<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 28, 1996 Commission File Number: 0-18059
----------------- --------
PARAMETRIC TECHNOLOGY CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
MASSACHUSETTS 04-2866152
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
</TABLE>
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 127,489,497
- -------------------------------------- --------------------------------
Class Outstanding at December 28, 1996
Total number of pages: 10
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheet
December 28, 1996 and September 30, 1996 3
Consolidated Statement of Income
Three months ended December 28, 1996 and December 30, 1995 4
Consolidated Statement of Cash Flows
Three months ended December 28, 1996 and December 30, 1995 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
SIGNATURE 10
</TABLE>
2
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET
(amounts in thousands)
<TABLE>
<CAPTION>
ASSETS December 28, 1996 September 30, 1996
------------------ ------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $174,828 $201,614
Short-term investments 283,674 232,602
Accounts receivable, net of allowance for doubtful
accounts of $2,818 and $2,910 125,427 117,273
Other current assets 10,364 10,561
-------- --------
Total current assets 594,293 562,050
Marketable investments 10,899 21,896
Property and equipment, net 40,270 36,517
Other assets 45,601 38,754
-------- --------
Total assets $691,063 $659,217
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 43,800 $ 39,416
Accrued compensation 28,231 32,186
Deferred revenue 61,678 56,420
Income taxes 16,775 17,970
-------- --------
Total current liabilities 150,484 145,992
Other liabilities 767 793
Stockholders' equity:
Preferred stock, $.01 par value; 5,000 shares authorized;
none issued -- --
Common stock, $.01 par value; 215,000 shares authorized;
127,677 and 127,452 shares issued 1,277 1,275
Additional paid-in capital 216,797 207,039
Foreign currency translation adjustment (2,385) (1,316)
Retained earnings 334,404 306,638
Treasury stock, at cost, 188 and 23 shares (10,356) (1,164)
Unrealized gain (loss) on investments 75 (40)
-------- --------
Total stockholders' equity 539,812 512,432
-------- --------
Total liabilities and stockholders' equity $691,063 $659,217
======== ========
</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 28, 1996 December 30, 1995
------------------ -----------------
<S> <C> <C>
Revenue:
License $138,442 $ 91,430
Service 45,059 33,967
-------- --------
Total revenue 183,501 125,397
-------- --------
Cost of revenue:
License 1,991 779
Service 15,557 11,675
-------- --------
Total cost of revenue 17,548 12,454
-------- --------
Gross profit 165,953 112,943
-------- --------
Operating expenses:
Sales and marketing 71,661 50,451
Research and development 12,134 7,825
General and administrative 8,705 5,934
-------- --------
Total operating expenses 92,500 64,210
-------- --------
Operating income 73,453 48,733
Other income, net 2,625 3,023
-------- --------
Income before income taxes 76,078 51,756
Provision for income taxes 26,627 18,736
-------- --------
Net income $ 49,451 $ 33,020
======== ========
Net income per share $ 0.37 $ 0.25
======== ========
Weighted average number of
common and dilutive common
equivalent shares outstanding 135,439 132,949
======== ========
</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>
Three Months Ended
---------------------------------------
December 28, 1996 December 30, 1995
------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 49,451 $ 33,020
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,805 3,288
Deferred income taxes 920 2,613
Changes in assets and liabilities:
Increase in accounts receivable (8,870) (3,427)
(Increase) decrease in other current assets 686 (443)
(Increase) decrease in other assets (607) 1,260
Increase in accounts payable and accrued expenses 4,567 3,775
Decrease in accrued compensation (3,782) (3,496)
Increase in deferred revenue 5,681 1,214
Increase in income taxes 5,385 6,559
-------- --------
Net cash provided by operating activities 58,236 44,363
-------- --------
Cash flows from investing activities:
Additions to property and equipment, net (7,871) (5,931)
Additions to capitalized computer software costs (200) (200)
Proceeds from sale of investments 32,916 36,626
Purchases of investments (80,876) (58,803)
-------- --------
Net cash used by investing activities (56,031) (28,308)
-------- --------
Cash flows from financing activities:
Repayment of long-term obligations (22) (35)
Proceeds from issuance of common stock 12,521 9,975
Purchases of treasury stock (40,122) (6,543)
-------- --------
Net cash provided (used) by financing activities (27,623) 3,397
-------- --------
Effects of exchange rate changes on cash (1,368) (613)
-------- --------
Net increase (decrease) in cash and cash equivalents (26,786) 18,839
Cash and cash equivalents at beginning of period 201,614 145,638
-------- --------
Cash and cash equivalents at end of period $174,828 $164,477
======== ========
</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, 1996.
The results of operations for the three-month period ended December 28, 1996
are not necessarily indicative of the results expected for the full fiscal year.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Parametric Technology Corporation is the leading supplier of software tools
used to automate the mechanical development of a product from its conceptual
design through its release into manufacturing.
Information provided by the Company, including information contained in
this Quarterly Report on Form 10-Q, or by 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. In particular, the
statements in this Report concerning anticipated revenue, geographical growth
rates and projected expenses made pursuant to the safe harbor established by
recent securities legislation are 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. Important information about
the basis for those assumptions is discussed below and is contained in
"Important Factors Regarding Future Results" included in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section in the 1996 Annual Report to Stockholders, incorporated herein by
reference.
RESULTS OF OPERATIONS
For the quarter ended December 28, 1996, the Company's revenue and net
income increased 46% and 50%, respectively, over the corresponding quarter in
fiscal 1996. Net income as a percentage of revenue was 27% for the quarter ended
December 28, 1996 compared to 26% in the corresponding quarter in fiscal 1996.
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. Revenue growth in the three-month period ended
December 28, 1996 reflects the continued worldwide acceptance of the Company's
products and services and the Company's ongoing investment in expanding its
worldwide direct sales force. The Company licensed 92% of its products directly
to end-user customers and 8% via third-party distributors in the three-month
period ended December 28, 1996 compared with 91% directly to end-user customers
and 9% via third-party distributors in the three-month period ended December 30,
1995. Revenue, including license and service revenues, for the three-month
period ended December 28, 1996 was $183,501,000 compared with $125,397,000 for
the three-month period ended December 30, 1995. These totals represent an
increase of 46% over the corresponding period in fiscal 1996. License revenue
was $138,442,000 for the three-month period ended December 28, 1996, a 51%
increase from $91,430,000 for the corresponding period in fiscal 1996. This
growth 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
Company licensed 6,984 seats of software in the three-month period ended
December 28, 1996, an increase of 39% from 5,008 seats of software in the
comparable period in fiscal 1996. 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 28,
1996 was $19,800, compared with an average price of $18,300 for the same period
in fiscal 1996. The average price per seat has increased as a result of
customers purchasing configurations of Pro/ENGINEER seats containing more
modules and an increase in the percentage of the Company's revenue derived from
international markets, where the prices have typically been higher than in North
America.
Service revenue is derived from the sale of software maintenance contracts
and the performance of training and consulting services. Service revenue was
$45,059,000 for the three-month period ended December 28, 1996 compared to
$33,967,000 for the comparable period in fiscal 1996. The increase in service
revenue is a result of the growth in the Company's installed customer base and,
to a lesser extent, increased training and consulting services performed for
these customers. The smaller increase in training and consulting revenue of 18%
is a result of the Company outsourcing a portion of these services to third
parties to allow the Company to focus its resources on increasing its installed
base.
The Company derived 57% of revenue from sales to international customers in
the three-month period ended December 28, 1996, compared with 53% for the same
period in fiscal 1996. The increase in international revenue is primarily
attributable
7
<PAGE>
to continued international acceptance of the Company's products and
services, the establishment of new subsidiaries and sales offices, and the
growth in the sales force in Europe and Asia/Pacific. The Company expects that
total revenue will increase throughout fiscal 1997 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. Although
the Company expects revenues to grow throughout fiscal 1997, there can be no
assurance that quarterly revenue growth rates or geographical growth rates will
be comparable with those achieved in the three-month period ended December 28,
1996. Achieving this expectation depends on the Company's ability to continue
to penetrate the mechanical CAD/CAM/CAE market, to attract and retain skilled
personnel, and to deliver timely product enhancements.
Cost of license revenue consists of the amortization of capitalized computer
software costs and costs associated with reproducing software on compact disks,
printing user manuals, royalties, packaging and shipping. The increase in cost
of license revenue is a result of the increase in the number of seats licensed
during the three-month period ended December 28, 1996 as compared to the
corresponding period in fiscal 1996. Cost of service revenue includes the costs
associated with training and consulting personnel, such as salaries and related
costs and travel, and costs related to software maintenance, including costs
incurred for customer support personnel and the release of maintenance updates.
The increase in cost of service revenue resulted primarily from growth in the
staffing necessary to generate and support increased worldwide service revenue
and provide ongoing quality customer support to its increasing installed base.
Combined, these expenses increased to $17,548,000 for the three-month period
ended December 28, 1996 from $12,454,000 for the corresponding period in fiscal
1996. Total cost of revenue as a percentage of revenue remained stable at 10%
for the three-month period ended December 28, 1996 and the corresponding period
in fiscal 1996.
Sales and marketing expenses primarily include salaries, sales commissions,
travel and facility costs. Sales and marketing expenses increased to
$71,661,000 for the three-month period ended December 28, 1996 from $50,451,000
for the corresponding period in fiscal 1996. These costs decreased as a
percentage of revenue to 39% for the three-month period ended December 28, 1996,
compared with 40% for the comparable period in fiscal 1996. The absolute
increase in these expenses was due primarily to worldwide expansion of the sales
force and sales commissions associated with higher revenue. Total sales and
marketing headcount increased to 1,759 at December 28, 1996, an increase of 41%
from 1,247 at December 30, 1995. International sales and marketing expenses
represented 61% of total sales and marketing expenses for the three-month period
ended December 28, 1996, compared with 62% for the same period in fiscal 1996.
The Company expects to continue the growth of its worldwide sales and marketing
organization during fiscal 1997, reflecting the Company's commitment to focus
its resources on increasing its installed base and to continue to expand its
global market penetration.
The Company continued to make significant investments in research and
development, consisting principally of salaries and benefits, expenses
associated with product translations, costs of computer equipment used in
software development, and facility expenses. Research and development expenses
increased to $12,134,000 for the three-month period ended December 28, 1996 from
$7,825,000 for the corresponding period in fiscal 1996. Total research and
development expenses were 7% of revenue for the three-month period ended
December 28, 1996 compared with 6% for the same period in fiscal 1996. The
Company believes that research and development expenditures are essential to
maintaining its competitive position in the CAD/CAM/CAE market and expects the
expenditure levels to increase in absolute dollars throughout fiscal 1997.
General and administrative expenses include the costs of corporate, finance,
information technology, human resources and administrative functions of the
Company. These expenses increased to $8,705,000 for the three-month period
ended December 28, 1996 from $5,934,000 for the corresponding period in fiscal
1996. General and administrative expenses as a percentage of revenue remained
stable at 5% for the three-month period ended December 28, 1996 and December 30,
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 $3,965,000 for the
three-month period ended December 28, 1996 compared with $3,308,000 for the
corresponding period in fiscal 1996 due primarily to higher interest-bearing
cash and investment balances. As the international portion of its business
continues to increase, a growing percentage of the Company's revenue and
expenses is transacted in foreign currencies. To minimize, where possible,
foreign exchange gains or losses from fluctuations in foreign exchange rates
related to specific foreign currency denominated receivables, the Company has a
hedging program, which involves the use of forward foreign exchange contracts in
the primary European and Asian currencies. Losses resulting from foreign
currency transactions,
8
<PAGE>
including the results of the hedging program, were $525,000 for the three-month
period ended December 28, 1996 and $246,000 for the corresponding period in
fiscal 1996.
The Company's effective tax rate for the three-month period ended December
28, 1996 was 35%, compared with 36.2% for the same period in fiscal 1996. The
difference between the effective and statutory federal tax rate was due
primarily to the benefits of tax-exempt interest income and the foreign sales
corporation, offset by the impact of state income taxes.
The number of worldwide employees increased 35% to 2,923 at December 28, 1996
compared with 2,171 at December 30, 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 December 28, 1996, the Company had $174,828,000 of cash and cash
equivalents and $294,573,000 of investments. Net cash generated by operating
activities and proceeds from issuance of the Company's stock under stock plans
provided sufficient resources to fund the Company's headcount growth, capital
asset needs and stock repurchases for the three months ended December 28, 1996.
Net cash provided by operating activities, consisting primarily of net income
from operations before depreciation and amortization and increases in working
capital, was $58,236,000 for the three-month period ended December 28, 1996
compared with $44,363,000 for the corresponding period in fiscal 1996. Net cash
used by investing activities totaled $56,031,000 for the three-month period
ended December 28, 1996, compared with $28,308,000 for the corresponding period
in fiscal 1996. Investment activities consisted primarily of purchases and
sales of investments, and additions to property and equipment. The company
acquired $7,871,000 of capital equipment consisting primarily of computer
equipment, software, and office equipment. The increase was a result of the
growth in employee headcount, continued expansion of its worldwide sales and
support operations and increased investment in information technologies and in
computer workstations to keep field and development employees current with
changes in the hardware and software marketplace. For the remainder of fiscal
1997, the Company plans to spend at least as much as was spent in fiscal 1996;
however, the level of spending will be dependent on various factors, including
the growth of the business and general economic conditions. Financing
activities, consisting primarily of proceeds from issuance of common stock,
offset by the purchases of treasury stock in fiscal 1997, used $27,623,000 for
the three months ended December 28, 1996 and provided $3,397,000 for the three
months ended December 30, 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 three-month period ended December 28, 1996, the
Company repurchased 780,000 shares at a cost of $40,122,000, of which 188,000
remained in treasury at December 28, 1996. Since the inception of the plan, the
Company has repurchased 2,873,000 shares. Ongoing repurchases will be funded
through the use of available cash, cash generated from operations and cash
received from stock option exercises and employee stock purchase plan purchases.
The Company believes that existing cash and short-term investment balances,
together with cash generated from operations and issuance of the Company's
common stock under stock plans, will be sufficient to meet the Company's
currently projected working capital, financing and capital expenditure
requirements through at least fiscal 1997.
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: February 3, 1997 by: /S/ Edwin J. Gillis
-----------------------------------
Edwin J. Gillis
Executive 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
28, 1996 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-30-1997
<PERIOD-END> DEC-28-1996
<CASH> 174,828
<SECURITIES> 283,674
<RECEIVABLES> 128,245
<ALLOWANCES> 2,818
<INVENTORY> 0
<CURRENT-ASSETS> 594,293
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 691,063
<CURRENT-LIABILITIES> 150,484
<BONDS> 0
0
0
<COMMON> 1,277
<OTHER-SE> 538,535
<TOTAL-LIABILITY-AND-EQUITY> 691,063
<SALES> 138,442
<TOTAL-REVENUES> 183,501
<CGS> 1,991
<TOTAL-COSTS> 17,548
<OTHER-EXPENSES> 92,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 76,078
<INCOME-TAX> 26,627
<INCOME-CONTINUING> 49,451
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,451
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
