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 PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 28, 2008

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 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. (Check one):


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 115,360,211 shares of our common stock outstanding on August 1, 2008.

PARAMETRIC TECHNOLOGY CORPORATION

INDEX TO FORM 10-Q

For the Quarter Ended June 28, 2008


		Page Number
Part I—FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements:
Consolidated Balance Sheets as of June 28, 2008 and September 30, 2007		1
Consolidated Statements of Operations for the three and nine months ended June 28, 2008 and June 30, 2007		2
Condensed Consolidated Statements of Cash Flows for the nine months ended June 28, 2008 and June 30, 2007		3
Consolidated Statements of Comprehensive Income for the three and nine months ended June 28, 2008 and June 30, 2007		4
Notes to Consolidated Financial Statements		5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3. Quantitative and Qualitative Disclosures About Market Risk		31
Item 4. Controls and Procedures		32

Part II—OTHER INFORMATION
Item 1. Legal Proceedings		34
Item 1A. Risk Factors		34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		34
Item 6. Exhibits		35
Signature		36

PART I—FINANCIAL INFORMATION

PARAMETRIC TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)


	June 28, 2008			September 30, 2007
*ASSETS*
Current assets:
Cash and cash equivalents	$	242,020		$	263,271
Accounts receivable, net of allowance for doubtful accounts of $4,068 and $3,869 at June 28, 2008 and September 30, 2007, respectively		180,094			217,101
Prepaid expenses		29,780			23,972
Other current assets (Note 1)		64,661			62,922
Deferred tax assets		27,423			27,365

Total current assets		543,978			594,631
Property and equipment, net		56,851			54,745
Goodwill		412,236			244,497
Acquired intangible assets, net		205,338			80,555
Deferred tax assets		66,744			69,969
Other assets		37,891			45,916

Total assets	$	1,323,038		$	1,090,313

*LIABILITIES AND STOCKHOLDERS’ EQUITY*
Current liabilities:
Revolving credit facility (Note 10)	$	109,556		$	—
Accounts payable		21,836			18,715
Accrued expenses and other current liabilities		58,431			55,138
Accrued compensation and benefits		66,614			80,595
Accrued income taxes		21,446			16,857
Deferred tax liabilities		3,983			—
Customer advances (Note 10)		42,795			40,297
Deferred revenue (Note 1)		258,906			218,740

Total current liabilities		583,567			430,342
Deferred tax liabilities		17,966			—
Deferred revenue (Note 1)		6,726			8,424
Other liabilities (Note 2)		62,356			57,040

Total liabilities		670,615			495,806

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; 115,250 and 114,704 shares issued and outstanding at June 28, 2008 and September 30, 2007, respectively		1,153			1,147
Additional paid-in capital		1,761,918			1,759,459
Accumulated deficit		(1,096,554	)		(1,132,565	)
Accumulated other comprehensive loss		(14,094	)		(33,534	)

Total stockholders’ equity		652,423			594,507

Total liabilities and stockholders’ equity	$	1,323,038		$	1,090,313

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						Nine months ended
	June 28, 2008			June 30, 2007			June 28, 2008			June 30, 2007
Revenue:
License	$	77,557		$	62,098		$	217,658		$	200,022
Service		194,191			162,766			553,125			474,605

Total revenue		271,748			224,864			770,783			674,627

Costs and expenses:
Cost of license revenue		8,760			4,084			20,106			11,855
Cost of service revenue		76,802			67,673			221,894			204,855
Sales and marketing		78,762			74,573			223,149			215,694
Research and development		47,374			39,798			134,656			117,935
General and administrative		20,294			16,855			64,653			56,489
Amortization of acquired intangible assets		4,044			1,764			11,252			5,440
Restructuring charges (Note 2)		3,790			—			15,367			—
In-process research and development (Note 5)		—			544			1,887			544

Total costs and expenses		239,826			205,291			692,964			612,812

Operating income		31,922			19,573			77,819			61,815
Loss on liquidation of subsidiaries (Note 1)		(6,206	)		—			(6,206	)		—
Other income (expense), net		(904	)		2,268			347			4,396

Income before income taxes		24,812			21,841			71,960			66,211
Provision for (benefit from) income taxes		10,342			(58,624	)		28,762			(46,806	)

Net income	$	14,470		$	80,465		$	43,198		$	113,017

Earnings per share—Basic (Note 4)	$	0.13		$	0.71		$	0.38		$	1.00
Earnings per share—Diluted (Note 4)	$	0.12		$	0.68		$	0.37		$	0.96
Weighted average shares outstanding—Basic		113,491			113,154			113,661			112,610
Weighted average shares outstanding—Diluted		117,363			117,500			117,565			117,423

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

PARAMETRIC TECHNOLOGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine months ended
	June 28 2008			June 30, 2007
Cash flows from operating activities:
Net income	$	43,198		$	113,017
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of acquired intangible assets		25,153			10,401
Depreciation and amortization		18,331			18,481
Stock-based compensation		32,681			22,507
In-process research and development		1,887			544
Provision for (benefit from) deferred income taxes		—			(58,985	)
Non-cash loss on liquidation of subsidiaries		6,206			—
Other non-cash costs (credits), net		1,421			834
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		69,819			33,483
Accounts payable and accrued expenses		(8,954	)		(5,201	)
Customer advances		—			232
Accrued compensation and benefits		(20,201	)		(20,798	)
Deferred revenue		16,305			21,454
Accrued income taxes		1,645			(3,323	)
Other current assets and prepaid expenses		312			(3,150	)
Other noncurrent assets and liabilities		(6,697	)		(14,424	)

Net cash provided by operating activities		181,106			115,072

Cash flows from investing activities:
Additions to property and equipment		(20,492	)		(17,139	)
Acquisitions of businesses, net of cash acquired		(261,592	)		(24,546	)
Acquisition of remaining equity interest in a controlled subsidiary		—			(3,972	)

Net cash used by investing activities		(282,084	)		(45,657	)

Cash flows from financing activities:
Borrowings under revolving credit facility		220,000			—
Repayment of borrowings under revolving credit facility		(121,001	)		—
Proceeds from issuance of common stock		7,689			13,875
Payments of withholding taxes in connection with settlement of restricted stock units		(10,694	)		(6,496	)
Repurchase of common stock		(27,297	)		(1,809	)
Tax benefit from stock-based awards		87			292
Payments of capital lease obligations		(395	)		(369	)

Net cash provided by financing activities		68,389			5,493

Effect of exchange rate changes on cash and cash equivalents		11,338			1,600

Net increase (decrease) in cash and cash equivalents		(21,251	)		76,508
Cash and cash equivalents, beginning of period		263,271			183,448

Cash and cash equivalents, end of period	$	242,020		$	259,956

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				Nine months ended
	June 28, 2008		June 30, 2007		June 28, 2008		June 30, 2007
Net income	$	14,470	$	80,465	$	43,198	$	113,017

Other co

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