Overview

ANSYS, Inc.'s (hereafter the "Company" or "ANSYS") results for the year ended December 31, 2008 reflect a revenue increase of 24.1%, and basic and diluted earnings per share growth of 27.4% and 26.5%, respectively, as compared to 2007. These results were significantly impacted by the July 2008 acquisition of Ansoft. The results of operations include the results of Ansoft for the period from the date of acquisition (July 31, 2008) through December 31, 2008. The Company experienced higher revenues in 2008 from both the Ansoft acquisition and from license and maintenance growth in the Company's other products and services. These revenues were partially offset by increased intangible amortization costs and increased operating expenses, including higher salaries and related headcount costs, as well as the additional costs associated with the Ansoft business. Also, in connection with the acquisition of Ansoft on July 31, 2008, the Company borrowed $355.0 million. As of December 31, 2008, these remaining outstanding borrowings totaled $279.0 million. The Company's financial position includes $233.9 million in cash and short-term investments, and working capital of $129.5 million as of December 31, 2008.

ANSYS develops and globally markets engineering simulation software and services widely used by engineers and designers across a broad spectrum of industries, including aerospace, automotive, manufacturing, electronics, biomedical, energy and defense. Headquartered at Southpointe in Canonsburg, Pennsylvania, the Company and its subsidiaries employ approximately 1,750 people as of December 31, 2008 and focus on the development of open and flexible solutions that enable users to analyze designs directly on the desktop, providing a common platform for fast, efficient and cost-conscious product development, from design concept to final-stage testing and validation. The Company distributes its ANSYS and Ansoft suites 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 mixed 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. Given the current global economic conditions and the increased strength of the U.S. Dollar relative to other currencies in which the Company conducts transactions, the Company believes that there may be a future adverse impact on the Company's revenue streams and that these conditions may particularly impact the Ansoft product line as Ansoft has historically derived a significant portion of its total revenue from international sales. Please see the sub-sections entitled "Adverse Conditions in the Global Economy and Disruption in Financial Markets," "Decline in Customers' Business" and "Risks Associated with International Activities" under Item 1A - Risk Factors above for a complete discussion of how these factors might impact the Company's financial condition and operating results. 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 which are impacted not only by these long sales cycles but 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. Please see the sub-section entitled "Sales Forecasts" under Item 1A - Risk Factors above for a complete discussion of the potential impact of the Company's sales forecasts on the Company's financial condition and operating results.

The Company's management considers the intense 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, consultation and support, and enhancing its distribution channels. From time to time, the Company also considers acquisitions to supplement its product offerings and distribution channels.

The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires 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 fair value of stock awards, bad debts, contract revenue, valuation of goodwill, valuation of intangible assets, income taxes, and contingencies and litigation. The Company bases its estimates on historical experience, estimated future cash flows and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including the following statements, as well as statements that contain such words as "anticipates," "intends," "believes," "plans" and other similar expressions:

• The Company's intentions related to investments in global sales and marketing, research and development, its global business infrastructure and in complementary companies, products, services and technologies.

• Increased exposure to volatility of foreign exchange rates.

• Exposure to changes in domestic and foreign tax laws in future periods.

• Plans related to future capital spending.

• The Company's intentions regarding its mixed sales and distribution model.

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

• The Company's estimates regarding the effect that stock-based compensation will have on the financial results of the Company for fiscal year 2009.

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

• The Company's statements regarding the strength of its software products.

• The Company's statements regarding its short-term investments in the event an immediate cash need arises.

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

• The Company's statements regarding the strength of its financial position.

• The Company's statements regarding the benefits of its acquisitions.

• The Company's expectations regarding future claims related to indemnification obligations.

• The Company's statements regarding the impact of the acquisition of Fluent, including its impact on the breadth, functionality, usability and interoperability of the Company's portfolio of simulation solutions and statements regarding increased sales of the ANSYS FLUENT products.

• The Company's expectations regarding the allocation of the purchase price for Ansoft and the value of deferred revenue.

• The Company's estimates regarding expected interest expense on the July 31, 2008 term loan.

• The expected impact from currency exchange rate fluctuations.

• The Company's expectations of its revenue growth rate in 2009 and the related impact on the Company's operating income, net income and earnings per share.

• The Company's statement that the acquisition of Ansoft is expected to increase operational efficiency and lower design and engineering costs for customers, and accelerate development and delivery of new and innovative products to the marketplace.

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 the forward-looking statements. Certain factors that might cause such a difference include risks and uncertainties detailed in Item 1A.

Acquisitions

On July 31, 2008, the Company completed its acquisition of Ansoft, a global provider of electronic design automation software. Under the terms of the merger agreement, Ansoft stockholders received $16.25 in cash and 0.431882 shares of ANSYS common stock for each outstanding Ansoft share held on July 31, 2008. ANSYS issued an aggregate of 12.24 million shares of its common stock, including 1.95 million shares pursuant to assumed stock options, valued at approximately $432.6 million based on the average closing market price on the two days preceding and the two days following the announcement of the acquisition, and paid approximately $387.3 million in cash. The total purchase price of approximately $823.9 million includes approximately $4.0 million in transaction fees. The Company used a combination of existing cash and proceeds from a $355.0 million unsecured senior term loan credit facility to fund the transaction. In addition to the $4.0 million in transaction-related costs, the Company incurred financing costs of approximately $4.6 million related to the credit facility.

The operating results of Ansoft have been included in the Company's consolidated financial statements since the date of acquisition, July 31, 2008. The total purchase price was allocated to the foreign and domestic assets and liabilities of Ansoft based upon management's estimates of the fair market values of the assets acquired and the liabilities assumed. The allocation included $235.2 million to identifiable intangible assets (including $98.4 million to developed software to be amortized over ten years, $97.4 million to customer contracts and related relationships to be amortized over thirteen years, and $39.4 million to trademark to be amortized over ten years) and $601.1 million to goodwill, which is not amortized and not tax deductible. The acquisition of Ansoft enhanced the breadth, functionality, usability and interoperability of the combined ANSYS portfolio of engineering simulation solutions. The acquisition is expected to increase operational efficiency and lower design and engineering costs for customers, and accelerate development and delivery of new and innovative products to the marketplace.

In valuing deferred revenue on the Ansoft balance sheet as of the acquisition date, the Company applied the fair value provisions of Emerging Issues Task Force Issue No. 01-3, "Accounting in a Business Combination for Deferred Revenue of an Acquiree" ("EITF 01-3"). In accordance with EITF No. 01-3, acquired deferred revenue of $7.5 million was recorded on the opening balance sheet. This amount was approximately $23.5 million lower than the historical carrying value. Although this purchase accounting requirement had no impact on the

Company's business or cash flow, the Company's reported revenue under accounting principles generally accepted in the United States ("GAAP"), primarily for the first 12 months post-acquisition, is less than would have been reported by Ansoft absent the acquisition. The impact on reported revenue for the year ended December 31, 2008 was $1.7 million for lease license revenue and $13.0 million for maintenance revenue. The expected impact on reported revenue for the year ending December 31, 2009 is approximately $8.2 million.

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

                                                              At July 31,
        (in thousands)                                           2008
        Cash and other net tangible assets and liabilities   $      82,914
        Goodwill                                                   601,146
        Identifiable intangible assets                             235,200
        Net deferred tax liabilities                               (95,389 )

        Total preliminary purchase price allocation          $     823,871

Ansoft is in the process of preparing its tax returns for the year ended April 30, 2008 and for the pre-acquisition period from May 1, 2008 to July 31, 2008. As a result, the allocation of the purchase price is subject to refinement.

On May 1, 2006, the Company completed its acquisition of Fluent Inc. ("Fluent"), a global provider of computational fluid dynamics ("CFD")-based computer-aided engineering software and services. The acquisition of Fluent enhanced the breadth, functionality, usability and interoperability of the Company's portfolio of simulation solutions. Under the terms of the merger agreement, the Company issued 11,999,896 shares of its common stock, valued at approximately $274 million based on the average closing market price on the two days preceding and the two days following the announcement of the acquisition (February 16, 2006), and paid approximately $315 million in cash. The total purchase price of approximately $598 million includes approximately $9 million in transaction fees. The Company used a combination of existing cash and $198 million from committed bank financing to fund the transaction. In addition to the $9 million in transaction-related costs, the Company incurred financing costs of $1.9 million related to the long-term debt utilized to fund the acquisition.

The operating results of Fluent have been included in the Company's consolidated financial statements since the date of acquisition, May 1, 2006. The total purchase price was allocated to the foreign and domestic assets and liabilities of Fluent based upon management's estimates of the fair market values of the assets acquired and the liabilities assumed. The allocation included $213.9 million to identifiable intangible assets (including $88.0 million to developed software to be amortized over seven years, $65.9 million to customer contracts and related relationships to be amortized over nine and a half years, and $60.0 million to a non-amortizing trademark) and $404.3 million to goodwill, which is not tax deductible. The Fluent trademark is one of the most recognized among CFD technologies. The trademark represents a reputation of superior technical capability and strong support service that has been recognized by Fluent customers. Because the trademark continues to gain strength in the marketplace today, as evidenced by increased sales of ANSYS FLUENT software over the past several years, the Company had originally expected the trademark to contribute to cash flows indefinitely and, accordingly, had assigned an indefinite life to the trademark.

The Company reconsidered the indefinite life associated with the Fluent trademark, as well as the trademark acquired in the 2003 acquisition of CFX, as part of the product and naming strategy changes that occurred as a result of the July 31, 2008 acquisition of Ansoft and determined that these trademarks had a remaining useful life of ten years. Accordingly, on July 31, 2008, the Company began amortizing these trademarks over a ten-year period. During the third quarter of 2008, the Company completed an impairment test for these trademarks and determined that these assets had not been impaired as of the test date, July 31, 2008.

In valuing deferred revenue on the Fluent balance sheet as of the acquisition date, the Company applied EITF No. 01-3 and acquired deferred revenue of $31.5 million was recorded on the opening balance sheet. This amount was $20.1 million lower than the historical carrying value. Although this purchase accounting requirement had no impact on the Company's business or cash flow, the Company's reported software license revenue under accounting principles generally accepted in the United States, primarily for the first 12 months post-acquisition, was less than would have been reported by Fluent absent the acquisition by $1.8 million for the year ended December 31, 2007 and $18.4 million for the period of May 1, 2006 through December 31, 2006. There was no significant impact on reported revenue for the year ending December 31, 2008 from the Fluent acquisition as it relates to this purchase accounting requirement.

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

                                                              At May 1,
         (in thousands)                                          2006
         Cash and other net tangible assets and liabilities   $   25,856
         Goodwill                                                404,280
         Identifiable intangible assets                          213,900
         Net deferred tax liabilities                            (73,715 )
         In-process research and development                      28,100

         Total preliminary purchase price allocation          $  598,421

The Company expensed acquired in-process research and development ("IPR&D") of $28.1 million that represented incomplete Fluent research and development projects that had not reached technological feasibility and had no alternative future use as of the acquisition date.

Technological feasibility is established when an enterprise has completed all planning, designing, coding and testing activities that are necessary to establish that a product can be produced to meet its design specifications, including functions, features and technical performance requirements. The value assigned to IPR&D was determined by considering the importance of each project to the overall development plan, estimating costs to develop the purchased IPR&D into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present values based on the percentage of completion of the IPR&D projects. During 2007, the Company terminated the development of these projects.

During the years ended December 31, 2007 and 2006, the Company made acquisition payments unrelated to Ansoft or Fluent of $119,000 and $8.3 million, respectively. These amounts primarily relate to the 2005 acquisition of Century Dynamics, Inc. and contingent consideration paid in 2007 and 2006 related thereto. The 2006 payment also includes approximately $3.5 million related to the acquisition of certain independent channel partners.

Results of Operations

The operating results of Ansoft and Fluent have been included in the results of operations since the acquisition dates of July 31, 2008 and May 1, 2006, respectively.

For purposes of the following discussion and analysis, the table below sets forth certain consolidated financial data for the years 2008, 2007 and 2006.

                                                    Year Ended December 31,
       (in thousands)                          2008          2007          2006
       Revenue:
       Software licenses                     $ 318,154     $ 253,287     $ 156,960
       Maintenance and service                 160,185       132,053       106,680
       Total revenue                           478,339       385,340       263,640
       Cost of sales:
       Software licenses                         9,766         9,113         7,306
       Amortization                             27,803        21,532        14,909
       Maintenance and service                  53,845        47,402        34,512
       Total cost of sales                      91,414        78,047        56,727
       Gross profit                            386,925       307,293       206,913
       Operating expenses:
       Selling, general and administrative     134,887       115,108        86,901
       Research and development                 71,594        56,481        49,406
       Amortization                             10,713         8,935         6,350
       In-process research and development          -             -         28,100
       Total operating expenses                217,194       180,524       170,757
       Operating income                        169,731       126,769        36,156
       Interest expense                         (9,342 )      (6,822 )      (7,779 )
       Interest income                           5,575         4,916         4,766
       Other income (expense), net                 727          (600 )         (82 )
       Income before income tax provision      166,691       124,263        33,061
       Income tax provision                     55,020        41,871        18,905
       Net income                            $ 111,671     $  82,392     $  14,156

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Revenue:



                                          Year Ended December 31,           Change
   (in thousands, except percentages)       2008            2007       Amount        %
   Revenue:
   Lease licenses                       $     177,427    $  150,554   $ 26,873      17.8
   Perpetual licenses                         140,727       102,733     37,994      37.0
   Software licenses                          318,154       253,287     64,867      25.6
   Maintenance                                135,773       104,939     30,834      29.4
   Service                                     24,412        27,114     (2,702 )   (10.0 )
   Maintenance and service                    160,185       132,053     28,132      21.3
   Total revenue                        $     478,339    $  385,340   $ 92,999      24.1

The increase in software license revenue was the result of overall growth in both lease and perpetual license sales, as well as the addition of Ansoft-related license revenue of $21.1 million for the period from the acquisition (July 31, 2008) through December 31, 2008.

The increase in maintenance revenue was primarily the result of annual maintenance subscriptions sold in connection with new perpetual license sales in recent quarters and Ansoft-related maintenance revenue of $8.4 million for the period from the acquisition (July 31, 2008) through December 31, 2008.

The decrease in service revenue was primarily the result of reduced revenue from engineering consulting services. This decrease was partially offset by service revenue of $700,000 related to the Company's 2008 biennial users' conference.

With respect to revenue, on average, for the year ended December 31, 2008, the U.S. Dollar was approximately 2.8% weaker, when measured against the Company's primary foreign currencies, than for the year ended December 31, 2007. The U.S. Dollar weakened against the Euro, Chinese Renminbi, Swedish Krona and the Japanese Yen, while it strengthened against the British Pound, Indian Rupee and Canadian Dollar. The net overall weakening throughout the year resulted in increased revenue and operating income during 2008, as compared with 2007, of approximately $5.5 million and $2.2 million, respectively.

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 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 remains at current levels, incremental lease contracts and maintenance contracts sold with new perpetual licenses will result in license and maintenance revenue growth.

The Company's revenue increased 24.1% and 46.2% in 2008 and 2007, respectively. These growth rates are influenced by both the Company's organic growth rate, incremental growth associated with acquired companies, as well as the positive impact of currency fluctuations. Although the Company's overall revenue growth in 2009 will benefit from the inclusion of a full twelve months of Ansoft operations as compared to five months of Ansoft operations in 2008, the Company is anticipating a reduction in the revenue growth rate of the non-Ansoft operations as compared to recent historical periods. This slowing revenue growth is significantly impacted by the current disruption in domestic and global economies, as well as by the Company's expectation that currency fluctuations will have an adverse impact on revenue growth in 2009. Reductions in the Company's revenue growth rate are also expected to adversely impact the Company's operating income, net income and earnings per share in 2009.

International and domestic revenues, as a percentage of total revenue, were 68.3% and 31.7%, respectively, during the year ended December 31, 2008 and 65.8% and 34.2%, respectively, during the year ended December 31, 2007.

In valuing deferred revenue on an acquired company's balance sheet as of the acquisition date, the Company applied the fair value provisions of Emerging Issues Task Force Issue No. 01-3, "Accounting in a Business Combination for Deferred Revenue of an Acquiree" ("EITF No. 01-3"). Although this purchase accounting requirement had no impact on the Company's business or cash flow, the Company's reported revenue under accounting principles generally accepted in the United States, primarily for the first 12 months post-acquisition, is less than would have been reported by the acquired company absent the acquisition.

In accordance with EITF No. 01-3, acquired deferred revenue of $7.5 million was recorded on the Ansoft opening balance sheet. This amount was approximately . . .