<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 4, 1998
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
incorporation or organization) Identification Number)
128 TECHNOLOGY DRIVE, WALTHAM, MA 02154
(Address of principal executive offices, including zip code)
(781) 398-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of April 4, 1998, there were 270,544,112 shares of the Registrant's Common
Stock, par value $0.01 per share outstanding.
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
INDEX TO FORM 10-Q
For the Quarter Ended April 4, 1998
Page Number
COVER i
INDEX ii
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets as of April 4, 1998
and September 30, 1997 1
Unaudited Consolidated Statements of Operations for the three
and six months ended April 4, 1998 and March 29, 1997 2
Unaudited Consolidated Statements of Cash Flows for the six
months ended April 4, 1998 and March 29, 1997 3
Notes to the Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 8
PART II-OTHER INFORMATION
Item 2. Changes in Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
ii
<PAGE>
PART I - FINANCIAL INFORMATION
PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
ASSETS April 4, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 255,443 $ 168,609
Short-term investments 120,920 354,516
Accounts receivable, net 190,219 196,021
Other current assets 67,332 49,838
------------------ ------------------
TOTAL CURRENT ASSETS 633,914 768,984
Marketable investments 61,823 45,580
Property and equipment, net 47,239 56,797
Other assets 47,678 57,843
------------------ ------------------
TOTAL ASSETS $ 790,654 $ 929,204
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion of long-term debt and
capital lease obligations $ 1,291 $ 39,477
Accounts payable 44,869 38,305
Accrued expenses 106,266 99,142
Accrued compensation, severance and related expenses 76,380 91,709
Deferred revenue 122,393 114,149
Income taxes 60,195 70,632
------------------ ------------------
TOTAL CURRENT LIABILITIES 411,394 453,414
Long-term debt, including capital lease obligations 7,358 213,526
Other liabilities 67,700 55,710
------------------ ------------------
TOTAL LIABILITIES 486,452 722,650
------------------ ------------------
Stockholders' equity (Note 5):
Preferred stock, $.01 par value; 5,000 shares authorized;
none issued - -
Common stock, $.01 par value; 350,000 shares authorized;
270,544 and 267,967 shares issued 2,705 2,680
Additional paid-in capital 1,490,179 1,450,132
Accumulated deficit (1,190,059) (1,223,387)
Treasury stock, at cost, 0 and 524 shares - (24,169)
Cumulative foreign currency translation adjustment and
other equity 1,377 1,298
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 304,202 206,554
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 790,654 $ 929,204
================== ==================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------------ ------------------------------
April 4, 1998 March 29, 1997 April 4, 1998 March 29, 1997
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
SOFTWARE REVENUE:
License $ 162,558 $ 168,694 $ 320,816 $ 318,745
Service 101,513 80,906 202,123 155,717
------------- -------------- ------------- --------------
TOTAL SOFTWARE REVENUE 264,071 249,600 522,939 474,462
------------- -------------- ------------- --------------
Other services revenue - 36,887 - 73,335
------------- -------------- ------------- --------------
TOTAL REVENUE 264,071 286,487 522,939 547,797
------------- -------------- ------------- --------------
Cost of revenue:
Software
License 3,726 6,793 8,528 10,861
Service 33,827 32,100 70,430 64,446
Other services - 32,020 - 65,514
------------- -------------- ------------- --------------
Total cost of revenue 37,553 70,913 78,958 140,821
------------- -------------- ------------- --------------
Gross profit 226,518 215,574 443,981 406,976
------------- -------------- ------------- --------------
Operating expenses:
Sales and marketing 92,897 99,372 189,190 192,777
Research and development 20,717 22,886 46,031 45,323
General and administrative 12,589 15,410 28,318 30,957
Acquisition and non-recurring charges (Note 2) 76,800 45,000 76,800 45,000
Other services operating and non-recurring charges - 4,999 - 17,712
------------- -------------- ------------- --------------
Total operating expenses 203,003 187,667 340,339 331,769
------------- -------------- ------------- --------------
OPERATING INCOME 23,515 27,907 103,642 75,207
Other expense, net 371 6,048 6,249 11,214
------------- -------------- ------------- --------------
Income before income taxes 23,144 21,859 97,393 63,993
Provision for income taxes 20,069 28,569 52,185 55,196
------------- -------------- ------------- --------------
Income (loss) before extraordinary item 3,075 (6,710) 45,208 8,797
Extraordinary loss, net of income tax benefit
of $2,183 (Note 3) (19,017) - (19,017) -
------------- -------------- ------------- --------------
NET INCOME (LOSS) $ (15,942) $ (6,710) $ 26,191 $ 8,797
============= ============== ============= ==============
EARNINGS PER SHARE (Notes 4 and 5):
Basic
Income (loss) before extraordinary item $ 0.01 $ (0.03) $ 0.17 $ 0.03
Extraordinary loss (0.07) - (0.07) -
------------- -------------- ------------- --------------
Net income (loss) $ (0.06) $ (0.03) $ 0.10 $ 0.03
============= ============== ============= ==============
Diluted
Income (loss) before extraordinary item $ 0.01 $ (0.03) $ 0.16 $ 0.03
Extraordinary loss (0.07) - (0.07) -
------------- -------------- ------------- --------------
Net income (loss) $ (0.06) $ (0.03) $ 0.09 $ 0.03
============= ============== ============= ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------
April 4, 1998 March 29, 1997
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 26,191 $ 8,797
Adjustments to reconcile net income to net cash flows from
operating activities:
Extraordinary loss on early extinguishment of debt 19,017 -
Non-cash portion of non-recurring charges 12,778 6,634
Depreciation and amortization 13,694 20,094
Deferred income taxes 2,223 754
Changes in assets and liabilities which provided (used) cash:
Accounts receivable, net 4,302 (9,781)
Other current assets (22,823) (4,345)
Other noncurrent assets and liabilities 16,402 (1,152)
Accounts payable and accrued expenses 25,955 33,283
Accrued compensation, severance and related expenses (15,329) 11,026
Deferred revenue 8,244 26,156
Income taxes 2,108 26,726
------------- -------------
Net cash provided by operating activities 92,762 118,192
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment, net (10,496) (18,070)
Additions to captialized and purchased software costs - (2,414)
Purchases of investments (162,345) (156,811)
Proceeds from sales of investments 380,090 113,702
------------- -------------
Net cash provided (used) by investing activities 207,249 (63,593)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of short-term notes payable, net - 7,230
Repayment of short-term notes payable (34,933) -
Repayment of long-term obligations (240,761) (624)
Proceeds from issuance of common stock 51,703 28,584
Purchases of treasury stock - (95,020)
------------- -------------
Net cash used by financing activities (223,991) (59,830)
------------- -------------
ELIMINATION OF COMPUTERVISION'S NET CASH ACTIVITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 11,567 -
EFFECT OF EXCHANGE RATE CHANGES ON CASH (753) (5,808)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 86,834 (11,039)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 168,609 240,179
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 255,443 $ 229,140
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Parametric Technology Corporation and its wholly owned subsidiaries
(the "Company") (See Note 2), and have been prepared by the Company in
accordance with generally accepted accounting principles. Certain
reclassifications have been made to the prior year's statements to conform with
the fiscal 1998 presentation. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments, consisting
only of those of a normal recurring nature, necessary for a fair presentation of
the Company's financial position, results of operations and cash flows at the
dates and for the periods indicated. While the Company believes that the
disclosures presented are adequate to make the information not misleading, these
financial statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1997.
The results of operations for the six-month period ended April 4, 1998 are not
necessarily indicative of the results expected for the remainder of the fiscal
year.
2. ACQUISITION AND NON-RECURRING CHARGES
Acquisition
On January 12, 1998, the Company completed its acquisition of Computervision
Corporation ("Computervision") by issuing approximately 5.8 million shares of
its common stock in exchange for all of the outstanding common stock of
Computervision. In addition, the Company reserved approximately 822,000 shares
of its common stock for outstanding Computervision stock options assumed. The
transaction is intended to qualify as a tax-free reorganization and has been
accounted for as a pooling of interests. Accordingly, the Company's consolidated
financial statements have been restated to include the accounts and operations
of Computervision for all periods presented.
Due to the differing year-ends of the Company and Computervision, financial
information for dissimilar fiscal years has been combined. Computervision's
results of operations for its fiscal year ended December 31, 1997 were combined
with the Company's results of operations for the fiscal year ended September 30,
1997. In order to conform Computervision's fiscal year end to the Company's
September 30, 1997 fiscal year end, Computervision's results of operations for
the three months ended December 31, 1997 were combined with the Company's
results of operations for the three months ended January 3, 1998. Balance sheet
information as of September 30, 1997 includes the financial position of
Computervision as of December 31, 1997 and the Company as of September 30, 1997.
Accordingly, Computervision's net loss of $20.2 million for the three-month
period ended December 31, 1997, which has been included in the combined
statements of income for both the fourth quarter of fiscal 1997 and the first
quarter of fiscal 1998, has been reflected as an adjustment to the Company's
beginning balance of fiscal 1998 retained earnings. Due to the change in
Computervision's year-end, Computervision's cash flow activity for the three-
month period ended December 31, 1997 has been shown as a separate component of
the cash flow statement.
Revenue and net income (loss) of the combined entities for the three-month
period prior to the merger and the corresponding period in the prior year are
presented in the following table. Prior to the merger, there were no
intercompany transactions between the two companies. The Computervision results
for fiscal 1997 include revenue and expenses from the hardware support services
business (other services), which was sold by Computervision on July 18, 1997.
The results presented in the following table do not reflect the non-recurring
charge or the extraordinary loss associated with the Computervision acquisition.
4
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(in thousands) Three Months Ended
-----------------------------------------------------
January 3, 1998 December 28, 1996
----------------------- -------------------------
<S> <C> <C>
REVENUE
Parametric Technology $223,007 $183,501
Computervision 35,861 77,809
----------------------- -------------------------
COMBINED REVENUE $258,868 $261,310
======================= =========================
NET INCOME (LOSS)
Parametric Technology $ 62,343 $ 49,451
Computervision (20,210) (33,944)
----------------------- -------------------------
COMBINED NET INCOME $ 42,133 $ 15,507
======================= =========================
</TABLE>
Non-Recurring Charges
In connection with the acquisition, the Company incurred a one-time charge of
approximately $77 million ($63 million after tax, or $0.22 per share) for
acquisition related integration, consolidation and merger costs during the
second quarter of fiscal 1998. The charge included approximately $18 million of
severance and termination benefits related to the elimination of approximately
450 positions at Computervision, $13 million for the write-off of assets, $8
million for related transaction costs, $18 million of contract costs associated
with revised estimates, $7 million for the closing of leased facilities and $13
million of other accruals. As of April 4, 1998, approximately $14 million of the
unutilized non-recurring charge is included in accrued compensation, $25 million
in other current liabilities and $15 million in other long-term liabilities. Of
the $23 million utilized during the quarter, $13 million were non-cash
transactions.
In connection with the acquisition and the resulting combination of
Computervision's balance sheet with the Company's, the consolidated balance
sheets presented herein include restructuring charges previously recorded by
Computervision. The components of the restructuring liability acquired included
$23 million in severance and termination benefits and $61 million in excess
facilities costs. As of April 4, 1998, approximately $6 million of the non-
recurring charge is included in accrued compensation, $15 million in other
current liabilities and $48 million in other long-term liabilities. All amounts
utilized during the quarter were cash transactions.
The Company currently anticipates that a substantial portion of the
restructuring costs will be incurred over the next twelve months, except for
certain long-term obligations, principally related to leased facilities.
3. EXTRAORDINARY LOSS
In connection with the Computervision merger, the Company assumed a revolving
note payable of $34.6 million and long-term debt obligations totaling $211.7
million. On January 13, 1998, the Company paid $34.9 million for settlement of
the outstanding balance on the revolving note payable plus accrued interest, and
related fees. On February 11, 1998, the Company prepaid Computervision's 11 3/8%
Senior Subordinated Notes at 101.96% of par, the 8% Computervision Debentures at
par and the 5 3/4% Prime Debentures at par. The total cash outlay for
settlement of the long-term obligations plus accrued interest and related fees
was $241.0 million. During the second quarter of fiscal 1998, the Company
incurred an extraordinary after-tax loss of $19.0 million related to the write-
off of deferred financing costs and other prepayment costs associated with this
debt.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" ("EPS"), effective for fiscal periods ending after December 15, 1997. The
Company adopted this standard during the first quarter of fiscal 1998.
Accordingly, all prior period EPS data presented has been restated to conform to
the provisions of SFAS No. 128. Computation of basic and diluted EPS (as
adjusted for the Company's stock dividend, See Note 5), including a
reconciliation of the numerator and denominators used, is shown below.
5
<PAGE>
PARAMETRIC TECHNOLOGY CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(in thousands, except
per share data) Three months ended Six months ended
--------------------------------------- -----------------------------------------
April 4, 1998 March 29, 1997 April 4, 1998 March 29, 1997
----------------- ----------------- -------------------- -----------------
<S> <C> <C> <C> <C>
Net income (loss) $(15,942) $ (6,710) $ 26,191 $ 8,797
================ ================ ==================== =================
Weighted average shares
outstanding:
Common stock 269,347 266,566 268,419 266,287
Employee stock options 10,724 - 9,170 15,490
---------------- ---------------- --------------------- -----------------
Common stock and common stock
equivalents 280,071 266,566 277,589 281,777
================ ================ ===================== =================
Net income (loss) per share:
Basic $ (0.06) $ (0.03) $ 0.10 $ 0.03
Diluted $ (0.06) $ (0.03) $ 0.09 $ 0.03
</TABLE>
Options to purchase shares of the Company's common stock of 4,107,000 and
4,125,000 for the three and six months ended April 4, 1998, respectively, and
1,962,000 for the six months ended March 29, 1997, 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. For the three months ended March 29, 1997, approximately 17,028,000
options to purchase shares of the Company's common stock were excluded from the
computation of diluted earnings per share as the inclusion of these shares would
have been anti-dilutive.
5. COMMON STOCK DIVIDEND
On February 12, 1998, the Company's Board of Directors declared a one-for-one
stock dividend applicable to stockholders of record on February 27, 1998 and
payable March 6, 1998. The distribution on March 6, 1998 increased the number
of shares outstanding from approximately 134,930,000 to 269,860,000. Share and
per share data for all periods presented have been restated to reflect this
stock dividend.
6. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. Management has not yet evaluated the
effects of this change on its reporting of income. The Company will adopt SFAS
No. 130 for its fiscal year ending September 30, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which changes the way public companies
report information about operating segments. SFAS No. 131, which is based on
the management approach to segment reporting, establishes requirements to report
selected segment information quarterly and to report entity-wide disclosures
about products and services, major customers, and the material countries in
which the entity holds assets and reports revenue. Management is currently
evaluating the effects of this change on its reporting of segment information.
The Company will adopt SFAS No. 131 for its fiscal year ending September 30,
1999.
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 97-2, "Software Revenue Recognition," which
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions and supersedes SOP 91-1, "Software
Revenue Recognition". The Company will adopt SOP 97-2 for its fiscal year
ending September 30, 1999 and does not expect any material impact on its revenue
recognition policies.
6
<PAGE>
7. SUBSEQUENT EVENT
On April 27, 1998, the Company entered into a purchase and sale agreement to
acquire ICEM Technologies, a German based division of Control Data Systems,
Inc., for $45 million in cash, subject to adjustment. Provided that certain
closing conditions are satisfied, the Company expects to complete its
acquisition during the third quarter of fiscal 1998. The acquisition will be
accounted for as a purchase. In connection with the acquisition, the Company
anticipates a one-time, non-cash charge for a portion of the purchase price
related to the write-off of in-process research and development will be taken
during the third quarter of fiscal 1998. Headquartered in Frankfurt, Germany,
ICEM Technologies provides advanced surfacing and reverse engineering software
tools used by body and styling engineers in the automotive and aerospace
industries.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Parametric Technology Corporation develops, markets and supports a family of
software products that automate the complete product development process within
the mechanical computer-aided design, manufacturing and engineering
("CAD/CAM/CAE") industry. The Company's products include applications in the
areas of industrial design; mechanical design; functional simulation; product
applications; information technology applications and implementation solutions.
Information provided by the Company, including information contained in this
Quarterly Report on Form 10-Q, or by its spokespersons from time to time, may
contain forward-looking statements concerning projected financial performance,
acquisition integration efforts, market and industry segment growth, product
development and commercialization or other aspects of future operations. Such
statements are based on the assumptions and expectations of management at the
time such statements are made. The Company cautions investors that its
performance (and, therefore, any forward-looking statement) is subject to risks
and uncertainties. Various important factors, including but not limited to those
discussed herein, may cause the Company's future results to differ materially
from those projected in any forward-looking statement. Important information
about such factors and the basis for those assumptions is discussed below and is
also contained in "Important Factors Regarding Future Results" included in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section in the 1997 Annual Report to Stockholders and in the "Risk
Factors" section of the Company's Registration Statement on Form S-4 filed with
the Securities and Exchange Commission on November 12, 1997, which sections are
incorporated herein by reference.
ACQUISITION
On January 12, 1998, the Company completed its acquisition of Computervision
Corporation ("Computervision") by issuing approximately 5.8 million shares of
its common stock in exchange for all of the outstanding common stock of
Computervision. In addition, the Company reserved approximately 822,000 shares
of its common stock for outstanding Computervision stock options assumed. The
transaction is intended to qualify as a tax-free reorganization and has been
accounted for as a pooling of interests. Accordingly, the Company's consolidated
financial statements have been restated to include the accounts and operations
of Computervision for all periods presented.
In connection with the acquisition, the Company incurred a one-time charge of
approximately $77 million ($63 million after tax, or $0.22 per share) for
acquisition related integration, consolidation and merger costs during the
second quarter of fiscal 1998. The charge included approximately $18 million of
severance and termination benefits related to the elimination of approximately
450 positions at Computervision, $13 million for the write-off of assets, $8
million for related transaction costs, $18 million of contract costs associated
with revised estimates, $7 million for the closing of leased facilities and $13
million of other accruals. As of April 4, 1998, approximately $14 million of the
unutilized non-recurring charge is included in accrued compensation, $25 million
in other current liabilities and $15 million in other long-term liabilities. Of
the $23 million utilized during the quarter, $13 million were non-cash
transactions.
In connection with the acquisition and the resulting combination of
Computervision's balance sheet with the Company's, the consolidated balance
sheets presented herein include restructuring charges previously recorded by
Computervision. The components of the restructuring liability acquired
included $23 million in severance and termination benefits and $61 million in
excess facilities costs. As of April 4, 1998, approximately $6 million of the
non-recurring charge is included in accrued compensation, $15 million in other
current liabilities and $48 million in other long-term liabilities. All amounts
utilized during the quarter were cash transactions.
The Company currently anticipates that a substantial portion of the
restructuring costs will be incurred over the next twelve months, except for
certain long-term obligations, principally related to leased facilities.
In connection with the Computervision merger, the Company assumed a revolving
note payable and long-term debt obligations. During the second quarter of fiscal
1998, the Company paid $275.7 million for settlement of the
8
<PAGE>
outstanding note, debt obligations, accrued interest and related fees. During
the second quarter of fiscal 1998, the Company incurred an extraordinary after-
tax loss of $19.0 million related to the write-off of deferred financing costs
and other prepayment costs associated with this debt.
Other services revenue and costs reported in fiscal 1997 represent the hardware
support services business of Computervision which was sold in July 1997. Since
there was no activity associated with this business during fiscal 1998, the
results of this business in comparison to the current period have been excluded
from the following discussion where appropriate.
RESULTS OF OPERATIONS
Net income for the first six months of fiscal 1998, including the non-recurring
charge and the extraordinary after-tax loss in the second quarter, was
$26,191,000 compared to $8,797,000 for fiscal 1997. The Company reported a net
loss of $15,942,000 for the second quarter of 1998 compared to a net loss of
$6,710,000 for the second quarter of 1997. Excluding non-recurring charges and
the extraordinary after-tax loss, net income would have been $108,096,000 and
$65,963,000 for the six and three-month periods of 1998, respectively, compared
to $63,688,000 and $38,422,000 for the comparative 1997 periods. Excluding non-
recurring charges and the extraordinary after-tax loss, net income as a
percentage of total software revenue would have been 21% and 25% for the six and
three-month periods ended April 4, 1998, respectively, compared to 13% and 15%
for the corresponding 1997 periods.
Software revenue, including license and service revenues, was $264,071,000 and
$522,939,000 for the three-month and six-month periods ended April 4, 1998,
respectively. Software revenue increased 6% and 10% over the $249,600,000 and
$474,462,000 reported for the three-month and six-month periods ended March 29,
1997, respectively. The increase in total software revenue during the three and
six-month periods ended April 4, 1998 reflects the continued demand for the
Company's products and services among both existing customers and first-time
buyers, and the Company's ongoing investment in the expansion of its worldwide
direct sales force.
License revenue, which is derived from the sale of the Company's software
products, was $162,558,000 for the three-month period and $320,816,000 for the
six-month period ended April 4, 1998. Compared to the corresponding three and
six-month periods of fiscal 1997, license revenue decreased 4% for the second
quarter of fiscal 1998 but increased slightly on a year-to-date basis. The
Company licensed 8,445 and 16,716 seats of software in the three-month and six-
month periods ended April 4, 1998, respectively, a decrease of 7% and 1% from
9,066 and 16,904 seats of software in the comparable periods in fiscal 1997. A
seat of software generally consists of various software products configured to
serve the needs of a single end user. The decrease in license revenue and seats
for the three month period is due to continued weakness in the Company's
operations in the Asia Pacific region and the inclusion of the results of
Computervision's performance, which declined over the reported periods.
Service revenue is derived from the sale of software maintenance contracts and
the performance of training and consulting services. Service revenue was
$101,513,000 and $202,123,000 for the three-month and six-month periods ended
April 4, 1998, respectively, an increase of 25% and 30% over the comparable
periods in fiscal 1997. Service revenue as a percentage of total software
revenue increased to 38% and 39% for the three and six-month periods ended April
4, 1998, respectively, compared to 32% and 33% for the corresponding periods of
fiscal 1997. The increase in service revenue and service revenue as a percentage
of total software revenue is a result of the growth in the Company's installed
customer base and the increased training and consulting services performed for
these customers.
The Company derived approximately 55% of total software revenue from sales to
international customers during both the three-month and six-month periods ended
April 4, 1998, compared with 59% for the same periods in fiscal 1997. The
decrease in the percentage of the software revenue derived from international
sales is primarily attributable to weakness in the Company's Asian results,
especially in Japan. The Company has increased its investment in this area in
the past six months and believes that this region will make a contribution to
revenue growth. The timing of this contribution, however, is uncertain given
the economic difficulties in the region. The decrease in the percentage of the
software revenue derived from international sales was also attributable to the
strengthening of the dollar in relation to the major European and Asian
currencies.
9
<PAGE>
The Company anticipates that total software revenue will increase during the
remainder of fiscal 1998 and expects to begin shipping its new Windchill product
line, web-based technology in the area of enterprise information, in late June
1998. However, the rate of continued software revenue growth in the remainder of
fiscal 1998 depends upon the Company's ability to successfully generate and fill
current software license orders, effectively implement the measures taken to
strengthen results in Japan, adequately manage exposure to foreign currency
movements, attract and retain skilled personnel, and deliver timely product
enhancements. Additionally, performance during the remainder of fiscal 1998
could also be affected by the efforts to integrate Computervision's operations
with those of the Company, the success of those integration efforts, the timely
introduction of the new Windchill product and its market acceptance and the
ongoing economic uncertainties in the Asia Pacific region. Also, there can be no
assurance that quarterly software revenue growth rates in general or for
particular geographical areas will be comparable to those achieved in prior
periods.
As previously discussed, the Company incurred a non-recurring charge of
approximately $77 million for acquisition related integration, consolidation and
merger costs during the second quarter of fiscal 1998. The charge included the
elimination of approximately 450 positions at Computervision, the write-off of
assets, related transaction costs, contract costs and the closing of several
leased facilities. Accordingly, certain expenses incurred during fiscal 1998
reflect the reduction in costs attributable to this non-recurring charge. The
comparative fiscal 1997 period reflects a restructuring charge of $45 million
taken by Computervision prior to the merger for severance and termination
benefits for approximately 250 positions and excess leased facilities which have
been included in the combined results of the Company due to the pooling-of-
interests accounting treatment.
Cost of license revenue consists of costs associated with reproducing software,
printing user manuals, royalties, packaging, shipping and the amortization of
capitalized computer software costs. Cost of service revenue includes the costs
associated with training and consulting personnel, such as salaries and related
costs and travel, and the costs related to software maintenance, including costs
incurred for customer support personnel and the release of maintenance updates.
Combined, the cost of license and service revenues decreased to $37,553,000 for
the three-month period and increased to $78,958,000 for the six-month period
ended April 4, 1998 from $38,893,000 and $75,307,000 for the corresponding
periods in fiscal 1997, respectively. Total cost of software revenue as a
percentage of total software revenue decreased to 14% and 15% for the three and
six-month periods ended April 4, 1998 compared with 16% for each of the
corresponding periods in fiscal 1997. Cost of license revenue decreased
primarily due to a decrease in royalties associated with license revenue. This
decrease was offset by an increase in cost of service revenue resulting
primarily from growth in the staffing necessary to generate and support
increased worldwide service revenue and provide ongoing quality customer support
to the Company's increasing installed base.
Sales and marketing expenses primarily include salaries, sales commissions,
travel and facility costs. Sales and marketing expenses decreased to
$92,897,000 and $189,190,000 for the three and six-month periods ended April 4,
1998, respectively, from $99,372,000 and $192,777,000 for the corresponding
periods in fiscal 1997. These costs decreased as a percentage of total software
revenue to 35% and 36% for the three and six-month periods ended April 4, 1998,
respectively, compared with 40% and 41% for the comparable periods of fiscal
1997. The decrease is primarily attributable to a reduction in work force and
elimination of excess facility costs associated with the acquisition of
Computervision. Notwithstanding the reduction in workforce, total sales and
marketing headcount increased to 2,364 at April 4, 1998, an increase of 5% from
2,251 at March 29, 1997. The Company expects to continue the growth of its
worldwide sales and marketing organization during fiscal 1998, reflecting the
Company's commitment to focus its resources on increasing its installed base and
expanding worldwide acceptance for its products. The continued growth in the
worldwide sales and marketing organization depends upon the Company's ability to
attract and retain highly skilled technical, managerial and sales personnel.
The Company continued to make investments in research and development,
consisting principally of salaries and benefits, expenses associated with
product translations, costs of computer equipment used in software development,
and facility expenses. Research and development expenses were $20,717,000 and
$46,031,000 for the three and six-month periods ended April 4, 1998,
respectively, compared to $22,886,000 and $45,323,000 for the corresponding
periods in fiscal 1997. On a year-to-date basis, research and development
expenses decreased from 10% of total software revenue for the first six months
of fiscal 1997 to 9% for the same period in fiscal 1998. Similarly, the second
quarter research and development expenses as a percentage of total software
revenue decreased from 9% in fiscal 1997 to 8% in fiscal 1998. The decreases
were primarily attributable to the impact of workforce reductions and
10
<PAGE>
write-offs associated with the acquisition of Computervision. The Company
continues to make investments in research and development.
General and administrative expenses include the costs of corporate, finance,
information technology, human resources and administrative functions of the
Company. These expenses decreased to $12,589,000 and $28,318,000 for the three-
month and six-month periods ended April 4, 1998, respectively, from $15,410,000
and $30,957,000 for the corresponding periods in fiscal 1997. The decreases
were primarily attributable to the impact of workforce reductions and write-offs
associated with the acquisition of Computervision. As a percentage of total
software revenue, general and administrative expenses decreased to 5% for both
the three-month and six-month periods ended April 4, 1998, respectively,
compared to 6% and 7% for the corresponding periods of fiscal 1997.
Other expense, net, includes interest income, interest expense and costs
associated with managing the Company's foreign exchange exposure including
foreign currency gains and losses. Other expense, net, decreased to $371,000
and $6,249,000 for the three and six-month periods ended April 4, 1998,
respectively, compared with $6,048,000 and $11,214,000 for the corresponding
periods in fiscal 1997. The decrease is primarily attributable to reduced
interest costs associated with Computervision's debt which the Company paid
during the second quarter of fiscal 1998.
The Company's effective tax rate for the three and six-month periods ended
April 4, 1998 was 87% and 54%, respectively, compared with 131% and 86% for the
same periods in fiscal 1997. The effective tax rate for all periods was
significantly impacted by the non-deductibility of certain expenses included in
the non-recurring charge and the impact of the pre-acquisition operating
losses of Computervision which are included in the combined results. Excluding
these items, the Company's effective tax rate for the second quarter was 34%.
The number of worldwide employees decreased 7% to 4,547 at April 4, 1998
compared with 4,898 at March 29, 1997, due primarily to the reduction in
workforce associated with the Computervision acquisition.
LIQUIDITY AND CAPITAL RESOURCES
As of April 4, 1998, the Company had $255,443,000 of cash and cash equivalents
and $182,743,000 of investments. Net cash provided by operating activities,
consisting primarily of net income from operations before depreciation and
amortization and changes in working capital, was $92,762,000 for the six-month
period ended April 4, 1998, compared with $118,192,000 for the corresponding
period in fiscal 1997. The decrease in cash provided by operating activities was
primarily attributable to payments associated with the extraordinary loss and
non-recurring charges as well as an increase in other current assets principally
associated with the increase of software maintenance billings related to
deferred revenue.
Net cash provided by investing activities totaled $207,249,000 for the six-month
period ended April 4, 1998 compared to a use of $63,593,000 for the first six
months of fiscal 1997. The increase is principally due to net proceeds of
$217,745,000 from sales of investments, which were used to pay debt, interest
and related fees of $275,694,000 assumed in connection with the Computervision
merger. The Company acquired $10,496,000 of capital equipment, consisting
primarily of computer equipment, software, and office equipment to meet the
needs resulting from the growth in employee headcount and increased investment
in information technologies.
Financing activities for the first six months of fiscal 1998 used $223,991,000
compared to $59,830,000 for the same period of fiscal 1997. The principal
financing use during fiscal 1998 was the $275,694,000 payoff of debt, interest
and related fees associated with the acquisition of Computervision. During
fiscal 1997, the Company used $95,020,000 for the repurchase of its common
stock. During fiscal 1998, the Company suspended repurchases of common stock
and the Board of Directors' subsequently rescinded the Company's stock
repurchase program in anticipation of the Computervision acquisition. Financing
uses during both periods were offset by proceeds from the issuance of common
stock under the Company's stock plans.
On April 27, 1998, the Company entered into a purchase and sale agreement to
acquire ICEM Technologies, a German based division of Control Data Systems,
Inc., for $45 million in cash, subject to adjustment. Provided that certain
closing conditions are satisfied, the Company expects to complete its
acquisition during the third quarter of fiscal 1998. The acquisition will be
accounted for as a purchase. In connection with the acquisition, the Company
11
<PAGE>
anticipates a one-time, non-cash charge for a portion of the purchase price
related to the write-off of in-process research and development will be taken
during the third quarter of fiscal 1998. Headquartered in Frankfurt, Germany,
ICEM Technologies provides advanced surfacing and reverse engineering software
tools used by body and styling engineers in the automotive and aerospace
industries.
The Company believes that existing cash and short-term investment balances,
together with cash generated from operations and issuance of the Company's
common stock under stock plans, will be sufficient to meet the Company's
currently projected working capital, financing and capital expenditure
requirements, including the cost of the proposed acquisition of ICEM
Technologies, through at least fiscal 1998.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
Concerns have been widely expressed regarding the inability of certain computer
programs to process date information beyond year 1999. These concerns focus on
the impact of the Year 2000 problem on business operations and the potential
costs associated with identifying and addressing the problem. The Company is in
the process of evaluating and taking steps to deal with the potential impact of
this problem in areas under its control, in particular its products and its
administrative and business systems.
Based on its review to date, the Company believes that its own products are
largely "Year 2000 compliant." Legacy systems historically sold by
Computervision may in some cases not be completely compliant. The Company is in
the process of making modifications to currently offered legacy systems to bring
them into compliance with Year 2000 requirements and anticipates that these
corrections will be completed by the end of calendar 1998. The Company is in the
process of upgrading its administrative and business systems and does not
anticipate any material problems. The Company has commenced a program to survey
all major suppliers of such systems to determine the status and schedule for
their Year 2000 compliance. Where it believes that a particular supplier's
situation poses unacceptable risks, the Company plans to identify an alternative
source.
Costs incurred in the compliance effort will be expensed as incurred. While the
Company's Year 2000 compliance evaluation is not yet complete, the Company does
not at this time foresee a material impact on its business or operating results
from the Year 2000 problem. The Company cannot, of course, predict the nature
or materiality of the impact on its operations or operating results of
noncompliance by parties outside its control.
12
<PAGE>
PART II-- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On February 12, 1998, the Company's Board of Directors declared a one-for-one
stock dividend of the Company's common stock. The stock split was in the form of
a stock dividend of one share on each outstanding share held of record on
February 27, 1998 and was effective March 6, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of the Company held on February 12, 1998,
the stockholders of the Company elected Michael E. Porter and Steven C. Walske
as Class II directors of the Company to hold office until the 2001 Annual
Meeting of Stockholders (subject to the election and qualification of their
successors and to their earlier death, resignation or removal). No other
nominations were made. Proxies for the meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934. There was no
solicitation in opposition to management's nominees as listed in the proxy
statement and all such nominees were elected with the following vote:
ELECTION OF DIRECTORS VOTES FOR VOTES WITHHELD OR OPPOSED
Michael E. Porter 103,095,810 3,123,855
Steven C. Walske 104,438,427 1,781,238
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Agreement and Plan of Reorganization dated as of November 3,
1997 by and among the Company, PTC Acquisition Corporation and
Computervision Corporation (Exhibit 2.1 to the Company's Form
8-K dated November 4, 1997).
10.1*# Amendment #2 to the Consulting Agreement, as amended, with
Michael E. Porter (the Consulting Agreement and Amendment #1
thereto are filed as Exhibits 10.3 and 10.4, respectively, to
the Quarterly Report on Form 10-Q for the fiscal quarter ended
June 28, 1997.)
10.2*# Severance Agreement with Barry F. Cohen dated February 1, 1998.
27.1* Financial Data Schedule for the periods ended April 4, 1998 and
March 29, 1997.
99.1 Annual Report to Stockholders for the fiscal year ended
September 30, 1997 (which is not deemed to be "filed" except to
the extent that portions thereof are expressly incorporated in
this Quarterly Report on Form 10-Q) (Exhibit 13.1 to the
Company's 1997 Form 10-K).
99.2 Registration Statement No. 333-39959 on Form S-4 (which is not
deemed to be "filed" except to the extent that portions thereof
are expressly incorporated in this Quarterly Report on Form
10-Q).
* Indicates document filed herewith.
# Identifies a management contract or compensatory plan or arrangement
in which an executive officer or director of the Company participates.
For the Company's documents incorporated by reference, references are
to file No. 0-18059.
13
<PAGE>
(b) Reports on Form 8-K
On March 27, 1998, the Company filed Amendment No. 1 to its Current Report
on Form 8-K dated January 27, 1998 related to the acquisition of
Computervision. The Amendment, which was filed under Item 7, incorporated
by reference the historical financial statements of Computervision and
included the related pro forma financial information of the Company, giving
effect to the acquisition.
On February 12, 1998, the Company filed a Current Report on Form 8-K under
Item 5 describing the Company's one-for-one stock dividend.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PARAMETRIC TECHNOLOGY CORPORATION
Date: May 18, 1998 By: /s/ Edwin J. Gillis
-------------------------------------------
Edwin J. Gillis
Executive Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
14
<PAGE>
Exhibit 10.1
AMENDMENT #2 TO
CONSULTING AGREEMENT
This Amendment #2 To Consulting Agreement, dated January 6, 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 residing at 147
Chestnut Hill Road, Massachusetts 02167 (hereinafter "Consultant").
ARTICLE 3 SERVICES TO BE PERFORMED BY CONSULTANT, is hereby amended by adding
the following Section 3.3:
3.3 Consultant is engaged pursuant to this Amendment #2 to Consulting
Agreement, to participate in four (4) additional top management seminars
consistent with the purposes and scope of those seminars which Consultant was
previously engaged to provide under Section 3.2 of the Consulting Agreement.
ARTICLE 4 COMPENSATION AND EXPENSES, is hereby amended by adding the following
Section 4.4:
4.4 OPTION GRANT FOR SERVICES TO BE PERFORMED UNDER SECTION 3.3. In
connection with those services to be performed pursuant to this Amendment #2
to Consulting Agreement (as described in Section 3.3 above), Consultant shall
receive an option to purchase 24,000 shares of PTC's common stock, $.01 par
value per share, under the terms of the Stock Option Agreement dated January
6, 1998 between PTC and the Consultant attached hereto.
IN WITNESS WHEREOF, the parties have executed this Amendment #2 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. 012891 24,000 Shares
PARAMETRIC TECHNOLOGY CORPORATION
1997 INCENTIVE STOCK OPTION PLAN
Nonstatutory Stock Option Certificate
January 6, 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:
<TABLE>
<S> <C>
Name of Optionholder: Michael E. Porter
Social Security Number ###-##-####
Number of Shares: 24,000
Option Price: $48.3125
Date of Grant: January 6, 1998
</TABLE>
Exercisability Schedule:
On or after April 6, 1998, as to 6,000 shares,
on or after July 6, 1998, as to 6,000 additional shares,
on or after October 6, 1998, as to 6,000 additional shares,
on or after January 6, 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 10.2
AGREEMENT
---------
This Agreement is entered into as of this 1st day of February, 1998,
between Parametric Technology Corporation, a Massachusetts corporation (the
"Company"), and Barry F. Cohen (the "Officer").
WHEREAS, the Officer is the Executive Vice President of Electronic Product
Definition (EPD); and
WHEREAS, to provide incentive for the Officer to maintain employment with
the Company, the Company desires to make the following arrangements with the
Officer concerning his termination of employment.
NOW, THEREFORE, the Company and the Officer hereby agree as follows:
1. Termination Notice. The Company agrees that it may not terminate the
------------------
employment of the Officer unless (i) such termination is for Cause (as defined
below) or (ii) the Company has delivered to the Officer a written notice of such
termination (the "Termination Notice") at least six months in advance of the
termination date. The duties of the Officer during the period from the date of
delivery of a Termination Notice until the termination of his employment shall
be as determined by the Board of Directors.
2. Salary. During the period from the date of delivery of the
------
Termination Notice (the "Notice Date") until the earlier of (i) the date six
months after the Notice Date or (ii) the date the Officer commences employment
with another company or organization, the Company shall pay to the Officer a
salary that is equal, on an annualized basis, to the highest
1
<PAGE>
annual salary (excluding any bonuses) in effect with respect to the Officer
during the six-month period immediately preceding the Termination Notice.
3. Stock Options. Effective upon a Change in Control (as defined
-------------
below) of the Company, all stock options granted to the Officer and then
outstanding under any Stock Option Plan (as defined below) of the Company shall
become exercisable in full, notwithstanding any vesting schedule or other
provisions to the contrary in the agreements evidencing such options; and the
Company and the Officer hereby agree that such option agreements are hereby and
will be deemed amended to give effect to this provision.
4. Definitions.
-----------
(a) A termination by the Company of the Officer's employment for
"Cause" shall mean termination (i) for the Officer's willful and continued
failure to substantially perform his duties to the Company (other than any such
failure resulting from the Officer's incapacity due to physical or mental
illness or any such actual or perceived failure after a Change in Status of the
Officer), provided that (a) the Company has delivered a written demand for
substantial performance to the Officer specifically identifying the manner in
which the Company believes that the Officer has not substantially performed his
duties, and (b) the Officer has not cured such failure within 30 days after such
demand, (ii) for willful conduct by the Officer which is demonstrably and
materially injurious to the Company, or (iii) for the Officer's willful
violation of any material provision of any confidentiality, nondisclosure,
assignment of invention, noncompetition or similar agreement entered into by the
Officer in connection with his employment by the Company. For purposes of this
paragraph, no act or failure to act on the Officer's part shall be deemed
"willful" unless done or omitted to be done by the Officer not in good faith and
without reasonable belief that his action or omission was in the best interests
of the Company.
2
<PAGE>
(b) A "Change in Control" of the Company shall mean the occurrence of
any of the following events: (i) any "person", as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportion as their ownership of stock in the Company) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 50% or more of
the combined voting power of the Company's then outstanding securities (other
than as a result of acquisitions of such securities from the Company); (ii)
individuals who, as of the date hereof, constitute the Board of Directors of the
Company (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Company) shall be, for purposes of this Agreement, considered to be a member of
the Incumbent Board; (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as defined above) acquires more than 20% of the combined voting power
of the Company's then outstanding
3
<PAGE>
securities; or (iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
(c) A "Stock Option Plan" of the Company shall mean any stock option
or equity compensation plan of the Company in effect at any time, including
without limitation the 1987 Incentive Stock Option Plan and the 1997 Incentive
Stock Option Plan.
5. Term. This Agreement shall continue in effect until February 1,
----
2001, unless extended by the mutual written consent of the Company and the
Officer.
6. Successors.
----------
(a) This Agreement is personal to the Officer and without the prior
written consent of the Company shall not be assignable by the Officer otherwise
than by will or the laws of descent and distribution.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
defined above and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement.
4
<PAGE>
7. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts, without reference to
principles of conflict of laws.
(b) This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective successors
and legal representatives.
(c) All notices and other communications hereunder shall be in writing
and shall be delivered by hand delivery, by a reputable overnight courier
service, or by registered or certified mail, return receipt requested, postage
prepaid, in each case addressed as follows:
If to the Company:
-----------------
Parametric Technology Corporation
128 Technology Drive
Waltham, MA 02154
Attention: Corporate Counsel
If to the Officer:
------------------
Barry F. Cohen
649 Sudbury Road
Concord, MA 01742
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Any notice or communication shall be deemed to
be delivered upon the date of hand delivery, one day following delivery to such
overnight courier service, or three days following mailing by registered or
certified mail.
5
<PAGE>
EXECUTED as of the date first written above.
PARAMETRIC TECHNOLOGY CORPORATION
By: /s/ C. Richard Harrison
-------------------------------------
C. Richard Harrison
President and Chief Operating Officer
/s/ Barry F. Cohen
-------------------------------------
Barry F. Cohen
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCUDED IN THE FORM 10-Q FOR THE QUARTER ENDED APRIL 4,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> APR-04-1998
<CASH> 255,443
<SECURITIES> 120,920
<RECEIVABLES> 196,636
<ALLOWANCES> 6,417
<INVENTORY> 0
<CURRENT-ASSETS> 633,914
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 790,654
<CURRENT-LIABILITIES> 411,394
<BONDS> 0
0
0
<COMMON> 2,705
<OTHER-SE> 301,497
<TOTAL-LIABILITY-AND-EQUITY> 790,654
<SALES> 320,816
<TOTAL-REVENUES> 522,939
<CGS> 8,528
<TOTAL-COSTS> 78,958
<OTHER-EXPENSES> 340,339
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 97,393
<INCOME-TAX> 52,185
<INCOME-CONTINUING> 45,208
<DISCONTINUED> 0
<EXTRAORDINARY> (19,017)
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<NET-INCOME> 26,191
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.09
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCUDED IN THE FORM 10-Q FOR THE QUARTER ENDED MARCH 29,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-29-1997
<CASH> 229,140
<SECURITIES> 289,528
<RECEIVABLES> 224,018
<ALLOWANCES> 5,376
<INVENTORY> 0
<CURRENT-ASSETS> 776,597
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 896,423
<CURRENT-LIABILITIES> 462,413
<BONDS> 0
0
0
<COMMON> 2,673
<OTHER-SE> 144,004
<TOTAL-LIABILITY-AND-EQUITY> 896,423
<SALES> 318,745
<TOTAL-REVENUES> 547,797
<CGS> 10,861
<TOTAL-COSTS> 140,821
<OTHER-EXPENSES> 331,769
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 63,993
<INCOME-TAX> 55,196
<INCOME-CONTINUING> 8,797
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,797
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
