Table of Contents

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 March 29, 2014
Commission File Number: 0-18059
____________________________________________________
PTC Inc.
(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 118,618,612 shares of our common stock outstanding on May 5, 2014 .


Table of Contents

PTC Inc.
INDEX TO FORM 10-Q
For the Quarter Ended March 29, 2014

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

PART I—FINANCIAL INFORMATION

ITEM 1.
UNAUDITED CONDENSED FINANCIAL STATEMENTS

PTC Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
 
 
March 29,
2014
 
September 30,
2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
270,470

 
$
241,913

Accounts receivable, net of allowance for doubtful accounts of $2,969 and $3,030 at March 29, 2014 and September 30, 2013, respectively
221,288

 
229,106

Prepaid expenses and other current assets
171,217

 
169,552

Deferred tax assets
40,469

 
39,645

Total current assets
703,444

 
680,216

Property and equipment, net
60,632

 
64,652

Goodwill
869,324

 
769,095

Acquired intangible assets, net
279,901

 
273,121

Deferred tax assets
8,159

 
7,696

Other assets
37,666

 
34,126

Total assets
$
1,959,126

 
$
1,828,906

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable, accrued expenses and other current liabilities
$
61,823

 
$
66,006

Accrued compensation and benefits
79,606

 
112,733

Accrued income taxes
12,094

 
7,074

Deferred tax liabilities
1,610

 
853

Current portion of long term debt
12,500

 
15,000

Deferred revenue
358,182

 
326,947

Total current liabilities
525,815

 
528,613

Long term debt, net of current portion
305,625

 
243,125

Deferred tax liabilities
43,974

 
42,088

Deferred revenue
7,400

 
9,966

Other liabilities
93,891

 
78,634

Total liabilities
976,705

 
902,426

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; 118,618 and 118,446 shares issued and outstanding at March 29, 2014 and September 30, 2013, respectively
1,186

 
1,185

Additional paid-in capital
1,759,355

 
1,786,820

Accumulated deficit
(726,952
)
 
(810,365
)
Accumulated other comprehensive loss
(51,168
)
 
(51,160
)
Total stockholders’ equity
982,421

 
926,480

Total liabilities and stockholders’ equity
$
1,959,126

 
$
1,828,906






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

PTC Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

 
Three months ended
 
Six months ended
 
March 29,
2014
 
March 30,
2013
 
March 29,
2014
 
March 30,
2013
Revenue:
 
 
 
 
 
 
 
License
$
85,218

 
$
79,690

 
$
164,411

 
$
158,875

Service
77,164

 
73,084

 
152,755

 
149,844

Support
166,318

 
161,175

 
336,459

 
324,981

Total revenue
328,700

 
313,949

 
653,625

 
633,700

Cost of revenue:
 
 
 
 
 
 
 
Cost of license revenue
7,972

 
8,291

 
15,517

 
16,303

Cost of service revenue
64,261

 
64,550

 
129,756

 
133,142

Cost of support revenue
21,564

 
20,429

 
41,480

 
40,897

Total cost of revenue
93,797

 
93,270

 
186,753

 
190,342

Gross margin
234,903

 
220,679

 
466,872

 
443,358

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
85,934

 
88,059

 
170,172

 
181,608

Research and development
55,631

 
55,528

 
108,704

 
112,957

General and administrative
34,140

 
33,398

 
65,071

 
69,215

Amortization of acquired intangible assets
7,985

 
6,640

 
15,774

 
13,263

Restructuring charges
—

 
15,810

 
1,067

 
31,212

Total operating expenses
183,690

 
199,435

 
360,788

 
408,255

Operating income
51,213

 
21,244

 
106,084

 
35,103

Interest and other income (expense), net
(2,692
)
 
(1,867
)
 
(4,446
)
 
(3,672
)
Income before income taxes
48,521

 
19,377

 
101,638

 
31,431

Provision (benefit) for income taxes
4,765

 
2,340

 
18,225

 
(21,417
)
Net income
$
43,756

 
$
17,037

 
$
83,413

 
$
52,848

Earnings per share—Basic
$
0.37

 
$
0.14

 
$
0.70

 
$
0.44

Earnings per share—Diluted
$
0.36

 
$
0.14

 
$
0.69

 
$
0.44

Weighted average shares outstanding—Basic
118,978

 
119,518

 
118,973

 
119,722

Weighted average shares outstanding—Diluted
120,698

 
121,071

 
120,916

 
121,438















The accompanying notes are an integral part of the condensed consolidated financial statements.
PTC Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 
Three months ended
 
Six months ended
 
March 29,
2014
 
March 30,
2013
 
March 29,
2014
 
March 30,
2013
Net income
$
43,756

 
$
17,037

 
$
83,413

 
$
52,848

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of tax of $0 for all periods
(2,487
)
 
(8,540
)
 
(850
)
 
(3,075
)
Minimum pension liability adjustment, net of tax, of $0.3 million and $0.5 million for the second quarter and first six months of 2014, respectively, and $0.8 million and $1.0 million for the second quarter and first six months of 2013, respectively
522

 
1,885

 
842

 
1,916

Total other comprehensive loss
(1,965
)
 
(6,655
)
 
(8
)
 
(1,159
)
Comprehensive income
$
41,791

 
$
10,382

 
$
83,405

 
$
51,689



































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

PTC Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
Six months ended
 
March 29,
2014
 
March 30,
2013
Cash flows from operating activities:
 
 
 
Net income
$
83,413

 
$
52,848

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
38,273

 
38,864

Stock-based compensation
25,330

 
23,703

Excess tax benefits from stock-based awards
(8,092
)
 
(139
)
Other non-cash items, net
626

 
138

Changes in operating assets and liabilities, excluding the effects of acquisitions:
 
 
 
Accounts receivable
16,737

 
22,185

Accounts payable, accrued expenses and other current liabilities
(3,346
)
 
(6,111
)
Accrued compensation and benefits
(34,285
)
 
(18,631
)
Deferred revenue
29,683

 
30,843

Accrued and deferred income taxes
5,879

 
(40,553
)
Other current assets and prepaid expenses
(2,193
)
 
(3,197
)
Other noncurrent assets and liabilities
(5,061
)
 
(3,518
)
Net cash provided by operating activities
146,964

 
96,432

Cash flows from investing activities:
 
 
 
Additions to property and equipment
(10,342
)
 
(12,426
)
Acquisitions of businesses, net of cash acquired
(111,519
)
 
(222,423
)
Net cash used by investing activities
(121,861
)
 
(234,849
)
Cash flows from financing activities:
 
 
 
Borrowings under credit facility
474,375

 
—

Repayments of borrowings under credit facility
(414,375
)
 
(61,875
)
Repurchases of common stock
(39,965
)
 
(34,947
)
Proceeds from issuance of common stock
716

 
2,874

Excess tax benefits from stock-based awards
8,092

 
139

Credit facility origination costs
(4,120
)
 
—

Payments of withholding taxes in connection with vesting of stock-based awards
(21,637
)
 
(12,891
)
Net cash provided (used) by financing activities
3,086

 
(106,700
)
Effect of exchange rate changes on cash and cash equivalents
368

 
(3,617
)
Net increase (decrease) in cash and cash equivalents
28,557

 
(248,734
)
Cash and cash equivalents, beginning of period
241,913

 
489,543

Cash and cash equivalents, end of period
$
270,470

 
$
240,809

Supplemental disclosure of non-cash investing activities:
 
 
 
Fair value of contingent consideration recorded for acquisition
$
13,048

 
$
—


The accompanying notes are an integral part of the condensed consolidated financial statements.
PTC Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
General
The accompanying unaudited condensed consolidated financial statements include the accounts of PTC Inc. 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, 2013 . In the opinion of management, the accompanying unaudited condensed 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, 2013 consolidated balance sheet included herein is derived from our audited consolidated financial statements.
The results of operations for the six months ended March 29, 2014 are not necessarily indicative of the results expected for the remainder of the fiscal year.
Recent Accounting Pronouncements
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
In July 2013, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) 2013-11,
Income Taxes (Topic 740)—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 generally requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, shall be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. ASU 2013-11 is effective for us in our first quarter of fiscal 2015. We are currently evaluating how ASU 2013-11 will impact our consolidated financial statements.

2. Deferred Revenue and Financing Receivables
Deferred Revenue
Deferred revenue primarily relates to software support 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 prepaid expenses and other current assets. Billed but uncollected support-related amounts included in prepaid expenses and other current assets at March 29, 2014 and September 30, 2013 were $107.2 million and $108.6 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, whether commercial or the U.S. Federal government, has a S&P bond rating of BBB- or above, we designate the customer as 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 March 29, 2014 and September 30, 2013 , amounts due from customers for contracts with original payment terms greater than twelve months (financing receivables) totaled $63.4 million and $53.1 million , respectively. Accounts receivable in the accompanying consolidated balance sheets included current receivables from such contracts totaling $46.7 million and $36.1 million at March 29, 2014 and September 30, 2013 , respectively, and other assets in the accompanying consolidated balance sheets included long-term receivables from such contracts totaling $16.7 million and $17.0 million at March 29, 2014 and September 30, 2013 , respectively. As of March 29, 2014 , $0.3 million of these receivables were greater than 90 days past

2

due. None of these receivables were past due as of September 30, 2013. Our credit risk assessment for financing receivables was as follows:

 
March 29,
2014
 
September 30,
2013
 
(in thousands)
S&P bond rating BBB-1 and above-Tier 1
$
44,246

 
$
42,189

Internal Credit Assessment-Tier 2
19,174

 
10,934

Internal Credit Assessment-Tier 3
—

 
—

Total financing receivables
$
63,420

 
$
53,123

 
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 March 29, 2014 and September 30, 2013 , 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 six months ended March 29, 2014 and fiscal year 2013 . 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 $12.0 million of financing receivables to third-party financial institutions in the six months ended March 29, 2014. There were no financing receivables sold to third-party financial institutions in the six months ended March 30, 2013 .

3. Restructuring Charges
In the first six months of 2014, we recorded restructuring charges of $1.1 million , primarily associated with the completion of the restructuring actions initiated in the fourth quarter of 2013.
In the first six months of 2013, as part of our strategy to reduce costs and enhance long term profitability, we restructured our business and recorded restructuring charges of $31.4 million . The restructuring charges included $29.9 million for severance and related costs associated with 288 employees notified of termination during the first six months of 2013 and $1.5 million of charges related to excess facilities.
The following table summarizes restructuring accrual activity for the six months ended March 29, 2014 :
 
 
Employee Severance and Related Benefits
 
Facility Closures and Related Costs
 
Total
 
 
 
(in thousands)
October 1, 2013
 
$
19,233

 
$
296

 
$
19,529

 
Charges to operations
 
1,098

 
(31
)
 
1,067

 
Cash disbursements
 
(17,249
)
 
(138
)
 
(17,387
)
 
Foreign exchange impact
 
49

 
1

 
50

 
Accrual, March 29, 2014
 
$
3,131

 
$
128

 
$
3,259

 

The accrual for facility closures and related costs is included in accounts payable, accrued expenses and other liabilities 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 RSUs as the principal equity incentive awards, including certain performance-based awards that are earned based on achievement of performance criteria

3

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, 2013 .
Restricted stock unit activity for the six months ended March 29, 2014
Shares
 
Weighted
Average
Grant Date
Fair Value
(Per Share)
 
(in thousands)
 
 
Balance of outstanding restricted stock units October 1, 2013
5,186

 
$
21.67

Granted
1,328

 
$
33.30

Vested
(1,881
)
 
$
21.39

Forfeited or not earned
(257
)
 
$
23.15

Balance of outstanding restricted stock units March 29, 2014
4,376

 
$
25.22

 
 
Restricted Stock Units
Grant Period
Performance-based (1)
 
Time-based (2)
 
 
 
(Number of Units in thousands)
First six months of 2014
444
 
884
_________________
(1)
The performance-based RSUs were granted to employees, including our executive officers. Approximately 87,000 of these RSUs are eligible to vest in three substantially equal installments in November 2016, 2017 and 2018 based on achievement of the applicable performance criteria. Substantially all other performance-based RSUs will be eligible to vest in three substantially equal installments in November 2014, 2015 and 2016 to the extent the applicable performance criteria have been achieved. RSUs not earned for a period may be earned in subsequent periods.
(2)
The time-based RSUs were issued to employees, including our executive officers, and our Board of Directors. The RSUs granted to our Board of Directors generally vest one year from the date of grant. Substantially all other time-based RSUs, will vest in three substantially equal annual installments on or about the anniversary of the date of grant.
Compensation expense recorded for our stock-based awards was classified in our consolidated statements of operations as follows:
 
Three months ended
 
Six months ended
 
March 29,
2014
 
March 30,
2013
 
March 29,
2014
 
March 30,
2013
 
(in thousands)
Cost of license revenue
$
5

 
$
8

 
$
9

 
$
13

Cost of service revenue
1,426

 
1,420

 
3,024

 
3,032

Cost of support revenue
889

 
835

 
1,813

 
1,661

Sales and marketing
3,019

 
2,835

 
5,518

 
5,293

Research and development
2,147

 
1,824

 
4,836

 
4,336

General and administrative
5,080

 
4,888

 
10,130

 
9,368

Total stock-based compensation expense
$
12,566

 
$
11,810

 
$
25,330

 
$
23,703


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.

4


 
Three months ended
 
Six months ended
Calculation of Basic and Diluted EPS
March 29,
2014
 
March 30,
2013
 
March 29,
2014
 
March 30,
2013
 
(in thousands, except per share data)
Net income
$
43,756

 
$
17,037

 
$
83,413

 
$
52,848

Weighted average shares outstanding—Basic
118,978

 
119,518

 
118,973

 
119,722

Dilutive effect of employee stock options, restricted shares and restricted stock units
1,720

 
1,553

 
1,943

 
1,716

Weighted average shares outstanding—Diluted
120,698

 
121,071

 
120,916

 
121,438

Earnings per share—Basic
$
0.37

 
$
0.14

 
$
0.70

 
$
0.44

Earnings per share—Diluted
$
0.36

 
$
0.14

 
$
0.69

 
$
0.44


RSUs totaling 0.2 million were outstanding during the first six months of 2014 but were not included in the calculation of diluted EPS because the share impact of the assumed proceeds related to the weighted unamortized compensation expense exceeded the weighted average RSUs outstanding. These RSUs 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, 2013 through September 30, 2014. In the second quarter and first six months of 2014, we repurchased 1.1 million shares at a cost of $40.0 million . In the second quarter and first six months of 2013, we repurchased 0.8 million shares and 1.5 million shares at a cost of $19.1 million and $34.9 million , respectively. All shares of our common stock repurchased are automatically restored to the status of authorized and unissued.

6. Acquisitions
Acquisition-related costs were $3.9 million and $5.2 million for the second quarter and first six months of 2014, respectively, and $2.1 million and $6.7 million for the second quarter and first six months of 2013, respectively. Acquisition-related costs include direct costs of potential and completed acquisitions (e.g., investment banker fees, professional fees, including legal and valuation services) and expenses related to acquisition integration activities (e.g., professional fees, severance, and retention bonuses). In addition, subsequent adjustments to our initial estimated amount of contingent consideration associated with specific acquisitions are included within acquisition-related charges. These costs have been classified in general and administrative expenses in the accompanying consolidated statements of operations.
ThingWorx
On December 30, 2013, pursuant to an Agreement and Plan of Merger (the Merger Agreement), PTC Inc. acquired ThingWorx, Inc., creators of a platform for building and running applications for the Internet of Things (IoT), for $111.5 million in cash (net of cash acquired of $0.1 million ) and $13.0 million representing the fair value of contingent consideration payable upon achievement of targets described below. We borrowed $110 million under our existing credit facility on December 27, 2013 to fund the acquisition.
We acquired ThingWorx to accelerate our ability to support manufacturers as they create and service smart, connected products. At the time of the acquisition, ThingWorx had approximately 40 employees and historical annualized revenues were not material. The results of operations of ThingWorx have been included in our consolidated financial statements beginning on the acquisition date. Revenue and earnings of ThingWorx since the acquisition date were not material.
The acquisition of ThingWorx has been accounted for as a business combination. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the December 30, 2013 acquisition date. The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of ThingWorx and PTC. The process for estimating the fair values of identifiable intangible assets and the contingent consideration liability requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The former shareholders of ThingWorx are eligible to receive additional consideration of up to $18.0 million , which is contingent on the achievement of certain profitability and bookings targets (as

5

defined in the Merger Agreement) within the period from December 30, 2013 to January 1, 2016. If such targets are achieved, the consideration is payable in cash in two installments, up to half of which will become payable in fiscal 2015, after the first year measurement period, and the remainder of which, including any such amounts not earned in the first measurement period that are subsequently earned, will become payable in fiscal 2016 after the second year measurement period. In connection with accounting for the business combination, we recorded a liability of $13.0 million representing the fair value of the contingent consideration. The liability was valued using a discounted cash flow method and a probability weighted estimate of achievement of the financial targets. The estimated undiscounted range of outcomes for the contingent consideration is $0.0 million to $18.0 million . We will assess the probability that the targets will be met and at what level each reporting period. Any subsequent changes in the estimated fair value of the liability will be reflected in earnings until the liability is fully settled(activity in the second quarter of 2014 was $0.5 million, see Note 8).
Based upon a valuation, the total purchase price allocation was as follows:   
Purchase price allocation:
(in thousands)  
 
Goodwill
$
102,190

Identifiable intangible assets
32,100

Cash
133

Deferred tax assets and liabilities, net
(8,934
)
Other assumed liabilities, net
(789
)
Total allocation of purchase price consideration
124,700

Less: cash acquired
(133
)
Total purchase price allocation, net of cash acquired
$
124,567

Less: contingent consideration
(13,048
)
Net cash used to acquire ThingWorx
$
111,519

The purchase price allocation resulted in $102.2 million of goodwill, the majority of which will not be deductible for income tax purposes. All of the acquired goodwill was allocated to our software products segment. Intangible assets of $32.1 million includes purchased software of $20.5 million , customer relationships of $8.8 million and trademarks of $2.3 million , which are being amortized over weighted average useful lives of 11 years , 9 years and 12 years , respectively, based upon the pattern in which economic benefits related to such assets are expected to be realized. Additionally, we recorded in process research and development (IPR&D) of $0.5 million related to a version of ThingWorx software planned to be released in the third quarter of 2014. The value of the IPR&D was determined using an income approach. In accounting for the business combination we recorded net deferred tax liabilities of $8.9 million , primarily related to the tax effect of the acquired intangible assets other than goodwill that are not deductible for income tax purposes and net operating loss carryforwards. As described in Note 11, these net deferred tax liabilities reduced our net deferred tax asset balance and resulted in a tax benefit to decrease our valuation allowance in the U.S.
The resulting amount of goodwill reflects our expectations of the following benefits: (1) acceleration of our entry into the emerging IoT market including supporting manufacturers seeking to create and service smart, connected products and helping companies in a wide range of other industries seeking to develop applications for the IoT; (2) our intention to leverage our larger sales force and our intellectual property to attract new contracts and revenue; and (3) our intention to leverage our established presence in global markets.
Servigistics
On October 2, 2012, we acquired Servigistics, Inc., a developer of a suite of service lifecycle management (SLM) software solutions, for $220.8 million in cash (net of a final purchase price adjustment of $1.6 million received from the sellers in the the third quarter of 2013 and net of cash acquired of $1.4 million ). We acquired Servigistics to expand our products that support service organizations within manufacturing companies, including managing service and spare parts information and the delivery of service for warranty and product support processes. Servigistics had annualized revenues of approximately  $80 million  and approximately  400  employees.
The results of operations of Servigistics have been included in our consolidated financial statements beginning on the acquisition date. The unaudited financial information in the table below summarizes the combined results of operations of PTC and Servigistics, on a pro forma basis, as though the companies had been combined as of the beginning of PTC's fiscal year 2012. The pro forma information for all periods presented includes the effects of business combination accounting resulting from the acquisition as though the acquisition had been consummated as of the beginning of fiscal year 2012, including amortization charges from acquired intangible assets, the fair value adjustment of acquired deferred support revenue being recorded in fiscal year 2012 versus fiscal year 2013, the exclusion of $1.0 million and $5.6 million of acquisition-related costs in the second quarter and first six months of 2013, respectively, and the related tax effects. PTC's first quarter of 2013 results

6

also exclude the $32.6 million tax benefit recorded to decrease our valuation allowance in jurisdictions where we have recorded a valuation allowance as a result of Servigistics' net deferred tax liability position recorded in accounting for the business combination (Note 11). 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 2012.
Unaudited Pro Forma Financial Information  
 
Three months ended
 
Six months ended
 
Pro Forma
 
As Reported
 
Pro Forma
 
As Reported
 
March 30, 2013
 
March 30, 2013
 
March 30, 2013
 
March 30, 2013
 
(in millions, except per share amounts)
Revenue
$
314.6

 
$
313.9

 
$
635.9

 
$
633.7

Operating income
$
22.0

 
$
21.2

 
$
41.2

 
$
35.1

Net income
$
17.7

 
$
17.0

 
$
26.0

 
$
52.8

Earnings per share—Basic
$
0.15

 
$
0.14

 
$
0.22

 
$
0.44

Earnings per share—Diluted
$
0.15

 
$
0.14

 
$
0.21

 
$
0.44


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 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 March 29, 2014 and September 30, 2013 , goodwill and acquired intangible assets in the aggregate attributable to our software products reportable segment were $1,087.6 million and $979.3 million , respectively, and attributable to our services reportable segment were $61.6 million and $62.9 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.
We completed our annual goodwill impairment review as of June 29, 2013 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 and consideration of the fair value of each reporting unit, which was approximately double its carrying value or higher, at the last valuation date. 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:
 

7

 
March 29, 2014
 
September 30, 2013
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
(in thousands)
Goodwill (not amortized)
 
 
 
 
$
869,324

 
 
 
 
 
$
769,095

Intangible assets with finite lives (amortized) (1):
 
 
 
 
 
 
 
 
 
 
 
Purchased software
$
255,412

 
$
157,818

 
$
97,594

 
$
233,566

 
$
148,127

 
$
85,439

Capitalized software
22,877

 
22,877

 
—

 
22,877

 
22,877

 
—

Customer lists and relationships
312,526

 
135,949

 
176,577

 
304,434

 
120,338

 
184,096

Trademarks and trade names
15,797

 
10,640

 
5,157

 
13,427

 
10,097

 
3,330

Other
4,193

 
3,620

 
573

 
3,784

 
3,528

 
256

 
$
610,805

 
$
330,904

 
$
279,901

 
$
578,088

 
$
304,967

 
$
273,121

Total goodwill and acquired intangible assets
 
 
 
 
$
1,149,225

 
 
 
 
 
$
1,042,216


(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, 8 years, and 3 years, respectively.
Goodwill
The changes in the carrying amounts of goodwill for the six months ended March 29, 2014 are due to our acquisition of ThingWorx described in Note 6 and 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
Segment
 
Services
Segment
 
Total
 
(in thousands)
Balance, October 1, 2013
$
720,548

 
$
48,547

 
$
769,095

Acquisition of ThingWorx
102,190

 
—

 
102,190

Foreign currency translation adjustments
(1,993
)
 
32

 
(1,961
)
Balance, March 29, 2014
$
820,745

 
$
48,579

 
$
869,324

Amortization of Intangible Assets
The aggregate amortization expense for intangible assets with finite lives was classified in our consolidated statements of operations as follows:
 
Three months ended
 
Six months ended
 
March 29,
2014
 
March 30,
2013
 
March 29,
2014
 
March 30,
2013
 
(in thousands)
Amortization of acquired intangible assets
$
7,985

 
$
6,640

 
$
15,774

 
$
13,263

Cost of license revenue
4,316

 
4,628

 
8,721

 
9,267

Cost of service revenue
91

 
—

 
183

 
—

Total amortization expense
$
12,392

 
$
11,268

 
$
24,678

 
$
22,530



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

8

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 March 29, 2014 and September 30, 2013 were as follows:
 
March 29, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Financial assets:
 
 
 
 
 
 
 
Cash equivalents (1)
$
73,167

 
$
—

 
$
—

 
$
73,167

Forward contracts
—

 
177

 
—

 
177

 
$
73,167

 
$
177

 
$
—

 
$
73,344

Financial liabilities:
 
 
 
 
 
 
 
Contingent consideration related to ThingWorx acquisition
$
—

 
$
—

 
$
13,512

 
$
13,512

Forward contracts
—

 
937

 
—

 
937

 
$
—

 
$
937

 
$
13,512

 
$
14,449


 
September 30, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in thousands)
Financial assets:
 
 
 
 
 
 
 
Cash equivalents (1)
$
56,706

 
$
—

 
$
—

 
$
56,706

Forward contracts
—

 
301

 
—

 
301

 
$
56,706

 
$
301

 
$
—

 
$
57,007

Financial liabilities:
 
 
 
 
 
 
 
Forward contracts
—

 
438

 
—

 
438

 
$
—

 
$
438

 
$
—

 
$
438


______________
(1) Money market funds and time deposits.

Changes in the fair value of Level 3 contingent consideration liability associated with our acquisition of ThingWorx were as follows:


9

 
Contingent Consideration
 
(in thousands)
Balance at October 1, 2013
$
—

ThingWorx contingent consideration at acquisition
13,048

Change in present value of contingent consideration
464

Balance at March 29, 2014
$
13,512


In connection with accounting for the ThingWorx business combination, we recorded a liability of $13.0 million representing the fair value of contingent consideration payable upon achievement of certain financial targets over the next two years. The liability that we recorded was valued using a discounted cash flow method and a probability weighted estimate of achievement of the financial targets based on inputs that are not observable in the market, which represents a level 3 measurement within the fair value hierarchy. Changes in the fair value of the contingent consideration liability will be reflected in acquisition-related charges in general and administrative expense until the liability is fully settled. The contingent consideration liability of $13.5 million is included in other liabilities in the consolidated balance sheet.

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 March 29, 2014 and September 30, 2013 , we had outstanding forward contracts with notional amounts equivalent to the following:
Currency Hedged
March 29,
2014
 
September 30,
2013
 
(in thousands)
Canadian Dollar / U.S. Dollar
$
30,427

 
$
41,852

Euro / U.S. Dollar
99,392

 
50,902

Chinese Renminbi / U.S. Dollar
4,600

 
—

Japanese Yen / U.S. Dollar
17,397

 
6,496

Swiss Franc / U.S. Dollar
7,986

 
9,678

Israeli New Sheqel / U.S. Dollar
5,906

 
3,413

All other
10,163

 
12,093

Total
$
175,871

 
$
124,434

The accompanying consolidated balance sheets include a net asset of $0.2 million in prepaid expenses and other current assets and a net liability of $0.9 million in accrued expenses as of March 29, 2014 , and a net asset of $0.3 million in prepaid expenses and other current assets and a net liability of $0.4 million in accrued expenses as of September 30, 2013 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 six

10

months ended March 29, 2014 and March 30, 2013 were as follows:
 
Three months ended
 
Six months ended
 
March 29,
2014
 
March 30,
2013
 
March 29,
2014
 
March 30,
2013
 
(in thousands)
Net losses on foreign currency exposures
$
1,129

 
$
503

 
$
1,993

 
$
988

Net realized and unrealized gain on forward contracts (excluding the underlying foreign currency exposure being hedged)
$
(69
)
 
$
(2,894
)
 
$
(1,697
)
 
$
(3,596
)

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 support 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 support on these products, and other services 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
 
Six months ended
 
March 29,
2014
 
March 30,
2013
 
March 29,
2014
 
March 30,
2013
 
(in thousands)
Revenue:
 
 
 
 
 
 
 
Total Software Products segment revenue
$
245,423

 
$
236,580

 
$
489,677

 
$
475,869

Total Services segment revenue
83,277

 
77,369

 
163,948

 
157,831

Total revenue
$
328,700

 
$
313,949

 
$
653,625

 
$
633,700

Operating income: (1)
 
 
 
 
 
 
 
Software Products segment
$
154,859

 
$
141,536

 
$
313,099

 
$
285,127

Services segment
16,427

 
6,844

 
29,048

 
14,094

Sales and marketing expenses
(85,933
)
 
(92,965
)
 
(170,644
)
 
(193,291
)
General and administrative expenses
(34,140
)
 
(34,171
)
 
(65,419
)
 
(70,827
)
Total operating income
51,213

 
21,244

 
106,084

 
35,103

Other income (expense), net
(2,692
)
 
(1,867
)
 
(4,446
)
 
(3,672
)
Income before income taxes
$
48,521

 
$
19,377

 
$
101,638

 
$
31,431


(1)
We recorded restructuring charges of $1.1 million in the first six months of 2014. Software Products included $0.1 million ; Services included $0.2 million ; sales and marketing expenses included $0.5 million ; and general and administrative expenses included $0.3 million of these restructuring charges. We recorded restructuring charges of  $15.8 million and $31.2 million in the second quarter and first six months of 2013, respectively. Software Products included  $6.1 million and $11.6 million , respectively; Services included  $4.0 million and $6.3 million , respectively; sales and marketing expenses included $4.9 million and $11.7 million , respectively; and general and administrative expenses included $0.8 million and  $1.6 million , respectively, of these restructuring charges.
We report revenue by the following three solution areas:
•
CAD - PTC Creo ® and PTC Mathcad ® .
•
Extended PLM - our PLM solutions (primarily PTC Windchill ® ), our ALM solutions (primarily PTC Integrity ™ ) and our SCM Solutions (primarily PTC Windchill FlexPLM ® ).
•
SLM - PTC Arbortext ® , PTC Servigistics ® and PTC ThingWorx ® products.


11

 
Three months ended
 
Six months ended
 
March 29,
2014
 
March 30,
2013
 
March 29,
2014
 
March 30,
2013
 
(in thousands)
Revenue:
 
 
 
 
 
 
 
CAD
$
138,188

 
$
136,331

 
$
274,356

 
$
268,291

Extended PLM
147,485

 
139,833

 
291,282

 
282,242

SLM
43,027

 
37,785

 
87,987

 
83,167

Total revenue
$
328,700

 
$
313,949

 
$
653,625

 
$
633,700



 
Three months ended
 
Six months ended
 
March 29,
2014
 
March 30,
2013
 
March 29,
2014
 
March 30,
2013
 
(in thousands)
Revenue:
 
 
 
 
 
 
 
Americas (1)
$
134,375

 
$
118,150

 
$
273,253

 
$
250,809

Europe (2)
128,018

 
118,841

 
255,062

 
238,495

Pacific Rim
36,662

 
39,289

 
70,554

 
77,911

Japan
29,645

 
37,669

 
54,756

 
66,485

Total revenue
$
328,700

 
$
313,949

 
$
653,625

 
$
633,700

_________________
(1)
Includes revenue in the United States totaling $126.3 million and $111.7 million for the quarters ended March 29, 2014 and March 30, 2013 , respectively, and $255.0 million and $228.6 million for the six months ended March 29, 2014 and March 30, 2013 , respectively.
(2)
Includes revenue in Germany totaling $47.6 million and $39.6 million for the quarters ended March 29, 2014 and March 30, 2013 , respectively, and $90.6 million and $81.7 million for the six months ended March 29, 2014 and March 30, 2013 , respectively.

11. Income Taxes
In the second quarter and first six months of 2014, our effective tax rate was 10% on pre-tax income of $48.5 million and 18% on pre-tax income of $101.6 million , respectively, compared to a provision of 12% on pre-tax income of $19.4 million and a benefit of 68% on pre-tax income of $31.4 million in the second quarter and first six months of 2013 , respectively. In the second quarter and first six months of 2014 , our effective tax rate was lower than the 35% statutory federal income tax rate due to our corporate structure in which our foreign taxes are at a net effective tax rate lower than the U.S. rate and the reversal of a portion of our valuation allowance against net deferred tax assets described below.
In the second quarter and first six months of 2013 , our effective tax rate was lower than the 35% statutory federal income tax rate due to our corporate structure in which our foreign taxes are at a net effective tax rate lower than the U.S. rate, and for the first six months of 2013 due primarily to the reversal of a portion of our valuation allowance against net deferred tax assets described below. Our tax provision for the second quarter and our tax benefit for the first six months of 2013 did not include a tax benefit on our forecast 2013 U.S. loss as it was offset by a valuation allowance established in the fourth quarter of 2012.  Additionally, in the second quarter of 2013, we recorded a $2.7 million tax benefit related to research and development (R&D) tax credits in the U.S triggered by a retroactive extension of the R&D credit enacted in the second quarter and a $3.2 million tax benefit related to final resolution of a long standing tax litigation and completion of a tax audit.
In the fourth quarter of 2012, we recorded a $124.5 million non-cash charge to the income tax provision to establish a valuation allowance against all of our U.S. deferred tax assets. In the second quarter of 2014 and first quarter of 2013, our acquisitions of ThingWorx and Servigistics, Inc. were accounted for as business combinations. Assets acquired, including the fair values of acquired tangible assets, intangible assets (including finite-lived acquired intangible assets totaling $32.1 million for ThingWorx and $118.3 million for Servigistics) and assumed liabilities were recorded, and we recorded net deferred tax liabilities of $8.9 million and $35.6 million , respectively, primarily related to the tax effect of the acquired intangible assets that are not deductible for income tax purposes. These net deferred tax liabilities reduced our net deferred tax asset balance and resulted in a tax benefit of $8.9 million related to ThingWorx recorded in the second quarter of 2014 and $32.6 million related to Servigistics recorded in the first quarter of 2013 to decrease our valuation allowance in jurisdictions where we have recorded a valuation allowance (primarily the U.S.). As these decreases in the valuation allowance were not part of the accounting for

12

the business combinations (the fair value of the assets acquired and liabilities assumed), they were recorded as income tax benefits.
As of March 29, 2014 and September 30, 2013 , we had unrecognized tax benefits of $14.7 million and $13.7 million , respectively. If all of our unrecognized tax benefits as of March 29, 2014 were to become recognizable in the future, we would record a benefit to the income tax provision of $13.7 million which would be partially offset by an increase in the U.S. valuation allowance of $7.3 million . 
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 related to the resolution of multi-jurisdictional tax positions could be reduced by up to $2 million as audits close and statutes of limitations expire.
We follow the with-and-without approach for the direct effects of windfall tax deductions to determine the timing of the recognition of benefits for windfall tax deductions.  In the second quarter and first six months of 2014, we recorded windfall tax benefits of $1.3 million and $8.1 million to additional paid-in capital.

12. Debt
Credit Agreement
On January 30, 2014, we entered into a new credit facility with a syndicate of 13 banks for which JPMorgan Chase Bank, N.A. acts as Administrative Agent. We expect to use the credit facility for general corporate purposes, including acquisitions of businesses and working capital requirements. The credit facility consists of a $250 million term loan and a $750 million revolving loan commitment. The revolving loan commitment does not require amortization of principal. The term loan requires principal payments at the end of each calendar quarter. The revolving loan and term loan may be repaid in whole or in part prior to the scheduled maturity dates at PTC's option without penalty or premium. The credit facility matures on January 30, 2019, when all remaining amounts outstanding will be due and payable in full. We are required to make principal payments under the term loan of $9.375 million , $21.875 million , $25.0 million , $34.375 million , $37.5 million and $121.875 million in 2014, 2015, 2016, 2017, 2018 and 2019, respectively. We incurred costs of approximately $4 million in connection with entering into the new facility which will be amortized over the term of the new credit facility.
As of March 29, 2014 , we had $318.1 million outstanding under the credit facility, comprised of a $250.0 million term loan and $68.1 million of revolving loans. As of March 29, 2014 , the fair value of our credit facility approximates our book value. If measured at fair value in the financial statements, long-term debt (including the current portion) would be classified as Level 2 in the fair value hierarchy described in Note 8.
Loans under the credit facility bear interest at variable rates which reset every 30 to 180 days depending on the rate and period selected by PTC. As of March 29, 2014 , the annual rate on both the term loan and the revolving loans was 1.625% . A quarterly commitment fee on the undrawn portion of the credit facility is required, ranging from 0.175% to 0.25%  per annum, based upon PTC’s leverage ratio.
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.
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 3.00 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 3.50 to 1.00 at any time.
As of March 29, 2014 , our leverage ratio was 0.98 to 1.00 , our fixed charge coverage ratio was 22.20 to 1.00 and we were in compliance with all financial and operating covenants of the credit facility.

13. Commitments and Contingencies

Legal and Regulatory Matters

13

China Investigation
We have been cooperating to provide information to the U.S. Securities and Exchange Commission and the Department of Justice concerning payments and expenses by certain of our business partners in China and/or by employees of our Chinese subsidiary that raise questions concerning compliance with laws, including the U.S. Foreign Corrupt Practices Act. Our internal review is ongoing and now includes periods earlier than those previously examined. We continue to respond to requests for information from these agencies, including a subpoena issued to the company by the SEC. We cannot predict when or how this matter may be resolved. Resolution of this matter could include fines and penalties; however we are unable to estimate an amount that could be associated with any resolution and, accordingly, we have not recorded a liability for this matter. If resolution of this matter includes substantial fines or penalties, this could materially impact our results for the period in which the associated liability is recorded or such amounts are paid. Further, any settlement or other resolution of this matter could have collateral effects on our business in China, the United States and elsewhere.
We terminated certain employees and business partners in China in connection with this matter, which may have an adverse impact on our level of sales in China. Revenue from China has historically represented 5%  to  7% of our total revenue.
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 March 29, 2014 , we had a legal proceedings and claims accrual of $1.0 million .
Guarantees and Indemnification Obligations
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 liabilities under 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 liabilities is immaterial.

14. Pension Plans
Our pension plans are described in more detail in Note M to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013.

Amortization of Actuarial Losses
In the six months ended March 29, 2014, we recognized approximately $1.6 million ( $1.0 million net of tax) of unrecognized actuarial losses as a component of net periodic pension cost. This amount has been reclassified from accumulated other comprehensive loss to net income in the accompanying Consolidated Statements of Operations and Comprehensive Income.
Termination of U.S. Pension Plan
We maintain a U.S. defined benefit pension plan (the Plan) that covers certain persons who were employees of Computervision Corporation (acquired by us in 1998). Benefits under the Plan were frozen in 1990. We recently decided to

14

terminate the Plan and expect to execute the termination process over the next two years. As part of the planned termination, we re-balanced assets to a target asset allocation of 100% fixed income investments (up from 40%), which will provide a better matching of Plan assets to the characteristics of the liabilities. We will take further actions to minimize the volatility of the value of our pension assets relative to pension liabilities and to settle remaining Plan liabilities, including making such contributions to the Plan as may be necessary to make the Plan sufficient to settle all Plan liabilities, and settling Plan liabilities by offering lump sum distributions to plan participants and purchasing annuity contracts to cover vested benefits.
We expect to settle the liabilities over the latter part of calendar 2015 and early calendar 2016. As the liabilities are settled, losses (currently estimated to be approximately $70.0 million ) will be recognized up to the amount of unamortized losses in accumulated other comprehensive income, based on the projected benefit obligations measured as of the dates the settlements occur. We contributed $7.5 million to the Plan on April 1, 2014. Prior to settling the liabilities, we will contribute such additional amounts (currently estimated to be approximately $22.0 million ) as may be necessary to fully fund the Plan. Such contributions are expected to be made concurrent with settling the liabilities but may be made earlier at our discretion.

15


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 and adoption of our solutions and future purchases by customers 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: the macroeconomic climate may not improve or may deteriorate; our customers may not purchase our solutions when or in the amounts we expect and that our pipeline deals may not convert as we expect; we may not achieve the license, service or support growth rates or revenue we expect, which could result in a different mix of revenue between license, service and support and could adversely affect our profitability; foreign currency exchange rates may vary from our expectations and thereby affect our reported revenue and expense; our business, including the ThingWorx business, may not expand and/or generate the revenue we expect; we may be unable to achieve planned services margin and operating margin improvements; we may be unable to improve sales productivity as we expect; remedial actions related to our investigation in China could have a material impact on our operations in China, substantial fines or penalties may be imposed by government agencies in connection with resolving that matter, and any such resolution may have collateral effects on our business in China, the U.S. or elsewhere; as well as other risks and uncertainties described below throughout or referenced in Part II, Item 1A. Risk Factors of this report.
Business Overview
PTC Inc. develops and delivers technology solutions, comprised of software and services, that transform the way our customers create, operate and service their products. Our solutions help our customers in discrete manufacturing organizations optimize the activities within individual business functions, including engineering, supply chain, manufacturing and service, and coordinate these processes across the enterprise to create product and service advantage.
Our solutions and software products address the challenges our customers face in the following areas:
Computer-Aided Design (CAD)
Effective and collaborative product design.
Product Lifecycle Management (PLM)
Management of product development from concept to retirement.
Application Lifecycle Management (ALM)
Management of global software development.
Supply Chain Management (SCM)
Management and optimization of global supply chains.
Service Lifecycle Management (SLM)
Delivery and capture of product intelligence at the point of service.
Internet of Things (IoT)
Development of applications for smart, connected products.

Business Developments
In December 2013, we acquired ThingWorx, a developer of a platform for building and running applications for the Internet of Things. This acquisition accelerates our ability to support manufacturers seeking competitive advantage as they develop applications to create, operate and service smart, connected products.
Our Markets
The markets we serve present different growth opportunities for us. We believe the PLM, ALM, SCM, SLM and IoT markets present the greatest opportunities for revenue growth and revenue from these markets will constitute an increasingly greater proportion of our revenue over time. We believe the market for CAD among small- and medium-size businesses also provides an opportunity for growth. Conversely, the market for CAD among large businesses is highly penetrated and presents

16
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a lower growth opportunity for us.
Executive Overview

In our second quarter, we continued to deliver on our margin expansion strategy with revenue in line with expectations and GAAP earnings per share above our expected range (due to a lower tax provision), and non-GAAP earnings per share at the high end of our range. In the second quarter of 2014, earnings per share was up 158% to $0.36 from $0.14 in the year-ago period, and non-GAAP earnings per share was up 17% to $0.48, from $0.41 in the year-ago period. Our GAAP results reflect no restructuring charges in the second quarter of 2014 (they were $16 million in the second quarter of 2013) and a lower tax provision as the second quarter of 2014 included a non-cash tax benefit of $9 million as a result of accounting for our acquisition of ThingWorx. The restructuring charges and non-cash tax benefit are excluded from our non-GAAP measures, as are the other items described in our reconciliation of non-GAAP measures to GAAP results under Results of Operations - Non-GAAP Measures below.

For the second quarter, our total revenue was $329 million, up 4% year over year. Total license revenue for the quarter was $85 million, up 7% year over year, which reflects an increase in license revenue from large transactions. The second quarter of 2014 included three mega deals (transactions resulting in recognized license revenue of over $5 million in the quarter); two in the Americas and one in Europe, compared to one in Japan in the second quarter of 2013. From a geographic perspective, on a constant currency basis, revenue grew 14% in the Americas and 6% in Europe, and declined 10% in Japan and 6% in the Pacific Rim, compared to the year-ago period. Total revenue in Japan and the Pacific Rim declined 21% and 7%, respectively, and in the Americas and Europe was up 14% and 8%, respectively, compared to the year-ago period.
Our operating margin in the second quarter of 2014 increased to 16% from 7% in the year-ago period (to 24% from 20% on a non-GAAP basis). GAAP operating margin in the second quarter of 2014 was favorably impacted by lower restructuring charges, which were $16 million in the second quarter of 2013 compared to none in the second quarter of 2014, and unfavorably impacted by higher acquisition-related expenses (which were $2 million higher in the second quarter of 2014, compared to the second quarter of 2013). Our GAAP and non-GAAP operating margin was impacted by cost reduction measures, including our restructuring actions in 2013, and higher service margins, partially offset by costs of acquired businesses and annual merit salary increases for employees.
We ended the second quarter of 2014 with $270 million of cash, down from $371 million at the end of the first quarter of 2014, reflecting, in part, $112 million used for our acquisition of ThingWorx. Additionally, we generated $111 million in operating cash flow, repurchased $40 million of our common shares outstanding and repaid $50 million of amounts outstanding under our credit facility. At the end of the second quarter of 2014, the balance outstanding under our credit facility was $318 million and we had $682 million available to borrow under the revolving loan portion of our credit facility. As described in Liquidity and Capital Resources, in the second quarter of 2014, we replaced our credit facility with a substantially similar facility with a borrowing capacity of $1 billion (comprised of a $750 million revolving line and a $250 million term loan) that matures in January 2019.
Non-GAAP measures are reconciled to GAAP results under Results of Operations - Non-GAAP Measures below.
Future Expectations, Strategies and Risks
The slowdown in the global manufacturing industry, uncertainty about the near-term economic environment and unfavorable foreign currency exchange rates were headwinds for revenue growth in fiscal 2013. While we have seen some indications of improvements in global manufacturing economic conditions, there is still a significant level of uncertainty in terms of the level and speed at which growth will resume. We expect modest revenue growth and continued operating margin expansion in 2014 driven by: (1) continued vigilance on cost controls and cost savings from restructuring actions; (2) increased sales productivity; and (3) improvement in services non-GAAP gross margin to at least 15%. For 2014, our goal is to achieve year-over-year revenue growth of 3% to 4%. This revenue goal includes license revenue growth of 3% to 7%, support revenue growth of approximately 3%, and service revenue growth of approximately 2%. Our 2014 earnings goals are to achieve non-GAAP operating margin expansion of 300 basis points, from 22% in 2013 to approximately 25% in 2014 (expansion of GAAP operating margins from 10% in 2013 to approximately 18% in 2014) and non-GAAP earnings per share of $2.05 to $2.15 (GAAP earnings per share of $1.40 to $1.50), an increase of $0.02 per share on both a non-GAAP and GAAP basis from our previous expectation announced in the second quarter of 2014. If economic conditions do not improve or deteriorate further, or if foreign currency exchange rates relative to the U.S. dollar differ significantly from our current assumptions, our results could differ materially from our targets. Our targets assume rates of $1.38 USD to one Euro and 103 Yen to one USD.

17
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Also, our results have been impacted, and we expect will continue to be impacted, by our ability to close large transactions. 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 solutions by 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 volatility in our results.
Impact of an Investigation in China
We have been cooperating to provide information to the U.S. Securities and Exchange Commission and the Department of Justice concerning payments and expenses by certain of our business partners in China and/or by employees of our Chinese subsidiary that raise questions concerning compliance with laws, including the U.S. Foreign Corrupt Practices Act. Our internal review is ongoing and now includes periods earlier than those previously examined. We continue to respond to requests for information from these agencies, including a subpoena issued to the company by the SEC. We cannot predict when or how this matter may be resolved. Resolution of this matter could include fines and penalties; however we are unable to estimate an amount that could be associated with any resolution and, accordingly, we have not recorded a liability for this matter. If resolution of this matter includes substantial fines or penalties, this could materially impact our results for the period in which the associated liability is recorded or such amounts are paid. Further, any settlement or other resolution of this matter could have collateral effects on our business in China, the United States and elsewhere.
We terminated certain employees and business partners in China in connection with this matter, which may have an adverse impact on our level of sales in China. Revenue from China has historically represented 5% to 7% of our total revenue.
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 operating income, operating margin, and diluted earnings per share as calculated under generally accepted accounting principles (“GAAP”), the table also includes non-GAAP operating income, operating margin, and diluted earnings per share for the reported periods. We discuss the non-GAAP measures in detail, including items excluded from the measures, and provide a reconciliation to the comparable GAAP measures under Results of Operations - Non-GAAP Measures below.

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Three months ended

Percent Change 2013 to 2014
 
Six months ended
 
Percent Change 2013 to 2014

March 29, 2014
 
March 30, 2013

Actual
 
Constant Currency
 
March 29, 2014
 
March 30, 2013
 
Actual
 
Constant Currency

(dollar amounts in millions, except per share data)
License revenue
$
85.2

 
$
79.7


7
 %
 
8
 %
 
$
164.4

 
$
158.9

 
3
 %
 
4
 %
Service revenue
77.2

 
73.1


6
 %
 
6
 %
 
152.8

 
149.8

 
2
 %
 
2
 %
Support revenue
166.3

 
161.2


3
 %
 
4
 %
 
336.5

 
325.0

 
4
 %
 
5
 %
Total revenue
328.7

 
313.9


5
 %
 
6
 %
 
653.6

 
633.7

 
3
 %
 
4
 %
Cost of license
8.0

 
8.3

 
(4
)%
 
 
 
15.5

 
16.3

 
(5
)%
 
 
Cost of service
64.3

 
64.6

 
—
 %
 
 
 
129.8

 
133.1

 
(3
)%
 
 
Cost of support
21.6

 
20.4

 
6
 %
 
 
 
41.5

 
40.9

 
1
 %
 
 
Total cost of revenue
93.8

 
93.3

 
1
 %
 
 
 
186.8

 
190.3

 
(2
)%
 
 
Gross margin
234.9

 
220.7

 
6
 %
 
 
 
466.9

 
443.4

 
5
 %
 
 
Operating expenses
183.7

 
199.4

 
(8
)%
 
 
 
360.8

 
408.3

 
(12
)%
 
 
Total costs and expenses (1)
277.5

 
292.7


(5
)%
 
(4
)%
 
547.5

 
598.6

 
(9
)%
 
(8
)%
Operating income (1)
$
51.2

 
$
21.2


141
 %
 
144
 %
 
$
106.1

 
$
35.1

 
202
 %
 
204
 %
Non-GAAP operating income (1)
$
80.1

 
$
62.9


27
 %
 
28
 %
 
$
162.4

 
$
121.5

 
34
 %
 
34
 %
Operating margin (1)
15.6
%
 
6.8
%


 

 
16.2
%
 
5.5
%
 
 
 
 
Non-GAAP operating margin (1)
24.4
%
 
20.0
%


 

 
24.8
%
 
19.1
%
 
 
 
 
Diluted earnings per share (2)
$
0.36

 
$
0.14



 

 
$
0.69

 
$
0.44

 
 
 
 
Non-GAAP diluted earnings per share (2)
$
0.48

 
$
0.41



 

 
$
0.98

 
$
0.77

 
 
 
 
Cash flow from operations
$
110.7

 
$
82.8



 

 
$
147.0

 
$
96.4

 
 
 
 


 



 

 
 
 
 
 
 
 
 
(1) Costs and expenses in the first six months of 2014 included restructuring charges of $1.1 million (none in the second quarter of 2014) compared to $15.8 million and $31.2 million in the second quarter and first six months of 2013, respectively. Additionally, the second quarter and first six months of 2014 included acquisition-related costs of $3.9 million and $5.2 million, respectively, compared to $2.1 million and $6.7 million in the second quarter and first six months of 2013, respectively. These restructuring and acquisition-related costs have been excluded from non-GAAP operating income.
(2) Income taxes for non-GAAP diluted earnings per share reflect the tax effects of non-GAAP adjustments for the second quarters and first six months of 2014 and 2013, which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments described in Non-GAAP Measures, and also include the following tax items. In the fourth quarter of 2012, a valuation allowance was established against our U.S. net deferred tax assets. The non-GAAP tax provision for the first six months of 2014 and 2013 has been calculated assuming there is no U.S. valuation allowance. The second quarter of 2014 includes a non-cash tax benefit of $8.9 million related to the release of a portion of the valuation allowance as a result of deferred tax liabilities established for the acquisition of ThingWorx. The first six months of 2013 includes a non-cash tax benefit of $32.6 million related to the release of a portion of the valuation allowance as a result of deferred tax liabilities established in accounting for the acquisition of Servigistics, and a tax benefit totaling $3.2 million related to final resolution of a long standing tax litigation and completion of an international jurisdiction tax audit. These tax benefits have been excluded from non-GAAP diluted earnings per share.

Results of Operations
Impact of Foreign Currency Exchange on Results of Operations
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. Changes in foreign currency rates did not have a material impact on operating income in the first six months of 2014. If actual results for the second quarter and first six months of 2014 had been

19
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converted into U.S. Dollars based on the foreign currency exchange rates in effect for the second quarter and first six months of 2013, revenue would have been higher by $2.7 million and $4.4 million, respectively, and costs and expenses would have been higher by $2.1 million and $3.8 million, respectively, and operating income would have been higher by $0.6 million for both periods. Our constant currency disclosures are calculated by multiplying the actual results for the first six months of 2014 by the exchange rates in effect for the first six months of 2013.
Acquisitions
On December 30, 2013, we acquired ThingWorx, a developer of a platform for building and running applications for the Internet of Things. The results of operations of ThingWorx have been included in our consolidated financial statements beginning on the acquisition date. Revenue (included in SLM) and earnings of ThingWorx since the acquisition date were not material.
Total revenue from the ThingWorx, Enigma (acquired in the fourth quarter of 2013) and NetIDEAS (acquired in the fourth quarter of 2013) businesses was $3.5 million and $6.0 million in the second quarter and first six months of 2014, respectively.
Revenue
We report our revenue by line of business (license, service and support), by solution area (CAD, Extended PLM and SLM) and by geographic region (Americas, Europe, Pacific Rim and Japan). Results include combined revenue from direct sales and our channel.
CAD revenue includes PTC Creo ® and PTC Mathcad ® .
Extended PLM revenue includes our PLM solutions (primarily PTC Windchill ® ), our ALM solutions (primarily PTC Integrity ™ ) and our SCM Solutions (primarily PTC Windchill FlexPLM ® ).
SLM revenue includes PTC Arbortext ® , PTC Servigistics ® and PTC ThingWorx ® products.
  Revenue by Line of Business
% of Total Revenue
 
Three months ended
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
March 29, 2014
 
March 30, 2013
License
26
%
 
26
%
 
25
%
 
25
%
Service
23
%
 
23
%
 
23
%
 
24
%
Support
51
%
 
51
%
 
51
%
 
51
%

20
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Revenue by Solution
Three months ended
 
Six months ended
 
 
 
 
 
Percent Change
 
 
 
 
 
Percent Change
 
March 29, 2014
 
March 30, 2013
 
Actual
 
Constant
Currency
 
March 29, 2014
 
March 30, 2013
 
Actual
 
Constant
Currency
 
(Dollar amounts in millions)
CAD
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
License
$
37.9

 
$
37.3

 
2
%
 
3
%
 
$
72.1

 
$
67.0

 
8
 %
 
8
 %
Service
6.4

 
5.7

 
13
%
 
15
%
 
12.4

 
11.7

 
6
 %
 
8
 %
Support
93.9

 
93.4

 
1
%
 
2
%
 
189.9

 
189.6

 
—
 %
 
2
 %
Total revenue
$
138.2

 
$
136.3

 
1
%
 
3
%
 
$
274.4

 
$
268.3

 
2
 %
 
3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Extended PLM
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
License
$
39.3

 
$
35.1

 
12
%
 
12
%
 
$
73.3

 
$
69.1

 
6
 %
 
7
 %
Service
52.8

 
51.4

 
3
%
 
3
%
 
105.9

 
106.0

 
—
 %
 
—
 %
Support
55.4

 
53.3

 
4
%
 
5
%
 
112.1

 
107.1

 
5
 %
 
5
 %
Total revenue
$
147.5

 
$
139.8

 
5
%
 
6
%
 
$
291.3

 
$
282.2

 
3
 %
 
4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SLM
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
License
$
8.1

 
$
7.3

 
11
%
 
11
%
 
$
19.0

 
$
22.8

 
(16
)%
 
(17
)%
Service
17.9

 
16.0

 
12
%
 
12
%
 
34.5

 
32.1

 
7
 %
 
8
 %
Support
17.0

 
14.5

 
17
%
 
18
%
 
34.5

 
28.3

 
22
 %
 
23
 %
Total revenue
$
43.0

 
$
37.8

 
14
%
 
14
%
 
$
88.0

 
$
83.2

 
6
 %
 
6
 %

CAD Revenue
CAD revenue in the second quarter of 2014 was up slightly compared with the year-ago period primarily due to double digit percentage license revenue growth in Europe, offset by lower license revenue in the Pacific Rim and Japan. CAD channel revenue, which represents approximately 40% of total CAD revenue, was down 2% year-over-year (flat on a constant currency basis) with license revenue down 5% year over year (down 4% on a constant currency basis). In the second quarter of 2014, compared with the year-ago period license revenue in Europe grew 44% ($5.2 million), up 42% on a constant currency basis, partially offset by declines in license revenue in Japan of 44% ($3.2 million), down 36% on a constant currency basis, and the Pacific Rim of 16% ($1.5 million). CAD revenue in the first six months of 2014 was up compared with the year-ago period primarily due to license revenue growth in Europe of 42% ($9.4 million), up 39% on a constant currency basis, and the Americas of 14% ($2.2 million), partially offset by declines in license revenue in the Pacific Rim of 15% ($3.0 million) and Japan of 37% ($3.5 million), down 26% on a constant currency basis. CAD channel revenue for the first six months of 2014 was down 2% year-over-year (down 1% on a constant currency basis) with license revenue down 3% year over year (down 2% on a constant currency basis).
Extended PLM Revenue
Extended PLM revenue in the second quarter of 2014 grew 21% ($11.6 million) in the Americas with license revenue up 93% ($8.5 million). This growth was partially offset by single digit percentage declines in Europe, the Pacific Rim, and Japan (though Japan saw single digit growth on a constant currency basis). Japan total revenue declined 6% ($0.7 million) and license revenue declined 42% ($2.2 million); total revenue in the Pacific Rim declined 8% ($1.5 million) and license revenue declined 27% ($2.5 million); and total revenue in Europe declined 3% ($1.7 million) while license revenue increased 3% ($0.3 million). In the first six months of 2014, total revenue in the Americas grew 13% ($16.0 million) and license revenue grew 29% ($8.3 million). This growth was partially offset by declines in Europe, the Pacific Rim, and Japan. Japan total revenue declined 1% ($0.2 million) and license revenue declined 18% ($1.2 million), but grew in total 17% on a constant currency basis; total revenue in the Pacific Rim declined 11% ($3.7 million) and license revenue declined 23% ($3.3 million); and total revenue in Europe declined 3% ($3.0 million) while license revenue increased 2% ($0.4 million).
SLM Revenue
The double digit growth in SLM license, service, and support revenue in the second quarter of 2014, compared to the second quarter of 2013, includes contributions from Enigma (acquired in the fourth quarter of 2013) and ThingWorx (acquired

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in the second quarter of 2014). By region, SLM revenue grew by double digit percentages in the Pacific Rim, Europe, and the Americas, partially offset by a double digit percentage decline in Japan. Compared to the second quarter of 2013, total revenue in the Americas grew 15% ($3.4 million) and license revenue grew 52% ($0.7 million); total revenue in the Pacific Rim grew 39% ($0.9 million) and license revenue grew 154% ($1.1 million); and total revenue in Europe grew 37% ($3.3 million) and license revenue grew 35% ($1.0 million). Total revenue in Japan in the second quarter of 2014, compared to the second quarter of 2013, declined 58% ($2.3 million) and license revenue declined 90% ($2.0 million). In the first six months of 2014, compared to the first six months of 2013, total revenue in Europe increased 29% ($5.3 million) and license revenue increased 6% ($0.4 million), and total revenue in the Americas grew 5% ($2.8 million) while license revenue declined 10% ($0.9 million). Over the same period, total revenue in Japan declined 47% ($2.9 million) and license revenue declined 93% ($3.1 million) and total revenue in the Pacific Rim declined 6% ($0.4 million) and license revenue declined 8% ($0.2 million).
License Revenue
In the second quarter and first six months of 2014, compared to the year-ago periods, license revenue was up 7% and 3%, respectively, and organic license revenue (excluding revenue from ThingWorx, Enigma and NetIDEAS) grew 5% and 2%, respectively. The amount of license revenue attributable to large transactions, and the number of such transactions, may vary significantly from period to period and by geographic region. In the second quarter and first six months of 2014, we had three transactions with license revenue greater than $5 million (two in the Americas and one in Europe). We had one transaction with license revenue in excess of $5 million in the second quarter of 2013 (in Japan) and two in the first six months of 2013 (one in Japan and one in the Americas).
Service Revenue
Consulting and training services engagements typically result from sales of new licenses, particularly of our Extended PLM and SLM solutions. Year over year, service revenue in the second quarter and first six months of 2014 was up 6% and 2%, respectively (up 4% on an organic basis in the second quarter and flat for the first six months of 2014). Our consulting service revenue in the second quarter and first six months of 2014 was up 5% and 2% year over year, respectively, (up 3% on an organic basis in the second quarter and flat for the first six months of 2014). Year over year, training revenue, which typically represents about 15% of our total services revenue, was up 8% in the second quarter and 2% in the first six months of 2014. Expanding our service partner program, under which service engagements are referred to third party service providers, is part of our overall margin expansion strategy. Over time, we anticipate reducing our mix of direct services by shifting more business to our services partners and implementing solutions that fundamentally require less services.
Support Revenue
Support revenue is comprised of contracts to maintain new and/or previously purchased software. We saw steady growth in support revenue in 2012 and in 2013, continuing in 2014. CAD and Extended PLM support seats increased 2% and 3%, respectively, as of the end of the second quarter of 2014 compared to the end of the second quarter of 2013.
Foreign currency exchange rate movements reduced support revenue by $1.7 million and $3.4 million in the second quarter and first six months of 2014, respectively, compared to the second quarter and first six months of 2013.
Revenue from Individual Customers
We enter into customer contracts that may result in revenue being recognized over multiple reporting periods. Accordingly, revenue recognized in a current period may be attributable to contracts entered into during the current period or in prior periods. The table below shows license and/or service revenue of $1 million or more recognized from individual customers in a single quarter during the fiscal year from contracts entered into during that quarter and/or a prior quarter. The amount of revenue, particularly license revenue, attributable to such customers, and the number of such customers, may vary significantly from quarter to quarter based on customer purchasing decisions, the completion of large service engagements commenced in previous quarters and macroeconomic conditions.
For the second quarters of 2014 and 2013 there were 35 (12 in the Americas, 16 in Europe and 7 in Asia) and 24 (9 in the Americas, 9 in Europe and 6 in Asia) of these customers, respectively, with average revenue per customer of $2.2 million and $2.4 million, respectively.
Revenue from large customers in the second quarter and first six months of 2014 increased 35% and 24%, respectively, compared to the second quarter and first six months of 2013. License revenue as a proportion of revenue from such customers was 52% and 43% in the second quarters of 2014 and 2013, respectively, and 49% and 44% in the first six months of 2014 and 2013, respectively.  We attribute the increase in revenue from large customers to an improving overall economy.


22
Table of Contents

 
Three months ended
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
March 29, 2014
 
March 30, 2013
 
(Dollar amounts in millions)
License and/or service revenue greater than $1 million from individual customers in a quarter
$
78.3

 
$
57.9

 
$
149.0

 
$
119.7

% of total license and service revenue
48
%
 
38
%
 
47
%
 
39
%
Revenue by Geographic Region

 
Three months ended
 
Percent Change
 
Six months ended
 
Percent Change
 
March 29, 2014
 
March 30, 2013
 
Actual
 
Constant
Currency
 
March 29, 2014
 
March 30, 2013
 
Actual
 
Constant
Currency
 
(Dollar amounts in millions)
Revenue by region:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Americas
$
134.4

 
$
118.2

 
14
 %
 
14
 %
 
$
273.3

 
$
250.8

 
9
 %
 
9
 %
Europe
$
128.0

 
$
118.8

 
8
 %
 
6
 %
 
$
255.1

 
$
238.5

 
7
 %
 
4
 %
Pacific Rim
$
36.7

 
$
39.3

 
(7
)%
 
(6
)%
 
$
70.6

 
$
77.9

 
(9
)%
 
(9
)%
Japan
$
29.6

 
$
37.7

 
(21
)%
 
(10
)%
 
$
54.8

 
$
66.5

 
(18
)%
 
(2
)%
 
Three months ended
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
March 29, 2014
 
March 30, 2013
Revenue by region as a % of total revenue:
 
 
 
 
 
 
 
Americas
41
%
 
38
%
 
42
%
 
40
%
Europe
39
%
 
38
%
 
39
%
 
38
%
Pacific Rim
11
%
 
13
%
 
11
%
 
12
%
Japan
9
%
 
12
%
 
8
%
 
10
%

Americas
The increase in revenue in the Americas in the second quarter of 2014 compared to the second quarter of 2013 consisted of an increase of 48% ($9.3 million) in license revenue, an increase of 7% ($4.4 million) in support revenue, and an increase of 8% ($2.6 million) in service revenue and in the first six months of 2014 compared to the first six months of 2013 consisted of an increase of 18% ($9.6 million) in license revenue, an increase of 6% ($8.6 million) in support revenue and an increase of 6% ($4.3 million) in service revenue. The second quarter and first six months of 2014 included two transactions with license revenue in excess of $5 million in the Americas. The first quarter and first six months of 2013 included one such transaction.
Europe
Revenue in Europe in the second quarter of 2014 compared to the second quarter of 2013 consisted of an increase in license revenue of 25% ($6.6 million), 23% on a constant currency basis, and an increase in support revenue of 5% ($3.4 million), 3% on a constant currency basis, partially offset by a decrease in service revenue of 3% ($0.8 million), 4% on a constant currency basis. Revenue in Europe in the first six months of 2014 compared to the the first six months of 2013 reflects an increase in license revenue of 20% ($10.2 million), 18% on a constant currency basis, an increase in support revenue of 7% ($8.9 million), 4% on a constant currency basis, partially offset by a decrease in service revenue of 4% ($2.5 million), 7% on a constant currency basis. The second quarter and first six months of 2014 included one transaction with license revenue in excess of $5 million in Europe. No such transactions were recorded in the second quarter and first six months of 2013.
Changes in foreign currency exchange rates, particularly the Euro, favorably impacted revenue in Europe by $2.3 million and $7.0 million in the second quarter and first six months of 2014, respectively, as compared to the second quarter and first six months of 2013.
Pacific Rim
The decrease in revenue in the Pacific Rim in the second quarter of 2014 compared to the second quarter of 2013 consisted of a decrease of 15% ($2.9 million) in license revenue, partially offset by an increase of 4% ($0.3 million) in service revenue. The decrease in revenue in the Pacific Rim in the first six months of 2014 compared to the first six months of 2013

23
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consisted primarily of a decrease of 18% ($6.5 million) in license revenue and a decrease of 7% ($1.2 million) in service revenue, partially offset by an increase of 2% ($0.4 million) in support revenue.
Revenue from China, which has historically represented 5% to 7% of our total revenue, increased 7% in the second quarter of 2014 as compared to the second quarter of 2013 and decreased 10% in the first six months of 2014 as compared to the first six months of 2013.
Japan
The decrease in revenue in Japan in the second quarter of 2014 compared to the second quarter of 2013 reflected decreases of 50% ($7.4 million) in license revenue, and 13% ($2.6 million) in support revenue, partially offset by an increase of 49% ($1.9 million) in service revenue. On a constant currency basis, in the second quarter of 2014, license revenue was down 43% year over year, support revenue was up 1% year over year and service revenue was up 64% year over year. The decrease in revenue in Japan in the first six months of 2014 compared to the first six months of 2013 included a decrease of 40% ($7.7 million), 30% on a constant currency basis, in license revenue and a decrease of 16% ($6.4 million) in support revenue, an increase of 1% on a constant currency basis, partially offset by an increase in service revenue of 33% ($2.4 million), an increase of 53% on a constant currency basis. The second quarter and first six months of 2013 included one transaction with license revenue in excess of $5 million in Japan. No such transactions were recorded in the second quarter and first six months of 2014.
Changes in the Yen to U.S. Dollar exchange rate unfavorably impacted revenue in Japan by $4.4 million and $10.4 million in the second quarter and first six months of 2014, respectively, as compared to the second quarter and first six months of 2013.
Gross Margin
Three months ended
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
(Dollar amounts in millions)
Gross margin
$
234.9

 
$
220.7

 
6
%
 
$
466.9

 
$
443.4

 
5
%
Non-GAAP gross margin
241.6

 
228.2

 
6
%
 
480.6

 
459.5

 
5
%
Gross margin as a % of revenue:
 
 
 
 
 
 
 
 
 
 
 
License
90.7
%
 
89.6
%
 
 
 
90.6
%
 
89.7
%
 
 
Service
16.7
%
 
11.7
%
 
 
 
15.1
%
 
11.2
%
 
 
Support
87.0
%
 
87.3
%
 
 
 
87.7
%
 
87.4
%
 
 
Gross margin as a % of total revenue
71.5
%
 
70.3
%
 
 
 
71.4
%
 
70.0
%
 
 
Non-GAAP gross margin as a % of total revenue
73.5
%
 
72.5
%
 
 
 
73.5
%
 
72.3
%
 
 

Gross margin as a percentage of total revenue in the second quarter of 2014 compared to the year-ago period reflects higher service and license margins. Service margins have been improving due to cost reductions, improved efficiencies and in part to reducing the amount of direct services that we perform through expansion of our service partner program. The increase in our GAAP service gross margin in the second quarter of 2014 was due in part to improved consulting margin. We are targeting GAAP services margins of at least 13% for fiscal 2014 (at least 15% on a non-GAAP basis). Service revenue comprised 23% of our total revenue in the second quarter and first six months of 2014, compared to 23% and 24% in the second quarter and first six months of 2013, respectively.

24
Table of Contents

 
Three months ended
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
(Dollar amounts in millions)
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of license revenue
$
8.0


$
8.3


(4
)%
 
$
15.5

 
$
16.3

 
(5
)%
Cost of service revenue
64.3

 
64.6


—
 %
 
129.8

 
133.1

 
(3
)%
Cost of support revenue
21.6

 
20.4

 
6
 %
 
41.5

 
40.9

 
1
 %
Sales and marketing
85.9


88.1


(2
)%
 
170.2

 
181.6

 
(6
)%
Research and development
55.6


55.5


—
 %
 
108.7

 
113.0

 
(4
)%
General and administrative
34.1


33.4


2
 %
 
65.1

 
69.2

 
(6
)%
Amortization of acquired intangible assets
8.0

 
6.6

 
20
 %
 
15.8

 
13.3

 
19
 %
Restructuring charges
—

 
15.8

 
(100
)%
 
1.1

 
31.2

 
(97
)%
Total costs and expenses (1)
$
277.5

 
$
292.7

 
(5
)%
 
$
547.5

 
$
598.6

 
(9
)%
Total headcount at end of period
6,043

 
5,971

 
 
 
 
 
 
 
 

(1)
On a constant currency basis, compared to the year-ago period, total costs and expenses for the second quarter and first six months of 2014 decreased 4% and 8%, respectively.
Costs and expenses in the second quarter and first six months of 2014 compared to the second quarter and first six months of 2013 decreased primarily as a result of:
•
restructuring charges, which were $30.1 million lower in the first six months of 2014; and
•
cost savings resulting from restructuring actions in 2013.
These cost decreases were partially offset by costs from acquired businesses (approximately 90 employees) and company-wide merit pay increases totaling approximately $12 million on an annualized basis, which were effective February 1, 2014.
Cost of License Revenue
Three months ended
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
(Dollar amounts in millions)
Cost of license revenue
$
8.0

 
$
8.3

 
(4
)%
 
$
15.5

 
$
16.3

 
(5
)%
% of total revenue
2
%
 
3
%
 
 
 
2
%
 
3
%
 
 
% of total license revenue
9
%
 
10
%
 
 
 
9
%
 
10
%
 
 

Our cost of license revenue consists of fixed and variable costs associated with reproducing and distributing software and documentation, as well as royalties paid to third parties for technology embedded in or licensed with our software products and amortization of intangible assets associated with acquired products. Cost of license revenue as a percent of license revenue can vary depending on product mix sold and the effect of fixed and variable royalties and the level of amortization of acquired software intangible assets. Amortization of acquired purchased software totaled $4.3 million and $4.6 million in the second quarters of 2014 and 2013, respectively, and $8.7 million and $9.3 million in the first six months of 2014 and 2013, respectively.
Cost of Service Revenue
Three months ended
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
(Dollar amounts in millions)
Cost of service revenue
$
64.3

 
$
64.6

 
—
 %
 
$
129.8

 
$
133.1

 
(3
)%
% of total revenue
20
%
 
21
%
 
 
 
20
%
 
21
%
 
 
% of total service revenue
83
%
 
88
%
 
 
 
85
%
 
89
%
 
 
Service headcount at end of period
1,388

 
1,434

 
(3
)%
 
 
 
 
 



Our cost of service revenue includes costs such as salaries, benefits, and computer equipment and facilities for our training and consulting personnel, and third-party subcontractor fees.

25
Table of Contents

In the second quarter and first six months of 2014 compared to the second quarter and first six months of 2013, total compensation, benefit costs and travel expenses were higher by 2% ($1.0 million) and 1% ($1.3 million), respectively. The cost of third-party consulting services was $1.6 million and $4.3 million lower in the second quarter and first six months of 2014, respectively, compared to the second quarter and first six months of 2013. The decrease in the use of subcontracted third-party consultants is a result of growing internal capacity and improved utilization and the implementation of our strategy to have our strategic services partners perform services for customers directly, all of which have contributed to improving services margins.
Cost of Support Revenue
Three months ended
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
(Dollar amounts in millions)
Cost of support revenue
$
21.6

 
$
20.4

 
6
%
 
$
41.5

 
$
40.9

 
1
%
% of total revenue
7
%
 
7
%
 
 
 
6
%
 
6
%
 
 
% of total support revenue
13
%
 
13
%
 
 
 
12
%
 
13
%
 
 
Support headcount at end of period
625

 
577

 
8
%
 
 
 
 
 



Our cost of support revenue includes costs such as salaries, benefits, and computer equipment and facilities associated with customer support and the release of support updates (including related royalty costs).
Sales and Marketing
Three months ended
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
(Dollar amounts in millions)
Sales and marketing
$
85.9

 
$
88.1

 
(2
)%
 
$
170.2

 
$
181.6

 
(6
)%
% of total revenue
26
%
 
28
%
 
 
 
26
%
 
29
%
 
 
Sales and marketing headcount at end of period
1,366

 
1,425

 
(4
)%
 


 
 
 



Our sales and marketing expenses primarily include salaries and benefits, sales commissions, advertising and marketing programs, travel and facility costs. Our compensation, benefit costs and travel expenses were lower by 1% ($0.6 million) and 6% ($8.4 million) in the second quarter and first six months of 2014, respectively, compared to the second quarter and first six months of 2013, primarily due to lower headcount. Sales meeting, marketing program and professional expenses decreased by $0.3 million and $0.5 million in the second quarter and first six months of 2014, respectively, compared to the second quarter and first six months of 2013, and depreciation expense decreased by $0.5 million and $1.1 million, respectively, over the same periods.
Research and Development
Three months ended
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
(Dollar amounts in millions)
Research and development
$
55.6

 
$
55.5

 
—
%
 
$
108.7

 
$
113.0

 
(4
)%
% of total revenue
17
%
 
18
%
 
 
 
17
%
 
18
%
 
 
Research and development headcount at end of period
2,032

 
1,934

 
5
%
 
 
 
 
 


Our research and development expenses consist principally of salaries and benefits, costs of computer equipment and facility expenses. Major research and development activities include developing new releases and updates of our software that enhance functionality and developing new products or features. Total compensation, benefit costs and travel expenses were higher by 3% ($1.2 million) in the second quarter of 2014 compared to the second quarter of 2013 and lower by 2% ($1.8 million) in the first six months of 2014 compared to the first six months of 2013. Ending headcount at the end of the second quarter of 2014 includes a higher mix of research and development headcount in lower cost geographic regions as compared to the second quarter of 2013. Additionally, research and development headcount at the end of the second quarter of 2014 included approximately 40 employees added from companies acquired since the second quarter of 2013. Total depreciation and telecommunication costs in the second quarter and first six months of 2014 decreased by $0.6 million and $1.3 million, respectively, compared to the second quarter and first six months of 2013.

26
Table of Contents

General and Administrative
Three months ended
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
(Dollar amounts in millions)
General and administrative
$
34.1

 
$
33.4

 
2
%
 
$
65.1

 
$
69.2

 
(6
)%
% of total revenue
10
%
 
11
%
 
 
 
10
%
 
11
%
 
 
General and administrative headcount at end of period
622

 
590

 
5
%
 
 
 
 
 



Our general and administrative expenses include the costs of our corporate, finance, information technology, human resources, legal and administrative functions, as well as acquisition-related charges, bad debt expense and outside professional services, including accounting and legal fees. The increase in overall general and administrative costs in the second quarter of 2014, compared to the second quarter of 2013, was due primarily to acquisition-related costs, which were $1.8 million higher, and total compensation, benefit costs and travel costs which were 4% ($1.0 million) higher. The decrease in overall general and administrative costs in the first six months of 2014, compared to the first six months of 2013, was due in part to acquisition-related costs, which were $1.5 million lower, partially offset by total compensation, benefit costs and travel costs which were 1% ($0.6 million) higher. Additionally, certain business taxes in a foreign jurisdiction were lower by $1.3 million and $1.8 million in the second quarter and first six months of 2014, respectively, compared to the second quarter and first six months of 2013.
Amortization of Acquired Intangible Assets
Three months ended
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
(Dollar amounts in millions)
Amortization of acquired intangible assets
$
8.0

 
$
6.6

 
20
%
 
$
15.8

 
$
13.3

 
19
%
% of total revenue
2
%
 
2
%
 
 
 
2
%
 
2
%
 
 
Amortization of acquired intangible assets reflects the amortization of acquired non-product related intangible assets, primarily customer and trademark-related intangible assets, recorded in connection with completed acquisitions. The increase in amortization of acquired intangible assets in the second quarter and first six months of 2014 includes our acquisition of ThingWorx in the second quarter of 2014 and our acquisitions of Enigma and NetIDEAS in the fourth quarter of 2013.
Restructuring charges
Three months ended
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
March 29, 2014
 
March 30, 2013
 
Percent
Change
 
(Dollar amounts in millions)
Restructuring charges
$
—

 
$
15.8

 
(100
)%
 
$
1.1

 
$
31.2

 
(97
)%

In the first six months of 2014, we recorded restructuring charges of $1.1 million , primarily associated with the completion of the restructuring actions initiated in the fourth quarter of 2013.
In the first six months of 2013, as part of our strategy to reduce costs and enhance long term profitability, we restructured our business and recorded restructuring charges of $31.4 million . The restructuring charges included $29.9 million for severance and related costs associated with 288 employees notified of termination during the first six months of 2013 and $1.5 million of charges related to excess facilities.
The 2013 restructuring actions are expected to result in a $16 million per quarter reduction in operating expenses (which is largely reflected in our results for the first six months of 2014 and contemplated in our 2014 financial goals).
In the first six months of 2014, we made cash payments related to restructuring charges of $17 million , compared to $23 million in the first six months of 2013. At March 29, 2014, accrued expenses for unpaid restructuring charges totaled $3 million , which we expect to pay within the next twelve months.

27
Table of Contents

Interest and Other Income (Expense), net
Three months ended
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
March 29, 2014
 
March 30, 2013
 
(in millions)
Interest income
$
0.8

 
$
0.7

 
$
1.5

 
$
1.5

Interest expense
(2.1
)
 
(1.9
)
 
(3.4
)
 
(3.8
)
Other income (expense), net
(1.4
)
 
(0.7
)
 
(2.6
)
 
(1.4
)
Total interest and other income (expense), net
$
(2.7
)
 
$
(1.9
)

$
(4.4
)

$
(3.7
)

Interest and other income (expense), net includes interest income, interest expense, costs of hedging contracts, certain realized and unrealized foreign currency transaction gains or losses and exchange gains or losses resulting from the required period-end currency remeasurement of the financial statements of our subsidiaries that use the U.S. Dollar as their functional currency. A large portion of our revenue and expenses is transacted in foreign currencies. To reduce our exposure to fluctuations in foreign exchange rates, we engage in hedging transactions involving the use of foreign currency forward contracts, primarily in the Euro and Canadian Dollar. The increase in other income (expense), net in the second quarter and first six months of 2014, compared to the prior year periods, was due primarily to foreign currency net losses which were $0.6 million and $1.0 million higher in the second quarter and first six months of 2014, respectively.
Income Taxes  
Three months ended
Six months ended
 
March 29, 2014
 
March 30, 2013
 
March 29, 2014
 
March 30, 2013
 
(Dollar amounts in millions)
Pre-tax income
$
48.5

 
$
19.4

 
$
101.6

 
$
31.4

Tax provision (benefit)
4.8

 
2.3

 
18.2

 
(21.4
)
Effective income tax rate
10
%
 
12
%
 
18
%

(68
)%

In the second quarter and first six months of 2014 , our effective tax rate was lower than the 35% statutory federal income tax rate due to our corporate structure in which our foreign taxes are at a net effective tax rate lower than the U.S. rate and the reversal of a portion of our valuation allowance against net deferred tax assets described below.
In the first six months of 2013 , our effective tax rate was lower than the 35% statutory federal income tax rate due primarily to the reversal of a portion of our valuation allowance against net deferred tax assets described below. Our tax provision in the second quarter and tax benefit in the first six months of 2013 did not include a tax benefit on our forecast 2013 U.S. loss as it was offset by a valuation allowance established in the fourth quarter of 2012 as described below.   In the second quarter of 2013, we recorded a $2.7 million tax benefit related to research and development (R&D) tax credits in the U.S triggered by a retroactive extension of the R&D credit enacted in the second quarter and a $3.2 million tax benefit related to final resolution of a long standing tax litigation and completion of a tax audit.
In the fourth quarter of 2012, we recorded a $124.5 million non-cash charge to the income tax provision to establish a valuation allowance against all of our U.S. deferred tax assets. In the second quarter of 2014 and first quarter of 2013, our acquisitions of ThingWorx and Servigistics, Inc. were accounted for as business combinations. Assets acquired, including the fair values of acquired tangible assets, intangible assets (including finite-lived acquired intangible assets totaling $32.1 million for ThingWorx and $118.3 million for Servigistics) and assumed liabilities were recorded, and we recorded net deferred tax liabilities of $8.9 million and $35.6 million , respectively, primarily related to the tax effect of the acquired intangible assets that are not deductible for income tax purposes. These net deferred tax liabilities reduced our net deferred tax asset balance and resulted in a tax benefit of $8.9 million related to ThingWorx recorded in the second quarter of 2014 and $32.6 million related to Servigistics recorded in the first quarter of 2013 to decrease our valuation allowance in jurisdictions where we have recorded a valuation allowance (primarily the U.S.). As these decreases in the valuation allowance were not part of the accounting for the business combinations (the fair value of the assets acquired and liabilities assumed), they were recorded as income tax benefits.
We have concluded, based on the weight of available evidence, that a full valuation allowance continues to be required against our U.S. net deferred tax assets as they are not more likely than not to be realized in the future. We have taken and will continue to take measures to improve core earnings in the U.S. If our U.S. results continue to improve, the valuation allowance against the U.S. net deferred tax assets may no longer be required. We will continue to reassess our valuation allowance requirements each financial reporting period.
In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities, including the Internal Revenue Service (IRS) in the United States. We regularly assess the likelihood of additional assessments by tax

28
Table of Contents

authorities and provide for these matters as appropriate. We are currently under audit by tax authorities in several jurisdictions. Audits by tax authorities typically involve examination of the deductibility of certain permanent items, limitations on net operating losses and tax credits. Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in material changes in our estimates.
Our future effective income tax rate may be materially impacted by the amount of income taxes associated with our foreign earnings, which are taxed at rates different from the U.S. federal statutory income tax rate, as well as the timing and extent of the realization of deferred tax assets and changes in the tax law. Further, our tax rate may fluctuate within a fiscal year, including from quarter to quarter, due to items arising from discrete events, including settlements of tax audits and assessments, the resolution or identification of tax position uncertainties, and acquisitions of other companies.
Non-GAAP Measures
The non-GAAP measures presented in the discussion of our results of operations and the respective most directly comparable GAAP measures are:
•
non-GAAP revenue—GAAP revenue
•
non-GAAP gross margin—GAAP gross margin
•
non-GAAP operating income—GAAP operating income
•
non-GAAP operating margin—GAAP operating margin
•
non-GAAP net income—GAAP net income
•
non-GAAP diluted earnings per share—GAAP diluted earnings per share
The non-GAAP measures exclude fair value adjustments related to acquired deferred support revenue, stock-based compensation expense, amortization of acquired intangible assets expense, acquisition-related charges, restructuring charges, identified discrete charges included in non-operating other income (expense), net and the related tax effects of the preceding items, and any other identified tax items. These items are normally included in the comparable measures calculated and presented in accordance with GAAP. Our management excludes these items when evaluating our ongoing performance and/or predicting our earnings trends, and therefore excludes them when presenting non-GAAP financial measures. Management uses, and investors should consider, non-GAAP measures in conjunction with our GAAP results.
Fair value of acquired deferred support revenue is a purchase accounting adjustment recorded to reduce acquired deferred support revenue to the fair value of the remaining obligation.
Stock-based compensation expense is a non-cash expense relating to stock-based awards issued to executive officers, employees and outside directors, primarily consisting of restricted stock units.
Amortization of acquired intangible assets expense is a non-cash expense that is impacted by the timing and magnitude of our acquisitions.
Acquisition-related charges are costs that are included in general and administrative expenses and include direct costs of potential and completed acquisitions and expenses related to acquisition integration activities, including transaction fees, due diligence costs, severance and professional fees. In addition, subsequent adjustments to our initial estimated amount of contingent consideration associated with specific acquisitions are included within acquisition-related charges. These costs are not considered part of our normal operations as the occurrence and amount will vary depending on the timing and size of acquisitions.
Restructuring charges are costs incurred in a period related to strategies to reduce costs and to realign our business, including costs related to employee terminations and costs of excess facilities.
We use these non-GAAP measures, and we believe that they assist our investors, to make period-to-period comparisons of our operational performance because they provide a view of our operating results without items that are not, in our view, indicative of our core operating results. We believe that these non-GAAP measures help illustrate underlying trends in our business, and we use the measures to establish budgets and operational goals (communicated internally and externally) for managing our business and evaluating our performance. We believe that providing non-GAAP measures affords investors a view of our operating results that may be more easily compared to the results of peer companies. In addition, compensation of our executives is based in part on the performance of our business based on these non-GAAP measures.
The items excluded from the non-GAAP measures often have a material impact on our financial results and such items often recur. Accordingly, the non-GAAP measures included in this Quarterly Report should be considered in addition to, and not as a substitute for or superior to, the comparable measures prepared in accordance with GAAP.

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The following tables reconcile each of these non-GAAP measures to its most closely comparable GAAP measure on our financial statements.
 
Three months ended
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
March 29, 2014
 
March 30, 2013
 
(in millions, except per share amounts)
GAAP revenue
$
328.7

 
$
313.9

 
$
653.6

 
$
633.7

Fair value of acquired deferred support revenue
—

 
0.7

 
—

 
2.2

Non-GAAP revenue
$
328.7

 
$
314.6

 
$
653.6

 
$
635.9

 
 
 
 
 
 
 
 
GAAP gross margin
$
234.9

 
$
220.7

 
$
466.9

 
$
443.4

Fair value of acquired deferred support revenue
—

 
0.7

 
—

 
2.2

Stock-based compensation
2.3

 
2.3

 
4.8

 
4.7

Amortization of acquired intangible assets included in cost of revenue
4.4

 
4.6

 
8.9

 
9.3

Non-GAAP gross margin
$
241.6

 
$
228.2

 
$
480.6

 
$
459.5

 
 
 
 
 
 
 
 
GAAP operating income
$
51.2

 
$
21.2

 
$
106.1

 
$
35.1

Fair value of acquired deferred support revenue
—

 
0.7

 
—

 
2.2

Stock-based compensation
12.6

 
11.8

 
25.3

 
23.7

Amortization of acquired intangible assets included in cost of revenue
4.4

 
4.6

 
8.9

 
9.3

Amortization of acquired intangible assets
8.0

 
6.6

 
15.8

 
13.3

Acquisition-related charges included in general and administrative expenses
3.9

 
2.1

 
5.2

 
6.7

Restructuring charges
—

 
15.8

 
1.1

 
31.2

Non-GAAP operating income
$
80.1

 
$
62.9

 
$
162.4

 
$
121.5

 
 
 
 
 
 
 
 
GAAP net income
$
43.8

 
$
17.0

 
$
83.4

 
$
52.8

Fair value of acquired deferred support revenue
—

 
0.7

 
—

 
2.2

Stock-based compensation
12.6

 
11.8

 
25.3

 
23.7

Amortization of acquired intangible assets included in cost of revenue
4.4

 
4.6

 
8.9

 
9.3

Amortization of acquired intangible assets
8.0

 
6.6

 
15.8

 
13.3

Acquisition-related charges included in general and administrative expenses
3.9

 
2.1

 
5.2

 
6.7

Restructuring charges
—

 
15.8

 
1.1

 
31.2

Income tax adjustments (1)
(15.0
)
 
(9.1
)
 
(21.8
)
 
(45.5
)
Non-GAAP net income
$
57.7

 
$
49.6

 
$
117.9

 
$
93.7

GAAP diluted earnings per share
$
0.36

 
$
0.14

 
$
0.69

 
$
0.44

Fair value of acquired deferred support revenue
—

 
0.01

 
—

 
0.02

Stock-based compensation
0.10

 
0.10

 
0.21

 
0.20

Amortization of acquired intangible assets
0.10

 
0.09

 
0.20

 
0.19

Acquisition-related charges
0.03

 
0.02

 
0.04

 
0.06

Restructuring charges
—

 
0.13

 
0.01

 
0.26

Income tax adjustments (1)
(0.12
)
 
(0.08
)
 
(0.18
)
 
(0.38
)
Non-GAAP diluted earnings per share
$
0.48

 
$
0.41

 
$
0.98

 
$
0.77


Operating margin impact of non-GAAP adjustments:

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Table of Contents

 
Three months ended
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
March 29, 2014
 
March 30, 2013
GAAP operating margin
15.6
%
 
6.8
%
 
16.2
%
 
5.5
%
Fair value of acquired deferred support revenue
—
%
 
0.2
%
 
—
%
 
0.3
%
Stock-based compensation
3.8
%
 
3.8
%
 
3.9
%
 
3.7
%
Amortization of acquired intangible assets
3.8
%
 
3.6
%
 
3.8
%
 
3.6
%
Acquisition-related charges
1.2
%
 
0.7
%
 
0.8
%
 
1.1
%
Restructuring charges
—
%
 
5.0
%
 
0.2
%
 
4.9
%
Non-GAAP operating margin
24.4
%
 
20.0
%
 
24.8
%
 
19.1
%

(1)
Income tax adjustments for the three and six months ended March 29, 2014 and March 30, 2013 reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above, and also include any identified tax items. In the fourth quarter of 2012, a valuation allowance was established against our U.S. net deferred tax assets. As the U.S. is profitable on a non-GAAP basis, the 2014 and 2013 non-GAAP tax provision is being calculated assuming there is no U.S. valuation allowance. The following identified tax items have been excluded from the non-GAAP tax results. The second quarter of 2014 includes a non-cash tax benefit of $8.9 million related to the release of a portion of the valuation allowance as a result of deferred tax liabilities established for the acquisition of ThingWorx. The second quarter of 2013 includes tax benefits of $3.2 million relating to final resolution of long-standing tax litigation and completion of an international jurisdiction tax audit. The first quarter of 2013 also includes a non-cash tax benefit of $32.6 million related to the release of a portion of the valuation allowance as a result of deferred tax liabilities established for the acquisition of Servigistics.

Liquidity and Capital Resources

 
March 29, 2014
 
March 30, 2013
 
(in thousands)
Cash and cash equivalents
$
270,470

 
$
240,809

Amounts below are for the six months ended:
 
 
 
Cash provided by operating activities
$
146,964

 
$
96,432

Cash used by investing activities
(121,861
)
 
(234,849
)
Cash provided (used) by financing activities
3,086

 
(106,700
)

Cash and cash equivalents
We invest our cash with highly rated financial institutions and in diversified domestic and international money market mutual funds. Cash and cash equivalents include highly liquid investments with original maturities of three months or less. At March 29, 2014 , cash and cash equivalents totaled $270.5 million , up from $241.9 million at September 30, 2013, reflecting $147 million in operating cash flow, $60 million of net amounts borrowed under our credit facility ($110 million borrowed in the first quarter of 2014 for our acquisition of ThingWorx, net of $50 million repaid in the second quarter of 2014), partially offset by $112 million used for our acquisition of ThingWorx and $40 million used to repurchase common shares outstanding.
Cash provided by operating activities
Cash provided by operating activities was $147.0 million in the first six months of 2014, compared to $96.4 million in the first six months of 2013. The increase is primarily due to improved profitability. Operating income for the first six months of 2014 was $106.1 million and $35.1 million, respectively. The first six months of 2013 included restructuring charges of $31.2 million and restructuring payments of $23.4 million compared to the first six months of 2014 which included restructuring charges of $1.1 million and restructuring payments of $17.4 million. Accounts receivable days sales outstanding was 61 days at the end of the second quarter of 2014 compared to 60 days as of September 30, 2013 and 62 days at the end of the second quarter of 2013.
We periodically provide financing with payment terms up to 24 months to credit-worthy customers. As of March 29, 2014 and September 30, 2013 amounts due from customers for contracts with original payment terms greater than twelve

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Table of Contents

months (financing receivables) totaled $63.4 million and $53.1 million , respectively, compared to $40.7 million at March 30, 2013.
Cash used by investing activities
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
(in thousands)
Cash used by investing activities included the following:
 
 
 
Acquisitions of businesses, net of cash acquired
$
(111,519
)
 
$
(222,423
)
Additions to property and equipment
(10,342
)
 
(12,426
)
 
$
(121,861
)
 
$
(234,849
)

In the second quarter of 2014, we used cash of $111.5 million (net of cash acquired) to acquire ThingWorx, Inc. and in the first quarter of 2013, we used cash of $222.4 million (net of cash acquired) to acquire Servigistics, Inc as described in Note 6. Acquisitions in the Notes to Consolidated Financial Statements in this Form 10-Q. Our expenditures for property and equipment consist primarily of computer equipment, software, office equipment and facility improvements.
Cash provided (used) by financing activities
 
Six months ended
 
March 29, 2014
 
March 30, 2013
 
(in thousands)
Cash provided (used) by financing activities included the following:
 
 
 
Net borrowings (repayments) under our credit facility
$
60,000

 
$
(61,875
)
Repurchases of common stock
(39,965
)
 
(34,947
)
Payments of withholding taxes in connection with vesting of stock-based awards
(21,637
)
 
(12,891
)
Proceeds from issuance of common stock
716

 
2,874

Excess tax benefits from stock-based awards
8,092

 
139

Credit facility origination costs
(4,120
)
 
—

 
$
3,086

 
$
(106,700
)

In the first quarter of 2014, we borrowed $110 million under our credit facility to finance the acquisition of ThingWorx, which closed early in the second quarter on December 30, 2013. We repaid $50 million of the amount outstanding under our credit facility in the second quarter of 2014. In the second quarter of 2014, we incurred costs of approximately $4 million in connection with entering into the new credit facility described below. Payments of withholding taxes in connection with vesting of stock-based awards were higher in the first six months of 2014, compared to the first six months of 2013, primarily because the market value of our stock (upon which the withholding taxes are based) at the time shares vested was higher.
Credit Facility
On January 30, 2014, we entered into a new multi-currency credit facility with a syndicate of 13 banks for which JPMorgan Chase Bank, N.A. acts as Administrative Agent. Amounts outstanding under the prior facility were repaid with amounts borrowed under the new facility. As of March 29, 2014 , the balance outstanding under the credit facility was $318.1 million , our leverage ratio was 0.98 to 1.00 , our fixed charge coverage ratio was 22.20 to 1.00 and we were in compliance with all financial and operating covenants of the credit facility.
The new credit facility consists of a $250 million term loan and a $750 million revolving loan commitment, and may be increased by an additional $250 million (in the form of revolving loans or term loans, or a combination thereof) if the existing or additional lenders are willing to make such increased commitments. The revolving loan commitment does not require amortization of principal. The term loan requires repayment of principal at the end of each calendar quarter. The revolving loan and term loan may be repaid in whole or in part prior to the scheduled maturity dates at PTC's option without penalty or premium. The credit facility matures on January 30, 2019, when all amounts outstanding will be due and payable in full. We are required to make principal payments under the term loan of $9.375 million , $21.875 million , $25.0 million , $34.375 million , $37.5 million and $121.875 million in 2014, 2015, 2016, 2017, 2018 and 2019, respectively.

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For a description of additional terms and conditions of the new credit facility, including limitations on our ability to undertake certain actions, see Note 12. Debt in the Notes to Consolidated Financial Statements in this Form 10-Q. We expect to use the credit facility for general corporate purposes, including acquisitions of businesses and working capital requirements.
Share Repurchases
Our Board of Directors has periodically authorized us to repurchase shares of our common stock. We are currently authorized to repurchase up to $100 million worth of shares with cash from operations in the period October 1, 2013 through September 30, 2014. In the first six months of 2014, we repurchased 1.1 million shares of our common stock at a cost of $40.0 million under our repurchase program. In the first six months of 2013, we repurchased 1.5 million shares of our common stock at a cost of $34.9 million under our repurchase program. All shares of our common stock repurchased are automatically restored to the status of authorized and unissued. Future repurchases of shares will reduce our cash balances.
Future Expectations
We believe that existing cash and cash equivalents, together with cash generated from operations, will be sufficient to meet our working capital and capital expenditure requirements through at least the next twelve months and to meet our known long-term capital requirements. In addition, for fiscal 2014, we expect to generate sufficient cash flow from operations to repay approximately $100 million outstanding under our credit facility and to repurchase approximately $75 million worth of shares of our common stock. Capital expenditures in 2014 are currently anticipated to be approximately $29 million.
We have evaluated, and expect to continue to evaluate, possible strategic transactions on an ongoing basis and at any given time may be engaged in discussions or negotiations with respect to possible strategic transactions. Our expected uses of cash could change, our cash position could be reduced and we may incur additional debt obligations to the extent we complete additional acquisitions.
As described in Note 14. Pension Plans in the Notes to Consolidated Financial Statements in this Form 10-Q, we have begun the process of terminating our U.S. pension plan. In April 2014, we contributed $7.5 million to the plan and we expect to contribute an additional $22 million to the plan over the next 12 to 24 months to complete the termination.
At March 29, 2014 , we had cash and cash equivalents of $44.8 million in the United States, $125.2 million in Europe, $76.7 million in the Pacific Rim (including India), $5.6 million in Japan and $18.2 million in other non-U.S. countries. As of March 29, 2014 , we had an outstanding intercompany loan receivable of $90.2 million, primarily resulting from our business reorganizations described in Note G Income Taxes in the Notes to Consolidated Financial Statements of our 2013 Annual Report on Form 10-K, owed to the U.S. from our top tier foreign subsidiary. This amount can be repaid with cash generated by our foreign subsidiaries and repatriated to the U.S. without future tax cost.

Critical Accounting Policies and Estimates
The financial information included in Item 1 reflects no material changes in our critical accounting policies and estimates as set forth under the heading Critical Accounting Policies and Estimates in Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2013 Annual Report on Form 10-K. We did not make any changes to these policies or to these estimates during the quarter ended March 29, 2014 .


ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in our market risk exposure as described in Item 7A: Quantitative and Qualitative Disclosures about Market Risk of our 2013 Annual Report on Form 10-K.

ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Effectiveness of Disclosure Controls and Procedures
Our management maintains disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), as appropriate, to allow for timely decisions regarding required disclosure.
We evaluated, under the supervision and with the participation of management, including our principal executive and principal financial officers, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 29, 2014 .

33
Table of Contents

Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 29, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
PART II—OTHER INFORMATION

ITEM 1A.
RISK FACTORS
In addition to other information set forth in this report, you should carefully consider the factors described in Part I. Item 1A. Risk Factors in our 2013 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our 2013 Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM  2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The table below shows the shares of our common stock we repurchased in the second quarter of 2014.
ISSUER PURCHASES OF EQUITY SECURITIES  
Period (1)
 
Total Number of Shares (or Units) Purchased  
 
Average Price Paid per Share (or Unit)  
 
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs  
 
Approximate
Dollar Value of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or Programs  
 
December 29, 2013 - January 25, 2014
—

$
—

—

$100,000,000(2)
January 26 - February 22, 2014
1,010,440

$
35.32

1,010,440

$64,306,230(2)
February 23 - March 29, 2014
111,160

$
38.42

111,160

$60,035,485(2)
Total
1,121,600

$
35.63

1,121,600

$60,035,485(2)
 
(1) Periods are our fiscal months within the fiscal quarter.
(2) In September 2013, our Board authorized us to repurchase up to $100 million worth of our shares in the period October 1, 2013 through September 30, 2014, which repurchase program we announced on November 6, 2013.


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Table of Contents

ITEM 6. EXHIBITS
 
 
2.1
 
Agreement and Plan of Merger dated as of December 30, 2013 by and among PTC Inc., Tetonic, Inc., ThingWorx, Inc., the founders of ThingWorx, Inc., and Safeguard Delaware, Inc. (filed as Exhibit 10.1 to our Current Report on Form 8-K dated December 30, 2013 (File No. 0-18059) and incorporated herein by reference).
 
 
 
3.1(a)
 
Restated Articles of Organization of PTC Inc. (formerly Parametric Technology Corporation) adopted February 4, 1993 (filed as Exhibit 3.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 1996 (File No. 0-18059) and incorporated herein by reference).
 
 
3.1(b)
 
Articles of Amendment to Restated Articles of Organization adopted February 9, 1996 (filed as Exhibit 4.1(b) to our Registration Statement on Form S-8 (Registration No. 333-01297) and incorporated herein by reference).
 
 
3.1(c)
 
Articles of Amendment to Restated Articles of Organization adopted February 13, 1997 (filed as Exhibit 4.1(b) to our Registration Statement on Form S-8 (Registration No. 333-22169) and incorporated herein by reference).
 
 
3.1(d)
 
Articles of Amendment to Restated Articles of Organization adopted February 10, 2000 (filed as Exhibit 3.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2000 (File No. 0-18059) and incorporated herein by reference).
 
 
3.1(e)
 
Certificate of Vote of Directors establishing Series A Junior Participating Preferred Stock (filed as Exhibit 3.1(e) to our Annual Report on Form 10-K for the fiscal year ended September 30, 2000 (File No. 0-18059) and incorporated herein by reference).
 
 
3.1(f)
 
Articles of Amendment to Restated Articles of Organization adopted February 28, 2006 (filed as Exhibit 3.1(f) to our Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2006 (File No. 0-18059) and incorporated herein by reference).
 
 
 
3.1(g)
 
Articles of Amendment to Restated Articles of Organization adopted January 28, 2013 (filed as Exhibit 3.1(g) to our Quarterly Report in Form 10-Q for the fiscal quarter ended December 29, 2012 (File No. 0-18059) and incorporated herein by reference).
 
 
3.2
 
By-Laws, as amended and restated, of PTC Inc.
 
 
 
10.1*
 
Executive Agreement dated April 16, 2014 by and between PTC Inc. and Matthew Cohen, Executive Vice President, Global Services.
 
 
 
10.2*
 
Consulting Agreement dated March 6, 2014 by and between PTC Inc. and Marc Diouane (filed as Exhibit 10.1 to our Current Report on Form 8-K dated March 6, 2014 (File No. 0-18059) and incorporated herein by reference).
 
 
 
10.3
 
Credit Agreement dated as of January 30, 2014 by and among PTC Inc., JPMorgan Chase Bank, N.A., KeyBank National Association, HSBC Bank, USA, National Association, RBS Citizens, N.A., Santander Bank, N.A., TD Bank, N.A., Fifth Third Bank, Royal Bank of Canada, SunTrust Bank, Wells Fargo Bank, National Association, The Huntington National Bank, Silicon Valley Bank, and Bank of America, N.A. (filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended December 29, 2013 (File No. 0-18059) and incorporated herein by reference).
 
 
 
31.1
 
Certification of the Chief Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).
 
 
31.2
 
Certification of the Chief Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).
 
 
32**
 
Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350.
 
 
101
 
The following materials from PTC Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 29, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of March 29, 2014 and September 30, 2013; (ii) Condensed Consolidated Statements of Operations for the three and six months ended March 29, 2014 and March 30, 2013; (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended March 29, 2014 and March 30, 2013; (iv) Condensed Consolidated Statements of Cash Flows for the six months ended March 29, 2014 and March 30, 2013; and (v) Notes to Condensed Consolidated Financial Statements.
_________________

*
Indicates a management contract with an executive officer.
**
Indicates that the exhibit is being furnished with this report and is not filed as a part of it.


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

PTC Inc.
 
 
By:
 
  /s/ J EFFREY   G LIDDEN      
 
 
Jeffrey Glidden
Executive Vice President and Chief Financial
Officer (Principal Financial Officer)

Date: May 6, 2014


35

PTC INC.

AMENDED AND RESTATED BY - LAWS

Article 1
- Stockholders
1.1      1.1     Place of Meetings; Participation by Remote Communications . Meetings of stockholders shall be held at the principal office of the corporation or such different place as is fixed by the Board of Directors or the Chief Executive Officer and stated in the notice of the meeting. The corporation may permit stockholders and proxyholders not physically present at a meeting of stockholders to participate in and be deemed present in person and vote at the meeting by means of remote communications, provided that (a) the corporation shall have implemented reasonable measures (i) to provide such stockholders and proxyholders a reasonable opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings and (ii) to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder and (b) the corporation shall maintain a record of each vote cast or other action taken at the meeting by means of remote communication.
1.2      1.2     Annual Meeting . The annual meeting of stockholders shall be held on the date (which shall not be a legal holiday in the place where the meeting is to be held) and at the time fixed by the Board of Directors or the Chief Executive Officer and stated in the notice of the meeting. The annual meeting shall be held for the purpose of electing directors and such other purposes as are specified in the notice of meeting. To the extent a stockholder is entitled as a matter of law independent of these By-Laws to propose nominations or other business to be considered at an annual meeting, such stockholder may do so only in compliance with these By-Laws and any other applicable requirements. If no annual meeting is held in accordance with the foregoing provisions, a special meeting may be held in lieu of the annual meeting, and any action taken at that special meeting shall have the same effect as if it had been taken at the annual meeting, and in such case all references in these By-Laws to the annual meeting of stockholders shall be deemed to refer to such special meeting.
1.3      1.3     Special Meetings . Special meetings of stockholders may be called by the Chief Executive Officer or by the Board of Directors. Upon written application, in accordance with these By-Laws and any other applicable requirements, of one or more stockholders who are entitled to vote and who hold at least 10% (or 40% in the event the corporation has a class of voting stock registered under the Securities Exchange Act of 1934, as amended) of the capital stock entitled to vote at the meeting, special meetings shall be called by the Secretary, or in the case of the death, absence, incapacity or refusal of the Secretary, by any other officer.
1.4      1.4     Notice of Meetings; Waiver . A written notice of each meeting of stockholders, stating the place, date and hour thereof, and the purposes for which the meeting is to be held, shall be given by the Secretary, Assistant Secretary or other person calling the meeting at least seven, and no more than sixty, days before the meeting to each stockholder entitled to vote at the meeting and to each stockholder who by law, by the Articles of Organization or by these By-Laws is entitled to such notice, by leaving such notice with him or at his residence or usual place of business, by mailing it postage prepaid and addressed to him at his address as it appears in the records of the corporation, or by electronic transmission. Whenever any notice is required to be given to a stockholder by law, by the Articles of Organization or by these By-Laws, no such notice need be given if a written (including electronically transmitted) waiver of notice, executed before or after the meeting by the stockholder or his authorized



attorney, is filed with the records of the meeting. A stockholder’s attendance at a meeting (i) waives objection to lack of notice or defective notice of the meeting, unless the stockholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting and (ii) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the stockholder objects to considering the matter when it is presented.
1.5      1.5     Quorum . Unless the Articles of Organization otherwise provide, the holders of a majority of the shares of stock issued, outstanding and entitled to vote on any matter shall constitute a quorum with respect to that matter, except that if two or more voting groups are entitled to vote separately then, in the case of each such voting group, a quorum shall consist of the holders of a majority of the votes entitled to be cast on the matter by the voting group. Shares owned directly or indirectly by the corporation shall not be counted in determining the total number of shares outstanding for this purpose. Shares once represented for any purpose at a meeting are deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless (i) the stockholder attends solely to object to lack of notice, defective notice or the conduct of the meeting on other grounds and does not vote the shares or otherwise consent that such shares are to be deemed present, or (ii) in the case of an adjournment, a new record date is or shall be set for that adjourned meeting.
1.6      1.6     Postponements; Adjournments . Any meeting of stockholders may, before it is called to order, be postponed for any reason by the Board of Directors or Chief Executive Officer to any other date, time and place at which a meeting of stockholders may be held under these By-Laws. Any meeting of stockholders may be adjourned to any other date, time and place at which a meeting of stockholders may be held under these By-Laws by the stockholders present or represented at the meeting, although less than a quorum, or by any officer entitled to preside or to act as clerk of such meeting, if no stockholder is present. It shall not be necessary to notify any stockholder of any adjournment. Any business that could have been transacted at any meeting of the stockholders as originally called may be transacted at any postponement or adjournment of the meeting.
1.7      1.7     Voting and Proxies . Each stockholder shall have one vote for each share of stock entitled to vote held of record by such stockholder and a proportionate vote for each fractional share so held, unless otherwise provided by the Articles of Organization. Stockholders may vote either in person or by written proxy dated not more than eleven months before the meeting named in the proxy. Proxies shall be filed with the clerk of the meeting, or of any adjourned meeting, before being voted. Except as otherwise limited by their terms, a proxy shall entitle the persons named in the proxy to vote at any adjournment of such meeting. A stockholder may give a proxy by electronic transmission under procedures approved by the Board of Directors or the Chief Executive Officer designed to permit determination that such transmission was authorized by the stockholder. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by any one of them, unless at or prior to exercise of the proxy the corporation receives a specific written notice to the contrary from any one of them. A proxy purported to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise.
1.8      1.8     Action at Meeting . When a quorum is present at any meeting, the holders of a majority of the stock present or represented and voting on a matter (or if there are two or more voting groups entitled to vote separately, then, in the case of each such voting group, the holders of a majority of the votes present or represented and voting on a matter), shall decide any matter to be voted on by the stockholders, except when a larger vote is required by law, the Articles of Organization or these By-Laws. Any election by stockholders shall be determined by a plurality of the votes cast by the stockholders

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entitled to vote at the election. No ballot shall be necessary for such election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election or required by the chairman of the meeting. The corporation shall not directly or indirectly vote any share of its own stock.
1.9      1.9     Action without Meeting . Any action required or permitted to be taken at any meeting of the stockholders may be taken without a meeting if all stockholders entitled to vote on the matter consent to the action in writing and the written consents are filed with the records of the meetings of stockholders. Each such consent shall be treated for all purposes as a vote at a meeting.
1.10      1.10     Advance Notice of Business at Meetings of Stockholders .
a.
(a) To the extent a stockholder is entitled as a matter of law or another provision of these By-Laws to propose a matter to be considered at any meeting of the stockholders (other than the nomination of directors, which is addressed in Section 2.3), such matter may be proposed only by a person who is a stockholder of record of the corporation at the time of giving the notice provided for in this Section 1.10, who is entitled to vote at the applicable meeting, and who (in addition to complying with any other applicable requirements) has given timely written notice thereof in accordance with this Section 1.10 to the Secretary at the principal executive offices of the corporation.
b.
(b) To be timely with respect to an annual meeting, a stockholder’s notice must be received by the Secretary not less than ninety (90) days nor more than one hundred twenty (120) days before the anniversary of the date on which the corporation first transmitted to stockholders its proxy materials for the immediately preceding annual meeting of stockholders; provided that, if the annual meeting is not held within thirty (30) days before or after the anniversary of such preceding annual meeting, such stockholder’s notice to be timely must be so received not later than the close of business on the later of (i) the one hundred twentieth (120th) day before the date of such annual meeting or (ii) the tenth (10th) day after the day on which notice of the date of the annual meeting was transmitted to stockholders or other public disclosure of the date of the annual meeting was made, whichever occurs first. Notwithstanding the foregoing, the postponement or adjournment of any annual meeting for which notice has been provided to stockholders shall not commence a new time period for giving the stockholder’s notice.
c.
(c) To be timely with respect to a special meeting, a stockholder’s notice must be received by the Secretary not less than ninety (90) days nor more than one hundred twenty (120) days before the date of the special meeting; provided that, if the first day on which notice of the special meeting is transmitted to stockholders or on which public disclosure of the date of the special meeting is made is less than one hundred (100) days before the date of the special meeting, such stockholder’s notice to be timely must be so received not later than the close of business on the tenth (10th) day after the day on which notice of the date of the special meeting was transmitted to stockholders or other public disclosure of the date of the special meeting was made, whichever occurs first. Notwithstanding the foregoing, the postponement or adjournment of any special meeting for which notice has been transmitted to stockholders shall not commence a new time period for giving the stockholder’s notice.
d.
(d) A stockholder’s notice shall set forth as to each matter the stockholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and record address of the stockholder proposing such business and the name and address of the beneficial owner, if any, on whose behalf the proposal is made, (iii) details of all the following that are held and/or beneficially owned, directly or indirectly, including through any entity, by such stockholder and by such beneficial owner, if any: (A) the

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class and number of shares of the corporation, (B) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the corporation or with a value derived in whole or in part form the value of any class or series of shares of the corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of capital stock of the corporation or otherwise (a "Derivative Instrument") and any other direct or indirect opportunity of any such person to profit or share in any profit derived from any increase or decrease in the value of shares of the corporation, (C) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder or such other beneficial owner, if any, has a right to vote any shares of any security of the corporation, (D) any short interest in any security of the corporation (for purposes of this By-Law a person shall be deemed to have a short interest in a security if such person directly or indirectly, through any contract, arrangement, understanding relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security), (E) any rights to dividends on the shares of the corporation that are separated or separable from the underlying shares of the corporation, and (F) any performance-related fees (other than an asset-based fee) that such stockholder or such beneficial owner, if any, is entitled to based on any increase or decrease in the value of shares of the corporation or Derivative Instruments, if any, as of the date of such notice, including without limitation any such interest held by members of such stockholder's immediate family sharing the same household (which information shall be supplemented by such stockholder and beneficial owner, if any, not later than ten (10) days after the record date for the meeting to disclose such ownership as of the record date), (iv) a description of any material interest of the stockholder and of such beneficial owner, if any, in such business, (v) a description of any agreement, arrangement or understanding such stockholder or such beneficial owner, if any, has with any other person(s) relating to the subject matter of such business, and (vi) the basis upon which the stockholder is entitled to make the proposal.
e.
(e) Notwithstanding anything in these By-Laws to the contrary, no business proposed by a stockholder shall be conducted at any meeting of stockholders except in accordance with the procedures set forth in this Section, whether or not the stockholder (if otherwise permitted by applicable law) seeks inclusion of such proposal in the corporation’s proxy statement for the meeting; provided that any stockholder proposal that complies with Rule 14a-8 (or any successor provision) of the proxy rules promulgated under the Securities Exchange Act of 1934, as amended, and is included in the corporation’s proxy statement for the applicable stockholders meeting shall be deemed to comply with the requirements for the timing and content of notices hereunder.
f.
(f) The chairman of the respective stockholders meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 1.10, and, if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

ARTICLE 2
- Directors

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2.1      2.1     Powers . The business of the corporation shall be managed by a Board of Directors, who may exercise all the powers of the corporation except as otherwise provided by law, by the Articles of Organization or by these By-Laws. In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled.
2.2    2.2     Number, Election and Qualification . The number of Directors which shall constitute the whole Board of Directors shall be determined by vote of the stockholders or the Board of Directors, but shall consist of not less than three Directors (except that whenever there shall be only two stockholders the number of Directors shall be not less than two and whenever there shall be only one stockholder, there shall be at least one Director). The number of Directors may be decreased at any time and from time to time either by the stockholders or by a majority of the Directors then in office, but only to eliminate vacancies existing by reason of the death, resignation, removal or expiration of the term of one or more Directors. Directors need not be stockholders of the corporation. Notwithstanding the foregoing provisions, if the corporation is a “public corporation” within the meaning of Section 8.06 of the Massachusetts Business Corporation Act and has not elected, pursuant to paragraph (c) of such Section 8.06, to be exempt from the provisions of paragraph (b) of such Section 8.06, then:
(i)      In accordance with paragraph (e), clause (4) of such Section 8.06, the number of directors shall be fixed only by vote of the Board of Directors.
(ii)      In accordance with paragraph (b) of such Section 8.06, the Directors of the corporation shall be classified with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible; the term of office of those of the first class (“Class I Directors”) to continue until the first annual meeting following the date the corporation becomes subject to such paragraph (a) and until their successors are duly elected and qualified; the term of office of those of the second class (“Class II Directors”) to continue until the second annual meeting following the date the corporation becomes subject to such paragraph (a) and until their successors are duly elected and qualified; and the term of office of those of the third class ( “Class III Directors”) to continue until the third annual meeting following the date the corporation becomes subject to such paragraph (a) and until their successors are duly elected and qualified. At each annual meeting of the corporation, the successors to the class of directors whose term expires at that meeting shall be elected to hold office for a term continuing until the annual meeting held in the third year following the year of their election and until their successors are duly elected and qualified.
2.3      2.3     Nomination of Directors .

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a.
(a) Only persons who are nominated in accordance with this Section 2.3 shall be eligible for election as directors at any annual or special meeting of stockholders. Nominations of persons for election as directors may be made only (i) by or at the direction of the Board of Directors or (ii) by any person who is a stockholder of record of the corporation at the time of giving the notice provided for in this Section 2.3, who is entitled to vote for the election of directors at the applicable meeting, and who (in addition to any other applicable requirements) has given timely written notice thereof in accordance with this Section 2.3 to the Secretary at the principal executive offices of the corporation.
b.
(b) To be timely with respect to an annual meeting, a stockholder’s notice must be received by the Secretary not less than ninety (90) days nor more than one hundred twenty (120) days before the anniversary of the date on which the corporation first transmitted to stockholders its proxy materials for the immediately preceding annual meeting of stockholders; provided that, if the annual meeting is not held within thirty (30) days before or after the anniversary of such preceding annual meeting, such stockholder’s notice to be timely must be so received not later than the close of business on the later of (i) the one hundred twentieth (120th) day before the date of such annual meeting or (ii) the tenth (10th) day after the day on which notice of the date of the annual meeting was transmitted to stockholders or other public disclosure of the date of the annual meeting was made, whichever occurs first. Notwithstanding the foregoing, the postponement or adjournment of any annual meeting for which notice has been provided to stockholders shall not commence a new time period for giving the stockholder’s notice.
c.
(c) To be timely with respect to a special meeting, a stockholder’s notice must be received by the Secretary not less than ninety (90) days nor more than one hundred twenty (120) days before the date of the special meeting; provided that, if the first day on which notice of the special meeting is transmitted to stockholders or on which public disclosure of the date of the special meeting is made is less than one hundred (100) days before the date of the special meeting, such stockholder’s notice to be timely must be so received not later than the close of business on the tenth (10th) day after the day on which notice of the date of the special meeting was transmitted to stockholders or other public disclosure of the date of the special meeting was made, whichever occurs first. Notwithstanding the foregoing, the postponement or adjournment of any special meeting for which notice has been provided to stockholders shall not commence a new time period for giving the stockholder’s notice.
d.
(d) Such stockholder’s notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director: (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the corporation that are beneficially owned by the person, (iv) whether or not the person is currently “independent” from the corporation under the independence standards of the principal national securities exchange on which the corporation’s shares are then traded and all facts that currently prevent the person from being independent under such standards, if applicable, and (v) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended; (b) as to the stockholder giving the notice: (i) the name and record address of such stockholder and the name and address of the beneficial owner, if any, on whose behalf the proposal is made and (ii) the information described in Section 1.10(d)(iii); and (c) a description of all familial, compensatory, financial and/or other relationships, arrangements and transactions, existing at any time within the preceding three years or currently proposed, between the person proposed to be nominated as a director and such stockholder or such beneficial owner, if any, or any of their respective affiliates and associates. The corporation may require any proposed nominee to furnish such other

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information as it may reasonably require to determine the proposed nominee’s eligibility, or lack thereof, to serve as an independent director of the corporation.
e.
(e) The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with this Section 2.3, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.
2.4      2.4     Enlargement of the Board . Subject to Section 2.2 above, the number of Directors may be increased at any time and from time to time by the stockholders or by a majority of the Directors then in office.
2.5      2.5     Tenure . Subject to Section 2.2 above, each Director shall hold office until the next annual meeting of stockholders and until his successor is elected and qualified or until his earlier death, resignation or removal.
2.6      2.6     Vacancies .
a.
(a) Unless and until filled by the stockholders, any vacancy in the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the Board, may be filled by vote of a majority of the Directors present at any meeting of Directors at which a quorum is present. Each such successor shall hold office for the unexpired term of his predecessor and until his successor is chosen and qualified or until his earlier death, resignation or removal.
b.
(b) Notwithstanding the foregoing provisions, if the corporation is a “public corporation” within the meaning of Section 8.06 of the Massachusetts Business Corporation Act and has not elected, pursuant to paragraph (c) of such Section 8.06, to be exempt from the provisions of paragraph (b) of such Section 8.06, then (i) vacancies and newly created directorships, whether resulting from an increase in the size of the Board of Directors, from the death, resignation, disqualification or removal of a director or otherwise, shall be filled solely by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum of the Board of Directors, and (ii) any Director elected in accordance with clause (i) shall hold office for the remainder of the full term of the class of Directors in which the vacancy occurred or the new directorship was created and until such Director’s successor shall have been elected and qualified or until his earlier death, resignation or removal.
2.7      2.7     Resignation . Any Director may resign by delivering his written resignation to the corporation at its principal office or to the Chairman of the Board, the Chief Executive Officer or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.
2.8      2.8     Removal .

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a.
(a) A Director may be removed from office with or without cause by vote of the holders of a majority of the shares entitled to vote in the election of Directors. However, the Directors elected by the holders of a particular class or series of stock may be removed from office with or without cause only by vote of the holders of a majority of the outstanding shares of such class or series. In addition, a Director may be removed from office for cause by vote of a majority of the Directors then in office. A Director may be removed for cause only after reasonable notice and opportunity to be heard before the body proposing to remove him.
b.
(b) Notwithstanding the foregoing provisions, if the corporation is a “public corporation” within the meaning of Section 8.06 of the Massachusetts Business Corporation Act and has not elected, pursuant to paragraph (c) of such Section 8.06, to be exempt from the provisions of paragraph (b) of such Section 8.06, then stockholders may effect, by the affirmative vote of a majority of the shares outstanding and entitled to vote in the election of Directors, the removal of any Director or Directors or the entire Board of Directors only for cause, as defined in paragraph (f) of such Section 8.06.
2.9      2.9     Regular Meetings . Regular meetings of the Directors may be held without call or notice at such places, within or without Massachusetts, and at such times as the Directors may from time to time determine, provided that any Director who is absent when such determination is made shall be given notice of the determination. A regular meeting of the Directors may be held without a call or notice immediately after and at the same place as the annual meeting of stockholders.
2.10      2.10     Special Meetings . Special meetings of the Directors may be held at any time and place, within or without Massachusetts, designated in a call by the Chairman of the Board, Chief Executive Officer, Treasurer, two or more Directors or by one Director in the event that there is only a single Director in office.
2.11      2.11     Meetings by Telephone Conference Calls or Other Electronic Communication . Directors or members of any committee designated by the Directors may participate in a meeting of the Directors or such committee by means of a conference telephone or other electronic communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting.
2.12      2.12     Notice of Special Meetings . Notice of any special meeting of the Directors shall be given to each Director by the Secretary or by the officer or one of the Directors calling the meeting. Notice shall be duly given to each Director (i) by notice given to such Director in person or by telephone at least 48 hours in advance of the meeting, (ii) by sending an electronic communication, or by delivering written notice by hand, to his last known business or home address at least 48 hours in advance of the meeting, or (iii) by mailing written notice to his last known business or home address at least 72 hours in advance of the meeting. Notice need not be given to any Director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Director who attends the meeting without protesting prior to the meeting or at its commencement the lack of notice to him. A notice or waiver of notice of a Directors’ meeting need not specify the purposes of the meeting. If notice is given in person or by telephone, an affidavit of the Secretary, officer or Director who gives such notice that the notice has been duly given shall, in the absence of fraud, be conclusive evidence that such notice was duly given.
2.13      2.13     Quorum . At any meeting of the Board of Directors, a majority of the Directors then in office shall constitute a quorum. Less than a quorum may adjourn any meeting from time to time without further notice.

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2.14    2.14     Action at Meeting . At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of those present shall be sufficient to take any action, unless a different vote is specified by law, by the Articles of Organization or by these By-Laws.
2.15    2.15     Action by Consent . Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all the Directors consent to the action in writing, signed by each director or delivered to the corporation by electronic transmission, and the written consents are filed with the records of the Directors’ meetings. Each such consent shall be treated for all purposes as a vote at a meeting.
2.16      2.16     Committees . The Board of Directors may, by vote of a majority of the Directors then in office, elect from their number an executive committee or other committees and may by like vote delegate to committees so elected some or all of their powers to the extent permitted by law. Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Directors or in such rules, its business shall be conducted as nearly as possible in the same manner as is provided by these By-Laws for the Directors. The Board of Directors shall have the power at any time to fill vacancies in any such committee, to change its membership or to discharge the committee.
2.17      2.17     Chairman of the Board and Vice-Chairman of the Board . The Board of Directors may appoint a Chairman of the Board. If the Board of Directors appoints a Chairman of the Board, he shall preside at meetings of the Directors and the stockholders and shall perform such other duties and possess such powers as are assigned to him by the Board of Directors. If the Board of Directors appoints a Vice-Chairman of the Board, he shall, in the absence or disability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board and shall perform such other duties and possess such other powers as may from time to time be vested in him by the Board of Directors.
2.18      2.18     Compensation of Directors . Directors may be paid such compensation for their services and such reimbursement for expenses of attendance at meetings as the Board of Directors may from time to time determine. No such payment shall preclude any Director from serving the corporation in any other capacity and receiving compensation therefor.
ARTICLE 3
- Officers

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3.1      3.1     Enumeration . The officers of the corporation shall consist of a Chief Executive Officer, a President, a Treasurer, a Secretary and such other officers with such other titles as the Board of Directors or the Chief Executive Officer may determine, including, but not limited to one or more Vice Presidents, Assistant Treasurers, and Assistant Secretaries.
3.2    3.2     Election . The Chief Executive Officer, President, Treasurer and Secretary shall be elected annually by the Board of Directors at their first meeting following the annual meeting of stockholders. Other officers may be chosen or appointed by or under the authority of the Board of Directors.
3.3    3.3     Qualification . No officer need be a director or stockholder. Any two or more offices may be held by the same person. Any officer may be required by the Directors to give bond for the faithful performance of his duties to the corporation in such amount and with such sureties as the Directors may determine. The premiums for such bonds may be paid by the corporation.
3.4      3.4     Tenure . Except as otherwise provided by law, by the Articles of Organization or by these By-Laws, the Chief Executive Officer, President, Treasurer and Secretary shall hold office until the first meeting of the Directors following the next annual meeting of stockholders and until their respective successors are chosen and qualified, or until their earlier death, resignation or removal; and all other officers shall serve at the pleasure of the Directors.
3.5    3.5     Resignation and Removal .
a.
(a) Any officer may resign by delivering his written resignation to the corporation at its principal office or to the Chief Executive Officer or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.
b.
(b) An officer may be removed at any time, with or without cause, by or under the authority of the Board of Directors.
c.
(c) Except as the Board of Directors may otherwise determine, no officer who resigns or is removed shall have any right to any compensation as an officer for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or the year or otherwise, unless such compensation is expressly provided in a duly authorized written agreement with the corporation.
3.6      3.6     Vacancies . Any vacancy occurring in any office for any reason may be filled by or under the authority of the Board of Directors, which may, in its discretion, leave unfilled for such period as it may determine any offices other than those of President, Treasurer and Secretary. Each such successor shall hold office for the unexpired term of his predecessor and until his successor is chosen and qualified, or until he sooner dies, resigns or is removed.
3.7    3.7     Chief Executive Officer . The Chief Executive Officer shall, subject to the direction of the Board of Directors, have general charge and supervision of the business of the corporation. Unless a separate Chairman of the Board has been appointed, or except as otherwise provided by the Board of Directors, he shall preside at all meetings of the stockholders and, if he is a Director, at all meetings of the Board of Directors.
3.8    3.8     President . The President shall, subject to the direction of the Chief Executive Officer, have general charge and supervision of the business of the corporation and shall perform such other duties

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and shall possess such other powers as the Chief Executive Officer may from time to time prescribe. If no other Chief Executive Officer has been appointed, or in the event of the absence, inability or refusal to act of the Chief Executive Officer, the President shall perform the duties of the Chief Executive Officer and when so performing shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer.
3.9      3.9     Vice Presidents . Any Vice President shall perform such duties and possess such powers as the Board of Directors, the Chief Executive Officer or the President may from time to time prescribe. The Board of Directors or the Chief Executive Officer may assign to any Vice President the title of Executive Vice President, Senior Vice President or any other title.
3.10    3.10     Treasurer and Assistant Treasurers .
a.
(a) The Treasurer shall perform such duties and shall have such powers as may from time to time be assigned to him by the Board of Directors or the Chief Executive Officer. In addition, the Treasurer shall perform such duties and have such powers as are incident to the office of treasurer, including without limitation the duty and power to keep and be responsible for all funds and securities of the corporation, to deposit funds of the corporation in depositories selected in accordance with these By-Laws, to disburse such funds as ordered by the Board of Directors, to make proper accounts of such funds, and to render as required by the Board of Directors statements of all such transactions and of the financial condition of the corporation.
b.
(b) The Assistant Treasurers shall perform such duties and possess such powers as the Board of Directors, the Chief Executive Officer or the Treasurer may from time to time prescribe. In the event of the absence, inability or refusal to act of the Treasurer, the Assistant Treasurer (or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Treasurer.
3.11      3.11     Secretary and Assistant Secretaries .

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a.
(a) The Secretary shall perform such duties and shall possess such powers as the Board of Directors or the Chief Executive Officer may from time to time prescribe. In addition, the Secretary shall perform such duties and have such powers as are incident to the office of the clerk, including without limitation the duty and power to give notices of all meetings of stockholders and special meetings of the Board of Directors, to attend all meetings of stockholders and the Board of Directors and keep a record of the proceedings, to maintain a stock ledger and prepare lists of stockholders and their addresses as required, to be custodian of corporate records and the corporate seal and to affix and attest to the same on documents.
b.
(b) Any Assistant Secretary shall perform such duties and possess such powers as the Board of Directors, the Chief Executive Officer or the Secretary may from time to time prescribe. In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary (or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Secretary.
c.
(c) In the absence of the Secretary or any Assistant Secretary at any meeting of stockholders or Directors, the person presiding at meeting shall designate a temporary Secretary to keep a record of the meeting.
3.12      3.12     Salaries . Officers of the corporation shall be entitled to such salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board of Directors.
ARTICLE 4
- Capital Stock
4.1      4.1     Issue of Capital Stock . Unless otherwise voted by the stockholders, the whole or any part of any unissued balance of the authorized capital stock of the corporation or the whole or any part of the capital stock of the corporation held in its treasury may be issued or disposed of by vote of the Board of Directors, in such manner, for such consideration and on such terms as the Directors may determine.
4.2    4.2     Certificate of Stock; Uncertificated Shares .
a.
(a) Shares of the corporation’s capital stock may be represented by certificates or may be uncertificated as prescribed from time to time by or under the authority of the Directors. Certificates for shares shall be signed by the Chief Executive Officer, the President or a Vice President, and by the Treasurer or an Assistant Treasurer, but when a certificate is countersigned by a transfer agent or a registrar, other than a Director, officer or employee of the corporation, such signature may be a facsimile. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the time of its issue.
b.
(b) Every certificate for shares of stock which are subject to any restriction on transfer pursuant to the Articles of Organization, the By-Laws, applicable securities laws or any agreement to which the corporation is a party, shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restrictions and a statement that the corporation will furnish a copy of the restrictions to the holder of such certificate upon written request and without charge. Every certificate issued when the corporation is authorized to issue more than one class or series of stock shall set forth on its face or back either the full text of the preferences, voting powers, qualifications and special and relative rights of the shares of each class and series authorized to be issued or a statement of the existence of such preferences, powers, qualifications and rights and a statement that the corporation will furnish a copy thereof to the holder of such certificate upon written

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request and without charge. Holders of uncertificated shares shall be provided with a statement of the information set forth above as applicable and as required by the Massachusetts Business Corporation Act.
4.3      4.3     Transfers . Subject to the restrictions, if any, stated or noted on the stock certificates or provided to the holder of uncertificated shares, shares of stock may be transferred on the books of the corporation by (a) the surrender to the corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed or (b) proper transfer instructions from the registered owner of uncertificated shares, in each case with such proof of authority or the authenticity of signature as the corporation or its transfer agent may reasonably require. Except as may be otherwise required by law, by the Articles of Organization or by these By-Laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the corporation in accordance with the requirements of these By-Laws. It shall be the duty of each stockholder to notify the corporation of his post office address and of his taxpayer identification number.
4.4      4.4     Record Date .
a.
(a) The Board of Directors may fix in advance a time not more than 70 days preceding the date of any meeting of stockholders or the date for the payment of any dividend or the making of any distribution to stockholders or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting, and any adjournment, or the right to receive such dividend or distribution or the right to give such consent or dissent. In such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the corporation after the record date. Without fixing such record date the Directors may for any of such purposes close the transfer books for all or any part of such period.
b.
(b) If no record date is fixed and the transfer books are not closed, the record date for determining the stockholders having the right to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, and the record date for determining the stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors acts with respect to such purpose.
c.
(c) A determination of stockholders entitled to notice of or to vote at a meeting of stockholders is effective for any postponement or adjournment of the meeting unless the meeting is postponed or adjourned to a date more than one hundred twenty days after the date fixed for the original meeting, in which case the Board of Directors shall fix a new record date.
4.5      4.5     Replacement of Certificates . In case of the alleged loss or destruction or the mutilation of a certificate of stock, a duplicate certificate or uncertificated shares may be issued in place of the lost, destroyed or mutilated certificate, upon such terms as the Directors may prescribe, including the presentation of reasonable evidence of such loss, destruction or mutilation and the giving of such indemnity as the Directors may require for the protection of the corporation or any transfer agent or registrar.
ARTICLE 5
- Miscellaneous Provisions

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5.1      5.1     Fiscal Year . Except as otherwise set forth in the Articles of Organization or as otherwise determined from time to time by the Board of Directors, the fiscal year of the corporation shall in each year end on September 30.
5.2    5.2     Seal . The seal of the corporation shall, subject to alteration by the Directors, bear its name, the word “Massachusetts” and the year of its incorporation.
5.3    5.3     Voting of Securities . The Chief Executive Officer, the President, the Chief Financial Officer, the Treasurer, the Secretary or any other person the Board of Directors may designate may waive notice of, and act as, or appoint any person or persons to act as, proxy or attorney-in-fact for this corporation (with or without power of substitution) at, any meeting of or other action by stockholders, shareholders or members of any other corporation or organization, the securities of which may be held by this corporation.
5.4    5.4     Corporate Records . The corporation shall keep, in Massachusetts at the principal office of the corporation, or at an office of its transfer agent or of the Secretary, such records as are required by the Massachusetts Business Corporation Act. These copies and records need not all be kept in the same office. They shall be available for inspection by stockholders for any proper purpose and in conformity with said Act.
5.5    5.5     Evidence of Authority . A certificate by the Secretary or an Assistant or temporary Secretary as to any action taken by the stockholders, Directors, any committee or any officer or representative of the corporation shall as to all persons who rely on the certificate in good faith be conclusive evidence of such action.
5.6    5.6     Articles of Organization . All references in these By-Laws to the Articles of Organization shall be deemed to refer to the Articles of Organization of the corporation, as amended and in effect from time to time.
5.7    5.7     Severability . Any determination that any provision of these By-Laws is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these By-Laws.
5.8    5.8     Pronouns . All pronouns used in these By-Laws shall be deemed refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require.
5.9     Forum for Adjudication of Disputes . Unless the corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the corporation to the corporation or the corporation’s stockholders, (iii) any action asserting a claim against the corporation or any director or officer or other employee of the corporation arising pursuant to any provision of the Massachusetts Business Corporation Act or the corporation’s Articles of Organization or By-Laws (as either may be amended from time to time), or (iv) any action asserting a claim against the corporation or any director or officer or other employee of the corporation governed by the internal affairs doctrine shall, in all cases subject to such court’s having personal jurisdiction over the indispensable parties named as defendants, be either the Business Litigation Session of the Superior Court of Suffolk County, Massachusetts or, if such venue is not permissible, another Massachusetts state court located in Suffolk or Norfolk County, or a federal court located in Massachusetts.

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ARTICLE 6
- Amendments
These By-Laws may be amended by vote of the holders of a majority of the shares of each class of the capital stock at the time outstanding and entitled to vote at any annual or special meeting of stockholders, if notice of the substance of the proposed amendment is stated in the notice of such meeting. If authorized by the Articles of Organization, the Directors, by a majority of their number then in office, may also make, amend or repeal these By-Laws, in whole or in part, except with respect to (a) the provisions of these By- Laws governing (i) the removal of directors and (ii) the amendment of these By-Laws and (b) any provision of these By-Laws which by law, the Articles of Organization or these By-Laws requires action by the stockholders.
Not later than the time of giving notice of the meeting of stockholders next following the making, amending or repealing by the Directors of any By-Law, notice stating the substance of such change shall be given to all stockholders entitled to vote on amending the By-Laws.
Any By-Law adopted by the Directors may be amended or repealed by the stockholders entitled to vote on amending the By-Laws.
As amended through March 5, 2014


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EXECUTIVE AGREEMENT
This Executive Agreement dated as of April 16, 2014 is by and between PTC Inc., a Massachusetts corporation (the “Company”), and Matthew Cohen (the “Executive”).
WHEREAS, the Executive is the Executive Vice President, Global Services; and
WHEREAS, the Company wishes to make the following arrangements with the Executive concerning certain payments and benefits to be provided to the Executive if his employment with the Company is terminated without Cause or if certain other events specified herein occur;

NOW, THEREFORE, the Company and the Executive hereby agree as follows:
1. Definitions.
For the purposes of this Agreement:
(a)      “Board” means the Company’s board of directors.
(b)      “Code” means the U.S. Internal Revenue Code of 1986, as amended.
(c)      “Cause” means
(i)      the Executive’s willful and continued failure to substantially perform his duties to the Company (other than any such failure resulting from the Employee’s incapacity due to physical or mental illness), provided that the Company has delivered a written demand for performance to the Executive specifically identifying the manner in which the Company believes that the Executive has not substantially performed his duties and the Executive does not cure such failure within thirty (30) days after such demand;
(ii)      willful conduct by the Executive which is demonstrably and materially injurious to the Company;
(iii)      the Executive’s conviction of, or pleading of guilty or nolo contendere to, a felony;
(iv)      the Executive’s entry in his personal capacity into a consent decree relating to the business of the Company with any government body; or
(v)      the Executive’s willful violation of any material provision of his Non-Disclosure, Non-Competition and Invention Agreement with the Company; provided that, if such violation is able to be cured, the Executive has not, within thirty (30) days after written demand by the Company, cured such violation.
For purposes of this definition, no act or failure to act on the Executive’s part shall be deemed “willful” unless done or omitted to be done by the Executive not in good faith and without reasonable belief that his action or omission was in the best interests of the Company.
(d)      “Change in Control” means the occurrence of any of the following events:
(i)      any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of stock in the Company) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities (other than as a result of acquisitions of such securities from the Company);
(ii)      individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company) shall be, for purposes of this Agreement, considered to be a member of the Incumbent Board;
(iii)      the consummation of a merger, share exchange or consolidation of the Company or any subsidiary of the Company with any other entity (each a “Business Combination”), other than (A) a Business Combination that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of another entity) beneficial ownership, directly or indirectly, of a majority of the combined voting power of the Company or the surviving entity (including any person that, as a result of such transaction, owns all or substantially all of the Company’s assets either directly or through one or more subsidiaries) outstanding immediately after such Business Combination or (B) a merger, share exchange or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no “person” (as defined above) is or becomes the beneficial owner of fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities; or
(iv)      the stockholders of the Company approve (A) a plan of complete liquidation of the Company; or (B) an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets but excluding a sale or spin-off of a product line, business unit or line of business of the Company if the remaining business is significant as determined by the Company’s board of directors in its sole discretion.
(e)      “Change in Control Termination” means any of the following terminations of the Executive’s employment:
(i)      termination of the Executive’s employment by the Company during the period from the date of a Change in Control through the second anniversary thereof, other than for Cause or as a result of the Executive’s Disability;
(ii)      resignation by the Executive for Good Reason during the period from the date of a Change in Control through the second anniversary thereof; or
(iii)      termination of the Executive’s employment by the Company within one hundred eighty (180) days prior to a Change in Control, other than for Cause or as a result of the Executive’s Disability, if it is reasonably demonstrated by the Executive that such termination of employment (A) was at the request of a third party that has taken steps reasonably calculated to effect the Change in Control or (B) was otherwise related to or in anticipation of the Change in Control. A Change in Control Termination under this Section 1(e)(iii) shall be deemed to have occurred if and when the Change in Control occurs.
(f)      “Disability” means such physical or mental incapacity as to make the Executive unable to perform the essential functions of his employment duties for a period of at least sixty (60) consecutive days with or without reasonable accommodation. If any question shall arise as to whether during any period the Executive is so disabled as to be unable to perform the essential functions of his employment duties with or without reasonable accommodation, the Executive may, and at the request of the Company shall, submit to the Company a certification in reasonable detail by a physician selected by the Company to whom the Executive or the Executive’s guardian has no reasonable objection as to whether the Executive is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue. The Executive shall cooperate with any reasonable request of the physician in connection with such certification. If such question shall arise and the Executive shall fail to submit such certification, the Company’s determination of such issue shall be binding on the Executive.
(g)      “Good Reason” means the occurrence, without the Executive’s consent and without Cause, of any of the following events after or in connection with a Change in Control (provided that the Executive shall have given the Company written notice describing such event within ninety (90) days of its initial existence and the matter shall not have been fully remedied by the Company within thirty (30) days after receipt of such notice):
(i)      any reduction of the Executive’s annual base salary or target bonus as in effect at the date of the Change in Control; provided that any such reduction (not exceeding fifteen percent (15%) of either (A) such base salary or (B) the sum of such base salary and such target bonus) that is consistent with similar actions taken with respect to the base salaries and/or target bonuses of the other senior executives of the Company shall not constitute Good Reason;
(ii)      any material reduction in the aggregate benefits for which the Executive is eligible under the Company’s benefit plans, including medical, dental, vision, basic life insurance, retirement, paid time off, long-term disability and short-term disability plans; provided that any such reduction or other action that is consistent with similar actions taken with respect to comparable benefits of the Company employees generally shall not constitute Good Reason;
(iii)      a material diminution in the substantive responsibilities or the scope of the Executive’s position, taking into consideration, without limitation, the dollar amount of the budget and the number of employees for which the Executive has responsibility (and a reduction of more than ten percent (10%) in such dollar amount or such number from that which was applicable at the date of the Change in Control shall be deemed a “material diminution” unless it is comparable to similar reductions then applicable to the Company’s executive officers generally);
(iv)      any breach by the Company of its material obligations under this Agreement;
(v)      any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company; or
(vi)      any requirement that the Executive relocate to a primary work site that would increase the Executive’s one-way commute distance by more than fifty (50) miles from the Executive’s then principal residence.
(h)      “Stock Plan” means any stock option or equity compensation plan of the Company in effect at any time, including without limitation the 2000 Equity Incentive Plan.
2.      Termination of Employment without Cause.
If the Company terminates the Executive’s employment without Cause, other than a termination constituting a Change in Control Termination or a termination due to his Disability, the Executive shall be entitled to the following:
(a)      a lump sum payment in an amount equal to one times the highest annual salary (excluding any bonuses) in effect with respect to the Executive during the six-month period immediately preceding the termination date, payable within forty-five (45) days after the termination date; and
(b)      continued participation in the Company’s medical, dental, vision and basic life insurance benefit plans (the “Benefit Plans”), subject to the terms and conditions of the respective plans and applicable law, for a period of one year following the termination date; provided that, to the extent that any of the Benefit Plans does not permit such continuation of the Executive’s participation following his termination or any such plan is terminated, the Company shall pay the Executive an amount which is sufficient for him to purchase equivalent benefits, such amount to be paid quarterly in advance; provided further, however, that to the extent the Executive becomes eligible to receive medical, dental, vision and/or basic life insurance benefits under a plan provided by another employer, the Executive’s entitlement to participate in the corresponding Benefit Plans or to receive such corresponding alternate payments shall cease as of the date the Executive is eligible to participate in such other plan, and the Executive shall promptly notify the Company of his eligibility under such plan.
3.      Change in Control.
(a)      Equity Awards . Effective upon a Change in Control that occurs during the Executive’s employment, except as provided in Section 3(b), the following shall occur:
(vi)      any performance criteria applicable to any stock options, stock appreciation rights, restricted stock units, restricted stock or other equity awards issued under any Stock Plan and held by the Executive shall be deemed to have been met in full;
(vii)      any of the restrictions on any shares of restricted stock issued under any Stock Plan and held by Executive that are scheduled by their terms (after giving effect to clause (i) of this Section 3(a)) to lapse after the second anniversary of the Change in Control shall lapse immediately so that the portion of such shares formerly subject to such restrictions shall become unrestricted (and any such restrictions that are scheduled by their terms to lapse on or before the second anniversary of the Change in Control shall remain unchanged except as provided in clause (i));
(viii)      any other equity awards (including without limitation any stock options, stock appreciation rights and restricted stock units) issued under any Stock Plan and held by Executive that are scheduled by their terms (after giving effect to clause (i) of this Section 3(a)) to vest after the second anniversary of the Change in Control shall vest immediately and become exercisable or distributable (and any such awards that are scheduled by their terms to vest on or before the second anniversary of the Change in Control shall remain unchanged except as provided in clause (i) of this Section 3(a)); provided that if any such stock option, stock appreciation right, restricted stock unit or other equity award is not assumed or a cash payment of equivalent value is not substituted therefor (in either case with vesting terms no more restrictive than those of the assumed or substituted award) by any acquirer of or successor to the Company, then such stock option, stock appreciation right, restricted stock unit or other equity award shall become vested and exercisable in full upon such Change in Control; and
(ix)      each outstanding equity award held by the Executive shall be deemed amended automatically to provide that, notwithstanding any provision of any Stock Plan, no outstanding share of restricted stock, stock option, stock appreciation right, restricted stock unit or other equity award held by the Executive may be terminated or forfeited without the Executive’s written consent (provided that this shall not prevent termination of (A) any unvested portion thereof that is terminated or forfeited upon termination of the Executive’s employment as provided in any agreement or certificate executed in connection with any such equity award, (B) a stock option the termination of which is covered by Section 8(i) of the Company’s 2000 Equity Incentive Plan, or (C) upon payment of a cash payment equivalent to the value of such terminated award).
The foregoing notwithstanding, this Section 3(a) shall not apply to any shares of restricted stock, restricted stock units or other equity awards granted to the Executive as an incentive bonus under any of the Company’s short-term incentive programs which are subject to performance criteria with a performance period of one year or less and time-based vesting with an original vesting term of less than fifteen (15) months (collectively, “Bonus Equity”), which shall be treated as provided in Section 3(b)(ii).

(b)      Bonus . Effective upon (x) a Change in Control that occurs during the Executive’s employment or (y) a Change in Control Termination under Section 1(e)(iii):
(i)    the Executive shall be entitled to payment of a pro-rata portion of any annual cash incentive award for which the Executive is eligible for the fiscal year in which the Change in Control occurs, based on the Executive’s target cash bonus for such year and the percentage of the year completed through the date of the Change in Control, for the purposes of which any performance criteria applicable to such award shall be deemed to have been met in full, which payment shall be made in one lump sum within forty-five (45) days of the date of the Change in Control; and
(ii)    the vesting schedule applicable to any Bonus Equity held by the Executive shall be amended automatically so that a pro-rata portion of any such Bonus Equity equal to the percentage of the respective fiscal year completed through the date of the Change in Control shall thereupon be vested and subject to no further restrictions, exercisable or distributable, as the case may be, and the portion not so vested shall thereupon automatically be cancelled and forfeited to the Company.
(c)      Change in Control Termination Benefits .
(iv)      Equity Awards . Effective upon a Change in Control Termination, the following shall occur:
(A)      all outstanding stock options, stock appreciation rights, restricted stock units and other equity awards issued under any Stock Plan and held by the Executive (other than any Bonus Equity) shall immediately become vested and exercisable or distributable in full; and
(B)      all restrictions applicable to restricted stock issued under any Stock Plan and held by the Executive (other than any Bonus Equity) shall immediately lapse.
(v)      Make-Up Payment . Effective upon a Change in Control Termination under Section 1(e)(iii), the Company shall pay the Executive in a lump sum the amount equal to the sum of:
(x)    the excess, if any, of (A) the product of (1) the number of additional shares of the Company’s Common Stock that either were subject to options, stock appreciation rights or other awards that would have become vested and exercisable and/or were restricted stock or restricted stock units as to which the restrictions would have lapsed, in each case solely as a result of Section 3(c)(i), and for which the Executive would have been entitled to receive consideration in the Change in Control (on the same basis as other holders of Common Stock), had the Executive remained employed on the date of the Change in Control and was deemed to have exercised all the stock options that would then have become exercisable under Section 3(c)(i)(A) times (2) the amount per share of the Company’s Common Stock (if any) received by the Company’s stockholders generally pursuant to the Change in Control (the “Shareholder Price”) over (B) the aggregate exercise price of all such additional stock options that the Executive would then have become able to exercise upon the Change in Control as a result of Section 3(c)(i)(A) (whereupon all such stock options, stock appreciation rights, and other awards shall terminate and shall no longer be exercisable); and
(y) the excess, if any, of (A) the product of (1) the number of shares of the Company’s Common Stock that the Executive (a) held on the date of termination of his employment or acquired upon exercise of stock options held on such date and (b) sold before the consummation of the Change in Control (the “Pre-Sold Shares”) times (2) the Shareholder Price over (B) the aggregate amount received by the Executive in the sale(s) of the Pre-Sold Shares.
The Company shall pay this lump sum payment within forty-five (45) days following the Executive’s termination date.
(vi)      Salary, Bonus and Benefits . Effective upon a Change in Control Termination, the Executive shall be entitled to the following:
(A)      a lump sum payment in an amount equal to one times his base salary plus his target bonus, such salary to be the highest annual salary (excluding any bonuses) in effect with respect to the Executive during the six-month period immediately preceding the Executive’s termination and such target bonus to be the highest target bonus in effect with respect to the Executive for (1) the fiscal year in which the Change in Control occurs, (2) the fiscal year following the year in which the Change in Control occurs, or (3) the fiscal year in which the Change in Control Termination occurs, whichever is highest, payable within forty-five (45) days after the termination date; and
(B)      continued participation in the Benefit Plans, subject to the terms and conditions of the respective plans and applicable law, for a period of one year following the termination date; provided that, to the extent that any of the Benefit Plans does not permit such continuation of the Executive’s participation following his termination or any such plan is terminated, the Company shall pay the Executive an amount which is sufficient for him to purchase equivalent benefits, such amount to be paid quarterly in advance; provided, further, however, that to the extent the Executive becomes eligible to receive medical, dental, vision and/or basic life insurance benefits under a plan provided by another employer, the Executive’s entitlement to participate in the corresponding Benefit Plans or to receive such corresponding alternate payments shall cease as of the date the Executive is eligible to participate in such other plan, and the Executive shall promptly notify the Company of his eligibility under such plan.
(iv)    Payments and benefits under this Section 3(c) shall be in lieu and without duplication of any amounts or benefits under Section 2, and the Executive shall be entitled to any such payments and benefits for no more than one year even if both such sections apply. If, in the event of a Change in Control Termination under Section 1(c)(iii), the Executive becomes entitled to payments under this Section 3(c) after he has begun to receive payments under Section 2, he shall be entitled to a make-up payment to ensure that he receives the higher amount payable hereunder, with such make-up payment being made within forty-five (45) days following the Change in Control Termination.
(d)     Deemed Amendment of Equity Awards . The Company and the Executive hereby agree that the agreements evidencing any equity awards to the Executive are hereby and will be deemed amended to give effect to the provisions of Sections 3 and 4 of this Agreement.
4.      Death or Disability.
Effective upon termination of the Executive’s employment due to his death or by the Company due to his Disability, the following shall occur:
(a)      all performance criteria applicable to any stock options, stock appreciation rights, restricted stock units, restricted stock or other equity awards issued under any Stock Plan and held by the Executive shall be deemed to have been met in full;
(b)      all outstanding stock options, stock appreciation rights, restricted stock units and other equity awards issued under any Stock Plan shall immediately become vested and exercisable or distributable in full; and
(c)      all restrictions applicable to restricted stock issued under any Stock Plan and held by the Executive shall immediately lapse;
(d)      provided that this Section 4 shall not apply to any Bonus Equity.
5.      Certain Payments to Specified Employees.
Notwithstanding anything to the contrary in this Agreement, if the Executive is a “specified employee” within the meaning of Code Section 409A(a)(2)(B)(i) at the time of the Executive’s separation from service with the Company (in connection with a Change in Control Termination or otherwise), no payment or benefit payable or provided to the Executive pursuant to this Agreement that constitutes an item of deferred compensation under Code Section 409A and becomes payable by reason of the Executive’s termination of employment with the Company will be paid or provided to the Executive prior to the earlier of (i) the expiration of the six (6) month period following the date of the Executive’s “separation from service” (as such term is defined by Code Section 409A and the regulations promulgated thereunder), or (ii) the date of the Executive’s death, but only to the extent such delayed commencement is otherwise required in order to avoid a prohibited distribution under Code Section 409A(a)(2). The payments and benefits to which the Executive would otherwise be entitled during the first six (6) months following his separation from service shall be accumulated and paid or provided, as applicable, in a lump sum, on the date that is six (6) months and one day following the Executive’s separation from service (or if such date does not fall on a business day of the Company, the next following business day) and any remaining payments or benefits will be paid in accordance with the normal payment dates specified for them herein.
6.      Taxes.
(a)      Withholding . All payments to be made to the Executive under this Agreement will be subject to any required withholding of federal, state and local income and employment taxes. In addition, the Company may withhold from any payments hereunder any amounts attributable to withholding taxes applicable to the vesting of or lapse of restrictions on restricted stock or restricted stock units held by the Executive or the exercise of any nonqualified stock options held by the Executive, including, in its discretion withholding from any shares deliverable to the Executive such number of shares as the Company determines is necessary to satisfy such tax obligations, valued at their fair market value (determined pursuant to the respective Company equity compensation plan) as of the date of such vesting or lapse of restrictions.
(b)      Limitations on Payments .
(i)    If it is determined that any payment, benefit or distribution provided for in this Agreement or otherwise (for the purposes of this Section 6(b), each, a “Payment” and collectively, the “Payments”) from the Company to or for the benefit of the Executive (x) constitutes a “parachute payment” within the meaning of Section 280G of the Code and (y) but for this subsection (b), would be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), such Payments shall be either:

(A) delivered in full, or
(B) delivered to such lesser extent that would result in no portion of the Payments being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by the Executive on an after tax basis, of the greatest amount of Payments, notwithstanding that all or some portion of the Payments may be taxable under Section 4999 of the Code. Unless the Company and Executive otherwise agree in writing, any determination required under this Section 6(b)(i) shall be made in writing in good faith by an independent accounting firm selected by the Company, whose determinations shall be binding upon the Company and the Executive (the “Accountants”), in good faith consultation with the Executive.
(ii)    In the event a reduction in the Payments is required hereunder, the Company shall promptly give the Executive notice to that effect and the Executive may then determine, in his sole discretion, which and how much of the Payments shall be eliminated or reduced (as long as, after such election, none of the Payments are subject to the Excise Tax), and shall advise the Company in writing of his election within ten (10) days of his receipt of the Company’s notice. If no such election is made by the Executive within such period, the Company may determine which and how much of the Payments shall be eliminated or reduced (as long as, after such determination, none of the Payments are subject to the Excise Tax) and shall notify the Executive promptly of such determination.
(iii)    For purposes of making the calculations required by this Section 6(b), the Accountants may make reasonable assumptions and approximations concerning the application taxes and may rely on reasonable good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Executive shall furnish to the Accountants such information and documents as the Accountants may reasonable request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 6(b).
(iv)    If the Payments are reduced to avoid the Excise Tax pursuant to Section 6(b)(i) hereof and notwithstanding such reduction, the IRS determines that the Executive is liable for the Excise Tax as a result of the receipt of Payments from the Company, then the Executive shall be obligated to pay to the Company (the “Repayment Obligation”) an amount of money equal to the “Repayment Amount.” The Repayment Amount shall be the smallest such amount, if any, as shall be required to be paid to the Company so that the Executive’s net proceeds with respect to the Payments (after taking into account the payment of the Excise Tax imposed on such benefits) shall be maximized. Notwithstanding the foregoing, the Repayment Amount shall be zero if a Repayment Amount of more than zero would not eliminate the Excise Tax in accordance with the principles of Section 6(b)(i). If the Excise Tax is not eliminated through the performance of the Repayment Obligation, the Executive shall pay the Excise Tax. The Repayment Obligation shall be discharged within 30 days of either (A) the Executive’s entering into a binding agreement with the IRS as to the amount of Excise Tax liability, or (B) a final determination by the IRS or a court decision requiring the Executive to pay the Excise Tax from which no appeal is available or is timely taken.

7.      Term.
Unless the Executive’s employment is earlier terminated, this Agreement shall continue in effect until 11:59 p.m. on September 30, 2014 and shall automatically renew thereafter on an annual basis for additional twelve-month terms unless either party provides written notice to the other party of non-renewal at least ninety (90) days prior to the expiration of the then current term. If a Change in Control occurs while this Agreement is in effect, the term of this Agreement shall automatically be extended to the second anniversary of the Change in Control. Upon the termination of this Agreement, the respective rights and obligations of the parties shall survive to the extent necessary to carry out the intentions of the parties as embodied herein.
8.      Successors and Assigns.
(a)      This Agreement is personal to the Executive and is not assignable by the Executive, other than by will or the laws of descent and distribution, without the prior written consent of the Company.
(b)      This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
(c)      The Company will require any successor or acquirer (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as defined above and any successor to or acquirer of its business and/or assets that assumes and agrees to perform this Agreement.
9.      No Duty to Mitigate.
In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, except as contemplated by Sections 2(b) and 3(c)(iii)(B)hereof, any benefits payable to the Executive hereunder shall not be subject to reduction for any compensation received from other employment.
10.      Conditions to Payment of Severance.
Notwithstanding any other provision of this Agreement, the Executive’s entitlement to receive any of the payments and other benefits contemplated by Sections 2, 3 or 4 (with respect to Disability) hereof shall be contingent upon:
(a)      execution by the Executive within forty-five (45) days of the termination of a general release in substantially the form of Appendix A hereto (such applicable form depending on my age at the time of termination, the “Release”), which has not subsequently been revoked, and the Executive hereby acknowledges and agrees that the Company’s entering into this Agreement and agreement to make such payments are and shall be good and sufficient consideration for such Release; and
(b)      the Executive’s continued compliance with the material terms of this Agreement, as applicable, and those of his Non-Disclosure, Non-Competition and Invention Agreement with the Company.
11.      Miscellaneous.
(a)      Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, except any such laws that would render such choice of law ineffective.
(b)      Compliance with Section 409A . This Agreement is intended, to the extent applicable, to constitute good faith compliance with the requirements of Section 409A of the Code. The Company and the Executive agree that they shall cooperate in good faith to amend any provision hereof to the extent required to maintain compliance with the provisions of Section 409A of the Code as they may be modified hereafter (including by subsequent regulations or other guidance of the Internal Revenue Service).
(c)      Amendment . This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
(d)      Partial Invalidity . If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions will nevertheless continue in full force without being impaired or invalidated in any way.
(e)      Entire Agreement; Effect of Current Agreement . This Agreement constitutes the entire understanding and agreement between the parties hereto with regard to the compensation and benefits payable to the Executive in the respective circumstances described herein, superseding all prior understandings and agreements, whether oral or written.
(f)      Expenses . The Company agrees to pay as incurred and within twenty (20) days after submission of supporting documentation, to the full extent permitted by law, all legal fees and expenses the Executive may reasonably incur as a result of any contest by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement) with respect to which the Executive is successful on the merits, plus, in each case, interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. The Company’s payment of any eligible expenses must be made no later than December 31 of the year after the year in which the expense was incurred.
(g)      Notices . All notices and other communications hereunder shall be in writing and shall be delivered by hand delivery, by a reputable overnight courier service, or by registered or certified mail, return receipt requested, postage prepaid. Notice to the Executive shall be addressed to the Executive at his last address contained in the records of the Company, and notice to the Company shall be addressed to:
PTC Inc.
140 Kendrick Street
Needham, MA 02494
Attention: General Counsel
Notice shall be addressed to such other address as either party shall have furnished to the other in writing in accordance herewith. Any notice or communication shall be deemed to be delivered upon the date of hand delivery, one day following delivery to an overnight courier service, or three days following mailing by registered or certified mail.

EXECUTED as of the date first written above.
PTC INC.


By:     /s/ James Heppelmann          
Title:     President and Chief Executive Officer    
MATTHEW COHEN


   /s/ Matthew Cohen





EXHIBIT 31.1
CERTIFICATION
I, James Heppelmann, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PTC Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
 
 
 
 
 
 
 
 
 
 
Date:
May 6, 2014
 
 
 
/S/ JAMES HEPPELMANN
 
 
 
 
 
James Heppelmann
 
 
 
 
 
President and Chief Executive Officer






EXHIBIT 31.2
CERTIFICATION
I, Jeffrey Glidden, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PTC Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
 
 
 
 
 
 
 
 
 
 
Date:
May 6, 2014
 
 
 
/S/ JEFFREY GLIDDEN
 
 
 
 
 
Jeffrey Glidden
 
 
 
 
 
Executive Vice President and Chief Financial Officer






EXHIBIT 32
Certification of Periodic Financial Report
Pursuant to 18 U.S.C. Section 1350
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of PTC Inc. (the “Company”) certifies that, to his knowledge, the Quarterly Report on Form 10-Q of the Company for the quarter ended March 29, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
 
 
 
 
 
 
 
 
 
Date:
May 6, 2014
 
 
 
/S/ JAMES HEPPELMANN
 
 
 
 
 
James Heppelmann
President and Chief Executive Officer
 
 
 
 
 
 
Date:
May 6, 2014
 
 
 
/S/ JEFFREY GLIDDEN
 
 
 
 
 
Jeffrey Glidden
 
 
 
 
 
Executive Vice President and Chief Financial Officer