materially from those set forth in forward-looking statements. Certain factors, among others, that might cause such a difference include risks and uncertainties disclosed in the Company's most recent Annual Report on Form 10-K, Part I, Item 1A. Information regarding new risk factors or material changes to these risk factors have been included within Part II, Item 1A of this Quarterly Report on Form 10-Q.
Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014
Three Months Ended September 30,
Lease licenses
Perpetual licenses
The Company's revenue in the quarter ended September 30, 2015 increased 1.6% as compared to the quarter ended September 30, 2014. The growth rate was adversely impacted by 7.6% due to a strengthening U.S. Dollar and was favorably impacted by the Company's continued investment in its global sales, support and marketing organizations. Perpetual license revenue, which is derived primarily from new sales during the quarter, increased 3.8% as compared to the prior-year quarter due primarily to growth in perpetual license revenue of electronics products. Annual maintenance contracts that were sold with new perpetual licenses, along with maintenance contracts sold with new perpetual licenses in previous quarters, contributed to maintenance revenue growth of 3.9%.
With respect to revenue, on average for the quarter ended September 30, 2015, the U.S. Dollar was approximately 13.5% stronger, when measured against the Company's primary foreign currencies, than for the quarter ended September 30, 2014. The net overall strengthening resulted in decreased revenue of $17.8 million during the quarter ended September 30, 2015 as compared with the same quarter of 2014. The impact on revenue was primarily driven by $10.6 million, $4.3 million and $1.2 million of adverse impact due to a weakening Euro, Japanese Yen and South Korean Won, respectively. The net overall strengthening also resulted in decreased operating income of $11.1 million during the quarter ended September 30, 2015 as compared with the same quarter of 2014.
A substantial portion of the Company's license and maintenance revenue is derived from annual lease and maintenance contracts. These contracts are generally renewed on an annual basis and typically 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 license and maintenance revenue growth rate in any period does not necessarily correlate to the growth rate of new license and maintenance contracts sold during that period. To the extent the rate of customer renewal for lease and maintenance contracts is high, incremental lease contracts, and maintenance contracts sold with new perpetual licenses, will result in license and maintenance revenue growth in constant currency. Conversely, if the rate of renewal for these contracts is adversely affected by economic or other factors, the Company's license and maintenance growth will be adversely affected over the term that the revenue for those contracts would have otherwise been recognized.
The Company is starting to experience an increased interest by its customers in enterprise license agreements that often include longer-term, time-based licenses involving a larger number of the Company's software products. While these arrangements typically involve a higher overall transaction price, the revenue from these contracts is typically deferred and recognized over the period of the contract, resulting in increased deferred revenue and backlog. However, to the extent these types of contracts replace sales of perpetual licenses, there could be a near-term adverse impact on software license and maintenance revenue growth.
International and domestic revenues, as a percentage of total revenue, were 60.7% and 39.3%, respectively, during the quarter ended September 30, 2015, and 65.0% and 35.0%, respectively, during the quarter ended September 30, 2014. The Company derived 24.4% and 24.8% of its total revenue through the indirect sales channel for the quarters ended September 30, 2015 and 2014, respectively.
In valuing deferred revenue on the balance sheets of the Company's recent acquisitions as of their respective acquisition dates, the Company applied the fair value provisions applicable to the accounting for business combinations, resulting in a reduction of deferred revenue as compared to its historical carrying amount. As a result, the Company's post-acquisition revenue will be less than the sum of what would have otherwise been reported by ANSYS and each acquiree absent the acquisitions. The
impacts on reported revenue were $0.4 million and $1.5 million for the quarters ended September 30, 2015 and 2014, respectively. The expected impact on reported revenue is $0.3 million and $0.2 million for the quarter ending December 31, 2015 and for the year ending December 31, 2016, respectively.
Deferred Revenue and Backlog:
Deferred revenue consists of billings made or payments received in advance of revenue recognition from lease license and maintenance agreements. The deferred revenue on the Company's condensed consolidated balance sheets does not represent the total value of annual or multi-year, noncancellable lease license and maintenance agreements. The Company's backlog represents installment billings for periods beyond the current quarterly billing cycle and customer orders received but not processed. The Company's deferred revenue and backlog as of September 30, 2015 and December 31, 2014 consist of the following:
Balance at September 30, 2015
Revenue associated with deferred revenue and backlog that is expected to be recognized in the subsequent twelve months is classified as current in the table above.
Constant Currency Impact:
The tables below reflect the Company's operating results as presented on the condensed consolidated statements of income, which are inclusive of foreign currency translation impacts. Amounts included in the discussion that follows each table are provided in constant currency. The impact, where material, of foreign exchange translation on each expense line is provided separately.
Cost of Sales and Gross Profit:
Software Licenses: The net decrease in the cost of software licenses was primarily due to the following:
Decreased stock-based compensation of $0.3 million.
Cost reduction from foreign exchange translation of $0.2 million due to a stronger U.S. Dollar.
Decreased salaries of $0.2 million.
Increased third-party royalties of $0.4 million.
Amortization: The increase in amortization expense was primarily due to an increase in amortization of trade names, partially offset by a cost reduction related to foreign exchange translation.
Maintenance and Service: The net decrease in maintenance and service costs was primarily due to the following:
Cost reduction related to foreign exchange translation of $2.0 million.
Increased salaries and incentive compensation of $0.8 million.
Increased third-party technical support costs of $0.4 million.
The improvement in gross profit was a result of the increase in revenue and the decrease in related cost of sales.
(27.5
Selling, General and Administrative: The net increase in selling, general and administrative costs was primarily due to the following:
Increased salaries and other headcount-related costs, including incentive compensation, of $5.3 million.
Increased consulting and marketing costs, each of $0.5 million.
The Company anticipates that it will continue to make targeted investments in its global sales and marketing organization and its global business infrastructure to enhance and support its revenue-generating activities.
Research and Development: The net increase in research and development costs was primarily due to the following:
Increased office lease and utility costs of $0.3 million.
The Company has traditionally invested significant resources in research and development activities and intends to continue to make investments in expanding the ease of use and capabilities of its broad portfolio of simulation software products. More specifically, this includes the evolution of its ANSYS® Workbench™ platform, expansion of high-performance computing capabilities, ANSYS® AIM™ immersive user interface, robust design and ongoing integration of acquired technology.
Amortization: The decrease in amortization expense was primarily due to a net decrease in amortization of acquired customer lists and a cost reduction related to foreign exchange translation.
Interest Expense: The Company's interest expense consists of the following:
Discounted obligations
Total interest expense
Other Expense, net: The Company's other expense consists of the following:
Foreign currency losses, net
Noncontrolling interest in loss
Total other expense, net
Income Tax Provision: The Company recorded income tax expense of $24.3 million and had income before income taxes of $90.4 million for the quarter ended September 30, 2015. During the quarter ended September 30, 2014, the Company recorded income tax expense of $25.4 million and had income before income taxes of $90.9 million. The effective tax rates were 26.9% and 28.0% for the third quarters of 2015 and 2014, respectively.
The decrease in the effective tax rate is primarily due to tax benefits related to restructuring in a foreign jurisdiction. When compared to the federal and state combined statutory rate, the effective tax rates for the quarters ended September 30, 2015 and 2014 were favorably impacted by the domestic manufacturing deduction and tax benefits associated with the merger of the Company's Japan subsidiaries in 2010. The quarterly benefit of approximately $3.1 million related to the merger of the Company's Japan subsidiaries was exhausted in the third quarter of 2015 and will not recur in future periods. The rates were also favorably impacted by the lower statutory tax rates in many of the Company's foreign jurisdictions.
Net Income: The Company's net income in the third quarter of 2015 was $66.0 million as compared to net income of $65.5 million in the third quarter of 2014. Diluted earnings per share was $0.72 in the third quarter of 2015 and $0.70 in the third quarter of 2014. The weighted average shares used in computing diluted earnings per share were 91.6 million and 93.9 million in the third quarters of 2015 and 2014, respectively.
Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014
Nine Months Ended September 30,
The Company's revenue in the nine months ended September 30, 2015 increased 1.4% as compared to the nine months ended September 30, 2014. The growth rate was adversely impacted by 7.7% due to a strengthening U.S. Dollar and was favorably impacted by the Company's continued investment in its global sales, support and marketing organizations. Annual maintenance contracts that were sold with new perpetual licenses, along with maintenance contracts sold with new perpetual licenses in previous quarters, contributed to maintenance revenue growth of 4.5%. This growth was primarily due to maintenance contracts sold with electronics products.
With respect to revenue, on average for the nine months ended September 30, 2015, the U.S. Dollar was approximately 13.4% stronger, when measured against the Company's primary foreign currencies, than for the nine months ended September 30, 2014. The net overall strengthening resulted in decreased revenue of $52.6 million during the nine months ended September 30, 2015 as compared with the nine months ended September 30, 2014. The impact on revenue was primarily driven by $33.2 million, $12.8 million, $2.4 million and $2.2 million of adverse impact due to a weakening Euro, Japanese Yen, British Pound and South Korean Won, respectively. The net overall strengthening also resulted in decreased operating income of $29.9 million during the nine months ended September 30, 2015 as compared with the nine months ended September 30, 2014.
International and domestic revenues, as a percentage of total revenue, were 62.1% and 37.9%, respectively, during the nine months ended September 30, 2015, and 65.7% and 34.3%, respectively, during the nine months ended September 30, 2014. The Company derived 24.3% of its total revenue through the indirect sales channel for both the nine months ended September 30, 2015 and 2014.
In valuing deferred revenue on the balance sheets of the Company's recent acquisitions as of their respective acquisition dates, the Company applied the fair value provisions applicable to the accounting for business combinations, resulting in a reduction of deferred revenue as compared to its historical carrying amount. As a result, the Company's post-acquisition revenue will be less than the sum of what would have otherwise been reported by ANSYS and each acquiree absent the acquisitions. The impacts on reported revenue were $1.4 million and $4.3 million for the nine months ended September 30, 2015 and 2014, respectively.
Decreased incentive compensation of $0.4 million.
Increased SpaceClaim-related cost of software licenses of $0.4 million, primarily as a result of nine months of SpaceClaim activity in the current year as compared to five months of activity in the prior year.
Increased facilities and IT-related maintenance of $0.3 million.
Increased salaries and other headcount-related costs of $1.3 million.
Increased third-party technical support and severance costs, each of $0.8 million.
Increased salaries and other headcount-related costs, including incentive compensation, of $11.8 million, primarily due to an increase in headcount.
Increased third-party commissions of $1.5 million.
Increased business travel and meals of $1.4 million.
Increased SpaceClaim-related selling, general and administrative expenses of $1.2 million, primarily as a result of nine months of SpaceClaim activity in the current year as compared to five months of activity in the prior year.
Cost reduction related to foreign exchange translation of $10.4 million.
Increased SpaceClaim-related research and development expenses of $1.8 million, primarily as a result of nine months of SpaceClaim activity in the current year as compared to five months of activity in the prior year.
Other Income (Expense), net: The Company's other income (expense) consists of the following:
Foreign currency gains (losses), net
Total other income (expense), net
Income Tax Provision: The Company recorded income tax expense of $74.5 million and had income before income taxes of $259.0 million for the nine months ended September 30, 2015. During the nine months ended September 30, 2014, the Company recorded income tax expense of $69.2 million and had income before income taxes of $254.3 million. The effective tax rates were 28.8% and 27.2% for the nine months ended September 30, 2015 and 2014, respectively.
The increase in the effective tax rate is primarily due to tax benefits that occurred in 2014 related to restructuring in a foreign jurisdiction and the reversal of uncertain tax benefits. These benefits did not recur in 2015. When compared to the federal and state combined statutory rate, the effective tax rates for the nine months ended September 30, 2015 and 2014 were favorably impacted by the domestic manufacturing deduction and tax benefits associated with the merger of the Company's Japan subsidiaries in 2010. The quarterly benefit of approximately $3.1 million related to the merger of the Company's Japan subsidiaries was exhausted in the third quarter of 2015 and will not recur in future periods. The rates were also favorably impacted by the lower statutory tax rates in many of the Company's foreign jurisdictions.
Net Income: The Company's net income for the nine months ended September 30, 2015 was $184.5 million as compared to net income of $185.1 million for the nine months ended September 30, 2014. Diluted earnings per share was $2.01 for the nine months ended September 30, 2015 and $1.96 for the nine months ended September 30, 2014. The weighted average shares used in computing diluted earnings per share were 91.8 million and 94.4 million for the nine months ended September 30, 2015 and 2014, respectively.
Non-GAAP Results
The Company provides non-GAAP revenue, non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share as supplemental measures to GAAP measures regarding the Company's operational performance. These financial measures exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. A detailed explanation and a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure are described below.
(in thousands, except percentages and per share data)
Operating profit margin
Amount represents the revenue not reported during the period as a result of the acquisition accounting adjustment associated with accounting for deferred revenue in business combinations.
Amount represents $14.7 million of amortization expense associated with intangible assets acquired in business combinations, $8.9 million of stock-based compensation expense, the $0.4 million adjustment to revenue as reflected in (1) above and $0.3 million of transaction expenses related to business combinations.
Amount represents the impact of the adjustments to operating income referred to in (2) above, adjusted for the related income tax impact of $8.3 million.
Amount represents $16.3 million of amortization expense associated with intangible assets acquired in business combinations, $10.0 million of stock-based compensation expense and the $1.5 million adjustment to revenue as reflected in (4) above.
Amount represents $44.0 million of amortization expense associated with intangible assets acquired in business combinations, $25.7 million of stock-based compensation expense, the $1.4 million adjustment to revenue as reflected in (1) above and $0.8 million of transaction expenses related to business combinations.
Amount represents the impact of the adjustments to operating income referred to in (2) above, adjusted for the related income tax impact of $25.4 million.
Non-GAAP Measures
Management uses non-GAAP financial measures (a) to evaluate the Company's historical and prospective financial performance as well as its performance relative to its competitors, (b) to set internal sales targets and spending budgets, (c) to allocate resources, (d) to measure operational profitability and the accuracy of forecasting, (e) to assess financial discipline over operational expenditures and (f) as an important factor in determining variable compensation for management and its employees. In addition, many financial analysts that follow the Company focus on and publish both historical results and future projections based on non-GAAP financial measures. The Company believes that it is in the best interest of its investors to provide this information to analysts so that they accurately report the non-GAAP financial information. Moreover, investors have historically requested and the Company has historically reported these non-GAAP financial measures as a means of providing consistent and comparable information with past reports of financial results.
While management believes that these non-GAAP financial measures provide useful supplemental information to investors, there are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP, are not reported by all of the Company's competitors and may not be directly comparable to similarly titled measures of the Company's competitors due to potential differences in the exact method of calculation. The Company compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures.
The adjustments to these non-GAAP financial measures, and the basis for such adjustments, are outlined below:
Acquisition accounting for deferred revenue and its related tax impact. Historically, the Company has consummated acquisitions in order to support its strategic and other business objectives. In accordance with the fair value provisions applicable to the accounting for business combinations, acquired deferred revenue is often recorded on the opening balance sheet at an amount that is lower than the historical carrying value. Although this purchase accounting requirement has no impact on the Company's business or cash flow, it adversely impacts the Company's reported GAAP revenue in the reporting periods following an acquisition. In order to provide investors with financial information that facilitates comparison of both historical and future results, the Company provides non-GAAP financial measures which exclude the impact of the acquisition accounting adjustment. The Company believes that this non-GAAP financial adjustment is useful to investors because it allows investors to (a) evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making, and (b) compare past and future reports of financial results of the Company as the revenue reduction related to acquired deferred revenue will not recur when related annual lease licenses and software maintenance contracts are renewed in future periods.
Amortization of intangibles from acquisitions and its related tax impact. The Company incurs amortization of intangibles, included in its GAAP presentation of amortization expense, related to various acquisitions it has made in recent years. Management excludes these expenses and their related tax impact for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company because these costs are fixed at the time of an acquisition, are then amortized over a period of several years after the acquisition and generally cannot be changed or influenced by management after the acquisition. Accordingly, management does not consider these expenses for purposes of evaluating the performance of the Company during the applicable time period after the acquisition, and it excludes such expenses when making decisions to allocate resources. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making, and (b) compare past reports of financial results of the Company as the Company has historically reported these non-GAAP financial measures.
Stock-based compensation expense and its related tax impact. The Company incurs expense related to stock-based compensation included in its GAAP presentation of cost of software licenses; cost of maintenance and service; research and development expense and selling, general and administrative expense. Although stock-based compensation is an expense of the Company and viewed as a form of compensation, management excludes these expenses for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company. Specifically, the Company excludes stock-based compensation during its annual budgeting process and its quarterly and annual assessments of the Company's and management's performance. The annual budgeting process is the primary mechanism whereby the Company allocates resources to various initiatives and operational requirements. Additionally, the annual review by the board of directors during which it compares the Company's historical business model and profitability to the planned business model and profitability for the forthcoming year excludes the impact of stock-based compensation. In evaluating the performance of senior management and department managers, charges related to stock-based compensation are excluded from expenditure and profitability results. In fact, the Company records stock-based compensation expense into a stand-alone cost center for which no single operational manager is responsible or accountable. In this way, management is able to review, on a period-to-period basis, each manager's performance and assess financial discipline over operational expenditures without the effect of stock-based compensation. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company's operating results and the effectiveness of the methodology used by management to review the Company's operating results, and (b) review historical comparability in the Company's financial reporting as well as comparability with competitors' operating results.
Transaction costs related to business combinations. The Company incurs expenses for professional services rendered in connection with business combinations, which are included in its GAAP presentation of selling, general and administrative expense. These expenses are generally not tax-deductible. Management excludes these acquisition-related transaction expenses for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company, as it generally would not have otherwise incurred these expenses in the periods presented as a part of its continuing operations. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company's operating results and the effectiveness of the methodology used by management to review the Company's operating results, and (b) review historical comparability in the Company's financial reporting as well as comparability with competitors' operating results.
Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. The Company's non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP.
The Company has provided a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures as listed below:
GAAP Reporting Measure
Non-GAAP Reporting Measure
Non-GAAP Revenue
Non-GAAP Operating Income
Non-GAAP Operating Profit Margin
Non-GAAP Net Income
Non-GAAP Diluted Earnings Per Share
Cash, cash equivalents and short-term investments
Cash and cash equivalents consist primarily of highly liquid investments such as money market mutual funds and deposits held at major banks. Short-term investments consist primarily of deposits held by certain foreign subsidiaries of the Company with original maturities of three months to one year. The following table presents the Company's foreign and domestic holdings of cash, cash equivalents and short-term investments as of September 30, 2015 and December 31, 2014:
If the foreign balances were repatriated to the U.S., they would be subject to domestic tax, resulting in a tax obligation in the period of repatriation. In general, it is the practice and intention of the Company to repatriate previously taxed earnings and to reinvest all other earnings of its non-U.S. subsidiaries. The amount of cash, cash equivalents and short-term investments held by foreign subsidiaries is subject to translation adjustments caused by changes in foreign currency exchange rates as of the end of each respective reporting period, the offset to which is recorded in accumulated other comprehensive loss on the Company's condensed consolidated balance sheet.
Net cash provided by operating activities decreased during the current fiscal year due to decreased net cash flows from operating assets and liabilities of $40.6 million, primarily due to a $26.8 million refund received in 2014 related to the Company's 2009 and 2010 federal income tax years. These amounts were partially offset by increased net income (net of non-cash operating adjustments) of $5.9 million.


text:
Q: Trigger para sistema de imovel Pessoal estou desenvolvendo um sistema de imóvel e preciso que a cada cinco minutos o banco leia a informação do imóvel, processe e descriptografe a informação, envie uma confirmação de processamento e descarte a informação.
Estou pensando em fazer alguma trigger, mas não sei como liberar ela a cada 5 minutos, alguém pode me dar uma luz? (Desculpe a falta de tecnicidade, ainda estou começando)

A: Como você está pensando em executar uma ação no banco de tempo em tempo, vejo que a melhor opção seja utilizar "events"
Create event teste //bome
On schedule
Every 1 week //aqui é o intervalo
Do
NomeDaTrigger;

Com esse evento vc criar campo, deleta, executa procedures e triggers, de tempos e tempos pré definidos.

redpajama_set_name: RedPajamaStackExchange


text:
In mathematics, an information source is a sequence of random variables ranging over a finite alphabet Γ, having a stationary distribution.

The uncertainty, or entropy rate, of an information source is defined as

where

is the sequence of random variables defining the information source, and

is the conditional information entropy of the sequence of random variables.  Equivalently, one has

See also
 Markov information source
 Asymptotic equipartition property

References
 Robert B. Ash, Information Theory, (1965) Dover Publications.
zh-yue:資訊源
Information theory
Stochastic processes

redpajama_set_name: RedPajamaWikipedia


Business Premise - Valencia (Patraix) , Built Surface 271m2, 2 Bathrooms.
Apartment - Valencia (La Llum) , Built Surface 125m2, 3 Bedrooms, 2 Bathrooms, Lift, All Exterior.
Business Premise - Manises (CARRETERA RIBARROJA-MANISES) , Built Surface 204m2, 1 Bathrooms.
Apartment - Valencia (Patraix) , Built Surface 76m2, 2 Bedrooms, 1 Bathrooms.
Building Site - Puçol (Playa) , 200m2, 200 Distance to the sea.
Apartment - Valencia (La Raiosa) , Built Surface 96m2, 3 Bedrooms, 1 Bathrooms, Lift.
Business Premise - Manises (CARRETERA RIBARROJA-MANISES) , Built Surface 111m2, 1 Bathrooms.
Building - Valencia (El Pilar) , Built Surface 308m2, 86m2.
Apartment - Valencia (El Grau) , Built Surface 73m2, 3 Bedrooms, 1 Bathrooms, 200 Distance to the sea, Lift.


text:
Center for Defence Electronics Application Laboratory (DEAL) is a laboratory of the Defence Research & Development Organization (DRDO). Located in Dehradun, its primary function is research and development in the radio communication devices for defence applications. Its mission is development of Radio Communication Systems, Data links, Satellite Communication Systems, Millimeter Wave Communication systems

Areas of work
 DEAL is developing communication systems and data links for Airawat Airborne Early Warning and Control System.
DEAL is also engaged in development of state of the art image processing technologies. The Image Analysis Center at DEAL has developed many world class image processing software for Defense Forces. The Image Analysis Center has got expertise in the following areas -

Image Archival, Visualization & Interpretation tool, Classification tools, Stereo processing, Target Detection, Radar image processing, Terrain modeling & simulation, Product generation

References

External links
 DRDO

Defence Research and Development Organisation laboratories
Research institutes in Uttarakhand
Organisations based in Dehradun
Year of establishment missing


The Google Recycled Mini Wireless Mouse is definitely one of the cuter peripherals I have come across, and it adds to the 'fun' feeling that the company offers even while at work. This diminutive piece of hardware comes with a Wi-Fi dongle stored on it, and has an 800 dpi resolution while being made out of recycled plastic. It will come in blue or red colors, and the $19.20 mouse even ships in recycled packaging to keep those green advocates quiet. Perfect in keeping in line with the company's "Do no evil" mantra.


We've taken Lachua beans from Guatemala, which have an inherent flavor profile of lemon, berry, and mocha, and turned it up a notch.
Freeze-dried raspberries were tossed into the grinder along with the cacao nibs. The result is a jammy, lightly tannic bar with citrus and coffee notes.


They provide custom business database design services to a wide variety of companies across the UK.
Yorkshire-based G.H.Database Design provide custom business database design services to a wide variety of clients across the UK. They design custom made software to help SMEs process business administration tasks faster and more professionally. They build applications that simplify complex tasks and improve productivity. We were asked to give their website a complete refresh in order to create simpler and more efficient interactions.
The new website was build from the ground up to be more user friendly. It incorporated a raft of new interactive features that performed flawlessly across mobile, tablet and desktop devices.


text:
<?php

namespace GroupByInc\API\Request;

class RefinementsRequest
{
    /** @var Request */
    public $originalQuery;
    /** @var string */
    public $navigationName;
}

redpajama_set_name: RedPajamaGithub


Financial empowerment is an approach to poverty reduction that focuses on improving the financial security and well-being of Edmontonians.
Access to financial resources and information helps individuals to make informed decisions about their finances.
The City of Edmonton promotes opportunities to acquire skills and improve access to supports that enhance financial security and well being. The City works with a variety of community partners, including the Edmonton Financial Empowerment Collaborative to support people living on a low income to expand their financial knowledge, reduce debt, grow savings and build assets.
You Can Benefit Navigator is an online tool that provides community workers and Edmontonians easy access to information on a range of local, municipal, provincial and federal benefits and subsidies.
Enter some basic information about yourself to find out if you are eligible for local and government benefits today.
You Can Benefit is a partnership between e4c, the City of Edmonton with End Poverty Edmonton and BetaCityYEG.
Increasing financial literacy helps to lift people out of poverty - a key action under End Poverty Edmonton. Learn how the City of Edmonton will End Poverty in a generation.
Women and Money is, at its core, about women who believe in helping women and is part of the Women's Council Initiative that aims to create equality for women in Edmonton.


text:
Cao Bang, destination in northern Vietnam: What to do?
One of the lesser-known areas of northern Vietnam is the Cao Bang region, right on the border with China. Meeting point in the history between the two countries, Cao Bang is perfect to get to know a Vietnam not as crowded as the Sapa or Hanoi area.
During the colonial period, Cao Bang was one of the most popular mountain destinations for the French community that lived in Hanoi and due to its enclave it was one of the most important border posts in the north of the country. After the fall of the French colony during the Indochina War, Cao Bang was one of the most important rear positions for the North Vietnamese People's Army in the Vietnam War and during the Chinese invasion. If your idea is to know this place, we will tell you which are the main attractions to visit and things to do in Cao Bang.
Cao bang, destinations in northern Vietnam
The main destinations of interest to visit are the following.
Ban Gioc Waterfalls
Located 95 km from Cao Bang, Bang Gioc Waterfalls are one of the greatest natural treasures in northern Vietnam.
Nguom Ngao Cave
Close to the Bang Gioc Falls, the Nguom Ngao Cave is one of the most important in the country. With about 3 km and vaults of more than 50 m, the Nguom Ngao Cave is perfectly equipped for the visit of tourists, with lighting and walkways that make it easy to navigate.
The Hen Lakes
Located just 25 km from Cao Bang, the Hen Lakes are a total of 36 lakes, some small but one large and only separated from each other by walking distance which makes the place a perfect destination to spend a day of excursions.
Pac Bo Memorial
One of the most important historical monuments in the country is the Pac Bo Memorial dedicated to the life of Ho Chi Minh or Uncle Ho as the Vietnamese commonly call him. Located 50 km north of Cao Bang, you can see the famous Bo Cave, where Ho Chi Minh lived after his long exile and where he founded the Vietnam Workers Party in 194. All this set and especially its symbolic value makes the Pac Bo Memorial a must-see to learn about the recent history of Vietnam. The entrance has a cost of 20000 VND.
Cao Bang Memorial War
Located at the top of a hill in the same city is the Cao Bang Memorial War, a monument that pays tribute to the fallen, both civil and military during the Indochina War against the French and the War against China to late 70s.
Like go to Cao bang
If your idea is to go from Hanoi the only way will be by public bus. This journey lasts around 8 am and you have the option of being able to do it by sleep bus. If your idea is to go from Sapa, you must first go by bus to Bo Lam and from here continue by bus to Cao Bang (it is faster and more comfortable if you go from Sapa to Hanoi and from here to Cao Bang).
Things To Do In Port Douglas For The Less Adventurous
Explore the Best Hunter Valley Wineries and Vineyards

redpajama_set_name: RedPajamaCommonCrawl


The Chief Financial Officer (CFO) will have overall responsibility for managing and reporting FSDA's finances, including Development Capital (DevCap) investments made through its subsidiary, FSDA(I).
Created in 2012, FSD Africa is a non-profit company which aims to increase prosperity, create jobs and reduce poverty by bringing about a transformation in financial markets in sub-Saharan Africa and in the economies they serve. It provides know-how and capital to champions of change whose ideas, influence and actions will make finance more useful to African businesses and households.
Through access to finance initiatives, it seeks to build financial inclusion. Through capital markets development, it looks to promote economic growth and increase investment. As a regional programme, it seeks to encourage collaboration, knowledge transfer and market-building activities - especially in fragile states.
Where there are opportunities to drive financial market transformation more quickly and intensively through capital investment, FSD Africa will deploy equity, loans or guarantees as the situation requires. This is done through its wholly-owned subsidiary FSDA(Investments) Ltd ("FSDA(I)") which is the vehicle for Development Capital ("DevCap") funding.
FSD Africa is funded with UK aid from the UK government (Department for International Development ("DFID")) which, in March 2017, agreed to a £60m programme extension for a further three years. While it enjoys a good relationship with DFID Kenya and other UK government departments based at the British High Commission in Nairobi, FSD Africa is a centrally managed programme, funded from London.
Fragile states: Interventions targeting a group of fragile states (Sierra Leone, DRC and Zimbabwe) and refugees to push the boundaries of the market development into more difficult environments.
The Chief Financial Officer (CFO) will have overall responsibility for managing and reporting FSDA's finances, including Development Capital (DevCap) investments made through its subsidiary, FSDA(I). The CFO will develop financial and tax strategies, managing capital requests and budgeting processes, while using financial performance measures and monitoring systems that support the company's strategic direction. The CFO will oversee all financial matters related to audit and statutory returns, including tax and reporting of financial results to DFID and the Board of Directors.
Ensure that effective internal controls are in place and ensure compliance with IFRS and all applicable laws and rules for financial and tax reporting.
Carry out any other duties or special assignments as assigned by the FSDA Board and Director.
A master's degree in accounting or business administration, or equivalent business experience and 10+ years of progressively responsible experience within an investment environment across multiple countries, institutions and programmatic areas.
Experience in partnering with an executive team, and a high level of written and oral communication skills. Preference will be given to candidates with an MBA in Finance and CPA or CMA designations.
Significant experience and expertise in investment management (e.g. from the private equity industry) and/or investment or development banking, good commercial judgment and a willingness to play a central role in making the strategic objectives of DevCap become a reality.
Candidates are invited to submit a one-page cover letter, together with maximum two-page curriculum vitae giving details of your qualifications and experience to recruitment@cedarconsulting.co.ke with "FSD Africa Chief Financial Officer" in the subject line.
The deadline for receipt of applications is 1200 EAT on22 Monday 2019. Only shortlisted candidates will be contacted.


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Home > Low Power-High Performance > Power/Performance Bits: Jan. 22
Power/Performance Bits: Jan. 22
Efficient neural net training; molybdenum ditelluride RRAM; fast STT-MRAM.
January 22nd, 2019 - By: Jesse Allen
Efficient neural net training
Researchers from the University of California San Diego and Adesto Technologies teamed up to improve neural network training efficiency with new hardware and algorithms that allow computation to be performed in memory.
The team used an energy-efficient spiking neural network for implementing unsupervised learning in hardware. Spiking neural networks more closely mirror biological processes. Rather than updating every weight continuously, only the weights tied to highly active, or spiking, neurons are updated, reducing the amount of computation needed.
The hardware component is a 512 kilobit subquantum Conductive Bridging RAM (CBRAM) array, based on Adesto's technology. The non-volatile memory consumes 10 to 100 times less energy than today's leading memory technologies. While typically used as a digital storage device, here it was programmed to have multiple analog states to emulate biological synapses in the human brain.
"On-chip memory in conventional processors is very limited, so they don't have enough capacity to perform both computing and storage on the same chip. But in this approach, we have a high capacity memory array that can do computation related to neural network training in the memory without data transfer to an external processor. This will enable a lot of performance gains and reduce energy consumption during training," said Duygu Kuzum, a professor of electrical and computer engineering at UC San Diego.
Additionally, the team developed a "soft-pruning" algorithm that finds weights that have already matured during training and then sets them to a constant non-zero value. This stops them from getting updated for the remainder of the training to minimize computing power.
Unlike conventional pruning, which completely removes redundant or unimportant weights, this soft-pruning method retains them in a low energy setting, which helps to improve the network's accuracy.
To test the network and hardware, it was trained to classify handwritten digits from the MNIST database. The network classified digits with 93% accuracy even when up to 75% of the weights were soft pruned. In comparison, the network performed with less than 90% accuracy when only 40% of the weights were pruned using conventional pruning methods.
The team also expects significant power consumption reduction.
"If we benchmark the new hardware to other similar memory technologies, we estimate our device can cut energy consumption 10 to 100 times, then our algorithm co-design cuts that by another 10. Overall, we can expect a gain of a hundred to a thousand fold in terms of energy consumption following our approach," said Kuzum.
Next, the team plans to work with memory companies to develop a complete system in which neural networks can be trained in memory to do more complex tasks with very low power and time budgets.
Molybdenum ditelluride RRAM
Researchers at Purdue University, National Institute of Standards and Technology (NIST), and Theiss Research Inc. built a resistive RAM cell out of the 2D material molybdenum ditelluride, which they believe holds properties that could make it an ideal candidate for the next-gen memory.
In RRAM, an electrical current is typically driven through a memory cell made up of stacked materials, creating a change in resistance that records data as 0s and 1s in memory. However, materials currently used have shown to be too unreliable to store and retrieve data over trillions of cycles. The team argues that molybdenum ditelluride could change that.
"We haven't yet explored system fatigue using this new material, but our hope is that it is both faster and more reliable than other approaches due to the unique switching mechanism we've observed," said Joerg Appenzeller, Purdue University's professor of electrical and computer engineering and the scientific director of nanoelectronics at the Birck Nanotechnology Center.
Molybdenum ditelluride allows a system to switch more quickly between 0 and 1, potentially increasing the rate of storing and retrieving information. This is because when an electric field is applied to the cell, atoms are displaced by a tiny distance, resulting in a state of high resistance, noted as 0, or a state of low resistance, noted as 1, which can occur much faster than switching in conventional RRAM devices, according to the researchers. "Because less power is needed for these resistive states to change, a battery could last longer," Appenzeller said.
Next, the researchers want to build a stacked memory cell that also incorporates interconnects and logic. "Logic and interconnects drain battery too, so the advantage of an entirely two-dimensional architecture is more functionality within a small space and better communication between memory and logic," Appenzeller said. The team has applied for two patents on the technology.
Fast STT-MRAM
Researchers at Tohoku University developed 128Mb-density STT-MRAM with a write speed of 14 nanoseconds for use in embedded memory applications, currently the fastest write speed for STT-MRAM with a density over 100Mb.
The current capacity of STT-MRAM is ranged between 8Mb-40Mb, according to the researchers. To increase the memory density, necessary for commercialization, they turned to developing STT-MRAMs in which miniaturized magnetic tunnel junctions (MTJs) are integrated with CMOS. This approach has the added benefit of reducing power consumption.
MTJs were miniaturized through a series of process developments. To reduce the memory size needed for higher-density STT-MRAM, the MTJs were formed directly on via holes. With the reduced size memory cell, the team designed 128Mb-density STT-MRAM and fabricated a chip.
With the fabricated chip, the researchers measured a write speed of subarray, which showed high-speed operation of 14ns at a low power supply voltage of 1.2 V.
The team hopes the research will pave the way for the mass-production of large capacity STT-MRAM.
Tags: Adesto Technologies CBRAM magnetic tunnel junctions memory molybdenum ditelluride National Institute of Standards and Technology neural networks NIST Purdue University RRAM spiking neural networks STT-MRAM Theiss Research Tohoku University training University of California San Diego


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Pakistan gaining against militants
Reports of the death of Pakistani Taliban leader Baitullah Mehsud demonstrate that cooperation between the U.S. and Pakistan against militants located in the tribal border areas is beginning to bear fruit. Although U.S. officials have not yet confirmed the demise of Mehsud, several senior Taliban leaders and Pakistan's foreign minister have declared he was killed by a U.S. drone missile strike in South Waziristan on Wednesday. If it was indeed successful, this strike represents the culmination of a campaign targeting Mehsud and his forces, an effort that has reportedly been facilitated by Pakistani intelligence.
In addition to continuing military cooperation--especially these highly effective drone attacks against militants--the U.S. and Pakistan must work together to implement economic development programs and political reforms, particularly in Pakistan's tribal areas, that are critical to long-term success in the struggle against terrorism.
A Boon for the Pakistani and International Fight against Terrorism
The elimination of Mehsud would constitute a significant victory for Pakistan's fight against terrorism, especially coming so closely on the heels of the Pakistani military's ousting of pro-Taliban forces from the Swat Valley in the settled areas of the North West Frontier Province (NWFP). Although many internally displaced persons remain fearful of returning to the Swat Valley, the Pakistani military operations there received widespread public support, and both the Pakistani military and civilian leadership appear determined to prevent the militants from returning to the region.
Mehsud's death could also change the debate about the use of drone strikes in Pakistan's tribal border areas, thereby helping to quell public anger over the U.S.-Pakistan counterterrorism partnership. In the past, Pakistani officials have denounced U.S. missile attacks in the tribal areas as counterproductive. The elimination of Mehsud, however, would make it difficult for Pakistanis to argue that the drones are not improving security in their own country, given that he was reportedly responsible for dozens of suicide bombings over the last 18 months that have killed several hundred Pakistani civilians and security personnel as well as the wife of current Pakistani President Asif Ali Zardari and political icon Benazir Bhutto.
Over the last several months, the U.S.-Pakistan relationship has been fraught with tension and frustration, particularly over the issue of Pakistani peace deals with militants. Tensions came to a head in mid-April when the Taliban moved from the Swat Valley into neighboring Buner district just one week after President Zardari approved a peace agreement with militants occupying the Swat Valley. Most observers believe that by moving into districts outside the Swat Valley, the militants overplayed their hand and revealed their long-term intentions of expanding influence throughout the NWFP. Pakistanis living outside of the northwest province had previously believed the Taliban's activities could be contained within the tribal areas and Swat Valley. A video that circulated in the Pakistani national media in early April showing Taliban leaders whipping a young girl also helped turn Pakistani public opinion against the militants.
Though the death of Mehsud will likely provide a morale boost for the Pakistani security forces and public, overcoming the broader threat from militancy in Pakistan will be a long-term task. The government has declared most of the Swat Valley region cleared of Taliban fighters. However, the Pakistan military will have to remain in the region until the civilian government is able to re-establish its writ, build up democratic institutions, and prove it is capable of delivering basic services to the people or face the prospect of the Taliban's re-emergence in the region.
The rise of Mehsud itself provides a cautionary tale for those who support negotiating peace deals with militants from a position of weakness. The Pakistani government's peace deal with Mehsud in 2005 gave him the space to strengthen his position in South Waziristan and boosted his legitimacy, allowing him to attract more recruits.
Mehsud's death would also be a fillip for international counterterrorism efforts. Mehsud is suspected of being behind a 10-man cell arrested in Barcelona in January 2008 for plotting suicide attacks in Spain. There is no public record of his direct involvement in plots against the U.S. homeland, but he threatened to launch an attack in Washington last April. Mehsud's forces also cooperate closely with the al-Qaeda leadership and provide protection for al-Qaeda bases and training camps in South Waziristan. He also pledged his allegiance to Afghan Taliban leader Mullah Omar last February.
A Long Struggle
U.S. drone strikes in Pakistan's tribal border areas have been effective in disrupting al-Qaeda's activities and its ability to plan and train for attacks in Afghanistan and across the globe. Senior U.S. intelligence officials acknowledge that the campaign of sustained drone attacks in Pakistan that began about a year ago have led to greater success against al-Qaeda and its affiliates than any other tactic employed since 9/11.
However, drone attacks alone will not degrade the terrorist threat emanating from this region over the long term. Militant leaders can always be replaced. Achieving long-term gains against the terrorist threat in Pakistan will require:
* Comprehensive military action by Pakistani security forces to establish government authority in the region;
* Joint U.S.-Pakistan efforts to provide economic development and job opportunities; and
* The institution of Pakistani political reforms that seek to incorporate the semi-autonomous border regions into the Pakistani nation-state.
Efforts to significantly increase U.S. economic aid to Pakistan over the next decade and to create Reconstruction Opportunity Zones near the border areas that would allow Pakistani goods U.S. duty-free access are currently under review by the U.S. Congress. Such measures would go a long way toward solidifying the U.S.-Pakistan partnership.
Moreover, these steps could facilitate change in the political and economic dynamics of the Pakistani border regions by creating economic opportunities that will help drain support for militant activities. None of this will be possible, however, unless the U.S. and Pakistan continue to work together with the recognition that the militants operating along the border pose a genuine threat both to the future of Pakistan as well as the safety and security of the broader international community.
Lisa Curtis is Senior Research Fellow for South Asia in the Asian Studies Center at The Heritage Foundation.
Copyright 2009 The Heritage Foundation. www.heritage.org Reproduced with permission. All rights reserved.


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