<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: DECEMBER 30, 1995 Commission File Number: 0-18059
----------------- ----------
PARAMETRIC TECHNOLOGY CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2866152
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
128 TECHNOLOGY DRIVE, WALTHAM, MA 02154
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(617) 398-5000
----------------------------------------------------
(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.
YES X NO
---------- ----------
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 63,110,212
- -------------------------------------- --------------------------------
Class Outstanding at December 30, 1995
Total number of pages: 10
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
INDEX
-----
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheet 3
December 30, 1995 and September 30, 1995
Consolidated Statement of Income 4
Three months ended December 30, 1995 and December 31, 1994
Consolidated Statement of Cash Flows 5
Three months ended December 30, 1995 and December 31, 1994
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6 Report on Form 8-K 9
SIGNATURE 10
2
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PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET
(amounts in thousands)
<TABLE>
<CAPTION>
ASSETS December 30, 1995 September 30, 1995
------------------ ------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $164,477 $145,638
Short-term investments 184,983 162,610
Accounts receivable, net of allowance for doubtful
accounts of $2,690 and $2,733 83,223 80,405
Other current assets 10,118 11,079
-------- --------
Total current assets 442,801 399,732
Property and equipment, net 23,367 19,811
Capitalized computer software costs, net 4,083 4,380
Other assets 27,079 29,804
-------- --------
Total assets $497,330 $453,727
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 23,266 $ 19,578
Accrued compensation 16,286 19,821
Deferred revenue 38,925 37,953
Income taxes 2,845 4,678
-------- --------
Total current liabilities 81,322 82,030
Other liabilities 817 768
Stockholders' equity:
Preferred stock, $.01 par value; 5,000 shares authorized;
none issued -- --
Common stock, $.01 par value; 75,000 shares authorized;
63,215 and 62,565 shares issued 632 626
Additional paid-in capital 174,448 156,122
Cumulative translation adjustments 968 1,710
Unrealized gain on investments 195 --
Retained earnings 245,491 212,471
Treasury stock, at cost, 105 and 0 shares (6,543) --
-------- --------
Total stockholders' equity 415,191 370,929
-------- --------
Total liabilities and stockholders' equity $497,330 $453,727
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(amounts in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
December 30, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Revenue:
License $ 91,430 $58,445
Service 33,967 20,403
-------- -------
Total revenue 125,397 78,848
-------- -------
Cost of revenue:
License 779 574
Service 11,675 6,390
-------- -------
Total cost of revenue 12,454 6,964
-------- -------
Gross profit 112,943 71,884
-------- -------
Operating expenses:
Sales and marketing 50,451 32,215
Research and development 7,825 5,371
General and administrative 5,934 4,439
-------- -------
Total operating expenses 64,210 42,025
-------- -------
Operating income 48,733 29,859
Other income, net 3,023 1,714
-------- -------
Income before income taxes 51,756 31,573
Provision for income taxes 18,736 11,798
-------- -------
Net income $ 33,020 $19,775
======== =======
Net income per share $ 0.50 $ 0.31
====== ======
Weighted average number of common
and dilutive common equivalent
shares outstanding 66,475 63,458
======== =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
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PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
December 30, 1995 December 31, 1994
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 33,020 $ 19,775
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 3,288 1,718
Deferred income taxes 2,613 32
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (3,427) 1,099
Increase in other current assets (443) (3,692)
(Increase) decrease in other assets 1,260 (89)
Increase in accounts payable and accrued expenses 3,775 100
Decrease in accrued compensation (3,496) (2,196)
Increase in income taxes 6,559 2,694
Increase in deferred revenue 1,214 3,269
-------- --------
Net cash provided by operating activities 44,363 22,710
-------- --------
Cash flows from investing activities:
Additions to property and equipment, net (5,931) (856)
Additions to capitalized computer software costs (200) (535)
Proceeds from sales of short-term investments 36,626 10,121
Purchases of short-term investments (58,803) (78,593)
-------- --------
Net cash used by investing activities (28,308) (69,863)
-------- --------
Cash flows from financing activities:
Repayment of long-term obligations (35) (89)
Short-term borrowings, net -- (600)
Proceeds from issuance of common stock 9,975 2,346
Purchase of treasury stock (6,543) --
-------- --------
Net cash provided by financing activities 3,397 1,657
-------- --------
Elimination of Rasna's net cash activity for the
three months ended December 31, 1994 -- (112)
Effect of exchange rate changes on cash (613) (432)
-------- --------
Net increase (decrease) in cash and cash equivalents 18,839 (46,040)
Cash and cash equivalents at beginning of period 145,638 142,202
-------- --------
Cash and cash equivalents at end of period $164,477 $ 96,162
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, and have been
prepared by the Company in accordance with generally accepted accounting
principles. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
those of a normal recurring nature, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows at the dates
and for the periods indicated. While the Company believes that the disclosures
presented are adequate to make the information not misleading, these financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Company's Annual Report on Form 10-
K for the fiscal year ended September 30, 1995.
The results of operations for the three-month period ended December 30,
1995 are not necessarily indicative of the results expected for the full fiscal
year.
2. SUPPLEMENTAL CASH FLOW INFORMATION:
The Company made income tax payments of $8,987,000 and $4,422,000 during
the three months ended December 30, 1995 and December 31, 1994, respectively.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Parametric Technology Corporation is a leading supplier of software tools
used to automate the mechanical development of a product from its conceptual
design through its release into manufacturing. The Company derives its revenue
from the sale and support of software used in the mechanical segment of the
CAD/CAM/CAE (computer-aided design, manufacturing and engineering) industry.
RESULTS OF OPERATIONS
Revenue, including license and service revenues, for the three-month period
ended December 30, 1995 was $125,397,000 compared with $78,848,000 for the
three-month period ended December 31, 1994. This total represents an increase
of 59% over the corresponding period in fiscal 1995. The increase in license
revenue results from an increase in the number of seats of software licensed and
from a higher price realized per seat. A seat of software generally consists of
the Company's core product, Pro/ENGINEER(R), together with several other
software modules, configured to serve the needs of a single end-user. The
number of seats of software licensed during the three-month period ended
December 30, 1995 were approximately 5,000, compared with approximately 3,600
seats during the same period in fiscal 1995. The increase in the number of
seats licensed was achieved as a result of continued market penetration of the
Company's products. The average price per seat during the three months ended
December 30, 1995 was approximately $18,300, compared with an average price of
approximately $16,200 for the same period in fiscal 1995. Service revenue is
derived from the sale of software maintenance contracts and the performance of
training and consulting services. During the three-month period ended December
30, 1995, service revenue increased to 27% of total revenue from 26% during the
three-month period ended December 31, 1994 as a result of the growth in the
Company's installed customer base and increased training and consulting services
performed for those customers. Revenue outside of North America accounted for
53% of revenue for the three-month period ended December 30, 1995 compared with
46% for the same period in fiscal 1995. These increases are a result of the
Company's continued investment in the international marketplace. The Company
expects that total revenue will increase throughout fiscal 1996 from continued
penetration in the mechanical CAD/CAM/CAE industry, and that international
revenue will continue to account for a significant portion of that total growth.
Consistent with past experience, a high percentage of the Company's
revenues are expected to be realized in the third month of each fiscal quarter
and tend to be concentrated in the latter half of that month. The Company's
orders early in a quarter will not generally be large enough to assure that it
will meet its revenue targets for any particular quarter. Accordingly, the
Company's quarterly results may be difficult to predict until the end of the
quarter, and a shortfall in shipments or contract orders at the end of any
particular quarter may cause the results for that quarter to fall short of
anticipated levels.
Cost of license revenue consists of the amortization of capitalized
computer software costs as well as material and overhead costs associated with
compact disks, packaging and shipping. Cost of service revenue includes the
costs associated with training, software maintenance and consulting revenues.
Combined, these expenses increased to $12,454,000 for the three-month period
ended December 30, 1995 from $6,964,000 for the corresponding period in fiscal
1995. Total cost of revenue as a percentage of revenue increased to 10% for the
three-month period ended December 30, 1995 from 9% in the corresponding period
in fiscal 1995. The absolute and percentage increases in total cost of revenue
resulted primarily from growth in staffing necessary to generate and support
increased worldwide service revenue and material costs associated with increased
revenue. Cost of service revenue, which is the largest component of total cost
of revenue, increased 83% during the three-month period ended December 30, 1995
from the corresponding period in fiscal 1995, while the associated revenue
increased 66%.
Sales and marketing expenses increased to $50,451,000 for the three-month
period ended December 30, 1995 from $32,215,000 for the corresponding period in
fiscal 1995, but decreased as a percentage of revenue to 40% for the three-month
period ended December 30, 1995, compared with 41% for the comparable period in
fiscal 1995. The absolute increase in these expenses was due principally to
worldwide expansion of the sales force and sales commissions associated with
higher revenue. International sales and marketing expenses represented 62% of
total sales and marketing expenses for the three-month period ended December 30,
1995 compared with 48% for the comparable period in fiscal 1995. The Company
expects to continue the
7
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growth of its worldwide sales and marketing organization during future periods,
reflecting the Company's commitment to expand its global market penetration.
The Company continued to make significant investments in research and
development. Research and development expenses increased to $7,825,000 for the
three-month period ended December 30, 1995 from $5,371,000 for the corresponding
period in fiscal 1995. Total research and development expenses decreased to 6%
of revenue for the three-month period ended December 30, 1995 from 7% for the
comparable period in fiscal 1995. The absolute increase in expenses resulted
primarily from growth in the research and development staff.
Software development costs of $200,000 and $535,000 during the three-month
periods ended December 30, 1995 and December 31, 1994, respectively, have been
capitalized in accordance with Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed". The amounts capitalized represent 2% and 9% of total
research and development costs during such periods. Capitalized computer
software costs are amortized over the economic useful lives of the related
products, typically three years.
General and administrative expenses include the costs of corporate,
finance, human resources and administrative functions of the Company. These
expenses increased to $5,934,000 for the three-month period ended December 30,
1995 from $4,439,000 for the corresponding period in fiscal 1995, while
decreasing as a percentage of revenue to 5% for the three-month period ended
December 30, 1995 from 6% for the comparable period in fiscal 1995. The absolute
increase in these expenses was primarily due to the hiring of additional
employees necessary to support the Company's worldwide growth.
Other income, net, primarily includes interest income and expense and
foreign currency gains and losses. Interest income increased to $3,308,000 for
the three-month period ended December 30, 1995 compared with $1,868,000 for the
corresponding period in fiscal 1995 due primarily to higher interest-bearing
cash and short-term investment balances, which resulted from positive cash flows
from operations and proceeds from stock option exercises.
A growing percentage of the Company's revenue and expenses are transacted
in foreign currencies. As a result, the Company's international results of
operations are subject to foreign exchange fluctuations. The Company enters into
forward exchange contracts to hedge specific foreign currency denominated
receivables to offset a portion of the foreign exchange fluctuations.
The Company's effective tax rate for the three-month period ended December
30, 1995 was 36.2%, compared with 37.4% for the same period in fiscal 1995. The
difference between the effective and statutory federal rate was due primarily to
the benefit of tax exempt interest income offset by the impact of state income
taxes.
The number of worldwide employees increased 47% to 2,171 at December 30,
1995 compared with 1,473 at December 31, 1994. Employment increased
significantly to support higher revenues and international expansion, with the
largest portion of this growth occurring in the sales and marketing department
and employees associated with cost of revenue activities.
LIQUIDITY AND CAPITAL RESOURCES
As of December 30, 1995, the Company had $164,477,000 of cash and cash
equivalents and $184,983,000 of short-term investments. Net cash provided by
operating activities, consisting primarily of net income from operations and the
increase in income taxes and accounts payable and accrued expenses, offset by
the increase in accounts receivable was $44,363,000 for the three-month period
ended December 30, 1995 compared with $22,710,000 for the corresponding period
in fiscal 1995. Investment activities consisted primarily of purchases and
sales of short-term investments and additions to property and equipment. Net
cash used by investing activities totaled $28,308,000 for the three-month period
ended December 30, 1995, compared with $69,863,000 for the corresponding period
in fiscal 1995. Net cash provided by financing activities, consisting primarily
of proceeds from issuance of common stock offset by the purchase of treasury
stock, was $3,397,000 and $1,657,000 for the three months ended December 30,
1995 and December 31, 1994, respectively.
On May 12, 1994, the Company announced that its Board of Directors had
authorized a plan that allows the repurchase of its common stock. The plan
authorizes the Company to acquire up to 3,000,000 shares of its common stock
from time to
8
<PAGE>
time in the open market or through privately negotiated transactions. During the
three-month period ended December 30, 1995, the Company repurchased 105,000
shares at a cost of $6,543,000, all of which remained in treasury at December
30, 1995. The total amount of cash required in current and future periods to
repurchase the full number of shares authorized but not repurchased would be
approximately $182,000,000 based upon the closing stock price on December 29,
1995. During fiscal 1996, the Company intends to repurchase additional shares to
partially offset the dilution caused by the exercise of stock options under the
Company's option plans and the purchase of shares under the employee stock
purchase plan. The Company expects to use available cash and cash generated from
operations in future fiscal periods to fund any such repurchases.
The Company believes that existing cash and short-term investment balances
together with cash generated from operations will be sufficient to meet the
Company's working capital, financing and capital expenditure requirements
through at least fiscal 1996.
Market prices for securities of software companies have generally been
volatile. In particular the market price of the Company's common stock has been
and may continue to be subject to significant fluctuations. These fluctuations
may be due to factors specific to the Company or to factors affecting the
computer industry or securities markets in general.
Part II - OTHER INFORMATION
ITEM 6: Report on Form 8-K
On November 22, 1995, the Company filed a Current Report on Form 8-K
announcing a change in the Company's independent accountants from Price
Waterhouse LLP to Coopers & Lybrand L.L.P. effective for the fiscal year ending
September 30, 1996.
9
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARAMETRIC TECHNOLOGY CORPORATION
Date: February 1, 1996 By: /S/ Edwin J. Gillis
-----------------------------------
Edwin J. Gillis
Senior Vice President of Finance
and Administration, Chief Financial
Officer and Treasurer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE FORM 10-Q FOR THE QUARTER ENDED DECEMBER
30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-30-1995
<CASH> 164,477
<SECURITIES> 184,983
<RECEIVABLES> 85,913
<ALLOWANCES> 2,690
<INVENTORY> 0
<CURRENT-ASSETS> 442,801
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 497,330
<CURRENT-LIABILITIES> 81,322
<BONDS> 0
0
0
<COMMON> 632
<OTHER-SE> 414,559
<TOTAL-LIABILITY-AND-EQUITY> 497,330
<SALES> 91,430
<TOTAL-REVENUES> 125,397
<CGS> 779
<TOTAL-COSTS> 12,454
<OTHER-EXPENSES> 64,210
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 51,756
<INCOME-TAX> 18,736
<INCOME-CONTINUING> 33,020
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,020
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
