SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended: March 30, 1996 Commission File Number: 0-18059
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PARAMETRIC TECHNOLOGY CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2866152
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
128 Technology Drive, Waltham, MA 02154
----------------------------------------
(Address of principal executive offices, including zip code)
(617) 398-5000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 126,643,224
- -------------------------------------- -----------------------------
Class Outstanding at March 30, 1996
Total number of pages: 11
Exhibit index appears on page 11
PARAMETRIC TECHNOLOGY CORPORATION
INDEX
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Page
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Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheet 3
March 30, 1996 and September 30, 1995
Consolidated Statement of Income 4
Three and six months ended March 30, 1996 and April 1, 1995
Consolidated Statement of Cash Flows 5
Six months ended March 30, 1996 and April 1, 1995
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
Part II Other Information
Item 4 Submission of Matters to a Vote of Security Holders 9
Item 6 Exhibits 9
Signature 10
2
PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEET
(amounts in thousands)
ASSETS March 30, 1996 September 30, 1995
--------------- ------------------
(unaudited)
Current assets:
Cash and cash equivalents $133,423 $145,638
Short-term investments 185,069 162,610
Accounts receivable, net of allowance for doubtful
accounts of $2,649 and $2,733 92,150 80,405
Other current assets 15,369 11,079
-------- --------
Total current assets 426,011 399,732
Marketable investments 55,048 --
Property and equipment, net 31,419 19,811
Capitalized computer software costs, net 3,777 4,380
Other assets 24,661 29,804
-------- --------
Total assets $540,916 $453,727
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 27,391 $ 19,578
Accrued compensation 22,046 19,821
Deferred revenue 44,430 37,953
Income taxes 173 4,678
-------- --------
Total current liabilities 94,040 82,030
Other liabilities 802 768
Stockholders' equity:
Preferred stock, $.01 par value; 5,000 shares authorized;
none issued -- --
Common stock, $.01 par value; 215,000 shares authorized;
126,733 and 125,129 shares issued 1,267 1,251
Additional paid-in capital 179,597 155,497
Cumulative translation adjustments (210) 1,710
Unrealized loss on investments (95) --
Retained earnings 268,651 212,471
Treasury stock, at cost, 90 and 0 shares (3,136) --
-------- --------
Total stockholders' equity 446,074 370,929
-------- --------
Total liabilities and stockholders' equity $540,916 $453,727
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
3
PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(amounts in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
------------------- -------------------
March 30, April 1, March 30, April 1,
1996 1995 1996 1995
--------- -------- --------- --------
Revenue:
License $103,420 $65,777 $194,850 $124,222
Service 37,073 25,246 71,040 45,649
-------- ------- -------- --------
Total revenue 140,493 91,023 265,890 169,871
-------- ------- -------- --------
Cost of revenue:
License 987 1,211 1,766 1,785
Service 12,402 7,521 24,077 13,911
-------- ------- -------- --------
Total cost of revenue 13,389 8,732 25,843 15,696
-------- ------- -------- --------
Gross profit 127,104 82,291 240,047 154,175
-------- ------- -------- --------
Operating expenses:
Sales and marketing 56,303 37,561 106,754 69,776
Research and development 8,901 5,790 16,726 11,161
General and administrative 6,814 4,591 12,748 9,030
-------- ------- -------- --------
Total operating expenses 72,018 47,942 136,228 89,967
-------- ------- -------- --------
Operating income 55,086 34,349 103,819 64,208
Other income, net 2,651 2,061 5,674 3,775
-------- ------- -------- --------
Income before income taxes 57,737 36,410 109,493 67,983
Provision for income taxes 20,900 13,674 39,636 25,472
-------- ------- -------- --------
Net income $ 36,837 $22,736 $ 69,857 $ 42,511
======== ======= ======== ========
Net income per share $ 0.28 $ 0.18 $ 0.53 $ 0.33
====== ====== ====== ======
Weighted average number of
common and dilutive common
equivalent shares outstanding 133,329 128,008 132,982 127,315
======== ======= ======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
4
PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(amounts in thousands)
(unaudited)
Six Months Ended
----------------------------------
March 30, 1996 April 1, 1995
--------------- -----------------
Cash flows from operating activities:
Net income $ 69,857 $ 42,511
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 6,297 3,666
Deferred income taxes 5,698 (102)
Changes in assets and liabilities:
Increase in accounts receivable (13,357) (888)
Increase in other current assets (6,900) (3,680)
(Increase) decrease in other assets 1,626 (563)
Increase in accounts payable and accrued expenses 8,128 866
Increase (decrease) in accrued compensation 2,396 (845)
Increase in income taxes 9,177 5,504
Increase in deferred revenue 6,989 16,576
--------- ---------
Net cash provided by operating activities 89,911 63,045
--------- ---------
Cash flows from investing activities:
Additions to property and equipment, net (16,252) (3,693)
Additions to capitalized computer software costs (400) (622)
Proceeds from sales of investments 30,193 47,038
Purchases of investments (107,795) (138,428)
--------- ---------
Net cash used by investing activities (94,254) (95,705)
--------- ---------
Cash flows from financing activities:
Repayment of long-term obligations (63) (45)
Proceeds from issuance of common stock 19,311 11,316
Purchases of treasury stock (25,538) --
--------- ---------
Net cash provided (used) by financing activities (6,290) 11,271
--------- ---------
Elimination of Rasna's net cash activity for the
three months ended December 31, 1994 -- (112)
Effect of exchange rate changes on cash (1,582) 1,029
--------- ---------
Net decrease in cash and cash equivalents (12,215) (20,472)
Cash and cash equivalents at beginning of period 145,638 142,202
--------- ---------
Cash and cash equivalents at end of period $ 133,423 $ 121,730
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
5
PARAMETRIC TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, and have been
prepared by the Company in accordance with generally accepted accounting
principles. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
those of a normal recurring nature, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows at the dates
and for the periods indicated. While the Company believes that the disclosures
presented are adequate to make the information not misleading, these financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995.
The results of operations for the three-month and six-month periods ended
March 30, 1996 are not necessarily indicative of the results expected for the
full fiscal year.
2. MARKETABLE INVESTMENTS
Marketable investments, classified as available for sale, consist of
investments in debt instruments of financial institutions, government entities
and corporations with maturities in excess of one year, but less than two years.
The Company has established guidelines relative to credit ratings,
diversification and maturity that maintain safety and liquidity for these
investments.
3. COMMON STOCK
On February 8, 1996, the stockholders of the Company approved an increase in
the number of authorized shares of the Company's common stock from 75,000,000 to
215,000,000. Also, on February 8, 1996, the Company's Board of Directors
declared a one-for-one stock dividend on all shares of common stock, which
became effective on February 29, 1996 to all stockholders of record on February
22, 1996. These financial statements and related notes have been retroactively
adjusted, where appropriate, to reflect the one-for-one stock dividend.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Parametric Technology Corporation is a leading supplier of software tools
used to automate the mechanical development of a product from its conceptual
design through its release into manufacturing. The Company derives its revenue
from the license and support of software used in the mechanical segment of the
CAD/CAM/CAE (computer-aided design, manufacturing and engineering) industry.
RESULTS OF OPERATIONS
Revenue, including license and service revenues, for the three-month and six-
month periods ended March 30, 1996 was $140,493,000 and $265,890,000,
respectively, compared with $91,023,000 and $169,871,000 for the three-month and
six-month periods ended April 1, 1995. These totals represent increases of 54%
for the three-month period and 57% for the six-month period over the
corresponding periods in fiscal 1995. The increase in license revenue results
from an increase in the number of seats of software licensed. A seat of
software generally consists of the Company's core product, Pro/ENGINEER(R),
together with several other software modules, configured to serve the needs of a
single end-user. The increase in the number of seats licensed was achieved as a
result of continued market penetration by the Company's products. The average
price per seat during the three months and six months ended March 30, 1996 and
April 1, 1995 was relatively stable. Service revenue is derived from the sale
of software maintenance contracts and the performance of training and consulting
services. During the three-month and six-month periods ended March 30, 1996,
service revenue was 26% and 27% of total revenue, respectively, compared to 28%
and 27% during the three-month and six-month periods ended April 1, 1995.
Revenue from outside of North America accounted for 55% and 54% of revenue for
the three-month and six-month periods ended March 30, 1996, compared with 49%
and 48% for the same periods in fiscal 1995. These increases are a result of
the Company's continued investment in the international marketplace. The
Company expects that total revenue will increase throughout fiscal 1996 from
continued penetration in the mechanical CAD/CAM/CAE industry and that
international revenue will continue to account for a significant portion of that
total growth.
Cost of license revenue consists of the amortization of capitalized computer
software costs as well as material and overhead costs associated with compact
disks, packaging and shipping. Cost of service revenue includes the costs
associated with training, software maintenance and consulting revenues.
Combined, these expenses increased to $13,389,000 and $25,843,000 for the three-
month and six-month periods ended March 30, 1996 from $8,732,000 and $15,696,000
for the corresponding periods in fiscal 1995. Total cost of revenue as a
percentage of revenue increased to 10% for both the three-month and six-month
periods ended March 30, 1996 from 10% and 9% in the corresponding periods in
fiscal 1995. The absolute and percentage increases in total cost of revenue
resulted primarily from growth in staffing necessary to generate and support
increased worldwide service revenue and material costs associated with increased
revenue. Cost of service revenue, which is the largest component of total cost
of revenue, increased 65% and 73% during the three-month and six-month periods
ended March 30, 1996 from such costs in the corresponding periods in fiscal
1995, while the associated revenue increased 47% and 56%.
Sales and marketing expenses increased to $56,303,000 and $106,754,000 for
the three-month and six-month periods ended March 30, 1996 from $37,561,000 and
$69,776,000 for the corresponding periods in fiscal 1995. These costs
decreased as a percentage of revenue to 40% for both the three-month and six-
month periods ended March 30, 1996, compared with 41% for the comparable periods
in fiscal 1995. The absolute increase in these expenses was due primarily to
worldwide expansion of the sales force and sales commissions associated with
higher revenue. International sales and marketing expenses represented 55% and
58% of total sales and marketing expenses for the three-month and six-month
periods ended March 30, 1996, compared with 48% for the same periods in fiscal
1995. The Company expects to continue the growth of its worldwide sales and
marketing organization during future periods, reflecting the Company's
commitment to expand its global market penetration.
7
Research and development expenses increased to $8,901,000 and $16,726,000 for
the three-month and six-month periods ended March 30, 1996 from $5,790,000 and
$11,161,000 for the corresponding periods in fiscal 1995. Total research and
development expenses were 6% of revenue for the three-month and six-month
periods ended March 30, 1996 compared with 6% and 7% for the same periods in
fiscal 1995. The absolute increase in expenses resulted primarily from growth
in the research and development staff.
Software development costs of $200,000 and $400,000 during the three-month
and six-month periods ended March 30, 1996 have been capitalized in accordance
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed", compared
with $87,000 and $622,000 in the corresponding periods in fiscal 1995. The
amounts capitalized represent 2% of total research and development costs for
both the three-month and six-month periods in fiscal 1996, compared with 1% and
5% during the same periods in fiscal 1995. Capitalized computer software costs
are amortized over the economic useful lives of the related products, typically
three years.
General and administrative expenses include the costs of corporate, finance,
information technology, human resources and administrative functions of the
Company. These expenses increased to $6,814,000 and $12,748,000 for the three-
month and six-month periods ended March 30, 1996 from $4,591,000 and $9,030,000
for the corresponding periods in fiscal 1995, but remained stable as a
percentage of revenue at 5% for the three-month and six-month periods ended
March 30, 1996 and April 1, 1995. The absolute increase in these expenses was
primarily due to the hiring of additional employees necessary to support the
Company's worldwide growth.
Other income, net, primarily includes interest income and expense and foreign
currency gains and losses. Interest income increased to $6,633,000 for the six-
month period ended March 30, 1996 compared with $4,287,000 for the corresponding
period in fiscal 1995 due primarily to higher interest-bearing cash and
investment balances, which resulted from positive cash flows from operations and
proceeds from stock option exercises.
The Company's effective tax rate for the six-month period ended March 30,
1996 was 36.2%, compared with 37.5% for the same period in fiscal 1995. The
difference between the effective and statutory federal rate was due primarily to
the benefit of tax exempt interest income offset by the impact of state income
taxes.
The number of worldwide employees increased 41% to 2,365 at March 30, 1996
compared with 1,675 at April 1, 1995. Employment increased significantly to
support higher revenues and international expansion, with the largest portion of
this growth occurring in the sales and marketing department.
LIQUIDITY AND CAPITAL RESOURCES
As of March 30, 1996, the Company had $133,423,000 of cash and cash
equivalents and $240,117,000 of investments. Net cash provided by operating
activities, consisting primarily of net income from operations and the increases
in income taxes and accounts payable and accrued expenses, offset by the
increase in accounts receivable was $89,911,000 for the six-month period ended
March 30, 1996 compared with $63,045,000 for the corresponding period in fiscal
1995. Investment activities consisted primarily of purchases and sales of
investments and additions to property and equipment. Net cash used by investing
activities totaled $94,254,000 for the six-month period ended March 30, 1996,
compared with $95,705,000 for the corresponding period in fiscal 1995.
Financing activities, consisting primarily of proceeds from issuance of common
stock, offset by the purchases of treasury stock, used $6,290,000 for the six
months ended March 30, 1996 and provided $11,271,000 for the six months ended
April 1, 1995.
On May 12, 1994, the Company announced that its Board of Directors had
authorized a plan that allows the Company to repurchase up to 6,000,000 shares
of its common stock. The Company intends to repurchase these shares to
partially offset the dilution caused by the exercise of stock options under the
Company's option plans and the purchase of shares under the employee stock
purchase plan. During the six-month period ended March 30, 1996, the Company
repurchased 590,000 shares at a cost of $25,538,000, of which 90,000 remained in
treasury at March 30, 1996. Since the inception of the plan, the
8
Company has repurchased 904,000 shares. The Company expects to use available
cash and cash generated from operations in future fiscal periods to fund any
such repurchases.
The Company believes that existing cash and investment balances together with
cash generated from operations will be sufficient to meet the Company's working
capital, financing and capital expenditure requirements through at least fiscal
1996.
Part II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on February 8,
1996, the stockholders of the Company (1) elected C. Richard Harrison and Robert
N. Goldman as Class III directors of the Company to hold office until the 1999
Annual Meeting of Stockholders (subject to the election and qualification of
their successors and to their earlier death, resignation or removal) and no
other nominations were made; (2) approved an amendment to the Company's Articles
of Organization increasing the number of authorized shares of the Company's
common stock from 75,000,000 to 215,000,000; (3) approved amendments to the
Company's 1987 Incentive Stock Option Plan increasing the number of shares of
the Company's common stock authorized for issuance under the Stock Option Plan
by 3,000,000 shares, and changing the designation of persons eligible to receive
options under the Stock Option Plan to include consultants; and (4) approved the
Company's 1996 Director Stock Option Plan. The votes were as follows:
Votes withheld Broker
Votes for or opposed Abstentions non-votes
-------------- -------------- ----------- ---------
(1) Election of Directors:
C. Richard Harrison 56,388,898 612,868 -- --
Robert N. Goldman 56,391,082 610,684 -- --
(2) Approval of Amendment
to Articles of Organization: 37,941,482 16,981,114 1,637,681 441,489
(3) Approval of Amendments to
1987 Incentive Stock Option Plan: 37,514,114 18,944,871 101,292 441,489
(4) Approval of 1996
Director Stock Option Plan: 41,035,504 15,344,886 179,887 441,489
Item 6: Exhibits
3.1 Restated Articles of Organization of the Company
99 Important Factors Regarding Future Results
9
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARAMETRIC TECHNOLOGY CORPORATION
Date: May 14, 1996 by: /S/ Edwin J. Gillis
------------------------------------------------
Edwin J. Gillis
Senior Vice President of Finance and Administration,
Chief Financial Officer and Treasurer
10
Exhibit Index
3.1 Restated Articles of Organization of the Company (filed originally as
Exhibit 3.4 to the Annual Report on Form 10-K for the fiscal year ended
September 30, 1993 and filed in electronic format herewith pursuant to Rule
102(c) of Regulation S-T)
99 Important Factors Regarding Future Results; filed herewith.
11