Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ACCL > SEC Filings for ACCL > Form 10-K on 10-Mar-2014All Recent SEC Filings

Show all filings for ACCELRYS, INC.

Form 10-K for ACCELRYS, INC.


10-Mar-2014

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected Consolidated Financial Data" and our consolidated financial statements and related notes thereto included elsewhere in this Report.
In addition to historical information, the following discussion contains forward-looking statements that are subject to certain risks and uncertainties, including those risks and uncertainties described in Item 1A of this Report. Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to those risks and uncertainties.

Overview
On July 1, 2010, pursuant to the terms of the Merger Agreement, by and among us, Symyx Merger Sub and Symyx , Symyx Merger Sub merged with and into Symyx, with Symyx surviving as our wholly owned subsidiary. Symyx's operating results are included in our consolidated financial statements and results of operations beginning July 1, 2010.
On May 19, 2011, we completed the Contur Acquisition, whereby Contur became our wholly owned subsidiary. Contur's operating results are included in our consolidated financial statements and results of operations beginning May 19, 2011.
On December 30, 2011, we completed the Velquest Acquisition, whereby VelQuest became our wholly owned subsidiary. VelQuest's operating results are included in our consolidated financial statements and results of operations beginning December 30, 2011.


On May 17, 2012, we acquired the HEOS software platform from Scynexis, Inc. The operating results of the HEOS platform are included in our consolidated financial statements and results of operations beginning May 17, 2012. On October 23, 2012, we completed the Aegis Acquisition, whereby Aegis became our wholly owned subsidiary. Aegis's operating results are included in our consolidated financial statements and results of operations beginning October 23, 2012.
On January 11, 2013, we completed the Vialis acquisition, whereby Vialis became our wholly owned subsidiary. Vialis' operating results are included in our consolidated financial statements and results of operations beginning January 11, 2013.
On September 3, 2013, we completed the ChemSW Acquisition, whereby ChemSW became our wholly owned subsidiary. ChemSW's operating results are included in our consolidated financial statements and results of operations beginning September 3, 2013.
On December 9, 2013, we completed the Qumas Acquisition, whereby Qumas became our wholly owned subsidiary. Qumas' operating results are included in our consolidated financial statements and results of operations beginning December 9, 2013.


Recent Developments

On January 30, 2014, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Dassault Systemes Americas Corp., a Delaware corporation (" DSAC") and a wholly owned indirect subsidiary of Dassault Syst่mes SA, a French corporation with limited liability, and 3DS Acquisition Corp., a Delaware corporation and wholly owned subsidiary of DSAC ("Purchaser"). Pursuant to the terms of the Merger Agreement, on February 13, 2014, Purchaser commenced a tender offer (the "Offer") to purchase all of the outstanding shares of our common stock at a price per share of $12.50, net to the seller in cash, without interest (such amount, as it may be adjusted from time to time on the terms and subject to the conditions set forth in the Merger Agreement the "Offer Price"), and subject to any required withholding of taxes. The initial expiration date of the Offer is 12:00 midnight, New York City time, on March 13, 2014 (which is the end of the day on March 13, 2014), subject to extension in certain circumstances as required or permitted by the Merger Agreement. The consummation of the Offer is subject to customary closing conditions, including, among other things, (i) the valid tender of shares of our common stock representing at least a majority of the total outstanding shares of our common stock, calculated on a fully diluted basis, (ii) the expiration or termination of waiting periods and the obtaining of all applicable consents or approvals required under applicable antitrust, competition and trade regulation laws of Germany and Austria and (iii) the conclusion or termination of review by The Committee on Foreign Investment in the United States.
Upon completion of the Offer, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Purchaser will be merged with and into Accelrys, Inc. and Accelrys, Inc. will survive as a wholly owned subsidiary of DSAC (the "Merger"). The Merger Agreement provides that the Merger will be governed by Section 251(h) of the Delaware General Corporation Law (the "DGCL") and will be effected as soon as practicable following the consummation of the Offer without a vote of our stockholders pursuant to Section 251(h) of the DGCL. Upon completion of the Merger, each outstanding share of our common stock (other than shares owned by Accelrys, Inc., DSAC or Purchaser or their subsidiaries and shares owned by holders who have validly exercised their appraisal rights under the DGCL) will be canceled and converted into the right to receive an amount in cash equal to the Offer Price, payable to the holder thereof on the terms and subject to the conditions set forth in the Merger Agreement. In addition, upon completion of the Merger, (i) each outstanding option to purchase our common stock, whether vested or unvested, will be canceled, with the holder thereof becoming entitled to receive an amount in cash equal to (a) the excess, if any, of (1) the Offer Price minus (2) the exercise price per share of common stock subject to such option, multiplied by (b) the number of shares of common stock subject to such option, and (ii) each outstanding RSU will be canceled, with the holder thereof becoming entitled to receive an amount in cash equal to the product of (a) the number of shares of our common stock subject to such RSU and
(b) the Offer Price. The Merger Agreement contains customary representations, warranties and covenants, including, among other things, covenants regarding the operation of our business prior to the completion of the Merger and covenants obligating us to use reasonable best efforts to obtain required regulatory approvals. The Merger Agreement also contains customary "no solicitation" provisions restricting our ability to solicit or participate in discussions regarding any third-party proposals relating to alternative transactions, subject to certain exceptions to permit our board of directors to comply with its fiduciary duties, including in connection with our receipt of an unsolicited written proposal relating to an alternative transaction that our board of directors determines is or would reasonably be expected to result in a superior proposal. The Merger Agreement also includes customary termination provisions in favor of both us and DSAC, and provides that in connection with the termination of the Merger Agreement under certain circumstances, we must pay DSAC a termination fee of $25,000,000, including due to termination of the Merger Agreement by us to accept a superior proposal. Our Business
As the leading provider of scientific innovation lifecycle management software, we develop and commercialize informatics software products and services for industries and organizations that rely on scientific innovation to differentiate themselves in the marketplace, with a particular emphasis on pharmaceutical, biotechnology, energy, chemicals, food and beverage and consumer packaged goods companies. The Accelrys Enterprise Platform provides a broad, flexible science-based foundation optimized to integrate the diversity of science, experimental processes and information requirements across the research, development, process scale-up and manufacturing phases of product development. Our software applications for Modeling and Simulation, Research Informatics, Laboratory Informatics, Enterprise Quality Management, Environmental Health & Safety and Operations Intelligence enable innovators to access, organize, analyze and share data in unprecedented ways, ultimately enhancing innovation, improving productivity, reducing compliance risk, lowering costs, enhancing sustainability and accelerating products from lab to market. Additionally, our software manages and connects scientific


innovation processes and information with other lifecycle systems including Enterprise Resource Planning (ERP) and Product Lifecycle Management (PLM) systems.
Our acquisitions over the past two years have been critical initiatives in increasing the breadth and depth of our product portfolio by extending our offerings beyond research and into development and manufacturing with a view to covering the end-to-end product lifecycle.
The Aegis Acquisition expanded our portfolio into downstream operations with new solutions supporting Operations Intelligence in enterprise manufacturing. In addition, the Vialis Acquisition has added system integration capabilities that have strengthened our position in the Laboratory Informatics market with added capabilities in the downstream analytical development, quality control and quality assurance and manufacturing areas. The ChemSW Acquisition has enabled us to provide solutions for managing and tracking the source, use and disposal of chemicals along the entire lab-to-plant value chain. The Qumas Acquisition has further extended our informatics portfolio with the addition of proven, mission-critical, end-to-end document and process management compliance solutions.
The acquisition of the web-based HEOS drug research information management and collaboration system brought us a cloud-based offering that enables more efficient and streamlined drug delivery collaborations, particularly with organizations leveraging contract research organizations and other groups for externalized R&D projects. The HEOS system has recently been incorporated into ScienceCloud by Accelrys, a new information management and collaboration workspace in the cloud that advances collaborative drug discovery with a new generation of integrated, SaaS-based applications and social communication capabilities to enhance collaborative drug discovery.
Collectively, our products and services are intended to optimize our customers' lab-to-commercialization value chains, from early research through development to manufacturing. Our software is used by scientists, biologists, chemists, engineers and information technology professionals to design, execute and manage experiments in-silico or in the lab and to aggregate, mine, manage, analyze and interactively report on the data resulting from those experiments. Our solutions enable effective scale-up of development processes, automate the transition from development to manufacturing, manage quality control and quality assurance operations and monitor process and product quality, thereby reducing compliance risk. The ability to integrate and access data from diverse data sources and to make that information accessible throughout the scientific innovation value chain enables our customers to reduce costs and enhance productivity in developing products that meet quality and compliance standards. Our customers include leaders from a variety of industries, including pharmaceutical, biotechnology, energy, chemicals, food and beverage and consumer packaged goods companies, as well as government and academic entities. We market our software products and services worldwide, principally through our direct sales force, augmented by the use of third-party distributors. We are headquartered in San Diego, California and were incorporated in Delaware in 1993.
Description of Our Markets and Business
Our customers rely on science to innovate in their products and processes, differentiating themselves through scientific innovation. As a result, innovation in the discovery, development and manufacturing of new products; compliance with applicable regulations; rapid, cost-effective commercialization of products; and the ability to protect the intellectual property are all crucial to our customers' success. Therefore, our customers invest considerable resources in technologies like those of Accelrys that help them to effectively design, plan and execute experiments in a repeatable process and in compliance with regulations; leverage the vast amounts of information stored in both corporate databases and public data sources to optimize their processes and accelerate innovation; model, predict and analyze potential outcomes; improve product and process understanding throughout development lifecycles; and access comprehensive, integrated and cross-referenced databases and reference works. The pharmaceutical and biotechnology industries are a very important part of our business. Our products have been widely adopted within the research functions of businesses in these industries and are gaining increased traction in the development, QA/QC and manufacturing functions of such businesses. However, these markets present challenges due to industry consolidation, market maturity, patent expirations, reduced discovery research activity, increased competition, including competition from open source software, and outsourcing of research to other entities. The other industries we serve, including energy, chemicals, food and beverage, and consumer packaged goods, are earlier in the adoption curve for such scientific software products but are increasingly investigating their value, which we view as both a challenge and an opportunity.


Business Strategy
Research and development organizations face several challenges that impact their ability to comply with applicable regulations, protect their intellectual property and rapidly and cost-effectively bring products to market. Scientific data is often found in disparate databases and research, development and manufacturing processes are disconnected, manually intensive, inefficient and repetitive. These challenges have made it difficult for organizations to manage the innovation lifecycle to bring novel products to market faster, more efficiently and more sustainably with reduced compliance risk. Our strategy is to partner with customers to optimize their scientific innovation lifecycle management from discovery through commercialization. Consequently, we are extending beyond our historically strong presence in research downstream to offer customers an integrated portfolio of software and services addressing the entire product lifecycle. This means moving into new domains, including biology; and expanding our presence outside of the pharmaceutical and biotech industries into other key industries such as energy, chemicals, food and beverage and consumer packaged goods companies. We do this by addressing the core challenges faced by R&D and quality organizations, offering them an open enterprise-scale scientific software platform and a broad portfolio of software applications leveraging our deep domain expertise in chemistry, biology and the materials sciences. We believe the combination of the Accelrys Enterprise Platform with its Component Collections and associated set of applications and services including the Accelrys Pipeline Pilot authoring application and software capabilities in Modeling and Simulation, Research Informatics, Laboratory Informatics, Enterprise Quality Management, Environmental Health & Safety and Operations help optimize the scientific innovation lifecycles of our customers. Additionally, our software manages and connects scientific processes and information with other lifecycle systems, including Enterprise Resource Planning (ERP) and Product Lifecycle Management (PLM) systems.
The new products and domain expertise we have gained as a result of our acquisitions over the past two years, including QUMAS, ChemSW, Vialis and Aegis, provide greater value to the development, QA/QC and manufacturing functions of our customer organizations. Our plan is to continue to integrate and augment these offerings to further enhance the value of the products and expertise we acquired and our overall product portfolio. The combined Qumas and Accelrys product portfolios provide the industry's only complete solution supporting quality and regulatory compliance across the product lifecycle, from product ideation through R&D to quality, manufacturing and supply chain. The integration of ChemSW's inventory management software into Accelrys' robust enterprise platform enables our combined customer base to comply with challenging global, national and local environmental health & safety regulations. The Aegis Acquisition further expands our downstream footprint with Accelrys Discoverant, the industry-leading Operations Intelligence software solution.
Our strategy also includes offering professional services to tailor the Accelrys Enterprise Platform to our customers' individual business needs, thereby increasing the utility and value of the Accelrys Enterprise Platform. Because the Accelrys Enterprise Platform is the underlying operating infrastructure for many products in our broad portfolio, and integration with the applications obtained as part of our acquisition strategy continues to be a development priority, we expect the use of these products to expand as the use of the platform grows, thus further increasing our sales and value to customers. The Vialis Acquisition adds new services capabilities to our portfolio and further strengthens our position in the Laboratory Informatics software market. The Accelrys Enterprise Platform is an open, scientifically aware platform. We partner with third-party organizations and academic institutions that develop scientific software and services, and we enable and encourage these companies to develop applications that operate on our platform, further extending its utility and value to customers.
We also focus on industries in markets where scientific innovation is a key differentiator and where our depth of experience from research to manufacturing and our proven enterprise solutions are highly valued. With over 225 Ph.D. scientists within our global workforce, we are deeply invested in science. As we increase our presence in science-driven markets within the pharmaceutical, biotechnology, energy, chemicals, food and beverage and consumer packaged goods sectors, we believe our ability to attract additional customers will increase. Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP"). The preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. We review our estimates on an on-going basis, including those related to income taxes and the valuation of goodwill, intangibles and other long-lived assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Our accounting


policies are described in more detail in Note 1 to our consolidated financial statements included elsewhere in this Report. We have identified the following as the most critical accounting policies and estimates used in the preparation of our consolidated financial statements. Revenue Recognition
We generate revenue from the following primary sources:
• software licenses,

• post-contract customer support and maintenance services on licensed software (collectively referred to as "PCS"),

• content, and

• professional services.

Customer billings issued in connection with our revenue-generating activities are initially recorded as deferred revenue. We then recognize the revenue from these customer billings as set forth below and when all of the following criteria are met:

•            a fully executed written contract or purchase order has been
             obtained from the customer (i.e., persuasive evidence of an
             arrangement exists),


•            the contractual price of the product or service has been defined and
             agreed to in the contract or purchase order (i.e., price is fixed or
             determinable),


•            delivery of the product or service has occurred and no material
             uncertainties regarding customer acceptance of the delivered product
             or service exist, and

• collection of the purchase price from the customer is considered probable.

Software Licenses. We license software on a term and perpetual basis. When sold perpetually, our standard perpetual software licensing arrangements generally include twelve months of bundled PCS, while our standard term-based software licensing arrangements typically include PCS for the full duration of the term license. In limited cases, multi-year term licenses (generally ranging from two to three years) are sold in conjunction with twelve months of maintenance. In relation to arrangements including products for which we have established vendor-specific objective evidence ("VSOE") of selling price of the related undelivered elements, we recognize the software licensing revenue upon delivery, after any required re-allocation, assuming all other revenue recognition criteria have been satisfied. For the majority of the license revenues we sell we have concluded that we do not have VSOE. For the products where VSOE of selling price does not exist, the entire fee for perpetual and term-based licenses are generally recognized ratably over the contractual term of the bundled PCS. In addition, certain provisions, such as mandatory PCS or product remix rights that do not qualify as exchange accounting, preclude upfront recognition of the software license revenue. In such cases, the arrangements are considered in substance subscriptions and all contractual fees are recognized over the contractually stated PCS period.
Renewal of PCS Under Perpetual Software Licenses. Our PCS includes the right to receive unspecified upgrades or enhancements and technical support. Fees from customer renewals of PCS related to previously purchased perpetual licenses are recognized ratably over the term of the PCS when sold as a multiple element arrangement.
Content. Content is licensed on a term basis and provides customers with access to the licensed content over the term of the agreement. Revenue from these licensing arrangements is recognized ratably over the term of the agreement, which is typically twelve months and coincides with the term of the PCS and/or licensed software.
Professional Services. We provide certain services to our customers, including non-complex product training, installation, implementation and other professional services which are non-essential to the operation of the software. We also perform professional services for our customers designed to enhance the value of our software products by creating extensions to functionality to address a client's specific business needs. When sold separately, revenue from time and materials service engagements are generally recognized as the services are performed. Revenue from fixed fee service engagements is recognized as the services are performed using the percentage-of-completion method when we can reasonably estimate the level of effort required to complete our performance obligations under an arrangement and such performance obligations are provided on a best-efforts basis. For service arrangements that include provisions that create significant uncertainties (e.g., customer acceptance) or service deliverables wherein the level of effort to complete the services cannot be reasonably estimated, the associated revenue is recognized using the completed performance method.
Hosting Services. We are an application service provider ("ASP"), meaning we provide hosting services that give customers access to software that resides on our servers. The ASP model typically includes an up-front fee and a monthly commitment from the customer that commences upon completion of the implementation through the remainder of the customer life. The up-front fee is the initial setup fee, or the implementation fee. The monthly commitment includes, but is not limited to, a fixed monthly fee or a transactional fee based on system usage that exceeds monthly minimums. We do not view the signing


of the contract or the provision of initial setup services as discrete earnings events that have stand-alone value. Revenue is typically deferred until the date the customer commences use of our services, at which point the up-front fees are recognized ratably over the life of the customer arrangement.
Multi-Element Arrangements. For multi-element arrangements that include software licenses, PCS, and non-essential installation and implementation services, the entire fee for such arrangements is recognized as revenue ratably over the term of the PCS or delivery of the services, whichever is longer. For multi-element arrangements that also include services that are essential to the operation of the software, the fee for such arrangements is generally deferred until the services essential to the operation of the software have been performed, at which point the entire fee for such arrangements is recognized as revenue ratably over the remaining term of the PCS or the delivery of the non-essential services, whichever is longer. For financial statement presentation purposes, we allocate the arrangement fee to the software-related elements and the non-software-related elements based upon the relative standard list price of the products and/or services that comprise each element, which is our best estimate of selling price.
Royalty Income
We recognize royalty income based on reported sales by third party licensees of products containing the applicable licensed materials and intellectual property. Royalty revenue is recognized as these payments become due. Non-refundable royalties, for which there are no further performance obligations, are recognized when due under the terms of the applicable agreements. Royalty income is included in the royalty and other income, net line on the consolidated statements of operations.
Goodwill and Purchased Intangible Assets Our goodwill resulted from acquisitions in fiscal years 1999 through 2013. Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually or as circumstances indicate that their value may no longer be recoverable. In accordance with ASC Topic 350, Intangibles-Goodwill and Other ("ASC Topic 350"), we review our goodwill and indefinite-lived intangible asset for impairment at least annually in our fiscal fourth quarter and more frequently if events or changes in circumstances occur that indicate a potential reduction in the fair value of our reporting unit and/or our indefinite-lived intangible asset below their respective carrying values. Examples of such events or circumstances include: a significant adverse change in legal factors or in the business climate, a significant decline in our stock price, a significant decline in our projected revenue or cash flows, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, or the presence of other indicators that would indicate a reduction in the fair value of a reporting unit. . . .

  Add ACCL to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ACCL - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.