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 December 30, 2006

Commission File Number: 0-18059

Parametric Technology Corporation

Massachusetts (State or other jurisdiction of incorporation or organization)		04-2866152 (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.

     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 114,063,113 shares of our common stock outstanding on February 2, 2007.

 

 

PARAMETRIC TECHNOLOGY CORPORATION

INDEX TO FORM 10-Q

For the Quarter Ended December 30, 2006

				Page
				Number
Part I—FINANCIAL INFORMATION
Item 1.		Unaudited Financial Statements:
		Consolidated Balance Sheets as of December 30, 2006 and September 30, 2006			1
		Consolidated Statements of Operations for the three months ended December 30, 2006 and December 31, 2005			2
		Condensed Consolidated Statements of Cash Flows for the three months ended December 30, 2006 and December 31, 2005			3
		Consolidated Statements of Comprehensive Income for the three months ended December 30, 2006 and December 31, 2005			4
		Notes to Consolidated Financial Statements			5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
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 6.		Exhibits			28
		Signature			29
EX-31.1 Section 302 Certification of C.E.O.
EX-31.2 Section 302 Certification of C.F.O.
EX-32 Section 906 Certification of C.E.O. and C.F.O.

PART I—FINANCIAL INFORMATION

PARAMETRIC TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)

		December 30,				September 30,
		2006				2006
ASSETS
Current assets:
Cash and cash equivalents		$	147,341			$	183,448
Accounts receivable, net of allowance for doubtful accounts of $3,698 and $4,900 at December 30, 2006 and September 30, 2006, respectively			195,757				181,008
Prepaid expenses			21,001				20,495
Other current assets (Note 1)			58,314				51,824
Deferred tax assets			1,327				1,341
Total current assets			423,740				438,116
Property and equipment, net			52,441				51,603
Goodwill			263,585				249,252
Acquired intangible assets, net			79,796				77,870
Deferred tax assets			2,983				3,205
Other assets			74,142				75,398
Total assets		$	896,687			$	895,444
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	25,589			$	22,793
Accrued expenses and other current liabilities			44,195				46,444
Accrued compensation and benefits			48,930				72,632
Accrued income taxes			9,426				7,066
Deferred revenue (Note 1)			196,014				197,769
Total current liabilities			324,154				346,704
Other liabilities (Note 2)			96,996				97,413
Deferred revenue (Note 1)			9,540				13,228
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued			—				—
Common stock, $0.01 par value; 500,000 shares authorized; 113,946 and 111,880 shares issued and outstanding at December 30, 2006 and September 30, 2006, respectively			1,139				1,119
Additional paid-in capital			1,734,512				1,723,570
Accumulated deficit			(1,227,539	)			(1,242,692	)
Accumulated other comprehensive loss			(42,115	)			(43,898	)
Total stockholders’ equity			465,997				438,099
Total liabilities and stockholders’ equity		$	896,687			$	895,444

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
		December 30,				December 31,
		2006				2005
Revenue:
License		$	66,588			$	58,527
Service			155,079				133,991
Total revenue			221,667				192,518
Costs and expenses:
Cost of license revenue			3,560				3,303
Cost of service revenue			68,568				58,722
Sales and marketing			69,561				63,645
Research and development			37,984				34,583
General and administrative			18,923				19,629
Amortization of acquired intangible assets			2,088				1,358
Total costs and expenses			200,684				181,240
Operating income			20,983				11,278
Other income (expense), net			780				1,099
Income before income taxes			21,763				12,377
Provision for income taxes			6,610				4,861
Net income		$	15,153			$	7,516
Earnings per share—Basic (Note 4)		$	0.14			$	0.07
Earnings per share—Diluted (Note 4)		$	0.13			$	0.07
Weighted average shares outstanding—Basic			111,830				109,485
Weighted average shares outstanding—Diluted			117,283				112,671

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

PARAMETRIC TECHNOLOGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

		Three months ended
		December 30,				December 31,
		2006				2005
Cash flows from operating activities:
Net income		$	15,153			$	7,516
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization			9,536				8,061
Stock-based compensation			8,630				9,664
Other non-cash expenses, net			69				642
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable			(8,302	)			(4,720	)
Accounts payable and accrued expenses			(1,786	)			(5,222	)
Accrued compensation and benefits			(25,818	)			(23,566	)
Deferred revenue			(14,895	)			(8,947	)
Accrued income taxes			2,735				(2,673	)
Other current assets and prepaid expenses			639				2,579
Other noncurrent assets and liabilities			(2,299	)			(4,903	)
Net cash used by operating activities			(16,338	)			(21,569	)
Cash flows from investing activities:
Additions to property and equipment			(6,345	)			(3,350	)
Acquisitions of businesses, net of cash acquired			(17,639	)			(10,675	)
Net cash used by investing activities			(23,984	)			(14,025	)
Cash flows from financing activities:
Proceeds from issuance of common stock			7,788				832
Payments of withholding taxes in connection with settlement of restricted stock units			(5,549	)			—
Tax benefit from stock-based awards			94				—
Payments of capital lease obligations			(121	)			(94	)
Net cash provided by financing activities			2,212				738
Effect of exchange rate changes on cash and cash equivalents			2,003				(2,415	)
Net decrease in cash and cash equivalents			(36,107	)			(37,271	)
Cash and cash equivalents, beginning of period			183,448				204,423
Cash and cash equivalents, end of period		$	147,341			$	167,152

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
		December 30,				December 31,
		2006				2005
Net income		$	15,153			$	7,516
Other comprehensive income (loss), net of tax provision (benefit):
Foreign currency translation adjustment, net of tax of $0 for both periods			1,808				(579	)
Unrealized gain (loss) on investment securities, net of tax of $0 for both periods			(25	)			327
Other comprehensive income (loss)			1,783				(252	)
Comprehensive income		$	16,936			$	7,264

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 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 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, 2006. 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. 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.

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 were automatically combined into two issued and outstanding shares of common stock without any change in the par value of such shares. Except for par values, all references in these financial statements and notes to the number of shares of common stock, restricted stock, restricted stock units and stock options and to such per share amounts have been restated to reflect this reverse stock split.

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 December 30, 2006 and September 30, 2006 were $56.6 million and $50.0 million, respectively.

The results of operations for the three months ended December 30, 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 quarters of 2007 and 2006.

The following table summarizes restructuring accrual activity for the three months ended December 30, 2006:

		Employee				Facility
		Severance				Closures
		and Related				and Other
		Benefits				Costs				Total
		(in thousands)
Balance, September 30, 2006		$	1,084			$	21,293			$	22,377
Cash disbursements			(142	)			(1,399	)			(1,541	)
Foreign exchange impact			32				75				107
Balance, December 30, 2006		$	974			$	19,969			$	20,943

The accrual for facility closures and related costs is included in accrued expenses and other current liabilities and other long-term liabilities in the consolidated balance sheet, and the accrual for employee severance and related benefits is included in accrued compensation and benefits. As of December 30, 2006, of the $20.9 million remaining in accrued restructuring charges, $8.1 million was included in current liabilities and $12.8 million was included in other long-term liabilities, principally for facility costs to be paid out through 2014.

In determining the amount of the facilities accrual, we are required to estimate such factors as future vacancy rates, the time required to sublet properties and sublease rates. These estimates are reviewed quarterly based on known real estate market conditions and the credit-worthiness of subtenants, and may result in revisions to established facility reserves. We had accrued $19.4 million as of December 30, 2006 related to excess facilities (compared to $20.7 million at September 30, 2006), representing gross lease commitments with agreements expiring at various dates through 2014 of approximately $44.4 million, net of committed and estimated sublease income of approximately $24.5 million and a present value factor of $0.5

million. We have entered into signed sublease arrangements for approximately $21.6 million, with the remaining $2.9 million based on future estimated sublease arrangements, including $2.1 million for space currently available for sublease.

3. Stock-based Compensation

We adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)) on July 3, 2005, effective with the beginning of the fourth quarter of 2005. SFAS No. 123(R) requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award using an option pricing model. That cost is recognized over the period during which an employee is required to provide service in exchange for the award.

Our equity incentive plans provide for grants of nonqualified and incentive stock options, common stock, restricted stock, restricted stock units and stock appreciation rights to employees, directors, officers and consultants. Until July 2005, we generally granted stock options. For those options, the option exercise price was typically the fair market value at the date of grant and they generally vested over four years and expired ten years from the date of grant. Since the date that we adopted SFAS 123(R), we have awarded restricted stock and restricted stock units as the principal equity incentive awards, including certain performance-based awards that are earned based on achieving performance criteria established by the Compensation Committee of our Board of Directors on or prior to the grant date. Each restricted stock unit represents the contingent right to receive one share of our common stock. Our equity incentive plans are described more fully in Note J to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2006.

We made the following restricted stock and restricted stock unit grants in the first quarters of 2007 and 2006:

		Restricted Stock								Restricted Stock Units
Grant Period		Performance-based				Time-based				Performance-based				Time-based
		(Number of Shares)								(Number of Units)
First quarter of 2007			495,768				—				57,380				347,827
First quarter of 2006			515,617				346,800				321,821				802,137

Restricted Stock

Performance-based. In the first quarters of 2007 and 2006, we granted to our executive officers performance-based shares that are earned based on achievement of certain company operating performance criteria specified by the Compensation Committee on or prior to the date of grant. With respect to the 2007 grant, if the specified performance criteria are achieved in full, the restrictions on approximately 251,235 shares will lapse on the later of November 9, 2007 or the date the Compensation Committee determines the extent to which the performance criteria have been achieved, and the restrictions on the remaining 244,533 shares will lapse in substantially equal amounts on November 9, 2008 and 2009, provided that the holder of the award remains employed by us at those dates. With respect to the 2006 grant, because the specified performance criteria were achieved in full, the restrictions on 284,417 of the shares lapsed on November 9, 2006 and the restrictions on the remaining shares will lapse in equal installments on November 9, 2007 and 2008, provided that the holder of the award remains employed by us at those dates.

Time-based. In the first quarter of 2006, 346,800 shares were granted to our executive officers. The restrictions on one third of these shares lapsed on November 9, 2006 and those on the remaining shares will lapse in substantially equal installments on November 9, 2007 and 2008, provided that the holder of the award remains employed by us at those dates.

Restricted Stock Units

Performance-based. In the first quarter of 2007, 57,380 performance-based restricted stock units were granted to employees in connection with our employee management incentive plans for the 2007 fiscal year and will vest on the later of November 9, 2007 or the date the Compensation Committee determines the extent to which the performance criteria have been achieved, provided that the holder of the award remains employed by us at those dates. In the first quarter of 2006, 321,821 performance-based restricted stock units were granted to employees in connection with our employee management incentive plans for the 2006 fiscal year and were earned in full on November 9, 2006 based on achievement of specified performance criteria established by the Compensation Committee.

Time-based. In the first quarter of 2007, 347,827 restricted stock units, which vest in three substantially equal installments on November 3, 2007, 2008 and 2009, were granted to employees. In the first quarter of 2006, 802,137 time-based restricted stock units were granted to employees, which vest in three substantially equal installments on November 9, 2006, 2007 and 2008, provided that the holder of the award remains employed by us at those dates.

With respect to all types of equity awards, in the first quarter of 2007, the restrictions on 635,129 restricted shares lapsed and 948,019 restricted stock units vested. The fair value of restricted shares and restricted stock units granted in the first quarter of 2007 was based on the fair market value of

our stock on the date of grant. The weighted average fair value per share of restricted shares and restricted stock units granted in the first quarter of 2007 was $18.61.

The following table shows the classification of compensation expense recorded for our stock-based awards as reflected in our consolidated statements of operations:

		Three months ended
		December 30,				December 31,
		2006				2005
		(in thousands)
Cost of license revenue		$	21			$	40
Cost of service revenue			1,910				1,947
Sales and marketing			1,565				2,315
Research and development			1,842				2,105
General and administrative			3,292				3,257
Total stock-based compensation expense		$	8,630			$	9,664

4. Common Stock and Earnings Per Share (EPS)

Basic EPS is calculated by dividing net income by the weighted average number of shares outstanding during the period. Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic earnings per share. 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 restricted stock units using the treasury stock method. The calculation of the dilutive effect of outstanding equity awards under the treasury stock method includes consideration of unrecognized compensation expense and any tax benefits as additional proceeds.

The following table presents the calculation for both basic and diluted EPS:

		Three months ended
		December 30,				December 31,
		2006				2005
		(in thousands,
		except per share data)
Net income		$	15,153			$	7,516
Weighted average shares outstanding—Basic			111,830				109,485
Dilutive effect of employee stock options, restricted shares and restricted stock units			5,453				3,186
Weighted average shares outstanding—Diluted			117,283				112,671
Earnings per share—Basic		$	0.14			$	0.07
Earnings per share—Diluted		$	0.13			$	0.07

Stock options to purchase 3.5 million shares and 4.4 million shares were outstanding for the first quarters of 2007 and 2006, respectively, but were not included in the calculation of diluted net income per share because the exercise prices per share, plus the tax benefits and unamortized compensation relating thereto, 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.

5. Acquisitions

ITEDO

On October 18, 2006, we acquired ITEDO Software GmbH and ITEDO Software LLC (together, ITEDO), headquartered in Germany, for approximately $16.7 million in cash. In addition, we agreed to pay up to $0.5 million of additional cash consideration if specified product integration targets are achieved within three years of the acquisition date. ITEDO provided software solutions for creating and maintaining technical illustrations to customers in multiple discrete manufacturing vertical markets such as automotive, aerospace and defense, and industrial equipment. ITEDO had approximately 30 employees and generated revenue of approximately $5 million for the twelve months ended July 31, 2006. Results of operations for ITEDO have been included in the accompanying consolidated statement of operations since October 19, 2006. Our results of operations prior to this acquisition, if presented

on a pro forma basis as if the companies had been combined since the beginning of fiscal 2006, would not differ materially from our reported results.

This acquisition was accounted for as a business combination. The purchase price allocation is preliminary pending the final valuation of assets and liabilities acquired. The preliminary purchase price allocation recorded in the accompanying consolidated balance sheet as of December 30, 2006 resulted in an increase in goodwill of $11.8 million, an increase in intangible assets of $5.6 million (including purchased software of $4.7 million, customer relationships of $0.7 million, and other intangible assets of $0.2 million, which are being amortized over estimated average useful lives of 4 to 10 years) and an increase in other net liabilities of $0.7 million. The goodwill and intangible assets are not deductible for tax purposes.

Mathsoft

On April 28, 2006, we acquired Mathsoft Corporate Holdings, Inc., including its wholly owned subsidiary Mathsoft Engineering & Education, Inc. (together, Mathsoft). Mathsoft’s primary product was Mathcad ^® software, which helps engineering organizations create, automate, document and reuse engineering calculations in the product development process, and in other mathematics-driven processes. Mathsoft had approximately 120 employees in offices primarily in the U.S. and Europe and generated revenue of approximately $20 million for the twelve months ended March 31, 2006. Results of operations for Mathsoft have been included in the accompanying consolidated statement of operations since April 29, 2006. Our results of operations prior to this acquisition, if presented on a pro forma basis as if the companies had been combined since the beginning of fiscal 2006, would not differ materially from our reported results.

DENC and Cadtrain

In the first quarter of 2006, we acquired DENC AG and substantially all of the assets of Cadtrain, Inc. for an aggregate of $9.9 million in cash. In addition, we agreed to pay up to an aggregate of $2.0 million of additional cash consideration if specified targets, including revenue and customer retention results, were achieved within one year of the acquisition dates. As of September 30, 2006, the specified targets of the DENC contingent purchase price arrangement were met and related payments of $0.5 million were recorded as additional goodwill. In the first quarter of 2007, the specified targets of the Cadtrain contingent purchase price arrangement were met and related payments of $1.5 million were recorded as additional goodwill.

6. Goodwill and Acquired Intangible Assets

We have two reportable segments: (1) software products and (2) services. As of December 30, 2006 and September 30, 2006, goodwill and acquired intangible assets in the aggregate attributable to our software products reportable segment was $315.9 million and $300.9 million, respectively, and attributable to our services reportable segment was $27.5 million and $26.2 million, respectively. Goodwill and other intangible assets are tested for impairment at least annually, or on an interim basis if an event occurs or circumstances change that would, more likely than not, reduce the fair value of the reporting segment below its carrying value. We completed our annual impairment review as of July 1, 2006 and concluded that no impairment charge was required as of that date. Since that date, there have not been any events or changes in circumstances that indicate that the carrying values of goodwill or acquired intangible assets may not be recoverable.

Goodwill and acquired intangible assets consisted of the following:

		December 30, 2006												September 30, 2006
		Gross												Gross
		Carrying				Accumulated				Net Book				Carrying				Accumulated				Net Book
		Amount				Amortization				Value				Amount				Amortization				Value
		(in thousands)
Goodwill and intangible assets with indefinite lives (not amortized):
Goodwill										$	263,585											$	249,252
Trademarks											4,246												4,200
											267,831												253,452
Intangible assets with finite lives (amortized):
Purchased software		$	60,944			$	36,698				24,246			$	56,096			$	35,098				20,998
Capitalized software			22,877				22,675				202				22,877				22,252				625
Customer lists and relationships			65,649				17,076				48,573				64,634				15,195				49,439
Trademarks and tradenames			1,748				403				1,345				1,645				313				1,332
Other			1,935				751				1,184				1,910				634				1,276
		$	153,153			$	77,603				75,550			$	147,162			$	73,492				73,670
Total goodwill and acquired intangible assets										$	343,381											$	327,122

The changes in the carrying amounts of goodwill and intangible assets with indefinite lives at December 30, 2006 from September 30, 2006 are due to the impact of acquisitions (described in Note 5) and to foreign currency translation adjustments related to those asset balances that are recorded in non-U.S. currencies.

Changes in goodwill, presented by reportable segment, were as follows:

		Software
		Products				Services
		Segment				Segment				Total
		(in thousands)
Balance, September 30, 2006		$	231,699			$	17,553			$	249,252
Acquisition of ITEDO			11,832				—				11,832
Additional purchase price paid for Cadtrain acquisition			—				1,500				1,500
Foreign currency translation adjustments			937				64				1,001
Balance, December 30, 2006		$	244,468			$	19,117			$	263,585

The aggregate amortization expense for intangible assets with finite lives recorded for the first quarters of 2007 and 2006 was classified in our consolidated statements of operations as follows:

		Three months ended
		December 30,				December 31,
		2006				2005
		(in thousands)
Amortization of acquired intangible assets		$	2,088			$	1,358
Cost of license revenue			1,711				1,196
Cost of service revenue			32				—
Total amortization expense		$	3,831			$	2,554

7. Recent Accounting Pronouncements

Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans

In September 2006, the FASB issued Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158). For fiscal years ending after December 15, 2006, SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan), generally measured as the difference between plan assets at fair value and the projected benefit obligation, as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS 158 also generally requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. In addition, SFAS 158 requires disclosure in the notes to financial statements of additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition assets or obligations. Upon initial application of SFAS 158 and subsequently, an employer should continue to apply the provisions in SFAS 87, 88 and 106 in measuring plan assets and benefit obligations as of the date of its statement of financial position and in determining the amount of net periodic benefit cost. Because our significant defined benefit pension plans are frozen and the accumulated benefit obligation equals the projected benefit obligation, we have already recorded in other long-term liabilities and accumulated other comprehensive income the minimum pension liability. As such, the adoption of SFAS 158 did not have a material impact on our consolidated financial position, results of operations or cash flows.

Accounting for Uncertainty in Income Taxes

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure relative to uncertain tax positions. FIN 48 is effective for fiscal years beginning after December 15, 2006, with early adoption encouraged. We will adopt FIN 48 in fiscal 2008. We are currently evaluating whether or not the adoption of FIN 48 will have a material effect on our consolidated financial position, results of operations or cash flows.

Fair Value Measurements

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (SFAS 157). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We do not believe the adoption of SFAS 157 in fiscal 2009 will have a material effect on our consolidated financial position, results of operations or cash flows.

Quantifying Financial Statement Misstatements

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (SAB 108) regarding the process of quantifying financial statement misstatements. SAB 108 states that registrants should use both a balance sheet approach and an income statement approach when quantifying and evaluating materiality of a misstatement. The interpretations in SAB 108 contain guidance on correcting errors under the dual approach as well as provide tr