UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: January 1, 2000
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
incorporation or organization)
|
(I.R.S. Employer
Identification 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)
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 ¨
There were 274,962,701 shares of our common stock outstanding on
January 1, 2000.
PARAMETRIC TECHNOLOGY CORPORATION
INDEX TO FORM 10-Q
For the Quarter Ended January 1, 2000
| |
|
|
|
Page
Number
|
| Part I—FINANCIAL
INFORMATION |
|
|
| |
| Item 1. |
|
Financial
Statements |
|
|
| |
|
|
|
Consolidated Balance
Sheets as of September 30, 1999 and January 1, 2000 |
|
1 |
| |
|
|
|
Consolidated Statements of
Income for the three months ended January 2, 1999 and January
1, 2000 |
|
2 |
| |
|
|
|
Consolidated Statements of
Cash Flows for the three months ended January 2, 1999 and
January 1, 2000 |
|
3 |
| |
| |
|
Consolidated Statements of
Comprehensive Income for the three months ended January 2,
1999 and January 1, 2000 |
|
4 |
| |
|
|
|
Notes to Consolidated
Financial Statements |
|
5 |
| |
| Item 2. |
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations |
|
7 |
| |
| Item 3. |
|
Quantitative and
Qualitative Disclosures About Market Risk |
|
19 |
| |
| Part II—OTHER
INFORMATION |
|
|
| |
| Item 1. |
|
Legal
Proceedings |
|
19 |
| |
| Item 6. |
|
Exhibits and Reports on
Form 8-K |
|
19 |
| |
| |
| Signature |
|
19 |
PART I—FINANCIAL INFORMATION
PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
| |
|
September 30,
1999
|
|
January 1,
2000
|
| ASSETS |
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$
239,789 |
|
|
$
315,351 |
|
|
Short-term investments |
|
101,217 |
|
|
95,347 |
|
|
Accounts receivable, net |
|
221,889 |
|
|
189,340 |
|
|
Other current assets |
|
142,209 |
|
|
119,345 |
|
| |
|
|
|
|
|
|
|
Total current assets |
|
705,104 |
|
|
719,383 |
|
| |
| Marketable
investments |
|
12,889 |
|
|
9,730 |
|
| Property and equipment,
net |
|
64,176 |
|
|
66,601 |
|
| Goodwill, net |
|
113,011 |
|
|
110,317 |
|
| Other intangible assets,
net |
|
53,836 |
|
|
51,818 |
|
| Other assets |
|
67,604 |
|
|
66,185 |
|
| |
|
|
|
|
|
|
|
Total assets |
|
$1,016,620 |
|
|
$1,024,034 |
|
| |
|
|
|
|
|
|
| LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
|
|
Accounts payable |
|
$
40,879 |
|
|
$
35,982 |
|
|
Accrued expenses |
|
67,135 |
|
|
52,748 |
|
|
Accrued compensation and
severance |
|
55,590 |
|
|
48,637 |
|
|
Deferred revenue |
|
213,059 |
|
|
208,939 |
|
|
Income taxes |
|
80,520 |
|
|
44,219 |
|
| |
|
|
|
|
|
|
|
Total current liabilities |
|
457,183 |
|
|
390,525 |
|
| |
| Other
liabilities |
|
38,333 |
|
|
34,458 |
|
| |
| Stockholders’
equity: |
|
|
|
|
|
|
|
Preferred stock, $0.01 par value;
5,000 shares authorized; none issued |
|
— |
|
|
— |
|
Common stock, $0.01 par value; 350,000
shares authorized; 272,277 and
274,963 shares issued, respectively |
|
2,723 |
|
|
2,750 |
|
|
Additional paid-in capital |
|
1,583,846 |
|
|
1,621,400 |
|
|
Treasury stock, at cost, 2,113 and 0
shares, respectively |
|
(27,727 |
) |
|
— |
|
|
Accumulated deficit |
|
(1,022,357 |
) |
|
(1,011,954 |
) |
|
Accumulated other comprehensive
loss |
|
(15,381 |
) |
|
(13,145 |
) |
| |
|
|
|
|
|
|
|
Total stockholders’ equity |
|
521,104 |
|
|
599,051 |
|
| |
|
|
|
|
|
|
|
Total liabilities and stockholders’
equity |
|
$1,016,620 |
|
|
$1,024,034 |
|
| |
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
| |
|
Three months
ended
|
| |
|
January 2,
1999
|
|
January 1,
2000
|
| Revenue: |
|
|
|
|
|
License |
|
$136,080 |
|
$104,874 |
|
Service |
|
114,037 |
|
134,163 |
| |
|
|
|
|
|
Total revenue |
|
250,117 |
|
239,037 |
| |
|
|
|
|
| Costs and
expenses: |
|
|
|
|
|
Cost of license revenue |
|
4,139 |
|
4,128 |
|
Cost of service revenue |
|
41,716 |
|
56,027 |
|
Sales and marketing |
|
96,115 |
|
104,940 |
|
Research and development |
|
29,180 |
|
34,067 |
|
General and administrative |
|
16,554 |
|
16,471 |
|
Amortization of goodwill and other
intangible assets |
|
2,487 |
|
9,428 |
|
Acquisition and nonrecurring
charges |
|
13,829 |
|
— |
| |
|
|
|
|
|
Total costs and expenses |
|
204,020 |
|
225,061 |
| |
|
|
|
|
| Operating
income |
|
46,097 |
|
13,976 |
|
Other income, net |
|
1,944 |
|
643 |
| |
|
|
|
|
| Income before income
taxes |
|
48,041 |
|
14,619 |
|
Provision for income taxes |
|
18,050 |
|
4,238 |
| |
|
|
|
|
| Net income |
|
$ 29,991 |
|
$ 10,381 |
| |
|
|
|
|
| Earnings per share (Note
2): |
|
|
|
|
|
Basic |
|
$
0.11 |
|
$
0.04 |
|
Diluted |
|
$
0.11 |
|
$
0.04 |
The accompanying notes are an integral part of the consolidated
financial statements.
PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| |
|
Three months
ended
|
| |
|
January 2,
1999
|
|
January 1,
2000
|
| Cash flows from operating
activities: |
|
|
|
|
|
|
|
Net income |
|
$ 29,991 |
|
|
$ 10,381 |
|
|
Adjustments to reconcile net income to net cash flows from operating
activities: |
|
|
|
|
|
|
|
Depreciation and
amortization |
|
12,283 |
|
|
18,185 |
|
|
Charge for purchased in-process
research and development |
|
10,600 |
|
|
— |
|
Changes in assets and liabilities
which provided (used) cash, net of effects of
purchased businesses: |
|
|
|
|
|
|
|
Accounts
receivable |
|
(8,291 |
) |
|
32,549 |
|
|
Accounts
payable and accrued expenses |
|
(18,997 |
) |
|
(17,300 |
) |
|
Accrued
compensation and severance |
|
(8,218 |
) |
|
(10,353 |
) |
|
Deferred
revenue |
|
7,208 |
|
|
(4,120 |
) |
|
Income
taxes |
|
(24,559 |
) |
|
Other
current assets |
|
(4,099 |
) |
|
(3,428 |
) |
|
Other
noncurrent assets and liabilities |
|
(6,823 |
) |
|
683 |
|
| |
|
|
|
|
|
|
| Net cash provided by
operating activities |
|
30,847 |
|
|
2,038 |
|
| |
|
|
|
|
|
|
| Cash flows from investing
activities: |
|
|
|
|
|
|
|
Additions to property and equipment |
|
(8,536 |
) |
|
(10,782 |
) |
|
Additions to other intangible assets |
|
(2,440 |
) |
|
— |
|
|
Acquisitions of businesses |
|
— |
|
|
(7,922 |
) |
|
Construction in progress |
|
— |
|
|
(4,106 |
) |
|
Proceeds from sale of land and improvements |
|
— |
|
|
30,836 |
|
|
Purchases of investments |
|
(11,705 |
) |
|
(11,831 |
) |
|
Proceeds from sales and maturities of investments |
|
24,993 |
|
|
20,857 |
|
| |
|
|
|
|
|
|
| Net cash provided by
investing activities |
|
2,312 |
|
|
17,052 |
|
| |
|
|
|
|
|
|
| Cash flows from financing
activities: |
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
4,493 |
|
|
53,845 |
|
|
Purchases of treasury stock |
|
(49,963 |
) |
|
— |
|
| |
|
|
|
|
|
|
| Net cash provided (used)
by financing activities |
|
(45,470 |
) |
|
53,845 |
|
| |
|
|
|
|
|
|
| Effect of exchange rate
changes on cash |
|
3,144 |
|
|
2,627 |
|
| |
|
|
|
|
|
|
| Net increase (decrease) in
cash and cash equivalents |
|
(9,167 |
) |
|
75,562 |
|
| Cash and cash equivalents,
beginning of period |
|
205,971 |
|
|
239,789 |
|
| |
|
|
|
|
|
|
| Cash and cash equivalents,
end of period |
|
$196,804 |
|
|
$315,351 |
|
| |
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
| |
|
Three months
ended
|
| |
|
January 2,
1999
|
|
January 1,
2000
|
| Net income |
|
$29,991 |
|
$10,381 |
|
| |
|
|
|
|
|
| Other comprehensive income
(loss), net of tax provision (benefit): |
|
|
|
|
|
|
Foreign currency translation
adjustment, net of tax of $847 and $1,205 |
|
1,573 |
|
2,239 |
|
|
Unrealized gain (loss) on securities,
net of tax of $111 and $0 |
|
205 |
|
(3 |
) |
| |
|
|
|
|
|
| Other comprehensive
income |
|
1,778 |
|
2,236 |
|
| |
|
|
|
|
|
| Comprehensive
income |
|
$31,769 |
|
$12,617 |
|
| |
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
PARAMETRIC TECHNOLOGY CORPORATION
NOTES TO 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 and have been prepared by us in accordance with generally
accepted accounting principles. Our fiscal year end is September 30. Certain
reclassifications have been made to the prior year’s statements to
conform with the fiscal 2000 presentation. The year end consolidated balance
sheet was derived from our audited financial statements. 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 our financial position, results
of operations and cash flows at the dates and for the periods indicated.
While we believe 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 our Annual Report on Form 10-K for the fiscal year ended
September 30, 1999.
The results of operations for the three month period ended January 1,
2000 are not necessarily indicative of the results expected for the
remainder of the fiscal year.
2. Earnings Per Share
Basic earnings per share (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 and any other potential
dilution. The following table presents the calculation for both basic and
diluted EPS:
| |
|
Three months
ended
|
| |
|
January 2,
1999
|
|
January 1,
2000
|
| |
|
(in thousands, except
per
share data) |
| Net income |
|
$ 29,991 |
|
$ 10,381 |
| |
|
|
|
|
| Weighted average shares
outstanding |
|
268,429 |
|
272,436 |
| Dilutive effect of
employee stock options |
|
4,933 |
|
14,434 |
| Contingently issuable
shares related to InPart acquisition |
|
418 |
|
— |
| |
|
|
|
|
| Diluted shares
outstanding |
|
273,780 |
|
286,870 |
| |
|
|
|
|
| Basic EPS |
|
$
0.11 |
|
$
0.04 |
| Diluted EPS |
|
$
0.11 |
|
$
0.04 |
Options to purchase 17.9 million shares for the three months ended
January 2, 1999 and 5.4 million shares for the three months ended January 1,
2000 were outstanding but were excluded from the computations of diluted
shares outstanding because the price of the options was greater than the
average market price of the common stock for the period
reported.
3. Facilities
In December 1999, we sold land and certain improvements under
construction for $30.8 million and entered into a lease covering
approximately 381,000 square feet of office space in the Boston area that
will allow us to consolidate and replace our Waltham operations. Occupancy
and rent should begin in December 2000 and expire in December 2012, subject
to completion of construction.
PARAMETRIC TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
—(Continued)
4. New Accounting
Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting
for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. SFAS
No. 133 requires companies to recognize all derivatives as either assets or
liabilities, with the instruments measured at fair value. The accounting for
changes in fair value, gains or losses, depends on the intended use of the
derivative and its resulting designation. Originally, the statement had been
effective for all quarters of fiscal years beginning after June 15, 1999. In
June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities, which postponed the adoption of SFAS
No. 133 until fiscal years beginning after June 15, 2000. We plan to
implement SFAS No. 133 in our fiscal year 2001. We believe that the adoption
of this statement will not have a significant effect on our consolidated
financial statements.
5. Segment Information
During 1999, we adopted SFAS No. 131, Disclosure about Segments of
an Enterprise and Related Information, which changes the way public
companies report information about operating segments. Operating segments
are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance. Our chief operating decision making
group is made up of our executive officers.
We operate within a single industry segment—computer software
and related services. We have two major product categories within that one
segment: (1) our computer-aided design, manufacturing and engineering
(CAD/CAM/CAE) solutions, including our flagship Pro/ENGINEER® design
software, which provides flexible engineering solutions to our customers and
(2) our Web-based Windchill® information management software which
provides collaborative product commerce (CPC) solutions to our customers
using Internet technologies to collaboratively develop, build and manage
products throughout their entire lifecycle. Our products are sold worldwide
by our sales force and distributors.
Our revenue by product category and from unaffiliated customers for
the geographic regions in which we operate is presented below:
| |
|
Three months
ended
|
| |
|
January 2,
1999
|
|
January 1,
2000
|
| |
|
(in
thousands) |
| Revenue: |
|
CAD/CAM/CAE solutions |
|
$245,417 |
|
$200,784 |
|
Windchill CPC solutions |
|
4,700 |
|
38,253 |
| |
|
|
|
|
|
Total revenue |
|
$250,117 |
|
$239,037 |
| |
|
|
|
|
| Revenue: |
|
|
|
|
|
North America |
|
$115,855 |
|
$104,256 |
|
Europe |
|
98,583 |
|
90,964 |
|
Asia/Pacific |
|
35,679 |
|
43,817 |
| |
|
|
|
|
|
Total revenue |
|
$250,117 |
|
$239,037 |
| |
|
|
|
|
Total long-lived assets by geographic region have not changed
significantly from September 30, 1999.
ITEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q 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 and
in “Important Factors That May Affect Future Results”
beginning on page 13.
Business Overview
Historically, our core business focus has been to provide mechanical
CAD/CAM/CAE solutions to customers through our flagship Pro/ENGINEER®
design software, and we remain committed to providing our customers with
industry leading flexible engineering solutions based on this software.
Additionally, we believe that there is growing demand for collaborative
product commerce (CPC) solutions from manufacturers who, in order to stay
competitive, must deliver more custom-tailored goods faster and at lower
prices while relying more than ever before on geographically dispersed and
dynamic supply chains. CPC solutions include software and services that use
Internet technologies to permit individuals—no matter what role they
have in the commercialization of a product, no matter what computer-based
tools they use, no matter where they are located geographically or in the
supply chain—to collaboratively develop, build and manage products
throughout their entire lifecycle. In order to pursue this opportunity, we
expanded our focus in 1999 to encompass the complete CPC solution offered by
our Web-based Windchill® information management software and plan to
continue this focus in 2000. This expanded focus going forward allows us to
increase the business impact our customers derive from our flexible
engineering solutions and provides our customers with the additional tools
they need to elevate their products into enterprise assets and to leverage
these assets into new business opportunities.
Results of Operations
The following is an overview of our results of
operations:
|
·
|
Total revenue was $250.1
million for the first quarter of 1999 and $239.0 million for the first
quarter of 2000.
|
|
·
|
Our year-over-year first
quarter revenue declined 4% reflecting a 23% decrease in software license
revenue offset by an 18% increase in service revenue.
|
|
·
|
Net income decreased 65%
to $10.4 million for the first quarter of 2000.
|
|
·
|
Pro forma net income,
which excludes the amortization of goodwill and intangible assets and
acquisition and nonrecurring charges, decreased 61% to $17.6 million for
the first quarter of 2000.
|
The following table shows certain consolidated financial data as a
percentage of our total revenue for the first quarter of 1999 and
2000.
| |
|
Three months
ended
|
| |
|
January 2,
1999
|
|
January 1,
2000
|
| Revenue: |
|
|
|
|
|
|
|
License |
|
54 |
% |
|
44 |
% |
|
Service |
|
46 |
|
|
56 |
|
| |
|
|
|
|
|
|
|
Total revenue |
|
100 |
|
|
100 |
|
| |
|
|
|
|
|
|
| Costs and
expenses: |
|
|
|
|
|
|
|
Cost of license revenue |
|
2 |
|
|
2 |
|
|
Cost of service revenue |
|
17 |
|
|
23 |
|
|
Sales and marketing |
|
38 |
|
|
44 |
|
|
Research and development |
|
12 |
|
|
14 |
|
|
General and administrative |
|
7 |
|
|
7 |
|
|
Amortization of goodwill and other
intangible assets |
|
1 |
|
|
4 |
|
|
Acquisition and nonrecurring
charges |
|
5 |
|
|
— |
|
| |
|
|
|
|
|
|
|
Total costs and expenses |
|
82 |
|
|
94 |
|
| |
|
|
|
|
|
|
| Operating
income |
|
18 |
|
|
6 |
|
|
Other income, net |
|
1 |
|
|
— |
|
| |
|
|
|
|
|
|
| Income before income
taxes |
|
19 |
|
|
6 |
|
|
Provision for income taxes |
|
7 |
|
|
2 |
|
| |
|
|
|
|
|
|
| Net income |
|
12 |
% |
|
4 |
% |
| |
|
|
|
|
|
|
Pro forma, excluding
amortization of goodwill and intangible assets and
acquisition and nonrecurring
charges: |
|
|
|
|
|
|
|
Operating income |
|
25 |
% |
|
10 |
% |
|
Net income |
|
18 |
% |
|
7 |
% |
REVENUE. As a result of our expanded
focus on providing CPC solutions, software and service revenue from our
Windchill products grew to 16% of total revenue in the first quarter of
2000, up from 2% in the first quarter of 1999. Overall, however, total
revenue decreased 4% for the first quarter of 2000, compared to the first
quarter of 1999.
License revenue decreased 23% for the first quarter of 2000 compared
to the first quarter of 1999. While we continue to derive our license
revenue primarily from software related to the mechanical CAD/CAM/CAE
industry, we have channeled significant resources into transforming
ourselves from a CAD/CAM/CAE-only company to one that is strategically
positioned to provide Internet-based CPC solutions. This fundamental
transformation, which has taken place over the past six quarters, has
impacted every aspect of our business, most notably our sales
organization.
In fiscal 1999, we implemented a company-wide reorganization of our
sales force. This reorganization has taken longer to be effective than we
initially anticipated, and our results in this quarter reflect this. The
transition to a two-product company has resulted in a greater Windchill CPC
focus, reduced sales capacity for the CAD/CAM/CAE product line and resultant
loss of market share. Given that the first quarter is seasonally our most
challenging one, the reduced capacity for the CAD/CAM/CAE product line had
an even more acute impact on revenue this quarter, as evidenced by the fact
that unit sales of our core Pro/ENGINEER design software were down 32% in
the first quarter of 2000 compared to the first quarter of 1999.
An integral part of the sales force reorganization encompassed
changing the way we distribute our CAD/CAM/CAE products to smaller business
segments. We licensed approximately 90% of our products directly to end-user
customers in each of the first quarters of 1999 and 2000 with the remainder
licensed through third-party distributors, primarily Rand A Technology
Corporation.
In the first quarter of 1999, we entered into a master distribution
arrangement with Rand to address certain smaller business segments. Rand
’s performance has been impacted by the transition required by this new
relationship, and, while their performance is improving, their level of
revenue contribution has been lower than anticipated. We believe, however,
that this strategy will enhance our long-term growth. In the first quarter
of 2000, we amended the distribution agreement with Rand to expand its
distribution into a broader segment of small businesses. Providing this
broader base of business opportunity should continue to assist Rand in
further developing its distribution network, growing sales of our products
and enhancing our long-term growth. Our results could be adversely affected
if Rand is unable to achieve certain sales levels or make existing or future
payments.
During this quarter we closed fewer large deals than we expected and
experienced some weakness with existing customers, particularly in Japan and
Europe. In addition, market demand in certain segments of the CAD/CAM/CAE
industry appears to have slowed. We also experienced a lower average selling
price of our Pro/ENGINEER software, which decreased by 10% in the first
quarter of 2000 compared to the first quarter of 1999. Additional factors
affecting our revenue and operating results are included in
“Important Factors That May Affect Future Results”
below.
Our service revenue is derived from the sale of software maintenance
contracts and the performance of training and consulting services. Service
revenue, which has a lower gross profit margin than license revenue,
accounted for 46% and 56% of total revenue in the first quarter of 1999 and
2000, respectively. Service revenue increased 18% in the first quarter of
2000 compared to the same period in 1999. This increase is the result of
growth in our installed customer base and increased training and consulting
services performed for these customers. We expect service revenue to
continue to increase in absolute dollars for the remainder of
2000.
We derived 54% and 56% of our total revenue from sales to
international customers in the first quarter of 1999 and 2000,
respectively.
[CHART SHOWING REVENUE BY GEOGRAPHY (in millions)]
North America Europe Asia/Pacific
Q1 99 $115.9 $98.6 $35.7
Q1 00 $104.3 $91.0 $43.8
REVENUE BY GEOGRAPHY (IN MILLIONS)
Looking forward, our overall revenue levels will be affected by our
ability to capitalize on the CPC opportunity while balancing our sales
capacity between Pro/ENGINEER and Windchill. Our challenge is to manage and
maintain leadership in our traditional mechanical CAD/CAM/CAE business while
investing aggressively in a new product area that presents significant
growth opportunities. Because our transition to a two-product business
model is not yet complete, we are cautious in our overall near-term outlook.
Nevertheless, we believe that our Windchill business may further
differentiate our mechanical CAD/CAM/CAE products and ultimately invigorate
our mechanical CAD/CAM/CAE business.
COSTS AND EXPENSES. Our operating expenses are
based on anticipated future revenue and are relatively fixed for the short
term. We are incurring expenses that would support revenues in excess of
current levels in order to implement our strategic initiatives, particularly
as they relate to our Windchill CPC solutions. Although these expense levels
have adversely affected net income, we continue to believe that these
initiatives will provide a foundation for future growth.
COST OF LICENSE REVENUE. Our cost of license
revenue consists of costs associated with reproducing and distributing
software and documentation and the payment of royalties. Cost of license
revenue as a percent of license revenue was 3% and 4% for the first quarter
of 1999 and 2000, respectively.
COST OF SERVICE REVENUE. 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
increased worldwide service revenue and to provide ongoing high-quality
customer support to our growing installed base. Cost of service revenue as a
percent of service revenue was 37% and 42% for the first quarter of 1999 and
2000, respectively. This increase reflects our investment in the staffing
necessary to support our new product offerings, principally our Windchill
CPC solutions.
SALES AND MARKETING. Our sales and marketing
expenses primarily include salaries and benefits, sales commissions, travel
and facility costs. These costs increased 9% in the first quarter of 2000
compared to 1999 primarily due to the higher average cost per sales
employee, as we are hiring a more experienced Windchill CPC solutions sales
force. Total sales and marketing employees decreased from 2,180 at January
2, 1999 to 1,898 at January 1, 2000 primarily due to the sales force
reorganizations during 1999.
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 first quarter of
1999, research and development expenses increased 17% in the first quarter
of 2000. This is primarily attributable to our continued investment in
research and development, particularly in connection with our Windchill CPC
solutions and the impact of our InPart, Division and auxilium acquisitions
in 1999. We expect our investment in research and development to increase in
absolute dollars for the remainder of 2000.
GENERAL AND ADMINISTRATIVE. Our general and
administrative expenses include costs of our corporate, finance, information
technology, human resources and administrative functions. These costs were
flat in the first quarter of 2000 compared to the first quarter of
1999.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS.
These costs represent the amortization of intangible assets
acquired, including developed technology, goodwill, customer lists,
assembled work force and trade names. The increased amortization of $6.9
million in the first quarter of 2000 compared to 1999 primarily resulted
from our 1999 acquisitions of InPart, Division and auxilium.
[CHART SHOWING COSTS AND EXPENSES (in millions)]
Q1 99 Q1 00
------- -------
Cost of License Revenue $ 4.1 $ 4.1
Cost of Service Revenue 41.7 56.0
Sales and Marketing 96.1 104.9
Research and Development 29.2 34.1
General and Administrative 16.6 16.5
Amortization of Goodwill and Intangible Assets 2.5 9.4
Acquisition and Nonrecurring Charges 13.8 -
ACQUISITION AND NONRECURRING CHARGES.
Acquisition. In October 1998, we
purchased InPart Design, Inc., the developer of DesignSuite, a Web-based
repository of 3D mechanical component data, as well as the developer of
enterprise software applications focused on Web-based component and supplier
management, which was founded in 1996. We allocated the purchase price of
$38.1 million to the assets acquired and liabilities assumed based on our
estimate of fair value. The values assigned included $741,000 for net
liabilities assumed, $10.6 million for purchased in-process research and
development (R&D), $4.1 million for developed technology, $1.1 million
for customer lists, $200,000 for an assembled workforce and $300,000 for
trade names. The excess purchase price over the amounts allocated to assets
acquired and liabilities assumed was recorded as goodwill of $22.5
million.
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 $10.6 million during the
first quarter of 1999. For additional information about this acquisition,
see Item 7 of our 1999 Annual Report on Form 10-K.
Sales Force Reorganization. During the
first quarter of 1999, we reorganized our sales force to provide a more
focused approach to the unique product and service requirements of our
customers. In connection with this action, we incurred a restructuring
charge of $3.2 million for the severance and termination benefits of
approximately 170 people who were terminated during the first quarter of
1999 in accordance with management’s plans. All amounts related to
terminated employees were paid in 1999.
OTHER INCOME, NET. Our other income,
(net) includes interest income, interest expense, costs of 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. For the first
quarter of 1999, we reported other income of $1.9 million compared to
$643,000 for the first quarter of 2000. The change is primarily due to lower
interest income, as a result of lower average invested balances, and the
weakening of the dollar against certain foreign currencies.
INCOME TAXES. Our effective tax rate
for the first quarter of 1999 was 38% compared with 29% for the
corresponding period in 2000. The difference between our effective tax rate
and the statutory federal income tax rate of 35% was due primarily to the
non-deductibility of certain acquisition and nonrecurring charges in the
first quarter of 1999 and the use of Computervision net operating losses in
the first quarter of 2000. On a pro forma basis, which excludes amortization
of goodwill and intangible assets and acquisition and nonrecurring charges,
our effective tax rate for the first three months of 1999 and 2000 was 30%
and 29%, respectively.
EMPLOYEES. The number of worldwide
employees was 4,803 at January 2, 1999 compared to 5,051 at January 1, 2000.
The increase over the prior year was a result of growth in our services
organization and in the research and development group, primarily through
acquisitions, offset by a decrease due to the sales force reorganizations
during 1999.
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 base, capital assets needs, stock
repurchases, acquisitions and financing needs, in the first quarters of 1999
and 2000.
As of January 1, 2000, cash and investments totaled $420.4 million,
up from $353.9 million at September 30, 1999. The primary reason for the
increase in cash and investments during the quarter ending January 1, 2000
was $53.8 million in proceeds from stock option exercises and $30.8 million
from the sale of land and certain improvements, partially offset by $10.8
million in expenditures to acquire property and equipment. 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 $30.8 million in the
first quarter of 1999, compared to $2.0 million in the first quarter of
2000, net of cash expenditures for nonrecurring charges of $6.0 million in
the first quarter of 2000. The decrease in cash generated from operating
activities was primarily due to lower net income.
In the first quarter of 1999 and 2000, we acquired $8.5 million and
$10.8 million, respectively, of capital equipment consisting principally of
computer equipment, software and office equipment.
We generated net cash from financing activities during the first
quarter of 2000 of $53.8 million from the issuance of common stock under our
stock plans. In the first quarter of 1999, we used net cash in financing
activities of $45.5 million, consisting of $50.0 million for the purchase of
treasury stock, partially offset by $4.5 million from the issuance of common
stock under our stock plans. Through January 1, 2000 we had repurchased 11.0
million of the 20.0 million shares authorized by the Board of Directors to
be repurchased under our approved repurchase program. The repurchased shares
will be used for stock option exercises, employee stock purchase plans and
potential acquisitions. No shares were purchased in the first quarter of
2000, but we expect to repurchase shares during 2000 as determined by
management.
In December 1999, we sold land and certain improvements under
construction for approximately $30.8 million and entered into a lease
covering approximately 381,000 square feet of office space in the Boston
area that will allow us to consolidate and replace our Waltham operations.
Occupancy and rent should begin in December 2000 and expire in December
2012, subject to completion of construction.
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 expenditures requirements through at least the end of the
current fiscal year.
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 4 to the unaudited consolidated financial statements
included herein.
Year 2000 Computer Systems Compliance
The initial results of our Year 2000 readiness plan indicate that our
assessment, improvement and testing program succeeded in providing a smooth
transition to the Year 2000 rollover. We have not experienced any
significant Year 2000 disruptions with our products, our internal
information technology systems or our major vendors. While these results are
still preliminary, it does not appear that there will be a material impact
on our business or operations from Year 2000 problems. In the aggregate, we
incurred costs of approximately $7.0 million on our compliance project. All
costs were expensed as incurred.
Important Factors That May Affect Future Results
The following are some of the factors that could affect our future
results. They should be considered in connection with evaluating
forward-looking statements contained in this Quarterly Report on Form 10-Q
and otherwise made by us or on our behalf, because these factors could cause
actual results and conditions to differ materially from those projected in
forward-looking statements.
I. Operational
Considerations
Our operating results fluctuate within each quarter and from
quarter-to-quarter making our future revenues and operating results
difficult to predict
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 later
part 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.
Moreover, our sales force reorganizations in 1999, our shift in business
emphasis to a more solutions-oriented sales process—undertaken in part
to increase our average order size—and our focus on Windchill CPC
solutions have resulted in longer and more unpredictable sales cycles for
products and services. Accordingly, our quarterly results may be difficult
to predict prior to the end of the quarter. Any inability to obtain large
orders or orders in large volumes or to make shipments or perform services
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.
Other factors that may also cause quarter-to-quarter revenue and
earnings fluctuation, include the following:
|
·
|
our sales incentive
structure is weighted more heavily toward the end of the fiscal year, and
the rate of revenue growth for the first quarter historically has been
lower and more difficult to predict than that for the fourth quarter of
the immediately preceding fiscal year; and
|
|
·
|
variability in the levels
of professional service revenues and the mix of our license and service
revenues.
|
In addition, the levels of quarterly or annual software or service
revenue in general, or for particular geographic areas, may not be
comparable to those achieved in previous periods.
We may not be able to implement new initiatives
successfully
We have had 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 sales
force reorganization initiatives, including
|
|
—our shift from point
sales to solution sales,
|
|
—our shift from
geography-based to named-account sales,
|
|
—the ability of our
sales reps to learn and sell our full product line, and
|
|
—Rand’s and
other distributor’s ability to perform, including building a
distributor network and competing successfully in the small business
segment of the mechanical CAD/CAM/CAE arena;
|
|
·
|
our ability to anticipate
and meet evolving customer requirements in the CPC arena and successfully
deliver products and services at an enterprise level; and
|
|
·
|
our ability to identify
and penetrate additional industry sectors that represent growth
opportunities.
|
We may not be successful in integrating recently acquired
businesses or products
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 negatively affect our business.
In addition, acquisitions may result in the allocation of purchase
price to in-process R&D. The Securities and Exchange Commission (SEC)
has 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 allocations are appropriate, if the
SEC were to require us to change an allocation, this would result in a
higher amortization expense, which would adversely impact our operating
results.
We are dependent on key personnel whose loss could cause
delays in our product development and sales efforts
Our success depends upon our ability to attract and retain highly
skilled technical, managerial and sales personnel. 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
business.
We must continually modify and enhance our products to keep
pace with changing technology, and we may experience delays in developing
and debugging our software
We must continually modify and enhance our products to keep pace with
changes in computer software, hardware and database technology, as well as
emerging standards in the Internet software industry. Our ability to remain
competitive will depend on our ability to:
|
·
|
enhance our current
offerings and develop new products and services that keep pace with
technological developments through
|
|
—internal research
and development,
|
|
—acquisition of
technology, and
|
|
·
|
meet evolving customer
requirements, especially ease-of-use;
|
|
·
|
provide adequate funding
for development efforts; and
|
|
·
|
license appropriate
technology from third parties.
|
Also, as is common in the computer software industry, we may from
time to time experience delays in our product development and “debugging
” efforts. Our 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.
We may be unable to price our products competitively or
distribute them effectively
Our success is tied to our ability to price our products and services
competitively and to deliver them efficiently, including our ability
to:
|
·
|
provide products with
functionality that our customers want at a price they can
afford;
|
|
·
|
build appropriate direct
distribution channels;
|
|
·
|
utilize the Internet for
sales; and
|
|
·
|
build appropriate indirect
distribution channels through Rand or others.
|
We depend on sales from outside the United States that
could be adversely affected by changes in the international
markets
A significant portion of our business comes from outside the United
States. Accordingly, our performance could be adversely affected by economic
downturns in Europe or the Asia/Pacific region. Another consequence of
significant international business is that a large percentage of our
revenues and expenses are denominated in foreign currencies that 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 have a material impact on
our results. Other risks associated with international business
include:
|
·
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changes in regulatory
practices and tariffs;
|
|
·
|
staffing and managing
foreign operations, including the difficulties in providing
cost-effective, equity-based compensation to attract skilled
workers;
|
|
·
|
longer collection cycles
in certain areas;
|
|
·
|
potential changes in tax
and other laws;
|
|
·
|
greater difficulty in
protecting intellectual property rights; and
|
|
·
|
general economic and
political conditions.
|
We may not be able to obtain copyright or patent protection
for the software products we develop or our other trademarks
Our software products and our other trademarks, including our company
names, product names and logos, are proprietary. We protect our intellectual
property rights in these items 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 adequate protection to
our products and other intellectual property. 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 other intellectual property 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.
II. Mechanical CAD/CAM/CAE-Related
Considerations
Increasing competition in the mechanical CAD/CAM/CAE marketplace
may reduce our revenues
There are an increasing number of competitive mechanical CAD/CAM/CAE
products. Despite our belief that our products are technologically superior,
some competitive products have reached a level of functionality whereby
product differentiation is less likely, in and of itself, to dislodge
incumbent CAD systems, given the training and other startup costs associated
with system replacement. Increased competition and market acceptance of
these competitive products could have a negative effect on pricing and
revenues for our products, which could have a material adverse affect on our
results.
In addition, our CAD/CAM/CAE software is capable of performing on a
variety of platforms. Several of our competitors focus on single platform
applications, particularly Windows-based platforms. There can be no
assurance that we will have a competitive advantage with multiple platform
applications.
We continue to enhance our existing products by releasing updates.
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.
|
Growth in the CAD/CAM/CAE industry appears to have
slowed
Growth in certain segments of the mechanical CAD/CAM/CAE industry
appears to have slowed and, coupled with decreased functional
differentiation among flexible engineering tools, may affect our ability to
penetrate the market for new customers and recapture our market share. We
believe our emphasis on Windchill CPC solutions will allow us to
differentiate our flexible engineering products from the competition and
invigorate sales of those products. However, the strategy may not be
successful or may take longer than we plan. There could be a material
adverse affect on our operating results in any quarter if these assumptions
prove to be incorrect.
III. CPC and Windchill Strategy
Considerations
We are implementing a new strategy to capitalize on an
Internet-based, business-to-business market opportunity known as
Collaborative Product Commerce (CPC). It may be that our assumptions about
the CPC market opportunity are wrong, which could adversely affect our
results
We have identified CPC as a new market opportunity for us, and have
devoted significant resources toward capitalizing on that opportunity. CPC
solutions include software and services that use Internet technologies to
permit employees, customers, suppliers and others to collaboratively
develop, build and manage products throughout their entire lifecycle.
Because the market for software products that allow companies to collaborate
on product information on an enterprise-wide level is newly emerging and
because companies have not traditionally linked customers and suppliers in
this process directly, we cannot be certain as to the size of this market,
whether it will grow, or whether companies will elect to utilize our
products rather than attempt to develop applications internally or through
other sources.
In addition, companies that have already invested substantial
resources in other methods of sharing product information in the
design-through-manufacture process may be reluctant to adopt a new approach
that may replace, limit or compete with their existing systems or methods.
We expect that we will continue to need to pursue intensive marketing and
sales efforts to educate prospective customers about the uses and benefits
of our products. Demand for and market acceptance of our products will be
affected by the success of these efforts.
Our Windchill software, which is central to our CPC strategy, is
relatively new and is not yet well established in the
marketplace
The success of our CPC strategy will depend in large part on the
ability of our Windchill solutions to meet customer expectations, especially
with respect to:
|
·
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full capability,
functionality and performance;
|
|
·
|
ability to support a large
user base; and
|
|
·
|
quality and efficiency of
the services we perform relating to implementation and
customization.
|
The software is still relatively new. If our customers cannot
successfully deploy large-scale implementation projects or if they determine
that we are unable to accommodate large-scale deployments, our operating
results may be affected.
In addition, implementing a Windchill software solution on an
enterprise level takes longer and requires greater expertise than does
installing our other products. Our Windchill software must integrate with
existing computer systems and software programs used by our customers and
their partners. Because we are one of the first companies to offer a CPC
solution, many customers will be facing these integration issues for the
first time, particularly in the context of collaborating with members of the
extended enterprise, including customers and supply chain partners. Our
customers could become dissatisfied with our products or services if
integrations prove to be difficult, costly or time consuming, and our
operating results may be affected.
Competition among providers of CPC solutions may increase, which
may reduce our profits and limit or reduce our market share
The market for CPC solutions is new, highly fragmented, rapidly
changing and increasingly competitive. We expect competition to intensify,
which could result in price reductions for our products and services,
reduced gross margins and loss of market share. Our primary competition
comes from:
|
·
|
in-house development
efforts by potential customers or partners;
|
|
·
|
other vendors of
engineering information management software; and
|
|
·
|
larger, more well-known
enterprise software providers seeking to extend the functionality of their
products to encompass CPC.
|
In addition, our professional services organization may face
increasing competition for follow-on customization services from other
third-party consultants and service providers.
If use of the Internet does not continue to develop or reliably
support the demands placed on it by electronic commerce, we may experience a
loss of sales
Our success depends upon continued growth in the use of the Internet
as a medium of commerce. Although the Internet is experiencing rapid growth
in the overall number of users, this growth is a recent phenomenon and may
not continue. Furthermore, the use of the Internet for commerce is still
relatively new. As a result, a sufficiently broad base of companies and
their supply chain partners may not adopt or continue to use the Internet as
a medium of exchanging product information. Our CPC strategy would be
seriously harmed if:
|
·
|
use of the Internet does
not continue to increase or increases more slowly than
expected;
|
|
·
|
the infrastructure for the
Internet does not effectively support enterprises and their supply chain
partners;
|
|
·
|
the Internet does not
create a viable commercial marketplace, thereby inhibiting the development
of electronic commerce and reducing the demand for our products;
or
|
|
·
|
concerns over the secure
transmission of confidential information over public networks inhibit the
growth of the Internet as a means of conducting commercial
transactions.
|
Our CPC strategy will also be seriously harmed if the Internet
infrastructure is not able to support the demands placed on it by increased
usage or the limited capacity of networks to transmit large amounts of data,
or if delays in the development or adoption of new equipment standards or
protocols required to handle increased levels of Internet activity, or
increased governmental regulation, cause the Internet to lose its viability
as a means of communication between manufacturers and their customers and
supply chain partners.
IV. Other Considerations
Our stock price, which may reflect an Internet valuation, has been
highly volatile; this may make it harder to resell your shares at the time
and at a price that is favorable to you
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, our expanded focus on delivering Internet-based
solutions may cause us to be viewed, in part, as an Internet company. The
trading prices of Internet stocks in general are unusually high under
conventional valuation standards such as price-to-earnings and
price-to-sales ratios and have experienced fluctuations unrelated or
disproportionate to the operating performance of these companies. The
trading prices and valuations of these stocks, and of ours, may not be
sustained. Any negative change in the public’s perception of the
prospects of Internet or e-commerce companies, or of PTC as an Internet
company, could depress our stock price regardless of our
results.
Also, 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 SEC with
respect to our common stock.
We are currently defending a securities class action lawsuit in
which we could be liable for damages
Certain class action lawsuits were filed by shareholders in the
fourth quarter of 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 1998. The plaintiffs in these lawsuits joined together to
file a consolidated and amended complaint in the second quarter of 1999. The
consolidated and amended complaint seeks unspecified damages. We believe the
claims made in the consolidated and amended complaint are without merit, and
we intend to defend them vigorously. In the third quarter of 1999 we filed a
motion to dismiss the consolidated and amended complaint. We cannot predict
the outcome of this motion or the ultimate resolution of this action 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 problems which have not yet surfaced could cause
interruption or failure with respect to our product offerings, our internal
computer systems and those of our critical vendors and
suppliers
Our operations and
results could be adversely affected if our current product offerings or
internal systems should demonstrate Year 2000 problems that are not yet
apparent or if the major vendors or suppliers with whom we deal cannot be
easily replaced should they experience Year 2000 difficulties that have not
yet appeared. In addition, purchases by our customers could be affected if
they must expend significant resources to correct their own
systems.
Our operations in Europe may be affected by the European Union
’s conversion to a common currency
The conversion of major European countries to a common legal currency
creates uncertainties for companies like us that do significant business in
Europe. These uncertainties include technical adaptation of internal
systems to accommodate euro-denominated transactions, long-term competitive
implications of the conversion and the effect on market risk with respect to
financial instruments.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Other than as disclosed in this report on Form 10-Q, there have been
no significant changes in our market risk exposure as described in Item 7A:
“Quantitative and Qualitative Disclosures About Market Risk
” to our 1999 Annual Report on Form 10-K, which is incorporated herein
by reference.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Certain class action lawsuits were filed by shareholders in the
fourth quarter of 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. The plaintiffs in these lawsuits joined
together to file a consolidated and amended complaint in the second quarter
of 1999. The consolidated and amended complaint seeks unspecified damages.
We believe the claims made in the consolidated and amended complaint are
without merit, and we intend to defend them vigorously. In the third quarter
of 1999 we filed a motion to dismiss the consolidated and amended complaint.
We cannot predict the outcome of this motion or the ultimate resolution of
this action 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 results of
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM
8-K
(a) Exhibits
| 27.1 |
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Financial Data Schedule
for the period ended January 1, 2000; filed herewith. |
|
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For our documents incorporated by reference, references are to File
No. 0-18059.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ending January
1, 2000.
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.
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PARAMETRIC
TECHNOLOGY
CORPORATION
|
|
Executive Vice
President, Chief Financial Officer and Treasurer (Principal Financial
Officer)
|
Date: February 14, 2000
