XNAS:PMTC Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012


UNITED STATES
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 quarterly period ended June 30, 2012
Commission File Number: 0-18059
____________________________________________________
Parametric Technology Corporation
(Exact name of registrant as specified in its charter)
____________________________________________________
Massachusetts
 
04-2866152
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
140 Kendrick Street, Needham, MA 02494
(Address of principal executive offices, including zip code)
(781) 370-5000
(Registrant’s telephone number, including area code)
 ____________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer
þ
  
Accelerated filer
¨
  
Non-accelerated filer
¨
  
Smaller reporting company
¨
 
 
  
 
 
  
(Do not check if a smaller
reporting company)
  
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
There were 119,050,170 shares of our common stock outstanding on July 26, 2012.




PARAMETRIC TECHNOLOGY CORPORATION
INDEX TO FORM 10-Q
For the Quarter Ended June 30, 2012

 
 
Page
Number
Part I—FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
Part II—OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 6.


2


PART I—FINANCIAL INFORMATION

ITEM 1.
UNAUDITED CONDENSED FINANCIAL STATEMENTS

PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
 
 
June 30,
2012
 
September 30,
2011
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
238,047

 
$
167,878

Accounts receivable, net of allowance for doubtful accounts of $3,417 and $3,902 at June 30, 2012 and September 30, 2011, respectively
203,261

 
230,220

Prepaid expenses
30,065

 
30,582

Other current assets
82,487

 
109,433

Deferred tax assets
54,111

 
54,151

Total current assets
607,971

 
592,264

Property and equipment, net
61,849

 
62,569

Goodwill
606,782

 
613,394

Acquired intangible assets, net
192,959

 
222,017

Deferred tax assets
112,338

 
98,064

Other assets
29,562

 
41,374

Total assets
$
1,611,461

 
$
1,629,682

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
17,778

 
$
16,974

Accrued expenses and other current liabilities
51,530

 
60,167

Accrued compensation and benefits
95,763

 
95,980

Accrued income taxes
5,505

 
11,895

Deferred tax liabilities
679

 
4,440

Deferred revenue
311,040

 
279,935

Total current liabilities
482,295

 
469,391

Revolving credit facility
140,000

 
200,000

Deferred tax liabilities
23,987

 
25,919

Deferred revenue
12,756

 
14,389

Other liabilities
89,420

 
97,293

Total liabilities
748,458

 
806,992

Commitments and contingencies (Note 13)

 

Stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued

 

Common stock, $0.01 par value; 500,000 shares authorized; 118,794 and 116,937 shares issued and outstanding at June 30, 2012 and September 30, 2011, respectively
1,188

 
1,169

Additional paid-in capital
1,803,945

 
1,805,021

Accumulated deficit
(870,149
)
 
(918,736
)
Accumulated other comprehensive loss
(71,981
)
 
(64,764
)
Total stockholders’ equity
863,003

 
822,690

Total liabilities and stockholders’ equity
$
1,611,461

 
$
1,629,682






The accompanying notes are an integral part of the condensed consolidated financial statements.


3


PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

 
Three months ended
 
Nine months ended
 
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
Revenue:
 
 
 
 
 
 
 
License
$
83,829

 
$
81,431

 
$
247,696

 
$
231,119

Service
227,154

 
210,352

 
682,688

 
596,405

Total revenue
310,983

 
291,783

 
930,384

 
827,524

Cost of revenue:
 
 
 
 
 
 
 
Cost of license revenue
7,634

 
7,617

 
23,117

 
20,129

Cost of service revenue
85,220

 
82,792

 
261,172

 
238,112

Total cost of revenue
92,854

 
90,409

 
284,289

 
258,241

Gross margin
218,129

 
201,374

 
646,095

 
569,283

Sales and marketing
94,706

 
89,106

 
283,446

 
254,790

Research and development
53,260

 
51,103

 
162,829

 
155,676

General and administrative
29,851

 
31,882

 
88,957

 
80,078

Amortization of acquired intangible assets
5,103

 
4,753

 
15,444

 
12,873

Restructuring charges
4,126

 

 
24,928

 

Total operating expenses
187,046

 
176,844

 
575,604

 
503,417

Operating income
31,083

 
24,530

 
70,491

 
65,866

Interest and other (expense) income, net
(304
)
 
(6,271
)
 
(5,914
)
 
(8,979
)
Income before income taxes
30,779

 
18,259

 
64,577

 
56,887

Provision for income taxes
7,884

 
2,733

 
15,990

 
9,084

Net income
$
22,895

 
$
15,526

 
$
48,587

 
$
47,803

Earnings per share—Basic
$
0.19

 
$
0.13

 
$
0.41

 
$
0.41

Earnings per share—Diluted
$
0.19

 
$
0.13

 
$
0.40

 
$
0.39

Weighted average shares outstanding—Basic
119,042

 
118,214

 
118,584

 
117,622

Weighted average shares outstanding—Diluted
120,728

 
121,164

 
120,898

 
121,149















The accompanying notes are an integral part of the condensed consolidated financial statements.

4


PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 
Three months ended
 
Nine months ended
 
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
Net income
$
22,895

 
$
15,526

 
$
48,587

 
$
47,803

Other comprehensive income (loss), net of tax:
 
 
 
 

 

Foreign currency translation adjustment, net of tax of $0 for all periods
(11,089
)
 
2,812

 
(8,310
)
 
11,085

Minimum pension liability adjustment, net of tax of ($0.1) million and ($0.4) million for the third quarter and first nine months of 2012 and $0.1 million and $0.2 million for the third quarter and first nine months of 2011, respectively
231

 
(137
)
 
1,093

 
(403
)
Other comprehensive income (loss)
(10,858
)
 
2,675

 
(7,217
)
 
10,682

Comprehensive income
$
12,037

 
$
18,201

 
$
41,370

 
$
58,485



































The accompanying notes are an integral part of the condensed consolidated financial statements.


5


PARAMETRIC TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
Nine months ended
 
June 30,
2012
 
July 2,
2011
Cash flows from operating activities:
 
 
 
Net income
$
48,587

 
$
47,803

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
50,152

 
44,547

Stock-based compensation
39,405

 
32,458

Excess tax benefits from stock-based awards
(453
)
 
(2,307
)
Other non-cash items, net
307

 
(135
)
Changes in operating assets and liabilities, excluding the effects of acquisitions:
 
 
 
Accounts receivable
41,782

 
18,059

Accounts payable and accrued expenses
(7,881
)
 
3,881

Accrued compensation and benefits
1,589

 
(15,635
)
Deferred revenue
52,228

 
36,825

Accrued litigation

 
(52,129
)
Accrued income taxes
(28,111
)
 
(17,855
)
Other current assets and prepaid expenses
6,558

 
(1,196
)
Other noncurrent assets and liabilities
(7,119
)
 
(15,645
)
Net cash provided by operating activities
197,044

 
78,671

Cash flows from investing activities:
 
 
 
Additions to property and equipment
(22,506
)
 
(18,295
)
Acquisitions of businesses
(1,170
)
 
(265,153
)
Net cash used by investing activities
(23,676
)
 
(283,448
)
Cash flows from financing activities:
 
 
 
Borrowings under revolving credit facility
40,000

 
250,000

Repayments of borrowings under revolving credit facility
(100,000
)
 

Repurchases of common stock
(34,953
)
 
(39,947
)
Proceeds from issuance of common stock
15,315

 
22,261

Excess tax benefits from stock-based awards
453

 
2,307

Payments of withholding taxes in connection with vesting of stock-based awards
(20,893
)
 
(22,052
)
Net cash (used) provided by financing activities
(100,078
)
 
212,569

Effect of exchange rate changes on cash and cash equivalents
(3,121
)
 
12,706

Net increase in cash and cash equivalents
70,169

 
20,498

Cash and cash equivalents, beginning of period
167,878

 
240,253

Cash and cash equivalents, end of period
$
238,047

 
$
260,751






The accompanying notes are an integral part of the condensed consolidated financial statements.

6


PARAMETRIC TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
General
The accompanying unaudited condensed consolidated financial statements include the accounts of Parametric Technology Corporation (PTC) and its wholly owned subsidiaries and have been prepared by management in accordance with accounting principles generally accepted in the United States of America and in accordance with the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. While we believe that the disclosures presented are adequate in order to make the information not misleading, these unaudited quarterly financial statements should be read in conjunction with our annual consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011. 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 statement of our financial position, results of operations and cash flows at the dates and for the periods indicated. Unless otherwise indicated, all references to a year mean our fiscal year, which ends on September 30. The September 30, 2011 consolidated balance sheet included herein is derived from our audited consolidated financial statements.
The results of operations for the three and nine months ended June 30, 2012 are not necessarily indicative of the results expected for the remainder of the fiscal year.

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2011-8, Intangibles-Goodwill and Other (Topic 350):Testing Goodwill for Impairment (ASU 2011-8). Under the update, an entity has the option, but is not required, to first assess qualitative factors (“Qualitative Assessment” or QA”) to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If, after assessing facts and circumstances in the aggregate, an entity determines it does not fail the QA, then performing the traditional two-step impairment test is unnecessary. Otherwise, an entity is required to proceed to the first step of the goodwill impairment test as outlined in ASC Topic 350. The objective of the Update is to simplify the requirement to test goodwill for impairment and was issued in response to preparer concerns about the cost and complexity of performing the first step of the two-step goodwill impairment test. The Update can be applied for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  As permitted, we elected to early adopt this new guidance in conducting our annual impairment analysis in the third quarter of 2012 as described in Note 7.

2. Deferred Revenue and Financing Receivables
Deferred Revenue
Deferred revenue primarily relates to software maintenance agreements billed to customers for which the services have not yet been provided. The liability associated with performing these services is included in deferred revenue and, if not yet paid, the related customer receivable is included in other current assets. Billed but uncollected maintenance-related amounts included in other current assets at June 30, 2012 and September 30, 2011 were $72.3 million and $93.0 million, respectively.
Financing Receivables
We periodically provide extended payment terms for software purchases to credit-worthy customers with payment terms up to 24 months. The determination of whether to offer such payment terms is based on the size, nature and credit-worthiness of the customer, and the history of collecting amounts due, without concession, from the customer and customers generally. This determination is based on an internal credit assessment. In making this assessment, we use the Standard & Poor's (S&P) credit rating as our primary credit quality indicator, if available. If a customer, including both commercial and U.S. Federal government, has a S&P bond rating of BBB- or above, we designate the customer as a Tier 1. If a customer does not have a S&P bond rating, or has a S&P bond rating below BBB-, we base our assessment on an internal credit assessment which considers selected balance sheet, operating and liquidity measures, historical payment experience, and current business conditions within the industry or region. We designate these customers as Tier 2 or Tier 3, with Tier 3 being lower credit quality than Tier 2.

As of June 30, 2012 and September 30, 2011, amounts due from customers for contracts with original payment terms

7


greater than twelve months (financing receivables) totaled $39.1 million and $57.9 million, respectively. Accounts receivable in the accompanying consolidated balance sheets included current receivables from such contracts totaling $28.8 million and $41.9 million at June 30, 2012 and September 30, 2011, respectively, and other assets in the accompanying consolidated balance sheets included long-term receivables from such contracts totaling $10.3 million and $16.0 million at June 30, 2012 and September 30, 2011, respectively. As of June 30, 2012, $0.4 million of these receivables were past due (of which $0.4 million was greater than 90 days past due). None of these receivables were past due as of September 30, 2011. Our credit risk assessment for financing receivables was as follows:

 
June 30,
2012
 
September 30,
2011
 
(in thousands)
S&P bond rating BBB-1 and above-Tier 1
$
28,606

 
$
38,575

Internal Credit Assessment-Tier 2
8,933

 
17,568

Internal Credit Assessment-Tier 3
1,583

 
1,798

Total financing receivables
$
39,122

 
$
57,941

 

We evaluate the need for an allowance for doubtful accounts for estimated losses resulting from the inability of these customers to make required payments. As of June 30, 2012 and September 30, 2011, we concluded that all financing receivables were collectible and no reserve for credit losses was recorded. We did not provide a reserve for credit losses or write off any uncollectible financing receivables in the nine months ended June 30, 2012 and fiscal year 2011. We write off uncollectible trade and financing receivables when we have exhausted all collection avenues.

We periodically transfer future payments under certain of these contracts to third-party financial institutions on a non-recourse basis. We record such transfers as sales of the related accounts receivable when we surrender control of such receivables. We sold $0.6 million and $1.8 million of financing receivables to third-party financial institutions in the three and nine months ended June 30, 2012, respectively. We sold $4.0 million financing receivables to third-party financial institutions in the three and nine months ended July 2, 2011.

3. Restructuring Charges

In the second quarter of 2012, as part of our strategy to reduce costs and to realign our business, we implemented a restructuring of our business and recorded restructuring charges of $20.8 million. The restructuring charges included $20.0 million for severance and related costs associated with 168 employees notified of termination during the second quarter of 2012 and $0.8 million of charges related to excess facilities. The second quarter employee terminations triggered a curtailment of a non-U.S. pension plan and interim remeasurement of the pension plan's assets and liabilities. The remeasurement resulted in a decrease in the plan's net unrecognized losses of $1.2 million, which was recorded in accumulated other comprehensive income net of tax.

In the third quarter of 2012, we implemented further cost reductions and recorded restructuring charges of $4.1 million. The restructuring charges included $4.5 million for severance and related costs associated with 41 employees notified of termination during the third quarter of 2012 and a $0.4 million benefit related to excess facilities as a result of exiting a restructured facility earlier than originally estimated.

The following table summarizes restructuring accrual activity for the three and nine months ended June 30, 2012:
 
 
Three months ended June 30, 2012
 
Nine months ended June 30, 2012
 
 
Employee Severance and Related Benefits
 
Facility Closures and Related Costs
 
Total
 
Employee Severance and Related Benefits
 
Facility Closures and Related Costs
 
Total
 
 
(in thousands)
Beginning balance
 
$
11,274

 
$
786

 
$
12,060

 
$

 
$

 
$

Charges to operations
 
4,506

 
(380
)
 
4,126

 
24,459

 
469

 
24,928

Cash disbursements
 
(6,221
)
 
(107
)
 
(6,328
)
 
(15,050
)
 
(175
)
 
(15,225
)
Foreign exchange impact
 
(331
)
 
(4
)
 
(335
)
 
(181
)
 
1

 
(180
)
Accrual, June 30, 2012
 
$
9,228

 
$
295

 
$
9,523

 
$
9,228

 
$
295

 
$
9,523


8



The accrual for facility closures and related costs is included in accrued expenses in the consolidated balance sheet, and the accrual for employee severance and related benefits is included in accrued compensation and benefits in the consolidated balance sheet.

4. Stock-based Compensation
We measure the cost of employee services received in exchange for restricted stock and restricted stock unit (RSU) awards based on the fair value of our common stock on the date of grant. That cost is recognized over the period during which an employee is required to provide service in exchange for the award.
Our equity incentive plan provides for grants of nonqualified and incentive stock options, common stock, restricted stock, RSUs and stock appreciation rights to employees, directors, officers and consultants. We award restricted stock and RSUs as the principal equity incentive awards, including certain performance-based awards that are earned based on achievement of performance criteria established by the Compensation Committee of our Board of Directors. Each RSU represents the contingent right to receive one share of our common stock.
Our equity incentive plans are described more fully in Note K to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011.

Restricted stock activity for the nine months ended June 30, 2012
Shares
 
Weighted
Average
Grant Date
Fair Value
(Per Share)
 
(in thousands)
 
 
Balance of outstanding restricted stock September 30, 2011
90

 
$
21.30

Granted
57

 
$
25.27

Vested
(70
)
 
$
21.27

Balance of outstanding restricted stock June 30, 2012
77

 
$
24.24

Restricted stock unit activity for the nine months ended June 30, 2012
Shares
 
Weighted
Average
Grant Date
Fair Value
(Per Share)
 
(in thousands)
 
 
Balance of outstanding restricted stock units September 30, 2011
5,490

 
$
17.75

Granted
2,778

 
$
20.05

Vested
(2,731
)
 
$
15.71

Forfeited or not earned
(346
)
 
$
18.79

Balance of outstanding restricted stock units June 30, 2012
5,191

 
$
19.98

Restricted stock and restricted stock unit grants in the first nine months of 2012
 
 
Restricted Stock
 
Restricted Stock Units
Grant Period
Performance-based
 
Time-based (1)
 
Performance-based (2)
 
Time-based (3)
 
(in thousands)
 
(Number of Shares)
 
(Number of Units)
First nine months of 2012
 
57
 
780
 
1,998
_________________
(1)
Of the time-based shares of restricted stock, 9,402 were issued to a non-employee director in connection with a consulting contract we entered into with him. The restrictions on these shares lapse in two substantially equal annual installments from the date of grant. The remaining 47,177 were issued to non-employee directors. The restrictions on these shares lapse one year from the date of grant.
(2)
Of these performance-based RSUs, 11,899 will be eligible to vest on the later of November 15, 2012 and the date the Compensation Committee determines the extent to which the performance criteria have been achieved and 425,698 will be eligible to vest in three substantially equal installments on the later of November 15, 2012 and the date the Compensation Committee determines the extent to which performance criteria have been achieved, November 15, 2013 and November 15, 2014; and 309,976 are eligible to vest in two substantially equal installments on the later of each of November 15, 2013 and November 15, 2014 and the date the Compensation Committee determines the extent

9


to which the applicable performance criteria have been achieved (RSUs not earned for 2013 may be earned for 2014 to the extent the cumulative performance criteria are achieved). The remaining 32,508 have been forfeited.
(3)
The time-based RSUs were issued to employees, including some of our executive officers. Of these time-based RSUs, 1,146,577 will vest in three substantially equal annual installments in November 2012, 2013 and 2014 and 851,671 will vest in three substantially equal installments in May 2013, 2014, and 2015.
Compensation expense recorded for our stock-based awards was classified in our consolidated statements of operations as follows:
 
Three months ended
 
Nine months ended
 
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
 
(in thousands)
 
(in thousands)
Cost of license revenue
$
4

 
$
4

 
$
16

 
$
10

Cost of service revenue
2,050

 
1,857

 
6,734

 
5,577

Sales and marketing
3,334

 
3,062

 
10,368

 
7,841

Research and development
1,886

 
2,010

 
6,675

 
6,152

General and administrative
6,057

 
4,627

 
15,612

 
12,878

Total stock-based compensation expense
$
13,331

 
$
11,560

 
$
39,405

 
$
32,458


5. Earnings per Share (EPS) and Common Stock
EPS
Basic EPS is calculated by dividing net income by the weighted average number of shares outstanding during the period. Unvested restricted stock, although legally issued and outstanding, is not considered outstanding for purposes of calculating basic EPS. Diluted EPS is calculated by dividing net income by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding stock options, restricted shares and RSUs using the treasury stock method. The calculation of the dilutive effect of outstanding equity awards under the treasury stock method includes consideration of proceeds from the assumed exercise of stock options, unrecognized compensation expense and any tax benefits as additional proceeds.

 
 
Three months ended
 
Nine months ended
Calculation of Basic and Diluted EPS
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
 
(in thousands, except per share data)
Net income
$
22,895

 
$
15,526

 
$
48,587

 
$
47,803

Weighted average shares outstanding—Basic
119,042

 
118,214

 
118,584

 
117,622

Dilutive effect of employee stock options, restricted shares and restricted stock units
1,686

 
2,950

 
2,314

 
3,527

Weighted average shares outstanding—Diluted
120,728

 
121,164

 
120,898

 
121,149

Earnings per share—Basic
$
0.19

 
$
0.13

 
$
0.41

 
$
0.41

Earnings per share—Diluted
$
0.19

 
$
0.13

 
$
0.40

 
$
0.39


Stock options to purchase 0.1 million shares for the first nine months of 2012 and 0.1 million shares for both the third quarter and first nine months of 2011 were outstanding but were not included in the calculation of diluted EPS because the exercise prices per share were greater than the average market price of our common stock for those periods. These shares were excluded from the computation of diluted EPS as the effect would have been anti-dilutive.
Common Stock Repurchases
Our Articles of Organization authorize us to issue up to 500 million shares of our common stock. Our Board of Directors has authorized us to repurchase up to $100 million worth of shares with cash from operations in the period October 1, 2011 through September 30, 2012. In the third quarter and first nine months of 2012, we repurchased 1.0 million shares at a cost of $20.0 million and 1.6 million at a cost of $35.0 million, respectively. In the third quarter and first nine months of 2011, we

10


repurchased 1.8 million shares at a cost of $39.9 million. All shares of our common stock repurchased are automatically restored to the status of authorized and unissued.

6. Acquisitions
In 2011, we completed the acquisitions of MKS and 4CS described more fully in Note E to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011. The results of operations of these acquired businesses have been included in our consolidated financial statements beginning on their respective acquisition dates. These acquisitions added $20.3 million and $61.0 million to our revenue for the three and nine months ended June 30, 2012, respectively.
Acquisition-related costs were $0 million and $2.5 million for the three and nine months ended June 30, 2012, respectively, and $6.0 million and $6.6 million for the three and nine months ended July 2, 2011, respectively. Acquisition related costs include charges related to acquisition integration activities (i.e., severance and professional fees). These costs have been classified in general and administrative expenses in the accompanying consolidated statements of operations.
4CS
On September 2, 2011, we acquired all of the outstanding common stock of 4C Solutions, Inc. (4CS) for $14.9 million in cash (net of $0.1 million of cash acquired). 4CS's results of operations have been included in our consolidated financial statements beginning September 3, 2011. Our results of operations prior to this acquisition, if presented on a pro forma basis, would not differ materially from our reported results.
As of September 30, 2011, we had recorded a liability for an additional $1.2 million of contingent purchase price included in accrued expenses and other current liabilities on the consolidated balance sheet. In the nine months ended June 30, 2012, this amount was fully earned and paid. Any further adjustments that could lower the purchase price in accordance with contingent provisions in the acquisition agreement are not anticipated to be material.

MKS
On May 31, 2011, we acquired all of the outstanding common stock of MKS Inc. (MKS) for $265.2 million, net of $33.2 million of cash acquired. MKS's results of operations have been included in our consolidated financial statements beginning May 31, 2011.
The unaudited financial information in the table below summarizes the combined results of operations of PTC and MKS, on a pro forma basis, as though the companies had been combined as of the beginning of PTC's fiscal year 2010. The pro forma information presented includes the effects of business combination accounting resulting from the acquisition, including amortization charges from acquired intangible assets, stock-based compensation charges for unvested stock options, interest expense on borrowings in connection with the acquisition, and the related tax effects as though the acquisition had been consummated as of the beginning of 2010. These pro forma results exclude the impact of the purchase accounting adjustment to deferred revenue and the transaction costs included in the historical results and the related tax effects. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisition had taken place at the beginning of 2010. The pro forma financial information is based on PTC's results of operations for the three and nine months ended July 2, 2011, combined with MKS's results of operations for the two and eight months ended May 31, 2011.

 
Three months ended
 
Nine months ended
 
July 2,
2011
 
July 2,
2011
 
(in millions, except per share amounts)
Revenue
$
304.4

 
$
886.4

Net income
$
16.3

 
$
54.4

Earnings per share—Basic
$
0.14

 
$
0.46

Earnings per share—Diluted
$
0.13

 
$
0.45


7. Goodwill and Intangible Assets
We have two operating segments: (1) Software Products and (2) Services. We assess goodwill for impairment at the reporting unit level. Our reporting units are determined based on the components of our operating segments that constitute a

11


business for which discrete financial information is available and for which operating results are regularly reviewed by segment management. Our reporting units are consistent with our operating segments. As of June 30, 2012 and September 30, 2011, goodwill and acquired intangible assets in the aggregate attributable to our software products reportable segment was $771.4 million and $806.0 million, respectively, and attributable to our services reportable segment was $28.4 million and $29.4 million, respectively. We test goodwill for impairment in the third quarter of our fiscal year, or on an interim basis if an event occurs or circumstances change that would, more likely than not, reduce the fair value of a reporting segment below its carrying value. Acquired intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.
Our goodwill impairment assessment was based on the new guidance prescribed in ASU 2011-8 as described in Note 1. On July 2, 2011, the estimated fair value of each reporting unit was approximately double its carrying value or higher. Because our fair value was well in excess of our carrying value on that date and there are no other indicators that our goodwill has become impaired since that date, we elected to perform a qualitative assessment to test each reporting unit’s goodwill for impairment. Based on our qualitative assessment, if we determine that the fair value of a reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be greater than its carrying amount no additional testing will be performed. If we determine that the fair value of a reporting unit is more likely than not to be less than its carrying amount, the two step impairment test will be performed. In the first step, we compare the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference.
We completed our annual goodwill impairment review as of June 30, 2012 based on a qualitative assessment. Our qualitative assessment included company specific (financial performance and long-range plans), industry, and macroeconomic factors, as well as a sensitivity analysis of key model assumptions. Based on our qualitative assessment, we believe it is more-likely-than-not that the fair values of our reporting units exceed their carrying values and no further impairment testing is required.
Goodwill and acquired intangible assets consisted of the following:
 
 
June 30, 2012
 
September 30, 2011
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
(in thousands)
Goodwill (not amortized)
 
 
 
 
$
606,782

 
 
 
 
 
$
613,394

Intangible assets with finite lives (amortized) (1):
 
 
 
 
 
 
 
 
 
 
 
Purchased software
$
175,882

 
$
122,389

 
53,493

 
$
178,388

 
$
112,555

 
$
65,833

Capitalized software
22,877

 
22,877

 

 
22,877

 
22,877

 

Customer lists and relationships
225,066

 
87,869

 
137,197

 
227,961

 
75,050

 
152,911

Trademarks and trade names
10,933

 
8,747

 
2,186

 
11,035

 
7,967

 
3,068

Other
3,411

 
3,328

 
83

 
3,506

 
3,301

 
205

 
$
438,169

 
$
245,210

 
$
192,959

 
$
443,767

 
$
221,750

 
$
222,017

Total goodwill and acquired intangible assets
 
 
 
 
$
799,741

 
 
 
 
 
$
835,411


(1) The weighted average useful lives of purchased software, customer lists and relationships, trademarks and trade names and other intangible assets with a remaining net book value are 8 years, 10 years, 6 years, and 4 years, respectively.

Goodwill
The changes in the carrying amounts of goodwill for the nine months ended June 30, 2012 are due to foreign currency translation adjustments related to those asset balances that are recorded in non-U.S. currencies.
Changes in goodwill for the nine months ended June 30, 2012, presented by reportable segment, are as follows:


12


 
Software
Products
Segment
 
Services
Segment
 
Total
 
(in thousands)
Balance, September 30, 2011
$
588,443

 
$
24,951

 
$
613,394

Foreign currency translation adjustments
(6,511
)
 
(101
)
 
(6,612
)
Balance, June 30, 2012
$
581,932

 
$
24,850

 
$
606,782


Amortization of intangible assets
The aggregate amortization expense for intangible assets with finite lives recorded for the third quarter and first nine months of 2012 and 2011 was classified in our consolidated statements of operations as follows:

 
Three months ended
 
Nine months ended
 
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
 
(in thousands)
 
 
 
 
Amortization of acquired intangible assets
$
5,103

 
$
4,753

 
$
15,444

 
$
12,873

Cost of license revenue
3,933

 
3,895

 
11,967

 
10,597

Total amortization expense
$
9,036

 
$
8,648

 
$
27,411

 
$
23,470


The estimated aggregate future amortization expense for intangible assets with finite lives remaining as of June 30, 2012 is $8.8 million for the remainder of 2012, $35.7 million for 2013, $33.8 million for 2014, $30.4 million for 2015, $22.9 million for 2016, $19.3 million for 2017 and $42.1 million thereafter.

8. Fair Value Measurements
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. Generally accepted accounting principles prescribe a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs that may be used to measure fair value:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or
Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Our significant financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2012 and September 30, 2011 were as follows:


13


 
June 30,
2012
 
September 30,
2011
 
(in thousands)
Financial assets:
 
 
 
Cash equivalents—Level 1 (1)
$
92,850

 
$
36,018

Forward contracts—Level 2

 
5,510

 
$
92,850

 
$
41,528

 
 
 
 
Financial liabilities:
 
 
 
Forward contracts—Level 2
$
1,030

 
$

_________________
(1)
Money market funds and time deposits.


9. Derivative Financial Instruments
Our foreign currency risk management strategy is principally designed to mitigate the future potential financial impact of changes in the value of transactions and balances denominated in foreign currency resulting from changes in foreign currency exchange rates. We enter into derivative transactions, specifically foreign currency forward contracts with maturities of up to three months, to manage our exposure to fluctuations in foreign exchange rates that arise primarily from our foreign currency-denominated receivables and payables.
Generally, we do not designate foreign currency forward contracts as hedges for accounting purposes, and changes in the fair value of these instruments are recognized immediately in earnings. Because we enter into forward contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated balance would be offset by the loss or gain on the forward contract. Gains and losses on forward contracts and foreign denominated receivables and payables are included in other income (expense), net.
As of June 30, 2012 and September 30, 2011, we had outstanding forward contracts with notional amounts equivalent to the following:

Currency Hedged
June 30,
2012
 
September 30,
2011
 
(in thousands)
Canadian Dollar / U.S. Dollar
$
82,188

 
$
92,748

Euro / U.S. Dollar
43,181

 
65,773

Chinese Renminbi / U.S. Dollar
4,192

 
19,973

Japanese Yen / U.S. Dollar
13,148

 
13,676

Swiss Franc / U.S. Dollar

 
9,419

British Pound / Euro
5,622

 
3,993

All other
7,199

 
7,350

Total
$
155,530

 
$
212,932



The accompanying consolidated balance sheets include a net liability of $1.0 million in accrued expenses and other current liabilities as of June 30, 2012, and a net asset of $5.5 million in other current assets as of September 30, 2011 related to the fair value of our forward contracts.
Net gains and losses on foreign currency exposures are recorded in other income (expense), net and include realized and unrealized gains and losses on forward contracts. Net gains and losses on foreign currency exposures for the three and nine months ended June 30, 2012 and July 2, 2011 were as follows:

14


 
Three months ended
 
Nine months ended
 
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
 
(in thousands)
Net losses on foreign currency exposures
$
572

 
$
6,116

 
$
5,142

 
$
9,448

Net realized and unrealized (gain) loss on forward contracts (excluding the underlying foreign currency exposure being hedged)
$
(1,570
)
 
$
7,684

 
$
816

 
$
12,897



10. Segment Information
We operate within a single industry segment—computer software and related services. Operating segments as defined under GAAP are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our President and Chief Executive Officer. We have two operating and reportable segments: (1) Software Products, which includes license and related maintenance revenue (including updates and technical support) for all our products except training-related products; and (2) Services, which includes consulting, implementation, training, computer-based training products, including maintenance on these products, and other support revenue. In our consolidated statements of operations, maintenance revenue is included in service revenue. We do not allocate sales and marketing or administrative expenses to our operating segments as these activities are managed on a consolidated basis.
The revenue and operating income attributable to our operating segments are summarized as follows:

 
Three months ended
 
Nine months ended
 
June 30,
2012
 
July 2,
2011
 
June 30, 2012
 
July 2,
2011
 
(in thousands)
Revenue:
 
 
 
 
 
 
 
Total Software Products segment revenue
$
229,706

 
$
212,137

 
$
688,322

 
$
617,203

Total Services segment revenue
81,277

 
79,646

 
242,062

 
210,321

Total revenue
$
310,983

 
$
291,783

 
$
930,384

 
$
827,524

Operating income: (1)
 
 
 
 
 
 
 
Software Products segment
$
145,829

 
$
134,157

 
$
431,897

 
$
385,881

Services segment (2)
12,491

 
11,361

 
27,774

 
14,853

Sales and marketing expenses
(97,386
)
 
(89,106
)
 
(298,606
)
 
(254,790
)
General and administrative expenses
(29,851
)
 
(31,882
)
 
(90,574
)
 
(80,078
)
Total operating income
$
31,083

 
$
24,530

 
$
70,491

 
$
65,866


(1)
We recorded restructuring charges of $4.1 million and $24.9 million in the third quarter and first nine months of 2012, respectively. Software Products included $0.7 million and $4.1 million, respectively; Services included $0.8 million and $4.0 million, respectively; sales and marketing expenses included $2.7 million and $15.2 million, respectively; and general and administrative expenses included $0 million and $1.6 million, respectively, of these restructuring charges.
(2)
In the first quarter of 2011, we made a strategic decision to enter into a contract with a customer in the automotive industry for which we expected our costs to exceed our revenue by approximately $5 million. Services segment operating income in the first three months of 2011 included immediate recognition of the approximately $5 million estimated loss on this contract.
We report revenue by product group, Desktop and Enterprise. Desktop revenue includes our CAD Solutions, primarily Creo Parametric, Creo Elements/Direct, Mathcad and Arbortext authoring products. Enterprise revenue includes our PLM solutions, primarily Windchill, Arbortext enterprise products, Creo View and Integrity.
Amounts for the three and nine months ended June 30, 2012 and July 2, 2011 presented in the tables below include

15


immaterial reclassifications between product groups and geographic regions made to conform to the current classification.

 
Three months ended
 
Nine months ended
 
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
 
(in thousands)
Revenue:
 
 
 
 
 
 
 
Desktop
$
150,954

 
$
154,894

 
$
452,568

 
$
456,215

Enterprise
160,029

 
136,889

 
477,816

 
371,309

Total revenue
$
310,983

 
$
291,783

 
$
930,384

 
$
827,524


Data for the geographic regions in which we operate is presented below.

 
Three months ended
 
Nine months ended
 
June 30,
2012
 
July 2,
2011
 
June 30,
2012
 
July 2,
2011
 
(in thousands)
Revenue:
 
 
 
 
 
 
 
Americas (1)
$
112,661

 
$
104,618

 
$
339,680

 
$
299,111

Europe (2)
120,214

 
120,302

 
369,169

 
334,132

Pacific Rim
43,593

 
36,873

 
118,170

 
106,694

Japan
34,515

 
29,990

 
103,365

 
87,587

Total revenue
$
310,983

 
$
291,783

 
$
930,384

 
$
827,524

_________________
(1)
Includes revenue in the United States totaling $106.1 million and $98.7 million for the three months ended June 30, 2012 and July 2, 2011, respectively, and $319.1 million and $263.6 million for the nine months ended June 30, 2012 and July 2, 2011, respectively.
(2)
Includes revenue in Germany totaling $48.0 million and $48.9 million for the three months ended June 30, 2012 and July 2, 2011, respectively, and $145.3 million and $120.6 million for the nine months ended June 30, 2012 and July 2, 2011, respectively.

11. Income Taxes
In the third quarter and first nine months of 2012, our effective tax rate was a provision of 26% on pre-tax income of $30.8 million, and 25% on pre-tax income of $64.6 million, respectively, compared to a provision of 15% on pre-tax income of $18.3 million and 16% on pre-tax income of $56.9 million in the third quarter and first nine months of 2011, respectively. In the first nine months of 2012, our effective tax rate was lower than the 35% statutory federal income tax rate due primarily to our corporate structure in which our foreign taxes are at a net effective tax rate lower than the U.S. rate. The third quarter of 2012 provision includes a discrete non-cash charge of $4.2 million. This charge was recorded due to the restructuring of our Canadian operations that resulted in a change in the tax status of the foreign legal entity. Our provision in the first nine months of 2012 also includes the expiration on December 31, 2011 of the research and development (R&D) credit in the U.S. and a discrete non-cash charge of $1.5 million related to the impact of a Japanese legislative change, enacted in the first quarter, on our Japan entity's deferred tax assets. Additionally, we expect to make a R&D cost sharing prepayment by a foreign subsidiary to the U.S. at the same level as the prior year. If such prepayment is not ultimately paid within the fiscal year, the effective tax rate would be favorably impacted by up to $7.5 million. In the first nine months of 2011, our effective tax rate was lower than the 35% statutory federal income tax rate due primarily to our corporate tax structure in which our foreign taxes are at a net effective tax rate lower than the U.S. rate and a $1.8 million tax benefit related to R&D credits in the U.S. triggered by a retroactive extension of the R&D tax credit enacted in the first quarter of 2011.
We have net deferred tax assets ($121.9 million as of September 30, 2011) primarily relating to our U.S. operations. We have concluded, based on the weight of available evidence, that our net deferred tax assets are more likely than not to be realized in the future. In arriving at this conclusion, we evaluated all available evidence, including our cumulative profitability on a pre-tax basis for the last three years (adjusted for permanent differences) which includes the results of taking certain tax planning actions. We have taken and will continue to take measures to improve core earnings in the U.S. If our U.S. results do not improve, a valuation allowance against the deferred tax assets may be required. We will continue to reassess our valuation allowance requirements each financial reporting period.

16



As of June 30, 2012 and September 30, 2011, we had unrecognized tax benefits of $16.4 million ($16.1 million net of state tax benefits) and $16.2 million ($15.9 million net of state tax benefits), respectively. If all of our unrecognized tax benefits as of June 30, 2012 were to become recognizable in the future, we would record a $15.2 million benefit to the income tax provision.
Our policy is to record estimated interest and penalties related to the underpayment of income taxes as a component of our income tax provision. In the first nine months of 2012 and 2011 we included $0.2 million of interest expense, and $0.1 million of tax penalty expense in our income tax provision. As of June 30, 2012 and September 30, 2011 we had accrued $2.2 million and $2.0 million, respectively, of estimated interest expense and we had $0.1 million of accrued tax penalties as of June 30, 2012. Changes in our unrecognized tax benefits in the nine months ended June 30, 2012 were as follows:

 
(in millions)
Balance as of October 1, 2011
$
16.2

Tax positions related to current year
1.2

Tax positions related to prior years
0.4

Statute expirations
(1.4
)
Balance as of June 30, 2012
$
16.4


Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in favorable or unfavorable changes in our estimates. We believe it is reasonably possible that within the next 12 months the amount of unrecognized tax benefits and accrued interest related to the resolution of multi-jurisdictional tax positions could be reduced by up to $6 million as audits close and statutes expire.
In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities, including the Internal Revenue Service in the United States. As of June 30, 2012, we remained subject to examination in the following major tax jurisdictions for the tax years indicated:

Major Tax Jurisdiction
  
Open Years
United States
  
2009 through 2011
Germany
  
2007 through 2011
France
  
2007 through 2011
Japan
  
2006 through 2011
Ireland
  
2006 through 2011

12. Long Term Debt
Revolving Credit Agreement
We have a multi-currency bank revolving credit facility (the credit facility) with a syndicate of ten banks for which JPMorgan Chase Bank, N.A. acts as Administrative Agent. The credit facility matures on September 30, 2016, when all amounts will be due and payable in full. The credit facility does not require amortization of principal and may be paid before maturity in whole or in part at PTC’s option without penalty or premium. We expect to use the credit facility for general corporate purposes, including acquisitions of other businesses, and may also use it for working capital.
The credit facility consists of a $300 million revolving credit facility, which may be increased by up to an additional $150 million if the existing or additional lenders are willing to make such increased commitments (such increase may also be used, in whole or in part, for term loans). PTC is the sole borrower under the credit facility. The obligations under the credit facility are guaranteed by PTC’s material domestic subsidiaries and 65% of the voting equity interests of PTC’s material first-tier foreign subsidiaries are pledged as collateral for the obligations.
In May 2011, in connection with our acquisition of MKS, we borrowed $250 million under the credit facility at a variable interest rate which resets every 30 to 180 days, depending on the rate and period selected. The annual rate in effect as of June 30, 2012 is 1.75%, which will reset on August 22, 2012 to then current rates as defined below. As of June 30, 2012 and September 30, 2011 we had $140 million and $200 million, respectively, outstanding under the credit facility. During the three months ended December 31, 2011, we borrowed and then repaid $40 million under the credit facility for short term cash requirements. Additionally, in the nine months ended June 30, 2012, we repaid $60 million under the credit facility.

17


Interest rates on borrowings outstanding under the credit facility range from 1.25% to 1.625% above an adjusted LIBO rate for Eurodollar-based borrowings or would range from 0.25% to 0.625% above the defined base rate (the greater of the Prime Rate, the Federal Funds Effective Rate plus 0.005%, or an adjusted LIBO rate plus 1%) for base rate borrowings, in each case based upon PTC’s leverage ratio. Additionally, PTC may borrow certain foreign currencies at rates set in the same range above the respective London interbank offered interest rates for those currencies, based on PTC’s leverage ratio. A quarterly commitment fee on the undrawn portion of the credit facility is required, ranging from 0.20% to 0.30% per annum, based upon PTC’s leverage ratio.
The credit facility limits PTC’s and its subsidiaries’ ability to, among other things: incur additional indebtedness; incur liens or guarantee obligations; pay dividends (other than to PTC) and make other distributions; make investments and enter into joint ventures; dispose of assets; and engage in transactions with affiliates, except on an arms-length basis. Under the credit facility, PTC and its material domestic subsidiaries may not invest cash or property in, or loan to, PTC’s foreign subsidiaries in aggregate amounts exceeding $50 million for any purpose and an additional $75 million for acquisitions of businesses. In addition, under the credit facility, PTC and its subsidiaries must maintain the following financial ratios:
a leverage ratio, defined as consolidated funded indebtedness to consolidated trailing four quarters EBITDA, of no greater than 2.50 to 1.00 at any time; and
a fixed charge coverage ratio, defined as the ratio of consolidated trailing four quarters EBITDA less consolidated capital expenditures to consolidated fixed charges, of no less than 1.25 to 1.00 at any time.

As of June 30, 2012, our leverage ratio was 0.55 to 1.00 and our fixed charge coverage ratio was 4.24 to 1.00. We were in compliance with all financial and operating covenants of the credit facility as of June 30, 2012.
Any failure to comply with the financial or operating covenants of the credit facility would prevent PTC from being able to borrow additional funds, and would constitute a default, permitting the lenders to, among other things, accelerate the amounts outstanding, including all accrued interest and unpaid fees, under the credit facility and to terminate the credit facility. A change in control of PTC, as defined in the agreement, also constitutes an event of default, permitting the lenders to accelerate the indebtedness and terminate the credit facility.

13. Commitments and Contingencies

Legal and Regulatory Matters

China Investigation

We have undertaken an investigation of payments by certain business partners and expenses by certain employees in China that raise questions of compliance with laws, including the Foreign Corrupt Practices Act, and/or compliance with our business policies. The termination of certain employees and business partners in China in connection with this matter may have an adverse impact on our level of sales in China until such replacements for those employees and business partners are in place and productive. Revenue from China has historically represented 6% to 7% of our total revenue. We have voluntarily disclosed the results of our investigation and associated remedial actions to the United States Department of Justice and the Securities and Exchange Commission and are cooperating to provide additional information as requested. We are unable to predict the outcome of this matter or to estimate fines or other sanctions which may be assessed.

Other Legal Proceedings

We are subject to various legal proceedings and claims that arise in the ordinary course of business. We do not believe that resolving the legal proceedings and claims that we are currently subject to will have a material adverse impact on our financial condition, results of operations or cash flows. However, the results of legal proceedings cannot be predicted with certainty. Should any of these legal proceedings and claims be resolved against us, the operating results for a particular reporting period could be adversely affected.

Accruals

With respect to legal proceedings and claims, we record an accrual for a contingency when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. For legal proceedings and claims for which the likelihood that a liability has been incurred is more than remote but less than probable, we estimate the range of possible outcomes. As of both June 30, 2012 and September 30, 2011, we had a legal proceedings and claims accrual of $0.4 million.
Guarantees and Indemnification Obligations

18


We enter into standard indemnification agreements in the ordinary course of our business. Pursuant to such agreements with our business partners or customers, we indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally in connection with patent, copyright or other intellectual property infringement claims by any third party with respect to our products, as well as claims relating to property damage or personal injury resulting from the performance of services by us or our subcontractors. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. Historically, our costs to defend lawsuits or settle claims relating to such indemnity agreements have been minimal and we accordingly believe the estimated fair value of these agreements is immaterial.
We warrant that our software products will perform in all material respects in accordance with our standard published specifications in effect at the time of delivery of the licensed products for a specified period of time. Additionally, we generally warrant that our consulting services will be performed consistent with generally accepted industry standards. In most cases, liability for these warranties is capped. If necessary, we would provide for the estimated cost of product and service warranties based on specific warranty claims and claim history; however, we have not incurred significant cost under our product or services warranties. As a result, we believe the estimated fair value of these agreements is immaterial.

19


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Statements in this Quarterly Report on Form 10-Q about our future financial and growth expectations, the development of our products and markets, adoption of our solutions and future purchases by customers, and the expected impact of our strategic investments and product releases on our business are forward-looking statements that are subject to the inherent uncertainties in predicting future results and conditions. Risks and uncertainties that could cause actual results to differ materially from projected results include the following: our customers may not purchase our solutions when or at the rates we expect; we may not achieve the license, service or maintenance growth rates we expect, which could result in a different mix of revenue between license, service and maintenance and could adversely affect our profitability; the possibility that foreign currency exchange rates may vary from our expectations and thereby affect our reported revenue and expense; our strategic investments may not generate the revenue or have the effects we expect; our pipeline of opportunities in the Americas may not generate the revenue we expect, we may be unable to achieve planned services margins and operating margin improvements, we may be unable to attain or maintain a technology leadership position and any such leadership position may not generate the revenue we expect; our ability to successfully differentiate our products and services from those of our competitors and otherwise compete could be adversely affected by the relatively larger size and greater resources of several of the companies with which we compete; the possibility that remedial actions related to our previously announced investigation in China may have a material impact on our operations in China, as well as other risks and uncertainties described below throughout or referenced in Part II, Item 1A. Risk Factors of this report.
Our Business
Parametric Technology Corporation (PTC) develops, markets and supports solutions that span the entire product lifecycle, from engineering product design through supply chain and after-market services. Our software solutions provide our customers with an integral product development system that enables them to create digital product content, collaborate with others in the product development process, control product content, automate product development processes, configure products and product content, and communicate product information to people and systems across the extended enterprise and design chain.
Our solutions in the product lifecycle management, or PLM, market (product data management, collaboration and related solutions); the CAD market (computer-aided design solutions); and the application lifecycle management, or ALM, market (software development solutions within product development) help companies design products, manage product information and improve their product development processes. Our solutions in the supply chain management, or SCM, market (product sourcing, design and compliance solutions) and the service lifecycle management, or SLM, market (after-market service and support solutions) help companies manage product performance, reliability and safety and ensure that updates in product development are reflected in real-time service and spare parts information throughout a product's service lifecycle.
Our software solutions help customers increase innovation, improve product quality, decrease time to market, and reduce product development costs.
We generate revenue through the sale of:
software licenses,
maintenance services, which include technical support and software updates, and
consulting and training services, which include implementation services for our software.
The markets we serve present different growth opportunities for us. We believe the markets among large businesses for PLM, ALM, SLM and SCM solutions (which we refer to as our “Enterprise Solutions”) present the greatest opportunity for revenue growth for us and that revenue from these markets will constitute an increasingly greater proportion of our revenue over time. We believe that the market for our CAD solutions (which we refer to as our “Desktop Solutions”) provides an opportunity for modest long-term growth as the market for these solutions is mature.
Our solutions are complemented by our experienced services and technical support organizations which provide consulting, implementation and training support services to customers worldwide. Resellers supplement this direct sales force to provide greater geographic and small- and medium-size account coverage, while other strategic partners provide product and/or service offerings that complement our solutions.


20


Executive Overview

For the third quarter of 2012, our total revenue was $311 million, a year-over-year increase of 7%, in line with our third quarter expectations.  On a constant currency basis (at third quarter of 2011 foreign currency exchange rates), total revenue would have been $322 million, or a 10% year-over-year increase.  On an organic basis, excluding revenue during the quarter from our MKS and 4CS businesses, both acquired in the second half of 2011, total revenue for the third quarter of 2012 was up 2% year over year (up 5% on a constant currency basis).  MKS and 4CS revenue was $20 million in the quarter compared to $6 million in the third quarter of 2011.  Total license revenue for the quarter was $84 million, an increase of 3% year over year (up 7% on a constant currency basis).  On an organic basis, total license revenue was down 3% year-over-year (up 1% on a constant currency basis). From a geographic perspective, Europe continued to perform in line with our expectations with the Pacific Rim and Japan delivering strong results. While the Americas performance lagged other geographic regions in the third quarter, our pipeline continues to build and we are optimistic about the outlook for this region in the fourth quarter of 2012.  We had 34 customers ($75 million) from which we recognized license and/or consulting and training revenue greater than $1 million in the quarter compared with 25 customers ($56 million) in the prior quarter and 30 customers ($67 million) during the third quarter of 2011.  This increase was attributable to Asia, which had 7 more customers in this category this quarter compared to both the prior quarter and third quarter of 2011.

Our operating margin on a non-GAAP basis increased to 19% in the third quarter of 2012 from 18% in the third quarter of 2011 and increased to 10% from 8% on a GAAP basis, due primarily to cost reductions and improved services margins. These improvements were partially offset by the impact of changes in foreign currency exchange rates which unfavorably impacted GAAP operating margin by approximately $4 million. GAAP operating margin in the third quarter of 2012 included $4 million of restructuring charges described below and in the third quarter of 2011 included $6 million of acquisition-related expenses. Non-GAAP earnings per share in the third quarter of 2012 increased 16% to $0.37 from $0.32 in the third quarter of 2011 as a result of higher comparable revenue and profitability. On a GAAP basis, earnings per share in the third quarter of 2012 was $0.19 compared to $0.13 in the third quarter of 2011. Non-GAAP measures are reconciled to GAAP results under Results of Operations - Income and Margins; Earnings per Share below.

We ended the third quarter of 2012 with $238 million of cash, up from $224 million at the end of the second quarter of 2012 and $168 million at September 30, 2011, reflecting strong operating cash flow, net of $20 million used to repay our revolving credit facility and $20 million used for stock repurchases. We also have $160 million available under our revolving credit facility.

As part of our strategy to reduce costs and to realign our business, in the second quarter of 2012, we implemented a restructuring of our business and recorded restructuring charges of $21 million in the second quarter, primarily for severance and related costs associated with 168 employees (representing approximately 3% of our workforce) notified of termination during that quarter. In the third quarter of 2012, we implemented further cost reductions and recorded restructuring charges of $4 million, primarily for severance and related costs associated with an additional 41 employees notified of termination during the third quarter of 2012. We expect that these reductions will result in operating expense savings of approximately $6 million per quarter. We realized approximately $5 million of these operating expense savings in the third quarter of 2012. We paid $15 million of the restructuring charges in the second and third quarters of 2012 and we expect to pay the remaining $10 million within the next nine months.
 
We expect the near-term cost savings and the longer-term benefit of our organizational realignment will improve efficiencies within our sales and services organizations and improve our operating margins over the long term. 
Revenue, Operating Margin, Earnings per Share and Cash Flow from Operations
The following table shows the financial measures that we consider the most significant indicators of the performance of our business. In addition to providing operating income, operating margin, and diluted earnings per share as calculated under generally accepted accounting principles (“GAAP”), we also show non-GAAP operating income, operating margin, and diluted earnings per share for the reported periods. These non-GAAP measures exclude a fair value adjustment related to acquired deferred maintenance revenue, stock-based compensation, amortization of acquired intangible assets expense, acquisition-related charges, restructuring charges, one-time charges included in non-operating other income (expense) and the related tax effects of the preceding items, and any one-time tax items. Excluding those expenses and one-time items provides investors another view of our operating results which is aligned with management budgets and with performance criteria in our incentive compensation plans. Management uses, and investors should consider, non-GAAP measures in conjunction with our GAAP results. We discuss the non-GAAP measures in detail under Results of Operations - Income and Margins; Earnings per Share below.

21


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Three Months Ended

Percent Change 2011 to 2012
 
Nine Months Ended
 
Percent Change 2011 to 2012

June 30, 2012

July 2, 2011

Actual
 
Constant Currency
 
June 30, 2012
 
July 2, 2011
 
Actual
 
Constant Currency

(dollar amounts in millions, except per share data)
License revenue
$
83.8


$
81.4


3
%
 
7
%
 
$
247.7

 
$
231.1

 
7
%
 
8
%
Consulting and training service revenue
74.8


68.6


9
%
 
13
%
 
226.2

 
191.3

 
18
%
 
20
%
Maintenance revenue
152.4


141.8


8
%
 
11
%
 
456.5

 
405.1

 
13
%
 
13
%
Total service revenue
227.2

 
210.4

 
8
%
 
12
%
 
682.7

 
596.4

 
14
%
 
15
%
Total revenue
311.0


291.8


7
%
 
10
%
 
930.4

 
827.5

 
12
%
 
13
%
Cost of license
7.7

 
7.6

 
%
 
 
 
23.1

 
20.1

 
15
%
 
 
Cost of service
85.2

 
82.8

 
3
%
 
 
 
261.2

 
238.1

 
10
%
 
 
Total cost of revenue
92.9

 
90.4

 
3
%
 
 
 
284.3

 
258.2

 
10
%
 
 
Gross margin
218.1

 
201.4

 
8
%
 
 
 
646.1

 
569.3

 
13
%
 
 
Operating expenses
187.0

 
176.9

 
6
%
 
 
 
575.6

 
503.4

 
14
%
 
 
Total costs and expenses (1)
279.9


267.3


5
%
 
8
%
 
859.9

 
761.6

 
13
%
 
14
%
Operating income (1)
$
31.1


$
24.5


27
%
 
42
%
 
$
70.5

 
$
65.9

 
7
%
 
9
%
Non-GAAP operating income (1)
$
57.8


$
51.5


12
%
 
20
%
 
$
167.2

 
$
129.1

 
30
%
 
31
%
Operating margin (1)
10
%

8
%


 

 
8
%
 
8
%
 
 
 
 
Non-GAAP operating margin (1)
19
%

18
%


 

 
18
%
 
16
%
 
 
 
 
Diluted earnings per share (2)
$
0.19


$
0.13



 

 
$
0.40

 
$
0.39

 
 
 
 
Non-GAAP diluted earnings per share (2)
$
0.37


$
0.32



 

 
$
1.01

 
$
0.79

 
 
 
 
Cash flow from operations (3)
$
64.0


$
48.4



 

 
$
197.0

 
$
78.7

 
 
 
 






 

 
 
 

 
 
 
 
(1) Costs and expenses in the third quarter and first nine months of 2012 included $4.1 million and $24.9 million, respectively, of restructuring charges as well as $0 million and $2.5 million, respectively, of acquisition-related costs, compared to $6.0 million and $6.6 million in the third quarter and first nine months of 2011, respectively. These restructuring and acquisition-related costs have been excluded from non-GAAP operating income. In the first quarter of 2011, we entered into a strategic contract with an automotive customer for which we expected costs to exceed revenue by approximately $5 million. This loss was recorded in the first quarter of 2011 and resulted in a decrease in GAAP and non-GAAP operating income of approximately $5 million.
(2) Diluted earnings per share in the third quarter and first nine months of 2011 included foreign currency losses of $4.4 million recorded as other expense related to our acquisition of MKS. These losses have been excluded from non-GAAP diluted earnings per share.
(3) In the first nine months of 2011, we used $48 million, net, of cash in connection with the resolution of a litigation matter.

In the third quarter of 2012, compared to the third quarter of 2011, our total revenue was up 7%, reflecting revenue contribution from MKS and 4CS (as further described in Acquisitions below) as well as the growth of our maintenance and services businesses. In the third quarter of 2012 organic revenue, excluding the impact of MKS and 4CS, increased 2% to $290.7 million while organic license revenue decreased 3% to $76.9 million compared to the third quarter of 2011. For the first nine months of 2012 total revenue was up 6% on an organic basis compared to the first nine months of 2011 and license revenue declined 1%.

In the third quarter and first nine months of 2012 compared to the third quarter and first nine months of 2011, maintenance revenue was up 3% and 7%, respectively, on an organic basis and consulting and training service revenue was up 6% and 12%, respectively, on an organic basis. We have seen continued strength in maintenance and consulting services following strong license sales in both 2011 and 2010.
In the third quarter of 2012, license revenue from direct customers was down 2% year over year (6% on an organic basis). We saw continued overall strength in the small- and medium-size business market in the third quarter of 2012, compared to the third quarter of 2011, with indirect license revenue and total indirect revenue up 16% and 10%, respectively

22


(4% and 5% on an organic basis, respectively). This was our tenth consecutive quarter of year-over-year indirect license revenue and total indirect revenue growth. In the first nine months of 2012, license revenue and total revenue from direct customers were up 5% and 13%, respectively, year over year (down 3% and up 6%, respectively, on an organic basis). In the first nine months of 2012, license revenue and total revenue from indirect customers was up 14% and 11%, respectively, year over year (up 5% and 6%, respectively, on an organic basis).
Our GAAP and non-GAAP operating income improved due to higher margins, particularly in our services business, coupled with cost reductions and improved operating leverage.
Future Expectations, Strategies and Risks

For fiscal year 2012 we are currently targeting non-GAAP and GAAP revenue growth of 7% to 9%. This reflects a decrease in our full year targets for 2012 from those projected at the end of the second quarter of 2012, primarily due to the unfavorable impact of foreign currency. Changes in foreign currency rates relative to the U.S. dollar can significantly impact our results. Our current plan assumes $1.20 USD to Euro rate, down from $1.30 assumed at the end of the second quarter, an approximate $10 million negative impact on revenue for the fourth quarter of 2012. For 2012, compared to 2011, we are expecting license revenue growth of approximately 4%, non-GAAP and GAAP maintenance revenue growth of approximately 9%, and consulting and training service revenue growth of approximately 12%.

Our commitment to operating margin expansion is a cornerstone of our financial strategy, which is reflected in our margin performance in the first nine months of 2012 and our outlook for 2012 and beyond. Our goal is to improve non-GAAP operating margins by 180 basis points in 2012, from 17.7% in 2011 to approximately 19.5% in 2012 (compared to approximately 10% on a GAAP basis for both periods), through operating leverage, impact of the restructuring, our on-going focus on operating margin improvements and cost efficiency, and improved services margins in our consulting and training services business.
There continues to be significant uncertainty regarding the strength of the global economy. Accordingly, while we have added sales capacity to address our expanded market opportunities, at the same time we continue to be disciplined about broader staffing and spending plans.
Our results have been impacted, and we expect will continue to be impacted, by revenue from large customers. The amount of revenue, particularly license revenue, attributable to large transactions, and the number of such transactions, may vary significantly from quarter to quarter based on customer purchasing decisions and macroeconomic conditions. Our growth rates have become increasingly dependent on adoption of our Enterprise solutions among large direct customers. Such transactions tend to be larger in size and may have long lead times as they often follow a lengthy product selection and evaluation process. This may cause increased volatility in our results.
Impact of an Investigation in China
As previously disclosed, we have undertaken an investigation of payments by certain business partners and expenses by certain employees in China that raise questions of compliance with laws, including the Foreign Corrupt Practices Act, and/or compliance with our business policies. The termination of certain employees and business partners in China in connection with this matter may have an adverse impact on our level of sales in China until replacements for those employees and business partners are in place and productive. Revenue from China has historically represented 6% to 7% of our total revenue. We have voluntarily disclosed the results of our investigation and associated remedial actions to the United States Department of Justice and the Securities and Exchange Commission and are cooperating to provide additional information as requested. We are unable to predict the outcome of this matter or to estimate fines or other sanctions which may be assessed.

Results of Operations
Acquisitions
We acquired MKS on May 31, 2011 and 4C Solutions, Inc. (4CS) on September 2, 2011. The results of operations of these acquired businesses have been included in our consolidated financial statements beginning on their respective acquisition dates. These acquisitions added $20.3 million and $61.0 million to our revenue in the third quarter and first nine months of 2012, respectively ($20.5 million and $63.5 million on a non-GAAP basis, respectively), compared to $6.0 million in the third quarter and first nine months of 2011 ($6.7 million on a non-GAAP basis).
MKS revenue and 4CS revenue are classified as “Enterprise” revenue.
Impact of Foreign Currency Exchange on Results of Operations

23


Approximately two-thirds of our revenue and half of our expenses are transacted in currencies other than the U.S. Dollar. Because we report our results of operations in U.S. Dollars, currency translation, particularly changes in the Euro and Yen, relative to the U.S. Dollar, affects our reported results. If actual reported results for the third quarter and first nine months of 2012 had been converted into U.S. Dollars based on the foreign currency exchange rates in effect for the comparable 2011 periods, revenue would have been higher by $11.2 million and $8.7 million in the third quarter and first nine months of 2012, respectively, expenses would have been higher by $7.5 million and $7.6 million, respectively, and operating income would have been higher by $3.7 million and $1.1 million, respectively. On a non-GAAP basis, revenue would have been higher by $11.2 million and $8.6 million in the third quarter and first nine months of 2012, respectively, expenses would have been higher by $7.0 million and $6.8 million, respectively, and non-GAAP operating income would have been higher by $4.2 million and $1.8 million, respectively. Our constant currency disclosures are calculated by multiplying the actual results for the third quarter and first nine months of 2012 by the exchange rates in effect for the comparable periods in 2011.
Revenue
Desktop revenue includes our CAD Solutions: Creo Parametric, Creo Elements/Direct, Arbortext authoring products and Mathcad. Enterprise revenue includes our PLM solutions: Windchill, Arbortext enterprise products, Creo View, and Integrity.
Direct revenue includes sales made primarily by our direct sales force to large businesses. Indirect revenue includes sales by our reseller channel, primarily to small- and medium-size businesses, as well as revenue from other accounts that we have classified as indirect. If the classification of a customer changes between direct and indirect, we reclassify the historical revenue associated with that customer to align with the current period classification. Such reclassifications were not material in the periods presented.
Enterprise maintenance revenue in the third quarter and first nine months of 2012 includes a fair value adjustment related to acquired deferred MKS maintenance revenue of $0.2 million and $2.5 million, respectively. Enterprise maintenance revenue in the third quarter and first nine months of 2011 included a comparable adjustment of $0.7 million. Non-GAAP revenue excludes these adjustments. Accordingly, non-GAAP revenue, non-GAAP Enterprise revenue, non-GAAP maintenance revenue and MKS non-GAAP revenue in the previous and following discussion are higher than the corresponding GAAP revenue figures by the amount of these adjustments.

24





Revenue by Product Group and Distribution Channel - Three months ended June 30, 2012 and July 2, 2011
 
Desktop
Three Months Ended
 
Enterprise
Three Months Ended
 
Total Revenue
Three Months Ended
 
June 30, 2012
 
July 2, 2011
 
Percent
Change
 
June 30, 2012
 
July 2, 2011
 
Percent
Change
 
June 30, 2012
 
July 2, 2011
 
Percent
Change
 
(Dollar amounts in millions)
Direct
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
License revenue
$
25.5

 
$
27.6

 
(8
)%
 
$
33.6

 
$
32.5

 
3
%
 
$
59.1

 
$
60.1

 
(2
)%
Service revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consulting and training
8.1

 
9.4

 
(14
)%
 
62.1

 
56.7

 
10
%
 
70.1

 
66.0

 
6
 %
Maintenance
52.9

 
53.7

 
(1
)%
 
43.7

 
34.3

 
28
%
 
96.6

 
87.9

 
10
 %
Total service revenue
61.0

 
63.0

 
(3
)%
 
105.8

 
90.9

 
16
%
 
166.8

 
154.0

 
8
 %
Total revenue
$
86.5

 
$
90.6

 
(5
)%
 
$
139.4

 
$
123.4

 
13
%
 
$
225.9

 
$
214.1

 
6
 %
Indirect
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
License revenue
$
16.7

 
$
16.6

 
 %
 
$
8.0

 
$
4.7

 
72
%
 
$
24.7

 
$
21.3

 
16
 %
Service revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consulting and training
1.6

1.6

1.5

 
12
 %
 
3.0

 
1.1

 
164
%
 
4.6

 
2.6

 
79
 %
Maintenance
46.2

 
46.2

 
 %
 
9.6

 
7.7

 
25
%
 
55.7

 
53.8

 
4
 %
Total service revenue
47.8

 
47.6

 
 %
 
12.6

 
8.8

 
43
%
 
60.4

 
56.4

 
7
 %
Total revenue
$
64.5

 
$
64.2

 
 %
 
$
20.6

 
$
13.5

 
53
%
 
$
85.1

 
$
77.7

 
10
 %
Total Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
License revenue
$
42.2

 
$
44.2

 
(5
)%
 
$
41.6

 
$
37.2

 
12
%
 
$
83.8

 
$
81.4

 
3
 %
Service revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consulting and training
9.7

 
10.8

 
(10
)%
 
65.1

 
57.8

 
13
%
 
74.8

 
68.6

 
9
 %
Maintenance
99.1

 
99.8

 
(1
)%
 
53.3

 
41.9

 
27
%
 
152.4

 
141.8

 
8
 %
Total service revenue
108.7

 
110.6

 
(2
)%
 
118.4

 
99.7

 
19
%
 
227.2

 
210.4

 
8
 %
Total revenue
$
151.0

 
$
154.9

 
(3
)%
 
$
160.0

 
$
136.9

 
17
%
 
$
311.0

 
$
291.8

 
7
 %

25


Revenue by Product Group and Distribution Channel - Nine months ended June 30, 2012 and July 2, 2011

 
Desktop
Nine Months Ended
 
Enterprise
Nine Months Ended
 
Total Revenue
Nine Months Ended
 
June 30, 2012
 
July 2, 2011
 
Percent
Change
 
June 30, 2012
 
July 2, 2011
 
Percent
Change
 
June 30, 2012
 
July 2, 2011
 
Percent
Change
 
(Dollar amounts in millions)
Direct
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
License revenue
$
69.9

 
$
83.2

 
(16
)%
 
$
103.0

 
$
82.0

 
26
%
 
$
172.9

 
$
165.2

 
5
%
Service revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consulting and training
25.0

 
28.1

 
(11
)%
 
187.8

 
155.0

 
21
%
 
212.8

 
183.1

 
16
%
Maintenance
161.3

 
155.7

 
4
 %
 
128.7

 
94.4

 
36
%
 
290.0

 
250.2

 
16
%
Total service revenue
186.4

 
183.8

 
1
 %
 
316.5

 
249.5

 
27
%
 
502.8

 
433.3

 
16
%
Total revenue
$
256.3

 
$
267.1

 
(4
)%
 
$
419.5

 
$
331.5

 
27
%
 
$
675.8

 
$
598.6

 
13
%
Indirect
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
License revenue
$
53.1

 
$
51.3

 
4
 %
 
$
21.7

 
$
14.6

 
48
%
 
$
74.8

 
$
65.9

 
14
%
Service revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consulting and training
4.4

 
4.3