EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Parametric Technology Corporation
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
sale and support of software used in the mechanical segment of the CAD/CAM/CAE
(computer-aided design, manufacturing and engineering) industry.
RESULTS OF OPERATIONS
................................................................................
The Company's revenue and net income for the fiscal year ended September 30,
1995 increased 47.7% and 44.7%, respectively, over the previous fiscal year,
excluding non-recurring charges in fiscal 1995 of $10,438,000 related to the
merger of Rasna Corporation ("Rasna") into the Company and $19,000,000 related
to its acquisition of the Conceptual Design and Rendering System ("CDRS")
software business from Evans & Sutherland Computer Corporation. Net income as a
percentage of revenue, excluding the non-recurring charges, was 25.0% in fiscal
1995 compared to 25.5% in fiscal 1994 and 24.2% in fiscal 1993. Including the
Rasna and CDRS non-recurring charges, the Company's net income as a percentage
of revenue was 19.6% in fiscal 1995. The Rasna merger has been accounted for as
a pooling of interests. Therefore, all financial information contained herein
has been retroactively combined to reflect this transaction. The operating
results of CDRS are included herein since April 12, 1995, the date of the
acquisition.
The following table sets forth certain consolidated financial data as a
percentage of revenue for the fiscal years ended September 30, 1995, 1994 and
1993.
Year ended September 30,
----------------------------------------
1995 1994 1993
- ---------------------------------------------------------- ------ ------
Revenue:
License 73.1% 77.3% 80.7%
Service 26.9 22.7 19.3
------ ------ ------
Total revenue 100.0 100.0 100.0
------ ------ ------
Cost of revenue:
License 0.8 0.8 0.9
Service 8.4 7.1 5.8
------ ------ ------
Total cost of revenue 9.2 7.9 6.7
------ ------ ------
Gross profit 90.8 92.1 93.3
------ ------ ------
Operating expenses:
Sales and marketing 41.6 40.4 42.4
Research and development 6.5 7.5 8.2
General and administrative 5.2 5.5 5.6
Acquisition and related costs 7.4 -- --
------ ------ ------
Total operating expenses 60.7 53.4 56.2
------ ------ ------
Operating income 30.1 38.7 37.1
Other income, net 2.3 2.0 1.3
------ ------ ------
Income before income taxes 32.4 40.7 38.4
Provision for income taxes 12.8 15.2 14.2
------ ------ ------
Net income 19.6% 25.5% 24.2%
====== ====== ======
Revenue
Revenue, including license and service revenues, for fiscal 1995 rose to
$394,310,000, compared with fiscal 1994 revenue of $266,974,000 and fiscal 1993
revenue of $179,311,000. These totals represent increases of 47.7% in 1995 and
48.9% in 1994. The increase in license revenue results from an increase in the
number of seats of software licensed and from a slightly higher price realized
per seat. 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 Company licensed approximately 15,900
seats of software in fiscal 1995, 34.7% more than fiscal 1994's 11,800 seats,
which were 22.9% more than fiscal 1993's 9,600 seats. The increase in the number
of seats licensed was achieved as a result of continued market penetration of
the Company's products. The average price per seat during fiscal 1995 was
approximately $18,100, compared with an average price of approximately $17,500
in 1994 and $15,100 in 1993. Service revenue is derived from the sale of
software maintenance contracts and the performance of training and consulting
services. In fiscal 1995, service revenue increased to 26.9% of total revenue
from 22.7% in fiscal 1994 and 19.3% in fiscal 1993. This revenue increased
during both fiscal 1995 and 1994 as a result of the growth in the Company's
installed customer base and increased training and consulting services performed
for those customers. Revenue outside of North America accounted for 49.8%,
43.3% and 33.2% of revenue in fiscal 1995, 1994 and 1993, respectively. These
increases are a result of the Company's continued investment in the
international marketplace. The Company expects that total revenue will increase
in 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.
Consistent with past experience, a high percentage of the Company's
revenues are expected to be realized in the third month of each fiscal quarter
and tend to be concentrated in the latter half of that month. The Company's
orders early in a quarter will not generally be large enough to assure that it
will meet its revenue targets for any particular quarter. Accordingly, the
Company's quarterly results may be difficult to predict until the end of the
quarter, and a shortfall in shipments or contract orders at the end of any
particular quarter may cause the results for that quarter to fall short of
anticipated levels.
Cost of Revenue
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 train-
21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Parametric Technology Corporation
ing, software maintenance and consulting revenues. Combined, these expenses
increased to $36,318,000 in fiscal 1995 from $21,032,000 in fiscal 1994 and
$12,054,000 in fiscal 1993. Total cost of revenue as a percentage of revenue
increased to 9.2% in fiscal 1995 from 7.9% in fiscal 1994 and 6.7% in fiscal
1993. 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 73.5% in fiscal 1995 and 82.9% in fiscal 1994, while
associated revenue increased 74.5% and 75.9%, respectively.
Sales and Marketing
Sales and marketing expenses increased to $163,918,000 in fiscal 1995 from
$107,940,000 in fiscal 1994 and $76,121,000 in fiscal 1993, and increased as a
percentage of revenue to 41.6% from 40.4% in fiscal 1994, but decreased from
42.4% in fiscal 1993. The absolute increases in these expenses during fiscal
1995 and 1994 were due principally to worldwide expansion of the sales force and
sales commissions associated with higher revenue. International sales and
marketing expenses represented 52.1% of total sales and marketing expenses in
fiscal 1995, compared with 44.8% in 1994 and 39.7% in 1993. 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.
Research and Development
The Company continued to make significant investments in research and
development, including the investments in research and development personnel
associated with the acquisition of CDRS and the merger with Rasna. Research and
development expenses increased to $25,591,000 in fiscal 1995 from $19,882,000 in
fiscal 1994 and $14,633,000 in fiscal 1993, while decreasing as a percentage of
revenue to 6.5% from 7.5% and 8.2%, respectively. The absolute increases in
expenses resulted primarily from growth in the research and development staff.
Software development costs of $1,132,000 (excluding $3,400,000 of purchased
software from CDRS) in fiscal 1995, $912,000 in fiscal 1994 and $619,000 in
fiscal 1993 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". The amounts capitalized represent 4.2%,
4.4% and 4.1% of total research and development costs during such years.
Capitalized computer software costs are amortized over the economic useful lives
of the related products, typically three years.
General and Administrative
General and administrative expenses include the costs of corporate, finance,
human resources and administrative functions of the Company. These expenses
increased to $20,414,000 in fiscal 1995 from $14,758,000 in fiscal 1994 and
$10,001,000 in fiscal 1993, while decreasing as a percentage of revenue to 5.2%
from 5.5% and 5.6%, respectively. The absolute increases in these expenses were
primarily due to the hiring of additional employees necessary to support the
Company's worldwide growth.
Acquisition and Related Costs
In conjunction with the CDRS acquisition in the third quarter of fiscal 1995,
the Company recorded a non-recurring charge of $19,000,000 related to the write-
off of purchased research and development in process.
In conjunction with the Rasna merger in the fourth quarter of fiscal 1995,
the Company recorded a non-recurring charge of $10,438,000, which included
approximately $6,028,000 for transaction fees, $1,722,000 for severance related
expenses and $2,688,000 related to integration costs and lease and distributor
termination costs. At September 30, 1995, the Company had accrued $1,446,000 for
future cash outlays and reserved $1,443,000 for non-cash charges associated with
this non-recurring charge.
Other Income, Net
Other income, net, primarily includes interest income and expense and foreign
currency gains and losses. Interest income increased to $10,159,000 in fiscal
1995 from $4,642,000 in fiscal 1994 and $2,895,000 in fiscal 1993 due primarily
to higher interest-bearing cash and short-term investment balances, which
resulted from positive cash flows from operations and proceeds from stock option
exercises.
Foreign Exchange
A growing percentage of the Company's revenue and expenses are transacted in
foreign currencies. As a result, the Company's international results of
operations are subject to foreign exchange fluctuations. The Company enters into
forward exchange contracts to hedge specific foreign currency denominated
receivables to offset a portion of the foreign exchange fluctuations.
Income Taxes
The effective income tax rate was 39.4% in fiscal 1995, 37.4% in fiscal 1994 and
36.9% in fiscal 1993. 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 and, in fiscal 1995, the non-deductible
acquisition costs associated with the Rasna merger. In fiscal 1994, Parametric
adopted the provisions of Statement of
22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Parametric Technology Corporation
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"), on a prospective basis. Prior to the adoption of FAS 109, Parametric
accounted for income taxes using Accounting Principles Board Opinion No. 11.
Adoption of FAS 109 by Parametric did not have a material impact on the
Company's consolidated financial statements. Rasna adopted FAS 109 prior to
fiscal 1993. The companies did not conform income tax accounting policies in
connection with the Rasna merger.
LIQUIDITY AND CAPITAL RESOURCES
................................................................................
As of September 30, 1995, the Company had $145,638,000 of cash and cash
equivalents and $162,610,000 of short-term investments. Effective October 1,
1994, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", on a prospective basis. In conjunction with the adoption of this
statement, all cash equivalents and short-term investments have been classified
as available for sale and are reported at fair value with unrealized gains and
losses included in stockholders' equity. Adoption of this statement did not have
a material impact on the Company's consolidated financial statements.
Net cash provided by operations, consisting primarily of net income from
operations, the non-recurring charge for purchased research and development in
process, the increases in income taxes and deferred revenue, offset by the
increase in accounts receivable, was $119,017,000, $84,452,000 and $48,558,000
for fiscal 1995, 1994 and 1993, respectively.
Investment activities consisted primarily of purchases and sales of short-
term investments, additions to property and equipment and the acquisition of
CDRS. Net cash used by investing activities totaled $141,270,000 for fiscal
1995, compared with $23,897,000 and $36,740,000 for fiscal 1994 and 1993,
respectively. Net cash provided by financing activities, consisting primarily of
proceeds from issuance of common stock, was $25,354,000, $10,669,000 and
$9,060,000 for fiscal 1995, 1994 and 1993, respectively.
Due to the Company's strong cash position, the Company allowed a $5,000,000
unsecured demand line of credit with a bank to expire on January 31, 1995. There
were no borrowings under this line during fiscal 1995.
On May 12, 1994, the Company announced that its Board of Directors had
authorized a plan that would allow the repurchase of its common stock. The plan
authorizes the Company to acquire up to 3,000,000 shares of its common stock
from time to time in the open market or through privately negotiated
transactions. During fiscal 1994, the Company purchased 157,000 shares at a cost
of $4,356,000, all of which were reissued by September 30, 1994 to satisfy stock
option exercises and employee stock purchases under Company plans. The total
amount of cash required in current and future periods to repurchase the full
number of shares authorized but not repurchased would be approximately
$175,000,000 based upon the September 30, 1995 closing stock price. During
fiscal 1996, the Company intends to repurchase 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. The
Company expects to use available cash and cash generated from operations in
future fiscal periods to fund any such repurchases.
On April 12, 1995, the Company acquired substantially all of the assets and
specified liabilities of the CDRS software business operated by the Design
Software Division of Evans & Sutherland Computer Corporation for approximately
$33,507,000 in cash, which was paid by the Company from its existing cash
balances. The acquisition has been accounted for as a purchase. The purchase
price has been allocated to the assets acquired, including certain intangible
assets, such as purchased computer software and research and development in
process, based on their respective fair values. The excess of the purchase price
over the estimated fair value of the net assets acquired has been recorded as
goodwill ($7,703,000), which is being amortized on a straight-line basis over
seven years.
On August 1, 1995, the Company acquired Rasna by merging it into the
Company pursuant to an Agreement and Plan of Merger dated as of May 30, 1995.
Based on the number of shares of Rasna common stock outstanding at August 1,
1995, approximately 3,793,000 shares of the Company's common stock were issued
and approximately 522,000 shares of its common stock were reserved for
outstanding Rasna options assumed. The merger was accounted for as a pooling of
interests.
The Company believes that existing cash and short-term 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.
Market prices for securities of software companies have generally been
volatile. In particular, the market price of the Company's common stock has been
and may continue to be subject to significant fluctuations. These fluctuations
may be due to factors specific to the Company or to factors affecting the
computer industry or the securities markets in general.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans. While the
Company is reviewing the adoption and impact of FAS 123, it is expected that
this standard will have no impact on the Company's financial position or results
of operations. The Company will be required to adopt FAS 123 in fiscal 1997.
23
CONSOLIDATED BALANCE SHEET
Parametric Technology Corporation
September 30,
------------------------
(amounts in thousands) 1995 1994
- --------------------------------------------------------------------------------------------------------- --------
ASSETS
Current assets:
Cash and cash equivalents $145,638 $142,202
Short-term investments 162,610 68,847
Accounts receivable, net of allowance for doubtful accounts of $2,733 and $2,694 80,405 66,092
Other current assets 11,079 6,274
-------- --------
Total current assets 399,732 283,415
Property and equipment, net 19,811 13,519
Capitalized computer software costs, net 4,380 1,182
Other assets 29,804 7,009
-------- --------
Total assets $453,727 $305,125
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 19,578 $ 14,010
Accrued compensation 19,821 16,333
Deferred revenue 37,953 20,838
Income taxes 4,678 2,356
-------- --------
Total current liabilities 82,030 53,537
-------- --------
Other liabilities 768 410
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value;
5,000 shares authorized; none issued -- --
Common stock, $.01 par value; 75,000 shares authorized;
62,565 and 60,325 shares issued and outstanding 626 603
Additional paid-in capital 156,122 113,976
Cumulative translation adjustments 1,710 1,086
Retained earnings 212,471 135,513
Treasury stock, at cost -- --
-------- --------
Total stockholders' equity 370,929 251,178
-------- --------
Commitments (Note L)
Total liabilities and stockholders' equity $453,727 $305,125
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
24
CONSOLIDATED STATEMENT OF INCOME
Parametric Technology Corporation
Year ended September 30,
------------------------------------------------
(amounts in thousands, except per share data) 1995 1994 1993
- ------------------------------------------------------------------------------- -------- --------
Revenue:
License $288,349 $206,243 $144,781
Service 105,961 60,731 34,530
-------- -------- --------
Total revenue 394,310 266,974 179,311
-------- -------- --------
Cost of revenue:
License 3,348 2,028 1,663
Service 32,970 19,004 10,391
-------- -------- --------
Total cost of revenue 36,318 21,032 12,054
-------- -------- --------
Gross profit 357,992 245,942 167,257
-------- -------- --------
Operating expenses:
Sales and marketing 163,918 107,940 76,121
Research and development 25,591 19,882 14,633
General and administrative 20,414 14,758 10,001
Acquisition and related costs 29,438 -- --
-------- -------- --------
Total operating expenses 239,361 142,580 100,755
-------- -------- --------
Operating income 118,631 103,362 66,502
Interest income 10,159 4,642 2,895
Other income (expense), net (1,130) 700 (497)
-------- -------- --------
Income before income taxes 127,660 108,704 68,900
Provision for income taxes 50,298 40,615 25,430
-------- -------- --------
Net income $ 77,362 $ 68,089 $ 43,470
======== ======== ========
Net income per share $ 1.20 $ 1.09 $ 0.71
======== ======== ========
Weighted average number of common and dilutive
common equivalent shares outstanding 64,523 62,526 61,212
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
25
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Parametric Technology Corporation
Treasury
Common stock Additional Cumulative stock Total
--------------- paid-in translation Retained ------------------ stockholders'
(amounts in thousands) Shares Amount capital adjustments earnings Shares Cost equity
- -------------------------------------------------- ------ ---------- ----------- -------- -------- ----- ------------
Balance, September 30, 1992,
as previously reported 52,145 $521 $ 41,082 $ 347 $ 36,723 $ 78,673
Adjustments for Rasna Corporation
pooling of interests (Note A) 3,262 33 17,057 4 (9,873) 7,221
------ ---- -------- ------ -------- --------
Balance, September 30, 1992, as restated 55,407 554 58,139 351 26,850 85,894
------ ---- -------- ------ -------- --------
Issuance of common stock under
stock plans 2,417 24 8,861 8,885
Income tax benefit related to
incentive stock option plan 16,571 16,571
Amortization of unearned compensation 30 30
Foreign currency translation (195) (195)
Net income 43,470 43,470
------ ---- -------- ------ -------- --------
Balance, September 30, 1993 57,824 578 83,601 156 70,320 154,655
------ ---- -------- ------ -------- --------
Issuance of common stock for services
and exercise of warrants 46 -- 155 155
Issuance of common stock under
stock plans 2,463 25 13,990 14,015
Income tax benefit related to
incentive stock option plan 16,326 16,326
Purchase of common stock
for treasury or retirement (8) -- (96) (157) $(4,356) (4,452)
Issuance of treasury stock under
stock plans (2,896) 157 4,356 1,460
Foreign currency translation 930 930
Net income 68,089 68,089
------ ---- -------- ------ -------- ---- ---- --------
Balance, September 30, 1994 60,325 603 113,976 1,086 135,513 0 0 251,178
------ ---- -------- ------ -------- ---- ---- --------
Issuance of common stock for services 18 -- 46 46
Issuance of common stock under
stock plans 2,258 23 26,150 26,173
Income tax benefit related to
incentive stock option plans 16,040 16,040
Foreign currency translation 578 578
Net income 77,362 77,362
Elimination of Rasna's net activity
for the three months ended
December 31, 1994 (Note A) (36) -- (90) 46 (404) (448)
------ ---- -------- ------ -------- ---- ---- --------
Balance, September 30, 1995 62,565 $626 $156,122 $1,710 $212,471 0 $ 0 $370,929
====== ==== ======== ====== ======== ==== ==== ========
The accompanying notes are an integral part of the consolidated financial
statements.
26
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Parametric Technology Corporation
Year ended September 30,
------------------------------------
(amounts in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------- -------- -------
Cash flows from operating activities:
Net income $ 77,362 $ 68,089 $43,470
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 9,466 4,814 3,837
Deferred income taxes (10,599) (1,304) (742)
Charge for purchased research and development in process 19,000 -- --
Changes in assets and liabilities net of effects from purchase of CDRS:
Increase in accounts receivable (13,129) (23,753) (18,610)
(Increase) decrease in note receivable -- 3,257 (118)
Increase in other current assets (2,334) (1,212) (1,241)
(Increase) decrease in other assets (4,378) 1,032 974
Increase in accounts payable and accrued expenses 5,660 3,621 1,026
Increase in accrued compensation 3,131 5,061 4,946
Increase (decrease) in deferred revenue 16,436 7,028 (825)
Increase in income taxes 18,402 17,819 15,841
-------- -------- -------
Net cash provided by operating activities 119,017 84,452 48,558
-------- -------- -------
Cash flows from investing activities:
Additions to property and equipment, net (12,868) (8,705) (8,033)
Payment for acquisition of a business (33,507) -- --
Additions to capitalized computer software costs (1,132) (912) (619)
Proceeds from sale of short-term investments 171,163 68,828 37,665
Purchases of short-term investments (264,926) (83,108) (65,753)
-------- -------- -------
Net cash used by investing activities (141,270) (23,897) (36,740)
-------- -------- -------
Cash flows from financing activities:
Repayment of long-term obligations (175) (209) (124)
Short-term borrowings, net (600) (300) 300
Proceeds from issuance of common stock 26,129 15,534 8,884
Purchases of treasury stock -- (4,356) --
-------- -------- -------
Net cash provided by financing activities 25,354 10,669 9,060
-------- -------- -------
Elimination of Rasna's net cash activity for the
three months ended December 31, 1994 (112) -- --
Effects of exchange rate changes on cash 447 937 (333)
-------- -------- -------
Net increase in cash and cash equivalents 3,436 72,161 20,545
Cash and cash equivalents at beginning of year 142,202 70,041 49,496
-------- -------- -------
Cash and cash equivalents at end of year $145,638 $142,202 $70,041
======== ======== =======
The accompanying notes are an integral part of the consolidated financial
statements.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Parametric Technology Corporation
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
................................................................................
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in the financial statements.
On August 1, 1995, the Company completed its merger with Rasna Corporation
("Rasna"), a developer and marketer of software products for mechanical
computer-aided engineering. The merger was accounted for as a pooling of
interests. Accordingly, the accompanying consolidated financial statements have
been retroactively combined to reflect this transaction.
Due to the differing year ends of the Company and Rasna, financial
information for dissimilar fiscal years has been combined. Rasna's results of
operations for its fiscal years ended December 31, 1994 and 1993, were combined
with the Company's results of operations for the fiscal years ended September
30, 1994 and 1993, respectively. Balance sheet information as of September 30,
1994 includes the financial position of Rasna as of December 31, 1994 and the
Company as of September 30, 1994. Accordingly, Rasna's results of operations for
the three months ended December 31, 1994 (including revenue, operating income
and net income of $6,832,000, $548,000 and $404,000, respectively) were
duplicated in the combined statements of income for fiscal 1995 and 1994.
Therefore, Rasna's net income for one of the three month periods ended
December 31, 1994 was eliminated from stockholders' equity.
Foreign Currency Translation
Foreign currency financial statements of international subsidiaries, where the
local currency is the functional currency, are translated using exchange rates
in effect at period end for assets and liabilities and at average rates during
the period for results of operations. The resulting foreign currency translation
adjustments are reflected as a separate component of stockholders' equity. For
international subsidiaries where the U.S. dollar is the functional currency,
monetary assets and liabilities are translated using exchange rates in effect at
period end, nonmonetary assets and liabilities are translated at historical
rates and results of operations are translated at average rates for the period.
The resulting foreign currency translation adjustments are included in income.
Any gains or losses from foreign exchange transactions are included in income.
Currency losses of $781,000, currency gains of $222,000 and currency losses of
$502,000 were recognized in fiscal 1995, 1994 and 1993, respectively.
Revenue Recognition
Revenue is derived from the licensing of computer software products and from
service revenue consisting of training, consulting and maintenance. License
revenue is recognized upon shipment, unless collection is not reasonably
assured, or as earned for customers with contractual commitments. Revenue from
software maintenance contracts is recognized ratably over the contract period
and other service revenue is recognized upon performance.
Cash Equivalents and Short-term Investments
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. Short-term investments are those
with maturities in excess of three months but less than one year. Effective
October 1, 1994, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", on a prospective basis. In conjunction with the adoption of
this statement, all cash equivalents and short-term investments have been
classified as available for sale and are reported at fair value with unrealized
gains and losses included in stockholders' equity. At September 30, 1995, the
cost of cash equivalents and short-term investments equaled market and therefore
no valuation allowance was recorded.
The Company invests its non-operating cash in debt instruments of financial
institutions, government entities and corporations. The Company has established
guidelines relative to credit ratings, diversification and maturities that
maintain safety and liquidity. The Company has not experienced any losses on its
cash equivalents and short-term investments.
Concentration of Credit Risk
The Company's customer base consists of large numbers of geographically diverse
customers dispersed across many industries. As a result, concentration of credit
risk with respect to trade receivables is not significant.
Forward Foreign Exchange Contracts
The Company enters into transactions denominated in foreign currencies and
includes the exchange gain or loss arising from such transactions in income. The
Company enters into forward exchange contracts to hedge specific foreign
currency denominated receivables, which require the Company to exchange foreign
currencies for U.S. dollars at maturity at rates agreed to at inception of the
contracts. As of September 30, 1995 and 1994, the Company had approximately
$1,389,000 and $2,540,000, respectively, of foreign exchange contracts
outstanding. Cash flows from the forward exchange contracts are classified with
the related receivables.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Parametric Technology Corporation
Property and Equipment
Property and equipment are stated at cost and depreciated using the straight-
line method over the estimated useful lives, typically three years. Leasehold
improvements are amortized over the shorter of the useful lives or the remaining
terms of the related leases. Property and equipment under capital leases are
amortized over the lesser of the lease terms or the estimated useful lives.
Maintenance and repairs are charged to expense when incurred; additions and
improvements are capitalized.
Upon retirement or sale, the cost of the disposed asset and the related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is credited or charged to income.
Capitalized Computer Software Costs and Intangible Assets
The Company incurs costs to develop computer software to be licensed or
otherwise marketed to customers. Development costs incurred in the research and
development of new software products and enhancements to existing products are
expensed in the period incurred unless these costs qualify for capitalization.
Capitalized computer software costs are amortized over the economic lives of the
related products, typically three years, beginning at their initial shipment
date. Capitalized computer software costs are presented net of accumulated
amortization of $3,651,000 and $2,317,000 at September 30, 1995 and 1994,
respectively. Amortization charged to expense was $1,334,000, $665,000 and
$619,000 for the fiscal years ended September 30, 1995, 1994 and 1993,
respectively.
Purchased software of $3,400,000 and intangible assets of $11,083,000
(including goodwill of $7,703,000) capitalized in fiscal 1995 were attributable
to the acquisition of the Conceptual Design and Rendering System ("CDRS")
software business operated by the Design Software Division of Evans & Sutherland
Computer Corporation. These assets, included in capitalized computer software
costs and other assets, respectively, are amortized on a straight-line basis,
over three and seven years, respectively. Amortization charges related to
intangible assets, the majority of which were reflected in general and
administrative expenses, totaled $725,000 for the fiscal year ended
September 30, 1995.
The Company evaluates the net realizable value of capitalized computer
software costs and intangible assets on an on-going basis relying on a number of
factors including operating results, business plans, budgets and economic
projections.
Income Per Common Share
Income per common share is computed based upon the weighted average number of
common and dilutive common equivalent shares outstanding during the year.
Fully diluted and primary earnings per common share are the same amounts for
each of the years presented. Dilutive common equivalent shares consist of
stock options (calculated using the treasury stock method).
B. ACQUISITIONS
................................................................................
On August 1, 1995, the Company acquired Rasna by merging it into the Company
pursuant to an Agreement and Plan of Merger dated as of May 30, 1995. Based
on the number of shares of Rasna common stock outstanding at August 1, 1995,
the Company issued approximately 3,793,000 shares of common stock and
reserved approximately 522,000 shares of its common stock for outstanding
Rasna stock options assumed. The merger was accounted for as a pooling of
interests.
In conjunction with the Rasna merger in the fourth quarter of fiscal 1995,
the Company recorded a non-recurring charge of $10,438,000, which included
approximately $6,028,000 for transaction fees, $1,722,000 for severance related
expenses and $2,688,000 related to integration costs and lease and distributor
termination costs. At September 30, 1995, the Company had accrued $1,446,000 for
future cash outlays and reserved $1,443,000 for non-cash charges associated with
this non-recurring charge.
The following information shows revenue and net income of the separate
companies during the periods preceding the combination. Adjustments recorded to
conform the accounting policies of the companies were not material to the
consolidated financial statements.
Nine months Year ended
ended September 30,
------------ -----------------------
(in thousands) July 1, 1995 1994 1993
- ------------------------------------------- -------- --------
Revenue:
Parametric $252,566 $244,256 $163,088
Rasna 22,500 22,718 16,223
-------- -------- --------
$275,066 $266,974 $179,311
======== ======== ========
Net income:
Parametric $ 54,809 $ 66,915 $ 42,933
Rasna 2,267 1,174 537
-------- -------- --------
$ 57,076 $ 68,089 $ 43,470
======== ======== ========
On April 12, 1995, the Company acquired substantially all of the assets and
specified liabilities of CDRS for $33,507,000 in cash, which was paid by the
Company from its existing cash balances. The acquisition has been accounted for
as a purchase. The purchase price has been allocated to the assets acquired,
including certain intangible assets, such as purchased computer software and
research and development in process, based on their respective fair values. The
excess of the purchase price over the estimated fair value of the net assets
acquired has been recorded as goodwill ($7,703,000), which is being amortized on
a straight-line basis over seven years. In conjunction with the acquisition in
the third quarter, the Company recorded a non-recurring charge of $19,000,000
related to the write-off of
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Parametric Technology Corporation
purchased research and development in process. CDRS's results of operations have
been included in the consolidated results of operations since the date of
acquisition.
The following pro forma summary presents the consolidated results of
operations of the Company as if the acquisition of CDRS had occurred as of the
beginning of the periods presented, after giving effect to certain adjustments,
including amortization of goodwill and other intangibles, decreased interest
income related to cash used to finance the acquisition and related income tax
effects. The summary excludes the non-recurring charge of $19,000,000 and
reflects the restatement for Rasna pooling of interests. Pro forma results of
operations for the fiscal year ended September 30, 1995 include CDRS's results
of operations for the period from October 1, 1994 through April 11, 1995. Pro
forma results of operations for the fiscal year ended September 30, 1994 include
CDRS's results of operations for the twelve months ended December 31, 1994.
These pro forma results are not necessarily indicative of those that would have
occurred had the acquisition taken place as of the beginning of the periods
presented.
Year ended
September 30,
-----------------------
(in thousands, except per share data) (unaudited) 1995 1994
- ----------------------------------------------------------------------- --------
Revenue $396,697 $274,567
Net income 85,655 65,806
Net income per share 1.33 1.05
C. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
................................................................................
Cash equivalents and short-term investments consist of the following:
September 30,
-------------------------
Type of security (in thousands) 1995 1994
- ---------------------------------------------------------------------- --------
Municipal debt securities $191,310 $ 91,475
Mutual funds 56,745 81,842
U.S. Government debt securities 11,074 --
Corporate debt securities 1,022 --
-------- --------
Total cash equivalents
and short-term investments $260,151 $173,317
======== ========
Gross unrealized gains and losses as of September 30, 1995 and 1994, and
realized gains and losses on the sale of each type of security for the years
ended September 30, 1995, 1994 and 1993, were immaterial. For the purpose of
determining gross realized gains and losses, the cost of securities sold is
based upon specific identification.
D. PROPERTY AND EQUIPMENT
................................................................................
Property and equipment consist of:
September 30,
-----------------------
(in thousands) 1995 1994
- ------------------------------------------------------------------ -------
Computer hardware and software $31,583 $20,416
Furniture and fixtures 3,633 2,214
Leasehold improvements 2,672 1,698
------- -------
37,888 24,328
Less: accumulated depreciation
and amortization (18,077) (10,809)
------- -------
Total $19,811 $13,519
======= =======
Depreciation expense totaled $7,663,000, $5,007,000 and $3,197,000 for the
fiscal years ended September 30, 1995, 1994 and 1993, respectively. At September
30, 1995 and 1994, property and equipment (principally computer hardware)
includes assets under capital leases of $211,000 and $121,000, less accumulated
amortization of $75,000 and $41,000, respectively.
E. INCOME TAXES
................................................................................
In fiscal 1994, Parametric adopted the provisions of the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"), on a
prospective basis. Prior to the adoption of FAS 109, Parametric accounted for
income taxes using Accounting Principles Board Opinion No. 11. Adoption of FAS
109 by Parametric did not have a material impact on the Company's consolidated
financial statements. Rasna adopted FAS 109 prior to fiscal 1993. The companies
did not conform income tax accounting policies in connection with the Rasna
merger.
Under FAS 109, deferred tax assets and liabilities are recognized for the
expected future tax consequences, utilizing current tax rates, of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities. Deferred tax assets are recognized, net of any valuation allowance,
for the estimated future tax effects of deductible temporary differences and tax
operating loss and credit carryforwards. Deferred tax expense represents the
change in the deferred tax asset or liability balances.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Parametric Technology Corporation
The provision for income taxes consists of the following:
Year ended September 30,
---------------------------------------
(in thousands) 1995 1994 1993
- --------------------------------------------------------------------- ------- -------
Federal income taxes:
Current $30,257 $32,213 $19,917
Deferred 7,068 232 25
------- ------- -------
37,325 32,445 19,942
------- ------- -------
State income taxes:
Current 6,113 5,800 4,125
Deferred 1,997 (94) (172)
------- ------- -------
8,110 5,706 3,953
------- ------- -------
Foreign income taxes:
Current 3,329 2,464 1,535
Deferred 1,534 -- --
------- ------- -------
4,863 2,464 1,535
------- ------- -------
Total $50,298 $40,615 $25,430
======= ======= =======
The differences between statutory federal income taxes and the provision
for income taxes are as follows:
Year ended September 30,
---------------------------------------
(in thousands) 1995 1994 1993
- --------------------------------------------------------------------- ------- -------
Statutory federal income taxes $44,681 $38,046 $23,859
State income taxes,
net of federal tax benefit 5,386 3,709 2,584
Tax exempt interest income (2,744) (1,324) (758)
Other, net 649 184 (255)
------- ------- -------
Subtotal 47,972 40,615 25,430
Non-deductible acquisition costs 2,326 -- --
------- ------- -------
Total $50,298 $40,615 $25,430
======= ======= =======
The components of the net deferred tax asset are as follows:
September 30,
-----------------------
(in thousands) 1995 1994
- ------------------------------------------------------------------------------------- -------
Deferred tax assets:
Reserves not currently deductible $ 1,904 $ 1,861
Depreciation 590 --
Net operating loss carryforwards 5,308 3,893
Amortization of intangible assets 8,301 --
Foreign tax credit carryforwards 458 121
Research and development credit carryforwards 1,138 1,054
Other 296 61
------- -------
Total deferred tax assets 17,995 6,990
------- -------
Deferred tax liabilities:
Capitalized software (641) (487)
Other (205) (67)
------- -------
Total deferred tax liabilities (846) (554)
------- -------
Valuation allowance (662) (548)
------- -------
Net deferred tax asset $16,487 $ 5,888
======= =======
The net operating loss carryforwards of $17,534,000 at September 30, 1995
expire between fiscal 1996 and 2007. Ownership changes, as defined in the
Internal Revenue Code of 1986, as amended, limit the amount of the net operating
loss carryforward that can be utilized annually. The foreign tax credit
carryforwards expire between fiscal 1996 and 1999. The research and development
credit carryforwards expire between fiscal 2001 and 2008. The Company has
recorded a valuation allowance for the tax benefit of certain foreign net
operating loss carryforwards since realization of these future benefits is not
sufficiently assured at September 30, 1995.
F. COMMON STOCK
................................................................................
On February 4, 1993, the Company's Board of Directors declared a one-for-one
stock dividend on all shares of common stock, which became effective on
February 25, 1993 to all stockholders of record on February 18, 1993. These
financial statements and related notes have been retroactively adjusted, as
appropriate, to reflect the one-for-one stock dividend.
On May 12, 1994, the Company announced that its Board of Directors had
authorized a plan that would allow the repurchase of its common stock. The plan
authorizes the Company to acquire up to 3,000,000 shares of its common stock
from time to time in the open market or through privately negotiated
transactions. During fiscal 1996, the Company intends to repurchase 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.
On November 17, 1995, the Board of Directors voted to recommend to the
stockholders the approval of an amendment to the Company's Articles of
Organization to increase the number of authorized shares of the Company's common
stock from 75,000,000 to 215,000,000.
G. STOCK OPTIONS
................................................................................
Under the 1987 Incentive Stock Option Plan (the "Stock Option Plan"), the Board
of Directors may grant options to key employees to purchase shares at an option
exercise price equal to the fair market value on the date of grant. The options
are exercisable at such times, in installments or otherwise, as the Board of
Directors may determine. Generally, these options vest ratably over a period of
four years and expire ten years from the date of grant. In fiscal 1994, the
stockholders approved an increase in the number of shares issuable under this
plan from 16,596,000 shares to 18,996,000 shares. In fiscal 1995, the
stockholders approved an increase in the number of
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Parametric Technology Corporation
shares issuable under the plan from 18,996,000 shares to 21,396,000 shares and
to limit the number of shares that may be granted to any eligible employee under
the Stock Option Plan in any fiscal year to 1,000,000 shares. On November 17,
1995, the Board of Directors approved, subject to stockholder approval, an
increase in the number of shares issuable under this plan from 21,396,000 shares
to 24,396,000 shares and to change the designation of persons eligible to
receive options under the Stock Option Plan to include consultants. The number
of stock options exercisable at September 30, 1995 was 2,123,000.
Under the 1992 Director Stock Option Plan (the "1992 Director Plan"),
320,000 shares of common stock have been reserved. The purpose of the 1992
Director Plan is to attract and retain qualified persons who are not also
officers or employees of the Company (the "Eligible Directors") to serve as
directors of the Company and to encourage stock ownership in the Company by such
directors.
Options to purchase 40,000 shares of common stock were granted on both
May 10, 1995 and September 15, 1995 to Eligible Directors of the Company.
Thereafter, through the date of the 1996 Annual Meeting of Stockholders, any new
director elected to the Board who is an Eligible Director shall automatically be
granted, on the effective date of such election, options to purchase an
aggregate of 40,000 shares of common stock at an option price equal to the fair
market value on the date of grant. Options granted under the 1992 Director Plan
shall become exercisable in four equal annual installments following the date of
grant if, and only if, the optionee is a director of the Company on such
anniversary date. The options expire ten years from the date of grant. The
number of stock options exercisable under this plan at September 30, 1995 was
40,000.
On November 17, 1995, the Board of Directors approved, subject to
stockholder approval, the 1996 Director Stock Option Plan (the "1996 Director
Plan") for which 90,000 shares of common stock have been reserved. The 1996
Director Plan will replace the 1992 Director Plan. The terms of the 1996
Director Plan are essentially the same as the 1992 Director Plan, except that
each Eligible Director is automatically granted options to purchase 10,000
shares of common stock at the time of initial election to the Board of
Directors, and immediately following the meeting of stockholders every year,
each Eligible Director continuing in office after such meeting will
automatically be granted options to purchase 2,500 shares of common stock. No
additional options will be granted under the 1992 Director Plan, but the rights
and privileges of holders of outstanding options under the 1992 Director Plan
will not be adversely affected by the 1996 Director Plan.
In conjunction with the Rasna merger, the Company assumed approximately
522,000 outstanding options on August 1, 1995. These assumed options were
granted at prices equal to the fair market value at the date of grant, become
exercisable in installments (generally ratably over four years) and expire ten
years from the date of grant. The Company does not intend to issue any
additional options under the Rasna stock option plan. The number of stock
options exercisable under this plan at September 30, 1995 was 191,000.
The following table summarizes stock option transactions under all plans:
Stock option
Shares prices
- ------------------------------------------------------- ---------------
Outstanding at September 30, 1992 8,843,237 $ .02 - $22.63
Granted and assumed 1,769,386 3.05 - 37.50
Canceled (166,610) 1.02 - 37.50
Exercised (2,351,001) .02 - 22.63
---------- ---------------
Outstanding at September 30, 1993 8,095,012 .02 - 37.50
Granted and assumed 2,258,677 6.11 - 34.75
Canceled (395,279) .08 - 37.50
Exercised (2,532,781) .02 - 31.00
---------- ---------------
Outstanding at September 30, 1994 7,425,629 .02 - 37.50
Granted and assumed 3,209,313 6.11 - 60.25
Canceled (441,759) 1.63 - 60.25
Exercised (2,162,352) .02 - 37.50
---------- ---------------
Outstanding at September 30, 1995 8,030,831 $ .02 - $60.25
========== ===============
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans. While the
Company is reviewing the adoption and impact of FAS 123, it is expected that
this standard will have no impact on the Company's financial position or results
of operations. The Company will be required to adopt FAS 123 in fiscal 1997.
H. STOCK PURCHASE PLAN
................................................................................
The 1991 Employee Stock Purchase Plan (the "1991 Purchase Plan") enables
eligible employees to purchase the Company's common stock at 85% of the fair
market value of the stock on the date an offering commences or on the date an
offering terminates, whichever is lower. The 1991 Purchase Plan covers
substantially all employees, subject to certain limitations. Each employee may
elect to have up to 10% of his or her base pay
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Parametric Technology Corporation
withheld and applied toward the purchase of shares in such offering (provided
that the aggregate amount of his or her base pay withheld may not exceed $10,000
in any fiscal year). The 1991 Purchase Plan covers an aggregate of up to 600,000
shares of common stock to be issued and sold to participating employees of the
Company through a series of eight, six-month offerings, beginning April 1, 1991.
In fiscal 1995, the stockholders approved amendments to the 1991 Purchase Plan
to add a series of nine additional six-month offerings, commencing six months
apart, beginning April 1, 1995, and to increase the number of shares authorized
for issuance under the 1991 Purchase Plan from 600,000 to 1,000,000.
Purchases under the 1991 Purchase Plan for fiscal 1995, 1994 and 1993 were
77,361, 86,284 and 63,105 shares, generating proceeds to the Company of
$2,459,000, $2,031,000 and $1,425,000, respectively. At September 30, 1995,
approximately 640,000 shares of common stock were reserved for purchases under
the 1991 Purchase Plan.
I. EMPLOYEE BENEFIT PLAN
................................................................................
The Board of Directors in 1989 adopted the Parametric Technology Corporation
401(k) Savings Plan (the "Plan"), which is intended to qualify under Section
401(k) of the Internal Revenue Code of 1986, as amended. The Plan covers
substantially all employees. Each employee may elect to contribute to the Plan,
through payroll deductions, up to 15% of his or her salary, subject to certain
limitations. The Company makes matching contributions on behalf of each
participating employee in an amount equal to 50% of the amount contributed by
the employee up to a maximum 10% employee contribution. The employee's
entitlement to such Company contributions vests at a rate of 25% per year of
service.
For the fiscal years ended September 30, 1995, 1994 and 1993, the Company
made matching contributions to the Plan which totaled $1,034,000, $738,000 and
$504,000, respectively.
In conjunction with the Rasna merger, the Company will continue Rasna's
401(k) deferred tax savings plan for former Rasna employees who had contributed
funds to the plan, but no new contributions will be accepted. Under Rasna's
plan, participants were able to contribute up to 15% of their compensation,
subject to certain limitations, and Rasna was able to make discretionary
matching contributions. There have been no matching contributions made to the
Rasna plan.
J. SUPPLEMENTAL CASH FLOW INFORMATION
................................................................................
Cash paid for interest during the fiscal years ended September 30, 1995, 1994
and 1993 was $37,000, $125,000 and $97,000, respectively. Cash paid for income
taxes in fiscal 1995, 1994 and 1993 was $40,281,000, $22,279,000 and $9,268,000,
respectively. During fiscal 1995 and 1994, the Company acquired $108,000 and
$76,000 of fixed assets under capital leases, respectively.
K. BORROWING ARRANGEMENTS
................................................................................
The Company had a $5,000,000 unsecured demand line of credit with a bank, which
expired on January 31, 1995. There were no borrowings under this line during
fiscal 1995.
Prior to the Rasna merger, Rasna had a $3,000,000 accounts receivable line
of credit available for its use. All amounts borrowed against this line were
paid in full prior to the merger date. Borrowings of $600,000 at September 30,
1994 under this line are included in accounts payable and accrued expenses.
L. COMMITMENTS
................................................................................
Leasing Arrangements
The Company leases its office facilities and certain equipment under operating
leases expiring at various dates through fiscal 2004. The Company also leases
computer equipment under capital leases which expire through fiscal 1998.
At September 30, 1995, future minimum lease payments under capital and
operating leases with initial or remaining terms of one or more years are as
follows:
Capital Operating
(in thousands) leases leases
- -------------------------------------------------------------- ---------
1996 $ 86 $17,934
1997 55 15,048
1998 27 8,775
1999 -- 5,345
2000 -- 5,214
Subsequent to 2000 -- 2,890
---- -------
Total minimum lease payments 168 $55,206
Less amounts representing interest 15 =======
----
Present value of net minimum lease payments $153
====
Rental expense under operating leases was $15,186,000, $11,122,000 and
$7,691,000 for the fiscal years ended September 30, 1995, 1994 and 1993,
respectively.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Parametric Technology Corporation
M. SEGMENT AND GEOGRAPHIC INFORMATION
................................................................................
The Company is engaged in one industry segment: the development, marketing and
support of software products for the mechanical segment of the CAD/CAM/CAE
(computer-aided design, manufacturing and engineering) industry.
The Company licenses products to customers on a worldwide basis. Sales and
marketing operations outside the United States are conducted principally through
the Company's foreign sales subsidiaries throughout Europe and the Far East.
Intercompany sales and transfers between geographic areas are accounted for
at prices which are designed to be representative of unaffiliated party
transactions.
(amounts in thousands) Year ended September 30,
-------------------------------------------------------------------------------
1995 North America Europe Far East Corporate Eliminations Total
- ---------------------------------------------------------- ------- -------- --------- ------------ --------
Revenue from unaffiliated customers
License $134,412 $76,871 $36,739 $248,022
Service 63,427 28,484 9,230 101,141
Revenue from unaffiliated export
Europe 28,518 28,518
Far East 16,629 16,629
Intercompany revenue 92,339 19,422 7,306 $(119,067) 0
-------- ------- ------- --------- --------
Total revenue 335,325 124,777 53,275 (119,067) 394,310
-------- ------- ------- --------- --------
Operating income 112,620 2,547 3,464 118,631
Other income/expense 1,794 (790) (226) $ 8,251 9,029
-------- ------- ------- --------- --------
Income before income taxes 114,414 1,757 3,238 8,251 127,660
-------- ------- ------- --------- --------
Identifiable assets 403,247 46,224 19,263 242,568 (257,575) 453,727
======== ======= ======= ========= ========= ========
1994 North America Europe Far East Corporate Eliminations Total
- ---------------------------------------------------------- ------- -------- --------- ------------ --------
Revenue from unaffiliated customers
License $112,744 $47,312 $14,418 $174,474
Service 38,747 13,139 3,370 55,256
Revenue from unaffiliated export
Europe 22,721 22,721
Far East 14,523 14,523
Intercompany revenue 47,353 11,982 4,400 $ (63,735) 0
-------- ------- ------- --------- --------
Total revenue 236,088 72,433 22,188 (63,735) 266,974
-------- ------- ------- --------- --------
Operating income 100,093 777 2,492 103,362
Other income/expense 2,276 (638) (120) $ 3,824 5,342
-------- ------- ------- --------- --------
Income before income taxes 102,369 139 2,372 3,824 108,704
-------- ------- ------- --------- --------
Identifiable assets 281,444 24,678 9,934 173,317 (184,248) 305,125
======== ======= ======= ========= ========= ========
1993 North America Europe Far East Corporate Eliminations Total
- ---------------------------------------------------------- ------- -------- --------- ------------ --------
Revenue from unaffiliated customers
License $ 94,234 $18,600 $ 1,769 $114,603
Service 25,539 5,707 469 31,715
Revenue from unaffiliated export
Europe 19,349 19,349
Far East 13,644 13,644
Intercompany revenue 24,462 13,171 3,779 $ (41,412) 0
-------- ------- ------- --------- --------
Total revenue 177,228 37,478 6,017 (41,412) 179,311
-------- ------- ------- --------- --------
Operating income 65,757 548 197 66,502
Other income/expense 259 (81) 30 $ 2,190 2,398
-------- ------- ------- --------- --------
Income before income taxes 66,016 467 227 2,190 68,900
-------- ------- ------- --------- --------
Identifiable assets 183,078 13,460 2,037 110,928 (118,528) 190,975
======== ======= ======= ========= ========= ========
34
REPORT OF INDEPENDENT ACCOUNTANTS
Parametric Technology Corporation
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF PARAMETRIC TECHNOLOGY CORPORATION:
................................................................................
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of income, of changes in stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of Parametric Technology
Corporation and its subsidiaries at September 30, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1995 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the consolidated financial
statements of Rasna Corporation, which statements reflect total assets of
$17,936,000 at December 31, 1994 and total revenue of $22,718,000 and
$16,223,000 for the years ended December 31, 1994 and 1993, respectively. Those
statements were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for Rasna Corporation, is based solely on the report of the
other auditors. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Boston, Massachusetts
October 19, 1995,
except as to Notes F and G
which are as of November 17, 1995
35
SELECTED FINANCIAL DATA /(1)/
Parametric Technology Corporation
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
Year ended September 30,
---------------------------------------------------------------
(in thousands, except per share data) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------- -------- -------- ------- -------
Revenue $394,310 $266,974 $179,311 $98,377 $49,418
Operating income 118,631 103,362 66,502 30,818 10,039
Net income 77,362 68,089 43,470 21,036 5,546
Net income per share /(2)/ 1.20 1.09 0.71 0.35 0.10
Weighted average number of common and dilutive
common equivalent shares outstanding /(2)/ 64,523 62,526 61,212 59,528 57,544
Total assets 453,727 305,125 190,975 119,259 57,417
Working capital 317,702 229,878 137,581 73,464 42,224
Long-term obligations 76 112 129 262 464
Stockholders' equity 370,929 251,178 154,655 85,895 43,841
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Fiscal quarter ended
-------------------------------------------------------
September 30, July 1, April 1, December 31,
(in thousands, except per share data) 1995 1995 1995 1994
- ------------------------------------------------------------------- -------- -------- -----------
Revenue $119,244 $105,195 $91,023 $78,848
Gross profit 108,092 95,725 82,291 71,884
Operating income 34,931 19,492 34,349 29,859
Net income 21,035 13,816 22,736 19,775
Net income per share 0.32 0.21 0.36 0.31
Common stock price per share /(3)/:
High 63.25 50.25 43.75 37.00
Low 49.00 36.44 32.50 31.50
Fiscal quarter ended
-------------------------------------------------------
September 30, July 2, April 2, January 1,
(in thousands, except per share data) 1994 1994 1994 1994
- ------------------------------------------------------------------- -------- -------- -----------
Revenue $ 75,924 $ 69,094 $63,532 $58,424
Gross profit 69,409 63,516 58,931 54,086
Operating income 28,547 27,443 24,908 22,464
Net income 19,006 18,055 16,289 14,739
Net income per share 0.30 0.29 0.26 0.24
Common stock price per share /(3)/:
High 33.25 31.88 39.50 43.75
Low 22.38 22.25 27.50 34.75
/(1)/ All financial information presented here has been retroactively restated
to reflect the Rasna merger which has been accounted for as a pooling of
interests. See Note A of Notes to Consolidated Financial Statements for
additional information.
/(2)/ Per-share data and weighted average number of common and dilutive common
equivalent shares outstanding have been retroactively adjusted to reflect
the one-for-two, one-for-one, and one-for-one stock dividends on all
shares of capital stock declared by the Company's Board of Directors on
May 16, 1991, February 4, 1992 and February 4, 1993, effective June 27,
1991, February 25, 1992 and February 25, 1993, respectively.
/(3)/ The common stock of the Company is traded on the Nasdaq National Market
under the symbol "PMTC". The common stock price shown is based on the
Nasdaq daily closing stock price.
36
SUPPLEMENTAL FINANCIAL INFORMATION
Parametric Technology Corporation
The Company has not paid cash dividends on its common stock and has historically
retained earnings for use in its business. The Company intends to review its
policy with respect to the payment of dividends from time to time; however,
there can be no assurance that any dividends will be paid in the future.
On September 30, 1995, the number of stockholders of record of the
Company's common stock was 2,021.
INVESTOR INFORMATION
................................................................................
Requests for information about the Company should be directed to: Investor
Relations, Parametric Technology Corporation, 128 Technology Drive, Waltham, MA
02154. Telephone: (617) 398-5000.
Report on Form 10-K
Stockholders may obtain additional financial information about Parametric
Technology from the Company's Report on Form 10-K filed with the Securities and
Exchange Commission. Copies are available from the Company without charge upon
written request.
Annual Meeting
The Annual Meeting of Stockholders will be held on February 8, 1996 at 9:00 A.M.
at: Parametric Technology Corporation, 128 Technology Drive, Waltham, MA 02154.
Stock Listing
Nasdaq National Market Symbol: PMTC
General Counsel
Palmer & Dodge, Boston, MA
Independent Accountants
Price Waterhouse LLP, Boston, MA
Transfer Agent and Registrar
American Stock Transfer & Trust Company, New York, NY
DIRECTORS
................................................................................
Steven C. Walske
Chairman and Chief Executive Officer,
Parametric Technology Corporation
C. Richard Harrison
President and Chief Operating Officer,
Parametric Technology Corporation
Robert N. Goldman
President and Chief Executive Officer,
Object Design Inc., a software developer
Donald K. Grierson
President and Chief Executive Officer,
ABB Vetco Gray, Inc., an oil services business
Oscar B. Marx, III
President and Chief Executive Officer, TMW Enterprises,
a start-up venture in the autoparts industry
Michael E. Porter
Professor, Harvard Business School, an educational institution
Noel G. Posternak
Senior Partner, Posternak, Blankstein & Lund, a law firm
CORPORATE OFFICERS
................................................................................
Steven C. Walske
Chairman of the Board of Directors and Chief Executive Officer
C. Richard Harrison
President and Chief Operating Officer
Marc J.L. Dulude
Senior Vice President of Marketing
Edwin J. Gillis
Senior Vice President of Finance and Administration,
Chief Financial Officer and Treasurer
Thomas W. Jensen, Ph.D.
Senior Vice President of Research and Development
David M. Lear
Senior Vice President of Quality and Customer Service
Michael E. McGuinness
Senior Vice President of Sales and Distribution
Martha L. Durcan
Vice President of Administration, Corporate Counsel and Clerk
James F. Kelliher
Vice President of Finance and Assistant Treasurer
John G. Mokas
Controller
Pro/ENGINEER is a registered trademark, and the Parametric Technology
Corporation logo is a trademark of Parametric Technology Corporation. All other
companies or products referenced herein are trademarks or registered trademarks
of their respective holders.