<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 4, 1998
COMMISSION FILE NUMBER: 0-18059
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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
INCORPORATION OR ORGANIZATION) NUMBER)
128 TECHNOLOGY DRIVE, WALTHAM, MA 02154
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(781) 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 [_]
As of July 4, 1998, there were 272,220,106 shares of the Registrant's Common
Stock, par value $0.01 per share outstanding.
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<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JULY 4, 1998
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Cover.................................................................. i
Index.................................................................. ii
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets as of July 4, 1998 and
September 30, 1997............................................ 1
Unaudited Consolidated Statements of Operations for the three
and nine months ended July 4, 1998 and June 28, 1997.......... 2
Unaudited Consolidated Statements of Cash Flows for the nine
months ended July 4, 1998 and June 28, 1997................... 3
Notes to the Consolidated Financial Statements................ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 14
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................. 14
Item 6. Exhibits and Reports on Form 8-K.............................. 14
Signature.............................................................. 15
</TABLE>
<PAGE>
PART I--FINANCIAL INFORMATION
PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 4, SEPTEMBER 30,
1998 1997
----------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 194,026 $ 168,609
Short-term investments............................ 131,608 354,516
Accounts receivables, net......................... 185,757 196,021
Other current assets.............................. 77,803 49,838
----------- -----------
Total current assets............................ 589,194 768,984
Marketable investments.............................. 102,913 45,580
Property and equipment, net......................... 59,375 56,797
Other assets........................................ 58,788 57,843
----------- -----------
Total assets.................................... $ 810,270 $ 929,204
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion of long-term debt
and capital lease obligations.................... $ -- $ 39,477
Accounts payable.................................. 48,100 38,305
Accrued expenses.................................. 67,513 99,142
Accrued compensation, severance and related
expenses......................................... 85,178 91,709
Deferred revenue.................................. 131,027 114,149
Income taxes...................................... 62,130 70,632
----------- -----------
Total current liabilities....................... 393,948 453,414
Long-term debt, including capital lease obligations. -- 213,526
Other liabilities................................... 69,798 55,710
----------- -----------
Total liabilities............................... 463,746 722,650
----------- -----------
Stockholders' equity (Note 5):
Preferred stock, $0.01 par value; 5,000 shares
authorized; none issued.......................... -- --
Common stock, $0.01 par value; 350,000 shares
authorized; 272,220 and 267,967 shares issued.... 2,722 2,680
Additional paid-in capital........................ 1,520,209 1,450,132
Accumulated deficit............................... (1,174,850) (1,223,387)
Treasury stock, at cost, 0 and 524 shares......... -- (24,169)
Cumulative foreign currency translation adjustment
and other equity................................. (1,557) 1,298
----------- -----------
Total stockholders' equity...................... 346,524 206,554
----------- -----------
Total liabilities and stockholders' equity...... $ 810,270 $ 929,204
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- ------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
1998 1997 1998 1997
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Software revenue:
License.............................. $ 141,239 $ 163,109 $462,054 $481,854
Service.............................. 103,762 86,193 305,886 241,910
--------- --------- -------- --------
Total software revenue........... 245,001 249,302 767,940 723,764
Other services revenue............... -- 8,889 -- 82,224
--------- --------- -------- --------
Total revenue.................... 245,001 258,191 767,940 805,988
--------- --------- -------- --------
Cost of revenue:
Software
License............................ 2,961 4,337 11,490 15,198
Service............................ 34,638 32,727 105,067 97,173
Other services....................... -- 9,294 -- 74,808
--------- --------- -------- --------
Total cost of revenue............ 37,599 46,358 116,557 187,179
--------- --------- -------- --------
Gross profit........................... 207,402 211,833 651,383 618,809
--------- --------- -------- --------
Operating expenses:
Sales and marketing.................. 103,399 96,344 292,590 289,121
Research and development............. 24,165 23,645 70,195 68,968
General and administrative........... 15,021 15,479 43,339 46,436
Acquisition and non-recurring charges
(Note 2)............................ 28,966 -- 105,766 45,000
Other services operating and non-
recurring charges................... -- 1,476 -- 19,188
--------- --------- -------- --------
Total operating expenses......... 171,551 136,944 511,890 468,713
--------- --------- -------- --------
Operating income....................... 35,851 74,889 139,493 150,096
Other (income) expense, net............ (2,114) 6,098 4,136 17,311
--------- --------- -------- --------
Income before income taxes and
extraordinary loss.................... 37,965 68,791 135,357 132,785
Provision for income taxes............. 22,756 30,205 74,940 85,400
--------- --------- -------- --------
Income before extraordinary item....... 15,209 38,586 60,417 47,385
Extraordinary loss, net of income tax
benefit of $2,183 (Note 3)............ -- -- (19,017) --
--------- --------- -------- --------
Net income............................. $ 15,209 $ 38,586 $ 41,400 $ 47,385
========= ========= ======== ========
Earning per share (Notes 4 and 5):
Basic
Income before extraordinary item... $ 0.06 $ 0.14 $ 0.22 $ 0.18
Extraordinary loss................. -- -- (0.07) --
--------- --------- -------- --------
Net income......................... $ 0.06 $ 0.14 $ 0.15 $ 0.18
========= ========= ======== ========
Diluted
Income before extraordinary item... $ 0.05 $ 0.14 $ 0.22 $ 0.17
Extraordinary loss................. -- -- (0.07) --
--------- --------- -------- --------
Net income......................... $ 0.05 $ 0.14 $ 0.15 $ 0.17
========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------
JULY 4, JUNE 28,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income............................................. $ 41,400 $ 47,385
Adjustments to reconcile net income to net cash flows
from operating activities:
Extraordinary loss on early extinguishment of debt... 19,017 --
Non-cash portion of non-recurring charges............ 41,119 6,634
Depreciation and amortization........................ 20,175 29,954
Deferred income taxes................................ 3,002 1,701
Gain on sale of a subsidiary......................... -- (1,255)
Changes in assets and liabilities which provided
(used) cash:
Accounts receivables, net.......................... 10,106 15,738
Other current assets............................... (35,493) (7,587)
Other noncurrent assets and liabilities............ 14,352 (2,660)
Accounts payable and accrued expenses.............. (6,845) 9,667
Accrued compensation, severance and related
expenses.......................................... (7,677) 5,584
Deferred revenue................................... 15,927 12,524
Income taxes....................................... 7,298 36,921
--------- ---------
Net cash provided by operating activities........ 122,381 154,606
--------- ---------
Cash flows from investing activities
Additions to property and equipment, net............... (30,549) (28,029)
Additions to capitalized and purchased software costs.. -- (842)
Acquisition of businesses.............................. (40,599) (1,600)
Purchases of investments............................... (284,725) (341,231)
Proceeds from sales of investments..................... 450,954 286,398
Proceeds from sale of a subsidiary, net................ -- 30,100
--------- ---------
Net cash provided (used) by investing activities. 95,081 (55,204)
--------- ---------
Cash flows from financing activities
Issuance of short-term notes payable, net.............. -- 8,368
Repayment of short-term notes payable.................. (34,933) --
Repayment of long-term obligations..................... (240,761) (920)
Proceeds from issuance of common stock................. 75,810 42,513
Purchases of treasury stock............................ -- (135,066)
--------- ---------
Net cash used by financing activities............ (199,884) (85,105)
--------- ---------
Elimination of Computervision's net cash activity for the
three months ended December 31, 1997.................... 11,567 --
Effect of exchange rate changes on cash.................. (3,728) (4,886)
--------- ---------
Net increase in cash and cash equivalents................ 25,417 9,411
Cash and cash equivalents, beginning of period........... 168,609 240,179
--------- ---------
Cash and cash equivalents, end of period................. $ 194,026 $ 249,590
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Parametric Technology Corporation and its wholly owned
subsidiaries (the "Company") (See Note 2), and have been prepared by the
Company in accordance with generally accepted accounting principles. Certain
reclassifications have been made to the prior year's statements to conform
with the fiscal 1998 presentation. 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, 1997.
The results of operations for the nine month period ended July 4, 1998 are
not necessarily indicative of the results expected for the remainder of the
fiscal year.
2. ACQUISITIONS AND NON-RECURRING CHARGES
ICEM
In June 1998, the Company acquired ICEM Technologies ("ICEM"), a division of
Control Data Systems, Inc., for approximately $41.0 million in cash, subject
to adjustment. Headquartered in Frankfurt Germany, ICEM provides advanced
surfacing and reverse engineering software tools used by body and styling
engineers in the automotive and aerospace industries. The acquisition was
accounted for as a purchase. The purchase price was allocated to the
identifiable net assets acquired, including $1.6 million for an assembled
workforce, $1.0 million for trade names, $8.0 million for developed
technology, net assets of approximately $2.1 million and $28.9 million for
purchased in-process research and development ("R&D"). The purchased in-
process R&D, which was recorded as a non-recurring charge during the third
quarter, includes the value of products in the development stage which have no
alternative use and have not reached technological feasibility. The operating
results of ICEM have been included in the Company's results of operations from
the period of acquisition. Future adjustments to the total purchase price
allocation, if any, are not expected to materially affect the Company's
financial statements.
Computervision
In January 1998, the Company completed its acquisition of Computervision
Corporation ("Computervision") by issuing approximately 5.8 million shares of
its common stock in exchange for all of the outstanding common stock of
Computervision. In addition, the Company reserved approximately 822,000 shares
of its common stock for outstanding Computervision stock options assumed. The
transaction is intended to qualify as a tax-free reorganization and has been
accounted for as a pooling of interests. Accordingly, the Company's
consolidated financial statements have been restated to include the accounts
and operations of Computervision for all periods presented.
Due to the differing year-ends of the Company and Computervision, financial
information for dissimilar fiscal years has been combined. Computervision's
results of operations for its fiscal year ended December 31, 1997 were
combined with the Company's results of operations for the fiscal year ended
September 30, 1997. In order to conform Computervision's fiscal year end to
the Company's September 30, 1997 fiscal year-end, Computervision's results of
operations for the three months ended December 31, 1997 were combined with the
Company's results of operations for the three months ended January 3, 1998.
Balance sheet information as of September 30, 1997 includes the financial
position of Computervision as of December 31, 1997 and the
4
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company as of September 30, 1997. Accordingly, Computervision's net loss of
$20.2 million for the three month period ended December 31, 1997, which has
been included in the combined statements of income for both the fourth quarter
of fiscal 1997 and the first quarter of fiscal 1998, has been reflected as an
adjustment to the Company's beginning balance of fiscal 1998 accumulated
deficit. Due to the change in Computervision's year-end, Computervision's cash
flow activity for the three month period ended December 31, 1997 has been
shown as a separate component of the cash flow statement.
Revenue and net income of the combined entities for the three month period
prior to the merger and the corresponding period in the prior year are
presented in the following table. Prior to the merger, there were no
intercompany transactions between the two companies. The Computervision
results include revenue and expenses from the hardware support services
business (Other Services) through Computervision's sale of this business on
July 18, 1997. The results presented in the following table do not reflect the
non-recurring charge or the extraordinary loss associated with the
Computervision acquisition.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Revenue
Parametric Technology........................... $223,007 $183,501
Computervision.................................. 35,861 77,809
-------- --------
Combined revenue................................ $258,868 $261,310
======== ========
Net Income (Loss)
Parametric Technology........................... $ 62,343 $ 49,451
Computervision.................................. (20,210) (33,944)
-------- --------
Combined Net Income............................. $ 42,133 $ 15,507
======== ========
</TABLE>
In connection with the Computervision acquisition, the Company incurred a
one-time charge of $76.8 million ($62.8 million after tax, or $0.22 per share)
for acquisition related integration, consolidation and merger costs during the
second quarter of fiscal 1998. The charge included $18.1 million of severance
and termination benefits related to the elimination of approximately 450
positions of the acquired company, $12.8 million for the write-off of assets,
$8.2 million for related transaction costs, $17.4 million of contract costs
associated with revised estimates, $7.2 million for the closing of leased
facilities and $13.1 million of other accruals. As of July 4, 1998,
approximately $10.4 million of the unutilized non-recurring charge is included
in accrued compensation, $16.5 million in other current liabilities and $14.8
million in other long-term liabilities. Of the $35.1 million utilized during
fiscal 1998, $13.0 million was for non-cash transactions.
In connection with the acquisition and the resulting combination of
Computervision's balance sheet with the Company's, the consolidated balance
sheets presented herein include restructuring charges previously recorded by
Computervision. The components of the restructuring liability acquired
included $18.6 million in severance and termination benefits, $8.7 million of
pension costs, $3.9 million of other accruals and $52.4 million in excess
facilities costs. As of July 4, 1998, approximately $7.2 million of the non-
recurring charge is included in accrued compensation, $4.5 million in other
current liabilities and $48.1 million in other long-term liabilities. All
amounts utilized during fiscal 1998 were for cash transactions.
The Company currently anticipates that a substantial portion of these non-
recurring charges will be incurred over the next nine months, except for
certain long-term obligations, principally related to leased facilities.
5
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. EXTRAORDINARY LOSS
In connection with the Computervision merger, the Company assumed a
revolving note payable of $34.6 million and long-term debt obligations
totaling $211.7 million. On January 13, 1998, the Company paid $34.9 million
for settlement of the outstanding balance on the revolving note payable plus
accrued interest and related fees. On February 11, 1998, the Company prepaid
Computervision's 11 3/8% Senior Subordinated Notes at 101.96% of par, the 8%
Computervision Debentures at par and the 5 3/4% Prime Debentures at par. The
total cash outlay for settlement of the long-term obligations plus accrued
interest and related fees was $240.8 million. During the second quarter of
fiscal 1998, the Company incurred an extraordinary after-tax loss of $19.0
million related to the write-off of deferred financing costs and other
prepayment costs associated with this debt.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 Earnings per
Share ("EPS"), effective for fiscal periods ending after December 15, 1997.
The Company adopted this standard during the first quarter of fiscal 1998.
Accordingly, all prior period EPS data presented has been restated to conform
to the provisions of SFAS No. 128. Computation of basic and diluted EPS (as
adjusted for the Company's stock dividend, See Note 5), including a
reconciliation of the numerator and denominators used, is shown below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
JULY 4, 1998 JUNE 28, 1997 JULY 4, 1998 JUNE 28, 1997
------------ ------------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income............... $15,209 $38,586 $41,400 $47,385
======= ======= ======= =======
Weighted average shares
outstanding:
Common stock........... 271,475 266,401 269,500 266,325
Employee stock options. 11,563 10,425 10,042 13,802
------- ------- ------- -------
Common stock and common
stock equivalents..... 283,038 276,826 279,542 280,127
======= ======= ======= =======
Net income per share:
Basic.................. $ 0.06 $ 0.14 $ 0.15 $ 0.18
Diluted................ $ 0.05 $ 0.14 $ 0.15 $ 0.17
</TABLE>
Options to purchase shares of the Company's common stock of 2,016,000 and
4,404,000 for the three and nine months ended July 4, 1998, respectively, and
12,726,000 and 3,625,000 for the three and nine months ended June 28, 1997,
respectively, were outstanding but were not included in the computations of
diluted EPS because the price of the options was greater than the average
market price of the common stock for the period reported. The Company's July
1998 stock option exchange program, as described in Note 8, will impact the
number of shares included in future computations of diluted EPS.
5. COMMON STOCK DIVIDEND
On February 12, 1998, the Company's Board of Directors declared a one-for-
one stock dividend applicable to stockholders of record on February 27, 1998
and payable March 6, 1998. The distribution on March 6, 1998 increased the
number of shares outstanding from approximately 134,930,000 to 269,860,000.
Share and per share data for all periods presented have been restated to
reflect this stock dividend.
6
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. CONTINGENCIES
Certain class action lawsuits have been filed against the Company and
certain of its officers and directors alleging violations of the federal
securities laws based on alleged misrepresentations regarding the Company's
results for the third quarter of fiscal 1998. While the ultimate resolution of
these actions cannot be predicted at this time, the Company believes that they
are without merit and intends to defend them vigorously.
7. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for reporting and the display of comprehensive
income and its components (revenue, expenses, gains and losses) in a full set
of general-purpose financial statements. Management has not yet evaluated the
effects of this change on its reporting of income. The Company will adopt SFAS
No. 130 for its fiscal year ending September 30, 1999.
In June 1997, the FASB issued SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information, which changes the way public companies
report information about operating segments. SFAS No. 131, which is based on
the management approach to segment reporting, establishes requirements to
report selected segment information quarterly and to report entity-wide
disclosures about products and services, major customers, and the material
countries in which the entity holds assets and reports revenue. Management is
currently evaluating the effects of this change on its reporting of segment
information. The Company will adopt SFAS No. 131 for its fiscal year ending
September 30, 1999.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, Software Revenue Recognition, which
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions and supersedes SOP 91-1, Software
Revenue Recognition. The Company will adopt SOP 97-2 for its fiscal year
ending September 30, 1999 and does not anticipate any material impact on its
revenue recognition policies.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction. For
fair-value hedge transactions in which the Company is hedging changes in an
asset's, liability's or firm commitment's fair value, changes in the fair
value of the derivative instrument will generally be offset in the income
statement by changes in the hedged item's fair value. For cash flow hedge
transactions, changes in the fair value of the derivative instrument will be
reported in comprehensive income. The gains and losses on the derivative
instrument that are reported in other comprehensive income will be
reclassified as earnings in the periods in which earnings are impacted by the
variability of the cash flows of the hedged item. The ineffective portion of
all hedges will be recognized in current period earnings. The Company
currently expects to adopt SFAS No. 133 for its fiscal year ending September
30, 2000. Management has not yet evaluated the impact that the adoption of
SFAS No. 133 will have on its results of operations or financial position.
8.SUBSEQUENT EVENT
In July 1998, the Board of Directors approved a one-for-one stock option
exchange program that provided employees the opportunity to exchange stock
options previously granted under the Company's 1997 Nonstatutory Stock Option
Plan and the 1987 Incentive Stock Option Plan for new options with a current
market price and new vesting period. Executive officers and directors were not
eligible to participate in the program. The new options were priced at $13.625
based upon the closing price of the Company's stock as reported by Nasdaq on
August 3, 1998 and vest in equal annual installments over four years from the
August 3, 1998 grant date.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE COMPANY
Parametric Technology Corporation (the "Company" or "PTC") develops,
markets, and supports a complete family of product development and information
management solutions. The Company's Pro/ENGINEER(R) Solutions automate the
complete product development process within the mechanical computer-aided
design, manufacturing and engineering ("CAD/CAM/CAE") industry. The Company's
products within the enterprise information management industry include the
web-centric, Java-based product information management tools of Windchill,
with applications including Foundation, Enterprise Document Manager and
Enterprise Configuration Manager. All software solutions are supported and
complemented by the strength and experience of the Company's professional
services organization which includes training, consulting, and customer
support.
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,
acquisition integration efforts, market and industry segment growth, product
development and commercialization or other aspects of future operations. Such
statements are based on the assumptions and expectations of management at the
time such statements are made. The Company cautions investors that its
performance (and, therefore, any forward-looking statement) is subject to
risks and uncertainties. Various important factors, including but not limited
to those discussed herein, may cause the Company's future results to differ
materially from those projected in any forward-looking statement. Important
information about such factors and the basis for those assumptions is
discussed below and is also 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 1997 Annual Report to
Stockholders and in the "Risk Factors" section of the Company's Registration
Statement on Form S-4 filed with the Securities and Exchange Commission on
November 12, 1997, which sections are incorporated herein by reference.
ACQUISITIONS
ICEM
In June 1998, the Company acquired ICEM Technologies ("ICEM"), a division of
Control Data Systems, Inc., for approximately $41.0 million in cash, subject
to adjustment. Headquartered in Frankfurt Germany, ICEM provides advanced
surfacing and reverse engineering software tools used by body and styling
engineers in the automotive and aerospace industries. The acquisition was
accounted for as a purchase. Accordingly, the purchase price was allocated to
the identifiable net assets acquired as described in Note 2 to the Company's
third quarter financial statements included herein. Of the total purchase
price, $28.9 million was allocated to in-process research and development and
was recorded as a non-recurring charge during the third quarter. In-process
research and development includes the value of products in the development
stage that have no alternative use and have not reached technological
feasibility. The operating results of ICEM have been included in the Company's
results of operations from the period of acquisition. Future adjustments to
the total purchase price allocation, if any, are not expected to materially
affect the Company's financial statements.
Computervision
In January 1998, the Company completed its acquisition of Computervision
Corporation by issuing approximately 5.8 million shares of its common stock in
exchange for all of the outstanding common stock of Computervision. In
addition, the Company reserved approximately 822,000 shares of its common
stock for outstanding Computervision stock options assumed. The transaction is
intended to qualify as a tax-free reorganization and has been accounted for as
a pooling of interests. Accordingly, the Company's consolidated financial
statements have been restated to include the accounts and operations of
Computervision for all periods presented.
8
<PAGE>
In connection with the acquisition, the Company incurred a one-time charge
of $76.8 million ($62.8 million after tax, or $0.22 per share) for acquisition
related integration, consolidation and merger costs during the second quarter
of fiscal 1998, the details of which are described in Note 2 to the Company's
financial statements included herein. As of July 4, 1998, $41.7 million of
this non-recurring charge remained unutilized. The Company anticipates that a
substantial portion of the remaining charge will be incurred over the next
nine months, except for certain long-term obligations, principally related to
leased facilities.
In connection with the Computervision merger, the Company assumed a
revolving note payable and long-term debt obligations. During the second
quarter of fiscal 1998, the Company paid $275.7 million for settlement of the
outstanding note, debt obligations, accrued interest and related fees. During
the second quarter of fiscal 1998, the Company incurred an extraordinary
after-tax loss of $19.0 million related to the write-off of deferred financing
costs and other prepayment costs associated with this debt.
Other services revenue and costs reported in fiscal 1997 represent the
hardware support services business of Computervision which was sold in July
1997. Since there was no activity associated with this business during fiscal
1998, the results of this business in comparison to the current period have
been excluded from the following discussion.
RESULTS OF OPERATIONS
Net income for the nine months ended July 4, 1998, including non-recurring
charges and the extraordinary after tax loss, was $41.4 million compared to
$47.4 million reported for the corresponding period in 1997. Net income for
the 1998 third quarter was $15.2 million compared to $38.6 million reported
for the corresponding 1997 period. Excluding non-recurring charges and the
extraordinary after-tax loss, net income for the three and nine months ended
July 4, 1998 was $44.2 million and $152.3 million, an increase of 9.2% and
46.2%, respectively, over the $40.5 million and $104.2 million for the
corresponding 1997 periods. Excluding non-recurring charges and the
extraordinary after-tax loss, net income as a percentage of total software
revenue would have been 18.0% and 19.8% for the three and nine month periods
ended July 4, 1998, respectively, compared to 16.2% and 14.4% for the
corresponding 1997 periods.
Software revenue, which includes license and service revenues, was $245.0
million and $767.9 million for the three and nine month periods ended July 4,
1998, respectively. Software revenue for the comparative three and nine month
periods ended June 28, 1997 was $249.3 million and $723.8 million,
respectively. While the year-to-date software revenues increased 6.1%, third
quarter software revenues decreased 1.7% from the respective 1997 period. The
third quarter decrease in software revenue was primarily attributable to a
decrease in license revenue that was partially offset by increases in service
revenue as described below.
The Company derived 58.5% and 56.3% of total software revenue from sales to
international customers during the three and nine month periods ended July 4,
1998, respectively, compared with 54.7% and 57.6% for the same periods in
fiscal 1997. Geographically, North America and Europe each represented
approximately 42% of fiscal 1998 year-to-date revenues, with the Asia Pacific
region comprising the remaining 16%. Revenues for the third quarter of fiscal
1998 decreased approximately 10.0% in both the North America and Asia Pacific
regions while the European region grew 12.4% during the same three month
period.
License revenue was $141.2 million for the three month period and $462.1
million for the nine month period ended July 4, 1998. Compared to the
corresponding three and nine month periods of fiscal 1997, license revenue
decreased 13.4% for the third quarter of fiscal 1998 and decreased 4.1% on a
year-to-date basis. The Company licensed 7,622 and 24,338 seats of software in
the three and nine month periods ended July 4, 1998, respectively, a decrease
of 11.6% and 4.7%, respectively, from 8,621 and 25,525 seats of software
licensed in the comparable 1997 periods. A seat of software generally consists
of various software products configured to serve the needs of a single end
user. The average sale price per seat decreased in the third quarter of fiscal
1998 from the same period a year ago due to several factors, including the mix
of product offerings and a decrease in the Company's sales to low volume
purchasers, which typically are at higher average sale prices per seat. During
the 1998 third quarter, the Company undertook two major initiatives which it
believes were, along with the negative impact of the Asian Pacific economies,
contributing factors to the decline in license revenue on both a quarterly and
year-to-date basis. These initiatives had the unanticipated effect of shifting
management and sales focus away from the Company's core Pro/ENGINEER business.
9
<PAGE>
The first initiative involved the introduction of the Windchill enterprise
information management technology. The Company believes that this new
technology allows it to expand its business beyond its traditional product
development software to enterprise information management software and the
integration of both product development and enterprise information management
technology.
The second initiative involved the commencement of a reorganization of the
sales force to put more emphasis on major accounts. As part of this
reorganization, the Company entered into an agreement with Rand A Technology
Corporation for it to become the master distributor of PTC's core products to
small businesses. The Company expects the sales reorganization to be effective
for the beginning of fiscal 1999 and anticipates additional transitional
impact during the fourth quarter of fiscal 1998 and the first quarter of
fiscal 1999.
Service revenue is derived from the sale of software maintenance contracts
and the performance of training and consulting services. Service revenue was
$103.8 million and $305.9 million for the three and nine month periods ended
July 4, 1998, respectively, an increase of 20.4% and 26.4% over the comparable
periods in fiscal 1997. Service revenue as a percentage of total software
revenue increased to 42.4% and 39.8% for the three and nine month periods
ended July 4, 1998, respectively, compared to 34.6% and 33.4% for the
corresponding periods of fiscal 1997. The increase in service revenue and
service revenue as a percentage of total software revenue is the result of
growth in the Company's increased installed customer base and increased
training and consulting services performed for these customers combined with
the decrease in total software revenue used as a base.
On August 6, 1998, the Company announced the repackaging and repricing of
its Pro/ENGINEER Solutions software product line, now known as
Pro/ENGINEER(R)-Foundation(TM), and the phasing out of its PT/Products
software line. Pro/ENGINEER-Foundation incorporates enhanced applications
while reducing the cost of the core product. The Company believes that the new
pricing and packaging strategy offers a scalable approach to enhancing
productivity to better meet the needs of its customers and improves the
competitive position of its products. The Company cannot at this time predict
the effect of the repackaging and repricing strategy on license revenue or
revenue derived from the sale of software maintenance contracts.
The Company anticipates that total software revenue will remain relatively
flat over the next two quarters, with growth beginning during the second half
of fiscal 1999. However, the level of software revenue depends upon the
Company's ability to successfully implement its new initiatives, generate and
fill current software license orders, adequately manage exposure to foreign
currency movements, attract and retain skilled personnel, and deliver timely
product enhancements. Additionally, performance could also be affected by the
efforts to integrate Computervision's operations with those of the Company on
a worldwide basis, the success of those integration efforts, market acceptance
of the new Windchill product line, the ongoing economic uncertainties in the
Asia Pacific region, and growth rates in the CAD/CAM/CAE industry in general.
There can be no assurance that the level of quarterly software revenue in
general or for particular geographical areas will be comparable to those
achieved in prior periods.
As previously discussed, during fiscal 1998, the Company incurred non-
recurring charges of $105.8 million for acquisition-related integration and
merger costs. Of the total amount, approximately $29.0 million was for the
write-off of in-process research and development costs related to the
acquisition of ICEM during the third quarter of fiscal 1998. The remaining
$76.8 million was associated with the acquisition of Computervision during the
second quarter of fiscal 1998. The Computervision charge was related to the
elimination of approximately 450 positions at Computervision, the write-off of
assets, related transaction costs, contract costs and the closing of several
leased facilities. Accordingly, certain expenses incurred during fiscal 1998
reflect the reduction in costs attributable to this non-recurring charge. The
comparative 1997 year-to-date period reflects a restructuring charge of $45.0
million taken by Computervision prior to the merger for severance and
termination benefits for approximately 250 positions, pension costs and excess
lease facilities. These charges have been included in the combined results of
the Company due to the pooling-of-interest accounting treatment of the
Computervision acquisition.
10
<PAGE>
Total cost of software revenue as a percentage of total software revenue
remained relatively flat at approximately 15.3% for both the three and nine
month periods ended July 4, 1998, compared with 14.9% and 15.5% for the
corresponding periods in fiscal 1997. Cost of license revenue consists of
costs associated with reproducing software, printing user manuals, royalties,
packaging, shipping and the amortization of capitalized computer software
costs. For the three and nine months ended July 4, 1998, cost of license
revenue decreased 31.7% and 24.4% from the corresponding 1997 periods. The
decrease in the cost of license revenue is primarily a result of decreasing
license revenue and a decrease in royalties associated with license revenue.
Cost of service revenue includes the costs associated with training and
consulting personnel, such as salaries and related costs and travel, and the
costs related to software maintenance, including costs incurred for customer
support personnel and the release of maintenance updates. For the three and
nine months ended July 4, 1998, cost of service revenue increased 5.8% and
8.1% over the respective 1997 periods. 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 the Company's installed base.
Sales and marketing expenses increased to $103.4 million and $292.6 million
for the three and nine month periods ended July 4, 1998, respectively, from
$96.3 million and $289.1 million for the corresponding periods in fiscal 1997.
Sales and marketing expenses primarily include salaries, sales commissions,
travel and facility costs. For the nine month period, these costs decreased as
a percentage of total software revenue from 39.9% in 1997 to 38.1% in 1998.
For the third quarter of fiscal 1998, these costs increased from 38.6% in 1997
to 42.2% in fiscal 1998. The year-to-date decrease is primarily attributable
to a reduction in work force and elimination of excess facility costs
associated with the acquisition of Computervision. Notwithstanding the
reduction in workforce, total sales and marketing headcount increased to 2,512
at July 4, 1998, an increase of 7.9% from 2,328 at June 28, 1997.
The Company continued to make 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 were
$24.2 million and $70.2 million for the three and nine month periods ended
July 4, 1998, respectively, compared to $23.6 million and $69.0 million for
the corresponding periods in fiscal 1997. On a year-to-date basis, research
and development expenses decreased from 9.5% of total software revenue for the
first nine months of fiscal 1997 to 9.1% for the same period in fiscal 1998.
For the third quarter, research and development expenses as a percentage of
software revenue increased from 9.5% in fiscal 1997 to 9.9% in fiscal 1998.
The year-to-date decreases were primarily attributable to the impact of
workforce reductions and write-offs associated with the acquisition of
Computervision. The quarter-over-quarter increase is attributable to the
Company's continued investments in research and development, particularly in
relation to the Windchill product line.
General and administrative expenses include the costs of corporate, finance,
information technology, human resources and administrative functions of the
Company. These expenses decreased to $15.0 million and $43.3 million for the
three and nine month periods ended July 4, 1998, respectively, from $15.5
million and $46.4 million for the corresponding periods in fiscal 1997. The
decreases were primarily attributable to the impact of workforce reductions
and write-offs associated with the acquisition of Computervision. As a
percentage of total software revenue, general and administrative expenses
remained relatively flat at approximately 6.2% for both the third quarter of
1997 and 1998 but decreased from 6.4% for the first nine months of 1997 to
5.6% for the first nine months of 1998.
Other (income) expense, net, includes interest income, interest expense and
costs associated with managing the Company's foreign exchange exposure,
including foreign currency gains and losses. For the three months ended July
4, 1998, the Company recognized other income of $2.1 million compared to
expense of $6.1 million for the comparative 1997 period. For the nine month
period, other expense, net decreased from $17.3 million in 1997 to $4.1
million in 1998. The decreases are primarily attributable to reduced interest
costs associated with Computervision's debt that was paid during the second
quarter of fiscal 1998.
11
<PAGE>
The Company's effective tax rate for the three and the nine month periods
ended July 4, 1998 was 59.9% and 55.4%, respectively, compared with 43.9% and
64.3% for the same periods in fiscal 1997. The effective tax rates for all
periods were significantly impacted by the non-deductibility of certain
expenses included in the non-recurring charges and the non-deductibility of
the operating losses of Computervision which are included in the combined
results. Excluding these items, the Company's effective tax rate was
approximately 34% for both the three and nine months ended July 4, 1998.
The number of worldwide employees increased 8.3% to 4,899 at July 4, 1998,
compared with 4,524 at June 28, 1997. The increase was due to internal growth,
primarily in the services and sales organizations, and the addition of
approximately 135 employees from the ICEM acquisition. These increases were
partially offset by the reduction in workforce associated with the
Computervision acquisition.
LIQUIDITY AND CAPITAL RESOURCES
As of July 4, 1998, the Company had $194.0 million of cash and cash
equivalents and $234.5 million of investments. Net cash provided by operating
activities, consisting primarily of net income from operations before
depreciation and amortization and changes in working capital, was $122.4
million for the nine month period ended July 4, 1998, compared with $154.6 for
the corresponding period in fiscal 1997. The decrease in cash provided by
operating activities was primarily attributable to changes in working capital,
including payments associated with the non-recurring charges as well as an
increase in other current assets principally associated with the increase of
software maintenance billings related to deferred revenue.
Net cash provided by investing activities totaled $95.1 million for the nine
month period ended July 4, 1998 compared to a use of $55.2 million for the
first nine months of fiscal 1997. Net proceeds from investment transactions
during the first nine months of fiscal 1998 generated $166.2 million of cash,
which was partially offset by the use of $40.6 million for the acquisition of
ICEM and capital expenditures of $30.5 million. These capital expenditures
consisted primarily of computer equipment, software, and office equipment to
meet the needs resulting from the growth in employee headcount and increased
investment in information technologies. Net purchases of investments during
the first nine months of fiscal 1997 used $54.8 million of cash. Capital
expenditures during the first nine months of fiscal 1997 used $28.0 million.
These uses were partially offset by $30.1 million of proceeds from
Computervision's sale of a subsidiary in July of 1997.
Financing activities for the first nine months of fiscal 1998 used $199.9
million compared to $85.1 million for the same period of fiscal 1997. The
principal financing use during fiscal 1998 was the $275.7 million payoff of
debt, interest and related fees associated with the acquisition of
Computervision. During fiscal 1997, the Company used $135.1 million for the
repurchase of its common stock. During fiscal 1998, the Company suspended
repurchases of common stock and the Board of Directors subsequently rescinded
the Company's stock repurchase program in anticipation of the Computervision
acquisition. Financing uses during both periods were offset by proceeds from
the issuance of common stock under the Company's stock plans.
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 currently projected working capital, financing and capital
expenditure requirements through at least the next twelve months.
LEGAL PROCEEDINGS
Certain class action lawsuits have been filed against the Company and
certain of its officers and directors alleging violations of the federal
securities laws based on alleged misrepresentations regarding the Company's
results for the third quarter of fiscal 1998. While the ultimate resolution of
these actions cannot be predicted at this time, the Company believes that they
are without merit and intends to defend them vigorously.
12
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In accordance with recently issued accounting pronouncements, the Company
will be required to comply with certain changes in accounting rules and
regulations as described in Note 7 to the consolidated financial statements.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
Concerns have been widely expressed regarding the inability of certain
computer programs to process date information beyond the year 1999. These
concerns focus on the impact of the Year 2000 problem on business operations
and the potential costs associated with identifying and addressing the
problem.
The Company is in the process of testing its current product offerings for
Year 2000 compliance. Based on its review to date, the Company believes that
its principal product offerings are largely "Year 2000 compliant" in their
current versions. Testing of third party software products integrated with
these principal offerings is ongoing and the Company anticipates that it will
be complete by the end of calendar 1998. The Company is in the process of
making modifications to those currently offered systems that are not compliant
and anticipates that these corrections will be complete by the end of calendar
1998. The Company is conducting only limited testing of products that are no
longer offered, and thus the Year 2000 compliance of such products is
generally not known. Most of these untested products are previous releases of
current offerings and can be upgraded to achieve Year 2000 compliance.
The Company is also in the process of reviewing and upgrading its internal
information technology and business systems to ensure Year 2000 readiness.
This process is expected to be complete by March 31, 1999.
Finally, the Company has commenced a program to survey the Year 2000
readiness of its major vendors. Where it believes that a particular vendor's
situation poses unacceptable risks, the Company will identify an alternative
source.
Costs incurred in the Company's Year 2000 compliance effort will be expensed
as incurred. While the Company's Year 2000 compliance evaluation is not yet
complete, the Company does not at this time foresee a material impact on its
business or operating results from the Year 2000 problem. The Company cannot,
of course, predict the nature or materiality of the impact on its operations
or operating results of noncompliance by parties with whom it does not have a
direct relationship. Furthermore, the purchasing patterns of customers or
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct their current systems for Year 2000
compliance. These expenditures may result in reduced funds available to
purchase products and services such as those offered by the Company.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Union are scheduled to establish fixed conversion rates between their existing
sovereign currencies and the euro, making the euro their common legal currency
on that date. Following the introduction of the euro, the legacy currencies
are scheduled to remain legal tender in the participating countries as
denominations of the euro between January 1, 1999 and January 1, 2002 (the
"transition period"). During the transition period, public and private parties
may pay for goods and services using either the euro or the participating
country's legacy currency on a "no compulsion, no prohibition" basis. However,
conversion rates no longer will be computed directly from one legacy currency
to another. Instead, a triangular process will apply whereby an amount
denominated in one legacy currency will first be converted into the euro. The
resultant euro-denominated amount will then be converted into the second
legacy currency.
The Company is currently evaluating the business implications of conversion
to the euro, including technical adaptation of information technology and
other systems to accommodate euro-denominated transactions, long-term
competitive implications of the conversions and the effect on market risk with
respect to financial instruments. At this time, management has not completed
its assessment of the impact of the conversion.
13
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Other than as disclosed in this report on Form 10-Q, there have been no
significant changes in the Company's market risk exposure as described in
Management's Discussion and Analysis contained in the Company's 1997 Annual
Report, filed as Exhibit 13.1 to its 1997 Form 10-K.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Following the end of the fiscal 1998 third quarter, certain class action
lawsuits were filed in the United States District Court for the District of
Massachusetts by shareholder plaintiffs against the Company and certain of its
officers and directors alleging violations of the federal securities laws
based on alleged misrepresentations regarding the Company's results for that
quarter. The plaintiffs have asked for compensatory damages with interest,
unspecified equitable relief, and reimbursement of their fees incurred in
litigating the matter. No estimate of alleged damages is cited in the
complaints. While the ultimate resolution of these actions cannot be predicted
at this time, the Company believes they are without merit and intends to
defend them vigorously.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
2.1 Agreement and Plan of Reorganization dated as of November 3, 1997 by and among the Company,
PTC Acquisition Corporation and Computervision Corporation (Exhibit 2.1 to the Company's Form 8-K
dated November 4, 1997).
27.1* Financial Data Schedule for the periods ended July 4, 1998 and June 28, 1997.
99.1 Annual Report to Stockholders for the fiscal year ended September 30, 1997 (which is not deemed to
be "filed" except to the extent that portions thereof are expressly incorporated in this Quarterly
Report on Form 10-Q) (Exhibit 13.1 to the Company's 1997 Form 10-K).
99.2 Registration Statement No. 333-39959 on Form S-4 (which is not deemed to be "filed" except to the
extent that portions thereof are expressly incorporated in this Quarterly Report on Form 10-Q).
</TABLE>
- --------
* Indicates document filed herewith.
For the Company's documents incorporated by reference, references are to
File No. 0-18059.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended July 4, 1998.
14
<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 hereunto duly authorized.
PARAMETRIC TECHNOLOGY CORPORATION
/s/ Edwin J. Gillis
By: _________________________________
EDWIN J. GILLIS
EXECUTIVE VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND TREASURER
(PRINCIPAL FINANCIAL OFFICER)
Date: August 17, 1998
15
<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 JUNE 28,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-28-1997
<CASH> 249,590
<SECURITIES> 301,466
<RECEIVABLES> 198,948
<ALLOWANCES> 4,762
<INVENTORY> 0
<CURRENT-ASSETS> 786,803
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 898,041
<CURRENT-LIABILITIES> 448,880
<BONDS> 0
0
0
<COMMON> 2,673
<OTHER-SE> 163,956
<TOTAL-LIABILITY-AND-EQUITY> 898,041
<SALES> 481,854
<TOTAL-REVENUES> 805,988
<CGS> 15,198
<TOTAL-COSTS> 187,179
<OTHER-EXPENSES> 468,713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 132,785
<INCOME-TAX> 85,400
<INCOME-CONTINUING> 47,385
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,385
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.17
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<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 JULY 4,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUL-04-1998
<CASH> 194,026
<SECURITIES> 131,608
<RECEIVABLES> 189,766
<ALLOWANCES> 4,009
<INVENTORY> 0
<CURRENT-ASSETS> 589,194
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 810,270
<CURRENT-LIABILITIES> 393,948
<BONDS> 0
0
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<COMMON> 2,722
<OTHER-SE> 343,802
<TOTAL-LIABILITY-AND-EQUITY> 810,270
<SALES> 462,054
<TOTAL-REVENUES> 767,940
<CGS> 11,490
<TOTAL-COSTS> 116,557
<OTHER-EXPENSES> 511,890
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 135,357
<INCOME-TAX> 74,940
<INCOME-CONTINUING> 60,417
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<EXTRAORDINARY> 19,017
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<NET-INCOME> 41,400
<EPS-PRIMARY> 0.15
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</TABLE>
