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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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
INCORPORATION OR ORGANIZATION) NUMBER)
128 TECHNOLOGY DRIVE, WALTHAM, MA 02453
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(781) 398-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Securities registered pursuant to
Section 12(b) of the Act: Section 12(g) of the Act:
None Common Stock, $.01 par value per
share
(Title of Class)
Indicate by check mark whether the registrant has (i) 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 (ii) has been subject to
such filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. [X]
The aggregate market value of our voting stock held by non-affiliates was
approximately $3,802,373,342 on October 31, 1998 based on the last reported
sale price of our common stock on the Nasdaq Stock Market on that day. There
were 269,423,460 shares of our common stock outstanding on October 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Annual Report to Stockholders for the fiscal year ended
September 30, 1998 (1998 Annual Report to Stockholders) are incorporated by
reference into Parts I and II.
Portions of the definitive Proxy Statement in connection with the Annual
Meeting of Stockholders to be held February 11, 1999 (1999 Proxy Statement)
are incorporated by reference into Part III.
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PARAMETRIC TECHNOLOGY CORPORATION
FISCAL YEAR 1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE
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PART I.
Item 1. Business............................................................................... 3
Item 2. Properties............................................................................. 6
Item 3. Legal Proceedings...................................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders.................................... 7
Item 4A. Executive Officers of the Registrant................................................... 7
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 8
Item 6. Selected Financial Data................................................................ 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 8
Item 7A. Quantitative and Qualitative Disclosures about Market Risk............................. 8
Item 8. Financial Statements and Supplementary Data............................................ 8
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 8
PART III.
Item 10. Directors and Executive Officers of the Registrant..................................... 8
Item 11. Executive Compensation................................................................. 9
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 9
Item 13. Certain Relationships and Related Transactions......................................... 9
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................... 9
Signatures...................................................................................... 10
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IMPORTANT RISK FACTORS REGARDING FUTURE RESULTS
Information we provide, including information contained in this Annual
Report on Form 10-K, or by our spokespersons from time to time, may contain
forward-looking statements about projected financial performance, market and
industry segment growth, product development, and commercialization, or other
aspects of our future operations. These statements are based on the
assumptions and expectations of our management at the time such statements are
made. We caution you that our performance (and, therefore, any forward-looking
statement) is subject to risks and uncertainties. Various important factors,
including but not limited to those discussed here, may cause our future
results to differ materially from those projected in any forward-looking
statement. Important information about these factors and the basis for these
assumptions is contained in "Important Risk Factors Affecting Results"
included in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the 1998 Annual Report to Stockholders, which
section is filed as part of Exhibit 13.1 herewith and incorporated herein by
reference.
PART I
ITEM 1: BUSINESS
GENERAL
Parametric Technology Corporation (PTC), incorporated in Massachusetts in
1985, develops, markets, and supports a comprehensive suite of integrated
product development and information management software. Our mechanical design
automation product family automates product development from conceptual design
through production. Our enterprise information management solutions accelerate
the flow of product data from engineering to other critical areas of an
enterprise. Our solutions are complemented by the strength and experience of
our professional services organization, which provides training, consulting,
and support to customers worldwide.
MERGERS AND ACQUISITIONS
In January 1998, we merged with Computervision Corporation, a leading
provider of product design and development software and services, by issuing
11.6 million shares of our common stock in exchange for all of the outstanding
common stock of Computervision. The merger is intended to qualify as a tax-
free reorganization and has been accounted for as a pooling of interests.
Accordingly, we have restated our consolidated financial statements to include
the accounts and operations of Computervision for all years presented in this
Annual Report on Form 10-K. Unless otherwise indicated, this discussion and
the consolidated financial statements and notes to consolidated financial
statements (Notes) reflect that restatement.
The Computervision merger strengthened our customer base, particularly in
the automotive, aerospace, and shipbuilding industries, and broadened our
strategic business relationships with companies such as Airbus Industrie, BMW
Rolls-Royce, Fiat, General Electric, Lockheed Martin, Raytheon, and Rolls-
Royce Aerospace. The Computervision merger also provided an opportunity for us
to expand our data management technology and infrastructure, and added depth
and experience to our worldwide professional services organization.
In June 1998, we acquired ICEM Technologies, a division of Control Data
Systems, Inc., for approximately $41 million in cash. 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. We accounted for the acquisition as a purchase, and we
included the operating results of ICEM in our results from the date of its
acquisition.
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In October 1998, we acquired all of the outstanding stock of InPart Design,
Inc. by issuing 2.4 million shares of common stock. InPart, located in
Saratoga, CA, provides a comprehensive library of standard mechanical parts
over the Internet that helps manufacturers improve product development cycles
and reduce component expenses. Because we share InPart's vision regarding the
future of Web-based enterprise applications, the acquisition provided us an
opportunity to strengthen our development and technical expertise in this
area. We will account for the acquisition as a purchase.
PRODUCTS AND SERVICES
Mechanical CAD/CAM/CAE (computer-aided design, manufacturing and
engineering) software solutions encompass a broad spectrum of engineering
disciplines essential to the development of virtually all manufactured
products, ranging from consumer products to jet aircraft. Manufacturers
compete on the basis of cost, time to market, and product performance
criteria, which are significantly affected by the quality and length of the
product development process. Our mechanical CAD/CAM/CAE products, including
Pro/ENGINEER(R) and CADDS(R)5, and our functional simulation software,
Pro/MECHANICA(R), offer high-performance, fully integrated solutions which
enable end-users to reduce their time to market and manufacturing costs for
their products and to improve product quality by easily evaluating multiple
design alternatives. We believe that our mechanical design automation
solutions offer better price/performance, greater functionality, and more
complete integration of multiple engineering disciplines than other available
mechanical CAD/CAM/CAE products.
The newest member of the Pro/ENGINEER family, Pro/DESKTOP(TM), is an entry
level, Windows(R)-native product development tool. Pro/DESKTOP offers an
easily accessible, innovative design system that, integrated with
Pro/ENGINEER, provides customers a completely scalable, interoperable suite of
associative design solutions that meet the needs of users throughout the
product development continuum. This cross-organization suite gives our
customers the unique ability to engage a broader range of participants in the
product development process and to extend the use of their product information
assets throughout the enterprise.
Through our acquisition of ICEM Technologies, we have added a premier Class
A surface modeling product, ICEM Surf(TM), to our mechanical design automation
solutions. ICEM Surf is used in the automotive industry by nearly all major
manufacturers for modeling of high-quality, Class A surfaces as well as in the
industrial design, tool design, and consumer product markets.
In June 1998, we announced that our information management products,
Pro/INTRALINK(R) and Optegra(R), would be complemented by Windchill(TM), our
new product and process management solution. Windchill uses a unique, Web-
centric approach to solving today's mission-critical product and process
management challenges. By capitalizing on the inherent benefits of the Web
manageability, usability, and low cost implementation Windchill offers
customers a significant advantage in their efforts to improve their product
differentiation and organizational effectiveness. Windchill delivers a common
infrastructure that helps companies achieve sustained competitive advantage
through more effective product life cycle management. The Windchill product
currently comprises Windchill Foundation(TM), an information framework with a
consistent architecture that includes document management, life cycle
management, workflow, and vaulting capabilities; Windchill PDM(TM), which
includes applications that address product structure, alternate views, and
change management; and Windchill Information Modeler(TM), an information
modeling and development environment.
As a result of our acquisition of InPart Design, Inc., we now offer
DesignSuite(TM), an Internet-based library of three dimensional CAD parts.
DesignSuite contains two and three dimensional geometry, technical
specifications, and component selection software that allows mechanical
engineers to download more than 250,000 certified part designs via the
Internet, saving valuable time and expense.
The technology solutions offered by our mechanical design and information
management products are enhanced by our professional services organization
(PSO), which is committed to providing the expertise to meet the
implementation, education, and technical support requirements of every type of
company and user--in eight
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major support centers and more than 50 educational facilities worldwide. From
developing Pro/ENGINEER deployment plans, to creating customized training
courses, to implementing Web-based, enterprise-wide, product information
systems, our PSO works with customers to accelerate their migration to a more
efficient, collaborative development environment.
PRODUCT DEVELOPMENT
The mechanical CAD/CAM/CAE industry is characterized by rapid technological
advances. Our ability to develop new products rapidly is facilitated by the
modular structure of our software code, which enables functional capabilities
used in existing products to be accessed and utilized by new software modules,
thereby reducing the amount of new code required to develop additional
products. The major benefit of this approach is rapid development of new
functionality. Our Windchill product line expands the breadth of our offerings
into enterprise product information and process management. This developing
industry is characterized by new technologies, including Internet-centric,
Java-based, object-oriented software. The Windchill product depends upon these
new technologies as well as certain third-party technologies.
We work closely with our customers to define improvements and enhancements
to be integrated into our products. Using this approach, customers become
involved in the product design process to validate feasibility and to
influence functionality early in the product's life-cycle. In addition, our
Cooperative Software Program (CSP) provides the mechanism and environment to
facilitate the integration of complementary products with our product lines.
Through our open software toolkit, CSP members can build tightly integrated
solutions that satisfy the various requirements of our customers.
Our research and development expenses were $79.6 million in fiscal 1996,
$93.3 million in fiscal 1997, and $93.4 million in fiscal 1998.
SALES AND MARKETING
We derived most of our revenue from products distributed directly to our
end-user customers with the remainder offered through third-party
distributors. No single customer accounted for more than 10% of our revenue in
any of the last three fiscal years.
In the fourth quarter of 1998, we initiated a worldwide reorganization of
our sales force and PSO. This initiative, which was implemented in October
1998, was designed to refocus our sales and services organizations on major
accounts, primary accounts, and Windchill accounts. As part of this
initiative, we signed a multi-year agreement with Rand A Technology
Corporation (Rand) to become the master distributor of our core products to
small businesses. This agreement gives Rand the rights to distribute certain
CAD/CAM/CAE products and their related maintenance services to the small
business segment throughout North America and Europe.
In August 1998, we repackaged and repriced our core Pro/ENGINEER product
line. We now offer a base package called Pro/ENGINEER-Foundation which can be
augmented with up to 24 functionally defined extensions to accommodate a full
range of process automation and complexity requirements from an individual
user to an entire enterprise.
Information about our foreign and domestic operations and export sales, and
the risks thereof, may be found in Note M and the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of our 1998 Annual Report to Stockholders, included in Exhibit
13.1 to this Annual Report on Form 10-K and incorporated herein by reference.
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COMPETITION
There are an increasing number of competitive mechanical CAD/CAM/CAE
products. We compete most directly with products developed by Dassault and
marketed by Dassault and IBM, products marketed by Unigraphics Solutions, and
products developed and marketed by Structural Dynamics Research Corporation.
Our Windchill product line expands the breadth of our offerings into
enterprise product information and process management. We are a relatively new
entrant into this area and may be competing with more mature products that may
have an established customer base as well as greater functionality.
PROPRIETARY RIGHTS
Our software products are proprietary to PTC. We protect our 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 contained in our agreements with other
parties. Despite these measures, there can be no assurance that the laws of
all relevant jurisdictions will afford the same protections to our products
and intellectual property as the laws of the United States. The software
industry is characterized by frequent litigation regarding copyright, patent,
and other intellectual property rights. While we have not, to date, had any
significant claims of this type asserted against us, there can be no assurance
that someone will not assert such claims against us with respect to existing
or future products or that, if asserted, we would prevail in such claims. In
the event a lawsuit of this type is filed, it could result in significant
expense to us and divert the efforts of our technical and management
personnel, whether or not we ultimately prevail.
We believe that, due to the rapid pace of innovation within our industry,
factors such as the technological and creative skills of our personnel are
more important to establishing and maintaining a technology leadership
position within the industry than are the various legal protections
surrounding our technology. We believe that our products and technology do not
infringe any existing proprietary rights of others, although there can be no
assurance that third parties will not assert infringement claims in the
future.
Parametric Technology Corporation, Pro/ENGINEER, Pro/MECHANICA,
Pro/INTRALINK, CADDS, and Optegra are registered trademarks of PTC or our
subsidiaries in the United States and/or other countries. Parametric
Technology, PTC, the PTC logo, and all product names in the PTC product family
are trademarks of PTC or our subsidiaries in the United States and other
countries. All other companies and products referenced herein have trademarks
or registered trademarks of their respective holders.
BACKLOG
We generally ship our products within 30 days after acceptance of a customer
purchase order and execution of a software license agreement. Accordingly, we
do not believe that our backlog at any particular point in time is indicative
of future sales levels.
EMPLOYEES
As of September 30, 1998, we had 4,911 employees, including 2,440 in sales,
marketing, and support activities; 1,078 in customer support, training, and
consulting; 435 in management, finance, and administration; and 958 in product
development. Of these employees, 2,280 were located throughout the United
States and 2,631 were located in foreign countries.
ITEM 2: PROPERTIES
Our executive offices are located in approximately 302,000 square feet of
office space in Waltham, Massachusetts. We also lease 229 offices in the
United States and internationally through our foreign subsidiaries,
predominately as sales and/or support offices and for development work. Of our
total 2,146,000
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square feet of leased facilities, 1,387,000 are located in the U.S. and
759,000 are located outside the U.S. Several of our leased facilities were
acquired in our merger with Computervision, including 696,000 square feet of
office space in Bedford, Massachusetts. Of the leased facilities acquired in
the Computervision merger, approximately 273,000 square feet are vacant. As
described in Notes B and H, certain of these facilities have been included in
our restructuring provision. We are seeking alternate uses for such facilities
including subleasing and early lease terminations. We believe that our
facilities are adequate for our present needs, but will continue to evaluate
the need for additional space as the requirements of our business change.
ITEM 3: LEGAL PROCEEDINGS
Certain class action lawsuits were filed in the fourth quarter of fiscal
1998 against us and certain of our current and former officers and directors
in the U.S. District Court in Massachusetts claiming violations of the federal
securities laws based on alleged misrepresentations regarding our anticipated
revenue and earnings for the third quarter of fiscal 1998. These actions seek
unspecified damages. We believe the claims are without merit, and we intend to
defend them vigorously. We cannot predict the ultimate resolution of these
actions at this time, and there can be no assurance that the litigation will
not have a material adverse impact on our financial condition or results of
operations.
We are also subject to various legal proceedings and claims that arise in
the ordinary course of business. We currently believe that resolving these
matters will not have a material adverse impact on our financial condition or
our results of operations.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last
quarter of fiscal 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers are:
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NAME AGE POSITION
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<S> <C> <C>
Steven C. Walske........ 46 Chairman of the Board of Directors and Chief Executive Officer
C. Richard Harrison..... 43 President and Chief Operating Officer
Edwin J. Gillis......... 50 Executive Vice President, Chief Financial Officer, and Treasurer
James P. Baum........... 34 Executive Vice President, Engineering, Research & Development
Barry F. Cohen.......... 54 Executive Vice President, Marketing
Francis J. Cusick....... 43 Senior Vice President, Finance
David R. Friedman....... 37 Vice President, General Counsel, and Clerk
James F. Kelliher....... 39 Senior Vice President, Business Development
</TABLE>
Mr. Walske has been Chairman of the Board of Directors since August 1994 and
Chief Executive Officer and a director since he joined PTC in December 1986.
Mr. Walske was President of PTC from December 1986 to August 1994.
Mr. Harrison has been President, Chief Operating Officer, and a director
since August 1994. Mr. Harrison had served as Senior Vice President of Sales
and Distribution from September 1991 until August 1994.
Mr. Gillis has been Executive Vice President since October 1996 and Chief
Financial Officer and Treasurer since October 1995. Mr. Gillis had served as
Senior Vice President of Finance and Administration from October 1995 to
September 1996. Prior to joining PTC, Mr. Gillis was Senior Vice President of
Finance and Operations and Chief Financial Officer at Lotus Development
Corporation from August 1991 until September 1995.
Mr. Baum has been Executive Vice President, Engineering, Research &
Development since October 1998. Mr. Baum had served as Senior Vice President,
Product Development from February 1998 to September 1998, Senior Vice
President, Information Technology and Manufacturing Applications from May 1997
to January 1998, Senior Vice President, Product Marketing from December 1996
to April 1997, Vice President, Technical Marketing from October 1995 to
November 1996, and Director of Design/Manufacturing Applications from May 1993
to September 1995.
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Mr. Cohen has been Executive Vice President, Marketing since January 1998.
Prior to joining PTC, Mr. Cohen was Senior Vice President, Human Development
and Organizational Productivity at Computervision Corporation from November
1993 to January 1998.
Mr. Cusick has been Senior Vice President of Finance since November 1998.
Prior to joining PTC, Mr. Cusick was Divisional Finance Director at Ascend
Communications, Inc. from July 1997 to September 1998 and Corporate Controller
at Cascade Communications Corp. from April 1994 to June 1997.
Mr. Friedman has served as Vice President, General Counsel, and Clerk since
October 1998. Prior to that, Mr. Friedman served as Associate Corporate
Counsel from September 1996 to September 1998. Prior to joining PTC, Mr.
Friedman was a Partner at the law firm of Palmer and Dodge LLP from January
1994 to August 1996.
Mr. Kelliher has been Senior Vice President of Business Development since
November 1998. Mr. Kelliher had served as Senior Vice President of Finance
from June 1997 to October 1998, Vice President of Finance from December 1994
until June 1997, Director of Corporate Finance from November 1994 to December
1994, and Chief Financial Officer of Europe from May 1993 to November 1994.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information with respect to this item may be found in the sections captioned
"Quarterly Financial Information" and "Supplemental Financial Information"
appearing in our 1998 Annual Report to Stockholders. Such information is filed
as part of Exhibit 13.1 herewith and incorporated herein by reference.
ITEM 6: SELECTED FINANCIAL DATA
Information with respect to this item may be found in the section captioned
"Five Year Summary of Selected Financial Data" appearing in our 1998 Annual
Report to Stockholders. Such information is filed as part of Exhibit 13.1
herewith and incorporated herein by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information with respect to this item may be found in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing in our 1998 Annual Report to Stockholders. Such
information is filed as part of Exhibit 13.1 herewith and incorporated herein
by reference.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information with respect to this item may be found in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing in our 1998 Annual Report to Stockholders. Such
information is filed as part of Exhibit 13.1 herewith and incorporated herein
by reference.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item may be found in the consolidated
financial statements and the sections captioned "Notes to Consolidated
Financial Statements," "Report of Independent Accountants," and "Quarterly
Financial Information" appearing in our 1998 Annual Report to Stockholders.
Such information is filed as part of Exhibit 13.1 herewith and incorporated
herein by reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to our directors may be found in the section
captioned "Election of Directors" appearing in our 1999 Proxy Statement. Such
information is incorporated herein by reference. Information with
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respect to our Executive Officers may be found under the section captioned
"Executive Officers of the Registrant" in Part I of this Annual Report on Form
10-K.
ITEM 11: EXECUTIVE COMPENSATION
Information with respect to this item may be found in the sections captioned
"Director Compensation" and "Compensation of Executive Officers" appearing in
our 1999 Proxy Statement. Such information is incorporated herein by
reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item may be found in the section captioned
"Principal Stockholders" appearing in our 1999 Proxy Statement. Such
information is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item may be found under the headings
"Certain Business Relationships" and "Compensation Committee Interlocks and
Insider Participation" in the section captioned "Compensation of Executive
Officers" appearing in our 1999 Proxy Statement. Such information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of Form 10-K
1. Financial Statements
--Consolidated Balance Sheets as of September 30, 1997 and 1998*
--Consolidated Statements of Income for the years ended September 30,
1996, 1997, and 1998*
--Consolidated Statements of Cash Flows for the years ended September
30, 1996, 1997, and 1998*
--Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1996, 1997, and 1998*
--Notes to Consolidated Financial Statements*
--Reports of Independent Accountants for the years ended September 30,
1996**, 1997, and 1998*.
2. Financial Statement Schedules
--Reports of Independent Accountants for the years ended September 30,
1996**, 1997, and 1998
--Schedule II--Valuation and Qualifying Accounts
--Schedules other than the one listed above have been omitted since they
are either not required, not applicable, or the information is
otherwise included.
3. Exhibits
--As part of this Annual Report on Form 10-K, we hereby file and
incorporate by reference the Exhibits listed in the Exhibit Index
immediately preceding such Exhibits.
(b) Reports on Form 8-K
None.
(c) Exhibits
As part of this Annual Report on Form 10-K, we hereby file the Exhibits
listed in the Exhibit Index immediately preceding such Exhibits.
(d) Financial Statement Schedules
As part of this Annual Report on Form 10-K, we hereby file the financial
statement schedule listed in Item 14(a)2 above.
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* Referenced information is contained in our 1998 Annual Report to
Stockholders, filed as part of Exhibit 13.1 herewith and incorporated
herein by reference.
** Report of Arthur Andersen LLP for Computervision Corporation for the year
ended December 31, 1996 is filed herewith.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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 ON THE 28TH DAY OF
DECEMBER, 1998.
PARAMETRIC TECHNOLOGY CORPORATION
/s/ Steven C. Walske
By: _________________________________
STEVEN C. WALSKE
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
We, the undersigned officers and directors of Parametric Technology
Corporation, hereby severally constitute Edwin J. Gillis and David R.
Friedman, Esq., and each of them singly, our true and lawful attorneys with
full power to them, and each of them singly, to sign for us and in our names
in the capacities indicated below any and all subsequent amendments to this
report, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact may do or
cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED BELOW.
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SIGNATURE TITLE DATE
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<S> <C> <C>
(i) Principal Executive Officer:
/s/ Steven C. Walske Chairman and Chief December 28, 1998
______________________________________ Executive Officer
STEVEN C. WALSKE
(ii) Principal Financial and Account-
ing Officer:
/s/ Edwin J. Gillis Executive Vice President, December 28, 1998
______________________________________ Chief Financial Officer,
EDWIN J. GILLIS and Treasurer
(iii) Board of Directors:
/s/ Steven C. Walske Director December 28, 1998
______________________________________
STEVEN C. WALSKE
/s/ C. Richard Harrison Director December 20, 1998
______________________________________
C. RICHARD HARRISON
/s/ Robert N. Goldman Director December 19, 1998
______________________________________
ROBERT N. GOLDMAN
/s/ Donald K. Grierson Director December 19, 1998
______________________________________
DONALD K. GRIERSON
</TABLE>
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<TABLE>
<S> <C> <C>
/s/ Oscar B. Marx, III Director December 19, 1998
______________________________________
OSCAR B. MARX, III
/s/ Michael E. Porter Director December 19, 1998
______________________________________
MICHAEL E. PORTER
/s/ Noel G. Posternak Director December 18, 1998
______________________________________
NOEL G. POSTERNAK
</TABLE>
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
2.1 --Agreement and Plan of Reorganization dated as of November 3, 1997 by
and among PTC, PTC Acquisition Corporation, and Computervision
Corporation (filed as Exhibit 2.1 to our Current Report on Form 8-K
dated November 4, 1997 and incorporated herein by reference).
3.1(a) --Restated Articles of Organization of PTC (filed as Exhibit 3.1 to
our Quarterly Report on Form 10-Q for the fiscal quarter ended March
30, 1996 and incorporated herein by reference).
3.1(b) --Articles of Amendment to Restated Articles of Organization (filed as
Exhibit 4.1(b) to PTC's Registration Statement on Form S-8
(Registration No. 333-22169) and incorporated herein by reference).
3.2 --By-Laws, as amended and restated, of PTC (filed as Exhibit 3.2 to
our Annual Report on Form 10-K for the fiscal year ended September
30, 1996 and incorporated herein by reference).
10.1* --Parametric Technology Corporation 1997 Incentive Stock Option Plan
(filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the
fiscal quarter ended March 29, 1997 and incorporated herein by
reference).
10.2* --Parametric Technology Corporation 1987 Incentive Stock Option Plan
of PTC, as amended (filed as Exhibit 10.2 to our Annual Report on
Form 10-K for the fiscal year ended September 30, 1996 and
incorporated herein by reference).
10.3 --Lease dated May 22, 1987 by and between PTC and the Trustees of 128
Technology Trust (filed as Exhibit 10.4 to PTC's Registration
Statement on Form S-1 (Registration No. 33-31620) and incorporated
herein by reference).
10.4* --Employment Letter with Steven C. Walske dated October 17, 1986
(filed as Exhibit 10.12 to our Company's Registration Statement on
Form S-1 (Registration No. 33-31620) and incorporated herein by
reference).
10.5* --Amended and Restated Severance Agreement with Steven C. Walske dated
February 13, 1997 (filed as Exhibit 10.2 to our Quarterly Report on
Form 10-Q for the fiscal quarter ended March 29, 1997 and
incorporated herein by reference).
10.6 --Lease Amendment No. 1 dated March 10, 1988 by and between PTC and
the Trustees of 128 Technology Trust; filed herewith.
10.7 --Lease Amendment No. 2 dated November 9, 1988 by and between PTC and
the Trustees of 128 Technology Trust; filed herewith.
10.8 --Lease Amendment No. 3 dated November 8, 1989 by and between PTC and
the Trustees of 128 Technology Trust (filed as Exhibit 10.8 to our
Annual Report on Form 10-K for the fiscal year ended September 30,
1996 and incorporated herein by reference).
10.9 --Lease Amendment No. 4 dated January 21, 1991 by and between PTC and
the Trustees of 128 Technology Trust (filed as Exhibit 10.7 to our
Annual Report on Form 10-K for the fiscal year ended September 30,
1997 and incorporated herein by reference).
10.10* --Parametric Technology Corporation 1992 Director Stock Option Plan,
as amended (filed as Exhibit 10.10 to our Annual Report on Form 10-K
for the fiscal year ended September 30, 1996 and incorporated herein
by reference).
10.11 --Lease Amendment No. 5 dated March 6, 1992 by and between PTC and the
Trustees of 128 Technology Trust (filed as Exhibit 10.18 to our
Annual Report on Form 10-K for the fiscal year ended September 30,
1992 and incorporated herein by reference).
10.12 --Lease Amendment No. 5A dated November 18, 1992 by and between PTC
and the Trustees of 128 Technology Trust (filed as Exhibit 10.19 to
our Annual Report on Form 10-K for the fiscal year ended September
30, 1992 and incorporated herein by reference).
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.13 --Lease Amendment No. 6 dated June 8, 1993 by and between PTC and the
Trustees of 128 Technology Trust (filed as Exhibit 10.21 to the
Annual Report on Form 10-K for the fiscal year ended September 30,
1993 and incorporated herein by reference).
10.14* --Severance Agreement with Barry F. Cohen dated February 1, 1998
(filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the
fiscal quarter ended April 4, 1998 and incorporated herein by
reference).
10.15* --Amended and Restated Severance Agreement with C. Richard Harrison
dated February 13, 1997 (filed as Exhibit 10.3 to our Quarterly
Report on Form 10-Q for the fiscal quarter ended March 29, 1997 and
incorporated herein by reference).
10.16 --Lease Amendment No. 7 dated April 14, 1994 by and between PTC and
the Trustees of 128 Technology Trust (filed as Exhibit 10.22 to our
Annual Report on Form 10-K for the fiscal year ended September 30,
1994 and incorporated herein by reference).
10.17 --Lease Amendment No. 8 dated July 19, 1995 by and between PTC and the
Trustees of 128 Technology Trust (filed as Exhibit 10.23 to our
Annual Report on Form 10-K for the fiscal year ended September 30,
1995 and incorporated herein by reference).
10.18* --Amended and Restated Severance Agreement with Edwin J. Gillis dated
February 13, 1997 (filed as Exhibit 10. 4 to our Quarterly Report on
Form 10-Q for the fiscal quarter ended March 29, 1997 and
incorporated herein by reference).
10.19* --Parametric Technology Corporation 1996 Directors Stock Option Plan,
as amended (filed as Exhibit 10.20 to our Annual Report on Form 10-K
for the fiscal year ended September 30, 1996 and incorporated herein
by reference).
10.20 --Lease Amendment No. 9 dated January 23, 1996 by and between PTC and
the Trustees of 128 Technology Trust; filed herewith.
10.21* --Consulting Agreement with Michael E. Porter dated November 17, 1995,
(filed as Exhibit 10.3 to the Quarterly Report on Form 10-Q for the
fiscal quarter ended June 28, 1997 and incorporated herein by
reference).
10.22* --Amendment #1 to Consulting Agreement with Michael E. Porter dated
May 15, 1997 (filed as Exhibit 10.4 to our Quarterly Report on Form
10-Q for the fiscal quarter ended June 28, 1997 and incorporated
herein by reference).
10.23* --Amendment #2 to Consulting Agreement with Michael E. Porter dated
January 6, 1998 (filed as Exhibit 10.1 to our Quarterly Report on
Form 10-Q for the fiscal quarter ended April 4, 1998 and incorporated
herein by reference).
10.24* --Amendment #3 to Consulting Agreement with Michael E. Porter dated
July 20, 1998; filed herewith.
10.25 --Lease Amendment No. 10 dated May 10, 1996 by and between PTC and the
Trustees of 128 Technology Trust; filed herewith.
10.26 --Lease Amendment No. 11 dated January 24, 1997 by and between PTC and
the Trustees of 128 Technology Trust; filed herewith.
10.27* --Computervision Corporation 1992 Stock Option Plan as amended
September 15, 1994, April 18, 1995 and December 5, 1996 (filed as
Exhibit 10.3 to the Annual Report on Form 10-K of Computervision
Corporation for the fiscal year ended December 31, 1996 (File No. 1-
7760/0-20290) and incorporated herein by reference).
10.28 --Amended and Restated Lease Agreement dated as of January 1, 1995
between United Trust Fund Limited Partnership and (filed as Exhibit
10.20 to the Annual Report on Form 10-K of Computervision Corporation
for the fiscal year ended December 31, 1995 and incorporated herein
by reference).
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
13.1 --Parametric Technology Corporation Annual Report to Stockholders for
the fiscal year ended September 30, 1998 (which is not deemed to be
"filed" except to the extent that portions thereof are expressly
incorporated by reference in this Annual Report on Form 10-K); filed
herewith.
21.1 --Subsidiaries of PTC; filed herewith.
23.1 --Report of PricewaterhouseCoopers LLP; filed herewith.
23.2 --Consent of PricewaterhouseCoopers LLP; filed herewith.
23.3 --Report of Arthur Andersen LLP; filed herewith.
23.4 --Consent of Arthur Andersen LLP; filed herewith.
27.1 --Financial Data Schedule for the year ended September 30, 1998; filed
herewith.
27.2 --Restated Financial Data Schedule for the years ended September 30,
1996 and 1997; filed herewith.
27.3 --Restated Financial Data Schedule for the quarters ended December 28,
1996 and January 3, 1998; filed herewith.
</TABLE>
- --------
* Identifies a management contract or compensatory plan or arrangement in which
an executive officer or director of PTC participates.
14
<PAGE>
SCHEDULE II
PARAMETRIC TECHNOLOGY CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
---------------------
Balance
Balance at Charged to Charged to at end
beginning costs and other of
Description of period expenses accounts Deductions (1) period
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
1998
Allowance for doubtful
accounts $5,887 7,322 - (5,525) $7,684
YEAR ENDED SEPTEMBER 30,
1997
Allowance for doubtful
accounts $5,839 1,433 - (1,385) $5,887
YEAR ENDED SEPTEMBER 30,
1996
Allowance for doubtful
accounts $6,356 1,616 - (2,133) $5,839
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
<PAGE>
EXHIBIT 10.6
March 10, 1988
128 TECHNOLOGY CENTER
---------------------
OFFICE LEASE
------------
PARAMETRIC TECHNOLOGY CORPORATION
---------------------------------
AMENDMENT NO. 1
---------------
Reference is made to the Lease (the "Lease") by and between DOMINIC J. SARACENO,
KURT W. SARACENO, AND EDWARD R. WERNER, trustees of the 128 Technology Trust
under a Declaration of Trust dated October 12, 1983, recorded in Middlesex
County Registry of Deeds Southern District Book 15268 Page 65 (hereinafter
"Lessor", which expression shall include its heirs, executors, successors and
assigns where the context so admits), and Parametric Technology Corporation a
Massachusetts corporation having a principal place of business at 128 Technology
Drive, Waltham, Massachusetts 02154 (hereinafter "Lessee", which expression
shall include its successors and assigns or executors and administrators where
the context so admits). Terms defined in or by reference in the Lease not
otherwise defined herein shall have the same meaning herein as therein.
For a good and valuable consideration, the receipt and legal sufficiency of
which is hereby acknowledged, Lessor and Lessee hereby agree to amend the Lease
as follows:
1. ARTICLE I, REFERENCE DATA, is hereby amended as follows:
. NEW AREA: 7,849 Additional Square Feet, as shown on Exhibit A
attached.
. BASE RENT: $18.00 per square foot for the original space (10,230
square feet). NEW AREA: $17.00 per square foot for the first year,
$17.50 per square foot for the second year.
. RENT SCHEDULE:
3,000 square feet available March 10, 1988 thru September 9, 1988 -
Monthly Rent - $4,250.00
5,000 square feet available September 10, 1988 thru March 9, 1989 -
Monthly Rent - $7,083.33
7,849 square feet available March 10, 1989 thru June 30, 1992 -
Monthly Rent - $11,446.46
. TERM: The Term for the entire Premises leased is extended to June 30,
1992.
. RENT COMMENCEMENT: Upon substantial completion of space.
. TERM COMMENCEMENT: March 10, 1988
. LESSEE PARKING: Four (4) assigned parking spaces in the covered area.
. TENANT IMPROVEMENTS: Turnkey according the plan dated march 1, 1988.
Of the 3,052 rentable square feet shown on the plan, Kurt-Saracen
Associates may lease this space to Cortex until March 9, 1989.
In all other respects, the terms and provisions of the Lease are hereby ratified
and confirmed and remain in full force and effect and unamended.
<PAGE>
Lessee acknowledges and agrees that this Amendment shall not be binding upon
Lessor until an original of this Amendment, executed by Lessor, is delivered to
Lessee. Lessee shall not be entitled to rely on any rights set forth herein
until such a fully executed Amendment is delivered to Lessee.
Executed as a sealed instrument this 10th day of March, 1988.
LESSOR 128 TECHNOLOGY TRUST
/s/ Dom J. Saraceno, as Trustee
-------------------------------
Dom J. Saraceno, as Trustee
aforesaid
/s/ Kurt W. Saraceno, as Trustee
--------------------------------
Kurt W. Saraceno, as Trustee
aforesaid
/s/ Edward R. Werner, as Trustee
--------------------------------
Edward R. Werner, as Trustee
aforesaid
LESSEE PARAMETRIC TECHNOLOGY
CORPORATION
BY /s/ Steven C. Walske
--------------------
OFFICE President
---------
<PAGE>
EXHIBIT 10.7
November 9, 1988
128 TECHNOLOGY CENTER
---------------------
OFFICE LEASE
------------
PARAMETRIC TECHNOLOGY CORPORATION
---------------------------------
AMENDMENT NO. 2
---------------
Reference is made to the Lease (the "Lease") by and between DOMINIC J. SARACENO,
KURT W. SARACENO, and EDWARD R. WERNER, trustees of the 128 Technology Trust
under a Declaration of Trust dated October 12, 1983, recorded in Middlesex
County Registry of Deeds Southern District Book 15268 Page 65 (hereinafter
"Lessor", which expression shall include its heirs, executors, successors and
assigns where the context so admits), and Parametric Technology Corporation, a
Massachusetts corporation having a principal place of business at 128 Technology
Drive, Waltham, Massachusetts 02154 (hereinater "Lessee", which expression shall
include its successors and assigns or executors and administrators where the
context so admits). Terms defined in or by reference in the Lease not otherwise
defined herein shall have the same meaning herein as therein.
For a good and valuable consideration, the receipt and legal sufficiency of
which is hereby acknowledged, Lessor and Lessee hereby agree to amend the Lease
as follow:
1. ARTICLE 1, REFERENCE DATA, is hereby amended as follows:
--------------
. NEW AREA II: 9625 Additional Square Feet, as shown on Exhibit A
attached.
. BASE RENT: $18.00 per square foot for the new area (9,625 square
feet).
. RENT SCHEDULE:
2,125 square feet.
Rent Commencement: November 9, 1988.
Annual Rent: $38,250.00. Monthly Rent: $3,187.50
2,500 square feet.
Rent Commencement: June 1, 1989.
Annual Rent: $45,000.00 Monthly Rent: $3,750.00
2,500 square feet
Rent Commencement: September 1, 1989
Annual Rent: $45,000 Monthly Rent: $3,750.00
. TERM: The Term for the entire Premises leased (27,704 square feet) is
extended to June 30, 1993. ------
. LESSEE PARKING: Six (6) assigned parking spaces in the covered area.
. TENANT IMPROVEMENTS: Space will be taken as shown on Exhibit A.
In all other respects, by amending Article I with the corresponding changes to
Articles III and IV, the terms and provisions of the Lease are hereby ratified
and confirmed and remain in full force and effect and unamended.
<PAGE>
Lessee acknowledges and agrees that this Amendment shall not be binding upon
Lessor until an original of this Amendment, executed by Lessor, is delivered to
Lessee. Lessee shall not be entitled to rely on any rights set forth herein
until such a fully executed Amendment is delivered to Lessee.
Executed as a sealed instrument this 9th day of November, 1988.
LESSOR 128 TECHNOLOGY TRUST
/s/ Dom J. Saraceno
-------------------------------------
Dom J. Saraceno, as Trustee aforesaid
/s/ Kurt W. Saraceno
--------------------------------------
Kurt W. Saraceno, as Trustee aforesaid
/s/ Edward R. Werner
--------------------------------------
Edward R. Werner, as Trustee aforesaid
LESSEE PARAMETRIC TECHNOLOGY CORPORATION
BY: /s/ Steven C. Walske
OFFICE: President
<PAGE>
EXHIBIT 10.20
128 TECHNOLOGY CENTER
PARAMETRIC TECHNOLOGY CORPORATION
AMENDMENT NO. 9
Reference is made to the original Lease dated June 1, 1987 and subsequently
amended March 10, 1988, November 9, 1988, November 8, 1989, January 21, 1991,
March 10, 1992, November 25, 1992, June 8, 1993, April 14, 1994 and July 19,
1995 collectively (the "Lease") by and between 128 Technology Trust under a
Declaration of Trust dated October 12. 1983 recorded in Middlesex County
Registry of Deeds Southern District, Book 15268, Page 65 (hereinafter "Lessor",
which expression shall include its heirs, executors, successors, and assigns
where the context so admits), and Parametric Technology Corporation, a
Massachusetts corporation having a principal place of business at 128 Technology
Drive, Waltham, Massachusetts 02154 (hereinafter "Lessee", which expression
shall include its successors and assigns or executors and administrators where
the context so admits). Term defined in or by reference in the Lease not
otherwise defined herein shall have the same meaning herein as therein.
For good and valuable consideration, the receipt of legal sufficiency of which
is hereby acknowledged, Lessor and Lessee hereby agree to amend the Lease as
follows:
1. RENTABLE AREA OF THE DEMISED PREMISES: 168,992 SQUARE FEET
2. RENTABLE AREA OF THE BUILDING: 217,500 SQUARE FEET
3. The Base Rent for the Demised Premises shall be as set forth on Exhibit A
attached hereto.
4. The "BGS OPTION" set forth in Amendment No. 7 (April 14, 1994) of the Lease
shall be modified to incorporate the terms and conditions set forth in
Section 5 and Section 6 of the Settlement Agreement dated as of December 7,
1995 between Lessor and Lessee. The date by which Lessee must give written
notice of Lessee's election to exercise its option shall be changed from
December 31, 1995 to February 29, 1996.
5. Section 8.3 shall be deleted in its entirety and the following shall be
substituted therefor:
"8.3 Lessee shall make no alterations, improvements,
or additions to the demised premises of a structural nature. Lessee may
make only non-structural alterations and only after obtaining Lessor's
prior written consent, which consent may be conditioned upon the removal of
such alterations by Lessee at the expiration or other termination of this
Lease. All such alterations by Lessee shall be done in good and workmanlike
manner and by Lessor or its affiliates at competitive costs. At the
expiration or other termination of this Lease, Lessor shall have the option
to require Lessee either (i) to remove any alterations made by Lessee
without Lessor's consent and restore the demised premises to the condition
in which they were in at the beginning of the Term, or (ii) to have the
demised premises remain in their altered condition with all improvements
and additions made with or without Lessor's consent becoming the property
of the Lessor, except as to improvements or additions which are personal
property of Lessee, have been identified as such to the Lessor and are
removable without damage to the demised premises."
In all other respects, the terms and provisions of the Lease and subsequent
amendments are hereby ratified and confirmed and remain in full force and effect
and unamended.
Executed as a sealed instrument this 23rd day of January, 1996.
<PAGE>
LESSOR:
128 Technology Trust
By: /s/ Dominic J. Saraceno
-----------------------
Dominic J. Saraceno
As Trustee of 128 Technology Trust
By: /s/ Kurt W. Saraceno
--------------------
Kurt W. Saraceno
As Trustee of 128 Technology Trust
LESSEE:
PARAMETRIC TECHNOLOGY
CORPORATION
By: /s/ Edwin J. Gillis
-------------------
Title: Sr. V.P. /CFO
<PAGE>
EXHIBIT 10.24
AMENDMENT #3 TO
CONSULTING AGREEMENT
This Amendment #3 To Consulting Agreement, dated July 20, 1998,
hereby amends the terms of that certain Consulting Agreement dated November 17,
1995, as amended, (hereinafter "Consulting Agreement") by and between Parametric
Technology Corporation, a Massachusetts corporation, having its principle
business address at 128 Technology Drive, Waltham, Massachusetts 02154
(hereinafter "PTC") and Michael E. Porter, an individual currently residing at
44 Green Hill Road, Brookline, Massachusetts 02146 (hereinafter "Consultant").
Article 3 Services To Be Performed By Consultant, is hereby amended by adding
the following Section 3.4:
3.4 Consultant is engaged pursuant to this Amendment #3 to Consulting
Agreement, to participate in five (5) additional top management
seminars consistent with the purposes and scope of those seminars which
Consultant was previously engaged to provide under Sections 3.2 and
Sections 3.3 of the Consulting Agreement.
Article 4 Compensation And Expenses, is hereby amended by adding the following
Section 4.5:
4.5 Option grant for services to be performed under Section 3.4. In
connection with those services to be performed pursuant to this
Amendment #3 to Consulting Agreement (as described in Section 3.4
above), Consultant shall receive an option to purchase 30,000 shares of
PTC's common stock, $.01 par value per share, under the terms of the
Stock Option Agreement dated July 20, 1998 between PTC and the
Consultant attached hereto.
IN WITNESS WHEREOF, the parties have executed this Amendment #3 to Consulting
Agreement as of the date and year first above written.
Consultant Parametric Technology Corporation
/S/ Michael E. Porter /S/ Steven C. Walske
- ---------------------------------- -----------------------------------
Michael E. Porter Steven C. Walske
Chairman and Chief Executive Officer
<PAGE>
No. 017091 30,000 Shares
PARAMETRIC TECHNOLOGY CORPORATION
1997 Incentive Stock Option Plan
Nonstatutory Stock Option Certificate
July 20, 1998
Parametric Technology Corporation (the "Company"), a Massachusetts
corporation, hereby grants to the person named below an option to purchase
shares of Common Stock, $0.01 par value, of the Company (the "Option") under and
subject to the Company's 1997 Incentive Stock Option Plan (the "Plan")
exercisable on the following terms and conditions set forth below and those
attached hereto and in the Plan:
Name of Optionholder: Michael E. Porter
Social Security Number ###-##-####
Number of Shares: 30,000
Option Price: $ 14.5625
Date of Grant: July 20, 1998
Exercisability Schedule:
On or after October 20, 1998, as to 6,000 shares,
on or after January 20, 1999, as to 6,000 additional shares,
on or after April 20, 1999, as to 6,000 additional shares,
on or after July 20, 1999, as to 6,000 additional shares,
on or after October 20, 1999, as to 6,000 additional shares,
provided that Optionholder's consulting agreement with the Company is not
terminated earlier, in which event the Option, (i) to the extent
exercisable at the date of such termination, may not be exercised as to any
shares after the expiration of seven (7) months from the date of such
termination, and (ii) to the extent not exercisable at the date of such
termination, shall be canceled as to any such shares effective on the date
of such termination.
This Option shall not be treated as an Incentive Stock Option under section 422
of the Internal Revenue Code of 1986, as amended (the "Code").
By acceptance of this Option, the Optionholder agrees to the terms and
conditions set forth above and those attached hereto and in the Plan.
OPTIONHOLDER PARAMETRIC TECHNOLOGY CORPORATION
By: /S/ Michael E. Porter By: /S/ Edwin J. Gillis
--------------------------------- -------------------------------
Optionholder Executive Vice President - CFO
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION 1997 INCENTIVE STOCK OPTION PLAN
Nonstatutory Stock Option Terms And Conditions
1. Plan Incorporated by Reference. This Option is issued pursuant to the
------------------------------
terms of the Plan and may be amended as provided in the Plan. Capitalized terms
used and not otherwise defined in this certificate have the meanings given to
them in the Plan. This certificate does not set forth all of the terms and
conditions of the Plan, which are incorporated herein by reference. The
Committee administers the Plan and its determinations regarding the operation of
the Plan are final and binding. Copies of the Plan may be obtained upon written
request without charge from the Corporate Counsel of the Company.
2. Option Price. The price to be paid for each share of Common Stock
------------
issued upon exercise of the whole or any part of this Option is the Option Price
set forth on the face of this certificate.
3. Exercisability Schedule. This Option may be exercised at any time and
-----------------------
from time to time for the number of shares and in accordance with the
exercisability schedule set forth on the face of this certificate, but only for
the purchase of whole shares. This Option may not be exercised as to any shares
after the Expiration Date.
4. Method of Exercise. To exercise this Option, the Optionholder shall
------------------
deliver written notice of exercise to the Company specifying the number of
shares with respect to which the Option is being exercised accompanied by
payment of the Option Price for such shares in cash, by certified check or in
such other form, including shares of Common Stock of the Company valued at their
Fair Market Value on the date of delivery or a payment commitment of a financial
or brokerage institution, as the Committee may approve. Promptly following such
notice, the Company will deliver to the Optionholder a certificate representing
the number of shares with respect to which the Option is being exercised.
5. No Right To Employment. No person shall have any claim or right to be
----------------------
granted an Option. Each employee of the Company or any of its Affiliates is an
employee-at-will (that is to say that either the Participant or the Company or
any Affiliate may terminate the employment relationship at any time for any
reason or no reason at all) unless, and only to the extent, provided in a
written employment agreement for a specified term executed by the chief
executive officer of the Company or his duly authorized designee or the
authorized signatory of any Affiliate. Neither the adoption, maintenance, nor
operation of the Plan nor any Option hereunder shall confer upon any employee of
the Company or of any Affiliate any right with respect to the continuance of
his/her employment by the Company or any such Affiliate nor shall they interfere
with the right of the Company (or Affiliate) to terminate any employee at any
time or otherwise change the terms of employment, including, without limitation,
the right to promote, demote or otherwise re-assign any employee from one
position to another within the Company or any Affiliate.
6. Effect of Grant. Participant shall not earn any Options granted
---------------
hereunder until such time as all the conditions put forth herein and in the Plan
which are required to be met in order to exercise the Option have been fully
satisfied.
7. Recapitalization, Mergers, Etc. As provided in the Plan, in the event
------------------------------
of corporate transactions affecting the Company's outstanding Common Stock, the
number and kind of shares subject to this Option and the exercise price
hereunder shall be equitably adjusted. If such transaction involves a
consolidation or merger of the Company with another entity, the sale or exchange
of all or substantially all of the assets of the Company or a reorganization or
liquidation of the Company, then in lieu of the foregoing, the Committee may
upon written notice to the Optionholder provide that this Option shall terminate
on a date not less than 20 days after the date of such notice unless theretofore
exercised. In connection with such notice, the Committee may in its discretion
accelerate or waive any deferred exercise period.
8. Option Not Transferable. This Option is not transferable by the
-----------------------
Optionholder otherwise than by will or the laws of descent and distribution, and
is exercisable, during the Optionholder's lifetime, only by the Optionholder.
The naming of a Designated Beneficiary does not constitute a transfer.
9. Termination of Employment or Engagement. If the Optionholder's status
---------------------------------------
as an employee or consultant of (a) the Company, (b) an Affiliate, or (c) a
corporation (or parent or subsidiary corporation of such corporation) issuing or
<PAGE>
assuming a stock option in a transaction to which section 424(a) of the Code
applies, is terminated for any reason (voluntary or involuntary) and the period
of exercisability for a particular Option following such termination has not
been specified by the Board, each such Option then held by that Participant
shall expire to the extent not previously exercised ten (10) calendar days after
such Participant's employment or engagement is terminated, except that -
------ ----
(a) If the Participant is on military, sick leave or other bona fide
---- ----
leave of absence (such as temporary employment by the federal government), his
or her employment or engagement with the Company will be treated as continuing
intact if the period of such leave does not exceed ninety (90) days, or, if
longer, so long as the Participant's right to reemployment or the survival of
his or her service arrangement with the Company is guaranteed either by statute
or by contract; otherwise, the Participant's employment or engagement will be
deemed to have terminated on the 91st day of such leave.
(b) If the Participant's employment is terminated by reason of his
or her retirement from the Company at normal retirement age, each Option then
held by the Participant, to the extent exercisable at retirement, may be
exercised by the Participant at any time within three (3) months after such
retirement unless terminated earlier by its terms.
(c) If the Participant's employment or engagement is terminated by
reason of his or her death, each Option then held by the Participant, to the
extent exercisable at the date of death, may be exercised at any time within one
year after that date (unless terminated earlier by its terms) by the person(s)
to whom the Participant's option rights pass by will or by the applicable laws
of descent and distribution.
(d) If the Participant's employment or engagement is terminated by
reason of his or her becoming permanently and totally disabled, each Option then
held by the Participant, to the extent exercisable upon the occurrence of
permanent and total disability, may be exercised by the Participant at any time
within one (1) year after such occurrence unless terminated earlier by its
terms. For purposes hereof, an individual shall be deemed to be "permanently and
totally disabled" if he or she is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than twelve (12) months. Any
determination of permanent and total disability shall be made in good faith by
the Company on the basis of a report signed by a qualified physician.
10. Compliance with Securities Laws. It shall be a condition to the
-------------------------------
Optionholder's right to purchase shares of Common Stock hereunder that the
Company may, in its discretion, require (a) that the shares of Common Stock
reserved for issuance upon the exercise of this Option shall have been duly
listed, upon official notice of issuance, upon any national securities exchange
or automated quotation system on which the Company's Common Stock may then be
listed or quoted, (b) that either (i) a registration statement under the
Securities Act of 1933 with respect to the shares shall be in effect, or (ii) in
the opinion of counsel for the Company, the proposed purchase shall be exempt
from registration under that Act and the Optionholder shall have made such
undertakings and agreements with the Company as the Company may reasonably
require, and (c) that such other steps, if any, as counsel for the Company shall
consider necessary to comply with any law applicable to the issue of such shares
by the Company shall have been taken by the Company or the Optionholder, or
both. The certificates representing the shares purchased under this Option may
contain such legends as counsel for the Company shall consider necessary to
comply with any applicable law.
11. Payment of Taxes. The Optionholder shall pay to the Company, or
----------------
make provision satisfactory to the Company for payment of, any taxes required by
law to be withheld with respect to the exercise of this Option. The Committee
may, in its discretion, require any other Federal or state taxes imposed on the
sale of the shares to be paid by the Optionholder. In the Committee's
discretion, such tax obligations may be paid in whole or in part in shares of
Common Stock, including shares retained from the exercise of this Option, valued
at their Fair Market Value on the date of delivery. The Company and its
Affiliates may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to the Optionholder.
Adopted November 14, 1996
<PAGE>
EXHIBIT 10.25
May 3, 1996
128 TECHNOLOGY CENTER
PARAMETRIC TECHNOLOGY CORPORATION
AMENDMENT NO. 10
Reference is made to the original Lease dated June 1, 1987 and subsequently
amended March 10, 1998, November 9, 1988, November 8, 1989, January 21, 1991,
March 10, 1992, November 25, 1992, June 8, 1993, April 14, 1994, July 19, 1995
and January 23, 1996 collectively (the "Lease") by and between 128 Technology
Trust under a Declaration of Trust dated October 12, 1993, recorded in Middlesex
County Registry of Deeds Southern District, Book 15268, Page 65 (hereinafter
"Lessor", which expression shall include its heirs, executors, successors, and
assigns where the context so admits), and Parametric Technology Corporation, a
Massachusetts corporation having a principal place of business at 128 Technology
Drive, Waltham, Massachusetts, 01254 (hereinafter "Lessee", which expression
shall include its successors and assigns or executors and administrators where
to context so admits). Terms defined in or by reference in the Lease not
otherwise defined herein shall have the same meaning herein as therein.
For good and valuable consideration, the receipt of legal sufficiency of which
is hereby acknowledged, Lessor and Lessee hereby agree to amend the Lease as
follows:
NEW AREA A 2,751 rentable square feet formerly occupied by Barnstable
EXPANSION SPACE: Corporation, Suite No. 3, 2nd floor, 125 Technology Drive,
Waltham, Massachusetts.
AVAILABILITY: May 1, 1996.
RENT
COMMENCEMENT: May 1, 1996.
RENTAL RATE: $22.00 per rentable square foot (As Is).
AREA B EXPANSION 1,105 rentable square feet presently occupied by Hickory
OPTION SPACE: Travel, Suite No. 2, 125 Technology Drive, Waltham,
Massachusetts.
AVAILABILITY: April 1, 1997 or sooner with 30 days written notice from
Lessor to Lessee.
RENT
COMMENCEMENT: Upon availability.
RENTAL RATE: $22.00 per rentable square foot (As Is).
TERM: Upon occupancy through October 31, 2001, subject to cancel-
lation by either party upon written notice to the other by
10/31/98.
TAX & OPERATING
EXPENSE BASE YEAR: 1996.
<PAGE>
In all other respect, the terms and provisions of the Lease and subsequent
amendments are hereby ratified and confirmed and remain in full force and effect
and unamended.
Executed as a sealed instrument this 10th day of May,1996.
LESSOR: 128 TECHNOLOGY TRUST
BY: /s/ Dominic J. Saraceno
-----------------------
Dominic J. Saraceno, as Trustee of
128 Technology Trust
BY: /s/ Kurt W. Saraceno
--------------------
Kurt W. Saraceno, as Trustee of
18 Technology Trust
LESSEE: PARAMETRIC TECHNOLOGY CORPORATION
BY: /s/ Martha L. Durcan
--------------------
Martha L. Durcan
TITLE: V.P. /Corporate Counsel
-----------------------
<PAGE>
EXHIBIT 10.26
January 24, 1997
128 TECHNOLOGY CENTER
PARAMETRIC TECHNOLOGY CORPORATION
AMENDMENT NO. 11
Reference in made to the original Lease dated June 1, 1987, and subsequently
amended March 10, 1988, November 9, 1988, November 8, 1989, January 21, 1991,
March 10, 1992, November 25, 1992, June 8, 1993, April 14, 1994, July 19, 1995,
January 9, 1996, and May 10, 1996 collectively (the "Lease") by and between
Wells Avenue Senior Holdings LLC, a Massachusetts limited liability company
(hereinafter "Lessor", which expression shall include its heirs, executors,
successors, and assigns where the context so admits), and Parametric Technology
Corporation, a Massachusetts corporation having a principal place of business at
128 Technology Drive, Waltham, Massachusetts, 02154 (hereinafter "Lessee", which
expression shall include its successors and assigns or executors and
administrators where to context so admits). Terms defined in or by reference in
the Lease not otherwise defined herein shall have the same meaning herein as
therein.
For good and valuable consideration, the receipt of legal sufficiency of which
is hereby acknowledged, Lessor and Lessee hereby agree to amend the Lease as
follows:
NEW AREA 44,652 rentable square feet formerly occupied by BGS
EXPANSION SPACE: Systems, Inc., 125 Technology Drive, Waltham,
Massachusetts.
AVAILABILITY: February 1, 1997
RENT
COMMENCEMENT: Upon Availability (February 1, 1997)
RENTAL RATE: $22.00 per rentable square foot.
TENANT IMPROVEMENT
ALLOWANCE: $75,000. In addition Landlord shall restore millwork to
Tenant's reasonable satisfaction. In furtherance of the
provisions of Section 5 of the Settlement Agreement
dated December 7, 1995, the work associated with the
improvements to the Premises shall be performed and
coordinated by Tenant. Tenant shall compute the cost
and the value of such improvements and shall from time
to time submit evidence of payment therefor to the
Landlord. Within 10 business days of the receipt of
each such evidence of payment, Landlord shall reimburse
Tenant or the cost of such improvements in an
amount equal to $75,000.
TERM: Five (5) years (Not subject to cancellation option).
TAX & OPERATING
EXPENSE BASE YEAR: 1992.
SUBLETTING & Exhibit B (see enclosure) of the Settlement Agreement
ASSIGNMENT: shall amend Article XII of the Lease and will govern
all space leased by Parametric including the BGS option
space.
CLEANING Exhibit D of the Lease shall be replaced by the
SPECIFICATIONS: following cleaning specifications.
<PAGE>
Lavatories-Nightly: Sweep and wash floors using a disinfectant cleaner.
Wash and polish all mirrors, shelves, brightwork and
enameled surfaces.
Wash and shine all flushometers, piping, and toilet
seat hinges.
Wash and wipe dry both sides of all toilet seats.
Wash and disinfect all basins, bowls and urinals.
Wipe down all tile walls, partitions, dispensers and
receptacles.
Change waste paper liners.
Dust and clean all powder room fixtures.
Empty and clean all paper towel and sanitary napkin
receptacles.
Remove wastepaper and refuse from the premises.
Refill all toilet paper, paper towel, soap and
sanitary napkin dispensers.
Lavatories-Monthly: Machine scrub with brush all tile floors.
Scrub and disinfect all tile walls and partitions.
Dust and wash all ventilation grilles.
Materials to be supplied by Landlord unless otherwise
arranged with Janitronics.
Office Areas-Nightly: Remove trash; replace liners as needed.
Wash out trash baskets as needed.
Remove fingerprints from doors, walls, light switches,
etc.
Vacuum all carpeting.
Vacuum all floor mats.
Damp mop all tile floors.
Remove waste to designated area.
Damp wipe all table tops to remove smudges and
beverage stains - cafe/coffee stations.
Remove carpet stains as needed - upon request (but
will be proactive).
Clean entrance door glass.
Upon completion of work shut off all lights and secure
doors.
Office Areas-Weekly: Dust all horizontal surfaces such as file cabinets,
partitions, picture frames, window sills, etc.
Office Areas-Monthly: Vacuum all carpet edges and corners.
Spot clean all interior glass partitions.
Office Areas-Quarterly: Clean baseboards.
Vacuum chair seats.
Dust chair rails, bases and seats.
Lobby And Common Areas
- -Nightly: Empty all trash receptacles; clean receptacle as
needed.
Replace liners as needed.
Remove waste to designated area.
Empty and wipe clean all cigarette urns and ashtrays;
replace sand and water as needed.
Empty trash receptacle below cigarette urns.
Vacuum all carpets.
Vacuum all floor mats; wash as required.
Clean all entrance doors.
Clean and shine all mullions and metal work.
Remove stains and fingerprints form walls, doors,
light switches, etc.
Clean building directory.
<PAGE>
Clean and disinfect all water fountains.
Clean all baseboards.
Vacuum elevator carpets; remove stains as needed.
Vacuum and wash all elevator tracks.
Clean, wash and shine all doors, walls and metal work
in elevators.
Wash and clean all kitchen tables, counter tops in
food areas and break rooms.
Customer Visit Area
Building 138-Nightly: Clean and polish conference room furniture -
conference tables, credenza, terminal tables.
Clean all white boards.
Clean glass display case,
Empty all waste receptacles.
Replace liners.
Remove carpet stains as needed - upon request (but
will be proactive).
Lobby, Common Areas
And Customer Visit
Area-Weekly: Clean baseboards and window sills.
Remove fingerprints from walls, doors, and light
switches.
Clean wood stair rails.
Lobby, Common Areas
And Customer Visit
Area-Monthly: Vacuum all upholstered furniture.
VCT tile floors - damp mop nightly
Monthly: Spray buff all tile floors.
Quarterly: Strip/seal all tile floors.
Lobby Stone Floors: Strip/seal twice per year.
Yearly: Wash all partition glass.
Landlord has reviewed the provisions of this revised cleaning specification and
represents to Tenant that the estimated cost of the work to be performed does
not exceed the current cost of the cleaning services being provided to the
Premises.
In all other respect, the terms and provisions of the Lease and subsequent
amendments are hereby ratified and confirmed and remain in full force and effect
and unamended.
Executed as a sealed instrument the 29 day of January, 1997.
LESSOR: WELLS AVENUE SENIOR HOLDINGS, LLC
BY: /s/ Kurt W. Saraceno
--------------------
Kurt W. Saraceno, President
LESSEE: PARAMETRIC TECHNOLOGY CORPORATION
<PAGE>
BY: /s/ Martha L. Durcan
--------------------
TITLE: MARTHA L. DURCAN
V.P./CORPORATE COUNSEL
----------------------
<PAGE>
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
PARAMETRIC TECHNOLOGY CORPORATION
Parametric Technology Corporation (PTC) develops, markets, and supports a
comprehensive suite of integrated product development and information management
software. Our mechanical design automation product family automates product
development, from conceptual design through production. Our enterprise
information management solutions accelerate the flow of product data from
engineering to other critical areas of an enterprise. Our solutions are
complemented by the strength and experience of our professional services
organization, which provides training, consulting, and support to customers
worldwide.
Unless otherwise indicated, all references to a year reflect our fiscal year
which ends on September 30.
FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements that describe our
anticipated financial results and growth based on our plans and assumptions.
Important information about the basis for these plans and assumptions and
certain factors that may cause our actual results to differ materially from
these statements is contained below in "Important Risk Factors Affecting
Results."
COMPUTERVISION MERGER
In January 1998, we merged with Computervision Corporation by issuing 11.6
million shares of our common stock in exchange for all of the outstanding common
stock of Computervision. The merger is intended to qualify as a tax-free
reorganization and has been accounted for as a pooling of interests.
Accordingly, we have restated our consolidated financial statements to include
the accounts and operations of Computervision for all years presented in this
Annual Report. Unless otherwise indicated, this discussion and the accompanying
consolidated financial statements and notes to the consolidated financial
statements (Notes) reflect that restatement. In July 1997, Computervision sold a
majority interest in its other services business unit, which had generated other
services revenue and costs in 1996 and 1997. Because of the sale, the results of
this business have been excluded from the following discussion for all years
presented. See Notes B and C.
RESULTS OF OPERATIONS
The following is an overview of our results of operations:
. Total software revenue was $902.9 million for 1996, $979.8 million for
1997, and $1,018.0 million for 1998.
. Our year-over-year software revenue growth rate declined from 33% in 1996
to 9% in 1997 and 4% in 1998.
. Excluding acquisition, nonrecurring, and extraordinary charges in all years
presented, our year-over-year net income decreased 21% in 1997 from $182.3
million in 1996 to $144.4 million in 1997 and increased 37% to $197.6
million in 1998.
The following table shows certain consolidated financial data as a percentage of
our total revenue for the last three years. The results of the Computervision
other services business unit have been omitted from the table.
September 30,
- --------------------------------------------------------------------------
1996 1997 1998
- --------------------------------------------------------------------------
Total revenue 100% 100% 100%
- --------------------------------------------------------------------------
Cost of revenue:
License 2 2 2
Service 13 13 13
- --------------------------------------------------------------------------
Total cost of revenue 15 15 15
- --------------------------------------------------------------------------
Gross profit 85 85 85
- --------------------------------------------------------------------------
Operating expenses:
Sales and marketing 37 40 39
Research and development 9 10 9
General and administrative 6 6 6
Acquisition and nonrecurring charges 5 5 10
- --------------------------------------------------------------------------
Total operating expenses 57 61 64
- --------------------------------------------------------------------------
Operating income 28 24 21
- --------------------------------------------------------------------------
Interest expense (4) (4) (1)
Interest income 2 2 2
Other expense, net -- (1) (1)
- --------------------------------------------------------------------------
Income before income taxes 26 21 21
Provision for income taxes 9 12 10
- --------------------------------------------------------------------------
Income before extraordinary charge 17 9 11
Extraordinary charge, net -- -- 2
- --------------------------------------------------------------------------
Net income 17% 9% 9%
- --------------------------------------------------------------------------
Excluding acquisition, nonrecurring,
and extraordinary charges:
Operating income 33% 29% 31%
- --------------------------------------------------------------------------
Net income 20% 15% 19%
- --------------------------------------------------------------------------
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
REVENUE
We derived our revenue primarily from software used in the mechanical segment of
the CAD/CAM/CAE (computer-aided design, manufacturing, and engineering)
industry. Our overall rate of revenue growth declined in 1997 and 1998 from
historic levels due to a decrease in the rate of growth of license revenue.
License revenue increased 5% in 1997, reflecting continued worldwide acceptance
of our products and services, and decreased 6% in 1998, reflecting, among other
factors, a change in the mix of our product offerings, weaker than anticipated
results in the Asia/Pacific region, the strengthening of the U.S. dollar against
most major European and Asia/Pacific currencies, especially the Japanese yen,
and a reduction in the average price of our software, due in part to the
repricing and repackaging initiative for our core Pro/ENGINEER product line that
we undertook in the fourth quarter of 1998. Product unit sales remained
relatively constant during the last three fiscal years. In addition to our
repricing and repackaging initiative, in June 1998 we introduced our new
Windchill information management software and in the fourth quarter of 1998 we
announced a restructuring of our worldwide sales force and our agreement with
Rand A Technology Corporation under which, beginning in 1999, Rand will manage
all of our sales to small businesses in the United States and Europe. These
initiatives were designed to provide a foundation for future growth. The
attention devoted to their initial implementation by sales management, however,
may have had an unanticipated negative effect upon license revenue in 1998.
Since these initiatives began late in 1998 and will continue into 1999, their
impact on our results is not yet known. Consequently, we remain cautious in our
overall outlook for 1999, with flat revenue anticipated over the first half of
the year. Factors affecting our revenues and operating results are listed under
"Important Risk Factors Affecting Results" below.
REVENUE BY TYPE (in millions) for fiscal 1996, 1997, and 1998
* License @ Service
[BAR CHART]
We licensed over 90% of our products directly to end-user customers in each of
the last three fiscal years. The balance was licensed through third-party
distributors. The percentage of our products that we license through third-party
distributors may change in the future as a result of the restructuring of our
worldwide sales force and our agreement with Rand.
Our service revenue is derived from the sale of software maintenance contracts
and the performance of training and consulting services and has a lower gross
profit margin than license revenue. Service revenue increased 16% in 1997 and
22% in 1998. This increase is the result of growth in our installed customer
base and increased training and consulting services performed for these
customers, offset by a decline in the Computervision-installed base. We expect
service revenue to continue to increase in both absolute dollars and as a
percentage of total revenue in 1999.
We derived 62%, 57%, and 56% of our total revenue from sales to international
customers in 1996, 1997, and 1998, respectively. The decrease in the percentage
of revenue derived from international sales since 1996 is attributable primarily
to: (i) the strengthening of the dollar in relation to the yen and the major
European currencies; (ii) the reluctance of Computervision customers, which were
predominantly overseas, to acquire additional licenses as a result of
Computervision's deteriorating financial condition prior to the merger; and
(iii) weaker than anticipated results in the Asia/Pacific region. Direct export
sales were $130.8 million, $148.5 million, and $115.2 million in 1996, 1997, and
1998, respectively.
REVENUE BY GEOGRAPHY (in millions) for North America, Europe and Asia/Pacific
* 1996
@ 1997
# 1998
[BAR CHART]
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
COST OF REVENUE
Our cost of license revenue consists of costs associated with reproducing and
distributing software and documentation, royalties, and the amortization of
capitalized computer software costs. Cost of license revenue as a percent of
total revenue has been 2% for each of the last three years.
Our cost of service revenue includes 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 our cost of
service revenue resulted primarily from growth in the staffing necessary to
generate and support increased worldwide service revenue and to provide ongoing
quality customer support to our installed base. Cost of service revenue as a
percent of total revenue has been 13% for each of the last three years.
OPERATING EXPENSES
All operating expense categories, including cost of revenue, in 1996, 1997, and
1998 were impacted by the acquisition and restructuring nonrecurring charges
taken. See Note B.
SALES AND MARKETING
Our sales and marketing expenses primarily include salaries, sales commissions,
travel, and facility costs. These costs increased 17% in 1997 and 2% in 1998
with the 1997 change principally due to worldwide expansion of the sales force
and sales commissions associated with the sale of software and training and
consulting services. Total sales and marketing employees were 2,152 in 1996,
2,395 in 1997, and 2,440 in 1998. We expect our worldwide sales and marketing
organization to remain at or below the 1998 level given that sales to small
businesses will be managed by Rand A Technology Corporation under an agreement
beginning in 1999. International sales and marketing expenses represented 63% of
total sales and marketing expenses in 1996, 62% in 1997, and 59% in 1998.
RESEARCH AND DEVELOPMENT
Our research and development expenses consist principally of salaries and
benefits, expenses associated with product translations, costs of computer
equipment used in software development, and facility expenses. Compared to the
prior years, research and development expenses increased 17% in 1997 and were
flat in 1998. The steady level of spending in 1998 compared to 1997 is primarily
attributable to the impact of workforce reductions and lower depreciation
related to write-offs of excess fixed assets associated with the Computervision
merger offset by our continued investment in research and development,
particularly in relation to the Windchill product line. We expect our investment
in research and development to increase in absolute dollars in 1999.
GENERAL AND ADMINISTRATIVE
Our general and administrative expenses include the costs of our corporate,
finance, information technology, human resources, and administrative functions.
These costs increased 12% in 1997 and decreased 5% in 1998. The increase in 1997
resulted primarily from the hiring of additional employees and spending to
upgrade internal information management systems. The decrease in these expenses
in 1998 was principally due to the impact of workforce reductions and lower
depreciation related to write-offs of excess fixed assets associated with the
Computervision merger.
OPERATING EXPENSES (in millions) for Sales and Marketing, Research and
Development, General and Administrative, and Acquisition
and Nonrecurring Charges
* 1996
@ 1997
# 1998
[BAR CHART]
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
ACQUISITION AND NONRECURRING CHARGES
ICEM. In June 1998, we acquired ICEM Technologies (ICEM), a division of Control
Data Systems, Inc., for approximately $41 million in cash. 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, we allocated the purchase price to the assets acquired and
liabilities assumed based on our estimates of fair value. The fair value
assigned to intangible assets acquired consisted of purchased in-process
research and development (R&D), developed technology, an assembled workforce,
and trade names. The amounts allocated to tangible and intangible assets
acquired less the liabilities assumed exceeded the purchase price by
approximately $7 million. This excess value over the purchase price was
allocated to reduce proportionately the values assigned to long-term assets and
purchased in-process R&D in determining their values. The values assigned
included $2.1 million for net assets acquired, $28.9 million for purchased
in-process R&D, $8.0 million for developed technology, $1.6 million for an
assembled workforce, and $1.0 million for trade names. The operating results of
ICEM have been included in our results of operations from the date of
acquisition.
In the opinion of management, the purchased in-process R&D had not yet reached
technological feasibility and had no alternative future use. Accordingly, we
recorded a nonrecurring charge of $28.9 million during the third quarter of
1998. The value assigned to purchased in-process R&D was determined by
identifying research projects for which technological feasibility had not been
established. The value was determined by estimating the costs to develop the
purchased in-process R&D into commercially viable products, estimating the
resulting net cash flows from such products, and discounting the net cash flows
back to their present value. The estimates were based on the following major
assumptions:
. Aggregate revenue was estimated to grow at a compound rate of 33% over the
first five years and 14% thereafter.
. Cost of revenue for the purchased in-process technology, expressed as a
percentage of revenue, was estimated to decline from 20% to 10% through
2006. These percentages were based on ICEM's average historical cost of
revenue, and reflect future economies of scale.
. Cost to complete the purchased in-process technology was estimated to be
$1.5 million for 1998, $4.4 million for 1999, and $600,000 for 2000.
. Selling, general, and administrative expenses were estimated to be 29% of
revenue for all periods, consistent with ICEM's historical average.
The net cash flows also considered net working capital requirements and capital
spending needs related to the purchased in-process technology. The 24% rate we
used to discount net cash flows for the in-process technology to present value
was based on the weighted average cost of capital and took into account the
uncertainty surrounding the successful development of the purchased in-process
technology.
If these projects are not successfully developed, future revenue and
profitability may be adversely affected. Additionally, the value of other
intangible assets acquired may become impaired.
Computervision. In connection with the Computervision merger, we incurred a
nonrecurring charge of $76.8 million for merger-related integration,
consolidation, and transaction costs. The charge included $18.1 million of
severance and termination benefits related to the elimination of approximately
450 positions, $12.7 million for the write-off of assets, $8.2 million for
transaction costs, $17.4 million of contract costs associated with revised
estimates, $7.2 million for the closing of leased facilities, and $13.2 million
of lease termination and other costs. Most of these costs, except for certain
contract costs and costs related to leased facilities, were incurred in 1998. We
also incurred an extraordinary after-tax charge of $19.0 million related to the
write-off of deferred financing costs and other prepayment costs associated with
our payment of $275.7 million for indebtedness of Computervision existing at the
time of the merger. See Notes B and G.
Our results for 1997 include a nonrecurring charge of $45.0 million related to
the restructuring of the Computervision software business in order to reduce
costs and improve operating results in future periods by reducing personnel by
approximately 300 positions and closing certain facilities.
Our results for 1996 include a nonrecurring charge of $14.5 million, which
includes $11.0 million of restructuring costs associated with the implementation
of ongoing cost savings, primarily personnel reductions of approximately 100
positions in R&D, sales and marketing, and closing certain facilities.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
Reflex. In July 1996, we acquired project modeling and management software
(Reflex) technology from Greenshire License Co. for $32.1 million. Of the total
purchase price, we issued 226,000 shares of our common stock with a fair value
of $5.0 million at the time of the acquisition and paid cash of $22.1 million in
1996 and $5.0 million in 1997. The acquisition was accounted for as a purchase.
The fair value assigned to intangible assets acquired consisted of in-process
R&D related to a research project, which had not yet reached technological
feasibility and had no alternative future uses. As a result, at the date of
acquisition, the $32.1 million allocated to purchased in-process R&D was
recorded as a nonrecurring charge. The value was determined by estimating the
costs to develop the purchased in-process R&D into a commercially viable
product, estimating the resulting net cash flows from such product, and
discounting the net cash flows back to their present value. The net cash flows
also considered net working capital requirements and capital spending needs
related to the in-process products. The discount rate of 30% used for Reflex
took into account the uncertainty surrounding the successful development of the
purchased in-process technology. The assumptions we used reflected the fact that
Reflex did not have any other assets or revenue, and was a development-stage
enterprise.
The operating results of Reflex have been included in our results of operations
from the date of acquisition.
INTEREST EXPENSE
Our interest expense related primarily to debt incurred by Computervison prior
to the merger that we paid off in the second quarter of 1998. See Note G.
INTEREST INCOME
Interest income relates to the earnings on the investment of our excess cash
balance in various financial instruments. The 1997 increase in interest income
was due primarily to higher average investment balances. The 1998 increase
resulted from higher average annual yields.
OTHER EXPENSE
A large portion of our revenue and expenses is transacted in foreign currencies.
In order to reduce our exposure to fluctuations in foreign exchange rates, from
time to time we engage in hedging transactions involving the use of foreign
exchange forward contracts and foreign exchange option contracts in the primary
European and Asian currencies. Our other expense increased primarily due to the
costs of the hedging contracts, the gain or loss from the translation of results
for subsidiaries for which the U.S. dollar is the functional currency, and other
charges incurred in connection with financing customer contracts. See Note A.
INCOME TAXES
Our effective income tax rate was 34% in 1996, 57% in 1997, and 48% in 1998. The
difference between our effective and the statutory federal tax rate was due
primarily to the nondeductibility of certain expenses included in the
acquisition-related charges in 1998 and losses of Computervision in 1997. See
Note F.
EXTRAORDINARY CHARGE
The extraordinary charge incurred in 1998 related to the early repayment of the
debt that Computervision had incurred prior to our merger. See Note G.
LIQUIDITY AND CAPITAL RESOURCES
Our operating activities, the proceeds from our issuance of stock under stock
plans, and existing cash and investments provided sufficient resources to fund
our employee growth, capital asset needs, stock repurchases, acquisitions, and
debt repayment, in all years presented.
As of September 30, 1998, cash and investments totaled $426.2 million, down from
$568.7 million at September 30, 1997. The primary reason for the decrease in
cash and investments during 1998 was the repayment of $275.7 million of
Computervision debt. Our investment portfolio is diversified among security
types, industries, and individual issuers. Our investments are generally liquid
and investment grade. The portfolio is primarily invested in short-term
securities to minimize interest rate risk and to facilitate rapid deployment in
the event of immediate cash needs.
Cash generated from operating activities was $237.0 million in 1996, $195.8
million in 1997, and $181.9 million in 1998, net of cash expenditures for
nonrecurring charges of $12.0 million in 1996, $38.9 million in 1997, and $62.3
million in 1998.
In 1996, 1997, and 1998, we acquired $41.1 million, $36.2 million, and $35.8
million, respectively, of capital equipment consisting principally of computer
equipment, software, and office equipment. We spent $23.2 million in 1996, $5.0
million in 1997, and $40.6 million in 1998 to acquire businesses. These
expenditures were partially offset by $30.1 million received from the sale of a
Computervision business unit in June 1997.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS
- ----------
We used net cash for financing activities in 1996, 1997, and 1998, primarily to
repurchase $66.6 million, $184.8 million, and $50.0 million, respectively, of
our stock, and to pay off the Computervision debt in 1998 of $275.7 million.
These expenditures were partially offset by proceeds of $43.8 million, $66.3
million, and $70.4 million in 1996, 1997, and 1998, respectively, from the
issuance of our common stock under our stock plans. As a result of the exchange
of certain stock options held by non-executive employees, we expect proceeds
from stock option exercises to be lower in 1999. See Note J.
In May 1994, we announced that our Board of Directors had authorized a plan
allowing us to repurchase up to 6.0 million shares of our common stock. In
September 1997, our Board of Directors increased that number to 12.0 million. In
October 1997, in anticipation of the Computervision merger, we suspended
repurchases and the Board of Directors rescinded its authorization of the
repurchase program in November 1997. Under the program, we repurchased a total
of 11.6 million shares at a cost of $260.0 million. In September 1998, our Board
of Directors authorized a new share repurchase program for the repurchase of up
to 20.0 million shares. During 1998, we purchased 4.7 million shares at a cost
of $50.0 million. The repurchased shares will be used to issue shares for stock
option exercises, employee stock purchase plans, and potential acquisitions.
We believe that existing cash and short-term investments together with cash
generated from operations and the issuance of common stock under our stock plans
will be sufficient to meet our working capital, financing, and capital
expenditure requirements through at least 1999.
NEW ACCOUNTING PRONOUNCEMENTS
In accordance with recently issued accounting pronouncements, we will be
required to comply with certain changes in accounting rules and regulations. See
Note A.
FINANCIAL RISK MANAGEMENT
We face exposure to financial market risks, including adverse movements in
foreign currency exchange rates and changes in interest rates. These exposures
may change over time as business practices evolve and could have a material
adverse impact on our financial results. Our primary exposure has been related
to local currency revenue and operating expenses in Europe and the Asia/Pacific
region. Historically, we have hedged currency exposures associated with certain
accounts receivable denominated in local currencies and certain anticipated
foreign currency revenue transactions. The goal of our hedging activity is to
offset the impact of currency fluctuations on certain local currency accounts
receivable and foreign currency revenue transactions. The success of this
activity depends upon forecasts of transaction activity denominated in various
currencies. To the extent that these forecasts are overstated or understated
during periods of currency volatility, we could experience unanticipated
currency gains or losses. Outstanding forward foreign exchange contracts at
September 30, 1998 matured within one month, and did not have a material impact
on our financial results.
The carrying amounts reflected in the consolidated balance sheets for cash and
cash equivalents, accounts receivable, and accounts payable approximate fair
value at the balance sheet date due to the short maturities of these
instruments.
We maintain investment portfolio holdings of various issuers, types, and
maturities. These securities are generally classified as available for sale, and
consequently, are recorded on the balance sheet at fair value with unrealized
gains or losses included in stockholders' equity. Given the short maturities and
investment grade quality of the portfolio holdings at September 30, 1998, a
sharp rise in interest rates should not have a material adverse impact on the
fair value of our investment portfolio. As a result, we do not currently hedge
these interest rate exposures.
The following table presents hypothetical changes in fair values in our
financial instruments at September 30, 1998 that are sensitive to changes in
interest rates. Our modeling technique measures the change in fair value arising
from selected potential changes in interest rates. Movements in interest rates
of plus or minus 50 basis points ("BP") and 100 BP reflect immediate
hypothetical shifts in the fair value of these investments. Fair value
represents the market principal plus accrued interest and dividends of certain
interest-rate-sensitive securities considered cash equivalents or investments
for financial reporting purposes at September 30, 1998.
Valuation of No Valuation of
securities given change in securities given
an interest rate interest an interest rate
Type of security decrease rates increase
- --------------------------------------------------------------------------------
(in millions) (100 BP) (50 BP) 50 BP 100 BP
- --------------------------------------------------------------------------------
Municipal debt
securities $241 $240 $239 $238 $237
Mutual funds 13 12 12 12 11
- --------------------------------------------------------------------------------
Total $254 $252 $251 $250 $248
- --------------------------------------------------------------------------------
30
<PAGE>
A 50-BP move in the Federal Funds Rate has occurred in eight of the last 40
quarters. There has not been a 100-BP movement in the Federal Funds Rate in any
of the last 40 quarters.
IMPORTANT RISK FACTORS AFFECTING RESULTS
We caution you that our performance is subject to risks and uncertainties. There
are a variety of important factors like those that follow that may cause our
future results to differ materially from those projected in any of our
forward-looking statements made in this Annual Report or otherwise.
FLUCTUATIONS IN OPERATING RESULTS
While our sales cycle varies substantially from customer to customer, we usually
realize a high percentage of our revenue in the third month of each fiscal
quarter and this revenue tends to be concentrated in the latter half of that
month. Our orders early in a quarter will not generally occur at a rate which,
if sustained throughout the quarter, would be sufficient to assure that we will
meet our revenue targets for any particular quarter. Accordingly, our quarterly
results may be difficult or impossible to predict prior to the end of the
quarter. Any inability to obtain orders in large volumes or to make shipments in
the period immediately preceding the end of any particular quarter may cause the
results for that quarter to fall short of our revenue targets. In addition, our
operating expenses are based on expected future revenue and are relatively fixed
for the short term. As a result, a revenue shortfall in any quarter could cause
our earnings for that quarter to fall below expectations as well. Any failure to
meet our quarterly revenue or earnings targets could adversely impact the market
price of our stock.
Because our sales incentive structure is weighted more heavily toward the end of
the fiscal year, the rate of revenue growth for the first quarter historically
has been lower than that for the fourth quarter of the immediately preceding
fiscal year. This incentive structure also makes it more difficult to predict
first quarter results.
In addition, the levels of quarterly or annual software revenue in general, or
for particular geographic areas, may not be comparable to those achieved in
previous periods.
STOCK MARKET VOLATILITY
Market prices for securities of software companies have generally been volatile.
In particular, the market price of our common stock has been and may continue to
be subject to significant fluctuations.
In addition, a large percentage of our common stock traditionally has been held
by institutional investors. Consequently, actions with respect to our common
stock by certain of these institutional investors could have a significant
impact on the market price of the stock. For more information, please see our
proxy statement with respect to our most recent annual meeting of stockholders
and Schedules 13D and 13G filed with the U.S. Securities and Exchange Commission
(SEC) with respect to our common stock.
MARKET GROWTH
Any of our projections for revenue growth assume that the overall demand for
products in the mechanical CAD/CAM/CAE industry will continue to grow. There
could be an adverse impact on our operating results in any quarter in which this
assumption proves to be incorrect.
RAPID TECHNOLOGICAL AND MARKET CHANGES
The mechanical CAD/CAM/CAE and enterprise information management industries are
highly competitive and are characterized by rapid technological advances.
Accordingly, our ability to realize our expectations will depend on:
. our success at enhancing our current offerings
. our ability to develop new products and services that keep pace with
developments in technology
. our ability to meet evolving customer requirements, especially
ease-of-use requirements
. our ability to deliver those products through appropriate distribution
channels, and
. our ability to license technology from third parties.
This will require, among other things, that we:
. correctly anticipate customer needs and price our products
competitively
. hire and retain personnel with the necessary skills and creativity
. provide adequate funding for development efforts, and
. manage distribution channels effectively.
In addition, our CAD/CAM/CAE software has historically been available on a
variety of platforms. We are aware of efforts by competitors to focus on single
platform applications, particularly Windows-based platforms. There can be no
assurance that we will continue to have a competitive advantage with multiple
platform applications.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS
- ----------
We continue to enhance our existing products by releasing updates. Those product
updates will be less frequent than in the past to permit customers to absorb
changes more effectively. Our competitive position and operating results could
suffer if:
. we fail to anticipate or to respond adequately to customer requirements or
to technological developments, particularly those of our competitors
. we delay the development, production, testing, marketing, or availability
of new or enhanced products or services, or
. customers fail to accept such products or services.
The success of our new Windchill product line will depend in part on the
market's evaluation of its ease of use, its full functionality, and its ability
to support a large user base. Since this product line only became available in
the latter half of 1998, it is not possible to assess the market's acceptance of
this product line at this time.
POSSIBILITY OF NEW PRODUCT DELAYS
As is common in the computer software industry, we may from time to time
experience delays in our product development and "debugging" efforts. Our
financial performance could be hurt by significant delays in developing,
completing, or shipping new or enhanced products. Among other things, such
delays could cause us to incorrectly predict the fiscal quarter in which we will
realize revenue from the shipment of the new or enhanced products and give our
competitors a greater opportunity to market competing products.
SUCCESSFUL IMPLEMENTATION OF NEW INITIATIVES
We have a history of rapid growth and development as an organization. Part of
our success has resulted from our ability to implement new initiatives. Our
future operating results will continue to depend upon:
. the success of our efforts to integrate Computervision's operations on a
worldwide basis
. market acceptance of the new Windchill product line, which has a longer
sales cycle than our other products
. the success of our sales force reorganization initiative, including Rand's
success with sales to smaller customers
. market reaction to the repricing and repackaging of our Pro/ENGINEER
product line, and
. our ability to increase revenue growth in the Asia/Pacific region.
Additionally, our success could also be affected by our ability to:
. develop additional applications for the Windchill product line
. generate and fill current software license orders, and
. adequately manage exposure to foreign currency movements.
RISKS ASSOCIATED WITH ACQUISITIONS
We have increased our product range and customer base in the recent past, due in
part to acquisitions. We may acquire additional businesses or product lines in
the future. The success of any acquisition may be dependent upon our ability to
integrate the acquired business or products successfully and to retain key
personnel and customers associated with the acquisition. If we fail to do so, or
if the costs of or length of time for integration increase significantly, it
could cause our actual results to differ from those projected in our
forward-looking statements.
In addition, acquisitions may result in the allocation of purchase price to
in-process R&D. For example, for the year ended September 30, 1998, we recorded
in-process R&D expense of approximately $28.9 million in connection with our
acquisition of ICEM. The SEC has recently raised issues regarding the
methodologies used and allocation of purchase price to in-process R&D and has
required some companies to adjust or restate prior periods to reduce allocations
to in-process R&D, thereby increasing intangible assets and future amortization
expense. While we believe that our in-process R&D allocation is appropriate, if
the SEC were to require us to change the allocation, this would result in a
higher amortization expense, which would adversely impact our future operating
results.
COMPETITION
There are an increasing number of competitive mechanical CAD/CAM/CAE products.
Increased competition and market acceptance of these products could have a
negative effect on our pricing and revenues, which could adversely affect our
operating results. Our Windchill product line expands the breadth of our
offerings into product information management. We are a relatively new entrant
into this area and may be competing with more mature products that may have an
established customer base as well as greater functionality.
DEPENDENCE ON KEY PERSONNEL
Our success depends upon our ability to attract and retain highly skilled
technical, managerial, and sales personnel. While we have not experienced any
significant difficulty in hiring or retaining
32
<PAGE>
qualified personnel to date, competition for such personnel in the high
technology industry is intense. We assume that we will continue to be able to
attract and retain such personnel. The failure to do so, however, could have a
material adverse effect on our future operating results.
RISKS ASSOCIATED WITH INTERNATIONAL BUSINESS
A significant portion of our business comes from outside the United States.
Accordingly, our performance could be adversely affected by ongoing economic
uncertainties in the Asia/Pacific region and other world economies. Another
consequence of significant international business is that a large percentage of
our revenue and expenses are denominated in foreign currencies which fluctuate
in value. Although we may enter into foreign exchange forward contracts and
foreign exchange option contracts to offset a portion of the foreign exchange
fluctuations, unanticipated events may materially impact our results. Other
risks associated with international business include:
. unexpected changes in regulatory practices and tariffs
. staffing and managing foreign operations
. longer collection cycles in certain areas
. potential changes in tax laws
. greater difficulty in protecting intellectual property rights, and
. general economic and political conditions.
PROTECTION OF INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Our software products are proprietary to PTC. We protect our 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 contained in our agreements with other parties.
Despite these measures, there can be no assurance that the laws of all relevant
jurisdictions will afford the same protections to our products and intellectual
property as the laws of the United States. The software industry is
characterized by frequent litigation regarding copyright, patent, and other
intellectual property rights. While we have not, to date, had any significant
claims of this type asserted against us, there can be no assurance that someone
will not assert such claims against us with respect to existing or future
products or that, if asserted, we would prevail in such claims. In the event a
lawsuit of this type is filed, it could result in significant expense to us and
divert the efforts of our technical and management personnel, whether or not we
ultimately prevail.
LEGAL PROCEEDINGS
Certain class action lawsuits have been filed against us and certain of our
current and former officers and directors claiming violations of the federal
securities laws based on alleged misrepresentations regarding our anticipated
revenue and earnings for the third quarter of 1998. We believe the claims are
without merit and we intend to defend them vigorously. We cannot predict the
ultimate resolution of these actions at this time, and there can be no assurance
that the litigation will not have a material adverse impact on our financial
condition or results of operations.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
Concerns have been widely expressed regarding the inability of certain computer
programs to properly process certain date information, particularly 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.
State of Readiness. We have developed a Year 2000 readiness plan focusing on:
(i) assessing the readiness of our product offerings, internal business systems,
and major vendors and suppliers; (ii) addressing known risks; and (iii) planning
and budgeting for reasonably likely contingencies.
We are in the process of testing our current product offerings for Year 2000
compliance. Based on our review to date, we believe that our principal product
offerings are largely Year 2000-compliant in their current versions. While
testing of our current product offerings is complete, we are still in the
process of making modifications to those currently offered systems that are not
compliant and anticipate that these corrections will be complete by March 31,
1999. We are conducting only limited testing of products that are no longer
offered, and thus the Year 2000 compliance of such products is generally not
known. Many of these untested products are previous releases of current
offerings. Our customers can upgrade many of these products to achieve Year 2000
compliance.
We are also in the process of reviewing and upgrading our internal information
technology and business systems, both domestically and internationally, to
ensure Year 2000 readiness. This process is expected to be complete by March 31,
1999 with respect to the majority of our mission-critical systems. We expect to
continue testing our internal systems and to undertake necessary corrective
measures throughout calendar 1999.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------------
OPERATIONS
- ----------
Finally, we have commenced a program to survey the Year 2000 readiness of our
major vendors and suppliers, with a particular focus on the Year 2000 readiness
of our mission-critical vendors and suppliers. This process is expected to be
complete by March 31, 1999. Where we believe that a particular vendor or
supplier poses unacceptable Year 2000 risks, we will identify an alternative
supply source.
Cost of Year 2000 Compliance. Costs incurred in our Year 2000 compliance effort
include the allocation of personnel to testing our products and systems as well
as to upgrading internal systems. We have identified approximately $3.0 million
in costs already incurred and estimate that another $3.0 to $6.0 million may be
spent on our compliance project. Costs are expensed as incurred. While our
compliance evaluation and remediation project is not yet complete, we do not at
this time foresee a material impact on our business or operating results from
the Year 2000 problem. We cannot, of course, predict the nature or materiality
of the impact on our operations or operating results of Year 2000 disruption by
parties over whom we have no control. Furthermore, the purchasing patterns of
our customers or potential customers may be affected by Year 2000 issues if they
must expend significant resources to correct their own systems. As a result they
may have fewer funds available to purchase our products and services.
Risk of Year 2000 Issues and Contingency Plans. Our worst-case Year 2000
scenarios would include: (i) undetected errors or uncorrected defects in our
current product offerings; (ii) corruption of data contained in our internal
information systems; and (iii) the failure of infrastructure services provided
by third parties and government agencies (e.g., electricity, phone service,
Internet services, etc.). We are in the process of reviewing our contingency
planning in all of these areas and expect the plans to include, among other
things, the availability of support personnel to assist with customer support
issues, manual "work arounds" for internal software failure, and substitution of
systems, if needed.
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. There will be a transition period between January 1, 1999 and
January 1, 2002, during which the old currencies will remain legal tender in the
participating countries as denominations of the euro. During the transition
period, public and private parties may pay for goods and services using either
the euro or the participating country's former currency on a no compulsion, no
prohibition basis. Conversion rates, however, will no longer be computed
directly from one former currency to another. Instead, a triangular process will
apply whereby an amount denominated in one former currency will first be
converted into the euro. The resultant euro-denominated amount will then be
converted into the second former currency.
We are 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 conversion, and the effect on market risk with respect to financial
instruments. At this time, we do not believe that the euro's introduction will
have a material impact on our business during the transition period.
34
<PAGE>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
PARAMETRIC TECHNOLOGY CORPORATION
<TABLE>
<CAPTION>
September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 168,609 $ 205,971
Short-term investments 354,516 131,405
Accounts receivable, net of allowance for doubtful accounts of $5,887 and $7,684 196,021 189,275
Other current assets 42,782 67,130
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 761,928 593,781
Marketable investments 45,580 88,807
Property and equipment, net 56,797 62,241
Other assets 94,027 88,011
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 958,332 $ 832,840
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, current portion of long-term debt, and capital lease obligations $ 39,477 $ --
Accounts payable 38,305 34,520
Accrued expenses 99,142 92,742
Accrued compensation, severance, and related expenses 91,709 81,856
Deferred revenue 114,149 145,376
Income taxes 67,847 65,048
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 450,629 419,542
Long-term debt, less current portion 213,526 --
Other liabilities 54,182 54,081
Deferred income taxes 39,203 31,780
Commitments and contingencies (Note H)
- ------------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000 shares authorized; none issued -- --
Common stock, $.01 par value; 350,000 shares authorized; 267,967
and 272,277 shares issued 2,680 2,723
Additional paid-in capital 1,450,132 1,528,647
Treasury stock, at cost, 1,048 and 4,135 shares (24,169) (43,134)
Accumulated deficit (1,229,149) (1,157,628)
Other equity 1,298 (3,171)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 200,792 327,437
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 958,332 $ 832,840
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
35
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
License $ 613,427 $ 644,726 $ 609,239
Service 289,510 335,068 408,731
- ------------------------------------------------------------------------------------------------------------------------------------
Total software revenue 902,937 979,794 1,017,970
Other services revenue 174,384 82,224 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenue 1,077,321 1,062,018 1,017,970
- ------------------------------------------------------------------------------------------------------------------------------------
COST OF REVENUE:
License 21,024 19,450 19,915
Service 119,560 131,136 137,025
Other services 134,686 74,808 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total cost of revenue 275,270 225,394 156,940
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 802,051 836,624 861,030
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Sales and marketing 332,429 388,857 395,732
Research and development 79,620 93,329 93,382
General and administrative 54,453 60,915 58,130
Acquisition and nonrecurring charges 46,619 45,000 105,766
Other services operating and nonrecurring charges 29,201 19,188 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 542,322 607,289 653,010
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 259,729 229,335 208,020
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense 32,706 34,069 13,329
Interest income (15,664) (18,261) (19,131)
Other expense, net 2,263 7,843 9,815
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary loss 240,424 205,684 204,007
Provision for income taxes 80,857 118,024 98,293
- ------------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary loss 159,567 87,660 105,714
Extraordinary loss, net of income tax benefit of $2,183 (Note G) -- -- (19,017)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 159,567 $ 87,660 $ 86,697
====================================================================================================================================
EARNINGS PER SHARE (NOTE A):
Basic:
Income before extraordinary loss $ 0.60 $ 0.33 $ 0.39
Extraordinary loss -- -- (0.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 0.60 $ 0.33 $ 0.32
====================================================================================================================================
Diluted:
Income before extraordinary loss $ 0.57 $ 0.32 $ 0.38
Extraordinary loss -- -- (0.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 0.57 $ 0.32 $ 0.31
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
36
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
PARAMETRIC TECHNOLOGY CORPORATION
<TABLE>
<CAPTION>
September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 159,567 $ 87,660 $ 86,697
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 nonrecurring charges -- 6,634 15,876
Depreciation and amortization 43,174 38,418 29,930
Deferred income taxes (6,403) 2,195 5,526
Provision for loss on accounts receivable 1,616 1,433 5,822
Gain on sale of a business unit -- (1,255) --
Charge for purchased in-process research and development 35,619 -- 28,941
Changes in assets and liabilities which provided (used) cash, net of effects
of purchased businesses:
Accounts receivable (51,750) 230 766
Accounts payable and accrued expenses (1,399) 7,085 (2,720)
Accrued compensation, severance, and related expenses 8,447 3,581 (10,999)
Deferred revenue 20,775 19,533 30,276
Income taxes 23,670 50,859 19,387
Other current assets and liabilities 4,085 (15,624) (32,841)
Other noncurrent assets and liabilities (438) (4,977) (13,789)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 236,963 195,772 181,889
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (41,129) (36,179) (35,794)
Additions to capitalized and purchased software costs (815) (965) --
Acquisition of businesses (23,189) (5,000) (40,599)
Purchases of investments (336,572) (577,499) (413,522)
Proceeds from sales and maturities of investments 244,645 423,988 593,406
Proceeds from sale of a business unit, net -- 30,100 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (157,060) (165,555) 103,491
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of short-term debt 465 29,426 --
Repayment of short-term debt -- -- (34,933)
Repayment of long-term obligations (6,486) (5,044) (240,761)
Proceeds from issuance of common stock 43,823 66,250 70,440
Purchases of treasury stock (66,563) (184,780) (49,972)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (28,761) (94,148) (255,226)
- ------------------------------------------------------------------------------------------------------------------------------------
Elimination of net cash activity of acquired company
for the three months ended December 31, 1997 -- -- 11,567
Effect of exchange rate changes on cash (7,580) (7,639) (4,359)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 43,562 (71,570) 37,362
Cash and cash equivalents, beginning of year 196,617 240,179 168,609
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 240,179 $ 168,609 $ 205,971
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
37
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Balance, beginning of year $ 2,612 $ 2,659 $ 2,680
Issued for employee stock purchase and option plans 45 18 43
Issuance of common stock for acquisition 2 -- --
Other items related to acquired company -- 3 --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 2,659 2,680 2,723
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year 1,337,809 1,392,388 1,450,132
Issued for employee stock purchase and option plans 22,122 10,995 57,218
Tax benefit related to stock option plans 27,459 35,894 21,297
Issuance of common stock for acquisition 4,998 -- --
Other items related to acquired company -- 10,855 --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 1,392,388 1,450,132 1,528,647
- ------------------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK
Balance, beginning of year -- (1,164) (24,169)
Repurchased (66,563) (184,780) (49,972)
Issued for employee stock purchase and option plans 65,399 161,775 31,007
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year (1,164) (24,169) (43,134)
- ------------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEFICIT
Balance, beginning of year (1,320,879) (1,204,509) (1,229,149)
Net income 159,567 87,660 86,697
Treasury shares issued for employee stock purchase and option plans (43,743) (106,538) (14,913)
Minimum pension liability adjustment 546 (5,762) (20,473)
Change in year end of acquired company -- -- 20,210
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year (1,204,509) (1,229,149) (1,157,628)
- ------------------------------------------------------------------------------------------------------------------------------------
CUMMULATIVE TRANSLATION ADJUSTMENT
Balance, beginning of year 13,652 6,314 1,251
Foreign currency translation adjustment (7,338) (5,063) (5,411)
Change in year end of acquired company -- -- 439
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 6,314 1,251 (3,721)
- ------------------------------------------------------------------------------------------------------------------------------------
UNREALIZED GAIN (LOSS) ON INVESTMENTS
Balance, beginning of year -- (40) 47
Unrealized gain (loss) on investments (40) 87 503
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, end of year (40) 47 550
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $ 195,648 $ 200,792 $ 327,437
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
BUSINESS
Parametric Technology Corporation develops, markets, and supports a
comprehensive suite of integrated product development and information management
software. We operate in a single industry segment--computer software and related
services.
BASIS OF PRESENTATION
Our fiscal year-end is September 30. The consolidated financial statements
include the parent company and its wholly owned subsidiaries, including those
operating outside the U.S. All significant intercompany balances and
transactions have been eliminated in the financial statements. Certain
reclassifications have been made for consistent presentation. We prepare our
financial statements under generally accepted accounting principles that require
management to make estimates and assumptions that affect the amounts reported
and the related disclosures. Actual results could differ from these estimates.
As described in Note B, in January 1998, we merged with Computervision
Corporation. The merger was accounted for as a pooling of interests.
Accordingly, the accompanying consolidated financial statements and notes have
been restated for all periods presented.
FOREIGN CURRENCY TRANSLATION
For our foreign operations where the functional currency is the local currency,
we translate assets and liabilities at rates in effect at the balance sheet date
and record translation adjustments in stockholders' equity. For our foreign
operations where the U.S. dollar is the functional currency, we translate
monetary assets and liabilities using exchange rates in effect at the balance
sheet date and nonmonetary assets and liabilities at historical rates and record
translation adjustments in income. We translate income statement amounts at
average rates for the period. Transaction gains and losses are recorded in other
expense in the statement of income.
REVENUE RECOGNITION
Our revenue is derived from the licensing of computer software products and from
service revenue consisting of training, consulting, and maintenance. License
revenue is recognized upon shipment, unless collection is not reasonably
assured. Revenue from software maintenance contracts is recognized ratably over
the contract period. Revenue from consulting and training is recognized upon
performance. Other service revenue is recognized ratably over the contractual
period.
CASH, CASH EQUIVALENTS, AND INVESTMENTS
Our cash is invested in debt instruments of financial institutions, government
entities, corporations, and mutual funds. We have established guidelines
relative to credit ratings, diversification, and maturities that maintain safety
and liquidity. Our cash equivalents include highly liquid investments with
maturity periods of three months or less when purchased. Our short-term
investments include those investments with maturities in excess of three months
but less than one year. Our marketable investments are those with maturities in
excess of one year but less than two years. Our cash equivalents and short-term
and marketable investments are classified as available for sale and reported at
fair value with unrealized gains and losses included in stockholders' equity. We
have not had any significant losses related to our investments.
CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts reflected in the consolidated balance sheets for cash and cash
equivalents, accounts receivable, and accounts payable approximate their fair
value due to their short maturities. Financial instruments that potentially
subject us to concentration of credit risk consist primarily of investments,
trade receivables, and derivatives. Our cash, cash equivalents, investments, and
derivatives are held with financial institutions with high credit standings. Our
customer base consists of large numbers of geographically diverse customers
dispersed across many industries. As a result, concentration of credit risk with
respect to trade receivables is not significant.
TRANSFER OF FINANCIAL ASSETS
We offer our customers the option to purchase software and services through
payment plans, financing, or leasing contracts. In general, we transfer future
payments under certain of these contracts to financing institutions on a
non-recourse basis. We record such transfers as sales of the related accounts
receivable when we surrender control of such receivables under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
Fair market value of all service assets and liabilities were immaterial for all
periods.
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DERIVATIVES
Derivatives are financial instruments whose value is derived from one or more
underlying financial instruments, such as foreign currency. We enter into
derivative transactions, specifically foreign exchange forward (forward)
contracts and foreign exchange option (option) contracts, to manage our exposure
to fluctuations in foreign exchange rates. The contracts are primarily in
European currencies and Japanese yen and have maturities less than one year. Any
derivative we enter into is designated at inception as a hedge of risks
associated with specific assets, liabilities, or future commitments and is
monitored to determine if it remains an effective hedge. The effectiveness of
the derivative as a hedge is based on changes in its market value being highly
correlated with changes in market value of the underlying hedged items. We do
not enter into or hold derivatives for trading or speculative purposes.
We use forward contracts to hedge specific foreign currency denominated
receivables. These contracts, which are one year or less in length, require us
to exchange foreign currencies for U.S. dollars at maturity at rates agreed to
at inception of the contracts. We enter into transactions denominated in foreign
currencies and include the exchange gain or loss arising from such transactions
in other expense. As of September 30, 1997 and 1998, we had approximately $50.2
million and $49.8 million, respectively, of forward contracts outstanding.
Unrealized and realized gains and losses associated with exchange-rate
fluctuations on forward contracts are immaterial for all periods presented. Cash
flows from forward contracts are classified with the related receivables.
From time to time, we purchase option contracts to limit potential losses from
adverse exchange-rate movements on certain anticipated revenue transactions.
Premiums to purchase option contracts are capitalized in other current assets
and amortized to other expense over the life of the contract. Gains on option
contracts, if any, are included in license and service revenue in the period in
which the related local-currency revenue is reported. These amounts were
immaterial for all periods presented. There were no outstanding option contracts
at September 30, 1997 or 1998.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives, typically three to eight
years. Leasehold improvements are amortized over the shorter of their useful
lives or the remaining terms of the related leases. Property and equipment under
capital leases are amortized over the lesser of the lease terms or their
estimated useful lives. Maintenance and repairs are charged to expense when
incurred; additions and improvements are capitalized. When an item is sold or
retired, the cost and related accumulated depreciation is relieved, and the
resulting gain or loss, if any, is recognized in income.
COMPUTER SOFTWARE COSTS
We incur costs to develop and purchase computer software to be licensed or
otherwise marketed to customers. Development costs incurred in the research and
development of new software products and enhancements to existing products are
expensed in the period incurred, unless these costs qualify for capitalization.
Capitalized computer software costs are amortized over the economic lives of the
related products, typically three to five years, beginning at their initial
shipment date. Capitalized computer software costs of $1.7 million and $8.7
million, net of accumulated amortization of $8.0 million and $9.9 million, are
included in other assets at September 30, 1997 and 1998. Amortization charged to
expense was $3.7 million, $2.6 million, and $1.9 million for 1996, 1997, and
1998.
INTANGIBLE ASSETS
Included in our other assets are values attributable to intangible assets
acquired, such as goodwill and trademarks, which are amortized over seven years,
and assembled workforces, which are amortized over five to seven years.
Amortization charges related to intangible assets, the majority of which were
recorded in general and administrative expenses, totaled $1.7 million for 1996,
and $1.6 million for 1997 and 1998.
Management regularly evaluates the net realizable value of long-lived assets,
including property and equipment, computer software costs, and intangible
assets, relying on a number of factors including operating results, business
plans, budgets, and economic projections.
INCOME TAXES
Our income tax expense includes U.S. and international income taxes. Certain
items of income and expense are not reported in tax returns and financial
statements in the same year. The tax effect of these differences are reported as
deferred tax assets and liabilities. Deferred tax assets are recognized, net of
valuation allowances, for the estimated future tax effects of deductible
temporary differences and tax operating loss and credit carryforwards. Changes
in deferred tax assets and liabilities are recorded in the provision for income
taxes.
40
<PAGE>
- --------------------------------------------------------------------------------
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, Earnings per Share (EPS). This standard requires dual presentation of
basic and diluted EPS on the face of the income statement and requires a
reconciliation of the numerators and denominators of basic and diluted EPS
calculations. We adopted this standard during the first quarter of fiscal 1998.
Accordingly, all prior period EPS data has been restated to conform to the
provisions of SFAS No. 128.
Basic EPS is calculated by dividing net income by the weighted average number of
shares outstanding during the period. Diluted EPS is calculated by dividing net
income by the weighted average number of shares outstanding plus the dilutive
effect of outstanding stock options using the "treasury stock" method. The
following table, adjusted for stock dividends, presents the calculation for both
basic and diluted EPS:
September 30,
- --------------------------------------------------------------------------------
(in thousands, except per share data) 1996 1997 1998
- --------------------------------------------------------------------------------
Net income $159,567 $ 87,660 $ 86,697
- --------------------------------------------------------------------------------
Weighted average
shares outstanding 264,061 266,389 268,977
Dilutive effect of employee
stock options 13,582 11,803 8,287
- --------------------------------------------------------------------------------
Diluted shares outstanding 277,643 278,192 277,264
- --------------------------------------------------------------------------------
Basic earnings per share $ 0.60 $ 0.33 $ 0.32
Diluted earnings per share 0.57 0.32 0.31
- --------------------------------------------------------------------------------
Options to purchase shares of the Company's common stock of 1.8 million shares
for 1996, 6.3 million shares for 1997, and 11.7 million shares for 1998 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.
STOCK-BASED COMPENSATION
We account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB No. 25), and related interpretations. Under APB No. 25,
no compensation cost is recognized because the option price is equal to the
market price of the underlying stock on the date of grant. An alternative method
of accounting is SFAS No. 123, Accounting for Stock-Based Compensation. Under
SFAS No. 123, employee stock options are valued at the grant date using a
valuation model, and compensation cost is recognized ratably over the vesting
period. The impact of recording stock-based compensation under the provisions of
SFAS No. 123 is disclosed in Note J.
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, which
establishes standards for the reporting and the display of comprehensive income
and its components (revenue, expenses, gains, and losses). During 1997, the FASB
also 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. We will adopt SFAS No. 130 and SFAS No. 131 in
fiscal 1999 and do not expect that the adoptions will have a material impact on
the consolidated financial statements.
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. We will adopt SOP 97-2 in fiscal 1999 and do not anticipate any
material impact on our revenue recognition policies or on our results of
operations.
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 in current earnings or other
comprehensive income, depending on whether the derivative is designated as part
of a hedge transaction and, if it is, the type of hedge transaction. We will
adopt SFAS No. 133 in fiscal 2000. Our management anticipates that the adoption
of SFAS No. 133 will not have a significant effect on our consolidated financial
statements.
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
B. ACQUISITIONS AND
NONRECURRING CHARGES
ACQUISITIONS
ICEM. In June 1998, we acquired ICEM Technologies (ICEM), a division of Control
Data Systems, Inc., for approximately $41 million in cash. 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, we allocated the purchase price to the assets acquired and
liabilities assumed based on our estimates of fair value. The fair value
assigned to intangible assets acquired consisted of purchased in-process
research and development (R&D), developed technology, an assembled workforce,
and trade names. The amounts allocated to tangible and intangible assets
acquired less the liabilities assumed exceeded the purchase price by
approximately $7 million. This excess value over the purchase price was
allocated to reduce proportionately the values assigned to long-term assets and
purchased in-process R&D in determining their values. The values assigned
included $2.1 million for net assets acquired, $28.9 million for purchased
in-process R&D, $8.0 million for developed technology, $1.6 million for an
assembled workforce, and $1.0 million for trade names. The operating results of
ICEM have been included in our results of operations from the date of
acquisition. Our purchase of ICEM did not require presentation of pro forma
information.
In the opinion of management, the purchased in-process R&D had not yet reached
technological feasibility and had no alternative future use. Accordingly, we
recorded a nonrecurring charge of $28.9 million during the third quarter of
1998. The value assigned to purchased in-process R&D was determined by
identifying research projects for which technological feasibility had not been
established. The value was determined by estimating the costs to develop the
purchased in-process R&D into commercially viable products, estimating the
resulting net cash flows from such products, and discounting the net cash flows
back to their present value. The discount rate used included a factor that took
into account the uncertainty surrounding the successful development of the
purchased in-process technology. If these projects are not successfully
developed, future revenue and profitability may be adversely affected.
Additionally, the value of other intangible assets acquired may become impaired.
Computervision. In January 1998, we merged with Computervision Corporation by
issuing 11.6 million shares of common stock in exchange for all of the
outstanding common stock of Computervision. In connection with the
Computervision merger, we incurred a nonrecurring charge of $76.8 million for
merger-related integration, consolidation, and transaction costs in 1998, which
are described in the acquisition and nonrecurring charges activity table below.
As our fiscal year-end differed from Computervision's, we combined financial
information for dissimilar year-ends. Balance sheet information as of September
30, 1997 includes our financial position as of September 30, 1997 and
Computervision's as of December 31, 1997. Computervision's results of operations
for its fiscal years ended December 31, 1996 and December 31, 1997 were combined
with our results of operations for the fiscal years ended September 30, 1996 and
September 30, 1997. In order to conform Computervision's fiscal year-end to
ours, Computervision's results of operations for the three months ended December
31, 1997 were combined with our results of operations for the three months ended
January 3, 1998. Computervision's net loss of $20.2 million for the three months
ended December 31, 1997, which has been included in the consolidated statements
of income for the fourth quarter of fiscal 1997 and the first quarter of fiscal
1998, has been reflected as an adjustment to our beginning balance of fiscal
1998 accumulated deficit. Due to the change in Computervision's year-end, their
cash flow activity for the three-month period ended December 31, 1997 has been
shown as a separate component of the cash flow statement. Adjustments recorded
to conform Computervision's accounting policies to ours were not material to the
consolidated financial statements. The following table shows revenue and net
income of the separate companies during the period preceding the combination:
Three months ended January 3,
- --------------------------------------------------------------------------------
(in thousands) 1998
- --------------------------------------------------------------------------------
Revenue:
Parametric Technology $223,007
Computervision 35,861
- --------------------------------------------------------------------------------
Combined revenue $258,868
- --------------------------------------------------------------------------------
Net income (loss):
Parametric Technology $ 62,343
Computervision (20,210)
- --------------------------------------------------------------------------------
Combined net income $ 42,133
- --------------------------------------------------------------------------------
42
<PAGE>
- --------------------------------------------------------------------------------
Reflex. In July 1996, we acquired project modeling and management software
(Reflex) technology from Greenshire License Co. for $32.1 million. Of the total
purchase price, we issued 226,000 shares of our common stock with a fair value
of $5.0 million at the time of the acquisition and paid cash of $22.1 million in
1996 and $5.0 million in 1997. The acquisition was accounted for as a purchase.
The fair value assigned to intangible assets acquired consisted of in-process
R&D related to a research project, which had not yet reached technological
feasibility and had no alternative future uses. As a result, at the date of
acquisition, the $32.1 million allocated to purchased in-process R&D was
recorded as a nonrecurring charge. The value was determined by estimating the
costs to develop the purchased in-process R&D into a commercially viable
product, estimating the resulting net cash flows from such product, and
discounting the net cash flows back to their present value. The discount rate
included a factor that took into account the uncertainty surrounding the
successful development of the purchased in-process technology. The operating
results of Reflex have been included in our consolidated results of operations
from the date of acquisition. Our purchase of Reflex did not require
presentation of pro forma information.
NONRECURRING CHARGES
Other nonrecurring charges related to actions taken as a result of cost saving
initiatives implemented during 1996 and 1997 by Computervision. These
restructuring costs were accrued and charged to expense in accordance with
management plans. We anticipate that a substantial portion of the remaining
nonrecurring amounts will be paid during 1999, except for certain long-term
obligations, principally related to facilities.
The following table summarizes all our acquisition and nonrecurring charges:
ACQUISITION AND
NONRECURRING CHARGES ACTIVITY
September 30,
- --------------------------------------------------------------------------------
(in thousands) 1996 1997 1998
- --------------------------------------------------------------------------------
Beginning balance $ 72,500 $ 71,500 $ 70,983
- --------------------------------------------------------------------------------
Charges to operations:
Employee severance
and termination benefits 10,000 20,000 18,110
Purchased in-process R&D 35,619 -- 28,941
Asset write-offs -- 6,634 12,737
Facility closures
and related costs 1,000 18,000 7,158
Additional costs to meet
existing contract obligations -- -- 17,400
Transaction costs -- -- 8,154
Lease terminations and other -- 366 13,266
- --------------------------------------------------------------------------------
Total charges to operations 46,619 45,000 105,766
- --------------------------------------------------------------------------------
Costs incurred:
Employee severance
and termination benefits -- (11,449) (22,753)
Purchased in-process R&D (35,619) -- (28,941)
Asset write-offs -- (6,634) (12,737)
Facility closures
and related costs (12,000) (27,114) (17,573)
Additional costs to meet
existing contract obligations -- -- (8,026)
Transaction costs -- -- (7,977)
Lease terminations and other -- (320) (9,141)
- --------------------------------------------------------------------------------
Total costs incurred (47,619) (45,517) (107,148)
- --------------------------------------------------------------------------------
Ending balance $ 71,500 $ 70,983 $ 69,601
================================================================================
Cash expenditures:
Employee severance
and termination benefits $ -- $ 11,449 $ 22,753
Facility closures
and related costs 12,000 27,114 17,573
Additional costs to meet
existing contract obligations -- -- 8,026
Transaction costs -- -- 7,977
Lease terminations and other -- 320 6,002
- --------------------------------------------------------------------------------
Total cash expenditures $ 12,000 $ 38,883 $ 62,331
================================================================================
Number of employee severances 100 300 450
================================================================================
As of September 30, 1998, of the $69.6 million remaining in accrued
restructuring and nonrecurring charges, $35.8 million was included in accrued
expenses, $13.9 million was included in accrued compensation, and $19.9 million
was included in other liabilities.
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
C. SALE OF A BUSINESS UNIT
In July 1997, Computervision sold a majority interest in its other services
business unit, which provided hardware support services, to CVSI, Inc. for $32.6
million in cash. Due to the sale of this business unit in 1997, we have
presented the revenue and expense of the other services business as a separate
operating item under the caption other services in our statements of income.
Other services operating and nonrecurring charges include the operating expenses
of the other services business and nonrecurring charges of $5.0 million in 1996
and $7.0 million in 1997 related to the prior proposed sale of this business
unit.
D. INVESTMENTS
The fair values of our investments have been determined through information
obtained from market sources and management estimates. We use a specific
identification cost method to determine the gross realized gains and losses on
the sale of our securities. Realized gains and losses on the sale of investments
were immaterial for 1996, 1997, and 1998.
September 30,
- --------------------------------------------------------------------------------
(in thousands) 1997
- --------------------------------------------------------------------------------
Amortized Gross Gross Estimated
cost unrealized unrealized fair value
gains losses
- --------------------------------------------------------------------------------
Municipal debt
securities $357,372 $ 233 $ (165) $357,440
Mutual funds 9,812 -- -- 9,812
Auction rate
preferred stock 36,874 1 (2) 36,873
Corporate debt
securities 11,106 3 (23) 11,086
- --------------------------------------------------------------------------------
Total investments $415,164 $ 237 $ (190) $415,211
================================================================================
Amounts
included in:
Cash and cash
equivalents $ 15,115 $ -- $ -- $ 15,115
Short-term
investments 354,567 133 (184) 354,516
Marketable
investments 45,482 104 (6) 45,580
- --------------------------------------------------------------------------------
Total investments $415,164 $ 237 $ (190) $415,211
================================================================================
September 30,
- --------------------------------------------------------------------------------
(in thousands) 1998
- --------------------------------------------------------------------------------
Amortized Gross Gross Estimated
cost unrealized unrealized fair value
gains losses
- --------------------------------------------------------------------------------
Municipal
debt securities $238,296 $954 $(404) $238,846
Mutual funds 12,435 -- -- 12,435
- --------------------------------------------------------------------------------
Total investments $250,731 $954 $(404) $251,281
================================================================================
Amounts
included in:
Cash and
cash equivalents $ 31,069 $ -- $ -- $ 31,069
Short-term
investments 131,145 379 (119) 131,405
Marketable
investments 88,517 575 (285) 88,807
- --------------------------------------------------------------------------------
Total investments $250,731 $954 $ (404) $ 251,281
================================================================================
E. PROPERTY AND EQUIPMENT
Our property and equipment consisted of the following:
September 30,
- -------------------------------------------------------------------------------
(in thousands) 1997 1998
- -------------------------------------------------------------------------------
Computer hardware and software $ 96,582 $106,770
Furniture and fixtures 9,549 13,542
Leasehold improvements 32,796 10,725
- --------------------------------------------------------------------------------
Gross property and equipment 138,927 131,037
Accumulated depreciation
and amortization (82,130) (68,796)
- --------------------------------------------------------------------------------
Net property and equipment $ 56,797 $ 62,241
================================================================================
At September 30, 1997, property and equipment included assets under capital
leases of $12.0 million, net of accumulated depreciation of $8.3 million. There
were no capital leases as of September 30, 1998. Depreciation expense was $34.9
million in 1996, $30.6 million in 1997, and $26.4 million in 1998.
44
<PAGE>
F. INCOME TAXES
Our income before taxes consisted of the following:
September 30,
- -------------------------------------------------------------------------------
(in thousands) 1996 1997 1998
- -------------------------------------------------------------------------------
Domestic $211,779 $290,640 $191,518
Foreign 28,645 (84,956) 12,489
- -------------------------------------------------------------------------------
Total $240,424 $205,684 $204,007
- -------------------------------------------------------------------------------
Our provision for income taxes consisted of the following:
September 30,
- -------------------------------------------------------------------------------
(in thousands) 1996 1997 1998
- -------------------------------------------------------------------------------
Current:
Federal $57,880 $ 82,201 $70,787
State 10,811 18,280 10,756
Foreign 18,569 13,582 11,224
- -------------------------------------------------------------------------------
87,260 114,063 92,767
- -------------------------------------------------------------------------------
Deferred:
Federal (7,730) 3,677 4,806
State 529 119 720
Foreign 798 165 --
- -------------------------------------------------------------------------------
(6,403) 3,961 5,526
- -------------------------------------------------------------------------------
Total provision
for income taxes $80,857 $118,024 $98,293
- -------------------------------------------------------------------------------
The reconciliation between the statutory federal income tax rate and our
effective income tax rate is shown below.
September 30,
- -------------------------------------------------------------------------------
1996 1997 1998
- ------------------------------------------------------------------------------
Statutory federal income tax rate 35% 35% 35%
State income taxes,
net of federal tax benefit 3 6 4
Tax exempt interest income (1) (2) (2)
Benefit of foreign sales corporations (3) (4) (4)
Other, net -- -- 1
- ------------------------------------------------------------------------------
Effective tax rate before
non-benefited items: 34 35 34
Losses -- 22 3
Acquisition-related charges -- -- 11
- ------------------------------------------------------------------------------
Effective income tax rate 34% 57% 48%
- ------------------------------------------------------------------------------
We paid $39.8 million in 1996, $55.6 million in 1997, and $71.3 million in 1998
for income taxes.
The significant temporary differences that create deferred tax assets and
liabilities are shown below.
September 30,
- ------------------------------------------------------------------------------
(in thousands) 1997 1998
- ------------------------------------------------------------------------------
Deferred tax assets:
Reserves not currently deductible $ 8,786 $ 7,088
Restructuring reserves not
currently deductible 15,771 14,687
Net operating loss carryforwards 143,799 94,198
Amortization of intangible assets 14,979 11,177
Capitalized research and
development 4,477 4,141
Other 4,291 2,619
- ------------------------------------------------------------------------------
Total deferred tax assets 192,103 133,910
Valuation allowance (132,472) (85,935)
- ------------------------------------------------------------------------------
Total deferred tax assets 59,631 47,975
- ------------------------------------------------------------------------------
Deferred tax liabilities:
Investment in foreign subsidiaries (38,393) (31,193)
Other (1,813) (2,884)
- ------------------------------------------------------------------------------
Total deferred tax liabilities (40,206) (34,077)
- ------------------------------------------------------------------------------
Net deferred tax assets $ 19,425 $ 13,898
- ------------------------------------------------------------------------------
For U.S. tax return purposes, net operating losses (NOLs) and tax credit
carryforwards are generally available to be carried forward to future years.
However, the Internal Revenue Code limits a corporation's use of NOLs and tax
credits after a change of more than 50% of the ownership of the corporation. Our
merger with Computervision in January 1998 changed their ownership more than
50%. This change limits our usage of the Computervision NOLs to $14.0 million
per year, and $196.0 million cumulatively through 2011. There are other
limitations imposed on the utilization of such NOLs that will further restrict
the recognition of such tax benefits. We have foreign NOLs that are also subject
to various limitations. Due to these limitations, we have recorded a valuation
allowance for the tax benefit of a majority of NOLs since realization of these
future benefits is not sufficiently assured. During 1998, we reduced our
valuation allowance $46.5 million primarily due to changes in ownership related
to the Computervision merger.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
G. DEBT
Our debt outstanding in 1997 consisted of the obligations of Computervision. As
described below, all such obligations were paid during the second quarter of
fiscal 1998. The total cash outlay for settlement of these obligations plus
accrued interest and related fees was $275.7 million. We incurred an
extraordinary after-tax charge of $19.0 million related to the write-off of
deferred financing costs and other prepayment costs associated with the payment
of these debt obligations. We paid interest of $27.3 million in 1996, $29.6
million in 1997, and $10.7 million in 1998.
September 30,
- --------------------------------------------------------------------------------
(in thousands) 1997
- --------------------------------------------------------------------------------
Short-term:
Notes payable to banks $ 2,228
Revolving credit facility 30,475
- --------------------------------------------------------------------------------
Total short-term debt 32,703
- --------------------------------------------------------------------------------
Long-term:
11 3/8% Senior Subordinate Notes 175,000
8% Convertible Subordinated Debentures,
net of unamortized discount of $14,563 34,047
Other 11,253
- --------------------------------------------------------------------------------
Total debt 220,300
Less current maturities (6,774)
- --------------------------------------------------------------------------------
Long-term debt $213,526
- --------------------------------------------------------------------------------
Notes payable to banks consisted of borrowings of our international subsidiaries
under certain lines of credit. These borrowings were at prevailing or negotiated
rates.
In November 1997, Computervision entered into a $47.3 million revolving credit
facility with a lending institution. The credit facility, which replaced all
prior credit facilities, had a term of 18 months and was secured by
substantially all of the assets of Computervision. The weighted average interest
rate on outstanding borrowings was 8.5%. On January 13, 1998, we paid $34.9
million for settlement of the outstanding balance on the revolving credit
facility plus accrued interest and related fees.
The 11 3/8% Senior Subordinate Notes had a maturity date of August 15, 1999 and
accrued interest semi-annually on February 15 and August 15. After August 15,
1997, the notes were redeemable in whole or part at our option at 101.896% of
the principal plus accrued interest through the date of redemption. In February
1998, we paid $188.0 million for redemption of the notes plus accrued interest.
The 8% Convertible Subordinate Debentures, due December 1, 2009, were
convertible into cash at the rate of 33.3% of the principal amount at any time
prior to maturity at the option of the holder. No material conversions occurred
during 1996, 1997, or 1998. The debentures accrued interest semi-annually on
June 1 and December 1. In February 1998, we paid $49.4 million for settlement in
full of the debentures plus accrued interest.
H. COMMITMENTS AND CONTINGENCIES
LEASING ARRANGEMENTS
We lease office facilities and certain equipment under operating leases expiring
at various dates through fiscal 2014. In addition to rent, certain leases
require us to pay directly for taxes, insurance, maintenance, and other
operating expenses. Rent expense, net of sublease income, was $61.6 million in
1996, $60.0 million in 1997, and $45.0 million in 1998. At September 30, 1998,
our future minimum lease payments under noncancellable operating leases with
remaining terms of one or more years are as follows:
September 30,
- --------------------------------------------------------------------------------
(in thousands) 1998
- --------------------------------------------------------------------------------
1999 $ 61,761
2000 42,382
2001 23,576
2002 16,375
2003 14,554
Thereafter 53,435
- --------------------------------------------------------------------------------
Total minimum lease payments $ 212,083
- --------------------------------------------------------------------------------
As a result of Computervision's cost saving initiatives in prior years and our
merger with Computervision, certain leased facilities were considered excess. As
of September 30, 1998, the excess facility obligations were $41.9 million.
LEGAL PROCEEDINGS
Certain class action lawsuits have been filed against us and certain of our
current and former officers and directors claiming violations of the federal
securities laws based on alleged misrepresentations regarding our anticipated
revenue and earnings for the third quarter of 1998. We believe the claims are
without merit and we intend to defend them vigorously. We cannot predict the
ultimate resolution of these actions at this time, and there can be no assurance
that the litigation will not have a material adverse impact on our financial
condition or results of operations.
46
<PAGE>
We are also subject to various legal proceedings and claims that arise in the
ordinary course of business. We currently believe that resolving these matters
will not have a material adverse impact on our consolidated financial
statements.
I. STOCKHOLDERS' EQUITY
PREFERRED STOCK
We may issue up to 5.0 million shares of our preferred stock in one or more
series. Our Board of Directors is authorized to fix the rights and terms for
each such series without additional shareholder approval. As of September 30,
1997 and 1998, there were no outstanding shares of preferred stock.
COMMON STOCK
Our Articles of Organization authorize us to issue up to 350 million shares
of our common stock. Shares of common stock outstanding are shown below.
September 30,
- -------------------------------------------------------------------------------
(in thousands) 1996 1997 1998
- -------------------------------------------------------------------------------
Beginning balance 261,139 265,859 266,919
Common stock issued 4,766 2,062 4,310
Treasury shares repurchased (3,558) (7,439) (4,734)
Treasury shares issued 3,512 6,437 1,647
- -------------------------------------------------------------------------------
Ending balance 265,859 266,919 268,142
- -------------------------------------------------------------------------------
On February 8, 1996 and on February 12, 1998, our Board of Directors declared a
one-for-one stock dividend on our common stock to all stockholders of record on
February 22, 1996 and February 27, 1998, respectively. Our financial statements
and notes have been retroactively adjusted to reflect both stock dividends.
In September 1997, our Board of Directors authorized an increase in the number
of shares available for repurchase from 6.0 million to 12.0 million. During 1996
we repurchased 3.6 million shares at a cost of $66.6 million. During 1997, we
repurchased 7.4 million shares at a cost of $184.8 million. Treasury stock
repurchases were suspended during a portion of 1998 in connection with the
Computervision merger. In September 1998, our Board of Directors authorized a
new plan that allows us to repurchase up to 20.0 million shares of our common
stock. In the fourth quarter of 1998, we repurchased 4.7 million shares at a
cost of $50.0 million. The repurchased shares will be used to issue shares for
stock option exercises, employee stock purchase plans, and potential
acquisitions.
J. STOCK PLANS
EMPLOYEE STOCK PURCHASE PLAN
We offer an employee stock purchase plan for all eligible employees. Under the
plan, up to 4.0 million shares of our common stock may be purchased at 85% of
the lower of the fair market value of the stock on the first or the last day of
each six-month offering period. Each employee may elect to have up to 10% of his
or her base pay withheld and applied toward the purchase of shares in such
offering, up to a maximum of ten thousand dollars withheld in any year. During
1996, 1997, and 1998, employees purchased 339,000, 353,000, and 677,000 shares
at average prices of $14.45, $18.41, and $11.36. At September 30, 1998, we had
reserved 1.2 million shares for issuance under this plan.
STOCK OPTION PLANS
We have stock option plans for employees, directors, officers, and consultants
that provide for issuance of nonqualified and incentive stock options. The
option exercise price is typically the fair market value at the date of grant.
These options generally vest over four years and expire ten years from the date
of grant. As of September 30, 1998, 4.5 million options were available for grant
and 53.4 million shares of common stock were reserved for future issuance under
stock option plans.
In conjunction with the Computervision merger on January 12, 1998, we reserved
1.6 million shares of our common stock for outstanding Computervision options
assumed. These assumed options were granted at prices equal to the fair market
value at the date of grant, become exercisable generally in annual installments
over four to five years, and expire ten years from the date of grant.
In July 1998, our Board of Directors approved a one-for-one stock option
exchange program that provided employees the opportunity to exchange stock
options previously granted 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 $13.63 based on the
closing price of our common stock as reported by Nasdaq on August 3, 1998, vest
in equal installments over four years from the August 3, 1998 grant date, and
expire on August 3, 2008. A total of 20.0 million options with exercise prices
ranging from $15.06 to $33.50 per share were exchanged under the program.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The exchange of such options is presented in the following table of stock option
activity as cancellations and subsequent grants:
September 30,
- --------------------------------------------------------------------------------
(shares in thousands) 1996 1997 1998
- --------------------------------------------------------------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
- --------------------------------------------------------------------------------
Outstanding:
Beginning
balance 33,173 $ 9.06 33,184 $13.54 38,234 $18.67
Granted 10,694 20.87 16,249 24.71 40,190 17.91
Cancelled (2,893) 11.69 (3,694) 21.05 (24,254) 25.85
Exercised (7,790) 5.42 (7,505) 8.14 (5,282) 12.01
- --------------------------------------------------------------------------------
Ending
balance 33,184 $ 13.54 38,234 $18.67 48,888 $15.03
- --------------------------------------------------------------------------------
Exercisable 9,480 $ 8.01 9,751 $12.36 11,418 $14.53
- --------------------------------------------------------------------------------
Certain employees have disposed of stock acquired through the exercise of
incentive stock options earlier than the mandatory holding period required for
such options. These dispositions, together with the tax benefits realized from
the exercise of nonqualified stock options, create tax benefits that have been
recorded as increases to additional paid-in capital.
For various price ranges, information for options outstanding and exercisable at
September 30, 1998 was as follows:
(shares in thousands) Outstanding Options Exercisable Options
- --------------------------------------------------------------------------------
Weighted
average Weighted Weighted
Range of remaining average average
exercise prices Shares life (years) price Shares price
- --------------------------------------------------------------------------------
$ 0.10-12.27 12,020 7.63 $ 9.07 5,469 $ 8.36
12.28-13.63 19,743 9.84 13.63 -- --
13.64-21.38 8,327 7.82 16.22 3,370 16.26
21.39-29.47 8,322 8.51 24.04 2,324 23.61
29.48-72.55 476 9.19 45.82 255 48.19
- --------------------------------------------------------------------------------
$ 0.10-72.55 48,888 8.73 $15.03 11,418 $ 14.53
- --------------------------------------------------------------------------------
VALUATION OF STOCK PLANS
We have not recognized compensation expense in connection with stock option
grants under our plans. However, had compensation expense for stock option and
employee stock purchase plans been determined based on fair value at the grant
dates as prescribed by SFAS No. 123, pro forma net income and earnings per share
would have been:
September 30,
- --------------------------------------------------------------------------------
(in thousands, except per share amounts) 1996 1997 1998
- --------------------------------------------------------------------------------
Pro forma net income $126,717 $36,725 $9,824
Pro forma earnings per share:
Basic $ 0.48 $ 0.14 $ 0.04
Diluted 0.47 0.14 0.04
- --------------------------------------------------------------------------------
The pro forma disclosures above include the amortization of the fair value of
all options vested between 1996 and 1998, regardless of the grant date. If only
options granted after 1996 were valued, as prescribed by SFAS No. 123, pro forma
net income and pro forma diluted EPS would have been $148.5 million and $0.55
for 1996, $54.2 million and $0.20 for 1997, and $22.4 million and $0.09 for
1998. The effects on pro forma disclosures of applying SFAS No. 123 are not
necessarily representative of the effects on pro forma disclosures of future
years.
The fair value of options granted has been estimated at the date of grant using
the Black-Scholes option-pricing model, assuming the following weighted-average
assumptions:
September 30,
- --------------------------------------------------------------------------------
1996 1997 1998
- --------------------------------------------------------------------------------
Expected life (years) 5.0 5.0 6.0
Risk-free interest rates 6.0% 6.2% 5.6%
Volatility 40% 40% 50%
Dividend yield -- -- --
- --------------------------------------------------------------------------------
The weighted-average fair value of stock options granted was $8.68 in 1996,
$11.17 in 1997, and $9.95 in 1998. The expected life used for stock purchase
plans was six months. The weighted- average fair value of shares granted under
the stock purchase plan was $4.63 in 1996, $6.13 in 1997, and $7.77 in 1998.
The Black-Scholes option-pricing model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
our options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in the opinion of management, the existing
models do not necessarily provide a reliable measure of the fair value of its
options.
48
<PAGE>
K. EMPLOYEE BENEFIT PLANS
We offer a savings plan (PTC plan) to eligible employees. The plan is intended
to qualify under Section 401(k) of the Internal Revenue Code. Participating
employees may defer up to 15% of their pre-tax salary, but not more than
statutory limits. We contribute 50% of the amount contributed by the employee,
up to a maximum of 10% of the employee's earnings. Our matching contributions
vest at a rate of 25% per year of service. We made matching contributions of
$1.9 million, $2.3 million, and $3.2 million in 1996, 1997, and 1998.
U.S. employees of Computervision who completed one year of service were eligible
to participate in a savings plan (CV plan), which is intended to qualify under
Section 401(k) of the Internal Revenue Code. Computervision's matching
contributions, based on the employee's contributions and length of service, were
$1.9 million for 1996 and $1.5 million for 1997. We will make a matching
contribution to the CV plan for 1998 in the second quarter of fiscal 1999.
Beginning April 1, 1998, participants of the CV plan began contributing to the
PTC plan and no further contributions were made into the CV plan. We will merge
the assets of the CV plan into the PTC plan in the first quarter of fiscal 1999.
L. PENSION PLANS
We maintain a defined benefit pension plan covering certain employees of
Computervision. Benefits are based upon length of service and average
compensation, and generally vest after five years of service. Accrued pension
costs have been included in other liabilities.
U.S. PENSION PLAN
Effective April 1990, the benefits under the U.S. pension plan were frozen
indefinitely. We contribute all amounts deemed necessary on an actuarial basis
to satisfy Internal Revenue Service funding requirements. Based upon the
actuarial valuations, we contributed $4.9 million in 1996, $5.0 million in 1997,
and $3.8 million in 1998. Due to the changes in actuarial assumptions and
underperformance of plan investments, as shown below, we were required to record
a minimum pension liability adjustment of $5.8 million in 1997 and $7.8 million
in 1998. Plan assets consist primarily of money market and pooled fund
investments with several banks.
FOREIGN PENSION PLANS
The accrued international pension cost was actuarially computed using
assumptions applicable to each subsidiary plan and economic environment. We
increased our minimum pension liability related to our foreign plans by $13.0
million in 1998 due to the changes in actuarial assumptions and underperformance
of plan investments, as shown below. Plan assets consist of investments in
equities and guaranteed investment contracts with several insurance companies
and banks.
The following tables present the actuarial assumptions used in accounting for
the pension plans:
U.S. Plan September 30,
- --------------------------------------------------------------------------------
1996 1997 1998
- --------------------------------------------------------------------------------
Discount rate 7.5% 7.0% 6.3%
Rate of increase in
future compensation -- -- --
Rate of return
on plan assets 7.5% 7.5% 7.5%
- --------------------------------------------------------------------------------
Foreign Plans
- --------------------------------------------------------------------------------
1996 1997 1998
- --------------------------------------------------------------------------------
Discount rate 4.0 to 8.5% 4.0 to 7.5% 3.5 to 6.3%
Rate of increase in
future compensation 3.5 to 6.0% 3.3 to 5.5% 3.0 to 5.0%
Rate of return
on plan assets 4.5 to 9.0% 4.0 to 9.0% 3.5 to 8.5%
- --------------------------------------------------------------------------------
The actuarially computed components of net periodic pension cost are shown
below:
U.S. Plan September 30,
- --------------------------------------------------------------------------------
(in thousands) 1996 1997 1998
- --------------------------------------------------------------------------------
Service cost of
benefits earned
during the period $ -- $ -- $ --
Interest cost of projected
benefit obligation 2,607 2,771 2,262
Actual return on
plan assets (1,247) (1,482) (916)
Net amortization
and deferral (11) (110) (276)
- --------------------------------------------------------------------------------
Net periodic
pension cost $ 1,349 $ 1,179 $1,070
- --------------------------------------------------------------------------------
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Foreign Plans
- --------------------------------------------------------------------------------
(in thousands) 1996 1997 1998
- --------------------------------------------------------------------------------
Service cost of
benefits earned
during the period $ 2,269 $ 1,572 $ 1,012
Interest cost of projected
benefit obligation 3,097 2,660 2,249
Actual return on
plan assets (3,779) (3,070) 39
Net amortization
and deferral 579 233 (2,419)
- --------------------------------------------------------------------------------
Net periodic
pension cost $ 2,166 $ 1,395 $ 881
- --------------------------------------------------------------------------------
The following tables display the funded status of the defined benefit plans:
U.S. Plan September 30,
- --------------------------------------------------------------------------------
(in thousands) 1997 1998
- --------------------------------------------------------------------------------
Accumulated benefit obligation $ 42,366 $ 50,622
- --------------------------------------------------------------------------------
Vested benefit obligation 42,366 50,622
- --------------------------------------------------------------------------------
Projected benefit obligation $ 42,366 $ 50,622
Plan assets at fair value 28,564 31,742
- --------------------------------------------------------------------------------
Projected benefit obligation
more than plan assets 13,802 18,880
Unrecognized net loss (13,756) (21,596)
Unrecognized net prior service cost -- --
Minimum pension liability adjustment 13,756 21,596
- --------------------------------------------------------------------------------
Accrued pension cost $ 13,802 $ 18,880
- --------------------------------------------------------------------------------
Foreign Plans
- --------------------------------------------------------------------------------
(in thousands) 1997 1998
- --------------------------------------------------------------------------------
Accumulated benefit obligation $ 40,091 $ 50,688
- --------------------------------------------------------------------------------
Vested benefit obligation 39,159 49,759
- --------------------------------------------------------------------------------
Projected benefit obligation $ 41,449 $ 51,958
Plan assets at fair value 34,522 35,179
- --------------------------------------------------------------------------------
Projected benefit obligation
more than plan assets 6,927 16,779
Unrecognized net loss (2,365) (11,212)
Unrecognized net prior service cost -- (353)
Minimum pension liability adjustment -- 12,986
- --------------------------------------------------------------------------------
Accrued pension cost $ 4,562 $ 18,200
- --------------------------------------------------------------------------------
M. GEOGRAPHIC INFORMATION
September 30,
- --------------------------------------------------------------------------------
(in thousands) 1996 1997 1998
- --------------------------------------------------------------------------------
Revenue:
North America $ 780,011 $ 900,922 $ 770,964
Europe 420,174 379,682 387,006
Asia/Pacific 189,306 189,315 133,175
Eliminations (312,170) (407,901) (273,175)
- --------------------------------------------------------------------------------
Total revenue $1,077,321 $1,062,018 $1,017,970
- --------------------------------------------------------------------------------
Operating income (loss):
North America $ 205,789 $ 286,418 $ 184,342
Europe 44,062 (55,993) 19,018
Asia/Pacific 9,878 (1,090) 4,660
- --------------------------------------------------------------------------------
Total operating income $ 259,729 $ 229,335 $ 208,020
- --------------------------------------------------------------------------------
Identifiable assets:
North America $ 620,864 $ 727,693 $ 587,360
Europe 188,241 122,178 166,378
Asia/Pacific 66,241 63,451 46,182
Corporate 328,037 399,769 412,218
Eliminations (335,821) (354,759) (379,298)
- --------------------------------------------------------------------------------
Total identifiable assets $ 867,562 $ 958,332 $ 832,840
- --------------------------------------------------------------------------------
We license products to customers worldwide. Our sales and marketing operations
outside the United States are conducted principally through our foreign sales
subsidiaries throughout Europe and the Asia/Pacific region. Intercompany sales
and transfers between geographic areas are accounted for at prices that are
designed to be representative of unaffiliated party transactions. Total export
sales were $130.8 million, $148.5 million, and $115.2 million, in 1996, 1997,
and 1998.
N. SUBSEQUENT EVENT
In October 1998, we acquired all of the outstanding stock of InPart Design, Inc.
(InPart) by issuing 2.4 million shares of common stock. The acquisition will be
accounted for as a purchase. Accordingly, the purchase price will be allocated
to all identifiable assets and liabilities of InPart. We expect to allocate a
portion of the purchase price to purchased in-process R&D that will be written
off as a one-time charge in the first quarter of fiscal 1999. Based upon certain
conditions of the agreement, we may be obligated to issue additional shares in
September 1999. InPart, located in Saratoga, CA, provides a comprehensive
library of standard mechanical parts over the Internet that helps manufacturers
improve product development cycles and reduce component expenses.
50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
PARAMETRIC TECHNOLOGY CORPORATION:
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of income, of stockholders' equity, and of cash flows present fairly, in all
material respects, the financial position of Parametric Technology Corporation
and its subsidiaries at September 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the consolidated financial statements of
Computervision Corporation, which statements reflect total revenue of $477.2
million for the year ended December 31, 1996. Those statements were audited by
other auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for
Computervision Corporation, is based solely on the report of the other auditors.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 26, 1998
51
<PAGE>
SELECTED FINANCIAL DATA (1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA September 30,
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 1994 1995 1996 1997 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 840,611 $ 901,384 $1,077,321 $1,062,018 $1,017,970
Operating income 162,814 199,306 259,729 229,335 208,020
Net income 77,860 100,178 159,567 87,660 86,697
Earnings per share: (2)
Basic 0.32 0.39 0.60 0.33 0.32
Diluted 0.30 0.37 0.57 0.32 0.31
Total assets 568,309 700,644 867,562 958,332 832,840
Working capital 91,232 235,197 356,109 311,299 174,239
Long-term liabilities, less current portion 477,300 325,209 301,423 306,911 85,861
Stockholders' equity (deficit) (258,235) 33,194 195,648 200,792 327,437
Pro forma: (3)
Revenue $ 553,153 $ 680,911 $ 902,937 $ 979,794 $1,017,970
Operating income 111,915 191,641 295,851 286,107 313,786
Net income 26,961 92,143 182,342 144,432 197,568
Earnings per share: (2)
Basic 0.11 0.36 0.69 0.54 0.73
Diluted 0.10 0.34 0.66 0.52 0.71
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
December 28, March 29, June 28, September 30,
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 1996 1997 1997 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 261,310 $ 286,487 $ 258,191 $ 256,030
Gross profit 191,402 215,574 211,833 217,815
Operating income 47,300 27,907 74,889 79,239
Net income (loss) 15,507 (6,710) 38,586 40,277
Earnings per share: (2)
Basic 0.06 (0.03) 0.14 0.15
Diluted 0.06 (0.03) 0.14 0.15
Pro forma: (3)
Revenue $ 224,862 $ 249,600 $ 249,302 $ 256,030
Gross profit 188,448 210,707 212,238 217,815
Operating income 57,059 73,039 76,770 79,239
Net income 25,266 38,422 40,467 40,277
Earnings per share: (2)
Basic 0.09 0.14 0.15 0.15
Diluted 0.09 0.14 0.15 0.15
Common stock prices: (4)
High $ 28.19 $ 31.25 $ 24.44 $ 26.75
Low 24.13 23.25 19.66 20.63
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
January 3, April 4, July 4, September 30,
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 1998 1998 1998 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 258,868 $ 264,071 $ 245,001 $ 250,030
Gross profit 217,462 226,518 207,402 209,648
Operating income 80,128 23,515 35,851 68,526
Net income (loss) 42,133 (15,942) 15,209 45,297
Earnings per share: (2)
Basic 0.16 (0.06) 0.06 0.17
Diluted 0.15 (0.06) 0.05 0.17
Pro forma: (3)
Revenue $ 258,868 $ 264,071 $ 245,001 $ 250,030
Gross profit 217,462 226,518 207,402 209,648
Operating income 80,128 100,315 64,817 68,526
Net income 42,133 65,963 44,175 45,297
Earnings per share: (2)
Basic 0.16 0.24 0.16 0.17
Diluted 0.15 0.24 0.16 0.17
Common stock prices: (4)
High $ 26.38 $ 34.31 $ 34.94 $ 16.56
Low 19.94 23.00 16.06 9.75
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All financial information has been retroactively restated to reflect the
mergers with Rasna in 1995 and Computervision in 1998 (Note B).
(2) Per-share data has been retroactively adjusted to reflect the one-for-one
stock dividends in 1993, 1996, and 1998 (Note I).
(3) The pro forma results exclude: (i) acquisition and related costs of $29.4
million in 1995, $35.6 million in 1996, $76.8 million in the second quarter of
1998, and $28.9 million in the third quarter of 1998 (Note B); (ii)
restructuring costs of $11.0 million in 1996 and $45.0 million in the second
quarter of 1997 (Note B); (iii) the results of Computervision's other services
business unit (Note C); and (iv) extraordinary charges of $7.9 million in 1995
and $19.0 million in the second quarter of 1998 (Note G).
(4) Our common stock is traded on the Nasdaq National Market under the symbol
"PMTC." The common stock prices shown are based on the Nasdaq daily closing
stock price.
52
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION
We have not paid cash dividends on our common stock and have historically
retained earnings for use in our business. We intend to review our policy with
respect to the payment of dividends from time to time; however, there can be no
assurance that any dividends will be paid in the future.
On September 30, 1998, our common stock was held by 6,721 shareholders of
record.
Investor Information
Requests for information about PTC should be directed to: John Hudson, Vice
President of Investor Relations, Parametric Technology Corporation, 128
Technology Drive, Waltham, MA 02453. Telephone: (781) 398-5000.
Report on Form 10-K
Stockholders may obtain additional financial information about Parametric
Technology from our Report on Form 10-K filed with the Securities and Exchange
Commission. Copies are available without charge upon written request.
Annual Meeting
The Annual Meeting of Stockholders will be held on February 11, 1999 at 9:00
A.M. at: Parametric Technology Corporation, 128 Technology Drive, Waltham, MA
02453.
Stock Listing
Nasdaq National Market Symbol: PMTC
Internet Access
www.ptc.com
General Counsel
Palmer & Dodge LLP, Boston, MA
Independent Accountants
PricewaterhouseCoopers LLP, Boston, MA
Transfer Agent and Registrar
American Stock Transfer & Trust Company
Directors
Steven C. Walske, Chairman and Chief Executive Officer, Parametric Technology
Corporation
C. Richard Harrison, President and Chief Operating Officer, Parametric
Technology Corporation
Robert N. Goldman, Chief Executive Officer and President, Object Design, Inc.,
a software developer
Donald K. Grierson, Chief Executive Officer and President, ABB Vetco Gray,
Inc., an oil services business
Oscar B. Marx, III, Chief Executive Officer and President, TMW Enterprises,
Inc., an autoparts business
Michael E. Porter, Professor, Harvard Business School, an educational
institution
Noel G. Posternak, Senior Partner, Posternak, Blankstein & Lund, L.L.P.,
a law firm
Corporate Officers
Steven C. Walske, Chairman and Chief Executive Officer
C. Richard Harrison, President and Chief Operating Officer
Edwin J. Gillis, Executive Vice President, Chief Financial Officer,
and Treasurer
James P. Baum, Executive Vice President, Engineering, Research & Development
Barry F. Cohen, Executive Vice President, Marketing
Francis J. Cusick, Senior Vice President, Finance
David R. Friedman, Vice President, General Counsel, and Clerk
James F. Kelliher, Senior Vice President, Business Development
<PAGE>
EXHIBIT 21.1
Subsidiaries of Parametric Technology Corporation
-------------------------------------------------
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
<S> <C>
InPart Design, Inc. California
Computervision Corporation Delaware
Concentus Technology Corporation Delaware
CV Finance Holding, Inc. Delaware
CV International Holding, Inc. Delaware
ICEM Technologies, Inc. Delaware
Parametric Holdings Inc. Delaware
Parametric International, Inc. Delaware
Parametric Technology International, Inc. Delaware
Windchill Technology, Inc. Delaware
Computervision Securities Corporation Massachusetts
Parametric Securities Corporation Massachusetts
PTC International, Inc. Massachusetts
Computervision Australian Operations Pty Limited Australia
Parametric Technology Australia Pty Limited Australia
Parametric Technology Gesellschaft m.b.H. Austria
Parametric Foreign Sales Corporation Barbados
Computervision Belgium N.V. Belgium
Parametric Technology (Belgium) b.v.b.a. Belgium
Computervision (Bermuda) Limited Bermuda
Parametric Technology Brasil Ltda. Brazil
Computervision (Canada) Inc. Canada
Parametric Technology (Canada) Ltd. Canada
Parametric Technology (C.R.) s.r.o. Czech Republic
Computervision Danmark A/S Denmark
Parametric Technology (Denmark) A/S Denmark
Oy Computervision Ab Finland
Parametric Technology (Finland) Oy Finland
Parametric Technology S.A. France
ICEM Holdings GmbH Germany
ICEM Technologies GmbH Germany
Parametric Technology GmbH Germany
Computervision Asia Ltd. Hong Kong
Computervision Service Ltd. Hong Kong
Parametric Technology (Hong Kong) Limited Hong Kong
Computervision Research & Development (India) Private Limited India
Computervision Software Products (India) Private Limited India
Parametric Technology (India) Private Limited India
Parametric Technology (Republic of Ireland) Limited Ireland
Parametric Technology Israel Ltd. Israel
Computervision S.p.A. Italy
Parametric Technology Italia S.r.l. Italy
Nihon Computervision Corporation Japan
Nihon Parametric Technology K.K. Japan
Parametric Korea Co., Ltd. Korea
CV Holding (Mauritius) Ltd. Mauritius
Parametric Technology Mexico S.A. de C.V. Mexico
Parametric Technology New Zealand Limited New Zealand
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME PLACE OF INCORPORATION
<S> <C>
Computervision Norge AS Norway
Parametric Technology Norway AS Norway
Computervision Sp. z o.o. Poland
Parametric Technology Poland Sp. z o.o Poland
Parametric Technology Portugal-Computadores, Lda. Portugal
Computervision TOO Russia
Computervision Asia Pte Ltd Singapore
Parametric Technology Singapore Pte Ltd Singapore
Parametric Technology (Slovakia) s.r.o. Slovakia
Parametric Technology South Africa (Proprietary) Limited South Africa
Computervision Espana, S.A. Spain
Parametric Technology Espana, S.A. Spain
Computervision Sverge AB Sweden
PTC Sweden AB Sweden
Parametric Technology (Schweiz) AG Switzerland
Parametric Technology (Taiwan) Limited Taiwan
Computervision B.V. The Netherlands
Computervision Finance B.V. The Netherlands
Computervision International Distribution B.V. The Netherlands
Extended Vision Logistics International B.V. The Netherlands
Parametric Technology Europe B.V. The Netherlands
Parametric Technology Nederland B.V. The Netherlands
3rd Angle Limited United Kingdom
Computervision Limited United Kingdom
Computervision Pensions Limited United Kingdom
ICEM Systems (UK) Limited United Kingdom
Parametric Technology (UK) Limited United Kingdom
Rasna U.K. Limited United Kingdom
</TABLE>
<PAGE>
EXHIBIT 23.1
Report of Independent Accountants
on Financial Statement Schedule
To the Board of Directors
of Parametric Technology Corporation
Our audits of the consolidated financial statements referred to in our report
dated October 26, 1998 appearing in the 1998 Annual Report to Stockholders of
Parametric Technology Corporation (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K) and
the report of other auditors also included an audit of the financial statement
schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, based on
our audits and the report of other auditors, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 26, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Parametric Technology Corporation on Form S-8 (File Nos. 333-01297, 333-
01299, 33-52044, 33-89528, 33-61485, 333-38629, 333-28495, 333-22169, 333-
44701 and 333-56287) of our reports dated October 26, 1998, on our audits of
the consolidated financial statements and financial statement schedule of
Parametric Technology Corporation as of September 30, 1998 and 1997, and for
the years ended September 30, 1998, 1997 and 1996, which reports are included
or incorporated by reference in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 28, 1998
<PAGE>
EXHIBIT 23.3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Computervision Corporation:
We have audited the consolidated balance sheet of Computervision Corporation
and subsidiaries as of December 31, 1996 and the related consolidated
statements of income, stockholders' deficit and cash flows for the year ended
December 31, 1996. These consolidated financial statements (not presented
herein) are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Computervision Corporation and subsidiaries as of December 31, 1996 and the
results of their operations and their cash flows in the year ended December 31,
1996 in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in Item
14(a)(2) of the filing on Form 10-K of Computervision Corporation for the year
ended December 31, 1996 (not presented herein) is for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. The schedule (not presented herein) has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 27, 1997 (except with respect to the matter discussed in Note 4, as to
which the date is April 15, 1997 and the matters discussed in Note 15, as to
which the date is January 12, 1998)
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated March 27, 1997 (except with respect to the
matter discussed in Note 4, as to which the date is April 15, 1997 and the
matters discussed in Note 15, as to which the date is January 12, 1998)
included in this Form 10-K into the Company's previously filed Registration
Statements on Form S-8 (File Nos. 333-01297, 333-01299, 33-52044, 33-89528,
33-61485, 333-38629, 333-28495, 333-22169, 333-44701, and 333-56287).
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
December 28, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE ANNUAL REPORT FOR THE YEAR ENDED SEPTEMBER
30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 205,971
<SECURITIES> 131,405
<RECEIVABLES> 196,959
<ALLOWANCES> 7,684
<INVENTORY> 0
<CURRENT-ASSETS> 593,781
<PP&E> 131,037
<DEPRECIATION> 68,796
<TOTAL-ASSETS> 832,840
<CURRENT-LIABILITIES> 419,542
<BONDS> 0
0
0
<COMMON> 2,723
<OTHER-SE> 324,714
<TOTAL-LIABILITY-AND-EQUITY> 832,840
<SALES> 609,239
<TOTAL-REVENUES> 1,017,970
<CGS> 19,915
<TOTAL-COSTS> 156,940
<OTHER-EXPENSES> 645,688
<LOSS-PROVISION> 7,322
<INTEREST-EXPENSE> 13,329
<INCOME-PRETAX> 204,007
<INCOME-TAX> 98,293
<INCOME-CONTINUING> 105,714
<DISCONTINUED> 0
<EXTRAORDINARY> 19,017
<CHANGES> 0
<NET-INCOME> 86,697
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.31
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE PARAMETRIC TECHNOLOGY CORPORATION ANNUAL
REPORT FOR THE YEARS ENDED SEPTEMBER 30, 1997, AND 1996, AND THE COMPUTERVISION
CORPORATION ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1996<F1> SEP-30-1997<F1>
<PERIOD-END> SEP-30-1996 SEP-30-1997
<CASH> 240,179 168,609
<SECURITIES> 232,602 354,516
<RECEIVABLES> 225,621 201,908
<ALLOWANCES> 5,839 5,887
<INVENTORY> 0 0
<CURRENT-ASSETS> 726,591 761,928
<PP&E> 193,409 138,927
<DEPRECIATION> 125,837 82,130
<TOTAL-ASSETS> 867,562 958,332
<CURRENT-LIABILITIES> 370,482 450,629
<BONDS> 217,346 213,526
0 0
0 0
<COMMON> 2,659 2,680
<OTHER-SE> 192,989 198,112
<TOTAL-LIABILITY-AND-EQUITY> 867,562 958,332
<SALES> 613,427 644,726
<TOTAL-REVENUES> 1,077,321 1,062,018
<CGS> 21,024 19,450
<TOTAL-COSTS> 275,270 225,394
<OTHER-EXPENSES> 540,706 605,856
<LOSS-PROVISION> 1,616 1,433
<INTEREST-EXPENSE> 32,706 34,069
<INCOME-PRETAX> 240,424 205,684
<INCOME-TAX> 80,857 118,024
<INCOME-CONTINUING> 159,567 87,660
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 159,567 87,660
<EPS-PRIMARY> 0.60<F2> 0.33<F2>
<EPS-DILUTED> 0.57<F2> 0.32<F2>
<FN>
<F1>ALL SUMMARY FINANCIAL DATA HAS BEEN RESTATED FOR THE MERGER WITH
COMPUTERVISION CORPORATION IN JANUARY 1998, WHICH WAS ACCOUNTED FOR AS A POOLING
OF INTERESTS, AND THE STOCK DIVIDENDS EFFECTIVE FEBRUARY 29, 1996 AND MARCH 6,
1998.
<F2>ALL EPS DATA HAS BEEN RESTATED TO CONFORM WITH THE PROVISIONS OF SFAS
NO. 128, EARNINGS PER SHARE.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PARAMETRIC TECHNOLOGY CORPORATION AND COMPUTERVISION
CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1997<F1> SEP-30-1998<F1>
<PERIOD-END> DEC-28-1996 JAN-03-1998
<CASH> 202,385 261,989
<SECURITIES> 283,674 321,718
<RECEIVABLES> 208,058 205,027
<ALLOWANCES> 5,839 5,887
<INVENTORY> 0 0
<CURRENT-ASSETS> 722,486 847,292
<PP&E> 200,522 144,992
<DEPRECIATION> 133,487 88,730
<TOTAL-ASSETS> 857,683 1,033,365
<CURRENT-LIABILITIES> 374,217 422,747
<BONDS> 217,367 213,526
0 0
0 0
<COMMON> 2,664 2,682
<OTHER-SE> 183,629 289,561
<TOTAL-LIABILITY-AND-EQUITY> 857,683 1,033,365
<SALES> 150,051 158,258
<TOTAL-REVENUES> 261,310 258,868
<CGS> 4,068 4,802
<TOTAL-COSTS> 69,908 41,405
<OTHER-EXPENSES> 144,102 137,336
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,166 5,878
<INCOME-PRETAX> 42,134 74,249
<INCOME-TAX> 26,627 32,116
<INCOME-CONTINUING> 15,507 42,133
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 15,507 42,133
<EPS-PRIMARY> 0.06<F2> 0.16<F2>
<EPS-DILUTED> 0.06<F2> 0.15<F2>
<FN>
<F1> ALL SUMMARY FINANCIAL DATA HAS BEEN RESTATED FOR THE MERGER WITH
COMPUTERVISION CORPORATION IN JANUARY 1998, WHICH WAS ACCOUNTED FOR AS A POOLING
OF INTERESTS, AND THE STOCK DIVIDENDS EFFECTIVE FEBRUARY 29, 1996 AND MARCH 6,
1998.
<F2> ALL EPS DATA HAS BEEN RESTATED TO CONFORM WITH THE PROVISIONS OF SFAS NO.
128, EARNINGS PER SHARE.
</FN>
</TABLE>
