FORM 10-Q

10-Q 1 d10q.htm FORM 10-Q FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: April 1, 2006

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 x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

There were 111,399,377 shares of our common stock outstanding on May 5, 2006.

PARAMETRIC TECHNOLOGY CORPORATION

INDEX TO FORM 10-Q

For the Quarter Ended April 1, 2006


		Page Number
Part I—FINANCIAL INFORMATION

Item 1.	Unaudited Financial Statements:

	Consolidated Balance Sheets as of April 1, 2006 and September 30, 2005	1

	Consolidated Statements of Operations for the three and six months ended April 1, 2006 and April 2, 2005	2

	Condensed Consolidated Statements of Cash Flows for the six months ended April 1, 2006 and April 2, 2005	3

	Consolidated Statements of Comprehensive Income for the three and six months ended April 1, 2006 and April 2, 2005	4

	Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	27

Part II—OTHER INFORMATION

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 4.	Submission of Matters to a Vote of Security Holders	30

Item 6.	Exhibits	30

	Signature	31

PART I—FINANCIAL INFORMATION

PARAMETRIC TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)


	April 1, 2006			September 30, 2005
*ASSETS*
Current assets:
Cash and cash equivalents	$	224,165		$	204,423
Accounts receivable, net of allowance for doubtful accounts of $5,331 and $5,730 at April 1, 2006 and September 30, 2005, respectively		149,731			147,497
Prepaid expenses		22,797			21,875
Other current assets (Note 1)		58,931			48,210
Deferred tax assets		1,568			1,722

Total current assets		457,192			423,727
Property and equipment, net		50,184			52,551
Goodwill		206,709			200,628
Acquired intangible assets, net		58,795			58,210
Deferred tax assets		2,678			2,422
Other assets		53,743			49,085

Total assets	$	829,301		$	786,623

*LIABILITIES AND STOCKHOLDERS’ EQUITY*
Current liabilities:
Accounts payable	$	20,010		$	19,915
Accrued expenses and other current liabilities		36,818			43,753
Accrued compensation and benefits		50,215			67,517
Accrued income taxes		24,486			29,695
Deferred revenue (Note 1)		220,214			183,882

Total current liabilities		351,743			344,762
Other liabilities (Note 2)		101,771			101,432
Deferred revenue (Note 1)		12,331			16,585
Commitments and contingencies (Note 10)
Stockholders’ equity (Note 4):
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued		—			—
Common stock, $0.01 par value; 500,000 shares authorized; 111,330 and 110,030 shares issued and outstanding at April 1, 2006 and September 30, 2005, respectively		1,113			1,100
Additional paid-in capital		1,697,327			1,675,336
Accumulated deficit		(1,285,291	)		(1,303,558	)
Accumulated other comprehensive loss		(49,693	)		(49,034	)

Total stockholders’ equity		363,456			323,844

Total liabilities and stockholders’ equity	$	829,301		$	786,623

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

PARAMETRIC TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Three months ended				Six months ended
	April 1, 2006		April 2, 2005		April 1, 2006		April 2, 2005
Revenue:
License	$	54,614	$	52,698	$	113,141	$	99,627
Service		145,580		123,405		279,571		245,666

Total revenue		200,194		176,103		392,712		345,293

Costs and expenses:
Cost of license revenue		1,889		1,756		5,192		3,253
Cost of service revenue		63,641		47,817		122,363		93,977
Sales and marketing		64,260		59,074		127,905		115,119
Research and development		35,989		28,347		70,572		54,814
General and administrative		18,039		14,395		37,668		29,982
Amortization of acquired intangible assets		1,288		222		2,646		444

Total costs and expenses		185,106		151,611		366,346		297,589

Operating income		15,088		24,492		26,366		47,704
Other income (expense), net		804		2,237		1,903		1,750

Income before income taxes		15,892		26,729		28,269		49,454
Provision for income taxes		5,141		6,225		10,002		9,791

Net income	$	10,751	$	20,504	$	18,267	$	39,663

Earnings per share (Note 4):
Basic	$	0.10	$	0.19	$	0.17	$	0.37
Diluted	$	0.09	$	0.18	$	0.16	$	0.35
Weighted average shares outstanding—Basic		109,739		108,499		109,560		108,254
Weighted average shares outstanding—Diluted		113,403		111,958		112,985		111,815

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

PARAMETRIC TECHNOLOGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six months ended
	April 1, 2006			April 2, 2005
Cash flows from operating activities:
Net income	$	18,267		$	39,663
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		16,124			12,599
Stock-based compensation		19,204			218
Other non-cash costs and expenses		1,057			337
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		5,721			(5,357	)
Accounts payable and accrued expenses		(10,862	)		(8,386	)
Accrued compensation and benefits		(17,974	)		(9,567	)
Deferred revenue		21,311			14,120
Income taxes receivable, net of accrued income taxes		(5,069	)		43,858
Other current assets and prepaid expenses		(437	)		(1,300	)
Other noncurrent assets and liabilities		(7,970	)		(2,392	)

Net cash provided by operating activities		39,372			83,793

Cash flows from investing activities:
Additions to property and equipment		(8,154	)		(7,922	)
Additions to other intangible assets		—			(1,173	)
Acquisitions of businesses, net of cash acquired		(10,675	)		—

Net cash used by investing activities		(18,829	)		(9,095	)

Cash flows from financing activities:
Proceeds from issuance of common stock		2,902			7,288
Credit facility origination costs		(881	)		—
Payments of capital lease obligations		(220	)		—

Net cash provided by financing activities		1,801			7,288

Effect of exchange rate changes on cash and cash equivalents		(2,602	)		7,297

Net increase in cash and cash equivalents		19,742			89,283
Cash and cash equivalents, beginning of period		204,423			294,887

Cash and cash equivalents, end of period	$	224,165		$	384,170

Supplemental disclosures of cash flow information:
Property and equipment acquired under capital leases	$	243		$	1,488

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

PARAMETRIC TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Three months ended						Six months ended
	April 1, 2006			April 2, 2005			April 1, 2006			April 2, 2005
Net income	$	10,751		$	20,504		$	18,267		$	39,663

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment, net of tax of $0 for all periods		153			(620	)		(426	)		3,238
Net unrealized gain (loss) on securities, net of tax of $0 for all periods		(560	)		(255	)		(233	)		491

Other comprehensive income (loss)		(407	)		(875	)		(659	)		3,729

Comprehensive income	$	10,344		$	19,629		$	17,608		$	43,392

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

PARAMETRIC TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Parametric Technology Corporation (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. Unless otherwise indicated, all references to a year reflect our fiscal year, which ends on September 30. The year-end consolidated balance sheet is derived from our audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair presentation of our financial position, results of operations and cash flows at the dates and for the periods indicated.

As described in Note 4, effective on February 28, 2006, we implemented a reverse stock split pursuant to which every five shares of issued and outstanding common stock of PTC, $.01 par value per share, was automatically combined into two issued and outstanding shares of common stock without any change in the par value of such shares. Historical share data presented in these consolidated financial statements and notes thereto has been restated to reflect this reverse stock split.

While we believe that the disclosures presented are adequate to make the information not misleading, these unaudited quarterly financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2005.

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 April 1, 2006 and September 30, 2005 were $57.4 million and $46.1 million, respectively.

The results of operations for the three and six months ended April 1, 2006 are not necessarily indicative of the results expected for the remainder of the fiscal year.

2. Restructuring and Other Charges

There were no restructuring and other charges recorded in the first six months of 2006 and 2005.

The following table summarizes restructuring accrual activity for the three and six months ended April 1, 2006:


	Three months ended April 1, 2006									Six months ended April 1, 2006
	Employee Severance and Related Benefits			Facility Closures and Other Costs			Total			Employee Severance and Related Benefits		Facility Closures and Other Costs		Total
	(in thousands)
Beginning balance	$	779		$	27,632		$	28,411		$	1,263	$	30,259	$	31,522
Cash disbursements		(544	)		(2,187	)		(2,731	)

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