Exhibit 99.1
IMPORTANT RISK FACTORS AFFECTING 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, since these factors could cause actual results and
conditions to differ materially from those projected in forward-looking
statements.
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 latter half of that
month. Our orders early in a quarter will not generally occur at a rate which,
if sustained throughout the quarter, would be sufficient to assure that we will
meet our revenue targets for any particular quarter. Moreover, our sales force
reorganizations in 1999, implemented in part to increase our average order size,
have resulted in longer and more unpredictable sales cycles. Accordingly, our
quarterly results may be difficult or impossible to predict prior to the end of
the quarter. Any inability to obtain large orders or orders in large volumes or
to make shipments in the period immediately preceding the end of any particular
quarter may cause the results for that quarter to fall short of our revenue
targets. In addition, our operating expenses are based on expected future
revenue and are relatively fixed for the short term. As a result, a revenue
shortfall in any quarter could cause our earnings for that quarter to fall below
expectations as well. Any failure to meet our quarterly revenue or earnings
targets could adversely impact the market price of our stock.
Because our sales incentive structure is weighted more heavily toward the end of
the fiscal year, the rate of revenue growth for the first quarter historically
has been lower than that for the fourth quarter of the immediately preceding
fiscal year. This incentive structure also makes it more difficult to predict
first quarter results.
In addition, the levels of quarterly or annual software revenue in general, or
for particular geographic areas, may not be comparable to those achieved in
previous periods.
OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE, WHICH 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, 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 Securities and Exchange Commission
with respect to our common stock.
OUR ASSUMPTIONS ABOUT MARKET GROWTH IN THE CAD/CAM/CAE INDUSTRY MAY BE
INCORRECT, WHICH COULD NEGATIVELY IMPACT OUR OPERATING RESULTS.
Any of our projections for revenue growth assume that the overall demand for
products in the mechanical computer aided design, manufacturing, and engineering
(CAD/CAM/CAE) industry will continue to grow. There could be an adverse impact
on our operating results in any quarter if this assumption proves to be
incorrect.
IF WE ARE UNABLE TO KEEP PACE WITH RAPID TECHNOLOGICAL OR OTHER CHANGES IN THE
MARKET FOR CAD/CAM/CAE OR ENTERPRISE INFORMATION MANAGEMENT SOFTWARE, OUR
PRODUCTS COULD BECOME LESS COMPETITIVE.
The mechanical CAD/CAM/CAE and enterprise information management markets are
highly competitive, and are characterized by rapid technological advances.
Accordingly, our ability to realize our expectations will depend on:
. our success at enhancing our current offerings;
. our ability to develop new products and services that keep pace with
developments in technology;
. our ability to meet evolving customer requirements, especially ease-of-use;
. our ability to price our products competitively; and
. our ability to deliver those products through appropriate distribution
channels.
This will require, among other things, that we:
. hire and retain personnel with the necessary skills and creativity;
. provide adequate funding for development efforts;
. manage distribution channels effectively; and
. license appropriate technology from third parties.
In addition, our CAD/CAM/CAE software has historically been available on a
variety of platforms. We are aware of efforts by competitors to focus on single
platform applications, particularly Windows-based platforms. There can be no
assurance that we will continue to have a competitive advantage with multiple
platform applications.
We continue to enhance our existing products by releasing updates. Those
product updates will be less frequent than in the past to permit customers to
absorb changes more effectively. Our competitive position and operating results
could suffer if:
. we fail to anticipate or to respond adequately to customer requirements or to
technological developments, particularly those of our competitors;
. we delay the development, production, testing, marketing or availability of
new or enhanced products or services; or
. customers fail to accept such products or services.
The success of our new Windchill product will depend in part on the market's
evaluation of its ease of use, its full capability and functionality, and its
ability to support a large user base. Since Windchill only became available in
the latter half of fiscal 1998, it is not possible to assess the market's
acceptance at this time.
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WE MAY EXPERIENCE DELAYS IN DEVELOPING AND DEBUGGING OUR PRODUCTS.
As is common in the computer software industry, we may from time to time
experience delays in our product development and "debugging" efforts. Our
financial performance could be hurt by significant delays in developing,
completing or shipping new or enhanced products. Among other things, such delays
could cause us to incorrectly predict the fiscal quarter in which we will
realize revenue from the shipment of the new or enhanced products and give our
competitors a greater opportunity to market competing products.
WE MAY NOT BE ABLE TO IMPLEMENT NEW INITIATIVES SUCCESSFULLY.
We 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 efforts to integrate Computervision's operations on a
worldwide basis;
. market acceptance of the new Windchill products, which have a longer sales
cycle than our other products, and the success of our Windchill pilot
program, which promotes market awareness of the product;
. the success of our sales force reorganization initiatives, including Rand's
success with sales to smaller customers and the integration of the Windchill
sales force into our other existing sales teams;
. market reaction to the repricing and repackaging of our Pro/ENGINEER product
line;
. our ability to penetrate industry segments that represent growth
opportunities; and
. our continued ability to increase revenue growth in the Asia/Pacific
region.
Additionally, our success could also be affected by:
. our ability to develop additional applications for our Windchill products;
. our ability to generate and fill current software license orders;
. our ability to adequately manage exposure to foreign currency movements;
and
. Rand's ability to perform under the master distributor agreement, including
its ability to recruit resellers, build a distributor network and continue
to penetrate the CAD/CAM/CAE market.
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 cause our actual results to differ from those projected in our forward-
looking statements.
In addition, acquisitions may result in the allocation of purchase price to in-
process research and development (R&D). The SEC has recently raised issues
regarding the methodologies used and allocation of purchase price to in-process
R&D and has required some companies to adjust or
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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 future operating results.
INCREASING COMPETITION IN THE MECHANICAL CAD/CAM/CAE MARKETPLACE MAY REDUCE OUR
REVENUES. ALSO, AS A RELATIVELY NEW ENTRANT IN THE MARKET FOR ENTERPRISE
INFORMATION MANAGEMENT SOFTWARE, WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY
AGAINST ESTABLISHED PRODUCTS.
There are an increasing number of competitive mechanical CAD/CAM/CAE products.
Increased competition and market acceptance of these products could have a
negative effect on our pricing and revenues which could adversely affect our
operating results. Our Windchill products expand the breadth of our
offerings into product information management. We are a relatively new entrant
into this area and may be competing with more mature products that may have an
established customer base as well as greater functionality.
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 future operating results.
WE DEPEND ON SALES FROM OUTSIDE THE UNITED STATES WHICH 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 ongoing economic
uncertainties in the Asia/Pacific region and other world economies. Another
consequence of significant international business is that a large percentage of
our revenue and expenses are denominated in foreign currencies which fluctuate
in value. Although we may enter into foreign exchange forward contracts and
foreign exchange option contracts to offset a portion of the foreign exchange
fluctuations, unanticipated events may materially impact our results. Other
risks associated with international business include:
. unexpected changes in regulatory practices and tariffs;
. staffing and managing foreign operations;
. longer collection cycles in certain areas;
. potential changes in tax laws;
. greater difficulty in protecting intellectual property rights; and
. general economic and political conditions.
WE MAY NOT BE ABLE TO OBTAIN COPYRIGHT OR PATENT PROTECTION FOR THE SOFTWARE
PRODUCTS WE DEVELOP.
Our software products are proprietary. We protect our intellectual property
rights by relying on copyrights, trademarks, patents, and common law safeguards,
including trade secret protection, as well as restrictions on disclosures and
transferability contained in our agreements with other
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parties. Despite these measures, there can be no assurance that the laws of all
relevant jurisdictions will afford the same protections to our products and
intellectual property as the laws of the United States. The software industry is
characterized by frequent litigation regarding copyright, patent, and other
intellectual property rights. While we have not, to date, had any significant
claims of this type asserted against us, there can be no assurance that someone
will not assert such claims against us with respect to existing or future
products or that, if asserted, we would prevail in such claims. In the event a
lawsuit of this type is filed, it could result in significant expense to us and
divert the efforts of our technical and management personnel, whether or not we
ultimately prevail.
WE ARE CURRENTLY DEFENDING A SECURITIES CLASS ACTION LAWSUIT IN WHICH WE COULD
BE LIABLE FOR DAMAGES.
Certain class action lawsuits have been filed against us and certain of our
current and former officers and directors claiming violations of the federal
securities laws based on alleged misrepresentations regarding our anticipated
revenue and earnings for the third quarter of 1998. The plaintiffs in these
lawsuits have joined together to file a consolidated and amended complaint. We
believe the claims made in the amended complaint are without merit, and we
intend to defend them vigorously. We cannot predict the ultimate resolution of
these actions at this time; however, 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 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 are not made Year 2000 compliant or if the major
vendors or suppliers with whom we deal are not Year 2000 ready and cannot be
easily replaced. 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.
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