<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: March 30, 1996 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 126,643,224
- -------------------------------------- -----------------------------
Class Outstanding at March 30, 1996
Total number of pages: 11
Exhibit index appears on page 11
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheet 3
March 30, 1996 and September 30, 1995
Consolidated Statement of Income 4
Three and six months ended March 30, 1996 and April 1, 1995
Consolidated Statement of Cash Flows 5
Six months ended March 30, 1996 and April 1, 1995
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 4 Submission of Matters to a Vote of Security Holders 9
Item 6 Exhibits 9
Signature 10
</TABLE>
2
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET
(amounts in thousands)
<TABLE>
<CAPTION>
ASSETS March 30, 1996 September 30, 1995
--------------- ------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $133,423 $145,638
Short-term investments 185,069 162,610
Accounts receivable, net of allowance for doubtful
accounts of $2,649 and $2,733 92,150 80,405
Other current assets 15,369 11,079
-------- --------
Total current assets 426,011 399,732
Marketable investments 55,048 --
Property and equipment, net 31,419 19,811
Capitalized computer software costs, net 3,777 4,380
Other assets 24,661 29,804
-------- --------
Total assets $540,916 $453,727
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 27,391 $ 19,578
Accrued compensation 22,046 19,821
Deferred revenue 44,430 37,953
Income taxes 173 4,678
-------- --------
Total current liabilities 94,040 82,030
Other liabilities 802 768
Stockholders' equity:
Preferred stock, $.01 par value; 5,000 shares authorized;
none issued -- --
Common stock, $.01 par value; 215,000 shares authorized;
126,733 and 125,129 shares issued 1,267 1,251
Additional paid-in capital 179,597 155,497
Cumulative translation adjustments (210) 1,710
Unrealized loss on investments (95) --
Retained earnings 268,651 212,471
Treasury stock, at cost, 90 and 0 shares (3,136) --
-------- --------
Total stockholders' equity 446,074 370,929
-------- --------
Total liabilities and stockholders' equity $540,916 $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 Six Months Ended
------------------- -------------------
March 30, April 1, March 30, April 1,
1996 1995 1996 1995
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenue:
License $103,420 $65,777 $194,850 $124,222
Service 37,073 25,246 71,040 45,649
-------- ------- -------- --------
Total revenue 140,493 91,023 265,890 169,871
-------- ------- -------- --------
Cost of revenue:
License 987 1,211 1,766 1,785
Service 12,402 7,521 24,077 13,911
-------- ------- -------- --------
Total cost of revenue 13,389 8,732 25,843 15,696
-------- ------- -------- --------
Gross profit 127,104 82,291 240,047 154,175
-------- ------- -------- --------
Operating expenses:
Sales and marketing 56,303 37,561 106,754 69,776
Research and development 8,901 5,790 16,726 11,161
General and administrative 6,814 4,591 12,748 9,030
-------- ------- -------- --------
Total operating expenses 72,018 47,942 136,228 89,967
-------- ------- -------- --------
Operating income 55,086 34,349 103,819 64,208
Other income, net 2,651 2,061 5,674 3,775
-------- ------- -------- --------
Income before income taxes 57,737 36,410 109,493 67,983
Provision for income taxes 20,900 13,674 39,636 25,472
-------- ------- -------- --------
Net income $ 36,837 $22,736 $ 69,857 $ 42,511
======== ======= ======== ========
Net income per share $ 0.28 $ 0.18 $ 0.53 $ 0.33
====== ====== ====== ======
Weighted average number of
common and dilutive common
equivalent shares outstanding 133,329 128,008 132,982 127,315
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------
March 30, 1996 April 1, 1995
--------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 69,857 $ 42,511
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 6,297 3,666
Deferred income taxes 5,698 (102)
Changes in assets and liabilities:
Increase in accounts receivable (13,357) (888)
Increase in other current assets (6,900) (3,680)
(Increase) decrease in other assets 1,626 (563)
Increase in accounts payable and accrued expenses 8,128 866
Increase (decrease) in accrued compensation 2,396 (845)
Increase in income taxes 9,177 5,504
Increase in deferred revenue 6,989 16,576
--------- ---------
Net cash provided by operating activities 89,911 63,045
--------- ---------
Cash flows from investing activities:
Additions to property and equipment, net (16,252) (3,693)
Additions to capitalized computer software costs (400) (622)
Proceeds from sales of investments 30,193 47,038
Purchases of investments (107,795) (138,428)
--------- ---------
Net cash used by investing activities (94,254) (95,705)
--------- ---------
Cash flows from financing activities:
Repayment of long-term obligations (63) (45)
Proceeds from issuance of common stock 19,311 11,316
Purchases of treasury stock (25,538) --
--------- ---------
Net cash provided (used) by financing activities (6,290) 11,271
--------- ---------
Elimination of Rasna's net cash activity for the
three months ended December 31, 1994 -- (112)
Effect of exchange rate changes on cash (1,582) 1,029
--------- ---------
Net decrease in cash and cash equivalents (12,215) (20,472)
Cash and cash equivalents at beginning of period 145,638 142,202
--------- ---------
Cash and cash equivalents at end of period $ 133,423 $ 121,730
========= =========
</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 and six-month periods ended
March 30, 1996 are not necessarily indicative of the results expected for the
full fiscal year.
2. MARKETABLE INVESTMENTS
Marketable investments, classified as available for sale, consist of
investments in debt instruments of financial institutions, government entities
and corporations with maturities in excess of one year, but less than two years.
The Company has established guidelines relative to credit ratings,
diversification and maturity that maintain safety and liquidity for these
investments.
3. COMMON STOCK
On February 8, 1996, the stockholders of the Company approved an increase in
the number of authorized shares of the Company's common stock from 75,000,000 to
215,000,000. Also, on February 8, 1996, the Company's Board of Directors
declared a one-for-one stock dividend on all shares of common stock, which
became effective on February 29, 1996 to all stockholders of record on February
22, 1996. These financial statements and related notes have been retroactively
adjusted, where appropriate, to reflect the one-for-one stock dividend.
6
<PAGE>
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 license 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 and six-
month periods ended March 30, 1996 was $140,493,000 and $265,890,000,
respectively, compared with $91,023,000 and $169,871,000 for the three-month and
six-month periods ended April 1, 1995. These totals represent increases of 54%
for the three-month period and 57% for the six-month period over the
corresponding periods in fiscal 1995. The increase in license revenue results
from an increase in the number of seats of software licensed. 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 increase in the number of seats licensed was achieved as a
result of continued market penetration by the Company's products. The average
price per seat during the three months and six months ended March 30, 1996 and
April 1, 1995 was relatively stable. Service revenue is derived from the sale
of software maintenance contracts and the performance of training and consulting
services. During the three-month and six-month periods ended March 30, 1996,
service revenue was 26% and 27% of total revenue, respectively, compared to 28%
and 27% during the three-month and six-month periods ended April 1, 1995.
Revenue from outside of North America accounted for 55% and 54% of revenue for
the three-month and six-month periods ended March 30, 1996, compared with 49%
and 48% for the same periods 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.
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 $13,389,000 and $25,843,000 for the three-
month and six-month periods ended March 30, 1996 from $8,732,000 and $15,696,000
for the corresponding periods in fiscal 1995. Total cost of revenue as a
percentage of revenue increased to 10% for both the three-month and six-month
periods ended March 30, 1996 from 10% and 9% in the corresponding periods 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 65% and 73% during the three-month and six-month periods
ended March 30, 1996 from such costs in the corresponding periods in fiscal
1995, while the associated revenue increased 47% and 56%.
Sales and marketing expenses increased to $56,303,000 and $106,754,000 for
the three-month and six-month periods ended March 30, 1996 from $37,561,000 and
$69,776,000 for the corresponding periods in fiscal 1995. These costs
decreased as a percentage of revenue to 40% for both the three-month and six-
month periods ended March 30, 1996, compared with 41% for the comparable periods
in fiscal 1995. The absolute increase in these expenses was due primarily to
worldwide expansion of the sales force and sales commissions associated with
higher revenue. International sales and marketing expenses represented 55% and
58% of total sales and marketing expenses for the three-month and six-month
periods ended March 30, 1996, compared with 48% for the same periods in fiscal
1995. The Company expects to continue the growth of its worldwide sales and
marketing organization during future periods, reflecting the Company's
commitment to expand its global market penetration.
7
<PAGE>
Research and development expenses increased to $8,901,000 and $16,726,000 for
the three-month and six-month periods ended March 30, 1996 from $5,790,000 and
$11,161,000 for the corresponding periods in fiscal 1995. Total research and
development expenses were 6% of revenue for the three-month and six-month
periods ended March 30, 1996 compared with 6% and 7% for the same periods 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 $400,000 during the three-month
and six-month periods ended March 30, 1996 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", compared
with $87,000 and $622,000 in the corresponding periods in fiscal 1995. The
amounts capitalized represent 2% of total research and development costs for
both the three-month and six-month periods in fiscal 1996, compared with 1% and
5% during the same periods in fiscal 1995. 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,
information technology, human resources and administrative functions of the
Company. These expenses increased to $6,814,000 and $12,748,000 for the three-
month and six-month periods ended March 30, 1996 from $4,591,000 and $9,030,000
for the corresponding periods in fiscal 1995, but remained stable as a
percentage of revenue at 5% for the three-month and six-month periods ended
March 30, 1996 and April 1, 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 $6,633,000 for the six-
month period ended March 30, 1996 compared with $4,287,000 for the corresponding
period in fiscal 1995 due primarily to higher interest-bearing cash and
investment balances, which resulted from positive cash flows from operations and
proceeds from stock option exercises.
The Company's effective tax rate for the six-month period ended March 30,
1996 was 36.2%, compared with 37.5% 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 41% to 2,365 at March 30, 1996
compared with 1,675 at April 1, 1995. Employment increased significantly to
support higher revenues and international expansion, with the largest portion of
this growth occurring in the sales and marketing department.
LIQUIDITY AND CAPITAL RESOURCES
As of March 30, 1996, the Company had $133,423,000 of cash and cash
equivalents and $240,117,000 of investments. Net cash provided by operating
activities, consisting primarily of net income from operations and the increases
in income taxes and accounts payable and accrued expenses, offset by the
increase in accounts receivable was $89,911,000 for the six-month period ended
March 30, 1996 compared with $63,045,000 for the corresponding period in fiscal
1995. Investment activities consisted primarily of purchases and sales of
investments and additions to property and equipment. Net cash used by investing
activities totaled $94,254,000 for the six-month period ended March 30, 1996,
compared with $95,705,000 for the corresponding period in fiscal 1995.
Financing activities, consisting primarily of proceeds from issuance of common
stock, offset by the purchases of treasury stock, used $6,290,000 for the six
months ended March 30, 1996 and provided $11,271,000 for the six months ended
April 1, 1995.
On May 12, 1994, the Company announced that its Board of Directors had
authorized a plan that allows the Company to repurchase up to 6,000,000 shares
of its common stock. The Company intends to repurchase these 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. During the six-month period ended March 30, 1996, the Company
repurchased 590,000 shares at a cost of $25,538,000, of which 90,000 remained in
treasury at March 30, 1996. Since the inception of the plan, the
8
<PAGE>
Company has repurchased 904,000 shares. 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 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.
Part II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on February 8,
1996, the stockholders of the Company (1) elected C. Richard Harrison and Robert
N. Goldman as Class III directors of the Company to hold office until the 1999
Annual Meeting of Stockholders (subject to the election and qualification of
their successors and to their earlier death, resignation or removal) and no
other nominations were made; (2) approved an amendment to the Company's Articles
of Organization increasing the number of authorized shares of the Company's
common stock from 75,000,000 to 215,000,000; (3) approved amendments to the
Company's 1987 Incentive Stock Option Plan increasing the number of shares of
the Company's common stock authorized for issuance under the Stock Option Plan
by 3,000,000 shares, and changing the designation of persons eligible to receive
options under the Stock Option Plan to include consultants; and (4) approved the
Company's 1996 Director Stock Option Plan. The votes were as follows:
<TABLE>
<CAPTION>
Votes withheld Broker
Votes for or opposed Abstentions non-votes
-------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
(1) Election of Directors:
C. Richard Harrison 56,388,898 612,868 -- --
Robert N. Goldman 56,391,082 610,684 -- --
(2) Approval of Amendment
to Articles of Organization: 37,941,482 16,981,114 1,637,681 441,489
(3) Approval of Amendments to
1987 Incentive Stock Option Plan: 37,514,114 18,944,871 101,292 441,489
(4) Approval of 1996
Director Stock Option Plan: 41,035,504 15,344,886 179,887 441,489
</TABLE>
Item 6: Exhibits
3.1 Restated Articles of Organization of the Company
99 Important Factors Regarding Future Results
9
<PAGE>
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: May 14, 1996 by: /S/ Edwin J. Gillis
------------------------------------------------
Edwin J. Gillis
Senior Vice President of Finance and Administration,
Chief Financial Officer and Treasurer
10
<PAGE>
Exhibit Index
3.1 Restated Articles of Organization of the Company (filed originally as
Exhibit 3.4 to the Annual Report on Form 10-K for the fiscal year ended
September 30, 1993 and filed in electronic format herewith pursuant to Rule
102(c) of Regulation S-T)
99 Important Factors Regarding Future Results; filed herewith.
11
<PAGE>
Exhibit 3.1
-----------
The Commonwealth of Massachusetts
FEDERAL
IDENTIFICATION
MICHAEL JOSEPH CONNOLLY NO. 04-2866152
Secretary of State ----------
One Ashburton Place, Boston, Mass: 02108
RESTATED ARTICLES OF ORGANIZATION
General Laws, Chapter 156B, Section 74
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
restated articles of organization. The fee for filing this certificate is
prescribed by General Laws, Chapter 156B, Section 114. Make check payable to
the Commonwealth of Massachusetts.
-------------
We, Steve C. Walske, President, and
Steven N. Farber, Assistant Clerk of
Parametric Technology Corporation
---------------------------------
(Name of Corporation)
located at 128 Technology Drive, Waltham, Massachusetts 02154
----------------------------------------------------
do hereby certify that the following restatement of the articles of organization
of the corporation was duly adopted at a meeting held on February 4, 1993, by
vote of the Board of Directors (see Rider A)
1. The name by which the corporation shall be known is:
Parametric Technology Corporation
2. The purposes for which the corporation is formed are as follows:
(a) To engage in the business of developing and marketing computer
software.
(b) To carry on any business or other activity which may lawfully be
carried on by a corporation organized under the Business
Corporation Law of the Commonwealth of Massachusetts, whether or
not related to those referred to in the preceding paragraph.
<PAGE>
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than one article may be continued on a single sheet so long as each article
requiring each such addition is clearly indicated.
<PAGE>
3. The total number of shares and the par value, if any, of each class of stock
which the corporation is authorized to issue is as follows:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
----------------- ---------------------------
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
- ------------------ ----------------- ---------------- ---------
<S> <C> <C> <C>
Preferred None 5,000,000 $.01
Common None 75,000,000 $.01
</TABLE>
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting powers,
qualifications, special or relative rights or privileges as to each class
thereof and any series now established:
See Attachment 4
*5. The restrictions, if any, imposed by the articles of organization upon the
transfer of shares of stock of any class are as follows:
None
*6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or
for limiting, defining, or regulating the powers of the corporation, or of
its directors or stockholders, or of any class of stockholders:
See Attachment 6
* If there are no such provisions, state "None".
<PAGE>
* We further certify that the foregoing restated articles of organization
effect no amendments to the articles of organization of the corporation as
heretofore amended, except amendments to the following articles None
----------
Briefly describe amendments in space below:
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 4th day of February in the year 1993
/s/ Steven C. Walske President
- -----------------------
Steven C. Walske
/s/ Steven N. Farber Assistant Clerk
- -----------------------
Steven N. Farber
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
I hereby approve the within restated
articles of organization and, the filing fee in
the amount of $200.00 having been paid, said
articles are deemed to have been filed with me
this 5th day of February, 1993
/s/ Michael Joseph Connolly
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF RESTATED ARTICLES OF ORGANIZATION TO BE SENT
TO:
Lynnette C. Fallon
Palmer & Dodge
--------------
One Beacon Street
-----------------
Boston, MA 02108
-----------------
Telephone (617) 573-0220
----------------
<PAGE>
RIDER A
These Restated Articles of Organization do not contain any amendments,
but merely restate the corporation's Restated Articles of Organization as
heretofore amended to reflect the fact that the corporation's previously
authorized shares of Series A Convertible Preferred Stock, Series AA Convertible
Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible
Preferred Stock have been reacquired by the corporation and are therefore not
available for issuance in accordance with the terms of subsections (C)(5),
(D)(6)(d) and (E)(6)(d) of Section III of Article 4 of the existing Restated
Articles of Organization. Accordingly, these Restated Articles of Organization
eliminate those provisions of the corporation's existing Restated Articles of
Organization which are unnecessary by (i) reducing the authorized Preferred
Stock by 4,768,000, being the number of shares of such reacquired designated
Preferred Stock, and (ii) deleting the terms of such reacquired designated
series of Preferred Stock.
<PAGE>
ATTACHMENT 4
------------
The following is a statement of the designation and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the corporation.
COMMON STOCK.
------------
1. General. The voting, dividend and liquidation rights of the holders
-------
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
------
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common Stock
---------
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
UNDESIGNATED PREFERRED STOCK.
----------------------------
Up to 5,000,000 shares of Preferred Stock may be issued from time to time
in one or more series, each of such series to have such terms as stated or
expressed herein and in the resolution or resolutions providing for the issue of
such series adopted by the Board of Directors of the corporation as hereinafter
provided. Any such shares of Preferred Stock which may be redeemed, purchased
or acquired by the corporation may be reissued except as otherwise provided by
law. Different such series of Preferred Stock shall not be construed to
constitute different classes of shares for the purposes of voting by classes
unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue up to 5,000,000 shares of Preferred Stock in one or more
series, and in connection with the creation of any such series, by resolution or
resolutions providing for the issue of the shares thereof, to determine and fix
such voting powers, full or limited, or no voting powers, and such designations,
preferences and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and
<PAGE>
expressed in such resolutions, all to the full extent now or hereafter
permitted by Chapter 156B of the Massachusetts General Laws. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
such series of Preferred Stock may provide that such series shall be superior
or rank equally or be junior to the Preferred Stock of any other series to the
extent permitted by law and the terms of these Articles of Organization.
Except as specifically provided in these Articles of Organization, no vote of
the holders of the Preferred Stock or Common Stock shall be a prerequisite to
the issuance of any shares of any series of the Preferred Stock authorized by
and complying with the conditions of the Articles of Organization, the right to
have such vote being expressly waived by all present and future holders of the
capital stock of the corporation.
<PAGE>
ATTACHMENT 6
------------
6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or
for limiting, defining, or regulating the powers of the corporation, or of
its directors or stockholders, or of any class of stockholders:
6A. LIMITATION OF DIRECTOR LIABILITY
--------------------------------
Except to the extent that Chapter 156B of the Massachusetts General Laws
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the corporation shall be personally liable to
the corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
6B. INDEMNIFICATION
---------------
1. Actions, Suits and Proceedings. The corporation shall indemnify each
------------------------------
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was, or has agreed to become, a director or officer of the corporation, or is or
was serving, or has agreed to serve, at the request of the corporation, as a
director or officer of, or in a similar capacity with, another organization or
in any capacity with respect to any employee benefit plan of the corporation
(all such persons being referred to hereafter as an "Indemnitee"), or by reason
of any action alleged to have been taken or omitted in such capacity, against
all expenses (including attorneys' fees), judgments and fines incurred by him or
on his behalf in connection with such action, suit or proceeding and any appeal
therefrom, unless the Indemnitee shall be finally adjudicated in such action,
suit or proceeding not to have acted in good faith in the reasonable belief that
his action was in the best interests of the corporation or, to the extent such
matter relates to service with respect to an employee benefit plan, in the best
interests of the participants or beneficiaries of such employee benefit plan.
Notwithstanding anything to the contrary in this Article, except as set forth in
Section 5 below, the corporation shall not indemnify an Indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
the Indemnitee unless the initiation thereof was approved by the Board of
Directors of the corporation.
2. Settlements. The right to indemnification conferred in this Article
-----------
shall include the right to be paid by the corporation for amounts paid in
settlement of any such action, suit or proceeding and any appeal therefrom, and
all expenses (including attorneys' fees) incurred in connection with such
settlement, pursuant to a consent decree or otherwise, unless and to the
<PAGE>
extent it is determined pursuant to Section 5 below that the Indemnitee did not
act in good faith in the reasonable belief that his action was in the best
interests of the corporation or, to the extent such matter relates to service
with respect to an employee benefit plan, in the best interests of the
participants or beneficiaries of such employee benefit plan.
3. Notification and Defense of Claim. As a condition precedent to his
---------------------------------
right to be indemnified, the Indemnitee must notify the corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the corporation is so
notified, the corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
corporation to the Indemnitee of its election so to assume such defense, the
corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 3. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the corporation, except
as otherwise expressly provided by this Article. The corporation shall not be
entitled to assume the defense of any claim brought by or in the right of the
corporation or as to which counsel for the Indemnitee shall have reasonably made
the conclusion provided for in clause (ii) above.
4. Advance of Expenses. Subject to the provisions of Section 5 below, in
-------------------
the event that the corporation does not assume the defense pursuant to Section 3
of this Article of any action, suit, proceeding or investigation of which the
corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the corporation in advance of the final disposition of such matter, provided,
--------
however, that the payment of such expenses incurred by an Indemnitee in advance
- --------
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the corporation as authorized in this Article.
Such undertaking may be accepted without reference to the financial ability of
the Indemnitee to make such repayment.
5. Procedure for Indemnification. In order to obtain indemnification or
-----------------------------
advancement of expenses pursuant to Section 1, 2 or 4 of this Article, the
Indemnitee shall submit to the corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60
<PAGE>
days after receipt by the corporation of the written request of the Indemnitee,
unless the corporation determines, by clear and convincing evidence, within
such 60-day period that the Indemnitee did not meet the applicable standard of
conduct set forth in Section 1 or 2, as the case may be. Such determination
shall be made in each instance by (a) a majority vote of a quorum of directors
of the corporation, (b) a majority vote of a quorum of the outstanding shares
of stock of all classes entitled to vote for directors, voting as a single
class, which quorum shall consist of stockholders who are not at that time
parties to the action, suit or proceeding in question, (c) independent legal
counsel (who may be regular legal counsel to the corporation), or (d) a court
of competent jurisdiction.
6. Remedies. The right to indemnification or advances as granted by this
--------
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 5. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the corporation. Neither the failure of the
corporation to have made a determination prior to the commencement of such
action that indemnification is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the corporation pursuant to Section 5 that the Indemnitee has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the Indemnitee has not met the applicable standard of
conduct. The Indemnitee's expenses (including attorneys' fees) incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such proceeding shall also be indemnified by the corporation.
7. Subsequent Amendment. No amendment, termination or repeal of this
--------------------
Article or of the relevant provisions of Chapter 156B of the Massachusetts
General Laws or any other applicable laws shall affect or diminish in any way
the rights of any Indemnitee to indemnification under the provisions hereof with
respect to any action, suit, proceeding or investigation arising out of or
relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
8. Other Rights. The indemnification and advancement of expenses
------------
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or directors or otherwise, both as to action in his official capacity and as to
action in any other capacity while holding office for the corporation, and shall
continue as to an Indemnitee who has ceased to be a director or officer, and
shall inure to the benefit of the estate, heirs, executors and administrators of
the Indemnitee. Nothing contained in this Article shall be deemed to prohibit,
and the corporation is specifically authorized to enter into, agreements with
officers and directors providing indemnification rights and procedures different
from those set forth in this Article. In addition, the corporation may, to the
extent authorized from time to time by its Board of Directors, grant
indemnification rights to other employees or agents of the corporation or other
persons serving the corporation and such rights may be equivalent to, or greater
or less than, those set forth in this Article.
<PAGE>
9. Partial Indemnification. If an Indemnitee is entitled under any
-----------------------
provision of this Article to indemnification by the corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
10. Insurance. The corporation may purchase and maintain insurance, at
---------
its expense, to protect itself and any director, officer, employee or agent of
the corporation or another organization or employee benefit plan against any
expense, liability or loss incurred by him in any such capacity, or arising out
of his status as such, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss under Chapter 156B
of the Massachusetts General Laws.
11. Merger or Consolidation. If the corporation is merged into or
-----------------------
consolidated with another corporation and the corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
12. Savings Clause. If this Article or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
13. Subsequent Legislation. If the Massachusetts General Laws are amended
----------------------
after adoption of this Article to expand further the indemnification permitted
to Indemnities, then the corporation shall indemnify such persons to the fullest
extent permitted by the Massachusetts General Laws, as so amended.
6C. OTHER PROVISIONS
----------------
(a) The directors may make, amend, or repeal the by-laws in whole or in
part, except with respect to any provision of such by-laws which by law or these
Articles of the by-laws requires action by the stockholders.
(b) Meetings of the stockholders of the corporation may be held anywhere
in the United States.
(c) The corporation shall have the power to be a partner in any business
enterprise
<PAGE>
which this corporation would have the power to conduct by itself.
(d) The corporation, by vote of a majority of the stock outstanding and
entitled to vote thereon (or if there are two or more classes of stock entitled
to vote as separate classes, then by vote of a majority of each such class of
stock outstanding), may (i) authorize any amendment to its Articles of
Organization pursuant to Section 71 of Chapter 156B of the Massachusetts General
Laws, as amended from time to time, (ii) authorize the sale, lease, or exchange
of all or substantially all of its property and assets, including its goodwill,
pursuant to Section 75 of Chapter 156B of the Massachusetts General Laws, as
amended from time to time, and (iii) approve an agreement of merger or
consolidation pursuant to Section 78 of Chapter 156B of the Massachusetts
General Laws, as amended from time to time.
(e) The 1987 Massachusetts Control Share Acquisition Act, Chapter 110D of
the Massachusetts General Laws, as it may be amended from time to time, shall
not apply to the corporation.
<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 MARCH 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-30-1996
<CASH> 133,423
<SECURITIES> 185,069
<RECEIVABLES> 94,799
<ALLOWANCES> 2,649
<INVENTORY> 0
<CURRENT-ASSETS> 426,011
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 540,916
<CURRENT-LIABILITIES> 94,040
<BONDS> 0
0
0
<COMMON> 1,267
<OTHER-SE> 444,807
<TOTAL-LIABILITY-AND-EQUITY> 540,916
<SALES> 194,850
<TOTAL-REVENUES> 265,890
<CGS> 1,766
<TOTAL-COSTS> 25,843
<OTHER-EXPENSES> 136,228
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 109,493
<INCOME-TAX> 39,636
<INCOME-CONTINUING> 69,857
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,857
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
</TABLE>
<PAGE>
EXHIBIT 99
IMPORTANT FACTORS REGARDING FUTURE RESULTS
Information provided by the Company or its spokespersons from time to time
may contain forward-looking statements concerning projected financial
performance, market and industry segment growth, product development and
commercialization or other aspects of future operations. Such statements will
be based on the assumptions and expectations of the Company's management at the
time such statements are made. The Company cautions investors that its
performance (and, therefore, any forwarding-looking statement) is subject to
risks and uncertainties. Various important factors, including but not limited
to the following, may cause the Company's future results to differ materially
from those projected in any forward-looking statement.
Fluctuations in Operating Results. While the Company's sales cycle varies
substantially from customer to customer, 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.
Stock Market Volatility. 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
as a result of factors affecting the computer industry or the securities markets
in general.
In addition, a large percentage of the Company's common stock traditionally
has been held by institutional investors. Consequently, actions with respect to
the Company's common stock by certain of these institutional investors could
have a significant impact on the market price for the stock. For more
information, please see the Company's proxy statement with respect to its most
recent annual meeting of shareholders and Schedules 13D and 13G filed with the
U.S. Securities and Exchange Commission with respect to the Company's common
stock.
Market Growth. Any Company projections of revenue growth are based on the
assumptions that the Company will be able to continue to penetrate the relevant
market and add to its industry leadership position and that the mechanical
CAD/CAM/CAE market will continue to grow at a predicted annual rate. Failure of
these assumptions to materialize could adversely impact the Company's operating
results.
Rapid Technological and Market Changes. The mechanical CAD/CAM/CAE industry
is highly competitive, and is characterized by rapid technological advances.
Accordingly, the Company's ability to realize its expectations will depend on
its success at enhancing its current offerings, developing new products and
services that keep pace with developments in technology and meet evolving
customer requirements, and delivering those products through appropriate
distribution channels. This will require, among other things, correctly
anticipating customer needs, hiring and retaining personnel with the necessary
skills and creativity, providing adequate funding for the development efforts,
and managing distribution channels effectively.
Failure by the Company to anticipate or respond adequately to technological
developments and customer requirements, significant delays in the development,
production, testing, marketing, or availability of new or enhanced products or
services, or the failure of customers to accept such products or services could
adversely affect the Company's competitive position and operating results.
<PAGE>
Possibility of New Product Delays. As is common in the computer software
industry, the Company may from time to time experience delays in its product
development and "debugging" efforts. Significant delays in developing,
completing or shipping new or enhanced products could adversely affect the
Company's financial performance. Among other things, such delays could cause
the Company to incorrectly predict the fiscal quarter in which revenue from the
shipment of the new or enhanced product will be realized and give the Company's
competitors a greater opportunity to market competing products.
Management of Growth Through Acquisitions. The Company's product range and
customer base have increased in the recent past due in part to acquisitions.
The Company may acquire additional businesses or product lines in the future.
The probability of success of any acquisition may be dependent upon the
Company's ability to integrate the acquired business or products successfully
and to retain key personnel associated with the acquisition. Failure to do so,
or a material increase in the cost of integration, could cause actual results to
differ from those projected in management's forward-looking statements.
Competition. The Company believes that the principal bases for competition
in its markets are product functionality, price/performance characteristics,
product portability, ease of product use, sales and marketing strength, support
services and corporate reputation. In particular, the Company believes that the
current success of its Pro/ENGINEER product line is due in part to the
mechanical and functional superiority of such products over competitive
offerings. The Company does not know of any successful development and
marketing of technically equivalent but lower priced personnel computer-based
competitive products. However, should a competitor successfully bring such a
product to market in the future, the Company's operating results could be
adversely affected. In addition, the Company is aware of ongoing efforts by
competitors, some of whom have greater resources than the Company, to emulate
the performance and functionality of the Company's products, and competitors may
develop equivalent or superior technology. The Company's future success also
will depend in a large part on its ability to license additional products and
services to its existing customer base as well as the installed customer bases
of traditional mechanical CAD/CAM/CAE suppliers.
Dependence on Key Personnel. The Company's success depends upon its ability
to attract and retain highly skilled technical, managerial and sales personnel.
While the Company has not to date experienced any significant difficulty in
hiring or retaining qualified personnel, competition for such personnel in the
computer industry in general, and the mechanical CAD/CAM/CAE industry in
particular, is intense. Management's projections necessarily assume that the
Company will continue to attract and retain such personnel and the failure to do
so could have a material adverse effect on the Company's ability to develop and
market competitive products and its ability to achieve projected operating
results.
Risks Associated with International Business. A significant and growing
portion of the Company's business comes from outside the United States. A
consequence of the increased international business is that a growing percentage
of the Company's revenue and expenses are denominated in foreign currencies,
which subjects the Company's results of operations to foreign exchange
fluctuations. Although the Company enters into forward exchange contracts to
offset a portion of the foreign exchange fluctuations, unanticipated foreign
events may materially and adversely affect its results.
Protection of Intellectual Property and Other Proprietary Rights. The
Company regards its software products as proprietary and attempts to protect its
intellectual property rights by relying on copyrights, trademarks, patents and
common law safeguards, including trade secret protection, as well as
restrictions on disclosures and transferability in its agreements with other
parties. Although the Company intends to protect its intellectual property
rights, there can be no assurance that the laws of all jurisdictions in which
the Company's products are or may be developed, manufactured or sold will afford
the same protections to its products and intellectual property, or will be
enforced or enforceable by the Company, to the same extent as under the laws of
the United States.
<PAGE>
The software industry is characterized by frequent litigation regarding
copyright, patent and other intellectual property rights. While the Company has
not, to date, had any significant claims of such nature asserted against it,
there can be no assurance that third parties will not assert such claims against
the Company with respect to existing or future products or that, if asserted,
such claims would be resolved in a satisfactory manner. In the event of
litigation to determine the validity of any third party claims, such litigation
could result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel, whether or not such litigation is
determined in favor of the Company.
